If you're feeling nervous about investing your retirement savings in this unstable investment environment, Jerry Golden, who is an actuary as well as a registered investment adviser, thinks you should calm down.
He advises people doing retirement planning to remember they are going to get Social Security, and "Social Security is one of very few financial instruments that provides retirement payments that are payable for life and increase with the cost of living."
He tells his clients to keep these two factors in mind when they integrate Social Security into their overall retirement plan:
- Product/asset allocation. "Determine the current present value of your Social Security benefits and assign it the lowest risk category. For example, a typical Social Security benefit might be worth $400,000 over today's lifetime. If between your personal savings and 401(k) you have another $600,000, then plan your allocation for $1 million," Golden says.
- Income simulations. "Integrate the cash flow from Social Security into any income simulation, including the testing of various draw-down strategies. The predictability of the Social Security payments might impact your strategy."
The lifetime value of Social Security is at least $700,000 for most couples. If you have another $700,000 in personal savings, Golden says to think of it this way: You have 50 percent in fixed income, so you can invest the remaining 50 percent less conservatively.
If half your income is in Social Security, "You can withstand some of the vagaries of the market. Even if you have a few misses, your misses aren't going to be as significant," Golden says. "You can afford to be flexible."