Creative Financing Of Retirement: Financial Advisors' Daily Digest

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By SA Gil Weinreich :

Today's Seeking Alpha has a quite interesting article from Wells Fargo Asset Management offering tips for building retirement income . The article had me in suspense as it described the drearily familiar problem of the average American who has saved inadequately for retirement, while seeking a way to plug the gap.

With tantalizing lines pardoning the math the authors would need to employ, and then dangling a bottle of "here's where this exercise gets fun and interesting" in front of me, this parched financial journalist was thirsting to see how we get Joe the Plumber from an average pre-retirement savings of $299,000 to the $1,040,000 he needed for a comfortable retirement.

In the end, the authors did get us there (and indeed a little beyond), though the return assumptions seemed generous in today's market framework. What I most appreciated was a bit of creative financing on their part: namely, when the risk seemed too high, they re-framed the portfolio to front-end the risk, which netted a higher ending balance and reduced volatility closer to retirement - exactly the approach taken by target-date funds (and - surprise! - the two authors are TDF fund managers).

All good so far, but I then recalled an article I read about two years ago by Research Affiliates' Rob Arnott and Lillian Wu making the anti-TDF argument that in real-life experience as opposed to theoretical notions about the high risk capacity of the young, 41% of younger workers tend to cash out of some or all of their assets when switching jobs.

Arnott and Wu argued that younger workers are far likelier to lose their jobs and therefore need money to tide themselves over, thus subjecting themselves to the triple whammy of a raid on their retirement funds, a sale of assets when prices are depressed (as layoffs often go hand in hand with recessions), and IRS-imposed tax penalties on withdrawals.

The smart-beta team concluded, contrary to conventional wisdom, that young investors should build up a low-volatility rainy-day fund composed of stocks, bonds and inflation hedges like TIPS. It's an interesting and provocative idea, to be sure. But I'm still worried about how Joe the Plumber achieves the numbers he needs for a comfortable retirement.

What creative retirement financing would you propose? Right now, all I've got is spend less and therefore save more (apropos of which, see my first link below - on inflation). Please add your thoughts in our comments section.

Meanwhile, here are today's advisor-related links:

See also Why Kinder Morgan Is Still A Screaming Buy, BUT Only If You Can Stand The High Risks on

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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