A dozen steps to a smooth transition to retirement

CookPaul-150-x-150Paul Cook, AIF®, Vice President and Regional Director, Retirement Plan Services

If there were one thing that sudden retirees wish they had, it would be time to think things through while still gainfully employed. They wish they had time to plan. The term “sudden retiree” refers to an ever-growing population of workers who found themselves retired due to unexpected events, such as the sale of a business, caregiving for a family member, downsizing, or sickness. Sudden retirees are typically forced to make decisions before they feel ready to do so.

If you are fortunate enough to exercise some control over when you will retire, you have an advantage over sudden retirees. You have the gift of time. You can prepare. You can think through all the angles and possibilities. You can ensure the smoothest possible transition by taking the twelve steps listed below.

  1. Visualize your exit. While retirement is a process, not a one-time event, it helps, to think about the event of exiting the workforce. How will your final days, weeks and months of work look? How will you spend your time? How can you pass the baton in a way you are most comfortable? Is it important to you to leave a legacy or footprint on your employer? If so, what actions will need to occur to ensure the legacy you desire?
  2. Visualize your entrance. Give thought to how you want to spend your days in retirement. What will your daily routine entail? Are there habits you want to form … or break? No longer confined to career-related personas, retirement provides an opportunity to reshape your identity and decide how you will present yourself to the world.
  3. Freeze frame. Take a snapshot of your current financial status by listing your assets, debts, interest rates on debts, and income.
  4. Retire high-interest debt. If possible, try to pay off any high-interest credit card debt, personal loans or auto loans before retirement. Typically, it is not wise to tap into your 401(k) or IRA to repay debt. If you are under the age of 59 ½, you could be subject to penalties and income tax liabilities, which could nullify any benefits you gain from the debt repayment.
  5. Revisit your retirement plan. Certain assumptions went into your retirement plan. When you know you are within 12 months of retirement, meet with your financial advisor to revisit those assumptions and strategies, and rebalance your portfolio with your newly established time horizon in mind.
  6. Make maximum contributions to your retirement accounts. If you have fallen short of maximum contributions, now is the time to step up your savings.
  7. Decide where and how you will live. Where you decide to live, including the location and the type of home, impacts nearly every dimension of your retirement experience. No longer anchored by the geographic constraints of your employment, retirement offers you the opportunity to re-think or re-commit to your residence. A study conducted by Bank of America Merrill Lynch shows 64 percent will move at least once during retirement, with 37 percent having already moved, and 27 percent anticipating doing so.[1] Factors to consider when making your decision include the cost of living in the area you’ve selected, weather, your home’s capacity to evolve into a more senior-friendly design, public transportation and services, accessibility to medical care, and proximity to family and friends.
  8. Lock down your retirement expenses. Some people believe they will see a significant decrease in post-retirement expenses; however, that may not be the case. In many instance, there is a trade-off in expenses. For example, you may not have the daily expenses of your commute to work, but taking long trips more often may nullify any savings. Most retirees’ expenses follow a U-shaped pattern. For the first couple of years, the expenses mimic pre-retirement expenses, then as the retiree settles in, expenses dip, only to rise as health care costs kick in.
  9. Formulate your income plan, by
    1. Deciding your election age for social security
    2. Considering other sources of income including fixed, immediate, and indexed annuity strategies, pensions, and even your house
    3. Creating a spend-down strategy so you know when and how to withdraw income from all potential sources
  10. Take preventative health measures. 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.
  11. Strengthen your networks. Retirees who have strong social ties report higher levels of overall happiness in retirement. While still working, makes sure to build your social networks, so you have ways to connect with people who share your interests.
  12. Get serious about your emergency fund. It’s important to plan for how you will address emergencies, big and small, in retirement. According to a recent survey, 90 percent 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. On average, unexpected life events can cost retirees nearly $117,000.[2] An emergency fund can serve to prevent you from having to resort to retirement savings during hard financial times.

For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

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

[1]  https://mlaem.fs.ml.com/content/dam/ML/Articles/pdf/ml_Home-Retirement.pdf

[2] http://money.cnn.com/2013/05/15/retirement/retirement-savings/index.html

Why every retirement plan needs a managed account

Marino_R 150 x 150Roddy Marino, CIMA, Executive Vice President
National Accounts & Distribution

Meeting the unique and specialized needs of retirement plan participants requires looking beyond a “one-size fits all” solution.

Managed accounts offer personalized, tailored asset allocation for individual participants and fiduciary oversight. Using investment goals as a guide, financial advisors can help determine the appropriate asset allocation based on risk tolerance and investment time horizon. This approach provides a more holistic view for participants instead of focusing on the age of retirement as target-date funds do. Additionally, unlike target date funds, managed accounts allow for asset allocation depending on the market environment.

Managed Accounts 2

Don’t let bad behavior get in the way

Investing can be an emotional rollercoaster and many investors find themselves reacting to the market highs and lows. For this reason, its beneficial to be invested in a managed account that has a team of investment professionals monitoring the market and making asset allocation adjustments as necessary.

Choose a comprehensive retirement partner

Because no two investors are alike, it’s important to work with a firm that offers retirement options that are personalized to individual participant goals rather than focusing on one component, the age of retirement.

Helping participants today

The retirement landscape is rapidly evolving and its important to evaluate the available options to find a partner that will offer the most appropriate solutions for participant’s needs. Offering a sophisticated managed account solution that addresses needs, risk tolerance, and investment time horizon can help participants reach their retirement goals.

For more than 10 years, Brinker Capital Retirement Plan Services has worked with advisors to offer plan sponsors the solutions to help participants reach their retirement goals. When plan sponsors appoint Brinker Capital as the ERISA 3(38) investment manager, this allows them to transfer fiduciary responsibility for the selection and management of their investments so they can focus on the best interests of their employees.  This fiduciary responsibility is something that Brinker Capital has acknowledged, in writing, since our founding in 1987.

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

Plan Today, Retire Tomorrow

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

One essential consideration, whether you’re retiring next month or 50 years from now,  is that you ensure that your savings are aligned with your investment goals. With 33% of U.S. employees not adequately saving to fund their retirement1, this is a good opportunity to look at your own plan today and address any gaps.

While we know that there are behavioral impediments that we must overcome as we prepare for retirement, there are also some certainties that we need to account for:

  1. You’ll need cash.
  2. The amount you spend impacts how long your savings will last.
  3. Money that is not set aside for spending should be invested wisely.
  4. You’ll fare better when you know where you stand. Don’t just wait for your quarterly report to see how you’re doing—have regular check-ins with your financial advisor.
  5. Markets are volatile and can at times be a bumpy ride; but it important to stay the course.

A financial professional can help to guide you through the ups and downs of the market and work with you to create a retirement plan that meets your needs.  While longevity, medical expenses and taxes are among some of the elephants in the room that may be keeping you from planning for retirement, those who begin early develop formal plans and have little to fear.  Retirement resources are growing as quickly as our lifespans—oftentimes you simply just have to ask!

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  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.

Source:

1Retirement Confidence Survey 2015, Employee Benefit Research Institute

You’re Scared to Bring it Up

weber_bioBrad Weber AIF®, Regional Director, Retirement Plan Services

A 2004 survey conducted by the American Psychological Association says that 73% of Americans name money as the number one factor that affects their stress level. Number one. The New York Times reports that couples who reported disagreeing about finance once a week were over 30% more likely to get divorced than couples who reported disagreements a few times a month.1 So, in addition to being stress-inducing public enemy number one, money is also highly implicated in whether or not we stay married. It’s no wonder then that we tread lightly around retirement or don’t bring it up at all!

The most common behavior in response to the overwhelming anxiety of preparing for three decades of not working is that we may ignore the conversation entirely. After all, we erroneously suppose, “If I ignore it maybe it will go away.” As anyone who has ever put off a project can attest, it never goes away and anxiety is only compounded as a deadline approaches. In college this may have been as inconsequential as pulling an all-nighter and receiving a subpar grade. With retirement planning, it could quite literally have disastrous personal consequences.

A recent study by the American Institute of CPAs2 found that speaking to children about money to children was among parents’ lowest priorities. In fact, money issues were trumped by good manners, sound eating habits, the need for good grades, the dangers of drugs, and the risks of smoking in terms of perceived importance. Our reticence to talk about money is certainly not out of lack of need. An Accenture report states that Baby Boomers will leave $30 trillion to their children in the next 30 years. This doesn’t even take into account the almost $12 trillion that MetLife predicts that Boomers will receive from their parents. The fact is, money will be changing hands within families at an unprecedented rate in the years to come and we are ill equipped to make the exchange.

There are a number of reasons why talking about money may be so difficult. One is that there has been a vitriolic reaction against the wealthy in the wake of the Occupy Wall Street movement and the global financial crisis. This sentiment was illustrated quite vividly in the September 24, 2016 Fortune magazine cover article, “Is It Still OK To Be Rich In America?” Another reason for this taboo may have a higher source.

The Bible, the best-selling book of all time and a foundational text for a majority of Americans, mentions money no less than 250 times. While not all Biblical references to money are negative, there are certainly enough references to “filthy lucre” to give pause. To a nation founded on Protestant ideals about work and morality, the notion of wealth as potentially corrosive is one that is deeply embedded in the collective American consciousness.

John Levy, a counselor to people who have recently inherited money found the following reasons for the money taboo among his clientele (as cited in O’Neil, 1993):3

  • Good taste – “It’s just not done.”
  • Fear of manipulation – “It will give them power over me.”
  • Concern for spoiling children – “They will never make anything of themselves.”
  • Embarrassment – “I don’t deserve to be so much better off than others.”
  • Fear of being judged – “All they can see is my money.”

Perhaps some of the reasons above are resonant with your personal situation and perhaps not, but it seems difficult to deny that money is a subject that puts us all on eggshells. Consider a handful of your best friends. No doubt you could tell me much about their lives; joys and struggles, highs and lows. But I doubt if you could tell me their exact salary, savings or other relevant financial indicators, because we simply don’t talk about them. While this is fine in polite company, this tendency toward silence can extend beyond the cocktail party circuit. Conversations about money tend to be emotionally fraught and tinged with shame and as such, are best handled by professionals adept at de-stigmatizing and reorienting our sometimes misguided thoughts about preparing for our financial future.

Solution: Begin a dialogue around retirement preparedness today with a professional at your place of employment or through a trusted financial advisor. Just as silence leads to greater inaction, a simple conversation can lead to life-changing progress.

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  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.

Sources:

1 “Money Fights Predict Divorce Rates,” Catherine Rampell, The New York Times, December 7, 2009.

2  “Money Among Lowest Priorities in Talks Between Parents, Kids,” AICPA, August 9, 2012.

3 “The Paradox of Success,” John O’Neil. New York: Putnam, 1993.

You Don’t Have a Plan

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

People anticipate that they will finish their own tasks earlier than they actually do. Consider the following example. Employees who carry home a stuffed briefcase full of work on Fridays, fully intending to complete every task, are often aware that they have never gone beyond the first one or two jobs on any previous weekend.

The psychological term for this is called “planning fallacy” and it is the reason that we are often a day late and a dollar short. In a phrase, the planning fallacy is the human tendency to underestimate the time and resources necessary to complete a task. When applied to a lifetime of financial decision-making, the results can be catastrophic.

There are a variety of hypotheses as to why we engage in this sort of misjudgment about what it will take to get the job done. Some chalk it up to wishful thinking. A second supposition is that we are overly optimistic judges of our own performance. A final notion implicates “focalism” or a tendency to estimate the time required to complete the project, but failing to account for interruptions on the periphery.

Whatever the foundational reasons, and it is likely there are many, it is clear enough that the American investing public has a serious case of failure to adequately plan. Excluding their primary home value, 56% of Americans either have less than $10,000 or no retirement savings at all. 43% of Americans are just 90 days away from poverty and 48% of those with workplace retirement savings plans fail to contribute.1 Perhaps we think we are special. Maybe we are simply too focused on the day-to-day realities that can so easily hijack our attention. Without a doubt, we may wish that the need to save large sums of money for a future date would just resolve itself.

Solution: Antoine de Saint-Exupery famously said, “A goal without a plan is just a wish” and yet the majority (60%) of investors surveyed by Natixis in 20142 said that they had no formal financial plan or goals. If you do not have a formal, updated financial plan in your possession, you lack the road map necessary to begin the journey toward retirement. Most financial planners are happy to create such a plan for a small fee so start today!

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  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.

Sources:

1 “Myth of the Middle Class:  Most Americans Don’t Even Have $1,000 in Savings,” www.salon.com, Ben Norton, January 14, 2016.

2 “Getting to the Goal:  Markets, emotion and the risks advisors must manage,” Natixis, 2014

You Can’t See Tomorrow

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

Thomas Hobbes’ famous description of life in times of war as “nasty, brutish and short” could just as easily have been applied to peacetime in the 17th century. Life expectancy in relatively developed England was just 35 years during Hobbes’ lifetime, owing largely to high infant and child mortality rates. In the less developed American colonies, life expectancy was a scant 25 years in Virginia and 40% of New Englanders died before reaching adulthood.

While very few of us would trade the realities of Thomas Hobbes’ day for our own (indoor plumbing is awfully nice), there is no denying that we are psychologically better equipped to prepare for a short life than a long one. The reason this is so is that we have a tendency to focus on the here and now and discount the future that psychologists refer to as “present bias.” To illustrate the power of present bias, consider the following:

Suppose I asked you whether you would like $250 one year (52 weeks) from now or $225 50 weeks from now – which would you choose? Now, what if I offered you a choice between $225 right this second or $250 two weeks from now – would your answer change? If you are like most people, you chose to wait for the larger payout in the first scenario but selected the immediate payoff in the second scenario. The farther we move from the present moment, the more dramatically we begin to discount time. Both scenarios involve a $25 gain for a two-week wait, but we perceive them very differently.

Present bias is rooted, among other things, in our tendency to experience now as a “hot” emotional state and the future in cooler terms. Simply put, right now seems more real than twenty years from now. As a result, many people prioritize meeting the needs of the all-too-real right now but ignore the just as real, but less salient, needs of their future self. If this is done consistently enough, tomorrow becomes today and you find yourself wholly unprepared.

Solution: Stanford Researchers1 have found that seeing a computer simulated aged version of your face makes you more likely to save for retirement. Why? Seeing the “older” version of yourself moves you from a cool to hot emotional state and makes the reality of your retirement more visceral. Psychologists have shown repeatedly that the more salient a variable is, the more likely it is to be acted upon. Start to increase the salience of your own retirement by discussing a few of the following questions with a partner or loved one:

  • Where will I/we live in retirement?
  • How will I spend my days in retirement?
  • What will be the best part of being retired?
  • What problems might arise that I could prepare for now?

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  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.

Source:

1 Exploring the “Planning Fallacy”: Why People Underestimate Their Task Completion Times, Roger Buehler, Dale Griffin, and Michael Ross.  Journal of Personality and Social Psychology, 1994.

It’s National Retirement Security Week!

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

It’s National Retirement Security Week!

Doesn’t sounds familiar?  You’re not the only one.

This week kicks off the sixth year celebration of National Retirement Security Week (formally National Save for Retirement Week), sponsored by the National Association of Government Defined Contribution Administrators (NAGDCA).  While this is not a Hallmark-holiday, this important week marks a national effort to raise public awareness of the importance of saving for retirement.  The goals of this week are to:

  1. encourage employees to save and participate in their employee-sponsored retirement plans
  2. educate employees about how saving for retirement is crucial to security during retirement years
  3. increase awareness of the various retirement saving options

With the American life expectancy currently at 78.8 years1 and children born today expecting that nearly one-third of their contemporaries may live to see 100 years of age2, we are living lives with greater comfort and more free time than any other point in history. It is truly an incredible time to be alive, but even the best advances can have unintended complications. Such is the case with ever-increasing longevity and the reality of preparing for a retirement of unprecedented length. Successful retirement planning requires a great deal of forethought, tolerance for uncertainty and consistently delayed gratification. This can be challenging for some facing retirement because individuals must invest in risk assets if they are to retire comfortably and most individuals are emotionally and psychologically ill equipped to invest in risk assets.

So, why must you invest if you are to retire? As of today, the median wage in the U.S. is $26,695 and the median household income is $50,500. Let us suppose for illustrative purposes, however, that you are four times as clever as average and have managed to secure a comfortable annual salary of $100,000. Let us further suppose you set aside 10% of your gross income each year until the first day of your retirement. Assuming you begin saving at age 25 and retire at age 65, your efforts will have yielded a nest egg totaling $400,000.

While $400,000 may seem like a decent sum of money, it hardly provides much for someone who could easily live another 30 years in retirement. At $13,333 per year, you would be living near the poverty line by today’s math, to say nothing of how dramatically inflation would have eroded the purchasing power of that figure 40 years on.

If we turn back the clock 40 years from now, we see that roughly $90,000 in 1975 money would get you $400,000 in purchasing power in today’s dollars. A little back of the napkin math tells us that even though $400,000 may seem alright today, we will need more like $1.5 million 40 years from now to maintain that same level of purchasing power.

Remember too that the average American couple currently spends an estimated $245,0004 in retirement on health-related expenses above and beyond their monthly premiums. Factoring in even modest inflation over the next 40 years, the money spent on medical bills alone would far outstrip your savings on the high-earning-always-saving model.

While you could complicate the assumptions above to greater reflect the reality of the average worker (most people don’t make $100,000 right out of college, most people get raises over the course of a career, most people don’t save 10% of their income), the basic math is the same. You simply aren’t going to get to the necessary savings target by age 65 without a little help from risk assets whose returns exceed the insidious and corrosive power of inflation.

As Burton Malkiel said far more succinctly, “It is clear that if we are to cope with even a mild inflation, we must undertake investment strategies that maintain our real purchasing power; otherwise, we are doomed to an ever-decreasing standard of living.”3

While 2/3 of U.S. employees are saving for retirement, according to data from the 2015 Retirement Confidence Survey conducted by the Employee Benefit Research Institute, they are not adequately saving to fund their retirement.  In the coming days, we will examine three behavioral impediments to retirement preparation that many plan participants experience and ways to overcome them. This week serves as a great time to remind employees of the importance of saving for retirement and provide them with a realistic picture of how to get to their goals.

For 10 years, Brinker Capital Retirement Plan Services has been working with advisors to offer plan sponsors the solutions to help participants reach their retirement goals.  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.

 Sources:

1 Centers for Disease Control and Prevention. http://www.cdc.gov/nchs/fastats/life-expectancy.htm

2 Live long and prosper, The Economist, June 4, 2016.  http://www.economist.com/news/books-and-arts/21699886-how-plan-long-long-life-live-long-and-prosper

3 A Random Walk Down Wall Street, Burton Malkiel.

4 “Health Care Costs for Couples in Retirement Rise to an Estimated $245,000,”  Fidelity Investments, October 7, 2015.  https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-retirement-rise