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Stock Market Concerns

In this week’s podcast I’m talking about the growing concern over volatility in the current stock market and a question that’s on the top of everyone’s mind: Is this the beginning of the end? That is the end of the bull market we’ve enjoyed for the last 12 years. Or is this simply a short term fluctuation. Well, no one knows for sure. And how the market performs is not something we as investors can control. But, one should understand what market volatility is along with another term sequence of return risk. For those new to investing, a bull market is loosely defined as a persistently sloping upward line. During a bull market, market confidence is high and investors are eager to buy stocks with the hopes that their stocks will grow in value. During a bear market, it’s quite the opposite, invest want to sell their stocks because of fear and anxiety that the market will crash.

As an investor, there’s also some tried and true things you should do and not do during a roller coaster ride in the markets. And if you’re an individual nearing retirement or just in retirement, this type of market can be disconcerting. There’s definitely some strategies and behaviors you need to consider.

In the words of Warren Buffet…

“The stock market is a device to transfer money from the impatient to the patient.”

Let’s start with a quick review of volatility and sequence of return risk…

When we witness market volatility it’s very unsettling, even for the most astute investors. Many things affect the swings of the market and some of these affects are short term blips while others can lead to longer term bear markets.

The question right now is, should we all be worried and what, if anything should we do about it? There’s a saying on Wall Street that “stocks climb a wall of worry.” Which means that investors are always worried.

Even with the effects of volatility and sequence of return risk, which I’ll talk about after volatility, the stock market has always come back and outperformed other investment options over time. The truth is that there is always something to worry about, but stock and bond markets remain resilient if you have patience and are willing to stay the course. This is the good news.

The bad news is that many investors react the wrong way to volatility and make bad, knee jerk reactions. It’s part of behavioral finance and one of the main benefits of having a financial advisor. He or she can help you stay the course in times of turbulence, which by the way is the best advice…strap in and stay the course. The market has averaged (with all its volatility), 9% rate of return since 1970, which means if you invested a dollar in 1970, you’d have close to $70 today.

Market volatility is a side effect of investing. To enjoy higher returns, you need to assume more risk. However, that risk comes with having the stomach to weather some potential large swings, and often losses, during a given time period. In fact, people are stressing about a 4, 5 and even 10% market drop during this week, but market declines of 10% or more during the year are actually quite common. In the last six years alone, we have seen four years with intra-year losses of more than 15%. And despite the ups and downs, the Russell 3000 (which is another market like the S&P 500) rewarded disciplined investors with an average annual return of over 9% since 1980. The goal isn’t to time the market. In fact, it’s impossible to time the market. Your goal should be to invest in the market, ride out the ups and downs and reap its rewards.

One financial investment company I researched stated this, “If we look at individual investors and their track record, the average equity (stock) investor trailed the S&P 500 over a 30 year period by more than 4% per year as of December 31 of 2020. Missing a 4% compounding return over decades can be devastating to your wealth. Why does it happen? The average investor thinks that they will sell before the downturn and then buy when things are better. However, reasons to worry and volatility always persist so they end up selling and getting back in at the wrong times.

Missing only a few days of returns can dramatically affect your investment outcomes. For example, from 2000 to the end of 2020, a $10,000 untouched investment would have grown to almost $43,000. Missing only the 10 best days out of almost 5,000 trading days would have cut your potential growth by more than half, and your investment would only be worth about $23,000.

Market timing sounds like a reasonable strategy, but it never works consistently to your advantage over time. Professional and individual investors alike only hurt their long-term performance when they try.”

Let’s me explain volatility a bit more…

When in retirement and withdrawing income from your portfolio, it’s imperative to reduce portfolio volatility. Recent studies have proven that when withdrawing income from a portfolio, the portfolio with lower volatility will experience a longer lifespan than one with higher volatility. A recent study completed by Sure Dividend titled Why You Must Care About Volatility in Retirement concluded that “simply put, the greater the volatility of your portfolio, the greater chance you have of outliving your money all other things being equal. By its nature, higher volatility means greater swings in the value of your portfolio.”[1]

Standard deviation is a statistical measurement that can be applied to assess a portfolio’s volatility or risk level. It is used to determine how much the returns of a portfolio will deviate from the mean or average rate of return from year to year. The higher the standard deviation number, the higher the volatility or risk in a portfolio.

The higher the standard deviation or risk, the shorter a portfolio will survive when taking withdrawals. The math proves that the portfolio with the lower standard deviation or risk will last longer when taking withdrawals for income in retirement, all other factors being equal, as shown in the following chart.

  

Sure Dividend Study Results

 

Simply put, the greater the volatility of your portfolio, the greater chance you have of outliving your money all other things being equal.”

–Sure Dividend Research Study

The Sure Dividend study assumed the following:

  • Retirement portfolio value: $1,000,000
  • Withdrawal amount: $3,333 per month or $40,000 annually (4% withdrawal rate)
  • Inflation factor: 3% increase per year
  • Rate of return: 9%
  • Retirement duration goal: 30 years (age 65–95)

The results of the study concluded that the higher the standard deviation or volatility in a portfolio, the greater chance of portfolio failure or financial ruin. As standard deviation or volatility was lowered, portfolio failure rate was decreased and a higher degree of success (or portfolio survival) was realized.

Now I’ll give you a little background on sequence of return risk…which is a risk every retiree must be aware of and plan around.

Sequence of return risk is a major risk that must be mitigated by retirees when beginning to take withdrawals from their retirement portfolio. Sequence of return risk is defined by Investopedia as, “The risk of receiving lower or negative returns early in a period when withdrawals are made from an individual’s underlying investments.” Dramatic portfolio losses early in retirement will reduce the lifespan of the portfolio. Understanding this requires a different way of thinking than when money is invested while accumulating for retirement (without any withdrawals). In the accumulation phase, the sequence of return makes no difference; at the end you wind up in the same place with the same dollar value.

While sequence of return risk cannot be controlled any more than market volatility, its effect can be mitigated. Having a safe money bucket of funds to draw income from in the event of a dramatic downturn in the stock market can be an effective strategy to protect the portfolio from negative sequence of return risk. Research studies have concluded that having this buffer to draw from when market losses occur can have a positive effect on the long-term survivability of the overall portfolio.

A major psychological benefit of the income buffer strategy is that it will enable a retiree to withstand the temptation to exit the stock market with their retirement funds during a period of market losses, which might put the retiree in a market timing guessing game. Such an approach often leads to selling at the market low and buying at the market high and dramatically underperforming a long-term buy-and-hold strategy. Numerous studies have shown that the average investor has dramatically underperformed the market returns due to irrational selling and buying decisions.

As an example, during the 2007–2009 stock market downturn, having a safe money buffer or reserve account to withdraw income from (until the stock portion of the portfolio rebounded) would have been a positive step to protect against negative sequence of return risk. As a reference, in an article dated February 2015 by Wealthfront’s Andy Rachleff and Duncan Gilchrist, PhD, the 2007–2009 market loss was 56.39% and took the market 1,485 days or 4.06 years to recover. Since 1911, the average recovery time after a stock market downturn has been 684 days or 1.87 years![2] Based on this fact, it’s prudent to have a buffer in place three to five years before retirement begins, and it should cover approximately four to five years of retirement income. 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 negative effect when there is a stock market downturn.

Portfolio losses just prior to retirement or early in retirement can have a dramatic effect on portfolio survival rates and having a safe money buffer in place can have a substantial effect on reducing potential negative sequence of return risk.

Let me wrap this section of the podcast up by saying that the goal of investing is not to achieve the highest rate of return possible. It’s to achieve an appropriate level of return with the right amount of risk that will allow you to stay invested through both the good times and the bad. The level of risk that is right for you and your plan is very individual decision.

This is one reason why people approaching or in retirement invest differently. Most retirees, I would say want more stability and less risk, while still having some exposure to stocks for long-term growth.

If volatility is unsettling for your situation, keep in mind that you can make adjustments to how much risk you take. It’s not an all-or-nothing decision. It’s possible to find a portfolio strategy that protects you from too much risk and still take advantage of returns from growth. Yes, you can have your cake and eat it too. And this is where I’ll put in a plug for the Hybrid Income Portfolio…it’s definitely worth checking out if you’re concerned with the current markets and are approaching retirement or are just in retirement. Our friends over at Your Retirement Advisor created the Hybrid Income Portfolio. While I can only educate you on research backed investment information, they can explain and advise you on your specific situation and concerns. Just email me at: lynnt@herretirement.com and I can connect you.

Benjamin Graham, British economist, professor and investor has stated this suggestion, “The best way to measure your investing success is not by whether you’re beating the market, but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” Sage advice indeed.

To wrap this up for this episode let me leave you with a few thoughts….

During times of turmoil, the hardest thing to do is to stay the course, but this approach is critical to achieving long-term investment outcomes. There are some opportunities in times of market fluctuations. Market volatility can create opportunities through portfolio rebalancing, tax-loss harvesting, and even buying when stock valuations are low. Talk to your investment or retirement advisor about these opportunities.

Next, focus on what you can control. You can’t control interest rates, inflation, the markets, changes in tax policy, or the economy. But…you can control how you prepare for these risks and how you react when they happen. And guest what? They will happen. The best defense is a good offense that incudes a comprehensive financial plan that includes your investment strategy, retirement income strategy and a plan to make it all last as long as you do. As Sylvia Kwan, Ellevest’s Chief Investment Officer, explains: “Over the past 93 years, the stock market has gone up by an average of nearly 10 percent a year. But it didn’t go straight up!”

You’ll also want to make sure you’re diversified. Be patient and focus on the long term. As my mother always says, “This too shall pass.” According to Marketwatch: “There has literally never been a 20-year period in the past century or so that has resulted in a negative return for stocks.”

Next, try a Jedi mind trick…shift your thinking…it’s no where near a crash or significant downturn. It’s a sale. Perhaps there’s some buying opportunities. Finally, turn off and tune out the noise and prognosticators. Don’t spend all day looking at your portfolio. It’s a waste of precious time.

Finally, life always give us “stuff” to keep us up at night. Don’t let the stock market be one of them. There are ways to protect your money from downside risk and help you sleep better at night. Reach out if you want more information on this sleep insurance or any investment help, I can connect you to people that are registered and qualified to help. lynnt@herretirement.com.

Here’s to resiliency, staying the course and getting her done. Remember: worry doesn’t look good on anyone.

 

Sources:

*Average Investor as determined by Dalbar. Source: “Quantitative Analysis of Investor Behavior (QAIB), 2021,” DALBAR, Inc. www.dalbar.com.

 

Source: Russell 3000 Index returns from 1980 through January of 2022.

 

[1] “Why You Must Care About Volatility in Retirement,” Sure Dividend, October 14, 2014, https://seekingalpha.com/article/2560525-why-you-must-care-about-volatility-in-retirement?page=2).

[2] “Celine Sun and Andy Rachleff, “Stock Market Corrections: Not as Scary as You Think.” Industry Insights, accessed January 11, 2017, https://blog.wealthfront.com/stock-market-corrections-not-as-scary-as-you-think/.

 

Check out the podcast episode here!

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Strategies to Optimize Your Retirement Plan

Hello and welcome to the Her Retirement podcast. I am your host Lynn Toomey, and here in my podcast each week, I talk about how to live a better, more intentional, and financially secure life now and in retirement. Whether you’re single, suddenly single or partnered up woman, your only sure investment is an investment in yourself and finding financial wellness, also known as financial security. Isn’t just a dream. It’s a decision. And when you decide to make a commitment to yourself and change your financial destiny, our fresh modern platform will help you know, more and have more now and in retirement. Welcome to her retirement. Welcome to my no more, have more financial wellness platform and welcome to my podcast. Are you ready to get her done? Let’s do this

In this week’s episode of the, Her Retirement podcast I am speaking to Brian Saranovitz of Your Retirement Advisor. He also happens to be my significant other, and this was done during a zoom chat that we had with people that attended our Retirement Power Hours masterclass. And after attending the class both live and on demand, we offered a December, 2021 live Q and a session. Brian kicked off that session with a discussion of what he calls Multi-Discipline Retirement Strategies or MDRS. And these are little known retirement optimized strategies that many people can deploy in their plan to really improve their retirement outcome. I think it’s really, really important topic. And we’ll give you some ideas and strategies that you may not have heard before. So definitely throw on some headphones, go for a walk, ride your bike. Sit back, take a listen and learn about MDRS and if some of these strategies can help your retirement

Hey there officially, if you haven’t met me before, I’m Lynn Toomey, I’m your host and co-creator of both Her Retirement for those people who are coming to us from that program and the Retirement Power Hours masterclass. And joining me is Brian Saranovitz, and he’s the co-creator of Retirement Power Hours and the president of Your Retirement Advisor. So just really quick, Brian, in addition to teaching, Brian is a retirement advisor to many pre and post retirees. Your Retirement Advisor is what we call a one stop retirement advisor practice. And he really focuses on people, you know, 50 to 70. I think your sweet spot is people like five years from retirements is where I’d probably, I’d probably say 55 to 70 or so. Yeah, I mean, we have worked with, people in their mid-seventies and so depending on how long they’re planning to live, but in many respects people planning to live to 95. So even if you’re 75, you still have 20, 25 years to go, you might as well make them an efficient 25 years. And you got some 30-year-olds who are focused on, those retirement plans.

Yeah, I do. I do have younger clients as well. yep, we do. We don’t discriminate by age, but, uh, <laugh> the vast majority I would say are between like 55 and 70. Yep. Services are offered across the United States. Although there’s some physical offices here and Massachusetts, for those that are close enough, we could actually meet you face to face at some point. But, you know, Zoom is just as good for that. We call Brian the resident retirement geek. He’s an investment advisor representative and an RIA with over 35 years’ experience. And he also has a tax planning company, and he’s a former professional football player. I think in one of the emails we alluded to not asking him any questions about the NFL playoff prospects or this week’s Patriots game, but you can stick around and do that at the end if you’d like to ask those questions.

So, I wanna start off with a couple things. 70% of people give up many retirements income benefits because they don’t know all the facts. So, it’s great. You’re here to get some questions answered and don’t give up those income benefits because you don’t learn the facts. If nothing else you’ve attended our classes or if you haven’t or you going to down the road, either on demand or live, you make sure you learn as much as you can about all of this stuff so that nobody pulls the wool over your eyes. And you go into retirement with a full understanding of what it is you’re doing and why you’re doing it. 81% of people don’t know how much income they need to retire. And that’s an issue, you need to know that. And 85% don’t have a written retirement plan.

So, Your Retirement Advisor and Retirement Power Hours, and Her Retirement were created to help change this for people. So my question is, do you have the right plan? It’s December, right? New year’s resolution, it might be, I’m going to get a written plan. It’s a great resolution. But the question also is, is your plan efficient. Brian’s gonna talk about efficiency and his offer to all participants tonight is he wants to do a Retirement Efficiency Assessment, because you know, why not over the holidays, right? He may have a little extra time, although he always thinks that December’s gonna slow down and, and never seems to slow down at all.

<laugh> I really don’t have extra time. <laugh>, you know, I am very, very, very, very busy and, which is good. I love it because I’m helping a lot of people and, keeping things moving forward. But, no, that’s good. But, yep, the Retirement Efficiency Assessment is a very, very important piece. You know, one of the things I was thinking, as you said, most people don’t, or many people don’t have a plan, I guess you don’t need a retirement plan. If all you have is social security income and a little pension, but if you’ve got you 250, 400, 500,000, a million, $2 million, I mean, and, and we see all those types of people. If you’ve got some money that you’ve put away over the years, you’ve got some social security income, some pension income, so on and so forth, you know, and a nest egg that you built up in your 401k, you really need to have of some sort of plan, at least look at some sort of plan.

So, I think that’s very important. Like I said, if you don’t have, you know, you got, you know, $200,000 in an IRA or a 401k, and you’ve got, your social security income, you maybe don’t need a plan. But you know, I had one gentleman the other day, he said, gee, if I didn’t have all this stuff, I wouldn’t need to plan with you. And I said, absolutely. So, I think, you know, once again, there was, as we’ll talk about in a minute, there’s a lot of things that you can do to better your retirement outcome. That’s the bottom line. And once again, thank you everybody for being here. You know, I really enjoy teaching and, and going through these things. But as it says, as it says here, the right retirement plan is more than a 401k investment strategy.

And this is so true. I think, you know, a lot of people, will have you believe. And, you know, I work with Fidelity. I work with Vanguard. I work with T. Rowe Price. I work with all the investment companies, but if you go directly to them, they’re gonna tell you that, you know, all you need is a 401k stock and bond portfolio, and we’ll run a couple projections, tell you how much you can generate for income. Here’s your social security. And that’s just a projection. There’s no planning to that. And they’ll say, you know, you got your 401k, your social security, maybe a little pension, just call it a day. And this is what you can do. There is much more than just a 401k or an investment strategy. As it says here, the right strategy incorporates a portfolio that will reduce risk and volatility in increased growth.

You also need a proper investment strategy. You know, you also need a proper investment strategy that will, you know, take you through to the end. You also need to incorporate tax efficiency, tax efficient, distributions tax, efficient income, which is another component that is going to make you more successful, get a better retirement outcome when taking money from your portfolio and incorporating that tax efficiently. You also need to protect, and this is something that’s very important is we can create the best we can create the best income plan, the best income strategy ever known demand. And if you have a long-term care event or some unforeseen situation and you haven’t done the proper risk management strategies looked at your long-term care insurance, so on and so forth, that can decimate the best of plans. And also, you should have a properly drafted whether it’s just wills or revocable trusts or irrevocable trust, maybe to protect from long term care situations.

So, there’s a number of facets that are gonna make sure that you need to incorporate to be as efficient as possible and get the best outcome. But then also, so make sure that you know, when you have this plan put together that you’re also protecting the plan, you’re also protecting the plan through estate planning and risk management. Okay, this does this all the time. There we go. I know why it does that.

All right. So this is a very, very important quote. And I hope you take this to heart, cuz I think this is very, very, very important. One of my favorite retirement planning quotes, and this is from a gentleman, Wade Pfau, Ph.D., he is one of the foremost retirement researchers in the industry. I don’t know if anybody else has ever heard of Wade Pfau, Ph.D., but Wade, like I said is one of the foremost retirement researchers. He also is a, he writes the curriculum. He writes much of the curriculum for the CFP certified financial planning classes, at the American College, that’s where CFPs get designated as a certified financial planner. So he trains CFP certified financial planners. And ultimately this is his quote. Most advisors concentrate solely on managing investments. They don’t incorporate all the intricate retirement strategies. As I said, they don’t incorporate all the intricate retirement strategies that must be utilized to dramatically increase the probability of a retiree success. And that’s one of the reasons why we said earlier, I said earlier, you know, it’s much more than just an investment strategy. I don’t care. Anybody tells you there are many as Wade Pfau says, there are many intricate strategies that can be utilized to increase and better your outcome.

All right, I’ve boiled it down to, there are many strategies out there. But I’ve boiled it down to the five that are most important to try to. Now all of these strategies are not going to be incorporated in everybody’s plan, but you should at least look at each one. That’s what the Retirement Efficiency Assessment that I put together that I run for each individual. That’s what it does is it incorporates and shows us how each of these, what I call Multi-Disciplined Retirement Strategies, MDRS strategies. Each one of these will have a certain effect on your retirement outcome.

So, the first one is what I call Retirement Portfolio Optimization, RPO. This is by reducing the volatility in your portfolio. And there are strategies beyond just stocks and beyond just bonds, stocks and bonds reduce the volatility in your portfolio and is imperative to creating a sustainable retirement income for life. Okay. Very, very important to understand RPO optimizing, optimizing your portfolio, minimizing risk of loss and increasing growth for the risk that you are assuming that’s what retirement portfolio optimization is all about. And it can add years of life to your portfolio when taking income.

Number two, tax efficient income distribution, tax efficiency, take money from your portfolio. Tax efficiently in retirement will reduce taxes and ultimately increase the probability of portfolio survival. Once again, this will increase the amount of spendable income in your pocket that you can put away and make sure that you can actually increase your net spendable income by being more tax efficient and enjoy better retirement or take the same amount of income and leave more on to your loved ones, kids, grandkids, family. So whether you want it to take more income in your pocket and enjoy a better lifestyle and retirement, or leave more money onto your kids and take the same amount of money as you were gonna take before. That’s what tax efficiency is all about.

Social security timing, timing your social security, properly, understanding how social security works. As it says here, proper social security filing and maximizing this very important income source can dramatically increase the probability of a retiree success as well. So once again, social security filing. When should you take your social security? When should your wife take her social security or vice versa? My husband or wife. So ultimately that’s a very, very important question based upon longevity and based upon a number of other factors as to when you should take your social security benefit to get the most. It’s not just that you want to get the most, like most people tell you to take it at age 70 or you’re better off. Some people say you’re better off taking it at age 62. It depends. You must run it in your retirement projection, do some planning around social security timing to make sure you do the right thing. When you take your social security benefit and maximize this very important benefit.

Alpha Efficient Portfolio Management. I don’t have an acronym for this one. Lynn <laugh> I guess we could call this A E P M, that’s good. <laugh> I’m trying to make it AEPM, Alpha Efficient Portfolio Management, simply what this means is it means adding positive money management effect, adding positive management, what’s called Alpha Affect to a retirement portfolio. So for instance, if you have one control fund that basically is investing in large cap growth stocks, another manager that’s investing in large cap growth stocks. So you have a Fidelity fund and a zero price fund. One manager for the same risk gives you a 10% percent rate of return. The next 10 years, one gives you an eight and a half. Well, I’ll take that 10% all day over the eight and a half with that same level of risk. So that’s what Alpha Effect is getting you, above average returns above the index averages. And that’s very important in retirement because if you have 50%, 60%, 40% of your money in whether it’s mutual funds, ETFs, individual money managers, whatever it is, if we’re getting 1% or 2% more from those portfolio managers, because you know how to find them, ultimately that gives you more income again, that’s what this is all about with all of these strategies is creating more in your pocket, spendable income.

And then last, but definitely not least is the prudent use of home equity. Many people have five, especially today with the, with the values of homes. Many people have $500,000 homes, $600,000 homes, a million-dollar homes, and ultimately, they are not taking advantage of some opportunities, opportunities to add that value net equity as either a tax-free income source or are just as a reserve for opportunities or a reserve for emergencies. What am I trying to say? Thank you, Lynn. I was at a shortage for words there, or for opportunities or for emergencies, emergencies. Thank you. And so that’s what you can actually utilize your home equity in retirement. There are many, many ways to do this and leading academic research indicates that the use of home equity in retirement can increase the probability of portfolio survival and increase the legacy to your loved ones.

So, these are what I think are five major strategies that we will look at incorporating in your Retirement Efficiency Assessment report to see do all of these, give you value, can just one of these give you value or whatever.

So ultimately these are things that you should include in your overall retirement efficiency, whether you do it through the Retirement Efficiency Assessment, or you do it on your own very, very important to maximize these. All right.

So now once again, according to several research studies from Morningstar, Vanguard Investments, Morningstar and Envestnet, three major studies were done and it shows that all three studies showed that 3% or more or additional equivalent yield can be added to your safe withdrawal rate. So, let’s just say, for instance, your portfolio makeup, if you have just, ETFs exchange, traded funds or indexed in your portfolio, and that’s all you do, and your safe withdrawal rate is 3%. What this studies, what these studies say is by incorporating some of those strategies we talked about, you could increase your equivalent yield by another 3%. So if you’re earning 6%, you can increase that as much as 9% equivalent yield. So we’ll talk about that. Vanguard, this is Vanguard study, Vanguard did the Vanguard Advisor’s Alpha study. And basically it said by incorporating proper retirement strategies can add as much as 3% equivalent yield. As I just said to your retirement portfolio, Morningstar, Vanguard and Envestnet, as I said, also did some very extensive, studies in research papers and they have differing areas that you can identify to increase your overall, what they call retirement of alpha <inaudible> gamma.

And I think, Brian, you talked about the five, but there’s, there’s more right. Five are the key ones. Those are kind of your, but you know, there’s things like behavioral coaching, right? Studies show investor behavior, investor returns have failed in comparison to what managed money by advisors has done historically, you know, a 2% difference. So, it’s those five plus a few more things that an advisor value can offer as well.

There’s just a lot of other, as I said earlier, the five, I would say what I just went over the five, the majors, the five MDRs strategies, you know, use of home equity and alpha and, and all the rest. Those are five. What I think are major strategies, right? That incorporating can really give a tremendous advantage and a much better outcome if they’re incorporated properly, if they’re incorporated properly into a retirement plan. These are within the Morningstar study, the Vanguard study Envestnet Capital study, shows that there are other strategies that can be employed as well. Mm-hmm <affirmative> so ultimately, yes, that’s absolutely true.

So, Morningstar, now Morningstar research estimates, and this is David Blanchett and Dr. Wade Pfau, who I talked about, work together on the Morningstar report and Morningstar research estimates that a retiree can generate 22.6% more income by employing what they call Gamma Efficient Retirement strategies. Let me put that into perspective. What does it mean to get 22.6% more income? It simply means if you are taking an income of $60,000 and that’s what you’re getting from a traditional stock and bond portfolio <affirmative>, ultimately by employing, additional strategies, like we talked about, what Morningstar said is you can actually add 22.6% more income, or $73,560 inflation adjusted each and every year. So $13,560, more based upon a $60,000 income. Of course, if you’re getting a hundred thousand dollars income, now you’re at $122,600. So ultimately it just means once again, by incorporating strategies, proper strategies in retirement, you can get a heck of a lot more income. That’s the bottom line and retirement efficiency.

And once again, what I always say is yes. I sometimes have individuals come in when we look at their Retirement Efficiency Assessment and they’re gonna make it to age 95 with a traditional 60, 40 stock bond portfolio. And a lot of times, you know, they’ll have, you know, $600,000 initially, and at age 95, and even the worst case scenario, they’ll have a hundred thousand dollars. So they’ll make it with the type of income that they need. But there are many instances that we can increase that income instead of taking $30,000, $40,000 from the portfolio, we could take $50-$60,000 from that portfolio and get the same outcome at age 95.

That’s what the retirement efficiency means. It means squeezing out as much as you can out of your retirement so that you can enjoy a better lifestyle, a better retirement, or leave more money onto your loved ones. Once again, that’s what it’s all about. That’s what efficiency is, getting the most from what you’ve got. I don’t care if that’s $300,000 or 3 million, it’s getting the most from what you’ve got. All right. Retirement Income Readiness is being able to make this statement. And I think this is a great statement. And Lynn, the first time I’ve ever, ever seen this slide before? No, <laugh>, that’s why I was kinda like, oh, what is this? But as I read it, this is, this is exactly, this is perfect. Neither a stock market correction, or a bear market nor a rising interest rates will have a noticeable impact either of the amount of income produced by my portfolio or my ability to keep that income growing. That’s perfect. That’s exactly what setting yourself off properly does. It doesn’t matter whether we have, whether we encounter, the next 10 years are lost decade where the market loses 1% for 10 years, or if interest rates rise by two or 3% over the next five or 10 years, and we lose value in our bonds.

What we wanna do is we want to insulate our retirement from those inevitable events they’re gonna happen. It’s not like when it’s just when they’re gonna happen, not if they’re gonna happen. And that’s what you want to do is you want to insulate your retirement, mitigate these risks so that when you go through it doesn’t matter if the market goes up the next 10 years, like it has the last 10 years, we’re all happy. But if the market goes down, we still want to be happy. So very, very important.

And this is one of my favorite quotes. This is one of my favorite quotes, because this is one of my favorite guys. One of the greatest world’s greatest investors ever, Warren Buffet, he says, and he’s a very statistical probability type guy, kind of like Bill Belichick of the New England Patriots. Very statistical. Don’t go there. Probability football talk, right? You are neither. You are neither. And this is Warren Buffet. Not Bill. You are neither right, nor wrong. You are neither right, nor wrong because the crowd disagrees with you, you are right because your data and your reasoning, your math is right. That makes so much sense to me. Because once again you can hear all this conjecture out there and I’ll call it something else. But I won’t say it, but there’s so much conjecture. You know, there’s, there’s the investment. People say, annuity stink, never touch them. Don’t do that. And then and then the annuity guy will say, never put your money in the stock market. You can lose it all in one day. And that’s all just conjecture. That’s all ridiculousness. What you have to do is you run your numbers, your data, and your reasoning, and your math leads you in the right direction. And that’s exactly what you need to do.

I hope you enjoyed that discussion with Brian Saranovitz again, of Your Retirement Advisor and his discussion about Multi-Discipline Retirement Strategies. And as he mentioned, there is a very valuable retirement assessment that we do want to extend to all of the people that happen to listen to this podcast and would like to take Brian up on his offer of that Retirement Efficiency Assessment. If you are interested in that, certainly email me at Lynnt@herretirement.com. And as I always say, email me with any questions, concerns, any directions you need in terms of getting your retirement right. And as I like to say, you need to go out and get her done. Knowing more is having more. And I hope you learned more today about Retirement Optimized Strategies. Thanks again. And we’ll talk to you next week.

Listen to the podcast episode here! 

Listen to more episodes here! 

 

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A Decision Not Made Is Still a Decision

Whether through inertia or trepidation, investors who put off important investment decisions might consider the admonition offered by motivational speaker Brian Tracy, “Almost any decision is better than no decision at all.”1

This investment inaction is played out in many ways, often silently, invisibly and with potential consequence to an individual’s future financial security.

Let’s review some of the forms this takes.

Your 401(k) Plan

The worst indecision may be the failure to enroll. Not only do nonparticipants sacrifice one of the best ways to save for their eventual retirement, but they also forfeit the money that any employer matching contributions represents. Not participating holds the potential to be one of the costliest indecisions one can make.

The other way individuals let indecision get the best of them is by not selecting the investments for the contributions they make to the 401(k) plan. When a participant fails to make an investment selection, the plan may have provisions for automatically investing that money. And that investment selection may not be consistent with the individual’s time horizon, risk tolerance, and goals.

Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10 percent federal income tax penalty.

Non-Retirement Plan Investments

For homeowners, “stuff” just seems to accumulate over time. The same may be true for investors. Some buy investments based on articles they have read or based on the recommendations of a family member. Others may have investments held in a previous employer’s 401(k) plan.

Over time, we can end up with a collection of investments that may have no connection to our investment objectives. Because of the dynamics of the markets, an investment that may have once made good sense at one time may no longer be advantageous today.

By not periodically reviewing what we own, which would allow us to cull inappropriate investments – or even determining if the portfolio reflects our current investment objectives – we are making a default decision to own investments that may be inappropriate.

Whatever your situation, your retirement investments require careful attention and may benefit from deliberate, thoughtful decision-making. Your retired self will be grateful that you invested the time … today.

  1. Brainy Quote, 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 Suite 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.

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Retirement Seen Through Your Eyes

How do you picture your future? Some see retirement as a time to start a new career. Others see it as a time to travel. Still others plan to spend more time with family and friends. With that in mind, here are some things to consider.

What do you absolutely need to accomplish? If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to pursuing them.

What would revitalize you? Some people retire with no particular goals at all. After weeks or months of respite, ambition may return. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow … and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones.

Who should you share your time with? Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family.” Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family.

How much do you anticipate spending? We can’t control all retirement expenses, but we can manage some of them. The thought of downsizing your home may have crossed your mind. One benefit of downsizing is that it can potentially lead to no mortgage or a more manageable mortgage payment.

Could you leave a legacy? Many of us would like to give our kids or grandkids a good start in life, but leaving an inheritance can be trickier than many realize. Tax laws are constantly changing, and the strategies that worked years ago may have more limited benefits today.

Keep in mind this article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax or legal professional before modifying any part of your overall estate strategy.

How are you preparing for retirement? This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing strategy in light of recent changes in your life, conferring with a financial professional experienced in retirement approaches may offer some guidance. Contact Her Retirement at retire@herretirement.com or call 508.798.5115 to learn more.

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 Suite 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.

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Retirement Security

This week I’m talking about an article I recently saw in Forbes magazine entitled, What’s The Future For The Retirement Security Of Women?

The article is based on interviews done with participants of a recent virtual summit hosted by the Women’s Institute for a Secure Retirement (WISER),

WISER is a Washington-based advocacy group who celebrated their 25th anniversary by looking at how far women have come in their ability to retire well and how far they still have to go. This was one of the questions posed at the summit and it’s definitely a loaded one.

In the article, Cindy Hounsell, WISER’s founder and a 2015 Next Avenue Influencer in Aging, reflected on what things were like when her organization began in the late 1990s and how she sees the future for the retirement security of women.

Hounsell told the writer of the article that Wiser started to address this question and urged people to start these discussions a long time ago. “Back then, she said in the interview, you couldn’t find anybody to talk about all of these older women in poverty. People would just look at me and say, ‘Well, it’s the way it’s always been.’ That has changed in a big way. People talk about it now.”

This is one of the main reasons I wanted to start this podcast so that I could join the conversation and encourage women like you to talk about your money and your retirement.

Anna Rappaport, an expert on the impact of change on retirement systems and workforce issues who spoke at the WISER summit, agreed.

“When Cindy started WISER, I would say there was practically nobody really thinking about women’s retirement issues. They were oblivious. Whereas today, a lot of people are thinking about them, and a number of financial service companies recognize them,” she said. “There’s a lot more sensitivity and concern about women’s issues.”

While the summit had some disturbing outlooks and opinions on how women will fare in retirement, there were many positive perspectives. Hounsell was one of them stating,  “I’m more optimistic than probably a lot of other people, because I think we’ll have better tools,” she said. Already, Hounsell noted, it’s become easier for women to access personalized retirement information — such as through the new, simpler Social Security Statements they can get on the Social Security Administration’s website.

While many people believe the entire financial system was created by men, for men, there have been many accomplishments to make the financial system more female friendly and there’s huge groundswell behind improving women’s financial literacy and financial wellness. We just can’t stop now and this is my number one mission at Her Retirement. We just need more women to make it a priority and commit to both. There’s no reason to be intimidated or overwhelmed. I believe that when women commit and invest in themselves, and decide to change their financial destiny, they will.

Hounsell agrees, “this is a big part of what we’ve tried to tell people; that you need to become your own advocate. You need to get that financial information like you would with a health situation.”

This all being said, there are many Concerns About Retirement Prospects for Women…and rightly so.

CEO and president of the Transamerica Institute and the Transamerica Center for Retirement Studies (and WISER presenter), Catherine Collinson, recently wrote: “Despite progress made in recent decades, women continue to be at greater risk of not achieving a financially secure retirement than men, in large part due to the gender pay gap and time out of the workforce for parenting and caregiving.”

Another WISER summit speaker, Ramsey Alwin, president and CEO of the National Council on Aging is concerned that over the next ten years, women of all ages will be rushing to make up for lost wages and savings due to exiting the workforce for caregiving responsibilities. Without intentional investment in caregiver supports and quality job creation, she believes it’s not clear that we’ll be able to restore women’s labor force participation to pre-pandemic levels.

According to the Forbes article writer, and I agree…this could have implications for long-term personal financial stability, including the adequacy of Social Security benefits.

Not to be overlooked there are other troubling statistics we all need to be aware of…

More than half of working women (51%) say their financial situation has been negatively impacted by the pandemic.

According to a new study by the Transamerica Center for Retirement Studies in collaboration with the Transamerica Institute, called “Life in the Covid-19 Pandemic: Women’s Health, Finances, and Retirement Outlook,” there’s reason for women to be concerned and to take action now.

The report states, “Amid the pandemic, many women have been stretched beyond their limits, balancing work and family. Given these pressures, some have given up their employment and dropped out of the workforce altogether.

At the summit, Nancy LeaMond, AARP’s executive vice president and chief advocacy & engagement officer in Washington, D.C. and another Next Avenue Influencer in Aging, presented some rather bleak statistics: “Since the beginning of 2020, four in ten working women age forty to sixty-five experienced job loss, reduced hours, furlough, temporary layoff, or reduced wage. And 58% of women 65+ now live in poverty.”

Here’s some other disturbing stats:

Many boomer women have saved a mere median of $7,000 in emergency savings, compared to boomer men with $25,000, according to Transamerica.

Women are less likely than men to have saved for future medical bills. A recent survey of over 1,100 beneficiaries 65 and older, by MedicareGuide, found women are twice as likely to not have savings for medical bills, compared to men (21% to 11%). While 41% of men 65 and up have more than $6,000 in savings for medical bills, just 28% of women that age do. No surprise that 51% of the women surveyed said they’re concerned a health situation could lead to bankruptcy or debt vs. 40% of men.

TRANSAMERICA CENTER FOR RETIREMENT STUDIES

Black women are especially vulnerable to health and wealth issues affecting their retirement prospects. Many have spent their careers in low-wage jobs, Rodney Brooks wrote in his excellent new book, “Fixing the Racial Wealth Gap: Racism and Discrimination.” And, he wrote, “they are also likely to outlive their partners and are more likely to grow old alone and in poverty.”

Brooks noted that Black women in the U.S. who work full-time are typically paid just 63 cents for every dollar paid to white men. Black workers, and Black women in particular, are less likely to work for employers that offer retirement benefits.

Other worrisome trends Rappaport stated: An increasing inequality by economic status, a decline of traditional pension plans and retiree health plans, the growth in gig employment and low-benefit jobs and the small declines in overall gender pay gap. “I would expect modest, but not dramatic, continued change for women in the workforce and pay equity,” Rappaport said.

However, many people at the summit, including Hounsell, remain optimistic. This is because they believe policymakers will make changes to change women’s retirement prospects.

So here’s a few things policymakers could do

“The Saver’s Tax Credit, which the majority of women are unaware of, will be improved in the future,” according to Hounsell. “This will be a significant benefit for many women.”

It’s a tax credit that’s effectively a match for retirement contributions made by low- and middle-income people. The lower your income, the bigger the credit rate you qualify for. Congress is considering raising the income limits for claiming the Saver’s Credit and simplifying the tax-filing requirements to take the tax break.

Alwin hopes Congress and the Biden administration will also enact what’s being called The SECURE Act 2.0. This legislation would, among other things, extend employer-based retirement savings offerings to more part-time workers; increase retirement plan “catch-up contributions” (additional amounts people 50+ can put in) and make the Saver’s Tax Credit refundable, to lower your tax liability no matter how much you owe in taxes.

This bill “would go a long way for women, especially women of color,” Alwin said.

There’s many people who support the passage of the Protecting Older Workers Job Applicant Act (which would prohibit employers from age-discriminatory hiring practices) and the Supporting Older Workers Act (which would invest in broader job training and job placement for older workers).

There’s no doubt women need help securing their retirement. I know of many organized and grass-roots initiatives pushing for this reform and urging women to get more educated, involved and committed to changing their retirement. There’s definitely much more conversation between women and in the world at large about overcoming women’s unique challenges on the path to financial wellness and retirement security. And this is just another reason I too remain really optimistic. Perhaps I’m giving policymakers and the financial services industry too much credit, but I do feel positive that change will come and women will get some much needed assistance. When it does, it will be a win win for everyone and the economy at large.

This all being said, the first step, however, is to commit to you. It starts with you. As we start the new year in just a few short days, make a commitment today to yourself. Make a commitment to “Getting Her Done in 2022 and beyond. My personal motto for 2022 is, “It starts with me.” It’s kind of an ode to the popular phrase, “It’s all about me.” But it really isn’t. I much prefer, “It starts with me.” That’s what I think anyway and that’s what I’ll be focusing on as I walk the talk and head closer to my own retirement.

As always I’m here to help you in anyway I can. I stand behind my mission to help one million women know more and have more by 2035. Please join my mission and if you need help with your retirement or you know someone that does, reach out to me at lynnt@herretirement.com.

 

Check out the podcast episode here!

Check out the podcast page for more episodes! 

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Budget Check Up: Tax Time Is the Right Time

Every year, about 150 million households file their federal tax returns. For many, the process involves digging through shoe boxes or manila folders full of receipts; gathering mortgage, retirement, and investment account statements; and relying on computer software to take advantage of every tax break the code permits.1

It seems a shame not to make the most of all that effort.

Tax preparation may be the only time of year many households gather all their financial information in one place. That makes it a perfect time to take a critical look at how much money is coming in and where it’s all going. In other words, this is a great time to give the household budget a checkup.

Six-Step Process

A thorough budget checkup involves six steps.

  1. Creating Some Categories.Start by dividing expenses into useful categories. Some possibilities: home, auto, food, household, debt, clothes, pets, entertainment, and charity. Don’t forget savings and investments. It may also be helpful to create subcategories. Housing, for example, can be divided into mortgage, taxes, insurance, utilities, and maintenance.
  2. Following the Money.Go through all the receipts and statements gathered to prepare taxes and get a better understanding of where the money went last year. Track everything. Be as specific as possible and don’t forget to account for the cost of a latte on the way to the office each day.
  3. Projecting Expenses Forward.Knowing how much was spent per budget category can provide a useful template for projecting future expenses. Go through each category. Are expenses likely to rise in the coming year? If so, by how much? The results of this projection will form the basis of a budget for the coming year.
  4. Determining Expected Income.Add together all sources of income. Make sure to use net income.
  5. Doing the Math.It’s time for the moment of truth. Subtract projected expenses from expected income. If expenses exceed income, it may be necessary to consider changes. Prioritize categories and look to reduce those with the lowest importance until the budget is balanced.
  6. Sticking to It.If it’s not in the budget, don’t spend it. If it’s an emergency, make adjustments elsewhere.

Tax time can provide an excellent opportunity. You have a chance to give your household budget a thorough checkup. In taking control of your money, you may find you are able to devote more of it to the pursuit of your financial goals.

  1. IRS.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 Suite 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 2021 FMG Suite.

 

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Commit to Financial Wellness in 2022

Financial resolutions run rampant this time of year. But please do consider committing to your financial wellness. It’s important with any resolution (financial or otherwise) that you don’t bite off more than you can chew. In other words, set achievable and measurable goals, but limit it to a few, not a dozen resolutions.  Also, ease into the goals…trying to do everything in January is impossible. Achieving any goal takes commitment AND consistency.

There are some pro-active things we recommend our clients focus on in 2022 to improve their financial well-being.  Critical is identifying your starting point (taking a comprehensive financial inventory), along with identifying your gaps, risks and opportunities for wealth building. My retirement planning software is an easy-to-use program that’s very insightful and valuable in this process. The software also allows people to track their spending so they’ll be more likely to improve their financial well-being by knowing what they are spending their money on. The key is to start saving and investing as soon as possible, no matter how old you are.

I believe it’s critical for women especially to commit to educating themselves and improving their financial literacy. Next, they must commit to changing whatever decisions and behaviors have been holding them back from achieving financial independence. I believe that having a financial wellness platform (like Her Retirement) provides structure, process, technology and guidance to help lead women in the right direction. And guess what? We women aren’t afraid to ask for directions. 😊

My software also follows a process I call, Know More. Have More™ in which a woman…

  • First, she must Learn about her money and her retirement.

Did you know that 74% of Americans voluntarily receive reduced retirement income because they don’t know all the facts?            Source: SSA Annual Statistical Supplement

  • Next, she must Envision her life, priorities and goals.
  • Next, she must Assess her finances. What does she have? What does she need? Where are her gaps? Does she need to track her spending (our platform offers a Smarter Spending Tracking Tool)?
  • Next, she must create, or have a Plan created, that fills her gaps (perhaps by a CFP). There are some little known “retirement optimized” strategies that women should understand prior to retirement. The proper planning process identifies these strategies that are appropriate to her situation and gives her an opportunity to fully understand how these strategies work and how they will contribute to her financial independence in retirement. In this planning process, a woman should also understand and make sure the plan addresses all her risks (longevity, taxes, inflation, market volatility, healthcare, etc.).
  • Finally, she must choose how she will Implement her plan…either on her own or with the guidance of a team of financial/retirement professionals.

Everything about the Her Retirement platform has been designed to make your journey from Savings to Security as successful as possible while improving your financial literacy, financial wellness and financial independence. You’ll have access to all the educational content, resources, exercises, analysis, strategies, coaching, planning and advice you need.

If you’re interested in changing your financial well-being, reach out to us. We have RetireMentors who are available to guide you on this important journey…so you don’t have to take it alone. Whether you’re single, suddenly single or a partnered-up woman, financial wellness (aka financial security), isn’t just a dream…it’s a decision.

Here’s some financial goals for you to consider and decide to commit to in 2022. These goals come with some extra incentives due to the world we’re living in currently.

 

1. Due to Covid, I believe people have extra incentive to boost their emergency savings and not tap into it.

  • Embrace a saver/investor mindset vs. spender
  • By making savings a game, you’re likely to save more. We offer our clients a fun daily savings game and we think our money affirmation cards can help people focus on mind over money, leading to the achievement of their resolutions.
  • Review income and expenses (start tracking spending if necessary)
  • Conduct an audit of everything you spend and try to reduce where you can (call your providers and ask for reduced fees) …we bleed money in many places without even knowing it
  • Conduct a retirement income projection based on desired retirement date
  • Check your credit report/score
  • Reduce Debt
  • Credit Card Debt
  • Mortgage Balances
  • Max out a Health Savings Account (HSA). Requires high deductible healthcare plan
  • Maximize Contributions to Tax-Deferred Plans to your company match
  • 401(k), 403(b), 457 Plans = $19,000/$6000 (catch-up at age 50+)
  • Simple IRA = $13,000/$3,000 (catch-up at age 50+)
  • Have an investment/retirement pro check your 401k allocations
  • Because of inflation, people seem to have more incentive to invest in inflation fighting vehicles like stocks.
  • Consider Portfolio Reallocation
  • Reduce portfolio risk by proper correlation of asset classes
  • It seems with the national debt increasing every day and the cost of Covid, people are more aware and concerned with rising tax rates so there’s increased interest in tax diversification and have savings vehicles such as Roth IRAs (consider Roth conversions), cash value life insurance and Health Savings Accounts (HSAs), which are all great ways to reduce future tax burden.
  • Life insurance is another area where people seem more incentivized to protect their loved ones with a good policy. An Indexed Universal Life policy is very favorable to many people.
  • Consider a job change to increase income
  • Consider starting a side gig to bring in extra income

2. Here’s a few other ideas for goal setting…

  • Focus spending on things that make you happy and what I like to call non-negotiables (decide your big and small spending priorities) and you’re more likely to not overspend.
  • Schedule a money date or dates with your partner to make a money plan. When you have a written plan that you review regularly, you’re more likely to achieve your plan.

3. Because of crypto there’s more interest in investing and learning about investing (which is a good thing). Although I believe crypto is more speculation vs. investment, if you find yourself with a holiday bonus, perhaps you speculate on some crypto. I believe more people will be getting into crypto, which could be a good long-term strategy. I’ll be hosting a cypto 101 class in January. You can email me at lynnt@herretirement.com to get more info about the class.

4. For people who have shifted from working from an office to working from home, many people can put those commuting costs into savings/investments.

5. Get those Estate Planning documents (such as will and trust) drafted or updated (again, Covid has put this at the top of our lists).

6. With low interest rates, I believe more people will be refinancing car loans and mortgages. A good cost savings measure.

7. Hire a CFP to create a financial plan

8. Hire a Retirement Advisor or contact Her Retirement to get you prepared for retirement BEFORE you decide to retire

2022 is a great year for people (especially women) who are 5-10 years from retirement to get educated about retirement and to start making a plan for how they will create an income for life, while protecting themselves from a possible change in the market (bull to bear) and from rising tax rates and inflation. It’s important that everyone uses All of Your Available Assets when developing a retirement income plan?” This includes:

  • Your Income | Employment, social security, pension, etc.
  • Your Investments | IRAs, 401k, brokerage accounts…
  • Your Insurances | Fixed and variable annuities, whole and term life, LTCi…
  • Your Housing Wealth | 30yr mortgages, reverse mortgages, home equity lines, downsizing, etc.

Ladies, it’s time to get educated, get prepared, and build true generational wealth

Her Retirement is here to help you, and we’re ready to fill the gaps left by all those fellas out there.

Let’s Get Her Done

Check out the podcast episode here!

Check out more podcast episodes here!

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Don’t Bite Off More Than You Can Chew

It’s important with any resolution (financial or otherwise) that you don’t bite off more than you can chew. In other words, set achievable and measurable goals, but limit it to a few, not a dozen resolutions.  Also, ease into the goals…trying to do everything in January is impossible. Achieving any goal takes commitment AND consistency.

There’s some pro-active things we recommend our clients focus on in 2022 to improve their financial well-being.  Critical is identifying their starting point (taking a comprehensive financial inventory), along with their identifying their gaps, risk and opportunities for wealth building. Our Financial Inventory & Analysis Tool is an easy to use program that’s very insightful and valuable in this process. The tool also allows people to track their spending (vs. budgeting) and so they’ll be more likely to improve their financial well-being by knowing what they are spending their money on. The key is to start saving and investing as soon as possible, not matter how old you are.

Here’s some other things that people can choose to focus on in 2022. These goals come with some extra incentives due to the world we’re living in currently.

  1. Due to Covid, I believe people have extra incentive to boost their emergency savings and not tap into it.
  2. Because of inflation, people seem to have more incentive to invest in inflation fighting vehicles like stocks.
  3. Life insurance is another area where people seem more incentivized to protect their loved ones with a good policy. An Indexed Universal Life policy is very favorable to many people.
  4. It seems with the national debt increasing everyday and the cost of Covid, people are more aware and concerned with rising tax rates so there’s increased interest in tax savings vehicles such as Roth IRAs, cash value life insurance and Health Savings Accounts (HSAs), which are all great ways to reduce future tax burden.
  5. Here’s a few other ideas for goal setting…
    1. Focus on spending on things that make you happy and what I like to call non-negotiables (decide your big and small spending priorities) and your more likely to not overspend.
    2. Schedule a money date or dates with your partner to make a money plan. When you have a written plan that you review regularly, you’re more likely to achieve your plan.
  6. Because of crypto there’s more interest in investing and learning about investing (which is a good thing). Although I believe crypto is more speculation vs. investment, if you find yourself with a holiday bonus, perhaps you speculate on some crypto. I believe more people will be getting into crypto, which could be a good long term strategy.
  7. For people who have shifted from working from an office to working from home, many people can put those commuting costs into savings/investments.
  8. Get those Estate Planning documents (such as will and trust) drafted or updated (again, Covid has put this at the top of our lists).
  9. With low interest rates, I believe more people will be refinancing car loans and mortgages. A good cost savings measure.
  10. By make savings a game, you’re likely to save more. We offer our clients a fun daily savings game and we think our money affirmation cards can help people focus on mind over money, leading to the achievement of their  resolutions.
  11. 2022 is a great year for people (especially women) who are 5-10 years from retirement to get educated about retirement and to start making a plan for how they will create an income for life, while protecting themselves from a possible change in the market (bull to bear) and from rising tax rates and inflation.  Our Her Retirement platform can help women know more and have more, and live a better retirement.
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The Science of Behavioral Finance

Whether you’re talking fitness, food or finances, when one learns to control his/her behavior, anything is possible. There are unconscious factors driving almost every financial decision you make. But learning how to rein in your unconscious behaviors, put aside biases, and choose the risk you do or don’t take is a big uphill battle.

Financial behavior is also impacted by:

  • Market Psychology
  • Power of the Masses Which Drives the Market
  • Herd Instinct
  • Fear and Greed

What do is the most important thing individuals need to know about Behavioral Finance?

I believe people need to know that learned behavior and biases play a big part in financial outcomes and that in order to be more successful and in control financially, an individual needs to consider investing and committing to both financial literacy (which is “the ability and confidence to use one’s own financial knowledge to make financial decisions” (Huston, 2010, p. 307) AND financial advice.  Literacy leads to understanding options, actions and outcomes. Investing in financial advice not only helps you overcome personal biases, advice can keep you from making knee-jerk reactions like when the market goes down and one panics. An advisor can be the steady hand in turbulent times. Research done by Dalbar, Inc., a company that studies investor behavior and analyzes investor market returns, consistently shows that the average investor earns below-average returns. For the 20 years ending December 31, 2019, the S&P 500 Index averaged 6.06% a year. The average equity fund investor earned a market return of only 4.25%.  Why is this? Investor behavior is illogical and often based on emotion and biases.

Behavioral economist Shlomo Benartzi wrote an article about this entitled…

Why Some Investors Panic. And Here’s How to Make Sure You Don’t

He starts off the article by asking the question: Are you likely to buy high and sell low during a market panic?

So here’s the bigger risk right now for investors: we’ve had a crazy long bull market and everyone is happy, but what happens when the market either suddenly tanks or worse goes into a steady, longer term decline? Will those losses people incur lead them to act in a way that will result in even bigger losses?

Mr. Benartzi says, “It doesn’t have to be that way.”

To help us understand why people may make such a potentially devasting mistake, let’s consider a very old type of bet introduced by the Nobel laureate Paul Samuelson. The bet goes like this: I’m going to flip a coin. If it lands on heads, you’ll win $200. However, if it lands on tails, you’ll lose $100. Would you accept the bet?

According to Mr. Benartzi, “If you’re like most people, you wouldn’t take the gamble. That’s because for many people the pain of losing $100 exceeds the pleasure of winning $200. Put another way, losses hurt twice as much as gains feel good, even when the potential loss is relatively small and doesn’t pose much risk. Such ‘loss aversion’ helps explain why a market correction can be so unpleasant that it leads to panic selling. We are wired to hate a portfolio full of red ink.”

Further research indicates that many investors are also sensitive to short-term losses which Mr. Benartzi and his co-researcher, Richard Thaler call “myopic loss aversion.”

People who are myopic are nearsighted, meaning they can only properly focus on things that are close by and everything in the distance is blurry.  The research duo have shown that people are very nearsighted when it comes to the performance of their investments and therefore only really able to focus the near term events, even at the risk of their long term results. These people are most at ricks for what is called “panic selling.” It’s this behavior that everyone needs to pay attention to and as a result many people want a financial advisor who can help them stay the course and not do anything rash with their investments.

As Warren Buffet has said, “Stay the course. It can be stressful when the markets tank, but don’t panic and sell off your investments just because of the latest news cycle.” And, “The most important thing to do if you find yourself in a hole is to stop digging.”

So let’s find out if you suffer myopic loss aversion. I’ll provide a written version of this assessment created by Mr. Benartzi in the blog post linked to this podcast. He co-developed it to determine whether you’re likely to buy high and sell low during a market panic. Let’s review his assessment questions and his comments on each one. Perhaps I can interview him in a future podcast:

1) In normal times, how often do you evaluate the performance of your investments?

  1. A) Daily or weekly
  2. B) Monthly or quarterly
  3. C) Annually
  4. D) Every few years
  5. E) Never

The more often you check your performance, the more likely you suffer from myopic loss aversion. That’s because you feel the pain of the losses more frequently and potentially overreact by panic selling. The problem is not necessarily the losses, but how often we mentally account for them.

2) I often set a goal but later choose to pursue a different one. Is this:

  1. A) Very much like me
  2. B) Mostly like me
  3. C) Somewhat like me
  4. D) Not much like me
  5. E) Not like me at all

This question was borrowed from the “grit” assessment developed by Prof. Angela Duckworth and colleagues. She and others have shown that grit—the willingness to persevere for a long-term goal, especially when it’s difficult—can help predict a variety of outcomes, from academic success to creditworthiness.

If you often give up on your longer-term goals, you’re probably at higher risk of selling low during a market decline. The pain of the short-term loss is going to make you give up on your long-term investment strategy.

In contrast, those who tend to stick with their goals are probably more likely to shrug off the market losses. This is akin to gritty long-distance runners ignoring the aches of their muscles so they can finish the race. It’s a useful mind-set. For most of us, investing isn’t a sprint—it’s a marathon.

3) Do you use any apps to regularly check on the performance of your investments?

  1. A) Yes
  2. B) No

Although smartphones can make investing more convenient, that convenience becomes problematic during periods of high volatility. That’s because people tend to be more impulsive and emotional on mobile devices. Prof. Shiri Melumad at Wharton has shown that smartphones lead people to generate more emotional content, while scientists at the University of Texas and University of California at San Diego have shown that simply having your mobile device nearby can reduce working memory and cognitive capacity.

The concern here is that trends can also make us more likely to sell during a panic. You no longer have to call your adviser or write an email. Instead, you can just pull your phone from your pocket and, with a few quick finger taps, liquidate those funds that have fallen in value.

What should you do if, based on this short assessment, you appear to be hypersensitive to short-term losses?

The most immediate thing you should do is not look at the market. Immediately delete all financial apps from your phone.

However, if you simply can’t resist looking at the market, then it’s important to take the following three steps to change the frame of the picture.

-Zoom out, which involves changing the format of your performance metric. If you are checking your 401(k), many financial institutions now allow you to see your account balance in terms of projected retirement income, as opposed to total wealth. Projected retirement income not only gives you the bigger picture—it’s also much less volatile in response to market swings.

Consider an investor with a $1 million portfolio, 60% in stocks and 40% in bonds. Let’s further assume that the portfolio’s stock investments have dropped 30% from their recent high, and bonds have been relatively flat. This means that the portfolio is now worth roughly $820,000. If we assume an annual withdrawal rate of 4%, just to keep the analysis simple, then retirement income went down from $40,000 to $32,800 a year, a decrease of 18%.

However, it is important to factor in Social Security benefits, as those didn’t go down. Assuming a retirement age of 66, Social Security benefits could amount to $36,000 a year, depending on your earnings history. In this case, total retirement income went down just 9% (from $76,000 to $68,800). The bigger frame shows a far less dire picture than the stock market alone would suggest.

-Frame the market decline as an opportunity, rather than a challenge. It’s not a crash—it’s a sale. I am not necessarily advocating to time the market if the Dow drops to say 15000 or 12000, as I surely don’t have a crystal ball. But the mere act of rebalancing portfolios amounts to a concrete plan to buy more stocks “on sale” as markets keep declining. Advisers should also focus their clients on rebalancing, as opposed to selling.

-Frame the market correction in terms of finding solutions, which help us get a better perspective on the practical implications of the crash.

The larger lesson here is that, by identifying those who are most sensitive to the current downturn, and helping them think broadly about their portfolio, advisors can help them worry less about the daily swings of the market. That, in turn, will prevent those investing mistakes that worsen the panic and cost people serious money. Uncertainty isn’t new. But panic hurts everyone. Great thoughts and a valuable assessment from this behavioral economist. You can look up more of his articles and research online. Lots of good stuff.

I wholeheartedly believe than a retirement advisor (who’s well versed in investments and insurance) can offer a wealth of expertise and experience that many of us lack, but desperately need in order to improve our financial outcomes.

Now I’d like to give you some tips on how people can apply Behavioral Finance assessments when making financial and investment decisions?

I believe that everyone should do a behavioral finance assessment to direct their financial decision making. The value of an assessment (whether it’s done with an advisor or a self-test) allows you to better you understand yourself. The better equipped you can be, the more appropriate the financial decisions will be. It’s all about increasing your self-awareness. With an assessment, you can learn why you make certain decisions, and understand the unconscious financial “blind spots” that might be influencing these decisions.

At Her Retirement we use software called DataPoints (free assessment here). Financial well-being is also about having the right money mindset. Mindset affects day-to-day spending, saving, and investing decisions, decisions that can make or break reaching financial goals. Backed by The Millionaire Next Door, DataPoints assesses personality so an advisor can help a client avoid behavioral pitfalls and achieve financial and life goals. For women who are closer to retirement, we use a program called RISA by Dr. Wade Pfau. RISA (Retirement Income Style Awareness), which allows us to scientifically identify a women’s retirement income personality, preferences and needs so that a proper retirement income plan can be customized for you.

Here’s a free wealth personality quiz I direct people to try: Discover Your Financial Personality | Marcus by Goldman Sachs®. There’s also one provided by Nerd Wallet: What’s Your Money Personality? Take Our Quiz to Find Out – NerdWallet

In addition to these two tools available to women who choose to work with Her Retirement, we have a software platform that helps women understand their financial gaps, risk and opportunities. We believe that once women know what they have and don’t have, and what they’ll need for retirement, their current behaviors will change for the better. The platform also fills gaps in financial literacy, planning and advice. It’s digital nudge that everyone can benefit from. It’s all about knowing more and having more.

Here’s a few behavioral tips that may help improve your financial outcomes:

  • Identify your financial inventory. Research confirms that you must know your starting point. You must identify your gaps and opportunities.
  • Track everything. Research shows that tracking can be an effective tool. Keep a daily list of how you spend your money.
  • Make one decision at a time. When people are faced with multiple, back-to-back decisions that test willpower, research suggests that willpower can easily be depleted. Space out your financial decisions instead of making too many at once and overwhelming yourself.
  • Pay yourself first on auto-pilot is the expert’s wisdom. This will prevent you from devoting limited willpower resources to deciding whether to spend or save money. Research suggests finding savings accounts which prevent you from withdrawing monies until you’ve reached your savings target.
  • Embrace the saver vs. spender mindset. Make it a challenge to see if you can become saver. Find other activities other than shopping and spending. Maybe cut up the credit cards too.
  • See advice or an advocate. Whether that’s a professional or an accountability partner/friend. Changing a behavior is hard. Sometimes we all need a coach. It might just be the best investment you make in yourself.

Thanks for listening to this week’s episode of my podcast. When you’re ready to get help with your financial behaviors, your retirement plan or getting connected to one of the retirement pros in our network, simply reach out to me at lynnt@herretirement.com. I’m here for you. Here’s to knowing more, having more, and getting her done.

Check out the podcast episode here! 

 

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How Insurance Deductibles Work

An insurance deductible is the amount you, the insured, pay before any claim is paid by your insurance carrier. Depending upon the type of insurance, a policy may set the amount of deductible, or offer you the ability to select a deductible amount.

Deductibles serve a dual purpose: they save the insurance company money (including the administrative cost of processing small claims) and may help keep your premium costs lower.

Choosing the Right Deductible Amount

Generally speaking, the trade-off between deductible levels and insurance premiums is simple: The higher the deductible, the lower the cost of insurance. Conversely, the lower the deductible, the higher the cost of insurance.

Deciding how to make that trade-off is a function of math and your own comfort level with higher out-of-pocket costs if you choose a higher deductible.

Only you can decide if saving $65 a year in premiums for a deductible that is $500 rather than $200 is worth it to you. You may find that the relationship between deductible amount and premium cost is different depending upon the type of insurance. For instance, the savings with a higher deductible may be significant with auto insurance, but much less so with homeowners insurance.1

Not only will this relationship between deductibles and premiums differ based on insurance type, but it may differ based upon other factors, such as your age and the value of your car, for example.

When you consider the appropriate deductible level for health insurance coverage, remember that deductibles may be on each member of the family.

When shopping for insurance, you should always ask your insurance agent what the premium costs are at each of the available deductible levels. Knowing that information may help you make a sound decision regarding your coverage.

  1. For illustrative purposes only. This example is not meant to indicate any actual relationship between deductible amount and insurance premium cost.

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 2021 FMG Suite.