Professional Retirement Advisory Firm Serving Santa Barbara & Los Angeles
RETIREMENT GOALS THROUGH ONGOING FINANCIAL PLANNING SERVICES
The most frequent question we receive for those individuals’ approaching retirement is whether they can afford to retire, followed by what their budget should look like in retirement and advice on the different Medicare options. Fortunately, we are in the business of providing retirees advice on what their financial futures are likely to hold as they transition into income-based retirees. Notwithstanding the fact that we are experienced at establishing diverse income portfolios for retirees, we are active in building budgets driven by sources of income, expected expenses and financial goals for retirees.
The questions retirees face are increasingly complex and simplistic rules of thumb approaches rarely provide the best solution. There are many challenges of aging for those already retired or near retirement, and our advisors continually take actions to help protect our clients’ families and their quality of life. Maintaining a financial plan requires careful coordination with your investment strategy, and both must be reviewed regularly. Because investment returns and lifestyle expenses are closely connected, ongoing analysis and timely adjustments are essential to staying on track toward your retirement goals. For income retirees, we create portfolios to generate cash flows in the most effective, efficient ways possible to deliver steady income that meets lifestyle objectives. We also offer reduced advisory rates for retirees living solely on a fixed income, given these portfolios typically don’t have material growth components.
The greatest risk in any portfolio is time—specifically, the shrinking window to capture higher returns or recover from losses as you approach retirement. And that’s where the trouble lies with what is called “sequence return risk.” If your portfolio experiences decline early-on in your retirement, and coincides with you taking retirement income withdrawals, it becomes increasingly difficult to make up that lost ground over time. Not only do you have to recoup the market-induced losses, but you also have to recoup your withdrawal rate (commonly around 4% of portfolio for retirees).
Too often, after receiving a financial plan*, we see recommendations left unimplemented or carried out incorrectly. Given the complexity of financial planning and the serious consequences of missteps, proper execution is crucial. That’s why many clients choose to continue working with our firm after their plan is delivered. We ensure recommendations are implemented accurately and adjust strategies as needed to reflect changes in the markets, tax laws, or personal circumstances.
According to an Allianz study, 92% of Americans working with a financial advisor say that person is helping them reach their financial goals and 86% say their advisor relieves the pressure of trying to plan their family’s financial future by themselves. Financial planning without ongoing monitoring and adjusting is like running a marathon once and believing that you are going to be in great shape for the rest of your life.
This service maintains your financial fitness via:
- Annual updates to your financial plan*
- Close tracking of every detail of your personal financial situation
- In-depth reports and task list
- Taking you through the investment process (2-3 meetings to teach you about investing)
- Periodically checking your asset allocation to ensure that it is within the limits
- Access to Web-based retirement planning tools
- Implementation of the recommendations within days after engagement
- Answers to all of your financial planning-related questions
- Important articles, research and commentary about personal finance via e-mail
- Social Security — Get estimates of your retirement, disability, and survivors benefits. Additionally, you can use Social Security to get your earnings record and the estimated Social Security and Medicare taxes you’ve paid.
- Pensions — Possible inheritances.
- We’ll see if you’re saving enough with retirement scenario calculations.
- Value of real estate, personal property, antiques, art, jewelry, gold, collectibles, business interests, etc.
- Annuities — We do not sell annuities / however, we will neutrally evaluate these products & the prospects of 10% yearly withdrawals, etc.
- Life insurance values, if any.
- Income from investments and retirement funds including, stocks, bonds, trusts, real estate.
Deciding when and where to retire is one of the most important decisions of our lives. Alternatively, if you’re already retired, you should continue to reassess your situation and be ready to adapt to changing conditions as well as your changing aspirations. There are many considerations in which professionals are best equipped in helping plot the best course, such as assist you with defining what you want to do in retirement (are you still going to work part-time?), determine retirement income, evaluate long-term care costs, take inventory of your assets, figure out your health insurance, consider downsizing home or relocating to retirement community, make a plan, etc.
We also advise on reverse mortgages as an option to turn equity into cash while still living and owning your home. The loan products are complex and fraught with the good, the bad and the ugly. We help determine suitability, the best options, and of course, how to develop an effective income portfolio from the cash proceeds to offset accrued interest expense and costs of living. For more information on the pros and cons, click this Reverse Mortgages link.
There are also unique tax considerations that are unique to retirees. For example, some of the ongoing tax considerations in retirement are Social Security Income (benefit size, marital status & other income sources), partial conversion of traditional IRA into Roth before 70.5 age (if you do not require full annual RMD), determine social security deferment factors (to maximize income), allocate income investments to the retirement accounts (tax efficiency), etc.
Top retiree regret? Not doing it sooner. So what can investors do to improve the odds of retiring earlier? Invest more, sooner and max out your contributions to the tax deferred accounts (annually), avoid high credit card balances, invest your money wisely with reasonable returns, don’t take unnecessary investment risks, have suitable mortgage terms (if any), budget your savings (don’t borrow from your future with high luxury expenses), plan early for child educations costs (529s, Educational Accounts) and make a financial roadmap with a financial advisor – become educated and guided along the retirement pathway.
Now let’s discuss retirement income withdrawal rates. The problem with basing withdrawals on current portfolio values is that, if the portfolio declines in value from one year to the next, withdrawals will drop by the same percentage. For example, with a $500,000 portfolio and a 5% withdrawal rate, a 20% drop in the portfolio will reduce annual withdrawals from $25,000 to $20,000. Modern financial retirement approaches have recognized the need to smooth withdrawals when employing adjustable strategies, and have come up with a variety of different methods.
For example, Guyton/Klinger rules set outer boundaries for withdrawals based on two rules: the “prosperity rule” and the “capital preservation rule.” The “prosperity rule” increases withdrawals by 10% in any year that the current withdrawal rate falls to 20% less than its initial level. The “capital preservation rule” applies during the first 15 years of retirement and cuts withdrawals by 10% if the current withdrawal rate rises to be more than 20% above its initial level. Within these boundaries, the decision rules take away the annual planned inflation adjustment if the prior year’s investment return was negative and the withdrawal rate based on the current portfolio level is higher than the initial withdrawal rate. Otherwise withdrawals increase with inflation each year as under the 4% (or X %) rule.
The only new clients we are currently accepting are those who are interested in hiring us to provide ongoing financial advisory services.
Contact us for a complimentary consultation: (805) 965-7955 | Email: ContactUs@McapitalMgt.Com
*Not all clients require comprehensive financial plans as the considerations for such plans are partly determined by current financial assets, future economic standing and the degree of each individual’s existing planning of their own financial affairs. Also, some clients decide to forgo a detailed financial plan and prefer an overview of assets, income, expenses, health & insurance policies to determine their prospective financial stability and retirement timeline.
Financial Planners & Retirement Advisors serving San Luis Obispo County, Santa Barbara County, Ventura County, Los Angeles County & Orange County
Disclaimer: The website provides general information regarding our business along with access to additional investment related information. Material presented on this website is believed to be from reliable sources and is meant for informational purposes only. The intent is to provide helpful information, which should NOT be construed as investment advice. We do not guarantee its accuracy, nor completeness, and it is not intended to be the primary basis for investment decisions. We do not make personal investment recommendations to people or entities except to those who have engaged us expressly for the purpose of providing professional investment advisory services. Investing involves risk and possible loss of principal capital. Montecito Capital Management Group’s ADV filing is available online at http://www.adviserinfo.sec.gov and current FORM ADV Part 2, which describes the services offered, fees charged and detailed company information, among other things, is available upon request free of charge. We are limited in our fiduciary capacity by the firm’s non-discretionary client relationship, whereby the client dictates the investment parameters and contractually agrees to accept sole responsibility for their choices.