Senior Retirement Planning

by Karl Edmunds : :

Over the past couple of years, seniors have experienced disastrous portfolio losses due to economic conditions and sadly these principal losses are often very difficult to recover due to a lack of time.

Historically a casual conversation among friends about retirement issues would more than likely focus on monthly investment gains and little time spent on how to find retirement products that offered guaranteed monthly income. But the mood among seniors has shifted. For seniors from 50 to 70 years of age, the vast majority now value finding dependable guaranteed monthly income over investment gains.

Retirement planning is not just about finding the right products to save money in preparation for retirement. It also includes finding the products that allow you to effectively and safely withdraw your money during retirement.

New product offerings referred to as “managed payout” funds or income replacement funds are being launched by some of the biggest providers including Fidelity, Charles Schwab and Vanguard to provide a practical ways to manage retirement income and hopefully keep existing customers longer and attract new ones.

The basic premise of managed payout funds is to allow someone to select the level of income they desire and have checks sent regularly during retirement years but translating this simple objective to reality is a bit more complex. The amount of desired monthly income and the duration of time that income will last is dependent on several factors.

For example to ensure you have available funds throughout your life, you can’t withdraw funds faster than your investment return. If you want to use 5% of your principal balance annually to live, the fund must achieve a 5% return otherwise you will erode your principal. And the amount you wish to receive drives the level of risk you must take in the market to ensure you don’t run out of money.

Some income replacement funds ask you to define a target liquidation date. In other words, you must predict your life expectancy. That is a tricky forecast. The fund then implements an investment strategy to ensure the starting principal plus the investment return sustains your income needs through the target liquidation date.

These managed payout funds are often discussed along side of traditional income products such as annuities but don’t be misled. You can find annuities that guarantee a predictable income level until death assuming the insurance carriers remains in business. This lifetime guarantee is not part of the managed payout funds. Your income stream may or may not last. To some degree these funds offer only an illusion of security.

There are advantages to managed payout funds. You can add to your fund or withdraw anytime without restrictions but you must accept risks in the market while you must give up this flexibility with some annuity products to gain the guaranteed income. However with guaranteed annuities you must accept credit risk of the issuing company. Each investor must decide what is best for their particular circumstances.

Perhaps the use of a managed payout fund can serve as a diversification strategy for many investors to balance risks associated with the credit and the market.

The market for managed payout funds is small but is expected to grow. Nobody can predict what products will be the market leaders for the category in the future.

In your evaluation, some key questions to consider are:

• How much income do you need?

• What is the stability of your health and family circumstances?

• Do you want money left over at death?

• What level of risk is needed to give you the income you desire?

• Is this level of risk prudent given the size of your asset base?

There is no black and white set of rules to effectively plan for retirement and ensure funds will last throughout your life. There are numerous factors that will affect the results. Don’t try to make all these important decisions alone. Find a trusted advisor to assist you in the process. Establish a plan based on current circumstances and market conditions and then monitor your progress.
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About the Author

For more than 20 years, Karl Edmunds has been a noted author within the business and management consulting arena. As a senior, he now engages his curiosity and observations about life to write about key issues of importance to the growing community of seniors (Boomers), and the value of living life to the fullest every single day. Give me your comments and suggests at <a title=”For-Seniors.org” href=”http://for-seniors.org” target=”_blank”>http://For-Seniors.org</a>