The value of retirement plans for
many Americans has been dropping due to the falling stock market. People, especially those who were
and are planning to retire within the next
several years, are worried about what
this means to their retirement plans.
As important as the decline has been,
there has been greater concern for those
looking to retire within the next few
years. Those people are concerned with
how they’ll be able to replace the income
lost due to retirement.
The landscape of retirement planning
changed in 1986 when congress acted to
establish Defined Contribution Plans.
The Defined Contribution Plan, including 401(k) and 403(b) plans, replaced the
Defined Benefit Plan, traditional pensions for many workers.
This was the most significant change in
retirement planning since 1875, when the
first U.S. corporate pension plan was
established. This change also shifted the
retirement income responsibility from
the employer to the employee, meaning
that the employees select the investments that will eventually fund their
retirement.
Because of this shift, many in the “baby
boomer” generation (those born between
1946 and 1964) will be among the first to
retire and not receive traditional pension
checks since the late 19th century. People
are concerned due to the -38.5 percent
return of the S&P 500 in 2008.
“The main concern for all investors is
the substantial drop in their account values,” says James C. Kaiser, an insurance
and financial advisor with Brentwood
Advisors.
Smart Business spoke with Kaiser
about how to work with your bank and
financial adviser on what to do if you are
looking to retire within the next few
years.
How can retirees and soon-to-be-retirees
work with their banks and financial advisers
to make the best of these changes?
Banks and financial advisers can be
great resources. Because the retiree
already has an established relationship with his or her bank or financial adviser,
there is a comfort level. This relationship should lead the retiree to ask if and
when he or she can retire and what
approach should be taken. There must
be a close relationship between the
client and his or her financial adviser.
The more the financial adviser knows
about the client’s needs, goals, desires
and fears, the greater the client can be
served. Communication is the key ingredient in the financial planning process.
How can you make up for the income lost to
retirement?
By working closely with your financial
adviser. Because each client is individual
and unique, each solution must be tailor-made for each client. The adviser must
understand the client’s investment
needs, goals, risk tolerance and time
horizon. For some retirees, the need may
be current income for themselves.
Others may need to protect the income
for their spouses, children and grandchildren. Solutions may include investments, long-term care, disability insurance and life insurance.
What advice would you give those looking to
retire this year to make sure they get the
most out of their retirement plan?
The approach should be holistic and
multifaceted. There are six key areas to
focus on:
No. 1, because the needs in retirement
will be the same as past generations,
work closely with your financial adviser
to establish a budget so essential needs
(housing, transportation, utilities, insurance, health care, personal care,
food/meals and taxes) will be met.
No. 2, budget for discretionary needs
(vacations, travel, family/friends, education and charities).
No. 3, have emergency funds available
for unforeseen expenses.
No. 4, invest for growth as a hedge
against inflation. Take this statistic, for
example: If a married couple retires
when both people are age 65, there is a
90 percent probability that one of them
will live to the age of 80, and a 50 percent
chance that one of them will live to the
age of 90. Therefore, you need to plan
long term.
No. 5, it is important to monitor and
review all aspects of the plan on a regular basis, especially in these volatile markets. Meet or speak with your financial
adviser accordingly.
No. 6, your plan should be flexible.
This allows for changes as your needs
and goals change.
What are the benefits of working with a financial adviser to deal with retirement planning
and market changes?
Your financial adviser is your financial
doctor, and it is his or her job to to help
replace the income lost due to retirement. The more information and communication between the client and financial adviser, the better he or she is able
to help with your short-term, intermediate-term and long-term goals. Remember, retirement is a stage of life, not the
end of life.
JAMES C. KAISER is an insurance and financial advisor with Brentwood Advisors. Reach him at [email protected] or
(412) 409-9100.
