Managing Income in Your Next Stage
We’ll take a common sense approach to retirement income planning.
For many people nearing retirement today, a significant portion of their parents’ retirement income needs were met through the combination of pensions and Social Security, allowing them to depend less on their personal assets for their monthly income. With the replacement of pensions with 401(k) plans and the uncertainty of Social Security’s ability to maintain future benefits, the responsibility to provide retirement income has been placed more and more on individuals. Retirees are now having to deal with longevity, inflation and investment risks that were not as significant issues for their parents.
What Can These Risks Mean to Your Retirement?
Longevity Risk
With advances in health and medical services, many people are living longer lives. As a result, you will need to plan for more sustainable income throughout your retirement.
Inflation Risk
As you live longer, you’ll be more exposed to rising prices. Applying even modest rates of inflation to everyday expenses over long periods of time can seriously erode your purchasing power.
Investment Risk
While you’re in your prime earning years, you can typically replenish savings if you incur investment losses. In retirement, that may be difficult or not possible.
How Long Will You Live?
A 65 year old married couple has a 50% probability of at least one partner living beyond 91 years old.
Retirements lasting 20, 30 and even 40 years are becoming commonplace, and these longer time spans must be considered when planning for income.
50% of men will live to 85+
50% of women will live to 88+
50% probability one spouse will live to 91+
Source: Annuity 1000 Mortality Tables
Strategies to Help Manage Your Risk
As you transition from wealth accumulation to income distribution, your strategies should also change. During accumulation, goals are focused on achieving the highest returns consistent with the risk you were willing to take. In distribution, the primary focus is increasing the reliability of your income while taking only the risk necessary, similar to the way a pension is managed.
Outcome-Oriented Investing | Time-Segmented Methodology
Customized
The time-segmented strategy divides your retirement into separate segments, each with a different investment objective and time horizon. The number and length of segments are customized to your cash flow needs.
Diversified
The goal of the first segment is to produce income immediately through the use of products with little to no stock market risk. The later segments can be invested more aggressively with a higher target rate of return than the last.
Systematized
After each segment is spent, the next segment will then be converted to a similar product as was used in the first segment. This allows your long-term money to stay invested in the market for potential growth.
1 “No Market Risk” refers to the use of an income vehicle such as an immediate annuity, CD’s, a money market or other vehicle that is not invested in the Stock Market.
Your Advisor Acts As the Conductor
It all starts with managing your plan.
Creating a properly designed and personalized retirement income plan is a key first step. It is also just as important to have someone to manage the overall plan. Your financial advisor can work with you to manage your plan and help to ensure it meets your needs moving forward. Periodic adjustments will be made along the way due to life events, changes in need, or opportunities to reduce investment risk.
What Goes Into Orchestrating Your Retirement Performance?
