Should Pre-Retirees Take a New Look at #Retirement Income?
By Michael Garry Yardley Wealth Management May 21, 2020
I recently was interviewed for an article in a national publication on retirement income, given the current market and job losses. I thought my answers might provide you some food for thought. Hang in there.
Question: Does the COVIC-19 crisis (market declines along with job losses) mean retirement is more in peril than even before? Plenty of advisors tell clients to “work longer” to achieve their desired retirement outcome, but has that advice quickly become outdated, with job cuts?
Retirement for many Americans is more in peril than ever because of the COIVD-19 crisis. For most Americans, working longer and living on less are the only viable options. The only other real variables that go into your standard of living in retirement are the amount of assets you have and your return on them, and you can’t really do anything about those at retirement. So, while working longer is going to be more difficult with so many people out of work and the economy in free fall, you can’t magically get a better return or have more assets. Delaying Social Security is something that for most people will make a major difference in their standard of living in retirement. Of course, most people have to work to delay taking it.
Question: Does the 4% withdrawal rule make sense?
Yes, the 4% withdrawal rule still makes sense. It was never meant to be a law of nature like gravity. Mr. Bengen just wanted to find out what was a generally safe withdrawal rate in retirement. Despite the fact that we hear stories every year about whether it still works, it still does. It doesn’t mean that you can always take 4% out of your portfolio adjusted for inflation and expect to have a safe retirement. It means that looking at past results, doing that worked most of the time, and the time period studied had some really bad periods of time in it, too – like the Great Depression and World War II. It will still work most of the time. If you are retiring at a bad time or have unexpected expenses, you should make some adjustments. A minor one that most can do is to not automatically increase their distributions every year for inflation. Save them for when you need them.
Question: Should pre-retirees be looking at guaranteed sources of income, such as annuities?
Pre-retirees should only be looking at guaranteed sources of income like annuities if they have a very low risk tolerance for volatility in the stock and bond markets. Many of the products sold are expensive, lock your money up for years or forever and will have a hard time beating a 50/50 or 60/40 investment mix, adjusted for inflation, over long periods of time. Most of the people looking at them don’t understand the guarantees because too often the people selling them act as if the increase in the Guaranteed Withdrawal Base in some products gives returns like CDs. It does not.
Question: Do you have an anecdote about clients you’ve advised, re: changing the strategy at this point? (I understand you can’t name names)
We had clients in recently who were looking to retire later this year and had just figured they’d take Social Security. We advised that they wait to take Social Security and use some of their investments instead to fund their retirement for the few years before they turned 70. They were surprised because all of their friends took it once they retired. We showed the software projection where their odds of a successful retirement according to our software went from 58% to 84% just by making that one change.
My name is Mike Garry, and my company is Yardley Wealth Management, LLC. We are a fiduciary, fee-only financial planning, and wealth management firm in Newtown, Pennsylvania. (That’s in Bucks County).
Our law firm is Yardley Estate Planning, LLC, and is in the same place. We only do Estate Planning work and I am licensed in Pennsylvania and New Jersey.
If you’d like to talk about this or anything else, please reach out: 267-573-1019, [email protected] or @michaeljgarry