stocks to ones paying dividends when you retire would be wrong . Instead , investors need to be fully invested across dividend and growth stocks .” Even asset classes like high-yield private debt , which can generate 9 % to 12 % returns , have a place in a portfolio , he adds , though these carry some risk .
Hodari agrees that real estate can be attractive , and suggests a mix of REITs and private property for a portion of client portfolios . “ In our opinion , stabilized , multifamily developments are the way to go . This generates cash flow over market
cycles ,” he says . “ Retirement is a journey that requires planning for longevity .”
Technology and product innovation have made alternative assets available to more investors , when they were previously limited to only the very wealthy . As these assets become more accessible , retail investors are able to do things like generate quarterly liquidity from offerings such as private debt . But such investments have to be looked at long before retirement . Only long-term planning can tell an advisor where their client is heading . If they know their clients won ’ t be spending down the assets over their lifetimes , then the advisors can start considering legacy planning as well . “ Even a 90-year-old may want to invest some assets aggressively to benefit the heirs ,” Hodari says .
In recent years , investors have been able to use another relatively new technique to generate income before and after they retire : direct indexing , which allows them to customize their portfolios by buying up the individual stocks from an index instead of buying the entire index outright . This technique , which lets them choose from a universe of international and domestic securities , also allows them to offset gains with losses and therefore reap tax benefits and daily liquidity , something they couldn ’ t do with the index by itself .
Direct indexing requires multiple transactions , but technology now allows retail investors to do it automatically to customize portfolios to their needs and goals .
Monali Vora , the global head of quantitative equity solutions at Goldman Sachs , prefers to describe this activity as “ direct investing .”
“ Direct investing delivers market-like returns but the portfolio can be customized . This strategy is appropriate for those who have capital gains and who want diversity .”
— Monali Vora , Goldman Sachs
“ Direct investing delivers market-like returns but the portfolio can be customized ,” she says . “ This strategy is appropriate for those who have capital gains and who want diversity . It is not for everyone .”
Reasons To Adjust
Not everybody wants added retirement income , according to Lena Haas , head of wealth management advice and solutions at Edward Jones . But some clients might have other reasons to adjust their portfolios .
“ Some near-retirees postpone retirement and keep working , others decide to work part time or start a second career ,” says Haas . Edward Jones and Age Wave released a report on the subject in May , called “ Resilient Choices : Trade- Offs , Adjustments and Course Corrections to Thrive in Retirement .”
Haas says retirees can have the best plans , but then things come up that throw those plans off .
“ The biggest derailer that can require rethinking plans for income is the loss of a spouse ,” Haas says . “ Women are generally less prepared for retirement because they took time off for family or earned less , but they also are more willing to adapt their plans .”
Haas has a client who was 50 years old and getting divorced when she realized she was not prepared for retirement . “ She found a better-paying job , found a roommate and began saving more . She also took on a side gig that she enjoyed and built her retirement accounts from $ 237,000 to $ 900,000 , and the side gig put her over the $ 1 million mark . She was able to change and adapt .”
Haas also works with a married couple , both of whom are age 62 . They delayed retirement until age 67 so they could let their Social Security benefits grow . They will receive an additional income from Social Security alone of more than $ 350,000 .
Haas says that surveys show older people are actually happier than younger ones because they are better prepared for retirement . “ Contrary to what most think , young people are not having all the fun . To properly prepare clients , advisors have to get to know the person well , not just the investments .”
Which is not to say everyone is equally prepared . Take people who own land or farms , for instance . They must often transfer property to the next generation while still getting ready for their own long retirement … and perhaps pay for things like travel , children ’ s weddings and grandchildren ’ s college along the way .
“ Farmers are usually land rich but cash poor , which presents challenges ,” says Les Williams , wealth strategist at RBC Wealth Management ’ s U . S . business . “ These are often the least prepared people for retirement because they have been pouring the profits back into the farm . Farms are typically multigenerational assets . The retiring generation sees the farm as part of their retirement plan , at the same time that the second or third generation has to generate an income for themselves .”
The younger generation may want to buy the property , but they probably do not have the millions of dollars it might take to do that . Life insurance strategies can be used to solve some of these issues .
54 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2023 WWW . FA-MAG . COM