The quest for retirement income |
|
|
|
"Anybody can make promises, but can you deliver?
When promises are well-defined and companies are well-funded the
promises can be met. But when you broaden them out to be promises
of providing for catastrophic illness and providing for a legacy
and providing for income, you get such a broad promise that it wouldn't
take much of a surprise to throw the insurance company into a position
where they can't deliver.
"The securities industry has, from time to time, tried to create
something with a guaranteed structure to it and it hasn't been real
successful at maintaining those structures without them being drawn
into question."
Preparing for retirement
So, what can you do to generate enough income in retirement?
The first hurdle is determining how
much income you'll need. Inflation and other variables, such
as noncovered medical and dental expenses, have to be estimated
and worked into the equation. Be realistic in estimating maintenance
and replacement expenses. Don't expect the roof, the car, or the
washer and dryer to last forever; plan on replacing them. Make sure
you have insurance policies in place to cover potentially major
homeowner expenses and long-term medical care.
If you opt for an annuity
to provide some income, be sure that you understand how it works,
the fees and early withdrawal penalties. Ask for full disclosure,
ask how the agent gets paid and for all costs in writing.
Insurance companies are rated. If you buy a long-term
product, such as an annuity, make sure the company is highly rated
and stands a decent chance of being around 25 or 30 years from now.
A.M. Best,
Fitch Ratings,
Moody's
Investors Service and Standard
& Poor's rate insurance companies.
Get professional help
A visit to a certified financial planner can help you construct a portfolio that should provide the income and the asset growth that you'll need.
"It's customization," says Hopwood. "It's developing a portfolio that meets your particular situation. We can't say to someone your allocation should be 60 percent equities, 40 percent bonds. I can't tell you that you should or shouldn't use an annuity for all or a portion of your portfolio until I sit down and know your specific situation, how much you have in assets, your comfort level with risk, your family's health history."
If you decide to see a financial planner, don't show
up six months before you're ready to retire. If your portfolio isn't
allocated properly, the planner will need time to rejigger it. Vosler
says he likes to see people at least seven years prior to retirement.
Giving a planner that much advance notice can mean the difference
between retiring on time or finding out at the last minute that
you'll need to work a few extra years.
"Hopefully, they've done enough on their 401(k)
to make that work; but the biggest problem we see is allocation,"
Vosler says. "Right now we're seeing too much exposure to last
year's best performing sectors of the market. Two years ago I would
have said portfolios were too conservative. Allocation and a (lack
of) understanding of what the markets do and when they do it are
probably the biggest downfalls; after that it's realizing how much
money it takes to retire."
Baby boomers have to be far more self-sufficient than previous generations in providing for their financial well-being during retirement. They should also plan on living in retirement longer than their parents. It's a daunting task and the sooner you tackle it, the sooner you can relax about retirement.
|
