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Some people worry that they won’t have enough to do in retirement. Not Dick and Gayle Wells. One of their biggest challenges since moving to the mountains of Colorado isn’t fighting boredom; it’s been finding enough time for everything on their “bucket” list.
The Wellses are the kind of retirees most of us hope to be. They’re fit, active and financially secure, thanks to a zest for planning ahead and a lifelong habit of disciplined saving.
Lessons Learned Early
“Both Gayle and I were fortunate to have good role models in our parents, who instilled in us the importance of saving early and often,” said Dick Wells. “We took those lessons into our marriage, setting up a budget that helped us not only to track our spending, but also to make decisions based on ‘needs’ versus ‘wants.’”
The Wellses also took advantage of whatever retirement plans were available throughout their careers. “After serving two years in the Navy Dental Corps, I began to practice and started putting aside savings and making some small investments. While teaching Dentistry I also used a university faculty IRA to set aside funds for retirement each year. Gayle did the same when she took a job at a local university. Putting our retirement savings on ‘autopilot’ helped us to make steady progress toward our retirement goals,” said Wells.
Taking the Next Step
When the Welles’ two children graduated from college, they recognized that it was time to focus more concretely on the future and how they were going to turn their investments into retirement income. They had a long-standing relationship with Northwestern Mutual and decided to work with the company to create a financial plan to get them through retirement. They worked with Christina Collins, a wealth management advisor in Chicago.
“Creating a retirement income plan isn’t as simple as just beginning to withdraw the money you have saved over your lifetime,” said Collins. “There are a lot of complex variables to consider, such as how much you need to fund the lifestyle you want, how to best structure income payments from Social Security and pensions, how much you can safely withdraw without worrying about running out of money, and what your in-retirement asset allocation should look like. Add in the need to do all this in the most tax-efficient way possible, and it’s no wonder so many retirees worry about their future.”
Collins began by encouraging the Wellses to focus first on their transition to retirement. That meant helping them both to clearly articulate their unique vision for the future and how they hoped to spend their days. “Having a clear vision for retirement is crucial,” said Collins. “Setting new goals prior to retirement can help you manage the stress that often comes with ending a lifetime of work. By thinking through your vision, you’re also able to build a financial plan to match it.” Collins works with clients to build an initial plan. But then it’s important to revisit that plan. “I build plans so that when theory becomes reality we can adapt. A plan needs quite a lot of flexibility on the front end,” Collins said.
For the Wellses this plan meant moving to a small town in the Rockies, where they’d have access to all the outdoor activities they wanted. “The decision to move to Colorado was life changing because it put everything else into perspective,” said Gayle Wells. “Once we identified the kind of life we wanted, Christina was then able help us to translate it into dollars and cents. Suddenly, our dream became real.”
A Plan to Take the Worry Out Of Spending
According to Collins, having a spending plan in retirement requires a shift in how you think about your money. “It can be unsettling to watch your savings going down every year,” said Collins. “That’s why it’s crucial to find a balance between spending too much and being unnecessarily frugal with your nest egg. Having a formal plan for tapping their various sources of retirement income gave them added confidence to set spending benchmarks, including a withdrawal rate that could sustain them over a long period of time.”
One of the most important suggestions Collins offered Dick and Gayle was to think about putting their money into buckets. The first bucket covers fixed income that’s guaranteed to last for the Welles’ lifetime.
The second bucket represents their short-term needs for the first few years of retirement. This money will be stable and liquid. The third bucket represents money set aside for later in retirement, the fourth year and beyond. The money in the third bucket will provide them with flexibility as they revisit their plan.
Keep Your Eye on Taxes
According to Collins, taxes also play a critical role in the retirement income planning process. This is because investment earnings from after-tax accounts and distributions from retirement accounts are taxed differently. Tax efficiency is also important to estate planning because different types of investment have different income tax consequences to the beneficiaries of an estate.
For this reason, Collins helped Dick and Gayle develop a tax-smart retirement income strategy that gives them flexibility to draw income from different sources depending on their tax situation and changes in their overall needs and goals. “Adding tax diversification to their retirement income strategy has helped extend the Wellses’ portfolio, making an impact on their investment returns, available cash flow and savings,” explained Collins.
Finding New Passions and Purpose
With their financial plan in place, the Wellses have been able to spend their first years in retirement enjoying life and finding new challenges. “In addition to serving as trail rangers for the Forest Service, Dick and I volunteer at a local ski company,” said Gayle Wells. “In exchange for our time, we get free ski passes for the season. It turns out to be a great deal. Dick typically downhill skis 80 days a season; I ski 30 days a season, typically on the cross-country trails.”
Dick and Gayle Wells have been fully retired for several years now and say they’ve loved every day of it. “We camp, hike, ski, and enjoy the gorgeous natural setting around us,” said Dick. “We don’t live large but we are quite comfortable. We take a few trips each year, visit with our children, and help put aside some savings for our grandkids’ education. We have years of saving and Christina’s careful guidance to thank for this. Together, they’ve made a meaningful difference in our lives.”
Christina Collins is an Insurance Agent of NM and a Representative of Northwestern Mutual Wealth Management Company, a subsidiary of NM and limited purpose federal savings bank.
The Northwestern MutualVoice Team is a group of professionals who share insights and opinions from experts and industry leaders across the enterprise. Our vision is to inspire others to take action and plan for their financial future through topics ranging from financial planning, retirement planning and distribution strategies, wealth accumulation and preservation, to leadership, philanthropy and innovation.
