Products December 9, 2015

Resources Help with Developing Retirement Spending Plan

The American Institute for Economic Research has created a new retirement withdrawal calculator.

Reported by

The answer to how much a retiree can reasonably spend per year is unique for each individual, says Research Fellow Luke Delorme.

The American Institute for Economic Research has created a new retirement withdrawal calculator that lets retirees consider several important factors that will affect how much they should spend each year. For example, it takes into account retirement age, the level of risk that the retiree will outlive his money, and how much of the retiree’s savings to invest in stocks. The calculator is accompanied by Delorme’s research report, “How to Formulate a Retirement Spending Plan.”

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Delorme suggests factors retirees should consider:

Know that luck plays a big part in how much there is to spend. Retirees can’t control stock market performance during their investment period, and “chasing returns” can hurt them.
The best way to make sure a retiree doesn’t run out of money is to restrain spending. But that could also mean the retiree will die with a good deal of unspent money. Consider the retiree’s appetite for risk in deciding how much to spend per year.
Another consideration is whether to withdraw a specific amount of money each year, or whether the retiree has the flexibility to adjust based on stock market performance that year.
How long will the retiree need his retirement savings to last? That depends on several questions: How long does the retiree plan to work? What is the estimated life expectancy, based on health and gender and marital status? Single men, for instance, have a shorter life expectancy than a woman or a married man.
If the retiree has guaranteed retirement income from pensions, annuities and Social Security, he or she will have the flexibility to take more risks with investments, and perhaps withdraw more per year.
If the retiree pays higher investment management fees or wants to leave more money to heirs, reduce withdrawals.

The retirement withdrawal calculator is at https://www.aier.org/retirement-withdrawal-calculator.

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The Markets December 9, 2015

Institutional Investors Bullish on Stocks in 2016

Investors are concerned about global political unrest and macroeconomic challenges, according to Natixis, but they remain optimistic on equities and alternatives.

Reported by

John Manganaro

Institutional investors expect stocks to be the best-performing assets in 2016, according to a new survey report released by Natixis Global Asset Management.

“The research also found that investors believe global political turmoil and changing interest rates will make markets more volatile,” Natixis explains. “In response, they plan to increase diversification and devote more of their portfolios to alternative assets.”

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Compiling the projections of some 660 large institutional investors, Natixis finds high hopes for equities across the board—although certain asset classes are expected to perform better, potentially much better, than others. For example, the survey finds a pretty strong consensus that global stocks will outperform both U.S. and emerging markets equities.

David Lafferty, the chief market strategist for Natixis, tells PLANADVISER institutional investors continue to seek out non-correlated assets, “and their attraction to equities has as much to do with their aversion for bonds in the current environment as it does with their enthusiasm for stocks.” Over the next year, most institutional investors will maintain or raise their holdings of non-correlated assets, Lafferty adds, including 50% who will increase private equity holdings and 46% who will increase private debt.

Another 41% will increase allocations to hedge funds and 34% will add hard assets such as real estate, according to Natixis. The slight majority believes their alternative assets will perform better in 2016 than they have this year.

NEXT: Bond use expected to decrease

According to the Natixis study, institutions currently allocate 28% of their portfolios to fixed income.

“Over the next year, 42% of institutions expect to decrease their allocation to fixed income, the largest allocation decrease of all asset classes,” the report explains. “The same percentage of institutional investors plan to maintain their allocation and only 16% plan to increase their allocation to fixed income.”

More than half of institutions predict global politics will be one of the primary causes of market volatility next year, Natixis finds. A near-majority of investors cite macroeconomic woes in China (49%), differing international monetary policies (47%) and changes in interest rates (46%) as top market headwinds in 2016.

John Hailer, Natixis Global Asset Management CEO for the Americas and Asia, says the firm’s clients are eager to improve their income and performance in this environment. “We’re seeing a surge in demand for innovative strategies that target specific needs across more diversified, complex portfolios,” he notes.

NEXT: Portfolio shift

One result of increasingly complex portfolio demands is the use of hybrid approaches to active and passive investing, Natixis finds.

“The survey found institutions are using actively managed investments to generate alpha and for exposure to non-correlated assets,” the study says. “They use passively managed investments primarily to minimize management fees. Notably, two-thirds of investors (67%) believe world economic factors and higher market volatility will favor actively managed assets over passive investments in 2016.”

Responding to interest rate pressures and pending rate hikes from the U.S. Federal Reserve, the majority of institutional investors (65%) will move from longer-duration bonds to those with shorter durations. Other adjustments include reducing overall exposure to bonds (49%), Natixis finds, as well as raising allocations to alternative investments (47%) and using absolute return strategies (32%).

Lafferty feels there are a few points of conflicted thinking contained within the data—for example, most institutional investors say they are focused on risk-adjusted returns more than absolute returns, “but they’re still tilting their portfolios towards equities, which historically are not the best asset category for risk-adjusted returns.”

“The move towards alternatives makes more sense given the focus on reducing risk,” Lafferty concludes, suggesting it's critically important for investors to look beyond the anticipated (short term) Federal Reserve policy-driven bond market volatility in favor of longer-term trends, which suggest bond investment demand will only increase as the investing population ages dramatically in the coming decades.