How much of my savings need to be dedicated to providing my retirement income?
It’s a simple formula. First, we help you properly determine the income you will need to support your lifestyle. Then we’ll help you make the best possible choices for you as to how to take your Social Security and/or any other pensions you may have. The difference between Lifestyle Income Needs and your Pension Income, then, is your Retirement Income Gap. Once your Retirement Income Gap is determined, we can, if you want us to, show you the different options that can best provide the income you need to maintain your lifestyle with certainty. Each family situation is different because the Retirement Income Gap and available Savings and Investments are different.
What if I’m not ready to retire yet?
The sooner you have a Retirement Plan in place, the better off you’ll be, as opposed to scrambling at the last minute. In addition, the sooner you position those savings that need to provide you with Retirement Income, the smaller the amount you’ll need to dedicate for this purpose. The longer you wait to begin taking income from these savings, the more that income will grow. This can significantly increase that portion of your savings that can be used for discretionary spending or to pass to your loved ones.
What if I already have a Financial Advisor I like?
Some people make this an uncomfortable situation, and it shouldn’t be. We live in a world of specialization.
Traditional financial advisors are all about Growth & Accumulation, whereas the Visper Group focuses first on Preservation & Distribution. Many of your Traditional Financial Advisors are quite good at Growth & Accumulation and may have served you well during your Growth & Accumulation years, when you had many years ahead of you before you would need to use any of your savings. There can be disastrous consequences, however, when the Growth & Accumulation model is applied to retirement income planning.
If you ask a traditional financial advisor to help you with a retirement income plan, they will typically combine an Asset Allocation Model with the 4% rule. Both of these involve considerable risk, which is unacceptable in sound retirement income planning.
The Asset Allocation Model is simply a balance between equity investments and bond investments. As you approach retirement, the traditional financial advisor community typically will increase the percentage of your portfolio that is in bond investments and decrease the percentage in equity investments. They call this their “conservative” portfolio. Unfortunately, the economic times we live in today are radically different from anything we’ve experienced in our lifetime, and what used to work most of the time can fail miserably in today’s world. Interest rates in our economy have been artificially forced to their lowest levels in our lifetime. Most likely they will rise again. Even a modest rise back to normal interest rates can trigger substantial losses in the value of bond investments. And we all know the risks inherent on the equity investments side. So, if you are currently holding even what the traditional financial advisor community calls a “conservative” portfolio, you may be poised for substantial losses. To say the least, this is not a good foundation for your Retirement Income plan.
In addition to asset allocation, your traditional financial advisor will usually use the 4% rule annually. The 4% rule simply says that if you draw 4% annually of your beginning portfolio value, with periodic inflation adjustments, you have a chance of not running out of money before you run out of time. These are the problems with the 4% rule:
• It holds all of your savings hostage to your income needs.
• It doesn’t work (a recent study documents a 57% chance of failure and instead recommends a paltry 2.8% withdrawal rate).
• It relies on Hope and Chance versus GUARANTEES.
Retirement income planning is simply not an area of expertise for a Traditional Financial Advisor. When it comes to your Retirement Income Plan, work with a specialist. The alternative can be more than just disappointing. Relying on a traditional financial advisor to help you design your Retirement Income Plan can be as risky as allowing your Primary Care Physician to perform heart surgery. Your Retirement Income Plan should be built on Safety & Guarantees, not Hope and Chance.
Your traditional financial advisor can still be an important resource, if you wish, in helping you manage those savings that are not needed to secure your Retirement Income and that you deem may be used only for discretionary spending or to be passed to heirs.