Retirement Boom™

The Roadmap for

Turning Your Retirement Savings into Guaranteed

Lifetime Income

Preparing for the Longest Vacation of Your Life,

Retirement!

_____________________2015____________________

Jeff Carter, RICP, CSA, RFC, LUTCF

Retirement Income Certified Professional

Scottsdale, Arizona

jeffcarter@retirementboom.org

http://retirementboom.org

There is a principle which is a bar against all

information, which is proof against all arguments and

which cannot fail to keep a man in everlasting

ignorance ─ that principle is contempt prior to

investigation.

─ Herbert Spence

Introduction

Retirement Boom™ discusses how to access your retirement

savings and create a guaranteed income stream that will last

the rest of your life.

When the kids are out of the house, and retirement is on

the horizon or has already arrived, many think about

downsizing. Whether or not that is true for you, it is

important to recognize that when you retire, your

accumulated wealth has most likely peaked.

Retirement these days can last decades, and that poses

many potential threats to your financial health. There are

several steps, however, that you can take to ensure your

money lasts as long as you do.

The demise of traditional pension plans means many

retirees face the possibility of outliving their savings. Social

Security was designed to be a safety net for people, but it

was never meant to be the only retirement income that

retirees were to receive.

To make sure that your money – and your lifestyle – will

last as long as you do, the prudent way to get started is by

developing a retirement income plan.

Think of your retirement plan as a personalized strategy

that involves spending down your savings in ways that are

designed to generate the guaranteed income you need to live

out your retirement years.

The days of relying solely on pension plans and Social

Security to meet retirement income needs are virtually in the

past. Employer-provided health coverage, which allows a

person to segue into an early retirement prior to qualifying

for Medicare at age 65, is unavailable to many. In addition,

people today live longer and carry more debt than in

previous generations.

All of the above are reasons why it is important to develop

a personal retirement income strategy. After all, once you

retire, you will need to shift gears from saving money to

managing the income from those savings. The challenge is

withdrawing enough money to cover your needs without

depleting your savings prior to your death.

After reading these pages, you should have the

knowledge necessary to engage in planning your retirement

income strategy. You will have a roadmap that will allow

you to live a financially secure retirement, thereby giving

you peace of mind.

The following pages are a combination of my

professional education and experiences working with

thousands of clients, helping them prepare their retirement

income plans. As you read, remember that the quest is to

generate a guaranteed lifetime income during your

retirement years – an income that you cannot outlive. It is

time to begin planning the longest vacation of your life!

Part I

Planning

Your Retirement Income

“A goal is a dream with a deadline”

– Napoleon Hill

The New York Life Center for Retirement Income recently

released results from the RICP® Retirement Income

Literacy Survey,i and the findings have generated quite a

buzz. When The American College asked more than 1,000

individuals between the ages of 60 to 75 what they knew

about issues relevant to retirement income decision-making,

they expected to find some gaps in knowledge. However,

they did not expect that the average score would be 42

percent correct with only 20 percent receiving a passing

score of 60 percent correct or better. The results have

garnered national attention from USA Today, The

Washington Post, Chicago Tribune, and CNBC. If you

would like to download The American College RICP®

Retirement Income Literacy Survey report, please visit the

following link:

http://SmartFinancialStrategies.com/SR

Retirement income literacy is of essential importance to

the financial security of retiring or already retired Boomers.

With reduced ability to earn additional money through work

once retired, Boomers must know how much they need to

accumulate before their retirement and how to manage their

money during retirement. Retirement income literacy will

become more important as the number of people entering

retirement with defined benefit guaranteed lifetime income

decreases, while life expectancy will average another 20

years or more after turning age 65. In addition, Medicare

premium increases will continue to rise at a rate higher than

the cost of living adjustments that are taken out of retirees

Social Security retirement checks. This lack of knowledge

can have dire consequences on a secure retirement.

A referral we will call Jacob thought he had a good

investment strategy back in 2007. But when the market

downturn started in 2008, Jacob was prompted to ask his

friend (my client) whom she confided in for her retirement

planning advice. It was at this point that I received a call

from Jacob and was asked to review his situation because he

wanted somewhere more stable to park his money. Jacob

stated that his original financial planner recommended a 100

percent stock investment plan, and his intentions were to sell

what he needed when he needed it for an income stream.

This was a great strategy in 2007. However, when the market

started heading south in 2008, he had to rethink his strategy.

Jacob decided to take a substantial amount out of the stock

market. He set up a guaranteed lifetime income annuity,

which guaranteed an income he could not outlive while

giving him peace of mind that he would not lose his life

savings as the stock market meltdown occurred.

Are you experiencing overconfidence in your investing

skills? When you invest your retirement savings, it is natural

to experience a lot of emotion as you watch the ups and

downs of the markets each day. After all, you are dealing

with your financial future. The typical result is that a slew of

cognitive biases come into play, clouding people’s judgment

and hampering their ability to make rational, impartial

decisions.

The "Gambler's Fallacy"

The Gambler's Fallacy is one of the biggest issues that

individuals face when investing. As emotionally driven

human beings, we tend to put a tremendous amount of

weight on previous events believing that future outcomes

will somehow be the same. The bias is clearly addressed at

the bottom of every piece of financial literature: "Past

performance is no guarantee of future results." However,

despite that statement being plastered everywhere in the

financial universe, individuals consistently dismiss the

warning. Instead, they focus on past returns and expect

similar results in the future.

The “Herd Bias”

Though we are often unconscious of the action, humans tend

to go with the crowd. Much of this behavior relates back to

wanting confirmation of our decisions but also our need for

acceptance. The thought process is rooted in the belief that

if everyone else is doing something, then I need to do it too

if I want to be accepted.

Conforming to the norm is socially accepted and in many

ways expected. However, in the financial markets, the

herding behavior is what drives market excesses during

advances and declines.

The “Probability Neglect”

When it comes to risk taking, there are two ways to assess

the potential outcome. There are possibilities and

probabilities. As individuals, we tend to lean toward what is

possible such as playing the lottery. The statistical

probabilities of winning the lottery are astronomical; in fact,

you are more likely to die on the way to purchasing the ticket

than winning the lottery. However, it is the possibility of

being fabulously wealthy that makes the lottery successful

as a "tax on poor people."

However, as investors we tend to neglect the probabilities

of any given action, which is the statistical measure of risk

undertaken with any given investment. As individuals, our

bias is to chase stocks that have already shown the biggest

increase in price, as it is possible that they could move even

higher. However, the probability is that most of the gains are

likely already built into the current move and that a

corrective action will occur first.

The human brain is simply not wired for investing. Our

Stone Age ancestors evolved and survived by focusing on

whatever helped them hunt and gather food. Their biases

shaped their beliefs, which created and reinforced their

understanding of the world. Like our ancestors, we see the

world through a screen of biases. For example, most

investors will focus on their successes and try to forget the

mistakes they have made. In that way, they consistently

confirm their personal views rather than maintain

objectivity.

One particular shortcoming of investors is their innate

tendency toward overconfidence. We naturally put up

barriers that allow us to forget the mistakes we have made in

the past. At the same time, we tend to focus on the successful

investments we have made, which makes us overly

confident. This shortcoming leads to taking on excessive

portfolio risks.

None of us are immune to these biases. That is why it is

vital to create an environment for investing that is detached

from emotion and relying on data and impartial analysis in

order to make the right decisions for your financial

wellbeing.

Planning your retirement income is fundamentally

different from managing your money while accumulating

savings for retirement. When clients move from the

retirement saving phase to the retirement spending phase of

their lives, their investment objectives change significantly.

Once retired, they hope that their money will grow while

they draw down the savings to fund living expenses. They

attempt to minimize tax consequences and maximize

income. In other words, they try to not run out of money

before they run out of life.

This book outlines a clear and disciplined process to plan

those distributions for a long and prosperous retirement.

Each of the chapters will guide you through the process so

that you become better informed and can make educated

decisions about your personal situation.

i RICP® Retirement Income Survey. (n.d.) Crash Course Needed: Four

Out of Five Americans Fail When Quizzed on How to Make Their Nest

Eggs Last. [Press release]. Retrieved February 24, 2015, from

http://www.theamericancollege.edu/ricp-retirement-income-

survey/press-release.php

Part III

Key Retirement Income Risks

“The only good is knowledge and the only evil is ignorance”

– Socrates

Understanding the risks you may face in retirement has

never been more important. There is an increased need to

protect retirement income from market downturns, low

interest rates, and increased longevity. Since fewer workers

in the private sector retire with traditional defined benefit

pension plan income, the number of those who are

vulnerable to these risks is increasing.

Although the possibility of stock market losses has

traditionally garnered greater attention, low interest rates

over an extended period of time can also be very damaging

to the retirement security of those saving for retirement, as

well as those drawing income during retirement.

Guaranteed lifetime income products help protect

retirement income from market downturns, as well as an

extended period of low interest rates, while guaranteeing that

income can be generated for life.

Currently, the median retirement savings in 401(k) plans,

403(b) plans, and IRAs for households approaching

retirement is approximately $80,900 at the end of the first

quarter of 2013.i The income that these savings can generate

will not be sufficient for the vast majority of retirees, even

with Social Security benefit retirement income. Therefore, it

is imperative that individuals save more in their workplace

retirement plans and personal investment accounts while

measuring their progress in terms of an income goal, not a

savings goal. After all, once you retire, you will need to shift

gears from saving money to managing the income from

those savings. The challenge is withdrawing enough money

to cover your needs without depleting your savings before

your death.

i Fleck, C. (2013, June 17). Average 401(k) Balances for

55-Plus: $255,000. [Web log post]. Retrieved February 24,

2015, from http://blog.aarp.org/2013/06/17/average-401k-

balances-for-55-plus-reach-255000-retirement-savings