By Heidi Huiskamp, Founder and CEO of Huiskamp Collins Investments, LLC
With all the new innovations in medical technology, retirees are now enjoying 20, 30, or even more years in retirement. That’s good news on the face of it, but with that fact comes the stark reality that a great many people haven’t saved enough to live that long and run the very real risk of running out of money before they die.
I hope it doesn’t come to anyone’s surprise that Social Security was never meant to be your sole means of retirement income. You know those annual statements that you receive from the Social Security Administration? The ones that tell you what your monthly benefit will be at different ages of claiming social security based on your wage history? If you’re under 60 years old, it’s a very real possibility that the estimated benefit will be cut before you can claim it. It all comes down to a big math problem.
When the Social Security Act was signed into law in 1935, there were 42 workers paying into the retirement system for every one worker being paid. At that time, the retirement age to begin receiving benefits was 65 and the life expectancy of the average American worker was 62!
Fast forward to 2019. 10,000 people are retiring every day and that trend will continue for several years. Lots of Baby Boomers are deciding to retire early and take a reduced benefit. They could easily live another 30 years. According to the Social Security Administration, the ratio of workers paying in to those taking out has been reduced from 42:1 to 3:1.
The Board of Trustees for the Federal Old-Age and Survivors Insurance Trust Funds projects that by 2040, the ratio will be 2:1. That’s not sustainable! The cold, hard reality is that you can’t depend on social security being there for you as it was for our grandparents and parents. What can you do?
First of all, throw out the mindset that retirement is an arbitrary age like 62 or 65. Instead, retirement should be the point at which you reach a certain level of financial security that will sustain you throughout your retirement years. A lot of folks find their way to my office who are 62, hate their job, and just want to be done. Emotions are high, they still have debt, and they might have a 401K or other retirement account with $100,000 or more (what seems like a lot of money) in it. “I’m unhappy, I deserve to retire, I’ll get by,” is what they tell themselves. Guess what? Plans made based on emotion almost never end well. Giving up a company health insurance plan and paying for a plan on the exchange before Medicare kicks in at 65 years of age is a huge expense and even if you’re over 65, retirees find that health care out-of-pocket costs take a bigger bite out of retirement income than they were expecting.
I also routinely meet with would-be retirees who are carrying debt in some form. Please, please, pay off your mortgage, credit card debt, and any student loan debt before you retire. Your assets will stretch a lot further if you don’t have to service debt. And you need to know that your 401K that seems like such an impressive amount may not support your needs as long as you might live. Even if you’re a “fly-by the-seat-of your-pants” kind of free spirit, retirement planning is not the place to exercise that kind of thinking. You need a plan and a set of properly allocated assets divided between ready cash for emergencies and day-to-day living expenses, stocks to provide portfolio growth and to preserve your purchasing power in the years to come, and bonds to provide stability and diversification.
Let’s talk a moment about stocks or stock ETFs (Exchange Traded Funds) or stock mutual funds. I’ve talked to many retirees who tell me they can’t invest in stocks as they won’t have enough time to “make up the loss” if there’s a market correction. There will always be market corrections—in both the stock AND the bond markets.
Here’s the thing: even if you’re retired, you’re not going to need access to your whole portfolio the day you retire. The majority of seniors are going to enjoy many years of retirement because of medical advances. They DO have the time to let their portfolios recover, especially if they pare back the distributions they take from their assets a bit. The economic downturn of 2008 is still fresh in some investors’ minds. Many are deathly afraid of investing in stocks as they watched the stock portion of their retirement portfolio decline 40–50 percent. I grant you, it was a scary time.
In 2008, I had 200 clients and my phone was ringing off the hook. Investors saw huge “paper losses” on their statements. Of all those clients, I talked all but one “down off the edge” and persuaded them to “hold on.” I had one client who insisted that I sell everything and go to cash. As soon as I placed the trades, those paper losses became actual losses. All those investors who “held on” recovered nicely.
To this day, that one gentleman kicks himself for panicking and insisting that I sell all his positions as he never did get back into the market and he missed the longest recovery in history.
I’ve been an active investor for over 38 years and have been a financial advisor for over 15 years. I’ve invested and helped clients during peaks and troughs and have a healthy respect for historical trends. I have an Economics degree and a graduate degree in Finance, all the necessary credentials to serve you as a fiduciary, always putting your best interests first, and plenty of experience. I’d love to have the opportunity to sit down with you and put together a great retirement plan. Please call me at 563-949-4705 or email me at heidi@hhcinvestments.net.
Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory services offered through J.W. Cole Advisors, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are unaffiliated entities.