Hi, my name is Bob Brooks. Today I want to talk to you about a very critical time period in your investment timeline and your journey to retirement or financial independence. And it's the five years that leads up to the time where you decide to stop earning an income. You know, I think the face of retirement is changing. And I like to refer to it more as financial independence that day that you get to where you say, you know what, I don't need to earn an income anymore because I've reached my goals. And I'm financially independent.

I think it has a more representative representative of what how people face retirement today because people don't just retire, they start a new chapter in their life. Now your investment timeline starts out with you start saving for retirement, then you know, you're in a key accumulation phase, then you're in that pre retirement window, then you're at retirement. Now, here's what's key about this pre retirement window is that during the starting out and accumulation phases, you can afford to make some mistakes. Because you can recover from them pretty easily. And as investors, I hate to tell you, but you're going to probably make some mistakes along the way, because that's just what happens. But when you get into that pre retirement, that's such a crucial critical time period, you don't really have the luxury of making mistakes.

This is the time period where you start to make sure that you're reinforcing habits develop or developing good habits that you're going to take into retirement. One of the things I hate to see, I hate to see people get into their retirement phase of their life, that chapter with bad habits because that can ruin a retirement scenario real quickly. So let's talk let's start out and talk about these 10 steps. The first one is know your number, or your burn rate. Now what you're probably thinking what in the world is a burn rate. A burn rate is the amount of money that you spend on a monthly basis.

Now I could tell you my burn rate is pretty is pretty goes from it's pretty consistent from one month to the next month, except for two or three different ones. saw the year where the expenses are a little bit higher. But I know exactly about what we spend as a family. I'll tell you that August always throws me off. Because I always underestimate how much my boys are going to cost going back to school. And then December is always a tough one to plan for, because you always tend to overspend at Christmas.

But for the most part, expenses are pretty consistent. month in month out. Now, I will ask a person will tell me what your spending rate or your burn rate is. And we'll take that and kind of develop a number for retirement. And they'll say, Well, you know, it's somewhere between what I think I need for retirement somewhere between five and $6,000. I can't tell you how many times I've heard this.

And so I'll my my statement back to them, or question back to them is, well, is it five or 6000? Or is it 55? Or is it $57,000 spread is a big difference. So you got to really hone in on that number and know exactly what it is. During this period. Yes left to start tracking categorizing expenses.

As always serves me when talking to somebody about retirement, I can see that they've accumulated the assets, but they have no idea what they're planning for. So I always tell them just start tracking and you want to track and get a year's worth of data. That's the best way to see averaged out what your burn rate actually is. So know your number or your burn rate. Number two, adjust your number for retirement. I have talked to people in the past where they they'll tell me what their number is.

And we'll kind of drill down that number. So I can kind of check to make sure they're covering everything. And they'll say, Yeah, well, I'm saving, I'm going to be saving $500. And the thing is, you don't save when you get into retirement, you got to think about all of your investments in all your accounts as a big emergency account that you can tap anytime you need to, as you see, you see savings. So make sure you're not you're not allowing for money that you would be saving. And plus you don't want to take money from investments that are there hopefully doing well and remove it and put it into an account where it's making nothing in return.

Move expenses that will that will expire. debts a big one, a lot of people will pay off their mortgage prior to getting into retirement Well, you need to account for that, or they suspect that they'll have that taken care of. And so you want to make sure you're not putting money into the into your overall spending plan for things that are not going to be their kids expenses. I was talking to a couple one time, and they were spending their two kids in college, they were actually close to retirement, but about the time they were going to get to retirement, they were going to get a $2,000 a month raise, because all those college expenses were going to be gone. So you want to factor that in there too. As far as adjusting your number for retirement.

Number three, determine if you can hit that number. This is where a benchmarking report really does come into come in handy. This is something I developed. It's not rocket science. It's basically figuring out over over a time of your time period, what you need to accumulate so that you can reach your financial goals. Along the way you need to be at certain benchmarks at the end of the day.

Each year. And the beauty of a report like this is that if you have these benchmarks, you know if you're ahead of the game, or you're behind to the game, and maybe whether you need to adjust your investments, or you need to adjust your goals, but this keeps you on track. So having a benchmarking benchmarking report, for those of you who are just starting out, I gotta tell you, if you implement some of these things, like you're about to retire, and you start these habits early on, you are going to have a great financial future. By using one of these benchmarking reports, Social Security strategies, I'm going to have a do a video on but bring somebody in. That's an expert in Social Security, because there's a lot of different strategies that you can start to look at. And especially it's important as to when you take your Social Security.

So you already want to be thinking about that, kind of figuring that into your plan your overall plan, figure out any pension payments that you have, there's still folks that are retiring that do have that luxury of a pension payment. I think that's going to of course is going to fade away as we get older and then determine your income generator what I mean By that, you know, you're probably covering some of your expenses, Social Security, maybe some of your expense through for the pension plan. And then you're going to cover the rest of it, the bulk of it through what your investments will generate. So you want to know what's that number, that total amount of investments that I need to have to generate income when it gets to when I get into retirement? Number four, get creative with the number. I say this because I think a lot of people in today's society are going to have to get creative with the number.

You know, it may be that you look at your your numbers, you might say $75,000, but you know that you're only going to really be able to produce 30 $500 at first. So maybe it's that you end up getting a part time job and the beauty behind this. It's not to keep you working, it's to do something that you always wanted to do, but you maybe couldn't afford to do while you were in your accumulation stage. And something that's stress, the stress free I know a lot of people to get out of their career and go do something that they really, really enjoy. gets in a lot of satisfaction, and is at a much reduced stress level Plus, you have a lot of free time, because you're only working part time, I think a lot of people are going to have to are going to be considering this.

What I don't want you to do is go, Okay, I need 5000 I can only generate 3500 give up and go, I can't retire, I'm just gonna have to keep working. It's not true. He created number two stagger income throughout your retirement. So many times the standard way of planning is to say, Okay, I'm going to start off, I'm gonna take $5,000 or whatever that amount of money is out every month for the rest of my life, you increase it by inflation, how about if you take out a higher number, the first 10 years and then you reduce the number over time, I find that as people get older, they spend less money. So make that build that into your plan as well then determine where you can increase your income generator. What I mean by that is that one of the advantages of planning to pay your mortgage off ahead of time is that you've been making this big payment.

So let's say that you pay it off, you have 10 years left to retirement, now factor in taking that payment that you're already used to doing, and adding that into your investments over 10 years, and seeing the kind of dramatic effect that has over your income generator. And you can add that into your being created with the number. And then there is the reverse mortgage. Not a big fan of this, but it is something that you can look at reverse mortgages where a mortgage company comes in, they basically take ownership of your house and they buy it from you at a much reduced percentage of the value. So it might be that you could get a lump sum of a couple hundred thousand dollars now you don't get kicked out of your house, you never lose your house at death, they take over the house and it's their asset.

So they're hoping that they've that that's going to increase in value, that course you're going to get kind of pennies on the dollar from that money. But if the extra $200,000 or whatever the amount is comes in handy. That's another way to get creative. And then I know a lot of people who say maybe I should just downsize No, maybe I've got a home that's worth 300,000. Realistically, I could live in a home of 150,000. Now I can take that hundred 50,000 and add it to my income generation generator.

So I think it's important not just as just looking looking at it at retirement is black and white, look at it in the gray, get creative with the numbers and figure out a good way to go about it. Number five game plan for extended care. We all like to think we're not going to be a long term care statistic. But you've got to plan for that. You got to be able to plan for the average stay in a nursing home Believe it or not as three years so how's that going to be paid for? It's important to not ignore that that that that could happen but to address it and say okay, maybe I need to get long term care insurance in a good time to do that is five years away from retirement when you can actually get that at a cheaper premium.

Or maybe that's it there's a combination of long term care and self insuring self insuring by paying for that out of pocket but no how you're going to get there, make sure you kind of that you have that box checked. Number six, shore up your estate. And we're going to do an entire video just on this. And let me my disclaimer before I talk about this is that I'm not an attorney, nor am I trying to play one on a video, I'm just giving you information determine how your assets will be transferred. So a husband and a wife, they both have passed away, there's an estate, and legally that estate has to transfer to the adult kids or beneficiaries or whomever that they that they have said they want their assets in their accounts and everything to go to. So there's most people do that by a will problem with a will and I always call a will a wish list.

This is what you wish to happen. But a judge is going to determine through probate that that can happen. I don't know about you, but I don't want to judge determining whether my kids get what's coming to them. So you set up a trust. A trust is a great vehicle to set up and put everything in because the trust As I was cut referred to that as an ironclad legal document, it doesn't go through probate, it stays private. And you can control.

It's kind of crass to say this but you can control from the grave, how you want everything to transfer, and especially let me go off on another trail on this is if you want if you have young kids, it's a must to have set up a trust because you can designate in the trust the guardians who's going to take care of the assets to finances. You can do that in a will but wills can get challenged, he can get really messy. A trust is the best way to go. Power of attorneys do you have those set up in the event that you have a healthcare issue? I'll tell you a tragic story is the one spouse will say to the to the husband or the wife. They have the bulk of the assets in an IRA, for instance, they go into a coma.

Do you know that there's the spouse that's not in the coma, it cannot touch that IRA without a power of attorney Because the person who owns that IRA is one person, and if they are incapacitated, that money gets frozen. That's not a very, very good thing that could happen. So you want to make sure you have power of attorneys. Get everything organized. I always call this the greatest gift you can give your adult kids, I've seen more and more cases where the remaining parent will pass away. They haven't had nothing organized.

You got your kids digging through boxes, digging through desk drawers, trying to figure out where everything is scared to death, they're gonna miss a life insurance policy. It's just not the way that you want to live your life. Get it all organized, get it into a binder with instructions, how to close everything down. Very important step. Then finally have the talk. I get the fact that that a lot of parents with adult children maybe want to be very private about their situation.

But I think it's important for at least one of your kids, your adult kids that you sit down and go look, this is where everything is number one, we're going to be okay financially. But they know ahead of time what needs to happen. So many times, once again, the kids walk into just a financial mess and don't really know where anything is. And it just adds a level of stress into a period that is stressful enough as it is once you lose a parent. Number seven, pay more attention to investment risk. When you're five years out, you got to get this right.

And this is about the plan A and plan B investing that we talked about this to all the videos on investing, you got to have a game plan for when the markets going up when the markets going down. And you just don't have the luxury of absorbing big losses when you get five years out. Now what if you're in a situation where I'll give you two scenarios, what if you're in a situation where you have accumulated, the amount of money that you need, you're four years out, I always tell people take minimal risk, you're already there. Don't push it. Don't take the risk and then lose something when you're when you've already achieved your goal. Or if you're not working You need to be don't make the mistake of taking too much risk trying to be aggressive to hit your goal.

There's always a balance, there's a relationship between risk and reward. Whether you're 60, whether you're 20 years old, take risk when it makes sense. take risk when you know that there's a high probability of getting rewarded. Don't take risk when the probability of being rewarded is low. It's a very simple formula. Number right focus on getting completely out of debt prior to retirement.

Here's the thing. If you go into retirement with 100,000, we'll say with a $2,000 a month mortgage payment, then you have to have you have to have more money invested to generate the income to pay that that debt. However, if you have it paid off, by the time you retirement, that just means you need less assets accumulated to generate income because you don't have that big payment. So build into your plan. A mortgage payoff scheme reading Get that completely done, obviously any consumer debt. If I were to advise if I was advising somebody who had consumer debt and they were trying to decide whether they want to retire, I would say work two or three more years, get the debt paid off, then retire, you just don't want to carry it into into retirement.

Number nine, develop the habit of tracking this is this is key. And this is advice I would give to anybody. We're just just starting out to five years before tracking your investments, tracking your results. It helps you know where you are, it helps reduce stress, it helps to make you a better decision maker. It's the best habit that you can have having a plan and tracking. And you've got to you've got to be able to develop that habit into retirement because you've really got to track things in retirement.

When you have divorced yourself from an income and you're relying on investments. You've got to be able to make sure that you are on track so that you don't run out of money. That's that's very key. And finally, number 10. Have a plan B ahead of time I talked about a plan B for investments. I'm talking about a plan B for your funding.

I think of all the things not anticipate or worry about, just think of the various things that could happen. From an insurance standpoint, you know, long term care from something happened to your house, know ahead of time, this is what I'm going to do if this happens, and everybody's risk is different. It's just it depends on your own particular life and what's going on. But make sure that you are accounting for that so that you don't get caught off guard in retirement. You know, this is a key time period that five years before you get into retirement, and it could be the most important part of the investment lifecycle. As I said earlier, you can make some mistakes when you're first starting out, you can make some mistakes in accumulation mode, but it was when you get to that five years you've got to be mistake as mistake free as possible.

Plus, if you haven't developed the habits needed to give you long term success and retirement. This five year period gives you that time to develop habits that will help make you successful.