Many people who thought they had a viable retirement plan in place in early 2020, have found themselves watching the stock market cautiously. Gratefully, things have improved in the last several weeks.
That said, with everything else that has been going on the last few months, we’re in an election year and what that means to you is potentially more volatility in the market.
There is something called the Volatility Index, or VIX, and it’s a real-time market index that represents the market's expectation of 30-day forward-looking volatility.
VOLATILITY INDEX SINCE 2000
Non-Election years - Daily Average: 19.0 Maximum: 56.65
Election years - Daily Average 23.2 Maximum 82.69
Source - Yahoo Finance, assessed 4/27/20
As you can see above, since 2000, the VIX has been noticeably higher in election years than non-election years, so even without the global pandemic, a market crash, record-breaking unemployment, rioting and major impacts to most every major industry around the globe, we could’ve already anticipated higher volatility in the market this year, and I wouldn’t be surprised to see that volatility continue
But it is still possible to create the retirement that you’ve worked so hard towards – even after all we have been through lately. Doing so successfully, though, may require you to take three specific steps.
- First, you should determine how much risk you need to take – and how much risk you are comfortable taking – going forward, particularly in light of the increased stock market volatility.
- Next, it is essential that you minimize your future tax obligations. Because some (or even all) of your retirement income may be taxable, reducing how much you must hand over to Uncle Sam is critical. Throughout the past 107 years, the top Federal income tax rate in the U.S. has been in excess of 70% forty-nine times!How would your retirement lifestyle be impacted if you had planned well, had a very nice income and had to give the IRS well over half of it?
The Top Federal Income Tax Rates 1913 – 2020
Source: Inside Gov (http://federal-tax-rates.insidegov.com/)
- It also may be necessary to take a wide variety of financial risks “off the table” in retirement. For example, as we age, our healthcare needs – and expenses – tend to rise. This is also the case with long-term care needs. With the average monthly cost of a semi-private room in a nursing facility standing at more than $7,500, without a plan in place, you may find that your assets are depleted sooner rather than later.
When new clients come to us, we talk about the different parts of their “financial house.” Just like building a physical house, when building your financial house, it’s critical that we get one thing done right…
That one thing, of course, is our foundation. Now as far as excitement goes, unless you just like staring at concrete, foundations are about as boring as things come. I say that from experience, having been a mason contractor early in my business career!
They’re not that exciting, but they’re absolutely critical because on them, everything else is built, right? So those fancy granite counter-tops we all love or that amazing master bath we build – those things don’t matter much if the foundation caves in.
The same is true of your foundation in retirement. In retirement, the equivalent of your “boring” foundation is your income. And when it comes to paychecks in retirement, the last thing most people are looking for is “excitement.” Instead, they simply want consistency and predictability.
So, let pause here to ask a question:
If you’ve been working with an advisor for a while now, has he or she provided you with a written retirement income plan?
If you are thinking back to your last annual review with them or the statements you get and faithfully file away, that is NOT an income plan. And frankly, if you feel like you need an interpreter to understand it, that isn’t really a plan either.
A true retirement plan – in just a few concise pages and simple English – should answer these five objectives:
1 - it should tell you exactly when the “paychecks” you create for yourself in retirement will begin and which pocket of money you’ll be tapping into.
2 - it should tell you in what order you’ll tap into those pockets of money because that’s very important.
3 - It won’t just stay static because the cost of goods doesn’t stay static either, so it will need to grow over time.
4 - it should have built-in provisions for what should happen if you or your spouse, if applicable, should become incapacitated or need long-term care.
5 - it should mathematically show you exactly how long your money will last – regardless of what happens in the future because you can stress test it against various negative scenarios.
Now, if you’re sitting there saying to yourself:
“If this kind of thing is possible why don’t I have one of these? Why haven’t I ever fully understood my plan or had this kind of reassurance?”
Unfortunately, the vast majority of those we first meet, have been working with a financial advisor for years without ever having a true written retirement income plan that can be understood.
The truth is when you get to retirement, you want to make sure you’ve got someone looking at things who specializes in helping you get through retirement.
So, if you’d like to have this kind of clarity, just click here and pick a time that works for you for a 15-minute phone consult.
Oh, and if you’re concerned about what that 15-minute phone call will be, here’s what it won’t be: It won’t be a pitch fest trying to get you to buy something!
Instead, it will be us simply asking a few questions and listening – hearing what concerns you most and determining how we might serve you best.
So, click here, grab a time that works for you and we’ll give you a call then.
Best to YOU always,
And remember, a second opinion is advice from a second expert to make sure advice from the first such expert is correct. And you can’t get a second opinion from someone who already gave you their first! 😊