Your Retirement . . . with Bob and Brian: Adapt to changing times and know all your options for investing money
Most American retirees tend to lean towards more conservative investments as they age
By Robert Price and Brian Harrigan
In reflecting on the series of recent events such as COVID-19 and the election, more people realize a change in thinking and how we approach planning for the future is in order.
Recent studies by Sammons Financial related to the coronavirus show retirement concerns have risen. Roughly 50 percent of people focused on aggressive growth have been forced to reevaluate their timeline for retirement and investing strategy Meanwhile, about 80 percent of retirees with a more conservative mindset have not seen major changes to their investment strategy. Other contributing factors to changes in mindset are job loss, change in income, stock market uncertainty, decreased or increased savings, and spending habits.
A major difference between generations is tied to cause and effect. Most retirees agree the Trump administration is not responsible for the cause of the coronavirus. They also feel it could have done a better job in managing the overall economic impact and safety of the American people by encouraging best practices like wearing masks.
Most American retirees tend to lean towards more conservative investments as they age into their desired retirement age. Most American retirees who focus on effects tend to use strategies with less risk. While those who focus on the cause tend to be more heavily weighted in at-risk investments with smaller amounts safeguarded against market losses.
What does all of this mean? Thought processes regarding overall financial planning are changing. People who have not adequately saved for retirement or experienced large losses from being directly in the market this year, have not yet fully recovered their losses. They look to balance their portfolios with products that offer some sort of guarantees/less market volatility.
One vehicle that can provide reasonable returns with a guarantee of no loss in the market is an annuity. Annuities come in many forms and guarantees in contracts will vary. We encourage South County retirees to explore this asset class. But also be careful which product you might select. A vehicle like this should be used to create an income stream you can’t outlive, acting like a personal pension. Risk of market loss and/or under-performance is shifted from the retiree to an insurance company. Not all annuity products are created equal. Determining the timeline for retirement, addressing any gaps in income, and flexibility to address future needs as they change will play a key role in selecting the right product. This asset class should be viewed as appropriate for a portion of a person’s income.
A balanced portfolio should provide different asset classes that vary in how they are taxed, how susceptible they are to market volatility, and build in flexibility in the event a “life changing event” shifts the overall objectives. A person may set out to purchase an annuity for protection of principal, guarantees of no market loss, and for an income stream they can’t outlive. Should they have an event that shifts their need for a greater portion of the investment over a shorter period of time — like the need to cover medical/long-term care expenses — many of these products will double the annual payout to help address this change in priorities. In addition, most annuities do not offer options for increasing lifetime income which can help address concerns related to inflation but there are a handful that do. At 2-3 percent per year, inflation or decreased purchasing power is one of the top concerns retirees want to address next to end-of-life medical expenses.
To meet the challenges of an uncertain world, adapt to the changing times and know your options in investing your money.