Category: Social Security

Preparing for the unexpected.

What happens if you have to live on less income because you lost your job or your spouse died? The economy has not been kind to many people and job loss can happen before we’re ready to retire. That’s when a financial advisor can help.

It can be tough to find a good paying job if you’re within a decade of retirement age.  Companies are reluctant to hire you.  You may be wondering what you should do when you realize that the best path is early retirement. Where can you cut back? How should your money be invested for an extra-long retirement? These are all questions that you should not tackle on your own because the wrong decision at this age can haunt you a few years down the road.

If the major breadwinner in your family dies how will the survivor cope? One 61-year-old woman left work to care for her dying husband. After his death she could not return to work but had a lot of decisions to make. Decisions about social security, insurance, where to cut back (fewer trips, sell the motorcycle and the RV), as well as decisions about her investments.

Each case is unique, but a financial advisor should be more than a money manager. He should advise his clients about all aspects of their lives that impact their financial well-being. Ideally you will have developed a good relationship with a financial advisor before an unfortunate event occurs. But if you have not, this is definitely the time to find one.

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Common Retirement Investing Mistakes To Avoid

Planning to retire? Have all your ducks in a row? Know where your retirement income’s going to come from? Great! But don’t make some basic mistakes or you may find yourself working longer or living on a reduced income.

Retirement income is like a three legged stool. Take one of the legs away and you fall over.

Retirement Planning Mistakes

The first leg of the stool is Social Security. Depending on your income goals, do it right and you can cover part of your retirement income from this source. Do it wrong and you can leave lots of money on the table.

The second leg is a pension. Many people have guaranteed pensions provided by their employer.  But these are gradually disappearing, replaced by 401(k) and similar plans known as “defined contribution” plans. If you don’t have a pension but want a second guaranteed lifetime income you can look into annuities that pay you a fixed income for life.

The third leg of the stool is your investment portfolio. This is where most people make mistakes and it can have a big impact in your retirement.

According to Forbes, the single biggest mistake that people make is “winging it.”

Operating without a financial plan and — maybe worse — having no idea how much they need to retire on ranks first because it can put investors years behind schedule.

Mistake number one is leaving “orphan” 401(k) plans behind as you change jobs. These plans often represent a large part of a typical retiree’s investment assets. Our advice for people who move from one company to another is to roll their 401 (k) assets into an IRA. This gives you much more flexibility and many more investment choices, often at a lower cost than the ones you have in the typical 401(k).

Mistake number two is trying to time the market. Many people are tempted to jump in and out of the market based on nothing but TV talking heads, rumors, or their guess about what the market is going to do in the near future. Timing the market is almost always counter-productive. Instead, create a well balanced portfolio that can weather market volatility and stick with it.

Mistake number three is “set it and forget it.” The biggest factor influencing portfolio returns is asset allocation. And the one thing you can be sure of is that over time your asset allocation will change. You need to rebalance your portfolio to insure that your portfolio does not becoming more aggressive than you realize. If it does, you could find yourself facing a major loss just as you’re ready to retire. Rebalancing lets you “buy low and sell high,” something that everyone wants to do.

Mistake number four is to assume that the planning process ends with your retirement. The typical retiree will live another 25 year after reaching retirement age. To maintain you purchasing power your money continues to have to work hard for you. Otherwise inflation and medical expenses are going to deplete your portfolio and reduce your standard of living. Retirement plans should assume that you will live to at least 90, perhaps to 100.

Other investing mistakes to avoid:

  • Starting too late.  Market gyrations, fund fees and other costs cost you, but nothing compares to the cost of getting a late start on saving and investing for retirement
  • Heading into retirement with expensive mortgages,
  • Overlooking the free money from employer matching funds for 401(k) plans,
  • Failing to consolidate their accounts — increasing the likelihood that they’ll lose retirement money through forgetfulness, poor record keeping or clumsy tax planning.
  • The tendency among investors to put their children’s financial needs before their own. In other words, they’ll sacrifice their well-being in retirement for their kids’ education, living and sometimes even lifestyle expectations. In truth, not becoming a financial burden in old age is the most generous thing parents can do for their kids.

Retirement planning is complicated and is best done with the help of an expert. Reach out through our contact page and feel free to give us a call. We wrote the book on retirement and estate planning.

More information on Social Security benefits.

Let’s face it, Social Security is a confusing mix of benefits.  Depending on your age, health, marital status and the age of your spouse, your benefits can vary significantly.  Once you make a decision, it’s often impossible to change your mind or correct a mistake.

For example, how do you determine the Social Security benefits available to a 50-year-old disabled divorcee whose ex-spouse is deceased?

We have a series of “Social Security Savvy” guides available for people in different stages of life to help answer those questions.  They are titled:

  • Making Smart Decisions if you are Married.
  • Making Smart Decisions if you are Divorced.
  • Making Smart Decisions if you are Widowed.

For copies of these brief, easy-to-read guides, contact us via our website or e-mail us.

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Getting to Retirement

The goal of just about everyone working for a living is one day to say goodbye to the daily routine of going to work. In the US the average age of retirement is 62. Unfortunately, many people will not have enough to retire at that age and live the life they want. If you are within 5 to 10 years of retirement and want to know if you’ll have enough, here’s a suggestion: get help.

Here’s why:

The age of the guaranteed pension are ending. For many it’s already gone. Much of the income you will spend in retirement will come from your own savings and investments. Mistakes can add years to the date you finally retire. Even worse, investing mistakes can force you back to work.

One of the most common questions is: how much should you be saving now to reach your goal? A second linked to it is: where should this saving come from? A third is: how should it be invested?

What’s more important: saving for retirement or saving for your children’s education? The cost of college is making that a dilemma these days. Every parent wants their children to get a head start in life, but what will that mean for your retirement?

What about Social Security? Will it be there for you, and when should you begin taking it? Take it early, just in time, or delay till later?

What kind of insurance will you need once you leave the workforce? If you are currently covered by a company policy what will happen once you retire?

We recently published a White Paper “Eight Tips for a Better Retirement.” For a free copy  (or to discuss your own situation), send a request to the link below.

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When to start collecting Social Security benefits. Chapter 5.

You have three main options:

  • Start collecting early
  • Start collecting at full retirement age
  • Start collecting after full retirement age

 What are the trade-offs? 
Here’s a hypothetical example. Let’s assume that your full retirement age is 66 and you are eligible for a benefit of $1000 per month at full retirement age.
If you start collecting at age

  • 62 you collect $750
  • 63 you collect $800
  • 64 you collect $866
  • 65 you collect $933
  • 66 you collect $1,000
  • 67 you collect $1,080
  • 68 you collect $1,160
  • 69 you collect $1,240
  • 70 you collect $1,320

Retirement planning more important than ever

The concept of retirement planning is relatively recent in human history.

Let’s face it, for most of human history there was no such thing as “retirement.” People’s lives were shortened by hunger, disease, childbirth, wars, and accidents.  A relatively few lived to a ripe old age.  For those who did, the plan was to have enough children who would support them when they became too old to work.

In the lifetimes of our parents and grandparents, pensions were created that provided an income after leaving work.  And, of course, social security made its appearance in the 1930s to supplement savings and pensions.

Due to poor investment performance companies realized that they could not continue to pay generous pensions for thousands of retirees so they who dropped them in favor of 401(k) plans, taking the burden of providing retirement income from the employer to the employee.   Even governments are finding that there is a limit to their ability to tax and pay people in retirement.    There are many ways people can take care of their retirement income needs:  401(k)s, IRAs, and the ever-faithful investment account.

The generation that can count on pension income for their retirement is now retiring.  The younger generation now has the responsibility to take care of its own future.  This makes retirement planning more important than ever, and no place for amateurs.  Give us a call to help you meet your retirement goals.

7 retirement planning myths debunked

If you ever plan to retire, you have to have a plan.  The days of depending on an employer pension and government benefits are rapidly disappearing and, especially if you are under 50, you are living in a  “yoyo” economy — short for “you’re on your own.”

There are a bunch of myths about retiring that need to be abandoned.

  •  It’s OK to postpone saving for retirement until other needs are taken care of.  Wrong.  There are always “other things” that interfere with saving for retirement and if you let them get in the way, you’ll never start.
  • Medicare will take care of almost all your health care needs.  In reality it will cover about half.
  • You’ll need far less income in retirement to maintain the same standard of living.  Only if you decide to become a hermit.
  • You can claim Social Security early and still get full benefits later.  Wrong.  When you begin taking benefits you are locked in (unless you pay it all back).
  • You should rely heavily on bonds rather than stocks as you get older.  Only if you plant to die soon and expect zero inflation.
  • Any retirement target-date fund will allow you to “set it and forget it.”  Target date funds vary widely in performance and there are no guarantees associated with them.
  • You’ll be able to make up a savings shortfall by retiring later or working part-time in retirement.  That’s a hope, not a plan.  You may not be physically able to work after retirement.   Because of the costs of benefits, many employers are reluctant to hire older workers.

A plan is needed, and needs to be constantly updated to keep you on the path to the kind of retirement that you want.

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