Julie Jason: Are you ‘clueless’ about retirement savings?

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 (readers@juliejason.com). 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 juliejason.com/events.