The retirement market landscape has undergone radical shifts due to significant events such as the bear market of 2022, the substantial resurgence in 2023, the COVID recession, and high inflation. As a result, investors are reevaluating their retirement planning approaches, prompting financial advisors to adapt their strategies accordingly. Jamie Hopkins, managing partner at the Carson Group, is seeing these changes firsthand. He joins the ETF Think Tank to discuss how the environment is changing and what investors can do to stay on top of it.
Hopkins says that while many people view saving for retirement and generating income in retirement as two separate processes, he views them as two parts of one single process. He notes that some advisors have switched to more of a goals-based planning approach, but that leaves investors one step short. Saving a specific dollar amount may be a goal, but the real “goal” is what are you going to do with it. Portfolio diversification and other factors should come after those goals are established.
In the wake of the COVID pandemic, retirement investors’ goals and ambitions have experienced significant changes. Hopkins noticed that communications with clients became more frequent, but shorter. Conversations also became less about the market and more about life in general. Once high inflation and the bear market hit, that dynamic started to switch back again. The notion of meaning & purpose has come to the forefront a little more and the multi-generational aspect of retirement planning changed & grew. Discussions surrounding loss became more prevalent, since many lost a loved one during the pandemic.
Target date funds are another topic that comes up frequently. According to Hopkins, for many investors, these funds still serve as a sensible default option in retirement accounts, but they’re usually not the most efficient. One concern lies in what the fund does when it hits the target date. Some go with a standard low equity allocation and leave it stuck there or have no plan for what happens after that. Another is that people start to invest in four or five different target dates and defeat the purpose of target date funds in the first place.
Hopkins is actually a proponent of rising equity glide paths in retirement, which might sound counterintuitive or even controversial. His reasoning is that if you’re spending down your income for longer in retirement, you need to also allocate to equities for longer since stocks have historically outperformed bonds long-term. Declining glide paths have actually run out of money faster than rising glide paths and, while the worst case can get worse, you beat it more often than not, on average.
Hopkins believes that one of the most intriguing financial tools out there right now is the Roth IRA. Whether or not they make sense is based on a lot of guesses, including tax rates today vs. tax rates in the future. The ability to control when you spend money is the biggest benefit. People hate being told when to take their money out. They’re literally paying up front (taking the tax hit now) in order to gain that control down the road.
There’s always talk about the government potentially coming in and changing the rules. Is there anything on the radar? Currently, the Roth tax treatment is viewed favorably because it gives the government more tax revenue sooner. There’s never been a serious push to tax the earnings on Roth accounts, but there’s a possibility that there may be a push to institute Required Minimum Distributions (RMDs) on Roths down the road.
Overall, when it comes to retirement planning, Hopkins says that health, not money, should be the primary focus. No matter how much money we have, if we don’t take care of our health, it doesn’t really matter. Another big factor is the ability to avoid falling into crippling debt. If people fall into debt cycles, it’s really hard to pull themselves out of it. It affects relationships, health, credit ratings, and financial health. The stuff that worries Hopkins the most is bigger picture challenges, such as food shortages, lack of healthcare, water crises, etc.
Other key takeaways:
- Hopkins thinks that deep down a lot of investors share the same goal. Most of the world just doesn’t want to run out of money. The details within that start to spread across different paths.
- Should people steer clear of annuities? Hopkins believes that many are opaque and expensive, but all annuities shouldn’t be thrown into one basket. It’s just like how all ETFs shouldn’t be lumped together. The commission-based variable annuities are the ones that tend to have problems. Fee-based products are typically better. Income replacement annuities have a fairly identifiable return, which can be beneficial.
- What do inflation protection annuities look like? They tend to be linked to Consumer Price Index (CPI), but they may lake consistency and can be expensive. Inflation for seniors has tended to be lower, so they’ve actually benefited from inflation adjustments.
- How does Hopkins view the current market? He finds that the first half of the year has been impressive, however he expresses a more bearish stance on fixed income over the next decade. He points to the strength of the U.S. equity market with its strong companies, high employment rates and strong productivity. He says that he’s very pro-business in the United States.
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