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Insurance Coverage and the Coronavirus

by BlogCoronaInsuranceLife insuranceUncategorizedWealth

The coronavirus pandemic has caused many people to re-assess their need for life insurance, along with other types of insurance such as long term care insurance and the adequacy of their health insurance.

Life insurance ensures surviving family members are provided for financially after someone’s death. There have been some changes in the application process for life insurance policies, and the good news is it’s still possible to get a policy.

In some ways it may actually be an easier process. According to Bankrate, “Because many people (and insurance companies) are honoring the CDC’s social distancing guidelines, in-person blood or urine tests and weigh-ins aren’t possible now. That means insurance companies currently have fewer potential reasons to reject applicants for coverage.”

“To make it easier for consumers to apply for a policy under these unusual circumstances, more than a quarter of U.S. life insurers have expanded their automated underwriting practices,” says Catherine Theroux, director of public relations for LIMRA. “One in 5 U.S. companies have postponed or waived paramedical requirements.”

Folks applying for life insurance however, are still required to provide a complete health history, allowing the company to analyze the insurability of the individual.

Some insurance companies are changing their offerings and limiting their coverage options based on age or the term of the coverage sought. For example, Mutual of Omaha Insurance and Penn Mutual Life Insurance have temporarily suspended applications for individuals aged 70 or older. Some other insurers are also temporarily suspending life policy applications for people in their 60s who might previously have been approved for coverage despite health issues like diabetes and asthma.

We believe that now is actually a good time to apply for life insurance, because it might possibly be the easiest process from an underwriting standpoint. If you believe a life insurance policy will protect you and your family, there really isn’t any reason not to apply now. Our insurance experts can help find the company that best meets your needs.

What about an existing policy and coronavirus coverage?

For the most part, existing policies will cover a person if they were to die from COVID-19. As long as your policy is in good standing, it will provide a death benefit to your beneficiaries. Just be sure not to let your current policy lapse. However, here’s a few exceptions to keep in mind:

  • The life insurance industry has something called a “contestability period,” a window of one or two years during which an insurer can investigate and deny claims. If it’s determined that the insured lied on their application or otherwise misled the insurer to defraud them, coverage — in the case of life insurance, the death benefit paid to the family — may be denied.
  • Another exception to a payout due to the coronavirus is for those who have purchased an accidental death policy. Those policies generally don’t cover death by disease. There are some exceptions, though, like if an injury causes someone to be hospitalized and the disease results directly from that hospitalization. It’s wise to discuss the specifics with your insurance agent.

If you’ve been honest on your application and current on your premium payments, you shouldn’t have any worries.

If you’d like to read more FAQs about life insurance, long term care insurance, healthcare or more, check out this article from AARP.

If you’d like to chat with a life insurance expert to analyze your life insurance (or long term care insurance) needs, talk to a RetireMentor to discuss your specific needs.

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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.

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

Perks of Starting an Encore Career!

by Encore CareerRetirement EducationRetirement Income

In a previous blog, we looked at the benefits of a Phased Retirement.  Basically, the main benefit was to keep the mind active and help the recent retiree have a purpose in their daily life.  Another route to fulfill these needs can be through an encore career.  There are many different ways to fulfill this, either through paid or unpaid, new or known career knowledge.  Below we highlight a few ways to start an encore career.

  • Volunteer Work: For those who are truly financially independent in their retirement, meaning they have enough to live the life they envisioned or are comfortable in their retirement life, volunteer work is a great way to keep the mind active and have a feeling of purpose, like they are making a difference in their weekly life. Volunteer work is also fulfilling because the retiree can choose which field they would like to work in, such as volunteering in the field of early childhood or helping those struggling to get back on their feet.  This flexibility may help the recent retiree feel fulfilled and passionate about what they are doing with their golden years.
  • Turning a hobby into a business: This is a path that many experts warn to think through carefully, because far too many people have plunged their entire retirement savings into a passionate hobby that simply didn’t turn into a business. But if the retiree has a limit of what they are willing to invest in their new visionary business, then this may be a path that is very fulfilling!  A hobby, such as knitting or gardening, in today’s internet age, can take off to a whole new sphere of success!  And doing what one loves (such as in the field of volunteer work) AND receiving a supplemental income from it can seem like a win-win: extra money and a passionate reason to get out of bed each morning.
  • Phased Retirement: As mentioned in a previous blog, phased retirement can benefit the retiree because they are able to stay active, it is in a field that they have vast knowledge in and they can receive a supplemental, part time income (depending on how many hours are scaled back). The need to have a weekly purpose is easily fulfilled and is an easier path than starting a new business.
  • A part time career: This is one that is most familiar to retirees, be it a greeter at a store, a cashier at the local grocery store or some other part time job, many retirees find this the easiest path to transition into.  There is no great commitment or taxing work to be done, but includes a flexible schedule and some form of supplemental income.  There are many businesses that actually look for recent retirees because they find that they are more dependable than some teenage part time workers and that they are flexible are in their schedule.
  • A brand new career: Similar to a part time career, this entails going into a new field, possibly an earlier passion that may not have been financially possible before. For example, being a tour guide at a local museum or national park or a speaker to children at a school, about what life was like back when.  Or it could be a totally new career, such as an Uber or Lyft driver, where the hours are decided by the retiree.
  • Advisor: Similar to a Phased Retirement path, becoming an advisor (either for a company that the retiree has worked for or a competitor) can help the retiree with supplemental income, but also to help feel needed and as if they are making a difference somewhere.

Regardless of which path the retiree chooses, we here at Her Retirement feel that staying mentally and physically active is important to maintaining a healthy lifestyle during their golden years.  Because after all, the golden years are meant to be enjoyed and to feel like there is a purpose to getting out of bed each morning.

Are you worried about outliving your retirement?

by Income PlanningRetirement EducationRetirement IncomeRetirement Income PlanningUncategorized

What is the number one fear of retirees?  According to a recent Allianz study, 60% of individuals’ feared that they would outlive their income or their portfolios’ ability to create an income for the remainder of their life.  According to research conducted by Transamerican Center for Retirement Studies, only 11% of people have even thought about how much they should invest in their retirement.  But of those who have already begun to plan on how much they’ll need for retirement, half admit that they are merely guessing as to how much they’ll actually need.  To continue with this study, 61% cited that they have a retirement strategy, but only 14% have it written down somewhere.  And less than a quarter have a Plan B in case their retirement plan doesn’t pan out.

To look at the current soon-to-be retirees, there are 76 million individuals who are part of the “Baby Boom” generation (those who were born shortly after the end of World War II). Yet these Baby Boomers are facing unprecedented hurdles when it comes to planning for their retirement:

  1. Previously dependable retirement income is disappearing or becoming less dependable (i.e. Social Security). 55% of those categorized as moderate wealthy consumers, felt they were more likely to be struck by lightning than to receive what they were promised from Social Security).
  2. With less dependable retirement income, such as Social Security, more Baby Boomers are forced to privately and personally finance their retirement.
  3. Increased life expectancy from previous retirees.

According to the Allianz study, Americans fear that a retirement crisis is developing (92% among all applicants and 97% of those in their late 40s), 61% were more scared of outliving their retirement income than facing death.  Among those aged in their late 40s, this number rose to 77%.

With all this uncertainty about traditional retirement planning being sufficient for the future, it is no wonder that many soon to be retirees are apprehensive about what the future will bring.  The good news is that there are financial experts to help guide those who are beginning or have been planning their retirement financing.  In order to quell the worry, make sure that your retirement affairs are in order and are working the hardest they can to keep you safe and secure during your most enjoyable years.

Part 3: Americans fear outliving their income more than they fear death… Have You Been Putting Off a Retirement Evaluation? The Truth will Empower You.

by Blog

Part 3 of a 3 part series of articles on the value of retirement evaluations

The Value of a Retirement Portfolio Review…uncovering a portfolio’s true value

As stated in part 2 of this series of articles, it’s amazing that most individuals spend more time planning their summer vacation than planning their retirement.

When meeting with potential clients, the primary focus of our first introduction meeting (or complimentary consultation) is to discuss the client’s current retirement situation, including their investments, their retirement goals and aspirations, and risk tolerance. The primary focus of this initial consultation is to find out if the client and/or their advisor has run a recent portfolio evaluation, at least on an annual basis. This is extremely important in the retirement planning process because without an annual review of the current portfolio, one cannot ascertain whether the asset allocation is correct or not.  For instance, proper asset allocation looks at how much stock, bonds, international stock, small cap or large cap stock are in the portfolio and at what percentage. Without this review, an individual could be too heavily weighted in one particular area or another, while also assuming too much risk or not enough risk to get the return they need.

It’s also imperative to look at each individual stock, bond or mutual fund position on a micro analysis level to assure each component or each manager or stock or bond is performing to its maximum ability. For instance, we frequently explain to clients that there’s two types of returns: absolute return and relative return. Absolute return simply tells you that you earned a 5% return over the past five years, but there is no context nor any ability with an absolute return to determine if this 5% was good, bad or ugly. An absolute return tells us nothing.

The more important factor to look at is relative return which tells you how well your portfolio is doing, or how well each individual component within the portfolio performed against the appropriate benchmark. This is the more important factor when reviewing a portfolio on a regular basis. This tells the true story. When looking at relative returns, for instance, that same five year period we discussed in the absolute return section above the results look a little different.  If over the past five years you got the same 5% return, but the appropriate benchmark did 4%, that means you out performed that benchmark on a relative basis by 1% a year over a five year period. That would be a positive relative return performance. However, if you did that same 5% return and you weighted it against the appropriate benchmark, and the appropriate benchmark did 6.25% return over that same period of time, you would have a negative relative return over that five year period of minus 1.25%.

So as you can see, it’s imperative when working with an advisor or doing your own investing, that you perform an overview of your portfolio on a regular basis to assure your asset allocation is appropriate for whatever stage of life you’re in. It’s also absolutely essential that you do both a micro and macro component review against the appropriate benchmarks on a regular basis to maintain the positive relative performance on the portfolio over time.

This is the next factor that is extremely important to understand. When working with your own investments, or with a financial professional or advisor, make sure that you prepare (or have he/she prepare) these relative performance reports and portfolio overviews at least annually. And if you’re not getting this done, our advisors can offer a comprehensive current portfolio analysis to show you how has your portfolio performed based upon the exact make-up of your portfolio over the past year or years.  A 1% positive relative return versus a minus 1% negative relative return means a tremendous amount of additional monies in your pocket while in retirement, and it’s essential to the overall longevity and survival rate of your portfolio.

The second piece to the equation in the complementary consultation is running a sophisticated retirement projection.  The retirement projection takes all factors into consideration such as inflation, estimated rates of return, volatility of the portfolio, Social Security income, pension income, and any and all other factors entered into the system. We then project out your retirement income needs to assure that your portfolio and your overall retirement income scenario will continue and your income will continue for your entire lifetime.  Not all retirement projections are created equally.  Let us repeat, not all retirement projections are created equally. There is a definite advantage to using a more sophisticated retirement projection analysis system, especially when it comes to tracking the volatility of a portfolio within the projection and looking at what is known as Monte Carlo simulations, or viewing your portfolio and testing it in retirement against sequence of return risks.  If your retirement projection has a straight line percentage and does not factor in volatility, either through Monte Carlo simulation or sequence of return risk environment simulations, then the projection is really not giving you what you need.

It’s extremely perplexing when a perspective client nearing retirement does not take this complimentary consultation offer into consideration. Especially after we discover that they or their advisor have never done a retirement income projection, looking at absolute and relative return results. This is the most important and crucial step in determining where an individual is with regards to their retirement planning. Once again, it’s imperative to understand where you are with your portfolio, to maximize the returns within that portfolio, as well as understanding where you are currently in your retirement planning process. Will your portfolio last to age 100? Will your portfolio last until age 80? These are crucial questions that must be answered in advance of retirement. Our advisors provide a complementary consultation to assess each individual’s current portfolio and retirement projection values and needs. Don’t you owe it to yourself to make this happen? If you or a friend of family member could benefit from this complimentary consultation, let us know.