New Year’s Considerations for Retirement Planners

Due to both impending market volatility and the general need to reduce risk in retirement, rebalancing assets away from the stock market may be a good bet in the new year. "So far in 2014 and 2015, U.S. large-cap stocks and global real estate have been the asset classes that have led the way," said Steve Elwell, Schroeder, Braxton and Vogt vice president. "At this point, though, people need to review their target allocations and probably start to rebalance some of it out of those assets."

Dave Richmond, president of Richmond Brothers, Inc., agrees. "The markets have done incredibly well since their recovery in 2009, but if you don't rebalance, you're just building a bigger roller coaster," he said. "As you save more, you have to make sure you're building a bigger safety net along the way."

Delaying Social Security

Social Security recipients have long been able to boost benefits by delaying collection, but with lifespans and retirements growing longer each year, securing a high, lifetime guaranteed payout is now more important than ever. And, unlike many other assets, Social Security has built-in inflation protection via the cost of living adjustment. "Every year you delay you get an approximately 8 percent higher benefit, and I don't think the average American realizes it's that high," said Elwell. "From an investment standpoint, an eight percent guaranteed return in today's interest rate environment is hard to pass up." Social Security agents are neither trained nor instructed to give advice on collection strategies, however, so it's up to advisors to help their clients make the right choices.

Catch-up Contributions

Catch-up contributions to 401(k)s and other retirement plans are also growing increasingly important for pre-retirees. According to the Bureau of Labor Statistics, only about half of the civilian work force is making regular contributions to their retirement plans, but people with potentially fewer remaining work years than retirement years can't afford to skimp. As of 2015, workers 50 and older can contribute an additional $6,000 to a 401(k) and $1,000 to an IRA. "If a client doesn't adjust their savings amounts as they earn more money, they're ultimately saving a lower and lower percentage of their income," according to Richmond. For clients who spend more as they make more, the catch-up contribution could be crucial for maintaining their lifestyles in retirement.

Handling Market Volatility

"Everyone I read suggests this will be an even more volatile year than last year, perhaps the first 10 or 15 percent correction," said Richmond. "You've got to prepare your clients and set expectations." Given impending market volatility and the need to create cash flow for upwards of 20 years, soon-to-be retirees will need to build larger guaranteed income streams while also avoiding emotional investment decisions. "The most important thing is to make sure you're building a bigger safety net as you build a bigger pie," Richmond added. "People's portfolios have grown in the last five years, and the question is how we're preparing to handle the next downturn. In order to realize the positive, you have to get people to hold through things, and building a bigger safety net is the bet way to get people to hang in there."