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Financial Planning Part 2: Retirement Planning
Whether youíre in the "third act" or just starting out, itís never too late to start planning.

Putting together a plan before you and your spouse reach the "third act" is extremely important, and never too late.

Before you can know where you are going, you need to know where you currently are.”
To the Contrary. Everyoneís "Third Act" Arrives Sooner Than They Think

You can never plan too soon for your later years in life, I tell all my clients, because our later years tend to sneak up on us sooner than we think.

In my ongoing six-part series on financial planning, I am covering almost everything a couple needs to know on the subject, but were too uniformed to ask.

This second part is no exception: What you should expect your financial advisor and/or his/her team of advisors. And, as I cautioned you in my first installment, it is important that after your advisor(s) asks you questions that you continue to ask questions for clarity and a complete understanding of how to plan for your "golden years."

That said, preparing for retirement conjures up some interesting thoughts, as well as some viable concerns and fears. For most, they include the following:

* Will I be able to retire?
* I am getting older, now what?
* If I am in the last third of my life, I am running out of time. If Iím headed that way (we all are) should I be planning for it now? If so, how?
* When I reach my "golden years" will I have enough money?
* Will social security still be around?
* What about inflation? How will it affect me and my spouse?

While some of these concerns are valid, some may be strictly emotional, although all of them are typical and need to be dealt with.

When discussing retirement, it is important to know where you are going. If you donít know where it is you are going, you might not get to where you want and need to go. And before you can know where you are going, you need to know where you currently are.

With that in mind, the first step is to prepare a cash flow model. As financial advisors, we like to prepare these for our clients to help them determine reasonable approximations of where they are and where they're going. In order to do so though, we need to have a targetówe call that target a required capital account (RCA). In plain English, that RCA is the amount of saved money that is necessary to produce the required amount of income at an assumed interest rate after taxes and inflation indexes. In order to prepare such a model, we need to know the following:

* Current lifestyle requirement, net after-tax. This will tell your advisor(s) how much annual income is needed as a product of the RCA
* Existing liquid assets (designate whether qualified or non-qualified assets)
* Earnings assumption
* Interest rate assumption
* Inflation rate
* Current age and preferred retirement age

Once these questions are answered, they will serve as the major components of the cash flow model. That, in turn, will tell us if we have a surplus or deficit on a PV basis.

What might reduce any deficit that may exist in the calculated RCA? They include:

* Expected inheritance, if any
* Life insurance proceeds on husband and/or wife

Another consideration that factors in and could increase the annual budget necessary to attain the RCA, if comparisons dictate, are the following:

* The amount of pre-payment of any mortgage
* Monies going into 529 Plans
* Monies going into a 401(k) or profit-sharing plan

A key component that affects the overall picture and is some form of contribution toward attaining the RCA is this:

* Annual discretionary income

Once all these "blanks" have been filled in, any highly qualified financial advisor or team of advisors should be able to create the Required Capital Account (RCA), which allows him/her/them to create a cash flow model.

If you are a younger couple contemplating putting off your retirement planning, think again: It is never too early to start the process. For those of you readers who are reaching or have reached that "third act" of life, it is time to sit down with your financial advisor and provide all this information to him listed above. What is most important when you provide this itemization is that you also have ready a list of questions you want to ask of your advisor. And, as I caution all my clients, there is never a question too small, too big or too dumb to ask.

Think smart, plan ahead and make adjustments along the way.

Financial Planning Part 1: Donít Be Afraid to Ask
Financial Planning Part 3: Sizing Up Your Portfolio

Simon Singer is the founder of the Advisor Consulting Group, a Southern California financial and estate planning firm designed to provide assistance to affluent clients and to those CPA and tax attorney firms that handle complex financial matters. He has been in the business of Financial Services since 1966, and is a mentor and advisor to many multi-millionaires and billionaires. Singer is an author and speaker who also provides regular commentary to media on various financial topics of the day.

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Over 1 million couples turn to Hitched for expert marital advice every year. Sign up now for our newsletter & get exclusive weekly content that will entertain, educate and inspire your marriage.

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