Building your Retirement Savings

 Investing, Retirement Planning  Comments Off on Building your Retirement Savings
Jun 292016
 

In relatively simplistic terms accumulating funds for retirement is conceptually quite simple:

  • Spend Less than you Make
  • Automate your Saving
  • Create a Diversified Portfolio
  • Have a Long Term View

With a reasonable amount saved on a regular basis appropriately invested, will get you to a comfortable retirement next egg.

Of course the sooner you start the better! With compounding of returns, time and money can work wonders even with today’s relative modest returns and volatility.

If we could all start saving with our first job, this would be a relatively easy task.

Unfortunately the real world isn’t necessarily that easy.

Therefore the first step is to actually earn enough to be able to save after covering the basic necessities.

If you have the basics covered, the next step is to manage your spending plan to be sure that long-term saving are part of that plan. Basically be sure you are paying yourself. This is where the automatic investment plans come in to plan.

Initially the growth of your retirement plan is going to primarily come from you periodic contributions. The annual earning will seem quite trivial, but after a few years the earning will become a significant element of your retirement account. At this step, it is very important that you have managed your account to minimize investment cost and invested in a manner that will let grow at a pace that is consistent with your risk comfort level.

Finally as you near retirement, you will want to review your investment options and consider what risks you are willing to accept with these funds. This doesn’t mean that you become ultra conservative your account as you, especially if you have a spouse, are likely to have a couple of decades of retirement living expenses to fund.

Michael Kitces in his blog on this topic describes these steps as: Earn, Save, Grow, Preserve.

If you have any questions or concerns about the status of your retirement plans, let’s get together.

 

 

 

Retirement Spending Strategies

 Retirement Planning, Social Security Withdrawal Planning  Comments Off on Retirement Spending Strategies
Jun 282016
 

Michael Kitces recently had a blog posting regarding tax efficient spending strategies from retirement portfolios.

He notes that the conventional wisdom is to draw down taxable accounts and let the tax deferred account continue to grow.  However as with most rules of thumbs or short cut decisions this one does come with a caveat of its own.

If you’ve done a really good job of accumulating tax deferred savings, you may want to consider an alternate strategy. This is especially so, if your required minimum distributions are potentially so large they will put you in a higher tax bracket than expected when they start.

If that is the case you may want to consider drawing funds from you IRA during the early part of your retirement to reduce the size of the future RMDs. Even if you don’t need the funds for your retirement living spending plan, you may want to convert traditional IRA funds to Roth IRA funds to at least get your income up to the tax bracket you are most comfortable with.

The conventional wisdom is generally correct in that deferring taxes and using those funds to build your retirement savings is a good plan. However as you approach the last few years until you actually retire and especially in the last few years before Required Minimum Distributions come into play, some additional planning with regard to income taxes will likely be beneficial.

For additional information on this, you can check out Michael’s blog or better yet, just get ahold of me and we can talk about your individual situation.

 

Brexit

 Investing, Wealth Management  Comments Off on Brexit
Jun 252016
 

Well the conventional wisdom was that United Kingdom would remain part of the European Union.
The “markets” don’t like uncertainty and they definitely don’t like surprises.
Friday was the reaction to the surprise.
Over the next few days / weeks we will see how the market reacts to the uncertainty.
In and of itself, not being in the European Union is not a disaster, but it will be unsettling at least until everyone figures out what’s really going to happen.
The real challenge may be to figure out the unintended consequences!

Jun 172016
 

This post will cover the last of the Four C’s.

Cost of Living or inflation will need to be considered.

  • Inflation
    • Obviously if you are living on a fixed income with a relatively fixed asset base, inflation will be a challenge for a successful retirement
      • Recently it has been 2% or less
      • During the 1970’s, it was 8% or more
    • Healthcare costs have been increasing a substantially fast pace
      • Clearly healthcare cost will have to be factored into a retirement plan in some fashion
    • For many retirees, Social Security will be their only inflation adjusted income source

Certainty is something we all strive for in retirement. However many factors are out of our control. For example:

  • Life expectancy in general is increasing
    • But what will my life expectancy be
  • Healthcare costs are typically greatest the last few years of life
    • But when and how much will that be
  • Investment returns will be variable even if they are generally favorable
    • But Sequence of returns risk will be a concern

If any of this information strikes a cord with your thoughts and concerns, it’s time to schedule a visit with a financial planner.

The Changing Face of Retirement

 Retirement Planning, Social Security Withdrawal Planning  Comments Off on The Changing Face of Retirement
Jun 162016
 

This segment of the Four C’s focuses on Comfort.

Basically, what is your view of a satisfying retirement – what’s your vision of success?

  • Life Style Goals
    • Live comfortably – However you define it
    • Free of financial concerns
      • 35% of pre-retirees are not prepared for retirement
      • 50% are not comfortable with their retirement plans
      • delaying retirement is not a valid back-up plan
        • 47% retire earlier than planned
  • Stock Market Fluctuations
    • How important is the Safety of your investment versus the Return on your investment
      • 76% of pre-retirees prefer a nominal guarantee
  • Expense Pyramid
    • Identify which category your expenses fall into
      • NEEDS – Basic livings expense
      • WANTS – Travel, entertainment, etc.
      • WISHES – Legacy goals
    • Clearly understanding which category each expense fits into will allow you to manage and monitor your various income sources
    • Depending on your situation, you may want to consider an income / investment strategy that is appropriate for each expense category.

The next installment will discuss the last two C’s.

The Changing Face of Retirement

 Retirement Planning  Comments Off on The Changing Face of Retirement
Jun 152016
 

To follow up on the Four C’s article…

CLARITY is the understanding part of the process in which you will:

  • Identify your retirement income sources
    • Basically how much monthly income will be generated
    • When will these funds be available
  • Develop and Understand an income strategy
    • How much will be guaranteed?
      • Social Security
      • Pension
      • Annuity
    • What level of variability can you tolerate?
  • Consider longevity
    • How many years will our retirement planning need to consider
    • How do we plan for the surviving spouse
  • Allow for inflation
    • How will inflation impact our living costs
    • What about the cost of medical care
  • Develop Estate / Legacy Plans
    • Do we want / need to provide for our heirs
    • Do we have a charitable intent we wish to provide for
  • Evaluate the timelines in the cash flow
    • Will income come in to match the spending plan
    • How do I adjust my spending plan to match available resources

Next installment – Comfort

Jun 142016
 

I came across an article with this title a few weeks ago [it might have been from Allianz], which made some interesting comments about the current state of planning for pre-retirees.

  • Health and Wealth go together!

Basically it is hard to understate the impact these two factors will have on your retirement.

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It also brought up the idea of the Four C’s necessary for a successful retirement:

  1. Clarity
  2. Comfort
  3. Cost
  4. Certainty

The last 5-10 years before retirement age area critical transition phase!

It is the time to consider professional help as there are a number of issues to consider. These may be more complex than any decisions, many of us have made before. All of which may have a significant impact on our retirement years.

For example, there are potentially 728 Social Security claiming options to consider depending on the age of the partners. This is in addition to the minus 25% to the plus 32% range an individual will have versus the full retirement benefit amount.

During those last 5-10 years, it’s time to identify your retirement income sources and the goals for your spending plan.

This involves making assumptions about your life expectancy, how much will you need to fund your spending plan, how you can reasonably assure yourself you won’t outlive your assets, what’s the right asset allocation going forward, what will your likely healthcare costs turn out to be, how will you handle your potential long-term care expenses, etc., etc.

More to come later on the Four C’s!