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Threats to secure retirement l Insightful Investing


Last updated 6/20/2018 at Noon

In my opinion, there are three main threats to having a secure retirement.

They are sequence of returns, inflation and longevity in that order.

There are also five major fears that people have about retirement. They are running out of money, cost of health care or long term care, suffering investment losses, current or future health issues or not having a paycheck anymore.

These basic fears are all related to the three main threats in some form or fashion. The closer you get to retirement, the less willing you should be to take investment losses. The sequence of returns is far and away the biggest threat you face the older you get. And it is not because you don’t have enough time to recover; it is because you begin spending that money.

Once you begin extracting money, the sequence of returns is critical. If you lose money in the first few years, your chances of maintaining a retirement plan are significantly decreased.

During the 2008-2009 market crash, many people did not take this into account and ended up back at work. Asset allocation is a popular way to address this risk although it cannot protect you against market loss. In my opinion, monitoring your asset allocation is a dynamic process.

Some people have a “set it and forget it” approach. I believe that is a big mistake. Earning back lost money cannot only be very difficult, but it can be emotionally devastating as well. Have you ever heard somebody say, “I lost money in the stock market, I will never put my money there again”?

The second major threat is inflation.

J.P. Morgan Asset Management estimates the cost of health care is increasing at 6.5 percent per year.

They are not the only ones who use this figure; my professional planning software MoneyGuidePro™ uses the same figure. I have been diligent in looking for ways to fight off inflation my entire career. I believe “equity” is one way to fight inflation: The term simply means “ownership.”

This comes in many forms real estate, private business ownership, stocks etc;

And the last major threat is longevity. If you are a husband and wife and one of you is currently 65 years old and you don’t smoke, there is a 50 percent chance one of you will live to the age of 93 and a 50 percent chance both of you will live to 84.

These figures come from life expectancy tables used by MoneyGuidePro™.

Imagine that. If you retire at the age of 65, you may end up being retired for 20 to 30 years. And I hope that you have a plan of attack.

How do you get your income to increase without taking risks in the stock market? There are some answers to that question, but it will depend on your individual needs and risk tolerance. There are several strategies to address the three major threats to a secure retirement. Having more money than you will ever spend is one of them.

Some people fall into this category, but they would be what I consider the super affluent. Owning a profitable business in another one. For most people a well-designed retirement plan takes effort and focus.

I am prevented by compliance standards to discuss “specific strategies” in a public forum like this.

I am not able to go into detail about how I solve these issues, but I can assure you there are many strategies to try to fight these three main threats.

Since every client is unique in terms of age, resources, objectives and risk tolerance, there is not one solution for every investor. That is self-evident.

Also, some people do change horses in the middle of the stream, for very valid reasons. Having a plan and sticking with it is good advice. Having a plan that isn’t working and sticking with it is foolish.

I believe the challenge is, “how do you know?”

Another huge challenge is the massive amount of variables and unknowns. It is not generally the risk you know you are taking that gets you into to trouble. It is the risk you are taking that you are unaware of that can be the most life changing. I have been doing this for many years and it can be overwhelming.

Thankfully computers have given us tools to crunch numbers and run simulations to try to anticipate thousands of combinations. This is a major change in my three decades of giving out financial advice.

We can run "what if" scenarios in seconds, where 30 years ago it was figuratively impossible.

I will close with this:

As you know if you have been reading my column recently, my 62-year-old brother is fighting stage-4 cancer. He will not make it to the age of 65.

He has been dealt a hand that none of us wants to play, and I am grateful that my health is good and that my wife’s is good.

We are looking forward to living into our 80s and 90s, hopefully.

And we are prepared to face sequence of returns, inflation and longevity.

Jeffrey Moormeier of JG Moormeier Financial is a Mukilteo-based financial advisor affiliated with KMS Financial Services, an SEC registered investment adviser. His column does not represent the opinions of KMS Financial Services, nor is it an official prediction or recommendation of any kind. The opinions expressed in this column are generalizations. For advise catered to your specific financial circumstances, contact Jeff directly at or 425-931-8898.


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