When Should I Retire?

Few decisions in your life are as complex and fraught with significant consequences as the decision on when to retire. For most of us, this decision will affect more than just ourselves. Your decision cannot be made in a vacuum if you have a significant other, spouse, or others that depend on your paycheck. Many will consider issues such as the size of their retirement and investment portfolios, age, physical health, and the state of the economy. Still, others look to stagnation and boredom with their careers, the availability of a pension or social security, or even an inheritance.

Many books have been written about retirement and there is a wide spectrum of opinion on when people should retire, especially given that people are generally living longer. It was not so long ago that people rarely lived into their 70’s. Today, it is common for people to live to their 90’s or beyond. The fact that our lifespans are increasing with advances in medicine and technology begs the question: should we retire at all?

A very large segment of the country retires at age 62, which coincidentally is the earliest age you can qualify for social security retirement benefits. However, for the eager beavers who decide to do so, they should know that those benefits could potentially be permanently reduced by about 25 percent. For someone who might be around until age 92, that’s a lot of income to forgo. It is possible you may spend three decades in retirement. What the heck are you going to do with yourself for all those years? Visit the grand-kids, play golf, or work in the garden?

Before you even consider the idea of when to retire, engage the services of a financial and retirement income advisor team. Ideally, you will want to work with individuals who have decades of experience working with people similar to you. You will want to look for someone who is not close to retiring themselves.  Imagine how hard it could be to find someone you can trust 10 years from now when your advisor retires.  That is the last thing you will want to do while enjoying your Golden Years.

With all this said, remember that the decision as to when to retire does not just affect you. Your loved ones deserve to be part of the conversation and the decision-making process. Make sure your planning takes into account the financial aspect of retirement and also the life and living parts. You may have bid your spouse goodbye five days a week at 8:00 am for decades. But when that stops, things will change. That change may be for the better or worse, and you need to plan for that, too.

 

1930518/DOFU 10-2017

As We Head Towards Dow Jones 20,000 And Turn The Page On 2016…

Disclaimer:  I wrote this article in early January 2017, but this information should still provide value.

As we head towards Dow 20,000 and turn the page on 2016, now is the perfect time to map out your financial resolutions for the New Year and beyond.  Here are a few suggestions for making 2017 healthy, happy and successful:

  1. Create emergency savings

Life is full of unexpected emergencies, and having extra cash on hand can help keep a serious illness, home repair, or other sudden financial need from derailing your finances.  Prepare for unpredictable expenses by putting aside the equivalent of three to six months of expenditures.

  1. Make a monthly budget and stick to it

Budgets may sound like a lot of unnecessary work, especially if you’re financially comfortable.  But if you’re not tracking your spending, you may be surprised by how quickly it adds up – and which expenses are costing you the most.  As 2017 begins, set a budget and work on sticking to it for three months.  Track your performance and revise the budget, as needed.  Don’t aim for perfection, instead, try for incremental improvement.

  1. Save more for the future

Creating a disciplined savings strategy is an important way to stay on track for your retirement and other goals.  We recommend keeping separate “buckets” of savings for short- and long-term goals.

  1. Make retirement plan contributions regularly (instead of all at once)

Even if you’re diligently saving, you may be among the 71% of Americans who haven’t put aside enough money for retirement.  One key change you can make is to take advantage of “time in the market”.  Instead of waiting until the last minute to make your annual contributions, give your money more time to potentially grow by making automatic contributions to your account every month. (Source: Washington Post)

  1. Maximize your retirement-plan contributions

Tax-managed retirement accounts are one of the most powerful ways to save for a more comfortable retirement, because they allow you to control your tax liabilities today – while potentially accumulating assets for the future.  Make the most of these accounts by contributing as much as you can.

  1. Pay down high-interest debt

Did you know that 54% of Americans believe they will never pay off their debts?  Don’t let high interest debt keep you from getting ahead financially.  If you’re carrying a significant amount of debt, make paying it down a top priority. (Source: Associated Press)

  1. Create a powerful legacy for the world

We believe that a rich life involves more than financial success and a comfortable lifestyle.  Whether you want to leave something to your loved ones or support causes you care about, take time to address the legacy you’d like to leave.

  1. Review your estate planning and legal documents

Your core legal documents need regular reviews to ensure they keep up with any changes in your life.  If a few years have passed since you looked at your documents, dust them off and make sure that they still represent your wishes.

  1. Stay on top of your health

Healthcare is a major expense for most Americans, especially if serious illness strikes.  Take steps to protect your well-being by building a healthy lifestyle and prioritizing preventative care.

  1. Involve your children and grandchildren in your finances

Fostering financial wisdom is a powerful way to help your children and grandchildren build a solid, stable life – and help ensure you’re able to pass on your values and wealth in the future.  Rather than keeping your finances private from your loved ones, we recommend including them in conversations about your goals and priorities.

Think long-term, not short-term.  Recently, we’ve spoken to many clients who want to ride the post-election growth train.  Just as we’re here to help you from despairing when stocks tumble, we also want to help control the euphoria when markets rally.  This has been a narrow rally, and rallies don’t usually continue forever.  Impulsive choices can challenge your long-term objectives.  As always, it’s important to take the right amount of risk for your unique circumstances and stay focused on the long-term goals that we are pursuing together.

Have a Safe and Happy New Year!

 

2011373 /DOFU 02/2018

6 Key Questions Every Retiree SHOULD Answer

RETIREMENT: READY OR NOT

A Reality Check for Those Retired or Close To It

The clock is ticking. Baby boomers are getting within a 9 iron of their golden years. Most have finally come to grips with the fact that despite the ideal retirement pictured in glossy brochures and commercials — that retirement for most won’t be close to what they envisioned in their earlier years.

All the best laid plans, calculations and formulas have given way to one glaring reality: This is what I’ve set aside for my retirement. Now, how on earth can I make it last?

In other words, it is time for a reality check and a meaningful conversation about your retirement income strategy.

New research finds the magnitude of the retirement savings shortfall in America today is staggering. The U.S. Retirement Savings Deficits could be as high as $14 trillion*. The “American Dream” of retiring after a lifetime of work will be long delayed, if not impossible, for many.

Acting sooner rather than later can greatly improve your own retirement security.

*Source: The Retirement Savings Crisis: Is It Worse Than We Think? The National Institute on Retirement Security, June 20, 2013

Question 1:  Do you know how long your money will last if you stop working today, invest your nest egg as safely as possible and try to maintain your current standard of living?

One of the greatest fears of retirees today is running out of money before they run out of life. This is an important question to answer and lies at the heart of Retirement Income Preparation. These answers are even more critical given the difficulties in the financial markets and larger economy that have significantly impacted retirement savings over the last decade. While it would be nice to have a one-size-fits-all formula when it comes to how long your money will last, the truth is there are many factors that go into that equation.

Question 2:  Do you know which one of the 567 ways to claim your Social Security will maximize the lifetime benefits?

The Social Security Administration provides you with 567 ways to claim your benefits. The Social Security handbook has 2,728 separate rules governing your benefits, yet they provide ZERO employees to advise you on the best strategy. Choosing the right benefits at the right time could mean tens of thousands of additional dollars in retirement. Making a mistake COULD cost you up to 72% of your benefits. And it’s absolutely critical that you get it right because soon after you claim, your benefits become permanent. There are no Do Overs. Social Security is enormously complex. For a couple, age 62, there are over 100 million combinations of months for each of the two spouses to take benefits.

Source: 44 Social Security “Secrets” All Baby Boomers and Millions of Current Recipients Need to Know – Revised. By Laurence Kotlikoff, Forbes Magazine, July 3, 2012

Question 3:  Do you know the proper mix of stocks versus bonds in a retirement income portfolio?

Asset allocation is an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame. Asset allocation is based on the principle that different assets perform differently in different market and economic conditions. One of the cornerstones of financial preparation for retirement is that an individual’s exposure to higher-risk assets like stocks should decline as his or her retirement date nears. Since risk level and portfolio return are directly related, your asset allocation should balance your need to take risk with your ability to withstand the ups and downs of the market.

Question 4:  Do you know how big of a nest egg you’ll need as you enter retirement if you’ll be retired for 20, 30 or even 40 years?

Have you ever considered how big of a nest egg you’ll need to retire comfortably if your retirement could last 20, 30 or even 40 years? The range of answers is all across the board. The low end suggests you’ll need to have saved 8 times your pre-retirement pay in order to maintain your current lifestyle during retirement, with the high end more like 20 times your annual salary. Estimating what your retirement expenses will be can give you a ballpark figure for the amount of savings you’ll need. It will be imperfect because it requires making assumptions about factors such as how long you will live, what the inflation rate will be and how your investments will perform. Nevertheless, making an estimate is a valuable exercise.

Question 5:  Do you know the appropriate spending rate from your nest egg to insure your savings last your lifetime?

If you thought it was hard to grow a nest egg, try living off one in retirement. A lot is written about how to build a nest egg, but not as much about taking money out. Most have no idea how dangerous it is to withdraw too much from their nest egg each year. As baby boomers make the transition from career to retirement, more and more people are grappling with the question, How much can I safely withdraw from my nest egg each year? In today’s low interest rate environment, that poses even bigger challenges. The presumed safe withdrawal rate of 4% has come under fire in recent years. What’s an investor to do?

The Wall Street Journal said a 2% withdrawal rate is bullet proof, 3% is considered safe, 4% is push­ing it, and with 5% or more, you risk running out of money, especially if you live into your 90s.

Source: The Wall Street Journal: How To Survive Retirement – Even If You’re Short On Savings

Question 6:  Do you know how the rising cost of health care could affect and even decimate your retirement income strategy?

It’s a fact that healthcare costs have increased at a record pace, and many believe they will continue to rise. Everyone knows the old saying about death and taxes. But there’s one more certainty everyone who retires will need to face: the staggering cost of healthcare. Most people don’t appreciate the significant impact healthcare costs can have on their retirement savings. Yet these expenses can overwhelm even the best-laid retirement strategy. Nearly 9 out of 10 are flying blind when it comes to understanding, what could be for many, one of your largest costs in retirement. If you’re like most, you’re underestimating these expenses. Many retirees are not prepared for the high-cost of medical care in retirement when they are no longer part of a company plan. And, too many people believe that Medicare covers most or all expenses. The reality is that Medicare only covers a percentage of your medical bills.

Source: Putnam Investments Lifetime Income Score in collaboration with Brightwork Partners LLC

We have 6 more questions that you should know and answer.  To get the next 6 Key Questions Every Retiree Should Answer, Click Here and get the Guide.  As a bonus, we also included in that guide 6 Steps you can take to get your retirement strategy on track or back on track!  The guide is a PDF file and you can save it or print it and start using it right away!!

Here is one more link to that guide:  Link to Guide

2003128/01-2018

How much will I need and how much should I save for retirement?

Over the course of my career I would say one of the top ten questions I am asked, if not top five, is; how much do I need to save for retirement? Or phrased another way, what is my magic number? 

The answer to that question is; it depends.

Nobody likes hearing that answer but it is the truth.  Figuring out how much you will need at retirement is a complicated topic and unless we are sitting at a table together I don’t think I can give you a precise number.  But what I hope to accomplish in this guide is get you a number that is probably within the range of what you could need when you retire.  The numbers you are about to see might concern you…retirement is not cheap.  But with a good strategy and the determination to get there you can succeed.

We utilize a 4-Step process for retirement preparation that helps simplify your financial situation down to some basic information.  As I mentioned before, this isn’t going to be an exact number but should be in the ballpark.  As you get closer to retirement you will then be able to fine tune your strategy because you will hopefully have a better idea of what you want to do in retirement, where you plan to live and what your expenses are.  My 4-Step process is this:

  1. How much money will I need to have set aside at retirement that I can then turn into an income stream for retirement?
  2. How much money do I need to save each month to get to that nest egg?
  3. What financial vehicles could I use to work on building that nest egg in a tax-efficient way?
  4. What tactics/investments fit my risk tolerance and time horizon to help me meet my retirement goals?

If you have access to a financial calculator you will be able to get a more precise number for your situation. You will see some charts in the following articles that might get you close to your number but using a financial calculator or an online calculator is going give you a more tailored number for your situation.

Ready to begin?  If yes, please proceed to 

2107619 / DOFU 5-2018

Step 4 – Meeting my retirement goals

What tactics/investment vehicles may fit my risk tolerance and time horizon to help me meet my retirement goals?

There are a whole host of investments you can put your money in these days.  Some are products issued by investment firms, insurance companies, banks and federal/state/local governments.

  • CD’s
  • Bonds (Municipal, Treasury, Corporate, International)
  • Exchange Traded Funds (ETF’s)
  • Index Funds
  • Actively Managed Mutual Funds
  • Individual Stocks
  • Real Estate Investment Trusts (REITs)
  • Private Equity
  • Hedge Funds
  • Precious Metals

This list does not contain every investment out there, but these are the most common ones used.  Each has varying fees and expenses as well as advantages and disadvantages.  The important thing to know is which investments are going to be suitable for your risk tolerance and time horizon.  Also, this list isn’t meant to say that you pick just one and go with that.  The list is merely to show you what are some of the more common choices out there and you may find that several are a good fit for your portfolio and offer the diversification and return potential you need or desire.

Neither diversification nor asset allocation guarantee against loss, they are methods used to manage risk

“Look at market fluctuations as your friend rather than your enemy.  Profit from folly rather than participate in it.”  – Warren Buffet

Closing

I sincerely hope this series of articles was enjoyable and educational for you and I would love your feedback.  If you have any suggestions for improvement, or words of encouragement, please reach out to me at larry@midwestwealthadvisors.com

My hope is that the time you spent reading this was of value to you.  The goal was to provide you something to get you started on the retirement savings path or provide a check-up to see what you current financial strategy is doing and if you are on track to your retirement goals.  Hopefully you now have a good idea of what tools and strategies are available to possibly benefit your retirement, how much you may need to save, and some information about financial vehicles and investments that may work with your situation while also taking into account tax-sensitivities.

If you feel my firm can be of help on your journey, please call 763-428-0066 x3 or email appointments@midwestwealthadvisors.com to setup a No-Cost, No-Obligation, 25 minute phone call.

An even easier way to book your call is by clicking on the Click to Schedule button under my picture at the top of the page.

To Smarter Investing,

Lawrence B. Tate, ChFC

Financial Advisor

2107619 / DOFU 5-2018