Can I stop working? US investors’ top five retirement worries
US investors are typically insecure about whether they will have enough money to live comfortably after retirement, financial advisers say.
Foremost on people’s minds are questions about how to generate enough money for life after work, the timing of their retirement, Social Security drawdowns, the timeliness of investments, making the best allocations, and the safety of their assets.
Worrying about retirement has been a constant, but recently clients have also expressed a “lack of confidence in the country’s political leaders and in Wall Street”, says Ric Edelman, founder and executive chairman of Edelman Financial Services, based in Fairfax, Virginia.
Yet such anxiety — present in Americans regardless of income or net worth — is healthy, adds Mr Edelman, because it often pushes people into action.
On a scale of one to 10 — with 10 being the most secure — Mr Edelman says clients who see him for the first time typically feel they are in the four to six range regarding financial wellness but they are often in “much better shape than they feel”.
Here are the top five financial wellness-related questions clients asked the financial advisers below:
- How do I generate income to meet my financial needs in retirement?
Ken Fisher, Camas, Washington-based founder, executive chairman and co-chief investment officer at Fisher Investments:
“Generating income in retirement can be complicated. Investors need to understand their overall financial situation, including their income needs and sources of income.
“There are many other factors to consider too. Investors should calculate a reasonable yet conservative long-term, after-tax rate of return on their portfolio and not count on spending that much if they want their portfolio to sustain over a long lifetime.
“Too many people focus on income yields available in the market place and then aim their spending at that. It is better to think in terms of sustainability and generate what I’ve called home-made dividends by taking that amount from principal instead of taxable income. The tax man largely pays you to think that way.”
- Can I retire?
Terri Munro, Atlanta, Georgia-based wealth adviser at BT Wealth Management:
“The answer is always: it depends. We explore what their financial realities would look like in different scenarios. There are a multitude of different factors that affect the answer: spending and savings amounts; properties to maintain, acquire, or sell; and other midterm goals, such as supporting children and grandchildren through college or weddings.
“I always say that you can retire, but we need to determine the quality of that retirement lifestyle to see if you are saving and investing enough now. Time has an uncanny way of magnifying the effects of our behaviour today.”
- When should I begin to take Social Security retirement benefits?
Ric Edelman, Fairfax, Virginia-based founder and executive chairman of Edelman Financial Services:
“What seems to be a very simple question is actually very complicated because of Social Security rules.
“You are allowed to receive benefits as early as age 62, and the majority of Americans start taking their benefits at that age. That’s a big mistake for most people because when you begin to take benefits at age 62, you receive less than your full retirement benefits.
“Your full retirement benefit isn’t obtained until age 66 or thereabouts. It depends on your actual birth date. Somewhere between 65.5 and 67 is when you’re entitled to full retirement benefits. If you take the benefit prior to the full retirement age, then you will receive less than your full monthly benefit.
“And it grows about 8 per cent per year. In other words, if you delay your benefit to age 63, you’ll receive per month 8 per cent more than what you would have received at age 62. And every year you wait, your benefit would be 8 per cent higher than it would have been the prior year.
“There is a tremendous value in waiting for many people. The key is whether you can afford to wait.”
- Should I invest my excess cash now or wait?
Nick Strain, Long Beach, California-based senior wealth adviser at Halbert Hargrove:
“It’s critical to ask good questions in these cases to determine if the client will need to use these funds in the short, intermediate or long term.
“It’s also important to review their goals, financial plan and ask if there any future purchases — like a car or a big vacation — or home projects that they were thinking about to start.”
- What can I do to protect myself from identity theft and fraud?
Michael Weissman, New York-based director of investment advisory and principal at Aspiriant:
“I recommend that clients take a proactive approach to monitoring their financial accounts and their credit card accounts. I think it is prudent to look at larger financial accounts and credit card transactions on a weekly basis.”