As you near retirement, many questions that didn’t seem so important a decade ago start to take a higher priority. To name a few:
- How much more money do I need before I can retire? How can I be sure that’s enough? What do I do if, ten years into retirement, I find out it wasn’t enough?
- What happens if the market tanks right after I retire? How can I protect myself against such a scenario?
- Should I take money out of my Roth, my traditional IRA, or my taxable accounts first?
Can I Retire Yet?
Probably the biggest (financial) question for most soon-to-be retirees is the obvious one: Do I have enough money to retire yet? If not, how much more do I need? Fortunately, those questions aren’t as hard to answer as you might guess.
The following articles walk you through it:
Using Annuities for Retirement Planning
Annuities aren’t very popular. (And for good reason–many have absolutely terrible terms for the buyer.) But the right type of annuity–usually a single premium immediate fixed annuity–can be an extremely helpful tool for retirement planning.
The reason such annuities can be so helpful is that–unlike annual stock or bond market returns–they’re predictable. Financing your retirement with a portfolio of unpredictable investments requires that you prepare for the worst-case scenario. And that means that you need a heck of a lot of money. If you’re willing to annuitize a portion of your portfolio, you can safely retire on a smaller amount.
The following articles explain that concept in a bit more depth, along with discussing some of the drawbacks to annuitizing your portfolio.
- What is a Single Premium Immediate Annuity?
- Single Premium Immediate Annuities: When and How Much to Buy
- Why Aren’t Annuities More Popular? (guest post at Morningstar Advisor)
Managing a Portfolio Throughout Retirement
Portfolio management in the distribution stage is somewhat more complex than in the accumulation stage. Volatility goes from being something that you try to stomach as best you can to something that damages your returns, whether you can stomach it or not. At the same time, social security comes into the picture, thereby complicating both tax and asset allocation issues.
These articles are intended to help you navigate the portfolio management issues that are specific to retirement:
- Asset Allocation for Retirement Portfolios
- Social Security: A Bond in Your Asset Allocation?
- Retirement Withdrawal Strategies (guest post at Five Cent Nickel)
- Do I Need Life Insurance During Retirement?
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An important point to know is that most advisors/financial planners (even RIAs who have a fiduciary obligation) won’t recommend an annuity for you because they make their money managing your assets. If an important goal in your retirement is to ensure you don’t run out of money then annuities should be part of your portfolio.
@DIY Investor,
Not all financial planners make their money managing assets. In fact, many work for flat or hourly fees, much like attorneys (also fiduciaries). And, even among those RIAs that do make their money managing your assets, I’m not sure that “most” won’t recommend SPIAs. Can you point me to something that supports your claim, like a survey or research?
This article puts the figure at 20% http://www.investmentnews.com/article/20090501/FREE/905019993 .
There are annuities involved but on the side of the advisor. Give me $1.0 million to manage and I have a stream of income that starts at $10,000 – $20,000/year and will likely grow. I might add that it will grow over time not just by my effort but because the overall market rises. Good work if you can get it!
The setup puts incentives clearly on the side of advisors not recommending annuities unless, of course, they get a humongous commission.
Implied in your question is maybe something that should be debated. Should the financial planner and investment manager be from separate firms?
I suspect the Cerulli study only looked at RIAs with assets under management. Many RIAs do not even manage assets, and asset management and financial planning are two different occupations, often in conflict with each other. Of the RIAs in the investment management business, there are thousands that don’t provide any planning services at all, they just run a portfolio of securities.
Should the financial planner and investment manager be from separate firms? I’d say so.
Let me turn this around. What evidence do you have that “Many RIAs do not even manage assets…”?
I would expect that upwards of 90% of RIAs manage assets because that’s where the money is – not in financial planning.
You’re asking for evidence of an indefinite statement, but you can see for your self whether or not RIAs manage assets and/or provide financial planning services on Part I of the ADVs of RIA. It’s public record and available on the SEC’s Web site. I’m not sure that there is a way to filter a search based on whether or not assets are managed, but you could probably “thumb” through the ADVs of RIA’s that start with the letter A. I’m sure you find a few pretty quickly.
My financial planning practice is an RIA that doesn’t manage assets, and the dollar amount my fee doesn’t change based on what I recommend. I personally know about three dozen other planners with similar practice, and I’ve seen the ADVs of dozens more. Not a scientific sample but enough to conclude they are numerous? I think so, and that’s why I said it.
I also don’t think people decide to start an RIA first and then pick whether to be asset managers or not. People decide they want to be financial planners and/or asset managers and are compelled to register.
There may be more money in asset management, but there is still money to be made in financial planning without asset management. Why do people become plumbers or accountants when there is more money in asset management?
Lastly, consumers can opt to work with a financial planner that either does not manage assets or whose fees are unaffected buy the size of an account. If your beef is with asset based compensation, that’s fine. But that is not how strait up financial planning is usually paid for.
Well we’ve just had different experiences. Most of the RIAs I know do offer investment management services. In fact, the firm I was formerly with spent a lot of time trying to figure out how we could make financial planning profitable and we were charging $3,000 to $4,000/plan! It takes a lot of work – more than most people realize – to do a comprehensive plan.
On the other hand when we got $1.0 million to manage it was a $10,000 and more annuity for years out into the future! I worked for the firm for 3 years and had $20 million under management with very little effort.
I would really like to see data somewhere on what percentage of RIAs do not offer money management services. I would think there has been a survey done.
I’m a fee only advisor. I offer both hourly consulting and asset management services. My fee also doesn’t change depending on what I recommend.
The only point I was trying too make is that if an advisor gets paid 1 to 2% for assets managed then there is a huge incentive not to recommend an annuity.
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