Category: Retirement (page 1 of 2)

Are you ready for a long retirement?

Following is a great article on funding a long retirement:

http://www.marketwatch.com/story/how-to-fund-a-long-retirement-2017-01-10

We typically plan for our clients to live until age 100.   An interesting fact from the article, the average life expectancy for a 65-year-old male rose from 84.7 in 1950 to 87.8 in 2010 and average life expectancy for 65-year-old woman rose from 86.6 in 1950 to 89.7 in 2010.

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Year-End Charitable Giving

With the holiday season upon us and the end of the year approaching, we pause to give thanks for our blessings and the people in our lives. It is also a time when charitable giving often comes to mind. The tax benefits associated with charitable giving could potentially enhance your ability to give and should be considered as part of your year-end tax planning.

Assume you are considering making a charitable gift equal to the sum of $1,000 plus the income taxes you save with the charitable deduction. With a 28% tax rate, you might be able to give $1,389 to charity ($1,389 x 28% = $389 taxes saved). On the other hand, with a 35% tax rate, you might be able to give $1,538 to charity ($1,538 x 35% = $538 taxes saved).

A word of caution

Be sure to deal with recognized charities and be wary of charities with similar sounding names. It is common for scam artists to impersonate charities using bogus websites and through contact involving emails, telephone, social media, and in-person solicitations. Check out the charity on the IRS website, irs.gov, using the Exempt Organizations Select Check search tool. And don’t send cash; contribute by check or credit card.

Tax deduction for charitable gifts

If you itemize deductions on your federal income tax return, you can generally deduct your gifts to qualified charities. However, the amount of your deduction may be limited to certain percentages of your adjusted gross income (AGI). For example, your deduction for gifts of cash to public charities is generally limited to 50% of your AGI for the year, and other gifts to charity may be limited to 30% or 20% of your AGI. Charitable deductions that exceed the AGI limits may generally be carried over and deducted over the next five years, subject to the income percentage limits in those years. Your overall itemized deductions may also be limited based on your AGI.

Make sure you retain proper substantiation of your charitable contribution for your deduction. In order to claim a charitable deduction for any contribution of cash, a check, or other monetary gift, you must maintain a record of such contributions through a bank record (such as a cancelled check, a bank or credit union statement, or a credit card statement) or a written communication (such as a receipt or letter) from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution. If you claim a charitable deduction for any contribution of $250 or more, you must substantiate the contribution with a contemporaneous written acknowledgment of the contribution from the charity. If you make any noncash contributions, there are additional requirements.

Year-end tax planning

When making charitable gifts at the end of a year, it is generally useful to include them as part of your year-end tax planning. Typically, you have a certain amount of control over the timing of income and expenses. You generally want to time your recognition of income so that it will be taxed at the lowest rate possible, and time your deductible expenses so they can be claimed in years when you are in a higher tax bracket.

For example, if you expect that you will be in a higher tax bracket next year, it may make sense to wait and make the charitable contribution in January so that you can take the deduction next year when the deduction results in a greater tax benefit. Or you might shift the charitable contribution, along with other deductions, into a year when your itemized deductions would be greater than the standard deduction amount. And if the income percentage limits above are a concern in one year, you might consider ways to shift income into that year or shift deductions out of that year, so that a larger charitable deduction is available for that year. A tax professional can help you evaluate your individual tax situation.

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Rising Rates: The Fed Takes Next Step Toward Normal

On December 14, the Federal Open Market Committee (FOMC) voted unanimously to raise the federal funds rate by 0.25% — to a range of 0.50% to 0.75%. This was the second increase since December 2008, when the benchmark rate was lowered to a near-zero level (0% to 0.25%) during the Great Recession.1

The rate hike was widely anticipated by investors, and the only element of surprise was a change in the forecast for the federal funds rate. The median projection for the end of 2017 is 1.4%, up from 1.1% in September, which suggests that Fed officials now expect three additional rate increases in 2017 instead of two.2

As the financial markets priced in the prospect of an extra rate hike, the yield on two-year Treasuries surged to its highest level since August 2009. The 10-year Treasury yield climbed to 2.523%, the highest level in more than two years and a full percentage point higher than the record low in early July 2016.3(Bond yields typically rise as prices fall.) The S&P 500 index declined 0.8% on the day of the Fed’s decision, but recovered quickly and rose 0.4% the following day.4-5

The December rate hike reflects the committee’s growing confidence in the health of the U.S. economy, but it’s also likely to push up borrowing costs for households and businesses.

Central Bank Influence

The Federal Reserve and the FOMC operate under a dual mandate to conduct monetary policies that foster maximum employment and price stability. The federal funds rate is the interest rate at which banks lend funds to each other overnight within the Federal Reserve system. It serves as a benchmark for many short-term rates set by banks.

Adjusting the federal funds rate is one way the central bank can influence short-term interest rates, economic growth, and inflation. The Fed has been tasked with loosening monetary policy early enough to keep inflation from flaring up, but not so quickly as to reverse economic progress or upset financial markets.

Second Time Around

A lot has happened since December 2015, when the stock market cheered the Fed’s first rate increase since the financial crisis. At the time, the Fed projected four rate hikes by the end of 2016, but tightening was put on hold when GDP growth and inflation were slow to materialize. A number of outside risks, including a weak global economy and uncertainty surrounding the June Brexit vote, threatened to dampen U.S. GDP growth in the first half of 2016.6

The Fed’s most recent statement acknowledged that “the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since midyear.”7 Unemployment fell to 4.6% in November, a nine-year low, and GDP growth improved to 3.2% in the third quarter.8-9

Inflation is still below the Fed’s 2% target but has started to firm in recent months. According to the Fed’s preferred measure, personal consumption expenditures (PCE), prices rose at a 1.4% annual rate through October, and core PCE (which excludes volatile food and energy prices) rose at a 1.7% rate.10

What About Investments?

When interest rates rise, the value of outstanding bonds typically falls. Longer-term bonds tend to fluctuate more than those with shorter maturities, because investors may be reluctant to tie up their money if they anticipate higher yields in the future. Bonds redeemed prior to maturity may be worth more or less than their original value, but if a bond is held to maturity, the owner suffers no loss of principal unless the issuer defaults.

Equities may also be affected by rising rates, though not as directly as bonds. Stock prices are closely tied to earnings growth, so many corporations stand to benefit from a more robust economy. On the other hand, companies that rely heavily on borrowing will likely face higher costs, which could affect their profits.

Considerations for Consumers

The prime rate, which commercial banks charge their best customers, is typically tied to the federal funds rate. Though actual rates can vary widely, small-business loans, adjustable rate mortgages, home equity lines of credit, auto loans, credit cards, and other forms of consumer credit are often linked to the prime rate, so the rates on these types of loans may increase with the federal funds rate. Fed rate hikes may also put some upward pressure on interest rates for new fixed rate home mortgages.

Although rising interest rates make it more expensive for consumers and businesses to borrow, retirees and others who seek income could eventually benefit from higher yields.

The FOMC expects economic conditions to “warrant only gradual increases,” but future Fed policies will depend on global financial developments, economic data, and growth projections. If inflation rises more or less than expected, rate adjustments will likely follow suit.

The financial markets could continue to react to Fed policies, but that doesn’t mean you should do the same. As always, it’s important to maintain a long-term perspective and make sound investment decisions based on your own financial goals, time horizon, and risk tolerance.

The return and principal value of stocks fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost.

1-2, 7) Federal Reserve, 2016
3-6) The Wall Street Journal, December 14-15, 2016
8) U.S. Bureau of Labor Statistics, 2016
9-10) U.S. Bureau of Economic Analysis, 2016

 

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How Much Do You Need For Retirement

Most people wonder how much they need to save for retirement.   We calculate a custom target for our clients.   Following is an interesting article that has some general targets:

http://www.cnbc.com/2016/12/08/heres-how-much-most-americans-think-they-need-to-save-for-retirement.html

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What Will You Pay for Medicare in 2017?

What Will You Pay for Medicare in 2017?

The Centers for Medicare & Medicaid Services (CMS) has     announced that in 2017, most Medicare beneficiaries (about 70%) will pay $109     per month on average for Medicare Part B. This is up from the $104.90 monthly     Part B premium that has been in effect since 2013.

If you fall into this group, you face only a modest Part B     premium increase in 2017 because your Part B premium is deducted from your     Social Security benefit, and you will be receiving only a small Social Security     cost-of-living increase next year (0.3%). Due to a provision in the Social     Security Act called the “hold harmless” rule, Medicare premiums for existing     beneficiaries can’t increase faster than their Social Security benefits.     Because your Medicare premium increase is based on your actual Social Security     benefit, you may pay more or less than the $109 average premium. The Social     Security Administration (SSA) will tell you the exact amount of your Part B     premium in 2017.

Approximately 30% of Medicare beneficiaries are not subject     to this provision, and may pay substantially more for Medicare Part B. You fall     into this group if:

  • You enroll in Part B for the first time in 2017.
  • You don’t get Social Security benefits.
  • You have Medicare and Medicaid, and Medicaid pays your
  • Your modified adjusted gross income as reported on your federal income tax return from two years ago is above a certain amount.*

The table below shows the Part B premium you’ll pay next     year if you’re in this group.

Beneficiaries who file an individual       income tax return with income that is: Beneficiaries who file a joint       income tax return with income that is: Beneficiaries who file an income       tax return as married filing separately with income that is: Monthly       premium in 2016: Monthly premium in 2017:
$85,000 or less $170,000 or       less $85,000 or less $121.80 $134
Above $85,000 up to       $107,000 Above $170,000 up to       $214,000 N/A $170.50 $187.50
Above $107,000 up to       $160,000 Above $214,000 up to       $320,000 N/A $243.60 $267.90
Above $160,000 up to       $214,000 Above $320,000 up to $428,000 Above $85,000 up to       $129,000 $316.70 $348.30
Above $214,000 Above       $428,000 Above $129,000 $389.80 $428.60

 

*Beneficiaries with higher incomes have paid higher Medicare     Part B premiums since 2007. To determine if you’re subject to income-related     premiums, the SSA uses the most recent federal tax return provided by the IRS.     Generally, the tax return you filed in 2016 (based on 2015 income) will be used     to determine if you will pay an income-related premium in 2017. You can contact     the SSA at (800) 772-1213 if you have new information to report that might     change the determination and lower your premium (you lost your job and your     income has gone down or you’ve filed an amended income tax return, for     example).

Changes to other Medicare costs

Other Medicare Part A and Part B costs will change in 2017,     including the following:

  • The annual Medicare Part B deductible for Original Medicare will be $183, up from $166 in 2016.
  • The monthly Medicare Part A (Hospital Insurance) premium for those who need to buy coverage will cost up to $413, up from $411 in 2016.     However, most people don’t pay a premium for Medicare Part A.
  • The Medicare Part A deductible for inpatient hospitalization will be $1,316, up from $1,288 in 2016. Beneficiaries will pay     an additional daily co-insurance amount of $329 for days 61 through 90, up from     $322 in 2016, and $658 for stays beyond 90 days, up from $644 in 2016.
  • Beneficiaries in skilled nursing facilities will pay a daily co-insurance amount of $164.50 for days 21 through 100 in a benefit     period, up from $161 in 2016.

To view the Medicare fact sheet announcing these and other figures, visit Medicare.gov.

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Retirement Crisis

Most people find investing “complex and confusing.”   They also “don’t know what to do to prepare for retirement.”   This is what we help our clients figure out.

When planning for retirement, it is important to try to find your target.

  1. When do you want to retire?
  2. What do you want to do for retirement?
  3. How much do you need for retirement?

Following is a great article about the retirement crisis.

http://www.businessinsider.com/reasons-for-americas-retirement-crisis-2016-11

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Facebook and Your Retirement

I don’t use facebook very much, but I can understand seeing your friends on vacation would make you want to go as well.  This article looks at this situation in depth.    I really like the do’s and don’ts listed at the end of the article.    Be happy with what you have and be happy for your friends.

http://www.usatoday.com/story/money/columnist/powell/2016/11/16/retiree-facebook-travel-jealous-retirement-risk/90740868/

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IRA and Retirement Plan Limits for 2017

IRA contribution limits

The maximum amount you can contribute to a traditional IRA     or Roth IRA in 2017 is $5,500 (or 100% of your earned income, if     less), unchanged from 2016. The maximum catch-up contribution for those age     50 or older remains at $1,000. (You can contribute to both a traditional and     Roth IRA in 2017, but your total contributions can’t exceed these annual limits.)

Traditional IRA deduction limits for 2017

The income limits for determining the deductibility of     traditional IRA contributions in 2017 have increased. If your filing status is     single or head of household, you can fully deduct your IRA contribution up to $5,500 in     2017 if your MAGI is $62,000 or less (up from $61,000 in 2016). If you’re     married and filing a joint return, you can fully deduct up to $5,500 in 2017 if your     MAGI is $99,000 or less (up from $98,000 in 2016). And if you’re not covered by an employer plan but your spouse is, and you     file a joint return, you can fully deduct up to $5,500 in 2017 if your MAGI is     $186,000 or less (up from $184,000 in 2016).

If your 2017 federal income tax      filing status is: Your  IRA deduction is limited if your MAGI is      between: Your deduction is eliminated if your MAGI is:
Single or head of household $62,000 and $72,000 $72,000 or more
Married filing jointly or qualifying      widow(er)* $99,000 and $119,000 (combined) $119,000 or more      (combined)
Married filing separately $0      and $10,000 $10,000 or more

 

*If you’re not covered by an employer plan but your spouse     is, your deduction is limited if your MAGI is $186,000 to $196,000, and     eliminated if your MAGI exceeds $196,000.

Roth IRA contribution limits for 2017

The income limits for determining how much you can     contribute to a Roth IRA have also increased for 2017. If your filing status is     single or head of household, you can contribute the full $5,500 to a Roth IRA in     2017 if your MAGI is $118,000 or less (up from $117,000 in 2016). And if you’re     married and filing a joint return, you can make a full contribution in 2017 if your     MAGI is $186,000 or less (up from $184,000 in 2016). (Again, contributions     can’t exceed 100% of your earned income.)

If your 2017 federal income tax      filing status is: Your Roth IRA contribution is limited if your MAGI      is: You cannot contribute to a Roth IRA if your MAGI is:
Single or head of household More than $118,000 but less than $133,000 $133,000 or more
Married filing jointly or qualifying      widow(er) More than $186,000 but less than $196,000      (combined) $196,000 or more (combined)
Married filing separately More      than $0 but less than $10,000 $10,000 or more

 

Employer retirement plans

Most of the significant employer retirement plan limits for 2017 remain unchanged from 2016. The maximum amount you can contribute (your “elective     deferrals”) to a 401(k) plan in 2017 is $18,000. This limit also     applies to 403(b), 457(b), and SAR-SEP plans, as well as the Federal Thrift     Plan. If you’re age 50 or older,     you can also make catch-up contributions of up to $6,000 to these plans in 2017. [Special catch-up limits apply to certain participants     in 403(b) and 457(b) plans.]

If you participate in more than one retirement plan, your     total elective deferrals can’t exceed the annual limit ($18,000 in 2017 plus     any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans,     SIMPLE plans, and SAR-SEPs are included in this aggregate limit, but deferrals to Section     457(b) plans are not. For example, if you participate in both a 403(b) plan and     a 457(b) plan, you can defer the full dollar limit to each plan—a total of     $36,000 in 2017 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE     401(k) plan in 2017 is $12,500, and the     catch-up limit for those age 50 or older remains at $3,000.

Plan type: Annual dollar      limit: Catch-up limit:
401(k), 403(b), governmental 457(b),      SAR-SEP, Federal Thrift Plan $18,000 $6,000
SIMPLE      plans $12,500 $3,000

 

Note: Contributions can’t exceed 100% of your     income.

The maximum amount that can be allocated to your account in     a defined contribution plan [for example, a 401(k) plan or profit-sharing plan]     in 2017 is $54,000, up from $53,000 in 2016, plus age 50 catch-up     contributions. (This includes both your contributions and your employer’s     contributions. Special rules apply if your employer sponsors more than one     retirement plan.)

Finally, the maximum amount of compensation that can be     taken into account in determining benefits for most plans in 2017 is     $270,000 (up from $265,000 in 2016), and the dollar threshold for determining     highly compensated employees (when 2017 is the look-back year) is $120,000, unchanged from 2016.

A Retirement Income Roadmap for Women

More women are working and taking charge of their own retirement planning than ever before. What does retirement mean to you? Do you dream of traveling? Pursuing a hobby? Volunteering your time, or starting a new career or business? Simply enjoying more time with your grandchildren? Whatever your goal, you’ll need a retirement income plan that’s designed to support the retirement lifestyle that you envision, and minimize the risk that you’ll outlive your savings.

When will you retire?

Establishing a target age is important, because when you retire will significantly affect how much you need to save. For example, if you retire early at age 55 as opposed to waiting until age 67, you’ll shorten the time you have to accumulate funds by 12 years, and you’ll increase the number of years that you’ll be living off of your retirement savings. Also consider:

  • The longer you delay retirement, the longer you can build up tax-deferred funds in your IRAs and employer-sponsored plans like 401(k)s, or accrue benefits in a traditional pension plan if you’re lucky enough to be covered by one.
  • Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early? Do you have health insurance coverage through your spouse’s employer? If not, you may have to look into COBRA or a private individual policy–which could be expensive.
  • You can begin receiving your Social Security retirement benefit as early as age 62. However, your benefit may be 25% to 30% less than if you waited until full retirement age. Conversely, if you delay retirement past full retirement age, you may be able to increase your Social Security retirement benefit.
  • If you work part-time during retirement, you’ll be earning money and relying less on your retirement savings, leaving more of your savings to potentially grow for the future (and you may also have access to affordable health care).
  • If you’re married, and you and your spouse are both employed and nearing retirement age, think about staggering your retirements. If one spouse is earning significantly more than the other, then it usually makes sense for that spouse to continue to work in order to maximize current income and ease the financial transition into retirement.

How long will retirement last?

We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. The problem is particularly acute for women, who generally live longer than men. To guard against the risk of outliving your savings, you’ll need to estimate your life expectancy. You can use government statistics, life insurance tables, or life expectancy calculators to get a reasonable estimate of how long you’ll live. Experts base these estimates on your age, gender, race, health, lifestyle, occupation, and family history. But remember, these are just estimates. There’s no way to predict how long you’ll actually live, but with life expectancies on the rise, it’s probably best to assume you’ll live longer than you expect.

Project your retirement expenses

Once you know when your retirement will likely start, how long it may last, and the type of retirement lifestyle you want, it’s time to estimate the amount of money you’ll need to make it all happen. One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll need to save by the time you retire. It’s often repeated that you’ll need 70% to 80% of your pre-retirement income after you retire. However, the problem with this approach is that it doesn’t account for your specific situation.

Focus on your actual expenses today and think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire. While some expenses may disappear, like a mortgage or costs for commuting to and from work, other expenses, such as health care and insurance, may increase as you age. If travel or hobby activities are going to be part of your retirement, be sure to factor in these costs as well. And don’t forget to take into account the potential impact of inflation and taxes.

Identify your sources of income

Once you have an idea of your retirement income needs, your next step is to assess how prepared you (or you and your spouse) are to meet those needs. In other words, what sources of retirement income will be available to you? Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. Other sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your earnings will be another source of income.

When you compare your projected expenses to your anticipated sources of retirement income, you may find that you won’t have enough income to meet your needs and goals. Closing this difference, or “gap,” is an important part of your retirement income plan. In general, if you face a shortfall, you’ll have five options: save more now, delay retirement or work during retirement, try to increase the earnings on your retirement assets, find new sources of retirement income, or plan to spend less during retirement.

Transitioning into retirement

Even after that special day comes, you’ll still have work to do. You’ll need to carefully manage your assets so that your retirement savings will last as long as you need them to.

  • Review your portfolio regularly. Traditional wisdom holds that retirees should value the safety of their principal above all else. For this reason, some people shift their investment portfolio to fixed income investments, such as bonds and money market accounts, as they enter retirement. The problem with this approach is that you’ll effectively lose purchasing power if the return on your investments doesn’t keep up with inflation. While it generally makes sense for your portfolio to become progressively more conservative as you grow older, it may be wise to consider maintaining at least a portion in growth investments.
  • Spend wisely. You want to be careful not to spend too much too soon. This can be a great temptation, particularly early in retirement. A good guideline is to make sure your annual withdrawal rate isn’t greater than 4% to 6% of your portfolio. (The appropriate percentage for you will depend on a number of factors, including the length of your payout period and your portfolio’s asset allocation.) Remember that if you whittle away your principal too quickly, you may not be able to earn enough on the remaining principal to carry you through the later years.
  • Understand your retirement plan distribution options. Most pension plans pay benefits in the form of an annuity. If you’re married, you generally must choose between a higher retirement benefit that ends when your spouse dies, or a smaller benefit that continues in whole or in part to the surviving spouse. A financial professional can help you with this difficult, but important, decision.
  • Consider which assets to use first. For many retirees, the answer is simple in theory: withdraw money from taxable accounts first, then tax-deferred accounts, and lastly, tax-free accounts. By using your tax-favored accounts last and avoiding taxes as long as possible, you’ll keep more of your retirement dollars working for you. However, this approach isn’t right for everyone. And don’t forget to plan for required distributions. You must generally begin taking minimum distributions from employer retirement plans and traditional IRAs when you reach age 70½, whether you need them or not. Plan to spend these dollars first in retirement.
  • Consider purchasing an immediate annuity. Annuities are able to offer something unique–a guaranteed income stream for the rest of your life or for the combined lives of you and your spouse (although that guarantee is subject to the claims-paying ability and financial strength of the issuer). The obvious advantage in the context of retirement income planning is that you can use an annuity to lock in a predictable annual income stream, not subject to investment risk, that you can’t outlive.*

Unfortunately, there’s no one-size-fits-all when it comes to retirement income planning. Roshan Loungani can review your circumstances, help you sort through your options, and help develop a plan that’s right for you.   Follow Roshan Loungani on twitter (https://twitter.com/roshanloungani) or Medium (https://medium.com/@RoshanLoungani_85629/about-roshan-loungani-949dd5e6875d#.c3wmjk9sx).

Five Keys to Investing For Retirement

Five Keys to Investing For Retirement

Making decisions about your retirement account can seem overwhelming, especially if you feel unsure about your knowledge of investments. However, the following basic rules can help you make smarter choices regardless of whether you have some investing experience or are just getting started.

Don’t lose ground to inflation

It’s easy to see how inflation affects gas prices, electric bills, and the cost of food; over time, your money buys less and less. But what inflation does to your investments isn’t always as obvious. Let’s say your money is earning 4% and inflation is running between 3% and 4% (its historical average). That means your investments are earning only 1% at best. And that’s not counting any other costs; even in a tax-deferred retirement account such as a 401(k), you’ll eventually owe taxes on that money. Unless your retirement portfolio at least keeps pace with inflation, you could actually be losing money without even realizing it.

What does that mean for your retirement strategy? First, you’ll probably need to contribute more to your retirement plan than you think. What seems like a healthy sum now will seem smaller and smaller over time; at a 3% annual inflation rate, something that costs $100 today would cost $181 in 20 years. That means you’ll probably need a bigger retirement nest egg than you anticipated. And don’t forget that people are living much longer now than they used to. You might need your retirement savings to last a lot longer than you expect, and inflation is likely to continue increasing prices over that time. Consider increasing your 401(k) contribution each year by at least enough to overcome the effects of inflation, at least until you hit your plan’s contribution limits.

Second, you need to consider investing at least a portion of your retirement plan in investments that can help keep inflation from silently eating away at the purchasing power of your savings. Cash alternatives such as money market accounts may be relatively safe, but they are the most likely to lose purchasing power to inflation over time. Even if you consider yourself a conservative investor, remember that stocks historically have provided higher long-term total returns than cash alternatives or bonds, even though they also involve greater risk of volatility and potential loss.

Past performance is no guarantee of future results.

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although money market funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in such a fund.

Invest based on your time horizon

Your time horizon is investment-speak for the amount of time you have left until you plan to use the money you’re investing. Why is your time horizon important? Because it can affect how well your portfolio can handle the ups and downs of the financial markets. Someone who was planning to retire in 2008 and was heavily invested in the stock market faced different challenges from the financial crisis than someone who was investing for a retirement that was many years away, because the person nearing retirement had fewer years left to let their portfolio recover from the downturn.

If you have a long time horizon, you may be able to invest a greater percentage of your money in something that could experience more dramatic price changes but that might also have greater potential for long-term growth. Though past performance doesn’t guarantee future results, the long-term direction of the stock market has historically been up despite its frequent and sometimes massive fluctuations.

Think long-term for goals that are many years away and invest accordingly. The longer you stay with a diversified portfolio of investments, the more likely you are to be able to ride out market downturns and improve your opportunities for gain.

Consider your risk tolerance

Another key factor in your retirement investing decisions is your risk tolerance–basically, how well you can handle a possible investment loss. There are two aspects to risk tolerance. The first is your financial ability to survive a loss. If you expect to need your money soon–for example, if you plan to begin using your retirement savings in the next year or so–those needs reduce your ability to withstand even a small loss. However, if you’re investing for the long term, don’t expect to need the money immediately, or have other assets to rely on in an emergency, your risk tolerance may be higher.

The second aspect of risk tolerance is your emotional ability to withstand the possibility of loss. If you’re invested in a way that doesn’t let you sleep at night, you may need to consider reducing the amount of risk in your portfolio. Many people think they’re comfortable with risk, only to find out when the market takes a turn for the worse that they’re actually a lot less risk-tolerant than they thought. Often that means they wind up selling in a panic when prices are lowest. Try to be honest about how you might react to a market downturn, and plan accordingly.

Remember that there are many ways to manage risk. For example, understanding the potential risks and rewards of each of your investments and its role in your portfolio may help you gauge your emotional risk tolerance more accurately. Also, having money deducted from your paycheck and put into your retirement plan helps spread your risk over time. By investing regularly, you reduce the chance of investing a large sum just before the market takes a downturn.

Integrate retirement with your other financial goals

Make sure you have an emergency fund; it can help you avoid needing to tap your retirement savings before you had planned to. Generally, if you withdraw money from a traditional retirement plan before you turn 59½, you’ll owe not only the amount of federal and state income tax on that money, but also a 10% federal penalty (and possibly a state penalty as well). There are exceptions to the penalty for premature distributions from a 401(k) (for example, having a qualifying disability or withdrawing money after leaving your employer after you turn 55). However, having a separate emergency fund can help you avoid an early distribution and allow your retirement money to stay invested.

If you have outstanding debt, you’ll need to weigh the benefits of saving for retirement versus paying off that debt as soon as possible. If the interest rate you’re paying is high, you might benefit from paying off at least part of your debt first. If you’re contemplating borrowing from or making a withdrawal from your workplace savings account, make sure you investigate using other financing options first, such as loans from banks, credit unions, friends, or family. If your employer matches your contributions, don’t forget to factor into your calculations the loss of that matching money if you choose to focus on paying off debt. You’ll be giving up what is essentially free money if you don’t at least contribute enough to get the employer match.

Don’t put all your eggs in one basket

Diversifying your retirement savings across many different types of investments can help you manage the ups and downs of your portfolio. Different types of investments may face different types of risk. For example, when most people think of risk, they think of market risk–the possibility that an investment will lose value because of a general decline in financial markets. However, there are many other types of risk. Bonds face default or credit risk (the risk that a bond issuer will not be able to pay the interest owed on its bonds, or repay the principal borrowed). Bonds also face interest rate risk, because bond prices generally fall when interest rates rise. International investors may face currency risk if exchange rates between U.S. and foreign currencies affect the value of a foreign investment. Political risk is created by legislative actions (or the lack of them).

These are only a few of the various types of risk. However, one investment may respond to the same set of circumstances very differently than another, and thus involve different risks. Putting your money into many different securities, as a mutual fund does, is one way to spread your risk. Another is to invest in several different types of investments–for example, stocks, bonds, and cash alternatives. Spreading your portfolio over several different types of investments can help you manage the types and level of risk you face.

Participating in your retirement plan is probably more important than any individual investing decision you’ll make. Keep it simple, stick with it, and time can be a strong ally.

Inflation means that you’ll probably need to contribute more to your retirement plan than you think. What seems like a healthy amount now is likely to feel smaller and smaller over time.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful. And diversification alone can’t guarantee a profit or eliminate the possibility of loss.
The dollar cost averaging you do when you make automatic contributions to the investments in your retirement plan account involves continuous investment in a security regardless of changes in its price. You should consider your financial and emotional ability to continue making purchases during times when prices are low. Dollar cost averaging does not guarantee a profit or protect against a loss.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.