in Longevity, Segmentation

In a recent column entitled “The myth of outliving your retirement savings“, Gail MarksJarvis outlines one of the key issues that arises from the lack of retirement income planning provided to Americans: without guidance, even diligent savers with substantial nest eggs have no idea how to manage their retirement spending.

The thought of a household that has $500,000, $750,000 or even $1,000,000 in retirement savings only spending 25% of that money in the first 20 years of retirement may initially be encouraging, and suggest that the impending “crisis” that is often discussed around the boomer generation retiring may not be an issue at all. However, when the reality of that scenario is revealed, it paints a grim picture of how substantially a couple’s quality of life may suffer in retirement, purely due to their fear of destitution.

The article mentions an interview that was conducted with a financial advisor in Wisconsin. The advisor reveals that they “have a lot of clients who are very well off financially and live in trailers in Florida”, and refers to them as “quiet millionaires”.

Nobody wants to spend a working lifetime saving and accumulating just to move out of their house and into a mobile home, deny themselves the chance to travel, or even give up on pleasures as simple as dinners out. The prospect of lost opportunities is disappointing, but the psychological toll of the fear that drives these behavior changes is downright depressing.


What’s the answer to retirement spending anxiety?

Proper financial planning delivered by an advisor is the first step. Getting a clear picture of not just where you stand, but where your goals lie is the foundation to building a reasonable cash flow in retirement. Once the advisor has both a client’s assets and desires established, they can move on to structuring an income plan that delivers on those goals.

As MarkJarvis shares, these goals are often very conservative, and advisors find themselves delivering exciting news to their clients that finally gives them permission to spend. Additionally, advisors who use time segmentation to structure income plans can provide a high level of clarity around how and when those goals are delivered on, as well as all the flexible possibilities for asset retention that arise. In other words, not only can the client spend more than they thought, but they can also target having a substantial balance left over at the end of the plan, just in case.

Time segmentation is a planning strategy that breaks invested assets into a number of time horizons, only taking income from short-term, guaranteed sources, and putting aside assets for unexpected events or longevity. By keeping assets that aren’t needed for 10 or more years separate from income distributing assets, short-term market risk doesn’t impact a retiree’s lifestyle, and gives time for these assets to recover and grow before they are needed. A well-managed plan overseen by an advisor will often present opportunities to reduce risk far out into the future, and make it easier to react to unexpected changes in a retiree’s situation.

Savers moving into retirement should be rewarded for their foresight and discipline, not relegated to anxious, uncertain, oppressive lifestyles. Advisors can help them live the retired life they want, freeing them to safely spend through a thoughtfully constructed and carefully managed time-segmented income plan.

To learn more about how IncomeConductor makes time-segmentation easy, or to find an advisor near you who offers retirement income services, Contact Us.