Happy June! Yay, no more school zones for a while. Watch out for more kids on the road though.
So, this month I thought I would focus on one of the most important aspects of retirement; outliving your assets. I know, for most of us, this hits a nerve. We work our entire lives and hopefully try to put away money for retirement. But, is it enough? Just as important is not losing what we’ve saved to market downturns. If you’re in your 30s and the market crashes like it did in 02 and 07, well, okay. You have time to rebuild. If you’re 65 years young, we have a problem. Some people say it’s ok, the market always comes back. Well, yes. But, did you know that if we have a 50% decline in the market (your investments, 401(k), IRA, etc.) we would need a 100% rate of return to fully repair the damage? It’s simple math but people sometimes don’t make the connection. There’s also the big one that none of us want to think about, but as a planner, I don’t have that luxury. The loss of a spouse, including their pension and or social security income, can be devastating. We have strategies to help with all of these events, but we have to plan before they happen.
If we have losses or just run flat when we’re earning an income, I don’t like it but I can still pay the bills and eat. If I’m taking money from my investments to live, that’s a problem.
Like a lot of folks, you may want to downsize. If you’re lucky, you’ll have some equity in your home to cover the cost of the move. Maybe even some left over to invest and take income from. I’m talking to you, California. Healthcare surprises can pop up too. If you’re stuck in under-value bonds, you’re going to lose money selling to cover an unforeseen expense like big dental problems, that one expensive drug, or cancer treatments. There are other things out of our control like car repairs, major appliances, or God forbid, a new roof!
If you turned 65 and were planning on retiring in 2007 to 2008 and lost almost half of your retirement nest egg, what would you do? Keep working? Maybe. What if you retired already? Now what?
So, what we used to do is adjust the portfolio to bonds. As we got closer to retirement, we would, over time, shift assets from equities (stocks) to debt (bonds). This doesn’t work in today’s economy. Rates on bonds and CDs are too low. As rates go up, the bonds lose their value. Most brokers understand this. The problem is that most brokers don’t know what to do and are usually constrained by the firms that they work for. I often see portfolios of seniors that are heavily weighted in mutual funds, still adhering to the old way of allocating assets. The good news for the broker and firm is that they get big fees and usually sell the company-branded products. That’s conversely the bad news for the client.
What if there was a company that was independent of a big wirehouse brokerage firm? What if this company’s primary mission was to assist folks over 65? They would have to be in a position to be experts on the specific issues that face seniors. They would certainly have to have a large portion of the portfolio in guaranteed and insured vehicles. They would have to keep fees as low as possible or even no fees, and have an emphasis on greater income-type offerings, right? The answer is yes. American Retirement Advisors was founded on these very principals. We will even go the extra mile and, with hundreds of companies at our disposal, we can try to save you money on coverage to cover the majority of the unforeseen expenses that come up over time.
Call any time. Let us see just how much we can help you have a smooth, financially certain retirement.