Investing for Success in Retirement

As Chartered Retirement Planning Counselors, Falcon Wealth Advisors Co-Founder and Wealth Advisor Cory Bittner, CRPC?, and I work with clients everyday to invest for success, so they can achieve the retirement they want. Cory recently joined me on Upticks to discuss our investment philosophy, strategy and more. A summary of our conversation is below.

?Jake: Let’s first talk about the two big ideas you need to consider when determining how to invest. What are they?

?Cory: These are two of the most important considerations to make when investing for retirement:

?●?????Growing your assets to last your lifetime

●?????Having short-term access to your investments to cover your monthly income needs

?Jake: Regarding growing your assets to last a lifetime, I’ve found many people view retirement as a finish line. They assume they will take whatever dollars are in their retirement accounts and transfer them to a savings account. This line of thinking is a huge mistake, because if you want your retirement to last three or four decades, you will almost certainly need your portfolio to continue to grow in retirement. In our opinion, one of the most efficient ways to do this is to buy stocks, as the growth of the companies you’re invested in will fuel the growth of your portfolio.

?With that being said, you don’t want to have all of your savings in growth assets. As we’ve seen in 2022, volatility is real. You not only need income streams set up to cover your bills, but ideally you will also have some short-term liquidity to cover unexpected expenses. We encourage all our clients to have at least five years worth of living expenses invested outside the stock market and mostly in bonds. This means the market’s day-to-day performance doesn’t impact their short-term needs and goals.

?Cory: We should also talk about the psychological element of investing in retirement and living off your portfolio.

?Jake: Yes, I work with a lot of clients who are used to earning a paycheck and saving, and they find it to be a big adjustment to spend from the accounts they spent decades investing in. Again, this is why we encourage our clients to have both a growth component and short-term liquidity component.

Once you decide you want to save in both short- and long-term investment vehicles, the next decision becomes asset allocation. What do you tell clients when they ask how much they should invest in each vehicle?

?Cory: It varies from person to person and is driven by how much money they need each month. As you mentioned, we like clients to have at least five years worth of living expenses invested outside the stock market, mainly in bonds. This helps ensure your retirement isn’t impacted by the market’s ebbs and flows.

?Jake: Let’s do a little math and assume someone needs $80,000 a year in retirement and they receive $30,000 from a pension and social security. That means they need their investments to provide them with $50,000 in income annually for their financial plan to work.

?Therefore, we would need to invest at least $250,000 outside of the stock market—that’s five years worth of living expenses at $50,000 a year. While bonds carry their own risk and can fluctuate in value, the investment-grade bonds we buy are typically less volatile than the stock market and they provide interest payments to clients. And then when the bond’s term expires, the client gets paid back the face value of the bond.

?Cory: We consider longevity and risk tolerance when we decide exactly how much should be invested in each type of vehicle. One client may need 40% in stocks and 60% in bonds, while another client may need 80% of their portfolio on stocks and 20% in bonds.

?Jake: That’s a good point. While we do take a client’s risk tolerance into account when making these decisions, we try to coach clients so that we don’t let their ‘fear’ or ‘greed’ dictate our investment decisions. Our clients hire us to make mathematical, unemotional decisions that set up their financial plan for success. At Falcon Wealth Advisors, we’ve learned that a client’s financial plan—not their risk tolerance—should drive investment decisions.

?Cory: And risk tolerance can change as the market does. I’ve noticed a lot of people describe themselves as aggressive investors when the market is doing well and conservative investors when it’s not.

?Jake: Regarding bonds, I want to note that we “ladder” them. We purchase them so they mature at different times to give clients flexibility and cover their short-term expenses. We don’t use bond funds, which have fees associated with them and are far less flexible. We instead actively manage a diversified portfolio of bonds.

?So short-term investments should be made up mostly of bonds, but also cash and preferred stock. Cory, what are some investments we use to fuel a client’s financial plan for the long term?

?Cory: As we’ve alluded to, the long-term growth of a Falcon Wealth Advisors client portfolio is provided by the individual stocks we invest them in. As you said, we let a company’s growing earnings fuel your growing portfolio.

?We buy individual stocks for a number of reasons, including the transparency they give us and clients, and the control they offer. During times like these when some sectors of the stock market are poised to do better than others, we can actively choose stocks that could do well in an inflationary environment, as one example.

?Jake: That’s a good point about control. Broadly speaking, the portfolios of Falcon Wealth Advisors clients are not down as much as the overall stock market in 2022, and this is because we are able to exert a lot of control over how they’re invested.

?Buying individual stocks is also typically more cost effective than investing in financial products like mutual funds and exchange traded funds, as there aren’t hidden fees associated with purchasing individual stocks since we aren’t outsourcing the execution to a third party. At Falcon Wealth Advisors, we have a team of three investment professionals who serve our clients by making sure their investment strategy matches their financial plan.

?Cory: You haven’t mentioned investments like cryptocurrencies or venture capital opportunities. Why don’t we help our clients invest in vehicles other than stocks, bonds and options?

?Jake: We’re not speculators is the first reason. The second is most of our clients are high net-worth individuals with at least $1 million in their portfolio. Our clients have worked and saved for their entire lives and they don’t need to chase the latest fad. We’re investing, not gambling. We are fiduciary wealth advisors, which means we are required to act in our clients best interests, and the way we do that is helping them invest to reach their financial goals while managing risk. There are ways to make money and manage risk without chasing risky, fad investments.

?Let’s now talk about some common dos and don'ts:

?Cory: The first thing you should do is review your financial plan and investment allocation with your fiduciary wealth advisor to ensure they are aligned and evolve along with your life.

?Jake: Indeed, and that’s why our team regularly meets with our clients to review their financial plan and make sure their investment strategy is serving their needs.

?Here’s another do: stay flexible. Your financial plan is a living, breathing document. It’s not a roadmap set in stone. Life changes, markets shift, your goals evolve. Our financial plans are not designed to be rigid. Instead, we want to make sure you’re on the right trajectory and feel comfortable about your financial future.

?Cory: Well said. I have one more do, and that’s to recognize that investing for success in retirement will look different at 60 than at 80 or 85.

?Jake: Yes, your plan will change as you age and your goals change. And your portfolio may not necessarily be “conservative” when you’re 80 either, as we could help you continue to grow your wealth for the benefit of your heirs.

?A don’t we talked about earlier: don’t think retirement is the finish line and cash out all of your money to put in low-growth investments. No matter your age or life stage, we don’t want you to miss out on growth. Don’t think there’s a cookie cutter way to invest for retirement.

?Cory: Another don’t. Don’t tie your identity to the balance of your portfolio.

?Jake: Indeed. Don’t tie your own worth to your net worth, because you could let life pass you by.

?Don’t let your emotions guide your investment decisions. At Falcon Wealth Advisors, we can help you make decisions, because as fiduciaries, we act with your best interests in mind.

?Cory: Here's a specific one: don’t buy an annuity without fully understanding it. People like the idea of a “personal pension.” In my experience, very few people buy annuities. They get sold annuities. And at Falcon Wealth Advisors, we’ve spent a lot of time helping clients unwind damages caused annuities.

?Jake: Yes, we don’t purchase annuities for our clients for a number of reasons. Another question, Cory. Is it possible to invest for success in retirement without working with a financial advisor?

?Cory: Yes, it is possible. But an investor would need to be honest with themselves about a couple things. Do they have the time and interest in managing their portfolio? And do they have the stomach to make unemotional, mathematical decisions? As we mentioned, we are able to make unemotional decisions with your best interests in mind.

?Jake: When you become a Falcon Wealth Advisors client, you receive access to our financial planning, retirement planning and tax planning capabilities. All of this combined is a full time job. So if you’re willing to watch the market all day and keep up with changes in the tax code, you can do this on your own. But it’s a lot of work and most people would rather spend their retirement golfing or visiting family instead of managing their portfolio and financial plan.

?Thanks so much for joining me today, Cory. I think we highlighted the value our team brings to Falcon Wealth Advisors clients. If you would like to discuss how we can help you invest for success in retirement, please contact us today. You can reach us directly at [email protected] and [email protected].

?Clients choose to work with us to enhance their financial literacy and explain exactly what their financial plan means to them.

?Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.