It’s one thing to maintain spending discipline when you are still working. You can afford to take a big vacation with the kids or make a major improvement to your house because you are still drawing paychecks on a regular basis to replenish your account.
It all changes when you decide to retire.
“The biggest exercise we go through with clients is retirement income planning,” says Gregg LaSpisa, CLU, executive vice president at AXA Advisors, LLC’s Cleveland Branch.
“You go through your working career and you always contributed money to your 401(k) plan or your retirement plan and you are more in an accumulation mindset. When you retire, you have this big lump sum asset. How do you get income off of that? The retirement income plan is critical. You have to match expenses with income.”
Smart Business spoke with LaSpisa about why it’s never too late to put yourself in a better position to enjoy retirement.
What are the most significant retirement planning challenges?
One of the biggest issues is the fact that we are living longer. Of course, it’s great that we are living longer, healthier lives. But the downside is when you are talking to a financial professional about planning for your retirement, because now you have to plan to live to 90, 95 or even 100. Previous generations were only planning to live to age 75 or 80, so the total money needed for retirement was a lot less.
How do lower interest rates figure in?
It’s huge. If you think back to the 1980s, interest rates were at 12, 13 or 14 percent. Most pension plans invest in government bonds or some sort of bond portfolio. Now many of those rates are at 2 percent or less. Corporations need more capital to generate the income they are guaranteeing. The trend has been to get away from pension plans and push the responsibility for retirement to the employee as opposed to the employer.
What’s the most important thing I can do to plan for retirement?
Have a realistic budget of what it’s going to cost at retirement. How much income do you need to cover your expenses? People will say, ‘My home is paid off, so I won’t have that expense.’ That may be true, but there are expenses you will have, such as health care, that will increase. If you want to help pay for your grandkids to go to college, you’ll need money for that too.
So you need to know what your income sources are going to be and what kind of protection you have against inflation.
We talk about the withdrawal rate in terms of how much you can take out of your portfolio. Some clients want to take 8 to 10 percent out a year. That’s often way too high. On average, you should plan to take maybe 4 percent out a year. That’s the kind of discipline you need to have.
How can I help my financial planner?
Have an understanding or have access to all of your accounts. In other words, be aware of what benefit plans you have from work or the CDs, IRAs or 401(k) plans that you have set up. Take the responsibility to know where your assets are and gather all those documents before you meet with your planner. If you don’t tell your planner what you have, they can’t do their job effectively.
Is it ever too late to start?
It’s never too late to start. There are ways to improve your position and it may not get you to the ideal situation, but it can certainly improve your current situation. If you have done planning, it’s a good idea to review your plan every six months to make sure it is still in accordance with all your objectives and has been updated to include any major changes in your status. The goal of a planner is to make you aware of the issues that are out there because there are too many moving parts to do it alone. Engage a professional and take ownership of your future. ●
Financial services available to individuals and business owners through AXA Advisors, LLC include: strategies and products for financial protection and investments; asset allocation, college, retirement, business and estate planning strategies; life insurance, annuity and investment products, including mutual funds. Securities products are offered through AXA Advisors, LLC, NY, NY, member FINRA, SIPC, 10104 (212) 314-4600. Insurance and annuity products are available through an affiliate, AXA Network, LLC and its subsidiaries.
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