“Our approach to saving is all wrong: We need to think about monthly income, not net worth.”
The point is that the accumulation phase of our lives is all about accumulating wealth for current and mainly retirement spending. That is all well and good.
The real question to ask yourself is: will the amount of assets you accumulate be able to provide you with a dependable income that you need or want and an income you cannot outlive, while addressing all the risks that begin as you step into retirement?
Our goal is to empower people over 55 by ensuring their plan proactively addresses all the major retirement risks as best as possible, and that they can create dependable income streams they cannot outlive. We create impenetrable structures, so our clients are able to enjoy their “golden years” with more confidence and harmony, while spending time doing things that are truly important to them, without worrying about their finances or having their finances diminished due to unexpected events.
We do this by educating our clients on the facts, empowering them to take decisions about things they cannot control and using industry leading tools to assess and address all risks, as best as possible, while staying educated ourselves. Read about the risks below and ask yourself if you know for sure, they have been addressed.
Pre-Retirees
We help people by ensuring their plan addresses all the major retirement risks as best as possible and that they can create dependable income streams they cannot outlive.
Risks at Retirement
Longevity
How long will I live? How long will my spouse live? These are unanswerable questions, no one knows the answer for sure. Will my assets or income last as long as I do? This can be answered by a professional, provided they do comprehensive work and have the tools, training and experience.
Sequence of Returns
Related to Volatility, essentially means that if experience bad returns in the beginning, you would exhaust your savings before someone else who experienced the same sequence of returns, but experienced good returns in the beginning
Taxes
Taxes now! Taxes forever! It’s a common myth that we will find ourselves in a low income tax bracket in retirement. There is really no way to predict this. Taxes change all the time. Also, how low do you want to go. The point is, if you have a lot of money in qualified plans like 401 k plans, traditional IRAs and pensions, you would be pulling out healthy amounts of money to fulfill your retirement income needs. Since every penny coming out of these plans is 100% taxable, you could still be dealing with an unhealthy amount of taxes. Also, for joint filers with income in retirement in excess of $44,000, up to 85 of social security benefits may be taxed.
Volatility
Market up and down all day long! If you take a look at a one day chart for the S&P 500, it will make your head spin! Think about when you are not working and earning a paycheck anymore and you have to liquidate assets to pay your bills. What happens when the market is down and you have to sell? Your vendors do not care if the market is down, they want their money when it is due. This can fasten the speed at which you can run out of assets. Think about how many times you would have to deal with this during a 20 plus year retirement and could you always sell at the right time?
Medical Costs
As you live longer you also need to maintain your body's machinery. An average 65 year couple can expect to dish out $280,000 in out-of-pocket medical costs during retirement. This number includes Medicare premiums, copayments, and deductibles, as well as prescription drug expenses that Medicare doesn't cover. If you don’t plan for this and allocate your portfolio wisely, it could put a serious dent in your retirement savings and adversely affect your income. There are somethings medicare does not cover…
Inflation
It’s like the “Silent Killer - High Blood Pressure” aka the “Stealth Tax”. It’s the one no one really notices and it’s at work all the time. At just a 3 % inflation rate your assets can lose half their value in 20 years. To further complicate this, you actually have to look at the CPI-E for the elderly, since it’s more relevant to you and consistently outpacing regular inflation, especially in two areas; housing and medical care.
Withdrawal Rate
Four percent has long been the rule of thumb for withdrawing from your retirement assets without having a substantial risk of running out of money. This means your assets, net of fees and taxes have to yield a return higher than 4% to make them last longer. This rule of thumb is also being revised, based on numerous new studies being published. It’s being revised downward, take even less! People don’t have the assets to support the kind of income they desire or need...they are withdrawing too much and run a massive risk of running out of money fairly quickly.
Interest Rates
Interest rates affect you mainly in a couple of ways. First, in a rising rate environment they can have a negative impact on the value of bond holdings in your portfolio. So, if you have to sell bonds to get cash flow you will incur losses. Second, in a low interest rate environment they provide no real earnings, in fact, just inflation could absorb the interest earned. In a low rate environment, in order to generate some return, you will also be pushed to more equity exposure, with comes with its own set of aforementioned risks.
Long-Term Care
Also associated with longevity, a Long-Term Care (LTC) need can arise when you are unable to perform certain activities of daily living, without substantial assistance from another person. These are bathings, dressing, transferring (e,g. moving in and out of a bed), toileting, continence, eating. According to a study conducted by the AARP, 52% of people turning age 65 will need some type of long-term care services in their lifetimes. The national median cost today ranges from $18,200 per year to $97, 455 per year, depending on services needed, ranging from home health care, adult day care, assisted living and nursing home. LTC costs are going up faster than inflation at a rate of 3% over the past 25 years, due to growing demand. At that rate, you can expect these costs to double in the next 20 years! There are ways to plan for this and tackle this issue ahead of time. Otherwise, you could be footing the entire bill for this and it could seriously damage your retirement assets and income.
The Mountain of Life
The Mountain of Life has two phases, the first phase is climbing up to a certain point in terms of wealth accumulation, the second involves distributing that wealth - spending down the accumulated assets. Both phases have some distinct risks, however, the 55 and up crowd actually face the major lot of them. These risks individually or usually in some combination can make retirement planning a big challenge.
If left unaddressed, they will certainly wreck havoc on your plan and your life at some point during your “Golden Years.” Why are these risks so devastating? Mainly, because you no longer have a paycheck, your assets now have to convert to income, which means you have to constantly liquidate assets to pay your bills. Interestingly, we have no control over any of these risks, what we do have control over is to sit down ahead of time with a professional and plan on how to be better prepared to tackle them.
The “Retirement Red Zone” is typically defined as 5 years before and 5 years into retirement as being an especially dangerous time, where a single mistake or market downturn could make or break your retirement. However, with the amount of volatility we now experience in the markets, the global economy and recent history (2008 crash), and personal experience working with hundreds of clients in your age group; we feel that the red zone should really be 10 years before projected retirement, as it gives you more breathing room to iron-clad your retirement.
Planning
We begin by understanding your goals and concerns and run a comprehensive analysis to see if your current plan and assets can withstand the various risks. Then we evaluate your cash flow needs and sources of income and create a dependable income stream.
Investing
We help develop an investment philosophy and ensure that funds are allocated in three different buckets, while managing risk. Even in retirement you will need money in the short, mid and long term with varying degrees of risk and return.
Insurance
We help you unlock your retirement assets by creating a strategy that can help you maximize your retirement income, which otherwise, would not be possible. We also ensure that you are able to tackle medical and long-term care expenses efficiently.
Fixed Annuities are long term insurance contacts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company. Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. Withdrawals are taxed as ordinary income and, if taken prior to 59 ½, a 10% federal tax penalty. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.
Please consider the investment objectives, risks, charges, and expenses carefully before investing in Variable Annuities. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from the insurance company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest. The investment return and principal value of the variable annuity investment options are not guaranteed. Variable annuity sub-accounts fluctuate with changes in market conditions. The principal may be worth more or less than the original amount invested when the annuity is surrendered.