Category Archives: Commentary

Late Summer Doldrums

The late summer doldrums picked up straight away after our last post and drive to be more diligent here. Who knows what the driving factor has been, but it has been a busy time. Still, that’s no excuse for leaving you in the lurch with respect to finding great guidance for your retirement planning.

Late Summer Doldrums: Will it ever end?
Perhaps the day the doomsayers predict is getting closer, perhaps not. The bull run has been epic, certainly in our lifetimes. That has to end, right? So, what is different this time? The global, ongoing central bank campaign to flood markets with cheap money is one thing. More than just low rates, there was the extended Fed intervention in markets driving up the Fed balance sheet. Plus, many individual investors have migrated to index funds … putting incessant upward pressure on indices. As the Fed contemplates raising rates (tightening money) and selling assets (adding supply) and consumer migration tapers, the end of the run could be precipitous. David Stockman warns the market’s “Chuck Prince moment” has arrived…”only more dangerous” The Rise of Robots & the Risk to Passive
 

Late Summer Doldrums: Why worry?
You may be thinking “why worry? The markets have been great to me.” That may be, even in comparison to where you were in 2007. Then again, can you afford a correction like you saw in 2008/2009? Remember the notion of sequencing risk, retiring into a downturn is the worst-case scenario. Plus, the older you get, the less time you have to recover your ‘paper losses.’ Diversification remains your best friend at this point, with countercyclical components there to help when markets do turn. Just remember, your retirement will be long (longer than you think, hopefully) and come with surprises. 5 Retirement Expenses You’re Probably Not Ready For $500,000 Surprise: Health Care Sticker Shock Awaits You in Retirement
 

Late Summer Doldrums: What can/should you do?
For starters, don’t fret about any of those things. Control the controllable items and be aware of the rest. Start by ensuring your portfolio is properly diversified. The good news is that seemingly all asset classes have benefited from the long rally (oil & gas being the glaring exception). Still, you may need to do some rebalancing to get your portfolio back in shape. Here is an interesting take on total returns that is worth considering. Need More Income: Seek Total Return Here’s How to Determine Your Ideal Asset Allocation Strategy (caveat: no mention of alternative asset classes or even commodities that may provide a hedge)

Energy Future

As Monty Python would say ‘and now for something completely different…’ and we delve into the energy future. Our focus tends to be retirement security and how to attain it. Periodically it is impossible to avoid the maelstrom that is DC politics. Energy, however, is an entirely new subject. What, you may ask, prompts this diversion? Today I heard a comment that ‘there is plenty of opportunity in oil & gas because those investors fear $30 oil.’ While you may feel I have some credibility when it comes to retirement, why think the same for a look at energy? Many of you know I spent several years in GE Power Systems, close at hand with both the power generation business and the oil & gas business. Devising strategies, leading businesses and spearheading the quality organization all brought a keen understanding of the marketplace and a sustained interest in its development. What I hope today is to bring you an overview of the technological playing field, particularly with alternatives … to answer the question, why the comment about oil & gas? One thing is certain, oil & gas (and coal) are not going away any time soon. Read on to become a smarter energy consumer.

Energy Future: First, where are we today?
In the perfect world, we would run on ‘clean’ power and ‘renewable’ energy. Imagine zero CO2 emission power sources. We actually have some forms of power like this already, right? Long ago we had hydro power running grain mills (why do you suppose Minneapolis is there?) and wind power doing all sorts of things (Dutch windmills, right?). More recently you have solar and nuclear, even baby steps on tidal power. Yet while there continues to be big emphasis on these technologies, each has distinct drawbacks, too. Environmental Impacts of Renewable Energy Technologies

Energy Future: Hydro
Hydropower Hydropower Technology and Types of Hydroelectric Power Plants Hydrokinetic Energy Alaska Hydrokinetic Energy Research Center Hydrokinetics Comes to the Forefront

Energy Future: Wind
Wind Power Unsustainable: 43 Million Tonnes of Wind Turbine Blade Waste by 2050 Why offshore wind turbines can’t handle the toughest hurricanes

Energy Future: Solar
Solar Energy Solar Power Will Kill Coal Faster Than You Think Environmental Impacts of Solar Power How Green are Those Solar Panels, Really?

Energy Future: Nuclear
Nuclear Energy Union of Concerned Scientists: Nuclear Power Safety First Can Nuclear Power Rise from the Chaos in Washington? Pros and Cons of Nuclear Power Nuclear Power Safety Concerns

Energy Future: Is there a better way?
The one unconquered field of power generation is fusion power. Quite simply replicating the sun’s approach in an Earthbound plant. Why is this better? Because there are no emissions, no waste, and no risk of a runaway process. Not just that, but no apparent side-effects. Presumably that was said about all the other clean energy, too, but it seems promising. Deceleration of runaway electrons paves the way for fusion power A new twist on fusion power could help bring limitless clean energy Fusion power could be here in less than a decade

Financial Wisdom

With each installment, we try to impart financial wisdom on our readers. It generally comes by way of general rules and valuable pointers. This time we turn the focus to distilled financial wisdom. First from the Oracle of Omaha, Warren Buffett in his annual letter to shareholders. It is a lengthy read, but always worthwhile. You can find that here: Warren Buffett’s letter to Berkshire Hathaway investors explains how to use fear to your benefit. The second piece comes from Jim Gallagher, a personal finance columnist, it is here: 23 years of personal finance wisdom distilled into one final column. Before this one gets too dated I figure why not share Jeff Gundlach’s mid-January opinion piece. Here’s Jeff Gundlach’s full presentation on expensive stocks, the economy under Trump, and the Federal Reserve

Financial Wisdom: Always optimize the incentives Government provides.
I will start by saying Social Security is not given to you by Government, you fund and earn it. Still, there is an art to extracting the most value. This is the surefire way to maximize your Social Security benefits

Another really popular topic here is Health Savings Accounts (HSAs). We will not rest on this one until you fully appreciate the value of these. How Health Savings Accounts Work

Financial Wisdom: You need to be very, very attentive to your longevity risk.
You saw it above in the piece on Social Security and this article, too, deals squarely with longevity risk. Many find fault with annuities as a solution, but the guarantees have value and should not be dismissed. The biggest problem with traditional retirement planning

Financial Wisdom: Invest as wisely as you possibly can.
One thing vital to your planning is to understand that it is never a ‘set it and forget it’ process. This article helps drive that point home. Investor’s Alpha: Proper Asset Allocation
Then again, things are subject to change … what impact will Artificial Intelligence have on individual retirement investing? This article may give you some insight and hope. Artificial Intelligence Hedge Funds Outperforming Humans
Investing wisely also means being aware of your environment. This article, just published this morning, shares a Monte Carlo simulation for market performance in March. As with all prognostications, take it for what it is worth, but it is fascinating. I recommend reading it through. A Monte Carlo Simulation of the S&P 500 for March 2017

Successful Retirement

Just what is a successful retirement? Perhaps not having to work after you ‘retire’ is how you define it. More likely you are thinking about traveling, time with family, remaining healthy and active…good things. Fact is you should probably avoid the first thing before you focus on the others. Now, you may want to work in retirement, that’s fine. You may call it a ‘second act.’ Maybe you can truly devote your time and energy to a cause you support, or flip properties; more power to you. I think you can do everything right in your run up to retirement: saving more than you think you need right from the start, watching fees, being aggressive enough, etc. If you get the income side of the equation wrong, though, it can blow it all. This brings us back to a few recurring themes: longevity, expenses and withdrawal rates.

Successful Retirement: Just what do you need to do right to make it happen?
This author has put a lot of thought and effort into the right withdrawal rate. Fact is that longevity, fees and investment strategy are all important determinants. If you retire at 65, will you be retired for 40 years? For many of you, yes. That makes this article a must read. It is also a huge eye-opener (sorry). A ‘Safe’ Withdrawal Rate Highly Depends on Longevity and Asset Allocation
These may be repeats, but warrant repeating. The notion that a flat withdrawal rate will match reality is hard to fathom. This construct makes a lot more sense. You will slow down as you age, right? Then the medical bills will likely ramp up later, right? What is the ‘Retirement Spending Smile?’ and Retirement Spending Increases and Decreases Over Time
I really try not to annoy you with hard to read articles. This one makes some good points, but you have a short time to read it. So, keep reloading the page and work your way down. How Much Money Do You Need to Retire?
One thing is certain, your cost structure in retirement will matter. One way to effect that is moving to a lower cost of living. The 50 Cheapest Places to Retire in the US (I suspect my many NJ friends may not have considered Newark!)

Successful Retirement: As suggested above, it is not all about money. Keep your mind active.
And you thought it was a bunch of books. These 250-Plus Violins are About to be Owned by the US Government
Lots of you will make your way to NY City during the holidays. Maybe this is an interesting aside. Secrets of New York’s Grand Central Terminal (remember when that ceiling was black?)
You know this technology will make its way to your phone before too long. I can sure use it! NASA’s New Camera Is Straight from the Future with Incredibly Detailed Footage
This one is a warning that it is not that simple. Climate change is a controversial subject, and it takes more work than you think to understand. How did one volcano confuse scientists, ocean research?

Your Retirement Game Plan

Labor Day Weekend seems like the ideal time to think about Your Retirement Game Plan. What better thought for the holiday weekend than considering when you no longer have to work? So, this time we give you as much current thinking as possible on the most vital steps to take in planning for your future, long, healthy retirement: Your Retirement Game Plan.

Your Retirement Game Plan – doing the right things during the accumulation phase.
Active vs. passive, stocks or bonds, self-serve or advisory, there are many choices. Robo-advisors are the latest wave, and this article gives good insight into the implications. Wealthfront vs. Vanguard: Which is the Better Choice for Retirement Investors
You have read here before about the power of compounding. It never hurts to reiterate, the more you can save, the earlier … the better. The Power of Compound Interest
Of course, you should also invest wisely. Use all the tools at your disposal to get the best possible outcome. Why you might want more than one IRA

Your Retirement Game Plan – generate income during your retirement.
If you choose to be a more active investor, dividend stocks are a good way to generate income and maintain capital.  The nice thing about this one is it gives a way to set a portion of your savings here. Setting Up a Solid Dividend Portfolio with Only $10,000
Not only that, there is a constant stream of analysis out there to help. This one is a bit dated, but gives you a good idea of what you can find. Dividend Stock Yields 19%, Way Below Book Value, Major Growth, Reports This Week
I will continue to harp on the QLAC (Qualified Longevity Annuity Contract) until you get one. The one thing none of us know is how long we will live. This is insurance against that. Learn more about it, please. How Retirement Savers Are Stretching Their IRAs: The QLAC Archipelago
Stay up to date on developments in the retirement industry, too. Try this on for size: “The first person who will live to be 150 years old already has been born.” – Michael Kazanjian, Lincoln Financial Group’s vice president for annuity and retirement plan services marketing. Retirement income innovations aim to ease longevity’s strain on assets

Your Retirement Game Plan – know your future expenses.
We discuss the “4% Rule” and other ways to consider managing your savings during retirement, i.e. the distribution phase. Lately the literature is turning to a more enlightened view, that expenses change over time in retirement. It makes sense, right?  It is worth a good, hard look as a preferred alternative to boilerplate ideas. How to Invest in Retirement
This is the tricky part, unusual expenses. Imagine, while 28% never see one, 19% get hit with four or more. 17 unexpected expenses in retirement

Your Retirement Game Plan – understand what you are up against.
Sometimes it is worth looking back. This entertaining article shows how we just don’t know what we don’t know. The One Factor to Explain Them All

Olympic Savings

With the Olympics well underway, it is a good time to think about winning the gold in Olympic Savings. I feel old when I say the Olympics do not seem as compelling as they once were. Sure, the Michael Phelps story continues to amaze, Simone Biles, Simone Manuel, Lilly King and Kristin Armstrong have all added tremendously to the spectacle. I don’t know, the coverage seems weak, annoying even, they barely show beyond the US team, you’re lucky to find ‘minor’ sports, and the delay is really annoying. Rant over for now, but I am sure there are many more good stories at the games that we just will not see. So, as they say, let’s control what we can, as always that means your retirement security. How can you win the gold in Olympic Savings?

 

Win the Olympic Savings gold by ensuring you save enough for retirement.

We talk about longevity with some regularity here, but Millennials need to pay particular attention. Merrill Lynch’s Dwyer Says It’s Important for Millennial Investors to be Disciplined

Rules of thumb are great starting points (of course we consistently pick apart the 4% rule here). There is a lot of value in granularity, too. So, keep an eye on the things people miss when planning. 6 Big Expenses Retirees Didn’t Save For – But Should Have

As you can see from the comments on this one, it stirred some controversy. Still, it is a valid point and worth your consideration. Estimate Your Retirement Income Needs Based on Your Spending, not Your Income

 

Win the Olympic Savings gold by investing wisely for retirement.

It is best to have an investment strategy that encompasses all your savings – 401(k), IRA, pension, investment accounts, etc. That means you will have the chance to do some things yourself. So learn about hot strategies and try some you like. Testing Smart Beta with Two Relatively Long Real-Time Records

Of course, everyone has heard about the outperformance by low cost indexed products vs. higher cost actively managed funds. Is that really the long-term answer? Let’s face it, when markets go down, indices go down … actively managed funds may not. Is Active Management Dead? Not Even Close

Do not become an active investor by any means, but do stay abreast of opportunities. Market timing almost never works, even for the best and day trading is another race to the bottom, largely. Still, opportunistically finding gems … ideally finding them, yourself … can make this more fun and boost your nest egg. Inside EQAL: A Strategy That Has Doubled Return of S&P 500

 

Win the Olympic Savings gold by focusing on building an income stream during retirement.

Dividend stocks are one good way to drive income without harvesting principal in retirement. That is why we keep giving you leads on good ones. AT&T: Dividend Investors’ Dream

I clicked through on the author of that article to see what else he had written. You should do the same when you stumble upon something that makes sense. Turns out he likes NextEra Energy, too. Funny thing is an old GE colleague has been in charge there during this period as “one of America’s fastest-growing and best-performing utility stocks.” NextEra Energy – One of America’s Best Utilities Keeps Getting Better

Returning to this notion of having a plan, we often share data debunking the age-old 4% withdrawal rate rule. To be completely fair, I give you new data from T. Rowe Price that supports it. I only ask does a decades old adage make sense, knowing what you do about dramatically increasing longevity? How to reduce the risk of outliving your money

 

Win the Olympic Savings gold by staying aware of your environment.

Not much you can do about this aside from understand and avoid related pitfalls. You may be fascinated to realize it, though. S&P 500: This is Critical Information for Each and Every One of Us

Fiduciary Implications

The initial reaction to the DOL Fiduciary Rule was mixed, now we are beginning to see some Fiduciary Implications. Big players are already making moves to ease compliance, most notably Charles Schwab, and the speed with which this is happening means some benefits may quickly accrue.

So, what have been the fiduciary implications thus far, and what might follow?
The absolute most encouraging fiduciary implications I saw all week was this news about Schwab dropping loaded funds.  Post-DOL fiduciary rule, Schwab dumps load funds as advisors yawn That’s good news because it indicates the market moving to help you with your quest for lower cost investments, and Schwab moving means others will have to follow, despite what they may say.
Inasmuch as the fiduciary implications are technically limited to qualified investments, i.e. your tax favored investments like 401(k) and IRA assets, theoretically only a fraction of your investments are ‘protected’ by the new fiduciary rule. Still, I think once the smart players go to the effort of compliance with the DOL fiduciary rule, they will go ahead and apply it themselves to non-qualified money. Mind you, the SEC is talking about its own fiduciary rule for non-qualified money, and there will be plenty of resistance from the industry. SEC Joins Battle on Broker Bias That Could Remake Industry
Frankly, having a more uniform framework which applies across qualified and non-qualified money will be a better thing, certainly for investors, as the industry will be compelled to comply, limiting the chances of shutting out smaller investors. Keep in mind that the DOL rule makes it relatively easy to choose to walk away from small accounts – whether personal or business – as a rational business decision. Walking away entirely will be an entirely different equation.

Now that we have a glimpse at the fiduciary implications, let’s take a minute on world markets.
First, let’s consider some context for the prior remarks. This is a fascinating article about the future of the asset management industry. I pulled it first for the excellent bubble chart on invested funds. I put it here, though, because it gives you some insight into the industry dynamics. Asset Managers, Prepare to have Your Business Disrupted
You have read here before about the questionable US unemployment data. This article goes one step beyond to show you the US output gap as an alternative means of divining the true state of the economy. I found it fascinating. Why the US Output Gap Means the 10-year is Going Below 1%
I find it hard to internalize the rapid rise of China as an economic power. These few charts give a good primer on where things stand. These 4 maps show how China is dominating global trade
I admit I don’t agree with George Soros much, probably at my own peril. This time, though, he makes a good deal of sense. Soros says China looks ‘eerily’ like the US in the run up to the financial crisis
At the same time, Japan’s woes seem to worsen. In Shocking Finding, the Bank of Japan is Now a Top 10 Holder in 90% of Japanese Stocks

Now, you deserve to lighten up some.
As an adopted Minnesotan, I was surprisingly struck by the sudden loss of Prince. Here is a great link to his entire very last show. Listen to Prince’s Entire Final Concert
I know an inordinate number of people gather around for the Kentucky Derby. This may make it easier for you. The 13 Best Bourbons for Kentucky Derby Season 2016
When you hit the road this Summer, take along the best tools. The Best iPhone Apps for Travelers

Optimizing Your Retirement

With tax season and tax freedom day behind us, let’s refocus our energy on Optimizing Your Retirement. There are three core philosophies we expound most often: keeping your investments efficient by optimizing costs and returns, focusing on income generation during retirement, and staying focused on the interrelated topics of longevity, healthcare costs, and making your nest-egg last.

How can you be as efficient an investor as possible?
Optimizing your retirement starts with keeping control over the costs in your portfolio. That includes all your buckets of money, 401(k), IRA, 403(b), investment accounts, everything. Some are harder than others to determine, but do your homework and get the best bang for your buck.  Expense ratio continuously impacts the NAV of a fund and How to Increase Your Retirement Savings Without Saving More both provide great tutorials
On a reasonably timely note, taxes, too, are a drag on your retirement savings … a cost, and a big one. 7 tax strategies the rich don’t want you to know

Focus on income generation during retirement.
We talk often of dividend paying stocks, and that is one great way to generate income. Don’t fall into the trap of monitoring current yields, though, because your yield is relative to your basis. That way you can take credit for appreciation, too – that’s a great start to optimizing your retirement! Dividend Stock Investors: Pay Attention to Your ‘Yield on Cost’
Here is another interesting analysis tool for selecting your dividend paying stocks, value. Dividend Growth Investors: Create Your Own Sense of Value
Good news is that the ETF world is responding, too. New High Dividend ETF with Free Cash Flow Focus by Pacer
Be smart about your Social Security, too. Ready to retire? Don’t rush your Social Security start date

Stretch your retirement savings as far as possible.
Recognizing that most people will not, really have enough money when they retire, when optimizing your retirement it may help to have some examples to follow. How to Retire and Live to 100 with $875,000 in Net Worth
There are behavioural tricks, too, to help stretch your nest-egg. 3 Easy Moves to Make Your Money Last Your Lifetime
Of course just plain saving money helps, too, i.e. be as thrifty as you reasonably can.  One great way is with ebates, the website and app automatically applies coupon codes and gives you cash back on purchases you plan to make anyway … sometimes even in the store. Check it out and sign up now, you will be glad you did. ebates This seems like a similar service, but only for the Chrome browser This Lazy Online Shopping Tool Actually Saves You a Ton of Money
Clearly, apps, bots and websites will be your best friend when it comes to saving money, and it gets easier every day. Hotel Tonight is another app we have used, and while it means doing short notice bookings (they sell unsold rooms at steep discounts), it often works out well. How to stay in luxury hotel rooms all over the world for less and Google Flights Now Shows Cheaper Fares From Different Services

Retirement: Why Worry?

Some friends and associates may pass over my periodic posts here thinking they are not relevant to them, which is why I am focusing on retirement: why worry? You see, regardless your situation, well prepared or ill prepared, knowing more and acting on it with respect to your retirement is entirely relevant for each of you.

First, some context on where things stand.
Americans are astonishingly ill prepared for retirement, and Social Security is no panacea. You truly do have to invest in your retirement, and the leaner things are now, the smarter you need to be about it.
We are way behind: Ready to get serious about saving for retirement? Here’s what you need to do.
Compound interest helps: Ask a financial planner: ‘What is compound interest?’
Managing your investments does not end when you retire: 3 Reasons it’s important you continue investing long after you retire
Healthcare remains the elephant in the room: These 5 charts predict what retirees will pay for healthcare over the next 10 years Near retirees can expect $400K in health care costs
We continue to live longer, so the old rules no longer apply: We’re living longer – get ready to pay for it 4% Retirement Rule: Why It Might Not Work for You, and What You Should Do About It Managing your retirement nest egg and making it last as long as you do

Now that you have a sense for things, what can you do about it right now?

I realize I seem to have a one track mind, retirement. That’s because it is how I best feel able to help each of you. Now, though, here are some other, thought provoking articles.
You may have read about this AI from Google beating the world class Go player. It is said to be quite a feat, and this article expands on this. Most interestingly, the article delves into the ‘what-ifs’ around AI given this one’s ability to think of things a human would not consider. Fascinating. Google just proved how unpredictable artificial intelligence can be
As you think of desirable traits for a President, predictability has to be pretty high on the list. Admittedly most campaign promises go by the boards, but you hope the candidate is truthful and sticks to their core beliefs (as outlined during the election). Incredibly, The Economist has taken a strong stand on our current election cycle. What do you think of this? ‘President Donald Trump’ in Top Ten Risk Events for Global Economy

Your Best Retirement

It has been a while since I crafted an entirely new post, and it seems worthwhile to pull together many disparate themes from my normal, weekly posts to define your best retirement. Indeed, I will give you some broad guidance on generic ways to achieve your best retirement. First, I will summarize the best concepts and then elaborate for those wanting more background.

  1. Maximize pre-tax contributions to employer sponsored retirement plans
  2. Understand and minimize fees in all your investment activities
  3. Always invest with a strategy
  4. Remember your time horizon is very long term
  5. Understand your options
  6. Timing matters … when you retire

Maximize pre-tax contributions to employer sponsored retirement plans – This one is pretty basic inasmuch as pre-tax savings get you more to start and most plans deliver some employer matching program. Say your employer matches the first 3% on a dollar for dollar basis, saving 3% of each pay check gets you 6% right away (subject to vesting, of course). If you like the investment options in your retirement plan – cost structure and diversity – invest as much as you can. Even if you invest 10% in this scenario, you are starting with 13% each pay period. Plus, it is 13% of your pre-tax income. That means more invested now and lower tax liability this year. The general logic for investing pre-tax beyond that is the assumption that you will access the money when you are in a lower tax bracket (I cannot say I have seen any analysis which confirms that, but the logic is your total ‘earnings’ will be lower in retirement, placing you in a lower bracket, all things being equal).

Understand and minimize fees in all your investment activities – I harp on this one as often as possible, and there are myriad articles and examples scattered throughout my weekly updates to reinforce this point. Still, it may be more important than that first point simply because most people do save what they can, but few focus on this vitally important element. Consider it this way, each percentage point of fees you pay is one percent less return … each and every year, compounded. It matters, whether you are selecting investment options in your employer based plan, buying mutual funds in your online brokerage account, or working with a broker or advisor … understand the fee structure and minimize it.

Always invest with a strategy – Just last week I posted a link to a great article that highlights this point through a $100/week investment strategy into the S&P index. If you did not read it, or simply do not believe me, please do read it. The bottom line is that since your time horizon is long term, weekly, monthly, even annual fluctuations in markets should not cause you to lose sleep. The example given there shows that $100/week for 20 years becoming $205,963.08. They go on to suggest if that were simply left alone, no more contributions, until retirement (23 years more in the example), that individual’s $100/week investment of $104,000 would be $1,041,317.04. That’s as simple a strategy as there can be, invest a modest amount, every week, into a broad market index. Just imagine if the investor (you) kept investing and increased the investment as your means increased.

Remember your time horizon is long – The important point here is to stop worrying about a bad day or bad week or even a market adjustment. So long as you are not retiring squarely into a bad market, these things work themselves out over time. In fact, that $100/week example over 20 years had ups and downs, including the tech bubble bursting. Still, it delivered a 7.3% compound annual growth over the period. That’s not bad and required not one ounce of consideration or worry.

Understand your options – Employer sponsored plans are not the only way to save for retirement. In fact, there are plenty of other ‘qualified’ and ‘non-qualified’ ways to save – IRAs, Roth IRAs and Keogh plans, for instance. Permanent life insurance, for example, is a less utilized, but powerful saving vehicle. Come on, you’re saying, life insurance. Yes because you get tax advantaged ‘build-up’ inside of permanent life insurance policies, you can get the same type tax deferral benefits you see in your employer sponsored plans, albeit not with pre-tax money. In other words those ‘earnings’ on the money inside your life insurance, or annuity, can compound without generating current year income. It is the same basic concept in a different structure – plus you get a death benefit on top of it. Another option you absolutely must consider is a longevity annuity, what are now referred to as QLACs (Qualified Longevity Annuity Contracts) in the retirement plans arena. Whether you use it in a retirement plan context (employer sponsored or individual) or outside the retirement plan with other savings, these income annuities are really interesting because they provide you with a guaranteed income stream at some later date. Let’s say you have that $1,041,317.04 from our earlier example. You have to consider your expenses in retirement and your life expectancy. The good news is we live longer than ever. The bad news is we generally don’t save enough. With a good advisor you should be able to determine the right withdrawal strategy, and may layer over one of these products to backstop you after reaching say 80 or 85. The trick is the later you start the payments, the higher the payments will be. Do yourself a favor and seriously consider this.

Timing matters … when you retire – Back to the matter of retiring into a down market, the problem is you are theoretically changing gears from the ‘accumulation’ phase to the ‘distribution’ phase. You will see plenty of banter about a 4% withdrawal rate, and if you dig around my older posts there are a slew of articles about this topic. Fact is, 4% is not a panacea, and you should work with an advisor to consider what is best for you. For simplicity sake, though, let’s assume you have saved this $1,041,317.04 from our example. Let’s further assume you are planning to retiring with that number, but the market ‘corrects’ by 20% just as you retire. Now with roughly $800,000 do you take the $40,000 you were planning on taking, or do you take $32,000? Even if you take $32,000, your principal balance is now $768,000 vs. $960,000 – Ouch. Not much you can do about this, but save as much as you can to buffer it.