Retirement Planning

Retirement Planning Becomes More Difficult

It's nothing like your father's retirement

Retirement planning had already become more challenging in recent years before the COVID-19 pandemic upended the global economy and panicked investors.

During the early months of the pandemic, 43 percent of financial planners made changes to their clients’ retirement accounts, according to the 2020 AICPA Personal Financial Planning Trends survey. Approximately 31 percent modified retirement income drawdowns during this time while 62 percent changed investment allocations, and 59 percent updated spending plans.

Peyton head“I don't know if there's ever been a more difficult time to contemplate retirement, to enter retirement, or to be retired,” Peyton R. Hawkes, principal at Hawkes Wealth Management, a fee-only financial planning firm in Binghamton, New York, told Advisors Magazine. “It's not easy to be conservative and produce portfolio income in this low interest rate environment.”

One complicating factor has been the new market highs. After the pandemic-driven stock market crash of early 2020, the stock market has rebounded to set new records into 2021.

“By almost every measure, these markets are fully priced – particularly considering that we're not even out of the pandemic yet,” Hawkes said. “Markets are very expensive and they're also very narrow.”

The other challenge lies in the bond markets. Fifteen years ago, Hawkes said, a balanced investor would own a portfolio comprised of half in stocks and the other half bonds. Future stock returns are never known, but a bond yield in the high single digits provided known returns regardless of how stocks performed. Today’s low interest rates changed that equation.

“If half your portfolio is in bonds, you are holding very low yielding assets,” he continued. “When interest rates do eventually rise, a bondholder’s principal may actually be at risk depending on how long you hold the bond. The longer, higher-yielding bonds will fall more in price. So, investors they suffer low yields AND risk to the principal. That’s not a great situation.”

In the current environment, investors must take on more risk to realize the same weighted average returns previously achieved by balancing bonds and stocks. Hawkes said his firm employs several risk-reduction strategies to address the situation, including employing hedging strategies, alternate asset classes, and employing Artificial Intelligence, (AI).

Another challenge is that people are living longer lives, requiring more retirement savings and income. Strategies to address longevity include private annuities, life insurance policies with long-term care riders, and estate planning.

“One of the biggest protections against unexpected longevity is making Social Security the centerpiece of your retirement,” Hawkes said. “It is a lifetime benefit you cannot outlive, so you want to design an appropriate Social Security strategy.”

Effective retirement planning – and financial planning overall – requires individual plans tailored to individual circumstances.

“Each family is different with their own unique strengths and weaknesses,” he noted. “It's really necessary to build a custom plan for them. With that in place, you can be savvier with tax planning and retirement planning.”

Each Hawkes Wealth Management engagement involves at least a basic comprehensive plan, a financial inventory, and a map of the family situation, Hawkes said.

“As fiduciaries, we need to know their circumstances before we can offer holistic advice. Most clients appreciate that approach. For many, that’s a refreshing experience when it comes to financial services.”

For more information on Hawkes Wealth Management, visit:


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