Senior Finances Worse in Retirement

January 16, 2019

MORE THAN 1/3 OF SENIORS SAY THEIR FINANCES ARE WORSE IN RETIREMENT

A Harris Poll[i] commissioned by Transamerica Center for Retirement Studies® (TCRS) found that today’s retirees are living a precarious existence.

January 17, 2019

(Dynamic Wealth Advisors) A recent Harris poll shows that today’s retirees are living a financially precarious existence. How did this happen?

Some could have been better at saving and planning, while others could have done everything right and still find themselves facing a savings shortfall due to unforeseen circumstances. When today’s retirees started their careers decades ago, the retirement landscape was very different than it is today and many assumptions about retirement funding have changed in the last years.

Traditional defined benefit plans have all but disappeared amid the proliferation of self-funded or matching 401(k) and other defined contribution plans. Life expectancies have increased, and now people have the potential of living longer than at any other time in history. Although inflation rates have been low, housing and healthcare-related costs have increased dramatically. Government benefits, such as Social Security and Medicare, are under severe financial strain and reforms are imminently needed.

The Harris Poll® conducted a survey[i] in 2018 of more than 2,000 retirees to assess how today’s retirees are doing. Retirees are still relatively young at age 71 (median). A Precarious Existence: How Today’s Retirees Are Financially Faring in Retirement, details the survey’s findings, identifies issues and opportunities, and offers actionable insights for current and future retirees.

Wealth Managers

Its’s important to have a financial plan in place for your clients. It should include, at a minimum, the capitalization of future retirement income, a realistic budget, and flexibility for unplanned expenses such as long-term care or the elder care of parents. You may want to share the article below with prospective clients (after you have submitted it to your compliance officer) to spark the conversation surrounding quality of life at retirement.

“Most of our wealth managers use the powerful cloud-based tools that we provide them, to create high-quality financial plans that are integrated with our CRM and portfolio accounting systems so they have a seamless solution to educate and guide their clients,” said Jim Cannon, founder and CEO at Dynamic Advisor Solutions[ii]. “We also have CFP’s on the team who can help wealth managers prepare plans.”

Investors

After reading the summary of the retiree survey and the recommended steps below, you may want to reach out to a professional Wealth Manager to help you map out your future. Avoid Financial Advisors (FAs), General Securities Representatives (GSRs), Registered Representatives (RRs), and Insurance & Annuity brokers and salespeople. They have a built-in conflict of interest because they represent the broker or producer of the investment products and are paid a commission for selling them to you.

Registered Investment Advisors (RIAs), and Investment Advisor Representatives (IARs) are fiduciaries that must act in your best interest. They work for you and receive no commissions from the broker or investment company.

Don’t believe what you hear from the financial representative. Check it out in writing online. Brokers and salespeople can be discovered and vetted at BrokerCheck:  https://brokercheck.finra.org/ . When looking for an RIA or IAR you can find them at the Securities & Exchange Commission’s Investment Adviser Public Disclosure website: https://www.adviserinfo.sec.gov/ .

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36% of Seniors Say Their Finances Are Worse in Retirement

January 17, 2019

(Motley Fool) You’d think that as we got older, we’d do a better job of getting a grip on our finances.

And while it’s true that many of us will improve in that arena as we age into our 30s, 40s, 50s, and even 60s, new data from a Transamerica/Harris Poll suggest that we might regress once retirement kicks in. That’s because 36% of today’s seniors say their financial situation has declined since entering retirement.

And to some degree, that makes sense.

Unless you’re willing to work in some capacity during retirement, leaving the workforce generally means moving over to a fixed income.

The problem, however, is that life’s expenses often aren’t fixed, and it can be difficult to navigate that glaring disconnect.

More than one-third of retirees have seen their financial situation decline. Here’s how to avoid landing in a similar boat.

To avoid a scenario where your finances decline in retirement, here are a few steps you must take.

  1. Understand how much savings you’ll need to retire

If there were a single magic savings number that guaranteed financial security in retirement, we’d all have a set goal to aim for. But that’s not the way retirement works. The amount of income you’ll need will depend on a host of factors, from lifestyle choices to your health, so as you plan for the future, assume that you’ll need about 80% of your pre-retirement income to live comfortably during your golden years. This means that if your ending salary is $100,000, you should, ideally, have access to about $80,000 a year in income.

Now your retirement income doesn’t all have to come from savings. Chances are, a decent portion of it will come from Social Security. Once you figure out what that amount is (which you’ll find by logging onto the Social Security Administration’s website and inputting your personal details), you can work backward from there to determine how much savings you’ll need.

How do you do that? A good way is to use the 4% rule. The rule states that if you begin by withdrawing 4% of your nest egg’s value during your first year of retirement, and then adjust subsequent withdrawals for inflation, your savings should, in theory, last 30 years. While it’s certainly not a perfect rule, it’s a decent starting point to work with.

Going back to our example, say you expect to need $80,000 a year in retirement income, $30,000 of which will come from Social Security. That means your nest egg will need to produce $50,000 a year. If you multiple $50,000 by 25 as per the 4% rule, you’ll arrive at a savings goal of $1.25 million.

Again, this isn’t a perfect formula. But it will give you a sense of how well your nest egg will hold up in retirement. For example, if you’re 65 years old earning $100,000 a year and are looking to retire within the next few months, you might hold off if you only have $950,000 in savings and work a few more years to pad your nest egg instead.

  1. Map out a retirement budget

Just as it’s important to follow a budget during your working years, so too is it imperative that you do so in retirement. That way, you’ll get a clear sense of where your money is going from the start, which could prevent you from overspending early on in retirement and prematurely depleting your nest egg as a result.

Of course, the closer you are to retirement, the easier it’ll be to estimate your monthly expenses, but if you’re doing some advanced planning, think about some of your larger bills and what they might look like at that stage. For example, if you think you’ll have your mortgage paid off in time for retirement, you can base your anticipated housing costs on factors like property taxes, insurance, and maintenance (all of which might rise between now and when you leave your career behind).

Along these lines, there are certain spending categories you might reduce or add to in retirement. Though you’ll probably spend less on transportation once you no longer have to commute to work, you might spend more on leisure since you’ll have more spare time on your hands. Do you best to map out as accurate a budget as possible, as doing so will help you spend your nest egg wisely.

  1. Reset expectations as needed

Maybe your goals in retirement are to travel extensively and enjoy plenty of nightlife. And there’s nothing wrong with that if your savings can support that lifestyle. But if they can’t, you’ll need to make some adjustments early on to avoid overspending at a time when you can’t afford to.

In fact, a big part of doing well financially in retirement is taking stock of the income you have access to and working backward from there, instead of spending first and hoping your savings can support your lifestyle. Once you learn to be happy with a setup that works for your finances, you’ll be better-positioned to preserve your nest egg and avoid stress later in life.

Though retirement can be a financially challenging time, you don’t have to resign yourself to an eventual struggle. Assess your savings needs, map out a budget, and set realistic expectations. With any luck, you’ll avoid the money-related stress so many of today’s seniors are unfortunately facing.

About Dynamic Wealth Advisors

Dynamic is recognized as a premier provider of essential resources to professional wealth management practices. Its turnkey practice platform includes asset management and enables wealth advisors to save money and focus on clients while positioning themselves for success and growth. With myVirtualPractice, a suite of wealth management practice solutions, Dynamic hands the professional wealth advisor the keys to a comprehensive custom-built virtual office and practice complete with staff, back/middle office, accounting/billing, compliance and even a Virtual Assistant. The wealth advisor need only add clients and a laptop, and they are up-and-running instantly. For many breakaways and independent wealth advisors, being part of a nationwide community of like-minded professionals is one of the most valuable components of their affiliation with Dynamic.

[i] https://theharrispoll.com/new-transamerica-research-underscores-the-financial-vulnerability-of-retirees/

[ii] www.DynamicWealthAdvisors.com

[i] https://www.transamericacenter.org/docs/default-source/retirees-survey/tcrs2018_sr_retirees_survey_financially_faring.pdf

[ii] https://theharrispoll.com/new-transamerica-research-underscores-the-financial-vulnerability-of-retirees/

[iii] www.DynamicWealthAdvisors.com