Are you ‘clue­less’ about re­tire­ment sav­ings?

Greenwich Time (Sunday) - - BUSINESS - JULIE JA­SON

Re­search firm Cerulli As­so­ciates asked 401(k) par­tic­i­pants ages 45 and older a sim­ple ques­tion: “When you re­tire, what do you plan to do with your sav­ings?”

Here is the con­clu­sion that the re­searchers reached, as re­ported by Cerulli Di­rec­tor Jes­sica Sclafani: 401(k) “par­tic­i­pants are gen­er­ally clue­less as to what they will do with their ac­cu­mu­lated sav­ings.” I hope that’s not you. Let’s talk about why Cerulli reached that con­clu­sion.

When asked what they will do with their 401(k) ac­count sav­ings, one-quar­ter of re­spon­dents ex­plic­itly an­swered, “I don’t know.” An­other one-quar­ter said they “will ask (their) ex­ist­ing fi­nan­cial ad­viser(s) for ad­vice,” which, ac­cord­ing to Cerulli, is a “marginally more pre­pared ver­sion of ‘I don’t know.’” An ad­di­tional 8.5 per­cent be­lieve the an­swer is to hire a fi­nan­cial ad­viser to help them.

What’s the take­away? “Half of 401(k) plan par­tic­i­pants have no idea what to do with the sav­ings they have dili­gently set aside for re­tire­ment,” said Cerulli in a news re­lease ti­tled “Par­tic­i­pants Don’t Know What to Do with Their 401(k) Sav­ings at Re­tire­ment.”

Cerulli went on to ex­plain that as peo­ple “ap­proach re­tire­ment, and tran­si­tion into this life stage, their fi­nan­cial fo­cus shifts from ac­cu­mu­lat­ing as­sets to draw­ing down as­sets to gen­er­ate re­tire­ment in­come.” For any­one who has ac­tu­ally started that process, I’m sure you’ll agree there is much more in­volved than sav­ing for re­tire­ment in the early years of 401(k) par­tic­i­pa­tion.

As Cerulli puts it: “Most in­dus­try ex­perts de­scribe the draw-down phase of re­tire­ment as far more com­plex than the ac­cu­mu­la­tion phase.” So what’s in­volved?

“Re­tirees of­ten rely on a mo­saic of sources (e.g., in­di­vid­ual re­tire­ment ac­count sav­ings, 401(k) sav­ings, So­cial Se­cu­rity) for re­tire­ment in­come,” ac­cord­ing to Cerulli. Fur­ther, “an in­vestor’s draw-down strat­egy can have sig­nif­i­cant im­pli­ca­tions on taxes, du­ra­tion of in­come and, ul­ti­mately, life­style in re­tire­ment.”

That’s an ar­gu­ment for get­ting help from ex­perts in the field. I agree, as some­one who runs a bou­tique fidu­ciary firm that spe­cial­izes in re­tire­ment wealth. How­ever, that’s not the an­swer for ev­ery­one, for two rea­sons.

First, as Cerulli puts it, “Given the idio­syn­cratic na­ture of re­tire­ment in­come plan­ning, in­vestors gen­er­ally re­quire the as­sis­tance of a fi­nan­cial pro­fes­sional. How­ever, fi­nan­cial ad­vis­ers are not nec­es­sar­ily well versed on nu­anced top­ics such as So­cial Se­cu­rity claim­ing strat­egy or health care ex­penses.” Agreed. Not ev­ery fi­nan­cial pro­fes­sional has ex­pe­ri­ence in the field, nor should that be an ex­pec­ta­tion on the part of the con­sumer.

Sec­ond, the ser­vices of pro­fes­sion­als who spe­cial­ize in re­tire­ment port­fo­lio man­age­ment may be lim­ited to the high net worth. Money man­age­ment firms typ­i­cally have min­i­mums (per­haps $1 mil­lion, $5 mil­lion like my firm, or even more).

That’s not to say that all fi­nan­cial pro­fes­sion­als have min­i­mums. They do not. You re­ally can’t put ev­ery­one in the fi­nan­cial ser­vices in­dus­try in the same cat­e­gory. You can dif­fer­en­ti­ate by ex­pe­ri­ence and knowhow.

So, let’s go back to my orig­i­nal ques­tion: What’s your plan on how to han­dle your ac­cu­mu­lated sav­ings af­ter you re­tire? Or, are you “plan-less”?

Yes, man­ag­ing re­tire­ment as­sets re­quires a mul­ti­tude of in­puts, mak­ing that en­ter­prise much more com­plex, well be­yond one’s nor­mal in­vest­ment ex­pe­ri­ences. A plan is nec­es­sary.

From my per­spec­tive, the most im­por­tant part of the plan is how to pro­tect one­self from mak­ing bad de­ci­sions dur­ing turn­ing points in the market.

Just think about how in­vestors were drawn to growth stocks un­til re­cently. If your fi­nan­cial ad­viser wanted to be a hero, you could have been buy­ing the FAANG stocks — the acro­nym used for Face­book, Ama­zon, Ap­ple, Net­flix and Google — when you re­tired. If you hap­pened to re­tire when they peaked, your re­tire­ment as­sets would have de­clined sub­stan­tially.

Face­book de­clined 38 per­cent from its 52-week high through Wed­nes­day, Nov. 28, 2018; Ama­zon de­clined 19 per­cent; Ap­ple was down 23 per­cent; Net­flix de­clined 34 per­cent; and Google-par­ent Al­pha­bet was down 16 per­cent from its peak. The broad market, as mea­sured by the S&P 500 in­dex, was down 7 per­cent from its 52-week high.

That’s why part of your plan needs to be to as­sess your fi­nan­cial pro­fes­sional’s ex­per­tise not as a stock­picker, but as a man­ager of re­tire­ment port­fo­lios that need to last a life­time.

Re­tire­ment is not a good time to be clue­less.

On Dec. 15 at 2 p.m., I will be sign­ing copies of my lat­est books at Barnes & No­ble in the Stam­ford Town Cen­ter (100 Grey­rock Place, Stam­ford, CT 06901). Hope to see you there.

Julie Ja­son, JD, LLM, a per­sonal money man­ager (Jack­son, Grant of Stam­ford) and au­thor, wel­comes your ques­tions/com­ments (read­[email protected]­ja­ Her awards in­clude the 2018 Clar­ion Award, sym­bol­iz­ing ex­cel­lence in clear, con­cise com­mu­ni­ca­tions. Her lat­est book, a cu­rated col­lec­tion of Julie’s col­umns, is “Re­tire Se­curely: In­sights on Money Man­age­ment From an Award-Win­ning Fi­nan­cial Colum­nist.” To hear Julie speak, visit julie­ja­

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