How To Navigate Your Way To A Satisfying And Secure Retirement
It was a tough gig, but someone had to do it. Last week, I joined a team of financial experts who spent eight days aboard the Crystal Symphony luxury liner as part of MONEY Magazine’s “Building the New Retirement” Cruise. Despite the harsh conditions—we were forced to feast nonstop on exquisite cuisine and enjoy excursions at interesting ports of call like Quebec City and Halifax, Nova Scotia—the plucky MONEY team still managed to dispense investing guidance and retirement planning advice to our fellow MONEY cruisers. Here are three tips I’ve distilled from our sessions at sea that can help you chart a course to a more satisfying and secure retirement.
1. Be ready to adapt to an ever-changing landscape. MONEY Assistant Managing Editor Paul Lim kicked off the conference by pointing out how dramatically planning for retirement has changed over the years. The need to factor in longer lifespans, a greater willingness (and, in many cases, necessity) to include work in our post-career lives, the move from traditional pensions to 401(k)s where the onus is on you to save and invest—these and other changes make it all the more crucial to assure you’re not applying outdated assumptions to your planning.
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Nowhere is this more true than investing. BMO Private Bank chief investment officer Jack Ablin explained that, absent higher labor-force and/or productivity growth, the stock market will have a hard timed delivering anything close to the lofty returns that many retirement investors relied on to grow the value of their retirement nest eggs and maintain their standard of living in retirement. As for the increased volatility that’s rocked the market—and shaken up investors—much of this year, well, get used to it. “Put on your seatbelts,” Mary Ellen Stanek, director of asset management for Robert W. Baird & Co., told the MONEY cruisers. “Volatility is here and it’s going to continue to be the outlook for the markets.”
My takeaway from their presentations: Although we can’t divine the future path of the markets, it’s prudent to plan as if investment returns will be substantially lower than in the past. You can then compensate for that possibility by saving more during your career to assure you build an adequate nest egg, being more judicious about withdrawals during retirement to avoid running through your money too soon and holding the line on investing fees so you can reap as much as possible of whatever returns the market delivers.
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And while there’s little you can do to tame the market’s gyrations, you can take steps to prevent them from derailing your retirement plans. For example, Stanek suggested using volatility as a gut-check of sorts. If you’ve been able to hold on through recent convulsions without getting too upset, that may indicate you’re taking the appropriate level of risk in your portfolio. If you sold or were so worried that you found yourself close to selling, that may be a sign you’ve taking on too much risk. Whatever your reaction, though, now is an excellent time to complete a risk tolerance test to gauge how much volatility you can actually handle
2. Think outside the box when developing a retirement income plan. When it comes to creating retirement income, many retirees instinctively look to stock dividends and bond interest payments. But that approach has always had drawbacks, and it simply may not provide sufficient spending cash today, especially given current low yields and often stingier dividend payouts.
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In a presentation on new draw-down strategies, Coral Gables, Florida financial planner Harold Evensky laid out an alternative—i.e., his “two bucket” strategy. The first bucket contains one to two years’ worth of spending money, which should be stashed somewhere highly secure, such as in a money-market fund or savings account. The rest of your savings goes into the second bucket, which is invested in a “total return” portfolio that generates not just dividends and interest but long-term capital growth as well. As you periodically rebalance your portfolio in the second bucket to maintain an appropriate asset mix, you can also transfer money to the first bucket to replace what you’ve spent. The idea is that having that one-to-two-year cash buffer allows you to rest easy knowing that your living expenses will be covered.
There are other ways to generate retirement income with a high level of comfort and security. For example, financial planner and Texas Tech associate professor John Salter demonstrated how different claiming strategies, such as filing and suspending and filing a restricted application, that can significantly boost the amount of inflation-adjusted Social Security payments over a lifetime and how a reverse mortgage might be used as a back-up line of credit that can be drawn on during prolonged market downturns to reduce the chance of running out of money. And in a session during which I talked about arriving at the right asset allocation for retirement, I noted that, while immediate annuities are not for everyone, adding one to a retirement income plan can not only provide additional income that will last as long as you live, but also contribute to a more secure and happier retirement.
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3. Remember that retirement planning isn’t just about the bucks. In a session titled “80 Is The New 60,” Coral Gables financial planner Deena Katz reminded the MONEY Cruise audience that given increasingly longer lifespans, retirement can easily last 30 or more years. And that means not only planning to make sure you don’t run out of money before you run out of time, but thinking seriously about how you will spend this phase of your life so that it’s meaningful and fulfilling.
Obviously, how you decide to live your retirement years is a highly personal choice. But the point is that by doing some “lifestyle planning” and considering such issues how best to stay engaged with family and friends as you age, whether to work or volunteer during retirement, whether stay in your current home or downsize (or even relocate to a new area), the bigger the payoff you’ll get from the saving and investing you did throughout your career, and the more rewarding and gratifying your retirement years will be. (10/5/15)
Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at email@example.com. You can tweet Walter at @RealDealRetire.