I have had the pleasure of assisting many clients over the years. Some are newer clients. And there are many reasons why people have reached out to me for assistance.
But there has generally been one common thread—the complexities that inevitably spring from managing a portfolio and the many, but confusing, roads that can lead to holistic financial planning.
One question that comes up often in meetings is retirement planning. While your goals and dreams may differ, there is one common theme—financial security. More specifically, many ask the question, How much monthly income will I have during retirement?
That’s where this newsletter takes off.
Situations will vary from person to person. That is why I don't employ a cookie-cutter approach when guiding my clients. Each plan must have an individual element to it. But the plans are guided by time-tested principles.
Consider this—a top-rated professional quarterback, his team and their coaches tailor a game plan for each opponent they face. However, the plans are guided by the basics—the fundamentals.
In regard to my services, I look to the fundamentals that span the financial planning spectrum.
As you look forward to retirement, let’s touch on these various fundamentals and what you may want to consider in approaching them.
1. Am I saving enough in your retirement plan or 401(k)? Is there a matching provision that your company provides? If there is, don’t pass up free money! I can’t stress this enough, because too many employees leave cash on the company table. At a minimum, pick up the low-hanging fruit.
For many of you, we have discussed how much is needed to hit your goals, but if questions are beginning to arise, or you have concerns, let’s talk.
2. Do I have enough in stocks? It’s a question that is bantered around often by financial professionals. For some who experienced the market declines of 2001 and 2008, there is a nagging fear that we will get battered again. It’s a fear that keeps us too close to the financial shoreline and delays or prevents us from reaching our financial goals because we may be too conservative.
Believe me, I understand your concerns. It’s why I preach diversification within an asset class (numerous stocks across industries and countries) and diversification among asset classes (stocks/bonds, short-term cash, etc.). Diversification helps to manage risk.
Historically, stocks have outperformed income-producing securities such as bonds or CDs over the long term. But I recognize a portfolio that is 100% invested in stocks, even if fully diversified, can be too risky for many individuals. It’s one reason I may “anchor” the portfolio with securities that are not as volatile.
You won’t squeeze every last dime out of a bull market—but you don’t need too. I want to be sure you sleep soundly when the inevitable decline in stocks occurs.
Now, let me rephrase the question. Is it time to re-balance your portfolio? Do you have too much in stocks? Given solid gains over the last year, some of you may be too heavy in stocks.
It may be time to take some risk off the table and get you back within your proper parameters. In other words, the percentage of stocks that best meets your personal goals and tolerance for risk.
3. When should I take Social Security? That’s a question that comes up often. You can take Social Security when you turn 62. Or, you can delay it until you reach 70.
While many factors will influence the timing, it’s usually best to avoid the temptation of dipping into Social Security too early.
Let’s look at a simple example Fidelity recently provided. “Colleen is 62 and will reach her full retirement age (FRA) at 66 (note: if you are born 1960 or later, FRA is 67). If she starts taking benefits at 62, she will receive $1,200 a month. If she waits until her FRA to collect, she will receive 33% more, or $1,600 a month in Social Security. If she waits until 70, her benefits will increase another 32%, to $2,112 a month.”
That’s about 8% compounded annually. Moreover, your spouse will receive a higher survivor’s benefit.
I can’t cover all options available to you in this limited space, but if you and are your spouse are considering taking Social Security, let’s talk and see what might be the most advantageous strategy for you.
4. Do you have a pension? How should you take it? Many prefer the peace of mind a monthly check will provide, one that comes on top of your Social Security and savings. Or, you may choose a lump sum payment and roll it into an IRA.
But consider this—might you want to choose a joint and survivor annuity?
Simply put, if you were to die before your spouse, he/she will continue to receive a monthly check at a reduced rate. Or, you may choose a reduced initial payout that continues at that rate if you pass first.
There are other options we can discuss, including life insurance. But my aim is to educate and get you thinking about the various choices you may have.
If you are being presented with various pension options and aren’t sure how to proceed, let’s talk.
5. What are you going to do once you’ve retired? When you wake up each morning and are no longer going to work, what will you do? I covered this in-depth in another newsletter—Six Ways to a Happier Retirement.
If you would like another copy, feel free to reach out and I will gladly share my insights.
While forecasting market surprises can be dicey, remember that longer term, shares react to the economic fundamentals, which are aligned with the financial plan I recommend for my clients.
I hope you've found this review to be informative. If you have any questions or would like to discuss any matters, please feel free to email Eric@ElmTreeCapital.com or give my office a call at (781) 236-0802.