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Five Retirement Signs You Don't Want to See

Five Retirement Signs You Don't Want to See

September 07, 2016

Sign #1: You have no idea how much annual income your investments will generate during retirement.

Why it matters: Most retirees don’t understand what level of spending is sustainable over the course of what could be a long retirement. This causes them to spend too much during the early years, which often results in no money available for mid to later retirement years.

How to recognize: By asking a financial planner “if I retire at (pick age), how much annual income can I expect from my investments?

Remedy: If income is insufficient, ask the financial planner to calculate how much more you need to save in order to meet you desired income goal. If the savings goal is unattainable, ask the advisor to calculate how much you can spend each year during retirement. If the expense goal is higher than current spending, develop a plan to reduce your expenses to this number before you retire. 


Sign #2: You haven’t changed your mindset from accumulating investment assets to generating income over what could be many, many years.

Why it matters: Two reasons.  First, growth investment strategies have more volatility associated with them. When taking income, volatility is your enemy – it can cause a premature depletion of your investment accounts. Second, a growth orientation often comes with the idea that your account should grow every year. In fact, during retirement, there may be many years when your account does not grow - but it doesn’t necessarily mean you will run out of money. 

How to recognize: By asking yourself, “how have I changed my mindset from growing investments to generating income?” 

Remedy: If the mindset change has not occurred, ask a financial planner to help you develop the optimum strategy to support your projected cash flow needs. Remember, this strategy should be monitored and adjusted over time as necessary; unlike your early investment years, the strategy probably won’t be “set it and forget it.”


Sign #3: You have just retired, your income sources barely cover your expenses, and you think you will be fine.

Why it matters: The most challenging risk for which to plan is a long life, because the longer you live, the more inflation eats away at your savings.

How to recognize: By asking yourself, “have I considered the fact that inflation will more than double my cost of living over 24 years, and if so, do I know how I will pay for my inflated expenses as I age?” 

Remedy: If not, ask a financial planner to help you project your income sources and expenses over the course of a longer than average life expectancy. If your expenses eventually exceed your income sources, you will need to make adjustments sooner rather than later – if you don’t want to run out of money.


Sign #4: Because bond and dividend yields are low, you fill your investment portfolio with high yielding stocks and bonds.

Why it matters: There is no free lunch in investing. When you buy stocks and bonds that have higher yields than average, you may be taking on another, perhaps undesirable, risk. For example, high yield bonds often come with default risk and higher volatility; high yielding stocks may come with a stock price that is depressed because the company’s future earnings potential is poor.

How to recognize: By looking at the yield of each investment in your portfolio. More evaluation is necessary if the dividend yield is much higher than that of those companies found in the S&P 500 index or the bond yield is much higher than that associated with the aggregate bond index.

Remedy: In today’s low yield environment, accept the fact that most people will probably not receive enough yield to fund their living expenses. If this is the case, rather than stretch for risky yield, structure your investments so that the combination of yield and growth will cover your expenses and projected inflation.


Sign #5: When asked, you have no idea how much medical care might cost during retirement.

Why it matters: A recent study by Fidelity discovered that a 65-year-old couple retiring in 2016 will need an average of $260,000 (in today’s dollars) to cover medical expenses throughout retirement. This figure doesn’t include potentially expensive long term care costs.   

How to recognize: Your retirement income plan doesn’t have specific provisions covering how to pay for medical, dental, hearing, vision and long term care expenses.

Remedy: Work with a financial planner to estimate the costs of medical care, understand how government benefits fit, identify funding sources, and purchase the appropriate types of insurance.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

No strategy assures success or protects against loss. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

The Standard & Poor's 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.