Lesie Hammock discussing The 5 Risks of Retirement
Listen to the interview on the Business Innovators Radio Network: https://businessinnovatorsradio.com/interview-with-leslie-hammock-founder-of-retire-by-design-discussing-the-5-risks-of-retirement/
In this episode of Influential Entrepreneurs, host Mike Saunders welcomes Leslie Hammock, founder of Retire by Design, to discuss the critical risks associated with retirement. Leslie shares his personal journey into the financial services industry, which began after the tragic loss of his father where a drunk driver killed him. Inspired by the positive impact of a good advisor on his family’s financial situation, he dedicated himself to helping others achieve financial confidence. With over 40 years of experience, Leslie reflects on the evolution of the industry and emphasizes the importance of understanding retirement risks to prepare effectively. Tune in to learn valuable insights from Leslie’s extensive knowledge and experience.
Understanding the Various Risks of Retirement
Effective retirement planning requires a comprehensive understanding of the various risks that can impact an individual’s financial security during their retirement years. In a recent podcast episode featuring Leslie Hammock, founder of Retire by Design, several key risks were discussed, including market risk, tax risk, longevity risk, interest rate risk, and long-term care risk. Here’s a deeper look into each of these risks:
- Market Risk
Market risk refers to the potential for losses due to fluctuations in the financial markets. Leslie describes investments in the market as “red money,” indicating the inherent volatility and risk associated with these assets. Proper diversification is critical to managing market risk. Leslie emphasizes the importance of having a well-structured portfolio that includes non-correlated assets to protect against downturns. Additionally, understanding the sequence of returns risk is vital; if a market downturn occurs early in retirement, it can severely impact the sustainability of retirement income.
- Tax Risk
Tax risk involves the uncertainty surrounding future tax laws and their potential impact on retirement income. Leslie points out that tax laws can change frequently, and significant tax increases could occur if current tax cuts are not renewed. One specific concern is the Income Related Monthly Adjustment Amount (IRMAA), which can affect Medicare costs based on income levels. This can lead to higher out-of-pocket expenses for retirees, potentially eroding their Social Security benefits. Therefore, proactive tax planning is essential to minimize tax liabilities in retirement.
- Longevity Risk
Longevity risk is the risk of outliving one’s savings due to increased life expectancy. As medical advancements continue to improve healthcare, people are living longer, which can lead to financial strain if retirement savings are not adequately planned. Leslie notes that many individuals may not have considered the financial implications of living into their 90s or even 100s. This risk underscores the importance of creating a retirement plan that accounts for a longer lifespan, ensuring that individuals have sufficient resources to maintain their desired lifestyle throughout their retirement years.
- Interest Rate Risk
Interest rate risk pertains to the impact of changing interest rates on investment returns and income. Leslie explains that low interest rates can significantly affect the income generated from savings and fixed-income investments, such as CDs and bonds. For instance, retirees who relied on interest income from their savings may find themselves struggling if rates are low. Conversely, rising interest rates can also lead to volatility in the stock market. Therefore, retirees must be aware of how interest rate fluctuations can affect their overall financial situation and plan accordingly.
- Long-Term Care Risk
Long-term care risk is the likelihood of needing assistance with daily activities as one ages. Leslie highlights that a significant percentage of individuals will require some form of long-term care, which can be financially devastating if not planned for. The costs associated with long-term care can quickly deplete retirement savings, making it crucial for individuals to consider insurance options or other strategies to cover these potential expenses. Leslie advises that whether through insurance or self-funding, it is essential to make provisions for long-term care to protect retirement assets.
Conclusion
Understanding these various risks—market, tax, longevity, interest rate, and long-term care—is crucial for effective retirement planning. By recognizing and addressing these risks, individuals can create a more resilient retirement strategy that safeguards their financial future. Engaging with a fiduciary advisor, like Leslie Hammock, can provide valuable insights and personalized strategies to navigate these complexities and to help provide a more confident retirement.
Proper Diversification and Strategic Planning in Retirement
In the context of retirement planning, proper diversification and strategic planning are essential tools for managing the impact of uncontrollable factors such as market volatility and tax changes. As discussed in the podcast episode with Leslie Hammock, these elements play a crucial role in providing a more stable and confident retirement income.
Understanding Market Volatility
Market volatility, often referred to as “red money,” represents investments in the stock market that can fluctuate significantly. Leslie emphasizes the importance of diversification to manage this risk effectively. By spreading investments across various asset classes that are non-correlated to the market, retirees can help preserve their portfolios during market downturns.
During the accumulation phase, individuals may focus on growth-oriented investments. However, as they transition into the preservation and distribution phases of retirement, the strategy should shift to include more stable, income-generating assets. This approach helps safeguard retirement income against market downturns, particularly during critical periods when retirees begin to withdraw funds.
The Role of Strategic Planning
Strategic planning involves anticipating potential risks and creating a comprehensive plan to address them. Leslie highlights five key risks in retirement: market risk, tax risk, longevity risk, interest rate risk, and the risk of needing long-term care. Each of these factors can significantly impact retirement income if not properly managed.
- Tax Risk: Tax laws are subject to change, and retirees must be prepared for potential increases in tax rates. Strategic planning can involve utilizing tax-efficient investment vehicles, such as Roth IRAs or municipal bonds, to minimize tax liabilities in retirement. By understanding the implications of tax changes, retirees can make informed decisions that protect their income.
- Longevity Risk: With increasing life expectancies, retirees must plan for the possibility of living longer than anticipated. This requires careful consideration of how to allocate resources to ensure that income lasts throughout retirement. Leslie points out that many people may not realize the financial implications of needing long-term care, which can be a significant expense. Strategic planning can help address this risk by incorporating long-term care insurance or other financial products designed to cover these costs.
- Interest Rate and Inflation Risk: Interest rates and inflation can erode purchasing power over time. Leslie notes that retirees should have exposure to investments that can grow in value and keep pace with inflation. This might include equities or real estate, which historically provide returns that outstrip inflation. By diversifying into these asset classes, retirees can better protect their income against the effects of rising prices.
Leslie shared: “Financial planning isn’t a one-time event. It shouldn’t be piecemeal. Retirement and Estate Planning should go hand in hand. I am committed to walking beside my clients every step of the way”
About Leslie Hammock
Leslie Hammock was born in Perry, Georgia, graduated from Stratford Academy, and later graduated from Mercer University in Macon, Georgia. He began his career with Mass Mutual. After a number of successful years, Leslie founded his own firm. Leslie has extensive personal and professional experience with an emphasis on Retirement and Estate planning strategies for professionals, business owners, and individuals working in both private and government sectors.
Leslie has been the recipient of the National Quality Award. He is also a long-time member of the International Association of Registered Financial Consultants (RFC), a member of the National Ethics Association, and an Independent Fiduciary Investment Advisor.
Leslie is an approved adult financial education instructor and holds classes at numerous local colleges on the subjects of Investment Planning, Retirement Planning, Social Security Maximization, Estate Planning, and many other topics.
Leslie is dedicated to developing lasting relationships with all his clients in their wealth accumulation and preservation objectives. He takes pride in his ability to provide clear, easily understood strategies using various financial products, services, and cutting-edge analytical technology.
Learn more: http://www.retirebydesign.com/
Disclosures: Securities and investment advisory services offered through Integrity Alliance, LLC, Member SIPC. Integrity Wealth is a marketing name for Integrity Alliance, LLC. Retire By Design is not affiliated with Integrity Wealth.
Disclosures: Diversification does not guarantee a profit or protect against loss in a declining market. It is a method used to help manage investment risk.
Disclosures: Not associated with or endorsed by the Social Security Administration, Medicare or any other government agency.
Maximizing your Social Security Benefits assumes foreknowledge of your date of death. If as an example you wait to claim a higher monthly benefit amount but predecease your average life expectancy, it would have been better to claim your benefits at an earlier age with reduced benefits.