Retirement planning is not easy for couples or individuals, or the people who counsel them, according to a recent article in Wicked Local (Topsfield) titled “Your Financial Views: How your retirement can be the ‘golden years’.”
A conference on planning discussed a Harvard Business Review study called “The Crisis in Retirement Planning” that challenged how consumers and the financial industry look at retirement. The author said that the process is broken, which is why many families are not enjoying their “golden years.” The article presents five key risks and some solutions.
The first of the five key risks concerns investments. What if there is a market downturn that reduces your retirement savings significantly?
The second concerns inflation, which was practically dormant for many years. It is currently heating up again. Your assets and income need to be structured to keep up with inflation.
Withdrawal-rate risk is third. Typically, in the first few years of retirement, people tend to spend more than when they were working. It makes sense. Most people spend more money on Saturdays. When you’re retired, every day is Saturday.
The fourth is sequence-of-returns risk. This involves the order in which investment returns occur and the impact of those returns on people who are near retirement, transitioning into retirement or recently retired.
Finally, the fifth is longevity risk. If you live long enough, goods will be more expensive and the likelihood of a market downturn increases.
The solution is to change how you think about retirement planning. It’s as much about accumulating savings, as about how your retirement accounts will produce a good monthly income stream.
Start by listing your basic necessary expenses and then list your discretionary spending. It is important to know the difference between what you want and what you need. You should structure your income to give you the basic necessary items for life, by incorporating Social Security, pensions and guaranteed income annuities, as well as your retirement savings accounts. Use the remaining assets to protect yourself against inflation and produce any additional income.
Don’t forget to include estate planning in your retirement plan. This includes a will, a power of attorney and medical directive. By having an estate plan, you protect your surviving spouse and heirs from the expenses and stress of settling an estate. An experienced estate planning attorney will be able to help you create an estate plan that aligns with your financial retirement goals.
Resource: Wicked Local (Topsfield) (Aug. 7, 2018) “Your Financial Views: How your retirement can be the ‘golden years’.”