Written by Jonathan Vance, CFP®, EA
Throughout my website, you’ll see me use the terms “retirement planner” and “retirement planning”. If you’re like me, the word “retirement” carries two distinct visions when I read it.
On one hand, there’s the excitement of total freedom. Without a set work schedule, retirement days may be filled with more family time, traveling, volunteering, or doing whatever else makes us happy.
On the other hand, the word retirement can be an unfriendly reminder of aging. It’s much less fun to think about words like “Medicare” or the classic Life Alert commercials.
In my experience working with clients, the first vision carries more weight. While we can't avoid getting older, retirement isn't just about "rocking chair" days. If you retire in your early 60s and live to be 90, you will spend approximately one-third of your life as a retiree. That’s right, it can easily make up a time longer than your entire childhood and college education years combined.
Since retirement can make up a meaningful portion of our lives and most Americans at least partially rely on personal savings to fund it, many CFP® Professionals (like myself) focus their practice on helping people prepare for and navigate the transition into retirement.
The purpose of this blog post is to provide an overview of how retirement planners can help.
One of the key functions that retirement planners play is giving advice on how your retirement savings should be invested. You’ve likely heard that your investment strategy should change as you move from your “accumulation” years when you’re younger and approach your “distribution” years when you retire.
I concur. Here’s how that lifecycle usually looks in practice:
In addition to recommending an investment allocation, retirement planners may offer investment management services in order to handle the “tasks” of managing an investment portfolio during your distribution phase.
I’m not talking about picking stocks or trying to actively buy and sell depending on what you think the market is going to do. As a matter of fact, research suggests that you’ll likely be worse off if you try to do those things.
But things like rebalancing your portfolio, making sure you have cash available for monthly income, and adhering to a household tax plan do require some manual attention. Some people like handling these tasks on their own, others prefer to hire someone to do it for them.
The good news is that there’s plenty of options out there. Some retirement planners work strictly on an “advice only” basis and don’t manage investments, some will only provide service if they can manage your investments. My practice currently offers either option to clients.
One common myth is that your income needs stay exactly the same once you stop working. People often assume that if they earned a certain salary on payroll, they must replace that full gross amount to maintain their lifestyle. That is rarely the case.
When we strip away some of the costs that are unique to working years, your true “retirement spending need" is unlikely to be 100% of your pre-retirement salary.
To see why, let’s look at an example using John and Mary Sample, who earn $150,000 per year combined. Here are some working year costs that may not apply for all of their retirement:
For this couple, their first 7 years of retirement require about $123,525 to maintain their exact same lifestyle. By year 8, that drops to $104,325. That means they only need to replace about 82% of their gross working income for the first few years of retirement, and only 70% after they get to the 8th year.
I’m ignoring inflation & income taxes for the sake of simplicity, but we can see how maintaining the same spending habits does not equate to needing the same level of income. We’ll introduce planning for retirement taxes in the next section.
In practice, taxes in retirement also play a considerable role in our spending needs equation above.
Using John and Mary’s example, their $150,000 salary in 2025 results in a federal tax bill of approximately $12,600 if they take the standard deduction and contribute 10% of salary to tax deferred accounts.
In retirement, depending on how we structure their withdrawals, that tax bill could drop to $0 or it could spike higher than $12,600. There are cases where a retirement planner might recommend either side of that spectrum and it could be in your best interest.
Believe it or not, paying $0 of tax in a given year may not be a prudent decision. When planning for taxes over a long period of time like a 30-year retirement, it’s important to understand that we’re usually trying to minimize the tax paid over the full time period, not necessarily the amount of tax paid this year.
In order to piece together the tax strategy puzzle for your situation, we need to start with a series of questions, such as:
As these questions get answered, the picture begins to become clearer on what may be an appropriate long term tax strategy. Keep in mind that a married couple with identical financial resources might have different recommendations when it comes to something like annual Roth conversions simply because they are different ages or have different charitable wishes.
When articles, financial professionals, or even friends and family suggest that you partake in a particular tax planning tactic without first understanding your context, you should politely decline until you’ve checked that it makes sense for you.
Though tax strategy alone is unlikely to derail your retirement plans, it’s important to understand that it may make a difference in how much you’re able to spend during retirement or how much you leave behind to beneficiaries.
Most of us know that it’s generally prudent to have things like beneficiary designations, wills, and (if applicable) a trust in place to help guide the transfer of assets when someone passes away.
During the retirement phase of life, some estate planning considerations begin to have an elevated level of importance.
For example, designating a power of attorney to make financial decisions on your behalf may be appropriate at any age, but it’s arguably more so when you reach an age where you’re statistically more likely to have cognitive decline.
Risks in retirement are often open-ended. Everyone has a different emotional risk tolerance, but a retirement planner should help you proactively address the "what ifs" before they arise:
Risk management and estate planning are the least fun subjects to actually think about, which is why I’ve saved them for the end here. But once fears are faced and you put a plan into place to mitigate risks, plan for death or incapacity, and address the “what ifs”, it can be very emotionally freeing.
It’s just a matter of choosing to go down that path instead of avoiding it.
Before concluding, I think it’s important to understand how retirement planners are compensated.
Many financial professionals are strictly paid via commissions from product sales. Imagine you go to a consultant who offers “free advice” but only gets paid if you buy a specific financial product. It’s easy to see how that creates a natural conflict of interest in the “free advice” not really being advice at all, but rather a step in the company’s sales process.
In contrast, fee-only planners are solely compensated by transparent fees, similar to how you’d expect to pay for an accountant or an attorney.
When searching for a partner to recommend financial solutions, don’t be afraid to ask these two questions upfront:
When you partner with a fee-only planner, the answer to the first question is always no.
While the specific cost in the second question varies by firm, the total transparency of a fee-only model allows you to compare costs between firms and choose what you believe is a fair price.
To wrap this up, I have a brief exercise that anyone can do to think like a retirement planner. For the sake of this exercise, let’s only focus on the “fun” parts of retirement, like additional freedom, travel, generosity, or whatever fits your personal definition.
If you’re looking for more resources, I’m happy to share my favorite books or websites on retirement planning, just send me an email at jonathan@vancefp.com. You can also bookmark my blog for periodic updates on tax strategies, retirement planning, and life here in the Ozarks.
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