Tag Archives: Retirement

Older Americans Have Not Saved for Retirement

Posted on by

Nearly one-third of older Americans have less than $10,000 saved for retirement.

Almost three in 10 older Americans between 55 and 67 years old have less than $10,000 saved for retirement, according to a new survey from Sagewell Financial, a banking and financial technology company focused on seniors’ money management.

Whereas, four in 10 older Americans had less than $50,000 saved for retirement. 

Paying for retirement by older Americans

The Sagewell Senior Certainty Survey of older Americans revealed:

  • 27% have less than $10K saved for retirement, and 40% have less than $50K
  • 57% are concerned that they will run out of money
  • 82% do not feel confident about their access to cash or liquidity in retirement
  • 73% said they welcome some income smoothing (receiving consistent income in the form of 1 or 2 consolidated monthly checks.)

“It is disheartening to learn that more than a quarter of Baby Boomers have less than $10K saved for retirement – that number jumps to 32% among women,” said Sam Zimmerman, co-founder and CEO of Sagewell. “Nearly 60% of seniors expect to live on less than $3K a month in retirement. We are at a crisis point now, and it will worsen unless we take drastic steps to improve the way our seniors plan for and live in retirement.”

Inflation and Recession

Older Americans are being hit hard by soaring inflation, painfully high gas prices, and fear of a looming recession which has outpaced increases in their benefits this year. These challenges have many older Americans worrying about their financial security and future. 

“If you have inflation and a recession combined together, it’s a whole different beast,” said Zimmerman. “This is a time for action. The quicker you move, the more agency you have in reducing the impact of a recession.”

Given the darkening forecast, it’s not too soon to plan ahead and prepare for a possible recession.

First, don’t do this

While there are money moves you can take to help ride out a downturn, that generally shouldn’t include bailing out of the stock market.  

“The worst thing people can do is they get nervous and pull money out the market,” said Jordan Rippy, a personal finance expert and accounting professor at Johns Hopkins Carey Business School. “Most people should be invested in the market for the long term.” 

Cut your budget

Instead, look for ways to trim your monthly budget. That can mean culling things like subscriptions and streaming services, while also negotiating discounts on your cable, cell phone and other bills. 

Pay off your debt 

It’s expensive to carry debt in an inflationary environment. In particular, you want to pay off credit card debt — or any kind of debt with a variable interest rate — right away. That’s because those interest rates will rise and add more debt. 

Keep contributing to your 401(k)

Do not press pause on saving for retirement. Indeed, if possible keep stashing the same fixed percentage of your income in your 401(k) or other retirement savings plan. Even if the market is volatile your assets will grow over time if you don’t try to time the market. 

This approach, known as dollar-cost averaging, ensures that people look past the usual dizzying swings in the stock market and keep building their nest egg.

Create new revenue streams

Try to diversify your income sources so that if your company downsizes and you lose your job, you’ll still have money coming in.

The Sagewell Senior Certainty Index is an online, random sample survey of 1,004 Americans between 55 – 67 who are approaching retirement or recently retired. The survey was conducted to gauge how seniors, particularly those who are online, view the certainty of their retirement planning. 

References:

  1. Jeff H, (June 21, 2022), Sagewell Senior Certainty Index, https://www.msn.com/en-us/money/retirement/nearly-one-third-of-older-americans-have-less-than-2410000-saved-for-retirement/ar-AAYHJVK
  2. https://www.sagewellfinancial.com/sagewell-senior-certainty-index-june-2022/
  3. https://www.cbsnews.com/news/inflation-recession-saving-money-tips-gas-how-to-prepare-financially/

Investing Involves Decision Making

Posted on by

Investing involves decision-making. But not making those investing decisions can be a more costly move in itself.

Choosing to invest your money in the stock market is like picking your first tattoo. The stakes are high and all the available options can seem overwhelming to your senses. Thankfully, there is an an abundant amount of good financial services, resources and advice available to help you avoid making a mistake mistake and to get you started.

There is truly no time like the present to start investing. Because the sooner you start, the more time your money has to grow and the more potential you have to earn, because of the power of compound interest. This is when your money earns money on itself and grows exponentially.

But, growth isn’t always guaranteed. Investing means taking in a certain amount of risk since the market moves in cycles. Although investing comes with some risk, it doesn’t have to feel like a high-stakes gamble.

Rest assured, historically, stocks have bounced back from every downturn in history. And, then continued to climb. Investing consistently overtime can make it easier to ride out the market volatility, the ups and downs.

The first step is determining what you want your future to look like financially in retirement. Retirement is probably your most important and expensive goal, and a good place to start.

It’s important to build a portfolio based on your time horizon, how you want to invest, how comfortable you’re with risk and what you plan to use your investment earnings are for. But, you must get started.

Ready, set, go(als).

Investing could help you owe the IRS less during tax time. For example, you have until the tax filing deadline each year to open and fund an IRA, which could help you claim an extra deduction.

Harvesting losses in your brokerage account could help you reduce your capital gains taxes for the year.

If you want more control over your investment portfolio, self-directed investing is the way to go. Self-directed investing is for people at all experience levels.

However, if you prefer a hands-off approach, financial advisors or automated robo-advisors can help you capture your financial goals and tailor an investment portfolio to achieve your financial goals, complete with regular rebalancing.

But, before you jump headfirst into investing your money, it’s wise to assess your present financial status first (your cash flow and net worth) and make sure you’ve got a solid savings foundation to build on.

Finding a balance between saving your money and building wealth through investing for your future is not rocket science. It is simple to build savings and help take the fear and uncertainty out of investing.

References:

  1. https://taskandpurpose.com/from-our-partners/set-your-future-up-for-success-save-and-invest/
  2. https://www.brighthousefinancial.com/education/retirement-planning/covering-everyday-expenses-in-retirement/

Great Retirement

Posted on by

Millions of Americans retired sooner than they anticipated because of Covid-19

The pandemic pushed millions of older Americans out of the labor force. They retired sooner than they anticipated because of COVD-19. But according to economists, the Great Retirement of Baby Boomers should have spawned a surge in Social Security benefits applications — but applications for Social Security benefits are roughly flat. Perhaps because they aren’t retired.

The disconnect has economists wondering how many of these baby boomers might come back to the workforce — a key question when job openings have remained near record levels for months now. 

The retired share of the population is now substantially higher than before COVD-19, according to a Federal Reserve analysis. About 2.6 million older workers retired above ordinary trends since the start of the pandemic two years ago, based on estimates by Miguel Faria e Castro, an economist at the Federal Reserve Bank of St. Louis.

Americans retired early for many reasons, including because they lost their jobs, feared for their health or had to care for family members. Another factor was the boom in the value of financial assets such as investments and real estate, which gave some Americans an opportunity to stop working earlier than they anticipated.

Average net worth jumped 12% and 14.8% among families with a head of household aged 55 to 69, and 70 and older, respectively, Fed researchers found.

Under the U.S.’s federal retirement program, eligible workers receive a percentage of their pre-retirement income in monthly payments from the government. Workers can start receiving Social Security payments at age 62, with full benefits coming at age 66 or 67 depending on their date of birth.

Despite the surge in baby boomers saying in surveys they retired, applications for Social Security benefits have been fairly flat, based on calculations by the Boston College Center for Retirement Research.

The surge was led by older White women without a college education, according to research by the St. Louis Federal Reserve. And, the Great Retirement — whether forced or by choice — was driven by baby boomers aged 65 and older, the regional Fed bank wrote in a blog post.

References:

  1. https://www.wealthmanagement.com/retirement-planning/great-retirement-disconnect-puzzles-us-economists
  2. https://www.aljazeera.com/economy/2022/1/11/great-retirement-in-us-is-led-by-older-female-baby-boomers

Estate Plan and Wills

Posted on by

“55 percent of all Americans—regardless of wealth or status—die without a will or estate plan in place,” American Bar Association

When R&B artist Prince died in April 2016 at the age of 57, he left behind an estate worth hundred of millions of dollars, along with music and other intellectual property of inestimable value. Despite his fame and wealth, Prince died without a will or estate plan. As a result, his estate has remained entangled in probate court for nearly six years. Although the value of his estate is estimated to be more than $100 million, it has paid more than tens of millions of dollars in administration fees.

Before you express too much astonishment that someone so wealthy left no will, ask yourself: do you have one? If the answer is no, then it should not be surprising that Prince didn’t.

If you don’t have a will, you’re not alone in America. According to the American Bar Association, 55 percent of all Americans—regardless of wealth or status—die without a will or estate plan in place, and the number can be as high as 64 percent. For some reason, many people who should have wills, whether because of their age or financial situation, just don’t.

It’s hard to understand why. Maybe because it’s depressing to think about needing one. Maybe it’s because we know we won’t be around when our estates are distributed, so we let it slide.

Regardless, everybody should have at a minimum a last will and testament if you don’t have a more complex estate plan like a trust, because it’s always cheaper to administer an estate when you have a will than when you don’t have anything.

When a person passes without a will, or what the law calls “intestate,” the estate property is distributed according to state succession laws. A probate court judge will have to determine who and how the assets are distributed in the event of your passing or incapacitation.

Additionally, if you die without a Will, you’re giving the state you reside in full control over the distribution of your assets, and intestate serves as the precedent for how decisions are made and how your assets will be distributed on your behalf.

Dying intestate means the most crucial decisions — including who will care for your children, aged parents, pets or other dependents — will be made without your input. Further, your family will be forced to endure a lengthy and costly probate process and incur potentially crippling legal expenses to regain control of your finances and assets.

Most probate court cases are open to the public, which means many of the details of a person’s estate could be aired like dirty laundry. Although, a judge could decide that the documents should be sealed.

In most states, a surviving spouse is first in line for the estate’s assets. If there is no spouse, the law provides an order of succession. In many states, if there’s no spouse, the children get the estate. If there are no children or grandchildren, then the parents inherit.

If no parents are alive, then siblings, nephews, and grandnephews inherit—and on and on—all the way to first cousins twice-removed. And, if no heirs can be found, it may not surprise you to learn that your property eventually goes to the state—a process called “escheating.”

Estate Planning

When you think about Estate Planning, you must not only think about when you die, but you must think about the possibility of becoming disable.

Estate planning is much bigger than “You get my assets after I die”—it is about setting your families up for the type of generational wealth.

An estate plan ensures your medical, financial and guardianship decisions will be handled by the person(s) you choose and trust. Your plan ensures you have an advocate acting on your behalf, carrying out your wishes and directions as you intended. It ensures you have the legal documents in place if you become disabled, as well as what will happen to your assets when you die.

Statistically speaking, most people are going to be disabled for some period of time before they die now that people are living so long. If the person becomes disabled and can’t make their own medical or financial decisions, the only way that somebody can legally make decisions for them is to go to court and do a guardianship or conservatorship proceeding. It’s expensive and time-consuming, and it’s really unnecessary.

In a will, the person who makes the will picks the executor, the person that’s in charge. You can say that you want your executor to serve without posting a bond. If that’s not stated in a will, you have to get a fiduciary bond so that the court knows you’re not going to steal the assets.

If you have minor children, a will is the only legal document where you can nominate guardians for your children.

But if you don’t have the will, then it’s the state statute that determines who is the person with priority to administer your estate. And because the state doesn’t know whether the person who says they want to administer your estate is a crook or not, the court often makes someone post a fiduciary bond. You have to pay the premium for the bond and the person has to qualify financially for a bond.

What you should learn from Prince’s passing without a Will or Estate Plan is that unless you create an estate plan now, you will leave your loved ones and potential heirs with a legal mess whether you are worth millions or not.

References:

  1. https://www.cnn.com/2016/04/28/opinions/prince-died-intestate-you-might-too-cevallos/index.html
  2. https://matermea.com/estate-planning-basics-african-americans-black-families/
  3. https://blavity.com/how-black-americans-are-missing-out-on-the-largest-wealth-transfer-in-history

Guide to Medicare Enrollment

Posted on by

At age 65, you’re eligible to enroll in Medicare and reap some benefits from a program you’ve contributed during your pre-retirement years. But, getting the most out of Medicare can be daunting. 

It’s important to understand your options and the rules that apply. For instance, missing your enrollment date may mean penalties or even higher premiums for the rest of your life. At the same time, you don’t want to pay for additional coverage you don’t need, especially if you’re still working.

If you are receiving Social Security, you are automatically enrolled in Medicare Parts A and B (known as Original Medicare) at 65. You’ll receive a Medicare card two or three months before your birthday, and coverage starts on the first day of your birthday month.

  • Part A covers hospitalization and usually comes with no premiums, assuming you or your spouse paid into Medicare while working.
  • Part B, which covers medical services, does require premiums, but you have the option of withdrawing if you wish.

If you aren’t yet receiving Social Security, you will need to apply for Medicare during one of the designated annual enrollment periods. Your initial enrollment period lasts for seven months, beginning three months before the month in which you turn 65. To help avoid a potential gap in coverage, consider enrolling during the three months prior to your 65th birthday.

If you’re still working and covered at age 65, you should consider enrolling in Part A anyway, as it is generally premium-free and may cover some expenses not included in your employer’s health plan.

Premiums for Part B may be higher because of your income, so it may be wise to delay enrollment in Part B until after you retire as long as you work for a company with 20 or more employees.

If your company has fewer than 20 employees, consider enrolling in Part B as well because Medicare is considered your primary insurance. You can enroll without penalty at any time during the eight months after you stop working or your employee health coverage ends.

If you miss that window, you may be subject to penalties that, in the case of Part B, could last as long as you remain covered. (For insights on what you can consider doing if you lose your health-care benefits before you turn 65.

Additional coverage includes Part C, known as Medicare Advantage. It includes plans administered by private companies such as health maintenance organizations and preferred provider organizations. They offer the benefits of Parts A and B, and often include such additional benefits as vision, hearing and dental coverage.

Costs for Part C plans vary according to the insurer. Some plans may require referrals or restrict you to doctors in a network, and you must already have Parts A and B in order to enroll. Another consideration: Some plans may limit their coverage to a certain geographic area, so if you anticipate traveling a great deal or relocating, Medicare Advantage might not be for you.

And, Part D offers prescription drug coverage for both brand-name and generic prescription drugs. You must be enrolled in Medicare to enroll in a Part D plan, which you purchase from a private insurer. Although premiums, deductibles and copays vary by plan, federal law limits your annual out-of-pocket costs for prescription drugs. Before enrolling in Part D, check whether you’re already covered for prescription drugs under a Part C Medicare Advantage plan. You may not need it. And if you decide later on that you need additional coverage or want to change your existing plan, you can do so during designated enrollment periods.

There are services that are not covered by Medicare. Original Medicare (Parts A and B) won’t cover copays, coinsurance or deductibles, nor will it cover medical care when you travel outside the United States. Some services, such as long-term care, acupuncture and cosmetic surgery, also aren’t covered. Some of these services are likely to be covered if you enroll in a Part C plan. Long-term care, however, is not among them.

As an alternative to Part C, you may supplement Original Medicare with Medicare Supplement Insurance, also known as Medigap. Plans providing such coverage follow strict federal and state standards, and costs vary by policy and insurer.

To buy a Medigap policy, you must be enrolled in both Parts A and B. To guarantee availability, you must sign up within six months of enrolling in Part B.

If you have TRICARE (health care program for active-duty and retired service members and their families), you generally must enroll in Part A and Part B when you’re first eligible to keep your TRICARE coverage. However, if you’re an active-duty service member or an active-duty family member, you don’t have to enroll in Part B to keep your TRICARE coverage.

Most people with TRICARE entitled to Part A must have Part B to keep TRICARE drug benefits. If you have TRICARE, you don’t need to join a Medicare drug plan. However, if you do, your Medicare drug plan pays first, and TRICARE pays second.

If you join a Medicare Advantage Plan with drug coverage, your Medicare Advantage Plan and TRICARE may coordinate their benefits if your Medicare Advantage Plan network pharmacy is also a TRICARE network pharmacy. Otherwise, you can file your own claim to get paid back for your out-of-pocket costs. For more information, visit tricare.mil, or call the TRICARE Pharmacy Program at 1-877-363-1303.

To learn more, the official Medicare site, medicare.gov, offers detailed information on signing up; the specifics of Parts A, B, C and D; costs associated with Medicare; penalties for missing enrollment; and other important issues. Go to the site’s “Find Health & Drugs Plans” section to sort through and compare the plans available in your region.

References:

  1. https://www.medicare.gov/sites/default/files/2020-12/10050-Medicare-and-You_0.pdf
  2. https://www.ml.com/articles/your-guide-to-medicare-5-key-questions-answered.html
  3. https://www.medicare.gov
  4. https://tricare.mil

Financial Freedom

Posted on by

“It’s the ability to live and maintain the lifestyle which you desire without having to work or rely on anyone for money.” T Harv Eker

Financial Peace guru Dave Ramsey proclaims that “Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them.”

It’s about having complete control over your finances which is the fruit of hard work, sacrifice and time. And, as a result, all of that effort and planning was well worth it!

Nevertheless, reaching financial freedom may be challenging but not impossible. It also may seem complicated, but in just a straightforward calculation, you can easily estimate of how much money you’ll need to be financially free.

What is financial freedom? Financial freedom is the ability to live the remainder of your life without outside help, working if you choose, but doing so only if you desire. It’s the ability to have the things you want and need, despite any occurrence other than the most catastrophic of outside circumstance.

To calculate your Financial Freedom Number, the total amount of money required to give you a sufficient income to cover your living expenses for the rest of your life

Step 1: Calculate Your Spending

Know how much you are spending each year. If you’ve done a financial analysis (net worth and cash flow), created a budget, and monitored your cash flow, then you’re ahead.

Take your monthly budget and multiply that amount by 12. Make sure you include periodic expenses such as annual premiums and dues or quarterly bills. Also include continued monthly contributions into accounts like your emergency fund, vacation clubs, car maintenance, etc.

Add all these together to get your Yearly Spending Total.

Keep in mind the lower the spending total, the lower the amount of money you’ll need to become financially independent. Learn how to lower your monthly household expenses and determine the difference between needs and wants.

Step 2: Choose Your Safe Withdrawal Rate

The safe withdrawal rate (also referred to as SWR) is a conservative method that retirees use to determine how much money can be withdrawn from accounts each year without running out of money for the rest of their lives.

The safe withdrawal rate method instructs financially independent people to take out a small percentage between 3-4% of their investment portfolios to mitigate worst-case scenarios. This withdrawal percentage is from the Trinity Study.

The Trinity Study found the 4% rule applies through all market ups and downs. By making sure you do not withdraw more than 4% of your initial investments each year, your assets should last for the rest of your life.

Step 3: Calculate Your Financial Independence (FI) Number

Your FI number is your Yearly Spending Total divided by your Safe Withdrawal Rate.

To find the amount of money you’ll need to be financially independent, take your Yearly Spending Total and divide it by your SWR.

For example:

  • Yearly Spending: $40,000
  • Safe Withdrawal Rate: 4%

Financial Independence Number = Yearly Spending / SWR

  • $40,000 / 0.04 = $1,000,000

Who becomes financially free? According to most financial advisors, compulsive savers and discipline investors tend to become financially free since:

  • They live on and spend less they earn.
  • They organize their time, energy and money efficiently in ways conducive to building wealth.
  • They have a strong belief that gaining financial freedom and independence is far more important than displaying high social status and financial symbols.
  • Their parents did not keep on helping them financially.
  • They have a keen insight to recognize financial and wealth building opportunities.

Net worth is the most important number in personal finance and represents your financial scorecard. Your net worth includes your investments, but it also includes other assets that might not generate income for you. Net Worth can be defined to mean:

  • Income (earned or passive)
  • Savings
  • Investing to grow and to put your money to work for you)
  • Simple and more frugal lifestyle

Financial freedom means different things to different people, and different people need vastly different amounts of wealth to feel financially free.

Maybe financial freedom means being debt-free, or having more time to spend with your family, or being able to quit corporate America, or having $5,000 a month in passive income, or making enough money to work from your laptop anywhere in the world, or having enough money so you never have to work another day in your life.

Ultimately, the amount you need comes down to the life you want to live, where you want to live it, what you value, and what brings you joy. Joy is defined as a feeling of great pleasure and happiness caused by something exceptionally good, satisfying, or delightful—aka “The Good Life.”

It is worth clearly articulating what the different levels of financial freedom mean. Grant Sabatier’s book, Financial Freedom: A Proven Path to All the Money You’ll Ever Need, the levels of financial freedom are:

Seven Levels of Financial Freedom

  1. Clarity, when you figure out where you are financially (net worth and cash flow) and where you want to go
  2. Self-sufficiency, when you earn enough money to cover your expenses
  3. Breathing room, when you escape living paycheck to paycheck
  4. Stability, when you have six months of living expenses saved and bad debt, like credit card debt, repaid
  5. Flexibility, when you have at least two years of living expenses invested
  6. Financial independence, when you can live off the income generated by your investments and work becomes optional
  7. Abundant wealth, when you have more money than you’ll ever need

The difference between income and wealth: Wealth is accumulated assets, cash, stocks, bonds, real estate investments, and they have passive income. Simply, they don’t have to work if they don’t want to.

Accumulating wealth and becoming wealthy requires knowing what you want, discipline, taking responsibility and have a plan.

Hundreds of thousands of Americans have great incomes, but you wouldn’t call them wealthy because of debt and lack of accumulated assets, instead:

  • They owe for their homes
  • They owe for their cars and boats.
  • They have little savings and investments
  • They have few “paid for” assets
  • They have negative net worth

Essentially, if you make a great income and spend it all, you will not become wealthy. Often, high income earners’ true net worth is far less than they think it is.

Here are several factors and steps to improve your financial life:

  • Establishing financial goals
  • Paying yourself first and automate the process
  • Creating and sticking to a budget. Know where you money goes.
  • Paying down and/or eliminating credit card and other bad debt. Debt which is taking from your future to pay for your past.
  • Saving for the future and investing for the long term consistently
  • Investing the maximum in your employer’s 401(k)
  • Living on and spending less than you earn
  • Simplify – separating your needs from your wants. You don’t need to keep buying stuff.

Financial freedom can look something like this:

  • Freedom to choose a career you love without worrying about money
  • Freedom to take a luxury vacation every year without it straining your budget
  • Freedom to pay cash for a new boat
  • Freedom to respond to the needs of others with outrageous generosity
  • Freedom to retire a whole decade early

When you have financial freedom, you have options.

“Your worth consists in what you are and not in what you have. What you are will show in what you do.” Thomas Edison

References:

  1. https://www.phroogal.com/calculate-financial-independence-number/
  2. https://www.ramseysolutions.com/retirement/what-is-financial-freedom
  3. https://thefinanciallyindependentmillennial.com/steps-to-financial-freedom/

Most Valuable Retirement Assets

Posted on by

“Retirement is like an iceberg, where 90% of what’s really taking place lies below the surface, absent from traditional financial plans and conversations” Robert Laura

For a long and fulfilling life in retirement, you need much more than financial resources and financial security. Consequently, there are more valuable retirement assets than financial.

Retirement planning is typically related solely to financial planning, all about numbers. It centers around one question: Do your financial assets — pension, 401(k)s/IRAs, Social Security, property, sale of a business, etc. — provide enough income to fund your desired retirement lifestyle?

5 Tips to Help You Stay Motivated to Exercise poster

You’ll need enough money to get by, of course, but you don’t have to be super wealthy to be happy. In fact, life satisfaction tops out at an annual salary of $95,000, on average, according to a study by psychologists from Purdue University. Enough money to never have to worry about going broke or paying for medical care is important. But financial freedom is not the only or even the most important piece of a fulfilling retirement.

Once you have a retirement plan in place, it is essential to focus on all those things money cannot buy. There are non-financial assets that studies show can improve life satisfaction in retirement. According to Kiplinger Magazine, they include:

  1. Good Health (Health is Wealth) – Good health is the most important ingredient for a happy retirement, according to a Merrill Lynch/Age Wave report. Studies show that exercise and a healthy diet can reduce the risk of developing certain health conditions, increase energy levels, boost your immune system, and improve your mood.
  2. Strong Social Connections (Emotional Well-Being) – Happier retirees were found to be those with more social interactions with friends and family, according to one Gallup poll. Further, social isolation has been linked to higher rates of heart disease and stroke, increased risk of dementia, and greater incidence of depression and anxiety. A low level of social interaction is just as unhealthy as smoking, obesity, alcohol abuse and physical inactivity.
  3. Purpose – Retirees with a sense of purpose or meaning were three times more likely to say “helping people in need” brings them happiness in retirement than “spending money on themselves.” Purpose can fall into three buckets, which means getting involved with your place of worship or spiritual pursuits, using your talents in service to others, and doing what you’ve always wanted to do.
  4. Learning and Growing – Experts believe that ongoing education and learning new things may help keep you mentally sharp simply by getting you in the habit of staying mentally active. Exercising your brain may help prevent cognitive decline and reduce the risk of dementia.
  5. Optimistic Outlook – Optimistic people tend to expect that good things will happen in the future. A fair amount of scientific evidence suggests that being optimistic contributes to good health, both mental and physical and may lower risk of developing cardiovascular disease and other chronic ailments and a longer life, and people with higher levels of optimism lived longer. Optimism is a trait that anyone can develop. Studies have shown people are able to adopt a more optimistic mindset with very simple, low-cost exercises, starting with consciously reframing every situation in a positive light. Over time, your brain is essentially rewired to think positively.
  6. Gratitude – People who counted their blessings had a more positive outlook on life, exercised more, reported fewer symptoms of illness and were more likely to help others. Gratitude enhances people’s satisfaction with life while reducing their desire to buy stuff.
  7. Dog Ownership – Older dog owners who walked their dogs at least once a day got 20% more physical activity than people without dogs and spent 30 fewer minutes a day being sedentary, on average, according to a study published in The Journal of Epidemiology and Community Health. Research has also indicated that dogs help soothe those suffering from cognitive decline, and the physical and mental health benefits of owning a dog can boost the longevity of the owner.

Retirement is major transition made up of many financial as well as life decisions. This is why it is important to create and to adhere a retirement plan as early as possible. That way you can spend more time focusing on everything else that equally matters.

References:

  1. https://www.kiplinger.com/retirement/happy-retirement/601160/7-surprisingly-valuable-assets-for-a-happy-retirement

Planning for Financial Freedom

Posted on by

Planning for financial freedom is the key to getting there. 

Your financial plan has to consider both the future and the present. For the present, you need enough cash available to cover your current expenses. Your long-term financial plan should prepare you for retirement, your kids’ college education or a big dream purchase. Putting money every month toward your current budget and your long-term goals is the goals.

For most investors, the biggest challenge has been staying the course and focusing on long-term goals in the face of market fluctuations. And, it’s important for investors to avoid getting discouraged since saving and investing are a long-term journey.

Working toward your goals:

  • Create a plan. Figure out how much you’ll need and set a target date to have that amount saved up, so you can create a savings plan with a specific monthly goal.
  • Automate your savings and investing. Include your monthly savings and investing goals in your budget to hold yourself accountable today for the future you want tomorrow.
  • Manage or eliminate your debt. Keeping your debt-to-income ratio low can help you get a better interest rate on both the home you have today and the home of your dreams. Furthermore, eliminating your debt gives you increased flexibility with your income to Dave and invest.

Another key to that financial freedom is building an emergency fund that can more than cover your expenses for 3–6 months if you needed it for life’s unexpected surprises like unforeseen major car repairs and medical bills that can derail your personal finances if you haven’t built up a buffer to cover them. 

Essentially, you should:

  • Build an emergency fund. Create and track your emergency fund in a separate account that you can access easily in case you need it.
  • Make a budget. Create a budget that includes a monthly savings goal, and track your savings contributions to build that emergency fund quickly.
  • Track your expenses. Watch your spending to make sure you’re staying within your budget, and check in on that budget regularly to find new places to save.
  • Track your debt. Create a comprehensive list of all your loans and credit card accounts so you can see everything together. Free yourself from debt by paying your minimums and attacking one debt at a time with extra monthly payments.
  • Include all your loan information. Keep track of the interest rate and monthly payment for each loan to help you create a solid debt-reduction plan.
  • Plan and schedule your extra payments. Pay extra on the loan with the highest interest rate until that one is paid off, then roll those payments into the next loan to pay that off even faster. 

A financial free retirement is one in which you can do the things you enjoy in life without worrying about money. For long-term goals like retirement, it is imperative to stay on track with your saving and investing no matter what comes your way.

Planning for a financially free retirement includes:

  • Track your net worth and cash flow. Tracking your net worth and cash flow can help you stay focused on your long-term objectives, reducing stress by giving you the information you need along with concrete goals to strive for. “Net worth is what’s yours, really yours. First, add up the value of everything you own, then subtract the total amount of any debts that you have. What’s left is your net worth”, explains Investment adviser Robert LeFevre Jr., a certified public accountant and certified financial planner
  • Consider your options. As you face decisions along the way, experiment with various scenarios to see how those decisions could affect your retirement.
  • Make managing and tracking your finances a habit. By reviewing regularly your long-term financial plan, you’ll have the information you need to keep on track with your financial goals—no guessing needed.

Financial freedom means that you get to make life decisions without being overly stressed about the financial impact because you are prepared. You control your finances instead of being controlled by them.

References:

  1. https://www.quicken.com/blog/claim-financial-freedom

Retirement Benefits

Posted on by

“Planning is the key to creating your best retirement.”

Social Security is part of the retirement plan for almost every American worker. It provides replacement income for qualified retirees and their families. On average, retirement beneficiaries receive 40% of their pre-retirement income from Social Security. Thus, it’s important to understand when planning for income during retirement, Social Security was designed to replace only a percentage of your pre-retirement income based on your lifetime earnings.

The amount of your average wages that Social Security retirement benefits replaces varies depending on your earnings and when you choose to start benefits. If you start receiving benefits at age 67 (full retirement age), this percentage ranges from as much as 75 percent for very low earners, to about 40 percent for medium earners, and about 27 percent for high earners. If you start benefits earlier than age 67, these percentages would be lower, and after age 67 they’d be higher.

Most financial advisers state that you will need about 70 percent of pre-retirement income to live comfortably in retirement, including your Social Security benefits, investments, and other personal savings and sources of income.

When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (usually, this is 10 years of work).

If you stop working before you have enough credits to qualify for benefits, the credits will remain on your Social Security record. If you return to work later, you can add more credits to qualify. Social Security Administration (SSA) can’t pay any retirement benefits until you have the required number of credits.

When you work, you pay taxes into Social Security. SSA use the tax receipts to payout benefits to:

  • People who have already retired.
  • People who are disabled.
  • Survivors of workers who have died.
  • Dependents of beneficiaries.

The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. SSA uses your taxes to pay people who are currently getting benefits.

Any unused money goes to the Social Security trust fund that pays monthly benefits to you and your family when you start receiving retirement benefits.

Retirement benefit

SSA will base your retirement benefit payment on how much you earned during your working career. Higher lifetime earnings result in higher benefits. If there were some years you didn’t work or had low earnings, your benefit amount may be lower than if you had worked steadily.

The age at which you decide to retire will also affect your benefit. If you retire at age 62, the earliest possible Social Security retirement age, your benefit will be lower than if you wait.

Full retirement age, or FRA, is the age when you are entitled to 100 percent of your Social Security benefits. If you were born between 1943 and 1954, your full retirement age was 66. If you were born in 1955, it is 66 and 2 months. For those born between 1956 and 1959, it gradually increases, and for those born in 1960 or later, it is 67.

Those dates apply to the retirement benefits you earned from working and to spousal benefits, which your husband or wife can collect on your work record. Keep in mind:

  • Claiming benefits before full retirement age will lower your monthly payments; the earlier you file — you can start at age 62 — the greater the reduction in benefits.
  • You can increase your retirement benefits by waiting past your FRA to retire. Each month you put off filing up to age 70 earns you delayed retirement credits that boost your eventual benefit.

Choosing when to start receiving retirement benefits is a personal decision. If you choose to retire and begin receiving benefits when you reach your full retirement age, you’ll receive your full benefit amount. SSA will reduce your benefit amount if you decide to start benefits before reaching full retirement age.

References:

  1. https://www.ssa.gov/benefits/retirement/learn.html
  2. https://www.aarp.org/retirement/social-security/questions-answers/social-security-full-retirement-age/
  3. https://www.ssa.gov/pubs/EN-05-10035.pdf

U.S. Middle Class Owns Few Financial Assets

Posted on by

U.S. Middle Class Households Have Few Financial Assets, According to New Analysis from the National Institute on Retirement Security (NIRS)

New analysis finds that across generations, middle class households in the U.S. own few financial assets and the median amounts held fall far short of the assets needed to fund a secure retirement.

In 2019, middle class Millennials owned only 14 percent of their generation’s financial assets. The numbers are even worse for middle class Gen Xers and Baby Boomers, which owned eight percent and six percent, respectively, of their generation’s financial assets.

“In America, the middle class can no longer afford retirement. Middle class Americans face sharp economic inequality, with ownership of financial assets highly concentrated among the wealthy,” explained Tyler Bond, National Institute on Retirement Security (NIRS) research manager. “Now that we have a retirement system largely built around the individual ownership of financial assets in 401(k) accounts, middle class Americans are struggling to accumulate sufficient financial assets during their working years. This means the retirement outlook for many in the middle class is bleak at best.”

The research also finds low numbers when examining the mean and median financial assets owned.

  • For middle class Millennial households in 2019, the mean financial assets owned were $17,802, and the median was $7,800.
  • Middle class Generation X households had mean financial assets of $62,944, and median financial assets of $39,000 in 2019.
  • For middle class Baby Boomers, the mean amount of financials assets held was $93,298 in 2019, while the median was only $51,700.

Baby Boomer households are retired or near retirement, but their assets fall far short of what’s required to finance a secure retirement,” Bond explained. “A nest egg of $51,700, the median amount middle class Boomers hold, would generate only $2000 of income annually over 30 years. This means that many middle class Boomer households may struggle in retirement and could face a sharp reduction in their standard of living.”

The research indicates that implementing pragmatic fiscal policy solutions can help middle class households get on a better path to saving for retirement including strengthening and expanding Social Security; protecting defined benefit pensions; and ensuring access to a retirement savings plan through an employer.

For this research, the middle class is defined as those between the 30th and 70th percentiles of net worth, or the middle 40 percent. The research is based upon data from the Federal Reserve’s Survey of Consumer Finances (SCF). It examines financial asset ownership, a broader category than retirement assets.

According to the SCF, the category of financial assets consists of liquid assets, certificates of deposit, directly held pooled investment funds, stocks, bonds, quasi-liquid assets, savings bonds, whole life insurance, other managed assets, and other financial assets. It does not include physical assets such as a home or a car.

The data for this research is for households rather than individuals.

References:

  1. https://www.nirsonline.org/2021/10/middle-class-u-s-households-have-few-financial-assets/