Interesting Articles

A common mistake that I find investors make on a regular basis is to think that their financial advisor has everything covered for them. As these articles highlight, that assumption could put your retirement at great risk!

Exclusive: One in Three Senior IFAs Intend to Retire Over Next Ten Years

New research reveals that 36% of independent financial advisors (“IFAs”) that own all, or part of their firm, plan to semi-retire, or retire fully in the next decade.

So, what do investors near or in retirement do when their advisors retire? Who guides their investments or their withdrawal schemes? Who helps them with their tax decisions?

The bottom line is: It’s silly to depend on the continued presence of an advisor. Retirees need a retirement plan that completes itself, with or without an advisor’s involvement.

Participants Need Good Choices, Education and a Focus on Income

The article shares some interesting results from a survey done by Guardian Retirement Solutions.

It reports that participants in 401(k) and other defined contribution (DC) plans expect that these plans will provide one-third of their income. However, if they don’t do a smart job of converting savings to income, these DC participants will surely be disappointed.

They will not get help from the plan itself, and most advisors don’t support average investors.

Plan on doing your own research, and seek out a solution that incorporates income annuities into the mix.

What with the relaunch of our Go2Income platform, I haven’t had as much time for reading the past couple of weeks, but here are a few articles that caught my eye. By the way, our QLAC Toolkit on the site was singled out in Kiplinger’s Personal Finance magazine for its features.

4% Rule No More! How to Draw Down Your Savings

I agree with a lot of the sentiments expressed in the article, but not the proposition in the headline about “drawing down your savings.” It’s the wrong mindset to start the retirement income planning and execution process with.

Remember that income is defined as amounts received without any other financial effect. For the high net worth individual, that might be dividends on a stock or interest on a bond. For everyone else, it’s Social Security, any pension and annuity income. Withdrawing from savings today impacts your future withdrawals.

Leisure Inequality: What the Rich-Poor Longevity Gap Will Do to Retirement

This article points out a real issue about “income inequality” continuing into retirement.

While the politicians can deal with the economy or tax code to narrow the pre-retirement gap, there is something else that can help in retirement.

If we use the agreed-upon difference in longevity to price income annuities, then according to our studies there is a huge increase in income for the “poor.” If the annuity industry can’t provide for regulatory reasons, let the shorter expectancy folks buy into Social Security.

Income Growth and Lifestyle Creep

This post points out a phenomenon that we’ve observed at Golden Retirement – Baby Boomers may not be saving enough to continue their lifestyle into retirement.

Accumulating 20 times their pre-retirement income in savings by retirement may be a pipe dream for most mass affluent Baby Boomers.

Besides creating a realistic savings plan, it’s critical that the pre-retirement plan be tied to good retirement income planning. And that retirement income plan may need to include income annuities so that an investor can effectively swap a possible legacy for personal retirement welfare.

It’s been a busy week here at the office, but it’s exciting to see things like the latest EBRI report confirming the importance and value of qualifying longevity annuity contracts (QLACs) to the general public.

How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?

The Employee Benefit Research Institute (EBRI) came out with a report in late August that will certainly boost interest in QLACs.

When EBRI studies a retirement area, you can be assured that it’s both objective and well-considered. While we may use our own set of analytics and use QLACs in more diverse ways than they recommend, we agree that it can improve a retiree’s “readiness” as well as their peace of mind.

The adoption of QLACs in 401(k) and IRA plans will encourage use of income annuities generally, which is most definitely a good thing for investors.

The Misplaced Faith in Optimizing Portfolios

Guaranteed income is the surest way available to deal with the three great threats to retirement income security: longevity risk, sequence risk and “stupidity risk,” as this article puts it.

While a little technical and published primarily for advisors, there is still a lot that the average investor can learn.

First, advisors who are expert in either investments or in annuities, but not in both, can’t bring you the best retirement answers. Further, without an understanding of the tax attributes of certain savings vehicles, advisors can’t optimize after-tax income.

Second, as the inventor of the first living benefit guarantee, I can report that current designs may in fact provide less upside and more complexity. The simple annuity and the simple diversified growth portfolio may be the best approach, when used in a smart, integrated way.

The articles that caught my eye this week as being worthy of comment are diverse, but each touches on an important aspect of planning your retirement income.

Robo-advisors face first reckoning in downturn

Today’s market volatility shows the importance of communication as robo-advisors look to get out in front of their nervous clients.

The response by robo-advisors of sending out e-mails and going on Twitter and other social media may be helpful for the millennials who are adopting this strategy, but what about the unlucky Boomers who are close to or in retirement?

They need more than 140 characters to discuss their options. They need a better strategy.

The new way to get IRA income

This is a good article, not only because it follows our thinking, but also because it introduces readers to a “new way” of addressing retirement income, by purchasing longevity annuities.

It also walks the reader through considerations they’ll have to address in deciding whether a qualified longevity annuity contract (QLAC) is right for them or not.

While a QLAC isn’t for everyone, it is an option that investors should be aware of. Advisors who don’t mention QLACs are doing their clients a disservice.

Canadians unprepared for unexpected retirement

You may be asking yourself, “Why is Jerry reading about Canadians?” The answer is simple. They have a retirement system that ought to respected, if not emulated. It is essentially a universal, portable IRA.

However, the general consensus among those working Canadians polled between the ages of 45 and 64 is that they wouldn’t be able to cover their cost of living beyond five years if they unexpectedly had to retire tomorrow, including 16 percent who said they wouldn’t be able to cover their costs for less than one year.

Not much different than here really. Even though the Canadian market in total is smaller than the segment of the US market whose greatest fear is running out of money in retirement – the Boomer with a reasonable amount of savings – there’s still a lot of work to be done to ensure that those savings are generating a sufficient amount of income to retire on.

I read a couple of thoughtful articles this week about growing retirement savings and then using those savings the most effectively in retirement.

6 Strategies to Extend Savings Without Working Longer

While I’m not generally a fan of the “x reasons why” stories, I recommend this article to followers of the plot, particularly to the audience of Baby Boomers who have financial resources, but not enough to live off the investment earnings in retirement. Very few investors can simply “clip coupons” in retirement to make ends meet.

To develop the best retirement income plan, however, some of these strategies can be executed in combination. For example, proceeds from downsizing can be used in part to fund an annuity, which in turn is tax-efficient.

Planning ahead to maximize your retirement income requires maintaining a balance between earning more, spending less and reducing taxes whenever possible.

Beyond Auto-Enrollment: Decumulation and Retirement Income

Another thoughtful article about retirement income. It’s clear that plan sponsors need to do more regarding the 50% of the retirement plan that occurs when the 401(k) savings are turned into income.

DC plan participation rates, account balances increase

Retirement plan sponsors have tried to make it easy for employees to participate in their plans and save enough for retirement and their efforts appear to be paying off.

While it’s good news that participation and account balances in Defined Contribution (DC) plans are increasing, plan sponsors are still not addressing the retirement needs of their participants. What’s needed is the recognition, after all these years, that DC plans are a sorry substitute for Defined Benefit (DB) plans. It’s absolutely critical that plan sponsors take steps to DB-ize their plans or let employees do it on their own.