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Lessons for those 'graduating' to retirement

For many retirees, the struggle isn't having enough money, but confidently spending what they've worked so hard to accumulate

Jun 13, 2019 @ 10:59 am

By Philip E. Caminiti

To those newly retired, I offer my congratulations. Those of us who provide financial guidance to this growing segment of consumers know that this is a critical time and a major transition in the lives of people who have worked hard throughout their careers to get to this next chapter.

While new retirees will be making many lifestyle adjustments as they enter this next phase of life — goodbye early morning commuting, hello sipping coffee with the morning news — none will likely be as significant a change as their transition from being an "earner" to a "spender." After years of diligently putting money aside and carefully investing to build up, or accumulate, their retirement savings, these individuals will now be spending, or decumulating, those assets to fund their retirement lifestyle.

This can be a difficult adjustment for many who want to minimize the risk of running out of money during their lifetime while still enjoying the retirement they've been dreaming about for decades. Here's how you can help.

Lesson No.1

Help retirees get more comfortable with spending. The media often focuses on retirees' lack of preparation and failure to build up enough funds, yet there are retirees who have ample retirement savings and are simply too afraid to spend their retirement nest eggs.

For those who have been saving and investing to grow their assets, the struggle isn't having enough money socked away, the trouble is confidently spending what they've worked so hard to accumulate. As a result, they live a simple, less expensive life in retirement, according to a recent study.

In fact, many live more simply than is necessary, in what's called the decumulation paradox. Many may spend only guaranteed sources of income (i.e., Social Security and pensions), and dividends and interest earned on their portfolios, while some even continue to save in retirement.

Related to this, we are seeing retirees looking for a reliable stream of income that can lead to the confidence to live a more fulfilling and secure retirement. All of this tells us that when it comes to financial decision-making, behavioral tendencies are clearly a factor. As an adviser, you can help create more certainty in retirement by discussing solutions that will help retirees feel more comfortable enjoying the time they've been working toward.

(More: Getting retirees to spend more money can be a hard sell for advisers)

Lesson No. 2

Guarantees matter. When used correctly, annuities can be powerful long-term retirement planning tools by helping to establish an income stream for life. Annuity payments can be received monthly, quarterly, annually or in a lump sum, and they will experience tax deferral benefits as well.

Income annuities are known for their efficiency in generating a guaranteed lifetime income. Because traditional pensions are becoming more and more rare, and Social Security may not provide enough income to cover basic retirement expenses, those nearing retirement age or those who are already retired are looking for ways to create a 'pension-like' income.

With a guaranteed income annuity, retirees can have the peace of mind that they will receive a steady "paycheck" for life to cover many of their basic expenses in retirement while also granting them the freedom to spend other assets on things they enjoy.*

Lesson No. 3

Those still growing assets need equity exposure. For clients still growing their assets for retirement, variable annuities allow investors to potentially grow assets in the stock market while offering opportunities to add optional guarantee features for an additional fee that provide downside protection.

Some investors are interested in the growth potential of a variable annuity and have the need for important protection features. Some providers offer a variable annuity with an option called a "guaranteed minimum accumulation benefit rider" that provides principal protection over a chosen holding period. This means that at least the initial premium is guaranteed at the end of the holding period, giving investors peace of mind when the markets fluctuate.

Simply put, advisers can help create a more certain financial future in retirement. As a trusted adviser, you are a key player in securing a retiree's financial future by partnering with clients to develop, and periodically revisit, retirement plans.

With 10,000 baby boomers turning 65 every day, the opportunity is vast to help preretirees and those already in retirement build their retirement savings, preserve assets by helping reduce the risks of outliving their nest eggs and create the flexibility to enjoy what they've worked so hard to earn.

(More: Being underinvested can be a risky business for preretirees)

Phil Caminiti is a managing director at New York Life Insurance Co. and is registered with an affiliate, NYLife Distributors.

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