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.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
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!
Related Content
- The Four Headwinds of Retirement and How to Combat Them
- Five Things I Wish I’d Known Before I Retired
- Retirees’ Anti-Bucket List: 10 Experiences You Don’t Want
- Do You Have at Least $1 Million in Tax-Deferred Investments?
- Nervously Nearing Retirement? Four Do’s, Four Don’ts and One Never
-
How to Get Rid of the Things Your Kids Don't Want While DownsizingWhether moving by necessity or choice, downsizing means deciding what to do with your stuff. Here's what to do if the kids and grandkids don't want it all.
-
Five Things You Can Learn From Jimmy Buffett's Estate DisputeThe dispute over Jimmy Buffett's estate highlights crucial lessons for the rest of us on trust creation, including the importance of co-trustee selection, proactive communication and options for conflict resolution.
-
Five Things You Can Learn From Jimmy Buffett's Estate Dispute
The dispute over Jimmy Buffett's estate highlights crucial lessons for the rest of us on trust creation, including the importance of co-trustee selection, proactive communication and options for conflict resolution.
-
I'm a Financial Adviser: For True Diversification, Think Beyond the Basic Stock-Bond PortfolioAmid rising uncertainty and inflation, effective portfolio diversification needs to extend beyond just stocks and bonds to truly manage risk.
-
I'm a Retirement Psychologist: Money Won't Buy You Happiness in Your Life After WorkWhile financial security is crucial for retirement, the true 'retirement crisis' is often an emotional, psychological and social one. You need a plan beyond just money that includes purpose, structure and social connection.
-
Retiring Early? This Strategy Cuts Your Income Tax to ZeroWhen retiring early, married couples can use this little-known (and legitimate) strategy to take a six-figure income every year — tax-free.
-
Ditch the Golf Shoes: Your Retirement Needs a Side GigA side gig in retirement can help combat boredom, loneliness and the threat of inflation eroding your savings. And the earlier you start planning, the better.
-
Roth IRA Conversions in the Summer? Why Now May Be the Sweet SpotConverting now would enable you to spread a possible tax hit over more than one payment while reducing future taxes.
-
A Financial Expert's Three Steps to Becoming Debt-Free (Even in This Economy)If debt has you spiraling, now is the time to take a few common-sense steps to help knock it down and get it under control.
-
I'm an Insurance Expert: This Is How Your Insurance Protects You While You're on VacationHere are three key things to consider about your insurance (auto, property and health) when traveling within the U.S., including coverage for rental cars, personal belongings and medical emergencies.
