6 minute read
Preparing for retirement is a journey filled with both excitement and anxiety.
While envisioning the freedom and opportunities of post-career life is thrilling, many clients also experience stress and anxiety about their financial preparedness for this next chapter.
And some data highlighting this does look bleak.
So, let’s look at some of the issues and how a financial advisor could try and bring things back into equilibrium (hopefully less worrying and more enjoyment). We’ll also introduce Dunham’s innovative solutions, like the Dunham Retirement Income Program and DunhamDC, designed to address these challenges and support confident financial planning.
How Financial Advisors Help Prepare for Retirement
Retirement planning isn’t just about having a large nest egg—it’s about managing that wealth effectively to ensure it lasts through retirement. Missteps, such as withdrawing funds during market downturns, can have long-lasting impacts on financial security.
The Challenge of Sequence Risk
- For example, if someone begins retirement with a portfolio that suffers negative returns while withdrawing funds for living expenses, they could face compounded losses.
- This is where Dunham’s proprietary algorithm, DunhamDC, can help. By taking an unemotional approach to investing, it aims to mitigate sequence risk and accelerate recovery after market downturns.
How Financial Advisors Support Retirement Success
A trusted financial advisor does more than crunch numbers. They play a crucial role in helping clients transition from accumulating wealth to using those assets strategically.
Advisors assist with:
- Developing Income Strategies: Crafting personalized plans to ensure a steady income stream throughout retirement.
- Making Key Decisions: Guiding choices around Social Security, Medicare, and other benefits.
- Tracking Progress: Monitoring income and expenses to stay aligned with goals.
With tools like the Dunham Retirement Income Program, advisors can offer a seamless, comprehensive approach to retirement planning. Best of all, this program comes at no additional cost to financial advisors or their clients, beyond existing fees in the Custom Asset Allocation Program.
As a financial advisor, this is the delicate balance between letting your client enjoy this new chapter in life (retirement) while also planning to have enough money to endure as long as possible without hiccups.
But it appears things may be growing unbalanced as individuals begin worrying more about their retirement – leaving less time for them to savor it.
Why Many Americans Feel Unprepared for Retirement
Retirement perspectives have shifted significantly since the pandemic. According to U.S. Federal Reserve data:
- Only 31% of working Americans in 2022 believed their savings would suffice, down from 40% in 2021.
Multi-decade high inflation and market downturns, like the S&P 500’s 19.4% decline in 2022, have worsened these concerns. Households facing falling investments and rising costs may have recalculated their retirement readiness under stress.
Surging equity markets over the past year may help ease these fears, but another challenge looms: rising retirement costs.
- Projected retirement costs increased by 50% in just four years—from $0.95 million in 2018 to $1.46 million in 2022.
- Meanwhile, average retirement savings stand at just $88,400, per the Northwestern Mutual study.
That’s a 17x gap between what Americans have saved and what they estimate they’ll need.
Adding to this challenge, the U.S. over-65 population continues to grow. Social Security concerns compound these worries, with 37% of U.S. workers citing potential reductions in benefits as a key retirement fear, according to a 2022 Transamerica survey.
The Growing Costs of America’s Retirement Crisis
Making matters more interesting is that a recent analysis from 2023 suggests that America's “retirement crisis” could incur a staggering $1.3 trillion in costs for federal and state governments by 2040.
For perspective - according to a report by the Pew Charitable Trusts5:
This financial burden includes:
- $964 billion in federal government costs
- $334 billion in state government costs
Factors contributing to this crisis:
- Increased public assistance expenses
- Reduced tax revenues
- Lower household spending and living standards
And making matters worse:
- By 2040, the number of households earning less than $75,000 annually is projected to rise by 43% to 33 million.
Now, while these systems will likely be patched over and around, it’s important to take power into the retiree's own hands and prepare.
And that’s where a financial advisor comes in. . .
Take Charge of Your Retirement Planning
While Social Security and Medicare may see adjustments, it’s vital to take control of your future with a personalized plan.
A financial advisor can help guide you through:
- Managing income strategies for retirement
- Mitigating sequence risk and market uncertainties
- Staying informed of evolving expenses and financial goals
Dunham’s Retirement Income Program offers tools and guidance to help you navigate these challenges confidently.
Click here or call us at (858) 964–0500 to learn how Dunham’s comprehensive solutions may assist in planning for a secure retirement.
For more details, visit our Dunham Insights page and explore our program brochure.
Sources:
2. https://www.fool.com/investing/2022/12/30/just-how-badly-did-stock-markets-perform-in-2022/
3. https://tradingeconomics.com/united-states/inflation-cpi
4. https://www.kiplinger.com/retirement/if-social-security-gets-cut-what-will-you-do
Disclosure:
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
Information contained in the materials is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy of completeness of information.
Past performance may not be indicative of future results. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.
All examples are hypothetical and for illustrative purposes only. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. The solution for an investor depends on their and their family’s unique circumstances and objectives.
DunhamDC (“DunhamDC”) is a proprietary algorithm of Dunham that seeks to mitigate sequence risk, which poses a threat to an investor's returns due to the timing of withdrawals. The algorithm employs what Dunham considers to be a pragmatic strategy, generally making incremental increases to the equity allocation when global stock market prices decrease and decreasing it when global stock prices increase. This approach is objective, unemotional, and systematic. Rebalancing is initiated based on the investment criteria set forth in the investors application and is further influenced by the DunhamDC algorithm.
Due to the large deviation in equity to fixed income ratio at any given time, investor participating in DunhamDC understands that a large deviation in equity to fixed income ratio can have significant implications for the risk and return profile of the account.
DunhamDC is NOT A GUARANTEE against market loss or declines in the value of the account or a timing strategy. Investor may lose money.
The Dunham Retirement Income Program (DRIP) involves investments subject to risks, fees, and expenses. There is no guarantee that any investing strategy will be profitable or provide protection from loss. Asset allocation models are subject to general market risk and risks related to economic conditions. Past performance may not be indicative of future results. There may be economic times where all investments are unfavorable and depreciate in value. Loss of original capital may occur.
DRIP is not an insurance product and is not guaranteed. Clients may loose money.
Dunham makes no representation that the program or strategy will meet its intended objective. Market conditions and factors that influence investment outcomes are subject to change, and no program can fully account for all variables and events. The program requires making investment decisions based on factors and conditions that are beyond the Account Owner’s and Dunham’s control.
Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA / SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.