Offices in Boston and S Dartmouth, Massachusetts
Retirement Income Strategies • Financial Advisor Tim Hayes
I am an Investment Adviser Representative at Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser (RIA) based in Fairfield, IA. I am also registered with Cambridge Investment Research, Inc., an independent broker-dealer with over 3,000 registered representatives nationwide.
Most clients pay fee-only or an hourly rate. The size and complexity of the client’s wealth management and financial and retirement planning determine that fee
I’ve held an industry securities registration for 30+ years and am subject to SEC and FINRA oversight.
A New Investment Strategy
You just retired. Along with a great career, you have built up a substantial 401(k) potfolio. It took a while, but you got the hang of investing in equities, never comfortable with the ups and downs, but always focusing on long-term growth.
However, now you need income, not growth. Over the years, you owned some bonds with mixed success. Moreover, unlike your foray into equity investments, this time, you cannot afford on-the-job training. You need the income now. Plus, you have less time to recover from any mistakes.
New Government Rules
The Department of Labor’s new Fiduciary Rule may result in more people keeping their 401(k)s with their former employers. However, the question remains, can you get the retirement income stream you need from yours?
Many employers still steer their employees’ 401(k) choices toward stock funds to grow their accounts, rather than bond funds or annuities to distribute the accounts.
The 2019 retirement SECURE Act makes it easier for employers to offer fixed income annuities in their 401(k) plans. But with the economic recession brought on by the pandemic, most employers have probably yet to adjust their plans.
Many retirees, frustrated by low rates, have put money earmarked for bonds into stocks, hoping the dividends plus growth will provide sufficient total return for income.
High stock prices can exacerbate the problem with a stock-centric retirement portfolio. If the market drops and you withdraw principal as income, that money is no longer in your portfolio if the market rebounds.
The financial services industry has adapted to this low-interest rate environment. It has done so by building products for it, some of which provide you with income guarantees. But they come with restrictions on withdrawing your principal, as well as somewhat confusing terms and conditions.
Other products offer a higher yield but no guarantees of how much of the money you invested you will get back. Plus, many of them lack daily pricing, making it impossible to know the value of your account on any given day.
Financial Advisor Tim Hayes Believes the DOL Got It Right
By striking a balance between new protections for consumers with additional burdens on the financial services industry, Financial Advisor Tim Hayes believes the Department of Labor (DOL) hit a home run with its new retirement advice rule.
Fixing the Law
By eliminating a 1975 rule, made when retirement plans were much different than they are today, the Department of Labor rectifies the contradiction that financial advisors with conflicts of interest are providing financial advice to retirement accounts even though ERISA, the law governing these accounts, prohibits this from happening.
What does the new rule mean for consumers? “If you have a 401(k) or 403b, the advisor fees might come down. If you roll over the 401(k) or 403b to an IRA, the fees in the IRA should be competitive to what they were in the 401(k).
An income-friendly financial advisor
Find a financial advisor who:
- has a keen understanding of interest rates and the bond market:
- has the knowledge that is imperative when one talks about investing in income;
- has the access to the products necessary to help you transition from growth investing to income;
- will check your account and let you know if leaving it with your 401(k) is a good option;
- will work to keep your costs low—because, in a low-yield world, the less you pay to someone else, the more you keep for income.
Due Diligence Mutual Funds and Exchange-Traded-Funds (ETFs)
I provide a mutual fund and exchange-traded-fund (ETFs) due diligence selection process using the Fiduciary Focus Toolkit™. Screening 10,000+ funds down to a couple hundred eligible for use in your retirement portfolio—the process screens for manager tenure, fees, performance, and style.
I cross-reference my results with fi360 Fiduciary Score ™. That score is an easy-to-use and easy-to-understand method for objectively comparing peer investments and determining their overall appropriateness. It is a ready-made solution for due diligence that can help advisors demonstrate a careful investment selection and monitoring process.
My Professional Designations
Individuals who hold the AIF® designation have:
- Completed the AIF® Designation Training;
- Passed the AIF® designation exam;
- Met the designation’s prerequisites and qualification and conduct standards;
- Accrued a minimum of six hours of continuing professional education, with at least four hours coming from fi360-produced sources;
- Attested to a code of ethics.
Individuals who hold the CRPS® designation have:
- Completed a course of study encompassing design, installation, maintenance and administration of retirement plans;
- Passed an end-of-course examination that tests their ability to synthesize complex concepts and to apply theoretical principles to life situations;
- Pledged adherence to the CRPS® Standards of Professional Conduct, and are subject to a disciplinary process in that regard.
CRPS® designees renew their designation every two years by completing 16 hours of continuing education, reaffirming adherence to the Standards of Professional Conduct, and complying with self-disclosure requirements.
Individuals who hold the AWMA® designation have:
- Completed a course of study encompassing wealth strategies, equity-based compensation plans, tax-reduction alternatives, and asset-protection alternatives;
- Passed an end-of-course examination that tests their ability to synthesize complex concepts and apply theoretical concepts to real-life situations;
- Agreed to adhere to the AWMA® Standards of Professional Conduct, and are subject to a disciplinary process in that regard.
AWMA® designees renew their designation every two years by completing 16 hours of continuing education, reaffirming adherence to the Standards of Professional Conduct, and complying with self-disclosure requirements.
CFS designation is awarded upon passing an examination on mutual funds, ETS, REIT’s, closed-end funds, and similar investments. Advanced studies on topics include:
- Fund analysis and selection;
- Asset allocation;
- Portfolio construction;
- Sophisticated investment strategies for risk management, taxes, and estate planning.
San Diego, CA, November 13, 2020 – The Institute of Business & Finance (IBF) recently awarded Tim Hayes with the only nationally recognized tax designation, CTS™ (Certified Tax Specialist™). This graduate-level designation is conferred upon candidates who complete an 135+ hour educational program focusing on personal income taxes and methods to reduce tax liability. The combined top state and federal bracket can easily exceed 40%.
San Diego, CA, September 1, 2020 – The Institute of Business & Finance (IBF) recently awarded Tim Hayes with the estate planning designation, CES™ (Certified Estate and Trust Specialist™).
This graduate-level designation is conferred upon candidates who complete a 135+ hour educational program focusing on trusts, wills, probate, retirement benefits, caring for children, and what should be done after the death of a loved one. Over $50 trillion is expected to pass from one generation to another during the next half-century.
The Accredited Portfolio Management AdvisorSM, or APMA® program, is a designation program for financial professionals. The program educates advisors on the finer points of portfolio creation, augmentation, and maintenance. Students will gain hands-on practice in analyzing investment policy statements, building portfolios, and making asset allocation decisions.
San Diego, CA, May 12, 2020 – The Institute of Business & Finance (IBF) recently awarded Timothy Hayes with the only nationally recognized annuity designation, CAS® (Certified Annuity Specialist®).
This graduate-level designation is conferred upon candidates who complete a 135+ hour educational program focusing on fixed-rate and variable annuities. Several trillion dollars are invested in annuities; it is estimated that at least one-third of all annuity contracts are not titled correctly.
To try to develop the most effective retirement income strategy for the middle class, Stanford University’s Center on Longevity analyzed and compared 292 retirement strategies.
Its conclusion is a two-prong strategy. First, delay taking social security benefits until age 70 by working either full- or part-time. Second, withdraw annually from your IRAs or 401(k)s based on the IRS’s minimum requirement tables.
Social Security Benefits
Every year you wait after age 66, your social security benefit goes up by 8%. So, for example, if you are eligible for $30,000 at 66 but are waiting until you reach age 70, that benefit increases by 32% to $39,600. (After age 70, there is no reason to wait because the 8% stops accruing.)
Future cost of living adjustments (COLAs) are then based on the higher amount, which is $39,600 in this example. If the Social Security Administration announces a 2% COLA, your amount next year will be $40,392.
The study recommends that married couples have the higher-earning spouse delay taking their social security benefits until age 70 while having the lower-earning spouse begin taking social security when they hit the full retirement age, which is usually age 66.
That way, if the higher-earning spouse dies, the lower-earning spouse’s social security jumps to the amount the higher-earning spouse was receiving.
The second prong is supplementing your social security by withdrawing from your IRAs or 401(k)s based on the IRS’s required minimum tables. For example, the table might require you to take out 4% of your account value at age 73. If your IRA is worth $100,000, you would withdraw $4,000.
The amount you withdraw each year will change as your account’s value changes and the percentage required to take out goes up.
They recommend investing between 50 to 100% of your portfolio in stocks. In good years, your withdrawal amount will be higher than when the stock market is down.
The study is based on working until age 70. That way, you will not deplete your IRAs or 401(k)s as you wait. If someone fully retires at age 66, the benefits of waiting to take your social security get more complicated.
Financial Planner Michael Kites did a study that found it takes to age 80 to break even from having to use retirement assets between ages 66 to 70.
What About Public Employees Who Have a Pension?
The study focused on people working for companies that no longer offer traditional pensions, so there is a need for Social Security to replace it.
Most public employees still have traditional pensions. If they retire at age 66 or younger, pension might make it easier to wait for the more significant Social Security payout at age 70.
Other public employees work in one of the fifteen states where some or all their municipal employees do not contribute to Social Security. (Some may become eligible through other jobs.) For them, because of the Windfall Elimination Law, which reduces their Social Security payment by around 55%, why wait until age 70 to get a more significant number decreased by 55%?
Married public employees in those states should be wary of their spouse waiting until age 70 to start taking Social Security, especially if the spouse fully retires at 66.
Why deplete retirement resources, especially if the public employee pension provides a lifetime income guarantee to the spouse upon the death of the public employee? A second law, the Government Pension Offset, means the public employee gets little to none of the spouse’s Social Security after that spouse dies.
Retirement Income: What Is a Reasonable Rate of Return After Retirement?
After retiring, a crucial decision is deciding how much of your retirement portfolio to keep in stocks and bonds.
Over the long term, stocks provide a better return but more volatility. If you were the unlucky person retiring in February 1999, your 10-year future stock market return was -3% a year.
I ran a hypothetical of a well-known stock mutual fund using that date, a one-million-dollar investment, and 5% yearly withdrawals. At the end of those ten years, the account was worth a little over $600,000.
That same fund and a $1 million investment and 5% annual withdrawals during the best ten-year stock market returns (Aug 1990–Aug 2000) ended with over $3.5 million.
5% of $3.5 million generates $175,000 a year in future income, while 5% of $600,000 gets you only $30,000 per year in income.
Another well-known but more conservative fund with about 30% in bonds with those same scenarios had around $860,000 after the worst ten-year period and $2,200,000 after the best.
The math gets simple: your portfolio will fall in value if you withdraw a higher percentage as income than you are earning, but on the other hand, if you are lucky and make more than you are taking out, the portfolio will rise and help cushion the impact of rising prices by generating more income.
Stocks provide the best opportunity to generate a higher return than the 5% you withdraw each year. However, because they are susceptible to significant drops like in 2000 and 2008, too many of them can put your retirement income goals at risk.
Having a percentage of retirement money in bonds will reduce the large drops. However, it will also reduce the gains someone with a larger stock share may earn.
In February of 1999, the first scenario, the stock market, much like today, was highly-priced. The same goes for 2007 before the financial crisis. In the 1999 Dotcom bubble, the NASDAQ dropped 78%, while in the 2008 financial crisis, the S&P 500 fell 46%. Big drops like these cause much of the subpar future yearly returns.
Returns of Different Assets
Comparison of returns of different asset classes. (Investors cannot directly invest in an index.)
|Asset Class||Results 07-31-2022||2021 Results|
|Bloomberg Global Aggregate Bond Index (USD Hedged)||-9.1%||-1.39%|
|S&P High Yield Corporate Index||-9.07||5.02%|
|Bloomberg Capital U.S. Treasury Inflation Protected Securities (TIPS)||-4.96%||10.6%|
|Bloomberg Aggregate Bond Index||-7.88||-2.90%|
|The MSCI Emerging Market Index||-16.01%||-2.54%|
|MSCI EAFE Index||-15.84||11.26%|
|S&P 500 Index||-13.34||28.71%|
About Financial Advisor Tim Hayes
Over the years, you’ll likely change jobs a few times. Your goals and risk tolerance will change too.
My investment ideas are only as good as their ability to keep up with you, so it all starts with getting to know you and your current investing situation. You may need your portfolio fine-tuned, or perhaps major changes are in order. Whatever the case, I’ll recommend a customized portfolio that addresses your needs and goals. And, as your financial advisor, I’ll commit to reviewing your portfolio at least once a year.
Whether you’re changing jobs, shifting gears into retirement, or already participating in an investment plan at work (401(k), 403(b), etc.), you owe it to yourself and your family to make sure you’re doing the right things at the right time.
Please be sure to speak to your advisor to consider the differences between your company retirement account and investment in an IRA. These factors include, but are not limited to, changes to the availability of funds, withdrawals, fund expenses, fees, and IRA-required minimum distributions.
My Securities Licenses
Passing the exam qualifies candidates as both securities agents and investment advisor representatives.
The exam measures the degree to which each candidate possesses the knowledge needed to offer the products of investment and insurance companies, including the sales of mutual funds and variable annuities.