Tim Buckeridge is a vice president and sales director for the Investment Only team at Franklin Templeton. He is responsible for marketing to financial service firms and communicating Franklin Templeton’s investment management and retirement capabilities.
In this post, sponsored by Franklin Templeton, Buckeridge talks about retirement challenges and how people can work to maximize their incomes.
Q: What challenges do retirees face in providing the income needed for retirement?
A: We have found that retirees have a pretty good sense of what their expenses are likely to be. They struggle with the income side of the equation. They are unsure of what their sources will be and how to best use what they have saved. For many, the scary part is having a strategy for their income lasting long enough, keeping up with rising prices, and withstanding unexpected economic bumps in the road.
Understanding income sources and how they compare to retirement expense needs is essential. We believe Social Security—because it touches the majority of American retirees—is a good place to start. It is the first step in developing an individual’s retirement income plan. The next is determining an appropriate mix of investments. Investing during the income phase is much different than the accumulation phase.
Q: How can a retiree seek to maximize income?
A: You can start by discussing your goals and concerns about retirement with an advisor and go from there.
Tactically, let’s take Social Security as an example. Claiming Social Security later—say, at age 70 instead of 62—results in a benefit that is about 76% higher. So there are certain considerable advantages to a plan that positions you to be able to take Social Security later, if possible.
And keep in mind, in many cases retirement today barely resembles that of past generations. Rather than stopping work altogether, many individuals are changing their approach to work. They might move to a more flexible schedule, focus on a rediscovered passion, or even move into an entirely new career—sometimes even very late in life.
So, working with a financial advisor, one should re-think all of their potential sources of income – what kind of work would I like to do vs. what I am doing now, when should I really take Social Security and what kinds of investments should I make to bridge that gap in income before I do take Social Security?
Q: What are some of the trends you see in investing for retirement?
A: At Franklin Templeton, we continue to see interest in the creation of customized outcome-oriented portfolios, as investors attempt to mitigate market risk while still capturing a degree of capital appreciation. Franklin Templeton Solutions has been at the forefront of building such strategies for a variety of clients, each with their own predetermined set of risk tolerances and permitted investments. To build such portfolios, we utilize our asset-allocation expertise across both traditional and alternative investments, while incorporating risk-hedging techniques. We believe that the increased use of alternative investments, either as a stand-alone strategy or as part of a multi-sector portfolio, can benefit investors when held in tax-deferred investment accounts such as variable annuities, IRAs, or if available as an investment option in a qualified retirement plan.
Q: What role can Social Security play in securing a comfortable retirement?
A: Social Security plays an integral role in retirement because its current structure provides a consistent, government-guaranteed income stream that adjusts with inflation. Understanding the ins and outs of Social Security is key for anyone contemplating retirement. Many people think of it as a government I.O.U that they have to cash in as soon as possible when, in reality, that’s simply not the case. In fact, as I mentioned earlier, delaying the start of Social Security payments can make a huge difference in retirement income.
Q: What strategies can be used to maximize Social Security benefits?
A: Two of the most important decisions people make are when to stop working and when to claim Social Security benefits. These decisions have lasting consequences for the financial security of retirees and their spouses. What most don’t realize is that these should often be separate decisions. Franklin Templeton is developing a tool that will help advisors work with their clients on these decisions; we plan to have it available in October.
Q: What strategies are there to bridge the income gap until higher Social Security benefits kick in?
A: We talked earlier about the fact that retirement today in many cases is nothing like it used to be, which means everyone involved in planning for retirement income—financial advisors and their clients—should probably rethink the concept. There are two things one might consider: finding some form of work that is fulfilling and adjusting their portfolio with the goal of a lengthy period of income generation.
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Franklin Templeton Distributors, Inc., is a wholly owned subsidiary of Franklin Resources, Inc. [NYSE:BEN], a global investment management organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management solutions managed by its Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management and K2 investment teams. The San Mateo, CA–based company has more than 65 years of investment experience and over US$886 billion in assets under management as of March 31, 2014.