The Truth About Retirement
Is More Gut Feel Than Definition
One of the more interesting definitions of retirement that David Zander retrieved from a Google search that netted 12.4 million results pointedly contrasted the difference between a more traditional concept of retirement and its current perception.
The definition presents retirement as “the disposal of a fixed asset at the end of its useful life,” said Zander, a certified financial planner who is a principal with Achaean Financial, Fort Wayne, Ind. Zander spoke during the annual meeting of the National Association of Variable Annuities in October.
But speakers at the conference emphasized that both in perception and in fact, this definition is far from the case.
There is a “virtual nation” of retirees and pre-retirees that is 76 million strong, a number that is nearly as large as Germany, according to Cynthia Egan, executive vice president of FMR Corp. and director of the retirement services business unit of Fidelity Personal Investments, the personal investment unit of Fidelity Investments, Boston. For couples who are age 65, she told NAVA attendees, the chance that one will live to age 92 is 50% and the chance that one will live to age 97 is 25%.
For those who do live into their 80s and 90s, she says, retirement can be risky. The issues they face include longevity, inflation, asset allocation and health care expenses.
And, one of the biggest risks, Egan continued, is that “many pre-retirees are drifting into retirement without a plan.”
It is this lack of planning that Rick Carey, founder of the Variable Annuity Research & Data Services and a managing director of research with Finetre Corp., Atlanta, referred to when he said during the annual meeting that “the journey has begun” for issuers, distributors and advisors who will face this issue going forward.
Carey kicked off a session in which two top national financial advisors discussed some of the practical considerations that the need for income planning is creating.
An income plan should, among other things, use real-money projected returns and not overall return as a basis for planning, and should use realistic market returns predicted going forward, according to Harold Evensky, a fee-only planner with Evensky, Brown & Katz, Coral Gables, Fla.
A 12% return that investors have become accustomed to may be more in the range of 6% going forward, he indicated. And, when inflation is factored in, that return may be whittled away to as low as 2.4%, Evensky added.