You can HOPE you do not run out of money or…

images (1)… you can KNOW that you will not. Most workers today are retiring without a pension. If you are one of them then you might be worried out running out of money. Turing an investment portfolio into a steady stream of income has gotten harder over the years because of low bond yields, high market volatility, and increased longevity. But it can be done. As a Retirement Income Certified Professional, RICP®- this is the process I use to help people that want more certainty, want to know they will never run out of money.

STEP #1: WE LOOK AT HOW MUCH THEY HAVE SAVED. One source of guaranteed income most of us have is Social Security. If you are married, then you might be able to count on two checks. What other sources of guaranteed income will you have, rental, inheritance, reverse mortgage, etc? Will you be working part-time?

download (1)STEP #2: I CALCULATE WHAT THEY WILL NEED. We do not low ball either. We don’t use general rules of thumb, like you will only need 80% of your working years income. I have not found this to be true, in reality. Not in Southern, CA. We want to detailed, realistic and specific to one’s situation. That is real life.

STEP #3: ARE WE COMING UP SHORT of what is required, whether now or later?

downloadThe difference between the income you need and the income you have is the income that’s missing. In an article titled Psychology of Retirement Satisfaction, it is evidenced that retirees with more certainty about what they have and will have to live on for the rest of their lives are MORE SATISFIED. NOTE: contentment increases with lifelong guarantees but… does not increase based on how much one has at risk in their portfolio. It is less stressful to spend the money earmarked as retirement income than it is to spend down money directly from your portfolio. The only way to use part of your portfolio to replace the secure, lifetime pension you’re missing is by investing in a product designed to give you a steady income. This is where an annuity can be part of a successful income strategy.

STEP #4: WHAT? WHEN? HOW? WHY? WHERE? Once our clients come to understand what having income certainty means, we then set about figuring out what is the best way, best annuity, best company, best time to start income and why. It must be designed specifically for that individual or couple. This involves, INCOME PLANNING which is something different than financial planning. Very few professionals are trained to do this. This looks at year by year, where the income will come from for you to live on for as long as we anticipate you will live. Our clients have found this unbelievably valuable, a retirement game changer and life saver.

STEP #5: THEN WE REVIEW AND ADJUST EACH YEAR. This is as important as putting the right plan in place. Maybe even more so. Life changes, therefore we want and need flexibility. That provides additional peace of mind. In reality, it is peace of mind that most every retiree wants. They want to mentally be able to relax. KNOWING they will have enough money to live on for the rest of their lives provides that in a way that an at risk portfolio subject to marker risk cannot.

If you have questions about the best way to secure your retirement income, we encourage you to give us a call. We will help to educate you, help you to understand the retirement realities in one of our upcoming courses or workshops.


“I Would Never Put My Money in an Annuity”

“The last thing I want to do is lose some of my hard-earned money to the stock market”. And so it goes. People have strong opinions about both. When I do ‘Income Planning’ I make it very clear that the most important requirement for a good retirement plan is that the clients have peace of mind. They should do what they want with their money. After all, they worked for it. Risk it, protect it, a combination of both… Whatever you decide is right for ‘you’.

160202155232-annuity-780x439I have been a financial professional for 35 years and seen it all, what works and what doesn’t. There are many different types of annuities and a lot of unnecessary confusion. But, since their inception in 1995, I have thought that Fixed Index Annuities can play a critical role in many retirement plans. My conviction gets stronger all the time.  I’d like to share some different perspectives that may help you decide.

A Fixed Index Annuity is a contract typically provided by an insurance company to an “annuitant” (often a retiree).  It can be used to mitigate longevity risk, outliving our retirement savings as well as a potentially great growth opportunity that also protects your principal against loss. The public has been deceived about the returns too. I have clients doing better over time by risking less.

The insurance company invests your investment in the annuity in bonds. It also uses premiums paid by annuitants who don’t live a long time to help pay annuitants who do live a long time using what are referred to as “mortality credits.” The payouts you receive come from bond interest, from increases in an underlying market index as well as from a partial return of your own capital, the money you worked for.

One the greatest objection to annuities is the you must give up your principal to get income. This is NOT TRUE for a Fixed Index Annuity. You do not give up any principal to get income, as it is provided via a ‘rider’. You principal will continue to be added to, even after you turn on lifetime income, in any year there are gains in the underlying index. They can earn money when the market goes up and NEVER LOSE when the market goes down. The remaining value of your account is available to you, subject to a predesignated free withdrawal schedule, known in advance.


  • It is a ‘protected’ asset outside of the Wall St (Red Money) bucket
  • I can make money when the market index increases but I never lose if it goes down
  • They don’t lose principal providing a source of money that has not (will not) go down in value because of market loss
  • They provide longevity insurance by GT’ing income for one or both lives
  • Remaining principal, interest, & bonus paid to heirs
  • Liquidity ranges from 7% to 100%
  • Account value credits gains even after income is started
  • Guaranteed income cost is fixed, typically 1%
  • Income continues even if account value goes down to zero

Risk selling advisors sometimes try to make you feel stupid if you consider an annuity. But here are just a few prominent, figures who have owned annuities: Benjamin Franklin(no dummy) assisting the cities of Boston and Philadelphia; Babe Ruth avoiding losses during the great depression, and O. J. Simpson (Hey, I did not say you had to be a good person to own an annuity) protecting his income from lawsuits and creditors. Ben Bernanke (the previous Fed Chairman who knows as much as anyone or more about money, insurance companies and protection as well as Wall St and their risk strategies… in 2006 disclosed that his major financial assets were annuities. —THINK FOR YOURSELF!


Retirement Lifestyle… Have You Thought About…

Have you thought about whether you want to  r  e  l  a  x  or you want to ‘adventure’? There is a myriad of things you can choose to do in retirement. Here are some lifestyles worth thinking about.

romantic holidays… The Beach? Yes, it is nice for vacation, but what about waking up every day to the ocean? Too expensive, you say. There are numerous ex-pat communities in a dozen countries where you can live next to the ocean for less than a bad neighborhood in some cities of the United States, like LA where I live.

1… A Golf Community? If one or both of you enjoy golf, it can be less expensive to live in one of the many golf communities, especially those created for retirees than to pay for golf everyday. These retirement oriented communities also have a lot of things to do, even if one of you do not want to golf.

Man using laptop computer in classroom… The Joys of a College Town? They give great access to libraries, sporting events, speakers, concerts, theater and all at a lower cost for seniors. Also many schools have special course offerings for those seniors that want to keep their brain active by learning.

Staying Put? There is no rule that says you must do anything, make any big changes. Do not be coerced into a lifestyle you ‘think’ you need to live because of all the glitzy marketing. It can be wonderful and numerous retirees enjoy the slower, ‘do what I want when I want’ while remaining right where they have been comfortable for many years.

shutterstock_257430472… Volunteering? The opportunities to find satisfaction volunteering are almost limitless. What are you interested in? What are you passionate about? What causes would you like to see forwarded and supported? The socialization that is inherent with volunteering cannot be overlooked either.

… Another Career?
Whether full-time or part-time, you now have the flexibility to ‘work’ at something you will enjoy. It does not need to be all about the amount of money you earn either. Many people find additional security too, by earning some ‘more’ money after retiring from their working career. What about consulting?

… Being an Entrepreneur? Did you know that more than five million 55 and uppers are business owners and self-employed. Retirement can be a chance to be your own boss, doing something you are motivated to do. According to the SBA, 55-64 year olds are the fastest growing group of self-employed.

… Pinching Your Pennies? I have several clients that make it a hobby, they have fun seeing how much they can save. They do it by doing things for themselves that they used to pay to have done. You can find DIY videos on almost everything. Example: I own a’95 Ford Bronco. The heater core started leaking. Two estimates were $700-$800 for the repair. I looked online and found the repair fairly simple. By following the video instructions, I saved $650. The video said it would take 30 minutes but it took me an hour. But when retired we have more time. Coupon cutting, discount shopping and being frugal can be a hobby too. A side benefit is that it is a way to decrease the effects of inflation too!

… Making the Dream Come True. Many have thought about writing, painting, drawing, crafting, carpentering, playing a musical instrument. You get the idea. The things we have collectively thought ‘may’ be fun, interesting and rewarding to do are limitless. Try some of them!

AW-Lifestyle… Gardening and keeping animals? Gardening, whether ornamental, for healthy eating or both can be very satisfying. Two side benefits are fresh produce and it requires exercise. You need to keep moving. This is a good way to do it. Animals whether livestock, pets or both can add motivation and joy to daily retirement live. Hey, studies show we live longer when we have a reason to do so.

There are so, so very many things, you can do in retirement, many of which you have likely never thought about. Think about it! Google. Research. Get excited! Get motivated!



dfWhen I am asked whether the market is going up or down tomorrow I always answer the same way, “Yes, I just don’t know which.” With the recent 30th anniversary of Black Monday, the single worst day in Wall Street history, it is a good time to ask, “Are you ready for the next Black Monday, or whatever day of the week that black day is?” The Dow fell 22.6%, the equivalent of a 5,000-point free fall at current levels, in one day. We have short memories. The average investor isn’t worried, are you? Cam you handle a 22% one day drop or a protracted 53% drop like 2007-2009?

There’s reason to be skittish. The current run-up is the second longest and strongest on record. Stocks are expensive by historical standards. And you never know what outside event could trigger a scary market drop. Have you ever heard the old Wall Street adage, bull markets die of fright, not old age.

reMany people have become complacent because this bull market has gone on for so long, but the risk of giving back some or a lot of recent gains is quite high. That’s especially true for 55 and uppers, near or in retirement. So how can you protect yourself? You must avoid the standard advice to “stay the course”. It is time for you to be driving in the slow lane, financially speaking. Caution is the word. Even mild stock-market losses or an extended period of below-average returns can inflict serious damage if they come 5 years before or early in your retirement. If you need to sell investments to cover your living expenses, you’ll lock in those losses. And since you’ll have a smaller balance left in your portfolio, you’ll gain less when stock prices eventually recover. Cautious, steady growth in your investment portfolio is critical to ensuring your money will last your lifetime.

You must make a mental shift and allocate your retirement savings as three buckets. The first bucket should hold enough cash and short-term investments for emergencies. The second bucket, provides minimum living expenses via guarantees (Social Security, pensions, annuities, etc. and the third bucket can be utilized for longer term growth. The middle, guaranteed bucket is the salvation. That provides certainty instead of hope. A side benefit is that studies from Towers Watson and others show that retirees who have sufficient guaranteed income tend to be happier and feel they have a higher standard of living than those who rely on savings alone.

401(K) BECOMES A 201(K). NOW WHAT?

Warren Buffet has been quoted as saying, “My 2 top rules for investing are, #1- Never Lose and #2- Never forget rule #1.” Retirees who watched in horror as their account balances plunged along with the stock market in 2008-2009 had to face a bitter challenge: how to generate enough income to pay their bills for the rest of their lives with the assets, the money they had left. Retirement in all about income.

The tired, stale but widely accepted rule of thumb retirees they could take 4% of their assets per year and increase the amount for inflation by 3% each year and their money would last 30 years. Not! In some cases, you could be 50% or more off.

ikThen they suggest, depending on the extent of your losses, you may want to freeze your withdrawals at current levels, skipping the annual inflation adjustment until the market rebounds. Or, if you suffered significant losses of 30% or more, you may want to restart your 4% withdrawal schedule based on the new, lower balance. But that can take a big bite out of your income. Say you started with a $1-million retirement stash and had been withdrawing more than $40,000 a year. If your savings shriveled to $700,000, you’d now have to get by on just $28,000 a year. This is a ticking time bomb that will blow up.

There is, however, another way to stretch your income and increase your annual withdrawals to 8% or more of your savings. And you can still be assured you won’t outlive your money. A study by the University of Pennsylvania’s Wharton Financial Institutions Center found that you could create a stream of secure lifetime income for 25% to 40% by using an immediate annuity. What I don’t like though is with an immediate annuity, you give up control of the money. And although you get the maximum monthly income with a single-life annuity, it stops paying out when you die. If you die prematurely, you forfeit a chunk of your initial investment (which is then returned to the investment pool to pay the benefits of other annuity holders). Therefore, a Fixed Indexed Annuity is likely better for most retirees. You do not give up your money, or the future growth and you still can provide a guaranteed lifetime steam of income.

lklHow much to invest in an annuity strategy for income can best be determined by working backwards to figure out the appropriate amount to allocate to an annuity strategy.  First, add up your regular expenses and then subtract any guaranteed income you already receive, such as a pension and Social Security benefits. If there’s a gap, consider filling it with an annuity. Getting lifetime income illustrations to review from a non-biased retirement income planner can be very helpful to determine how much future guaranteed income you will need. Remember, once retired you do not have time to wait for the market to get your money back. You are likely to need some before that.

I look at only companies that are B+ or higher. For an extra layer of protection, it can be an added measure of security to diversify among companies, none to exceed the $250,000 limit covered by California’s guaranty association, which protects investors if an insurer becomes insolvent. (Some states have higher protection limits; see for links to each state.)

Securing a guaranteed stream of income for the rest of your life may bring peace of mind, but it does not guarantee that you will maintain your future buying power unless properly planned and possibly laddered in some form. Getting the extra money when you’re older is much more important than having the extra cash early in retirement. To me, it fits with the logic of annuities — that you’re worried about living a long time and running through the rest of your savings. An annuity is an insurance contract, and it should be about future guarantees and certainty.

Although most retirees like the idea of guaranteed income, many balk at the idea of giving up control of their money with an immediate annuity. As a result, an increasing number of retirees have been turning to another type of insurance product, called a Fixed Index Annuity, that allows you to earn money based on the increase of a market index but never lose as a result of a declining market. They provide much more flexibility in addition to the income certainty they provide. They also provide guaranteed compounding for income even if the market goes down.

Clear Up, Cut Down, Set Up, and Get Down… It’s not a dance lesson. Ha!

ff.pngMost 55 and uppers bought their home 25 years ago, or longer when retirement was something our parents were getting ready to do. Back then we chose our home based on price, location, neighborhood, proximity to work and schools for raising a family. We did not at all think about how suitable it would be when we retire.

When we are finished with the working years, we see things differently around the house. The reasons we wanted it a long time ago no longer apply. How functional is it for our day-to-day lives at 65, 70, 75? You get the idea. It is no longer dropping the kids here and there, no longer the commute to work. It’s the trips up and down stairs, the cleaning and maintenance, it’s the weather, proximity to family, grandchildren, etcetera that are the focus. This shift in focus means many retirees consider moving to a home that better suits them. For whatever reason, rethinking where they call home makes sense as they embrace their new retirement lifestyle.

We are fortunate to live in a climate that offers nice weather year-round. This makes moving out of the area difficult to consider for many. That said one must weigh the motivations for thinking about a move. Maybe downsizing is an option for convenience and comfort but if the gran children are on the east coast that does not help. Do you have neighbors you appreciate? Can new relationships be established if you move? Is that even important?

Lots to think about so that you can make the very most of your home and location in your retirement years. If you want to stay in the area as 9 out of 10 people I talk to here in Southern California do, then here are some suggestions to make the place you live in now ‘more’ livable.

Little by little you can focus on this 4 Step approach; Clear Up, Cut Down, Set Up, and Get Down. Ha! Say that fast three times. 🙂

Clear Up

hhMake it a regular focus to clear up and simplifying our day-to-day lives. The goal being to minimize the things we don’t want to do so we can spend more time doing things we do want to do. This includes simplification of our financial life, simplification of our yard care, and reducing the commitments on our time. For example, if you do not like shopping for groceries and preparing meals, figure out a simpler way to have nutritious meals. Think outside the traditional box. Delivery of great meals (ready to prepare) is getting better and less expensive. Ordering groceries online and having them delivered might work. If you use to enjoy yard work and gardening but no longer do, install low maintenance and drought resistant plants. Just a couple of things. There are many to consider. Bedrooms can become hobby or multi-use rooms. You get the idea.

Cut Down

Most of us have too much stuff. ‘Stuff’ we have accumulated over the years. Some of it is important and useful, but much of the stuff is not… at least not anymore to us. Give it to someone that it would be useful to. New and open space in your home can create new and open space in your head. Fill it with something of interest! Take your time. It is not a race. The sense of a small accomplishment will spur you on to the next. Start in the areas you spend the most time, eventually working your way to the garage. One day you will be surprised to be parking the second car in the garage.

Set Up

Set up for simplicity and time maximization. Fortunately, modern technology has made getting and staying organized easier. Between machines that scan and digitize receipts and Google, it is hardly necessary saving anything in file folders anymore. Get rid of all those old files. Scan your family photos, they will last longer. De-clutter the paperwork, manuals, receipts. You can find them easier too. That is, if you need them… ever again. One thing we are running short on in retirement is time. Make time for the things you enjoy and appreciate.

Break it Down

We are not talking about dance here. Breaking it down making our homes turnkey means it is fully functional and ready for occupation… with ease. By simplifying and automating, our home functions better and requires less effort for its day-to-day upkeep. This also helps when we travel for extended periods since we like to have house sitters for the peace-of-mind they provide. Maybe when you travel you are keen on having people you know stay in your home, but give other ideas a thought. What about the idea of house-swapping? Whether you are home, or it is temporarily occupied by friends or even complete strangers, a turnkey home means having fewer things to worry about.

Rather than downsizing as the first ‘go to’ idea, consider adjusting things so that your current home ‘fits’ your ‘new’ and retired lifestyle. If it works, great! If not you can do something more drastic, like moving.

Retirement is in many ways about peace of mind. Low stress. Ease. AHhhhhhhhhh. Enjoy.


This is very true when it comes to retirement and guarantees from annuities.

fg.pngMore than half of the adults polled for a 2016 survey done by TIAA, the main goal of their retirement savings is to provide an income during retirement. Yet when asked if they were considering an annuity – less than half of them said yes. Are you going to risk your retirement future in ‘misinformation’, on something you ‘believe’ to be true or something you heard that is not true? Here are some untruths that are ‘believed’ to be so. There are entities that have a vested interest in keeping you ‘confused’. If having money that lasts the rest of your life is important read on.

1: I will never be able to get my money out of an annuity.

There are different types of annuities, for different needs. The type utilized by most baby boomers today, a Fixed Index Annuity allows anywhere from a 10% ‘penalty free’ withdrawal annually, up to a 100% return of the money you put in… at any time.

2: When I die, the insurance company will keep all my money.

This is another example of the old-school annuity, not the new more effective and flexible type. Though you can still buy this type of annuity, after doing their research 55 and uppers typically find that the new version is better. Any many remaining in the account at death goes to the heirs you designate.

3: Annuities are quite expensive!

Yes, if it is a variable annuity, the fees can be quite high. These are often sold as safe too… and they are not. Again, typically not the best choice for retirees that are looking for principal protection.

Fixed indexed annuities have NO FEES unless you choose the guaranteed income route. These income riders that can guarantee you never run out of money for 1%, sometimes even less. It is important to find out what is true and believe that! Be careful to nut be sucked into paying fees for features or benefits that you don’t really need.

df.png4: If there is an emergency, I cannot get to my money in an annuity.

What we are talking about here is liquidity. I partially addressed the issue of liquidity with the first ‘untruth’. Your account value is always available, subject to the terms. Yes, you might have to pay a penalty if your contract has a 10% ‘free withdrawal and you want 20% in one year. That said, depending on how long you have had the annuity and the growth, you may well be able to get all the money you put in and some, even after paying the penalty. Your money is NOT LOCKED UP.

5: Annuities are just too complicated.

Yeah, it certainly sounds that way, doesn’t it? All financial contracts and explanations are complicated. They are drawn up by attorneys, not only to explain how the investment works but also to protect the institution from lawsuit. Ah, have you ever tried to read a prospectus for the mutual funds you own? It always amazes me that people risk losing half of their money with little or no understanding, but when it comes to contractually guaranteeing ‘they don’t ever lose another penny,’ they freak out. One of those things that make ya say, “huh”? Yes, understanding any surrender fees, crediting strategies, penalties, income riders can be a challenge, but that does not mean they do not work the way they are designed. The guarantees are… ah, GUARANTEED. Even with an income rider, it’s not that hard to understand how they work, if you ask the right questions and have a patient financial professional that understands the value of [you] understanding.

To use another analogy, annuities are like cars – you don’t have to know how all the inner gears, on board computers, energy transmission systems, fuel system, etc. work in order to be able to get safely where you want to go. An annuity can help you get safely to the end of your life with sufficient and ‘certain’ income. Do not let what you think you know keep you from the truth.

Can Annuities Mitigate Inflation Risk?

Inflation has averaged about 3%. That means if you need $5,000 to live on when you retire, you will need $10,000 if you live 25 years. Inflation is the silent [retirement] killer because you never get a statement showing how much spending power you have lost to inflation. Annuities alone cannot protect you from inflation. But it is a big and integral component of a strategy to beat inflation.

rtBy having a foundation of guaranteed, pension-like income as a foundation, you can take more risk with other money for better potential growth. The annuity income ‘foundation’ increases your time horizon on the money at risk and… it provides a base of certainty to live on which prevents you from ever having to spend money that has gone down in value—a BIG NO-NO for retirees!

The ‘risk’ associated with loss is that you might need it to live on and will not be able to wait for the market to return to new highs. Having guaranteed annuity income can decrease or eliminate this loss. This decreases or ‘mitigates’ your exposure. One pile of money cannot provide lifetime guaranteed income, and expect to increase in value at the same time. It would be like expecting a sailboat to also perform as a speed boat. You can have a boat that conserves gas or one that goes fast, but not both. This gets to the heart of our approach, namely, to put yourself in a position of strength by building a foundation of guaranteed income to cover your essential expenses.  Then the rest of your assets can be more aggressively invested, yet your overall risk profile is quite safe.

Wall Street’s solution is to own more bonds as you get older, for safety and income. This is quite risky! When interest rates go up the value of your bonds goes down. That means you LOSE PRINCIPAL in an investment that was sold as safe. Also, if you have that money in bonds, it is not available for growth, which you will need unless you have way more money than you will ever need. If you follow this ‘conventional’ old advice it could very well be at your own peril. Take control of your retirement. Think for yourself. Ask questions. Just because something has been taught for 30 years does not mean that it is right or best.

df.pngConventional advisors tell retirees to avoid annuities due to inflation fears. Of course, that means you must buy bonds from them (hmmm). But, either they do not know or they don’t want you to know that guaranteed income from an annuity really frees up other assets to be invested for growth to keep up with inflation because you do not have the pressures of safety and income on those assets. Income from an annuity is actually a very important part of an optimal inflation protection strategy.

Purpose Adds Life to Retirement

Let’s be real, we tend to ‘want’ to live more when we have a purpose to do so. You need reasons to want to wake up when you retire, reasons to get out of bed.  Researchers from Carleton University in Ottawa, Ontario, and the University of Rochester in New York, tracked the physical and mental health of more than 7,000 American adults ages 20 to 75 for 14 years, and found that those who felt they had a purpose or direction in life outlived those who did not. Being grateful for life will keep you living longer, healthier and happier. E. Christine Moll, PhD, a professor in the department of counseling and human services at Canisius College in Buffalo, New York, and member of the American Counseling Association says having an attitude of gratitude is key, “Be grateful for what you’ve done and where you’ve been, and look forward to more of the same.

saDon’t stagnate! There are so many things to do. I will give you 10 to get you thinking. A no brainer is Join a gym. A survey by Norwegian researchers published in 2011 in Medicine and Science in Sports and Exercise found that exercising at any level is associated with better physical and mental health, especially for older men and women. “If you’re confined to a wheelchair, you can still move your arms or even your eyebrows — that’s like doing exercise,” Moll says. Meet people who have similar interests. You can make dates with your gym buddies and have something ‘new’ to look forward to.

What did you enjoy before you retired? Your hobbies? Do more of what interests you. There’s no reason to stop now, Moll says. You may need to alter your hobbies to fit your physical abilities, but you can and should still do the things you enjoy most. “Adapt what you love to fit what you’re able to do today,” she says. Find new interests too. Retirement doesn’t mean you retire from life, says Elizabeth Lombardo, PhD, a Chicago area psychologist and author of Better Than Perfect: 7 Strategies to Crush Your Inner Critic and Create a Life You Love. “This is an opportunity to try something new — maybe learn a new language or travel somewhere you’ve never been,” she says. Redirect your purpose once you retire to redefine how you spend your time.

There are so, so many. Become Politically Active. You have time to attend city council meetings and share their wisdom and their experience. Consider working on the campaigns of candidates whose views you admire. If you’re unable to go to campaign headquarters, you can volunteer to make phone calls from home. A number of colleges and universities, including Ivy League schools, allow seniors to audit courses at no charge. Learn something you have always wanted to know or know more about. If you’re homebound, you can take courses online. Opportunities to give back and volunteer are almost limitless. The local food pantry or library could likely use your help, and so could area hospitals and nursing homes. Volunteering will get you out and with people of all generations, Kennedy says, and having to be somewhere to do something regularly will keep you feeling needed.

yy.pngEnjoy your local culture. Keeping active intellectually is as important as keeping active physically, Kennedy says. Plan trips to local art galleries, museums, and science centers to learn new things and see what you can recall. Play games. Play whatever you find fun. Find others, neighbors or members of your church or senior center who are interested in what you are interested in. Meet regularly to play. Can’t get together? Play chess or other games online. Play basketball, if you want. Never say never. Ha! Offer your professional skills. Become an emeritus. If you were an accountant before retirement, you might volunteer your services at tax time to help other seniors. If you were a teacher, consider reading to, or recording books for, the visually impaired. You get the idea. Do you enjoy children? You can babysit and help local families with childcare needs. It might even bring in a little extra cash.

Don’t be discouraged if it takes a while. Remember, like anything new, retirement can take a while to hit your stride, find your ‘thing(s)’. As I said, the ideas are many! ENJOY your retirement. After all… it is for the rest of your life.


Will Ten Thousand Monte Carlo Simulations Leave You Short of Money to Live On?

fdOn the surface, Monte Carlo simulations seem to be great illustrative tools for retirees and soon to retirees. A simulation, for example can show how varying spending patterns and varying investment returns are likely to or not to deplete their retirement nest egg.

All too often though it provides ‘false’ security. For starters, it doesn’t consider the sequence of future investment returns has an effect that is at least as important as the ‘average’ of those returns. The result of thousands of iterations Monte Carlo simulators produce can cause clients to believe they’ve considered all the possible financial outcomes they could experience, when in reality the numbers generated may have little relevance to their personal financial situation. Monte Carlo doesn’t measure bear markets well, another potentially BIG PROBLEM. Finally, this type of simulation is not capable of connecting projected investment returns with realistic cash flows.

Relying on Monte Carlo simulations can be dangerous.  The method treats the current market not as a starting point but as merely one of all possible environments. For example, it may predict a 20 percent return because the simulation started at a 7 P/E and then doubled. Problem being it may not be relevant if the current 30 P/E is a 30, you are 70-years-old, and concerned about how your portfolio will be affected over the next 10-to-20 years.

A Monte Carlo simulation might predict 17 loss years out of 77 but is unlikely to put even two loss years in a row, let alone three or four, thus missing the present real world pattern. Nor do random distributions even consider the clients’ and/or advisor’s reactions and decisions to short-term volatilities. Another thing, what value can you put on simulations that look at 77 years when you have 20-30 years left?

To compare reality to the simulations, in one study, an astute advisor created 100 different hypothetical portfolios from 1926 forward, and took varying amounts of income from each. Reality was by far worse! Failure occurred much more frequently than what the Monte Carlo simulations indicated, using the same distributions for income.

Another big issue is that Monte Carlo software makes it easy for the advisor and or person doing the input to raise the odds of success by increasing the amount of common stock in the portfolio. Again, a bad idea when the client really needs to avoid withdrawing portfolio funds in down markets. As I cannot say enough “It is always a mistake to spend money from an account that has gone down in value”. It does not make sense to take more risk because a mathematical error was made in the creation of a model that failed because of the way human nature plays into the whole scenario. The decisions that get made along the way will certainly cause ‘something’ different to happen than what the Monte Carlo model illustrated. These Monte Carlo models do not take human emotions into account. It assumes investors will ride out tough times without backing away from negatively performing investments, something few clients do, something few advisors do.

In fact, Monte Carlo makes it impossible to analyze proposed financial strategies accurately because it treats clients’ assets as separate from their required living expenses. The model assumes, again unrealistically that one never makes an unplanned withdrawal from their portfolios. Really!? Over 30 years, or maybe longer? Not realistic.

Furthermore, Monte Carlo oversimplifies complex financial issues. It does not consider income tax bases in portfolio rebalancing and treats cash flow as a constant, disregarding the devastating effects of large variable expenditures when investment returns go negative.

dffThe truth is that we need to recognize that in planning our future, particularly our financial future, there is a lot of ambiguity, as well as variables including risk and volatility. It is better to be less concerned with the probability of success and more concerned with the consequences of failure. The best way I know to deal with uncertainty is minimize it or even eliminate it. You can do this by creating pension income for yourself using Fixed Index Annuities that contractually guarantee income for the rest of your life. For further reading I recommend Pensionize Your Nest Egg: How to Use Product Allocation to Create a Guaranteed Income for Life by Moshe Milevsky and Alexandra Macqueen.