Jerry Golden on Retirement

We need a few good retirees!

September 14, 2018 By Jerry Golden in Income allocation Tags: Income allocation, Jerry Golden, retirement income

We are about to add the first of a series of new income planning tools to the Go2Income.com site. It will allow retirees to design an income allocation plan tailored to their personal circumstances.

I have been writing about income allocation for a while. This approach changes the retirement planning paradigm and addresses your need to create more income with less market risk. For the rest of your retirement.

Income allocation is a different approach than you will hear from most financial advisers. They talk about asset allocation, which places your savings in different buckets – stocks, bonds, etc. – from which you can withdraw money until you reach a certain age. If you live longer than that, you have to talk to the kids about moving in with them.

With income allocation, you decide now how to generate your income from investments and from income annuities. The income annuities are important because they offer guaranteed income for the rest of your life. As I wrote here, an income allocation plan also enables you to allocate a smaller amount to higher-risk withdrawals. In fact, you may be more likely to stay the course when you know a check will be deposited into your bank account every month.

Help us help others

We are inviting you to learn about the planning method while it is still part of what we call a “beta release.” You can test it before it’s available to the general public. Register here if you’d like to participate in this test.

After reviewing the income allocation educational materials and tool on the Go2Income site, we would greatly appreciate if you take a few minutes to complete a brief survey at the bottom of Income Allocation/Step 3.

We will use your feedback to improve the tool and educational support, as well as helping us design other Income Planning tools we add to Go2Income after that.

A helpful income allocation plan

We are hoping to learn whether our site does a good job of explaining income allocation. What changes should we make to the educational materials? Are the tools and results clear? Does income allocation make sense to our subscribers?

With your help, retirement will be changed forever.

How to boost retirement income by making it safer

September 4, 2018 By Jerry Golden in Income allocation Tags: boost retirement income, Income allocation, retirement income, safer income

One of my Baby Boomer clients asked for help with a retirement plan that would provide her with a specified level of “safe income” every month. She understood that she did not have enough savings to live off interest on U.S. Treasury bonds or savings accounts. Very few of my clients have accumulated that much in savings. So, she was looking for other, higher-yielding sources of safe income.

I agreed to work with her, but first we had to agree on what “safe” means. Then we had to decide the meaning of “income.” Once we both accepted those two definitions, the plan was relatively easy.

Nothing is 100% “safe.” Even Social Security may require reform and some pension plans may need a bailout. And some sources of income that retirees count on from their savings depend on market performance, and therefore are riskier. But if you consider probabilities, the “guaranteed and lifetime” income sources below are both safe and will last a lifetime.

The most basic definition of “income” is an amount received by the individual without any other financial effect. Income under this definition is clearly different from draw-downs of savings, which may run out someday.

From safe to risky sources of income

Below is my list of retirement income generated from savings and investments, exclusive of salary, wages and bonuses. The income at the top of the list is the safest and least risky.

Guaranteed and lifetime income

These sources of income are not dependent on market performance or personal management or effort once payments start. All of them involve payments (either fixed or in some cases CPI-adjusted) that won’t change in the future simply because you receive them.

Social Security payments — Because payments last a lifetime and are adjusted for inflation, Social Security is a secure and valuable source of income. Certain reforms of the system may be required to maintain the current level of benefits.

Pension plan payments – Typically such plans last a lifetime, but only a few provide inflation protection. Corporate pensions are backed by the Pension Benefit Guarantee Fund. Government pensions require continuous monitoring of political decisions that might affect these plans.

Income annuity payments – Unlike Social Security and pension plans, an individual can customize the form of an income annuity, paying to the retiree, a spouse and a surviving beneficiary. Income annuities are supported by insurance company reserves and are protected by state-guaranteed funds.

Recurring income from savings/investments

You can consider the income from these sources “safe” because it won’t reduce your assets when you receive it. The sources themselves may be “risky” because you can’t count on the market value of the investment if you need to liquidate.

Dividends on a portfolio of stocks – The income from dividends will be affected by the dividend payout rates set by the corporations that issue the shares of stock. You can select portfolios or mutual funds that concentrate on high-dividend stocks.

Interest on a portfolio of bonds – When you invest in bonds other than US Treasury bonds to get a higher level of interest, you assume a greater level of risk.

Withdrawals as retirement income

Both the income and the underlying savings source in this category can disappear before your retirement ends. Withdrawals from your investment portfolio decrease the amount of money available to you in the future. Also, unlike retirement income that is paid out to you, withdrawals typically need to be requested each year by you.

Distributions from 401(k), rollover IRA – Any amounts you withdraw will impact future distributions, just as market performance will.

Withdrawals from other investment accounts – Any amounts you withdraw will affect future distributions, just as market performance will — no matter what the withdrawal formula.

Withdrawals from fixed, indexed and variable annuities – Any amounts you withdraw may affect future distributions. Make sure you understand what Living Benefit Guarantee these types of annuities might provide.

What’s your strategy?

Once my client understood our approach to creating a plan with safe income, she appreciated how we were going to achieve it.

Under income allocation, we created a core allocation of safe income, supplemented by higher risk withdrawals. With a safe core, she will be more willing and able to stay the course even with bumpy market returns.

She also recognized why income allocation include withdrawals as part of its allocation. (See below for a discussion of how to manage risk under withdrawal plans.)

When you employ an income allocation plan, you also can make all sources of income work for your retirement.

If you would like to discuss your options for safe retirement income, contact me at Ask Jerry. I will work with you to analyze your options.

Managing risk of a withdrawal plan

With the risk of the market comes the potential reward of higher returns, provided you have the discipline to stay the course. Here’s how we manage withdrawals:

Allocate investment account between a portfolio of stock and bond investments, and a buffer portfolio of short-term investments.
Make a conservative assumption as to market returns in setting the initial level of withdrawals.
Do not depend on withdrawals beyond a fixed period.
Let favorable market returns, if any, increase or extend withdrawals.
Reset withdrawals each year and use the buffer account to make up for any deficit in reset vs. planned withdrawals.
With safe income in place from other sources, stay disciplined with the original allocation.

Develop a plan for income allocation to truly simplify retirement

August 14, 2018 By Jerry Golden in Annuity Tags: Annuities, Guaranteed Income, retirement income

The Vanguard Group made news recently when it announced it would reduce the number of funds available to its investors. The goal, the fund said, is to minimize confusion.

Jack Bogle, the legendary finance expert who founded Vanguard (but who no longer runs it) said in an interview with Fox News that the fund could reduce the number even further.

“You could run a retirement plan with three or four choices: a stock index fund, a bond index fund [and] a balanced index fund,” Bogle told Maria Bartiromo.

Bogle earned his fame by simplifying the investment equation for everyday investors trying to save for retirement. So I won’t disagree with him, but I will add a line or two to his formula.

While Bogle is concentrating on accumulating savings through asset allocation – which is good as far as it goes – I want investors to develop a strong income allocation plan at and after retirement. This way, their savings will provide enough income throughout their retirement.

To create that income allocation plan, you need to add income annuities as a new asset class to the funds that Mr. Bogle suggests.

Learn more about income annuities at Go2Income.

Retirement Planning Job #1: How much income can your savings generate?

July 25, 2018 By Jerry Golden in Income Power Tags: Annuities, produce income, save money

People planning for retirement often approach me, in person or through my blog, and ask questions about whether they have enough money to retire, hoping I can ease their minds or make life easier for them.

One client recently asked: “I’ve got 10 years to go before retiring. I’m contributing at the max to my 401(k). Can I afford to retire?”

Contributing as much as you can to your 401(k), or other savings vehicles, is an excellent start. To fully answer my questioner’s query, though, I directed him to Income Power. It gave him an idea of how much income he can generate from his current savings. (Congress is working on a bipartisan plan to make this retirement information mandatory for 401(k) plans.)

With this piece of good news, we talked about lots of options for his retirement income plan.

Feel free to contact me at Ask Jerry with questions about your own retirement.

The biggest risk in retirement planning is not what you think

July 10, 2018 By Jerry Golden in Income allocation

People planning to retire often tell me their greatest fear is running out of money after they stop working. They have a valid concern, but the risk is not really about living too long. Instead, the issue that could bring calamity is the risk of failing to consistently follow a reasonable retirement plan.

Retirement planning must consider a couple of main points: You might live a long and healthy life, in which case you need money to continue so you can pay your normal bills. That’s called “longevity risk.” Or you might incur large and perhaps unreimbursed medical and caregiver expenses.

Keep on track

You can prepare for both, but once you create your plan, the tough part for many is to stay the course. That’s true particularly when investment returns are volatile and negative. Studies show that investors lose 1% or more on their returns when they are not in the market. This could mean five or more years in lost income.

However, unlike the risk of market returns, which no amount of diversification can fully allay, you can control the “stay the course” risk. All it takes is a little adjustment in your retirement planning, based on a simple premise: Reduce the amount of your income that is subject to the market – or what we call “income volatility.”

With preparation, you can reduce your income volatility during retirement by 50% or more. And, with the proper investment, you can get a 20% increase in income that lasts a lifetime.

You can achieve these results with an Income Allocation plan.