Why Your Financial Plan Needs a 5 to 8 Year Cushion

SHOW NOTES

Will you run out of money?

• How confident are you that your income will always be enough to sustain your lifestyle? OR
  • Have you become at all concerned that at some point during your retirement you might actually start to run out of money?
• If you have become concerned, you’re not alone!
  • 72% of pre-retirees are worried about running out of money.
  • 64% are concerned about being unable to maintain their current lifestyle or quality of life.
    • Source: ThinkAdvisor
  • One of the biggest factors in whether or not you’ll run out of money in retirement is longevity.
  • When you think about having a long life, the first thing that comes to mind isn’t likely the problems that can come out of it.
    • And, really, longevity is overall a good thing… if you plan for it.
    • However…
• A study by Morningstar Investment Management found that investors frequently underestimate the number of years they likely have left and may fail to plan accordingly.
  • The study found that even those who feel they’ll be around for 20 or 30 years after retirement may be underestimating their own longevity — and thus not funding their golden years appropriately.
    • Individuals who estimated that they had no chance of living to 75 actually had about a 50% chance of reaching that age.
    • On the other hand, respondents who said their odds of reaching 75 were 100% actually only had about an 80% chance.
  • Financially speaking, retirement is essentially an income
    • You don’t want to run out of money before you run out of time

Interview: Ryan Detrick

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The two most important things in retirement

• The two most important things in retirement are dignity and independence.
  • These must be purchased every day with your retirement income.
• So, how do you overcome the fear and protect your dignity and independence?
  • You plan!
• A plan is not:
  • Just investments.
  • Just Social Security.
  • Money stashed away in savings.
  • Hoping that it all works out.
• Traditionally, financial advisors have been focused only on investment management.
  • When a client reaches retirement, they can be largely on their own figuring out how to take their managed investments and turn it into an income stream.
  • How do you decide what investments to sell, how much, and when?
• There are no perfect investment products. Planning doesn’t assure success, but it provides a framework for investments, strategy, and protection.
  • The whole point of a plan is to give you options. Flexibility. We’d say hope, but fact is, you don’t need hope when you have a plan.
  • If your plan only focuses on investment management and leaves strategy and protection up to you, it’s time to get another opinion.
• The Morningsar report’s author wrote, “Retirement periods should be personalized for each client in a financial plan, based on that client’s facts and circumstances, considering various attributes such as years until retirement, income, health status, smoker status, and so on.”
  • Having a strategy-based approach is vital to dealing with longevity risk.
    • The GenWealth Difference is that we are Education-Driven, Strategy-Based, and Team Delivered.

A strategy-based approach to longevity risk

• Your life expectancy, your goals, your lifestyle… all of these are likely different for you than the next person who walks through our door.
• Through the GenWealth Ready to Retire Process, you get a personalized plan on paper, on purpose.
  • Your financial plan doesn’t look like anyone else’s.
  • It’s not something we pull from a shelf; it’s the result of conversation and collaboration.
• We address longevity risk with this strategy:
  • House Analogy
    • Foundation – Gap Analysis
      • Annuities?
    • Living
    • Legacy
  • Drawing income from relatively low-risk assets while allowing time for equity investments to potentially grow.
  • Ready to Retire Process – IFLM
  • Buckets
  • According to the extensive report we’ve mentioned throughout the show:
    • Simulations suggest adding five years to the life expectancy estimate for a single household, and eight years to the longest life expectancy of either member of a joint household (or to each member if separate end ages are used for spouses), at the assumed retirement age, is a reasonable approach to approximating the retirement period.
  • The role of your advisor is to consider all the circumstances surrounding retirement and help you plan accordingly.