Tag: Lifestyle

Saving and Retirement

The Center for Retirement Research (CRR) at Boston College, found that 52 percent of working-age U.S. households are at risk of being unable to maintain their standard of living in retirement. Many recognize the possibility of a shortfall but 19 percent do not. Contributing factors include increased life expectancy, declining Social Security income replacement, and the shift from pensions to defined contribution savings plans. Older Americans are entering retirement carrying more debt. According to a paper by the Retirement Research Center at the University of Michigan, more Americans between ages 56 to 61 are carrying more debt than any time in recent history. Another retirement problem receiving increasing attention is the social isolation of retirees, which has been deemed a risk equal to or greater than major health problems such as obesity.

Studies about retirement savings plan contributions indicate a lack of participation by many American workers. A study by the PEW Charitable Trusts found that 25 percent of millennial adults participate in employer-sponsored defined contribution retirement plans versus 40 percent of Generation X and 43 percent of baby boomers. Stated another way, a large majority of millennials have no retirement savings plan.

If you are concerned about having the money to retire, call us.

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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 90th 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:

  1. 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.
  2. 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.
  3. 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.

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.

 

A good Registered Investment Advisor is a “Life Coach.”

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People who are not familiar with Registered Investment Advisors (RIAs) too often view them as stock brokers.  They are not; they are held to a higher standard and are focused on the client, not the money.  RIAs are trusted advisors who put their clients ahead of themselves.    They are fiduciaries that are skilled in the art making good financial decisions.

Younger professionals who are building careers would do well to find an RIA as their financial guru, a “Life Coach.”  It takes time, experience and a high level of expertise to manage money well.  The young lack that expertise but have the biggest advantage of all: time.  They are in a perfect position to build wealth with the least amount of effort if they can lean on experts who can show them how to navigate the risky ocean of investing.  Just as important, they need a wise guide who can advise them on managing their income.  Too many people, even those with six figure salaries, live paycheck to paycheck.  Knowing what to spend and how to save is the role of the advisor.

This is very important for the independent professional – the doctor or lawyer.  Focused on building a practice, they need someone to advise them on managing their money wisely.

For the business owner, the entrepreneur, it’s even more important.  There is no career track and the challenge of building a business often results in poor money management.  Excessive debt can lead to bankruptcy, a common result in many industries that depend on debt financing.  A good advisor can help the business owner create a personal portfolio that’s independent of his business.  At the same time he can advise the owner the best way of financing his growth.

Once the business is established the owner needs guidance setting up retirement and benefit plans for himself and his employees.  This all part of the RIA’s skill set. And finally, as the business matures and the owner starts thinking of retirement, the advisor provides the guidance to transition the individual and his family to life beyond work.

That’s the point at which the coach gets the pleasure of knowing he’s done a good job as part of a winning team.

Getting Financial Help

When people have financial questions, what do they look for?  According to a recent survey most people are looking for someone with experience.  We want to take advice from people who are familiar with the issues we face and know what to do about them.  We all know people with experience, but financial problems, like medical problems, are personal.  Most people we know would rather not go into detail about their personal finances with family or friends.  They are more comfortable sitting down with a financial professional to discuss their finances, their debts, their financial concerns, and their financial goals in both the short and long term. Professionals will provide advice without being judgmental and are required by their code of ethics to keep your information confidential.

Once people find someone who has a track record of giving good, professional advice, they want personalized advice and “holistic” planning.

No two people have exactly the same problems.  A good financial advisor listens attentively to learn the goals, the concerns and personal history of the people who come to him for advice.

People have specific issues and questions.  For example: a couple, aged 39, is seeking advice about their path to retirement.  They give their financial advisor a laundry list of their assets, their investments, their savings rate, their debts, and the ages of their children and ask if they should be doing something different or are they on the right path.  That’s a very specific question and the advisor’s response is going to be personalized for them.

The plan that the advisor comes up with is going to involve much more than money.  It’s going to take their personal characteristics into account.  This includes personal experience with investing, their risk tolerance, and their closely held beliefs and ethical values.  This is what is referred to as “holistic” planning; taking personal characteristics into consideration.

There is a fairly big difference in the advice sought by

  • “Millennials” (those born after 1980 and the first generation to come of age in the current century),
  • “Generation X” (the children of the Baby Boomers) and the
  • “Baby Boomers” (children of the soldiers returning from World War 2)

“Millenials” say that among their top three concerns are saving for a large expense such as a car or a wedding.  Too many are saddled by debt acquired to pay for higher education and are finding that their degrees are not necessarily an entry into high paying professional jobs.  Their next largest concerns are saving for their kids’ education and putting money aside for retirement.

“Generation X” is primarily focused on saving for retirement.  They are married, own their own home and may have children in college.  Concerns two and three are tax reduction and paying for their children’s education.

“Baby Boomers” have finally reached retirement age.  More than a quarter million turn 65 each month.  As a group they are a large and wealthy generation, but a vast number have not saved enough for a comfortable retirement.  Many are forced to continue to work to supplement Social Security income.  Their number one concern is the cost of health care.  Concerns two and three are protecting their assets and having enough income for retirement.  The three concerns for Baby Boomers are inter-connected.  For many Boomers, Medicare helps them with the costs associated with most medical issues.  However, as people live longer, there comes a time when they are unable to care for themselves and live independently.  Long-term-care insurance was once believed to be the answer but insurance companies found that costs were much greater than anticipated.  The result is that many insurers have stopped offering the policies and those remaining have hiked premiums beyond the ability of many to pay.  The cost of long term care is so high that many Boomers are afraid that their savings will soon be exhausted if they are forced into assisted living facilities or nursing homes.

Each generation has its own problems and at a time when the world has gotten much more complicated.  Getting experienced, personalized and holistic financial advice is more important than ever.

Rent or Buy?

Should you rent or buy a house?  That’s a question often asked by young couples, those in the military, and people who are undergoing life changes.  The main reason that people want to buy rather than rent is because they view renting as throwing money away and not building equity.  Additionally, buying a home provides a feeling of stability.

However, there are downsides to buying.  Buying a house locks you into a situation.  If your life changes, you lose your job, or wish to move, selling a home can be difficult and expensive.  Owning a home means that you have upkeep and maintenance costs.  If you rent those costs are borne by the landlord.  The cost of rent is often less than the costs associated with home ownership; mortgage payments, real estate taxes, insurance, maintenance and all the other costs that a home owner faces.

Over the long term, owning a home has been a good investment for many families.  But more recent history has clearly shown that the assumption that a home will always go up in value is not true.  Just ask the people whose homes went on the market as “short sales.”

If you are an individual who is contemplating whether to rent or buy, keep these issues in mind.  If you’re not sure, get the advice of a financial planner who can run the numbers for you and help you make the right decision.

How well do couples communicate on money? – Part 7

Most happy couples think they communicate well. However, on the subject of finances, studies and experience has shown that they don’t communicate nearly as well as they think.

Many couples don’t know what their partner earns, how much they have invested, what it takes to retire and where their retirement income will come from.

Couples often disagree on the way their money should be invested and in too many cases one partner is in charge of investing and the other is kept in the dark.

Retirement is another issue in which there is a great deal of confusion. Many do not know what it takes to retire, have nebulous goals about retirement and even disagree about when to retire.

The lack of good communication leads to worries about financial disasters. Issues include health care costs, the effect of inflation on buying power, outliving their savings and the possibility that Social Security may not be there for them prey on their minds.

In the face of so much uncertainty, only one-in-five couples have a plan. One of the benefits of having a plan is that it makes it much more certain that they will achieve their goals. And that bring peace of mind.

Of course the earlier that people start to plan, the higher the probability that they will achieve their goals and have a healthy and frank discussion about financial issues. The best time to start is when you are young and it’s an excellent way for newlyweds to begin life together.

Thanks for your interest and we hope you will share this with your friends.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

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How well do couples communicate on money? – Part 4

Most couples think they communicate well, but research indicates that communication about finances is often not good. In our previous essays we have discussed common financial disagreements.

In this essay we will discuss some of the financial worries couples have.

Nearly three-quarters (74{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}) of couples worry about unexpected health care costs. For more than half, it’s their top concern. With people living longer than ever before, advances in medical technology and the skyrocketing cost of health care, this concern comes as not real surprise.

After health care, the next biggest concern for couples (51{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}) was outliving their retirement savings.

The negative effects of inflation and concerns that Social Security may run out were the next biggest concerns.

Despite these worries, only 20{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of couples actually have a plan in place to address these issues! And over one-third (36{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}) haven’t even thought about planning!

Our next essay will take a look at those couples who have taken the time to create a financial plan.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

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How to connect with your spouse about finances

Too many spouses don’t share enough information about family finances. It’s not unusual for one spouse to take care of investments and pay the bills. The other spouse may not be interested or may be too busy. It’s a fact that not everyone is interested in investing, budgeting or banking.

But this can lead to a bad outcome in case of death, divorce or separation. In fact, money is one of the top 10 reasons for marriage breakdown.

Money or anything related to finances can be a possible cause of disagreement between many people – including couples. Married couples, whether they are happy or not, may have disagreements over little financial issues to much bigger shared financial responsibilities or unequal monetary status. Money may not always be the principal cause but in fact is usually combined with other forms of reasons for divorce. In any case, it is still a significant contributor and should be managed with fairness from both sides, mutual understanding and a tiny dose of compromise.

But even couples that are financially compatible should sit down from time to time to review their financial situation. Our books: BEFORE I GO and BEFORE I GO WORKBOOK were written to help people do this.

If there is a difference in the financial mind-sets of a couple, a financial advisor may be able to act as a facilitator to reconcile the differences.

A financial advisor can educate the couple about investing, budgeting and retirement planning. Regular meetings with a couple’s financial advisor provide them with the opportunity to share critical family financial issues, keep everyone informed and help resolve issues before they lead to conflict.

Having a trusted financial advisor in place, one who is already familiar with a couple’s finances, can also help in case you find yourself “suddenly single.”

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