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Mark Zaifman's thoughts on money, global economic trends and politics

Do I Need to Adjust My Retirement Income Strategy in 2016?

Mark Zaifman   |    Wed, Dec 30, 2015 @ 08:52 AM



It’s been a so-so year for investors in 2015. Lots of volatility throughout the year with little upside performance to show for it. I believe the title of this recent article says it best: The Year Nothing Worked: Stocks, Bonds, Cash Go Nowhere

With the recent enhancements high frequency traders have made, volatility looks to be the ‘new normal’.

In 2014, the Ibbotson/Morningstar asset allocation models we use when constructing portfolios projected an estimated return of 7.2% for a 60% allocation to equities and a 40% allocation to fixed income. At our firm, this would be considered a moderate risk portfolio.

Now, heading into 2016, Ibbotson is projecting a 5.27% return for that same 60/40 asset allocation. For investors with 10+ years before retirement, while not good news, it’s not the end of the world as you’ll have time to course correct if needed.

For those of you, including all my clients that are already in retirement and withdrawing from your portfolio or those getting close to the finish line; will your retirement income strategy need adjusting? The answer is yes. We’ll meet and update your plans first quarter of next year.

Retirement Income Planning

Think about how much time you spend throughout your working years managing your personal finances; managing cash flow, saving, investing, insuring, getting your kids through college, basically doing all the responsible things you know you need to do in order to save enough money so you can retire in style and never worry about running out of money in your old age. Call this the accumulation phase of your life.

Now, think about how much time you’re putting into the next phase of your financial life, the distribution phase. This phase begins once you start withdrawing from your portfolio. Compared to all the time you invested during the accumulation phase, monitoring, measuring results, course correcting when needed, how does that stack up with the time you’re investing in the current or perhaps soon to be next phase of your life?

I meet way too many people that are flying blind as they head into retirement. With no plan, no retirement income or tax strategy, the odds of crash landing into retirement are high. Sometimes it takes a conversation with a friend, colleague or family member, sometimes it’s a reoccurring nightmare of being old and homeless and other times it’s just a voice in your head saying it’s time to figure this s**t out that finally moves you into action.

Taking control of your financial future begins with assessing where you are today and seeing how that aligns with the lifestyle you desire in retirement. That’s your starting point. Does it take courage to take this first step? It sure does, big time. But once you take this major first step, the sense of relief you’ll feel, even if the news is not so good, makes it so very worth it.

For those that do not want to go it alone, this would be a good time to engage with an independent, fee-only financial advisor that works in a fiduciary capacity.  Of course, that’s a self-serving request, yet I can’t stress enough the potential value you’ll receive by having a professional objectively analyze your current financial picture.

To illustrate further what types of analysis you can expect to see when doing retirement planning, check out these sample reports produced using our financial planning software. My absolute favorite report is the net-worth outlook report on page 4. I like to think about this as a score card, so to speak. Being able to track your annual actual to projected net-worth goal helps hold you accountable to your plan and also signals when it’s time to course correct. The report starting on page 8 is also a favorite as it illustrates your withdrawal rate in retirement.

Keep in mind, these are sample reports with fictitious clients. The sample reports come in only one speed for illustration purposes - high net-worth, so please remember, all planning work is customized to your specific needs and net worth.

Finally, I’ll leave you with what’s been referred to in the financial planning profession as the:

‘Retirement Income Holy Grail’

  • Maintain my lifestyle and maximize my income from portfolio withdrawals, especially early in retirement.
  • Eliminate the chance that I could run out of money
  • Offset inflation and maintain my purchasing power
  • Avoid undesired changes to my spendable income
  • Preserve my nest egg for the people and causes I care about
  • *Practice Gratitude

*my addition

Always remember, retirement planning done well will inspire you greatly. After all, this is your life plan you’re designing, what’s not inspiring about that?


Photo credit https://www.flickr.com/photos/jeffdjevdet/