Money Missteps to Avoid in Retirement

frank_randallFrank Randall, AIF®, Regional Director, Retirement Plan Services

 “Good decisions come from experience,

and experience comes from bad decisions.”

By the time you feel ready enough to retire, you have likely had your fair share of blunders along the way. Now seasoned with experience, the realization that mistakes are inevitable, and having the ability to recover can make the difference between success and failure.

Here are some of the most common missteps in retirement:

  • Focusing on the wrong factors. Many people decide to retire when they reach a certain age, job fluctuations or business cycles. While these factors may have influence, your emotional readiness, savings, debt, future budget and income plan to sustain your desired lifestyle must also be considered.
  • Overlooking the importance of your Social Security election. Some experts say the difference between a good Social Security benefit election and a poor one could equate to more than $100,000 in income.[1] The biggest decision retirees face concerning Social Security is when to start collecting. Just because you can start receiving benefits at age 62 doesn’t necessarily mean you should. If you delay your election until age 70, you may receive 32% more in payments so it may make sense to delay receipt of benefits as long as you can meet your expense obligations.
  • Underestimating the cost of retirement. Most people estimate retirement expenses to be around 85% of after-tax working income. In reality, however, many retirees experience lifestyle sticker-shock as the realities of retirement. One common problem retirees have when budgeting for retirement expenses is that they overlook items like inflation, future taxes, health care, home and car maintenance, and the financial dependence of their loved ones (e.g., sandwich generation costs).
  • Retiring with too much debt. A simple rule of thumb is to pay off as much debt as possible during your earning years. Otherwise, debt repayment will cause a strain on your retirement savings.
  • Failing to come up with an income strategy. Saving is only part of the retirement planning process. You also have to think about spending and decide where and in what order to tap investments. When thinking about cash flow needs throughout retirement, one must also consider how retirement funds can continue to generate growth. An effective way to solve retirement income needs is to have a liquid cash reserve account tied to your portfolio.  The reserve is tapped to deliver a “paycheck” to help you meet predictable expenses. The cash withdrawn is replenished by investments in dividend- and income-producing securities.
  • Dialing too far back on investment risk. As many workers near retirement, they become fixated on cash needs, thus dialing back risk and becoming more conservative in their investments. Unfortunately, the returns generated by ultra-conservative investments may not keep pace with inflation and future tax liabilities. Because retirement can last upwards of 20 years, retirees must set both preservation and growth investment objectives.
  • Not validating the assumptions made during the retirement planning process. You make certain assumptions about investment performance, expenses, and retirement age when you initially create your projected retirement plan. At least annually, you should reconcile your projections against reality. Are you spending more and earning less than anticipated? If so, you may have to make changes, either to your plan or your lifestyle.
  • Providing financial support to adult children. Over the last decade, the number of adult children who live with their parents has risen 15% to a historic high of 36%. Providing financial support to anyone, particularly an adult child, is stressful. It could strain retirement savings and ultimately could create long-term financial dependency in your child.
  • Going it alone. While your financial mission in retirement may seem straightforward—don’t outlive your money—the decisions you make along the way can be complicated. An experienced financial advisor can give you piece of mind for many reasons. An advisor can help you manage your retirement portfolio to meet your preservation and growth objectives, help you establish an income strategy that is matched to your spending needs, and track your spending versus assumptions. If a crisis arises, a trusted financial advisor will already know your financial history and can help make decisions that are in your best interests. Similarly, it is extremely helpful to have a trusted advisor relationship solidified in the event your cognitive abilities decline and you need help with decisions.

[1] http://www.cbsnews.com/news/a-great-new-tool-for-deciding-when-to-take-social-security/

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Nix the Mixed Emotions About Retirement

cook_headshotPaul Cook, AIF®, Vice President and Regional Director, Retirement Plan Services

The future holds many uncertainties, leaving us to often have mixed feelings when thinking about retirement. Even if you feel more than ready, on an emotional level, to move to the next phase of your life, you may have some uncertainty about whether you will be able to maintain the lifestyle you wish.

Last week in Roddy Marino’s Eight Signs You Are Ready to Retire, he shared some useful statistics from an Ameriprise Financial survey that address this notion of mixed emotion. Close to 50% of respondents felt they were ready to retire, but admitted that there was still some concern. 21% admitted more bluntly that they felt uncertain or not ready at all. Suffice it to say that a large portion, about 63%, of newly retired boomers said they felt stressed about retirement leading up to the decision.[1]

We’ve talked before about how your physical health can impact your retirement, but let’s take another approach and look at six financial certainties that may help to lower your stress and avoid some of the mixed emotions about retirement.

  1. You will need cash. Throughout your retirement journey, you will need quick access to your money. Typically, you will need enough liquidity to cover two years’ worth of anticipated living expenses.
  1. The quicker you spend, the shorter it will last. Your predictable expenses may total up to, for example, $2,000 a month. But how many years could you go on spending $24,000? The impact of spending on your portfolio becomes clear once you determine a spend-rate. For example, if you had $500,000 in a retirement savings account and withdrew $2,000 a month, the portfolio would last 20-29 years. A $500 reduction in spending, however, could result in 9-15 more years of longevity for the portfolio.
  1. The money not needed to cover expenses must be invested…wisely. While you can’t control the markets, you should feel confident that your investments are managed with skill and integrity. Choose an investment advisor with whom you have a trust and have a high level of confidence.
  1. Eventually, you will run out of cash and need more. One of the tricky parts of managing your money in retirement involves knowing how to create an income stream from your portfolio. You need to figure out which assets to take distributions from, and when. To ensure that each of your assets performs optimally, you must conduct a careful technical analysis and evaluate moving market trends. If you are like most retirees, you could benefit from having an expert perform this service for you so that you can have confidence that you are benefiting from all possible market and tax advantages.
  1. You’ll make more confident decisions if you know how your investment performance and expenses measure against your goals. Throughout your retirement journey, it is helpful to know where you stand against your goals. If your overall goal is to outlive your savings, then you should have a system in place that helps you contextualize your spending and its relative impact on long-term goals.
  1. Markets are volatile. When markets fluctuate, many investors feel like all semblance of control over their financial future is lost. Having a well-diversified portfolio may help to smooth the ride and reduce some of the emotions of investing.

If you approach retirement by developing an income solution that addresses each of these known facts, you can feel as if you are on more solid ground to enjoy your retirement.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.


[1] Ameriprise Study: First Wave of Baby Boomers Say Health and Emotional Preparation are Keys to a Successful Retirement, February 3, 2015

Eight Signs You Are Ready to Retire

Roddy MarinoRoddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

New England Patriots quarterback is famous, and infamous, for a number of things both on and off the football field. His stance on retirement, however, is a personal favorite. When asked when he will retire, the then 37-year old quarterback said, “When I suck.”

Brady has the benefit of stats, sacks and millions of armchair quarterbacks to tell him when it’s time for him to hang up his cleats, but the decision to retire isn’t as clear for most Americans.

According to a survey conducted by Ameriprise Financial, nearly half of retirees (47%) felt ready to retire, but approached it with mixed emotions. 25% of the people surveyed said they could hardly wait for retirement, but nearly as many (21%) felt uncertain or felt that they were just not ready.[1]

If you are among the group of pre-retirees who feel uncertainty, here are eight signs that will help you decide if the time is right for you to consider retirement:

  1. shutterstock_447538888You are emotionally ready. Choosing when to retire has as much to do with emotions as it does finances. The transition from a full-time job that, for many, shaped their identity, to life with less structure can be scary. According to the Ameriprise study, losing connections with colleagues (37%), getting used to a different routine (32%), and finding purposeful ways to pass the time (22%) pose the greatest challenge for the newly-retired. Despite these challenges, 65%say they fell into their new routine fairly quickly, and half (52%) report to having less time on their hands than they would have thought.
  2. You’ve paid down your debt. Debt represents a key barometer in retirement readiness. If possible, you will want to keep working until your high-interest credit card debt, personal loans or auto loans have been satisfied—or you have a plan to retire such debt.
  3. You have an emergency fund. It’s important to plan in advance for how you will address emergencies, big and small, in retirement. The same survey revealed that 90% of Americans have endured at least one setback that harmed their retirement savings. Setbacks vary from caring for adult children, to college expenses stretching over six years instead of four. Others include loss of a job, assisted living expenses, and disappointing stock performance. As the survey indicates, unexpected life events cost the retirement accounts of the respondents $117,000 on average. An emergency fund can serve to prevent you from having to resort to retirement savings during hard financial times.
  4. You know what it’s going to cost. Some people believe they will enjoy a significant decrease in post-retirement expenses; however, that may not be the case. Instead, many retirees experience trade-off in expenses. For example, instead of daily commute costs, retirees may take longer trips thereby canceling out any savings in transportation expenses. Most retirees’ expenses follow a U-shaped pattern. For the first few years, the expenses mimic pre-retirement expenses, then as the retiree settles in, expenses dip only to rise as health care costs kick in.
  5. You know how you will create income. Much of retirement planning involves asset accumulation, but it is equally important to figure out what assets to tap, and in what order. Your income plan should include a decision on when you will elect to receive Social Security benefits. It should also take into consideration all sources of income including fixed, immediate, and indexed annuity strategies, pensions, and even your house. It should also address the timing as to when and you will withdraw income from all potential sources.
  6. Your children have their financial lives in order. Family dynamics play a significant role in shaping one’s retirement experience, yet are often overlooked during the planning process. Many retirees do not anticipate or underestimate the financial toll associated with providing financial support to their adult children. If you are thinking of retiring and still have a financially dependent child, consider establishing parameters for the arrangement, set expectations, and deepen the child’s understanding and appreciation of what is at stake for you.
  7. You have prioritized your health. When it comes to determining retirement well-being, health is typically more important than wealth. Retirees in better health have the added peace of mind that comes from financial security. They tend to enjoy retirement more, feel fulfilled and are not as prone to negative emotions as their less healthy counterparts.[2] For most, health care costs top the retirement expenses charts so your ability to pay for medical care you will eventually need should be a key consideration. Healthy habits and preventive medical treatment before retirement can help to serve as a cost-containment measurement as well as a lifestyle booster.
  8. shutterstock_128132981Someone you trust can help you make your financial decisions. A trusted advisor is invaluable throughout your retirement journey. He or she can help you manage your retirement portfolio to meet your preservation and growth objectives, help you establish an income strategy matched to your spending needs, and track your spending versus assumptions. If a crisis arises, a trusted financial advisor will already know your financial history and can help make decisions that are in your best interests. Similarly, it is extremely helpful to have a trusted advisor relationship solidified in the event your cognitive abilities decline, and you need help with decisions.

[1] Ameriprise Study: First Wave of Baby Boomers Say Health and Emotional Preparation Are Keys to a Successful Retirement, 2/3/15: http://newsroom.ameriprise.com/news/ameriprise-study-first-wave-baby-boomers-say-health-and-emotional-preparation-are-keys-to-successful-retirement.htm

[2] Health, Wealth and Happiness in Retirement, MassMutual. 3/25/15

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

The Impact of Student Loans on Your Own Retirement

Roddy MarinoRoddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

An education is one of the greatest gifts a parent or grandparent can give to the next generation. The problem for many, however, is that it comes at the cost of their own retirement.

People over the age of 60 represent the fastest-growing segment of individuals taking out loans for education. Over the past decade, student loans taken out by individuals over the age of 60 grew from $6 billion in 2004 to $58 billion in 2014. To put the dollars into perspective, consider another staggering statistic—the numbers of senior citizens with student debt exceed 760,000. Some have co-signed loans or taken Parent PLUS loans to help children or grandchildren get an education. Other seniors carry old debt from when they returned to school to get advanced degrees or in the pursuit of new skills needed for a career change.

A mistake some retirees make is they incorrectly assume that they will never have to repay their student debt. Only two things can make federal college debt go away: satisfaction or death of the borrower.

shutterstock_44454148Federal student loans aren’t forgiven at retirement or any age after. Bankruptcy won’t even discharge a federal student loan, and the consequences to a senior who defaults on a federal loan are severe. The government can garnish Social Security benefits and other wages. Recent reports indicate over 150,000 retirees have at least one Social Security payment reduced to offset federal student loans. This number represents a drastic increase from the 31,000 impacted in the year 2002.

The government can withhold up to 15% of a borrower’s retirement benefits and can also withhold tax refunds in the event the borrower defaults on a college loan.

If repayment is not possible, you may want to explore a few options to minimize the impact on cash flow once you are on a fixed income. You could stretch out the term of the loan as long as possible through extended payments, or enter into an income-driven repayment plan. Typically, borrowers must pay 10-20% of discretionary income in an income-contingent scenario.

Both strategies could reduce your monthly payments; however, ultimately either strategy will result in higher total payments. To put it simply, debt of any kind is best retired before you retire.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Retire Healthy, Retire Happy

Sue BerginSue Bergin, President, Bergin Communications

Most retirement planning focuses on the nest egg. It involves making sure you have enough saved to live your retirement years the way in which you have dreamed. The laser-like focus on the bottom line, however, could prevent you from paying attention to the single most important predictor of retirement satisfaction. Your health.

According to MassMutual’s Health, Wealth and Happiness in Retirement study, health is typically more important than wealth when it comes to determining the well-being of American’s retirees. Retirees in better health are more likely to feel financially secure, enjoy retirement, feel fulfilled, and are less likely to experience negative emotions.

The study shows that the loss of health is more costly to a retiree’s overall experience than the loss of wealth. Consider these stats:

  • 76% of those with $250,000 or more in assets report having a positive retirement experience, compared to 68% of those with less than half the assets.
  • 80% of those in better health report having a positive experience in retirement, compared to only 59% of those who are in poorer health, regardless of their balance sheet.
  • 73% of retirees in better health report feelings of financial security compared to 51% of retirees in poorer health.
  • Retirees in poorer health were twice as likely to feel anxious about their finances and lack a sense of purpose, and three times more likely to feel lonely.

The bottom line…focus on your health!

To make the most of your retirement, your planning and preparation should focus as much on your health as it does your wealth.

AARP provides these helpful tips to incorporate into your retirement readiness checklist.

  • Seek preventative medical care by scheduling checkups and routine examinations, from annual physicals to teeth cleanings.
  • Work with your health care providers on a plan to improve or maintain your health.
  • Commit (or recommit) to eating healthy, exercising and adequate sleep.
  • Commit to staying mentally sharp with brain games, puzzles and books.
  • Stay in close contact with family and friends. Typically, your friends and family will be the first to notice if your health starts to slip.

For more tips from AARP, see 10 Steps to Get You Ready for Retirement.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Brinker Capital Founder and Executive Chairman Charles Widger Makes Historic $25 Million Investment in the Villanova University School of Law

Coyne_HeadshotJohn Coyne, Vice Chairman

All of us at Brinker Capital are proud to recognize the generosity of our founder and executive chairman, Chuck Widger, who has made a transformative $25 million investment in the Villanova University School of Law. In recognition, the school has been renamed the Villanova University Charles Widger School of Law.

Chuck, a 1973 Villanova School of Law grad, proudly refers to himself as a “Villanova lawyer,” and has remained involved with the school in various capacities over the years. He has played an active role in its efforts to revolutionize legal education by infusing vital business coursework and practical experience into the Villanova School of Law’s curriculum. Its tagline, “Where Law Meets Business” perfectly captures Chuck’s vision of what law schools should be doing to train tomorrow’s legal, business, government and nonprofit leaders.

Chuck_BlogChuck stated: “My investment in Villanova Law is an investment in the preservation of the two institutions that are vital to a free society, the rule of law and a market economy, both of which will enable us to flourish as a people for generations to come.”

Brinker Capital is pleased to recognize all of our Villanova alumni: Phil Green, Ping Guan, Ed Kelly, Neal McLaughlin, Jeff Raupp and Jamie Shoup.

More information about the Villanova University Charles Widger School of Law can be found at: http://www1.villanova.edu/villanova/law.html

Brinker Capital, a Registered Investment Advisor.

8 Ways to Create a Satisfying Retirement

Sue BerginSue Bergin, President, Bergin Communications

Much of the retirement planning process focuses on dollars and sense. Specifically, how much you can save to live comfortably in retirement and how to create an adequate income stream to meet your expected expenses. While financial planning is a critical component, it doesn’t stand alone in preparing to retire on the terms you wish.

Here are eight other ways to help you create a satisfying retirement:

  1. Maintain healthy habits. When it comes to determining retirement well-being, health is typically more important than wealth. Retirees in better health have the added peace of mind that comes from financial security. They tend to enjoy retirement more, feel fulfilled, and are not as prone to negative emotions as their less healthy counterparts.[1] For most, health care costs top the retirement expenses charts. It makes good financial and medical sense to establish and adhere to healthy habits as a cost-containment measure and lifestyle booster.
  2. Enjoy retirement with a spouse or partner. Married or cohabitating couples are more likely than singles to be happy in retirement. The percentage of married couples who report that they are happy in retirement raises even higher when both spouses retire together.
  3. Set and stick to boundaries with adult children. Six out of ten parents in the U.S. provide financial support to adult children. In doing so, many parents put their retirement outlook in jeopardy. Whether you should support an adult child or children, is of course a personal choice. However, if you decide to do so, you should establish clear parameters to make it clear just how far the support will stretch.[2]
  4. Forge close bonds. Quality social relationships become increasingly important in retirement. Once work no longer fills the time in a day, those who lack solid relationships with friends and relatives are more prone to feelings of depression.
  5. Touch base frequently with family and friends. Typically, your friends and family will be the first to notice if your health starts to slip.
  6. Expect the unexpected. According to a recent survey, 90% of Americans have endured at least one setback that harmed their retirement savings. Setbacks vary from caring for adult children, as mentioned above, to college expenses stretching over six years instead of four. Others include loss of a job, assisted living expenses, and disappointing stock performance. Unexpected life events cost the retirement accounts of the survey respondents on average $117,000.[3] An emergency fund can serve to prevent you from having to resort to retirement savings during hard financial times.
  7. Volunteer. Recent studies show that volunteering your time and talents in retirement provide health, happiness and longevity benefits similar to those enjoyed by retirees who return to work in a bridge-employment scenario. Bridge employment refers to the part-time jobs, self employment, or temporary jobs retirees take after leaving their career but before full retirement.
  8. Dabble in different hobbies. While you may have more time to enjoy a hobby in retirement, it is wise to start exploring hobbies while still employed. Hobbies often require an outlay of capital, and it is often the case that you don’t know just how much it will cost to maintain the hobby until you get fully into it. If you explore hobbies during your working career, you will presumably have more slack in your budget to absorb the costs and it will give you a good idea of whether the hobby is, indeed, how you want to spend your time in retirement.

[1] MassMutual’s Health, Wealth and Happiness in Retirement
[2]
LIMRA Secure Retirement Institute, October 30, 2014
[3] http://money.cnn.com/2013/05/15/retirement/retirement-savings/index.html

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Thank You, Veterans

shutterstock_125204504In May of 2011, the Brinker Capital family lost one of its own in Charles “Chief” Burton, who passed away from cancer at the age of 65. As a former Naval officer, we remember Chief on this Veterans Day for the legacy he left and for his unique story that has become a part of our company culture.

During the Vietnam War, Chief was the captain of a PT (Patrol Torpedo) boat tasked with patrolling the rivers in search of enemy strongholds. On one particular instance, he was made aware of an order to take out an enemy village. It just so happened that Chief had recently been through the targeted village and knew that there were no enemy soldiers there. When he communicated this information to the general, he was sternly told to follow orders and continue as instructed. It was then that Chief made a decision that would impact not only his life, but the lives of countless others—he refused the order.

Refusing a direct order from a commanding officer got Chief court-martialed, but the decision to do so proved right. They determined that his intel was right and that there were only civilians in the village they were ordered to attack. Chief was later exonerated and served out his punishment—no ice cream for a week (or something equally as trivial). He would later receive the Navy’s Commendation medal.

Today, Brinker Capital presents the Chief Burton Award of Courage at the end of each year to honor an employee who has faced a difficult situation and met it with the same strength, integrity and bravery as Chief to overcome and make a difference. So on this Veteran’s Day, we say thank you to Chief, our other veterans at Brinker Capital—Chuck Widger, Lee Dolan, Tom Daley, Jeff Raupp, Jay O’Brien, Jim O’Hara and Bill Talbot—and to everyone who has served and protected our country.

Brinker Capital, Inc., a Registered Investment Advisor

Happy Holidays from Brinker Capital

Noreen D. BeamanNoreen D. Beaman, Chief Executive Officer, Brinker Capital

I wanted to take a moment to wish all of our advisors, the clients they serve, our strategic partners, and all friends of Brinker Capital, a wonderful holiday season.

We are thankful for the many partnerships we have with you and the continued support you show us. We are looking forward to another year of commitment to taking great ideas and applying a strong discipline to provide better outcomes.

On behalf of Brinker Capital, Happy Holidays!

“During this holiday season, please pause and take a moment to remember and thank, in some fashion, our men and women in uniform both past and present.”
~Chuck Widger, Founder & Executive Chairman

Announcing our New Book, Personal Benchmark: Integrating Behavioral Finance and Investment Management

Chuck WidgerCharles Widger, Executive Chairman

Today is a very exciting day. I am pleased to announce the completion of my book, Personal Benchmark: Integrating Behavioral Finance and Investment Management co-authored by Dr. Daniel Crosby (@incblot) and published by John A. Wiley & Sons, Inc. This book is dedicated to America’s advisors, as it is these professionals who help investors achieve their goals.

We chose to write this book for three reasons:

  • The current investment advice delivery system is broken
  • In order to fix the system, it’s time to change the conversation toward goals-based investing
  • Behavioral finance needs to be automatic in order to be effective in improving investor behavior

The current investment advice delivery system is broken. The Great Recession of 2008-2009 was the wake-up call for investors and, in turn, advisors and the architects of the wealth management advice delivery system. No investor ever wants to experience a more than 20 to 30% decline in their investment portfolio. And yet, over the decades, this has not been an infrequent occurrence. Too often, encouraged by advisors, asset managers and the media, investors have sought to mimic returns generated by indexes. They tend to discover, albeit too late, that they really didn’t understand the risk involved with index-oriented or relative return investing. Then when the risk hits the fan, investors proceed to sell at market bottoms, having piled in at market tops. The existing system is not sufficiently helping investors.

bookIt’s time to change the conversation toward goals-based investing. We believe the solution to improving the investment advice delivery system begins with a focus toward goals-based investing. We believe it’s time to help advisors improve the investment experience for their clients. It’s time to turn emotion away from being an investor’s worst enemy to its best friend, time to get personal and help investors become more focused on their goals, time to change the conversation.

Behavioral finance needs to be automatic in order to effective. We also believe that in order to improve investor behavior, the elements of behavioral finance must be embedded within the investment management framework. This will help advisors and investors discuss, recognize, and manage behavioral biases. As a result, investors may avoid the typical pitfalls of wanting risk in bull markets, safety in bear markets, and failing to achieve expected returns because they do not properly manage risk.

I encourage you to visit http://www.personalbenchmarkbook.com for more information about Personal Benchmark: Integrating Behavioral Finance and Investment Management and hope that you find the book both educational and valuable.

The views, information, or opinions expressed in this blog are solely those of the authors and do not necessarily represent those of Brinker Capital, Inc. and its employees. The primary purpose of this blog is to educate and inform. This blog does not constitute financial advice. Brinker Capital, Inc. is a registered investment advisor.