Retirement | Financial Planner | Retirement Planning | Korving & Company Suffolk & Virginia Beach

The Fate of Social Security for Younger Workers – And Three Things You Should Do Right Now

We constantly hear people wonder whether Social Security will still be there when they retire. The question comes not just from people in their 20’s, but also from people in their 40’s and 50’s as they begin to think more about retirement. It’s a fair question.

Some estimates show that the Social Security Trust Fund will run out of money by 2034. Medicare is in even worse shape, projected to run out of money by 2029. That’s not all that far down the road.

So how do we plan for this?

The reality is that Social Security and Medicare benefits have been paid out of the U.S. Treasury’s “general fund” for decades. The taxes collected for Social Security and Medicare all go into the general fund. The idea that there is a special, separate fund for those programs is accounting fiction. What is true is that the taxes collected for Social Security and Medicare are less than the amount being paid out.

What this inevitably means is that at some point the government may be forced to choose between increasing taxes for Social Security and Medicaid, reducing or altering benefits payments, or going broke.

Another question is whether the benefits provided to retirees under these programs will cover the cost living. Older people spend much more on medical expenses than the young, and medical costs are increasing much faster than the cost of living adjustments in Social Security payments. If a larger percentage of a retiree’s income from Social Security is spent on medical expenses, they will obviously have to make cuts in other expenses – be they food, clothing, or shelter – negatively impacting the lifestyle they envisioned for retirement.

The wise response to these issues is to save as much of your own money for retirement as possible while you are working. There is little you can do about Social Security or Medicare benefits – outside of voting or running for public office – but you are in control over the amount you save and how you invest those savings.

As we face an uncertain future, we advocate that you take these three steps:

Increase your savings rate.
Prepare a retirement plan.
Invest your retirement assets wisely.

If you need help with these steps, give us a call. It’s what we do.

Three Ways to Stay Financially Healthy Well into Your 90s

According to government statistics, the average 65-year-old American is reasonably expected to live another 19 years. However, that’s just an average. The Social Security administration estimates that about 25% of those 65-year-olds will live past their 90^th birthday. We were reminded of these statistics when we recently received the unfortunate notice that a long-time client had passed away. He and his wife were both in their 90s and living independently.

People often guesstimate their own life expectancy based on the age that their parents passed. Genetics obviously has a bearing on longevity. Modern medicine has also become a big factor in how long we can expect to live. Diseases that were considered fatal 50 years ago are treatable or curable today. For many people facing retirement and the end of a paycheck, the thought of someday running out of money is their biggest fear. And there is no question that living longer increases the risk to your financial well-being.

The elderly typically incur costs that the young do not. As we get older, visits to the doctor and the hospital become more frequent. There’s also the onset of dementia or Alzheimer’s that so many suffer from. As our bodies and minds age, we may not be able to continue living independently and may have to move to a long-term care facility.

We should face these issues squarely, especially as we approach retirement. Too many people refuse to face these possibilities and instead hope that things will work out. As the saying goes, “hope is not a plan.”

Here is a three step plan to help you remain financially healthy even if you live to be 100:

Create a formal retirement plan. Most Financial Planners will prepare a comprehensive retirement plan for you for a modest fee. We recommend that you choose to work with an independent Registered Investment Advisor who is also a Certified Financial Planner™ (CFP®). Registered Investment Advisors are fiduciaries who are legally bound to put your interests ahead of their own and work solely for their clients, not a large Wall Street firm. CFP® practitioners have had to pass a strenuous series of examinations to obtain their credentials and must complete continuing education courses in order to maintain them.
Save. Save as much of your income as possible, creating a retirement nest egg. Some accounts may be tax-exempt (Roth IRA) or tax-deferred (regular IRA, 401k, etc.), but you should also try to save and invest in taxable accounts once you have reached the annual savings limit in your tax-advantaged accounts.
Invest wisely. This means diversifying your investments to take advantage of the superior long term returns of stocks as well as the lower risk provided by bonds. While it’s possible to do this on your own, most people don’t have the education, training or discipline to create, monitor and periodically adjust an investment strategy that has the appropriate risk profile to last a lifetime. We suggest finding a fee-only independent Registered Investment Advisor to manage your investments. They will, for a modest fee, create and manage a diversified portfolio of stocks, bonds, mutual funds and/or exchange traded funds designed to meet your objectives.

The idea of saving for a long retirement should not be avoided or feared. With the proper planning and preparation, retirement gives us the opportunity to enjoy the things that we never had time for while we were working, and can indeed be your Golden Years.

Will you be able to retire? Good Question!

Imagine yourself as a 46-year-old woman married to a 48-year-old-man. Both of you have a career.

Your combined income is around $250,000.
Savings in retirement plans totals about $400,000.
You would like to retire when he is 62 and you are 60.

Can you?

Unless you have prepared a retirement plan you don’t know.

There are a lot of moving parts that affect your retirement. One of the biggest questions is how much it will cost you to live when you retire. Each person is different; expectations for your retirement lifestyle are different than your neighbor’s. Here are just a few of the things that factor into how much it will cost to live once you retire:

Your basic living expenses; your “needs.”
The cost of your “wants” and “wishes” above your basic expenses (travel, cars, weddings, education, gifts, etc.).
Life, disability, health and long term care insurance.

Then there are the other factors that determine what it will cost you to retire.

The age at which you want to retire.
The number of years in retirement.
What happens when one of you passes on?

What are your income sources in retirement?

Spousal income and, in two income families, the age at which each spouse retires.
Your pension benefits.
The age at which you apply for Social Security.

What are your personal investment assets to supplement your income sources?

The value of your investment assets at retirement.
The estimated return on your investment assets.
Your risk tolerance.
The rate of inflation during retirement.

The good news for this couple is that they have a decade or more to adjust their savings or their retirement goals. Unfortunately, too many people leave the planning until too late.

The time to start planning is now.

The Importance of 401(k)s.

Pensions are fading fast. If you work for a private company the chances are good that your retirement plan is a 401(k), not a pension plan. Even if you work for the government, the chances are that the entity you work for will resemble Illinois eventually.

That leaves you with the responsibility for your retirement. There are two problems with the 401(k).

The first is that too many people do not participate. Even when employers match their employee’s contribution, not everyone takes advantage of this “free money.”

The second problem is that most people don’t have enough information on the investment choices they are given in their 401(k). Investing is complicated. Most plans offer dozens of choices and few people know enough about investing to use them to create an appropriate portfolio.

Employers are not equipped to provide the information. Most do not want to assume the liability that giving investment advice exposes them to. An RIA (Registered Investment Advisor) who is also a CFP™ can provide the guidance people need to make sense of the investment option in a 401(k). Find a CFP™ in your area.

What Is The Difference Between A Pension Plan And A 401(k)?

Both plans are designed to provide income for retirement. There are some very important differences.

A 401(k) is a type of retirement plan known as a “defined contribution plans.” That means that you know how much you are saving but not how much it is worth when you are ready to retire. That depends on your ability to invest your savings wisely. The benefit is that your savings grow tax deferred. Many employers match your contribution with a contribution of their own, encouraging you to participate.

A pension plan is known as a “defined benefit plan.” That means that you are guaranteed a certain amount of income by the plan when you retire. The responsibility of funding the plan and investing the plan assets are your employer’s.

Because your employer is liable for anything that goes wrong with the pension they have promised their employees, many employers have discontinued pension plans and replace them with 401(k) type plans. This shift the responsibility for your retirement income from the company to you.

If you have a 401(k) for your retirement and are unsure about the best investment options available to you, get the advice of a financial planner who is experienced in this field.

For more information, contact us.

Putting RMDs to Work

When you’re over 70 ½ and have a retirement plan you have to start taking money out of the plan (with rare exceptions). But even if you remember to take annual RMDs (Required Minimum Distributions) you could use help preparing for and managing the process. This includes reinvesting RMDs you don’t need immediately for living expenses.
It isn’t as simple as “Here’s your RMD, now go take it.” Baby Boomers often retire with IRA and 401(k) balances instead of the defined benefit plans their predecessors often had. And the rules are often complicated. Take the retiree who has an IRA and a 401(k) that he left behind with a previous employer.

Many are surprised to learn that they have to take separate RMDs on their 401(k) and their traditional IRA. RMDs must be calculated separately and distributed separately from each employer-sponsored account. But RMDs for IRAs can be aggregated, and the total can be withdrawn from one or multiple IRAs. That’s one of the reasons that advisors suggest rolling your 401(k) into an IRA when leaving an employer for a new job or when retiring.

Steep penalties apply. The failure to take a required minimum distribution results in a penalty of 50% of the RMD amount.

According to a 2016 study from Vanguard, IRAs subject to RMDs had a median withdrawal rate of 4% and a median spending rate of 1%. For employer plans subject to RMDs, the median withdrawal rate was 4% and the median spending rate was 0%. A mandatory withdrawal doesn’t mean a mandatory spend. Most retirees don’t need the income they are required to take from their plans. As a result the money usually goes right back into an investment account.

If you have an investment account that is designed for your risk tolerance and goals, the money coming out of your retirement account should be invested so as to maintain your balanced portfolio.

For questions on this subject, please contact us.

What does planning mean for you?

Financial planning is about more than assets, investments and net worth. It’s about what you want to do with your money and why. It’s about identifying your concerns, expectations and goals. It’s about how you feel and what you want.

Financial planning helps address common fears and concerns such as health care costs, outliving your money and the best time to file for Social Security benefits.

The “Confidence Meter” helps you gauge how likely you are to reach your goals and whether you are on track instead of focusing on headlines.

Financial planning takes your risk tolerance into account. You will get a “Risk Number” that guides you to the kind of investment you should have.

Learn more about how financial planning can help you by contacting us at Korving & Company today.

Planning makes a difference

Happy senior couple walking on beach

Do you want to have fun in retirement? Planning can make the difference and it doesn’t have to be difficult. Working with a financial professional that understands your retirement goals can help you create a plan to make the most of your money – now and in retirement.

The partners at Korving and Company are Certified Financial Planning™ professionals – fiduciaries – who specialize in retirement. We help people plan their retirement and continue to work with them during retirement.

There are 5 reasons why you should work with a financial professional to create a retirement plan.

Focus on your goals in retirement and how you will pay for them.
Address your concerns and expectations for retirement.
Identify things that could pose a threat to your retirement and manage them.
Feel more educated, confident and in control of your financial future.
To help you navigate the complexity of financially moving into retirement.

Is your retirement plan a ticking time bomb?

In your mind’s eye, how do you see yourself living retirement? Does it include the activities that you enjoy now … without the time you spend at work? When you have the time, do you see yourself seeing the world? Retirement presents an opportunity for some life-changing experiences.

But there are a few things that can cause those retirement dreams to become nightmares.

If your retirement plan includes a pension, you may want to consider the risk. It is a fact that many private and public pension plans are sadly underfunded. Some public pension plans are the worst offenders. As an extreme example, the Illinois General Assembly Retirement System is only 13.5% funded.

A long period of very low interest rates means that pension plans with large bond investments have generated low returns. It has caused others to take greater risk. At some point that can affect the pensions of those who believed their Golden Years were paid for.

Living longer than you expected is another risk. In 1950 the average life expectancy was 68. That meant that the average worker retired at age 65 and died three years later.

Sixty years later, in 2010, the average life expectancy was 79 and many people are living longer. In 2010 there were 1.9 million people over age 90 and three quarters of those were women. One of the biggest concerns that retired people have is running out of money as savings are eroded by inflation. How would living past age 90 affect your retirement plans?

The third thing that is causing the average worker concern about retiring is insufficient savings. Fewer people are covered by pension plans. Many employers have replaced guaranteed pensions called “Define Benefit Plans” with 401(k)s and 403(b)s known as “Defined Contribution Plans.” This transfers the responsibility for retirement from the employer to the employee. Too few people are taking advantage of these programs, not saving enough, and making unwise investment choices. This can result in insufficient savings when the time comes to actually retire. One result is that more and more people continue to work well past the traditional retirement age of 65.

What is to be done?

We have to accept a greater responsibility for our own retirement. We have to be honest about how safe those pension promises are, whether we work of a large corporation or for a government entity. We have to start saving early and make wise investment choices. One of the wisest things people do as they prepare for retirement is get the services of a competent retirement professional who will guide them to a safe haven at the end of the road.

Three Smiling Men Discussing With Digital Tablet 2

Registerd Investment Advisors: 7 Services that a Registered Investment Advisor (RIA) Provides

Registered Investment Advisor Suffolk & Virginia Beach

Investing is serious business. How well you manage your investments can make the difference between a comfortable retirement and working ‘till you drop. Most people use a financial advisor of some kind.

Back in the day, people opened an account with a major investment firm and used a broker who would call and make recommendations to buy or sell. They were essentially stock and bond salesmen whose loyalty was to their firms.

That has all changed.

The trend now is away from the major firms and toward Registered Investment Advisors – RIAs. RIAs are fiduciaries whose duty is to put their clients’ interests ahead of their own. They help people plan their future and take over the every-day investing decisions for them.

Registered Investment Advisor

What can an individual expect from an RIA?

Asset management. This means creating a portfolio appropriate to the client, making changes in the best interest of the client, and reacting to market conditions.
Financial planning. Organizing a client’s financial affairs. Determining the best way of achieving the client’s objective. Reviewing the client’s insurance and estate planning needs.
Reporting and record keeping. Maintaining the organization of finances. Performance reporting. Maintaining cost and purchase data.
Life planning. Helping the client uncover what they really want to accomplish and creating a roadmap to getting there.
Retirement planning. Providing a path to living well once the paycheck stops and people are dependent on fixed income sources and their personal savings. Retirement is a major life change. RIAs typically offer comprehensive retirement plans that help people decide when to retire and what how well they can live.
Estate planning. Leaving money to heirs and charities must be carefully planned or large portions of an estate can go to taxes or the wrong individuals.
Concierge services. This can include attending meetings with attorney, accountants or bankers. It can include services such as buying cars, arranging for travel or hiring someone to pay bills. Relations between an RIA and a client are often so close that they are even consulted on issues such are marriage or divorce.

Call 757-638-5490 or use our contact page for more information!

Effective Retirement Plans Do Not End at Retirement

There are those fortunate individuals who, because of wise planning, are able to retire without having to worry about how much money they can spend after their paychecks stop. These people can afford their needs and wants from sources like pensions and social security that adjust for inflation. They have probably been saving all of their lives and have always lived below their means. Others are not so fortunate.

Most middle class retirees fund their retirement spending from Social Security, a pension (perhaps), and income from investments. Because people often live several decades after retirement, it’s vitally important to make estimates and projections about the future.

Here are just a few of the things that factor into how much it will cost to live once you retire:

Your basic living expenses; your “needs.”
The cost of your “wants” and “wishes” above your basic expenses
The age at which you want to retire.
The number of years in retirement.
Spousal income and, in two income families, the age at which each spouse retires.
Your pension benefits.
Life, disability and long-term-care needs.
The age at which you apply for Social Security.
The value of your investment assets at retirement.
The estimated return on your investment assets.
Your risk tolerance.
The rate of inflation during retirement.

Putting all these factors together is a complicated process that’s beyond the capability of most individuals who don’t work in finance. Complex planning programs have been developed that can provide answers. These answers typically provide a probability of success or failure via a procedure called “Monte Carlo” analysis.

We have found that people who begin planning early can make appropriate mid-course corrections while they still have time. It also provides them with the peace of mind. Having a well-thought-out plan for the future removes a great deal of worry an uncertainly.

If you are approaching retirement without a plan, give us a call for more information. We would be happy to meet with you to discuss your needs.

Even the “rich” can’t afford retirement.

Registered Investment Advisors (RIAs) deal with people at all wealth levels but most are upper income even if they are not billionaires. There is a retirement crisis and it’s not just hitting the working class.

The typical median wage earner making $50,000 a year and retiring at 67 can expect Social Security to pay him and his wife about $2400 per month. To maintain their previous spending levels this leaves a gap of about $1000 a month that has to be made up from savings. But many of these middle income people have not saved for their retirement. Which means working longer or reducing their lifestyle.

This problem is also hitting the higher income people. How well is the person earning over $200,000 a year going to do in retirement? The issues that even these so-called “rich” face are the same: increased longevity, medical care, debts and an expensive lifestyle are all issues that have to be considered.

“The $200,000+ executive expects a fine house, two cars, two holidays a year, private schools, to pay for his kid’s university tuition, and so it goes on. And this is not to mention the tax bill he’s paying on his earned income. A bunch of all this was really debt-funded, so effectively the executive spent chunks of his retirement money during his working days.”

When high income people are working, they usually don’t watch their pennies or budget. But once retired, that salary stops. That’s when savings are required to bridge the gap between their lifestyle and income from Social Security and (if they’re lucky) pension payments. At that point the need for advance planning becomes important.

Before the retirement date is set, the affluent need to create a retirement plan. He or she needs to know what their basic income needs are; the cost of utilities, food, clothing, insurance, transportation and other basic needs. Once the basics are determined, they can plan for their “wants.” This includes things such as replacing cars, the cost of vacation travel, charitable gifts, club dues, and all the other expenses that are lifestyle issues. Finally, there are “wishes” which may include a vacation home, a boat, a wedding, a legacy. The list can be a long one but it should be part of a financial plan.

If the plan tells us that the chances of success are low, we can move out our retirement date, increase our savings rate or reduce our retirement spending plans.

This kind of planning will reduce the anxiety that is typically associated with the retirement decision making.

Category: Retirement