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Retirement Planning: Thinking Outside the Box


Do you find yourself buying the same make of car as your dad always did? Do you prefer a certain brand of coffee or tea because it’s what your mom always drank? Perhaps you gravitate towards a particular fashion label because growing up, it’s all you and your friends talked about. It’s human nature to be drawn to the same things our loved ones are, in an effort to be accepted and loved, even though it may put unnecessary limits on us.

In a recent two-part series in the Huffington Post, author William Borton explored the concept of “tribe allegiance” as it relates to your financial future. While our options for finding financial freedom are limitless, we often conform and see fewer choices based on our established path of beliefs and bias. The truth is, you can find an advisor that will recommend exactly what it is you’re comfortable with and seeking, but that doesn’t always mean that it’s the most suitable option for your unique situation.

When planning for retirement, most investors are looking for the “sure thing.” They want stability and peace of mind, just like an annuity promises with guaranteed income for life. Supplementing an annuity with Social Security can give you a base of guaranteed income, but with a variable like inflation, your bases might not be fully covered. Keeping a portion of your savings in the market can help you stay ahead of inflation, Borton claims, providing the cost-of-living increases most annuities lack.

With this game plan in mind, determining just how much of a portion should be in the market becomes the critical question. Before answering it with one of the select few choices agreed upon by your “tribe,” Borton urges you to keep an open mind and consider all your options.

Here are a few key points Borton highlights in answering that question for yourself:


Beware of “rules of thumb” and “experts” who use words like “always this” and “never that.” Generalized advice can be more paralyzing than helpful, so keep an open mind.


Being honest with yourself about your financial habits is critical in this process. Ask yourself, do you know what you are currently spending to live? How do you know if you have enough to retire? Will you be able to generate enough income in retirement, or will you need to keep working? While some advisors suggest that you need 70-80% of your pre-retirement income to be able to continue living your lifestyle. But again, generalized advice may not apply to you. Do you plan to travel? Will you replace work with other forms of entertainment? How much will that cost? There are so many variables. Too many to place your confidence in a “rule of thumb.”

Consider Assets

Assets are important, but you don’t live on assets; you live on income. So the question now becomes, how do you convert invested assets into income? Most advisors suggest using a safe withdrawal percentage of your invested assets, about 4% to be exact. But with current yields on fixed income some believe the 4% rule no longer applies. Some are suggesting 3%, or even lower. The fear of running out of money is real.

How can higher yields be safely achieved?

Balancing income annuities and a diversified stock portfolio seems to be a good solution for many. It’s determining how much should be invested in income annuities that can be the tricky part. It all depends on how much you have to invest, and if you don’t have much left to invest as an inflation hedge, annuity “laddering” might be a helpful option.

Getting there from here

Borton suggests starting with your current living expenses, and then subtracting Social Security and any pension income. The remainder is the income shortage that you will want to fill with annuity income. An independent annuity expert can help you decide how much of your current nest egg would be required to settle the difference. Your financial advisor will also be able to help you determine when you (or your spouse) should claim Social Security too. Remember: avoid rules of thumb.

Another thought

If you own a home and have enough equity in it, a reverse mortgage can be an excellent hedge against market downturns, especially in retirement.

An independent financial advisor who specializes in retirement income planning can assist you in doing the math and figuring out what will work best for you. While your dad might have a comfortable retirement, his plan might not be what works best as your plan. Now is not the time to stay loyal to your tribe allegiances. Finding the right balance between your existing assets, Social Security, possible pension, home equity, and continued employment can be a daunting task, but with an open mind and a trusted advisor, you can get there.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

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