Retirement Answer Man

How can building an income floor ease your worries about life without a paycheck? If you are worried that having a 2-year cash reserve won’t give you enough security then you may want to build an income floor to help ease your concern. Over the past...

Show Notes

How can building an income floor ease your worries about life without a paycheck? If you are worried that having a 2-year cash reserve won’t give you enough security then you may want to build an income floor to help ease your concern. Over the past few episodes, we have been discussing how to live life without a paycheck and you have learned how to build a bucket system. But some of you may feel that this isn’t quite enough to help you weather the times of market uncertainty. Listen to this episode to hear how building an income floor can give you more peace of mind.

8 ways to make retirement too complicated

Do you like to make easy things difficult? We often make retirement more difficult than it needs to be. Here are 8 ways people often complicate retirement.

  1. We make decisions in isolation. We don’t think of the broader perspective of our financial lives when making a financial decision. We focus on tactics rather than the big picture. It’s important to have a process that follows a system that creates a strategy that leads to tactics rather than the other way around.
  2. You have too many accounts. People collect things over time and that includes 401K’s, and IRA’s and various other retirement accounts. Make life easier by consolidating your accounts.
  3. You may have too many investments even in one account. Having too many investments makes managing the risk/return allocation too difficult. Think, does this extra investment add value? Does it serve a purpose in the overall scheme of things?
  4. You may have too many advisors.
  5. You chase the markets. Are you chasing investments as the market fluctuates? It creates a lot of unnecessary activity. It may feel like you are more in control, but it actually makes things more complicated.
  6. You change your process too much. The key to having a solid process is to only have one. You can’t hop around. Stick with one process. It can evolve but don’t change gears completely.
  7. You think more information will give you more clarity. But more information can actually be very distracting.
  8. Overplanning and analyzing are not giving you more clarity.
How do you refill your bucket in bad years?

After listening to this month-long series on how to live life without a paycheck you know how to fill your bucket with 2 years of cash reserves. But is 2 years really enough? What do you do in the bad years? What happens if the markets take a turn for the worse? Here are 3 ways that you can adjust your approach.

  1. You could batten down the hatches. Slow down in your wants and wishes categories to reduce discretionary spending. Fund your base lifestyle only.
  2. Ramp up pretirement. Focus on your human capital until the markets bounce back.
  3. Readjust your long term goals. Agile retirement planning is all about making adjustments along the way.
What is an income floor?

What if you want more clarity? If you still feel that 2 years of cash reserves won’t be enough to give you the peace of mind you need then you can create an income floor for the following 3 years. An income floor overlays on top of your cash reserves. The income floor is built by bonds that mature like a ladder or it can be created by ETF’s or other funds. An income floor can give you more room for success by reducing your risk of overspending and reducing your behavioral risk.

How do you determine whether you should add this income floor on top of regular cash reserves?

Do you feel like you need an income floor? You can think about the level of your base needs that are funded by social capital. Social capital is guaranteed income sources like social security and pensions, income sources that don’t depend on the markets. The higher amount you have here the more confident you may be with only 2 years of cash reserves. You can also consider what level of human capital do you have like income from consulting or royalties. It is also important to consider how well funded you are. If you are underfunded then you will definitely need human capital. Learn how to create your system and keep your rhythm on this episode of Retirement Answer Man.

OUTLINE OF THIS EPISODE OF THE RETIREMENT ANSWER MAN HOT TOPIC SEGMENT
  • [2:55] Do you like to make easy things difficult?
PRACTICAL PLANNING SEGMENT
  • [14:52] Is 2 years enough cash?
  • [19:10] How do you refill your bucket in bad years?
  • [20:44] What is an income floor?
  • [23:24] How do you determine whether you should add this income floor on top of regular cash reserves?
THE HAPPY LAB SEGMENT
  • [28:01] How do you maintain sanity in the chaos?
TODAY’S SMART SPRINT SEGMENT
  • [29:15] Identify 1 thing that you are overcomplicating
Resources Mentioned In This Episode

Rock Retirement Club

Roger’s YouTube Channel - Roger That

BOOK - Rock Retirement  by Roger Whitney

Work with Roger

3-video Series: 5 Minute Retirement Makeover

Roger’s Retirement Learning Center

The Retirement Answer Man Facebook Page

 

What is Retirement Answer Man?

A top retirement podcast. Roger Whitney, CFP®, CIMA®, CPWA®, RMA, guides you on how to actually do retirement well financially and personally. This retirement podcast isn't afraid to talk about the softer side of retirement. It will teach you how to retire with confidence. Two-time PLUTUS winner for best retirement podcast / blog and the 2019 winner for best financial planner blog. This retirement podcast covers how to create a paycheck, medicare, healthcare, Social Security, tax management in retirement as well as retirement travel and other non-financial issues you'll need to address to rock retirement. Retirement isn’t an age OR a financial number. It’s finding that balance between living well today and feeling confident about your retirement. It’s about gaining more freedom to pursue the life you want. Join the rock retirement community at www.rogerwhitney.com