Retirement Planning

The Changing Financial Landscape

While most investors factor inflation into their retirement plans, many of today’s retirees fail to realize that their money won’t last as long as their parents’ did.  Extended periods of lower growth and lower yields combined with rapidly increasing healthcare costs can shorten the lifespan of a $1 million portfolio—assuming it’s constructed using the standard 60 percent stocks and 40 percent bonds formula—by 5 years. That means retirees run out of money in 25 years, not the 30 they planned for.

With life expectancy rising and more people pushing the upper-90s, this is bad news for investors. Investors can expect to live longer, but their hard-earned savings will be consumed sooner—so what’s the solution?

Marguerita Cheng, CEO of Blue Ocean Global Wealth, said investors need to take charge of their retirement planning long before they turn 65. The best time to discuss housing, longevity, long-term care plans, and stretching Social Security checks is long before retirement, when there’s still time for proactive, corrective action.

Sometimes, postponing retirement is often the smartest choice. Just two additional years earning income stretches retirement funds by four years, Cheng explained, adding that previous generations could usually rely on a pension to provide income, even when long-term care costs were needed.

“Things have changed,” Cheng said. “People are assuming more responsibility for their retirements.”

This fundamental shift away from employer pensions toward self-funded retirements has also created a vacuum for regulators.

Cheng explained that since today’s 401(k) plans did not exist at the time the original DOL rule was issued forty years ago, the changing tide toward IRA investing equates to implications throughout the industry, including a push for fee disclosures and mandated fiduciary standards.

“Today, more than 40 million Americans have a lot of their savings—more than $7 trillion—in IRAs,” Cheng added. While fee disclosures have helped, Cheng would like to take them a step further by adding context, including risk measures, so investors could evaluate investment options more effectively.

“An index fund has the lowest expenses, but you will earn index returns,” she said. “A managed fund may have higher expenses, but in certain market conditions may offer more downside protection.” 

The DOL rule essentially toughens fiduciary standards to include knowing a client’s overall financial situation, including individual needs, risks and goals. According to Cheng, a financial planning relationship is the best way to meet the new DOL requirements while enabling clients to realize more favorable retirement outcomes.

Cheng enjoys sharing knowledge with all her clients, but is passionate about helping women and members of the diverse and multi-cultural who often feel overlooked by traditional financial services companies.

As the financial services landscape becomes more complex and overwhelming, Cheng fears the people who most need to be protected and helped are the ones with the least access to sound advice.

Cheng, who also mentors minority women entering the financial services profession, said, “We spend a lot of time with the foundation so clients can gain clarity, confidence and control of their finances.”

Clarity empowers them, confidence gives them the ability to act, and control enables clients to make decisions about how and where they invest in an otherwise uncontrollable market. Ultimately, Cheng wants to help clients see how decisions made in one area of their financial life can affect another.

Her philosophy is to teach people the importance of saving with the knowledge to invest. Saving, she said, builds good habits and helps people stay out of debt, but building wealth comes with investing.

“If we really want people to build wealth, they have to invest in their future,” Cheng said. “They aren’t going to invest if they don’t feel comfortable. They aren’t going to feel comfortable if they don’t understand anything.” Cheng works to continuously educate her clients to have a greater breadth of financial literacy for investing, saving and managing cash flow.

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