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The Old Models Aren’t Working So Well for Retirees

August 7, 2017

Retirees may be stuck between a rock and a hard place, and their advisors should revaluate their financial plans, claims SeekingAlpha. On the one hand retirees may need to be more aggressive because of the zero-rate environment, the publication writes, quoting Ronald Surz, president and CEO, PPCA Inc. But the recent market run may have been artificial in nature — which means retirees may in fact need to focus on holding on to their wealth instead, says Surz.

Retirees are exposed to the sequence-of-returns risk, which arises because retirees are withdrawing from their accounts but their income is still at the mercy of market performance, says Surz.

Playing conservative may not work, according to Surz; since 2008, defensive portfolios in which clients withdraw at a 4% annual rate have tailed more aggressive portfolios.

In a zero-rate environment, retirees “cannot afford to play it safe” by buying up bonds, according to Surz. The policy of quantitative easing is effectively pushing those who need to rely on a consistent income to become risk takers.

On the other hand, retirees may need to be far more conservative than before, according to Surz. The recent stock market boom could lead to another explosive downturn, which could devastate accumulated wealth, Surz says.

To save their retirement savings, retirees may have to turn to capital preservation, Surz says. Taking these two effects into account, financial advisors may want to rethink old wealth management models and how they apply to retirees.

By Alex Padalka
  • To read the SeekingAlpha article cited in this story, click here.