Retirement-income strategies are big business. Financial advisers and online advice services will help you transform your savings into a steady retirement paycheck—for a fee. Some mutual funds also promise to deliver a stream of retirement income—for a fee. And all manner of annuities will guarantee you lifetime income—for fees, fees and more fees. But what if the best retirement-income strategy didn’t require you to pay anyone for advice or fancy financial products, and you could actually implement it yourself while channel-surfing and ordering pizza?
If you’re a parent with kids in their 20s or 30s — or any kids at all — you’re probably no stranger to worrying about their future, including their financial future.
There tends to be an awful lot of advice flying around regarding when you should claim Social Security. The most common answer that I hear from other advisers is that you should wait until age 70. That’s not always the case. So here are the five factors that help determine when YOU should claim Social Security.
While we all must pay our fair share of taxes, being tax efficient simply means not making simple mistakes that can cause you to pay an unnecessary amount.
Most people realize the importance of saving for retirement, but knowing exactly how much they need to save is another issue altogether.
If you’ve been thinking about retirement, you’ve probably been focusing on three main considerations:
1. What age you’d like to retire;
2. What you want to do in retirement; and
3. If you’ll actually have enough money to accomplish items 1 and 2.
And that’s a great start. Those are all important things to be pondering as you make your retirement plans.
But I’m sometimes amazed by how few couples seem to talk about those topics. They’ll have conversations about their grandkids, their next big vacation and what needs to be done around the house. But they don’t seem to get down to the specifics of what their individual retirement dreams are and how they could mesh those ideas into one plan so the transition goes smoothly for both of them.
How bad is the disconnect? When Fidelity Investments did its most recent “Couples Retirement Study” in 2015, the majority of the couples they polled (72%) said they communicate exceptionally or very well. And 90% said starting a conversation about topics such as household budgets, savings, investments, wills and estate planning isn’t difficult. But half disagreed on their exact retirement age, and nearly half (48%) said they had “no idea” how much they would need to maintain their current lifestyle in retirement.
So how can you get on the same page with your spouse about your retirement plans? Why not put on some music, settle into your comfiest chairs and start a conversation by asking each other:
1. What age do you plan to retire?
When I started in the financial advisory business 20 years ago, most couples I worked with were around the same age. Now it’s not uncommon for one spouse to be five to 10 years younger or more. And their ideas about when they want to retire can be very different. I had a couple in recently who were far apart in age — and on this decision. He was older and had a retirement date set in his mind, and it was coming up fast. She kept finding one excuse then another for putting it off. It turned out she was worried that as soon as he retired he was going to want to start going and doing — and she would be stuck working. It wasn’t about money. She just wanted him to wait for her, even though he was ready to put in his notice any day.
2. What do you want retirement to look like?
We all have different dreams about what we want to do in retirement, and you don’t necessarily have to do everything with your spouse. But you should have an idea of what each person wants and how those goals can align. Will one partner start every day with a golf game while the other heads off to work? Will you sometimes travel alone or with friends? Do you want to do missionary work or volunteer? Be clear about what your expectations will be for the time you’ll spend together and apart.
3. How much money will you need to meet your retirement goals?
If you’re getting close to retirement, you should be able to put together a projected budget that includes your everyday expenses as well as the costs for some of the “extras” you hope to have: a dream trip to Europe, perhaps, or a vacation home or a boat. I’m always surprised by how few couples are working from a budget — even those who have been diligent savers. When I ask them to supply those numbers, they’re at a loss. But we can’t determine how much you’ll need and where it will come from if we don’t know how much you expect to spend. This is where it’s important to work with a financial professional who can make sure the plan is on target for both spouses.
4. What will happen to your income plan if one of you passes away?
This is a topic few couples want to talk about, but it’s a must. You should be prepared to talk to your adviser about how your pension payments, Social Security benefits and other income streams may be affected by the loss of one partner — and what tools you might use to replenish that income so the surviving spouse has enough money to remain comfortable. And you should discuss your strategies in terms of two separate scenarios, because there’s simply no predicting which spouse will die first.
5. How do you feel about market risk?
Another factor we can’t predict is what the market will do once you’re in retirement. The typical plan has a solid, safe foundation that includes your pension, Social Security and maybe an annuity check. But most couples also will be pulling from an investment portfolio, and that means having a conversation about the level of risk you’re both comfortable with and finding a compromise. Fortunately, we have new tools to help people with that. We use Riskalyze, which allows a couple to sit down at home and work their way through a few questions that will help them understand their feelings about risk. Every time you answer a question, the program will show what the consequences of that decision would be. It doesn’t just label you as a conservative, moderate or aggressive investor; it will show you a dollar amount and how that loss will affect you. Together, hopefully, you and your spouse can find a happy medium for your level of investment risk.
There’s nothing wrong with having some strong ideas about what you want your retirement to look like. You and your spouse will always have your own priorities. But why not talk them through now rather than waiting for an argument or some life event to push those decisions on you?
Once you make your way through all these topics, you’ll have a better opportunity to create a shared vision for your future.
We have become used to watching disasters recently, as hurricanes, floods, fires and earthquakes ravaged cities and changed lives. With every passing month, a new disaster replaces the old in the headlines.
Many articles about retirement planning either start or end with someone walking into an office to speak with a financial professional.
Let’s imagine, instead, that you have your entire nest egg in your pocket or purse and you just entered a casino.
There are two blackjack tables from which to choose. At the first table, the rules say that if you beat the dealer, you’ll win 50% on your investment; but if the dealer beats you, you’ll lose 50%.
Then you saunter over to the second table. The rules there say that if you beat the dealer, you’ll make 10% on your investment; but if the dealer beats you, you won’t lose a thing.
At which table would you want to sit? Your decision likely would be based on how you feel about risk in general and how close you are to retirement, among other things.
It’s the same when you’re investing in the market. With some investments, you might make a killing, but you also could lose a bundle. With others, there’s a limit on what you can gain, but you’ll lose less — or nothing at all. There are pros and cons to both, of course, and plenty of debate about which is the right way to go.
The good news is you don’t have to choose one or the other. You may have a place for both in your portfolio. The goal is to figure out what you need and find the appropriate products to help.
The 6 concerns of retirement
I’ve met thousands of pre-retirees over the years, and everyone is different. They come from different backgrounds, and they have and want different lifestyles, but there are six core concerns they all have when entering retirement, and they need strategies that can deal with each:
Income longevity: They want to be certain their money will last their lifetime.
Risk: They worry a big market correction could take away much of their wealth.
Taxes: They don’t want to give Uncle Sam any more of their money than necessary.
Inflation: They want to avoid losing purchasing power as the years pass.
Long-term illness: They worry about becoming sick and/or disabled.
Death: They hope to leave some kind of legacy behind for their loved ones.
If you keep your money fully invested in stocks, bonds and mutual funds ‐ with a singular focus on growing your assets, as many people do — you are hoping that the growth will deal with all of these concerns. But what if you experience loss? It’s important to keep an open mind about safe alternatives that can provide income guarantees* while still offering the opportunity for growth, a disability backstop, tax efficiency and something that can be passed on when you die.
A possible answer for those concerns
A fixed-index annuity addresses all these basic retirement concerns.
Think back to those casino tables — and the one that offered a chance to play and make some money without the risk of losing. A fixed-indexed annuity is like that: It’s not intended to beat the stock market — rather, it provides the opportunity to make something based on the movement of the market. And that gives it more growth potential these days than other traditional safe accounts, such as certificates of deposit or money markets.
Now, I know some people are skeptical about annuities. I can lay out all the benefits they provide, and still a client will hear the word annuity and turn up his or her nose.
And I understand why. There are many different kinds, some have been misrepresented, even the best ones aren’t right for everyone, the contracts and costs can be confusing, and often people buy into them without really understanding what they’re getting.
But I urge even the most die-hard annuity haters to give them another look. They’re powerful tools that deserve consideration — especially by those who are retiring without pensions.
An annuity is a way of giving yourself a pension by asking an insurance company to manage some of your nest egg for you. And if that makes you feel more secure in retirement, what’s wrong with that?
If your financial adviser brings up the subject of annuities, give him a chance. If he doesn’t bring it up, ask. And then, do some investigating on your own.
Once you’re informed, you won’t feel as if you’re gambling with your nest egg. You’ll actually have done something to better protect it.
When most people think about investing for retirement, it’s usually in terms of market returns — because that’s what the media wants us to think about.
Let’s cut to the chase when it comes to picking stocks for a retirement portfolio. There’s nothing wrong with sorting through individual names for desirable attributes such as reliable dividends, low volatility and secure business models. But it’s quicker, easier and perhaps wiser for retirees to first narrow down the field. Taking the lead of the greatest value investor of all time is a good way to start.