Sand Hill's Chief Investment Officer, Brenda Vingiello, CFA, joins Jenny Harrington on “Halftime Report” to go over their most recent portfolio moves. Brenda's commentary begins
Next Stop, Retirement: Are You Ready?
Published Date : November 26, 2013
In my 15 years of working with clients at Sand Hill Global Advisors, the topic that comes up more than any other is retirement planning. For many clients, there is excitement surrounding retirement. For others, there is concern as they begin to view their portfolio as a finite pool versus a roaring river. In order to have a thorough and productive conversation about retirement, it is important to have all the data necessary to do the analysis. Before any numbers are crunched though, I ask clients to consider questions such as:
- Are there any additional assets to be considered such as employee sponsored plans or pensions?
- What are your current living expenses and do you expect these to materially change in retirement?
- Do you plan to travel more once you are retired?
- Are there any extraordinary expenses, like home remodeling or paying for a wedding, on the horizon?
Clients must also consider what “retirement” means, as today the process of “retiring” often happens over a number of years as opposed to a one-time event. With average life expectancy for a 65 year old today at 84 years for men and 86 years for women according to data compiled by the Social Security Administration, full retirement at 65 seems too soon for some. Concern about outliving one’s asset base and simply enjoying one’s work are reasons often given to delay retirement. Working a reduced schedule, or pursuing a less demanding second career in a field you are passionate about, can provide a modest supplement of earned income that can have a significant impact on retirement success.
Testing the assumptions of your plan, specifically the ability of your portfolio to support withdrawals in retirement, is essential. At Sand Hill we use Monte Carlo analysis software to randomly simulate market scenarios, as it is no longer appropriate to assume linear growth on invested assets given volatile markets of the past few years. Using this analysis, we can better attempt to answer such questions like, “What if we experience another 2008 after I retire? I don’t want to go back to work when I am 80.”
In order to provide a reasonable expectation of success, the Monte Carlo software tests the proposed retirement withdrawal rate against thousands of different historical market outcomes – including the market returns of 2008 and 1929. We further test the appropriateness of the withdrawal rate and its impact on the portfolio by running the scenario through the client’s age 100. Monte Carlo analysis also serves to test the client’s investment strategy and helps to determine if a change in asset allocation is recommended.
At Sand Hill, we never want clients to take any more risk with their assets than is necessary to meet their goals. This is critically important later in life when the “runway” is shorter after a market downturn. A shift to a slightly more conservative portfolio might be warranted as the post-retirement investment objective is more focused on preservation of capital; however, there remains a need for growth in most client portfolios. Especially in retirement, when your portfolio withdrawals are used to cover all living expenses, your portfolio needs to keep pace with inflation in order to simply maintain purchasing power. In today’s low yield environment, a portfolio heavily weighted to bonds would likely be inadequate and the inclusion of capital appreciation assets, such as equities or alternatives, is necessary.
Finally, with the planning and establishment of a retirement plan, it is essential that its progress and underlying assumptions be revisited on a regular basis. We believe that including your Sand Hill Wealth Manager in retirement conversations, as life and markets evolve, is another element to success.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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