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How to retire amid inflation, according to financial advisors


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Reaching retirement with an egg you trust will last is a stressful endeavor even in the best of times.

Today, those nearing the end of their careers also face historic inflation, unpredictable market volatility, and the remnants of the coronavirus pandemic.

We asked four of the financial advisors who did CNBC’s FA 100 list in 2022 what they are hearing from their former customers and how they respond.

Rising interest rates raise concerns about pensions

Kyle W. Harlemert, an Indianapolis-based financial analyst, said: “Many concerns of those who are about to retire today are the same as in the past. Woodley Farrawhich 1st place on CNBC’s FA 100 list. “‘Will I outlive my retirement accounts? Will I be able to maintain my current lifestyle? If I die, will my spouse be fine?”

A new concern, Harlemert said, is the impact of a rate hike have everyone’s pension.

The value of the pension is partly based on prevailing interest rates, he explained. Specifically, as interest rates rise, some people may see the value of their pension fall because the formula assumes that their money can get more return in low-to-risk-free investments. .

“Customers are saying, ‘Last year, I opened my account and my lump sum was $1 million; today it’s worth $977,000. Why is it down?”, said Harlemert. “People worry, ‘Do I need to retire now before it hits zero?'”

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Over the last 10 years, he said, they have seen their pensions mostly increase in value as interest rates remain at historic lows. Harlemert said the company explained to customers why their value had dropped a bit and informed them of all their options to compensate.

Pensions can be invested in high-quality government and corporate bonds, and even in stocks, he said.

“We try to educate our clients that even if they receive a lower amount, we can invest in assets that are likely to generate higher rates of return to offset the loss,” says Harlemert. less than that.

‘Inflation is the top issue’

JC Abusaid, president and chief executive officer of Halbert Hargrove in Long Beach, California, ranked eighth on the FA 100 list.

Other questions the company gets from this group are how far down the market will go and when it will recover.

The current combination of rising prices and market volatility can be difficult to deal with immediately because they tend to require opposite solutions: People want enough cash to deal with a downturn of stocks, but an increased equity ratio can often help ease the pain of inflation.

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Abusaid says his company is trying to strike a balance with these goals.

“We’re going into 2022 with 10% cash on hand for most customers, and that’s been a breeze,” Abusaid said. “It allows us to reassure customers that their essential needs remain unmet for the time being.”

At the same time, he said, the company ensures customers, including those nearing retirement, still have plenty of money left in the stock. “This level of exposure is beneficial to keep pace with inflation over the long term,” he said.

The pandemic has made some people ‘rethink their longevity’

Mark R. Mirsberger, CEO of Dana Investment Advisors in Waukesha, Wisconsin. The company is ranked 2nd in this year’s FA 100 list.

“What’s new is [that] Vivid risks and limitations cause some retirees to rethink their longevity and desire to speed up their spending and enjoyment of life. “

The pandemic has “raised the reality of our mortality,” he added, and has resulted in older customers taking more expensive trips and not delaying some experiences or costs. for the distant future.

Despite rising interest rates and attractive opportunities in the bond market, Mirsberger said, the company expects equities to outperform bonds over the next decade, “and therefore we think the Supplementing with 50% to 70% stocks is ideal for most retirees. more than 10 years of time.”

‘The current environment is challenging’

“One benefit of the Federal Reserve’s fight against inflation is the dramatic shift in interest rates,” said Kip Keener, chief compliance and operations officer at Salem’s investment advisor in Winston-Salem, North Carolina, ranked 6th on the FA 100. “For the first time in several years, investors can earn returns in the range of 4% to 5% on fixed-income investments. .”

That change allows older clients to generate larger returns in retirement without taking on more risk, Keener said.

Many retirees and near-retirees are also panicking at the new projections of how long their nest eggs will last, he said. That’s because these formulas are taking into account the current state of high inflation and expecting the need for a sustained increase in spending. (For example, popular 4% rule increase each year along with the cost of living.)

However, much of this fear has been overblown, Keener said.

“Both investment returns and inflation rates are often associated with a certain ratio, but the reality around the world is that there is a lot of variation year over year in both,” says Kenner. “While the current environment is challenging for both investment returns and inflation rates, we should not use outliers data as a new base case for assumptions.”

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