Retirement policy statement

From Bogleheads
Flag of the United States.svg.png 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.

This article was inspired by Christine Benz (October 8, 2021). "How to Create a Retirement Policy Statement". Morningstar.

Documents

Download the documents here:

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

Provide financial advisor and attorney (if any) contact info.

Retirement strategy

Goals

List retirement goals in priority order.

  1. First retirement goal
  2. Second retirement goal
  3. 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 Metrics
 
 
 

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 aren't tracking to the plan

Describe possible solutions to consider if expenses aren't tracking to the plan.

Social Security claiming strategy

Describe your Social Security claiming strategy. Consider:

  • Estimated payouts
  • Links to SS earnings history
  • Tools used
  • What would make you change this approach

Charitable giving

Describe your approach for charitable giving in the various phases of retirement. Consider:

  • Process for determining a target giving amount
  • Selection criteria for charities
  • Who is involved in selecting charities and donation amounts
  • Types of donations:
  • Charitable organizations as beneficiaries of various accounts

Roth conversion approach

Describe (if any) your plans for Roth conversions. Consider:

  • Roth conversion goals (prioritized order)
  • Who are you optimizing for (both of you, one of you, or your beneficiaries), (prioritized order)
  • Timeline for planning and execution
  • Determining a target conversion for the year
  • Types of conversions (in-kind or cash)
  • How will you pay the taxes?

Required Minimum Distributions

Describe (if any) your plans for Required Minimum Distributions (RMDs). Consider:

  • What accounts are subject to RMDs
  • Timeline for planning and execution
  • Determine RMD requirements
  • Determine which accounts to use to satisfy RMDs
  • Types of RMDs (in-kind or cash)
  • How will you pay the taxes?

Competency

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:

  • How you want issues to be raised
  • Financial warning signs
  • Cognitive impairment signs
  • What to do if I am incapacitated or pass

Investment Policy Statement

Describe or provide links to your Investment Policy Statement. Consider:

  • Portfolio strategy
  • Risk tolerance
  • Investment philosophy
  • Asset allocations targets
  • Asset location rargets
  • Rebalancing approach

Estate planning summary

Describe or provide links to your estate planning documents. Consider:

  • Key estate planning documents
    • Will
    • Trusts
    • Health care directives
    • PoA for finances
    • Final arrangements
    • Information for caregivers and survivors
  • Beneficiaries for each account
  • Gift tax history (IRS Form 709)
  • Claiming portability (IRS Form 706)

Appendix 1 -- Yearly retirement to-do list

Add and adjust per 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: Deadline is April 15th (unless an extension is filed)

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 (e.g. 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

See Checklist of important retirement dates for the full list. Consider adding these additional rows if applicable.

Date Age Description
?? Five year rule satisfied for his Roth IRA
?? Five year rule satisfied for her Roth IRA
?? He starts claiming SS
?? She starts claiming SS

Appendix 3 -- Modeling

Describe the modeling and tools used to plan your retirement.

Key assumptions:

  • Equity growth rate, equity growth standard deviation
  • Fixed income rates, fixed income standard deviation
  • Her SS start/amount, his SS start/amount
  • Inflation, tax rates
  • Expenses, etc.

Deterministic models

Describe the deterministic analysis (e.g. Excel spreadsheets) and key results.

Probabilistic models

Describe the probabilistic analysis completed and key results.

Evaluation metrics

Description Metric Description
Withdrawal rate: For typical retirements, should be < 4%
Probability of success: For probabilistic models, should be >85%
Age when assets depleted: Not depleted before death
Excess yearly spend ability: There should be a cushion for the unexpected
Other ....

Appendix 4 -- Rebalancing

See: Rebalancing

Appendix 5 -- Useful tools

Feel free to modify this list based on your own preferred tool set.

Purpose Tool Description
Financial advice Bogleheads forum Investing and financial advice. A great place to ask questions and get a variety of opinions and analysis.
Flexible retirement planner Flexible retirement planner Probabilistic retirement modeling tool—this is what I used for my probabilistic modeling.
Portfolio analysis Portfolio visualizer Understand the impact to return and risk of investing in different types of assets.
Portfolio charts Portfolio charts A number of useful calculators (withdrawal rates etc.)
Retirement portfolio model Retiree Portfolio Model Deterministic portfolio model
Retirement calculators See: Retirement calculators and spending List of useful calculators for planning retirement.
RMDs Schwab RMD calculator For more details, see: Required Minimum Distribution
Social Security strategy PIA Social Security Calculator Determine your PIA based on your SS earnings history. Easily allows you to model $0 or reduced earnings to understand the impact.
Social Security claiming OpenSocialSecurity Investigate and compare various strategies for claiming Social Security.
Tax estimator See: Tax estimation tools List of useful tools for tax planning, including what each tool does and doesn't 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:

External links

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