COLORADO SPRINGS, COLORADO – OCTOBER 25, 2017 – Your financial life can be divided into two phases: accumulation and distribution. The two phases are like climbing a mountain. On the way up – accumulation – your sole focus is reaching the top (the point of retirement). Once you’re standing on the peak, your focus shifts to safely reaching the bottom – the distribution phase. Reaching the top of a mountain is worth celebrating, but if you don’t know how to get back down, you could be in big trouble. The following guidelines can serve as a kind of retirement planning philosophy for us in helping people make it safely down the mountain of retirement income:
1. Play the long game – General life expectancy numbers are useful if you’re an actuary, but you shouldn’t base your retirement income plan on them. A retirement income plan should be based on planning to live, not planning to die. A long life is expensive to support, so it should take precedence over death planning.
2. Don’t leave money on the table – The holy grail of retirement income planning is finding strategies that enhance retirement efficiency – strategies that simultaneously allow you to spend more and leave behind a legacy you can be proud of, in a way that other strategies may not.
3. Set reasonable expectations for portfolio returns – One of the most common and damaging mistakes investors make is expecting their portfolio returns to match the historical average. While an average is a nice, clean reflection of how a portfolio performed over a long period, real returns fall below the average half of the time.
4. Avoid plans that require high returns – Higher assumed future market returns imply higher sustainable spending rates, which basically means if you expect to make more money in the future, you will spend more money today.
5. Manage risks by integrating strategies – In order to build a retirement income strategy, you must combine several income tools to meet your goals and effectively protect against the risks standing in the way of those goals. A list of the unique risks you will face in retirement could fill an entire book, but some of the more major areas include:
a) Longevity and the unknown planning horizon (i.e., how many years should your plan account for?)
b) Market volatility and macroeconomic risks
d) Spending shocks that can derail a budget
6. Don’t put all your eggs in one retirement income tool – The financial services profession is generally divided into two camps: those focusing on investment solutions and those focusing on insurance solutions. Either side is full of adherents who see little use for the other side. As is the case in most situations with two extremes, the ideal approach is somewhere in the middle.
7. Start by assessing all household assets and liabilities – A retirement plan involves more than just finances. Rather than beginning at your savings, the starting point for building a retirement income strategy should be the household balance sheet.
8. Distinguish between technical liquidity and true liquidity – An important implication from the household balance sheet view is that the nature of liquidity in a retirement income plan must be carefully considered. In a sense, an investment portfolio is a liquid asset, but some of its liquidity may only be an illusion. As I stated in the last point, assets must be matched to liabilities. Some, or even all of the investment portfolio may be earmarked to meet future lifestyle spending goals.
Accelerated Wealth’s Founder and CEO Bill Walton says, “Building a rock-solid retirement portfolio can be easier than you might think. By knowing how much to save and some basic investment principles, you can put yourself in an excellent position to achieve your retirement savings goals and still be able to sleep soundly at night in the meantime.”
About Accelerated Wealth Advisors (AWA)
Accelerated Wealth LLC is a Colorado Springs based independent wealth management firm dedicated to providing effective strategies to help its clients make wise financial decisions. AWA’s business practices and culture are driven by its core values of faith, integrity, relationships, vision, excellence and being coachable. With 16 offices located in six states, the firm enjoys an A+ rating from the Better Business Bureau.
For more information please visit www.acceleratedwealth.com.