This post was authored by Salvatore M. Capizzi, Dunham's Chief Sales & Marketing Officer. If you have questions concerning today's topic, please call us at (858) 964 - 0500. Hold us to higher standards.

The Critical Role of Retirement Income Planning

Do your clients plan on eating when they retire?

 If they do, this article could be valuable for your planning process with them.

 Imagine if you suggested that your clients must stick to a budget of $7.74 per meal, adjusted annually for food inflation, for each day for their entire retirement.

 Do you think they could manage that?

 For individuals with a hearty appetite like mine, it might seem challenging.

According to the U.S. Department of Agriculture, in 2022, Americans spend 11.3% of their annual income on food expenses.⁽¹⁾ To put this into perspective, if your client ate like the average American, it would mean restricting their meal spending to the following amount:

Source: Dunham April 2024 - for illustrative purposes only

Please remember that additional expenses such as snacks like nutritious Twinkies, Krispy Kreme Donuts, coffee, and adult beverages must be considered within their meal budget.

For instance, if your client’s annual retirement income is $75,000, and they typically spend $3 on Starbucks, $2 on a Krispy Kreme, and $8 on a glass of wine each day, totaling an extra $13 daily, this amount must be accommodated within their meal budget of $7.74 per meal.

Simply put, they are left with $3.41 per meal after accounting for these additional expenses. This means that breakfast, lunch, and dinner must fit this $3.41 budget. As a result, dinner options like the early bird special at the Golden Coral for $11.99 are no longer feasible within their budget constraints.

But let us say that they are disciplined and can stay within the $7.74 per meal. If we assume food inflation as measured by the FDA for the next 25 years is the same as it was for the past 25 years through 2022, do you realize that they will eat $296,717 of their assets over those 25 years?⁽²⁾ If they plan to feed their spouse, that would mean $593,434 towards food!

Here is how the numbers add up.

Source: Dunham April 2024 - for illustrative purposes only

And if they include their spouse, the assets they will eat in retirement will naturally double.

Source: Dunham April 2024 - for illustrative purposes only

As financial advisors, we understand the necessity of strategic retirement planning and mindful spending. Advising clients to budget for all expenses can foster financial stability in retirement.

By prioritizing disciplined budgeting and making prudent financial decisions, retirees can better manage their resources so that they can focus more on what they really want during retirement.

This underscores the importance of planning tools such as the Dunham Retirement Income Program and the innovative retirement investment overlay - DunhamDC. This proprietary overlay was designed to "Buy Fear and Sell Greed," which aims to mitigate Sequence Risk and expedite portfolio recovery for retired clients after market declines.

For more information, please call our Business Development Team at (858) 964 – 0500 and ask about DunhamDC and the Dunham Retirement Income Program.

Sources:

(1)    Food Prices and Spending, U.S. Department of Agriculture, N/D, https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/food-prices-and-spending/?topicId=2b168260-a717-4708-a264-cb354e815c67#:~:text=U.S.%20consumers%20spent%20an%20average,from%20home%20(5.64%20percent).

(2)    Food Price Outlook, U.S. Department of Agriculture, February 23, 2024, https://www.ers.usda.gov/data-products/food-price-outlook/food-price-outlook/#Consumer%20Price%20Index

DunhamDC Disclosure:

This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation. Any investment products or services named herein are for illustrative purposes only, and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.

Past performance may not be indicative of future results.  No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There may be economic times where all investments are unfavorable and depreciate in value.

The Dunham Retirement Income Program (DRIP) involves investments subject to risks, fees, and expenses. There is no guarantee that any investing strategy will be profitable or provide protection from loss. Asset allocation models are subject to general market risk and risks related to economic conditions. Past performance may not be indicative of future results.  There may be economic times where all investments are unfavorable and depreciate in value. Loss of original capital may occur.

DunhamDC (“DunhamDC”) is a proprietary algorithm of Dunham & Associates Investment Counsel, Inc. (“Dunham”) that seeks to mitigate sequence risk, which poses a threat to an investor's returns due to the timing of withdrawals. The algorithm employs what Dunham considers to be a pragmatic strategy, generally making incremental increases to the equity allocation when global stock market prices decrease and decreasing it when global stock prices increase. This approach is objective, unemotional, and systematic. Rebalancing is initiated based on the investment criteria set forth in the investors application and is further influenced by the DunhamDC algorithm.

Due to the large deviation in equity to fixed income ratio at any given time, investor participating in DunhamDC understands that a large deviation in equity to fixed income ratio can have significant implications for the risk and return profile of the account. Accordingly, during periods of strong market growth the account may underperform accounts that do not have the DunhamDC feature. Conversely, during periods of strong market declines, the account may also be underperforming, as the account continues to decline, due to the higher exposure in equities. Similarly, if the fixed income investments underperform the equity investments, it is possible that the accounts using the DunhamDC feature may underperform accounts that do not have the DunhamDC feature, even though they may have adjusted the exposure to equity investment before a decline. Therefore, the investor must be willing to accept the highest risk tolerance and investment objective the account can range for the selected strategy. Please see the Account Application for the various ranges.

DunhamDC uses an unemotional, objective, systematic approach. The algorithm does not use complex formulas and is designed to create a consistent process with limited assumptions based on historical data.

DunhamDC may make frequent purchases and redemptions at times which may result in a taxable event in the account and may cause undesired tax-related consequences.

Trade signals for DunhamDC are received at the end of each trading day with the implementation of the trades not occurring until the next business day, which means that there is a one-day lag that may result in adverse prices.

DunhamDC operates within predefined parameters and rules, some or all of which may not be available to review.  While this approach can reduce emotional biases and enhance consistency, it may limit adaptability to changing market conditions, economic considerations, or unforeseen events.  Extreme conditions may require deviations from the program’s prescribed approach, and such adaptability may be challenging to incorporate. The DunhamDC algorithm is programmed based on specific criteria and rules, it may not capture certain qualitative or contextual factors that can impact investment decisions or movement in the markets.  Beyond the initial assumptions used to develop the algorithm, it lacks other inputs or considerations that human judgement and discretion may be necessary to evaluate.  DunhamDC may utilize historical data, statistical analysis, and predefined rules. It does not make any predictions and may add to certain investments before they perform poorly or may divest from other investments before they perform well. Dunham makes no predictions, representations, or warranties as to the future performance of any account.

Accounts invested in DunhamDC are subject to a quarterly rebalance to its target allocation at the time based on DunhamDC in addition to the signals provided by DunhamDC at any given time.

Dunham makes no representation that the program will meet its intended objective. Market conditions and factors that influence investment outcomes are subject to change, and no program can fully account for all variables and events. The program requires making investment decisions based on factors and conditions that are beyond the Account Owner’s and Dunham’s control.

DunhamDC is NOT A GUARANTEE against market loss or declines in the value of the account or a timing strategy. Investor may lose money. 

Asset allocation models are subject to general market risk and risks related to economic conditions.

DunhamDC has a limited track record, with an inception date of November 30, 2022.

Dunham & Associates Investment Counsel, Inc. is a Registered Investment Adviser and Broker/Dealer. Member FINRA / SIPC. Advisory services and securities offered through Dunham & Associates Investment Counsel, Inc.