DeVol Insurance & Financial Services
Spring 2017  

Cost of Retirement Index
A useful way of looking at retirement savings is the cost of the retirement dollar, called the "CoRI" or "Cost of Retirement Index." You may have heard this concept in the news regarding pension obligations for states and municipalities. When interest rates are low, since the investments earn less, the amount needed by the entity with the obligation is higher.

Let's break it down. Suppose you decide to pay yourself $100/year and you have $1,000. Suppose further that the $1,000 grows at 10% to $1,100 after the end of the first year. Then you can pay yourself the required $100 without reducing your total. However, if the $1,000 only grows at 5% to $1,050 after the end of the first year, that is not enough to pay $100. You would need $2,000 to pay yourself that $100: $2,000 + (5% X $2,000) = $2,100. Then you can take your required $100 without reducing your total. So, when rates are low, it takes more money to generate the required income. Here are these three scenarios expressed as a table:

What if You Begin with ...
% Growth
Value after 
a Year 
10 1,100 100 0
5 1,050 100
Down $50
100 0

Those entities responsible for paying defined benefit pensions are experiencing this dilemma. Since rates are low, they need more money to pay the required benefits. Well, the rest of us are not immune to this predicament. As long as rates stay low, we will need more money to pay our required income. That is, the cost of retirement is higher. Please click here for an article, that explains this approach and shows a chart of where we are today.

This climate challenges the retirement income planner in that whereas earlier we could perhaps plan on taking 4% of a portfolio (see my  Fall, 2016 newsletter), we may need to reduce that number.

Spending Too Little

Another interesting article appeared in the Wall Street Journal on April 24, 2017: "When Good Money Habits Turn Against You." The point of the article is that many of us are dedicated to spending too little during our accumulation years and we carry these savings habits into retirement. Then we may find that we die before we get to enjoy our savings by spending it either on ourselves or on those we love: "It is better to give with a warm hand than a cold one."  We use the analogy at DeVol Financial (my apologies to those who have heard this before) of going to the airport for a 9 am flight. Do you want to get there at 9:00 the night before to be sure you're there on time? Or do you leave at 7 am and plan on favorable traffic? Although the latter schedule sounds risky to me, in saving for retirement there is no one right answer. But working with a good retirement income planner can give you the confidence that you are "doing the right thing."

Build a Moat around Your Retirement Savings 

Another interesting article -- this one from the February 13 WSJ -- by renowned Behavior Psychologist, Shlomo Benartzi, refers to research showing that people actually prefer putting some of their savings dollars into investment vehicles that are hard to tap, called "commitment devices." The article concludes by suggesting that you " generate your own commitment device" by imposing a penalty on yourself. You may not wish to take the punitive route. But however we do it, we must discipline ourselves to stay away from those retirement accounts during the years when we are in good health and working, because it is likely that there will come a time when that is no longer the case. My father used to say we have to discipline ourselves because "there are so many wonderful things we can do with money." I'm sure we all agree with that!


Thomas Phelps DeVol is the founder of DeVol Insurance & Financial Services. He enjoys helping people transform their hopes about the future into attainable retirement plans. His persistence, know-how and diligence are the keys to his success -- and that of his clients.

Tom has three children and lives with his wife, Connie, and their youngest children in Newton, Massachusetts. He enjoys gardening, tennis, jogging and opera.


Tom can be reached at 617-964-6404 or via email.  

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Securities offered through Parkland Securities, LLC. Member FINRA/SIPC. Investment advisory services offered through Sigma Planning Corporation, a registered investment advisor. DeVol Insurance & Financial Services is independent of Parkland Securities, LLC and SPC.

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