As can be seen from yesterday’s example, an individual desiring $4,000 of monthly net income in retirement can need in excess of a $1,000,000 retirement portfolio to supplement his or her Social Security and pension income. As can be verified by this calculation, there are many factors to determining the retirement “nest egg” that must be available when accounting for pension income, Social Security income, taxes, inflation as well as other factors. Someone with a higher Social Security income or monthly pension amount may be in need of a smaller portfolio, while another individual with higher net income needs may be in need of a larger portfolio. The $1,000,000 “rule” is not the standard to measure the size of the portfolio necessary and only individual calculations can verify this amount needed on an individual basis.

Of course, this is a very simple method for calculating the investment assets needed for retirement based upon a safe withdrawal rate of 2.5%. Completing a more sophisticated retirement projection utilizing various economic environments to “stress test” this withdrawal is definitely preferred. In addition, utilizing a combination of stocks, bonds, and guaranteed equity index annuities and/or other portfolio strategies to reduce portfolio risk and potentially enhance returns could raise the safe withdrawal rate to 4-5%. The result would be that either more income could be generated from the same $1,293,200 portfolio, or less portfolio value would be necessary to generate the same income.

Creating a tax-efficient income withdrawal strategy could also have a dramatic effect on increasing the “safe withdrawal rate” and either offer less portfolio value to create the same income withdrawal or potentially create more net “in-the-pocket” income by effectively reducing taxes in retirement. In addition, the use of home equity could also have a dramatic effect on creating an effective retirement income that would offer the best retirement outcome.

As can be seen by this example, many retirement planning strategies could add tremendous value and dramatically affect your retirement outcome. Your best bet is to consult with a retirement professional to make sure your retirement plans are on course.

When selecting this professional it is essential that you understand the following:

  • A combination of Fixed Index Annuities (FIAs) and/or Single Premium Immediate Annuities (SPIAs) with a globally diversified stock portfolio will potentially increase returns over a traditional stock and bond AND reduce portfolio volatility and risk. This combination will mathematically increase the “safe withdrawal rate” by 0.50% to 1.50% above traditional stock and bond portfolio strategies.
  • Utilize a low-cost, globally diversified stock portfolio employing both passive index strategies and high-quality, active-investment managers to offer potential positive portfolio alpha.
  • Compare all strategies utilizing a sophisticated market environment “stress test” to discover the strategy that works best for your specific situation.
  • Incorporate tax planning analysis and begin “intelligent” conversions from taxable to tax-free accounts.
  • Assess the use of a home equity conversion mortgage (HECM) to increase the probability of retirement success.

Finding the right retirement advisor and employing these strategies will offer the highest probability of success versus a strategy that focuses on traditional “stock and bond” investments only. Retirement success is measured by portfolio sustainability or giving you the best potential to outlive your income.

Article published by Moneytips Jan 26 2018

Written by Brian Saranovitz