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3 Biggest Regrets of Baby Boomers Once They Retire

3 Biggest Regrets of Baby Boomers Once They Retire

As the adage goes, “a life without regrets is a life not lived,” but it is also “better to regret what you have done than what you haven’t.” The three biggest regrets of retired baby boomers center on the things they have not done and teach the next generation to make more informed choices.

  1. Not Saving for Retirement Earlier

A rare absolute rule of finance is that people should start saving for retirement as early as possible, with the best time to start being in one’s twenties. Life expectancies are growing and show no signs of slowing down, so more money is needed to be stretched out for a longer period of time. Starting to save and invest as soon as one enters the full-time workforce can make a dramatic difference in the amount of money that accumulates by the time a person is ready to retire.

Many baby boomers failed to start saving on time and properly because they did not understand just how much money would be needed for their retirement. Some also did not know that receiving social security benefits or taking money out of retirement accounts before it is needed can have tax consequences that can substantially lower savings. Finally, many people tend to forget to adjust for inflation when considering whether they are satisfied with the rate of return on their investments.

  1. Not Working Less and Traveling More

A study of 2,000 baby boomers commissioned by British Airways revealed that one out of five boomers regrets not doing more traveling around the world. The survey data also indicate that only 9% of American workers get more than nine vacations days per year and that only 37% of Americans took all of their vacation days in 2015, suggesting that working too much may be an issue whose scope extends far beyond just the baby boomer generation.

A 10-year research project conducted by Karl Pillemer, Professor of Human Development at Cornell University, into the lives of 1,200 people aged 65 and older also revealed that lack of travel during one’s youth is a common regret. He writes, “To sum up what I learned in a sentence: When your traveling days are over, you will wish you had taken one more trip.”

  1. Not Working More

It might sound surprising given the decades of work they’ve done, but more than two-thirds of middle-income baby boomer retirees wish they had worked longer, and not for expected reasons. One might assume that people would want to continue working to keep earning their salaries, but for many baby boomers, wanting to keep working is about the work. People who are passionate about their careers and enjoy their work want to keep doing it. For this reason, many baby boomers return to the workforce on a part-time basis or as consultants. A number of baby boomers also enjoy working during their later years because they find that it keeps them mentally sharp, physically fit, and gives them a sense of purpose.

Should you rollover your 401k?

Should you rollover your 401k?

According to the Investment Company Institute, 401K plan assets reached $4.8 trillion dollars at the end of the first quarter in 2016. That’s nearly 20% of total retirement assets in America (which was at $24.1 trillion).

For 401K plan holders heading into retirement, changing jobs, or leaving a company, a big question looms: what should be done with this type of retirement savings account? Essentially, investors have to choose whether or not to roll the money over into a new account.

Options for rolling the 401K over include putting the cash into a self-directed IRA or transferring it to a new employer’s 401K plan. If workers decide against a rollover, the other options are to leave the account alone or cash out. Before making a decision, investors should look at the pros and cons and choose based on their unique situation.

Rollover Options and Advantages

There are significant advantages to rolling the 401K over to a new employer’s plan or IRA. Most investment professionals advise choosing an IRA, but it’s important for workers to also examine the quality of the new company’s 401K plan (if going to another job).

Pros of the Rollover into a Traditional IRA

Dr. Don Taylor, a retirement advisor and contributor at Bankrate, says that the rollover to a traditional individual retirement account from a former company’s 401K plan can provide “wider investment choices and potentially reduced annual fees and other expenses.” This flexibility makes the IRA an attractive selection, as investors can choose among mutual funds, stocks, bonds, and exchange-traded funds.

Like with a traditional 401K employer plan, money can continue to grow tax-deferred in a traditional IRA. That way, investors won’t have to worry about capital gains and dividend taxes each year.

This also allows workers to shop for plans with lower fees, and, if desired, select an IRA with more access to investing tools and management guidance. The IRA can also be withdrawn without penalty for specific purposes, like college tuition or a first-time home purchase (up to $10,000).

Pros of the Rollover into a Roth IRA

Unlike traditional IRAs, Roth IRA contributions are made after income is taxed—with the benefit that earnings are not taxed when withdrawn later. Because contributions are made after income taxation, investors have the ability to withdraw those contributions (not earnings) from the account without fees.

The Roth IRA does not have minimum required distributions after reaching age 70½, unlike 401Ks and Traditional IRAs. This makes it a potentially lucrative investment vehicle into old age and a good option for those looking to set up future generations.

Since the Roth IRA rollover requires a tax payment before transfer, Dr. Don Taylor attests that a Roth IRA rollover makes sense only if investors can come up with the tax fees from a source other than the 401K funds and “expect to be in a lower tax bracket now than when (they) start tapping retirement funds.” This makes paying the taxes now financially beneficial in the long run.

Pros of the Rollover into the New Employer’s 401K Plan

Most employers offer new employees the chance to roll over their old company’s plan. Getting all retirement plans into one place can make saving much more convenient and cheaper.

Investors should compare fees between the two company’s plans, and only roll over their old 401K’s cash if the new employer’s plan has lower fees and/or better investment options. The new company’s plan may even have lower fees than IRA accounts do.

For those that do choose to transfer to the new company’s fund, understand those earnings will continue to grow tax-deferred, and while those funds can be withdrawn after 59½ years old without penalty, workers may have the option to delay required minimum distributions (RMDs) beyond 70½ years old (if still employed at that company).

Traditional benefits of the old 401K still apply at the new company too. Investors are given more protection under federal law, as 401K assets are better protected from claims from creditors than IRA assets are. Many 401K plans provide investors the benefit of being able to borrow against the plan as well.

Options for Those Choosing Against the Rollover

While rolling the account over is traditionally the best choice, everyone’s personal situation is different. In some circumstances, one of the following two options may be the most ideal—or necessary—choice.

Leave the 401K Alone

The first and most common choice is simply to leave the 401K account with the old employer and let earnings continue to rise tax-free. For investors that like their current plan, aren’t paying a lot in fees, and are happy with its performance, this may be the best—and easiest—choice. Prior to doing this, do compare fee charges with other fund options, like the new business’ 401K plan and traditional and Roth IRAs.

In addition to having the benefits mentioned above for 401K plans, there is also a specific benefit for not touching the 401K. For those that leave their employer between the ages of 55 and 59½, they can enjoy penalty-free withdrawals before reaching 59½ (the typical starting withdrawal age).

Before doing this, ex-employees should check to see if their employers allow the money to stay in their old account. Most companies require at least a balance of $5,000

Cashout

A final choice is the cashout. Most investors don’t suggest this route, as paying taxes on the withdrawal alone could easily cut into 35% of the total amount (depending on the tax bracket). A withdrawal penalty of 10% would also be assessed if younger than 59½.

Additionally, savings would no longer grow tax-deferred, which means investors robbing their future selves. For example, take the case of a worker making $75,000 per year who has a traditional 401K with $50,000 in assets. This worker decides to withdraw it all after quitting the company. In this case, 25% of that amount would be taxed and a 10% penalty would be implemented, leaving the worker with 35% less, or just $32,500. If this money was simply just left in the 401K and continued to grow at a decent rate for one or two decades, this easily turns into a six-figure mistake.

The cash-out option is mostly seen as a last resort for those experiencing a legit financial emergency and can’t access cash from other sources, such as lenders, savings accounts, and family. Only do it if absolutely necessary. Nearly every time, borrowing from other sources makes more financial sense than cashing out retirement savings.

Making the Best Decision with the 401K

While the traditional IRA is commonly seen as the best rollover option for 401K plans with an old employer, everyone’s personal situation is different. Ideally, workers should always research and choose retirement savings plans with low fees and high returns. They should make choices that set them up for long-term financial success.

Thus, it’s advised to also analyze the financial advantages and disadvantages of rolling over to the Roth IRA, transferring to another company’s 401K plan, and leaving the money with the old 401K. Once workers have a clear picture of what makes the most financial sense, they can go through with the decision—and watch their nest egg grow to its highest potential.

Five Things Small Business Owners Need To Know About Retirement

Five Things Small Business Owners Need To Know About Retirement

A majority of America’s small business owners are not saving for retirement. Many know they should, but feel that saving will hurt their business. According to David Deeds, Schulze Professor of Entrepreneurship at the University of St. Thomas in Minneapolis, small business owners do not save because they consider the business their retirement plan. “The plan is that when they retire, they are either going to transfer the business to a family member in exchange for a share of future wealth or a buyout or they are going to sell it off and turn that into cash.”

However, many circumstances may prevent the sale of a small business. Even if the business can be sold, the sale may not provide enough income to cover one’s entire retirement. Entrepreneurs may also have to retire earlier than they expected due to health problems or other unforeseen events.

Having a well-rounded retirement plan can help protect entrepreneurs against these and other risks. Here are five things small business owners need to know to plan their retirement effectively.

First, know the numbers. Small business owners should calculate how much money they will need to live on in retirement. Factors such as where they want to live (a pricier home or a modest apartment), how they want to spend their time (traveling or working part-time), and healthcare costs play an important role in this assessment.

Once they have an idea of how much they will need, entrepreneurs should get a valuation of their business to see if its sale or transfer is a viable retirement option. As part of their valuation, small business owners should consider whether the business can operate without their involvement. If it cannot, it may be difficult to sell or generate income from it once the business owner retires.

Next, determine a goal. This might seem elementary, but the power of having a firm vision for the future of a small business and retirement cannot be overstated. Entrepreneurs who set firm goals take steps to make sure their goals are met. This helps them find the best tools to save and also prepares them to wind down the business when it is actually time to retire.

Know the best tools. Business owners do not need to move significant amounts of money from their business in order to start saving for retirement. Investing just a little bit can help entrepreneurs save on their present-day taxes until they make withdrawals in retirement. There are four main instruments to choose from.

SEP-IRA: Like a traditional IRA, this retirement plan is tax-deductible. For returns filed this year, small business owners can contribute up to 25% of their income or $54,000. A SEP-IRA is a great retirement plan for sole proprietors because it is self-directed, but the 401(k) described below offers similar benefits but may be more cost effective due to lower administration fees.

Simple IRA: This plan is designed for entrepreneurs who employ 100 or fewer employees. Like for a 401(k), contributions are taken directly from employee paychecks and are pre-tax. Contributions cannot exceed $12,500 in 2017, but employees who are 50 or older may contribute up to $15,500.

Solo 401(k): This plan is for sole proprietors but may include the proprietor’s spouse. Proprietors may contribute up to 25% of their salary plus up to $18,000 ($24,000 for people aged 50 or older), but the total contribution may not exceed $54,000. A spouse who works in the business may also contribute the same amounts.

Simple 401(k): Small businesses with 100 or fewer employees may utilize this plan. Owners and employees have the option to contribute up to $12,500 this year, or $15,500 for people aged 50 and older. This plan also allows for borrowing against it and making penalty-free withdrawals to cover financial hardship.

A sole proprietorship, a partnership, limited liability company, or corporate can qualify for every plan except the SEP-IRA.

Keep investments simple. Most small business owners should probably invest in a globally diverse collection of low-cost index funds. An index fund invests broadly across entire markets like the U.S. stock market, U.S. bond market, and developed foreign stock markets.

Another option for simple investment is a target-date fund, which automatically adjusts the balance of fixed-income investments based on age and the selected date.

Diversify all investments. Diversification does not apply only to the retirement plans described above but to any asset a small business owner may choose to invest in. Getting all of one’s savings or investments caught in one basket can be risky.

This is especially true of home ownership. The real estate market is cyclical, so it can yield high returns or unexpectedly big losses. Small business owners who place most of their net worth in their home are cautioned to spread their wealth around.

Put it all together. With their numbers as their foundation and their goals in mind, small business owners have terrific opportunities to save for retirement. By utilizing the tools we describe to invest in a diverse portfolio, more small business owners can effectively build their wealth without hurting their present-day business growth.

Financial Conversations You Should Have During the Holidays

Financial Conversations You Should Have During the Holidays

The holidays are a time for festivity and joy. Families who gather want to catch up and spend quality time together, talking about work, kids, favorite TV shows, and so on.

It might sound surprising then, but the holidays are also a great time to have some important financial conversations with your family members, especially if you live far away from one another and are spread out during the year. While the topic of whether you’re planning to see this season’s latest Star Wars movie might be more appealing in the short run, taking time to map out your family’s financial future will help you better enjoy many more holidays to come.

Here are six topics to discuss that can leave everyone in your family feeling better prepared for the future.

  1. Where do you keep important documents?

This is a straightforward topic from which the rest of your conversations can spring. Knowing where important documents are kept can help keep you organized and on-task in the event of a future emergency.

Important documents can include wills, documents estate plans such as trusts, life insurance policies, living wills, power-of-attorney, and so on.

Also, consider discussing computer passwords if they will be required to access some of this necessary information.

  1. Do you have a properly executed will?

A properly executed will means that it was written when the testator (the person making the will) had the proper mental capacity and that he or she signed it in the presence of two witnesses who also signed it. A will allows a testator to direct how his or her assets will be divided after death. Alternatively, if someone dies without leaving a properly executed will (intestate), that person’s assets will be divided according to the laws of the state in which the person lived, which may significantly differ from the decedent’s intentions.

  1. Is your life insurance up-to-date?

Life insurance can help families cover out-of-pocket costs for end-of-life care and funeral expenses. But life insurance policies differ from one another. A key consideration is whether your family member has a term or whole life policy. Just like it sounds, a whole life policy lasts for the entire life of the insured, whereas a term policy lasts for only the limited duration of time specified in the policy. Make sure that a term policy is still in effect.

Additionally, regardless of which policy your family member may have, consider whether the beneficiary is up-to-date. Perhaps your family member initially named another relative as a beneficiary who is no longer alive, or with whom the relationship has changed.

  1. What would you want done if you suffered a medical emergency?

This may be the most difficult topic for people to address, so sensitivity is important when discussing medical emergencies or end-of-life questions. To help frame the conversation, make it a discussion about the oldest generation’s wishes for the future instead of a morbid dialogue about the end of life.

Consider working with older family members to establish advance directives so that hospitals and doctors will be cognizant of their wishes. These include a living will, designation of a proxy with durable power-of-attorney, or a medical directive arrived at with a physician. Issues to consider when making these decisions include the choice between prolonging life or improving the quality of life over a shorter time span, providing care or withdrawing it, activating life support or not, and so on.

However, these discussions may not always be appropriate. According to April Masini, an etiquette and relationship expert, it is sometimes best to steer clear of these conversations altogether. She says that, “If someone in the family has a terminal illness or is the partner of someone with a terminal illness, it’s inappropriate to discuss wills, estate plans and anything that has to do with death and money. The topic is too raw and should be conducted very privately and with specific sensitivity.”

  1. What are your funeral wishes?

Knowing your family members’ funeral wishes can help you create a financial plan to cover the expenses, as funerals are pricey. Knowing them in advance can also help you shop around ahead of time, instead of being forced to pay more when you’re grieving and time is of the essence once a family member has passed. Of course, even more importantly, discussing funeral wishes in advance will help you say goodbye to your family member with respect and dignity while honoring his or her wishes.

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.

 

How Tax Reform Might Affect Your Retirement

How Tax Reform Might Affect Your Retirement

During his campaign, President Trump promised a significant overhaul to the federal tax code. If he comes through on his promises, the seven federal tax brackets would be streamlined to just three: 12, 25, and 33 percent.

Under such a plan, taxpayers who make between $48,000 and $83,000 would see roughly a $1,000 reduction in income taxes per year. High earners—America’s 1 percent—would enjoy an average reduction of $214,000. But not everyone will pay less.

For instance, removing the head of household filing status, as Trump proposes, would force single parents to pay more in taxes. So, it’s important to assess how these tax policies could affect what you pay. Because you could end up with more or less money in your hand each year.

With all that said, a new tax plan like the one White House leadership wants will impact your retirement as well, especially if you change tax brackets. Here’s what you need to know:

The possibility of lower taxes equals more options for retirement

As mentioned, Trump’s tax plan will save many folks money each filing season. Overall, taxes would decrease by $2,940 per filer on average. That extra money can be spent on retirement investments, like life insurance, stocks, mutual funds, or real estate, rather than a new TV or car.

If a new tax plan is implemented, and your taxes are reduced, start planning for what to do with the extra cash you save. You want to make the right investments for your retirement, which involves taking a look at how the entire tax plan affects where you should put your money.

Pre-tax investments may become less attractive

One of the advantages of a pre-tax investment, like a traditional IRA or 401K, is that it reduces your present tax burden. You can let that investment grow and then pay taxes on it when you retire.

But if you have less tax to pay, then it becomes less beneficial to save money on those taxes today. It may actually be smarter to pay the taxes now and then invest the money (especially if you believe taxes will go up in the future).

Consider this scenario:

  • In Trump’s proposed plan, a married couple with $100,000 in taxable income would pay $12,000 in taxes (a 12 percent rate).
  • Previously, a married couple having $100,000 in taxable income would have paid $25,000 in taxes (a 25 percent rate).

Clearly, it makes less sense to toss money into a traditional IRA or 401K to decrease your taxes. What you’re able to save is reduced because you’re already paying less in taxes (at least in this case).

Also, since pre-tax investments would become less attractive for most, after-tax investments, like a Roth IRA or annuity, would become more attractive. For most people, it might be wise to pay taxes on income now since rates are lower, and invest in something like a Roth IRA account to ensure money can be withdrawn tax-free in retirement.

Cutting Medicare surtax would benefit the wealthy

The Affordable Care Act helped fund Medicare partially with a surtax on investment income of 3.8 percent for those in the highest tax bracket. Trump and the GOP plan to eliminate this surtax, which would give high-income investors significantly more return on their investments.

The capital gains tax rate for them would decrease from 23.8 percent to 20 percent.

Opponents say this surtax would reduce federal revenues by $117 billion over a decade and accelerate Medicare insolvency, all the while putting an incredible amount of money back in the pockets of the wealthy. This could result in Congress raising Medicare’s eligibility age from 65 to 67 or higher. It also could lead to a reduction in benefits from Medicare, which is seen as a bedrock of health care coverage.

You should pay serious attention to what goes on with the Medicare surtax and even the Medicare employer tax (which could change).

Other factors to consider

Although President Trump has promised to protect Social Security, no concrete plans have been put forward. Some research institutions estimate Social Security will be insolvent by 2035, and there may be changes in the tax code that will impact the program. Pay serious attention to this, especially if you’re going to depend on that income in retirement.

Additionally, Medicare isn’t the only medical issue you need to consider. The Trump administration has talked a lot making Health Savings Accounts (HSAs) more accessible for Americans. Plans include increasing contribution limits, establishing easier ways to pass HSAs on to beneficiaries, and making the accounts more portable.

HSAs, which are tax-deductible, will definitely become a more useful option if the Medicare surtax is repealed and the Cadillac plan is canceled. That plan, starting in 2020, would impose a 40% excise tax on high-cost employer-sponsored plans.  

Wait to see what happens—then make the right move

Tax policies change with every administration, so it’s always best to observe what’s being changed and how it affects what you’re doing for your retirement.

Analyze your personal situation and do your research. See what investment vehicles suit you best—and make those investments. Watch out for changes in the tax plan that will affect Social Security and health care in retirement—and prepare accordingly. Doing all this will put you in a better spot for retirement.

How to Navigate Student Loans in Retirement

How to Navigate Student Loans in Retirement

Student debt is at an all-time high; about 44 million Americans hold almost $1.4 trillion in outstanding debts. The issue was hotly debated during the presidential elections, and higher education institutions have been soul-searching for innovative ways to help students deal with rising costs of education.

While the topic has gotten a lot of attention, though, the perception of those affected usually fits a certain stereotype: young millennials just starting down the road to a long-term career, with many years ahead of them to pay down their debt. The reality is more complicated. Currently, 6.4% of student loan borrowers are age 60 or older. That number is expected to grow as young Americans carry their debt further into their futures. Borrowers would do well to understand the resulting implications and the best ways to approach student debt as they get older.

Setting favorable terms for loan repayment

Some borrowers mistakenly think that their student debts will automatically be forgiven after a certain age. There is indeed precedent for this line of thinking; in the U.K., for example, federal student loans are forgiven when the borrower reaches age 65.  This is not the case in the U.S., and federal loans are only cancelled upon the borrower’s death.

While this fact may be grim, it can still be used to the borrower’s advantage. Because older Americans are usually living on a set fixed income and federal loans are nullified upon death, it often makes sense to reduce monthly payments by arranging to stretch out the loan term. While this increases the total amount of interest paid, it serves to keep monthly payments to a minimum which can assist with budgeting purposes. Also, if the borrower passes away before the loan is completely paid off, the resulting loan forgiveness would end up reducing the total lifetime costs.

Additionally, borrowers should be aware that some loan servicer providers automatically enter borrowers into a repayment plan where costs start low and increase gradually, in anticipation of a recent graduate starting with a lower salary and slowly increasing their income. This arrangement clearly does not make sense for older borrowers on a fixed income, who should work with their servicer to arrange an alternate agreement that is a better fit for their predicted future income.

Forgiveness programs do exist

Although an automatic, one-size-fits-all forgiveness program does not exist, borrowers should be aware that there are still other avenues to help lessen their debt. Some older borrowers may be eligible for programs that help limit total payments.  

While three-fourths of older borrowers with student loan balances are only holding balances on their own education, the remainder are holding balances on a child or other relative’s education. The latter may be eligible for an Obama-era repayment program called the Pay as You Earn PAYE program, which limits required payments based on earnings. Borrowers can check on the Federal Student Aid website to determine eligibility.

Another federal program of interest is the Income-Based Repayment (IBR) program, which caps maximum monthly payments at 15% of discretionary income. One of the most appealing aspects of this program is that after 25 years of continuous repayments, borrowers may be eligible for loan forgiveness for the remaining balance.

Be prepared to pay a Social Security offset

In 2005, the U.S. Supreme Court upheld the principle of “administrative offsets” that allow the government to collect on unpaid student loan debts by withholding Social Security benefits. The amount of the offset can range up to 15% of the borrower’s disability and retirement benefits, which may come as a surprise to elderly Americans who are depending on the income.

Many people are caught off guard is that Social Security used to be off limits for student loan offsets. Until 1991, there was a 10-year time limit on the government’s ability to collect student loan debt through administrative offsets. And until 1996, those offsets could not include Social Security. Now, though, 173,000 Americans received reduced Social Security checks because of unpaid student loan debts.

These factors are important to consider early so that Americans with student loan debt can be aware of the costs that may lie ahead.

Communicate with your loan servicer

The best repayment arrangement always depends on the specific circumstances of each individual borrower. To avoid getting lumped into terms that may not be the best for you, make sure to communicate with your loan service provider frequently and update them on any major changes. Open and frequent communication is the best way to help them help you.

 

Three Biggest Regrets of Baby Boomers Once They’ve Retired

Three Biggest Regrets of Baby Boomers Once They’ve Retired

As the adage goes, “a life without regrets is a life not lived,” but it is also “better to regret what you have done than what you haven’t.” The three biggest regrets of retired baby boomers center on the things they have not done and teach the next generation to make more informed choices.

1. Not Saving for Retirement Earlier

A rare absolute rule of finance is that people should start saving for retirement as early as possible, with the best time to start being in one’s twenties. Life expectancies are growing and show no signs of slowing down, so more money is needed to be stretched out for a longer period of time. Starting to save and invest as soon as one enters the full-time workforce can make a dramatic difference in the amount of money that accumulates by the time a person is ready to retire.

Many baby boomers failed to start saving on time and properly because they did not understand just how much money would be needed for their retirement. Some also did not know that receiving social security benefits or taking money out of retirement accounts before it is needed can have tax consequences that can substantially lower savings. Finally, many people tend to forget to adjust for inflation when considering whether they are satisfied with the rate of return on their investments.

2.Not Working Less and Traveling More

A study of 2,000 baby boomers commissioned by British Airways revealed that one out of five boomers regrets not doing more traveling around the world. The survey data also indicate that only 9% of American workers get more than nine vacations days per year and that only 37% of Americans took all of their vacation days in 2015, suggesting that working too much may be an issue whose scope extends far beyond just the baby boomer generation.

A 10-year research project conducted by Karl Pillemer, Professor of Human Development at Cornell University, into the lives of 1,200 people aged 65 and older also revealed that lack of travel during one’s youth is a common regret. He writes, “To sum up what I learned in a sentence: When your traveling days are over, you will wish you had taken one more trip.”

3. Not Working More

It might sound surprising given the decades of work they’ve done, but more than two-thirds of middle-income baby boomer retirees wish they had worked longer, and not for expected reasons. One might assume that people would want to continue working to keep earning their salaries, but for many baby boomers, wanting to keep working is about the work. People who are passionate about their careers and enjoy their work want to keep doing it. For this reason, many baby boomers return to the workforce on a part-time basis or as consultants. A number of baby boomers also enjoy working during their later years because they find that it keeps them mentally sharp, physically fit, and gives them a sense of purpose.

Goldstone Financial Group: How to Recoup from Drawing Money from Your Savings

Goldstone Financial Group: How to Recoup from Drawing Money from Your Savings

Life is full of unexpected situations that may have required you to pull from your retirement savings to cover pressing, unanticipated expenses. Although such situations can present challenges to the integrity of your retirement fund, there are several things you can do to reinvigorate your savings.

First, identify what caused the drain in your retirement savings. This step may seem obvious, but it’s important to take time to evaluate the factors that led to your emergent situation so that you can take steps to avoid them again in the future. With time and careful consideration, you can prepare for future unexpected situations.

Generally, it is advisable to save cash reserves to cover expenses for anywhere between three and six months. If you’re a homeowner, you should be able to cover six to 12 months. In addition, you should keep the amounts of the deductibles for your homeowners, flood, car, and health insurance. As an added precaution, set aside 1 percent of your home’s value each year for repairs.

Next, cut expenses and prioritize retirement. Because people spend the majority of their careers thinking that retirement is far away, other more immediate expenses often take priority over saving for a seemingly distant eventuality. However, dipping into retirement savings to cover an emergency signals that spending less on lower priority expenses may be necessary in order to recoup your losses. To help you accomplish this, refer back to the first step and evaluate what expenses you can minimize or maybe live without (at least for a while). Finding tax preferential vehicles such as municipal bonds, MLPs, and real estate in addition to the retirement accounts you already hold can help you get back on track as well.

Start saving small amounts to develop good saving habits and begin replenishing your retirement fund. Easing into monthly saving can help you get your retirement savings back on track without presenting you with a harsh burden. Starting by saving just 1 percent of your annual income in a company retirement plan helps you form a habit of saving. The 1 percent amount is small enough that it won’t be missed but big enough to keep the need to save for retirement fresh in your mind. It also helps you to save more as time goes on. By increasing the amount you save by an addition 1 percent of your income every other month, you will quickly be on your way to substantially rebuilding your retirement savings.

Eventually, you should increase your contributions to company retirement funds to the maximum amounts allowed by your 401(k)s and IRAs. Taking advantage of matching employer contributions will also be beneficial. If you are aged 50 or above, you can also potentially take advantage of up to $1,000 in catch-up IRA contributions and up to $6,000 for catch-up 401(k) contributions.

Pursue an extra job or income-generating side project to help fill in the gap.

Picking up a second job or an extra client or two can help generate additional income that can be set aside for retirement without impacting present-day expenses. If your spouse or partner does not work, having him or her join the workforce can be a great boon. Alternatively, if you are already retired, consider turning a hobby into an income-generating project. Or, apply to a big company, whose employee insurance plan can help cover healthcare costs. However, if you are unable to pursue any of the examples above, even simple things like tutoring or helping neighbors with some yard work can help supplement other income.

Delay retirement and social security to make sure you have more money for later. The best way to improve a retirement portfolio’s longevity is to delay drawing on it. Delaying retirement allows more time to build greater savings and also ensures that saved funds that you have accumulated will last longer into the future because they are being drawn on later in time. If you delay your social security benefits until after retirement age, your benefit grows with each year of delay.

If you’re a homeowner and your home has sizable home equity, consider a reverse mortgage. A reverse mortgage allows people aged 62 and over to receive tax-free cash in a lump sum or fixed payments. Moreover, the mortgage does not need to be paid until the homeowner moves out or dies. However, there are closing costs associated with this type of mortgage, and the homeowner must maintain the home. Although seniors often consider a reverse mortgage to be a last resort, it is a viable option provided that it is obtained from a reputable lender and that the homeowner understands how the mortgage works.

Goldstone Financial Group: 4 Reasons Why Considering the Impact of Spending Is Just as Important as Saving

Goldstone Financial Group: 4 Reasons Why Considering the Impact of Spending Is Just as Important as Saving

Many economists agree that the personal savings rate in America is too low. Even though it climbed to 5.7% in late 2016, it’s still behind most other developed countries.

For instance, Switzerland households save 13.4% of their income. In Japan, workers have averaged a savings rate of 11.74% from 1970 to 2016.

For those looking to save more, what’s the solution? Obviously, making more money helps, but that may not be entirely possible for everybody.

What anyone can do right now is manage their budget better. Smarter spending equals higher savings—a good step towards ensuring a secure financial future. Here are 4 reasons why considering the impact of spending is just as important as saving.

1. A penny saved is still a penny earned

Benjamin Franklin’s famous quote is simple but profound. Anybody that’s worried about their financial well-being should remember it. Say it out loud, “A penny saved is a penny earned.”

Though most are familiar with this quote, it’s not being put into practice the way it should be. According to research from GOBankingRates, one in three Americans don’t have any retirement savings.

Cameron Huddleston, an expert columnist at GOBankingRates, believes this can be fixed. “There are plenty of obstacles Americans claim are in their way when it comes to saving for retirement,” she says. But things likes student loan debt, low wages, and a child’s education “don’t necessarily make it impossible to save for retirement.”

For those on a strained budget, the best way to save more money is to look at how you’re spending. There are many easy ways to save a few or even hundreds of dollars a month, from cutting the cord on cable to bargaining at flea markets.

2. Overspending carries future financial consequences

According to a study published in the Journal of Consumer Research, consumers overspend due to impatience and not thinking about long-term consequences. Examples of this play out every day.

For instance, 30-year olds probably don’t think about how buying a super-expensive TV today could negatively impact their quality of life at 65. That’s just so far away, and that TV can offer immediate pleasure.

This is what motivated the study’s researchers, Daniel M. Bartels and Oleg Urminsky, to look for ways to change this behavior. The two University of Chicago professors found that the solution is more complex than just thinking about one’s future self. While spending money, people must also care about their financial future. If someone doesn’t care, then spending less and saving more becomes less likely.

As Bartels and Urminsky say, “The best way to help consumers avoid overspending is to get them to both care about the future and recognize how their current behaviors affect the future.” Thinking and caring about the future is key to spending wisely today.

3. There is waste everywhere

Think of something like lean management in business. The core idea is to eliminate waste and improve efficiency. People should be applying this philosophy to the way they spend money.

Many may argue that saving is tough because all their income is spent on essentials, but research doesn’t necessarily support that claim. A survey by 24/7 Wall Street found that Americans spend roughly 15% on non-essentials (which means $15 out of every $100 doesn’t necessarily need to be spent).

Some common non-essentials include the following:

Pets
Travel
Eating out at restaurants

It’s worth noting that things that can be classified as “non-essentials” offer necessary relief from the stresses of life. Yet the fact remains that this is the primary area where wasteful spending occurs. Cut down any wasteful spending here and savings rates rise immediately.

4. Overspending leads to debt

It shouldn’t be a surprise that student loan debt can delay saving for retirement. It’s hard to stash away cash when lenders need those monthly payments.

For those that overspend and get caught in debt, the same idea applies. Habitual overspending makes getting out of debt—and saving—quite difficult.

It’s rather alarming that the average credit card per U.S. household is around $16,000. This indicates consumers are buying things without having the ability to pay in full. Carrying a credit card balance is necessary sometimes when the unexpected arises. But for many, high balances are simply a result of bad money management (overspending).

Also, since credit cards have higher interest rates, this means people are getting burnt by interest payments. That interest money could have been savings instead.

Saving more by spending wisely

In the end, it’s not necessarily about being stingy. It’s about spending more wisely. This means buying things at the lowest possible prices, staying away from unnecessary purchases, keeping credit card balances as low as possible, and more. If more folks start to pay attention to the impact of their spending, they’ll see their savings rise.

Goldstone Financial Group: Having Your Kid on Your Cellphone Plan is Affecting Your Retirement Plans

Goldstone Financial Group: Having Your Kid on Your Cellphone Plan is Affecting Your Retirement Plans

Providing for children when they are young is a common expectation. However, the situation gets more complex as children grow into adults but continue to need financial support. Known as “boomerang kids,” these children, aged 21 years or older, either live with their parents or continue to receive financial support even when living on their own. Parents want to help their children through the weak post-Great Recession entry level job market, but such assistance comes with the added cost of decreased savings and later retirements.

According to new data from the Pew Research Center, for the first time in 130 years, more young adults aged 18 to 34 live in their parents’ homes—32.1 percent of them—than on their own or with romantic partners. In such situations, parents often need to divert funds from retirement investing and saving to bear the added cost of providing for their adult child. A 2015 study conducted by Time Magazine revealed that, regardless of whether adult children live with their parents or not, 70 percent of parents polled spent up to $5,000 per year supporting an adult child, with 38 percent reporting having spent at least $1,000. Two-thirds of respondents aged 50 and older also indicated that they had provided financial support for a boomerang child within five years prior to taking the survey.

Such amounts may seem small, but they add up quickly, especially at a time when parents should be actively working on accumulating wealth and diversifying their income streams as part of their retirement strategy. Although parents and adult children both feel that assistance should not go on for long, the reality is that it stretches over longer periods of time than anyone is comfortable with. Even if parents spend just $1,000 on their adult child per year, the sum they lose from their retirement savings is even greater when they account for the loss in market-tracking index growth should that sum have been invested instead.

In addition to decreasing the amount of investments and savings, spending money to help adult children also results in people putting off their retirement. A study by Hearts and Wallets revealed that parents aged 65 and older who have financially independent adult children are twice more likely to be retired than their counterparts who are supporting adult children.

To help offset the financial burden of supporting a boomerang child, parents can set expectations and boundaries. Parents can ask boomerang children who live with them to pay rent or contribute to household spending in other ways. Regardless of whether their children live with them or not, parents can also help themselves and their children by assisting their kids with networking so that they can find a well-paying job and become financially independent. Setting boundaries and creating a plan for when a child will move out or assume increased financial responsibility can also be helpful in keeping parents’ spending in check. Finally, assigning household maintenance responsibilities or other chores may free up parents’ time to turn to turn their attention to financial matters.

Of course, each situation is unique, so there is no one size fits all strategy. Some boomerang children may be unable to secure a well-paying job while others are crushed by crippling student loan debt. Nevertheless, parents should strive to keep their retirement strategy in focus so they don’t run the risk of outliving their assets or having to ask their adult children to care for them later in life because parents spent their retirement savings providing for their adult children today.

photo credit: Wikidpedia

Hybrid Indexed Annuities Balance Market Volatility in the Wake of Brexit

Hybrid Indexed Annuities Balance Market Volatility in the Wake of Brexit

There is some good news for investors in the wake of all this market fluctuation: Downturns don’t necessarily require panic. This is especially true if you are working within a well-diversified investment structure that considers your future needs and your personal investment and financial planning approach. A recent article in Time Magazine cites the market’s historical performance as a source of comfort with regard to our current situation:  “Back in March 2009 the Standard & Poor’s 500 was down 40%, but the market rebounded and delivered a historic bull rally.” This is all the more reason for investors to stay invested and remain diversified. In fact, this turn of events might actually afford investors an opportunity to increase their financial security.

 

While the wake of Brexit has been stressful on financial markets globally, it also marks an instance in which Goldstone Financial was able to use targeted strategies to make clients’ money work for them in order to actually strengthen their financial portfolios. Specializing in retirement security, Goldstone works with clients to balance active investment strategies with a conservative approach, which helps ensure financial security even in volatile markets. It’s in these downturns that we’re actually able to use our expertise to enable clients to participate in market gains, while still minimizing the risk of loss.

One aspect of this approach is using hybrid indexed annuities to help balance market volatility. Hybrid annuities are a staple in our investment approach throughout all types of market performance, but as it turns out they have been especially beneficial of late. And, according to a recent Financial Times article, “In the longer term, some of the stringent EU rules on the amount of capital that insurers have to hold to support their annuity may be relaxed ever so slightly and this will be good for annuities.”

Goldstone Financial specializes in hybrid indexed annuities, and recommends them in part because of our vast experience, and strategic approach. For example, we always participate in multiple indexes at a time, thus reallocating the risk of loss and maximizing the potential for gain. The “cost” of this, and annuities in general one might argue, is that there is a cap in the potential gain. However, our research and experience has shown that clients above a certain age who are looking toward retirement would rather be guaranteed a gain, than risk having none at all. These gains also offer flexibility of when they are credited to a clients’ contract—on a monthly or annual basis—so there is a sense of control on the part of the investor, which is extremely reassuring to our clients who no longer have a steady stream of income.

As with any investments, these are best executed and maintained with consistent tracking, customization, and navigation of limitations in accordance with clients’ need and future goals. It’s best to enlist the help of a professional who can navigate these variables, to help provide the best return on performance as related to the overall larger investment and financial planning goals for each client.

There are several other recommendations we make to clients who are concerned about their finances during Brexit and other difficult times in the market. Smaller cap options are looking better and better in the wake of Brexit, causing many to continue this course of action if already implemented. Reactionary investors have been pushing money into exchange-traded funds that track the price of gold and various indexes within bonds, but we recommend maintaining a longer-term strategy, even for our clients closer to retirement.  

The best approach, however, is to remain calm and avoid making rash decisions during market events that will likely correct themselves. U.S. New & World Report reminds us that “investors who make sudden decisions to sell their assets may face transaction fees and negative tax consequences, and perhaps most importantly, they will not have the opportunity to regain these assets when the markets inevitably recover.” These are serious consequences that aren’t always considered in a panic. In a CNN article on the subject, Tobias Levkovich, chief U.S equity strategist at CitiBank, also cites that “trading on emotions generally is not a smart reaction to unexpected developments, and the U.S. has shown itself able to grow its economy even when Europe slipped into recession.”

Regardless of comforting predictions and expectations, these sudden changes bring on understandable stress. At Goldstone, we attempt to alleviate the pressure of these situations for our clients, precisely so that they don’t have to risk making damaging decisions in high-pressure moments.

Goldstone Financial Group: The Discussion Every Couple Should Have for Retirement

Goldstone Financial Group: The Discussion Every Couple Should Have for Retirement

Even as they enter their 50s and 60s, couples tend to avoid discussing their retirement. Although the subject can be uncomfortable because it touches on the end of life, not talking about retirement often leads to problems, both financial and domestic. To ensure that you and your partner are both well taken care of when you choose transition from the workforce, we recommend that you discuss the topics outlined below as early as you can.

  1. When do you plan to retire?

Because this question impacts both finances and lifestyle, it can often be the most difficult one for couples to resolve. Your partner may wish to retire early after a prosperous career, but you still feel satisfied in your work and are not yet ready to leave it behind.

The best way to get past a potential roadblock is to examine the impact one partner’s earlier retirement will have on your mutual financial situation. Having one partner remain in the workforce can increase retirement savings, grow your employer-sponsored pension, and delay taking out social security benefits, which can be helpful in making sure that neither of you run out of money once you’re both fully retired. Having one partner keep working may be especially beneficial in light of the fact that women are expected to live as much as 10 years longer than men, which could result in their living past their retirement savings.

  1. Where do you plan to retire?

This question impacts the kind of lifestyle you and your partner might want. Talk about your interests and the activities you wish to pursue in your free time. Depending on whether you’d like to live in a pricier urban setting or somewhere less expensive and more rural, the answer will also impact your finances. State income and property taxes, which vary widely, can also affect your decision. Whether to live in a house—which can require financial investments for upkeep as it ages—or to downsize to a condominium to free up more cash and have less maintenance activities to worry about is another key point to consider.

  1. What does retirement mean to you / how will we spend our time?

If you’re both retiring around the same time, do you or your partner plan to work part-time, whether to make extra money or simply to remain active, as many retired professionals increasingly do today? If one of you chooses to retire early, will that partner help the other in his or her professional career? Would you or your partner be happy spending your days pursuing exclusively non-professional interests? What do those interests include? Consider the costs of travel, theatre, family time, etc.

Developing a financial plan for retirement can help answer these questions. It is recommended that each partner prepare to answer these questions separately, as that will make your discussion more productive when you come together to merge your ideas into a unified plan. Do not let yourselves get frustrated if you cannot find common ground right away. Plans of this nature often take months of negotiation before they are set.

  1. Whose investment style will we follow to meet our mutual goals?

You or your partner may manage your own 401(k)s or IRAs as you move through your careers. This individualized approach does not need to change. However, the two of you should choose a financial advisor that can guide both of your individualized efforts to work together in an overall portfolio that serves your mutual goals. You should also discuss ways to keep your investment funds growing even after you begin drawing on them.

  1. Will we leave any money to our children and/or to charity?

If you’ve come to this point in your retirement discussion, it is likely that you have agreed upon the points outlined above to your mutual satisfaction. Still, this topic can also produce passionate discussion, depending on your family situation. After you agree upon the best ways to serve your family and legacy, we recommend working with a financial advisor to learn about the many different tools for passing on wealth to heirs or the charitable organization(s) of your choice.

Goldstone Financial Group: 3 Ways To Think Like a Quarterback In Your Retirement Strategy

Goldstone Financial Group: 3 Ways To Think Like a Quarterback In Your Retirement Strategy

Apt comparisons can be made between athletics and finance — even in terms of retirement strategies. Though retirees should have a trusted financial ‘coach’, the strategies and final decisions during game time is up to the quarterback — you. Brad Johnson, a former football player and current VP of Advisor Development, offered the three insights into how he turned his passion for football into a successful career as one of the foremost finance advisors.

Bend don’t break

Expect some losses but don’t accept them all. During volatile markets, investors oftentimes take flight. In long-term investing, this is the worst thing a retiree can do for themselves and the economy. If you can’t see past the burning forest, make sure you have a great team on your side to help advise you. If certain investments are “broken”, they should be able to steer you towards safer ground.

According to Brad Johnson, staying the course is the best way to ride out the volatility:

There was a saying we had as a defensive unit back in college when I was playing, “bend but don’t break” and I think it relates incredibly well to the mentality most retirees should take with their savings. You see in football it meant you can give up a first down or two on defense, just don’t give up the 60 yard [sic] bomb over your head or the big run down the sideline for a touchdown.

Don’t have all your players in one place

As mentioned in an earlier blog, much of the last 60 years of “tried and true” investing no longer reaps the rewards seen in decades before, however, one thing that does remain is diversification. Retirees should not be afraid of making certain risks but having a diversified portfolio, like diversifying your best players is a great tactic to employ. Using diversified retirement strategies like hybrid fixed annuities, IRAs, Roth IRAs, and the strategies mentioned here for retirement will spread out your best players.

Recalls Johnson:

This was drilled into us by our coaches and by making sure everyone was playing their position and role within the defense.

What’s interesting is that this exact same philosophy applies incredibly well to retirement and the need for utilizing tools within your retirement that all play a certain role. Just as you wouldn’t have an entire football team made up of 11 running backs, for most retirees they shouldn’t have an entire retirement nest egg made of high risk/high reward equities.

Have a good defense

As we’ve all heard many times: a good offense is a great defense. This also applies to retirement. The most prized asset in your financial portfolio is a Plan B. In other words, always prepare as much as possible. Your knowledgeable advisor is your best defense against making decisions based on misguided or incorrect intel. They should have the answers to your burning questions because they’ve played the game a lot more than you have! So don’t be afraid to confer with your coach.

With the help of your advisor, there are ways to implement safeguards that can help you grow and keep your money. In the words of Mr. Johnson, these advisors are a crucial way to keep all your “eggs” intact:

Going back to the “bend but don’t break” mindset, this is what sent many retirees looking for a part time job or caused them to delay retirement back in 08-09. Essentially their nest egg “broke” when the market was cut in half.

There are a number of tools available to help[s] create a sustainable base for income through retirement that help shield retirees from this risk – think of them like the offensive linemen on a football team, they don’t get much glory, but no football team could survive without them!

Like Brad Johnson, a financial advisor can help coach a retiree into strategizing the best retirement plan that will help them score a “touchdown” as Johnson puts it. At the end of the day, it is your retirement, your game so to speak; but with a keen knowledge of the playing field and a strong supporting team, a retiree can get to their end zone with a win.