Planning Retirement

Most people would be thrilled at the prospect of 10% average annual returns or higher in retirement. But now that folks are living longer, they face more challenges than just adequate returns. With decades of retired living on the horizon, people must ensure their portfolios last as long as they might need them.

Sequence of returns risk can affect your long-term income the most in your early-retirement years. That is the timespan just before and right after you retire. You may have heard of that period called the “retirement red zone,” or generally the 10-year spread prior to and after retirement.

It’s true that average returns (including dividends) for the S&P 500 from 1928 to 2021 have exceeded 10%. But averages can be deceiving for long-term income planning. What matters just as much is the order of returns, or the actual timing of when a portfolio grows or loses value. As we will see, losses in those early years could make or break your income goals, setting up the risk of running out of retirement money.

This potential hazard is called sequence of returns risk, or just sequence risk. To illustrate it, we will talk about it in two formats: by analogy and then through two hypothetical portfolio scenarios. Read More

If you are looking for someone to help you with preparing for retirement, you might have come across financial professionals with alphabet soup after their name. What those letters generally represent are professional designations.

These designations are programs in which an advisor has completed certain studies and exams in order to have professional recognition of their expertise in a certain field. For example, some designations for financial advisors cover retirement income planning.

Other designations deal with high-level knowledge and planning concepts around life insurance products. Then some designation programs recognize an advisor for high-level knowledge of overall concepts, such as around investments, retirement, taxes, financial planning, insurance, risk management, and estate planning.

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If you look at any financial commentary, there is at least an article a day talking about investment risk. Investment risk, or the risk of losses due to market downs, is always something that we should be conscious of. But, for retirement investors, there is an even bigger risk than investment risk: sequencing risk.

This type of risk can be more dangerous than pure market risk because of the effects that it can have on your long-term retirement outlook. This can have a nasty impact especially if your money takes a hit in your early retirement years.

Sequencing risk looks at the order in which your portfolio returns occur. If you take losses early in your retirement, then it will impact your finances for the rest of your life. And you might well spend the rest of your retirement playing “catch-up” from those losses, especially if you were already drawing income from your portfolio and compounding the effects of those losses even further.

Sequencing risk can have strong effects on people’s financial wellness that can span years. So, it’s critical to have a strategy in place for this possibility, especially if you are in the retirement red zone (within 10 years before or after retirement). Read More

Many Americans worry about whether they have saved enough to have a comfortable retirement. But, surprisingly, most haven’t actually crunched the numbers to estimate how much money they will need in retirement in order to live comfortably.

According to a survey by the Employee Benefit Research Institute, just 42% of Americans have attempted to calculate how much money they might need for retirement. In other words, almost 60% haven’t estimated how income they might require.

A Gap Between Retirement Confidence and Readiness?

In the survey, just 3 in 10 people said they have tried to estimate how much they might pay in healthcare expenses during retirement. These are sobering findings, considering that many people report they are confident in knowing how much money they need to live comfortably in retirement.

Six in 10 (67%) said they were “somewhat confident” about their understanding of their income needs. As for higher levels of assurance, two in 10 (23%) said they were “very confident.”

However, as the Employee Benefit Research Institute’s other findings show, the vast majority of retirement savers haven’t actually calculated how much money they might actually need. This could set retirement savers up for a future of unnecessary stress – and even reduced lifestyles. Read More

When you near retirement it’s an important life transition. Your approach to money matters will probably change. Now is time to examine portfolio assets and consider how you will use them for income to sustain your retirement lifestyle. A good retirement planning company can help you plan for this transition.

Retirement Planning Companies May Have Different Specialties

However, investors have many options of financial firms in today’s industry. Different firms can vary in the unique expertise to the table. Some companies specialize in investment management and others in financial planning, for example.

While similar in some ways to financial planning and investment management, retirement planning is different. It concerns advice on the distribution of money and how people will use the money for income needs.  

Business Type Also Matters

There is also the question of business organization. Some firms are just one of many broker offices for huge financial companies, while other firms are small, local businesses. Whether they have a captive or an independent status may influence the kinds and selections of the retirement products they can offer you.

So, all of this adds up to many retirement planning options for investors. How do you choose the right partner for you? Let’s take a look at some questions to answer. Read More

After we enjoyed the sweet ride of an 11-year bull market, market volatility is back in style now. Where things will go from here is anyone’s guess. But even more importantly, what about you and your personal outlook?

How can you take steps to protect what you have accumulated over the years? Can you do anything to help you ride out this wild wave of volatility?

You can, and there are steps you can take right away. If they make sense, some tools and strategies that you might consider could add more stability, predictability, and certainty to your portfolio.

Here are six ideas that you can put to work right now. Read More

Not everyone thinks this way, but the idea of ‘living forever’ appeals to many people. Or, at least, the thought of living a longer, healthier life.

There can be many upsides to living longer. Think about how you could share more in the lives of loved ones from younger generations. You would have a front-row seat to see exciting developments in technology and medical services.

You might have the chance to witness new history-making events. At the very least, it would give you the opportunity to see the impact of your lifelong legacy.

Over the past century, life expectancy in the United States rose by over 30 years. It’s no wonder why financial researchers say that people can spend as much as one-third of their lives in retirement nowadays.

Advances in healthcare, medicine, and technology have led to better management of childhood infectious diseases as well as improvements in healthcare for adults’ quality of life. Because of this, people face the prospect of longer retirements and more years that they will have to cover financially than was so in the past.

It’s clear that increasing life expectancy has and will continue to have big effects on retirement. Among other goals, the primary challenge is figuring out how much income you will need to sustain your preferred lifestyle over many years. Read More

Several factors come into play when you plan for your retirement. Your age, longevity, and the returns that you will earn from your retirement portfolio are just a few. In some form or fashion, all of those can play into your target retirement age.

But one frequently overlooked factor is the day that you will stop working. You may think that you will keep working until you are 70. Nevertheless, this is often an overestimation of how long you will stay in the workforce.

The fact is that you will probably not continue to work for as long as you think you will. That might be due either to health factors or the need to care for parents (or maybe other elderly family members).

This factor can substantially impact your retirement plans by either forcing you to forego retirement goals such as traveling and hobbies or live a significantly diminished lifestyle. Read More

A new year has dawned, and you can feel the anticipation in the air. People everywhere have scribbled down their New Year’s resolutions, as 2019 has swept in the allure of new beginnings.

A world of opportunity awaits!

Perhaps with a nod to another passing year, many of us will put eating healthier at the top of our list of resolutions. Hitting the gym more often (or even at all), being more productive with our time, and perfecting our work-life balance are perennial New Year’s Resolution favorites.

And for those in their 50s who have visions of their ideal retirement, the New Year is an ideal opportunity to take stock of what they want to achieve. It’s a time to evaluate where they are in terms of reaching that goal, and to reflect on whether they need to create or refine a retirement plan that will help them get there.

Especially for those who are planning on retiring within the next five years, here are three New Year’s Retirement Readiness Resolutions. Read More

For skiing enthusiasts, the concept of ups-and-downs is quite exhilarating. Just the thought of cutting powder on tall, sloping moguls can make even the “hard cores” blush.

But as recent market volatility reminds us, the goodwill doesn’t apply to ups-and-downs in every situation. Sometimes it can bring just the opposite.    

Earlier this month on Morningstar, Director of Personal Finance Christine Benz observed how equity market down-spurts can disrupt a retirement portfolio.

Portfolio losses might not matter as much as when people are younger, as they have time to recover – and to grow past the point when portfolio asset values dipped. In fact, Benz writes, for those with many years to retirement (or under age 50), “not taking full advantage of the historical outperformance of riskier asset classes is a bigger risk than being too conservative.”

But as retirement draws near, some flight to safety may well be a prudent course of action. Benz explains: “At that life stage, you’re much more vulnerable to what retirement planners call sequence of return risk. That means that if you encounter a calamitous equity market early on in retirement and need to spend from the declining equity portfolio, that much less of your investments will be left to recover when stocks finally do.”

And what if a portfolio has gone into reverse mode? “Your only choice to mitigate sequence of return risk–assuming your stock portfolio is in the dumps and you don’t have enough safe investments to spend from–will be to dramatically ratchet down your spending,” Benz says. “Needless to say, that’s not something most young retirees are in the mood to do.”     Read More