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Investment Basics

by BlogRetirement IncomeRetirement Income PlanningWealth

Why invest? 

To keep ahead of inflation. 

Inflation has reduced the purchasing power of your dollars over time. According to the U.S. Department of Labor, the average annual inflation rate since 1914 has been around 3%. If $100 is $100 today, it would cost $181 in 20 years. Inflation has skyrocketed, but most experts agree it will settle back down. Investing in stocks is your best hedge against inflation.

To take advantage of compound interest. 

Anyone with a savings account understands the basics of compounding: the funds in your savings account earn interest, and that interest is added to your account balance; the next time interest is calculated, it’s based on the increased value of your account. In effect, you earn interest on your interest. 

Many people, however, don’t fully appreciate the impact compounded earnings can have, especially over a long period. To benefit from the longest possible investment period, the sooner you start investing, the more time your investments have for potential growth. Waiting too long can make it very difficult to catch up. 

Consider the examples. Let’s say you invest $5,000 a year for 30 years. After 30 years, you will have invested a total of $150,000. Yet, assuming your funds grow at precisely 6% each year because of compounding, you will have over $395,000 after 30 years. This is a hypothetical example and is not intended to reflect the actual performance of any specific investment. Taxes and investment fees, and expenses are not reflected. If they were, the results would have been lower. 

Investing is Risky Business

Investing is different for every individual. The investment plan that’s right for you depends mainly on the level of comfort you have when it comes to risk. You can’t completely avoid risk when it comes to investing, but it’s possible for you to manage it. 

Investors are typically grouped into three categories for purposes of discussing risk tolerance: 

  • Aggressive: those who have a high degree of risk tolerance 
  • Moderate: those willing to accept a modest amount of risk 
  • Conservative: those who have low risk tolerance 

When it comes to investing, there’s a direct relationship between risk and potential return. This is true for investment portfolios as well as for individual investments. More risk means a greater potential return but also a greater chance of loss. Conversely, less risk means lower potential returns and less likelihood of loss. This is known as the risk/return tradeoff. You can’t have it all. There’s a relationship between growth, income, and the stability of our investments, and when we move closer to one, we generally move away from another. This is a dilemma all investors face. 

Managing Risk 

Only you can know your risk tolerance level when it comes to investing. Let’s now look at the types of investments and their level of risk and return.

Cash alternatives 

Cash alternatives are low-risk, short-term, and relatively liquid instruments that you may use. 

Advantages:

  • To provide you with relative stability 
  • To maintain a ready source of cash for emergencies or other purposes 
  • To serve as a temporary parking place for assets until you decide where to put your money longer term 

Examples of cash alternatives include: 

  • Certificates of deposit (CDs) 
  • Money market deposit accounts 
  • Money market mutual funds 
  • U.S. Treasury bills (T-bills) 

 

Now let’s talk about the next instrument: bonds. 

Bonds are essentially loans to a government or corporation, which is why they’re called “debt instruments.” Bonds are issued in denominations as low as $1,000. The interest rate (or coupon rate), which can be fixed or floating, is set in advance, and interest payments are generally paid semiannually. Bond maturity dates range from 1 to 30 years. However, bonds don’t need to be held until they mature. Once issued, they can be traded like any other type of security. Currently, bonds are at historic lows, so many experts are suggesting people replace the bonds in their portfolios with alternatives. You can listen to episode 56 of the Her Retirement Podcast, What’s Better Than Bonds, to further understand what’s happening with bonds and what are some alternatives.

Bonds include: 

  • U.S. government securities 
  • Agency bonds 
  • Municipal bonds 
  • Corporate bonds

Now I’m going to go over Stocks. 

When you buy company stock, you’re actually purchasing a share of ownership in that business. Investors who purchase stock are known as the company’s stockholders or shareholders. Your percentage of ownership in a company also represents your share of the risks taken and profits generated by the company. If the company does well, your share of the total earnings will be proportionate to how much of the company’s stock you own. 

The flip side, of course, is that your share of any loss will be similarly proportionate to your percentage of ownership. If you purchase stock, you can make money in two ways. First, corporate earnings may be distributed as dividends, usually paid quarterly. Second, you can sell your shares. If the value of the company’s stock has increased since you purchased it, you will make a profit. Of course, if the value of the stock has declined, you’ll lose money. 

Types of stock 

  • Stock is commonly categorized by the market value of the company that issues the stock. For example, large-cap stocks describe shares issued by the largest corporations. Other general categories include midcap, small-cap, and microcap. 
  • Growth stocks are usually characterized by corporate earnings that are increasing faster than their industry average or the overall market. 
  • Value stocks are typically characterized by selling at a low multiple of a company’s sales, earnings, or book value. 
  • Income stocks generally offer higher dividend yields than market averages and typically fall into the utility and financial sectors and other well-established industries. 

Common vs. preferred stock 

Common stockholders hold many rights, including the right to vote. However, common stockholders are last in line to claim the earnings and assets of the company. They receive dividends at the board of directors’ discretion and only after all other claims on profits have been satisfied. 

Preferred stockholders are given priority over holders of common stock when it comes to dividends and assets. Preferred stockholders do not receive all of the privileges of ownership given to common stockholders, including the right to vote. Preferred stockholders typically receive a fixed dividend payment, usually quarterly. For preferred stockholders, there is less return potential than for common stockholders; there is less risk. 

Let’s talk about Mutual Funds. 

The principle behind a mutual fund is quite simple. Your money is pooled, along with the money of other investors, into a fund, which then invests in certain securities according to a stated investment strategy. The fund is managed by a fund manager who reports to a board of directors. By investing in the fund, you own a piece of the total portfolio of its securities, which could be anywhere from a few dozen to hundreds of stocks. This provides you with both a convenient way to obtain professional money management and instant diversification that would be more difficult and expensive to achieve on your own. 

Another concept I want to explain is active vs. passive management 

An actively managed fund is one in which the fund manager uses their knowledge and research to actively buy and sell securities in an attempt to beat a benchmark. A passively managed account called an index fund typically buys and holds most or all securities represented in a specific index (for example, the S&P 500 index). 

The objective of an index fund is to try to obtain roughly the same rate of return as the index it mimics. Funds are commonly named and classified according to their investment style or objective: 

  • Money market mutual funds invest solely in cash or cash alternatives. 
  • Bond funds invest solely in bonds.
  • Stock funds invest exclusively in stocks. Stock mutual funds can also be classified based on the size of the companies in which the fund invests–for example, large-cap, mid-cap, and small-cap. 
  • Balanced funds invest in both bonds and stocks. 
  • International funds seek investment opportunities outside the U.S. Before investing in a mutual fund, carefully consider its investment objectives, risks, fees, and expenses, which can be found in the prospectus available from the fund. Get a copy and review it carefully before investing. 

Now let’s cover Dollar Cost Averaging. 

Many mutual fund investors use an investment strategy called dollar-cost averaging. With dollar-cost averaging, rather than investing a single lump sum, you invest small amounts of money at regular intervals, no matter how the market is performing. Your goal is to purchase more shares when the price is low and fewer shares when the price is high. Although dollar-cost averaging can’t guarantee you a profit or avoid a loss, a regular fixed dollar investment may result in a lower average cost per share than if you had bought a fixed number of shares each time, assuming you continue to invest through all types of markets. 

For example, let’s say you decide to invest $300 each month toward your child’s college education. Because you invest the same amount each month, you automatically buy more shares when prices are low and fewer shares when prices are high. You find that your average cost per share is less than the average market price per share over the time you invested. 

On to another concept called Asset Allocation.

It’s almost universally accepted that any portfolio should include a mix of investments. That is, a portfolio should contain investments with varying levels of risk to help minimize exposure. Asset allocation is one of the first steps in creating a diversified investment portfolio. 

Asset allocation is the concept of deciding how your investment dollars should be allocated among broad investment classes, such as stocks, bonds, and cash alternatives. The underlying principle is that different classes of investments have shown different rates of return and levels of price volatility over time. Also, since other asset classes often respond differently to the same news, your stocks may go down while your bonds go up, or vice versa. Diversifying your investments over non-correlated or low-correlated asset classes can help you lower the overall volatility of your portfolio. However, diversification does not ensure a profit or guarantee against the possibility of loss. 

How do you choose the mix that’s right for you? Many resources are available to assist in asset allocation, including interactive tools and sample allocation models. Most of these take into account several variables: 

  • Objective variables (e.g., your age, the financial resources available to you, your time frames, your need for liquidity) 
  • Subjective variables (e.g., your tolerance for risk, your outlook on the economy) 

Ultimately, though, you’ll want to choose a mix of investments that has the potential to provide the return you want at the level of risk you feel comfortable with. For that reason, it makes sense to work with a financial professional to gauge your risk tolerance, then tailor a portfolio to your risk profile and financial situation. 

Factors that should be considered: 

  • Diversification 
  • Risk tolerance 
  • Investment time frames 
  • Personal financial situation 
  • Liquidity needs

Asset Allocation–Sample Models 

Conservative 

Everyone’s situation is unique. Nevertheless, in general, conservative asset allocation models will invest heavily in bonds and cash alternatives, with the primary goal of preserving principal.

This asset allocation suggestion should be used as a guide only and is not intended as financial advice. It should not be relied upon. Past performance is not a guarantee of future results. 

Moderate 

In comparison, a moderate asset allocation model will attempt to balance income and growth by allocating significant investment dollars to both stocks and bonds. This asset allocation suggestion should be used as a guide only and is not intended as financial advice; it should not be relied upon. Past performance is not a guarantee of future results. 

Aggressive 

An aggressive asset allocation model will concentrate heavily on stocks and potential growth. This asset allocation suggestion should be used as a guide only and is not intended as financial advice. Past performance is not a guarantee of future results. 

How a Financial Professional Can Help 

As you’ve seen, there’s a lot to consider when investing. A financial professional or  retirement advisor can help you: 

  • Determine your investment goals, timelines, and risk tolerance 
  • Evaluate markets and investments 
  • Create an asset allocation model 
  • Select specific investments 
  • Manage and monitor your portfolio 
  • Modify your portfolio when necessary 

 

I hope you’ve found some value in this Investment Basics overview. There’s so much more to investing, but this will give you the basics you should know. I encourage you to listen to Episode 56: “What’s Better Than Bonds?” for an overview of the issue with bonds in a pre-retirees and retirees portfolio. Also, listen to Episode 10: “Retirement Portfolio Design for a Changing Economy.” While Her Retirement does not provide investment advice, we seek to help women understand investing topics so that more information conversation can happen and more informed decisions can be made. It’s all about knowing more and having more. Let’s Get Her Done. Thanks for listening.

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Retirement Strategies for Women

by BlogRetirement Income Planning

Preparing for retirement can look a little different for women than it does for men. Although stereotypes are changing, women are still more likely to serve as caretakers than men are, meaning they may accumulate less income and benefits due to their time absent from the workforce. Research shows that 31% of women are currently or have been caregivers during their careers. Women who are working also tend to put less money aside for retirement. According to one report, women contribute 30% less to their retirement accounts than men.1,2

These numbers may seem overwhelming, but you don’t have to be a statistic. With a little foresight, you can start taking steps now, which may help you in the long run. Here are three steps to consider that may put you ahead of the curve.

  1. Talk about money.Nowadays, discussing money is less taboo than it’s been in the past, and it’s crucial to taking control of your financial future. If you’re single, consider writing down your retirement goals and keeping them readily accessible. If you have a partner, make sure you are both on the same page regarding your retirement goals. The more comfortably you can talk about your future, the more confident you may be to make important decisions when they come up.
  1. Be proactive about your retirement.Do you have clear, defined goals for what you want your retirement to look like? And do you know where your retirement accounts stand today? Being proactive with your retirement accounts allows you to create a goal-oriented roadmap. It may also help you adapt when necessary and continue your journey regardless of things like relationship status or market fluctuations.
  2. Make room for your future in your budget.Adjust your budget to allow for retirement savings, just as you would for a new home or your dream vacation. Like any of your other financial goals, you may find it beneficial to review your retirement goals on a regular basis to make sure you’re on track.

Retirement may look a little different for women, but with the right strategies – and support – you’ll be able to live the retirement you’ve always dreamed of.

  1. Transamerica.com, 2021
  2. GAO.gov, 2021

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2022 FMG Suite.

If you have any questions about women and retirement planning, reach out to Lynn at lynnt@herretirement.com.

 

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Do’s & Don’ts of Finding the Right Retirement Advice

by BlogRetirement AdvisorRetirement Income PlanningRetirement SavingsWealth

First off, I’m NOT an advisor. I’m a retirement researcher, writer and educator. I have a few Do’s and Don’ts to consider as you begin planning your retirement and finding the right person/people to help you go from Savings (401k, etc.) to Security (creating an income for life from your 401k).

  1. DON’T listen to a neighbor, a friend or even that friendly financial/investment advisor who’s probably not well versed in retirement planning and is biased toward investments. The insurance advisor is biased toward insurance. And the big companies in both camps spend a lot of money to spread their version of the truth. Looks for a “retirement advisor” who’s license in both investments and insurance and therefore, doesn’t have the bias of one vs. the other. They should be dedicated and taking the time to educate you about this retirement planning process and all the strategies they are recommending vs. just saying “it’s a good idea because I said so.” All professional service providers make money….they must be paid like everyone else. Just make sure they are 100% transparent in their fees.
  2. DO listen to retirement researchers, academics and economists who focus on retirement planning and there are plenty.
  3. DO base you decisions on research…always ask Why? and ask for the data to support an advisor’s/friend’s recommendation.
  4. The right answer can only be found by answering a number of questions about you and your goals, along with analyzing what you’ve got, what you’ll have, and what you’ll need. And then finding the best combination of strategies to make your money lasts throughout retirement.
  5. You’ll need to have an open mind as it relates to retirement/distribution strategies because they are completely different than the accumulation phase of life.
  6. The traditional 60/40 portfolio is dead. As you approach and enter retirement, you’ll need a portfolio strategy that reduces your risk, while also being positioned to take advantage of growth. You MUST mitigate volatility in retirement. There are a number of ways to do this. With the current low bond returns, you should seek alternatives. For some that may include Fixed Indexed Annuities. For others, it may be structured investments. Stocks will always be a part of your portfolio, albeit a smaller part.
  7. DON’T work with an advisor who knows nothing about tax planning for retirement…and most CPAs don’t know how to do pro-active retirement planning. A true retirement advisor knows how to integrate tax efficient withdrawal strategies into your income distribution plan so that you keep as much of your hard earned money as possible. This may be one of the most important strategies. Side note: ask them about Roth Conversions…2020 may be a perfect storm for Roths for many people.
  8. DO make sure your portfolio is stress tested and proven to last in ALL market environments.
  9. DON’T let anyone guess as to when you should take Social Security. This accounts for 33% of your income in retirement (in most cases) and must be incorporated into your overall income planning. The answer as to when depends on a lot of factors. Also, Social Security must be included in your tax picture as well. Since 85% of your benefit could be taxable without the right planning.
  10. DO find out if they are aware of MAGI and Medicare (and the impact on how much you’ll pay for Medicare). Make sure they have resources to help you navigate the Medicare maze.
  11. DO find out if they help you find ways to fund a Long Term Care policy, if needed?
  12. DO consider a reverse mortgage as an emergency income buffer…this is a perfect example of when having an open mind is important. Find out what the retirement academics say about reverse mortgages. And, no, they can’t take your house away if you follow some basic rules, like paying your taxes. And no, the bank doesn’t own your home. Take the time to find the facts vs. listening to hearsay.
  13. DO find out if the advisor you’re considering working with has a team of providers to help you with other ancillary needs.

I do believe it’s impossible for the layperson (and most of the 300,000 financial advisors in this country), to do ALL of the proper retirement planning that must be done to improve and secure your retirement outcome.

Fortunately or unfortunately, advisors, like many other for-profit companies have to make money. But, with the right advisor you won’t question their fees…their value will be evident in everything they do for you. DO make sure they are committed to spending whatever time you need to be 100% confident in your plan and are acting in your best interests. And there’s nothing wrong with checking their references.

Finally, most of us have good intuition when choosing our professionals. Get to know him/her. Ask about his/her family. Ask about their perspectives on finances and life. Ask why they do what they do. Find out a lot about this person personally, and then dig into their “retirement planning” experience.

It’s easy for an advisor to give you credentials and pretty reports and look good on the surface. But dig a little deeper and you might be able to discover if he or she is the real deal.

Click here to chat with a RetireMentor to help you connect with a retirement planner or other retirement professional (legal, healthcare, etc.):

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Volatility: What’s the Best Defense?

by BlogIncome PlanningInvestment PortfolioRetirement IncomeRetirement Income PlanningWealth

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.

Crucial Conversations You Need to Have Before Retirement

by Relocating During RetirementRetirement EducationRetirement IncomeRetirement Income PlanningRetirement SavingsUncategorized

Being appropriately prepared for retirement involves far more than simply stashing away money in a 401(k), annuity, or some other savings instrument and walking off into the sunset.

When laying the foundation for one’s golden years, they should also discuss their retirement with a number of key people in their life – such as a spouse or domestic partner, children, employer, and maybe even employees if they’re a small business owner.

Almost all of these people will either be impacted by your retirement or will personally have an impact upon it, making such conversations incredibly important.

“Retiring is a major milestone in a person’s life, and it creates a ripple effect that impacts everyone close to the retiree,” says Marc Diana, CEO of MoneyTips. “Making sure your network is prepared for your retirement is vital to ensuring as smooth a transition as possible.”

Here are some of the key people to engage in discussion, both when you’re planning a retirement strategy and as your departure from the workforce gets closer to being a reality.

Your Spouse or Partner

It is often assumed by couples that they have a shared vision for retirement, or that the vision (even when it is shared) is realistic, says Delynn Dolan Alexander, a financial advisor with Northwestern Mutual.

To check whether you’re actually on the same page about your future plans, discuss what it is that you would like to do once you are no longer working, and whether there’s an expense associated with fulfilling those plans. If there is, how are you planning to pay for it?

Determining where it is you want to live, both the location the type of residence, is also important ground to cover, as is deciding whether you want to continue working in any capacity during retirement, and what your financial priorities will be.

“In other words, are you spending all of your savings, or leaving a legacy for the kids or charity?” explained Dolan Alexander.

Coming to an agreement regarding long-term housing plans is particularly important, stresses Jennifer Beeston, vice-president of mortgage lending at Guaranteed Rate Mortgage. Next to medical care costs, housing is the most expensive and couples vary wildly on what they envision for their housing upon retirement.

“Some people want to stay in their current home while others want to downsize or move to be closer to their children,” said Beeston. “You want to have a game plan regarding housing before you retire as each scenario requires a different set of monthly costs to consider.”

Your Children

Like a spouse, your kids will also likely be impacted by the changing finances associated with your departure from the workforce.

Have a frank discussion with children about your plans, especially if your retirement fund is not as established as you would like it to be, suggests Mark Charnet, founder and CEO of New Jersey-based American Prosperity Group.

In that conversation you may find yourself pointing out to your children that you will now be on a fixed or reduced income and that although you’d like to be as generous as you may have been in the past, it will no longer be possible. Charnet even suggests telling your children that they should no longer ask you for money.

Another important topic to cover with children prior to retirement is your housing plans.

“Many people are surprised at the vehemence with which children are attached to an old childhood home, or conversely many retirees hold on to homes even though children have set up independent lives and households elsewhere,” says Diana.

Familiarizing your children with your medical directives and providing them with the contact information for your financial advisor, estate planning attorney and CPA, is also advised.

This process can be simplified by establishing an online vault for all of your important documents and giving your children access, says Brian Saranovitz, co-founder of Your Retirement Advisor.

“While not everyone will be comfortable sharing their financial details with children, it’s good to give them some insight into your financial preparations for retirement and any financial directives in your will,” adds Saranovitz. “Sharing your plan will not only help them upon your death, but also during your retirement if you need assistance. It can also teach them some valuable lessons about preparing well for retirement.”

Your Employer

There’s no getting around it – employers have a profound impact upon retirement. During working years, an employer plays a key role in the growth of your nest egg. And as retirement nears, it’s time to find out if there are any company policies that may impact pensions or other retirement income.

“It’s important to seek help from your employer on transitioning out of the workplace and making sure you understand your options with your company 401(k) or pensions, profit sharing, and healthcare options,” said Saranovitz. “If your employer doesn’t offer these services, a financial or retirement planner can help you, especially with the options for rolling over your 401(k).”

Additionally, it’s a good idea to give your employer ample notice of your planned departure date. “A rule of thumb is that for however many years of experience an employee has, that’s how many months it takes to replace him or her, so the more warning you can give your employer the smoother the transition will go,” suggests Diana.

Financial Planner or Advisor

Retirement can seem like a dark cloud hanging over many people’s heads. Not because we don’t want to retire, but rather because of the money questions surrounding that all-important distant horizon.

Fears about retirement preparations need to be faced head on, and a financial planner can help, says Dawn-Marie Joseph, founder of Michigan-based Estate Planning & Preservation.

“Most people dream about not going to work every day and having freedom from their alarm clock. But when you think of retirement and the amount of money you have or have not saved, it can be overwhelming,” says Joseph. “There’s no time like the present to think about and act on the savings you will need for retirement.”

Begin by creating a draft retirement budget for yourself and then meet with a financial planner to help map out a solid game plan that includes helping your money last for as long as you think you will need it. Bring your spouse or partner to that meeting with your financial planner, and work as a team to put together a realistic, long-term financial strategy.

“The last thing you want to do is outlive your savings,” says Joseph. “Retirement savings can be accomplished. It is all about planning to get it done.”

To find out if you’re having the right conversations to plan for retirement, or how to have those conversations please email us at lynnt@herretirement.com or call 508.798.5115.

3 Ways to Cut Your Investing Fees

by Investment PortfolioRetirement IncomeRetirement Income Planning

In this U.S. News & World Report online article Your Retirement Advisor co-founder, Lynn Toomey discusses ways to cut fees and add more life to your portfolio.

Brian provides his take on what steps investors can take to reduce fees, beginning with education. “We believe that in order to reduce costs, one must be committed to getting educated: doing research and questioning your advisors on their strategy and fees,” says Lynn Toomey, co-founder of Her Retirement, in Leominster, Massachusetts. “If you’re a do-it-yourself investor, you’ll need to do much more research to understand the particular investment options, their performance and their fee structure.”

The article goes on with additional comments from Brian about hard to find fees in various investments. “Saranovitz says that hidden fees are especially difficult to uncover with most funds. “Look through the details of a prospectus and you won’t even be able to decipher all of a fund’s fees,” he says. “The internal transaction fees and commissions paid by mutual funds are typically not disclosed.”

Brian also provides insight for DIY investors suggesting the use of passive index funds, “Whether you’re doing your own investing or working with an advisor, you can fight back fees and potentially receive higher returns by utilizing a combination of low-cost passive index funds and ETFs, and actively managed funds,” Saranovitz says.

“Here’s how he breaks that strategy down:

  • Index funds and exchange-traded funds typically use passive indexes and charge a fraction of the fees that most active money managers charge. They also have low turnover in their portfolios keeping costs low. However, while less expensive, these funds won’t outperform the index.
  • Actively managed funds are managed to outpace the indexes and are appropriate for investors who are concerned about losses in a down market since these managers can use strategies to guard against this risk. It’s critical to pick active managers with care, choosing those with low fees and positive results in both negative and positive markets, as well as those with low turnover (which is the percent of holdings that are bought and sold each year).”

And finally, Brian’s comments end with his input on reducing fees when working with an advisor, “If you’re working with a professional investment advisor, you’re best served by working with the lowest cost, highest quality advisor you can find, Saranovitz says. “But beware the industry is plagued with high-fee advisors,” he says. “According to industry data, advisor fees average 1.65 percent and can go as high as 2 percent for a $500,000 portfolio, which is definitely an expensive proposition.”

“There are more client-friendly advisors and fee structures, but you need to do a little more research to find them. Look for an advisor who offers either a flat rate fee or a deeply discounted annual percentage fee based upon assets under management,” Saranovitz says.

The article finishes with a sentiment that Brian wholeheartedly believes in (as evidienced in his comments in the article) and shares with his students and clients , “Long-term investors really can’t afford to lose up to 40 percent of their portfolio’s value to high fees.  So, take a stand, get educated, and fight back on high investment fees. Decades down the road, when you’re counting your money in retirement, you’ll be glad you did.”

Read more about our perspective on fees, access a fee checklist to share with your advisor or get the details on our affordable and flexible fee structure.

Request a complimentary fee analysis of your portfolio  today or call us at: 508.798.5115

 

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

by Health InsuranceIncome PlanningLong term careRetirement AdvisorRetirement IncomeRetirement Income PlanningRetirement SavingsUncategorized

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.

Why Simply Saving for Retirement Isn’t Enough? Part 1

by Income DistributionIncome PlanningInvestment PortfolioRetirement IncomeRetirement Income PlanningRetirement Savings

The other day I was having lunch with a friend and we were talking about retirement and the services that Her Retirement provides. She mentioned that she’s been very good about saving money in her 401(k) and said, “I’m all set for retirement.”

This comment made me realize that the average person might also believe the same thing. Many people think they’ve worked hard for 20, 30, 40 years and they’ve saved quite a little nest egg. Retirement plan done. No need to do anything further, but keep working until you feel ready to retire and give your boss or your business the boot.

Well folks, sorry to break it to you, but this is NOT a retirement plan. It’s certainly a great start and if you have more than 4x your salary saved and your 50 let’s say, you’re in pretty good shape, savings wise. However, when you move from the accumulation phase of life (pre-retirement) and into the de-accumulation phase (retirement), you need a comprehensive plan that includes sophisticated strategies to protect you from all the inherent risks you’ll face in retirement. There’s so many things that can go wrong in retirement. You MUST be prepared. And the best way to be prepared is to be pro-active…either learning about the risks and methods to minimize them, or work with a retirement specialist like Her Retirement to understand the blind spots and then put fortification around your savings so that it lasts throughout retirement.

With the right plan and strategies, you can not only mitigate risks, but you can actually make your savings last even longer in retirement (up to 10 years or more). In our full Retirement Income Projection Analysis, we show you the impact (and importance) of:

  • Re-allocating your portfolio (to include less risk/safe money options, improve your investment return and significantly reduce fees)
  • Reducing your taxes as close to 0 as possible
  • Maximizing your Social Security filing strategy to get the most money from this critical benefit
  • Determining your most tax efficient withdrawal or draw-down strategy

 

In our next few series of posts, we’ll dig a little deeper into what can go wrong in retirement and more reasons why simply saving for retirement is not good enough. Stay tuned.

In the meantime, we welcome you to learn more and take one of our new e-classes; try our QuickStart Income Calculator/Report, request a complimentary “Am I Ready” assessment or any of our other free or fee-based assessments.

What’s Your Retirement I.Q.?

by Retirement EducationRetirement Income Planning

Most Americans Fail Retirement Planning Literacy Quizzes…How Do You Compare?

Americans are woefully uninformed when it comes to retirement planning and more specifically when it comes to income planning, which is perhaps the most important planning you will do for your retirement.

At Her Retirement we believe that helping to educate individuals and families about retirement planning, investing, estate planning and other important financial topics is an integral part of helping people live the life they desire now and in retirement.

According to The American College of Financial services, roughly 75% of survey respondents failed a 38-question retirement planning quiz. In addition to the failure rate, only 6% of survey participants scored an A or B. According to David Littell, the Retirement Income Program Co-Director at The American College, “the results are alarming and a stark reminder of the need to be prepared for the decades in retirement when you are not earning a steady stream of income.”

The survey asked Americans aged 60-75 with at least $100,000 in investable a series of questions covering a variety of important retirement topics such as when is the best time to retire; how to maximize Social Security; employer-provided benefits, and how much can be safely withdrawn from a portfolio. All of these issues are deemed critical in the retirement planning process, particularly when planning income. The survey is similar to a 2014 survey in which the literacy results yielded similar results. The research surveyed a total of 1,244 Americans between February 16, 2017 and March 1, 2017. The literacy rate survey had a sampling error at the 95% confidence level of +/- 2.8%.

Although a majority of the respondents failed the quiz, many people perceive themselves to be much better educated on retirement planning topics than they really are. As an example, nearly two-thirds believed they were highly knowledgeable on the subject of retirement planning. Experts agree, this overconfidence could lead to retirement planning problems, as many believe they know more than they do when it comes to retirement planning.

Women faired more poorly than men (17% vs. 35% score) which is somewhat troubling for women as they face even greater retirement obstacles such a longevity and lower lifetime earnings. Those participants with higher levels of wealth and education fared better on the quiz. Littell noted that, “the drastic demographic differences are unsettling because all Americans – regardless of background – deserve to live out their retirement comfortably. This divide underscores how important it is for everyone to plan ahead.” These differences in affluence, education and literacy indicate the need for social programs to help all Americans have access to retirement education and planning resources.

In another recent retirement planning study by Fidelity, respondents were asked eight questions about retirement, including the estimated amount of savings they would need, what percentage of savings should be withdrawn each year, and how many years someone retiring at age 65 should expect to live in retirement. In addition to most of the participants getting the questions wrong, the study also proved that retirement myths and misconceptions hold many people back from having the right retirement plan in place.

So does retirement literacy really matter? And is it a determinant of retirement success? According to the research, it appears that retirement literacy leads to better planning, higher confidence, and improved retirement planning satisfaction. For those survey participants with a passing grade, they were most likely to have:

  • a long-term care plan in place
  • more likely to feel confident managing their own investment assets
  • more likely to have an estate plan
  • more likely to have a comprehensive written retirement plan, and
  • higher confidence in their assets lasting throughout retirement

So it’s clear that knowledge does lead to more confidence in retirement which leads to less stress, which leads to better health. We encourage everyone to learn more about retirement planning…sooner rather than later. There’s a myriad of things you should be doing to prepare for your retirement where time is your greatest asset.

In addition to making an effort to learn more, we believe that it’s important to seek out the assistance of a retirement specialist who can both guide you and implement a plan with the proper research-backed strategies. Before you hire anyone, make sure you do your due diligence, get referrals, talk to a number of advisors, check out their education and credentials, and understand how they are compensated. Read more about Why Her Retirement affiliated advisors are better here

 

Take the American College IQ Test Here

Take the Her Retirement IQ Test Here

Here’s the 8 Fidelity questions…Are you able to answer them?* Contact us for the answers (info@herretirement.com)

  • Question#1: Roughly how much do investment professionals estimate people save by the time they retire?
  • Question #2: How often over the past 35 years do you think the market has had a positive annual return
  • Question #3: If you were able to set aside $50 each month for retirement, how much could that end up becoming 25 years from now, including interest if it grew at the historical stock market average?
  • Question #4: Given the current average life expectancy, if you want to retire at age 65, about how long would you need your retirement savings to last?
  • Question#5: Approximately how much did the average monthly Social Security benefit pay in 2016?
  • Question #6: About what percentage of your savings do many financial experts suggest you withdraw annually in retirement?
  • Question #7: What do you think is the single biggest expense for most people in retirement?
  • Question #8: About how much will a couple retiring at age 65 spend on out-of-pocket costs for health care over the course of retirement?

*Fidelity Retirement IQ Survey, 2017

What is an Annuity & Why Should I Consider Them for My Retirement Plan?

by Income DistributionIncome PlanningRetirement IncomeRetirement Income Planning

Annuities can be a valuable component of your retirement plan and income during your retirement…depending upon your goals and objectives. Like all strategies we review here in our blog, we strive to provide objective, independent and truthful information.

What is an annuity and how can it benefit you? Annuity contracts are purchased from an insurance company. The insurance company will then make regular payments — either immediately or at some date in the future. These payments can be made monthly, quarterly, annually, or as a single lump-sum. Annuity contract holders can opt to receive payments for the rest of their lives or for a set number of years. The money invested in an annuity grows tax-deferred. When the money is withdrawn, the amount contributed to the annuity will not be taxed, but earnings will be taxed as regular income. There is no contribution limit for an annuity.

There are two main types of annuities:

  • Fixed annuities offer a guaranteed payout, usually a set dollar amount or a set percentage of the assets in the annuity.
  • Variable annuities offer the possibility to allocate premiums between various subaccounts. This gives annuity owners the ability to participate in the potentially higher returns these subaccounts have to offer. It also means that the annuity account may fluctuate in value. Indexed annuities are specialized variable annuities. During the accumulation period, the rate of return is based on an index.

Watch this video to learn more about Indexed Annuities and how they can help your retirement plan.

Case Study: Robert’s Fixed Annuity

  • Robert is a 52-year-old business owner. He uses $100,000 to purchase a deferred fixed annuity contract with a 4% guaranteed return.
  • Over the next 15 years, the contract will accumulate tax deferred. By the time Robert is ready to retire, the contract should be worth just over $180,000.
  • At that point the contract will begin making annual payments of $13,250. Only $7,358 of each payment will be taxable; the rest will be considered a return of principal.
  • These payments will last the rest of Robert’s life. Assuming he lives to age 85, he’ll eventually receive over $265,000 in payments.

Robert’s annuity may have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. His annuity also may have surrender fees that would be highest if Robert took out the money in the initial years of the annuity contact. Robert’s withdrawals and income payments are taxed as ordinary income. If he makes a withdrawal prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

If you’d like to chat with an affiliated advisor about annuities and incorporating them into your retirement plan, let us know by requesting a 1-on-1 discussion. We’re happy to help.