This article contains details specific to United States (US) investors. It does not apply to non-US investors.
A Retirement Policy Statement (RPS) is a document designed to clearly lay-out your retirement plans, strategies, and the tools which will help you over the next 30 years. It is designed to be a living document which will need to be reviewed and revised regularly as goals change, laws are changed, or new challenges are encountered.
Forum member Woodspinner's document template with examples: (Microsoft Word), (PDF)
Benefits
A retirement policy statement offers the following benefits:
Serves as a formal record of our intentions that can be reviewed and revised as needed.
Framework for robust discussions on retirement goals, priorities and approaches.
Agree on key metrics to monitor retirement feasibility and resilience.
Provide clarity into some of the complexities of how retirement is going to work.
Layout strategies for dealing with unusual situations like unanticipated major expenses and severe market downturns.
Identify key gaps in our understanding that need to be addressed over time .
Assist family, friends, or an advisor in understanding our retirement plans, goals and priorities.
Integral to a just-in-case-something-bad-happens document and someone else needs to start managing the finances.
Format
Formatting considerations include:
Focus on clearly describing the concepts and use a format that works for you and your family.
Check for understanding and clarify as needed.
Consider using graphics, charts or tables to enhance clarity.
Regularly review and update the RPS as needed. Document the revisions and the reasoning.
Example
Guidance for completing WoodSpinner's document template is provided below.
Financial advisors and attorneys
Give the contact information for your financial advisor and attorney (if any).
Retirement strategy
Goals
List your retirement goals in priority order.
First retirement goal
Second retirement goal
etc.
Key financial metrics
Describe or provide links to your key financial metrics. The goal is to help answer the question "Are we on track or do we need to change something?"
Metric
Value
Green
Yellow
Red
Notes
Sample Metric
Green — Metrics in this range are tracking well Yellow — Metrics raise concerns and closer monitoring is needed Red — Metrics are significantly off-track and action is required
Retirement phases
Phase
Year(s)
Description
Preparation
<Enter years>
<Enter key activities for the phase>. Typically, this period stretches from now to the start of retirement. Adjust to fit your needs as you like.
Early retirement
<Enter years>
<Enter key activities for the phase>. Typically, this period stretches from the start of retirement until 70 ½ when RMDs begin. Adjust to fit your needs as you like.
Middle retirement
<Enter years>
<Enter key activities for the phase>. Typically, this period stretches from the start of RMDs to 80. Adjust to fit your needs as you like.
Late retirement
<Enter years>
<Enter key activities for the phase>. Typically, this period stretches from 80 until death. Adjust to fit your needs as you like.
Cash flow (early retirement)
High level description of your expected income sources, expenses and which accounts (if any) you will draw-down.
Cash flow (middle and late retirement)
High level description of your expected income sources and which accounts (if any) you will draw-down.
Retirement asset summary
Account
Taxable
IRA/401k
Roth
Total
<Account-1>
<Account-2>
<etc.>
Debts summary
Account
Account:
Type
Purpose
<Debts>
Insurance summary
Describe the various insurance policies (home, auto, umbrella, life, whole life, long-term care, etc.).
Company
Policy type
Policy number
Phone
Link to policy documents
Income summary
Type
Starts
Stops
COLA?
Description
<Her pension>
<His pension>
<Her SS>
<His SS>
Other ...
Current year estimated expenses
Adjust as necessary based on your retirement plans.
Expense
Planned
Minimum
Inflation
Reserves
Housing
Utilities
Entertainment
Transportation
Food
Medical
Misc. expenses
<Other>
Total
Estimated future irregular expenses
Adjust as necessary based on your retirement plans.
Year
Description
Cost
Notes
What to do when expenses are not tracking to the plan
Describe possible solutions to consider if expenses are not tracking to the plan.
Use this section to describe how you want others (for example, spouse, children or friends) to monitor for warning signs and raise any issues. Consider:
Add and adjust to suit your own retirement plans and approaches.
When
Description
January
Fund yearly expenses and rebalance
Determine the yearly expenses that need to be funded for the current Year (income – expenses), see row-124 on the Summary worksheet.
Sell assets as required and move yearly expenses to our checking account.
Rebalance as needed.
January - November
Fund Qualified Charitable Distributions (QCDs) (2030 and after)
Determine the planned QCDs for the year, see row-55 on the Summary worksheet.
Decide which organizations will get the donations and how much
Write checks directly from the IRA(via Fidelity IRA check writing) to the organizations and mail them out.
Track when checks are cashed and funds withdrawn from the IRA.
Rebalance as needed.
March
File tax returns for previous year
Finalize the previous year’s return using the latest software and most up-to-date information.
Minimal taxes should be due—assuming the tax planning strategy is working correctly.
Note: The deadline is April 15th (unless you file an extension)
Quarter-1
Roth conversions
Follow the Roth conversion process outlined above.
Assets are moved in-kind from the IRA to the Roth.
Make sure to track all of your conversions
Quarter-2
Roth conversions
Follow the Roth conversion process outlined above.
Assets are moved in-kind from the IRA to the Roth.
Make sure to track all of your conversions
Quarter-3
Roth conversions
Follow the Roth conversion process outlined above.
Assets are moved in-kind from the IRA to the Roth.
Make sure to track all of your conversions
October - November
Roth conversions
Follow the Roth conversion process outlined above.
Assets are moved in-kind from the IRA to the Roth.
Make sure to track all of your conversions
December
Required Minimum Distributions (RMDs)
Make sure all QCD checks have been sent and cashed by the charities.
Determine RMDs requirements
Calculate RMD requirements for each type of account (for example, IRA, 401k, 403b, etc.)
Subtract any QCDs distributed (only available for IRAs at this point)
Estimate federal and state taxes for the Year
The RMD will be taken in 3 parts in the following order:
QCDs that have already been sent and cashed.
Transfer of assets from the IRA to the taxable account (in-Kind or cash).
RMDs can be taken any time during the year, but they must be taken or there will be significant penalties.
December
First draft – tax return for current year
Use the latest tax software and most up-to-date information on interest and dividend payments to refine the tax return for the current year.
December
Pay taxes for the year via an IRA distribution (Roth conversion or RMD)
Goal will be to complete a final IRA distribution in early December and withhold all of it to cover federal and state taxes.
Note:This can be a bit tricky since paying taxes via an IRA distribution is a taxable event.Your tax return software should be to help with this calculation.
December
Retirement portfolio review and health-check
Assess the overall performance of the portfolio and how well the process is working
Update the key financial metrics
Review metrics and determine if any course corrections are needed.
Do we need to adjust asset allocations, expected returns, or inflation rate factors?
Any updates needed to the Retirement Policy Statement?
Appendix 2: Important milestones for retirement planning
List of useful tools for tax planning, including what each tool does and does not cover.
Appendix 6: Key decisions
Date
Status
Decision
Reasoning
Watchpoints**
**Watchpoints are signs that would make you reconsider a decision that has been finalized.
Appendix 7: Revisions
Date
What changed and why
Optional sections
Consider moving the following sections to their own document and provided links in the RPS. This will reduce the size of the RPS, make it easier to review, and reduce the changes required to keep it up to date:
This article contains details specific to United States (US) investors. It does not apply to non-US investors.