On February 23, I had a second meeting with a couple nearing retirement. One spouse, whom I will call Sarah, is retiring the end of April.

It was another brutally cold February evening. We were finally meeting again after two major snowstorms had postponed our second meeting.

We began our initial meeting on December 29 by talking about Sarah’s retirement concerns.

 #1 CONCERN:  You may have guessed it already…Sarah is retiring at age 62 and will not have a steady paycheck for the first time in many years. She's concerned about being able to maintain her standard of living. The uncertainty is creating anxiety and keeping Sarah up at night lately.

GOAL:  Create a steady income at 70-80% of her current net salary.
Sarah and her husband agreed to a financial planning engagement after our initial meeting that included an analysis of their budget, liabilities, Sarah’s retirement income plan, and their investment portfolio. Her husband, whom I will call Bob, is retiring in 2017 at age 64. Bob has a six-figure income, and when he retires, he will earn about 75% of his final pay. Bob is one of the few retirees today who has a guaranteed pension that includes health care coverage. Besides a few small student loans from their son and daughter’s education, they only have $35,000 remaining on their mortgage. 

So, you might be asking, what’s the issue? Change of any kind is unsettling, and retirement is a significant life transition. Sarah has a case of pre-retirement anxiety. It’s well founded in reality as she’s unsure about:
•    Which pension option out of five choices to take — she has small defined benefit plan
•    ESOP options
•   401k options — where, how, and if to roll over the balance
•   Social Security — Sarah filed for Social Security in November to have some form of an income
•   Student loans from her son and daughter’s college education are still being paid — Sarah is concerned about meeting their cash-flow needs

SOLUTION:  At the core of Sarah’s anxiety, like many pre-retirees, is fear…the fear of making the wrong decisions with all the above options and not having a steady paycheck. And like many couples, Sarah and Bob have been too busy with life to address Sarah’s retirement planning needs. Fear, as we know, stems from a lack of knowledge, confidence, and trust. Sarah and Bob have worked with a few advisors over the years. However, their advisors were not Certified Financial Planners nor interested in completing a formal “cash flow-based” financial plan. Note: Many advisors use “goals-based” planning software - it’s takes less time and expertise.

I analyzed their budget and learned that $700 of their $1,200 monthly student loan payment would be paid off in two months. The remaining student loan balance at an 8% APR is only $8,000. After analyzing their current investment portfolio, I suggested rebalancing in line with Sarah's current risk profile and retirement income goal. Next, I suggested selling a Rochester NY municipal bond holding (a great time to sell as it holds Puerto Rico bonds) to pay off the remaining student loan balance, solving an immediate retirement cash-flow concern. Further, the muni bond sale will generate minimal capital gains. We addressed all of the above bullet points and created five actionable steps for Sarah's pre-retirement meeting with her company HR department.

I also suggested consolidating existing IRA's and other investment accounts with Cambridge to implement Sarah's immediate retirement income plan. Sarah and Bob agreed with my recommendations — they have accounts in many different places.

I will be setting up a monthly electronic funds transfer (EFT) into Sarah's bank account from an existing annuity and one of her smaller IRAs (another tax-advantaged strategy). Sarah's perceived need to generate 70% of her income is no longer necessary as $1,200 of debt payments will be paid off over the next 60 days. Once the EFT plan and her defined benefit plan payment are implemented, Sarah can suspend her Social Security and wait until age 64 to file for her benefit.

At the end of our meeting, Sarah smiled and looked as if a huge burden had just been lifted from her life. She said, “I've been worrying about my retirement income — I should be able to sleep much better now.” I had helped Sarah cure her pre-retirement anxiety by defining a clear, practical retirement income strategy.

Please stop by again. Ill share with you the solution I designed for Sarah and Bob’s Social Security strategy…it will surprise many of you!