Retirement Planning

                            Is your retirement safety net in place?

I specialize in Retirement Asset Management and Retirement Income Planning.  My practice focuses on individuals age 50 and over who are approaching retirement, transitioning into retirement, or who are retired. 

The 10 years before and 10 years after retirement begins may be the most critical time in a person's investment life because planning and investment decisions made during this period have a tremendous impact on the final outcome.  This 10/10 period of time is comprised of three distinct phases: Retirement Readiness, The Transition, and Retirement.  Each stage deals with specific and important issues as described below.

   
Retirement Readiness

 
The 10 years leading to retirement - when most people move into their peak earning years - are typically when individuals are in a financial position to make a concerted effort to accumulate retirement assets.  As they get closer to retirement, investment returns earned, or losses incurred, generally have a significant impact on the degree of their retirement success. 

The focus during this period of time is on asset accumulation.  See the section on Defensive Investing^TM for a discussion on investment strategies and the importance of attempting to minimize investment losses leading up to retirement. 

The following are some of the important questions that I feel need to be addressed:

• What are your passions, hobbies, or vocations?  What do you enjoy spending time doing?  What gives you a sense of fulfillment and satisfaction?  What matters most to you?
• What lifestyle and spending patterns do you see yourself enjoying during retirement?
• What are the total of assets you need to accumulate to support that lifestyle?
• How realistic is that goal?
• How much do you need to save and invest to make that happen?
• What investment returns do you need?
• What is your financial and emotional tolerance for risk, that is, for portfolio volatility, uncertainty, and potential loss?
• What investment strategies should you use?
• How can you improve your odds of success?

In addition, this would be the time for discussions on issues dealing with potential long-term care, wills, trusts, and legacy planning for heirs. 

Fidelity Investments and AXA Equitable have produced excellent brochures that address many of these important topics.  Click on the title link to view.

• Improving Retirement Readiness - Laying the Groundwork for a Financially Secure Retirement,
• Retirement Income Planning - America’s Lifetime Income Challenge. 
• Considerations for Building a Successful Retirement.
   

 The Transition

Individuals have reached their desired retirement age and are ready to retire.  This transition is loaded with critical and often irrevocable planning decisions that must work out because, once retired, there may not be the time nor the opportunity to undo those decisions. Most of this planning should be done months in advance.

The main planning focus for the Transition is on retirement income strategies.  Saving for retirement is only half the challenge – the other half is devising a plan to make those savings last a lifetime. 

Today, many retirees are facing financial challenges as a result of longer life expectancies and the concern of out living their retirement savings.  The transition from an "accumulation" portfolio to a "distribution" portfolio is critically important.  Traditional asset allocation models focus primarily on accumulating retirement savings, but very few models focus on the unique financial issues concerning retirement income.  It is important for retirees to establish a prudent withdrawal strategy which does not threaten one's long-term financial success. 

Investment risk is redefined.  Conventional wisdom defines risk as a measure of the ups and downs of an investment, commonly referred to as volatility.  However, this limited view fails to consider the risk of premature depletion of retirement savings.  A more valid definition of risk should identify and balance a portfolio's volatility with the portfolio's probability of not running out of money.  Generally, for retirees, a successful income portfolio is one that lasts a lifetime.

Using an analogy of climbing a mountain, the greatest risk is not the struggle to reach the peak, but returning safely to camp.  The decent is when most fatal accidents happen because of inattention, fatigue, mistakes, haste, or external factors such as a severe change in weather conditions.  Similarly, the greatest financial risk you face may at retirement, after reaching your peak in asset accumulation, is to make sure those assets last for your lifetime - for a journey of unknown duration with unforeseen events and unexpected expenses along the way.

Generally there are three components that will largely determine your retirement success:

• Inflation-adjusted Withdrawal Rate,
• Asset Allocation, and 
• Sequence of Investment Returns.
  

Of the three, the withdrawal rate and the investment strategies are the most able to be controlled.  The sequence of returns cannot be controlled, but the uncertainty of market behavior may be addressed with investment strategies that have historically given the highest probability of success.  Keep in mind that past performance is not a guarantee of future results.

Planning for the Transition can cover wide range of topics such as where to live, budgeting, cash-flow, rollover decisions, taxes, inflation considerations, longevity planning, asset allocation, withdrawals rates, health care expenses, and long-term care planning.  A comprehensive financial plan, or a more focused analysis, can be very helpful in clarifying some of these complex issues and often interrelated decisions, and provide a clear picture of the options.  See the section on Financial Planning Services for a description of my services. 

The Fidelity Investments brochure Retirement Income Planning - America’s Lifetime Income Challenge is very informative on many of these topics.  Please pay particular attention to Section 2 – The Challenge: from wealth-building to lifetime incomes, and Section 3 – Five key risks to lifetime income.  See also The Five Questions All Retirees Need to Address.

Retirement

 
The 10 year period after retirement may represent only the first part of a long retirement.  People are living longer, and retirement assets often need to last 30 years or more.  According to Fidelity Investments, most people underestimate their lifespan and risk outliving their assets.  For example, for a couple aged 65 there is a 50% chance one partner will be alive at age 92, and a 1-in-4 chance one will live to age 97.

The focus during Retirement for most is on income reliability, inflation protection, and asset preservation.  Generally, retirees biggest concerns are having sufficient income and not outliving their money.  After the first few years, retirees are able to see if any adjustments to their plans are needed.

• Have there been any major changes to your income or expenses?
• Have there been any changes in your desired lifestyle?
• Have there been any health issues?
• Is your income keeping up with inflation? 
• Is your portfolio performance on track? 

Like periodic medical exams, a financial check-up every two to three years may be a wise decision.  As with health issues, it is always best to catch any financial divergence early.  The topics covered in the Fidelity Investments brochure Retirement Income Planning - America’s Lifetime Income Challenge also apply here. 

 
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