Educational

Three-step retirement plan for engineers

Career Update: A three-step plan can help engineers begin engineering retirement planning with a checklist, looking at employee stock ownership plan (ESOP) details, anticipated spending, choosing a date and revisions over time.
By Bill Keen December 7, 2019
Bill Keen is founder and CEO of Keen Wealth Advisors. Courtesy: Keen Wealth Advisors

Engineers face challenges when it comes to retirement planning, but they can lower risk by approaching it as an engineering project. Engineering industries ebb and flow, with firms laying people off in one division while another is thriving. The Health and Retirement Study from ProPublica found 56% of employees over age 50 were laid off at least once or forced to leave jobs before they were ready.

Given the cyclical nature of engineering, individual odds could be even worse. But it’s not just layoffs. Some engineers leave because they’re unable to diversify the personal wealth they have invested in their company’s employee stock ownership plan (ESOP) as much as they’d prefer. Others leave due to changes in leadership, or for health reasons — either personal illness or to become a caretaker.

No matter how engineers arrive at that moment, preparation helps, just like with any engineering project. Engineers are process-oriented, which means they appreciate an approach to retirement planning that treats it like a project with specific steps and measurable outcomes.

A three-step plan can help engineers begin engineering retirement planning with a checklist, an ESOP discussion and look at an important piece of the puzzle that should not be overlooked after the three steps are completed.

1. Engineering a retirement plan

To get an idea of current status, start with your assets: property (such as a home), ESOP, 401(k), IRA, Roth IRA, bank and savings accounts, trust accounts, social security, pension plans, etc. Then, take stock of liabilities: mortgage, consumer debt, college or small business loans for children. Check to see if the sum of liabilities are higher than anticipated.

During this assessment, remember social networks and reputation are huge assets during the next phase of life, whether it’s consulting, mentoring or working part-time.

ESOPs are common in the engineering world. Three key points about ESOPs for engineers:

  1. Beyond an ESOP, contribute to a 401(k) retirement plan to provide diversification. Don’t rely on an ESOP alone, even if it worked well in the past. If possible, maximize 401(k) contributions.
  2. Know how the ESOP plan works. Study ESOP details such as when ESOP shares may be diversified, what is the vesting schedule, what investment options are available outside of the ESOP shares, how forfeitures and reallocations work with respect to former and current employees, etc.
  3. ESOP timing is everything. Keep in mind that upon retirement, ESOP investors may be forced out of this privately-owned security. Also consider liquidity. With an ESOP, the stock is privately held and valued annually or quarterly by an outside party. Timing will affect a retirement date and the ability to liquify assets, so know how it works.

2. Engineering a spending assessment

Reassess spending data abut two years from retirement. This information is needed to have an idea of the money needed each month during retirement.

Some engineers already have this data handy; others have created a rhythm and know the approximate range of monthly spending that’s worked for them for a while.

If this data isn’t handy, look at the last two years of spending. Be as granular as possible to determine where the money goes each month. Doing this exercise with a spouse or life partner ensures couples are on the same page about finances. Adjust for anticipated changes after retirement.

3. Engineering retirement timing

Set an ideal retirement date after assessing assets, liabilities and spending. Those levers tell when retirement is affordable. From there, set a date when to begin enjoying the next phase of life.

In retirement planning classes, a common question to ask is: “When is the best time to retire purely from a financial standpoint?” Audience members always give thoughtful answers, but never get the right one.

The best time to retire? Never.

From a financial standpoint, it’s always going to be better to work longer, save more and delay spending down assets another year. However, there comes a crossover point for every person where another year working isn’t worth another year of earnings. At that point, it’s time to retire.

Another common question is, “When should I start planning for retirement?”

In an ideal world, as soon as working begins to create the longest possible glide slope. Ten years should be the minimum for planning. [Note: Saving for retirement differs from planning and should begin when work begins.]

Remember: the chosen date could be changed by circumstances beyond anyone’s control. Working with a decade-long time horizon, it will be easier to make decisions, and last-minute scrambling may be less. For those behind on planning, it’s never too late to begin making smart decisions.

How a retirement checklist will change

This checklist helps engineers begin assembling the pieces required for retirement. However, if and when circumstances change, remember to update the checklist.

Pilots often know a plane’s pre-flight checklist and emergency procedures forward and backward. Doing so lowers risk when in the air. If the pilot switches planes, using the prior plane’s checklist and emergency procedures would create terrible results if something went wrong.

Life will change before retirement, especially if planning begins 10 years out. Update the checklist regularly, and when the day comes, a stabilized approach and smooth landing will be more likely.

Bill Keen is founder and CEO of Keen Wealth Advisors; Edited by Mark T. Hoske, content manager, Control Engineering, CFE Media, mhoske@cfemedia.com.

KEYWORDS: Engineering retirement, retirement planning

Engineers can look at retirement as an engineering project.

Assess retirement spending as part of the plan.

Revisit and update the retirement plan.

CONSIDER THIS

Retirement: If you fail to plan, you may plan to fail.


Bill Keen
Author Bio: Bill Keen is founder and CEO of Keen Wealth Advisors.