Brought to you by David Chazin
Protect your assets, and the income they generate, from these significant financial dangers.
Saving is just one component of a successful retirement plan for Chevron employees. To keep up to date, you should review your annual benefit statement from Chevron so you have an idea of the value of your retirement package. You must also protect your assets when you retire from Chevron. Consider the following major risks that could affect your assets in retirement, along with tips on how to manage them:
1. TIMING AND SPEND-DOWN RISK
Many financial planning tools assume it’s possible to withdraw 5% of your retirement assets each year while sustaining your principal. But in reality, to avoid spending down your capital, your withdrawal rate could and should vary over market cycles based on market conditions.
Adjusting your withdrawal rate in long-term bear or bull market cycles means you’ll have to limit your spending during down markets to help preserve your capital, but it also means that you may be able to afford spending more during bull markets—all while preserving your principal.
2. ASSET ALLOCATION
Conventional wisdom says you’ll likely want a more conservative asset allocation once in retirement, but that shouldn’t mean exiting the stock market entirely. Growth remains an important consideration even as you reduce your portfolio’s volatility. It’s just as risky being too conservative as being too aggressive. What you could do is adjust your asset allocation slightly as market conditions and your financial situation changes. A dynamic asset allocation isn’t about timing the market. It’s about client longevity, needs and objectives relative to inflation and superior to setting your allocation on autopilot.
Tactical and absolute return strategies (or other strategies not necessarily correlated with the markets, for those who can accept the risks) should be a consideration, particularly in long term bear markets, which can reduce volatility and provide a smoother ride for Chevron employees. A financial planner can help you gauge whether these investment strategies may help you manage risk and volatility. Of course asset allocation does not assure a profit or guarantee against loss.
You can’t control tax rates, but you can ensure enough flexibility in your retirement savings to adjust to future tax policy and rate changes. You may consider different tax allocation strategies during both the accumulation and distribution phases of retirement, meaning taxable, tax-deferred or tax-free/tax-favored accounts. Accounts include tax-efficient or tax-controlled taxable accounts; IRAs and 401(k)s for tax deferral; and muni bonds or Roth IRAs in the tax-free/tax-favored accounts, which will assist in minimizing your tax liability. A KPMG study concluded that 1.5% of your portfolio can be lost due to tax inefficiency. On a $500,000 portfolio, that would amount to $7,500 a year. While that may not sound like much, over a 20-year time period, on a conservative portfolio earning roughly 7% annually, the difference may be as much as, if not more than, the original value of the portfolio itself, or $500,000. This is something to consider once you leave Chevron, moving funds from your CRP and/or ESIP into an IRA – this allows you to have flexibility and control over those funds.
4. LONGEVITY AND INFLATION RISK
How long you live and how fast inflation grows are both out of your control. But you can control how much you spend in retirement, thereby limiting the impact of these risks on your retirement assets. Retirement has three phases: go-go, slow-go and no-go, this describes the gradual drop in retiree activity levels. Chevron employees are more likely to spend more during the go-go phase and less during the no-go phase. By adjusting your spending plan to reflect the reality of your anticipated spending levels, you can help ensure that you don’t outlast your retirement assets.
5. LONG-TERM CARE RISK
Long-term care expenses have the most potential to damage your retirement nest egg. The reason: a semiprivate room in a long-term care facility could drain your nest egg – a financial burden that far surpasses other risks. And though you cannot control whether you’ll need long-term care, you can manage those risks by buying long-term care insurance in your 50s or 60s while you qualify for reasonable rates. People are afraid to spend their money in retirement because of the what-ifs, and long-term care is the biggest what-if, but you can help isolate that what-if or greatly minimize it with a long-term care policy—and then be free to spend your remaining money as you choose.
I’d be happy to sit down with you to discuss the next best steps to ensure a comfortable retirement is within reach. Because I work with Chevron executives, managers, employees and retirees, I’m knowledgeable about your various compensation plans and benefit offerings, plus other issues specific to Chevron employees (in addition to the retirement, investment, and estate planning issues everybody faces). In fact, chances are you may know one of my Chevron clients and you can ask them how working with a financial planner has helped them.