Planning Retirement

Planning for retirement is a crucial life phase, but how many years should you plan for in retirement? Ideally, you should prepare for at least 30 years of retirement living. Your financial plan needs to spell out how you will generate enough income for that timespan.

Of course, retirement looks different for everyone, and you may have an idea of how long or short yours might be. Ultimately, it’s very difficult to estimate how many years your money will need to last. You certainly don’t want to run out of income in your golden years. Unfortunately, many people often underestimate how long they will spend in retirement, which can have big effects on their financial security.

Getting this “right” is one of the most difficult parts of retirement planning. That is why it’s better to err on the side of caution and plan for a long-time, post-career span of at least 30 years. Even so, how do you account for this in your income planning? What steps can you take to keep your financial security intact during this extended period?

In this article, we will look at how long retirement can last, what you can do to maintain your financial well-being, and other things to keep in mind.

Read More

Dr. Wade Pfau is a leading expert on the subject of retirement. He is the Professor of Retirement Income at The American College of Financial Services and is also Co-Director at the New York Life Center for Retirement Income.

Dr. Pfau has made many powerful contributions in the field of retirement income planning. One is adding insights to the ‘safety-first’ school of retirement planning thought, or where a retirement plan is built on a safety-first approach.

How a Safety-First Approach Can Help with Financial Stress

In an interview with Wharton School of Business podcast knowledge@wharton, Dr. Pfau talked about how retirees can reduce the amount of financial stress that they feel after they stop working.

Here are some highlights from that interview. It’s good to keep these things in mind as we plan for our own financial futures.

Read More

Most people would be thrilled at the prospect of 10% average annual returns or higher in retirement. But now that folks are living longer, they face more challenges than just adequate returns. With decades of retired living on the horizon, people must ensure their portfolios last as long as they might need them.

Sequence of returns risk can affect your long-term income the most in your early-retirement years. That is the timespan just before and right after you retire. You may have heard of that period called the “retirement red zone,” or generally the 10-year spread prior to and after retirement.

It’s true that average returns (including dividends) for the S&P 500 from 1928 to 2021 have exceeded 10%. But averages can be deceiving for long-term income planning. What matters just as much is the order of returns, or the actual timing of when a portfolio grows or loses value. As we will see, losses in those early years could make or break your income goals, setting up the risk of running out of retirement money.

This potential hazard is called sequence of returns risk, or just sequence risk. To illustrate it, we will talk about it in two formats: by analogy and then through two hypothetical portfolio scenarios. Read More

If you are looking for someone to help you with preparing for retirement, you might have come across financial professionals with alphabet soup after their name. What those letters generally represent are professional designations.

These designations are programs in which an advisor has completed certain studies and exams in order to have professional recognition of their expertise in a certain field. For example, some designations for financial advisors cover retirement income planning.

Other designations deal with high-level knowledge and planning concepts around life insurance products. Then some designation programs recognize an advisor for high-level knowledge of overall concepts, such as around investments, retirement, taxes, financial planning, insurance, risk management, and estate planning.

Read More

If you look at any financial commentary, there is at least an article a day talking about investment risk. Investment risk, or the risk of losses due to market downs, is always something that we should be conscious of. But, for retirement investors, there is an even bigger risk than investment risk: sequencing risk.

This type of risk can be more dangerous than pure market risk because of the effects that it can have on your long-term retirement outlook. This can have a nasty impact especially if your money takes a hit in your early retirement years.

Sequencing risk looks at the order in which your portfolio returns occur. If you take losses early in your retirement, then it will impact your finances for the rest of your life. And you might well spend the rest of your retirement playing “catch-up” from those losses, especially if you were already drawing income from your portfolio and compounding the effects of those losses even further.

Sequencing risk can have strong effects on people’s financial wellness that can span years. So, it’s critical to have a strategy in place for this possibility, especially if you are in the retirement red zone (within 10 years before or after retirement). Read More

Many Americans worry about whether they have saved enough to have a comfortable retirement. But, surprisingly, most haven’t actually crunched the numbers to estimate how much money they will need in retirement in order to live comfortably.

According to a survey by the Employee Benefit Research Institute, just 42% of Americans have attempted to calculate how much money they might need for retirement. In other words, almost 60% haven’t estimated how income they might require.

A Gap Between Retirement Confidence and Readiness?

In the survey, just 3 in 10 people said they have tried to estimate how much they might pay in healthcare expenses during retirement. These are sobering findings, considering that many people report they are confident in knowing how much money they need to live comfortably in retirement.

Six in 10 (67%) said they were “somewhat confident” about their understanding of their income needs. As for higher levels of assurance, two in 10 (23%) said they were “very confident.”

However, as the Employee Benefit Research Institute’s other findings show, the vast majority of retirement savers haven’t actually calculated how much money they might actually need. This could set retirement savers up for a future of unnecessary stress – and even reduced lifestyles. Read More

When you near retirement it’s an important life transition. Your approach to money matters will probably change. Now is time to examine portfolio assets and consider how you will use them for income to sustain your retirement lifestyle. A good retirement planning company can help you plan for this transition.

Retirement Planning Companies May Have Different Specialties

However, investors have many options of financial firms in today’s industry. Different firms can vary in the unique expertise to the table. Some companies specialize in investment management and others in financial planning, for example.

While similar in some ways to financial planning and investment management, retirement planning is different. It concerns advice on the distribution of money and how people will use the money for income needs.  

Business Type Also Matters

There is also the question of business organization. Some firms are just one of many broker offices for huge financial companies, while other firms are small, local businesses. Whether they have a captive or an independent status may influence the kinds and selections of the retirement products they can offer you.

So, all of this adds up to many retirement planning options for investors. How do you choose the right partner for you? Let’s take a look at some questions to answer. Read More