Pre-retirees and retirees are already worried out about outliving their nest egg savings, and fears about election year market volatility aren’t helping matters. A number of  studies show that baby boomers worry about their savings lasting throughout their retirement, and their concerns are valid.

At Lake Point Advisory Group, we work to address these fears with a practical approach to examining each client’s individual portfolio and finding ways to protect their savings.

Three areas of concern that I address with each client portfolio I review include protecting principle in times of volatility, establishing a realistic withdrawal schedule and income stream that will last them and uncovering hidden fees that can potentially eat away at their retirement savings.

Election year volatility

In any election year, it’s common for volatility angst to rise among investors, particularly retirees and pre-retirees who fear that the race to the executive office will negatively impact their nest eggs.

2016 has already been a  year of volatility, with a market that’s up sharply and down sharply in short-term swings over extended periods of time. Many investors, already concerned with current volatility say their fears are compounded by the general belief that the market tends to fall during presidential election years. There are many theories regarding the election cycle – market volatility connection; according to one study from the UBS Chief Investment Office Wealth Management Research (CIO WMR) organization, three recurring historical factors consistently surface:

  • U.S. presidential election years bring about more uncertainty than non-election years.
  • Since 1900, the S&P 500 has dropped an average of 1.2 percent in the final year of a two-term president’s second term.
  • Anticipation over whether a new party will win the presidential election can impact market volatility.

This is when a fiduciary financial Adviser can help ease investors’ anxiety by rooting out any real risks associated with their portfolios, and helping them make good decisions about how their long term investments fare, regardless of the election’s outcome.

For starters, it’s important to take into account the investor’s goals, time horizons, risk tolerance and uncertainties regarding what the election could mean for their retirement funds, in order to make sure their portfolio is positioned in a way that is appropriate for their situation and needs to achieve their retirement vision.

Since  a wide variety of events can impact a portfolio from day to day, month-to-month, it’s important to reevaluate your portfolio for volatility risk whether it’s an election year, an interest rate increase, or other triggering event.

Income Stream

Establishing an individual income stream for retirement can get complicated, as retirees are tapping into a variety of assets—from personal savings to pensions, IRAs and 401(k)s. The process is further  complicated by a laundry list of distribution requirements, potential penalties and tax liabilities that can seem overwhelming to the uninitiated or unprepared.

I help clients establish some basic steps involved in determining how much cash can be withdrawn without running the risk of outliving one’s savings, finding ways to turn assets into income, categorizing assets into three distinct buckets—the taxable bucket; the tax-deferred accounts bucket such as a traditional IRAs or 401(k)s, and the tax-free accounts bucket, such as a Roth IRA—to help put one’s nest egg into perspective, and determining the most advantageous way and time to begin drawing Social Security.

In developing a sustainable retirement strategy, we consider age, life expectancy, living expenses and rate of return on investments. For individuals who retire after age 65 with adequate savings and in generally good health, historically the rule of thumb has been to draw down 3-4 percent of their portfolio each year, gradually adjusting that rate to account for inflation.

One of the most important services a retirement Adviser can offer to provide a well-structured and sustainable retirement income strategy that allows you to confidently spend during retirement, even when an unplanned expenditure comes up. When you consider that 99 percent of people won’t be able to live off their interest alone without touching principal, it’s also nice to know that some annuities can offer a guaranteed* income stream, even if the investor’s principal is exhausted over time.
Another strategy is the essential vs. discretionary approach, which means funding essential income needs with less volatile assets, and building an income floor while investing in more aggressive assets for discretionary expenses. This strategy is something you should discuss with your financial planner to see if it is beneficial to your specific

Hidden Fees

Many investors are unaware of the price they’re paying in hidden fees, some of which may not even show up on account statements or are obscurely titled in a fund prospectus.

People don’t realize how significantly hidden fees can drain their retirement funds, so I search my clients’ portfolios to identify unnecessary fund fees, trading fees and sales loads (a commission paid to the salesperson of a fund) that many investors don’t realize they’re paying.

If you’re nearing retirement or have already crossed the threshold, you want to work with a fiduciary portfolio Adviser, a fiduciary who has a duty to keep your best interests in mind, to keep an eye on your portfolio to provide the peace of mind you deserve in your golden years.

  • Annuity guarantees rely on the financial strength and claims-paying ability of the associated carrier. Some fixed index annuities may have a lifetime income guarantee as part of the base policy; others may have riders available for an additional premium that provide this benefit. Annuity riders may also be available for an additional annual premium that may provide additional benefits. See your annuity contract for terms, exclusions and limitations.

Author: Aaron Boyce