Prioritizing Your Retirement Needs, Part I

retirement fundWhen you take the time to ponder your retirement picture, how much do you see and how well ­focused is the image? A comprehensive retirement plan is, in a manner of speaking, a picture of your future — a future in which an alarm clock won’t likely figure very prominently, if at all, since you’ll no longer be going to work every day.  Having a fruitful retirement is the postscript to the American Dream — and the ideal is to spend those proverbial golden years in comfort and calm, spending your time and money when and where you will. But in order for that to happen, you must carefully think about several retirement concerns and how much value you place on each before you can really see the full picture. It all comes down to prioritization, but oftentimes there’s just so much to consider that the task becomes daunting. To guide you down this crowded planning path, the Insured Retirement Institute (IRI), a not-­for­profit organization with a focus on insured retirement income, developed the “Retirement Expectations Checklist,” an extensive list of retirement concerns you should address when formulating your plan. To give you the resources and perspective you need to start developing a clearer view of it all, we’ll discuss a few of these important considerations as well as how other baby boomers generally feel about them so you can measure your concerns against those of your peers. The next step? Take your list of prioritized retirement needs to your advisor to discuss what you must do to meet your expectations and paint  your perfect — and complete — retirement picture.

Your Retirement Number: How much money will it take for you to retire? If you haven’t started thinking about this all ­important figure, like almost half (46 percent) of your boomer counterparts, now’s the time to do so. Once you have a general idea of how much you’ll need to save in order to enjoy a comfortable retirement, talk to your advisor or planner about which strategies and tools you can use to make it happen. And don’t forget to plan for a long post­work life — the chances that you or your spouse will survive at least to age 90 are pretty darn good, so plan with an eye toward never running out of income.

Investment Product Criteria: Combine long life expectancies with an unsteady stock market and an uneasy economy, and many Americans start craving safety. There’s certainly nothing wrong with that. More and more boomers are becoming aware of the importance of guarantees — guarantees in both principal protection and income generation. In fact, one­-third (33 percent) of boomers cite these guarantees as the most important criteria an investment or savings product must meet. What criteria are most important to you?

Your Retirement Age: How long do you think you’ll want to — or have to — work before you retire? When it comes to determining a retirement age, 39 percent of boomers don’t have a target age for when they will retire. But before trying to decide how old you’ll be when you leave the workforce, it’s a good idea to assess your situation with a qualified planner., as he or she can work with you to develop a realistic goal. If you already have an age in mind, your advisor will be able to tell you whether your goal can be achieved or if you’ll need to put a bit more — or maybe less — time into your career before you can put your feet up for good.

We’ve scratched just beyond the surface of what goes into crafting a beautiful retirement picture, and it should leave you with plenty to think about. Whatever you do, don’t lose sight of that image! In Part II of this article, we’ll discuss a few more common concerns you should take into account before retiring.

Are you Gambling or Investing?

gambling investingWe’ve all heard the old adage that investing in the market is the same thing as gambling. With America’s #1 wagering event, the Super Bowl, still fresh in our memories, it seems like a good time to take a look at the truth behind that statement.

According to mint.com, $87.5 million worth of legal bets were placed at Nevada sports books on last year’s Super Bowl. That sounds like a lot, until you read the next line. Legal wagering accounts for only 1% to 1.5% of all the gambling done on the big game. Do a little math and you’ll find that an estimated $8.6 billion was wagered on the Super Bowl last year, and that only accounts for gamblers in the United States.

Obviously the Super Bowl generates a lot of betting action, but when it comes to investing in the market you would assume that more people would be on board, right? Apparently not. A Gallup survey taken in 2011 discovered that 54% of Americans own stocks and according to Pregame.com writer RJ Bell, over 50% of Americans bet on the Super Bowl. However, while the rates of participation are similar, there is a stark difference between investing in a promising company and picking your favorite team on the money line.

The biggest difference is asset ownership. Many people forget that when buying stock in a company you’re not only asserting your opinion that the value of that company will rise, but also taking a partial ownership of the assets of that company. The money that you invest is equal to a piece of those assets. Try explaining to Steve Bisciotti how the $1000 bet you made on the Ravens at +3.5 should have gotten you a seat in the owner’s box when the big show was in the Superdome.

If you’re thinking that market investing isn’t as exciting as the all or nothing bet you placed February 3rd, you may be interested to know “that the neurological similarities between traders and gamblers are striking. Whether they are about to make a trade or plunking down a bet,” said Maggie Baker, a clinical psychologist interviewed by the Wall Street Journal, “the pleasure center in the brain lights up.” So, it feels good to bet, but it can feel just as good to invest. The trick is making sure that you’re actually investing smart, and not just using the market as a surrogate sports book.

Jeff Mackie, writing for Breakout on Yahoo.com, has identified three indications that you may be doing more gambling than investing with your portfolio.

Stock Picking – Putting money into one stock, instead of diversifying across several companies, makes investments much riskier.
Market Timing – Buying low and selling high is the key, but making sure that there is balance across your portfolio is more important than predicting booms and busts.
Track Record Investing – Hanging your future on one fund manager, no matter what his track record, is unwise. Spread the risk and reap the reward.

One day, instead of just planning a party, you’ll have enough money to buy your own ticket to the Super Bowl. Just don’t forget, if you do bet on the game and win, the IRS wants its piece. Gambling winnings, just like dividends, are taxable.

http://www.mint.com/blog/trends/betting-on-the-bowl-how-much-is- wagered-on-the-big-game-012012/
http://www.gallup.com/poll/147206/stock-market-investments-lowest- 1999.aspx
http://online.wsj.com/article/SB100014240527023034992045763881516610 37330.html
http://finance.yahoo.com/blogs/breakout/3-signs-gambling-not-investing- 143026282.html

4 Common Retirement Blunders

The prospect of finally retiring can be an exhilarating one, and saying goodbye to the daily grind can be immensely gratifying. But that’s only if you do it right. Overlooking even just one key component of a well­rounded retirement plan can create a hole that’s difficult to fill. Don’t make any plans on quitting before considering these four common retirement regrets and blunders.

1. Failing to establish a health insurance plan: If you plan on retiring before age 65, there are a number of things to consider, as that’s the age at which you become eligible for Medicare. If you plan on retiring more than a couple of years early, it’s worth looking into being added to your spouse’s company­sponsored health insurance plan (provided he or she isn’t retired as well). Other options include exploring self­insurance and whether you might be eligible to join a state insurance pool. And come next year, you’ll be able to buy health insurance from a state insurance exchange, and you could be eligible for a tax break on the cost if this coverage if your income is comparatively low or moderate.
You may also turn to your employer for short­term health care solutions. For example, even though it’s not as common as it once was, some companies do offer retiree health benefits to employees. What’s more, you should be able to retain the benefits of your employer’s group medical plan by using COBRA; however, you can usually only keep COBRA in play for 18 months. To avoid a health care nightmare, make sure you’ve determined how much time between your retirement and Medicare you need to cover, and put those plans in place now.

2. Overlooking required minimum distributions: If you have a traditional individual retirement account (IRA) or 401(k), then you also have an obligation to take required minimum distributions (RMDs) by age 70 ½. Check your account disclosures to verify when you’re required to take your first minimum withdrawal and how much that minimum is. Failing to take your RMDs on time or not withdrawing enough funds from the account will have serious punitive repercussions. In addition to paying income tax on the amount of money you should have taken, you could also be slapped with an additional 50­percent tax penalty. This is not an auspicious way to kick off retirement, so stay on top of your RMDs!

3. Leaving before becoming fully vested in your retirement plan: The time it takes to become fully vested in your company’s retirement plan, such as a 401(k) or if you’re lucky, a pension, differs widely from employer to employer, so do a little research to find out precisely when you are fully vested. If you only have a few more months to go, it’s worth sticking it out until you’ve hit that magic date, or risk losing out on extra money. If you leave your job before you’re fully vested, you may not be able to exercise stock options, maintain all of the 401(k) contributions your employer may have made, or be eligible for payouts from a pension.

4. Overspending on retirement hobbies and travel: Odds are good that you’ve been dreaming of the day when you’ll be free to travel whenever you like and finally have the time to indulge in your hobbies and passions. Unfortunately, travel and hobbies can consume cash faster than you might anticipate, and having more free time may compel you to find ways to fill that time with things such as meals out, shopping trips, home improvement projects, or entertaining — activities that often include spending money. Your spending habits and needs will change once when you retire, so begin planning a budget
now that includes the little extras like travel, rounds of golf, buying items for your hobbies, gifts for spoiling the grandkids, etc.

Retirement should be an exciting time — after all, you’ve worked your whole life to get there. So why risk slogging your way through common retirement challenges that can easily be avoided? Don’t take any chances with your retirement future. As you plan and prepare for your grand exit, remember to keep these four key considerations in mind.

Simple Strategies for Beefing up Your Savings

If you’re like most Americans, no matter how old you may be, you’ve had the importance of saving money beat into your head ever since childhood. Even now, as an adult, you can almost hear your parents voicing didactic phrases like, “A penny saved is a penny earned,” “Money doesn’t grow on trees,” or “A fool and his money are easily parted.” As a kid, these platitudes were more annoying than helpful, but grownups recognize how very right their parents were to emphasize the vital importance of learning how to save.

Of course, understanding the importance of saving your money and actually developing and following a savings plan are two entirely separate issues. For most Americans, savings doesn’t come as naturally as we might hope, but there are countless ways to start socking away some cash today. So figure out what you’re saving for and how much you’d like to set aside, and leave that procrastination behind you — you have no more excuses!

Separate Your Savings Goals
Instead of socking away everything into one savings account, set up a separate account for each of your savings goals. You’ll want these funds to be FDIC-insured, so you may need to open a few extra savings accounts at your bank: one for your emergency fund, one for your new-car fund, one for your vacation fund, etc. Any money you intend to save toward retirement, however, should be invested in a different, tax-advantaged accounts, as the yields with traditional savings-only vehicles are too low for a retirement fund.

Set Your Savings on Auto-Pilot
For an utterly hassle-free way to bolster your savings, arrange for your bank to automatically divert a predetermined dollar amount from each of your paychecks into a savings account (or a few savings accounts). You’ll be surprised how quickly funds add up, and since it’s an automated process you needn’t lift a finger. For example, if you get paid twice a month and you have your bank automatically deposit $100 from each paycheck into your savings, in a year’s time you’ll have saved $2,400 — and that’s before accounting for any interest you may have accrued.

Give Yourself an Allowance
Instead of pulling out that well-worn debit card whenever you get the urge, withdraw a small amount of cash to pay for your weekly incidentals. These will vary from person to person and even from week to week, but might include things like a morning coffee, lunches or dinners out, treats and impulse buys. Stick to your guns — once your “allowance” is gone, it’s gone until next week. If you can see the financial impact of these purchases, you’re less likely to spend your hard-earned money.

Reassess Your Home and Auto Insurances
Taking the time to shop around for better rates on your homeowners and auto insurance sounds tedious, but spending even as much as just half an hour comparing rates each year could save you hundreds of dollars, so it’s certainly time well spent. The reason you should make this an annual task is simple:Auto and home insurers readjust their pricing annually based on their claims history. You should also explore the possibility of using the same carrier to insure both your home and your vehicle, as most insurers offer a discount (which can be as much as 15 percent) for doing so, points out the NAIC.

Round Up
Every time you make a purchase with your checkbook or debit card, when you make a record of the transaction, always round up to the next dollar. For example, if you spent $11.39, you’d round up to $12; if you spent $3.04, you’d round up to $4. At the end of the month, total up the difference (or in this case, discrepancy), and add it to your savings account. All those pennies really do add up, so it’s a strategy worth trying.

Reward Thyself
Reaching one of your savings goals, no matter how large or small, is always an accomplishment, and one worth celebrating, at that. When you first sit down to develop your goal, decide how you plan to reward yourself for reaching it. Try to make the value of the reward commensurate with the amount of time and money you’ve saved: Did you finally pay off that department store credit card? Go ahead and buy those shoes or the nine-ion you’ve been eying — just be sure to use the cash you’ve saved to make the purchase, not a credit card. Don’t go overboard, or you’ll simply defeat your savings efforts.

The time to start saving is now, so try implementing some of the strategies listed above. The money you save by the end of the year will be well worth any short-term anxieties implementing a savings plan may produce.

How Retirement is Changing

Fast Forward: How Retirement is Changing

Predicting the future is a rough sort of business to find yourself in, particularly with a
world that’s begun changing more and more rapidly with every passing day.
Unfortunately a lot of people on all sides of retirement find themselves having to do this
very thing, having to try and figure out what directions the world will be taking them in
once they’re ready to stop working. Luckily you’re not alone, and most of us are trying
to maximize our options for our post-career years. Here are just a few of the ways in
which retirement is changing in the next decades, to help you stay ahead of the curve:

A: Retirees are living longer than ever before.
Advancements in medical technology have increased the average life expectancy of
individuals in developing nations; retirement planning is becoming more and more
troublesome for both actuaries and future retirees (Smart Money, 2012). This increased
longevity comes with a need to set up a matching retirement plan, particularly when some
retirements are expected to last longer than the amount of time the retirees spent working.
Rather than trying to predict how long your retirement is slated to last, be prepared for
the longer estimate in response to these treatments and technologies.

B: Children are staying with their families longer, even after college.
According to a new study released by Oregon State University, young adults in the 18-30 age bracket are having a harder time than ever becoming financially independent from
their parents (Journal of Aging Studies, 2012). This greatly affects those looking to retire
while their children are still young
adults, and can cause a domino effect that starts to
influence generations to come. There’s no guarantee of the job market recovering or this
trend changing in the next few years, so when looking at your retirement make sure to
factor in all of your current familial expenses.

C: Social Security may not be around in the future.
Social Security has always been a problem politically since it has a foreseeable end;
between longer life expectancies and the large baby boomer population, social security is
anticipated to “face funding shortfalls in about two decades if nothing changes” (CNBC
2012). While it’s quite possible that the government will come to a viable solution to
salvage social security benefits, it’s a good idea to plan for the ‘what ifs’ regard
less. Plan for social security as less of a guarantee and more as a pleasant possibility so there are no
unpleasant surprises down the road. Don’t have your retirement plan hinge on social
security as it may crumble within the next few decades.

Retirement is changing, but that doesn’t mean you can’t still build a healthy, strong
retirement plan even with a moderately uncertain future. Your retirement is something
that needs to be made to last a long time and you’re allowed to take your time putting the
right amount of money into it. As long as you avoid the unnecessary risks in relying on
social security, plan for a slightly longer nesting period for your children and plan for
your own longevity, you can avoid a few of the major pitfalls that your retirement plans
may otherwise succumb to.

http://www.smartmoney.com/retirement/planning/the-cost-of-living-longer–much-longer-1328897162395/
http://oregonstate.edu/ua/ncs/archives/2013/jan/no-more-%E2%80%9Cempty-nest%E2%80%9D-middle-aged-adults-face-family-pressure-both-sides
http://www.cnbc.com/id/100338122/Yes_We_Can_Fix_Social_Security_but_It_Won039t_Be_Pretty

The Tax Season Is Here: Putting your refund to work for you.

With tax season just around the corner and the IRS having just released information that it plans to issue refunds about as quickly as it did last year (9 out of 10 refunds released in under 21 days (www.irs.gov)), now is the time to start considering what you’re going to do with your refund. While the promise of a big check from the government always comes with some temptations (a new grill for the summer, a gift you missed out on over the holiday season) you should always make sure you’re investing that money wisely. While it may seem like a gift, and an easily spent one at that, remember that it’s mostly money from your other sources of income that you were never able to collect on. Your tax return should be treated like any other money put away, safe from withdrawals for a long period of time; take your excitement at getting such a big break in the mail as incentive to be smart and save. Here are a few tips to get you thinking about putting some of your tax refund to work.

Save it! Invest it!: The importance of either putting some of your return into a savings account or investing it cannot be stressed enough. A good rule of thumb, at the bare minimum, is take ~10% of every check you get and put it into a savings account or towards your investments. Before you know it, you’ll have a tax return a few times over waiting for you whenever you need it that can be used anytime throughout the year.

IRA?: Alongside the 10% rule for saving/investing, it’s also a good idea to look at doing something long-term with some of the money, namely, putting some of it towards an IRA or other form of guaranteed retirement income (annuities, etc). Nothing is more valuable to someone right now than an investment in future stability. Consider asking your advisor, while you’re trying to shrink your tax refund, about recommended retirement investment opportunities.

While it may seem like something of a killjoy at first, making sure that the first thing you do with your tax return is putting some of it in a place that will give you access to it in the future is of utmost importance in tax season. Whether you’re saving, investing, putting it into a retirement fund or contributing to a child or grandchild’s education, just remember that it’s better if your short-term desires wait until your long-term stability is taken care of. Before you know it, they will have caught up to each-other, and you’ll have made some hefty gains in the meantime.

Stockpicking?

There are so many unknown variables when picking individual stocks (literally trillions), that is why it is impossible to consistently guess which ones are going to go up or when they are going to go down.

The lure for stock speculators is similar to the gambler… the excitement that is felt and experienced when they hit the big winner. When we watch the markets we see big winners every day. Similar to walking through a busy casino, we see winners all of the time. This preys on wish fulfillment…why not me?

Just one big winner keeps them coming back until they can break their addiction. Just like the gambler, this usually does not happen until they hit bottom, after the inevitable several big losers in a row.

When picking individual stocks, it becomes an obsession. They check the news and the price almost every day. They think about the stock almost every day, if not every day. I have seen it happen over and over again.

Apple is the latest hot stock to cool off. Will the next big move be up or down? It’s anyone’s guess.

Tips to Maximize your Social Security Benefits

Maximize Your Social Security Benefits
You have worked hard all of your life. You have raised a beautiful family that you are proud of, and you and your spouse are finally ready to enjoy your golden years together. And yes, you have also planned and saved for these future retirement years. Maybe you planned many years ago or maybe you planned just recently; but either way, you probably factored in the boost offered from your future Social Security benefits. Whatever the boost might be, wouldn’t you rather maximize those benefits if possible? If the answer is a resounding “YES”, then you want to learn about the various claiming strategies, and fully discuss them with your financial adviser/financial planner. The proper strategy can amplify your lifetime Social Security benefits significantly.

An example of one strategy is waiting as long as possible to start claiming your Social Security benefits. The earliest age that a retiree can start claiming these benefits is 62 years old. However, did you know that once you reach your full retirement age (between 65 -67), your social security benefits increase by 8% each year plus inflation adjustments? Wow, the money claimed increase considerably just by waiting a little longer.

Are there claiming strategies that can optimize your Social Security benefits even if you need to start collecting at an earlier age? The answer is “Yes”. Advantageous strategies can be applied to this situation as well when you know how to maneuver through the claiming process… you just need the proper expertise to guide you through the rules. Once you know these rules and know how to navigate confidently through the claiming process, you can apply a strategy that works in your favor, and maximizes this money.

Some of these claiming strategies involve the idea of spousal benefits. Here, spousal benefits can be applied to a “Restricted Spousal” strategy as well as a “File and Suspend” strategy. According to Jim Blankenship, CFP, EA of Forbes Advisor Network, “File and Suspend allows for the lower wage earner to increase his or her benefits by adding the Spousal Benefit, while the higher wage earner continues to delay his or her benefit, adding the delay credits.” On the other hand, the Restricted Application for Spousal Benefits “provides one spouse or the other with the option of collecting a Spousal Benefit, while at the same time delaying his or her own retirement benefit.” All and all, any couple must carefully consider the particular rules pertaining to these strategies in order to determine the appropriate strategy that applies to their specific situation.

Overall, these claiming strategies can cushion your retirement years with thousands of dollars. If you are thinking about navigating through your Social Security claiming process alone, it might be very unrealistic because the rules behind these strategies can be complex and meticulous. Even the employees at the national and local Social Security offices cannot give any advice; therefore, it’s best to seek the help of a financial advisor who has an in-depth knowledge of the best Social Security strategies for retirees. The world today is very different… life expectancy has increased, pensions have dwindled, medical costs have increased, and the economy remains
uncertain. Especially now, maximizing your Social Security benefits is necessary because these are unfavorable conditions. So, make certain that you fully learn and understand the rules of each strategy before you chose. You can add thousands of dollars to your retirement funds just by applying the right Social Security claiming strategy for you.

Blankenship, Jim. “Are You Leaving Social Security Money on the Table.” Forbes. 26 November 2012.
Roberts, Damon. “The Retirement Planning Edge: Maximizing Social Security.” Fox Business. 27 November 2012.

Wednesday Wisdom from Mark Matson

Should investors try to predict the future?
“I always have to remind investors to stop playing God. Specifically that means stop trying to predict the market, and stop trying to forecast the market. Above all, it means stop trying to find anyone else who says they can do these things, because anyone who tells you that he can do it is either seriously delusional, uneducated, misinformed, or lying. So don’t ask anyone else to play God when building your portfolio and advising you, because no one can.” Mark Matson

Mark Matson on Prudent Investing

The complexity of investing and the overwhelming tendency to perpetuate self-destructive investing behavior make it seem only natural to seek professional help. Many Americans turn to financial planners, brokers, or fee-based money managers. But are these professionals as a whole any better than Main Street investors when it comes to following the simple rules of investing and applying academically sound investment principles, or are they part of the problem? Are they true defenders and protectors of disciplined investing, or is it a classic case of the fox guarding the chicken coop? The average financial professional is not any more seasoned and prudent than the average investor.

That is why I have dedicated my life to only one part of the planning process —prudent investing.