To have the confidence needed to retire, investors need to assess what resources they have and allocate them for both long-term growth and short-term peace of mind. Art Rothschild explains in a Money Talk Video with Joel Dresang.

Joel Dresang: Art, there’s an annual retirement survey that finds that Americans are putting off when they’re retiring. And that’s especially true of Americans who aren’t confident about retirement. What can you do to help boost the confidence of people?

Art Rothschild: Making that retirement decision’s a big decision in someone’s life. They’ve spent their entire lives accumulating wealth to get to that point at which they can afford to retire; they better be prepared. And so the first thing they should do is assess their resources – make sure they have enough money set aside so they can meet their retirement obligations. That’s the first thing.

Joel: So, if they have a plan, they kind of know what they need for retirement, they gather all their resources. What kind of resources are you taking about?

Art: They should add up what they have put away in IRAs, 401(k) plans, Roth IRAs, other investment accounts.

They should check on how much they’re going to get from Social Security. If they have a spouse, how much their spouse will be entitled to from Social Security.

Pensions – either they could get a lump sum that they could invest, to draw from later, or they’ll be taking a monthly distribution.

So, these are the types of things they should definitely add up to see how that will fit toward meeting those retirement goals.

Joel: And once they get that all together, what do they do with it?

Art: We develop an asset allocation plan, typically, that will have about 60% of the portfolio in stocks, about 40% of it in bonds. And then we’ll plan a 4% draw rate, perhaps, to hopefully meet that retirement spending objective.

We also have to determine where their draws are going to come from. Sometimes there’s tax planning we do at that point.

We tend to think, again, about a 60/40 split between stocks and bonds is appropriate. We think a 4% draw rate from a portfolio is appropriate as well. You put all that together and if it meets the objective, then you can retire comfortably.

Joel: So, that draw is used with those other assets – the pension, the Social Security – to provide the living that they need. Some people get nervous about being in the stock market. How do you reconcile that with retirees?

Art: Joel, that’s a great question. That’s one of the reasons why we do balanced portfolios. We divide up a retiree’s portfolio into two parts. Basically, we’ve got the stock part – 60% that we are investing for long-term growth. And then we’ve got the safer part, what we call the fixed-income portion – about 40% of the portfolio that we’ve designed so that they can draw that 4% per year that we think is safe.

Joel: So, 4% out of that 40% of their portfolio. So, that gives them 10 years of peace of mind.

Art: And that’s exactly the point. We know that we put aside enough to last 10 years. We also know that the average correction doesn’t last nearly that long.

It’s the fixed-income portion that we want our retired clients to be focused on. That’s the place from which we’re going to be drawing 4% per year in order for them to have a successful retirement. So that’s what they should be focused on, not the part that’s going up and down and making more money over long periods of time.

Joel: So, that all makes sense logically, but a lot of times we get emotional about our investments and retirement. What do you do to address that?

Art: This is where it’s important that they check periodically. If they have questions, call whoever might be helping them.

But, it’s also important that they realize that this is retirement. This is when they should be enjoying life. So, just set it. Don’t forget it. Keep in touch. But enjoy the rest of your life. It should be the best vacation and the longest vacation you’ve ever had.

Art Rothschild is vice president and investment advisor at Landaas & Company.

Joel Dresang is vice president-communications at Landaas & Company.

Money Talk Video by Jason Scuglik and Peter May 

(initially posted Aug. 24, 2016)

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