In this week’s Finance U, Paul Kiker walks us all through the retirement planning process that he runs with every new or prospective client.
Whether you plan to retire someday or already are retired, you really need to hear this podcast because Paul’s approach is comprehensive and probably unlike any you’ve already been through.
The key is running various scenarios based on all financial history starting from 1926 onward. By placing your current situation and portfolio approach on every possible starting year, a “spaghetti diagram” shows you how many of those would have been successful and how many years you would have failed.
If your probability of success is only 50%, but it could be brought up to 95%+ by making some portfolio adaptations, would you do them? I sure would.
This is the essence of how Paul approaches investing; he actively manages risk and keeps his clients looped in every step of the way.
Once the plan is in place and running, does it stop there? No. With changing life circumstances or changing market conditions, the plans are revisited. If nothing changes, they are still re-run every 3 years as a matter of practice.
A retirement plan should be dynamic rather than a one-time forecast, adapting to inflation, market conditions, spending, taxes, family needs, and other changes throughout retirement.
Perhaps the most eye-popping thing for most investors is the impact on future cash needs of changing one’s inflation expectations by even a single percent. Hey, inflation is a persistent compounding function, and it’s going to be headed higher based on rising diesel prices and the recent hot PPI readings.
Those who are going to have the best chances at successfully navigating the next 20-30 years are going to be those who have prudent plans in place, an ear to the ground, and eyes on the changing market conditions.
Timestamps
00:27 – Episode introduction: planning retirement amid expensive stocks, Social Security concerns, and higher-than-official inflation
01:29 – Welcome to Paul Kiker and overview of the retirement/financial planning process
02:33 – Hypothetical scenario (JJ & Jane Doe) and why a full retirement plan analysis is essential
05:51 – Gathering complete client data (beyond just assets) and the planning meeting approach
07:54 – Plan assumptions: ages, retirement goals, 3.5% inflation, income needs, and historical simulation method
09:44 – The long-term impact of inflation on required income and lifestyle
17:46 – Conservative portfolio results: ~51% success probability and historical depletion scenarios
24:08 – Current market valuations vs. history (most expensive on many measures) and risks of passive approaches
29:15 – Switching to moderate growth allocation (~96% success) and the trade-offs of adding equity risk / tactical management
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by cmartenson