People are living longer, and as wonderful as that news is to many, there’s a possible downside: outliving your money in retirement.
“It’s a very large fear many people have,” says Alexander Joyce, president/CEO of ReJoyce Financial LLC (www.ReJoyceFinancial.com) and author of ReJoyce In Your Retirement: Everything You Need To Know To Get Everything You Want.
“Most retirement plans have not incorporated the longevity risk. And without mitigating that, many middle-class retirees could exhaust their 401(k)s and be left with only Social Security and a little equity in their homes.”
One of the concerns people have is getting appropriate advice and ﬁnding a ﬁnancial advisor who puts the client’s interests above his or her own. That type of retirement planner is deﬁned as a ﬁduciary, and according to a survey by Financial Engines, 93 percent of Americans think ﬁnancial advisors who provide retirement advice should be ﬁduciaries — legally required to put their clients’ best interest ﬁrst.
“Trust is imperative, especially where a client’s retirement is concerned,” Joyce says. “An advisor working as a ﬁduciary is held to a high standard of honesty and full disclosure to the client. And there are three critical aspects of retirement planning in which a ﬁduciary can help guide the client to both protect their retirement assets and prosper.” Those three areas are:
Reduce sequence-of-return risks. This refers to the order of annual investment returns, and it becomes a concern for retirees who are living off the income and capital of their investments. “The danger comes when an investor receives lower or negative returns due to withdrawals made from their investment,” Joyce says. “The timing of taking those returns impacts wealth. A planner who’s a ﬁduciary has multiple ways to reduce sequence-of-returns risk by allowing the portfolio to stay ahead of inﬂation. You utilize other income-producing vehicles in the portfolio.”
Prioritize a tax plan. “Understand that in retirement you’re creating your own income from qualiﬁed money — money that’s never been taxed before,” Joyce says. “It’s vital to have a tax plan that can ﬁ t into your portfolio. For example, the Required Minimum Distribution at age 70½ is something many people are not prepared for in terms of tax impact. The RMDs have never been such a concern in our economy than they are now, because such a large percentage of baby boomers are over 70½. Having a reallocation plan or a Roth conversion conversation is important to avoid higher tax burdens.”
Create an estate plan. Procrastination is an obstacle for many when it comes to estate planning, Joyce says, and it’s important to differentiat. “Understand how those things ﬁ t in the portfolio, and the difference between live-on money and leave-behind money,” he says. “You need to establish goals for the assets. A lot of people want to leave a legacy, but they don’t know how large, or how, or when. A ﬁduciary can help you leverage technology and look at a realistic rate of return, based on your projected longevity.”
“Having all these planning tools under a full-service ﬁduciary roof is powerful,” Joyce says.