March 24, 2022

Why a Pre-Retirement Assessment is Imperative to Retirement Success, Ep #90

18 minutes

Years ago, a gal I’m going to call “Robin” came to us and asked about our pre-retirement assessment. She wanted to retire at the end of the year and wanted to make sure she was on track. She brought us 401k, IRA, social security, and pension statements. She was curious how much she had to live on in retirement. We could NEVER have predicted what happened next. Listen to this episode of Retirement Made Easy to learn from her story.

You will want to hear this episode if you are interested in...

[0:21] Michael Jordan still needed a basketball coach
[2:05] Check out FREE resources at RetirementMadeEasyPodcast.com
[3:35] The unexpected outcome of Robin’s pre-retirement assessment
[9:27] The importance of diversifying your portfolio
[12:48] What we did to get Robin back on track

The unexpected outcome of Robin’s pre-retirement assessment

Robin still had a hefty mortgage and a car loan. However, she had three different old 401ks in addition to a new plan. She also had a couple of small pensions. But there were missing pieces in her statements. Specifically, we couldn’t find the balance of her 401k from when she had worked with JCPenney. When she left Penney's, her 401k was around $300,000, so she estimated that it was at $800,000. But I didn’t want to guess—I wanted to be sure.

So we found the custodian of the 401k, verified Robin’s identity, and found out the balance. Her 401k had dwindled to a measly $18,273. Robin laughed, thinking it was a joke—but it wasn’t. What happened? The majority of the retirement plan was invested in JCPenney stock. Which, at the time, was close to $1 a share. Now, they’ve filed bankruptcy and are practically out of business.

After hearing this, Robin broke down in tears. She was relying on that money to fund her retirement years. We set another meeting to reconvene next week. Sadly, we did have to push her retirement date. But we knew where she stood and made a plan to move forward—starting with diversifying her portfolio.

The importance of portfolio diversification

The first thing we did was diversify her 401k—and got out of the JC Penney stock, which eventually went to zero. What happened that caused their stock to tank? In 2011, JC Penney hired a new CEO, Ron Johnson. He was the pioneer of Apple’s retail outlets and was expected to transform the JCPenney brand.

When I was young, my mother would get coupons in the mail from JCPenney. She’d wait for a large sale, take the coupons, and purchase clothes for me and my brother. If she didn’t have the coupons, she wouldn’t shop there. Their entire customer base did the same thing.

But the new CEO eliminated coupons and switched to seasonal sales. He put their money into store renovations to make them more upscale. What happened? Those two ideas were part of JCPenney’s downfall. Customers were unhappy and sales plummeted. The stock price tanked and they filed for bankruptcy.

Meanwhile, Robin had moved on to other stores. She wasn’t looking in the rearview mirror and keeping track of JCPenney. She assumed her 401k was diversified and continuing to grow like her other retirement accounts. That’s why it’s important to know that your retirement portfolio is diversified.

What we did to get Robin back on track for retirement

We got to work and put together a retirement plan for Robin. It included:

Downsizing Robin’s house and paying off her mortgage
Pay off her car loan so she’s debt-free
Cutting unnecessary life insurance policies
Increasing the amount Robin was saving for retirement
Consolidated her pensions into a single account
Incorporating tax planning into her retirement plan
Pushing her social security benefits

Robin had only been saving 10% for retirement (with a company match). We told her she’d have to save 29% of her earnings for retirement. We looked at her social security and decided she had to wait and claim her benefit until age 70 when her social security benefit will be completely optimized.

These were the biggest changes we made. It’s been several years now and Robin is on track to retire in 2024. Every time we meet, she brings up the pre-retirement assessment meeting. It was a huge wake-up call for her. The years leading up to retirement are the perfect time to get an opinion on your retirement plan.

While Robin’s example doesn’t happen to everyone, there may be some gaps you need to fill. If you need help filling those gaps and want to be prepared for retirement, connect with me to get your pre-retirement assessment today.

Resources & People Mentioned