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Today we’re going over five challenges for federal retirees.
The first challenge is the transition in perspective from asset accumulation to asset distribution and preservation. Sometimes people get so used to saving, that even in retirement, they still want to keep saving. But retirement is when you transition to preserving your money and then distributing it either by spending more yourself, helping others, or giving it away.
It’s helpful to determine the purpose of the money. Maybe the purpose is to create family memories, help your children, or maybe for long-term care concerns. Find the purpose of the money and realize there are only three things that can happen with your money. You can spend it, give it away, or leave it to a beneficiary at your death. Finding the right balance of preserving some for later, but also enjoying it now, takes practice and we help people with that all the time.
The second challenge is the natural shift to more conservative investments. Typically, as people get older, they get more conservative so as they start taking a monthly distribution, their money doesn’t fluctuate with the market.
Balancing your allocation between aggressiveness in the stock market and conservatism with bonds, annuities, and other conservative options, takes some finesse. It needs to be aggressive enough to offset inflation and continue growing so you have more money later to pay the higher prices. But you may want to be conservative enough so your money isn't fluctuating too much. The challenge comes for people who invested aggressively their whole career and want to continue being super aggressive into retirement. The problem there is if there’s a crash. If you have to take withdrawals out during that timeframe, and you were super aggressive, that could be a problem.
In our world, we talk about a sequence of return risk. If you have several years in a row that are bad in the stock market, right at retirement versus when you’re 90 years old and your portfolio has gotten really large, that will make a difference. There are ways to set your portfolio up where you can be aggressive enough to participate in the stock market earnings to keep up with inflation and your spending, but also conservative enough to take your monthly distributions from a conservative location that won’t fluctuate much. The challenge is finding that balance.
The third challenge is changing personal risks that increase the need for new financial products and diminish the need for others. There will be changes in the risks you face as you get older. Making sure your assets grow enough to offset inflation 25 years from now is a risk. There’s also the risk of dying early and making sure your spouse is going to be OK. Different products fix different problems. Certain products provide benefits for certain people in certain circumstances. Understanding that and figuring out what’s best for you can be challenging.
The fourth challenge is increased product complexity. As we mentioned earlier, you may need some guaranteed income and you can use an annuity to do that. Or you can use a fixed-index annuity, not for guaranteed income, but just a conservative place to grow money. It can get confusing when one time you use the word annuity you mean a guaranteed payment and another time you don’t.
As you move to being more conservative, you may need other conservative options to try to earn all you can, but still be conservative. You may want to work with somebody who can simplify what these products do so you can decide whether they're beneficial to your situation.
The fifth challenge is potentially having reduced mental acuity or a growing unease with technical matters that can slow the decision-making process and may raise questions about competence. You may need to have your spouse be more involved in financial matters to help you make good decisions. Or maybe you need to add a trusted contact to help or work with a professional who understands your federal benefits and choices. If you are starting to lose your mental acuity, you need to have somebody that can help you.
The information provided is not intended as tax or legal advice. Figures shown are for illustrative purposes only furthermore, the information nor the illustrations provided may not be used to avoid any tax penalties. This content represents the general views of Christy Capital Management and should not be regarded as personalized investment advice Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice. Retirement Benefits Institute, Inc., and a portion of its contents merged with Christy Capital Management Inc. Brandon Christy, former President of Retirement Benefits Institute, is also the current President of Christy Capital Management, Inc., a registered investment adviser. |