As I started reading this Smart Money article it seemed to be similar to the dozens of writings I read each week in search of information that will benefit your retirement analysis. It didn’t take long to realize that several points made relate directly to information from our pension series that was recently completed. I’d like to point out the similarities to add weight to my pension analysis and give you the opportunity to see it from a different angle. Read the article here.
This article relates directly to the 3rd installment of the pension series- Why Traditional Planning Doesn’t Work for Retirement Income. It talks about how money managers have been focused on general investment strategies that don’t work the same way while distributing assets.
While the value total return managers have added to personal finance is without question, strategies need to be shifted in whole or part depending on what stage you are in life. Asset allocation is a very specific formula based on several individual factors. Your diversification across all asset classes is and should be much different than it was 20 or 30 years ago.
Here are a few key statements that echo the analysis in the pension series…
While you are working, a regular paycheck allows you to ride out market volatility- the key here is to realize that you’ve had steady income while saving for retirement. That gives you flexibility with investments so periodic volatility doesn’t affect your lifestyle or spending patterns. Income in retirement should be no different.
Once you retire, you can’t afford to wait for bear markets to recover- with a majority of assets exposed to market risk, you’ll no doubt see disappointing performance at some point. That will mean constant spending adjustments to keep from running out of money.
Diversified portfolios work if you have a long time horizon and don’t need the money- the lower your income needs are in relation to your level of assets, the more shock your portfolio can absorb. Regardless, taking withdrawals from a battered portfolio is never an efficient way to manage money as it forces you to sell assets at rock-bottom prices during bear markets.
The job of financial management in retirement is more difficult when trying to plan for income, tax reduction and assett growth regardless of market conditions. It’s not really that much harder but does take a different line of critical thinking.
In order to get the most from your advisor, the article offers a few good questions you need to ask:
How will you produce income in retirement?There are far too many associated risks with simply attaching a withdrawal rate to savings.
What happens when the market enters a down-cycle?With proper guarantees in place, lifestyle adjustments won’t be necessary during inconvenient market periods.
What is my probability of success?Consider how your retirement income portfolio would have performed in the past. Also take note of what your investment experience has been in the past. You’ve experienced long-term growth but also experienced disappointing losses. Be sure to design a plan that takes all contingencies into account.
Accumulation strategists have been focused on long-term asset growth that comes with volatility that produces favorable results over several years or decades. Retirement income planning requires more stability and although specialized planning strategies are gaining more traction, common advice is still dominated by traditional accumulation philosophy. It’s critical to consider the difference as you work toward making individual plans.
This article does make it sound like income planning is more technical but the actual products and strategies you use are much simpler. It’s just not that hard. That’s because those products deal with contractual guarantees, not projections and shouldn’t scare you away with simplicity. Technical language certainly doesn’t lead to a higher probability of success. Maybe it’s time for someone who gives it to you straight.
Is my age an issue for you? Many people have expressed reservations so I’ll confront that right now. It shouldn’t be… by choosing an advisor who is of similar age, you are dealing with another individual who wants to retire as well. What’s he going to do when you call him in 15 years with a problem? My guess is you’ll get a successor who is my age, giving the same advice the mentor taught… buy low, sell high and be patient, the markets will recover.
That’s not my game. If it’s not yours then maybe it’s time we had a meaningful conversation.
Thanks for your time and have a great week!
Bryan J. Anderson
800.438.5121
bryan@annuitystraighttalk.com
