Are you prepared for 30 years in retirement? Our working years yield us a regular income, either through a job or a business, as our particular professional path lies. With that regular, steady income we are able to take care of our monthly financial needs and responsibilities, providing a solid sense of security and comfort. We can enjoy the peace of mind and confidence that comes with knowing that the monthly bills are matched by a monthly income.Still, it’s not how much you make, its about how much you keep.
Along the way, we are advised to create an emergency fund that can carry us for three, six months or a year. When you retire, your savings is actually an emergency fund that has to last for 30 or more years!
If you’re going to quit your J.O.B., you’re going to need I.N.C.O.M.E. The monthly bills never stop. So, having a secure monthly paycheck creates a feeling of comfort, control and security that supports your happiness. Paychecks and playchecks. Our early years are often fun-and-games as we grow up and find our pathway through life. Then, these fun-and-games years are followed by some 100,000 working hours spread over 40 years. How good would it be to know that when you think “next,” you are again looking at 30 + years of fun-and-games?
An income may be the outcome that matters most. For that, the government has created tax shelters in the form of 401(k)s and IRAs that allow us to grow money tax deferred, to fully take advantage of the power of compounding. Almost any type of investment is permissible inside an IRA, including stocks, bonds, mutual funds, annuities, unit investment trusts (UITs), exchange-traded funds (ETFs), and even real estate. In retirement, you need to transform assets into income.
While the stock market may be a great place to grow assets over time, it was never designed to provide you with a steady, secure monthly income for life. When the market is up in retirement, we tend to feel good and withdraw money, when the market is down, we are often scared to withdraw money. Also, if you are withdrawing principal, your nest egg is getting smaller and smaller. You don’t know how long it will last, so you live a “just in case” retirement. This affects your quality of life. If you have a secure monthly income with a check that comes every month, no matter if the market is up or down, you can spend it, knowing another check will arrive next month, and the month after, etc. What happened to those who planned to retire around 2008? Some had 50% or more of their retirement nest egg wiped out. This is called the sequence of returns. In a 30 year retirement, this could happen 2 or 3 times. Protecting your nest egg against market volatility is key to a happy retirement.
Even though the market does recover over time, you have less in your accounts to work for you to get back to the breakeven point, and if you are forced to take withdrawals, even less. Then there is the element of time. When you are recovering, you are not getting the compounding effect you would have. Once time is lost, it is not recoverable.
This is why Assets Risk Management takes a defensive approach when it comes to your money. By using investment vehicles that have built in loss protection, you can be in a position to not lose your principal or your locked in gains due to market volatility when the market takes a nose dive. You can protect yourself from losses, and then get the gains from the recovery upswings without waiting to return to the breakeven point.
What are our retirement income choices?
- Dividend paying stocks– They lower the payouts when times are difficult and may stop them altogether. Paying dividends often reduces the growth of the stock. Dividends are paying shareholders the excess profits of the company vs. the board using the funds to grow the company.
- Bond portfolios– Today, safe bonds pay 1-2%. On $1 million that’s $10,000-$20,000 in annual income. Higher paying bonds paying 3-4% may represent a greater risk of default.
- Real Estate– This can provide good income while the property is rented. You also benefit by the appreciation of the property. Income would stop at times when vacant. You may get tired of being a landlord over tenants and toilets as you reach your 70’s.
- Fixed Indexed Annuities (FIAs)– Can pay out secure monthly income withdraw rates for life. This income comes every month independent of what the stock market or interest rates are doing.
Also, a FIA is a great accumulation and growth vehicle. Using an index strategy, you have principal protection and you lock in the gains. You can either get some of the gains for none of the losses, or you can pay an annual fee to gain 100% of the upside. The index reflects the market as a whole and provides the diversification to protect against individual stock risk. As a matter of information, the S&P 500 index performance beats actively managed mutual fund performance 96% of the time. Mutual funds and stocks give you all of the up and all of the down (see above chart). They often have built in fees that are not visible, but significantly affect your returns. Defense is the best offense.
While we may like surprises in life, we like the surprises we want. The others are called “problems.” An ounce of prevention is worth a pound of cure. In each of our own particular professions, we work hard to be the best. At Assets Risk Management, we want to openly share with you how to build a higher quality financial house. Being better educated in finance is a life skill that can not only serve you, it can be shared and passed on to next generations. Money has a profound effect on our relationships with those we love. Being skillful in money compounds our personal value, and passing wisdom to those we care about can be that little bit of an edge that can make an exponential difference.
At Assets Risk Management, we study your current situation and then collaboratively design an “All Seasons Retirement Income Plan” that synchs with your goals and aspirations. Our process includes a review of your current pathway, the potential effect of market volatility on your portfolio, how the Secure Act impacts your retirement savings and legacy planning and what tools and resources are available to you to balance between security and growth in a financial portfolio. We develop long-term strategies and planning to create income for life. We also work with a team to look at the tax implications to your 401(k) and IRA and review how to put more money in your pocket and less in Uncle Sam’s.