A New Investment Plan For A New Retirement

Five ways you may want to adjust your retirement plan as people live longer, more active years.

Thanks to medical advances, more people are living longer and with an eye on a healthy lifestyle. That’s terrific news for everyone. But a longer, more active life also means rethinking traditional views of your needs for retirement, and that should include a critical look at how your portfolio is put together.

It used to be that as individuals and investors got close to and entered retirement, they changed their portfolios to have less exposure to equities and more to fixed income in order to protect what was built over the years. Drew Denning, a Retirement Strategist for Wells Fargo Advisors, notes that now, however, you may need retirement income for 30 or more years. And he adds that with an inflation assumption of 3%, your costs will double in 24 years.

So how do you help ensure you stay as financially healthy as you are physically fit for all those wonderful years of retirement? Denning outlines five suggestions to rethink the way you invest in retirement.

1) Reconsider your risk

For starters, Denning advises that you revisit your risk tolerance. For those transitioning from working to retirement, this advice is even more important. “The loss of a regular paycheck can cause more aggressive investors to become even more nervous when a market correction occurs. If you cannot either emotionally or financially withstand a market correction without withdrawing from the market, then your portfolio is too risky,” says Denning.

This doesn’t mean, however, that you should move to 100% bonds. “Keeping a healthy dose of exposure to stocks and/or equities can help a portfolio keep pace with inflation,” he adds.

2) Keep a cash reserve

Most people know the importance of keeping an emergency fund during your working years, but what about when you’re drawing down on existing funds? Conventional advice about establishing a cash reserve bears repeating, according to Denning. When a market decline occurs or when you have an emergency expense, your cash reserve can be a resource not only financially but also emotionally. Denning points out that analysis shows that this reserve should cover anywhere from one to three years of essential expenses.

3) Adjust your habits for market conditions

“Consider using adaptable spending if your budget allows,” counsels Denning. “When your portfolio declines in value, reduce your planned withdrawals; and when the market increases, increase your withdrawals or spending.” This approach, he adds, “can dramatically increase the long-term sustainability of your portfolio.”

4) Focus on fixed income

Although it’s important to maintain an allocation of stocks, bonds, and cash in your portfolio, pay special attention to your bond allocation, Denning advises. In today’s low-interest-rate environment, many analysts are predicting a slow and steady increase in rates during the next five to 10 years. While increasing rates are desirable to retirees, it can also have a negative impact on the value of your bond portfolio.

“For instance, if interest rates rise by 1%, a bond portfolio with a 10-year duration will decrease in value by 10%,” Denning says. A possible solution: “I would suggest selecting a bond portfolio with a two-to-three-year duration, where a 1% increase in rates would only result in a 2% to 3% decline in the value of the portfolio.”

5) Build your health care plan

As life spans and the number of years you spend in retirement increase, you likely will be subject to a corresponding increase in health care expenses. According to a 2015 report from HealthView Insights, the average lifetime health care expenses for a 65-year-old healthy couple retiring in 2015 and covered by Medicare parts B, D, and a supplemental insurance policy will be more than $400,000 once out-of-pocket medical expenses are added into the equation.

Regarding this somewhat sobering statistic, Denning advises to pay attention to your health and address any medical issues before they have a chance to become major concerns.

It’s not your parents’ retirement — the same strategies that worked for them may not be right for you if you’re looking at spending 25 or more active years as a retiree. Taking a thorough look at your investment strategy may help ensure you’ll be enjoying every one of those years.

About the Author

How can you know what you should do if you don’t know what you can do? Author, radio personality, educator and financial planning pioneer Stephen Kelley shares his secrets to More Now, More Later™ retirement income planning. Most planners regard income planning as a “zero‐sum game,” a “Rob Peter to pay Paul” exercise. In these self‐serving, Wall Street‐dictated scenarios, people must limit the amount of income they receive to ensure they don’t run out of money in retirement. But there is an alternative to this “less now, more later,” or “more now, less later” mentality. Using state‐of‐the‐art income planning techniques, and his own trademarked “Last Things First™” planning process, Stephen Kelley blows the lid off the traditional Wall Street‐serving methods and brings retirement planning home to the individual retiree. In his books you will learn how to: - Unleash as much as 3 times the lifetime income using half the money with Kelley’s trademarked planning process, Last Things First™ - Ensure your Social Security benefits enhance, rather than impede, your plan. - Reduce, or even remove, taxes and fees from your retirement plan. - Maximize market returns while minimizing market risk. - Regain control of your pension so you not only get all the income you can, but so you can also leave it to your heirs. - Take control of the planning process so you can spend freely without worry. - Much, much more.

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