Tuesday, April 25, 2017

What is a “safe” retirement withdrawal rate?

In an investment portfolio, the withdrawal rate is the monetary percentage from which a retiree draws from his account each year.  A “safe” withdrawal rate is a fixed percentage distributed as a systematic withdrawal that reasonably expects portfolio funds to last throughout the retiree’s lifetime. When determining your personal retirement withdrawal rate, it’s important to include adjustments for inflation and the portfolio’s ability to generate earnings throughout a specific time frame, ensuring the account isn’t entirely depleted.1

These are the basic parameters for calculating a “safe” withdrawal rate, but your specified rate can vary, depending on the total portfolio value, safeguards against market risk and inflation, living expense requirements and life expectancy. We’re here to help you determine your retirement withdrawal rate for your individual situation.

The “safe” withdrawal rate strategy was originally based on financial planner William Bengen’s research in the 1990s. At the time, a prevailing theory was if an investment portfolio generated an average annual return of 7 percent, then that was the percentage that could be withdrawn each year. However, Bengen introduced the “sequence of returns risk” concept, recognizing that an average annual return represents a series of higher and lower returns. If an individual experiences significantly low returns early in retirement, the portfolio would be too depleted to sustain a high withdrawal rate, even if that rate is justified by a higher average annual return during a 15-year time period. Bengen concluded at that time that 4 percent is generally considered a “safe” withdrawal rate.2

Other financial advisors assert that if the returns sequence is favorable in early retirement, retirees could theoretically be able to increase their spending rate. In some scenarios, the 4 percent rule could even double or triple a retiree’s wealth by the end of retirement because his conservative withdrawal rate would not spend the bulk of his portfolio gains during that time period.3

Another point to consider is that the original 4 percent guideline was based on retirees spending the same amount each year throughout retirement. However, recent research has shown that retirees tend to decrease spending as they get older. Based on this decreased spending premise, analysts have determined that the 4 percent rate could be underestimated by 0.32 to 0.75 percent. In other words, because spending tends to decrease throughout retirement, the “safe” withdrawal rate guideline may be closer to a 4.5 percent.4

When developing a retirement withdrawal rate, remember that an investment portfolio should be sufficiently diversified to allow for growth opportunity paired with risk-mitigation financial vehicles.5

Content prepared by Kara Stefan Communications

1 Bogleheads.org. Jan. 10, 2017. “Safe Withdrawal Rates.” https://www.bogleheads.org/wiki/Safe_withdrawal_rates.
 Accessed March 3, 2017.
2 Wade Pfau. Forbes. April 19, 2016. “The 4% Rule and The Search for a Safe Withdrawal Rate.” https://www.forbes.com/sites/wadepfau/2016/04/19/the-4-rule-and-the-search-for-a-safe-withdrawal-rate/#772ae67f5a10. Accessed March 3, 2017.
3 Michael Kitces. Nerd’s Eye View. June 3, 2015. “The Ratcheting Safe Withdrawal Rate – A More Dominant Version Of The 4% Rule?” https://www.kitces.com/blog/the-ratcheting-safe-withdrawal-rate-a-more-dominant-version-of-the-4-rule/. Accessed March 3, 2017.
4 Derek Tharp. Nerd’s Eye View. Feb. 22, 2017. “The Impact of Decreasing Retirement Spending on Safe Withdrawal Rates.” https://www.kitces.com/blog/safe-withdrawal-rates-with-decreasing-retirement-spending/. Accessed March 3, 2017.
5 Fidelity. “Diversify Your Portfolio.” https://www.fidelity.com/learning-center/investment-products/fixed-income-bonds/diversify-your-portfolio. Accessed April 10, 2017.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Investment Advisory Services offered through Global Financial Private Capital, LLC.


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Wednesday, April 19, 2017

U.S. Jobs Update

Americans who expect to see a wide array of new jobs on the horizon may be in for a surprise. Not only are traditional full-time jobs scarcer these days -- a combination of technological automation and corporate thrift -- but they also aren’t what they used to be. Companies are less inclined to offer full-time jobs because they are more expensive and impede organizations’ abilities to scale up or down depending on market factors.1

In fact, two economists recently analyzed data and discovered that “all of the net employment growth in the U.S. over the past decade came from alternative work arrangements, not full-time jobs.” Today, 20 to 30 percent of adults work on an independent or contract basis.2

Historically, job creation has been a good indicator of growth industries and, therefore, one component used to assess investment opportunities. As an independent financial services firm, we’re here to help you analyze your personal financial situation and create strategies utilizing a variety of investment and insurance products that can help you work toward your financial goals. If you’re interested in a comprehensive review of this nature, we’d be happy to schedule a time to discuss this with you further.

A recent study found that, in 2017, the states with the most positive employment outlooks are Oregon (25 percent), Hawaii (23 percent), Florida (21 percent), Iowa (20 percent), and, tying for fifth place, California and Oklahoma (18 percent each). Industries that have increased hiring in recent months include wholesale and retail trade, transportation and utilities, and professional services.3

North Carolina is one state that has lost a significant number of jobs -- 2.2 million since 2010 -- largely in the textile and furniture manufacturing sectors. Unfortunately, as the large population of business-owning baby boomers start picturing retirement in their near future, the potential exists for many more jobs to fall by the wayside. One economic analyst has embarked on a campaign to promote employee ownership of small businesses to help ensure their continuation and economic growth after the owner(s) retire.4

The retail industry also is seeing its share of job reductions due to the prevalence of online purchasing, rendering many long-time merchants left out on the brick-and-mortar sidewalk. For example, despite the fact that the toy industry is booming -- annual U.S. toy sales grew 5 percent in 2016 and are estimated at $26 billion -- retail giant Toys R Us recently laid off between 10 and 15 percent of its corporate employees.5

Another employment sector that isn’t likely to materialize at the rate expected is coal mining. Last year, the number of coal miners decreased by 24 percent compared to 2015. On the other hand, there is an increase in job opportunities in renewable energy sources, such as solar and wind power. In fact, in recent years the Bureau of Labor Statistics has pronounced “wind turbine service technician” to be America’s fastest-growing occupation.6

Content prepared by Kara Stefan Communications

1 Diane Mulcahy. Harvard Business Review. Oct. 20, 2016. “Why I Tell My MBA Students to Stop Looking for a Job and Join the Gig Economy.” https://hbr.org/2016/10/why-i-tell-my-mba-students-to-stop-looking-for-a-job-and-join-the-gig-economy. Accessed Feb. 21, 2017.
2 Ibid.
3 Karsten Strauss. Forbes. Dec. 13, 2016. “Where The Jobs Will (And Won’t) be in 2017.” http://www.forbes.com/sites/karstenstrauss/2016/12/13/where-the-jobs-will-and-wont-be-in-2017/#1e9fa96d1a43. Accessed Feb. 21, 2017.
4 Darren Dahl. Forbes. Feb. 21, 2017. “How North Carolina Can Save Jobs from the Coming Silver Tsunami.” http://www.forbes.com/sites/darrendahl/2017/02/21/how-north-carolina-can-save-jobs-from-the-coming-silver-tsunami/#616ef048463b. Accessed Feb. 21, 2017.
5 Doreen McCallister. NPR. Feb. 21, 2017. “Toy Fair Shows Off What’s New as Toys R Us Cuts 250 Corporate Jobs.” http://www.npr.org/sections/thetwo-way/2017/02/21/516368759/toy-fair-shows-off-whats-new-as-toys-r-us-cuts-250-corporate-jobs. Accessed Feb. 21, 2017.
6 Erika Fry. Fortune. Feb. 21, 2017. “Sorry, Coal. Solar Is Where the Jobs Are.” http://fortune.com/2017/02/21/donald-trump-jobs-coal-mining-solar-energy/. Accessed Feb. 21, 2017.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

Investment Advisory Services offered through Global Financial Private Capital LLC.


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