Education Day: Accumulation and Decumulation | Ben Watson


welcome to TD Ameritrade investor
education day my name is Ben Watson and I’m presenting a discussion that Dara
Luber and I had on education day in October 2019 again Ben Watson our
topic today goals into action steps you can take to build a robust retirement
plan this is a presentation that Dara Luber and I have presented in numerous
market Drive events as well as education days for a little while a couple of
quick reminders asset allocation diversification don’t eliminate the risk
of experiencing investment losses all investing involves risk including the
risk of loss past performance of any security strategy doesn’t guarantee
future results or success in any specific examples that we look at simply
for illustrative and educational purposes only now there’s my information
I’ve been an education coach at TD Ameritrade since 2005 Dara Luber who
presented this material with me on education day senior manager of the
retirement products the department responsible for the management
development of retirement strategy and investment services over 18 years of
financial services experience and a great presenter so our topic turning
goals into action begins with this idea that in order to plan for retirement and
in order to have an effective means of planning for retirement we have to have
a series of conversations and those conversations begin with a conversation
that we might have with ourselves that’s how we begin to turn goals into action
so there’s questions that we might ask ourselves as we’re having that initial
conversation about financial planning a retirement planning
when can I retire how much do I need am I going to be ok is my family going to
be ok and can I live my best life now while those questions seem similar at
the outset they are perhaps a little more detailed than we might think
because when we talk about questions like when
can I retire some people have some investors may have the idea of working
and saving and investing for a long period of time because they enjoy their
career some people want the aspect of retiring early and being financially
sound at that point so that is one of the things to think about in asking
these questions the next step might be asking the question how much do I need
am I going to do things that I want to do or I wish that I could do in my
retirement or am I going to be confined by just making sure that I meet the
needs that I have am I gonna be okay am I gonna have enough money am I gonna
have enough money for my lifespan which might be increasing so let’s talk first
of all about the idea of the accumulation phase the first portion of
our retirement planning time frame as we turn goals into action this is the area
where many investors are at the moment they’re planning for retirement they’re
saving for retirement they’re investing for retirement they’re accumulating and
building wealth in their retirement account through a variety of means so
they one of the the processes that we might take is simply this how do we go
about saving for retirement well it starts with identifying our goals it
then continues into assessing future expenses what am I gonna have to have
out in the future to do the things that I want to do I need to do and I would
really wish that I could do consider the current assets and savings so have a
baseline or an understanding of what your current budget is estimate what
your assets are going to be at retirement calculate the length those
assets have to live and that’s a nebulous one because none of us know
obviously when our retirement opportunities and our planning are going
to come to an end unfortunately and then determine our risk tolerance and our
time horizon so let’s start with that idea of identifying goals for retirement
and really one of the first best ways to identify your retirement goals is to
set up an appointment with a financial consultant at a TD Ameritrade branch
they have some very robust tools to be able to help you to accomplish this but
in general terms here’s what we want to do we want to identify those goals that
we have and break them down into three separate areas one needs right the
things that we need to have shelter food medical care the things that help us to
be safe sound and secure those are our needs and those are the things that we
need to take care of for ourselves and for our family the next step is
identifying the things that we want to do saving for college so that we can
help our kids or our grandkids to pay for college helping others helping a
community around us maybe traveling those types of things those are wants
those are the things that we want to do that we’re compelled to do because they
make us happy they help us to live our best life and then those wishes those
things that hey if everything else is taken care of I’m feel safe and secure
the things that I want to do in terms of taking care of my family and those
around me in my community those are taken care of then I can get to those
wishes the things like hey I want to have a fishing boat or I want to have a
vacation home somewhere else or I want to take a world cruise or whatever it
might be those fall in that wishes category of the goals for retirement but
the basic concept needs wants wishes needs are the things we have to have
wants are the things that we really would like to do that we want to do wishes if
everything else is taken care of now we can start attacking some of those Wish
ideas and then the next step estimating our assets or retirement so it’s a very
simple formula what are our savings and investments today and then the
additional savings that we might have over time minus the withdrawals that we
expect to make plus or minus any market impact and market impact is one of those
things that becomes relatively nebulous to understand right we don’t know what
the market is going to do tomorrow we don’t know what the market
is gonna do next year or ten years from now so it’s important to have a good
stable idea about asset allocation and diversification as a matter of fact TD
Ameritrade has some great educational resources to be able to help you
understand market impact and diversification and all that is then
going to get us to our projected assets at retirement the idea being that if we
know where we’re going to be at retirement we know how much we can
withdraw or spend in that decumulation phase but we’re primarily focused right
now on the growth phase of this side of the curve estimating the number of
assets the amount of assets that we’re gonna have at retirement and then
calculating how long those assets must last now the screens that you’re seeing
here these are using the retirement calculator tool which is available on
the TD Ameritrade website that is a small part of the goal planning tools
that are available to the financial consultants and TD Ameritrade branches
so this is a great way for you to get to get a head start on that meaning that
you might have with them we encourage you to set one up as quickly as possible
so that you can get started planning your goals and getting on the way
towards building your retirement building a legacy for those you love and
those around you but you need to calculate how long your assets may last
from the time that you retire and stop adding to the pile to the time that well
you stop and the idea being that if you know where you are at your retirement
date and again you know how much you’re gonna spend you can see how long those
assets might last and again that’s just a projection because we don’t know what
that market impact is gonna be but the retirement calculator tool can help you
to do that you know in a fairly quick and efficient fashion it may be
eye-opening some of you may be well on your way and the curve looks pretty good
and some of you may be experiencing what Sally in this particular case might be
experiencing which is her assets may not last all the way out to all the time
that she might expect her life span to be over
the next step is determining our risk tolerance and our time horizon generally
the thinking is this the younger we are and the more time that we have to invest
in the market the more time we have to suffer through and recover from market
downturns therefore we’re willing to take a little bit more risk because of
that fact so that our returns are potentially greater risk tolerance when
we’re young professionals 35 and under might be higher or the highest level
that we might see and when we retire that risk tolerance might go down quite
a bit because at that point there’s not a lot more time perhaps to recover from
some of that market impact so keep in mind your risk tolerance and time
horizon these are simply suggestions and ideas these are not hard excuse-me and
fast rules for risk tolerance there is some conventional wisdom around the idea
that the again the younger we are the more risk tolerant we might be there’s
also some ideas out there about flip-flopping that that as we’ve built a
retirement account over time that we get to retirement maybe we’re at peak earner
getting into retirement then we have the ability to make sure that all of those
things that we need are covered and therefore we can be with at least a
portion of our portfolio perhaps a little bit more risk tolerant and we
increase our returns over time as well so understand timeframe and risk
tolerance you know some account types and we’ve talked a lot in this TD
Ameritrade education day about the different account types and we’re not
going to go into specifics of these but some of the things think about you might
have a 401k plan sponsored by your employer you might have a traditional or
Roth type of IRA individual retirement account do I have a savings camp I also
have a traditional brokerage account as well and various other types of accounts
as well so 401k provides tax and compounding benefits your company may
offer matching contributions a traditional IRA supplements your
financial future offers some tax advantages and the savings account may
act as and be the location for that rainy day fund that helps you
to make sure those needs are covered it can be used to save for large purchases
it has a lot of flexibility so our next step in deep diving into this transition
as we transition from saving up and accumulating to spending that’s that
transition point that happens one day boom there it goes you’ve retired now
you’re sitting there and you’re looking at your retirement account balance
you’re thinking oh I’m going from bringing in a paycheck to taking money
out so again the important things to remember asset allocation and
diversification don’t eliminate the risk of experiencing investment loss be aware
of those things remember that anything that we talk about simply for
illustrative and educational purposes only so saving for time versus
living in retirement saving your earning a paycheck you’re saving for goals
you’re growing your assets you’re determining when you’ll retire you’re
working hard to build your retirement go to assets the risks are marketing
volatility inflation market impact the desire to perhaps do something else
and then the difference the shifts between savings retirement living
retirement is now you’re taking a paycheck out of those assets that you’re
built you’re drawing down your nest egg your focus shifts to preserving capital
as opposed to growing the capital you’re worried about determining how long
you’re gonna live and you’re living your best life you’re doing what you can to
take advantage of those wants and wishes but some of the risks are maybe you live
longer than you expect it Oh some of the other risks might be maybe you start
withdrawing but you need to know when to withdraw what out of your account
healthcare costs we know are certainly increasing over time and the cost of
long-term care definitely increasing as well so now we’re in that situation
where we need to spend down assets interest and dividends may not meet all
of our needs remember we bucketed things into those needs and wants and wishes so
we’ll start to perhaps dip into other aspects of our retirement account either
the principle if you will so there’s a shift from saving to spending protecting
gifts over or under spending and we know that spending
will change with time so create a process for withdrawals for your life
remember that you’re not average you might spend as much as 30 plus years in
retirement include your spouse and your other household members who depend on your
income so keep in mind those dependents and remember that sometimes in a couple
situation in a male-female couple has a 60% chance of living to age 90 one of
the people in that in that couple so you could be living and spending withdrawing
for a long period of time but have a process that you and your spouse can
follow meaning you know what your needs wants and wishes are now spending too
quickly and too much could deplete your assets very quickly the conventional
wisdom is a 4% withdrawal rate or spending rate creates the longest glide
path for your assets 8% depletes that very quickly 4% puts you out to about 95
assuming $500,000 and this is just a hypothetical example for illustrative
purposes only but spending too little means that you’re neglecting some of
those wants and wishes so that 4% might be a starting point for thinking about
what those withdrawal rates might be but there are some trade-offs
so you’re maximizing your income but you got to keep in mind the longevity
liquidity in your legacy but you need to keep those objectives in balance with
your needs your wants and your wishes it’s important to cover your needs
you’ve got to do that but your wants and your wishes are important as well so
that you can live your best life so remember that expenses change over time
what often Sprite a surprise expenses happen so prioritize what is important
for spending your money now let’s talk a little bit about our blueprint for using
your retirement income so build that foundation of certainty to cover those
things that are needed create an emergency fund to cover six to twelve
months of expenses match lifetime income sources meaning Social Security and
other aspects of lifetime income sources to those needs to those core expenses
and if there’s a gap using vested assets to consider purchasing lifetime or needs
based income some ideas might be annuities insurance or longevity or
disability type plans so here’s kind of how that blueprint comes together your
accessible and safe rainy day fund covers those emergencies your lifetime
income sources social security pensions annuities cover those core needs groceries
rent mortgages and utilities then your investments cover the needs excuse me
the wants and the wishes your fixed income investments your equities your
managed portfolios your dividends cover those discretionary expenses so needs
wants and wishes match those up with the income sources and that’s your blueprint
for retirement success based on your goals so using what you saved again the
asset allocation diversification don’t eliminate at risk be aware of the risk
in the market and again remember that anything that we talk about simply an
illustrative and educational example so we’ve done the same thing now here on
the decumulation side or on the spending side that we talked about at the
beginning on the accumulation side we’ve identified our goals we’ve evaluated or
what our expenses are going to be in retirement we’ve assessed our current
income sources and spending we’ve matched them up in that blueprint we’ve
determined if our assets will cover our needs for our lifetime and then we’ve
assessed our risk tolerance in our time horizon one of the tools that you might
use to evaluate your expenses in retirement is the retirement income
planning worksheet and again that’s available on the TD Ameritrade website
under the planning and retirement tab under retirement resources and again
you’re going to start with a snapshot or estimate of your annual expenses or
mortgage utilities property taxes Medicare and other premiums build out
from there what’s inflation likely to be so surprise emergency expenses home
repairs and renovation those discretionary expenses the things that
may be you could postpone or eliminate in bad
years fun stuff like travel restaurants hobbies but an estimate is better than
ignoring a particular aspect of your expenses what about buying things like a
new car right don’t ignore that in your planning and then think about the legacy
that you leave for your kids or your grandkids and then remember to assess
those income sources do you have social security you have pension annuities
rental income real estate alimony those are possible sources of cash flow and
retirement and match those up with how they fall in that blueprint again with
the needs and then you tie in those other aspects so wants and wishes
covered by IRAs savings accounts brokerage accounts investments those
types of things and keep in mind that your inflows into your portfolio make
change over time Social Security is not a guarantee but it’s likely to be around
but it could change pensions annuities do can and do change not a source of a
non guaranteed income change deferred income it can certainly change because
of regulatory and government action so you need to be able to adjust your plan
maybe move to a new home maybe you postpone a vacation maybe some
surprises happen you know those are changes in those expenses inflation may
change remember that market returns can
fluctuate and taxes may change so be willing to adjust your plan and be
flexible and again that’s where the resources at a TD Ameritrade branch
including those financial consultants of the branch can help you to make sure
that your plan is on track and then apply what you’ve learned save early and
often be prepared to shift your mindset as you near retirement start thinking
about your retirement income five to ten years earlier than you think you might
need to and don’t ignore the monster don’t ignore planning and assessing your
goals because it’s scary because it’s gonna be a whole lot more scary when you
get to retirement and you haven’t planned for that so turn your goals into
action build a retirement blueprint and remember that anything that we’ve talked
about simply for illustrative and educational purpose
make that first step today have that conversation with yourself then you have
a conversation with a financial consultant at any Ameritrade branch to plan
your goals and start building your retirement blueprint so again thank you
very much for being here and again thank you for listening this recording please
check out all of the other TD Ameritrade investor education day recordings that
are available on this channel thanks again

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