Investment Changes Post-Retirement

Experts: You’ve spent years making money — be smart when you transition from accumulation to distribution

By Deborah Jeanne Sergeant

Much will change in your life once you retire, from how you spend your time to how you introduce yourself. One change that many soon-to-be retirees may not consider is how their finances should change.

“As they move from accumulation to distribution, they need to be more conservative, but they don’t want to get too conservative,” said Jim Eckl, registered financial adviser and principal and director of wealth management at Cobblestone Capital Advisors, LLC in Rochester. “They could have many more years to live. Interest rates aren’t what they used to be. They’ve got to balance how much risk they’re willing to take, but they could be around for another 40 years.”

Discussing with a financial adviser how much risk you want to undertake is an important conversation to protect your future. It is also vital to not keep your money in just one type of investment. Eckl advises a diversified investment portfolio.

Tammy Mogiliski, certified financial planner, chartered financial consultant and CEO of Legacy Financial Planning, Rochester, tells clients to consider how they plan to withdraw money from their investments.

“In the distribution phase, when you start drawing on your money, sequence of returns is everything,” she said.

She said that two people can start out retirement with the same amount of money, withdrawing the same amount each year with the same average returns over the next 10 years. But if one has low returns on his investments later in retirement and the other has low returns early in retirement, “the first one can be financially great and the other can be almost broke,” Mogiliski said.

Taking a hit on returns early means the retiree has a lower principle generating income. That is why Mogiliski encourages retirees to “invest for the long haul. Your objective is to live off your money. While you’re still accumulating, you want to make the pot as big as you can.”

A mix of dependable and varied income streams can help build more stability into your financial plan and insulate you against tough times.

“If we go through a time like 2008 and you have reduced what will come in, the dependable sources come in no matter what,” Mogiliski said. “You know what you have for sure. That should be based on budgets. We have a need and want mortgage. You need to pay for utilities; you want to go to Europe. There’s so much that goes into it, how much you’re keeping and if the market goes in a wrong direction.”

Even if you feel confident in managing your investments, a lot has changed in recent years. Especially at this point in your working life, it may be good to have a professional financial adviser look at your investments.

“You would pay someone $1,500 one time to do an analysis,” said Marlene Dattilo, certified financial planner, certified family business specialist, certified long-term care planer, Keystone Capital Partners Group, Rochester. “We have clients who do this every three to four years even if they will continue managing their own funds.”

Dattilo advises clients to keep their debt low as they approach retirement. Those who keep debt low — even if they have a modest portfolio — fare better in retirement than those with larger portfolios but have high debt.

“The less debt, the better, especially since prices are going up,” Dattilo said. “You’re paying more for milk, meat, heating costs. Keeping the debt very comfortable and giving yourself a nice cushion in your monthly budget is very important.”

Inflation is also a concern for Diana Apostolova, investment consultant with Rochester Investments in Rochester. She fears too many people rely solely on fixed interest or low-earning investments that are not keeping pace with inflation.

“That is a recipe for disaster, especially if the inflation rate doesn’t go back down,” Apostolova said. “When the inflation rate runs high, people become at risk of depleting their investment accounts sooner than they should. Investment allocations should be revisited each year to allow for the assets to grow at least with the rate of inflation plus the percentage distributions people take out each year.

“Retirees should be very careful what they are invested in and have a really clear idea how their money will help them live today and in the future.”

She added that many retirees shift to bonds and annuities for more security. However, this may not provide sufficient returns in light of inflation and withdrawing too much from their investments.

“Unfortunately for those that find themselves in that situation, it may be really hard to find additional income,” Apostolova said. “Going back to work may not be possible due to health reasons or just because employers are not willing to hire employees over a certain age. Positioning your assets early on in retirement is absolutely critical. It would be critical to ensure that your future income isn’t just Social Security.”

In addition to managing the income, retirees should also think about managing their legacy. Chuck LaRocco is a certified retirement counselor and senior partner at Common Wealth Financial Group in Webster and Florida. He also presents on financial matters as one of the “Money Doctors” on WHAM 1180 Sundays at 7 a.m.

“We see people who have really good pensions and they’re not going to touch their retirement accounts,” LaRocco said. “Eventually their assets go to their children. Those accounts can be kept in growth. If you have no pensions and you’ll require a great deal of income to supplement your Social Security, then a larger portion needs to be in fixed income. It doesn’t go by age or investment class but your needs as to how your money should be invested. The biggest mistake people make is not basing their investment on their needs. Gear it towards its purpose.”

Should their income go down because of fluctuations in the stock market, these changes will not affect their quality of life. He encourages retirees whose monthly financial needs are covered by dependable sources of income like Social Security and pensions to invest in stocks to foster more growth in their money earmarked for legacy.