Category Archives: Retirement Strategy

The Home Stretch

With Labor Day weekend behind us, we are in the home stretch for 2017. Hard to imagine, I realize, but September and October are prime deliverables time. What that means for our readers is that you should ensure their retirement plan is sound. You should also verify that your portfolio matches your plan – rebalancing. Finally, you should stay alert for opportunities.

The Home Stretch: Keep disciplined, have a plan and stick with it.
If there is one drum we beat consistently here it is that you need to have a retirement plan and you need to stick with it. You cannot chase the deal of the day. You cannot panic when things go sour. Be consistent and it will pay dividends over time. Now, sequencing risk remains a valid concern. Right around your retirement date (before and after) you cannot afford a major setback. So, your plan should account for this by dialing back aggressiveness or dialing up diversification here. One element of retirement planning we have not touched upon before is timing. This is an interesting piece for the many approaching that decision point. When should you retire? Consult this checklist of questions.

The Home Stretch: Will markets ever correct?
One important variable these days, especially for those around their retirement date, is the potential for a correction. The tremendous bull run since the 2009 bottom has generated a lot of market growth … and paper profits. This situation begs more for the diversification approach than anything else. With proper offsets in your portfolio you should cushion any adverse impact of a stock market correction, for instance. One thing we often discuss is the need to be more aggressive than you think in retirement. Since we live longer and costs, especially healthcare, are rising, old adages don’t hold up any longer. How to Balance Investment Risk and Reward in Retirement Advisor sentiment is trending downward now Risk Tolerance Falls as Correction Fears Rise

The Home Stretch: Some ideas to consider as you constantly evaluate your portfolio.
So, what ways are there out in the market to help enhance your long-term performance? We often talk about top dividend stocks as providing good total returns. You tend to see the occasional article about dividend stocks. It is important to note that any given article, on its own, may not be genius, but the authors we pick tend to have good reasoning. 5% Plus Dividend Yield Portfolio: Catching Fallen Angels and Falling Knives is a good example. While current year performance has not been stellar, cash flows have. Similarly, here are a series of articles that outline a coherent dividend strategy. Buying Stocks for a Dividend Growth Portfolio While you may not like everything in here, you will like the education you get. Maybe this is the right answer for a portion of your portfolio 5% or 10% say. In the end, food for thought.

The Home Stretch: Something to lighten things up for those in Hurricane zones.
What better escape than a NASA probe? Cassini’s Last Photos Will Be Spectacular

Focus, Focus, Focus

What a week it has been, clearly it is time to focus, focus, focus. Donald Trump won the election by promising a whole lot of things. Not much of this has been done, one might argue none of it. Boy has there been controversy, though. Whether you agree that media reports and hearsay trump first person accounts from General McMaster or not, Congressional Democrats and the media will not let the latest story go. All this smoke seems to mean that any progress you were hoping for on taxes, healthcare, jobs, or any other important area of focus for the government is not likely to happen any time soon. That’s why you and I need to focus, focus, focus on what we can control. Sadly, this seems to be a theme of late because there is a never-ending stream of scandals or wanna be scandals. Don’t fall for it, wait for the process to work. Did you notice the reporting on Seth Rich and Wikileaks? http://www.foxnews.com/politics/2017/05/16/family-slain-dnc-staffer-seth-rich-blasts-detective-over-report-wikileaks-link.html Here, too, sensitivity to the nature of the underlying evidence produced – in both these cases none – is paramount, and the lack of actual evidence reinforces our topic today: focus, focus, focus.

Focus, Focus, Focus: Have a plan and stick to it.
There are only so many drums we beat here to help you navigate your way to a comfortable retirement. One of those is to have a plan and stick to it. This article reinforces this notion, pointing out that investor behavior is a big driver in returns. Don’t get sidetracked by Washington, please. Up on Trump or in the dumps, don’t invest emotionally
In that vein, here is a nice tutorial on why it is important to have a plan and stick to it. The Most Important Rule in Investing
Another important thing, have the right expectations. With retirement savings so anemic in the US, ever increasing longevity and related healthcare costs … what do you expect? This is somewhat cutesy way of slapping you on the same old retirement notion. A personal finance writer explains what too many people get wrong about retirement

Focus, Focus, Focus: Another dose of dividend investing ideas to keep you thinking.
Yes, dividend stocks and ETFs may not be the sole component of your strategy, but the right ones can provide income and principal protection. Here are some interesting takes on the space right now: Not all Dividend Growth ETFs are Created Equal Great Dividend ETF to Simulate Dividend Yield of 21.5% and Recent Price Declines Make MORL Attractive Dividend Champions Everywhere Patience Leads to Great Dividend Growth

Dividend Defense

Markets remain a perplexing, challenging read and a dividend defense may not be the worst approach.  The first thing you need to do is understand the environment. Whether you are in the accumulation phase or the distribution phase, dividend defense may be a good approach.

Dividend Defense: What are the risks you face today and how can you protect against them?
As you plan your retirement you have to be wary of myriad risks, and reliable dividend stocks can be a good way to insulate your portfolio through the cycles.
Let’s start by assessing the risks that can derail your retirement plan. 7 Dangers that Could Derail Your Retirement (and What to Do About Them) and 5 Silent Killers of a Financial Plan
Then, of course, there’s the truly defensive way of thinking. Seems like we have been waiting forever for the ‘other shoe to drop.’ It really has been a long run up since the debacle that was 2008/2009. Will it go on forever? Unlikely. Retirement Strategy: Do You Have What it Takes for the Next Major Correction? or Positioning a Portfolio Properly for Any Outcome
A quick word of caution: all signs point to passive investing as the way to go. Indeed this week Warren Buffett essentially endorsed the model saying: “ “ Two ways of looking at this, if markets are going to correct, indices go with them and how much of the market rise comes from the move to indexed products? Indexing Investment Strategy Becoming Increasingly More Risky? Not to mention, Monday Morning Memo: Is Capacity a New Restriction for the ETF Industry?

Dividend Defense: Using dividend stars to deliver returns or income and preserve capital
All too often we focus solely on the income aspects of dividend stocks. They are a great way to deliver income and preserve capital in the distribution phase. They are also a decent way to deliver returns and build basis in the accumulation phase. Regardless how you plan to utilize your dividend investments, fundamentally sound selection is the key. 15 Straight Dividend Hikes, Raised Guidance Again, Major Earnings Growth, 12% Upside or 10 Champion Dividend Dogs Said to Gain 7% – 22% by May 2018 or Dividend ETF to Retire On

Dividend Defense: Evolving political landscape aims to make self-determination easier.
No matter your opinion on where markets are heading or dividends as a tool, this is a good idea. TIAA, IRI Back Bill Requiring Retirement Plan Income Projections

Moving Targets

We focus our effort on improving your retirement, today we start by looking at moving targets in Washington. Healthcare reform is dead. There is no coherent tax reform strategy. The budget talks will inevitably end in an impasse. They have no chance at a comprehensive immigration policy. Have you thought any of those things? Of course, you have, and now we have a stop-gap budget. There is a very high level White House outline of tax reform. The Affordable Care Act is back in the crosshairs, and immigration continues to brew on the side. Smart money seems to indicate that the House Republicans’ tax outline from last fall is the likely jumping off point. You can learn more about that here: http://www.taxpolicycenter.org/publications/analysis-house-gop-tax-plan/full. Should the ACA repeal and replace fail again (Don’t look now but the Republican health care bill is in trouble again. Again.) All the more reason to believe they will fight mightily to get something done on taxes.

The apparent lesson of the first 100 days is that this will not be easy. Turns out the Washington system is so dysfunctional that you cannot simply will it to work. Coalition building, which should be a deal maker’s forte, seems to be a giant vacuum. The far right of the Republican party want little to do with progress, standing on principle. The Democrats see that as an opening to stand firm. So, how does the deal maker in chief make these big things happen? Seems to me there will have to be some serious horse trading. If neither the Freedom Caucus nor the Democrats play, we may be in for a long two years. Unfortunately, big things need to get done and there is no template for making that happen.

With all these moving targets where does that leave you and me? Well, we have said this before, focus on what you can control. Today we will throw out a few facts, figures and ideas to help you improve your retirement. Perhaps a little pressure on your elected representatives to move some of these big agenda items will help, too.

Moving Targets: What is the landscape now? What can you be doing?
As always when it comes to major policy changes in DC, don’t hold your breath. It is best to plan given what you do know and what you can control.
Then again, knowing what you are up against is perhaps the best place to start. Imagine this, global central bankers continue to intervene in the world economy on unprecedented scale. Presumably this cannot go on forever … what is their plan? What is yours? BAML: The ‘$1 trillion flow that conquers all’ explains everything happening in markets
In the what else is new category we find another study indicating that Americans are not saving nearly enough for a secure retirement. Hopefully since you are this far down in the piece you are not among them … or committed to changing your ways. Only 1 in 10 Americans in Peak Financial Health
So, start working on your own situation. These 3 easy steps can improve your retirement savings – in less than an hour and Slash your retirement costs with these 5 tips (everyone read #3)

Retirement Planning

Retirement planning is a vital tool in your retirement security arsenal. No one is doing this for you – if you are not paying them. Social Security alone will not deliver a secure retirement. If you are like most Americans, you are not saving enough for a secure retirement. So, you need to arm yourself with a plan and start following it.

Retirement Planning: Where are you now?
Inasmuch as you probably do not believe you need to spend this time, why not assess your situation. If you are like most Americans you simply have not saved enough and do not save enough. Here’s how much the average family in their 40s has saved for retirement The most alarming statistic: to be financially ready to retire at 67, Fidelity says, you need to have six times your salary saved by 50. Do you? Will you? Did you?
Part of a retirement plan is a retirement budget. Since you will likely be on a ‘fixed income’ in retirement, managing expenses is vital. Knowing your expenses is an important part of developing your retirement plan. How to set a retirement budget
The flip side of your retirement budget is your retirement income. Just how will you be generating retirement income? Social Security? 401(k)? Pension? Working? Somehow you have to zero in on a balanced budget – income and expenses matching up over a likely very long time. What’s your retirement strategy?
This piece takes a more comprehensive look at the problem – expenses and income. Some good food for thought and guidance here. The 7 elements of a successful retirement

Retirement Planning: Plugging the gaps.
What should you be doing as you approach retirement age? Are there specific steps you should be taking? This article has some interesting perspective on moves to make before you stop working. An Investing Roadmap for Pre-Retirees (you may need to create a login, but access to Morningstar data is not a bad thing to have)
Since you just signed up for access to Morningstar, why not look at dividend stocks? One inexpensive way to generate quality income from dividend stocks is through a dividend ETF. This focuses on Schwab, but talks about the competitors, too. High-Quality Dividends for a Slim Fee
I loved the concept of this piece: focus on sequence, longevity and unplanned expenses. Fact is we talk a fair bit about the first two, and the last one is a good addition when thinking retirement planning. It is a super simple article, but helps reinforce the point. Take the time to read it. Prepare now for these 3 retirement risks

Core Investing Skills

I usually focus on a particular area in these posts, but today we consider two core investing skills. These may apply to your accumulation or distribution phase. Either way they are valuable skills to have in your arsenal.

Core Investing Skills: Protecting your principal balance.
No matter whether you are in the accumulation phase or the distribution phase, you want to protect your principal. Now, you do not want to do that at all costs, i.e. zero risk investing. You still need to grow your principal, you just do not want to lose it all – even on a paper basis. This article introduces a great term ‘margin of safety.’ Notionally you devote some portion of your principal to risk coverage. It seems like a good way to think of the concept. What to Do About Fading Stock Market Momentum
The article on stock market momentum does not tell you how to create your margin of safety. There are myriad ways to do so, and they depend – to a degree – on where you are in the retirement life cycle. A Qualified Lifetime Annuity Contract (QLAC), for instance, is a great element of a margin of safety for someone in the distribution phase. This article delivers a very specific, rather unusual approach. It focuses the majority of assets on a steady return and a very small portion on ‘home run’ investments. It is not for the faint of heart, or is it? The Holy Grail of Investing – The Barbell Approach
If that is too crazy for you, you may consider options as a means of delivering your margin of safety. This provides a nice primer for you to start. Options Strategy and Tactics: Diagonal Spreads

Core Investing Skills: Delivering consistent income in retirement.
As noted above, the QLAC is a great vehicle, if you can get it, for creating margin of safety in the distribution phase. It is also a great way to deliver consistent income in the distribution phase. Indeed, this article does a nice job of summarizing the prudent role an annuity can play in retirement security. It points out some of the key decision points – health in particular – and notes that annuities work beyond the QLAC. A Simple Way to Get Guaranteed Income in Retirement Whatever your preconceived notion of annuities, you need to do this research. This is Not Your Father’s 401(k): The Retirement Product You Should Know About Finally, another one that touches on the salient points around immediate annuities (outside your plans). The right way to get the retirement income you need
The other basic way we talk about delivering consistent retirement income is through dividend stocks, good ones. This is a very good article about the why of dividend stocks. Response to ‘Should You Build a Portfolio of Dividend Stocks?’
This piece takes a somewhat different tack, arguing that dividend growth investing works in both accumulation and distribution phases. It is a very valid perspective, and one worth considering. The Dividend Growth Investing Mindset
Finally, we all know the very best dividend stocks tend to be fluid and opportunities present themselves. High-Dividend Stock Yields 10%, 11 Straight Dividend Hikes, Pullback Buying Opportunity and 10 High-Yield Dividend Aristocrats Worth Considering

Your Distribution Phase

We often speak of your distribution phase here as the income phase of your retirement planning. It is the time after the accumulation phase ends … once you retire. When you begin to draw down on your retirement savings your mindset must change and your decision making, too. Everyone … even financial advisors … focus their time, energy and attention on the accumulation phase. That makes sense because it used to be the bigger timeframe (and more lucrative for financial advisors). Now though, with longevity increasing, you may actually be in the distribution phase for a longer time. So, how do you most efficiently draw down your assets to deliver the comfortable, secure retirement you want?

Your Distribution Phase: Changing strategies to create lasting income.
The most important component of your distribution phase strategy is to generate enough income for as long as you need it. Without entering into the longevity risk discussion today we can focus on ways to optimize your retirement savings. This is an outstanding article based upon the Stanford Center on Longevity and Society of Actuaries work on the topic. Here’s an ‘income menu’ that could help retirees make their savings last
In a similar vein, while this seems like a sales pitch I think you can extract some value gratis. It may help you in the accumulation phase to adjust your saving strategy. It may help you in your distribution phase to optimize your withdrawal pattern. One online tool helps you turn many retirement factors into money magic
We speak often of dividend stocks (good ones) as a means of generating income and preserving principal. This article takes a look at the multi-generational potential for a solid dividend investing approach. Never Run Out of Money: The Gift That Keeps on Giving
To be fair we always temper our dividend discussions with the need to remain vigilant. Here the Motley Fool helps illustrate that point. 3 Most Wildly Overvalued Dividend Stocks

Your Distribution Phase: Remain vigilant, understand market conditions, and history.
Clearly there is some luck involved in retirement planning success. Far more is dependent upon hard work, by you or someone helping you. Whether it is the accumulation phase or your distribution phase you need to have a strategy. The 3 Characteristics of a Good Investing Framework
If you believe that a downturn is inevitable and coming soon, then understand what works. Here is an interesting look at Beta vs Volatility over time. Low Volatility and High Beta Stocks Prior to Last Downturn
Finally, in the vein of history as a guide, don’t be fooled by seemingly compelling charts. This author picks apart a classic chart to make you think hard about market timing. The World’s Most Deceptive Chart

Luck of the Irish

Happy St. Patrick’s Day, a day when the Luck of the Irish becomes topic for barroom discussion. One thing we all know is that a successful retirement has very little to do with luck. Beyond the possible sequence of return risk luck – good or bad – your retirement hinges far more on the effort you put into planning.

Luck of the Irish: Understand the environment in which you are investing.
Even the best plans need course correction, and understanding the environment is always a good place to start. Yes, retirement saving is long horizon, still there is room for prudence in where you invest new money. How is the economy doing? Do markets match up with macroeconomic reality? Is the Economy Doing Well?

Luck of the Irish: Leverage a combination of savings tools.
The foremost saving tool to leverage: compounding. That’s right, you do not need a government program to effectively save for retirement. You need to start early and be consistent in your saving habit. The power of compounding will repay you in spades. The Power of Compounding: A Patience Game (note that he points out the need to stay aware of the environment here)
While this comes at it from a different angle, the employer’s, it illustrates the power of the HSA. This tool is the Swiss Army Knife of saving, looking to become more powerful in Republican circles. What Clients Need to Tell Employees About HSAs

Luck of the Irish: Remain calm.
Understanding compounding, being diligent and consistent in investing you will accumulate a nice sum of money. Markets do have downturns and the key is not to panic. This article helps put this into better perspective for you. Early in the Accumulation Stage, Price Risk Can Look a Lot Different

Luck of the Irish: Focus on income in the distribution phase.
Once you retire the key is to transition your thinking to distribution of money from your savings. The distribution phase is largely about income, yet preserving principal is not a bad thing. You have the difficult balancing act of greater longevity and theoretically capped principal. That’s why we often highlight good dividend approaches and annuities as tools. Here’s an ‘income menu’ that could help retirees make their savings last Dividends Pile Up with This High-Yield Dividend ETF With Rising Rates Ahead, Stick with High-Quality Dividend Growers The right way to get the retirement income you need 4 Overlooked Tax Breaks for Retirees

Have a Retirement Plan

With all the focus on process here it goes without saying that you must Have a Retirement Plan. Still this latest study indicates that it may not be that simple. We all know that many, many Americans have little or no retirement savings. I suppose that should indicate a lack of a plan, but more often assume it is simply an unfortunate prioritization. That makes it no less vital to focus, plan and execute for your later life. 10 alarming facts about women and retirement risks

Have a Retirement Plan: It starts with the fundamentals.
The simplest retirement plan begins with saving as much as possible as early as possible. Take advantage of time and compounding. Be consistent in saving for retirement. Take advantage of tax advantaged savings vehicles. Scary as it may be, be more aggressive than you think you should – more equity weighting.

Have a Retirement Plan: Sweat the small stuff.
Fees will kill your retirement savings returns, always be diligent about them. Maintain a diversified portfolio. There is no such thing as a set and forget retirement plan – at least not a successful one. Plus, remember the key risks you face in retirement: longevity risk, medical expenses, sequence of return risk, and others. You must face reality in the magnitude of the challenge and keep your eye on the ball.

Have a Retirement Plan: Change your mind set in retirement – distribution not accumulation.
While you must stay invested and saving (if you can) in retirement you also have to change your mindset. Now is the time to draw down your nest egg – this is the distribution phase. That may translate into different types of investments. Dividend stocks are often highlighted as ways to throw off income and maintain principal. Like everything, dividend stocks are a moving target. So, we are back to remaining diligent … even in the distribution phase. Dividend Champion Portfolio March Update
Another way to tackle the distribution transition is to consider lifetime income products – like Qualified Lifetime Annuity Contracts or other, similar solutions.

Have a Retirement Plan: No matter how you tackle it, get started.

Retirement Insecurity

Finally, something we can all agree on: retirement insecurity. Perhaps through persistence or saturation or simply self-awareness people are coming around to the unnerving truth. Whether driven by slow starts, low balances, Social Security, longevity risk, medical costs or something else, people are concerned. Democrats and Republicans Alike Worry About Retirement Security
Just in case you think that is all overblown, the Congressional Budget Office just released this study on Social Security. Social Security ‘broke’ by 2029: What’s not in it for you?

Retirement Insecurity: Don’t just sit there, do something about it!
We have talked many times about the QLAC (Qualified Lifetime Annuity Contract) and the potentially vital role it can play. These Government authorized ‘longevity insurance’ annuities provide you income for life within your qualified plans … when plan sponsors provide them. Seems that may be getting some traction now. Employers are trying to solve their workers’ retirement income problem It doesn’t hurt to bring it up with your employer.
We say it here virtually every installment, use all the tax advantaged tools you can when saving for retirement. Just in case you missed that, there’s this. 6 Tax-Efficient Strategies to Keep More of Your Money in Retirement

Retirement Insecurity: Save more while you are working and be smart about it.
I admit I have not heard of this before, but it is very, very interesting. If you are still working it is worth the time. Another way to measure retirement readiness: Your ‘Power Percentage’
Like most people you likely do not know how much you need to retire. There are plenty of guides, most pretty well useless. This may be, too, but it is great food for thought and might just get you motivated. The 25X Rule to Early Retirement
If you happen to subscribe to the Financial Times this might be interesting reading. If not, it says that looking through US regulatory filings shows that the most successful investors have one thing in common. They all disregard macro trends in favor of betting on individual companies and industries. You might say ‘so what’ I’m not going to do that, but wait then there is this article. Here if you are willing to invest the effort you may well join that club by doing some really interesting analytics on individual stocks, ETFs and more. If nothing else do yourself a favor and read the beginning. The Schwab US Equity Dividend ETF vs. the S&P 500 Index: A Comparative Case Study

Retirement Insecurity: Change your mind set in retirement – distribution not accumulation.
In the perfect world, you manage to get appreciation of your assets and income. That’s where dividend stocks can be helpful by throwing off income without liquidating assets. It is a fluid environment, though, and you should stay on top of your choices. Dividend Champions for March 2017
In case you have not yet figured it out, longevity risk is a giant one for your retirement. That means dealing with it explicitly is a priority. In turn that means you may need to think outside the box on how to address this risk. Life Insurance in Retirement: Who Needs It?