Category: Uncategorized

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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Early Returns: How U.S. Markets Reacted to the Presidential Election

On November 8, 2016, Republican candidate Donald J. Trump won a closely contested election for president of the United States.

Late on election night, when it became evident that Trump was likely to win despite consistently trailing in the polls, foreign markets went into a deep dive.1 Many observers expected a similar reaction when the U.S. stock market opened on November 9, but after an initial drop, the S&P 500, Dow Jones Industrial Average, and NASDAQ rose throughout the day, and all three indexes closed up more than 1%.2 Although this was unexpected after the late-night surprise, it actually continued a two-day upsurge that began when Democratic candidate Hillary Clinton was expected to win the election.3

The market was mixed but steady the following day, November 10, with the Dow again up more than 1%, a small increase in the broader S&P 500, and a moderate decline in the NASDAQ, which tends to be more volatile due to its inclusion of smaller, technology-driven companies. On November 11, the NASDAQ recovered its loss, the Dow was slightly higher, and the S&P 500 was slightly lower — not unusual after a week of rising stock prices.4

On the other hand, bond prices fell steeply the day after the election, and the yield on the benchmark 10-year Treasury note, which rises as prices fall, jumped more than 2% for the day. This, too, was a surprise because Treasuries are generally seen as a safe haven in times of uncertainty. But on the day after the election, investors were more interested in selling Treasuries than buying them.5 The Treasury sell-off continued on November 10.6 (Bond markets were closed on November 11 in honor of Veterans Day.)

The conciliatory tone of Trump’s acceptance speech, Clinton’s concession speech, and remarks by President Obama all indicate there will be an orderly transfer of power, which may have helped calm the markets. Here are some additional implications that might be drawn from the initial market reaction.

First, although the Trump presidency was unexpected and his economic policies are untested, rising stock prices suggest that investors may be optimistic that his promised pro-business agenda could help continue the upward market trend of the last few years. Investors like clarity and consistency, and the fact that the same party will control the White House and Congress might create a more productive and predictable working relationship.7 At the same time, fundamental differences between the president-elect and the Republican Congress suggest that any changes may be more measured than originally anticipated.8

Second, in this initial transition stage, money flowing out of Treasuries suggests that bond investors may see a Trump presidency as leading to higher inflation and higher interest rates due to a combination of more protective trade policies and heavier government borrowing in order to fund infrastructure spending and reduce taxes for individuals and corporations. Declining bond prices might also reflect a belief that the Federal Reserve may raise rates at its December meeting despite the political surprise.9

Of course, these are just first impressions, and there could be many market ups and downs as investors try to understand what the new president’s policies might be, how much support they may have from Congress, and how they might affect the broader economy. Moreover, government policy and political debate are only two of many factors that can create market volatility.

Is the U.S. economy strong enough to withstand any headwinds that arise from a changing administration? That remains to be seen, but fundamental economic indicators have been solid, and overreacting to political events is unwise. The most stable approach in changing times is generally to maintain a well-diversified portfolio using a strategy appropriate for your time frame, personal goals, and risk tolerance.

Diversification does not guarantee a profit or protect against investment loss. The principal value of stocks and bonds may fluctuate with market conditions. Stocks, when sold, and bonds redeemed prior to maturity may be worth more or less than their original cost. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest.

The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results; actual results will vary.

Investing internationally carries additional risks such as differences in financial reporting, currency exchange risk, as well as economic and political risk unique to the specific country. This may result in greater share price volatility.

1) CNNMoney, November 9, 2016

2, 5, 7) MarketWatch, November 9, 2016

3-4) Yahoo! Finance, November 11, 2016

6) MarketWatch, November 10, 2016

8) The New York Times, November 9, 2016

9) CNBC.com, November 9, 2016

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Retirement Planning Tips

There are a lot of great tips in this article.    The ability to donate money using your RMD is an opportunity a lot of retirees miss.

http://money.usnews.com/money/retirement/401ks/articles/2016-11-14/6-end-of-year-retirement-planning-tips-that-will-save-you-money

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Fear of Spending

I frequently meet with clients that do not believe they can afford to retire.   Even after working when their financial goals show that they have more than they need.    Once they retire, they are reluctant to spend their money and it takes some time to feel comfortable spending.   Following is a great article on the subject.

http://time.com/money/4560067/retirement-fear-of-spending-budgeting-income/

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Secrets of the Millionaire Next Door

This is a great article on some habits of he millionaire next door.    None of the habits mentioned are difficult.  Live within your means, dont swing for the fences, and keep yourself protected.   I would add that they are good savers.    Click on the link below to read the full article:

http://www.kiplinger.com/article/saving/T064-C000-S001-secrets-of-the-millionaire-next-door.html?rid=SYN-yahoo&rpageid=12952&yptr=yahoo

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Is 70 the New 65? Why Americans Are Working Longer

Roshan Loungani is sharing a great video on retirement.   Please click on the link below:

Is 70 the New 65? Why Americans Are Working Longer

 

10 Years and Counting: Points to Consider as You Approach Retirement

10 Years and Counting: Points to Consider as You Approach Retirement

If you’re a decade or so away from retirement, you’ve probably spent at least some time thinking about this major life change. How will you manage the transition? Will you travel, take up a new sport or hobby, or spend more time with friends and family? Should you consider relocating? Will you continue to work in some capacity? Will changes in your income sources affect your standard of living?

When you begin to ponder all the issues surrounding the transition, the process can seem downright daunting. However, thinking about a few key points now, while you still have years ahead, can help you focus your efforts and minimize the anxiety that often accompanies the shift.

Reassess your living expenses

A step you will probably take several times between now and retirement–and maybe several more times thereafter–is thinking about how your living expenses could or should change. For example, while commuting and other work-related costs may decrease, other budget items may rise. Health-care costs, in particular, may increase as you progress through retirement.

Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes reality.

According to a recent survey, 38% of retirees said their expenses were higher than they expected.1 Keeping a close eye on your spending in the years leading up to retirement can help you more accurately anticipate your budget during retirement.

Consider all your income sources

First, figure out how much you stand to receive from Social Security. In early 2016, the average monthly retirement benefit was about $1,300.2 The amount you receive will depend on your earnings history and other unique factors. You can elect to receive retirement benefits as early as age 62, however, doing so will result in a reduced benefit for life. If you wait until your full retirement age (66 or 67, depending on your birth date) or later (up to age 70), your benefit will be higher. The longer you wait, the larger it will be.3

You can get an estimate of your retirement benefit at the Social Security Administration website, ssa.gov. You can also sign up for a my Social Security account to view your online Social Security statement, which contains a detailed record of your earnings and estimates for retirement, survivor, and disability benefits. Your retirement benefit estimates include amounts at age 62, full retirement age, and age 70. Check your statement carefully and address any errors as soon as possible.

Next, review the accounts you’ve earmarked for retirement income, including any employer benefits. Start with your employer-sponsored plan, and then consider any IRAs and traditional investment accounts you may own. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of that monthly benefit amount as well.

Do you have rental income? Be sure to include that in your calculations. Might you continue to work? Some retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts, giving the assets more time to potentially grow.

Some other ways to generate extra cash during retirement include selling gently used goods (such as furniture or designer accessories), pet sitting, and participating in the sharing economy–e.g., using your car as a taxi service.

Pay off debt, power up your savings

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.

Why pay off debt? Entering retirement debt-free–including paying off your mortgage–will put you in a position to modify your monthly expenses in retirement if the need arises. On the other hand, entering retirement with a mortgage, loan, and credit-card balances will put you at the mercy of those monthly payments. You’ll have less of an opportunity to scale back your spending if necessary.

Why power up your savings? In these final few years before retirement, you’re likely to be earning the highest salary of your career. Why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or IRAs? Aim for maximum allowable contributions. And remember, if you’re 50 or older, you can take advantage of catch-up contributions, which enable you to contribute an additional $6,000 to your 401(k) plan and an extra $1,000 to your IRA in 2016.

Manage taxes

As you think about when to tap your various resources for retirement income, remember to consider the tax impact of your strategy. For example, you may want to withdraw money from your taxable accounts first to allow your employer-sponsored plans and IRAs more time to potentially benefit from tax-deferred growth. Keep in mind, however, that generally you are required to begin taking minimum distributions from tax-deferred accounts in the year you turn age 70½, whether or not you actually need the money. (Roth IRAs are an exception to this rule.)

If you decide to work in retirement while receiving Social Security, understand that income you earn may result in taxable benefits. IRS Publication 915 offers a worksheet to help you determine whether any portion of your Social Security benefit is taxable.

If leaving a financial legacy is a goal, you’ll also want to consider how estate taxes and income taxes for your heirs figure into your overall decisions.

Managing retirement income to result in the best possible tax scenario can be extremely complicated. Qualified tax and financial professionals can provide valuable insight and guidance.4

Account for health care

In 2015, the Employee Benefit Research Institute reported that the average 65-year-old married couple would need $213,000 in savings to have at least a 75% chance of meeting their insurance premiums and out-of-pocket health-care costs in retirement. This figure illustrates why health care should get special attention as you plan the transition to retirement.

As you age, the portion of your budget consumed by health-related costs (including both medical and dental) will likely increase. Although original Medicare will cover a portion of your costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental Medigap insurance policy. Medigap policies are sold by private health insurers and are standardized and regulated by both state and federal law. These plans cover certain specified services, but offer different combinations of coverage. Some cover all or part of your Medicare deductibles, copayments, or coinsurance costs.

Another option is Medicare Advantage (also known as Medicare Part C), which allows Medicare beneficiaries to receive health care through managed care plans and private fee-for-service plans. To enroll in Medicare Advantage, you must be covered under both Medicare Part A and Medicare Part B. For more information, visit medicare.gov.

Also think about what would happen if you or your spouse needed home care, nursing home care, or other forms of long-term assistance, which Medicare and Medigap will not cover. Long-term care costs vary substantially depending on where you live and can be extremely expensive. For this reason, people often consider buying long-term care insurance. Policy premiums may be tax deductible, based on a number of different factors. If you have a family history of debilitating illness such as Alzheimer’s, have substantial assets you’d like to protect, or want to leave assets to heirs, a long-term care policy may be worth considering.5

Ease the transition

These are just some of the factors to consider as you prepare to transition into retirement. Breaking the bigger picture into smaller categories and using the years ahead to plan accordingly may help make the process a little easier.

12016 Retirement Confidence Survey, Employee Benefit Research Institute

2Social Security, Monthly Statistical Snapshot, February 2016

3Note that if you work while receiving Social Security benefits and are under full retirement age, your benefits may be reduced until you reach full retirement age.

4Working with a tax or financial professional cannot guarantee financial success.

5A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the LTC policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.