This post comes to us from Dave Fernandez, a Financial Advisor in Scottsdale, Arizona. He shares his thoughts on how a financial planner can help you plan for a successful retirement via the retirement planning process.

As a Certified Financial Planner, one of the most rewarding aspects of my job is helping my clients plan for and transition to a successful retirement. I work with clients from a wide range of personal and professional backgrounds such as: corporate executives, real estate agents, widows and widowers, teachers, engineers, CEOs, professors, policemen, divorcees, TV directors, business owners, therapists, doctors, executive administrators, lawyers, nurses and retirees (or as some would like to be known, “semi-professional golfers”). They each have a unique set of dreams, personal goals, and financial situations. As diverse as my client base is and regardless of their age, they all share one common characteristic: they would like to be able to retire with confidence and continue living the lifestyle they are accustomed to.

For some clients, the transition can be very smooth and for others, it can be a challenge. For a vast majority of my clients, their portfolio was accumulated over decades. They accomplished this by living beneath their means and continuing to save and invest over a long period of time. As the wealth accumulated over many decades, my clients gained confidence and financial security. Now at retirement, some clients struggle with the idea of having to start drawing down from their portfolio after a lifetime of building it up. In addition, some clients have concerns about not only drawing down from their accumulated wealth but also how to coordinate it with their other retirement income they may be entitled to such as Social Security, pensions and deferred compensation. Whether you are still working or retired, a fee-only financial advisor can add great value and peace of mind through Retirement Planning. Every financial planner has their own unique process, but let me show you the key components from a big picture point of view many of the areas that fall under the umbrella of what I would call “Retirement Planning.”

Retirement Projections for Pre and Post Retirement Planning

 Whether you are planning to retire or already retired, one way to analyze your financial situation is to take a deep dive into the details via a Retirement Projection. This involves a detailed look at your short and long-term financial goals. This will include putting some numbers together as to what your financial needs are now and how they may look in retirement. Some of the issues and questions your financial planner will usually review with you include:

  • What are your annual expenses?
  • How much do you expect to pay for healthcare prior to retirement and in retirement?
  • How often do you buy a car and how much do you typically spend?
  • Do you expect to travel? If so, how often and what amount do you typically spend on vacation?
  • If you have minor children, are you saving for college, how much, and what type of university do you expect them to attend?
  • If you are still working, how much are you saving in tax-deferred retirement options such as a 401(k)s, IRAs, 403(b)s, Roth IRAs and how much are you saving in your taxable accounts?
  • If you own a home, what types of extraordinary expenses do you foresee in the future such as a new roof, new A/C units, new windows, remodeling updates, or any other general ongoing home maintenance?
  • Do you have an interest in charitable gifting now or while in retirement?
  • Do you have adult children or grandchildren that you financially assist?
  • What types of income sources do you expect in retirement such as:
    • social security benefits
    • pension income
    • deferred compensation
    • real estate rental income
    • stock option proceeds from RSUs, or Non-Qualified stock options
    • alimony
    • annuity income
    • working part-time in retirement
    • any potential future inheritance

Your financial advisor may also request a copy of your most recent tax return as it provides a general overview of your current income tax exposure and marginal income tax rate, and serves as a baseline for projecting what your tax picture may look like throughout your working years and/or in retirement.

A financial planner can put together a detailed projection of your expected income, expenses, and growth or drawdown of your investment portfolio from now through every year until your age 95 or 100. This detailed annual projection provides a great trend analysis of what the future may hold for you. Although there are typically a lot of detailed numbers within a retirement projection, what is most critical is the long-term trend. Is your portfolio growing over decades, going sideways or depleting? If it is depleting too quickly, what can be done to make a change in the long-term trend?

If there is a shortfall in the long run trend, there are usually 4 variables to work with:

  1. You possibly work longer or consider working part-time in retirement.
  2. You save more if still working.
  3. You spend less in pre-retirement or retirement. From a behavioral standpoint, the greatest impact you personally have over your retirement success is control over your spending.
  4. The last option and one in which I do not usually recommend is that you invest more aggressively. I typically don’t recommend this as most investors can’t handle the excess risk that shows up during a bear market from having a more aggressive portfolio. Also, this last variable is usually the least impactful. Working longer, saving more and/or spending less provide a much greater impact on your long-term financial success over the long run.
4% Rule

For clients that are in retirement and are in the “spend down” phase of their portfolio, you have probably heard of the 4% rule. The 4% rule is a reference to a number of studies done over the years that have attempted to analyze and answer the question “what amount of your total portfolio can you withdraw consistently each year for the remainder of your life during all phases of bull and bear markets without depleting your portfolio?” Most of the studies have concluded that the maximum comfortable withdrawal rate is approximately 4%.   Keep in mind this is the amount derived only from your portfolio. This does not include social security, pension income, real estate rental income, deferred compensation, alimony, annuities, an inheritance, or any other form of additional retirement income that you are entitled to. Here is what a 4% withdrawal rate looks like based on a handful of different sample-sized portfolios:

Portfolio Size 4% Annual Withdrawal 4% Monthly Withdrawal
   $250,000 $10,000    $833
   $500,000 $20,000 $1,667
$1,000,000 $40,000 $3,334
$2,000,000 $80,000 $6,667
$5,000,000 $200,000 $16,667

You can put your retirement at risk if you have income needs from your portfolio well above 4%. I know some of you are saying that 4% seems low and you are asking why you can’t spend more if your long-term target rate of return is expected to be greater than 4%. That’s a great question. The reason is, this is also the maximum rate of withdrawal that will provide you with a high probability of being able to safely weather all bear markets and allow for a 30 year period of withdrawals in retirement (age 65 to age 95). It is easy to survive on a 4% or greater withdrawal rate when markets are stable or moving up. Where this always catches up with clients that spend too much is during significant stock market downturns.

Let me provide you with an example. We typically experience a bear market every 5 to 7 years and it is not uncommon for the stock market to lose 40% during a bear market. A globally diversified portfolio will probably temporarily lose ½ of that or 20% in a decent downturn. So let’s assume you had $1,000,000 heading into a bear market, you suffer a downturn of 20%, and you now have $800,000. Prior to the bear market, you followed your financial planner’s advice and maintained a 4% withdrawal rate or $40,000 per year. The bear market has caused your withdrawal rate to now increase to 5% instead of 4% ($40,000 withdrawal divided by your new lower portfolio amount of $800,000). History has shown that your portfolio will usually recover from such a temporary loss.

Now let’s assume a more extreme spending example. Let’s say your withdrawal rate is 6% today, or $60,000 on a $1,000,000 portfolio. If you temporarily lose 20% due to a bear market, your withdrawal rate now increased to 7.5% ($60,000 divided by $800,000). It is difficult for your portfolio to rebound back to where it started as it now has to grow much higher than your annual 7.5% need from the portfolio. This will likely lead to a permanent loss of capital as each successive downturn in the market will cause your withdrawal rate to continue increasing due to your portfolio’s inability to fully rebound.

Coordinating Income from Your Portfolio in Retirement

During your working years, you became accustomed to receiving a paycheck every week, two weeks or month. Your fee-only financial advisor’s job is to help you “recreate” your paycheck in retirement to make the most efficient use of your portfolio and other income sources to match your ongoing lifestyle expenses. It is common that in retirement to set up a similar paycheck distribution system as that is what you are likely used to. Monthly seems to be the most common option as most of us pay bills on a monthly interval.   For some clients, however, you may also consider quarterly or annual distributions. It really just depends as to what works best for your financial situation.

Through the retirement planning process, your financial planner will be able to determine how much you will need to draw down each month from your portfolio and coordinate that with any other retirement income sources you may have.

Net Worth Calculation

Another key component of the retirement planning process is the annual review and calculation of your net worth. Your net worth is the combination of all of your assets (not just your portfolio) less any debt or liabilities. A successful retirement is not just the management of your portfolio relative to your income needs, but it is also the management of your overall asset and liability picture. Generally, we want to see your total assets increase and total debt decrease over time. If the debt is heading in the opposite direction and continues to increase, it may be a sign your financial advisor needs to take a closer look at your annual expenses.

Social Security and Medicare Planning

There has been a lot of articles in the media about when is the best time to start Social Security. You can start as early as age 62 or delay it until as late as age 70. One of the benefits of delaying Social Security is that you will receive an 8% increase annually for every year you delay it. Delaying Social Security can be a good longevity insurance plan if you have concerns about outliving your portfolio. However, that needs to be balanced with the fact that you may be putting more drawdown pressure on your portfolio in the earlier years of retirement by delaying Social Security to a later age. Like many things in life, your decision about when to start Social Security will likely depend on your particular financial circumstances, as there is not a one size fits all answer. Most financial planners will provide a “when to start social security” recommendation in the retirement planning process.

Approximately 90 days prior to turning 65 you will be eligible to enroll in Medicare. There are numerous health plan options related to your Medicare Part B. Everyone has a unique health situation and the choices can be overwhelming. Your financial planner may also be able to direct you to a resource to help you with making any personal Medicare Part B decisions. In addition, you may find my article “How Much Will I Pay For Medicare Premiums?” useful in determining what your Medicare premium may cost.


As you can see from above, retirement planning is an ongoing process that starts with your personal financial goals and encompasses a wide range of financial issues from your portfolio, to your retirement income options including Social Security, net worth, tax situation and healthcare/Medicare options. If you need help with retirement planning, you can search for a fee-only financial planner at Together, you and your financial planner can put in place a strategy that will allow you to maintain confidence and peace of mind throughout your retirement years.

 About The Author

Dave Fernandez, CFP® is a native of Arizona and has over 20 years of experience in the financial services industry. He started his financial services career in 1995. As an NAPFA Registered Financial Advisor, Dave owns a fee-only financial planning and wealth management firm, in Scottsdale, Arizona called “Wealth Engineering.”