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Are You Afraid to Spend Your Money in Retirement?

You spent decades saving for retirement. You contributed to your 401(k), invested, paid the bills, raised a family, hopefully paid down some debt, and tried to make smart decisions along the way. The whole idea was that someday you would have enough money to stop working and actually enjoy it.

Then retirement gets closer and something interesting happens. After spending 30 or 40 years saving money, suddenly you’re supposed to start spending it. And for a lot of people, that’s much harder than they expected.

I see this all the time. People don’t usually come right out and say, “I’m afraid I’m going to run out of money.” Instead, it comes out in other ways. They put off the big trip they’ve always wanted to take. They keep driving the car they really don’t like anymore. They hesitate to help their kids or grandkids even though they’d love to. They agonize over purchases they can probably afford. Or they find themselves constantly saying, “Maybe I should wait. I might need that money later.”

Of course, there’s nothing wrong with being careful with money. In fact, being careful is probably one of the reasons you have retirement savings in the first place. But there’s a difference between being financially responsible and being afraid to spend because you don’t know what you can afford.

And I think that’s a really important distinction.

For most of our working lives, we’re taught to accumulate. Save more. Invest more. Don’t touch the retirement accounts. Prepare for the future. Then retirement arrives and we’re expected to flip a switch and start drawing money out of those accounts. Your paycheck may be gone, the stock market is still going to go up and down, healthcare costs become more important, and none of us knows whether we’re planning for another 10 years or another 30.

That’s why I think a good retirement plan needs to answer more than, “Do I have enough money to retire?” It should also help answer, “How much can I comfortably spend and still be okay?”

If you’re approaching retirement or already retired, here are three questions I think are worth asking yourself.

What would make you feel financially secure 10 or 20 years from now?

Before you start thinking about account balances, think about what financial security actually means to you. Maybe it’s knowing you can stay in your home for the rest of your life. Maybe it’s having enough money set aside for healthcare. Maybe you want to know you’ll never have to depend financially on your children. Or perhaps security means being able to travel, help your family and still know there will be plenty of money there when you’re 85 or 90.

We tend to talk about retirement security as if it’s a number, but I don’t think it is. It’s a feeling, too. Two women can have exactly the same amount of money saved and feel completely differently about it. Until you understand what makes you feel secure, it’s difficult to build a retirement plan that actually gives you confidence.

What are you not doing today because you’re afraid you might need the money later?

This might be the most revealing question of the three. Is there something you really want to do but keep putting off because you’re worried about spending the money? Maybe it’s that trip you’ve talked about for years, a new kitchen, a different car, taking the whole family somewhere special or even just spending a little more on yourself without feeling guilty about it.

Then ask yourself another question: Am I saying no because I truly can’t afford it, or because I don’t know whether I can afford it?

Those are two very different things.

Sometimes the issue isn’t that you don’t have enough money. It’s that no one has helped you understand what your money can realistically support. And without that clarity, the safest answer always feels like “don’t spend it.”

What would you need to know to give yourself permission to enjoy your money?

Maybe you need to see what happens if the market drops 20%. Maybe you need to know how much income your investments can reasonably provide each year. Maybe you’re worried about healthcare or long-term care. Maybe you need to understand what happens if you live to 95. Or maybe you simply need to see, in black and white, that you can spend some of this money and still be okay.

That’s one of the things I think retirement planning sometimes gets wrong. We spend so much time talking about accumulation, rates of return and how much someone needs to retire that we forget why they accumulated the money in the first place.

Your money has a job.

I’ve always said that your money is the vehicle. Retirement is the destination. The point of accumulating money isn’t simply to die with the largest possible account balance. It’s to create security, choices, freedom and the ability to live the life you worked all those years to have.

That doesn’t mean spending recklessly. You still need to plan for inflation, healthcare, taxes, market downturns and the possibility of living a very long life. But there’s a big space between spending too much and being afraid to spend anything at all.

A thoughtful retirement plan should help you find that space. It should give you enough confidence in your future that you can actually enjoy some of your money today.

Because the goal isn’t simply to make your money last for the rest of your life.

It’s to make sure you’re living during the rest of your life, too.

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Eliminating the Fear Factor of Retirement

“People experience retirement emotionally before they experience it mathematically.”

That may be one of the smartest things I’ve read about retirement planning. It immediately reminded me of the television show Fear Factor. Remember it? Contestants willingly jumped from helicopters, crawled through confined spaces, balanced high above the ground, and ate things most of us wouldn’t go near. The premise was simple: fear changes behavior. Sometimes it causes us to freeze. Sometimes it causes us to overreact. Sometimes it convinces us to avoid something altogether. And sometimes it makes us do things we would never choose if we felt calm, safe, and in control.

Retirement has its own version of Fear Factor. Only instead of spiders, snakes, and impossible stunts, the fears sound like this: Will I have enough? Can I really stop working? What if the market crashes? What if healthcare costs wipe me out? What if I become a burden to my children? What if I make the wrong decision and can’t recover?

Those aren’t simply mathematical questions. They are emotional questions. And until those fears are acknowledged and addressed, it can be very difficult to make confident financial decisions.

Why Retirement Feels So Emotional

Retirement represents one of the biggest transitions most people will ever make.

For decades, you receive a paycheck. You know when it will arrive. You know roughly how much it will be. You build your life around that rhythm. Then retirement asks you to turn accumulated savings into income and trust that the money will last for the rest of your life. This is a major psychological shift.

Even people with substantial savings can struggle with it. A retirement account balance may look reassuring on paper, but spending from it can feel very different. Every withdrawal can feel like a permanent reduction. Every market decline can feel like a threat. Every unexpected expense can raise the question: What if this is the beginning of running out?

This is why many retirees become overly cautious, even when they can afford to spend more. They postpone trips, avoid helping family, and deny themselves experiences they spent decades saving for.

The fear of running out can become so powerful that people never fully enjoy the money they worked so hard to accumulate.

The Science of Fear and Financial Decision-Making

Our brains are designed to protect us from danger.

Thousands of years ago, fear helped humans survive immediate threats. Today, the same biological response can be triggered by a falling account balance, a frightening news headline, or uncertainty about future expenses.

When fear takes over, long-term thinking becomes harder. We tend to focus on avoiding immediate pain rather than making the best decision for the future.

Behavioral finance has shown that people generally feel the pain of a loss more intensely than the pleasure of an equivalent gain. Losing $10,000 often feels much worse than gaining $10,000 feels good. This emotional imbalance can influence retirement decisions in powerful ways.

Fear may cause someone to sell investments after the market has already fallen, locking in losses. It may lead someone to keep too much money in cash for years, reducing growth and purchasing power. It may cause a person to delay retirement even when the numbers show they are financially prepared. It may also lead to endless second-guessing, constant account checking, and an inability to enjoy retirement.

Ironically, one of the greatest risks to a retirement plan may not be market volatility itself. It may be the decisions fear causes us to make.

Retirement Planning Should Address Both Math AND Emotion

Traditional retirement planning often focuses on projections, rates of return, withdrawal strategies, and probability-of-success calculations. Those tools are important. But they do not automatically create peace of mind. A plan can work beautifully on paper and still leave someone terrified to spend. That is why retirement planning should answer two questions:

  1. Will the money work?
  2. Will the plan help you feel secure enough to live?

A strong retirement plan should do both.

Introducing the Confidence Foundation™

At Her Retirement, I believe every retirement plan should begin by building what I call a Confidence Foundation™. Think of it as the financial base that helps you sleep well at night. The purpose of the Confidence Foundation™ is to provide dependable income for the expenses you simply cannot avoid.

Ask yourself this question: If the stock market dropped 30% tomorrow, would I still be able to pay my essential monthly expenses? If the answer is yes, you have reduced one of retirement’s biggest emotional risks.

Your essential expenses may include housing, food, healthcare, insurance, utilities, taxes, and basic transportation. These are the costs that continue regardless of what the market does. The goal is to match as much of those expenses as reasonably possible with income sources that are reliable, predictable, or guaranteed.

What Can Make Up a Confidence Foundation™?

There is no single product or strategy that works for everyone. The right combination depends on your income needs, assets, health, risk tolerance, tax situation, and goals.

For many people, Social Security forms the first layer. Because it provides inflation-adjusted lifetime income, it can be one of the most valuable components of a retirement income plan. The decision about when to claim can have a lasting impact, which is why it deserves careful consideration.

A pension may provide another dependable monthly income stream. Some retirees may also choose an annuity to create guaranteed lifetime income that helps fill the gap between Social Security, pension income, and essential expenses.

For others, a bond ladder, Treasury ladder, or CD ladder may provide predictable cash flow over a defined period. Cash reserves can also play an important role by covering near-term spending needs and reducing the chance that investments must be sold during a market downturn. Some people may use several of these strategies together.

The important point is this: the Confidence Foundation™ is not one product. It is a planning outcome. Its job is to make sure the money needed for basic living expenses is not completely dependent on short-term market performance.

Where Annuities May Fit

Annuities can be useful for some retirees because they can convert a portion of savings into a predictable income stream that lasts for life. This can be especially valuable for someone who does not have a pension, is concerned about outliving her money, or wants more certainty around essential expenses.

But annuities are not all the same, and they are not appropriate for everyone. Fees, liquidity, guarantees, riders, surrender periods, and the strength of the issuing insurance company all matter.

The question should never be: Do I need an annuity? A better question is: Do I have an income gap in my Confidence Foundation™, and what is the most appropriate way to fill it?

An annuity may be one possible answer. It should not be the automatic answer, or the answer that an insurance salesperson pushes on you.

Building Your Freedom Fund™

Once your Confidence Foundation™ is in place, the rest of your assets have a different job. I call this your Freedom Fund™.

The Freedom Fund™ is designed to help you enjoy retirement, maintain flexibility, keep pace with inflation, and support the life you want to create. It may include stock mutual funds, ETFs, individual stocks, Roth IRAs, traditional IRAs, 401(k)s, brokerage accounts, real estate, or other long-term growth assets.

Because essential expenses are already being addressed through the Confidence Foundation™, the Freedom Fund™ does not have to carry the full emotional burden of paying next month’s bills. This can make market volatility feel less threatening.

Instead of viewing a market decline as a threat to your ability to buy groceries, you may be able to view it as a temporary fluctuation in assets intended for long-term growth and discretionary goals.

The Freedom Fund™ can support travel, hobbies, family experiences, charitable giving, home improvements, education, starting a business, or simply enjoying more of the life you worked so hard to build.

Why the Two-Part Strategy Can Work Emotionally

The power of the Confidence Foundation™ and Freedom Fund™ is not only financial. It’s emotional.

When the basics are protected, retirees may feel more comfortable leaving growth assets invested. They may be less likely to panic during market declines. They may also feel more confident spending on the things that bring joy and meaning to retirement.

This structure creates clarity. One part of the plan is designed for security. The other is designed for growth, flexibility, and possibility. This separation can reduce the feeling that every dollar must perform perfectly at all times.

Confidence Changes Behavior

When every dollar in your portfolio has to perform perfectly just to pay the electric bill, every market headline feels personal. But when your Confidence Foundation™ covers your essential lifestyle, something shifts. Fear begins to loosen its grip. You make calmer decisions. You stay invested more consistently. You become more comfortable spending. You stop treating every market decline as an emergency.

Most importantly, you may begin to experience retirement as a life to be lived rather than a financial problem to be managed. The goal is not simply to maximize returns. The goal is to maximize confidence.

At Her Retirement, we believe retirement planning is about far more than spreadsheets, rates of return, and investment performance.

We help women make informed financial decisions so they can retire with confidence and create a life of meaning. Because the best retirement plan is not necessarily the one with the highest projected return. It’s the one that helps you feel secure enough to live the life you planned for.

If you’d like some guidance on creating a life (and a retirement) with confidence and freedom, reach oout. We can help you Get Her Done.

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Why You’ll Never Get a Straight Answer About Annuities

I recently came across a question in a women’s financial group that perfectly captures why so many people are confused about annuities.

A woman asked a simple question: “A gentleman wants me to invest in an annuity. It sounds too good to be true. What do you think?”

The responses came flooding in.

“Run away.”

“My annuity saved my retirement.”

“They’re terrible.”

“They’re wonderful.”

“They have high fees.”

“They’ve given my mom guaranteed income for years.”

“The salesperson earns too much.”

“They’re perfect if you’re conservative.”

“They’re a scam.”

Reading through the comments, I realized something. No one was really talking about annuities. They were talking about their annuity.

There Isn’t Just One Type of Annuity

Imagine asking: “Should I buy a car?” Would anyone be able to answer? Of course not.

  • Do you need a pickup truck?
  • A hybrid?
  • A sports car?
  • A minivan?

Annuities are exactly the same. There isn’t one annuity. There are dozens of different products with different purposes. Some are designed to:

  • Protect your principal.
  • Generate guaranteed lifetime income.
  • Participate in market growth.
  • Leave money to your beneficiaries.
  • Reduce longevity risk.

Others may have features you don’t need—or fees you shouldn’t pay. The question isn’t whether annuities are good or bad. The question is whether this annuity is appropriate for your situation.

Why Opinions Are So Polarized

Many people have strong feelings about annuities because they’ve only experienced one. Someone who purchased a high-fee variable annuity 20 years ago may tell everyone to avoid annuities forever. Someone whose guaranteed lifetime income allowed them to stay in their home after their spouse died may believe annuities are the best financial product ever created. Both experiences are real. Neither tells the whole story.

The Better Questions to Ask

Instead of asking, “Should I buy an annuity?” ask:

  • What problem is this annuity solving?
  • What happens if I never buy it?
  • What are the fees?
  • How does the advisor get paid?
  • What guarantees are backed by the insurance company?
  • What happens if I need my money early?
  • What happens when I die?
  • How does this fit with my Social Security, investments, and other retirement income?

Those questions matter far more than whether someone on the internet loves—or hates—annuities.

Here’s What I Believe

I’ve seen annuities dramatically improve retirement plans. I’ve also seen annuities that never should have been sold. I’ve seen widows who slept better because they knew another paycheck would arrive every month. I’ve also met retirees who paid for features they neither needed nor understood. The difference wasn’t the product. It was the planning.

The Bottom Line

An annuity is a tool. Like any financial tool, it can be incredibly valuable when used appropriately. Or it can be completely unnecessary. The goal shouldn’t be to buy—or avoid—annuities. The goal should be to build a retirement income plan that gives you confidence. Sometimes an annuity belongs in that plan. Sometimes it doesn’t.

The right answer isn’t found in a Facebook comment. It’s found by understanding your goals, your income needs, your risk tolerance, and how every piece of your retirement puzzle fits together.

That’s why the question isn’t: “Should I buy an annuity?” The better question is: “Is this annuity right for me?”

To learn more, download a copy of Her Guide to Annuities here.

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What Women Can Do About Rising Medicare Costs & a Small 2026 COLA

If you’ve seen the newly released 2026 Medicare numbers, you might be feeling a little frustrated. Part B premiums are jumping. Part D is climbing. And Social Security’s cost-of-living adjustment (COLA) is only 2.8%.

Most people think they’re powerless when Medicare costs rise faster than their benefits. But here’s the truth:

You are not powerless.
In fact, there are very real financial levers women (and couples) can pull right now, before 2026 shows up on the doorstep.

Let’s break them down clearly, simply, and in plain English.


1️⃣ Manage Income—Not Just Expenses (IRMAA Planning)

IRMAA (Income-Related Monthly Adjustment Amount) is the extra surcharge high-income retirees pay on Medicare Parts B and D. It’s based on your MAGI from two years prior, which means:

Your 2024 income determines your 2026 IRMAA charges.

There is still time to influence this.

Ways to keep Medicare-related income lower:

  • Shift income into tax-free buckets (Roth conversions—but sized correctly)

  • Reduce capital gains during key years

  • Delay big IRA withdrawals

  • Be strategic with RMD timing once required

  • Use Qualified Charitable Distributions (QCDs) at 70½ for charitable giving

  • Avoid unplanned income spikes (like selling property without a strategy)

This one step alone can save hundreds to thousands of dollars per year.


2️⃣ Build a Buffer Into Your Retirement Budget

Most retirees underestimate how fast medical costs rise. If premiums keep climbing while COLA lags behind, your budget must reflect that.

Practical steps:

  • Add a medical inflation line item of 5–6% annually

  • Revisit your retirement spending plan every year

  • Treat healthcare as a core non-negotiable expense, not a variable one

A 2.8% COLA simply won’t cover the reality of 2026. Planning for the gap is essential.


3️⃣ Keep Taxable Income Smooth—Not Spiky

Medicare doesn’t care about your average income.
It penalizes sudden spikes.

Women can help themselves by:

  • Spreading out IRA withdrawals

  • Avoiding one-time bursts of income

  • Using multi-year Roth conversion ladders

  • Coordinating Social Security and pension timing

Smoother income = fewer IRMAA surcharges.


4️⃣ Get Smart With Part D (Most People Don’t)

Part D premiums and IRMAA are both rising, but the good news is:
Part D is one of the easiest places to save money.

Each year:

  • Re-shop your Part D plan

  • Use Medicare’s official plan finder tool

  • Choose a plan based on current medications—not the one you picked five years ago

  • Look into Extra Help if you qualify

  • Use preferred pharmacies or mail-order options

Many people save hundreds per year simply by reviewing their plan annually.


5️⃣ Do Tax Planning Before Retirement, Not After

One of the biggest Medicare cost drivers?
Large pre-tax retirement balances.

Here’s what proactive planning looks like:

  • Roth conversions in your 50s and early 60s

  • Maxing out HSAs (if eligible)

  • Building brokerage accounts for flexible withdrawals

  • Using Roth 401(k) options when it makes sense

You can pay a little tax now—or pay a lot more later through higher Medicare premiums.
Planning early gives you options.


6️⃣ Appeal IRMAA if You Qualify

Most retirees don’t know this:

IRMAA is not permanent.

You can appeal using Form SSA-44 if you’ve had a qualifying “life-changing event,” such as:

  • Retirement

  • Marriage or divorce

  • Loss of income

  • Loss of pension

  • Work reduction

If your income drops significantly, you may be able to reduce—or completely eliminate—your IRMAA for that year.

To learn more about IRMAA and get step-by-step IRMAA appeal directions, check out our IRMAA webinar at: www.IRMAAWebinar.com and our resources at: www.NoIRMAAforMe.com.


7️⃣ Work With Someone Who Understands Medicare + Taxes

This goes beyond investments. This is strategic retirement planning that mixes Medicare rules, tax timing, Social Security, and income management.

Most people save money simply by working with someone who knows how these pieces interact. This isn’t investment advice, it’s retirement math and smart tax planning.

If you’d like to connect with a Medicare, tax, IRMAA, or Social Security expert, email Lynn at: lynnt@herretirement.com. We have a great company that helps you chooose the BEST Medicare options for you.


Final Thought: You’re Not At the Mercy of Rising Costs

Every year, I see women feel blindsided by Medicare increases. But many women can prepare. Many can smooth out income. Many can avoid unnecessary surcharges.

The sooner you understand the levers you can pull, the more control you regain.

Your Medicare costs don’t have to control your retirement, you can control your strategy.

To learn more about Medicare, check out my Medicare e-classe and resources at: www.MedicareforHer.com

To learn more about Social Security, check out my Social Security e-classe and resources at: www.HerSocialSecurity.com

And, we highly encourage you to learn more about the More for Her Collective offered by Her Retirement at: Her Retirement Collective – Her Retirement

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Should You Take Social Security at 62 and Invest It, or Wait Until 70? (if you can)

When it comes to Social Security, there’s no question that timing is one of the biggest financial decisions of your retirement. The difference between claiming early (at 62) versus waiting until 70 can add up to hundreds of thousands of dollars over your lifetime.

But what if you don’t need the money to live on, but just invest it? Could you take it anyway, invest it, and come out ahead (vs. waiting til 70 to claim and then start investing? Let’s explore both strategies. Let’s look at some lifetime portfolio values from you Social Security benefit.


The Break-Even Age

If you claim at 62, you start collecting smaller checks earlier. If you wait until 70, you collect bigger checks later.

  • The break-even point — where waiting finally catches up with claiming early — usually happens around age 80–82.

  • Live past that? Waiting typically wins.

  • Pass away sooner? Taking early often leaves you ahead.

The difference between claiming at 62 and waiting until 70 can indeed add up to hundreds of thousands of dollars — but it depends on the path you take.

If you claim early and spend it, you lock in smaller checks for life. Waiting until 70 gives you a much larger guaranteed monthly income stream (about 75–80% higher). In our example, that’s the difference between a $2,000/month benefit at 62 and about $3,500/month at 70 — roughly a 77% increase — plus COLA increases even while you’re waiting.

If you claim early and invest the checks, the story changes. By putting that income into the stock market, you’re betting on growth that could exceed Social Security’s built-in 8% yearly increase. If markets deliver, your invested balance could be far greater — but it’s not guaranteed. Investing in the market carries risk…sometimes lots of risk.

In essence, delaying Social Security is like buying a government-backed deferred annuity with inflation protection. Taking it early and investing trades that security for potential upside in a riskier portfolio.

This makes the contrast really clear: “guaranteed annuity-like income vs. risky but potentially higher-return investment.”


What if you claimed at 62 and invested the money, or waited until age 70 and then started investing?

Let’s assume:

  • Benefit at 62 = $2,000/month

  • Benefit at 70 = $3,500/month

  • Investment = 60/40 stock-bond portfolio earning 8% annually

  • Timeline = Age 62 to 95

  • Includes a 2.5% COLA (cost of living increase)

The Numbers at Key Ages

(Rounded estimates based on assumptions above)

At 8%, the 62+invest strategy leads until age ~94–95. At 6%, the 70 strategy catches up in your mid-80s. At 5%, waiting at 70 pulls ahead by ~85 and never looks back.


Claim at 62 & Invest

Longevity risk: if you live into your 90s, waiting until 70 produces more lifetime income unless your investments deliver consistently high returns.

Pros:

  • Immediate cash flow — assuming you don’t need it, you can put it to work right away (think time in the market).

  • Compounding advantage: those 8 extra years of contributions and growth give you a strong lead through your 70s and 80s.

  • Flexibility and control over how the money is invested or spent.

Cons:

  • Market risk: if long-term returns are closer to 5% than 8%, the “early & invest” edge disappears by your mid-80s.

  • Behavioral risk: discipline is required not to spend the money instead of investing.

  • Lower guaranteed base income — your check will always be smaller than if you had waited, which could hurt if you live into your 90s and markets underperform.


Claim at 70 & Invest

This is the risk-free path — Social Security’s ‘delayed retirement credits’ are guaranteed, while market returns are not.

Pros:

  • Significantly bigger monthly check for life (about 75% higher than at 62).

  • Guaranteed, inflation-adjusted income — protects you from longevity and inflation risk.

  • Survivor benefit for a spouse is higher, which matters for couples.

  • If invested, the larger checks grow meaningfully and can eventually catch up — by age 95 in the 8% return scenario, or as early as 85 in a 5% return world.

Cons:

  • You need to live long enough for the bigger checks to catch up.

  • You give up 8 years of potential compounding (the opportunity cost is clear in the charts).

  • Requires other reliable income or assets to bridge the gap until 70.


Framing:

    • At 62, you’re leveraging time in the market.

    • At 70, you’re leveraging guaranteed higher income for life.

    • Both can “work” — which is better depends on longevity, market performance, spending discipline, and spousal situation.

 

The below chart shows what happens if the returns are more like 5% on the age 62 benefit. Ate age 85, the 70 claiming age begins to look better financially.

 


The Bottom Line

  • If you’re confident in your health and expect to live well into your 90s, waiting until 70 gives you a much larger guaranteed monthly income stream (about 75–80% higher). In our example, that’s the difference between a $2,000/month benefit at 62 and about $3,500/month at 70 — roughly a 77% increase — plus COLA increases even while you’re waiting.

  • If you don’t need the income and have the discipline to invest it, claiming at 62 and investing can keep you ahead for decades — but the strategy depends heavily on market returns.

  • If you need the income right away, claiming at 62 is the practical choice, regardless of the math.

  • Ultimately, Social Security is personal. The “right” claiming age depends on your health, wealth, goals, risk tolerance, and whether you have a spouse depending on your benefit.


Want to see your break-even age — and whether claiming early or waiting makes sense for you? Inside the Her Retirement Collective, we’ll run your Social Security strategy side by side so you can make the best decision for your life. Reach out to us at: retire@herretirement.com and we can help you Know More, Have More & Live More.

 

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What is Better than Bonds?

Hello and welcome to this week’s episode of the Her Retirement podcast. My question for this week is, What’s Better Than Bonds? Sounds kind of like the start of a knock-knock joke. But it’s no joke. 

Bonds have historically played a safety role in your traditional portfolios. However, bonds are basically a bust these days. But, what’s the alternative? Well, that’s what I’m going to dig into.

Drum roll please…the bond alternative everyone should at least learn about is…Fixed Indexed Annuities.

In 2010, the National Association of Fixed Indexed Annuities (aka NAFA) decided to designate June as Annuity Awareness Month to help educate Americans on the important role annuities can play as a part of a secure retirement savings plan. NAFA is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities. 

Annuities in general can be an integral part of your long-term retirement planning strategy, providing direction to help overcome unnecessary risks and important optional benefits that can help protect your financial future. Annuities can offer guaranteed death benefits and payment options to help meet retirement income needs, depending on the terms of your annuity contract. A key step in planning for retirement is to put strategies in place that maximize guaranteed income and protect against market risk.

Guaranteed income annuities can be part of a personal pension and protection plan that I abdicate for many women. There are several reasons I believe annuities and fixed indexed annuities can be part of what I call a simpler, smarter, and safer journey to and through retirement.

Let’s talk about why guaranteed lifetime income is important. The fact is, Americans, especially women, are living longer. There has been a significant increase in the life expectancy of 65-year-olds over the past quarter-century. Today, the average life expectancy for a 65-year-old male is 84 and for females is 86.51. This compares with 81 and 84 years respectively in 2002. While an increase of three or five years may not seem dramatic over a lifetime, it can have a significant impact on retirement security. Additionally, health care costs continue to rise. For the average 65-year-old, health care costs will be $280,000 over their retirement, further necessitating the need for lifetime income. (1)

 

Using guaranteed income sources to meet essential expenses helps address the issue of living longer. In addition, these income sources provide some assurance that you’ll be able to cover basic needs such as housing, health care, and food for as long as you live. 

The remainder of your assets can then be directed to investments with more growth potential to help protect against inflation, rising health care costs, and market volatility. Annuities are just one potential source of income in retirement. You’ll need to consider all of your sources, such as pensions, Social Security, life insurance, your home equity, working, inheritances, etc., as well as the income you’ll be able to generate from your retirement savings such as 401ks and IRAs.

One of the misnomers of annuities is the growth potential or lack thereof. While they can protect from a market decline with zero downside protection, many Fixed Indexed Annuities (or FIAs) provide some pretty attractive growth potential. They are used as an accumulation vehicle, as well as a safety vehicle in your portfolio. They are in essence, a replacement for bonds (since bonds are doing so poorly currently) and when needed you can turn on an income stream from your FIA(s). Remember…FIAs are an alternative to safe bonds because they have no downside risk. They are not an alternative to stocks…you still need stocks in your portfolio.

With an FIA, your worst-case loss from stock market decline scenario is 0%. 

 

Now I want to dive into a strategy for turning a 4% return into 10%. How is this accomplished you ask? By utilizing an FIA. An FIA provides upside leverage in the form of what is called a participation rate.

Participation rates allow the insurer to limit the upside potential on indexed annuities. The participation rate is a percentage by which the insurer multiplies the index gains to arrive at the amount of interest they will credit to the annuity contract. For example, an indexed annuity with a 75 percent participation rate would earn 75 percent of the index gain. If the index was up 13 percent at the end of the contract term, the insurer would credit 9.75 percent interest to the client. At this point in time, some of the leading FIA providers are offering up to a 245% participation rate, which means that if the particular index that your FIA is tied to returns 4%, you make just under 10% during that period of time. So, you have the potential to earn anywhere from 8% to 10% returns with these newly increased participation rates with no downsides. It’s a pretty crazy opportunity right now because as interest rates go up, participation rates go up as well. 

If you’re wondering how long you’re locked into an FIA like this, it’s typically similar to a five-year CD. There are also seven- and 10-year products.

But once again, the beauty of these things is, even if you’re with a five-year seven, or 10-year contract term, you do have a 10% free out that you can take each year. So, for instance, if you put a hundred thousand dollars into an FIA contract, you can still take out 10% per year without any penalty. So, on a hundred thousand dollars, 10% equals $10,000 per year.

One expert I spoke to has never seen participation rates this high. And I quote, “it’s a pretty awesome opportunity.”

But experts do warn people that not all FIAs are created equal. You need to look for “client-centric” FIAs. There’s the good, the bad, and the ugly, and many annuity salespeople who are ready to pull the wool over your eyes. You need to go into an FIA strategy with your income and retirement goals clearly defined and with the right advisor who understands your big picture. Never purchase an annuity, FIA, or otherwise within a silo…like without all your stuff being integrated together.

Yes, FIAs can be complicated, but with the right retirement planner, he/she can fully explain how an FIA fits into your overall plan. The right planner will be 100% transparent about the FIA, the fees, and the overall expected result from incorporating one or more into your plan.

Retirement planning experts and retirement academics seem to agree that FIAs should outperform bonds for some time…both in terms of providing the safety effects of bonds in a traditional stock/bond portfolios and in terms of returns. I’d take even a 4% return from an FIA vs. a bond right now. Let alone a 10% return. With bonds in your portfolio, you’re losing a lot of money. You’ve lost close to 10 to 15% in your bond funds already this year. So, these are great alternatives to the bond component, the safe component of your portfolio. 

 

But Lynn, someone might say, my investment guy is telling me annuities are bad because of high fees or that I could lose all my money.

Well, I would say that you have to understand that the investment advisor or the investment company that you’re talking with is absolutely biased because they offer only stocks and bonds. They don’t offer annuities. Right? So that’s number one. You have to think about that. 

What I would ask the investment guy is how are you going to protect a portion of my portfolio against stock market decline? Can “their” bonds or index funds offer 100% of the upside of the S&P let’s say but zero downsides?

As for fees, let’s say there’s a 6% one-time fee on the annuity. Well, if your investment guy is managing your assets for say 1.5% over the course of 5 years, you’re paying him 7.5% and for 10 years, it’s 15%. The annuity doesn’t look so expensive now. Plus, you have zero downsides and all the upside of the market when it’s growing.

There are terrible, overpriced annuities for sure. There are bad products and unscrupulous salespeople in all industries. That’s why you need to get educated about how to ask the right questions and understand why you’re using the various products in your plan.

The bottom line is this, an FIA is looking like a great bond replacement right now and can offer a myriad of benefits to many people. One of the major benefits is purchasing risk protection against market risk. If safety and protecting some of your portfolio from this risk is important to you, then you should consider or at least learn about how an FIA could work to your benefit. And on the plus side, an FIA does offer growth opportunities. Additionally, because of where interest rates are right now, FIAs are particularly attractive if you find the right contract, company, and advisor who’s both insurance and investment licensed to provide you with as much balanced advice as possible. Sounds a little like having your cake and eating it too?

Thanks for listening to this week’s episode about the unique opportunity of fixed indexed annuities right now. The website annuity.org provides a wealth of information on annuities. FIA Insights.org also offers great information on FIAs. If you have any questions or want to connect with a retirement advisor about your investments or portfolio, annuities, and/or your retirement plan, reach out to me at lynnt@herretirement.com. If you’d like to see how much income you’ll have in retirement, please also ask for a free trial of my Her Retirement readiness software platform and I’ll hook you up. Here’s to knowing more and having more and getting her done.

 

De-Risking Your Portfolio

Planning for retirement can be confusing and a bit scary. How do you manage your money now so you can be well-prepared financially for retirement? And how do you ensure that your retirement income will last throughout your life? How can you de-risk your portfolio to avoid the volatile markets like we’re seeing now (and will definitely see again). With increased life expectancies, it’s critical that you weigh all your options and plan carefully. This paper will discuss traditional retirement strategies, as well as introduce you to a less conventional, but potentially more effective and efficient approach to help you reach your retirement goals.

The Problem

Often, “the way we’ve always done it” is no longer the best way to achieve something. In retirement planning, a traditional portfolio uses only conventional stock and bond investments. In this paper, we refer to this as the Traditional Asset Allocation 6040 Portfolio (TRAA 6040). The problem? Traditional stocks and bonds on their own are not efficient for 100% of a retirement income portfolio. They expose a retiree to lower return potential and higher risk.

The Solution

Historically, stocks and bonds have been the mainstay of a typical retirement portfolio. The Hybrid Income Portfolio (HIP) offers a change in product allocation to reduce portfolio risk and increase the rate of return potential. The HIP strategy uses a combination of Traditional Investments (stocks & bonds), Structured Investment Products (SIPs) and Fixed Indexed Annuities (FIAs).

In addition to adding SIPs and FIAs, other strategies should be incorporated to lead to a more efficient retirement outcome, including:

 

  • Social Security Timing: Using the proper strategy to maximize this guaranteed income source
  • Tax Planning: Reducing taxes in retirement to increase the net after-tax income annually
  • Prudent Use of Home Equity: Incorporating HECM loans as a tax-free income source or portfolio safety net
  • Alpha Portfolio Management: Using active and passive portfolio management in the proper asset classes to add Manager Alpha to potentially increase returns. Manager Alpha is the rate of return an investment manager creates above or below the respective benchmark or index.

Read more in our white paper, A Portfolio for a Changing Economy

Volatility: What’s the Best Defense?

Thoughts and ideas on the recent market losses and volatility due to the Coronavirus scare, and general economic and political uncertainty. Recent panic caused by the spread of the Coronavirus (COVID-19) has led to a stock market decline and has many investors feeling anxious. While portfolios will see ups and downs and this is a normal part of investing, the recent sell-off was sharp. It is in times like these that our team can best serve you by providing perspective on how we see these issues playing out.

The Best Defense is a Strong Offense
Nobody knows where the market is heading. Therefore, we believe that research and pro-actively planning, and implementing strategies that factor in potential significant drops in the market is critical. This is a strong offensive play in the world of portfolio planning (especially for those closing in on retirement). And what we consider to be the best defense to market volatility.

When the market heads up, and we get by this event-driven volatility, having a portfolio that has allocations to global equities to take advantage of market growth is critical. And if the market continues to fall, it’s critical to protect your principal with allocations to Fixed Indexed Annuities.

Either way, this “Hybrid Income Portfolio” strategy balances protection and growth, regardless of where the market heads. This is especially significant now, as equity prices are coming off all-time highs and bond prices are also high, as their yields have fallen to all-time lows. As we have seen recently, market conditions can change quickly in both directions.

For these reasons and more, we believe a Hybrid Income Portfolio to be a powerful alternative to other portfolio strategies. It’s also backed by academic research and has proven itself time and time again.*

The Impact on the Global Economy
Though the impact on human life is at the forefront of everyone’s concerns, there are many uncertainties surrounding the potential impact of the virus to the global economy. The global economy was already fragile from the nearly two-year-long U.S.-China trade war and the spreading virus will likely impact economic growth. While more equity market weakness is possible as the virus continues to grow globally, the downside could be limited as governments and global central banks have possible tools to combat the potential death toll and economic impact.

From the human life perspective, China took severe steps to limit the spread of the virus including forced quarantines, limited social contact, and significant population testing. We expect other inflicted nations to follow suit. From an economic perspective, global central banks including the People’s Bank of China and the Bank of Korea have already increased monetary stimulus or plan to do so. As we have seen in the U.S., and, specifically the U.S. housing market, over the past year, easing monetary policy can provide a potential economic stopgap. Furthermore, in the U.S., given unemployment levels near 50-year lows, the consumer, the driver of the current economic expansion, remains in good shape. We do expect market uncertainty to continue but downside may be limited. We also think the impact to markets will vary by sector. Sectors related to travel, such as cruise lines, airlines, and hotels are already taking a hit. Online entertainment companies and streaming services are performing better.

The team here at Retire Smart Network will continue to monitor and update information about our nation’s financial and physical health. If you’d like to discuss your portfolio strategy with a retirement planner or have a question about any retirement/financial topic, simply reach out and we’ll make it happen.

P.S. Don’t forget the Best Defense is a Strong Offense when it comes to protecting your health too…proper hand washing, eating right, getting enough sleep, avoiding sick people, stocking up on meds, food, water and household supplies, and having an attitude of positivity and gratefulness. Worrying about health or finances isn’t a productive use of time. Embrace optimism and reach out to us at any time.

*Sources:

  1. Morningstar Analysis, June 23, 2017, Snapshot Report.
  2. Roger G. Ibbotson, PhD Chairman & Chief Investment Officer, Zebra Capital Management, LLC Professor Emeritus of Finance, Yale School of Management Email: ZebraEdge@Zebracapital.com, Fixed Indexed Annuities: Consider the Alternative, January 2018.
  3. Shift Away from Potential Risk and Toward Potential Return, Nationwide (Morningstar), 06/16.

Work + Money Article: “The 4% Retirement Rule is Broken”

Unfamiliar with the “Four Percent Rule”?  In 1994, financial advisor William Bengen found that he was skeptical of the traditional consensus that 5% was generally considered a safe amount for retirees to withdraw from a retirement account each year in their retirement. Using historical data on stock and bond returns over a 50-year period between 1926 and 1976 with an emphasis on severe market downturns in the 30s and early 70s, Bengen concluded that no historical case existed in which a 4% annual withdrawal exhausted a retirement portfolio in less than 33 years.

Considering that the investment landscape since 1994 has changed dramatically, the publication Work + Money sought out financial advisors to get their take on whether or not this rule of thumb should still be considered the “safe withdrawal” rule, including Your Retirement Advisor co-founder, Lynn Toomey.

Brian concludes that the 4 percent rule may not work in today’s markets if people follow the traditional recommendation of a portfolio made up of 60% stocks and 40% bonds. He explains that because bond yields are at a historic low, 4 percent will end up burning through the portfolio too quickly. For safety, he recommends an annual draw of 2-3 percent. Retirees looking to withdraw 4 percent each year may want to consider a combination of stocks and fixed indexed annuities, Brian advises. “Here at YRA, we have developed such a plan, which we call a ‘Multi-Discipline Retirement Strategy,’ which includes a portfolio of globally-diversified stocks and annuities. It’s a combination critical as one approaches retirement,” Brian states in the article. “It should also be coupled with a [systematic withdrawal income plan] and a buffer strategy in times of severe stock market losses.”

Brian outlines several risk factors that impact portfolios and make the 4 percent rule unfeasible.

Retirement Risk Factor # 1: Living Too Long. Longer-than-expected retirements are becoming the norm as longevity rates increase.  As Brian explains specifically the problem with living too long is inflation. In other words in the present, a person is saving money for a future in which the prices of goods and services will have risen and the purchasing power of the consumer will have declined. To combat this problem, Brian advises that retirees need to reconsider portfolios that shortchange stocks for the supposedly safer world of bonds in their retirement portfolios. Due to the fact that historically, stocks have been the only investment that have outpaced inflation, YRS urges investors to consider a diversified portfolio to offset the volatility that is inherent to stocks.

Retirement Risk Factor #2: Volatility. To minimize the second retirement risk factor listed, volatility, Brian recommends utilizing standard deviation to observe the deviation of a portfolio from the average rate of return from year to year. The higher the standard deviation, the higher the volatility and the higher the volatility, the greater the risk of portfolio failure in retirement.

Retirement Risk Factor #3: Sequence of Return. While we cannot completely control sequence of return, the third risk factor featured, Brian expresses that investors can protect themselves from this type of risk by establishing a “safe bucket” of funds to withdraw from in the event of market downturn. In addition to keeping their principal stocks while waiting out the market correction, there is also research that proves this action has psychological benefits which can prevent panic and the sale of stocks when the market dips.  “A proper buffer can consist of life insurance cash values, a reverse mortgage reserve account, cash or CDs, a guaranteed annuity, or any other account that will have a limited effect when there is a stock market downturn,” Brian adds in conclusion.

Retirement Risk Factor #4: Interest Rates. Bonds have an inverse relationship with interest rates: when interest rates are high, bond returns are low. And given that interest rates are at historic lows, bonds may be ready to fall from their highs. “Investors expecting bond funds to perform as well in the next ten years as they have in the last ten will be disappointed,” Saranvoitz said, noting there may even be a risk for negative returns. Bonds still have a place in a retirement portfolio, but probably not the half they occupied when the 4 percent rule was in fashion.

Read the full “The The 4 Percent Retirement Rule Is Broken” article here

If you’d like to chat with an affiliated advisor about your portfolio and your withdrawal strategy, requesst a complimentary consultation.

 

Why Simply Saving for Retirement Isn’t Enough? Part 2

As I mentioned in part 1 of this multi-part blog post, simply saving for retirement isn’t enough. There’s a myriad of things that can go wrong in retirement. And you MUST be prepared. Preparedness is the key to many of life’s challenges. Unfortunately, many simply “put off” planning for another day. Days turn into weeks, weeks into months and months into years and before you know it, BOOM, retirement is right around the corner. And you’re not ready. This bring me to our first and most important retirement threat:

Neglecting to prepare, either on your own or with a retirement specialist, a comprehensive plan that addresses all the potential threats and risks we all could face in retirement, as well as your income needs and income projection. Will you have enough to last throughout retirement and how will you fund the emergencies of retirement? Her Retirement offers a full “Are You Ready” assessment to determine any gaps in your plan, or to create a plan for you.

Here’s 5 other threats to consider. We’ll cover several more in part 3 of this blog series.

  1. Death of a spouse (without life insurance). While it’s true many pre-retirees are over-insured, the opposite is true as well. Life insurance is certainly critical while you still have a mortgage or other debt obligations, as well as young children to support. But we also feel that you do need life insurance as you are nearing retirement.  The threat is that you or your spouse could die without insurance and you would need to take from your retirement savings to cover your living expenses.  More than 2 in 5 Americans say they would feel a financial impact within six months of the death of a primary wage-earner, according to a 2015 report from the industry group LIMRA and the nonprofit group Life Happens. In addition, 30% of Americans think they don’t have enough life insurance, the report said. Term life insurance policies can be aligned with your retirement age so that it can cover you and your spouse during those important wage earning years and replace the earnings in the event of a pre-mature death of either partner. Her Retirement offers a full life insurance assessment to determine if you’re under-insured or over-insured, and then we can help match you with the right insurance based on your circumstances.
  2. A healthcare crisis. Unfortunately, medical debt is a leading cause of bankruptcy for many. For those that can afford to cover illness or medical emergencies with their savings, it can prevent you or your spouse from working in the final stretch before retirement. In addition, covering these expenses significantly impacts your retirement nest egg. There’s several types of insurance to consider including disability insurance and long-term care insurance.  Her Retirement offers a long term care/medical insurance assessment, as well as some unique ways to fund these expenses outside of insurance.
  3. Scams and more scams. Retirees are a big target for scammers. We’ve all heard the nightmare stories. These scammers take advantage of people’s fears. A perfect example are life insurance policies marketed at 702 retirement accounts. Scammers will sometimes use early retirement seminars as a forum to sell these policies. Financial Industry Regulatory Authority (FINRA), the industry oversight organization, advises buyer beware for any scheme or program, like these that promises unrealistic returns of 12% or more, as well as anything promising that you can retire early and/or make more money in retirement than you did in your working years. Here’s a link to the more scams and how to protect yourself and your loved ones
  4. The kid(s) that come back. Some call these boomerang children. Just when you think you have an empty nest, some one of them or worse yet, all of them return!  I just experienced this myself with the return home of my 24 year old son. While a part of me was excited to have him in the house again, the other part of me was calculating the cost to have him back home. Many pre-retirees continue to support children who are considered adults. According to the March 2015 study by Hearts & Wallets, an investment and retirement research firm, those 65 years or older with financially independent children are more than twice as likely to be retired than people of the same age group who financially support their adult children. That’s because those who are still supporting their kids are often putting off retirement to do so,said Hearts & Wallets co-founder Chris Brown. Ideally, we want to help our children become independent from the get go so they can avoid ending up on your doorstep, but we know this isn’t always the case, especially in these times. My son attended one of the best colleges in the world and he’s in my spare bedroom as I write this. The best way to protect your retirement savings from the kids that come back is to help them get financially independent as quickly as possible and ask for them to pay their fare share of the household expenses. Read these tips for surviving your child’s return home (I think I need to read this a couple times!)
  5. Giving grandma a hand out and a hand up. The statistics are pretty convincing that baby boomers are caring for their aging parents and giving up some of their retirement savings in the process. My mother used to say, “I never want to be a burden to my children.” And so far she hasn’t been a burden at all. But, she was properly prepared and to her credit worked as a teacher for 35 years and has a good pension and a good medical plan. Some 11% of adult children under 65 provide financial assistance to their parents, according to the National Institute on Aging’s 2015 Health and Retirement Study. Further, 25% of adult children under age 65 help parents with things like chores and personal care, often at the expense of having their own paying job. In fact, people age 50 and older who care for parents lose an average of $303,880 in pay, Social Security and pension benefits, according to a 2011 MetLife report! Here’s some resources for caring for your elderly parents

While it’s unrealistic to avoid these and many other retirement threats, it’s best to consider what you may face just before retirement and in retirement and make sure you have a Plan A…and a Plan B. This plan, as we discussed above, needs to include not just you, but your spouse and your entire family.

To chat about your plan with an affiliated advisor, please request any one of our assessments here.