Feeling like your retirement plan is weak in some areas? Here are five questions to consider when strengthening your retirement plan.
1) What, overall, tends to be the weakest part of the retirement picture for savers? Not having a pension, not saving as much on their own or thinking Social Security will be enough?
Companies offering pension plans with guaranteed income for life have the biggest impact on a retiree’s future. However, today many people have to take the on onus of their retirement saving outside of a pension. In general, we have not done a good job of funding our own retirement plans. Retirees must also understand the nuances of creating an efficient income stream from their investments making sure they have: the necessary growth; reduced portfolio volatility; and the most tax efficient distribution method once they begin withdrawing from their portfolio. If these components are covered they can make whatever they have saved last as long as possible.
2) How important is it for investors to have an accurate calculation of how much money they’ll need for retirement? What specifically should they be anticipating that they may not be? Higher or lower living expenses? Medical care? Taxes?
It’s imperative for a retiree to have a Retirement Income Projection Analysis (RIPA) done BEFORE retiring to review before and after scenarios to determine where you are, where you want to be and what changes need to happen in order to get you there. RIPA helps you answer your most important questions: Do I have enough of the right stuff? When can I retire? and What do I need to do to make my income last a lifetime? Unlike numbers in a chart, our RIPA (using actuarial science) calculates the actual value or Alpha you will get by deploying our strategies. It’s a powerful and reliable tool for making informed decisions.
The RIPA factors together a number of variables including: your income sources (such as 401(k)s, pensions and Social Security), investments and a number of other critical variables such as your risk tolerance and volatility to provide a valuable snap shot of your current situation. A RIPA will your debts and expenses and make sure you have a good handle on how much income you’ll need in retirement to support your desired lifestyle. This comprehensive analysis is a critical first step in determining how to get more, keep more and have more in retirement. At Your Retirement Advisor, our proprietary Retirement Income Projection Analysis is a powerful eye opener for many clients and the basis of a solid retirement plan. The results of the RIPA help us address the following questions:
- How will you generate your retirement income and will it last a lifetime?
- How to suitably invest retirement assets for growth, while minimizing portfolio volatility and preserving principle?
- When to apply for Social Security to try to maximize income benefits?
- What’s the appropriate income distribution method to utilize, which reflects each client’s individual needs?
- How can you reduce your taxes as close to zero as possible?
- What will the estimated cost of insurance (long term care, healthcare/Medicare) affect your income?
3) How important is it for investors to get their Social Security timing right if they’re going into retirement without a pension or low personal savings?
If a retiree doesn’t have a pension or minimal retirement savings, he/she will likely need to claim their benefit as soon as they retire since this is their limited income. If the retiree chooses to work part time to supplement their Social Security benefit, they must understand the rules that will reduce their Social Security income based upon the part time income earned. A person can earn up to $16,920 (in 2017) with no reduction to his/her benefit. Above this amount, $1 in Social Security benefit will be withheld for every $2 of earned income over this limit. In the year you reach full retirement age (66-67), you can up to $44,880 of annual income (2017) without having a reduction in benefits. However, if you exceed this amount, Social Security will deduct $1 from your benefit for every $3 of earned income. After full retirement age, there is no offset so you can earn as much as you want. When a retiree has more assets, it’s more important to properly analyze and time your Social Security filing to offer the best long term income stream and survivability of the portfolio.
4) What can investors do to strengthen their plan and ensure that they’ll have enough retirement income? Should they shift more of their portfolio to dividend stocks, for example? What
about annuities, how do they fit into the picture and who would benefit from purchasing one?
We believe that retirees should implement these Income Planning components for the most favorable retirement outcome:
~ Portfolio Risk Reduction Strategy – Statistical analysis proves that a portfolio with lower volatility or risk, for any given rate of return, will last longer when taking withdrawals for income. We believe you need to “stress test” your current retirement against many different market environments to assure you portfolio will survive across both negative and positive environments.
It’s almost always beneficial to utilize a combination of globally diversified stocks, fixed indexes annuities and income annuities. We believe the Multi-Discipline Retirement Strategy (MDRS) we employ offers the right blend of growth and risk reduction. It combines guaranteed Fixed Index Annuities (FIAs) with a globally diversified stock portfolio to reduce portfolio risk while potentially increasing portfolio returns.
~ Tax Efficient Withdrawal Strategy – Create a tax efficient income distribution strategy by utilizing proper withdrawal sequencing and efficiently converting taxable accounts to tax-free accounts. The goal is to reduce or potentially eliminate taxes in retirement which will increase the probability of portfolio survival and add 5-10 years or more life to a portfolio.
~ Social Security Timing – Evaluate multiple Social Security filing strategies to determine the most efficient strategy to maximize this benefit. Properly filing for this benefit can increase portfolio survivability by 5 years or more.
~ Efficient Portfolio Management – Proper portfolio management utilizing a high quality, low-cost portfolio of globally diversified stocks can potentially increase long-term returns. Leading research indicates that combining passively managed Index Funds or ETF’s with alpha generating high quality active investment managers can potentially create positive portfolio alpha effect.
~ Home Equity in Retirement – Leading research indicates that the use of home equity in retirement will increase the probability of portfolio survival and increase the legacy to loved ones. HECM Loans or Reverse Mortgages have been called the “Swiss Army Knife” of retirement planning since they can be utilized as part of many diverse retirement planning strategies.
~ Reduction of Fees – Fees are an issue in the absence of value. It is imperative that the fee you are paying to a mutual fund company, an investment advisor or insurance agent incorporates the above components and the fee should be below average. All facets, not just investment planning, should be incorporated in the overall planning process. Proper Investment planning is a crucial component to the success when in retirement, but is just 20% of the overall process. Just like a weight loss program, if one component is not being addressed it will negatively affect the overall probability of your success. By paying less than the industry average fee of 1.65% on a $500,000 portfolio, a retiree can add significant value to their portfolio.
To find out if we can help you strengthen one or more of the legs of your retirement stool, give us a call at 978-345-7075 or email us at email@example.com