Retirement Income Distribution Plan Tips and Information
Synopsis: Consortium of Securities America Advisers provide tips for a retirement income distribution plan. With life expectancy continuing to rise, there's a strong possibility you or your spouse could spend just as much time in retirement as you did in the workforce. According to the consortium of advisers, in many cases the panic over leaving the workforce stems not from lack of retirement funds, but from lack of concrete planning for distributing retirement income.
According to a Barclays survey, 60 percent of wealthy individuals say they never plan to retire. This group of "Neveretirees," is expected to grow over the next several years as more than 70 percent of respondents under the age of 45 say that they will always be involved in some form of work. Equally startling is the fact that 32 percent of these people plan to work between five and 20 hours per week in retirement and seven percent plan to work more than 20 hours per week (1).
Some may read these results and assume that hardworking Americans want to continue to challenge themselves well beyond the traditional retirement age. That may be true, but according to a consortium of financial professionals affiliated with Securities America, the real motivation may be fueled by the fear of giving up the comfort of a paycheck and having to begin to draw down retirement accounts.
"With life expectancy continuing to rise, there's a strong possibility you or your spouse could spend just as much time in retirement as you did in the workforce," says John Egan, founder of J.M. Egan Wealth Advisers with offices in Madison and Point Pleasant Beach, New Jersey (jmegan.com). "The longest recession since WWII, continued market volatility and the prospect of diminished returns going forward serve to underscore the notion that income from work may be necessary to meet an investment income shortfall or serve as a safety net in the event of another significant market downturn."
However, while understandable, partner at Fairfield, New Jersey-based Financial Principles (FinancialPrinciples.com) Mike Flower says: "Planning to continue to work is as unrealistic as counting on a 20 percent return every year on your investment portfolio." He points out that the inverse is true. Many Americans over the age of 55 are losing their jobs and being forced into early retirement due to the recession. Recent government figures indicate that as of March 2010 more than 8 million jobs had been lost since December 2007 and for workers who are 55 or older, the jobless rate had doubled to 6.9 percent (2).
"Planning to support yourself in retirement by continuing to work seems even more unrealistic when you consider that the Employee Benefit Research Institute's 2010 Retirement Confidence Survey showed 41 percent of retirees reported that they retired sooner than they planned, often for reasons including health problems, disability, and company downsizing or closure," says Bob Hapanowicz, founder of Pittsburgh-based Hapanowicz & Associates (hapanowicz-associates.com) (3).
According to the consortium of advisers, in many cases the panic over leaving the workforce stems not from lack of retirement funds, but from lack of concrete planning for distributing retirement income. Working with a financial professional can help answer these important questions so that the retirement plan is not to ever retire:
How Much is Too Much?
Flower says that it's important to set a portfolio withdrawal rate that does not deplete assets too quickly.
He says retirees may generally feel comfortable withdrawing 4 percent each year from savings to cover retirement living expenses.
"This is by no means an absolute figure that fits all situations," says Flower. "Changes to your retirement lifestyle, market returns, and inflation rates can all influence what's reasonable and sustainable."
How Should Assets be Allocated?
"There was a time when retirement meant converting all equities to bonds," says Hapanowicz.
"While it's inevitable that your portfolio will experience both positive and negative returns over the years, a sustainable withdrawal amount is more severely threatened when those down years occur early in retirement."
This is particularly important today, where the recent recession coupled with the increased length of retirement requires an allocation to equities for growth potential and diversification.
Which Account Should be Drawn from First?
With tax-deferred accounts such as IRAs or 401(k) plans, taxable investment accounts, and annuities, choosing the account to use first to meet retirement income needs is an important decision.
"You have to look at distribution options with a multi-year lens," says Egan. That can help minimize taxes and maximize asset growth. For those retirees aged 70 1/2 or older a qualified retirement account (like traditional IRAs and 401(k)) is subject to IRS-mandated required minimum distributions (RMDs).
How to Remain Balanced
"Income draw-downs will impact overall asset allocation, that's inevitable," says Hapanowicz. As such, it is necessary to regularly review the whole portfolio and re-balance when, and if necessary to maintain a mix of stocks, bonds, and cash that is appropriate given an investor's age and risk tolerance.
Is More Insurance Necessary?
"Some investors are perfectly comfortable with a 90-percent chance that they won't outlive their money while others want more of a guarantee," says Egan. Most investors are accustomed to managing market and inflation risk, but retirement adds longevity and healthcare costs to the equation. A financial adviser can help you assess all the risks you may be most susceptible to.
"If you're worried about running out of money later in life, you might consider converting a portion of your savings into a regular stream of income-payments by purchasing a lifetime income annuity. If the cost of long-term care is a worry, you consider purchasing long-term care insurance," says Flower.
Financial Principles, LLC
Financial Principles understands the importance of planning - whether it's for retirement, saving for college or even charitable giving. Two senior partners, Bradley H. Bofford, CLU, ChFC, and Mike Flower, bring a combination of more than 30 years of financial services experience to their clientele. Both provide comprehensive services and advice in all areas of personal finance, such as estate planning, retirement planning and tax reduction strategies. Believing that a well-informed client is essential for success, they love taking clients from fear to confidence regarding finances, by placing a strong emphasis on educating people about how to prepare for and enjoy a comfortable retirement.
J.M. Egan Wealth Advisers, LLC
John M. Egan of J.M. Egan Wealth Advisers, LLC in Madison and Point Pleasant Beach, New Jersey is a financial adviser who specializes in wealth management, retirement planning and independent investment advice. Since beginning work in the financial services industry in 1986, John has worked with hundreds of families, teachers, corporate executives, and small businesses in 15 states to help them design a plan to achieve their financial dreams. He has the comprehensive education and experience to handle all aspects of building and preserving wealth.
Hapanowicz & Associates
Since 1987, Hapanowicz & Associates has provided the supervision and management of retirement assets for a variety of clients including: business owners transitioning to liquidity; employees from fortune 500 companies achieving retirement or the next phase of their lives; and plan sponsors who require a high level of personal service for their company's pension, 401(k) or other retirement plans. The firm frequently hosts independent seminars for employee groups from a single company to explain the details of their plan. For more information, visit www.Hapanowicz-Associates.com.
Securities offered through Securities America, Inc. Member FINRA/SIPC. Michael Flower, John Egan and Bob Hapanowicz, Registered Representatives. Advisory services offered through Securities America Advisers, Inc. and/or J.M. Egan Wealth Advisers, Michael Flower, Bob Hapanowicz and John Egan,Registered Investment Advisor Representatives. Financial Principles, J.M. Egan Wealth Advisers and Hapanowicz & Associates and the Securities America companies are not affiliated.
Pursuant to IRS Circular 230, Securities America Inc. is providing you with the following notification: The information contained in this article is not intended to (and can not) be used by anyone to avoid IRS penalties. Neither Securities America nor its representatives are permitted to give tax advice. Discussion of tax rules is for general informational purposes only and merely a summary of our understanding and interpretation of some of the current income tax regulations and is not exhaustive; nor does it cover every situation. Consult a qualified professional for tax advice specific to your situation.
Asset Allocation seeks to maximize the performance of your investment portfolio using diversification and disciplined investing. Diversification can be thought of as spreading your investment dollars into various asset classes to add balance to your portfolio. Although using an asset allocation methodology does not guarantee greater returns or against the risk of loss in a declining market, it may be able to reduce the volatility of your portfolio.
*All investments involve risks including loss of principal.
*Bond investments involve the risks of price fluctuation and the issuer's credit quality.
- 1. www.financial-planning.com/news/barclays-nevertirees-2668964-1.html
- 2. www.suite101.com/content/older-americans-cant-find-a-job-deal-... nt-a241378
- 3. www.ebri.org/surveys/rcs/2010/
Written by Impact Communications in conjunction with Michael Flower, John Egan and Bob Hapanowicz, Securities America, Inc. Registered Representatives.
This quality-reviewed article relating to our Disability and Retirement section was selected for publishing by the editors of Disabled World due to its likely interest to our disability community readers. Though the content may have been edited for style, clarity, or length, the article "Retirement Income Distribution Plan Tips and Information" was originally written by Impact Communications, and published by Disabled-World.com on 2010/11/21 (Updated: 2021/06/03). Disabled World makes no warranties or representations in connection therewith.
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Disabled World is an independent disability community founded in 2004 to provide disability news and information to people with disabilities, seniors, their family and/or carers. See our homepage for informative reviews, exclusive stories and how-tos. You can connect with us on social media such as X.com and our Facebook page.
Disabled World provides general information only. The materials presented are never meant to substitute for qualified professional medical care, nor should they be construed as such. Funding is derived from advertisements or referral programs. Any 3rd party offering or advertising does not constitute an endorsement.