INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
ON THE FENCE ABOUT
RETIRING NOW ?
How do you invest when the stock market is at an alltime high , you have a lump sum to invest , and you ’ re getting ready to retire ? Obviously , no one ’ s net worth , lifestyle goals , and risk tolerance are exactly the same .
In consideration of all that , here ’ s how one couple put a plan together . Let ’ s call them Jack and Jill .
Jack is 67 and Jill is 66 . They have three adult children and four grandkids ( ages 7 , 6 , 4 and 3 ). Jack was a sales executive in the steel industry and Jill worked for an engineering company in Pittsburgh . Their combined income was about $ 200,000 annually .
J & J own their home and paid off their mortgage several years ago . With three kids , they lived in the moment most of the time but were able to accumulate about $ 1.7 million ($ 1.2 million in 401 ( k ) plans and $ 500,000 from inheritance ).
Their income objective in retirement is $ 144,000 annually after tax ( or about $ 12,000 per month ). They are concerned about inflation in the future .
Their retirement goal is two-fold :
Withdraw an amount to support their lifestyle each year and maintain their principal balance for some time .
Social Security will pay them about $ 4,000 per month ( starting at full retirement age ) leaving a balance of $ 8,000 per month to come from investments .
That said , their annual withdrawal rate out of necessity will be around 6.7 % before tax . Many advisors recommend a withdrawal rate of only 4-5 % annually in order to preserve principal so it might be said J & J are “ living on the edge ” with a 6.7 % annual withdrawal rate .
Also , they are faced with investing their lump sum when the market is at an all-time high . They can ’ t invest in CDs and money markets and be forced to draw down their principal .
They do not have the luxury of investing everything in U . S . Treasury bonds ( super-low risk ) yielding only around 1.50 % right now . They are faced with the reality of having to assume some market risk in order to accomplish their financial goals .
So how should they go about it ? One solution is to invest and retire in stages :
• Keep about one year ’ s income in cash as a hedge against market volatility . Draw from cash if the market turns down .
• Allocate about five to eight years in high-quality intermediate-term bonds ( about $ 700,000 fixed income ). Their fallback position , if cash , is depleted during a recessionary period .
• Invest the balance in equities / stocks – mutual funds and / or ETFs . Historically , stocks are positive about 70 % of the time . Those are pretty good odds , and J & J have cash and fixed income as a safety net .
A 7 % to 8 % average annual return should cover withdrawals but doesn ’ t leave much room for market unpredictability or inflation . And there is absolutely no assurance these levels of investment returns can be attained in the future .
J & J understand many of the risks they are taking by retiring at this time . To obviate some of their concerns , they decided to work parttime for a few years – and hedge their bet .
Jack loves to play golf so he took a part-time job at a local golf course with some perks ( he can play golf for free on off days ), and Jill plans to continue working a few days per week at the engineering firm where she had been employed for over 20 years .
This extra income will help J & J grow their assets and take less from investments for a few years . This should make their retirement years more enjoyable and less worrisome . Working parttime also helps with the psychological transition from working full time to retirement .
J & J are looking forward to the next phase in their lives . They have a trusted financial advisor who is a fiduciary and someone they can trust . By collaborating with their advisor , they have a plan , and with the support of their advisor , they can track and monitor results and make changes when necessary .
Hopefully , they will enjoy many years of worry-free retirement . Odds are in their favor with a well-thought-out plan .
This Industry Insight was written by Garrett S . Hoge .
Garrett S . Hoge , CFP ®, ChFC ®, MS , of H Financial Management , is a private wealth manager based in Southpointe serving the ever-changing financial needs of his clients . Please contact Garrett at H Financial Management , 400 Southpointe Blvd ., # 420 , Canonsburg , PA 15317 , Phone : 724.745.9406 , Email : garrett @ hfinancial . net , or via the Web : hfinancialmanagement . com .
Securities offered through Triad Advisors , LLC , Member FINRA / SIPC • Advisory Services offered through H Financial Management .
H Financial Management is not affiliated with Triad Advisors , LLC .
PETERS TOWNSHIP ❘ DECEMBER 2021 / JANUARY 2022 47