Three Primary Risks in Retirement

                                            

Erik:                                     00:06                    You're listening to uncommon sense, a podcast by Bowman financial strategies. I'm your host, Erik Bowman, and thank you for joining me today. Hi everyone. My name is Erik Bowman and I am the owner and founder of Bowman financial strategies. Thanks for taking the time to listen to this podcast. Today, I'm going to be discussing the three primary risks in retirement.

Erik:                                     00:34                    At Bowman Financial Strategies, we work every day helping clients who are transitioning from accumulation to distribution to do so wisely and confidently. I've seen the success stories, worked with many challenges facing retirees and helped my clients craft income plans they are confident will meet their needs for the entirety of retirement. Importantly, these plans are built to provide stability and to support your standard of living regardless of market conditions. Getting motivated to take the necessary steps to create an effective retirement plan can be challenging. However, not crafting an effective plan can be catastrophic to your retirement. It's often been said that your retirement outcome is a result of your retirement income and never truer words have been said. You have worked hard, saved during your careers and budgeted wisely, knowing that the day was going to come when you will need to replace your income without working. Now you have an accumulated bucket of money to retire with and the primary goal many times is to maintain your current standard of living you enjoy now plus add in more travel.

Erik:                                     01:43                    Well one method is to invest in the stock market, hope you're diversified and allocated correctly, and hope to get enough of a return, and hope that the market doesn't crash and take your retirement with it. At Bowman Financial Strategies, we don't ever use the word hope in our retirement plans. Our plans are designed to remove anxiety knowing that all three risks in retirement are addressed appropriately. The Bowman Financial Strategies income planning process known as the LiveWell formula focuses on three primary risks in retirement, and every recommendation in our plans directly addresses these primary risks. The risks in order are sequence of return risk, inflation risk, and longevity risk. To further break these down, let's look at them one at a time.

Erik:                                     02:37                    The first risk: sequence of return risk. I also call this early retirement market timing risk. This risk is represented by the risk of significant negative market returns in the early years of retirement. You only have to go back to 2007 through 2009 to witness over a 50% drop in the U.S. Stock market. It's been over 10 years since that low and the markets have marched steadily upwards since then with very few exceptions. And with markets routinely setting new highs, some would say that the potential for continued growth for the next 10 years is less likely than a significant drop during that same period. If you are just starting retirement and you're fully exposed to potential market losses like 2009, and many seniors were and are, your future retirement plans may change dramatically requiring an unpleasant adjustment in your standard of living to make ends meet. We seek ways to limit early retirement market timing risk by using fixed or guaranteed rate of return solutions to reduce the exposure to pure stock market.

Erik:                                     03:50                    The second primary risk is: inflation risk. And this is really the opposite of the market timing or sequence of return risk because inflation risk is the risk that your assets and income may not get enough of a return and be able to keep up with the ever rising costs of goods and services. If your income never increases or your assets never increase the rate of return, but the cost of a gallon of milk doubles i