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Client Service January 27, 2025
Holistic Planning is Key to Navigating Retirement Income Challenges
An Ameriprise Financial executive discusses how to navigate the shift from saving for retirement to managing distributions.
Reported by Natalie Lin
As individuals approach the end of their working lives, the shift from saving for the future to managing funds during retirement presents unique challenges. Rohan Sharma, vice president of retirement income at Ameriprise Financial, emphasizes the importance of holistic planning for retirees and those nearing retirement in a recent conversation with PLANADVISER.
Sharma highlights a definitive change in financial goals during this transition. “This is a fundamental shift in your investment goals, in investor goals, in adviser goals, and it requires a fundamentally different approach,” he says.
One of the primary risks retirees face is sequence-of-return risk, or as Sharma refers to it, “the risk of retiring in a bad market.”
He explains, “If you happen to be doing all the right things, but suddenly the market tanks in the last few years, and you lose 20% of your nest egg for various reasons, h How do you manage that risk?”
To mitigate this risk, Sharma recommends focusing on asset allocation. “As you get closer to retirement, you generally would tend to—or you should consider—increasing fixed income exposure over equities,” he advises. This approach balances portfolios to reduce the impact of stock market declines.
Sharma also stresses the importance of bucketing strategies, where an individual’s funds are divided into short-term, mid-term, and long-term buckets to ensure that retirees can draw from their near-term bucket without further drawing down investments planned for use in later buckets during a downturn.
Another potential strategy, Sharma notes, involves annuities. While not suitable for everyone, annuities can provide capital preservation while still offering some interest or crediting rate during the waiting period, according to Sharma. However, he emphasizes that these strategies must be tailored to individual circumstances.
Social Security
Sharma also addresses broader considerations beyond an individual’s portfolio, such as Medicare decisions, Social Security claiming, and long-term care planning. These decisions, he says, are highly personal and often involve trade-offs.
“Social Security claiming decisions are, for the most part, irrevocable,” he says. “Once you’ve made a decision, you’re stuck with it, and it can cost you. If you don’t make the right decision, it can cost you hundreds of thousands of dollars over your lifetime.”
For those nearing retirement, Sharma introduces the concept of funded status, adapted from defined benefit plans. He explains, “Funded status means, do you have enough savings to last your lifetime? If you have more than you need, you are well-funded. If you have less than what you need, you are underfunded.”
Understanding one’s funded status, Sharma says, is critical in shaping strategies and managing risks. Those who are well-funded have more options and flexibility in managing key financial strategies, such as determining when to claim Social Security and handling Medicare or long-term care costs. In contrast, individuals who are underfunded face a much more challenging situation, with limited flexibility and greater difficulty navigating these crucial financial decisions.
Sharma concludes by emphasizing the value of professional financial advice during this stage of life. By considering all aspects of retirement, including investments, healthcare, housing, and lifestyle, advisers can help clients navigate this transition and ensure financial security for the years ahead.
“Financial advisers can always add value, but the biggest value comes at some of these life-changing events when a financial adviser can help you think through holistically,” Sharma says.
