New Update: Rising Oil Costs are Affecting Retirement Plans. Will you be impacted?
Navigating Retirement: Annuities vs. IRA Withdrawals for Core & Main Employees
Crude oil prices remain elevated and volatile, with annualized volatility around 80% and prices ranging between $50 and $120 per barrel over the past six months. Oil price volatility ripples through the broader economy by influencing inflation expectations, interest rates, and equity market valuations. For employees at Core & Main, energy sector holdings within retirement accounts, such as oil stocks in a 401(k), can experience significant price swings that affect portfolio allocation; if sold during downturns, realized losses or gains may create unexpected tax consequences. Retirement savings strategies at Core & Main should account for how energy price cycles influence inflation, interest rates, and market returns over the long horizons that retirement planning requires. A financial advisor can help you build strategies that maintain progress toward retirement goals through periods of energy-driven economic turbulence.
There are just a couple of things almost all Core & Main retirees need when they hit retirement: predictable income and protection against a cluster of risks, which include longevity risk, performance risk and sequence-of-returns risk.
In the past we have seen retiring Core & Main employees utilize the "4% rule," where retirees take annual withdrawals start at 4% of the entire portfolio and increase with inflation. They then keep the remainder of the portfolio with at least 50% invested in equities. Based on historical data, this would give a Core & Main retiree about 30 years of retirement income.
As the economy constantly changes, a number of factors may force prospective Core & Main retirees to revisit the 4% rule. It may be worth considering annuities as an alternative.
As life expectancies increase, Core & Main retirees need to prepare for expenses over a longer time frame. In the past we would plan for a 15 to 20 year retirement, but now we need to prepare for a 30 to 35 year retirement. What is available to assist meeting the 35-year time frame?
The annuity strategy can assist with a few of the pitfalls we see in the 4% rule. For example:
If you need $50,000 per year in retirement and need that for 30 years, you may need $1.2 million in fixed income at a 3% interest rate. BUT if you look to fund $50,000 for 30 years, you can cover that expense with $800,000 by choosing the annuity option.
The other pitfall with the 4% rule is that it may not reflect a client's risk tolerance. When you are accumulating assets, you can afford more volatility and can take on more risk than when in the retirement and withdrawal phase after leaving Core & Main.
Also, should we see a drop in the market, you would be able to reduce your income using the 4% rule, which you cannot do if you choose an annuity option.
As you plan your transition from Core & Main into retirement, understanding the company's benefit structure can help you make more informed decisions. According to publicly available information, Core & Main does not maintain a traditional defined benefit pension plan, making your 401(k) plan and personal savings the primary vehicles for retirement income. Core & Main does not appear to offer a formal retiree healthcare program, so healthcare coverage planning before Medicare eligibility at age 65 is an important consideration. We encourage you to review your Summary Plan Description (SPD) or speak with Core & Main's HR or benefits team for the most current details.
For more information you can reach the plan administrator for Core & Main at 1820 W. Drake Dr. Tempe, AZ 85283; or by calling them at 602-256-7800.
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