Tag Archives: Retirement

Social Security: Claim too early and lose $100,000 in retirement | USAToday

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In 2019, about 64 million Americans will receive over one trillion dollars in Social Security benefits, according to the Social Security Administration’s Social Security Fact Sheet. Those Americans will lose an average of $111,000 per household over a lifetime by taking Social Security benefits too early into their retirement, rather than using their own savings.


Only 4% of retirees took Social Security at the financially optimal age, which, for 83.4% of Americans, was age 67 or older. The best age depends on a host of factors, including life expectancy, other income sources, future costs in retirement and if you’re married or still working.
Fortunately, there are general rules of thumb that will get you close to your best claim age:

  • Nearly no one is better off claiming before 65.
  • Nearly everyone is better off claiming between 67 and 70.
  • If you’re married, the person who earned the most should wait until 69 or 70. The person who made less can claim at 66 or 67.

— Read on www.usatoday.com/story/money/2019/06/28/social-security-claim-too-early-and-lose-100-000-retirement/1572620001/

Americans’ Confidence in Their Finances Keeps Growing

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Americans’ optimism about their personal finances has climbed to levels not seen in more than 16 years, with 69% now saying they expect to be financially better off “at this time next year.”

The 69% saying they expect to be better off is only two percentage points below the all-time high of 71%, recorded in March 1998 at a time when the nation’s economic boom was producing strong economic growth combined with the lowest inflation and unemployment rates in decades.
— Read on news.gallup.com/poll/246602/americans-confidence-finances-keeps-growing.aspx

Sustaining retirement income in a lower-return world | Vanguard Blog

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Retirement spending: 3 strategies

This challenging topic regarding spending rules to help retirees who want to generate a paycheck from their portfolios. Two of the most popular are the “dollar plus inflation” and the “percentage of portfolio” rules. One alternate solution: is the “dynamic spending” strategy.

The dollar plus inflation strategy is just what it sounds like. Upon retirement, you select the initial dollar amount you’d like to spend each year and increase that amount annually by inflation. The well-known “4% rule” follows this approach (Bengen 1994[1]). While this strategy allows for rather stable real spending from year to year, it also requires a trade-off: a higher risk of premature portfolio depletion. The chink in the armor for this strategy is that it’s indifferent to the returns of the portfolio, which can be problematic in both bear and bull markets. The result is you could potentially run out of money (or at least have to substantially reduce your spending since you’re not likely to continue spending down to your last $1) in the event portfolio returns are negative, or you could potentially live well below your means and not enjoy retirement to its fullest if portfolio returns are much better than expected.

The percentage of portfolio strategy, on the other hand, may be too sensitive to returns, creating significant income volatility based on market movements. With this strategy, the annual spending amount is a consistent percentage of the portfolio’s value. This approach ensures that the portfolio won’t be depleted, but as the portfolio’s value rises and falls, the income amount will rise and fall as well—sometimes dramatically. Yes, it’s this last part—income falling in response to negative returns—that people often struggle with.

The dynamic spending strategy is a more flexible approach that moderates the other two strategies’ weaknesses, as summarized in Figure 1.

With dynamic spending, you would calculate each year’s spending in three steps:
Use the percentage of portfolio approach (e.g., 5%) to calculate a spending level based on the portfolio’s value at the prior year-end.
Determine a range of acceptable spending levels based on the prior year’s actual portfolio value. To find the range, increase the prior year’s spending by 5% (the ceiling) and reduce it by –2.5% (the floor).[1]
Finally, compare the results. If this year’s spending amount based on the percentage of portfolio:
Exceeds the ceiling amount, spend the ceiling.
Is less than the floor amount, spend the floor.
As you can see, the dynamic spending strategy is a bit more involved and may require a little more discipline and oversight to follow compared with the other two strategies. Given that, this is certainly one area where working with a financial advisor can make a lot of sense and may even pay for itself.
— Read on vanguardblog.com/2019/08/08/sustaining-retirement-income-in-a-lower-return-world/

How much to save per month for retirement

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Retiring can be an intimidating prospect, given the many financial unknowns involved. And there’s just something unsettling about giving up a steady paycheck and living on savings and Social Security instead.

The latter has older workers especially worried. In fact, 59% are concerned that Social Security won’t have adequate funds to pay their benefits, according to a recent Nationwide survey.

If you share this concern, you should know that it’s valid. But you should also know that there’s one important step you can take to alleviate it.
— Read on www.usatoday.com/story/money/2019/09/21/59-of-future-retirees-are-worried-about-social-security-data-shows/40153191/

Plan for Retirement by Focusing on Your Life Goals – Barron’s

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Scott Hanson, co-founder and senior partner at $4.5 billion Allworth Financial, sounds more like a life coach. After 27 years in the business, he understands that a big problem many folks have in retirement isn’t that they haven’t saved enough or invested wisely—it’s that they haven’t laid out their life’s goals and are left feeling deflated and unhappy.
— Read on www.barrons.com/articles/plan-for-retirement-by-focusing-on-your-life-goals-51568421815

  • Life is about relationships and meaning. When you leave the workplace, people risk losing relationships and their sense of purpose.
  • Money is just a tool and can help accomplish what’s important to people. Sometimes, people are still trying to get clarity on what’s important. A financial advisor’s goal should be to help people live rich and meaningful lives.
  • The danger of predicting where markets are going to go is that, if things go wrong, there could be dire consequences for life.
  • Taxes can take such a big chunk out of wealth. Paying attention to taxes—whether while selling an investment or taking a withdrawal from an IRA or considering a Roth IRA conversion—can mean the difference between paying 15% [on profits] versus 35%.

Grow Your Retirement Savings to Keep Up With Inflation- Ticker Tape

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Source: TD Ameritrade’s The Ticker Tape

— Read on tickertape.tdameritrade.com/retirement/your-retirement-savings-plan-inflation-15452

Key Takeaways

  • Understand if your assets are keeping pace with inflation and cost of living increases
  • Consider how even an “average” rate of inflation can cut into your retirement savings
  • Take a look at some saving and investing suggestions that might help you combat inflation
  • Most of us probably strived for better-than-average grades at school and better-than-average salaries at work. That being the case, it’s kind of surprising that so many investors seem to be comfortable having “average” retirement savings for their age.

Unfortunately, if your savings are just “average,” they probably aren’t going to account for inflation and cost of living increases both before and during retirement. The hard truth is that even after you retire, your assets will need to grow quicker just to keep up with higher prices.

How to make your retirement savings last forever — Market News

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New research, which began circulating in academic circles earlier this month, was conducted by Javier Estrada, a professor of finance at IESE Business School in Barcelona. His new study is entitled: “Managing to Target (II): Dynamic Adjustments for Retirement Strategies.”

In it, Estrada measured the success rates of various strategies that adjusted withdrawal rates depending on whether your portfolio in any given year is ahead or behind of what your retirement financial plan had assumed it should be. It will be ahead, needless to say, if your investments perform better than had been assumed by your financial plan–and behind if your investments have performed more poorly.

Estrada refers to strategies that adjusted withdrawal rates as “dynamic,” in contrast to the “static” strategy implicitly assumed by many financial planners.

To illustrate: Let’s say you retire with a $1 million portfolio, want to fund a 30-year retirement, and your investments grow at an annualized rate of 5% above inflation. Assuming you do not intend to leave a bequest, and assuming your portfolio’s investment return is 5% in each year along the way, you can withdraw the equivalent of $61,954 in today’s dollars in each and every one of those 30 years.

In fact, of course, that italicized assumption is unrealistic. Given the inevitable variability of yearly returns along the way–some good and some bad, it’s not unlikely that, at some point along the way, your portfolio’s performance would be insufficient to support that rate of steady withdrawals. You’d run out of money, in other words.

— Source and Read on research.tdameritrade.com/grid/public/markets/news/story.asp

21 lessons for how to get the most out of life, from a guy who retired at 50 – MarketWatch

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A man who retired at 50 offers some unvarnished truths about life and retiring.

“Life should not be a journey to the grave with the intention of arriving safely in a pretty and well-preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming “Wow! What a Ride!” — Hunter S. Thompson

— Read on www.marketwatch.com/story/21-lessons-learned-from-early-retirement-2018-04-12

Retirement Concern: How to Alleviate Four Common Fears for Retirees

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Source: TD Ameritrade’s The Ticker Tape 

https://tickertape.tdameritrade.com/retirement/reduce-common-retirement-concerns-fears-17461

1. Investment Loss

One of the biggest financial fears retirees may have is investment loss. Because the markets move cyclically, there’s a good chance you’ll experience a market downturn during retirement. This can be doubly painful if you’re a retiree, because you have little choice but to sell at a loss for the capital you need. For retirees this is called “sequence of return risk,” because withdrawing investments in a down or declining market may cause you to liquidate too many shares, which then leaves fewer shares to grow when the market bounces back.

2. Running Out of Money

When you’re younger, a market decline can be weathered in multiple ways: perhaps by saving more, working longer, getting a second job, or just waiting it out because you won’t need to use your savings for years. But once you’re close to or in retirement, running out of money becomes a serious concern. Few people would want to go back to work at age 95 because they ran out of money. Fortunately, the flooring strategy helps here too. Lifetime income means just that: an income stream that’ll last no matter how long you live. By deploying annuities and other lifetime income strategically—just to meet your essential expenses—you can cover basic needs and avoid becoming a burden to your kids or others.

3. Major Health Event

As we get older, it’s common to see an increased need for health care. It’s natural, as a retiree, to worry about a major health event that can set you back financially. But it’s possible to prepare to some degree for such events.

4. Inflationary Effects

Inflation is sometimes considered the “quiet killer” of retirement. Over time, prices rise, making your money less valuable. A dollar today is worth more than a dollar tomorrow. Keeping up with inflation is an important part of retirement planning.

Planning Matters

One of the best things you can do for yourself is to plan ahead. Meet with a retirement specialist to create a plan that might help you avoid unpleasant surprises in the future. The earlier you start, the more likely you are to avoid the common fears faced by retirees. Having a plan in place and making consistent contributions to a retirement portfolio can go a long way.

 

What Is Financial Health? – Morningstar Blog

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When evaluating a client’s “financial health,” advisors should take into account both economic stability and emotional well-being.

Emotional health is wreaking havoc on their finances. Some clients may be financially well-off, but so fearful of making a wrong choice that they don’t make any, leaving their wealth to slowly erode in cash accounts. Then there are clients who spend too freely, choosing blissful ignorance about potential damage to their bottom line.

Neither of these types of clients are financially healthy—regardless of wealth—because an individual’s attitude toward finances is just as essential to overall health as it is to the economic aspects of one’s life. In fact, the American Psychological Association  reports that money is continually one of the top sources of stress in U.S. households, regardless of the economic climate. 

It’s time to redefine the term “financial health” so it includes both a person’s economic stability and emotional well-being around his finances.  

— Read on www.morningstar.com/blog/2019/04/11/financial-health.html