I’m Mentally Ready to Retire - How do I Know if I’m Financially Ready?
An interview with Charles Ragonese
In this interview, I asked Charles Ragonese, President of Mountain Peak Financial, Inc., to explain the process he goes through with each new client who comes to him wanting to find out if they are financially ready to retire. Charles explains the steps involved in coming to a conclusion, and other factors that might ultimately impact a pre-retiree’s decision.
N: Let me start by asking, how difficult of a task is it to determine if a person is ready financially to retire?
C: Determining retirement readiness can seem like a daunting task, but it really doesn’t have to be – especially if you’re working with an advisor who will guide you through all the numbers. The hardest part for my clients seems to be what happens before our meeting – they’ll often need to take the time to gather paperwork and ask their employers certain questions about their pension if they have one, things like that. Preparing for the meeting where we’ll actually talk about whether or not they can retire is probably the hardest part. Once I have all their necessary information, I analyze the data and do the calculations and strategizing to make sure they’ll have income for as long as they need it. And again, if you’re already working with an advisor, they should be able to guide through the process.
N: Once the client has acquired all the necessary information, paperwork, etc., how do you start figuring out if they can retire?
C: The first step is for me is to gather information. I’ll look at everything they brought to our meeting and ask them detailed questions so as to be certain we are on the same page and I’m not missing anything important. I’ll ask them about their family, their careers, and any types of savings accounts they might have, such as pensions, personal investment accounts, insurance accounts, and so on. So, the first step is to understand their current financial situation and see what they already have to work with, and also to understand their financial goals for this next chapter of their lives.
The next part is the part that might seem tedious but is a vital part of creating a retirement strategy. We have to track the clients’ expenses next. Usually they come in with their completed expense worksheet my team provided them with. If not, I guide them through it in the meeting because it needs to be complete before we can do anything else. After looking at their current expenses, we also take note of how their expenses might change over time, e.g. if there’s an end date to their mortgage, or auto payment, etc.
Once we have that all written down and both the client and I feel confident that it’s accurate, we move on to income. You probably see where this is going – comparing income and expenses to make sure there’s enough income to cover expenses. It’s budgeting basics 101!
I always start with the fixed income sources – the sources that are consistent every month. That’s sources such as Social Security, pensions, PERS, STRS, etc. After adding up their total monthly fixed income, we then see how it compares to their expenses, both now and in retirement if there is any projected change.
"The first step is to understand their current financial situation and their financial goals for this next chapter of their lives."
N: It almost seems like the clients could do this themselves. A lot of them probably do already have experience creating budgets for themselves. Why do they need you to help them?
C: You’re right. They can definitely do that section on their own. If they do that and find that they can cover all their expenses with just their sources of fixed income, they might want to stop there and make the decision to retire. But there’s more to it. You have to remember that retirement might as well just be called permanent unemployment – or permanent vacation if you’re a glass-half-full kind of person! Either way, you’re not earning money. For the rest of your life. Retirees need to work with an advisor because only an advisor would be capable of positioning their assets to provide a potential steady stream of income for them for the rest of their lives.
N: How do you go about doing that?
C: This is where we put the simple math aside and revert to some strategic planning. After we compare their expenses and their fixed income and see how much additional income they need, I’ll then propose a mix of insurance products and securities products to potentially create a lasting stream of income. With the various programs and product analyses this requires, it is not something a person can do on their own.
N: What about investing in the stock market for that additional income? That’s something people can do on their own.
C: Yes, people can definitely do that on their own. And maybe some people have been successful. But the thing about using securities for retirement income is that the market is unpredictable; if the market drops drastically and you lose a significant portion of your money, chances are you won’t have 20 years to sit around waiting to earn it back again. If you’re retired and not working, you may need that money now! So, like I said, some people have been successful in the stock market and some people really enjoy it, but, in my opinion, the associated risk makes it a less-than-ideal source of retirement income.
In summary, how does Charles determine if a client is ready to retire?
Step 1: Gather information
Step 2: Add up expenses
Step 3: Add up fixed income
Step 4: Strategize how assets can be positioned to provide the additional income needed, for as long as the client needs it.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Mountain Peak Financial, Inc. are not affiliated companies. Charles Ragonese CA LIC #0B02155, Firm LIC #0I088569
Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Global Financial Private Capital. Consult your financial professional before making any investment decision.