As Monte Carlo analysis becomes increasingly popular in retirement plans, financial planners are talking more and more about the probabilities of a client's success or failure. Yet in the end, most planners evaluate client goals, look at the probability of success (defined usually as not running out of money), and the client makes a decision about whether they like the result or not. Oddly enough, planners rarely take the next logical step: ask the client what probabilities they would like to see, and use that risk/success metric to determine what the other answers - such as retirement spending or the retirement year - could be.
If there's one thing that has remained certain in this decade of difficulty, it's the gold standard advice for retirement planning: save a healthy amount of your income, start young, invest steadily, and you'll be able to retire when you want to and enjoy the standard of living you hoped and dreamed for.
Yet the reality is that this model of retirement planning advice excellence is actually far more speculative than we have ever acknowledged, and might be better summed up as: "Save for decades, build a base, and then in the last few years, quickly double up your wealth with investment growth and retire happily." We'd never say that to our clients... yet in truth, that's exactly what we have been recommending all along!
In recent years, a little-known strategy of withdrawing from and reapplying for Social Security retirement benefits has been receiving increasing attention. So much, in fact, that it looks like the Federal government's Office of Management and Budget may soon be shutting the strategy down for good. However, the impact may not actually be very significant after all!
In a world where retirement planning is increasingly about not only the accumulation phase towards retirement, but the distribution phase in retirement, financial planners must deal with the practical realities of generating retirement cash flows for clients. And although most of us may have some policies in our practices about how we generate cash flows for clients, do any of us actually have a written withdrawal policy statement in place to determine the appropriate tactics and strategies for each particular client?
On Friday, the Social Security Administration announced that there would be no increase in Social Security benefits for 2011, representing the 2nd consecutive year that Social Security benefits have not increased... and prompting no small amount of outrage from many Americans who feel that they are falling further and further behind in their ability to keep up with their retirement expenses.
It is a popular trend these days in financial planning to talk about all the ways our clients behave irrationally, supported by a growing base of research in "behavioral economics" that demonstrates how our hunter/gatherer brains are ill-equipped to cope with today's complex world. We tend to talk about these behaviors in the negative, but what if we could use some of our irrational tendencies to our benefit, instead?
Yesterday, President Bush signed into law H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA), which included certain provisions designed to suspend so-called Required Minimum Distributions (RMDs) for the upcoming 2009 tax year. But will that really do much to help our clients? Probably not in most cases.Read More...
As readers of my newsletter know, in May I published research that challenges the safe withdrawal rate as potentially being TOO safe in some environments, where market valuation is not at unfavorable extremes. However, in some feedback I've received from readers, another important point is being made - in some cases, the safe withdrawal rate may also still be too aggressive!
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Many financial planners are faced with the client question: "Which pension option should I choose?" Comparing various lump sum and annual pension payout choices based on client life expectancies has often been mathematically intensive and quite difficult - at least, up until now.
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An interesting article in the syndicated column of Scott Burns suggests that it may be a wise strategy for those at or around age 70 to withdraw from Social Security and reapply to increase their benefit. Is this a Social Security loophole, a great deal, a trap, or just another good arrow in the financial planner's quiver?Read More...
