Helping You Protect Your Money. Helping You Protect Your Future.
Here’s a puzzler for you.
What are the odds that you’ll be better off over the next 10 years if you hold your retirement portfolio in boring Treasury bills, money-market funds or certificates of deposit rather than if you hold it in a diversified, low-cost U.S. stock index fund?
If you think “no chance,” or “that’s crazy,” sorry, but you have to stay after school.
If you think “1 chance in 50” or “1 chance in 20,” ditto.
Based on the historical record the correct figure is about 1 in 6. At least, that’s how often deposits have beaten stocks over any given 10-year period since the 1920s. Deposits won more than 15% of the time. (With no volatility, either). And if you just look at 5-year periods the odds deposits rise still further. They were a better investment than stocks in more than 23% of 5-year periods. Nearly 1 time in 4.
Oh, and this is looking at the S&P 500 index. Even low-cost index funds will underperform the actual index because of costs, and nearly every large U.S. stock fund with an actual manager will do even worse than that.
The goal here is not to panic anyone, nor to get people to sell their stock funds, nor to predict doom and gloom for the U.S. market. This is simply the historical record and one that should be taken seriously, since history does tend to repeat itself over time.
According to the ancient Greek philosopher Heraclitus, “no one can walk through the same river twice, because the second time it’s not the same river and you’re not the same person.” Boy, has this ever been more true than when applying it to financial history and today’s US stock market trends?
Sometimes, especially for more mature investors, it may feel a little bit like de ja vu. For younger investors, we just don’t know how far the next 5 or 10 years will resemble the past, but we do know that equities, stocks, and other securities can lose value- powerfully and swiftly. So, it makes sense to practice some safety in your portfolio no matter what your age.
Let’s call this a dose of realism to younger investors saving for their retirement who haven’t yet experienced a major market decline in their adult lives. Many of today’s investors have been subconsciously conditioned by decades of Federal Reserve manipulation to think that when it comes to stocks the only way is up. And that is just not true.
These thoughts were provoked by a staggering new survey from money management firm Natixis. Dave Goodsell, executive director of the Natixis Center for Investor Insight, says the median U.S. millennial investor EXPECTS their investments to earn 20% a year, on average, over the long term.
No, really. And those aren’t even “nominal” returns. Those are actual returns that the millennial generation really expects to receive on top of inflation.
And across all age cohorts, he adds, the median U.S. investor expects average returns of 15% a year. Again, on top of inflation.
The actual historical average? Over the past century or so, large U.S. stocks have beaten inflation by less than 7% a year a year—over the long term. To put that in context, it means that over a 20-year period, today’s young investors are overestimating their total returns—thanks to compounding—by a factor of 10.
Goodsell stated in a recent interview that barely one-third of investors in their survey expect real returns averaging less than 10% a year over the long term. Among millennials it’s barely one in 5.
No wonder, when millennials were asked to define financial “risk” in the survey, hardly any considered “losing wealth” (12%) or “not meeting financial goals” (13%). It is true that more than twice as many identified “volatility” as risk, but that contradicts their performance expectations for stocks and other similar investments, and this requires a reality check because if volatility doesn’t actually lead to a loss of wealth, or a failure to meet financial goals, do they truly see it as a “real” risk?
OK, so it’s just a survey. But even if these figures are directionally correct, vast numbers of retirement savers in their late 20s and their 30s are living in somewhat of a La-La land. In fact, the survey was conducted across more than 8,000 individuals in 24 countries.
So, what can millennials do differently with a more direct approach to tackling “real” risk?
Well, one strategy that millennials may not be considering but could benefit from, is a fixed index annuity. These fall into the category that we at Summerlin Benefits Consulting fondly call, “safe money strategies”. Fixed index annuities (FIAs for short) can help reduce risk by protecting the consumer’s savings and growth against down markets while still growing their money at a reasonable rate of return during up markets. Many people may believe the myth that fixed index annuities are only for seniors, however they can be beneficial to younger investors too!
Even though some millennials may want to pursue a more aggressive or riskier method of investing, some level of safety makes sense at all ages. And another benefit to a fixed index annuity is that it provides a set-it and forget-it approach. This can be an enticing factor, especially for millennials or more risk-adverse investors.
The good news, according to Natixis, is that growing numbers of young people are seeking out actual human advice and expertise in this area. About 70% of the millennials in the survey have tapped a human as their financial professional and only 6% relied solely on a “robo adviser.” In fact, only half of millennials surveyed are willing to place their trust in “algorithms,” which may be the best news of all!
Financial Professionals who specialize in safe money strategies for the younger generation will provide a great service for millennials who are seeking to truly diversify their portfolio and take a more realistic approach to plan for their future.
Summerlin Benefits Consulting serves all age groups. We focus on safety in retirement planning and help our clients find the best strategy for them in their current stage of life.
 Dave Goodsell, Natixis Investment Managers, Global Survey of Individual Investors by CoreData Research March-April 2021
Every crisis is an opportunity. The massive turmoil on financial markets so far this year is no exception. Here are three things that every middle-class American can do with their 401(k), IRA or other retirement plans, right now, to take advantage of what’s going on.
1. Move Some of Your Money Into a Fixed Index Annuity
Retirement accounts, such as 401k’s, IRA’s, 403B’s, and Thrift Savings Plans (TSP) are all taking a hit this year due to market volatility. As of mid-June 2022, major stock indexes like the S&P 500 have fallen over 20%, while funds like international developed markets and U.S. small-caps are down 19%.
When this does happen, and individuals start looking for safer strategies in their portfolio, there is a trend of consumers moving money into bonds. We have, of course, seen this occurring steadily during Q1 and Q2 2022. Unfortunately, due to changes in the Federal Reserve that are also occurring this year to offset inflation, the US Bond aggregate has fallen 13% in price and very long-term Treasury bonds are down as much as 33%. This means, bonds are not a safer approach and can actually open you up to a more immediate risk in some cases.
There is one “safe” approach for consumers who want to continue to grow their money when the US stock market is doing well but who do not want to keep losing during a Bear Market, like we are experiencing today. That approach is called a Fixed Index Annuity.
Not only can you roll over your employer sponsored retirement account and/or your individual retirement account into a Fixed Index Annuity, but you can often receive a signing bonus up front when you do so. Here’s what that would look like:
2. Rebalance Your “At Risk” Investments
Moving some of your portfolio into a safe money strategy like a Fixed Index Annuity would be step one to achieving True Diversification in your portfolio, but the next question would be- what to do with the funds that you choose to continue to keep in an at-risk financial environment.
There’s some good news hidden in a broad-based selloff: pretty much everything has gone down. So, if you came into the 2022 calendar year owning, say, too much in large company U.S. stocks, and too little in smaller company stocks, foreign stocks, real-estate investment trusts, etc. this could be a good opportunity for a do-over. Rebalancing assets now could be conducted free of charge or at least reasonably cheap, since pretty much everything (except commodities and energy stocks) is down.
It’s not perfect of course, because things have fallen different amounts and will likely continue to lose value for a while longer. But, in today’s economy, transitioning to a more conservative approach and taking advantage of lower costs along the way can often make good sense.
3. Create Legacy Funds for Your Children or Grandchildren
One simple way to take advantage of this market meltdown is to use the timing to set up that legacy fund that you’ve been wanting to establish for your children or grandchildren.
Opening a new savings or investment account for minor children in 2022 and depositing as little as $5,000 or even $1,000 on their behalf into some low-cost index funds could be a good way to leave a little bit of money behind for your loved ones that is pretty well positioned for positive growth from here on out. The long-term returns from the stock market averaged about a 5.5% compounding interest over the last 20 years, as have accounts like Fixed Index Annuities which tend to average somewhere between 3-6% compounded interest over time. Based on those numbers, a $5,000 gift today could be worth as much as $14,588 in 20 years’ time.
Again, every crisis is an opportunity to reevaluate your strategies and take action towards positive change. At Summerlin Benefits Consulting, we help clients follow a simple 3-tiered approach in deciding their course of action during times like this. Always ask yourself if the strategy you are taking is:
(1) Good for Me Now. (2) Good For Me Later. (3) Good For My Family When I’m Gone.
Yes. In 2022 with our turbulent market, it is a very good year to restructure in order to try to take advantage of the circumstances. But more importantly, restructure now to protect the assets you have and help you achieve all three of these objectives going forward.
After contributing to Social Security for all of your working life, you might think that you should claim your benefit at 62 to get as much money out of the system as possible. While it’s true that you’re eligible to claim your benefit at 62, doing so could actually mean that you’re leaving money on the table.
Each year that you wait (up until age 70), your monthly benefit increases. So the longer you wait to take Social Security, the bigger your monthly check will be. And because you will lock in that higher benefit for the rest of your life sometimes the payout can be more in your favor over time.
So, how do you decide when to take Social Security? Many of us want to wait for the higher benefit amounts but we need a paycheck sooner and so the decision can sometimes be difficult to make.
Here are a few examples of when it might make good sense to wait.
IF YOU’RE STILL EARNING AN INCOME
Though you can start claiming social security benefits as early as age 62, individuals born in 1960 or later do not reach full retirement age (FRA) until age 67, and taking benefits before that age will reduce your benefits as much as 30%. You can use this Social Security Administration chart to find your personal FRA and benefit reductions for you and your spouse.
Regardless, if you haven’t reached your FRA and are still working, Social Security will dock your benefit if you earn more than $18,960 per year. This can be a big chunk out of your benefit so if you’re working, it may make sense to wait at least until your FRA to claim benefits.
IF YOU DON’T NEED THE MONEY IMMEDIATELY
If you’ve saved for retirement, you may be able to live off of those savings while you continue to let your Social Security benefit grow. Once you reach your FRA, your benefit will grow by 8 percent each year up until age 70, which can make a big difference in the amount of money you receive each month, for the rest of your life. One way to accomplish this is with a Fixed Index Annuity that provides lifetime income payments. Receiving income payments from your annuity when you retire might enable you to wait and take social security a little later.
Let’s say your FRA is age 66 and your monthly benefit is $1,000. If you claim Social Security at 62, you would receive $750 per month. But if you waited until you turned 70, your benefit would increase to $1,320. That means the difference of $6,840 per year for life. That increased Social Security benefit on top of your Fixed Index Annuity income payments might very well, set you up with more substantial income for life than you had even anticipated.
IF YOU’RE HEALTHY
Another reason to consider letting your Social Security benefit grow is if you think you might live a long time. When planning on living long, even if you are healthy you have to plan for the fact that healthcare expenses are subject to inflation just like other costs of living requirements. A higher Social Security benefit combined with an option like a lifetime income annuity can often be the perfect combination to help you offset inflation in your retirement planning.
On the flip side, if you have a serious medical condition or have been told that you’re at high risk for developing one, it may make more sense to take your social security benefits as soon as you’re eligible. But with that in mind, you may also want to think about longevity in your spouse and his/her income needs throughout their lifetime, because claiming your benefit early could reduce your spouse’s widow(er) benefit.
We often run into husbands who are trying to help take care of their wife after they have passed away. Frankly, this can be a concern for either spouse, but statistically women do tend to live longer than men. There's more info on this later in this article but ultimately yes, it would be good planning for the husband and/or wife to have a strategy in place that will help a surviving spouse ensure that he or she will not outlive your combined retirement savings.
A financial professional who specializes in retirement income strategies can help you determine what makes the most sense for your financial situation.
IF YOU HAVE A FAMILY HISTORY OF LONGEVITY
Knowing how old your biological parents and grandparents lived to be is another factor to consider. There are of course many environmental, lifestyle, and medical factors that could come into play; for example: Did you know that women just generally tend to live longer than men? Women who reach the typical retirement age of 65, are statistically prone to living for another 20 years or more while 65-year-old men’s average life expectancy is to live another 17 years. That means that without even considering family history, women need to prepare for higher income benefit payouts over their lifetime.
Because family history and other factors like the example above can give you a sense of your potential life expectancy, you can use that information to help you decide whether to start claiming your social security benefits sooner rather than later.
Another factor to consider is that a long life also means that the retiree is likely to face the expense of long-term care services. Whether it be in the form of home care, assisted living, or a nursing home, longevity requires more income later in life for many and this has become an essential part of planning for your future.
Based on a recent cost of care study conducted by John Hancock, for 2022 In-Home Care for just 6 hours each day averages $4,464 per month, Assisted Living averages $4,805 per month, and Nursing Home averages $7,874 per month. This can vary based on where you live and the care providers in your area but these general guidelines definitely illustrate how important it is to make a financial plan for your future.
Allowing your Social Security Benefits to grow as long as possible and pairing those benefits with another lifetime income arrangement like a fixed index annuity, may help you be better prepared to cover costs like this no matter how long you live.
At Summerlin Benefits Consulting, we help clients figure out things like how much income they will need, when to take social security benefits, how to complement those benefits with other lifetime income strategies, and much more.
After the rollercoaster we've experienced these past couple of years, and the down market we’re experiencing thus far in 2022, it’s natural to wonder if you’re doing as much as you can to protect your retirement nest egg from stock market volatility.
Even when the market falls during economic turbulence, you have more power than you realize. You just need to "Take Action" which frankly, is the opposite of "Stay the Course". Let's face it. Most people reach a point in their lives when the course no longer makes sense. So how do we effectively make changes in our financial plan? These five steps can help to keep you on track during uncertain economic times.
1. TRANSITION SOME SAVINGS OUT OF THE MARKET
Investing in the stock market always comes with a measure of risk. In exchange, over time you’re typically rewarded with higher returns than those you’d get from savings accounts, CDs, and other comparable accounts. But sometimes the market dips and your portfolio takes a hit.
The question many people have is, "should I get out when the market begins to decline?" Not always and not everyone, but for a more mature investor- Yes. Absolutely. It is a very good move for you to make at least some of your money safe before and especially during a market decline.
If you are over-invested and carrying too much risk for your age, this could mean that you might not have enough time to recover from a major market decline before you need to use your savings. For example, what would happen if a recession depleted a big chunk of your savings and then it took almost 10 years to recover as it did during The Great Recession of 2008?
The Great Recession stands as a cautionary tale about risk, investing in only what you know, and the dangers of “staying the course”. While the specific causes are still debated today, the culprits behind that economic collapse were a combination of several occurrences like:
2. MAKE SURE YOU’RE REBALANCING
Throughout your life, you’ll want a mix of riskier assets for growth and safer assets for stability. The closer you get to retirement, the less risky you usually want to be. And, completely eliminating risk from at least some of your portfolio, is critical to today's retirees.
A good rule of thumb to follow, which is used throughout the financial industry is called The Rule of 100. Take 100 and subtract your age. Whatever is leftover, is the amount of your portfolio that you could reasonably have at risk based on where you are at in your lifetime. (Ex. For a 60-year-old, you wouldn’t want to have more than 40% of your assets tied up in stocks, bonds, mutual funds, and other securities products which could lose value during market volatility.)
In addition to setting your mix of risky and safe assets and changing it as you get closer to retirement, you should also rebalance your At-Risk investments regularly. A long run of stock market returns can actually leave you taking more risk than you should if it isn't managed regularly.
3. GUARANTEE SOME PART OF YOUR RETIREMENT INCOME
Utilizing guaranteed income sources, which are not impacted by market volatility, like a lifetime income annuity can be a smart way to ride out a recession without serious losses. With this strategy, you will have a paycheck that you can count on each and every month, for the rest of your life, that won’t be impacted by the market.
Pensions and Social Security are also examples of stable sources of retirement income. If you’re on the verge of retirement, consider keeping enough cash in a risk-free location — like a savings account — to cover a couple of years’ worth of expenses. Cash value in permanent life insurance, like an Indexed Universal Life policy, this can be another tool for you to use to fund a cash reserve. In a low-performing market, you’ll be able to tap that cash supply instead of selling investments at a loss. As an extra plus in this environment, it will also grow tax-free.
4. DIVERSIFY, DIVERSIFY, DIVERSIFY
Without “True Diversification” the market risk to your portfolio is going to be way too high; especially for a retiree.
The goal of diversification within your investments is to keep your portfolio healthy, regardless of what the market is doing. True Diversification however, involves placing a portion of your money in a place where you absolutely cannot lose it during times of poor performance but where it will still grow at a reasonable rate of return during times that the market is doing well.
A good tool for achieving True Diversification would be a Fixed Index Annuity. These accounts grow based on certain indexes within the stock market, so you can experience the upswing of a positive market. But, they also lock in to protect your money during times of market decline so that you won’t lose money along the way. It’s a safe vehicle for your savings to accumulate at a reasonable rate of return over time with no risk.
It is important to work with a Fixed Index Annuity specialist and not an investment advisor when trying to add this product to your portfolio. This will help to ensure you are receiving the right information and that your annuity is structured correctly to meet your needs.
5. WORK WITH AN EXPERT, OR TWO!
Facing an uncertain market — especially as you close in on retirement — comes with high stakes.
A great financial advisor who specializes in securities and investments, will understand your financial goals and can guide you to investment options that help you build your savings over time. But, if making more of your portfolio safe makes sense to you for the phase of life you are in, a securities and investment advisor won’t be as effective for you, since they specialize in balancing risk as you grow your nest egg.
Especially if you are a more mature investor, you may need to seek the advice of a different kind of expert- a Safe Money Expert. This would be someone who specializes in helping more mature clients transition from At-Risk strategies to strategies that will not only protect the savings you’ve already established but will help you utilize them to meet your future income needs as well.
After all, a strong financial plan must include True Diversification if you are to properly prepare for the ups and downs of the market. That is how you safely weather a recession so that you can focus on what’s important; enjoying your retirement.
At Summerlin Benefits Consulting, we are Safe Money Experts. We specialize in Fixed Index Annuities and other strategies to help more mature investors protect their assets during a time in your life when it makes the most sense to do so. Call Today. Now is definitely the time to Take Action.
Women often experience some very specific retirement risks that could jeopardize their lifetime income. It’s time to spill the tea, on what today’s woman is facing in retirement and how best to plan for it.
When it comes to retirement, the strategy of saving early and saving often is good general advice for everyone. But that doesn’t mean the ins and outs of retirement will look the same for all. Personal circumstances and financial influencers can define your specific needs for the future. Women in particular face some challenges that can leave them at a disadvantage to men in retirement. For example, women’s average retirement income is about 80 percent of what men receive, according to the National Institute on Retirement Security. The good news is that knowing of challenges like this in advance will allow you to create a retirement income plan that caters to your future.
Here are the top five factors that women need to consider when planning for retirement.
1. Women Live Longer
Women who reach the typical retirement age of 65, are statistically prone to living for another 20 years or more while 65-year-old men’s average life expectancy is to live another 17 years. That means women need to save more over their lifetime to ensure they don’t outlive their retirement savings.
The current average spending among households of age 65 or older is about $47,000 per year, according to the Bureau of Labor Statistics. Of course, how much you spend each year in retirement will depend on your personal lifestyle. Regardless, when planning for retirement female retirees in general may need to live off your savings longer than men will. It’s important for you to have a strategy for making your income go further in life. Thinking about ways to maximize your retirement income — including a plan for when to start taking Social Security is key.
For people born in 1960 or later the full retirement age is now age 67 instead of age 65 and if you can wait until age 67 to begin taking Social Security payments, that is one way to help increase your retirement paychecks. You’re eligible to claim your benefits as early as 62, but claiming Social Security prior to age 67 will reduce your benefits by as much as 30 percent. Many struggle with this decision however, because sometimes those paychecks are just simply “needed” sooner rather than later.
With Social Security being only one piece of the puzzle, knowing exactly how much you’ll need to save, what retirement income options are available to you, and how to draw from multiple income sources in a tax-efficient way are all important parts of your retirement plan.
2. Women Are More Likely To Have Gaps In Their Retirement-Saving Years
Contributing to the wage gap is the fact that women are still largely in charge of caregiving, and thus more likely to experience interruptions in their careers to raise children or care for other family members. In fact, one in three moms in a 2021 McKinsey & Company study considered scaling back at work or quitting their jobs entirely during the pandemic, largely due to childcare responsibilities.
The problem is that time out of the workforce also means putting a pin in your retirement contributions — something that can cause female retirees to run out of money well before their end of life. For women who are married, a spousal IRA may allow you and your spouse to keep up on retirement contributions while you take time off. But for single women or women who were homemakers, a better option might be a lifetime income annuity. This will enable you to take an asset you have already saved over the years, protect it, and purpose it into the role of providing you with monthly retirement paychecks for as long as you live.
3. Women Have Higher Healthcare Costs
Healthcare expenses are subject to inflation just like other cost of living requirements. And unfortunately, cost of care does tend to be higher for people in retirement, regardless of gender. But because of their longer lifespans, women can expect to pay $200,000 more than men in health insurance premiums alone, according to an estimate by Health View Services.
Additionally, retirees often face the expense of long term care needs. Based on a recent cost of care survey conducted by John Hancock, for 2022 In Home Care for just 6 hours each day averages $4,464 per month, Assisted Living averages $4,805 per month, and Nursing Home averages $7,874 per month. Now this can vary based on where you live and specific providers in your area but these general guidelines definitely illustrate how important it is for women, who are living longer, to make a plan for a lifetime income arrangement that will help cover costs like this no matter how long you live.
4. A ‘Gray Divorce’ Impacts Women More
The divorce rate among Americans who are 50 and over has roughly doubled since the 1990s, according to Pew Research Center. And research has shown that getting divorced later in life is financially harder on women than men. A 2020 Bowling Green State University study estimates that women see a 45 percent decrease in their standard of living following a gray divorce, versus 21 percent for men.
The lower lifetime earnings of women compared with men and taking time out of the workforce to provide childcare are some of the reasons behind the gap. And unfortunately, wives who have largely left financial decision-making to their husbands can be especially vulnerable. If you’re going through a divorce it would be a good idea to recalibrate your retirement plans with a professional and figure out what retirement income options you have.
This is an area where a fixed index and/or lifetime income annuity can sometimes help but another example would be to take advantage of the Social Security Administration's ex-spouse benefits if eligible. Did you know that if you were married for at least 10 years and your ex-spouse is eligible to begin collecting Social Security, you might be able to collect benefits on their record? You could be entitled to an amount that’s equal to half of their benefit if you meet other criteria and haven’t remarried.
5. Women May Be Impacted By The Lack Of Estate Planning
Because women are likely to outlive their husbands, proper estate planning is key to ensuring their finances will be protected following the death of a spouse.
A full estate plan includes not only creating a will or trust, but also includes naming powers of attorney and updating beneficiaries on life insurance policies, retirement accounts and other financial accounts. Keeping this information up to date is key because beneficiaries named in a policy override those named in a will. For instance, if a husband names an ex-spouse as a beneficiary on a life insurance policy but names his current wife in a will, the proceeds will go to the ex-spouse.
It’s important to work with estate planning, tax and financial professionals when setting up an estate plan so they can help you and your spouse figure out how to best protect your assets and pass them on with tax efficiency in mind.
Summerlin Benefits Consulting Inc. helps all of our clients avoid retirement risks that could affect their future income plans. In today's world however, as our female clients experience unique financial influences on your future, we want you to know that we are here for you.
There are three primary risks that can really impact your retirement plans. The risks are very real regardless of an individual’s income or net worth. Fortunately, the potential damage from these risks can be avoided if retirees get proactive.
Risk #1 Longevity
The first risk is talked about a lot by economists; the risk of longevity. While there is beauty in living a long fulfilling life, you also need to be able to pay for cost of living during those additional years. Also considering that your annual expenses might increase as you age because people generally need more medical and long-term care services later in life, this can definitely create a financial risk.
Let's consider some data from a recent study produced by the LIMRA Secure Retirement Institute:
One in four men age 65 today are expected to live to age 93 and among women aged 65 today, one in four will live to age 96 or longer. For healthy 65 year olds, you can add 2 to 4 years to general life span. Also, data shows that people with more education or higher lifetime incomes or both tend to live longer than the age group average life expectancy. Now consider married couples…
Married couples must look at their joint life expectancy when planning, and that can be significantly different than a single life expectancy. In a married couple age 65 today, there’s a 75 percent probability at least one spouse will live to age 88 or longer. Age 93 for at least one spouse is a 50 percent probability for the couple, and there’s a 25 percent probability at least one spouse lives to 98.
The simple fact is that you really need an income source that provides you with lifetime guarantees, if you want to maintain financial security during your lifetime.
Risk #2 Inflation
A second risk, which is related to the first, is inflation. It is basic fact that the purchasing power of the dollar declines over time, as cost of goods increase year over year. A retirement income that is sufficient when you start retirement, can begin to stretch thin after 10 to 15 years, and can become completely inadequate when retirement lasts 20 years or longer, if proper measures aren't taken.
The fact is though, and many people don’t anticipate this, that most retirees actually face even higher inflation rates than the Consumer Price Index (CPI), which is the widely used measurement of inflation. This is because retirees are so significantly impacted by rising costs in medical care. Medical services experience a much higher inflation trend than the CPI and typically these account for a large portion of spend from the average retiree’s cost of living budget.
The simple fact is that your savings and income needs to grow at a reasonable rate of return throughout retirement, if you want to maintain financial security during your entire lifetime.
Risk #3 Market Losses
Investment risk is of course the third risk to retirees which impacts their lifelong retirement plans. Many people plan to fund the majority of their retirement spending through IRAs, 401(k)s, and investment accounts. The intent is to rely on income and capital gains earned within those savings accounts to achieve their retirement goals.
In theory, this works well, and retirees will be comfortable as long as they earn the historic average in long-term returns. But their plans would be significantly upset by a severe bear market in the first few years of their retirement; something economists call sequence-of-returns risk. This happened to many individuals on the cusp of retirement in 2000-2002 and again in 2008-2010. Americans found themselves having to rethink retirement plans, work for longer than expected, and ultimately wait for recovery before retirement could even begin.
Additionally, the unfortunate fact is that it doesn’t take a really bad bear market to derail some one’s retirement plan. Many retirees also will have to adjust their plan following an extended period of below-average returns. If your retirement plan is built around market performance, laddering bonds, dividends, or other strategies depending on investment risk- there is volatility in your plan which leaves room for serious, lifelong implications.
The simple fact is that you as a retiree, have reached a phase of life where you should have a portion of your retirement savings in safe environment. An environment where you will earn a reasonable rate of return, but will not risk loss during times of market decline. That is how you ensure that you will not outlive your money.
Contact Summerlin Benefits Consulting Inc. today to learn more about our Safe Retirement strategies.
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