Three views on financial planning

Retirees and those facing retirement probably spend more time thinking about money than any other time in their lives.  Some choose to go it alone, others look for a financial planner, some pick a middle course with a little of both. Since some experts predict that more older people will file for bankruptcy (one story about it here), if you don’t have one, you might reconsider: here’s a concise and comprehensive guide on how to select one.  As a thought starter, Senior Planet spoke to three financial advisors for their top bit of advice  for retirees.

You have an alternative to bonds

Josh Jalinski, Jalinski Advisory Group President and commentator on finance at Bloomberg, CNBC and other outlets, offers a little known tip for retirees: “Consider including an uncapped fixed index annuity (FIA) contract as a bond substitute for a portion of your portfolio.”  

“Sold by insurance companies, uncapped FIAs are not invested in the market. Instead, your money is conservatively invested in the general reserve of the issuing insurance company. The company gives you a guaranteed “floor” in the value of your contract as well as market upside due to the options bought by the insurance company based on the index (e.g., the S&P 500) to which your contract is linked.

“In addition to providing an attractive “non-market” opportunity, uncapped fixed income annuities can:

  • Protect against the declining values of bonds in a rising interest rate market.
  • Protect from stock market declines.
  • Participate in the positive performance of stock market indexes.
  • Offer tax-deferral in non-retirement accounts.
  • Provide sustainable lifetime income with an optional lifetime income rider.

“There are drawbacks to uncapped FIAs to consider, including:

  • Limited liquidity.  There is generally a fee on withdrawals that exceed a set amount (usually 10% of the contract value).
  • While the basic index annuity has no fees, optional riders do. (Lifetime Income Rider is the most popular.)
  • Contract participation rates (and caps) can – and usually are — adjusted annually.

 Try low-cost, diversified mutual or index fund investments

The top piece of advice offered by Scott Brewster,  MBA, CFP, EA, is After setting up a cash reserve and emergency funds, structure a sustainable retirement portfolio using low-cost, highly diversified mutual or index fund investments.

“Use high-yield FDIC insured savings accounts for immediate expenses and emergency cash needs. At least six to twelve months of living expenses is a great starting point.

“Next, allocate your money among Stocks and Bonds.

“Historically stocks have provided higher total returns than bonds. Their higher returns over the long term also help to combat inflation.

“Bonds typically provide lower returns over time. On the other hand, they’re usually “safer” than stocks, which are considered “riskier”.  Because in later years the need for income and stability is typically greater than the need for growth, many retirees allocate more of their portfolios to bonds.

“As you get older it may make sense for the amount allocated to stocks to shrink further and move to bonds. While everyone’s situation is different, an appropriate retirement allocation along with reasonable spending habits can give you a sustainable portfolio that can last your whole life.”

And now for something completely different

Jeffrey Kreisler, co-author of Dollars and Sense and Editor-In-Chief of PeopleScience.com examines how to apply behavioral principles to the marketplace. He says, “My best advice to retirees: Keep in mind this proven behavioral science principle:   Experiences have much more value than purchases.

“Example: Which of these expenditures will mean more to you in one year:  Replacing your worn sofa? Or taking your grandchildren to the Grand Canyon for a week?

“Years after the trip, your grandchildren will remember their ‘Grand Canyon Week.’ So will you. And the new sofa? Soon enough you’ll be used to it; it won’t “open” your life in any way whatsoever. But that trip to the Grand Canyon….

“To spend in ways that matter – creating experiences and memories — use “tier” budgeting:  

         Tier 1:  Things you really need. You must spend for property taxes, car and/or home insurance, medical expenses, food, shelter, etc. Next:

         Tier 2:  Things you think you need.  Do you need to go out to dinner so often? Need  those new shoes? The kids are gone: do you need to stay in your house? Can you keep your car another year? Then buy second-hand? What about using the library, which even lends DVDs, instead of buying books, subscriptions and going out to movies?

         Tier 3:  Things you want but don’t need.  You don’t need that trip to the Grand Canyon – or any special outing or trip. But aren’t you delighted that’s where you spent money?

“Use Tier 2 to cut spending to have the flexibility to “buy” amazing Tier 3 experiences.  Best of all?  Experiences go into the only bank you can never draw down to zero: Your Memory Bank.”

Photo Credit: Cafe Credit via Flickr, under the Creative Commons License

Your use of these or any other financial advisor/planner, including the decision to retain the services of any financial advisor/planner, is at your sole discretion and risk. Seniorplanet.org and Older Adults Technology Services makes no claim or promise of any result or success of retaining any of these sources.  The contact links provided connect to third-party sites; Seniorplanet.org and Older Adults Technology Services or any of its affiliates are not responsible for the accuracy or reliability of any information contained on third-party websites.

 

2 comments
  • Millie Hue
    REPLY

    I never took into account the fact that we should also think about choosing second-hand investments or selling the house. This just made me realize how little I know about handling finances no matter how successful I am with my career now. With that in mind, I will be hiring a planner to help me out so that my future will be secured especially when I get married and have kids which I plan to have in three years from now.

  • Risa Wallberg
    REPLY

    Would love to have some of these professionals come in to talk with us. It’s so hard to find someone trustworthy who knows how to keep investments growing along with plans to maintain a strong nest egg while keeping fees/costs low. Trust and real caring is such an issue when turning to an advisor/planner. The older we get the more we’ll need sound support. There are advisors under every rock but who to trust???

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