EricksonTV: Retirement Portfolios: Choosing Your Best Options
Uploaded by EricksonTV1 on 24.02.2012
Transcript:
bjbj Hello everyone and welcome to another episode of Erickson TV. Curtis here with Lauren.
I always look to see what the publications are printing, like Money Magazine and Yahoo!
Finance. This one is from Kiplinger Magazine. They have a pretty good article titled 5 Steps
to a Secure Retirement. I actually get this question a lot. In fact I had two tax clients
in my office today and they were talking about meeting later this year to look at projecting
for their retirement to see if they have enough. I think you get questions like that too; it
s a very common question. There are some very obvious steps but we have had a very difficult
decade of investment market returns and had a lot of volatility especially since 2008.
A lot of people had definitely been scared out of the market. You can tell by the outflows
from equity mutual funds. Some of the strategies that people were looking at to have secure
retirements were interesting., such as working longer or going back to work after you ve
retired. In fact there was an all time record high of people over the age of 55 in the work
force. Here is a really good strategy, even though there s a lot of despair that Social
Security is not healthy: if you wait longer to take you Social Security benefits, you
get an increased payout. Unfortunately, a high percentage of people are taking it early,
at 62. They give up 25% of their benefit by not waiting until their full retirement age.
A client who came in today is one of my few victories on the subject of Social Security.
I actually had convinced him to wait until 70 to take the Social Security! So he gets
an 8% raise per year. For each month before full retirement age that you take Social Security,
you lose 5/9ths of 1%. When you take it early you lose almost 7% per year. If you wait,
you will make 4/9ths of 1% per month. But you make about 4% or 5% more per year every
year you wait. So if you wait 3 or 4 years that starts to add up pretty quickly. The
difference between taking it early and taking it at the latest time possible, that s a huge
difference. It s significant. The one thing people should think about when it comes to
Social Security is that you get paid out every year and you get a cost of living adjustment.
Unlike a lot of other things that say they are going to pay you out every year. With
those you don t get a cost of living adjustment. Most of the annuities, for instance, do not
have a cost of living adjustment. Most annuities, most pensions, all that stuff that pays you
out every year, you don t get a cost of living increase. With Social Security you do; that
s the one good deal there. They did a poll asking the person who was contemplating how
to invest their retirement assets. It asked, if you had a choice between a financial product
that provides a guaranteed 4% rate of return consistently that will not lose value, versus
an 8% return per year that is subject to market volatility and potential loss of principle,
especially in the short run, which would you choose? 76% of the respondents chose the lower
performing guaranteed 4% return. I can understand that from an emotional point of view. With
a math and financial planning background, is that a wise move? That s a lot of income
to be giving up year by year. I hope that the reason they made the choice that they
made is because of the way the question was asked. If you were to ask me to choose between
two products, I don t know how I would answer. But I do think that part of it is that people
are looking at financing their entire retirement with very low risk and very low expected return.
That s going to mean that you are going to be cutting your spending. To end this episode,
people feel like they have lost control so, maybe, they want to grab as much certainty
as they can. The thing is it s actually a good thing when you look at historical rates
of returns of fixed products versus equities. There s definitely volatility in equities
but with much greater returns long term. In retirement it becomes even more important
to diversify by combining risky assets with low risk assets, which means stocks and bonds.
And the type of assets of bonds would be like short-term fixed income types. And if you
do that, it will not get rid of volatility, but it will neutralize it. And you can come
up with something that you can handle. Your choice in retirement is not between something
extremely risky with a high rate of return and something with no risk and no rate of
return. The other final benefit to close this episode out is that people with that type
of portfolio versus the fixed product where they are getting the monthly check, once you
ve made that decision to go with the fixed product with the monthly check, that s it.
You ve made your choice for the rest of your life. The benefit of being in a portfolio
that has liquidity, is you can take out extra income if needed for emergencies or things
like that. So thank you very much for watching this episode of Erickson TV. We ll see you
next time. hy?A hy?A Hello everyone and welcome to another episode of Erickson TV Curtis Erickson
Normal Curtis Erickson Microsoft Word 10.0 Erickson Wealth & Tax Management Hello everyone
and welcome to another episode of Erickson TV Title $k&T Microsoft Word Document MSWordDoc
Word.Document.8
I always look to see what the publications are printing, like Money Magazine and Yahoo!
Finance. This one is from Kiplinger Magazine. They have a pretty good article titled 5 Steps
to a Secure Retirement. I actually get this question a lot. In fact I had two tax clients
in my office today and they were talking about meeting later this year to look at projecting
for their retirement to see if they have enough. I think you get questions like that too; it
s a very common question. There are some very obvious steps but we have had a very difficult
decade of investment market returns and had a lot of volatility especially since 2008.
A lot of people had definitely been scared out of the market. You can tell by the outflows
from equity mutual funds. Some of the strategies that people were looking at to have secure
retirements were interesting., such as working longer or going back to work after you ve
retired. In fact there was an all time record high of people over the age of 55 in the work
force. Here is a really good strategy, even though there s a lot of despair that Social
Security is not healthy: if you wait longer to take you Social Security benefits, you
get an increased payout. Unfortunately, a high percentage of people are taking it early,
at 62. They give up 25% of their benefit by not waiting until their full retirement age.
A client who came in today is one of my few victories on the subject of Social Security.
I actually had convinced him to wait until 70 to take the Social Security! So he gets
an 8% raise per year. For each month before full retirement age that you take Social Security,
you lose 5/9ths of 1%. When you take it early you lose almost 7% per year. If you wait,
you will make 4/9ths of 1% per month. But you make about 4% or 5% more per year every
year you wait. So if you wait 3 or 4 years that starts to add up pretty quickly. The
difference between taking it early and taking it at the latest time possible, that s a huge
difference. It s significant. The one thing people should think about when it comes to
Social Security is that you get paid out every year and you get a cost of living adjustment.
Unlike a lot of other things that say they are going to pay you out every year. With
those you don t get a cost of living adjustment. Most of the annuities, for instance, do not
have a cost of living adjustment. Most annuities, most pensions, all that stuff that pays you
out every year, you don t get a cost of living increase. With Social Security you do; that
s the one good deal there. They did a poll asking the person who was contemplating how
to invest their retirement assets. It asked, if you had a choice between a financial product
that provides a guaranteed 4% rate of return consistently that will not lose value, versus
an 8% return per year that is subject to market volatility and potential loss of principle,
especially in the short run, which would you choose? 76% of the respondents chose the lower
performing guaranteed 4% return. I can understand that from an emotional point of view. With
a math and financial planning background, is that a wise move? That s a lot of income
to be giving up year by year. I hope that the reason they made the choice that they
made is because of the way the question was asked. If you were to ask me to choose between
two products, I don t know how I would answer. But I do think that part of it is that people
are looking at financing their entire retirement with very low risk and very low expected return.
That s going to mean that you are going to be cutting your spending. To end this episode,
people feel like they have lost control so, maybe, they want to grab as much certainty
as they can. The thing is it s actually a good thing when you look at historical rates
of returns of fixed products versus equities. There s definitely volatility in equities
but with much greater returns long term. In retirement it becomes even more important
to diversify by combining risky assets with low risk assets, which means stocks and bonds.
And the type of assets of bonds would be like short-term fixed income types. And if you
do that, it will not get rid of volatility, but it will neutralize it. And you can come
up with something that you can handle. Your choice in retirement is not between something
extremely risky with a high rate of return and something with no risk and no rate of
return. The other final benefit to close this episode out is that people with that type
of portfolio versus the fixed product where they are getting the monthly check, once you
ve made that decision to go with the fixed product with the monthly check, that s it.
You ve made your choice for the rest of your life. The benefit of being in a portfolio
that has liquidity, is you can take out extra income if needed for emergencies or things
like that. So thank you very much for watching this episode of Erickson TV. We ll see you
next time. hy?A hy?A Hello everyone and welcome to another episode of Erickson TV Curtis Erickson
Normal Curtis Erickson Microsoft Word 10.0 Erickson Wealth & Tax Management Hello everyone
and welcome to another episode of Erickson TV Title $k&T Microsoft Word Document MSWordDoc
Word.Document.8