GOLDEN VALLEY, Minn. - It's a retiree's nightmare, outliving the assets in a retirement portfolio. Between historically low interest rates dragging on fixed-income yields and uncertainties about taxes, not to mention the threat of future inflation and volatile markets, retirees who are living longer are finding it challenging to keep their portfolios up to speed.
Dan Ament, Financial Advisory with Morgan Stanley Smith Barney discuss a recent WSJ article discussing the challenges facing retirees on KARE 11 Sunrise.
Almost ½ of retirees won't have adequate income - Recent calculations from the Employee Benefit Research Institute show that roughly 44% of those born between 1948 and 1978 baby boomers and Generation X won't have adequate retirement income, and that is assuming interest rates go back up in 2014.
Making your nest egg last
Dedicate dollars for fixed expenses - Retirees should map out a budget for necessities, include everything from housing to food, transportation, health expenses and utility bills, and set aside a chunk of a portfolio for these costs.
LOW interest rates squeeze income returns for retirees - While low rates have aided those borrowing money, the opposite is true of those with cash and fixed income investments pursuing safety. Interest rates across the globe are hovering at historic lows. Alternatives are available that have the ability to offer higher yields however investors need to recognize there is no free lunch. Higher yield typically accompanies higher risk. Make sure you construct a diversified portfolio of income investments to better safeguard against the impact of volatility in the bond market.
Don't forget about inflation - Although inflation hasn't strayed far from the historical average of 3.2% annually in recent years, advisers says retirees can't ignore this "silent killer."
Limit the tax man's bite - The required minimum distributions that most retirees have to start taking at age 70½ are based partly on the plan's account balance as of the preceding December. To reduce that total balance, and potentially the required minimum distributions later on some retirees might want to start taking withdrawals in their 60s. Still, it's not a simple decision. Each year, retirees need to weigh the consequences of pulling funds from one account versus another.
Watch out for longevity risk - With many people living well into their 90s, retirees need to think carefully about how to protect themselves from running out of money in their later years. With 70% of people over age 65 running into some type of health problem that could necessitate some form of long-term care, it's a big expense that many retirees initially forget about in planning.
Sources and excerpts: WSJ.com - Making Your Retirement Assets Last - September 5, 2012
Dan Ament is a financial Advisor with The Ament Group at Morgan Stanley Smith Barney located in Wayzata, MN and may be reached at 952-475-4302 or firstname.lastname@example.org .
For more information about The Ament Group and access to capital market research click: http://fa.smithbarney.com/amentgroup/