Would you pass this three question retirement planning quiz?

Would you pass this three question retirement planning quiz?

Reports claim that 10,000 Baby Boomers are retiring every day. But many of them are retiring into a standard of life that is significantly less ideal than they imagined. You don’t want that for you.

Don’t worry. If you’re smart, retirement will be a breeze. It just boils down to asking the right questions. 

Those questions are:

  1. Can you afford it?
  2. Where should you retire?
  3. How do you maximize social security benefits?

Retiring broke

One of the biggest fears people have about retirement is that they’ll retire broke. The problem with this way of thinking is that retirement isn’t an event. Rather, it’s a process that starts even before you reach your prime working years.

Unfortunately, more than half of Americans go into retirement broke, with nothing to show for the 35+ years they’ve been working. According to a GoBankingRates research, there is a significant chunk of the population that has less than $10,000 saved for retirement. Worse, many don’t have any savings at all.

A survey by Bank of America Merrill Lynch revealed that about 81% of Americans don’t even know how much they need to save for retirement.

Below are 3 questions to help you be more proactive in how you handle the retirement process.

1. “Can you afford it?”

The current economic environment has led to a rise in the number of people who are ready to retire but can’t. The common phenomenon is a hybrid; people are in retirement but they’re still working.

So, how much money do you need to avoid this situation?

To be able to answer that question, it boils down to one simple idea: your expenses need to be less than your income. There’s more to it, but that’s the basis.

Being retired means living on a fixed income without a possibility of salary increment. Also, your expenses won’t always be fixed: healthcare goes up, taxes fluctuate, and things cost more in general over time. There are assumptions you’ll need to make when saving up.

As a guideline, many financial planners advise you to start saving up to 15% of your income while you’re still in your 20s. If you want to know the exact amount, professionals estimate that you should have at least 10 times your last full-year income by retirement. Thus, if you make $100,000 in your last year of work, you’ll need at least $1,000,000. Use this online calculator to estimate how much you need.

To increase your income, start saving and investing as early as possible. Take advantage of accounts such as Roth 401(k)s and Roth IRAs.

2. “Where should you retire?”

Another thing most people overlook is the impact where they live has on their income. For instance, did you know that 13 states tax Social Security benefits while 37 don’t? Of the 13, 9 exempt tax up to a certain limit. The remaining 4 (Minnesota, Vermont, North Dakota and West Virginia) tax your benefits, no exemption.

Also, different states have different laws regarding estate and inheritance taxes. Some states have estate tax while others have inheritance tax. Yet, New Jersey and Maryland have both taxes.

You may also want to understand the different property tax rates across states. This will be crucial in helping you understand how you spend your money once you retire.

Bottom line: Understand the tax implications of your retirement state or city to save yourself from unnecessary surprises.

3. “Do you know how to maximize your Social Security benefits?”

A MassMutual quiz aimed at testing how much Americans know about the Social Security retirement benefits asked over 1,500 adults 10 basic Social Security questions and only one answered all correctly. Only 28% got seven or more questions right––this was the passing grade.

Will you be part of the many that retire without understanding how they can maximize their Social Security Benefits?

Although Social Security is designed to cover the disabled and survivors of deceased workers, is primary purpose is to assist retired workers with their monthly expenses and without it, most retirees would probably be in big trouble. According to a Gallup report, more than half of the retirees says Social Security is a major source of income.

While the Social Security benefits at Full Retirement Age (FRA) are capped at $2,687 a month in 2017, there are a number of ways that a retiree could use Social Security to boost benefits.

For instance, there’s a “Social Security secret” you can use to get an additional $15,978 each year. Retirees can influence the amount they are paid in Social Security by choosing when (what age) to claim their benefits. At FRA, a retiree is entitled to 100% of their benefits. Retiring before reaching the FRA reduces the monthly benefit. However, holding off filing for the benefits by a year increases your benefit by about 8%. This method works so well that 23% of retirees regret not waiting longer before filing.

Depending on how “lavish” you plan your retirement being, you might need a little more or less money. When in doubt, always opt for the higher amount. You never want to be surprised by post-retirement costs, and you always want to be ready.

Fixed Annuities Or Bonds––Which Should You Choose For Your Retirement?

Fixed Annuities Or Bonds––Which Should You Choose For Your Retirement?

If you’re worried about money for retirement, you’re not alone. 64% of Americans say they are moderately or very worried about having enough money in retirement. In fact, they’re more worried about retirement than yearly medical bills.

What’s the best way to prepare for retirement? Spending more time thinking about your portfolio. After all, you want to get the most out of your retirement investments.

Two products you may decide between are fixed annuities and bonds. Let’s take a look at which is better.

What are fixed annuities and bonds?

Usually purchased from life insurance companies, fixed annuities are insurance products that provide owners with lifetime income. Life insurance companies provide a fixed interest rate in exchange for a lump sum of capital.

Bonds, which are purchased from municipalities, governments, or corporations, are debt securities in which a fixed rate of interest is paid to the lender throughout the life of the loan. You are paid the principal back when the loan matures, or is due.

While fixed annuities and bonds have their similarities, they are some key differences when it comes to taxes, fees, risk, and liquidity. Let’s dig deeper.

Tax advantages

With fixed annuities, not only is there no annual contribution limit (like with IRAs), you also can defer taxes. This makes them very useful to someone approaching retirement or with a large chunk of cash. When you begin to withdraw the money throughout retirement, you only pay taxes on earnings.

With bonds, you can actually make tax-free income. Certain types of municipal bonds are tax-exempt, meaning you don’t have to pay federal taxes on interest income you make. This makes bonds highly attractive to certain investors, especially those with high incomes and/or savings, provided the interest income is actually competitive (often, bond interest is very low).

From a tax standpoint, bonds sometimes offer you the chance to make more tax-free income, but overall earnings aren’t necessarily higher. That’s why it’s important to look at the rates being offered before making the investment. Make proper calculations and get the help of a certified financial advisor to choose the plan that can deliver you the best overall growth.

[Hidden] Fees

Though fixed annuities typically come with lower fees (less than 1%) than variable annuities, fees for annuities are still high. Sometimes insurance brokers aren’t entirely transparent about exactly how much you’re paying in fees, either.

There has been progress made to reduce fees, but the cost of owning an annuity is precisely the reason why it’s not as popular as before. It’s worth mentioning that the earnings annuities bring investors, especially in a high-interest rate environment, are more than enough to offset the fees. In some cases, they can be a much better investment vehicles than bonds.

Bonds, which are still praised for their higher yields, are also popular for their lower fees and commissions. This may seem like bonds are a no-brainer, but keep in mind your situation, as lifetime income does offer tremendous peace of mind. Also, think about risk.

Risk and Security

Fixed annuities can be set up for payouts over a lifetime, while bonds are paid in full at maturity. Considering that Americans are now living longer thanks to medical advancements and healthier habits, this makes annuities attractive, as many want the security of knowing their accounts are generating income regardless of how long they live. After all, 43% of Americans fear outliving their investments; fixed annuities are a viable solution.

Another positive development in the annuity world is the income rider. Lifetime annuity income riders provide investors with a guaranteed income account rate, typically around a minimum of 6–7% and sometimes higher. This can potentially allow your annual income to increase, as previous annuities only offered a “flat payout” and may not have actually kept up with inflation.

A fixed annuity does appear to remove market risk from your investment, but remember that payouts can be much lower than bonds, especially for products that have high fees and no inflation protection. In some annuities, If you die early you don’t get the full value of the annuity, and your surviving spouse or children might not be entitled to anything (unless you get a joint life annuity). Private annuity contracts also aren’t guaranteed by a federal agency, so there is a company failure risk as well.

When it comes to risk and security, bonds are seen as a way to preserve capital and earn a predictable rate of return. During any financial crisis, investors from all over the world buy U.S. Treasury Bonds, which are seen as a safe haven during tough times.

In this sense, there doesn’t appear to be much risk, but keep in mind the following:

  1. Bonds have maturity dates, and you’re at the mercy of whatever rates the “new bonds” are offering when the loan matures. These rates could be negative.
  2. Bond yields can vary tremendously if you don’t choose governments and corporations with high credit ratings. Always look at credit ratings.
  3. Municipal bonds do come with a default risk. For example, debt levels in Illinois should make bond investors cautious as to whether the state can fulfill its obligation.

To manage such risk, retirees can invest in short-term bonds for a much more predictable stream of income. Another good idea to avoid risk is to steer clear of bond funds, which can expose you to some bad investments.

Target date funds may also deliver low or negative growth if you’re nearing retirement, and the bond market isn’t good. For instance, due to rising interest rates, there was a bond market pullback in early 2017, which undoubtedly affected those with 2020 target date funds.

Liquidity

Based on your age and timeline for needing retirement money, liquidity may be a factor. Most annuities have a surrender term, usually spanning anywhere from 3–10 years. Many annuities enable you to access 10% of your investment per year, which is arguably more than you’ll need during retirement if you’ve planned well. But if you must access all of it, you will pay a surrender penalty.

Most experts recommend that you wait until maturity to access your bond investment. Early withdrawal puts you at the risk of the bond price rising or falling, and this may not be favorable to you. You could sell the bond at a discount and receive less than the principal. Holding the bond until maturity ensures you get your money back.

It’s all about balance and diversity

You’ve heard the proverb: Don’t put all your eggs in one basket. It’s especially true with retirement savings. Both annuities and bonds have their pros and cons. The best solution is to diversify and spread your assets into both annuities and bonds, as well as other investment and insurance products (like a Roth IRA and health savings account).

Whatever investments you choose, make sure your portfolio aligns with your comfort level for risk and your goals for retirement. This will help you find a balance that gives you peace of mind during your working years and financial security in retirement.

Goldstone Tips: Claiming social security + your options upon the death of a spouse

Goldstone Tips: Claiming social security + your options upon the death of a spouse

Social Security is a simple idea with complex administration. Depending on when you start taking your benefits and how you choose to allocate them to your spouse, you can save or scrap tens of thousands of dollars. Below, you will learn the basics of when you can start claiming benefits. You will also discover strategies which can help you maximize benefits over a lifetime.

The Basics of When, Why and How to Claim

There are many ways to collect some, all, or even more than 100 percent of your Social Security benefit, depending on when you start collecting.

To collect your full benefit, you should start claiming at your full retirement age. For people born between 1943 and 1954, the retirement age is 66. For those born in 1955 and beyond, the retirement age is 67.

To claim a partial benefit, you need to be 62. Claimants aged between 62 and retirement age can receive 75 percent of their Social Security benefit. Alternatively, people who do not claim their benefit between retirement age and age 70 receive an 8 percent increase to their benefit for every year they wait to claim.

Married claimants who are of retirement age can also claim up to 50 percent of their spouse’s benefit. If they are between age 62 and retirement age, they can claim their spouse’s benefit at a 30 percent reduction. Widows and widowers can receive a survivor’s benefit in the same amount received by their late spouse.

Divorced spouses can qualify for survivor benefits under certain conditions. It does not matter if your ex-spouse remarried, but if you remarry before age 60 you are disqualified from receiving survivor benefits unless your remarriage ends in death, divorce, or annulment before your ex-spouse dies. You must also be 60 years of age (50 if claiming disability benefits) or care for your ex-spouse’s child aged 16 or less who receives Social Security benefits under your ex-spouse’s record. Finally, if you are already eligible for Social Security benefits that are higher than your ex-spouse’s you are not eligible to collect a survivor benefit.

Recommended Strategies to Maximize Benefits

Waiting until 70 to collect your benefit is the best strategy for maximizing it. Financially, people are in greater danger of living too long instead of dying too soon, so taking Social Security benefits early should not be done unless you genuinely need them at 62 or 66. The Social Security program calculates benefits to cover payments to men’s and women’s expected lifespans, 83 and 85, respectively. However, there is a 61 percent chance that one spouse will live to at least 87. Delaying a claim until 70 yields higher lifetime benefits, which can help protect against inflation after retirement.

Married couples have some additional strategies to maximize their lifetime Social Security wealth. First, they can claim and switch. For example, if one spouse is still working while the other is not, the non-working spouse can start collecting Social Security at 62 if the other spouse is of full retirement age. This is because the retirement-aged spouse is entitled to collect half the other spouse’s Social Security benefit (this is called a restricted application). Meanwhile, because the retirement-aged spouse is not taking his own benefit, it will continue to grow until he reaches 70, at which time his spouse can claim half of his higher benefit, to which she also has survivorship rights to.

Next, they can file and suspend. The basic idea is that when one spouse reaches 66, she can file for benefits and immediately suspend them so they will continue to grow by 8 percent per year. Meanwhile, her spouse can file for spousal benefits on her account and receive 50 percent of them. By the time she reaches 70, her account will still have grown even though it was drawn on by the spouse. Meanwhile, the spouse’s own account has grown, ensuring that they can both collect more money when they switch back to their own benefits. Some people claim their Social Security benefits as early as possible for the pleasure of having extra money each month. While it might be tempting to put that extra money toward a cruise or a new television you have been eyeing, the temptation is not worth all the money you could save with just a few extra years of managing on your normal income, something you have already become accustomed to.

Would You Fail These 3 Retirement Questions?

Would You Fail These 3 Retirement Questions?

Once upon a time, when you hit retirement age, you could retire. It doesn’t work like that anymore. No longer is the question: “am I old enough to retire?”  Now, the question is: “how am I possibly going to afford life after work?”

Reports claim that 10,000 Baby Boomers are retiring every day. But many of them are retiring into a standard of life that is significantly less ideal than they imagined. You don’t want that for you.

Don’t worry. If you’re smart, retirement will be a breeze. It just boils down to asking the right questions.

Retiring broke

One of the biggest fears people have about retirement is that they’ll retire broke. The problem with this way of thinking is that retirement isn’t an event. Rather, it’s a process that starts even before you reach your prime working years.

Unfortunately, more than half of Americans go into retirement broke, with nothing to show for the 35+ years they’ve been working. According to a GoBankingRates research, there is a significant chunk of the population that has less than $10,000 saved for retirement. Worse, many don’t have any savings at all.

A survey by Bank of America Merrill Lynch revealed that about 81% of Americans don’t even know how much they need to save for retirement.

Below are 3 questions to help you be more proactive in how you handle the retirement process.

1. “Can you afford it?”

The current economic environment has led to a rise in the number of people who are ready to retire but can’t. The common phenomenon is a hybrid; people are in retirement but they’re still working.

So, how much money do you need to avoid this situation?

To be able to answer that question, it boils down to one simple idea: your expenses need to be less than your income. There’s more to it, but that’s the basis.

Being retired means living on a fixed income without a possibility of salary increment. Also, your expenses won’t always be fixed: healthcare goes up, taxes fluctuate, and things cost more in general over time. There are assumptions you’ll need to make when saving up.

As a guideline, many financial planners advise you to start saving up to 15% of your income while you’re still in your 20s. If you want to know the exact amount, professionals estimate that you should have at least 10 times your last full-year income by retirement. Thus, if you make $100,000 in your last year of work, you’ll need at least $1,000,000. Use this online calculator to estimate how much you need.

To increase your income, start saving and investing as early as possible. Take advantage of accounts such as Roth 401(k)s and Roth IRAs.

2. “Where should you retire?”

Another thing most people overlook is the impact where they live has on their income. For instance, did you know that 13 states tax Social Security benefits while 37 don’t? Of the 13, 9 exempt tax up to a certain limit. The remaining 4 (Minnesota, Vermont, North Dakota and West Virginia) tax your benefits, no exemption.

Also, different states have different laws regarding estate and inheritance taxes. Some states have estate tax while others have inheritance tax. Yet, New Jersey and Maryland have both taxes.

You may also want to understand the different property tax rates across states. This will be crucial in helping you understand how you spend your money once you retire.

Bottom line: Understand the tax implications of your retirement state or city to save yourself from unnecessary surprises.

3. “Do you know how to maximize your Social Security benefits?”

A MassMutual quiz aimed at testing how much Americans know about the Social Security retirement benefits asked over 1,500 adults 10 basic Social Security questions and only one answered all correctly. Only 28% got seven or more questions right––this was the passing grade.

Will you be part of the many that retire without understanding how they can maximize their Social Security Benefits?

Although Social Security is designed to cover the disabled and survivors of deceased workers, is primary purpose is to assist retired workers with their monthly expenses and without it, most retirees would probably be in big trouble. According to a Gallup report, more than half of the retirees says Social Security is a major source of income.

While the Social Security benefits at Full Retirement Age (FRA) are capped at $2,687 a month in 2017, there are a number of ways that a retiree could use Social Security to boost benefits.

For instance, there’s a “Social Security secret” you can use to get an additional $15,978 each year. Retirees can influence the amount they are paid in Social Security by choosing when (what age) to claim their benefits. At FRA, a retiree is entitled to 100% of their benefits. Retiring before reaching the FRA reduces the monthly benefit. However, holding off filing for the benefits by a year increases your benefit by about 8%. This method works so well that 23% of retirees regret not waiting longer before filing.

Depending on how “lavish” you plan your retirement being, you might need a little more or less money. When in doubt, always opt for the higher amount. You never want to be surprised by post-retirement costs, and you always want to be ready.