Our CERTIFIED FINANCIAL PLANNER™ professionals can help chart your course to retirement. Our
goal: to
guide you towards your long-term objectives and to ensure you maintain financial security along the
way.
We work with clients to navigate every phase of the retirement planning process: saving, investing,
tax planning, and cash flow management. The guidance and preparation we provide our clients is
focused on two phases of retirement planning: accumulation and distribution.
Phase 1: Accumulation
Save, save, and save some more.
Accumulating assets and building wealth over time starts in our working years, when we can set aside
income to finance our retirement down the road. Roosevelt recommends trying to save as much income
as possible throughout your working years (20% of your income is a good goal), and we can help you
determine where those dollars should flow:
401(k)s
IRAs
Roth IRAs
Simple or SEP IRAs
Taxable Brokerage Accounts
403(b)s
And more
How Do You Know You’ve Saved Enough? We Can Guide You in 3 Steps.
Step 1: Create a Detailed Map of Your Annual Income Needs in Retirement
It starts with a simple question: “If you were to stop working today, how much monthly income would
you need to maintain your family’s ideal standard of living?”
It’s helpful to divide your answer into three categories:
Monthly Revolving Income Needs – make a list of your monthly outlays, including mortgage
payments, utilities, tuition, credit card payments, insurance premiums, subscriptions and
memberships.
Monthly Discretionary Income Needs – spend a few months tracking how much you pay for
discretionary items like groceries, gas, retail purchases, and entertainment. After a few
months, calculate the average amount you spent.
Annual Miscellaneous – consider what you’d like to set aside each year for items or
activities you love, like traveling.
Monthly Revolving Income NeedsMake a list of your monthly outlays, including mortgage
payments, utilities, tuition, credit card payments, insurance premiums, subscriptions and
memberships.
Monthly Discretionary Income NeedsSpend a few months tracking how much you pay for
discretionary items like groceries, gas, retail purchases, and entertainment. After a few
months, calculate the average amount you spent.
Annual MiscellaneousConsider what you’d like to set aside each year for items or
activities you love, like traveling.
Putting these spending factors together, the end-goal is to arrive at a monthly number-in
today’s terms and in today’s dollars – providing for your family’s lifestyle needs.
Step 2: Adjust Your Living Expenses Higher Over Time
Once you have a monthly income number, your next step is to apply it over your and your
spouse/family’s lifetimes, so you can arrive at a “lifetime income number.” In economic speak, you
are calculating the present value of your future income needs.
To paint an accurate picture of your lifetime income needs, there are a few key factors you should
consider:
$300,000+
The cost of health care is rising. According to Fidelity, in 2020 “it is estimated that the
average 65-year-old couple will need $295,000 in today’s dollars for medical expenses in
retirement, excluding long-term care.” Over the years, that number is likely to rise, which
should be factored into your retirement plan.
$300,000+
The cost of health care is rising. According to Fidelity, in 2020 “it is estimated that the
average 65-year-old couple will need $295,000 in today’s dollars for medical expenses in
retirement, excluding long-term care.” Over the years, that number is likely to rise, which
should be factored into your retirement plan.
85+
People are living longer, and medical breakthroughs of the future are likely to push life
expectancy out even further. The takeaway: make conservative estimates when planning how long
you’ll need retirement income. The Social Security Administration has a helpful calculator to
help you estimate your life expectancy: Calculate Life Expectancy.
2-3%
Inflation has been running below 2% for the last decade, but as you can see in the chart below,
inflation has not always been this low. With high levels of government debt and low interest
rates, inflation could return in the future. Your retirement plan should take it into account.
Step 3: Run a Monte Carlo Simulation
The final step in the process of determining your lifetime income need is to run a Monte Carlo
simulation, which uses computer models to reverse engineer how much money you need – and how you
should invest it – to ensure you can generate enough retirement income throughout your lifetime. The
Monte Carlo simulation looks at various market outcomes and cycles, versus assuming your money will
grow at a fixed annual rate.
Are You Ready to See How Retirement Ready You Are?
Once you approach and reach retirement age, it is time to shift from accumulation mode into distribution
mode. It’s time to generate income from your investments.
3 Options for Generating Investment Income:
1. Fixed Income
Fixed income portfolios as portions of multi-asset strategies are valuable for their ability to
protect principal and provide predictable cash flow.
U.S. Treasuries are the safest bonds, but they also pay low yields. Retirees may need to look
further out on the risk curve: investment grade corporate bonds, municipals, or even non-U.S. bonds.
2. Preferred Securities
Preferred securities offer another income-generating alternative and are often considered ‘hybrid
securities’ because of their similarities to both equity and debt instruments. With preferred
securities, the issuer promises to the investors fixed income payments over time (in the form of
fixed dividends).
As with bonds, an investor in preferred securities can expect to receive regular payments over time
with the full “par value” – another term for principal – returned when the securities mature or are
redeemed by the issuer. In some cases, the dividends are ‘qualified’, meaning that they receive
special tax treatment, which can make their after-tax yield more attractive.
3.Dividend-Paying Common Stock
In some cases, the yield on common stocks can reach 4-5%, which is quite competitive in a low
interest rate environment. Many of the most consistent dividend payers are large-cap or even
mega-cap stocks, and those stocks often operate in global markets. Owning these multinational
companies can mean giving your portfolio some international exposure, without having to buy
companies domiciled in other countries–a diversification perk. Of course, owning common stocks can
expose an investor to the risk of a declining stock market.
Your Income Needs Will Determine How You Invest.
CI Roosevelt Private Wealth Can Guide You.
Speak With an Advisor Today
Taxes Also Play a Role in How You Generate Retirement Income
Most retirement strategies also involve some level of tax strategy. The table shows
different ‘pools’ of money that can be utilized to generate retirement income. With the right plan,
a retiree can have greater control over their income tax liability.
Missing from the list is Social Security Income, which may be taxable for some retirees. Social
Security income becomes taxable when you have other substantial income in addition to your benefits
(such as wages, self-employment, interest, dividends and other taxable income that must be reported
on your tax return). According to the IRS, you will pay tax on a maximum of 85% of your Social
Security benefits.
Missing from the list is Social Security Income, which may be taxable for some retirees. Social
Security income becomes taxable when you have other substantial income in addition to your benefits
(such as wages, self-employment, interest, dividends and other taxable income that must be reported
on your tax return). According to the IRS, you will pay tax on a maximum of 85% of your Social
Security benefits.
Determining Your Asset Allocation
Going through all the above steps—and determining your long-term financial goals, objectives, and
tolerance for risk—will ultimately determine your portfolio’s asset allocation over time. This ongoing
asset allocation decision is the most important one your investment advisor will make for you, and
CI Roosevelt Private Wealth has the experience and expertise to get it right.
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