Stop Procrastinating — start being P.R.O.A.C.T.I.V.E about your Retirement

November 9, 2018

Baby Boomers are retiring in droves these days. Many of them are unprepared to deal with this new phase in life.

As with anything in life things don’t happen overnight. You don’t suddenly become financially literate at the age of 60 or 65. A successful retirement requires lots of preparation — financial as well as non-financial.

It is never too late to start thinking about this next phase in life, but the longer our runway the better. Where do you want to be in 2020?

In working with clients, we use our P.R.O.A.C.T.I.V.E methodology to get the process going. Is this some fancy algorithm? Not at all. It is more of a tool to get people from the planning to the doing phase.


A good plan is customized to your needs and requirements but it starts with an overview of who you are — age, career stage, marital status, children, health and family structure. What is your lifestyle and what type of lifestyle do you want in the future?

What are your big dreams and aspirations, interests and hobbies? How in sync are you with your spouse/partner? How do you want to spend your time in retirement? How do you feel about life in general?

Risk Profile:

Everybody feels differently about life’s uncertainties. In terms of your financial situation, how much investment risk can you afford to take given your short-term cash flow needs? How much wealth do you have relative to your financial commitments?

Are you comfortable taking more risk in order to make more money, or are you content where you are financially and don’t want to push your luck? If a shortfall were to occur would you be able to recover? Do you have time to recover?


What are your minimum financial objectives meaning what does your bare minimum lifestyle look like? In terms of discretionary goals, what other things are you looking forward to? Maybe a second home in Tulum or Sarasota to enjoy the winters, paying for your grandchildren’s college, helping your down on her luck younger sister, or buying a boat to tour the Caribbean?

Beyond your own personal goals, do you and your spouse/partner have any financial goals related to some special causes that you feel especially drawn to? Do you have a desire to leave a financial legacy to your heirs?


Your assets are what allow you to bridge the gap between your sources of income and your ongoing expenses. The difference needs to come from either selling some of your assets or having your assets yield a rate of return that is sufficient to close the gap.

Understanding what you own and how much each item is really worth is the first step. As we mentioned before you must take into account the net value after you pay relevant taxes and transaction fees. You should include the value of assets that you do not plan on selling such as maybe your primary home. The goal is to get a realistic assessment of what you own.

Of equal importance is tallying up how much you owe — mortgages, car loans, credit cards, etc. Include any long-term financial commitments that you have made.

Hopefully, by the time you retire your debt is minimal in relation to your assets. The difference between your assets and your financial commitments or debt is your net worth. Your net worth is what allows you use of your resources to generate an income in retirement.

Cash Flow:

The sum of all your sources of recurring income minus your expected expenditures is your cash flow. Sources of income could include pension payments, social security, and if you still work, wages. In terms of expenditures, it is useful to separate them into essential and discretionary. It is also useful to anticipate expenditures that may not happen on a recurring basis but that you anticipate making in the near term.

Managing your cash flow is probably the biggest challenge in retirement. The loss of a steady paycheck to make up for any temporary unexpected expenses (your car needs a new engine or your furnace just blew up) is a significant blow. Having enough assets can make up for any shortfall as can a “replacement” paycheck from a new venture that you might have started after you left your primary career.

Taxes and Tradeoffs:

Taxes never go away even after you stop receiving a paycheck. Often times you can pay taxes now or later and you have legal choices as to the timing. For example in the US, you could take your Traditional IRA and convert it to a Roth IRA by paying taxes now. Or you could simply continue with your Traditional IRA and when you take distributions you pay taxes on what you take out.

A lot of people believe that you no longer need to pay taxes once you retire. The truth is quite different and it depends on where you reside. In the US, for example, some states tax Social Security benefits and others don’t. In some states such as Florida, Washington, and Texas there is no state income tax. A safe assumption is that you still need to pay taxes on many of your sources of income in retirement as well as when you sell some of your assets. For wealthy individuals, you also need to think about estate taxes.

In many cases, taxes can be deferred or postponed for a period of time. What you can do is legally manage when you pay your taxes by taking advantage of where your “retirement” paycheck is drawn from. You can also optimally match up sources of gains with losses to minimize your overall lifetime tax bill.

Tradeoffs refer to the often conflicting goals that we all have between consumption today versus later. We all have multiple goals that at times compete with each other. Couples/partners often have conflicting goals and different priorities in life. Other times, a couple may agree on their overall goals but not on what they individually deem as most important.

Establishing a rough understanding as what tradeoffs you are making is important in terms of arriving at a retirement income plan that is acceptable to all people involved.


A plan is only as good as what you do with it. If your plan calls for a conservative investing style and your portfolio is still reflective of your high paying career then no amount of planning will be adequate if capital markets go through a correction. Similarly, if the optimal strategy was to convert a Traditional IRA to a Roth structure and you ignored this advice in the long-term it is highly likely that your overall tax bill will be higher.

Your retirement income plan is not static. Either you need to manage it or you need to outsource responsibility to a trusted financial advisor. Your circumstances will invariably change over time. Your cash flow will change, you will have unexpected needs that come up and capital markets will certainly fluctuate over time.

In some cases, things will move in your favor as when you sell your second home in a rapidly appreciating real estate market or when your stock portfolio experienced much higher than normal returns. Maybe given this stroke of good luck you and your spouse/partner decide to splurge a bit and spend some of the windfall on a long trip to Italy or Bali.

Other times, the cookie crumbles the other way and you are suddenly facing a tougher situation. What if you were anticipating selling an investment property and use some of the proceeds to fund your living expenses for the next year, but the market has suddenly dried up? Now you have to figure out what other assets to tap and to do so in a tax-friendly way.

Another key implementation decision if you live in the US is when to take social security benefits. Your life circumstances may have changed and your previous plan of drawing benefits at age 62 may no longer be optimal.

Value Creation:

For most people, it is important to keep their money working for them. The strategies and tactics used to grow your capital should be based on time-tested concepts and practices but unfortunately, capital market conditions fluctuate over time.

There is, unfortunately, no investment strategy that works across all market conditions and market cycles. For example, deriving investment income is often a top priority of retirees, but figuring out where in the markets one can efficiently capture yield can change drastically. Sometimes CD’s are the best place, other times it is REITS, and sometimes it is plain old US Treasuries.

Yet another way to create value is to take advantage of temporary dislocations in the markets. For example, when equity investors as a group get nervous they tend to sell indiscriminately sell their portfolio holdings. Maybe they are throwing out the baby with the bathwater and some hidden gems can be picked up by investors willing to dig a bit deeper into understanding the specific fundamentals of the situation.

Another avenue for value creation is tax optimization. Offsetting winning investment positions with losing positions occurring in the same calendar year is usually a good way to minimize your overall tax burden. A systematic program of harvesting winners and losers has the potential of leaving more money in your pocket.

Earnings Growth:

When people retire the biggest loss financially is no longer having a steady paycheck. You go from accumulating assets to having to use those assets to partially fund your lifestyle. Some people have a defined benefit plan or rely on other sources of income such as Social Security Benefits but in most cases, there is still a gap between what you are bringing in and what is going out in the form of living expenses.

The gap is what needs to be funded from either asset sales or preferably investment returns derived from your portfolio of financial assets. The portion of the gap coming from investment returns is what people frequently refer to as your ”retirement paycheck”. The task at hand is to make sure that this retirement paycheck keeps coming over time and the paycheck adjusts to the inevitable rise in the cost of living.

Becoming too cautious in retirement and not asking your money to work for you (i.e., invest wisely) results in a loss in purchasing power not initially felt in the short term but seriously detrimental to your financial security in the long-run. Inflation is like paying interest on a loan you did not take out. The goal at a minimum should be for all retirees to grow their “retirement paycheck” at more than the rate of inflation.

The best time to plant a tree was 20 years ago. The next best time is today.

– Old Chinese Proverb


If you are looking for additional perspectives to guide you as you formulate your vision check out our Retirement Wealth Checklist.


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About the author

Eric Weigel

My goal is sharing my experience as an investment manager, certified retirement coach, and fellow Baby Boomer to enable people to design the life they want and that matters to them in their next phase in life. We all want to live longer, but we also want to lead a life of meaning, joy, and fulfillment.