Is Market Risk Holding Your Retirement Nest Egg Hostage?
If you have plenty of retirement savings but still feel like you need to limit your spending, you might need an integrated retirement plan.
![A man holds a wad of cash out of reach of two other people, only their hands showing.](https://cdn.mos.cms.futurecdn.net/aq7qk6y8r7GHGP3kWqrFgj-415-80.jpg)
Much of financial planning is based on this concept: Put your money to work in a basket of diversified investments, add to it and let compounding interest do its work. That is the resounding message told to all people, whether they’re 20, 40, 60 or 70.
But two critical ingredients are needed to make that concept work:
- Income, so you don’t need to use the money while it compounds
- Time — not simply months, but years, if not decades
Look at the rise of Warren Buffett’s net worth — 99% of it came after he turned 50, even though he started investing at age 13.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Unfortunately, retirees lack those two essential ingredients. They don’t have the same income they used to (limited to Social Security and maybe a pension), and they certainly don’t have lots of time. That’s why, if you’ve achieved a level of financial success where you can consider retirement, you can and should think differently about your investments and the purpose of investing.
The importance of comprehensive planning
Many retirees lack comprehensive planning. Let me give you an example of how that plays out through the portfolio of a client I’ll call Joe. Joe came to me after working with two different advisory firms for a number of years. He had statements and reports, but he didn’t have a good grasp of how his money was going to work for him to meet his retirement lifestyle needs and wants. Joe had a reasonable lifestyle that fit his small pension and Social Security. He used his savings to cover travel expenses, house repairs, surprise expenses and much of the extra stuff he wanted to do.
As we had conversations and did a detailed audit of his investments, he was surprised to learn that he was taking far more market risk than he’d thought. He felt he needed to save money month by month from his pension, Social Security and required minimum distributions (RMDs) — he was already over 70 years old — in order to travel and before he could do house remodeling.
The result was that he was putting off the aforementioned things he wanted to spend money on for months, if not years, until he saved enough to do them. Yet, at over 70 years of age, he had $1 million more than he actually needed for his living expenses. But his previous advisory firms hadn’t helped him to integrate all the essential parts of a retirement plan or communicated well with him, leaving Joe overinvested in the market while they collected fees in excess. This left much of his nest egg unused, when it could have been adding to his retirement enjoyment.
Here was a retired man with a reasonable lifestyle who wanted to travel some, maintain his home and do a few home renovations. But those things were delayed because he had been beholden to the market-returns philosophy of the traditional financial industry. It was not the right philosophy for him at 70 years old.
After going through an integrated planning process, he said he felt comfortable for the first time in his years of retirement, saying to his adult daughter that he would buy a needed washer and dryer for her. That’s because he finally understood the money he had and could use it without concern of running out.
It’s about so much more than the market
Another cautionary tale involves a couple we’ll call Suzanne and John. She handled the investments; he hired the financial advisers. Several advisers came and went, and after a while, Suzanne and John felt they were on their own — even though they were paying the fee to the adviser and a product fee for the investments that were in their portfolio. But they didn’t know how much they were paying, nor what their investments had evolved into.
Over time, it gradually became unclear what they owned in their investments and how those would work to provide the retirement they wanted. Ultimately, it was left to Suzanne to figure it out on her own after her husband passed away in the middle of their golden years of retirement. She quickly realized she didn’t have a retirement plan, and the adviser didn’t know her or help her understand her money or what it would be able to do for her.
Like Joe in the previous example, she was hesitant to touch her millions in savings because the advisers had relegated her thinking to market returns and investment performance. She lived mainly on pensions and Social Security, and the millions she and her husband had saved were being left for someone to manage without them being able to use it for things they wanted — traveling, helping their kids and helping provide for their grandkids’ education.
Market returns are only part of a retirement plan
The financial industry often talks about diversified investing and financial solutions and even encourages comprehensive planning. This can often fall short of expectations, especially for retirees and those nearing retirement, when it means so much more. In fact, a J.D. Power study found that 89% of those promised comprehensive planning never got it.
Remember: Market returns are only one small piece of an integrated retirement plan. “Integrated” entails: your layers of cash flow and which account they come from over time; tax planning and legal tax minimization; protecting investments from market risks and possible future health care expenses; making sure there’s money to cover health and long-term care; predictable income to meet your lifestyle needs and some wants; and legacy planning.
Looking at it from all those angles allows you to integrate a true retirement plan that enables you to get your head out of the market, go live, give, travel and enjoy the money you've saved over the years. Perhaps even upgrade your retirement lifestyle!
Dan Dunkin contributed to this article.
The appearances in Kiplinger were obtained through a public relations program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
These materials are for informational purposes only. It is not intended to provide, and should not be relied on for, any tax or legal advice. Please consult a qualified professional before making decisions about your financial situation. The specific tax consequences of any investment or strategy will depend on your specific tax situation.
Investing in securities involves risk, including potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Please see Item 8 of our ADV 2A Brochure for additional information on the risks associated with our services. The sources are provided strictly as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. When you access one of these websites, you assume total responsibility and risk for your use of the website.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Barry H. Spencer (www.wealthwithnoregrets.com) is a financial educator, author, speaker, industry thought leader, financial advisor, retirement planner and wealth manager who has appeared in Forbes, Kiplinger and other publications. He has also appeared on affiliates of NBC, ABC and CBS and was interviewed by Kevin Harrington, an original panelist on ABC’s hit show “Shark Tank.” Spencer’s latest books include “Build Wealth Like a Shark,” “The Secret of Wealth With No Regrets” and “Retire Abundantly.”
-
Apple Stock Drops on News of Hefty Irish Tax Bill: What to Know
Apple stock is down Tuesday after the European Union ruled the tech giant must pay Ireland 13 billion euros in back taxes. Here's what that means for investors.
By Joey Solitro Published
-
Is Oracle Stock a Buy After Earnings Beat, Amazon Partnership?
Oracle stock is rallying Tuesday after the tech firm beat earnings expectations and announced a new AWS partnership. Here's what you need to know.
By Joey Solitro Published
-
Five December 31 Tax Deadlines for Retirees
The end of the year will be here before you know it, so it might be a good idea to start thinking soon about what you need to do for taxes before it arrives.
By Evan T. Beach, CFP®, AWMA® Published
-
For Lawyers, the Bar Exam Is More Than Just a Test
People who pass it within a few tries are proving they understand legal ethics and can handle pressure, advocate for consumers and communicate in writing.
By H. Dennis Beaver, Esq. Published
-
How AI Can Guide Introverts to Success in Professional Services
Fear of rejection and awkward conversations can keep accounting and law firms from realizing significant growth. AI can help with that.
By Timothy Keith Published
-
In Family Philanthropy, Embracing Differences Can Pay Off
Different approaches to charitable giving among generations and individuals can actually enhance the family's giving. Here's how.
By Julia Chu Published
-
Grow Your Investments Like Yale, Through a Self-Directed IRA
Yale's successful endowment focuses on alternatives. With a self-directed IRA, an individual investor could design a portfolio based on similar principles.
By Jason DeBono Published
-
Five Things About Annuities That May Surprise You
They're more varied, flexible and cost-effective than most people think, so don't let their complexity scare you off.
By Ken Nuss Published
-
Why a 15-Year Mortgage Could Be the Key to a Larger Nest Egg
Your mortgage payments would be higher, yes, but you'd save quite a lot on interest and be mortgage-free 15 years sooner, freeing assets for other investments.
By Dave Liniger Published
-
How to Deal With Inflation: Advice From a Financial Adviser
Higher prices are hitting everyone, but if you're especially hurting, here are some ways that could help you to cope.
By Kelsey M. Simasko, Esq. Published