Saving your retirement could come down to this simple writing exercise

By Beth Pinsker

A 'retirement policy statement' lays out instructions that you can stick to

If you don't write down your retirement plan, you're less likely to stick to it.

Retirement success is all about sticking to the plan, according to decades of financial advice. But what is that plan? Is it a booklet with charts and graphs? Is it a spreadsheet? Is it a manifesto of some kind, with all your Jerry Maguire-type insights about how you think the rest of your life will go?

For longtime financial planner Daniel Goldie, it comes down to a simple set of instructions he calls a retirement policy statement. Not to give away any spoilers, but this is the ultimate lesson in Goldie's new book, "The Retirement Answer," and it is the culmination of six key decisions he walks readers through.

This book, a follow-up to Goldie's 2011 book, "The Investment Answer," comes at a time when 11,000 people are retiring every day in the U.S. and are largely left to their own devices when it comes to funding their living expenses beyond what's covered by Social Security. The choice is to have a system for drawing down your money smartly so you don't run out, or living like a miser and ending up with more when you die than you started with.

The prep work Goldie suggests involves some math - like how much income you want to generate from your savings and how best to go about that - but the writing of the policy statement itself is relatively simple. It may take up a page, or a couple of pages, of mostly bullet-style notes setting out your parameters for everything from your yearly spending to how often you'll look at the statement.

"Retirement is much more complicated than people realize, so your plan has to be in writing so you can follow it," Goldie told MarketWatch in a recent interview, in which he walked through the process he's developed since he became an adviser in 1991 after retiring from the professional tennis circuit.

Objectives

You can't get very far with a retirement plan without goals, so Goldie's system starts with a simple statement of your aims. You don't have to go into a lot of detail here about your hopes and dreams for the future, such as traveling or spending time with your grandchildren. Goldie is interested in getting to the nuts and bolts right off the bat, with bullet points of your basic income and spending parameters, such as:

-- How much you intend to spend yearly

-- What sources of income you will draw from, including pensions, Social Security and savings

-- When and how often you will re-evaluate, such as yearly at tax time or at some other interval

"The goal is so you don't feel panic," Goldie said. "The policy statement will have withdrawal guidelines that you're comfortable with."

The growth and risk conundrum

In the next section, you spell out the core of any financial plan - your risk tolerance, what return you expect and your time horizon. With those basic parameters, you can work up the rest of the details, namely what exact funds you'll be investing in and how often to switch them around by rebalancing.

"You need to refer back to that," said Goldie. "If you say, for risk tolerance, that you agreed not to make changes based on market movements, then that's what I encourage people to do. There's a lot of things that can happen, and if you don't have something put in writing, you can't stick to it."

When it comes to how to select your portfolio, Goldie prefers to keep things simple, but first you have to know your percentages and then follow one of the many rubrics you can find online for a mix of exchange-traded funds and mutual funds that fits the bill for 70% stocks and 30% fixed income, or a 60-40 ratio or whatever you land on based on what you decided in the section above.

"I think people can do that," Gold said. "I've done it with many clients. Once you lay out a plan for them and say we're going to go 70-30, and a certain percent of the stock will be international and the rest U.S., then they get it."

Withdrawal strategies

One perpetually perplexing area of retirement planning for both individuals and professionals is how to spend down the money that we have so diligently saved. This is where Goldie's approach differs most from traditional advice that relies on the output from financial-planning software. With that, the goal is to run Monte Carlo simulations of all the possible outcomes of growth and spending to plot the certainty that you will not outlive your savings, and get you as close to 100% as you can get.

"I think a lot of advisers misread the percentages and the message that goes with them," Goldie said. "I call that the probability of underspending. You don't want to be anywhere near 100%. If you're at a 99% chance of success, that means that you have a 99% chance you're going to spend too little."

Goldie thinks that static withdrawal rules, like Bill Bengen's 4% approach, also lead to a lot of underspending. "That doesn't match up with people's actual spending patterns," he said, since people typically have variable needs and wants as retirement progresses.

What Goldie suggests instead is to write down a set of intentions in your retirement policy. These should be clear, simple statements about your starting point with your initial withdrawals and how you will decide how much to withdraw down the road.

The example he uses in "The Retirement Answer" is for someone who begins retirement by withdrawing $33,000 in the first year ($2,750 a month) to supplement their other income, like Social Security. The target success ratio is 85% and the guardrail is not to change the plan until their chances of success slip to 70% - which they would assess at each of the regular check-ins they promised to do.

The plan is simply this: If you hit the guardrail on the high end or the low end, you will increase or decrease spending until you get back to that 85% chance of success.

"I encourage people to be OK with a number that's maybe 70% or 80%," he said. "That's why you have to put them in writing, so when things happen you don't expect, you know how to respond. People need something to follow."

Got a question about retirement? Fill out our questionnaire or write to me directly at beth.pinsker@marketwatch.com (please put "Fix My Portfolio" in the subject line).

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10-02-26 1624ET