While about 10,000 Americans retire daily, most people seem to spend less time planning for retirement than they do for vacation. According to a 2016 survey by GoBankingRates, the result is that 55% of Americans have less than $10,000 saved for retirement. And a 2017 study, “Do Households Have a Good Sense of Their Retirement Preparedness?” by the Center for Retirement Research at Boston College, found that even if households work to age 65 and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, 52% will be at risk of being unable to maintain their standard of living in retirement.
Anxiety regarding our futures is a common ailment, especially among the millions of Americans rapidly approaching the end of their working years. And there are good reasons for that anxiety:
Planning Beyond Finances
The sad truth is that despite most people having extensive planning experience at work (such as business strategies, lesson plans and customer meetings) and at home (such as vacations, home improvements and entertaining), most tend not to plan for retirement. Of those who do plan, most focus solely on the financial aspects. While doing so is critical, it is far from sufficient.
Planning for a successful retirement is about much more than just an investment strategy that will provide you with sufficient assets to fund your desired lifestyle. It’s also about planning for a meaningful life in retirement.
It requires a well-thought-out estate plan, including the design for transitioning assets, and the development of wills and durable powers of attorney for financial and health matters. It should also include the development of insurance plans covering risks, such as longevity and the need for long-term care. There are also many other issues that need to be addressed, including when to take Social Security, tax-efficient withdrawals, and preparing your heirs for the transition of assets.
The need for a comprehensive approach to retirement planning is why my colleague Kevin Grogan and I decided to write “Your Complete Guide to a Successful & Secure Retirement.” It was published by Harriman House in January 2019. We believe it is the most comprehensive book on the subject. We were especially pleased that we were able to attract one of the country’s leading experts on retirement planning to write the foreword.
Dr. Wade Pfau is a professor of retirement income at The American College of Financial Planning and co-editor of the Journal of Personal Finance. He’s also a two-time winner of the Journal of Financial Planning Montgomery-Warschauer Award, a two-time winner of the Academic Thought Leadership Award from the Retirement Income Industry Association, and a best paper award winner in the Retirement category from the Academy of Financial Services. The following is his foreword.
Foreword B Dr. Wade Pfau
Planning for life post-retirement is complicated because it is a completely different life experience from what comes before. Prior to retirement, we work and save and invest with the intention of accumulating a nest-egg to support us through our retirement years. Then, once we retire, we have to make this nest-egg last.
But for how long? Longevity risk is the first complexity; we don’t know how long our savings need to last. Also, once we stop working and start taking distributions from our assets, we must deal with amplifications to traditional investment volatility created by sequence-of-returns risk.
We also must be prepared to deal with spending shocks, which are significant expenses that fall outside of our retirement budget, for things like long-term care or helping other family members. We must do this planning in the face of cognitive decline, with the knowledge that, as we age, it will become increasingly difficult to manage the complexities of a financial plan. Retirement income is about much more than just managing an investment portfolio.
This is why Larry Swedroe and Kevin Grogan’s new book, “Your Complete Guide to a Successful and Secure Retirement,” is such an important and refreshing contribution. They know investing inside and out, and have written numerous books on investment-related topics. But as a part of a comprehensive financial planning firm, Buckingham Strategic Wealth, they also understand that so much more than investment management goes into a retirement income plan.
I’m honored to write a foreword for this important book. I’ve known Larry for some years, as we have both been contributors to the Bogleheads Forum, an online message board for individuals to discuss investing and financial planning topics.
As well, I serve as chief financial planning strategist for inStream Solutions, the Monte Carlo-based financial planning software program used by advisors at Buckingham and referred to throughout the book. As a professor of retirement income at The American College for Financial Services, I’m also glad to see that their advice is grounded within and vetted by the academic research. Many still base their advice on intuition or outdated rules of thumb. We are very much aligned in terms of how we think about retirement topics.
As you read this guide, you will find a number of issues where Larry and Kevin provide insightful commentary to demonstrate their appreciation for the complexities of retirement income planning in ways that go well beyond those who tend to think investment management can be a solution for all of retirement’s problems are able to appreciate.
The issue with investments is that the low-interest-rate environment combined with high stock market valuations and increasing longevity make it increasingly expensive and complex to try to fund retirement by thinking only in terms of an investment portfolio.
The authors repeatedly emphasize that it is important to have a team of professionals aligned toward managing the complexities related to financial planning, tax planning, estate planning, long-term care support, and protecting the plan in the face of cognitive decline.
The financial planner can serve as a quarterback to coordinate the activities of these professionals as they work toward the common goal of creating a successful and efficient retirement approach. And beyond finances, one must also find life satisfaction and ways to spend time in a meaningful way to replace all of the hours previously spent at work.
Here are some of the matters discussed in the book that I hope readers will really appreciate:
I encourage you to read this book and appreciate its broad scope and many lessons for developing a successful retirement income plan.—Wade Pfau
This commentary originally appeared March 15 on ETF.com
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