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RETIREMENT BOOT CAMP LESSONS

Two North Carolina investment advisers help clients shape up fiscally. Follow along.

New York Times

Marcia Tillotson and Joy Kenefick aren't your typical drill sergeants.

They run what they call a retirement boot camp, aimed at making sure their investment clients who are contemplating retirement know exactly what they're getting into. The exercise focuses primarily on finances - the two women are partners in a financial advisory practice that is part of Wells Fargo Advisors in Charlotte, N.C.

But the women also make sure their clients understand what retirement feels like. They point out that retirees suddenly have no place to be each day, which may not be as blissful as it seemed beforehand. The paychecks stop coming. And after years of dutifully putting money into savings, retirees have to get used to watching their accounts dwindle.

The boot camp - an extended version of its military namesake - is generally aimed at people a year or two from retirement. The exercises may offer broad lessons for those who think they may be ready to stop working.

"It's really a way to simulate retirement," said Kenefick, who, with Tillotson, has been using the boot camp for about a decade. "It's a way for people to really wrap their arms around something that is so abstract, and scary and permanent."

The two advisers require preretirees to complete a checklist of exercises, including taking a hard look at where their money is going and making sure they're on track, for instance, to pay off the mortgage. (That's a non-negotiable must-do before retirement, the two women say.)

Naturally, participants can't quit their day jobs. But they're required to save a disproportionate amount of money in tax-deferred accounts like 401(k)s. That helps mimic what retirement will feel like: The increased savings lowers the amount of money the preretirees have to live on, while also reducing the taxes they pay (retirees generally tend to fall into lower tax brackets). Since they're saving so much, the participants need to draw on their regular cash savings accounts to supplement their living expenses.

"We've become so ingrained to save, it becomes hard to live on those savings," Tillotson said. "It's a scary thing to do."

The exercise also gives preretirees a convenient excuse to turn down expensive obligations. "It allows you to beg off of things you may have had to participate in for one thing or another," Kenefick said.

Boot camp usually lasts about a year, and about eight of 10 preretirees who go through the drill decide to work a little longer than they initially planned. "They either realize they aren't ready for retirement," Kenefick said, or they "realize they are ready, and it becomes a game."

Drill practice

Here are some of the drills

Marcia Tillotson and Joy Kenefick use to assess clients' retirement readiness. Tillotson and Kenefick, registered investment advisers and portfolio managers, charge their clients 1.35 percent of assets annually, on average.

Spending: The most important exercise is arguably the first: a thorough cash-flow analysis. That includes taking stock of every expense for the past year, including insurance and vacations. "The purpose of it is to determine what your lifestyle costs," Tillotson said.

Once you reach that number, it's easier to determine how much in savings will be required to support that lifestyle and how close you are to that goal (factoring in expected Social Security income, pensions or other sources). At that point, the advisers determine whether preretirees are living within their means, and may recommend cutting back so they can save more. The analysis also lays the framework for creating a budget, which will help keep spending in check.

Net worth statement: This looks at your assets and liabilities. On the asset side, the advisers assess how much money is in tax-sheltered accounts vs. taxable accounts and whether, say, cash accounts need beefing up. They also look at real estate and determine whether, say, a vacation home should be sold.

And if your mortgage isn't paid off, well, you probably shouldn't retire, the advisers say.

Goal setting:This step allows you to visualize what retirement life will be like. Do you want to travel? Volunteer? Take a part-time job?

At this point, you need to consider whether it's more important to retire by a specific date or whether you should wait, save more and live more comfortably later. "We are establishing their goals and putting price tags on them," Tillotson said. Is spending on the grandchildren a priority? "It's fine if that's your entertainment, but it means you're not going to Europe."

Tax planning: Many workers never worry about withholding taxes since they are automatically deducted from their paycheck. That all changes in retirement when the checks stop coming in.

The advisers suggest asking an accountant to perform a tax projection that includes whether it will make sense to pay taxes quarterly or annually (and whether you should have taxes withheld when you withdraw money from your IRA). You also need to figure out what else may be taxable, like Social Security. That way, you can work these numbers into your budget and figure out how much tax money to set aside.

Estate planning: Updating your estate plan is important. Earlier in life, you probably had fewer assets and, if you're a parent, you were probably more concerned about the guardianship of your children. Now, you may want to name one of those children as the executor of your estate (or perhaps set up a trust for a fiscally irresponsible child).

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