Women have over 51% of the spending power, but tend to invest for retirement far less than their male counterparts.
In this ebook we will discuss retirement planning strategies and estate planning strategies to help you have a financially secure retirement.
For women, having a retirement strategy is a long race. It’s helpful to know the route.
When I became my mother's care giver, I realized that there was a lot I did not know about retirement and aging. As I say in my podcast, "I learned the hard way."
One day, I was a corporate manager working in New York and the next a full-time care giver in Arkansas, watching ten years of my life go by as I took care of my mother.
After her passing, the only door that opened up for me was life insurance, but I began to realize that what I had gone through could be used to help other women and families prepare for some of the things we all will have to face.
Like it or not, our journey will end, and if I can help prepare you so that you live the life you want to live, have the dignity and quality of life you want to maintain in old age, then it would have all been worth it.
The ebook not only covers a range of topics, but has videos taken from my podcast. I hope you enjoy this material and please know that I am available to help you and your family members.
Because "Life Happens" to all of us.
Retirement Strategies For Women
Preparing for retirement can look a little different for women than it does for men. Although stereotypes are changing, women are still more likely to serve as caretakers than men are, meaning they accumulate less income and benefits due to their time absent from the workforce.
Research shows that 39% of women took a significant amount of time off work to care for loved ones – compared to 24% of men.1 Women who are working also tend to put less money aside for retirement, saving just 7% of their paychecks on average, while men save closer to 10%.2
These numbers may seem overwhelming, but you don’t have to be a statistic. With a little foresight, you can start taking steps now, which may help you in the long run. Here are three steps to consider that may put you ahead of the curve.
1. Talk about money. Nowadays, discussing money is less taboo than it’s been in the past, and it’s crucial to taking control of your financial future. If you’re single, consider writing down your retirement goals and keep them readily accessible. If you have a partner, make sure you are both on the same page regarding your retirement goals.3,4 The more comfortably you can talk about your future, the more confident you may be to make important decisions when they come up.
2. Be proactive about your retirement. Do you have clear, defined goals for what you want your retirement to look like? And do you know where your retirement accounts stand today? Being proactive with your retirement accounts allows you to create a goal-oriented roadmap. It may also help you adapt when necessary and continue your journey regardless of things like relationship status or market fluctuations.2
3. Make room for your future in your budget. Adjust your budget to allow for retirement savings, just as you would for a new home or your dream vacation. Like any of your other financial goals, you may find it beneficial to review your retirement goals on a regular basis to make sure you’re on track.3
Retirement may look a little different for women, but with the right strategies – and support – you’ll be able to live the retirement you’ve always dreamed of.
1. Pew Research, 2019
2. Money Talks News, 2019
3. Forbes, 2019
4. MarketWatch, 2019
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation
How to Make the Tax Code Work for You
By April 19, 2019, 137million taxpayers had dutifully filed their federal income tax returns.1 And they all made decisions about deductions and credits – whether they realized it.
When you take the time to learn more about how it works, you may be able to put the tax code to work for you. A good place to start is with two important tax concepts: credits and deductions.2
As tax credits are usually subtracted, dollar for dollar, from the actual tax liability, they potentially have greater leverage in reducing your tax burden than deductions. Tax credits typically have phase-out limits, so consider consulting a legal or tax professional for specific information regarding your individual situation.
Here are a few tax credits that you may be eligible for:
Deductions are subtracted from your income before your taxes are calculated, and thus, may reduce the amount of money on which you are taxed, and by extension, your eventual tax liability. Like tax credits, deductions typically have phase-out limits, so consider consulting a legal or tax professional for specific information regarding your individual situation.
Here are a few examples of deductions.
Understanding credits and deductions is a critical building block to making the tax code work for you. But remember, the information in this article is not intended as tax or legal advice. And it may not be used for the purpose of avoiding any federal tax penalties.
1. Internal Revenue Service, 2019
2. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
3. Internal Revenue Service, 2018
4. Tax Policy Center, 2019
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
Mortgages in Retirement
Anyone who has gone through the process of mapping out their retirement knows there can be a lot to keep in mind. Saving, investing, anticipating medical costs, and making sure you have enough tucked away for years to come is just the start. One question many people overlook is: “Should I pay off my mortgage before I retire?” The answer is more complicated than you may think.
Imagine you have $300,000 set aside to pay off your mortgage. But rather than using those funds to pay off your mortgage, you instead invest that money. Sure it’s tempting to stop making a monthly payment, but what if that $300,000 earned a hypothetical 6% for the next five years. You would have a little more than $400,000. Yes, your house may appreciate in value over the same period of time, but you should consider all your choices for that lump-sum of money.1
Before you pay down your mortgage, any extra cash might be better suited to paying off other kinds of debt that carry higher interest rates, especially non-deductible debt, such as credit card balances.2
Some homeowners benefit from a mortgage interest deduction on their taxes.3 Here's how it works: the amount you pay in mortgage interest is deducted from your gross income, which reduces your federal income tax burden.4 But remember, the further along you are toward paying off your mortgage, the less interest you’re paying. If you’re unsure if you’ll be able to take advantage of this mortgage benefit, it’s best to consult your financial professional.
Your monthly mortgage payment may be a large part of your available capital, especially in retirement. Eliminating unnecessary subsidies can significantly reduce the amount of cash you need to meet monthly expenses.
Depending on the length of your mortgage term and the size of your debt, you may be paying a substantial amount in interest. Paying off your mortgage early can free up money for other uses. True, you may lose the mortgage interest tax deduction, but remember as you get closer to paying off your loan: more of each monthly payment goes to principal and less to interest.5,6 In other words, the amount you can deduct from taxes decreases.
There’s a value to your home beyond money. It’s where you raised your children, made fond memories, and you may want it to remain in the family. Paying off the mortgage may help make your home part of your legacy. After all, some things you just can’t put a price on.
1. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments. Investments seeking to achieve a higher rate of return also involve higher risks. You should consider your risk tolerance before committing to any investment strategy.
2. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
3. Under the 2017 Tax Cuts and Jobs Act, mortgage interest deductibility is limited to mortgages up to $750,000 ($375,000 if married filing separately) in principal value. This article is more informational purposes only, and is not a replacement for real-life advice. Please consult a tax, legal and accounting professional before modifying your tax strategy.
4. IRS.gov, 2018
5. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
6. AARP, 2018
How to fund an annuity from your IRA
Annuities as an IRA Investment Option
A deferred annuity is one of several investment options you can choose from to fund your IRA. You might think that a deferred annuity isn't suitable as an investment option for an IRA, since both deferred annuities and IRAs generally provide for the deferral of income taxes on earnings until they're withdrawn. However, there are several reasons, aside from tax deferral, that may make a deferred annuity a sound funding choice for your IRA.
Common features of IRAs and deferred annuities
IRAs and deferred annuities share several common features.
Both IRAs and deferred annuities:
Many deferred variable annuities offer a variety of investment options called subaccounts within which you can allocate your premium payments. A variable annuity's subaccount choices will be described in detail in the fund prospectus provided by the issuer. However, you assume all the risk related to subaccount performance, and while you could experience positive growth in the subaccounts, it's also possible that the subaccounts will perform poorly and you may lose money, including principal.
Nevertheless, many variable annuities allow you to reallocate among available subaccounts without cost or restriction. This feature provides you with investment flexibility, because each subaccount is typically based on a different investment strategy. Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.
But, the common features shared by deferred annuities and IRAs do not necessarily make them mutually exclusive.
Deferred annuities offer the opportunity to annuitize the account, which involves exchanging the cash value of the deferred annuity for a stream of income payments that can last for the lifetimes of the contract owner and his or her spouse. That can help in retirement by providing a steady, reliable income. But converting your account to an income stream means you're generally locked into those payments unless the annuity provides a commuted benefit option allowing you to "cash out" the balance of your income payments.
Another income option offered by some deferred annuities provides guaranteed income payments without relinquishing the entire cash value of the annuity. The guaranteed lifetime withdrawal benefit allows you to receive an annual income for the rest of your life without having to annuitize the annuity's entire cash value.
Some deferred annuities offer a rider that provides you with a minimum income equal to no less than your premium payments less prior withdrawals. With this rider, you are assured of receiving minimum income payments based on the premiums you paid into your annuity, even if the annuity's accumulation value has dipped below your investment in the contract due to poor investment performance.
Deferred annuities may offer protection of your principal. Fixed deferred annuities guarantee your principal and a minimum rate of interest as declared in the contract when you buy the annuity. However, the interest rate the annuity pays may actually exceed the minimum rate and may last for a certain period of time, such as one year, after which the rate may change.
Deferred variable annuities also may offer principal protection through riders attached to the basic annuity (annuity riders typically come with an additional cost). For example, a common annuity rider restores your annuity's accumulation value to the amount of your total premiums paid if, after a prescribed number of years, the accumulation value is less than the premiums you paid (excluding any withdrawals).
Another benefit offered by some deferred annuities is a death benefit guaranteed* to equal at least your investment in the contract. Most annuity death benefits provide that if you die prior to converting your account to a stream of income payments (annuitization), your annuity beneficiaries will receive an amount equal to your investment in the contract (less any withdrawals you may have taken) or the accumulation value, whichever is greater.
Why an annuity might not be a good idea
Fees: Some deferred annuities charge mortality and expense fees in addition to other fees that may be greater than fees charged in other investments. Specifically, deferred annuities may charge fees for a death benefit, minimum income rider, and principal protection.
Required minimum distributions: As an owner of a traditional IRA, you are required to take required minimum distributions (RMDs) beginning at age 70½. Deferred annuities outside of IRAs do not have this requirement. So buying an annuity within an IRA now adds the RMD requirement to the annuity.
Surrender charges: Deferred annuities come with surrender charges, which charge a penalty for taking withdrawals from the annuity prior to maturity. These surrender charges may make deferred annuities less liquid than some other types of investments.
However, many deferred annuities waive surrender charges for withdrawals up to a certain amount, such as 10% of the account value; for RMDs; for withdrawals based on a guaranteed* minimum withdrawal rider; and if the annuity is annuitized into a stream of payments.
Tax deferral: Deferred annuities offer deferral of income taxes on gains and earnings of account values within the annuity. IRAs also offer tax deferral of gains and earnings. So, you are receiving no additional income tax benefit by investing in a deferred annuity through an IRA.
Is an annuity right for you?
Some deferred annuities afford benefits that may not be available in other types of investments, making annuities an option to consider for your IRA. However, most of these benefits come at a cost that can reduce your account value. Before funding your IRA with a deferred annuity, talk to your financial professional. You'll want to know:
If annuity benefits fit your financial plan, a deferred annuity may be a good option for your IRA.
Note: Variable annuities are sold by prospectus. Variable annuities contain fees and charges including, but not limited to, mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders. You should consider the investment objectives, risk, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity or from your financial professional. You should read the prospectus carefully before you invest.
Annuity guarantees are subject to the claims-paying ability and financial strength of the annuity issuer.
How Much Money Do I Need for Retirement?
Make sure you have open and honest and regular conversations with your spouse about what level of income you want to achieve in your retirement.
Determining how much money you need in retirement is both a mathematical and a personal issue. Like a fingerprint, the answer is unique to you and your spouse.
That is why it's so important to discuss your 30-year retirement plan early – or in other words, definitely some time before you actually retire. And just not early, but often. This approach will help ensure you and your spouse are on the same page.
Here are a few guidelines you can use in your determination of how much money you need in retirement for a comfortable lifestyle.
How Much Income for Retirement?
Here’s an important question to consider. How much income will you need for a financially secure retirement?
Your 30-year retirement plan will be an invaluable tool in answering this question. Based on an audit of your plan, here are a few financial situations which you might fall under:
1. Level I, below break-even:
The total of all income streams in retirement you have accumulated and plan for, may be less than what you want to spend, but your plan is to siphon off assets to plug the gap.
That generally isn't a good idea and could leave you high and dry over the long term. You should figure out how you might adjust your expenses and/or continue to work and save as long as you can before retiring so that your income/expense model is at least break-even.
2. Level 2, break-even:
Expenses are being covered by income, but there is no margin for safety. This is still not where you want to be, so you should work, save, and plan to achieve at least Level 3.
3. Level 3, break-even with a "cushion":
Your projected income will comfortably cover your expenses with an annual surplus. This is a good spot to be in and what all retirees should shoot for.
4. Level 4, break-even + a cushion + a reasonable surplus (potentially estate to pass on to your heirs): This would be great and generous, but if push comes to shove, it is entirely optional.
Modeling the Arc of Retirement in Your Plan
If you were to graph the process of life through retirement, it would look like climbing up a hill on one side to the peak. From there, it would slowly descend on the other side of the hill to the valley below.
We might call this the “Arc of Retirement,” driven by the inevitability of aging and its impact on people's lifestyle conditions as well as quality-of-life. That includes the rise and fall of someone’s health, energy, strength, and cognitive capacities.
What is interesting to observe (and by design), is the shape of the “decumulation curve” of required minimum distributions (RMDs). This decumulation curve is itself a visualization of the Arc of Retirement.
Required minimum distributions apply to pre-tax accounts such as 401(k)s, 403(b)s, 457s, and traditional IRAs.
The Arch of Retirement and Its Ties to Retirement Finance
The Arc of Retirement can inform one's forecast of the rise and fall of income, expenses, and capital and investment expenditures for such items as:
Using a 30-year Plan planning/budgeting spreadsheet, the retiree (or experienced financial professional) can make realistic forecasts of these items as they will rise and fall over time.
Be aware that there may be some exceptions such as healthcare costs, which could rise more so over time.
Also, keep in mind that most expenses inflate to some degree over time. For example, even though your monthly food bill in retirement may be half what it was during your family-raising days, that half-amount will continue to inflate each year.
Don't Forget These Other Factors
There are a few other factors that may influence your income in retirement: market volatility, and potentially proceeds from an inheritance.
As you consider the future, it's prudent to heed two other important rules of thumb: (a) don’t make a plan based on financial “hope”; and (b) if something good may come to pass (e.g., an inheritance), keep it in mind but not necessarily as part of your core retirement plan.
Market Fluctuation Effects on Portfolio:
Depending on how your portfolio is allocated, the value of your assets may go up and down, contingent on however the markets they are in perform. No one has a crystal ball, but you need to understand what the impact may be, up or down.
Let’s say you retire at age 70 with a balance of $500,000 in a “qualified” account, or an account with pre-tax dollars. Then you started taking withdrawals at 70.5 due to required minimum distributions.
Here are two potential scenarios:
If you look at scenario two, you would end up with a higher balance than what you started out with. But there is no guarantee that this would happen.
After all, you would be withdrawing and spending down not average returns, but compounding portfolio returns. There is also the possibility of sequence risk which can have a stronger effect on income in the early years of retirement.
The takeaway from this illustration is to show that some careful planning can go a long way in a retirement income strategy.
Generally, people have some idea what kind of inheritance they may get from their loved ones. But what is usually unpredictable is when that inheritance might be distributed, and how much.
If you take the conservative approach, you won't build your retirement plan around a guesstimate of what that inheritance might be and spend that money in advance.
It’s better to leave out this hope as a core component of your plan, instead building a comfortable plan with what you have accumulated on your own.
In this case, patience is a virtue.
Some Closing Thoughts
Make sure you have open and honest and regular conversations with your spouse about what level of income you want to achieve in your retirement.
Three Retirement Options to Consider Aside From a 401(k)
About 58 percent of Americans have access to a 401(k) or a similar employer-sponsored retirement plan.
A 401(k) is an effective, convenient way to save for retirement. The money is automatically withheld from your paycheck using pre-tax dollars, and you can contribute up to a set limit each year — plus an additional “catch-up” amount if you’re age 50 or older.
You’ll pay income taxes on contributions and earnings when you withdraw funds. If you access your funds before age 59½ you’ll also pay a 10 percent penalty tax. Also keep in mind, the money in your 401(k) is exposed to market volatility.
About 75 percent of employers with 401(k) plans offer a matching program. A typical employer match is 50 percent of the employee contribution, up to 6 percent of your salary. So if you have a 401(k), your first retirement-saving priority should be to max out your employer match — it’s free money!
But the 401(k) isn’t the only game in town. If you want to save more than the amount your employer will match, don’t have access to a 401(k), or want to ensure a guaranteed lifetime income, here are three options to consider:
You can contribute up to $6,000 to an Individual Retirement Account in 2020 — $7,000 if you’re 50 or older. If you don’t have a 401(k) or similar retirement account at work, you can deduct your full IRA contribution from your taxes. Married couples can each have their own IRA and can each take advantage of the full combined contribution tax-deferred.
As with a 401(k), you’ll pay taxes on contributions and earnings when you withdraw funds. Also like a 401(k), you’ll pay an additional 10 percent penalty if you withdraw funds before 59½.
A traditional IRA is subject to required distributions after age 72 and under the SECURE Act, you can continue to contribute to your traditional IRA past age 70½ as long as you are still working. That means the rules for traditional IRAs will align more closely with 401(k) plans and Roth IRAs.
Roth IRAs have the same contribution limits as traditional IRAs. You can’t deduct Roth IRA contributions from your current taxes, but you can withdraw both contributions and investment earnings tax-free after age 59½ if the account is at least five years old.
Unlike a traditional IRA or 401(k), there’s no penalty for withdrawing contributions before 59½, although there is a 10 percent penalty on early withdrawal of account earnings.
Unlike a traditional IRA, you’re not required to withdraw funds by 70½ and you can even keep contributing to the account after that age. You can contribute to both a traditional IRA and a Roth IRA, but your total contribution can’t exceed the annual limits set by the IRS.
One key thing 401(k)s and IRAs (excluding annuities) have in common is that when your money is gone, it’s gone. Annuities, on the other hand, provide insurance against the risk of outliving your money after you retire, and may also provide protection from loss due to market downturns.
Life expectancy has been increasing, with the average 65-year-old expected to live to about age 84 for men, age 86 for women, and age 90 for at least one member of a married couple.
And while most of us probably won’t live to be 100, about three percent of 65-year-old men and six percent of 65-year-old women can expect to see the century mark.
Whether you live to be 80, 90 or even 100 and beyond, it’s important to consider an annuity that guarantees an income for life.
Recently, Congress passed and President Trump signed into law the "CARES Act." Among policymakers, the bill is known more formally as the Coronavirus Aid, Relief, and Economic Security Act.
Much of the law is aimed at providing economic relief for businesses, but some parts of the act changed IRA and retirement-plan provisions. The bottom-line of it all? Many of these retirement changes can directly affect your ability to access money and bolster your income.
These changes will have a large effect, regardless of whether you are retired or are still working toward your golden years. In a Forbes.com column, Bob Carlson, editor of Retirement Watch newsletter, wrote about some of the most important changes.
Here’s a look at some major changes that might be coming to your retirement, courtesy of the coronavirus economic relief legislation that became effective on March 27th.
Required minimum distributions are waived for 2020. This waver on required minimum distributions applies even to inherited IRAs and to retirees who are already 70.5 or older (and paying RMDs).
This could potentially put thousands of dollars in your pocket for the year and possibly even land you in a lower tax bracket, depending upon your financial circumstances.
The change doesn't benefit just those who were looking at RMDs in 2020. It's also good news for those who turned 70.5 last year and waited until April 1st of this year to take their RMD for 2019.
Passed some months ago, the SECURE Act made changes to required minimum distributions for retirees. It shifted the starting age for RMDs to 72.
However, those who turned 70.5 in 2019 were still on the hook for taking withdrawals from their IRAs, as per IRS tax rules. What if you have already taken your RMDs for 2020? The distribution will still count as part of your AGI and will be taxable.
If you find yourself in a lower tax bracket for the year and the coronavirus has affected your income, you may want to consider taking a distribution to make up lost ground anyway.
Some rules might benefit you. For example, you have a 60-day window for returning your distribution to your IRA or paying it into another qualified plan. In either case, you wouldn't owe taxes on the amount, according to Bob Carlson.
Since tax rates are still on sale, you might also consider a Roth IRA conversion if it makes sense for your situation. This could pay off in tax savings for years to come.
You can take emergency withdrawals from an IRA or a 401(k) plan for coronavirus costs. These costs could include medical bills, lost wages, and earnings. They also cover physical measures that you might have to take to protect yourself from the virus.
You must be a retirement saver who was negatively affected by the coronavirus pandemic, according to Emily Brandon, senior editor of U.S. News Money. But the new law will allow you to withdraw up to $100,000 from a 401(k) plan, IRA, or similar type of retirement account.
This waiver applies to distributions from Jan 1, 2020 to December 31, 2020. For this limited time, early withdrawal penalties on money taken from your qualified account before age 59.5 are suspended.
Normally, the early withdrawal penalty of 10% is levied on the withdrawn balance, along with federal income tax. This waiver will last according to dates above.
The federal income tax burden due on the withdrawal can be paid in a three-year window. But the distributions from your IRA or qualified plan must be recontributed to your retirement account also within three years.
The deadline for making a 2019 contribution to your IRA has been extended to July 15, 2020. This is because the filing deadline for federal tax returns has been extended to July 15th.
Retirement plan loan rules also changed. From the date of law becoming effective (March 27th) to December 31st, 2020, permitted loan amounts from 401(k) plans have increased.
Normally the loan maximum is $50,000 or 50% of your vested account balance. During the timespan mentioned above, the maximum loan amount can go up to the lower of $100,000 or 100% of your vested account balance.
The due date for repaying the loan is pushed out for one year.
All of this can be helpful for many households. But who is eligible? In his Forbes.com column, Carlson writes:
"To qualify for these IRA and retirement plan changes, a loan or distribution must be coronavirus-related.
That means that the individual, the individual’s spouse or a dependent must have been diagnosed with COVID-19. Or the individual must experience adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to COVID-19.
Also eligible are individuals who were unable to work due to lack of child care as a result of COVID-19. An individual whose business was closed or had reduced operating hours as a result of COVID-19 also is eligible. A retirement plan administrator can rely on an individual’s certification that he or she meets the requirements."
While these measures can be very beneficial, you still need to be sure that this makes sense for your future retirement outlook. Will you have enough savings to produce the future income you need?
Think hard before you borrow an extra $50,000 from your 401(k) plan. But if you truly need to get your hands on some cash, then your money is now much more accessible.
Financial needs right now can be of primary importance. But any decisions about tapping into your retirement savings needs to be weighed against how it might affect your future retirement income prospects.
Don't make any hasty financial decisions on your own. Be sure to consult a financial advisor for more information on the new tax breaks in the CARE Act and how they can affect you, both now and in the future.
An advisor may have some ideas that haven't occurred to you that could result in both tax savings and increased income down the road.
A Woman’s Guide to Long-Term Care
Women face unique financial challenges as they age. When compared with men, women live longer, earn less, and spend fewer years in the workforce. Financial concerns are often more acute for older women who are divorced, widowed, or otherwise single, as well as for those who have spent all or a significant portion of their adult years caring for children and other family members. Consequently, planning for long-term care (LTC) is an issue of particular importance.
LTC assists people, through various support services, with activities of daily living, such as dressing, bathing, eating, transferring, and toileting. If a woman has difficulty performing two or more of these activities due to physical limitations, cognitive impairment, or both, LTC may be needed. LTC services are provided in the community, in an assisted living facility, or in a nursing home.
Most people are unaware of the actual costs associated with LTC. For example, according to Genworth’s 2018 “Cost of Care Survey,” the cost of long-term care has increased 67 percent in assisted living facilities and 54 percent for a private room in a nursing home.
The average cost of a nursing home is $100,375 per year, and the average cost for assisted living is $48,000 per year. It is important to note that these figures are national averages. Actual costs vary widely from state to state. If cost of living is high in an area, it is likely that costs for long-term care services will be well above the national average.
There are a number of reasons why it is important for women to plan for LTC.
First, women live longer. Back in 1900, women and men shared a similar life expectancy of about 47 years. Today, the longevity of both men and women has increased overall by 20 years, with the life expectancy for women generally five years longer than men.
According to the Census Bureau's "middle series" projections, the elderly population will more than double between now and the year 2050, to 80 million. By that year, as many as 1 in 5 Americans could be elderly.
Most of this growth should occur between 2010 and 2030, when the "baby boom" generation enters their elderly years.
During that period, the number of elderly will grow by an average of 2.8 percent annually. By comparison, annual growth will average 1.3 percent during the preceding 20 years and 0.7 percent during the following 20 years.
Unfortunately, with longer life comes an increased risk of health problems. In fact, the Administration on Aging (AoA, 2017) reports that women are twice as likely as men to live in a nursing home. They are also more likely to sustain a disability or be diagnosed with a chronic health condition.
Second, women often lack the resources necessary to fund the care needed later in life. According to the U.S. Department of Labor (DOL, 2020), the average woman in the U.S. who is employed full-time earns less than her male counterpart (74 cents for every dollar a man earned in 2019).
In addition, women typically spend nearly 12 years out of the workforce while taking care of children or elderly parents. It is not uncommon for many women to spend years juggling family, professional, and caregiving responsibilities, and as a result, their income is disrupted, hindering their ability to save money or attain financial stability.
Finally, shorter careers and lower incomes often result in lower Social Security benefits. According to the Social Security Administration (SSA, 2017), the average annual Social Security income received by women 65 years and older was just $14,3535 in 2017.
Moreover, married women often don’t know that the benefits accrued by their husbands may be reduced if they are widowed or divorced. These factors put many women at high risk for poverty as they age, especially if they do not plan accordingly.
Many women think their children or other relatives will be there for them, should the need for LTC arise. But even if the willingness is there, the costs associated with caregiving often exceed the financial capabilities of the average family. And, if medical care is required, family members may not have the necessary skills to provide care. As you can see, the time has come for women to look toward the future and prepare for LTC.
The Insurance Alternative
The good news is there is an alternative. LTC insurance can help cover LTC expenses before you meet the strict low income requirements for Medicaid eligibility. Many policies cover the costs of nursing homes, assisted living/residential care facilities, adult day-care centers, and/or home care.
The cost is typically based on your age, your current health, and specific policy features, such as scope of coverage, levels of care, and duration of benefits. LTC insurance is designed to help you maintain your independence and quality of life, while offering increased options for care.
Needless to say, it is difficult to prepare for the possibility that you may one day need LTC.
While you don’t know what the future holds, planning today for an uncertain tomorrow may help preserve your assets, increase your options for care, and perhaps most importantly, bring you and your loved ones peace of mind.
How to Get Guaranteed Income While Pensions are Disappearing
Once upon a time, pensions were a staple of the U.S. retirement system. But in the last 20 years there has been a seismic shift in the way employees fund their retirement. In 1998, an estimated 50% of current Fortune 500 companies still offered their salaried employees a pension, or also known as a defined benefit plan. Today that number sits at just 5%.
With this type of plan, a company makes regular contributions to their pension fund and then provides monthly payments or “partial paychecks” to retired employees throughout their retirement. In that sense, pensions give retirees a source of 'guaranteed income.'
Working tenures in previous decades generally lasted much longer than they do now in our current highly-mobile, job-hopping workplace. You could be with the same employer for 20 or more years, with your defined-benefit pension accruing value over your career. Pensions were often a main motivation for people to stay with the same employer. After investing your work life with that company, you were financially rewarded in retirement.
At retirement, the pension would give the financial comfort of knowing where your money was coming from, month to month, from guaranteed monthly paychecks coming in the mail. For years, the U.S. retirement system was built on this foundation. Then, bit by bit, employer pension circumstances gradually began to change.
Company pensions started to dwindle in number, and while today's continuing shrinkage in pension plans can be attributed to many factors, one well-respected economist points out the effects of recent economic events.
Dot-Com Crash Changes Everything
Among other economic and historical variables, the dot-com crash of 2000 is credited with helping to change the course of retirement funding.
Writing in the Harvard Business Review, Robert C. Merton, Distinguished Professor of Finance, MIT Sloan School, and a Nobel Laureate, explains it best: "Interest rates and stock prices both plummeted, which meant that the value of pension liabilities rose while the value of the assets held to meet them fell.
A number of major firms in weak industries, notably steel and airlines, went bankrupt in large measure because of their inability to meet their obligations under defined-benefit pension plans."
The result, he adds, was an acceleration of America’s shift away from defined-benefit (DB) pensions toward defined-contribution (DC) retirement plans, which transfer the investment risk from the company to the employee.
"Once an add-on to traditional retirement planning, DC plans—epitomized by the ubiquitous 401(k)—have now become the main vehicles for private retirement saving," Merton writes.
2008 Financial Crisis Continues Plan Constriction
Global advisory firm Willis Towers Watson, which conducted the survey of the Fortune 500 companies, found that employees who were already part of a defined-benefit plan faced further financial consequences in the wake of the Great Recession.
In the aftermath, total defined-benefit pension plans offered by Fortune 500 companies declined, while defined-contribution plans offered increased in number. These trends can be seen in this graph below.
The research from Willis Towers Watson revealed there has been "an uptick in plan freezes and closings since the 2008 financial crisis. In 2009, 21% of these employers sponsored frozen pensions, and the same percentage had closed their primary DB plan to new entrants."
Willis Towers Watson continues: "By 2015, 39% of sponsors had frozen a DB plan, and 24% had stopped offering their primary DB plan to new hires. The recent uptick in freezes has been among plans that were already closed to new hires."
We can see how pension plans were affected -- whether remaining open, closed, frozen, or terminated -- in the graph below.
Source: Image content courtesy of Willis Towers Watson, "Retirement offerings in the Fortune 500: A retrospective," all rights reserved.
Employees Now Making Contributions & Calling the Shots
The rise of the 401(k) put employees in charge of contributing pre-tax funds to their retirement accounts —and determining how that money is allocated within their portfolios. The shift from defined-benefit plans to defined-contribution plans is shown below.
In his Harvard Business Review article, Merton, also a Harvard University Professor Emeritus, sounds an alarm: "Although the move to defined-contribution plans arguably reduces the liabilities of business, it has, if anything, increased the likelihood of a major crisis down the line as the baby boomers retire. To begin with, putting relatively complex investment decisions in the hands of individuals with little or no financial expertise is problematic."
With defined-benefit plans, American workers knew what to expect as retirement income. They didn’t express their nest egg as a dollar figure, but as a percentage of their final salary. In other words, they knew exactly what they would receive, such as 75% of their salary.
Merton and others feel the current system has shifted the focus from preparing streams of retirement income to workers trying to score the highest return on investment to build their funds. "Investment decisions are now focused on the value of the funds, the returns on investment they deliver, and how volatile those returns are," Merton says.
"Yet the primary concern of the saver remains what it always has been: Will I have sufficient income in retirement to live comfortably? Clearly, the risk and return variables that now drive investment decisions are not being measured in units that correspond to savers’ retirement goals and their likelihood of meeting them. Thus, it cannot be said that savers’ funds are being well managed."
Creating Alternative Guaranteed Income Solutions for Retirement
Many people planning for retirement still desire a secure, dependable, permanent income they can't outlive. Now that traditional defined benefit plans are winding down, lots of retirees and working-age adults are looking for alternative sources of guaranteed income. There are a number of sources that you can investigate for guaranteed income: annuities, reverse mortgages, bond ladders, and in particular, something that most everyone is likely to get: income payments from Social Security.
Because annuities are structured as "money for life" contracts, let's talk a little more about what they might offer. In 2017, annuity sales totaled a substantial $203.5 billion, according to LIMRA Secure Retirement Institute statistics.
An annuity is an insurance product that is essentially a contract between you and an insurance carrier. You pay a lump sum or make a series of payments to the insurance company and, in exchange, the company provides you with regular payouts at some point in the future to serve as a steady stream of income during retirement.
What Annuities are Available?
There are different types of annuities and many customizations you can make to them to ensure they fit your particular needs.
While the move toward 401(k)s shifted the risk to the employee who now has to make their own investment choices, annuities transfer that risk to the insurance companies. These financial institutions are well-situated to handle the risk because of the way they carry and diversify risk across many policyholders.
With people living longer, spending more, and facing new challenges, the need for guaranteed income will likely continue to grow. Studies indicate that guaranteed income can raise the prospects of a high-quality retirement. A TIAA Institute study in 2015 found that “annuitants are more likely to have experienced an increased standard of living in retirement and a lifestyle that has exceeded their pre-retirement expectations.”
Annuities are proving to be a sought-after solution to the problem of disappearing pensions.
Retirement for the Self-Employed
In the past, we’ve talked about the importance of being prepared for retirement. Of course preparation is different for everyone. For one, women will have different retirement needs and goals than men.
It also depends on what employment capacity you’re in. If you’re employed by a large company, for instance, you may have a retirement pension plan via your employer (though these sorts of perks from employers are disappearing). But what about planning for retirement if you’re self-employed?
According to various data sources, there are roughly 10 million self-employed Americans – from business owners and independent contributors to freelancing professionals. In a recent TD Ameritrade survey, around 55% reported they’re behind on retirement savings. On the whole, baby boomers have an average windfall of being $335,000 down from their retirement savings objective.
What, then, are the self-employed to do? Read on for some helpful tips.
Different Options for Self-Employed Americans
As a baseline, financial professionals recommend putting away tens of thousands of dollars if you can. But for many self-employed individuals, this may not be viable – putting away a few thousand in a retirement account will still help toward accumulating sufficient retirement funds.
There are a number of vehicles available to the self-employed in the form of retirement accounts:
• Roth IRAs – Roth IRAs are an ideal vehicle for many people, as account distributions once you turn 59.5 years old are tax-free. Contributions themselves aren’t tax-deductible, but in contrast traditional IRA account distributions are taxable. So there’s a trade off. The contribution limit is set at $6,000 for 2019 and 2020 – for people over 50, it’s set at $7,500.
• Traditional IRAs – In a traditional IRA, self-employed persons have the benefit of their contributions being fully deductible – however, they can’t have a spouse covered by a workforce retirement plan. In addition, contributions can’t exceed gross income. It’s also important to keep in mind distributions with this account are taxable once you hit 59.5.
• SEP IRAs – If your income exceeds $131,000, you can’t contribute to a Roth IRA. An SEP IRA or a Simple IRA may be good alternatives. They’re both accounts that are setup by an employer (the self-employed party, of course) for the employee (again, the self-employed person). An SEP IRA enables you to contribute up to 25% of your income, up to a maximum limit of $57,000.
With a Simple IRA, you can stock away all of your net earnings (which is calculated using an IRS-developed formula) up to $13,500 in 2020. The account also allows for an “employer match” of up to 3% of income. For people who are 50 years old and above, they can put away up to $16,000.
• 401(k)s – A 401(k) may be another suitable option. Like with a Simple IRA, you can make contributions as employee and employer. The employee pretax limit for contributions for 401(k)s is set at $19,500 in 2020; for people aged 50 and over, they are eligible for an additional catch-up contribution of $6,000 in 2019 and $6,500 in 2020.
What about High-Income Earners?
For people who are higher income earners or looking to meet retirement savings goals within the space of a few years, a defined-benefit plan may be ideal. However, this type of plan is complex. The maximum annual benefit for a defined-benefit plan is $230,000; calculations are made by an actuary and are based on numerous variables.
A defined-benefit plan also requires annual contributions. So it may not be a good fit for self-employed persons with variable income per year. For some-employed persons earning elevated income amounts, funding a defined-benefit plan and a 401(k) may be an ideal combination.
What’s the Takeaway?
It’s clear self-employed Americans have many options at their disposal. All of these selections should be investigated depending on your unique goals, current needs, and annual earnings. Unlike employed Americans, the self-employed don’t have anyone pushing them to plan for retirement. For best results, it’s best to seek out guidance from a capable financial professional.
How to Combat Inflation Risk When Facing Retirement In a Bear Market.
Does the prospect of saving for retirement seem more daunting than ever? You may be concerned with market losses, the risk of outliving your money and Inflation.
Ronald Reagan once famously said“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man,” The worst time to try to fight inflation is when you are in retirement, living on a fixed income.
According to a survey by Allianz Life, a top economic worry among retirees, is inflation. Nearly one-third, or 32% of Americans said that they are “panicked” or “very worried” about inflation and its effects on their retirement.
It’s good that retirement investors are aware of inflation, but many underestimate it as a significant risk. In the survey, 64% said they don’t have a plan to address inflation. Among the 36% who do, 51% indicated “being more frugal with their money” would be their plan of action. And what about when it comes to actual planning? The Society of Actuaries reports that 45% of retirees and 28% of pre-retirees neglect inflation in their retirement plans.
Because inflation can be a real dealbreaker for retirement lifestyle – especially as lifespans increase – here’s a look at the power-punch that inflation can land over time.
While concerns about inflation were clear, the survey indicated that many Americans have a misunderstanding of inflation and how to address it. Overall, people overestimated typical cost-of-living increases in retirement. Those surveyed predicted an average 4.4% increase in the cost of living each year. And some respondents gave even higher annual predictions as to what they expected for inflation in retirement.
Despite these predictions, Allianz Life estimates average inflation over the last 20 years to be just 2.15%. From 1999-2016, annual inflation hovered in a range of 0.1%-4.1%.
Like everything, inflation adds up over time. To put this into perspective, it may help to think it over for a moment. Did the last car you purchased cost more than the first home you purchased years ago? That could be one potential illustration of the long-term impact of cost-of-living increases.
Don't Forget about Healthcare Inflation
According to HealthView Services, retiree healthcare expenses will rise an average of 5.47% annually for the foreseeable future. That's almost 300% greater than U.S. inflation from 2012-2016, which was an inflation rate of 1.9%, and over 200% greater than annual expected cost-of-living adjustments to Social Security payments (projected to be 2.6%).
The biggest driver of this rapid rise in costs is due to retirement healthcare inflation, says HealthView. An average 65-year-old couple retiring in 2017 will pay $11,369 in projected costs for healthcare in their first year of retirement.
By the time they reach age 85, they are projected to be paying $39,208 in annual health costs, including payments for Medicare Parts B and D, supplemental insurance, dental insurance, and out-of-pocket expenses.
Their total overall retirement lifetime healthcare expenses is expected to be $607,662, with annual inflation factored in.
Projected annual healthcare costs for the retiring couple at different ages are, according to HealthView:
Some other sources don't peg total retirement healthcare expenses at this high, but they are still substantial. In recent times, Fidelity has reported total healthcare cost projections of $275,000 -- a $15,000 increase from its estimates in 2016. Regardless of these projections, all of these statistics underscore the prudence and value of creating a long-term strategy to manage inflation, other risks, and income in retirement.
Be Proactive and Plan for Your Financial Future
When you are ready to retire you must convert the growth of your savings and investments into a source of regular and reliable income, an income that will last for 20 or 30 years of retirement.
Of course most financial advisors will advise you to withdraw only the interest dividends or profit on your investments so that you can never run out of money.
But we know that interest rates, stock dividends, market valuations and taxes will vary considerably from year to year.
Especially over 20 or 30 years of retirement and if your investment earnings cannot provide you with enough income, you will need to take withdrawals of both earnings and principle and manage those withdrawals very carefully as you spend down your savings over 20 or 30 years.
But if you make any mis-calculations or if your investments do not perform as well as you expect them to, or if you should live longer than 20 or 30 years, you could very easily run out of money.
So what's the alternative? Well, you can convert your retirement savings into three separate ten-year payout periods, each one with a certain guaranteed income and the third one with a guarantee to continue the payout for as long as you live.
Even if you live into your hundreds. These payout periods are referred to as income buckets and they can replace the uncertainty of interest rates, stock dividends, bond yields and market valuations with the certainty of a regular and reliable guaranteed monthly income.
It's like having your own personal pension plan. What's more, income buckets enable you to safely and confidently take as much as thirty percent more income during the first 20 years of your retirement because you know with certainty and assurance that you will have sufficient income guaranteed during the second 20 years of your retirement or for as long as you live.
What's more you can do it all without any risk of taking out too much or too little and without any dependence on interest rates, bond yield, stock dividends or market valuations.
So you never need to worry about the safety of your money or the need to carefully manage your investments.
Dr. David Pfau, a chartered financial analyst (CFA) and Professor of Retirement Income at The American College and holder of a doctorate of economics from Princeton University states:
“A low-interest rate environment is risky for investors, especially those approaching retirement. First, it is important to understand that bond prices will decrease if interest rates rise. Bond funds can be volatile and experience losses, and individual bonds may also experience loss when sold before maturity. Bond duration is a measure of just how sensitive bond prices are to interest rate changes.”
In considering deferred fixed annuities and the benefits they might provide relative to other fixed choices, Pfau points out four advantages:
1. Protection of the annuity’s value from investment volatility.
“Deferred fixed annuities support growth at a specific interest rate without exposure to price fluctuations and potential losses as interest rates change,” Pfau observes. “Principal is protected and secured. This provides a way to take risk off the table in the pivotal years before the retirement date.”
2. The ability to earn higher yields than Treasury bonds.
Insurance company general accounts may invest in higher-yielding corporate issues to provide diversification (similar to a bond fund), while protecting the annuity contract holder from interest rate risk. And they provide the principal protection similar to an individual bond held to maturity.
3. Reduction in credit risk.
Because insurance companies can diversify their holdings across a wide range of fixed-income securities, deferred fixed annuities may offer lower credit risk.
4. Tax deferral.
Assets grow faster when investors are able to defer taxes on the interest earned until they actually withdraw it, or it is distributed to them. Because an annuity is tax-deferred for individuals, deferred fixed annuities postpone the taxes on growth until the annuity’s maturity date, allowing interest to compound, untaxed.
Wait Until Closer to Retirement?
If you think you won’t face this risk anytime soon because you have several years until retirement, Pfau has a finding on that, too.
Laddering annuities could be a good strategy if your retirement isn't eminent, according to Pfau. This approach lets you put money into annuities over time instead of all at once. That can help you manage inflation risk, along with maximizing your guaranteed lifetime income.
Here's an example of how annuity laddering works. The first income bucket might begin at age 60 or 65 and pay out all of that money over the first ten years of our retirement before it would be replaced by the second income bucket.
So the second income bucket would begin at age 70 or 75 and pay out a new monthly income guaranteed for another ten years to age 80 or 85 and this second ten year payout can be higher than the first ten year payout in order to offset the rate of inflation.
Now the third income bucket would only begin the payout if you make it to age eighty or eighty-five and this third bucket would be guaranteed not just for another ten years but for as long as you live. Even if you live to be a hundred and twenty and if you don't make it to age eighty or eighty-five, your heirs will receive annual installments until all the money you put into that bucket is paid back out.
An annuity -- or any financial or insurance solution for that matter -- must make sense for you and your financial circumstances.
The strategies and solutions that can help you reach your retirement goals must be customized to your unique situation.
The 2008 financial crisis caught retiring Americans off guard. This catastrophic financial event wiped out big chunks of America’s retirement savings and affected the economy long after the stock market recovered.
Now, retirees are faced with a double whammy. A rising health concern from the CoronaVirus, COVID-19, coupled with the Dow Jones industrial average falling into a bear market. A bear market begins when stocks have fallen 20 percent from their high.
Though it’s a somewhat arbitrary threshold, in financial markets the designation acknowledges what many investors are surely feeling — and that is, fear-based trading in the stock market may not end soon.
In this presentation you will learn:
As you get closer to retirement, it's important to start planning your retirement income strategy or you may need a refined or updated income plan that helps you achieve your specific retirement goals.
More than 9 out of 10 current retirees rely at least in part on Social Security benefits to fund their retirement income.
The maximum monthly Social Security benefit that an individual can receive per month in 2020 is $3,790 for someone who files at age 70. For someone at full retirement age the maximum amount is $3,011 and for someone aged 62 the maximum amount is $2,265. The average monthly Social Security payment for retirees was $1,471 in June 2019.
Clearly, Social Security is not sufficient income for most of us by itself to fund an acceptable retirement lifestyle. But there are some things you can do to boost your monthly payout.
1. Increase your earnings.
Social Security benefits are based, in large part, on your contributions over your working years. The more you and your employer contribute in payroll taxes, the greater your benefit is likely to be, up to the statutory benefit cap. So the more money you earn now, if taxable as ordinary income, the greater the benefit you may eventually qualify for.
2. Stay married.
In the event of divorce, an ex-spouse may claim spousal and survivors benefits on an ex-spouse's earnings provided the filer was married to the earner for at least 10 years, and is not currently married. However, there is an exception for widows and widowers over the age of 60.
3. Be patient.
The longer you wait to claim your Social Security benefits, the higher your monthly benefit will be. For those born between 1943 and 1954, you are normal retirement age is 66. For those born in 1960 or later, normal retirement age is 67. But you can get a bigger monthly benefit if you wait a few years longer: Social Security will add 8% per year plus inflation to your eventual monthly check when you delay taking benefits past full retirement age up to age 70.
If you stay in the work force longer, you will have a bigger monthly cushion to retire on. However, if you are in poor health, or you have reason to believe your life expectancy will be shorter than average, you may want to go ahead and take Social Security benefits at an earlier age.
4. Step up to the larger benefit in the event of the death of a spouse.
If your spouse passes away, you are entitle to the deceased benefit if his or her benefit is larger than yours. To maximize the monthly benefit, you may consider putting off the claim until you reach normal retirement age, if you are not there already.
Alternatively, you could take the survivor's benefit early, while working or living off of other sources of income, and then switch over to your own benefit based on your earnings once you reach full retirement age.
5. Double up on spousal benefits.
If you have been married at least 10 years and then divorce, both of you may benefit from refraining from collecting your own Social Security benefits right away. Instead, you each may be able to claim spousal benefits based on the other's earnings, and waiting until full retirement age or age 70 before filing for your own Social Security benefits. To make this work, you and your ex must be divorced for at least 2 years, and either age 62 or older or receiving disability benefits.
The Take Away.
There is no one size fits all technique that maximizes lifetime benefits, so plan wisely.
After a nearly unanimous passage in the U.S. House of Representatives, the SECURE Act (Setting Up Every Community for Retirement Enhancement Act) has become law. The legislation was “attached” to a bipartisan spending bill with the goal of avoiding another government shutdown.
President Trump signed the SECURE Act into law on December 20th, 2019. With many provisions having gone into effect on January 1st, 2020, it will have big implications for retirement and taxes. As a result, retirees and working-age retirement savers can start seeing major changes as early as 2020.
All of that being said, the SECURE Act brings the most sweeping changes to the U.S. retirement system in a decade. Because of that, there is bound to be some confusion about what the act actually does and how it might affect people’s own retirement standard of living. Let's go over QLACs.
A qualifying longevity annuity contract (QLAC) is a special type of deferred income annuity. Starting in 2014, the IRS allowed individuals to buy QLACs with qualified (pre-tax) money from an existing 401(k) or IRA.
Not every annuity is a QLAC, however. And not every deferred or longevity annuity is a QLAC, either.
To satisfy the IRS's QLAC requirements, the product must be simple and straightforward: put money in now, pick a deferral period, pick your income and death benefit options (single or joint life, with or without a death benefit), and begin receiving distributions later.
You can also buy limited rider options for things like inflation adjustment and return of premium, which increase the overall cost of purchase.
Note that with QLACs, there are no variable interest rates, participation rates, floors, or ceilings (as you’d see with variable, indexed, or buffer annuities).
QLACs let you shift some of the money in your qualified retirement account into an annuity. Why would you want to do this?
There are two main reasons.
First, you can delay required minimum distributions (RMDs) on the money in your QLAC. Without a QLAC, you'd be forced to start taking distributions based on the total value of that retirement account at age 72 (formerly 70 ½) - and paying income tax on those distributions.
Many individuals don’t need distributions at that age, and don’t want to pay tax on that money yet. With a QLAC, you won’t have any RMDs on premiums paid until age 85.
The second reason?
In a word, longevity. If you are worried about outliving your funds, a QLAC solves the problem. It provides guaranteed monthly income as long as you live. Plus, you get the amount you were promised at purchase, no matter what’s happened to the stock market or interest rate in the interim. You're effectively transferring that risk to the insurer.
The IRS increased the dollar limit on allowable premiums paid, as of January 1, 2020.
As specified under Code Section 1.401(a)(9)-6 and Regs. Section A-17(b)(2)(i) of the Income Tax Regulations, the IRS increased the lifetime limit from $130,000 to $135,000.
The maximum amount you can pay into a QLAC is now the lesser of either: (a) $135,000, or (b) 25% of aggregated traditional IRA account values as of the prior December 31, minus premiums paid for other QLACs.
Ready to Aim for Financial Wellness? You Need a Guide
Have you ever seen a documentary on thrill-seekers heading to some far-flung destination?
Scaling Mount Everest. Base-jumping off Europe’s Troll Wall. Biking on the World’s Most Dangerous Road in Bolivia. Traversing the Alps.
Whether one of these treks or someplace else, chances are you will see that they have something in common. Rarely do the thrill-seekers go it alone.
Their expeditions often include some sort of guide. And not just any guide. It’s someone who knows the terrain, understands the challenges, and offers the experience to successfully navigate potential mishaps.
Although they don’t involve thrill-seeking, money matters can operate in the same fashion. Without guidance from an advisor, it’s easy to make choices that lead not to financial wellness but to fiscal misery.
Positive Results Require a Behavioral Reset
From spending to investing, financial successes and setbacks are driven by our decisions and behaviors, explains Jim Chilton, CEO and Founder of the Society for Financial Awareness (SOFA). The first step toward positive results is changing how we manage our money, which begins with personal spending.
“Since behaviors (thoughts, habits, actions) influence our results, our first decision is to realize we need to change our decision-making,” Chilton says. “Instead of thinking ‘we need it,’ why don’t we evaluate how that purchase – an item’s cost, ‘taking away from our money’ – fits into our planning.”
“No planning, no budget, we get it!” Chilton continues. “If we have priorities set, then we probably move on.”
In other words, managing money without a plan is like steering a ship without a rudder. There isn’t a clear direction to take or a means by which to keep track of progress. It’s a real problem, as just three percent of Americans have a written financial plan, according to Chilton.
But by working with a Financial Advisor, you can develop your own financial blueprint and also receive crucial guidance in how to put your best foot forward.
Planning Brings More Certainty
Similar to how expeditions benefit from the guide’s savvy, you can benefit from the vision, clarity, and accountability that comes from a Financial Advisor’s expertise.
If you were traveling, you wouldn’t go without a GPS or a map for directions. Our financial lives are the same. We need a roadmap to help guide our money behaviors and choices – and to know what steps we need to take financially, says Chilton.“Just like driving to that specific spot, that you’ve never arrived at, you need specific navigation so you don’t wind up lost,” he explains. Not only that, it’s also important for your personal plan to spell out what your goals are.
“Just like you do when planning for your money, combine time sequences- short-term to long-term time goals- with specific personal plans and goals. Whether it’s next year’s big trip or in 19 years you calling it quits at work,” Chilton says. “Matching up your time with your goals leads to a disciplined arrival.”
A Financial Advisor will help you align your personal goals with those expected timelines in the future.
How Can a Financial Advisor Help Me?
So, what are some other ways that a Financial Advisor can benefit you? First, they help take the guesswork out of planning for the future. With their guidance, you can develop a clear outlook of your current financial progress and where you need to go.
Here are some other ways that a Financial Advisor can increase your chances of success in reaching financial wellness:
Building and Maintaining a Personal Financial Plan
You will receive professional help in cultivating the blueprint of how you manage your money, now and in the years ahead.
Bringing Accountability to Your Financial Journey
By working with the right advisor, you now have an accountability partner to “answer to.” Your Financial Advisor will help you recognize positive developments in your financial journey and accept responsibility for mistakes as well as missteps.
Covering Gaps in Your Financial Knowledge
Your advisor does this every day. They know the unique challenges and issues facing today’s investors just like you. They can help you tackle those potential roadblocks and overcome them, one step at a time.
Putting an End to Procrastination
Having an advisor will help move the needle from inaction to action. Are you ready to start moving toward more financial wellness and peace of mind? You must take action to progress forward.
It’s time to do something about it, and a Financial Advisor will help you take those steps and stay motivated.
The Alternative to Not Taking Action
Everyone, from families just starting out to successful business people and wealthy investors, has something about their financial lives they can improve upon.
If we don’t receive financial help, we might not be doing everything we can to make the most of our money. And what about those struggling with money issues? We will continue to persist in the poor behaviors and money decisions that put us in the hole we currently are in.
And worse, if we have a family, we might pass on these behaviors and model of decision-making to our children.
As Chilton observes, most people copy their parents in their behaviors, including in how they approach money matters. If those after us don’t learn the fundamentals of cash management and finance, they are bound to repeat the same mistakes.
“’Do as I say, not as I do,’ is a time-tested non-starter for those we are trying to financially teach and raise. Some say a budget is a mathematical confirmation of our suspicions!” Chilton explains.
“The very idea of getting involved with our finances can be, as it should be, the answer to many personal problems. Divorce, anger, frustration, health issues…”
“Why go down that path and deal with those problems? Plan ahead,” Chilton continues. “Build a blueprint and hold yourself accountable.”
Don’t Procrastinate or Think You Can Wait Until Tomorrow
Start working toward more financial wellness and peace of mind today. Working with a Financial Advisor is the first step in your looming financial success story.
If you are ready to seek guidance from a financial professional, we have licensed advisors ready to help you at JenniferLangFinancialServices.com. Click here to connect with someone directly.
Congratulations! You have accumulated a nice “nest egg” – or a large lump sum for your retirement. But, believe it or not, just having a hefty portfolio and other assets isn't enough to ensure your retirement security.
There is also the matter of making sure your money lasts for the rest of your lifetime. A retirement income plan will go a long way toward helping you enjoy a comfortable retirement lifestyle.
In other words, building up retirement capital and investing your way to a large portfolio size isn't enough. It's just as important to know what you will do with the money you have accumulated through the development of income and distribution strategies.
Potholes to Avoid on the Road to Retirement
With a large-sized portfolio in hand, you may feel like your financial future is set, but there are still plenty of potholes to avoid on your road to retirement.
The first one is undisciplined spending. When you retire, you have newfound freedom and time. This might prompt scheduling expensive trips abroad, increasing your travel schedule to visit friends and family, or finally indulging in that classic car you have had your eye on for years.
Depletion of a nest egg for income too quickly isn’t just a remote possibility. Headlines show that consumer debt is near an all-time high, and many Americans have little-to-no retirement savings, according to the U.S. Government Accountability Office.
While these may be rewarding pursuits, putting the brakes on unbridled spending and developing a long-term retirement spending plan will help prevent the wheels from coming off during your retirement journey.
Another reason it’s prudent to “keep your powder dry,” as they say?
Who knows what health challenges or emergencies you will face during in the coming years? And, if your money is unprotected, how could sequence risk affect your income security in the event of a market down-turn?
Converting a Nest Egg Lump Sum into Lifelong Retirement Income
For many retirees, another common blunder is presuming that bucket of money you are taking into retirement is enough to last a lifetime.
The problem? You have to pay for a lifetime. And our lifetimes are getting longer.
Vanguard analyzed mortality data from the Society of Actuaries Retirement Participant 2000 Table and determined the likelihood of 65-year-olds living to certain ages:
A 65-year-old man has a 41% chance of living to age 85 and a 20% chance of living to age 90.
A 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to age 90.
If the man and woman are married, the chance that at least one of them will live to any given age is increased.
There is a 72% chance that one of them will live to age 85 and a 45% chance that one will live to age 90.
There is even an 18% chance that one of them will live to age 95
Getting the Most Mileage Out of Your Money
To make it all the way without running out of gas with miles (years) to go, you need a rock-solid plan that lays out your strategies for income and distributions from your income sources.
But a nationwide poll by Kiplinger’s Personal Finance released early this year suggests that most of us are driving without a map.
According to their survey of investors between the ages of 35 and 64, equally divided between men and women, fewer than 50% of respondents had a withdrawal plan. The survey also cited a withdrawal plan as a critical and often-overlooked part of planning for retirement.
Clearly, it's just as important to plan for the latter part of your financial life, when you are retired and living off your lifetime-accumulated money, as it is for the accumulation period that got you here.
Put Together a Roadmap for More Financial Certainty
Such a plan needs to incorporate five elements, which we can think of as a five-story hotel:
- Protection (Your main floor is made up of the insurances you carry)
- Retirement (Even when you are retired, what's your long-term game-plan for maintaining your financial well-being?)
- Investing (What allocations in your portfolio will you need to achieve your goals and meet your needs?)
- Taxes (A tax bill can take a big bite out of your nest egg, especially if you dip into tax-advantaged accounts for money and trigger a tax burden in the process. Tax planning is essential!)
- Estate planning (Who might be your legal guardian in later years, and how will other later-life affairs be handled?)
Now that you know what is involved in achieving your retirement lifestyle, while moving through your lifespan, it’s time to consult with a professional who can show you what options are available to you.
Another eye-opener Kiplinger reported in its survey results: The majority (61%) of those with a long-term financial plan are working with a financial professional.
Setting a Destination for Greater Financial Security
This will allow you to learn the "shortcuts," take the rewarding scenic routes, and arrive at your destination with plenty of gas in your retirement resources tank.