Here are some of the challenges that could lie ahead this year,
plus some suggestions for how you might deal with them to help secure your
financial future.
Looking forward to the new year, my advice is to be, well, flexible. It’s difficult to foretell the future, even when the future is tomorrow. So, predicting (guessing) what the next year will bring has historically been proven wrong, often by a lot. As we review ideas about 2024 from several market observers, remember that we will undoubtedly need to adjust and rework our retirement plans.
Americans face retirement income
shortfalls
Vanguard’s Retirement Outlook study points out that workers who earn more will likely have more savings for retirement. Even so, most of us have to be aware of potential shortfalls. The report suggests that sensible investments in the markets, accessing home equity, and even working longer might all be steps to take. Sound familiar?
For some advice on what to do about preventing your own shortfall, read my article Annuity Payments Are 30% to 60% Higher: Time to Reconsider to learn about ways to fill the gap in retirement income. To get a quote for yourself, visit the Go2Income calculator.
Calculate
your own safe withdrawal rate
Every year, Morningstar recalculates its safe withdrawal rate that retirees can use to predict whether their portfolios will last 30 years. Its rate is back at 4%, up from 3.8% in 2022. The financial services company makes adjustments based on its prediction of inflation, bond yields and stock prices.
Morningstar says the new rate assumed
that 20% to 40% of a retiree’s portfolio was invested in equities and the
remainder in bonds and cash. In tests, this allocation resulted in a 90%
probability of success.
I shared my thoughts about the 4% rule
in the article What’s Your Retirement Number? Don’t Just Go
by the 4% Rule. Studies have shown that three-quarters of all
financial advisers rely on the 4% rule when offering guidance to their clients.
There are issues with “one-size fits all” rules that impact the 3.2 million
Baby Boomers who retired last year — and had their own, individual set of
objectives.
Could traditional pensions make a
comeback?
With economic ups and downs that are increasingly more difficult to predict, those good, old pension plans are looking even better. Only 15% of private industry workers had access to a pension plan in 2022, according to the Bureau of Labor Statistics. A recent New York Times article noted that economists expect that Baby Boomer retirements will force employers to offer new types of pensions to hire and keep employees.
My article Become Your Own Pension Manager discusses
managing your retirement plan to get some of the benefits of a pension. You can
also read my article Curious About a QLAC? SECURE 2.0 Act Gives
This Annuity a Boost to get more information about converting
your 401(k) to an annuity-centric plan that acts more like a pension.
The long-term care insurance
quandary
You may have noticed that private insurers often do a poor job of providing affordable long-term care insurance for the millions of retirees who might need home health aides, assisted living or other types of assistance with daily living. Admittedly, it’s easy to see that most people will require some sort of long-term care later in life. Figuring out specifically who will need it is the tricky part. The article Long-Term Care Insurance: To Buy or Not to Buy? can help you decide whether you should purchase.
However, you might also find that your retirement plan can pay for more than it could just a few years ago, as our couple discovered in my article How Finances Can Improve for Retirees — And the Next Two Generations. Specifically, they considered a home equity conversion mortgage (HECM), also called a reverse mortgage, which can provide: 1. Additional cash income to pay for things like LTC premiums or other costs, and 2. Additional liquidity later in life if you pay interest on your HECM.
U.S. mortality rate remains high
A Swiss Re executive expressed concern
to Think Advisor in November that
the U.S. death rate remains above the pre-pandemic rate. That trend might lead
to higher costs for services like insurance.
My article How to Get More Retirement Income From Your 401(k) gives tips on building more income with an integrated approach of investments and annuities in order to cover higher costs. The question we can also ask is whether increased mortality will translate into better annuity payments.
What AI might look like in 2024
A New Year’s hope from Ge Wang, a Stanford University
senior fellow, is “that we can have the wherewithal to continue to ask the hard
questions, the critical questions about what we want from artificial
intelligence in our lives, in our communities, in education, in our society.”
Ge predicts that more types of generative AI technology, such as ChatGPT, are
going to be offered in work, play and communication.
I have used AI tools, but so far, they aren’t enough to replace your adviser — or your own judgment. In my article Can AI Plan Your Retirement Better Than I Can? I wrote, “The biggest difference, so far, between real people and anything the programmers can devise is that people can imagine and create their our own philosophy and strategy about how to save and invest for retirement to meet our diverse personal circumstances.” In other words, we’re still smarter.
Don’t rely on stock market
predictions
Analysts love to predict where the stock
market will go at the beginning of the year. They got 2022 wrong, and they
totally missed on 2023. So don’t rely on predictions for short-term market
moves, because there is no evidence that anyone can reliably predict the
market’s movements.
A reasonable way to diversify as you
protect assets is to follow the guidelines in my article For Sustainable Retirement Income, You Need
These 5 Building Blocks.
Happy New Year!
No one will be able to make sense of all
the sometimes-conflicting predictions. But you can create a plan for retirement
income based on your own circumstances and your own ideas about how much safe
income to build into your plan. You can also generate a financial legacy,
determine how to pay for late-in-life health care and find the money to
maintain your home.
Visit Go2Income to get started on a plan for you and your family. Creating your financial future will help you prepare for 2024, too. One of our early articles in 2024 will be about taxes — and how to keep as much income as possible for yourself. Other articles in 2024 will cover some new elements added to Go2Income to not only save on taxes but manage retirement risk.
Here’s to a secure and safe 2024!