Today, Americans are living longer than ever, and much longer than most retirement plans anticipated in the 1960s and 70s. But there is no shortage of “retirement planners” that seek to take advantage of this growing demographic. Unfortunately, not everyone who claims to be a retirement planner actually is.
How do you sort out the great ones from the good, or mediocre, or just plain bad retirement planners? It’s not enough anymore to trust your friendly neighbor or another person’s recommendation. When it comes to retirement planning, being knowledgeable about a few key things can help you make the very best decision when it comes to who handles your hard-earned money.
There are four risk factors your retirement planner should know about and discuss with you to ensure your income portfolio is sustainable.
- A main concern with the financial industry’s overly optimistic view of how much retirement income you actually need relates to Equity Sequence of Returns. This means that when your portfolio provides returns is as important as what those returns are. Negative returns early in retirement are much more devastating than negative returns later on. You want to find a retirement planner that will help you avoid taking too much money out of your portfolio early on so that it can grow and work for you, and also avoid a portfolio that is too small and will not be able to take advantage of broad market growth over time.
- Bond-Yield Sequence of Returns may sound like a lot of financial gibberish. All you need to know is that with a simple portfolio model of 50% bonds and 50% stocks, there is a high likelihood you will run out of money (57% chance, to be exact). This is due to the fact that many experts believe bond-yields will not revert to their historical average of 2.6% soon enough for many retirees. This means a negative return early in retirement, which, as discussed above, could be devastating to your portfolio.
- Inflation is something we hear about all the time—what milk or bread costs, how the cost of living just keeps going up, etc. Unfortunately, it is not typically a part of the retirement conversation. Right now, we are in a moderate inflation cycle and while we hope that continues, many experts agree that it will not. Therefore, your retirement planner and plan should include necessary safeguards that will counteract the possibility of aggressive future inflation.
- Life Expectancy is a difficult thing to discuss. In many respects, we all want to live a long time. At the same time, the amount of money needed for retirement, and the amount you can withdraw now, is more if you live for a shorter amount of time. Spin it how you like, but don’t underestimate your longevity, or you may very well run out of money.
It’s not your job to know the ins and outs of all of these financial terms. It is your responsibility to question your retirement planner on the various circumstances that may occur in the market and in life, and the safeguards they recommend.
For guaranteed income, access to your money when you need it, and payouts that will increase with inflation, contact Everest Wealth Management today to discuss annuities and if they are right for you.