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Do You Have Enough for Retirement, Really?

01282015 RetirementGreetings from the AICPA Advanced Financial Planning conference in sunny Las Vegas! Ok, I am trying the virtual conference so participating at below zero from my den here in Alaska, but greetings none the less. This is a conference of over a thousand financial planners from around the country who get together annually to discuss trends and best ideas for investments, retirement and the economy.

Included in the many themes this year is the changing profile of people in retirement. When I first started in financial planning a couple decades ago, the average retiree was around 65 and planned for 20 years in retirement, receiving the same “paycheck” derived from pension, social security and savings. I would have told him or her that a 4% spending rate on their savings was a pretty safe bet.

Today however, the average healthy American couple who retires at age 65 has a 43% chance that one will still be living at age 95 (according to the Social Security Administration, Society of Actuaries). That’s not 20 years, that’s 30 in retirement! If you are younger than 65 now, you should be aware that the probability is only getting bigger. Also, if you were planning on historical returns from the market, our investment team forecasts lower than historical portfolio returns and those forecasts are shared with most in our industry. All of these new variables challenge the mores that financial planners have long used. If it has been a while since you looked at your retirement roadmap, now might be the time to see your financial planner.

So before you give up on ever retiring, consider these ideas from the conference on new ways to structure a retirement that works for you. David Blanchett, CFA, CFP, AIFA, Head of Retirement Research at Morningstar and probably a darn good craps player (I wouldn’t know, I was in Anchorage in front of my computer while he was out on the town, I need to rethink this whole virtual thing), shared some really great data on how folks are actually living in retirement and their spending patterns.

He pointed first to the flexibility those with low debt in retirement have when taking distributions. So takeaway one: consider going into retirement with little or no debt. He also pointed to a study by Michael Stein, which says many retirees have 3 stages in retirement:

Go Button Retire Retirees maintain lifestyle, travel, etc. Need for finances greater during this period.
Yield Button Retire Between the ages of 70-84, there is a 20-30% budget decline brought on by the body saying “slow-down”.
Stop Button Retire 85+ significant changes in retirement lifestyle brought on by health issues.

Takeaway two: most folks can plan for varying budget needs.

Lastly, takeaway three: being thoughtful about your investment portfolios can better prepare you for shocks in the market place that would otherwise ruin your income streams in retirement.

Now more than ever, it is important to have a plan and save early, we are here to help.

You may find me next year in Las Vegas, but at least I got to see Cirque du Soleil right here in Anchorage without the plane ticket.

 

Laura Bruce, CFP®, ChFC®
Senior Vice President, Director

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