Secure Your Retirement Income

Many make the mistake of asking generic questions about the market and not explicitly asking about the impact on their financial plan. Financial professionals are often mere students of the market who have experienced market gyrations before. They use fancy-sounding financial jargon filled with numbers, percentages, and terms that most people simply do not understand. So unless you want to listen to a lecture on the history of market ups and downs, make clear to your advisor that you are interested in whether the market drop changes your plan. If you do not want to discuss the broader market, interject with, “How do the current changes affect my plan?”And for those of you who do not have a formal retirement plan or a 401k – one that takes into account your retirement goals, things you want to do, and most importantly, the money you must have every month to pay the bills – there has never been a better time to create one. 

The crucial piece of information people want from a financial planner during times of economic upheaval is, “What changes do I need to make to my lifestyle?” Whether retired or not, our natural instinct is to think about a wide spectrum of possibilities ranging from the mild (maybe eat out a little less) to the extreme (sell that second car). If your advisor spends the entire conversation talking about portfolio gains and losses, it obscures the practical lifestyle discussion you want to have. So, bring up specifics: “Can I still afford that trip?,” “Has this changed the budget we discussed for my daughter’s wedding?,” and most importantly, “Will I still be able to cover my essential monthly expenses?” 

These may be hard discussions to have, but if you don’t have them with your financial planner, you won’t have the answers to some crucial questions. 

Have you estimated your essential monthly expenses? The acronym M.U.G. is a simple framework to start this conversation that represents the various essential expenses people often need to cover in retirement, including things like a mortgage, utilities, groceries, and transportation. Calculate your monthly expenses and make sure that your financial plan can cover them with sources of protected lifetime income. There are only three sources of protected lifetime income available today: Social Security, pensions, and annuities.  Having a plan with enough protected income each month to help cover your M.U.G. will undoubtedly make you feel more secure, regardless of market downturns. Ideally, you should make this calculation with your financial planner before a market downturn, but if you have not, now is a great time to do that.

Questions about possible changes or additions to a retirement portfolio should focus on keeping you on track to reach your goals. If you have not discussed your financial goals with your advisor, now is the time. If a truly diversified portfolio was solid before a market downturn, it should still be solid, in theory. Any adjustments you might make should be an effort to enhance your portfolio and actually improve your future financial position. Make sure these discussions focus on the most secure path to reach your goals, and not necessarily on the quickest path or the path with the most potential short-term gain. All investments carry risk, and with the help of your financial professional, you can better weigh the potential risks and rewards of any investment opportunities.

This is obviously a hard discussion, but it’s one you need to have. If you are still working, in light of the new market reality, explore your financial position if you proceed with your planned retirement date versus if you push it back. Ask your financial planner about the implications for Social Security, which is estimated to cover about 40% of your pre-retirement income at best. For example, many people do not realize that those who wait until they turn 70 to file for Social Security receive close to double what those who file at 62 receive. Are there other options to bridge the years between 62 and 70 so that you maximize your Social Security payments? Consider your goals and the most secure path to reach them.