ADVISOR/CLIENT EDUCATION BRIEFPlanning for a 30-Year Retirement!"#$%&%#()*&"+#,-.+#/*#0/*1/#23456+#,.27.-0Funding a 30-yea...
50% chance of one of them living to age 92. In fact, as                         Be cautious about considering your primary...
some discipline on the withdrawal process. Otherwise               fund will ease the pressure that withdrawals put onthe ...
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Robert Feinholz: Planning for a 30 year retirement

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Robert Feinholz: Planning for a 30 year retirement.

Funding a 30-year retirement will take financial planning prowess as you juggle the effects of inflation, distributions, taxes, asset allocation, and expenditures. Are you up to the task?

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Robert Feinholz: Planning for a 30 year retirement

  1. 1. ADVISOR/CLIENT EDUCATION BRIEFPlanning for a 30-Year Retirement!"#$%&%#()*&"+#,-.+#/*#0/*1/#23456+#,.27.-0Funding a 30-year retirement will take financial planning prowess as youjuggle the effects of inflation, distributions, taxes, asset allocation, andexpenditures. Are you up to the task?George Forman, the boxer-turned-spokesman for portablegrills, may have best summed up the retirement conun-drum facing baby boomers: “The question isn’t at what ageI want to retire; it’s at what income.” The amount you’llneed each year to maintain your desired standard of livingis the most critical variable to identify in the retirementplanning process. No rule of thumb will suffice.If you are like many boomers, your spending will notdrop significantly at retirement. In the beginning, you’llbe fulfilling the many dreams and desires you postponedduring your career and child-rearing years. Later on, Robert Feinholzthe cost of health care will become a significant factor in Presidentdetermining your income needs. Foreman Bay LLCHow long will you need it? 9835 E. Bell RdLongevity is perhaps the greatest challenge for boomer Ste 110retirement planning. Most boomers seriously underesti-mate their life expectancy. Perhaps this is due to a misun- Scottsdale, AZ 85260derstanding of what mortality age really means. In fact,half the population will outlive their life expectancy. 1-800-784-3525 480-558-3222When the mortality table tells us that a 65-year-old manhas a mortality age of 82, it means that half of all men www.fbayassociates.comwho are 65 today will die before age 82, and the otherhalf will still be alive. The mortality tables also includethe entire population, not just those who receive the levelof nutrition and health care that you probably enjoy.Another frequent misunderstanding about mortalityage is the statistical increase in mortality age that oc-curs when calculating joint mortality. A male age 65 hasa 50% chance of living to age 82. A female age 65 has a50% chance of living to 85, but as a couple, they have a!"#$%&()*+*,-..*/0012345*6"%4147"3)(8*99!:**/;;*<&()4*<141%=1>9&?1041*@A*6B/CD,-../: |1
  2. 2. 50% chance of one of them living to age 92. In fact, as Be cautious about considering your primary residencea couple, they have a 25% chance that one of them will as an investment asset. You may be thinking of down-still be alive at age 97. A worker retiring early at age 55 sizing later, but experience tells us that people are oftenmay need to generate more than 50 years of retirement reluctant to leave a familiar home in their advancedincome. This is the basis for the new definition of long- age. Be zip-code flexible when making your retirementrange planning. plans. Many areas of the country have low to no income tax, and there can be significant differences in the costThe double bite of inflation of housing and health care.The increased longevity that boomers can expectcontributes to the serious risk of inflation, which is The risks involvedthe long-term tendency for money to lose purchasing Health insurance, disability insurance, life insurance, andpower. This has two negative effects on retirement long-term care insurance should also be evaluated as partincome planning. It increases the future costs of goods of any retirement plan. These policies can be expensive,and services that retirees must buy, and it potentially and they may not be necessary if you have significanterodes the value of their savings and investments set assets. However, they can provide an important safetyaside to meet those expenses. Even at a modest inflation net in the absence of such assets, so ask your advisor toassumption of 3% annually, the effects of inflation over review your insurance needs.a half century of retirement could be devastating. If you work in a professional field, litigation is a very realIn prior generations, inflation was not such a worry, risk to your retirement assets, and professional liabilitysince retirees were not expected to live much more than insurance is a must. Divorce is another landmine that canfive or 10 years past the age of 65. In fact, when the So- blow up even the best retirement plans, but to date therecial Security retirement age of 65 was enacted in 1935, is no insurance policy available to reduce this risk otherthe average mortality age for a man was 64. than a well-drafted prenuptial agreement.The planning process Asset allocation: Between a rock and a hard placeExplore any and all sources of guaranteed income The double whammy of longevity and inflation createsavailable when retirement begins. Social Security, an asset allocation dilemma for boomers. The old adagepensions, and any other income sources must be of subtracting a person’s age from 100 to obtain the opti-quantified as to how much, from what source, and for mal percentage of equities just doesn’t hold for a five-de-how long. Pay careful attention to whether benefits cade retirement portfolio. Invest too conservatively, andindex with inflation or continue to a surviving your money may not grow enough to last your lifetimespouse, since survivor planning is an important part considering the erosion of long-term inflation. Invest tooof retirement income planning. Develop three cash- aggressively, and you run the increasing risk of outrightflow models — both spouses living, husband dies, wife capital loss without adding significant years to your plandies — to identify any gaps in cash flow that need to be under average market conditions.addressed by additional savings or insurance. Working with your advisor, determine an appropriate ex-Next, inventory all assets that will be used to generate posure to equities, then design an allocation within thoseretirement income. This is where the traditional equities to ensure meaningful diversification among assetfinancial planning tools are needed to project future classes and investment styles. Cash and fixed income willvalues and income streams from various types of play a larger role in retirement portfolios, since provi-assets. Be alert to the differences in taxation during sions must be made for the orderly withdrawal of assets.distribution among various types of assets. Retirement Have your advisor set up regular portfolio transfers toaccounts will generate less spendable income than your bank account to enable you to manage your incomeinvestment accounts, because of the taxes due on just as you did when paychecks were funding your ex-distributions from retirement plans. penses. This tends to dampen overspending by imposing Copyright  ©  2011  Annexus/Horsesmouth,  LLC.    All  Rights  Reserved. License  #:  HMANX2011A2|
  3. 3. some discipline on the withdrawal process. Otherwise fund will ease the pressure that withdrawals put onthe portfolio could easily become an ATM machine. retirement portfolios.Setting a realistic withdrawal rate The challenges facing boomer retirees are significant,Most of the evidence seems to point to 4% as being but not insurmountable with some realistic and prudentabout right for a sustainable withdrawal rate for de- planning. You will need to consider what you own, whatcades of retirement. you owe, what you will make, and where it will go in order to develop a workable retirement income plan.The withdrawal rate is the one variable over whichyou have the most control — not your mortality, notyour health, not your investment returns, not infla-tion — just your withdrawal rate. You must understandthat this is the lever you will need to pull when thingsdon’t go as planned. Being realistic about what you canspend and keeping a sufficient contingency reserve!"#$%&()*+*,-..*/00123456"%4147"3)(8*99!:**/;;*<&()4*<141%=1>:9&?1041*@6A/BC,-../ |3

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