Newly Retired? Fresh Ideas for Managing Your Retirement Income

As a new retiree, you may be wondering how to manage your retirement income.  Last month, president of Charles Schwab, Carrie Schwab-Pomerantz, published an article titled “Newly Retired?  Fresh Ideas for Managing Your Retirement Income”.  This article hits key points of 1) Which accounts and investments you could draw from first, 2) Options for rebalancing your portfolio once you start to withdraw, and 3) Considering taking your required minimum distributions to avoid penalties (if 70 ½ or older).  Click here to read the entire article, or continue reading for a summary below.
 
Before jumping into the discussion of possibile ways to manage your retirement income, keep in mind the following essentials:
 

• At the point of retirement, you may want give very careful thought to your asset allocation.  Mainly, you may not want to take on as much risk in your investments as you did when you were younger and still working.
• Aside from your Social Security, a pension, real estate investments, or other sources of income, you may want to figure out how much money you could need to withdraw from your retirement accounts.
• Your most tax-efficient investments may need to be kept in taxable accounts, and your least tax-efficient investments may need to be be kept in tax-deferred accounts.
• Maintaining well-diversified portfolios of many types of investments including stocks and bonds could possibly help protect against inflation over your many years of retirement.

Listed below are the strategies outlined in the article “Newly Retired? Fresh Ideas for Managing Your Retirement Income”, in order of which you could consider first.  Please read the full article for more complete descriptions of each strategy:

1. Draw Down Principal from Maturing Bonds and CDs:  The first strategy you could use would be to create a short-term ladder of bonds or CDs, and then you could tap the principal of each bond as it matures.
2. Take Your RMDs if You’re 70 ½ or Older:  Once you reach 70 ½, the IRS requires you to take a yearly distribution from many retirement accounts, known as a Required Minimum Distribution (RMD).
3. Sell Overweighted and Lower-Rated Investments from Your Taxable Accounts:  Since withdrawals from taxable accounts are taxed as capital gains rather than ordinary income, these could be the next accounts from which to draw retirement funds.
4. Sell Overweighted and Lower-Rated Investments from Your Tax-Deferred Accounts:  Generally, your tax-deferred accounts could be the last place to look for retirement income.

Please note:  This post is for informational purposes only and is not intended as advice.  Since everyone's situation is different, please consult a professional before changing your portfolio.

Creative Strategies to Collect More Social Security Income (Part 1 of 2)

By Olivia Sandham

 

As mentioned in last week's post, this week we would like to start discussing “Creative Strategies to Collect More Social Security Income”.  Lucky for us, one of our Family Investment Center advisors, Mrs. Elaine Coder, is our designated Social Security Specialist.  I recently worked on an educational presentation with Elaine, and through that experience I gained a lot of insight into how just about anyone, in just about any situation, can use these strategies to incorporate Social Security as a key factor in their retirement plan.

 

Before jumping into Part 1 of 2 of our discussion about the main strategies to collect more Social Security (SS), let’s cover a few terms that we will be using throughout these posts:

 

Full Retirement Age (FRA):  The age at which a person may first become entitled to full or unreduced SS benefits.  Click here to find your FRA.

 

Primary Insurance Amount (PIA):  The benefit amount a person would receive if he/she elects to begin receiving SS benefits at his/her normal retirement age.  At this age, the SS benefit is neither reduced for early retirement, nor increased for delayed retirement.  Once claimed, this PIA is what you will receive for your lifetime.

 

Life Expectancy (LE):  The average period of time that a person can expect to live.  Click here to calculate your estimated LE.

 

Now that we know the terms we are going to use, let’s get started discussing the first couple of “Creative Strategies to Collect More Social Security Income”:

 

1) Wait as long as possible to claim SS benefits:  There are many advantages to waiting to claim SS benefits. First, by the taking time to research and meet with a Social Security Specialist, you ensure that you have covered all strategies and that you will be applying for the maximum PIA when it is time to claim.  Second and third, by waiting to claim until you are past your FRA, your PIA will not be penalized for claiming early, and you will earn delayed retirement credits, which increases your PIA.  Finally, since your PIA is adjusted based for inflation, each year you wait to claim can increase your PIA even more.

 

2) Claim SS benefits correctly the first time:  Once you apply for your SS benefits, you only have 12 months to withdraw your application, and you are limited to one withdrawal per lifetime.  There are several other “hoops” to jump through if you withdraw, including paying back the benefits you and your spouse/children received, as well as having anyone who received any of the benefits consent in writing to the withdrawal.  Also, if you miss the 12-month window to withdraw or adjust your claim, you can no longer make any changes and the PIA you claim is the PIA you will receive for the rest of your life.  So, if after applying and claiming your SS benefits, you find out that you missed a step or didn’t capitalize on a claiming strategy, there is nothing else to be done. Claiming correctly the very first time avoids all of these concerns.

 

Next week we will discuss strategies including the living spousal and survivor benefit incomes, as well as how you can combine strategies to be able to compute your overall optimal benefit.  Make sure to stay tuned!

 

This post is for information purposes only.  It is not intended for use in determining when or how to claim Social Security benefits, as benefits and strategies vary based on individual circumstances.  Our firm is not affiliated with the Social Security Administration.  For more information or for help determining a specific strategy for your own situation, please contact our office at (816) 233-4100, or contact the Social Security Administration directly by visiting www.ssa.gov.

AARP Retirement Calculator: Are You Saving Enough?

Are you looking for a fun, free, and easy method to try estimating your retirement? We discovered the AARP Retirement Calculator, a neat online device that can make thinking about your future and retirement a little more enjoyable. Using the calculator can be a great way to check if the plan you currently have for your financial future should allow you to retire when and how you want. Discover all your options and how the choices you make today and in the near future could ultimately affect your retirement finances!

Before using the calculator, we encourage you to read our list of “Pros and Cons of Using the AARP Retirement Calculator”:

PROS:

• Using this calculator can be a good starting checkpoint to see if you are currently on track for retirement, currently way off track for retirement, or somewhere in between.
• After inputting your information, click on “Options” to see what changes you can make in retirement to help you have more income available if needed or desired.
• At any point, you can also go back to the “About You” section and change answers, allowing you to see how different choices starting now could possibly affect how much income will be available to you in retirement. This can be a helpful tool if you are able to actually implement some of these changes in your life, such as how much of your income you and your partner save for retirement each year.
• When deciding your lifestyle in retirement, click on “Learn more about Retirement Lifestyle Assumptions” and you can manually input what percentage of your current lifestyle expenses you plan to have in retirement.

CONS:

• The calculator does take into consideration the multitude of creative ways you can collect more Social Security income (to be discussed in next week’s blog!)
• The calculator cannot substitute for the valuable knowledge and experience of a financial advisor. This tool should only be used for fun to see where you are at now and how different decisions could affect your future outcome, but make sure you discuss any officially changes in your retirement plans with your financial advisor.

Think you’re ready to give it a try? Click here to Get Started.

The "Backdoor Route" to Roth IRAs

High earners may run into issues trying to contribute to IRAs or trying to receive tax deductions for IRA contributions.  If you fall into this category, watch this video from WSJ.com to find out the "Backdoor Route" to contributing into a Roth IRA to help save for your retirement.

IRA Quiz

What is the difference between a traditional IRA and a Roth IRA?  How long do you have to make 2013 contributions to your IRA?  How much can you contribute to your IRA?  Take this quiz to find out these answers and more about the basics of IRAs!

 

1) What does IRA stand for?

a. Initial Retirement Adjustment
b. Individual Retirement Account
c. Internal Revenue Association

2) A traditional IRA is a retirement account which...

a. Allows contributions from before-taxed income, so withdrawals in retirement are taxed.
b. Allows contributions from after-taxed income, so withdrawals in retirement are not taxed.
c. Is not taxed at all.

3) A Roth IRA is a retirement account which...

a. Allows contributions from before-taxed income, so withdrawals in retirement are taxed.
b. Allows contributions from after-taxed income, so withdrawals in retirement are not taxed.
c. Is not taxed at all.

4) What is the deadline for making 2013 annual contributions to either a traditional or Roth IRA?

a. December 31, 2013
b. April 15, 2014
c. August 1, 2014

5) What is the maximum annual amount the account holder 49 years and younger can contribute to either a traditional or Roth IRA for 2013?

a. $2,500.00
b. $5,500.00
c. Any amount

6) What is the maximum annual amount the account holder 50 years and older old can contribute to either a traditional or Roth IRA for 2013?

a. $6,500.00
b. $10,000.00
c. Any amount

7) What is the minimum annual amount the account holder (any age) can contribute to either a traditional or Roth IRA?

a. Any amount, up to the maximum
b. $1,000.00
c. $5,000.00

8) At what age can the account holder start making contributions to either a traditional or Roth IRA?

a. Any age, as long as he/she is earning income
b. 18 years old
c. 21 years old

9) At what age must the account holder stop making contributions to a traditional IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age limit

10) At what age must the account holder stop making contributions to a Roth IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age limit

11) What does RMD stand for?

a. Rollover Money Discount
b. Roth Maximum Disbursement
c. Required Minimum Distribution

12) At what age is the original account holder required to take an RMD from a traditional IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age requirement

13) At what age is the original account holder required to take an RMD from a Roth IRA?

a. 50 years old
b. 70 1/2 years old
c. There is no age requirement

14) What is the deadline for taking an initial RMD for 2013?

a. December 31, 2013
b. April 1, 2014
c. August 15, 2014


Answers:
1) b 2) a 3) b 4) b 5) b 6) a 7) a 8) a 9) b 10) c 11) c 12) b 13) c 14) b

Please visit the Official Website of the IRS for more information.

Make Getting into Financial Shape Your New Year's Resolution

By Olivia Maragna

 

One of the most popular New Year's resolutions is to get into shape with an exercise program.  So, why not also apply this to your financial health?  We found these six steps to be motivational toward getting your financial fitness looking better than ever in 2014.  Click here to read the full blog posted on brisbanetimes.com.au

1.  Follow a program - Set yourself a budget and stick to it.

2.  Trimming down - Minimize your debts.

3.  Bulking up - Contribute into retirement funds.

4.  Cross training - Invest in multiple types of retirement accounts.

5.  Injury prevention - Adequately insure yourself.

6.  Endurance training - Prepare your estate to ensure your loved ones are taken care of in the future.

10 Tips for a Fresh Financial Start

By Suze Orman

With the start of a new year just around the corner, those with current financial burdens may be seeking advice on a fresh start.  Luckily we found a helpful article published by O Magazine and written by internationally acclaimed personal financial expert Suze Orman titled "10 Tips for a Fresh Financial Start".

Whether you are currently or soon-to-be in need of a financial clean slate, this article provides advice about how to get back on track.  Listed below are the 10 tips provided in the article, but you can click here if you would like to read the article in its entirety.

1. No blame, no shame
2. Take a snapshot of your finances
3. Adopt a fool-proof credit card strategy
4. Try harder to save
5. Separate savings from investments
6. Know your credit score
7. Evaluate your retirement plan
8. Diversify your assets
9. Don't obsess over your home's value
10. Protect your family and your nest egg

Click here if you would like to visit Suze Orman's website.

Retiring Early Starts Today!

If you are in your 20s or 30s, retiring early is within your reach!  Check out this video from Investopedia to learn a few tips and tricks on how you can achieve your early retirement goals.

 

 

 

How To: Talk to Your Spouse About Retirement

DID YOU KNOW?   Only 38% of couples are planning together and 2/3 of couples don’t agree on when they will retire, according to a 2013 study from Hearts and Wallets.  CNN Money published an insightful article this week offering advice on how to discuss retirement with your significant other.

Before jumping into discussion with your spouse, separately sit down and write out a list of all of your own desires for retirement.  This will ensure everything is brought out into the open when you discuss the topic.  Also prepare yourself to overcome the “all-me” attitude.  Plan to listen without interrupting, repeat back responses to make sure you understand and are understood, and avoid criticism.

Once you sit down face-to-face to discuss retirement desires, focus on what will make you both happy.  Ask yourselves, “What are our goals for that stage of our lives, and what will fill our time?”  This will help you figure out what retirement means to both of you, whether it be the time to kick back and relax, spend more time with your families, or travel the world together.

 

Don’t be afraid to openly discuss your concerns, as challenging as this may be.  The toughest topics in this area may be age differences and life expectancy.  Younger partners may want to work for years after their spouse retires, and women should consider the statistic that they tend to live longer and may outlive their husbands.  Repeat your spouse’s points to demonstrate you appreciate their view, and provide your contrasting opinions in a way that feels collaborative. 

Understand the realities of your budget and plan accordingly.  Openly discuss current and future debts and investments.  Some couples may want to sit down with a financial planner who can help serve as an advisor as well as an arbiter to keep emotion out of the discussion.

Focus on the “why” versus the “what” when considering future plans, purchases, and your retirement budget.  Ask yourselves “WHY should we do this?” when considering making special purchases or investments.  Keeping this focus will help push you toward compromises that are in tune with both your heart’s desires, and are within reach of your finances.

Overall, when discussing retirement with your spouse, maintain the emphasis that you are both moving forward toward a happy and fulfilling life together.  Although you may not agree on a few specifics just yet, concentrate on your similarities and keep the focus on your wants and needs as a couple first.

And remember, as with any financial plan, there should always be flexibility.  Nothing is set in stone, so revisit your retirement plans as often as you would your investment portfolios.

To view the full article, click here.

5 Ways to “UP” Your 401(k) Plan

By Olivia Sandham

1. “BUMP UP” your deferral rate.
The average 401(k) deferral rate lingers near 4%, but this doesn’t mean your investment has to.  Increase your deferral to 10% of your paycheck, and your deferral combined with the company match will build an income base that can last in retirement.  Find out if your plan has an auto-escalation feature, which will allow you to automatically raise your deferrals incrementally over time.

2. “CHANGE UP” your fund allocation.
Over the long term, it takes time and skill to choose 401(k) funds successfully.  What seemed like the proper allocation when you were 25 will most likely change when you are 10-15 years older.  If periodically assessing your funds seems time-consuming, a target date fund or asset allocation fund may be more appropriate.

3. “SAVE UP” your account.
There may be a handful of valid reasons for pulling cash from your 401(k), such as a new home or business purchase, or for an emergency situation.  But you could be charged a 10% tax penalty on early distributions taken before you are 59½, and you may have to repay the loan within 60 days.  Instead, consider your 401(k) strictly as a retirement savings account: money goes in and stays in until retirement.  If you do have to take a loan, repay it as soon as possible so your money can get back to work for you in the market.

4. “FOLLOW UP” on your investments.
Make a plan for your 401(k) and keep an eye on it to ensure you are still on track to meet your savings goals.  A 401(k) is a long-term investment, which means there will be highs and lows in performance, so you should periodically check to make sure you’re on track.  Review and keep your quarterly statements, but don’t preoccupy yourself with looking at your account every day.  An appropriate time to reevaluate your 401(k) plan on an annual basis would be during re-enrollment so you can make any necessary adjustments.

5. “LINE UP” your future budget.
Once you’ve retired, you will rely on your 401(k) savings as a stream of income.  Before reaching too near to that point, get an idea of what your future expenses will be.  Understanding how your lifestyle will be during retirement will help you make sure your 401(k) plan will be able to cover these costs.

Generation X Beware

CNN Money reports about a surprising study on the financial stability of Generation X-ers. This study shows that they may be worse off than the Baby Boomers after the recession. "'Unless this path is altered, younger Baby Boomers and Gen Xers may face a real possibility of downward mobility in their Golden Years,' said Diana Elliott, research manager for Pew's economic mobility project." To read more about the surprising finds click here.

Retirement Secrets Unleashed

Are you paying fees on your 401(k) and mutual funds without even knowing about it? Forbes contributor Sanjeev Sardana wrote an article in the PBS Frontline documentary, "The Retirement Gamble." This documentary uncovered hidden secrets that are not commonly discussed about investing and saving for retirement. If you are saving for retirement, click here to uncover the secrets click here.

No retirement for lazy savers

In the recent Wall Street Journal article "Workers Saving Too Little to Retire", Kelly Greene and Vipal Monga present survey results predicting retirement crisis for both U.S. workers and employers. 

A few facts from the article:

• Fifty-seven percent of U.S. workers surveyed reported less than $25,000 in total household savings and investments excluding their homes.
• 28% of Americans have no confidence they will have enough money to retire comfortably.
• While Americans are living longer, the extended life spans will make it tougher for workers trying to stretch retirement savings and put additional strains on pension plans.
• The percentage of workers who have saved for retirement plunged to 66% from 75% in 2009.
• Many people are struggling to make sure they don't run out of money in retirement, said Jack VanDerhei, research director at EBRI, a nonprofit in Washington, D.C.

Put simply, we suggest that if you want to live more freely and enjoy more in retirement, spend less and save more now while you still have the opportunity. 

The key to retirement?

Save more and spend less.  It may seem obvious and simple, yet many of us fail to live by these important principles, resulting in insufficient retirement savings.  Recently published in the Wall Street Journal, Kelly Greene's "The Key to Retirement: Spend Less, Save More" presents staggering statistics:

79% of 1,008 U.S. adults surveyed in February said that they have committed a money mistake – and of those, 26% reported not having saved enough for retirement as their No. 1 problem.

20% of workers saying they need to save between 20 and 29% of their income to achieve a financially secure retirement, and 23% saying they need to save 30% – or more.

Job uncertainty and making ends meet were the most pressing financial issues faced by both workers and retirees.

So how do you catch up or get ahead while you still have the opportunity?  Follow those two simple principles: save more and spend less.  Adjust your budget to live more modestly and bulk up contributions to your retirement accounts.  You'll be glad you did.

Wealth-building for Gen Y-ers

Money Magazine's 101 Ways to Build Wealth offers valuable financial tips for each stage of your life.  Listed below are their bits of advice for 25- to 34-year-olds.  To read the full article for more details, click here.   

1)  Start saving for retirement now.

2)  Favor cash-rich stocks.

3)  Add microcap stocks for growth.

4)  Build your career.

5)  Play the numbers.

6)  Get smarter about your money.

7)  Get with the program.

8)  Watch what you buy.

9)  Build your credit score.

10) Slash your student loans.



5 must-do tasks as you near retirement

 

In his recent article titled "Nearing retirement? 5 must-do tasks," Roger Wohlner of U.S. News & World Report suggests five steps you should take in preparation for your retirement, including:

1) Take a look at all of your company benefits
2) Take a look at any pensions from current or former employers
3) Determine your Social Security benefits
4) Take stock of all of your retirement financial resources
5) Determine how much you will need from all sources to support your retirement lifestyle and compare this with your projected retirement income

To read the full article for further details, click here.

Top Ten Things to Do Before Retiring

Retiring soon?  Here are some tips from Ric Edelman's "Top Ten Things to Do Before Retiring" from Inside Personal Finance:

Here’s what to do now if retirement is on your horizon.

1. Decide how you are going to spend your time. What are you going to do during the first 6 to 12 months in retirement, and what do you plan to do for the rest of your retired life?

2. Determine (realistically) how much money you will spend monthly. Remember to include periodic expenditures such as gifts, vacations, taxes, an occasional new car, and emergencies.

3. Anticipate the cost of health care. You’ll have no employer to pay this for you; Medicare, MediGap, and private insurance are all up to you.

4. Buy long-term care insurance. Now.

5. Refinance your mortgage. Many people are shocked to discover that they either cannot borrow money after they retire, or they are forced to pay higher rates.

6. Boost your cash reserves. Make sure your rainy day fund is enough to cover at least six months’ worth of expenses.

7. Evaluate your sources of income. You have already figured out what you’ll spend on a monthly basis. Now figure out where that money will come from.

8. Revise your investment strategy. The way you’ve handled your investments over the past 30 years is not how you should handle them for the next 30. While preparing for retirement, you were focused on asset accumulation. When you’re in retirement, you need to focus on income and on keeping pace with the increasing cost of living. Assets must be flexible and liquid so you can meet needs you did not anticipate. New words will enter your vocabulary: rollovers and lump sums.

9. Review your estate plan. Review your will and trust. Don’t have them? Get them. These documents can protect you and your assets while you are alive and benefit your spouse and children when you pass on.

10. Perhaps the most important thing of all. If you are not excited about retirement, then don’t. Many people quickly become bored after retiring. It’s OK -- even exciting -- to return to school or the workplace. Many do this, often in completely new fields.

3 Costly Surprises for Retirees

Check out this Kiplinger video titled, "3 Costly Surprises for Retirees."  These three factors can make a huge difference in how well you plan for (and live in) retirement.

Is your pension safe?

An interesting article was published recently addressing the security of traditional pension plans.  Liz Weston's MSN Money article "Is Your Pension Safe" provides some eye-opening statistics:

•  Nearly 80% of the private pension plans covered by the Pension Benefit Guaranty Corp., or PBGC, are underfunded, to the tune of $740 billion. The news is even worse among the nation's largest companies. Only 18 defined benefit pension plans offered by companies in Standard & Poor's 500 benchmark are fully funded.

•  More than 1,400 companies shut down their pension plans in fiscal year 2011, compared with 1,200 in 2009, according to the PBGC. An additional 152 plans failed, meaning they were terminated without enough money to pay promised benefits and were taken over by the PBGC. The PBGC itself, which is funded by employer-paid insurance premiums, is running a $26 billion deficit.

•  Public pension funds are underfunded by at least $1 trillion, according to a report by the State Budget Crisis Task Force. To close the gap, 35 states have reduced pension benefits for their employees, and half have increased worker contributions to their plans, according to a report released in March by the U.S. Government Accountability Office. Three states -- Georgia, Michigan and Utah -- have implemented hybrid plans that include defined contribution plans, similar to 401k's, that shift some investment risk to workers.

•  Even fully funded retirement plans aren't exempt. General Motors, once considered the model for running a solid pension plan, shocked its salaried retirees by announcing it was offloading their pensions to Prudential Financial. About 42,000 retirees had to make the difficult decision whether to take a lump-sum settlement or trust Prudential to send them monthly checks.

Most importantly, Weston discusses what pension participants need to know to protect their benefits, some of which include personal savings in addition to the pension, the extent to which many benefits that have already been earned are protected, and the need to closely monitor the plan.  Click here to read the entire article.

12 steps to take in your 60s

Liz Weston's recent MSN Money article, "Money in your 60s: 12 steps to take," explores 12 steps you can take to proactively prepare for retirement during your final years of work.  These steps include:
1)  Zero in on a retirement date.
2)  Figure out where you're going to live.
3)  Consider long-term-care insurance.
4)  Don't forget to include medical costs.
5)  Deal with your debt.
6)  Draw up a retirement budget.
7)  Review your Social Security and pension options.
8)  Check your withdrawal rate.
9)  Consider an immediate annuity.
10) Stress-test your plan.

Click here to read the full article.