Archive | Retirement Investment Options

Say “No” to Annuity Buybacks

If you have older annuities, you may have been offered a financial incentive in exchange your guaranteed income and death benefits. Don’t take the bait. Say “no” to annuity buybacks.

Understanding motivation is the key to understanding behavior. Say “no” to annuity buybacks.

Say “no” to annuity buybacks

Understanding motivation is key to understanding behavior. When you understand why a company is offering to buy back your lucrative annuity, you’ll understand why it’s probably a bad idea for you to take the offer.

Companies sold deferred variable annuities with generous guarantees in the late 1990s and early 2000s, when the stock market was rising and interest rates were higher. With their investments still battered by the 2008 market downturn, insurers are now looking to shed these guarantees from their books.

By offering you an apparently large payment, companies can avoid paying you more over time.

Many of these older annuities base lifetime payouts and death benefits on the investor’s original investment plus annual returns of 5% and 6%—no matter what happens in the stock market. Several companies recently began offering annuity holders one-time payments to give up those guarantees, and other insurers are planning to do the same.

Rick Rodgers, a financial planner in Lancaster, Pa., says such annual returns are “difficult if not impossible to replicate in today’s low-interest-rate environment without taking risk.” If you expect to live at least 15 years, he says, the insurers’ offers “aren’t going to make up for the security the guaranteed contract offers.”

Rest assured that everybody’s out to make a buck, and if they can do it at your expense, they will. Just say “no” to annuity buybacks.

Click here to read more about why you should say “no” to annuity buybacks.

Posted in Planning for Your Retirement, Retirement Investment Options, Retirement Plan Challenges0 Comments

Invest More Conservatively After Retirement

Prior to retirement, you’ll probably want to take a little more risk in your investments to maximize your return, but you may want to invest more conservatively after retirement.

Invest more conservatively after retirement to protect your assets and financial security.

Invest more conservatively after retirement

Since you want to have as much money as possible saved when you retire, higher risk investments — with the associated higher returns — make good sense. Even if the market goes south, you’ll still have several years of employment to carry you through until the market rebounds. You might also consider working a few extra years to save even more.

The single biggest difference is that you have a lot more flexibility during your career when it comes to retirement planning. For example, if you have the bulk of your retirement accounts in stocks and the market tanks, you’ve got plenty of options for rebuilding the value of those accounts.

With years of work still ahead of you, you can simply sit back and wait for the market to rebound and eventually climb to higher ground. Or you can pump up the amount you contribute to your retirement accounts, which will hasten the recovery of your balances.

After you’ve retired, it’s a vastly different scenario.

Unlike during your career when you’re still putting money into your 401(k), IRA or other accounts, you’ll be pulling money out of your nest egg once you retire. And that creates a very different dynamic.

Specifically, the combination of investment losses from a market downturn, plus withdrawals from your account for retirement living expenses creates a double-whammy effect that can decimate the value of your portfolio and dramatically increase your chances of outliving your dough.

As a result, the same market meltdown that may be very unsettling during your career can be absolutely devastating after you’ve retired, perhaps even forcing you to radically scale back your standard of living to avoid running through your money too soon.

There is no single “right” answer to how you should invest — before or after retirement. But, because of your reduced earning power it’s wise to invest more conservatively after retirement.

Click here to read more about why you should invest more conservatively after retirement.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Investment Options, Retirement Plan Challenges, Saving for Retirement0 Comments

Bond Investments Will Blow Your Retirement

Bonds have long been a safe — relatively — investment for those who want a financially secure retirement, but that may be changing. Investors seeking safer investment options are creating a “bond bubble.” Given what’s happened to all past bubbles, is it possible that bond investments will blow your retirement?

The “bubble” of bond investments will blow your retirement.

Bond investments will blow your retirement

As we seek more secure investments and safer returns…

…the panicky flight to safety is creating a new kind of bubble, this time in the U.S. bond markets. The supply of safe assets, which historically meant AAA-rated government bonds, mortgage-backed securities and gold, has been declining precipitously over the past few years.

It’s not looking good for bonds — of any kind.

…U.S. Treasuries are the last last resort; as investors have flooded into them, yields dropped to 220-year lows. The practical result is that if you own T-bills, you are basically paying the government for the privilege of babysitting your money while you go nowhere.

There are other options, however.

…remember real estate? Ouch, you do. Sorry. But it’s looking to be a safer bet. The asset that caused our financial freak-out has, by many indicators, bottomed out. Building permits, the leading indicator of future construction, jumped nearly 8% in May; that sets the stage for some major construction this summer. “Interest rates are low, prices are low enough to encourage buying, and yet rents are rising–a kind of dividend which may well beat inflation,” notes Paul Ashworth, chief North American economist at Capital Economics.

What were once safe investments may not be any longer. Consider other options because it’s possible that bond investments will blow your retirement.

Click here to read more about how bond investments will blow your retirement.

Posted in Planning for Your Retirement, Retirement Investment Options, Retirement Plan Challenges, The Economy0 Comments

Retirement Investment Options

It seems like the stock market is the investment option of choice when saving for retirement, but it may not be the best — or safest — choice for you. Depending on your age, willingness to take risks and a host of other variables, you might want to consider diversifying your portfolio with these retirement investment options.

You have other retirement investment options, besides the stock market, that will diversify your portfolio.

Retirement investment options

While the stock market has generated an average return of about ten percent a year — over the long haul — it’s been subject to devastating fluctuations on a fairly frequent basis and wise investors have other options to mitigate those wild swings.

Annuities. The basic idea with annuities is that you pay an insurance company a lump sum in exchange for a guaranteed monthly payment for life.

Bonds. The classic alternative to the stock market is bonds. You can lend money to the government or a corporation and receive some interest in return.

CDs. CDs are not very attractive at the moment because the yields are very low. However, the return is guaranteed and the risk is also very low.

Real estate. Rental properties are a great way to generate some income, but they can be a lot of work. If you really don’t want to be a landlord, consider a real estate investment trust (REIT) instead.

Gold. Gold is another diversification from the stock market. Traditionally, gold represents stability, and a small portion of your portfolio might benefit from that.

Peer-to-peer lending. You lend money to individual borrowers and you’ll be paid an interest rate. The good thing about peer-to-peer lending is that you can lend in $25 increments and diversify your lending portfolio.

Long-term care insurance. The cost of long-term care can put a big dent into any retirement portfolio. A good nursing home can cost over $10,000 a month depending on where you live. Long-term care insurance can offset that cost.

Some of these retirement investment options may not be right for you, but the more diversified your investment portfolio, the more protection you have against wild market fluctuations.

Click here to read more about these retirement investment options.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Investment Options, Retirement Plan Challenges, Saving for Retirement0 Comments

2013 Retirement Resolution: Understand 401(k) Fees

401(k) plans are notorious for charging outrageous fees to manage your account and it’s amazing how much those fees can drain your retirement fund. So, make this 2013 retirement resolution: understand 401(k) fees.

Your 401(k) could be bleeding money. Make this 2013 retirement resolution: understand 401(k) fees.

2013 retirement resolution: understand 401(k) fees

The fees your retirement fund management team charges you to take care of your money range from fractions of a percent to several percent, depending on the company and the funds where you have your money. While it may not sound like much, over the years it can add up to tens of thousands — or even hundreds of thousands — of dollars.

That money should be yours, and what you’re spending it on isn’t a bargain, considering the quality of the investment advice most of us get.

Finally, you have a way to see what you’re being charged, and although it will still take some work to figure it all out, it’s well worth it.

Make use of new 401(k) fee information.

Retirement savers will get new information about the fees and other charges being deducted from their 401(k) this year in the form of quarterly and annual statements. Take a look at the costs of your investment options and how your returns compare to the benchmark. If your funds aren’t delivering enough value to be worth the cost, consider switching to investments with lower fees. “Ideally you should be paying no more than half a percent on investments in your 401(k),” says Mark Jarvis. “You need to make sure that all fees on investments, whether in a 401(k) or IRA or other account, are as low as possible.”

Chances are, your 401(k) account is being over-charged and there are more economical options in your plan. If you must put money into a 401(k) plan, make this 2013 retirement resolution: understand 401(k) fees.

 Click here to learn more about 401(k) fees and other 2013 retirement resolutions.

Posted in Medicare, Planning for Your Retirement, Retirement Investment Options, Retirement Plan Challenges, Saving for Retirement0 Comments

2013 Retirement Resolution: Capture Employer Matching Funds

One of the few reasons to put money into a 401(k) plan is if you’re getting a matching contribution from your employer — it’s free money. If you are, take advantage of it with the 2013 retirement resolution: capture employer matching funds.

Make a 2013 retirement resolution to capture employer matching funds.

2013 retirement resolution: capture employer matching funds

Max out your employer benefits.

Saving for retirement is easier when your employer chips in. Make sure that you sign up for your workplace retirement plan and save enough to capture the 401(k) match or other contributions offered by your company. An employee who earns $50,000 a year and gets a 3 percent employer match could get as much as $1,500 annually from the company for their retirement.

While there are problems with 401(k) plans — like excessive management fees and the risk of systemic failure — you should take advantage of your employer’s matching contribution to your 401(k).

Equally important, understand the sizable risks association with 401(k) plans and learn how to mitigate those risks and protect your retirement savings. No on cares as much about your retirement as much as you do, so commit to the 2013 retirement resolution: capture employer matching funds.

Click here to read more about 2013 retirement resolutions.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Investment Options, Saving for Retirement0 Comments

Take Advantage of Your Home’s Equity When You Retire

For many Americans, their home is their biggest financial asset. So, how can you take advantage of your home’s equity when you retire?

Take advantage of your home’s equity when you retire.

Take advantage of your home’s equity when you retire

As a homeowner, you have several options for your living arrangements when you retire:

  1. Stay where you are.
  2. Stay where you are and take a reverse mortgage or a home equity loan.
  3. Sell your home and buy a new one — probably downsizing when you do.
  4. Sell your home and rent.

There may be a substantial financial advantage to selling your home; you’re able to take the full value of the sale — up to $500,000 — free of Federal tax. That can be a huge boon to retirees, although it may require a major change in lifestyle.

Assuming you decide to sell, your options are buy or rent. Buying — even if it’s a much smaller home — ties up a lot of your money in real estate. Renting means you’re not building any equity. Here are some reasons you may want to consider renting:

  1. You need flexibility
  2. You may a hard time selling your home if you need to
  3. You can’t qualify for a mortgage
  4. You don’t have time — or energy — for upkeep
  5. You want to try out a new area
  6. You’re an empty nester

As with all the other decisions you’ll make about retirement, where to live and what kind of lifestyle you want, should be carefully evaluated. And, whatever you choose, there are ways to take advantage of your home’s equity when you retire.

Click here to read more about reasons you might want to rent when you retire.

 

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Investment Options, Retirement Plan Challenges0 Comments

Australians Can Teach Us About Retirement

I think it’s common knowledge that the chances for a financially secure retirement are — for many of us — about as good as our chances of winning the lottery, but the challenges of planning for retirement face the citizens of other countries as well. There’s a lot Australians can teach us about retirement.

Australians can teach us about retirement

Faced with many of the same problems as we here in the U.S. face,

Australia made changes to their pension system in order to serve retirees more efficiently.

During the ’90s, Australia looked at demographics and realized the need to improve retiree pensions. In addition to a means-tested pension system, the Aussies began a mandatory program, where employers contribute (currently 9 percent) to investment funds. The compulsory “Superannuation Guarantee” is augmented with private savings and non-superannuation programs to provide a third leg for retirees.

Superannuation is “an organizational pension program created by a company for the benefit of its employees.”

The first thing we should learn is to limit access to retirement funds.

While individually owned, stringent guidelines restrict participants’ access to Superannuation funds prior to retirement.  Conversely, Americans have relatively easy access to retirement funds. Human nature and temptation being what they are, no one should be surprised to learn 50 percent of employees cash in 401(k) plans when switching careers.

Don’t pay fund managers more than is absolutely necessary, unless you like giving money away.

Our current hodgepodge of IRAs, 401(k), 403(b), et al, allows financial croupiers to rake profits from participants. Recently I found a 403(b) participant at Northwest Florida State College paid over 3 percent annually on their deferrals. The Class C shares used had an annual expense ratio over 2 percent and the advisor tacked on an additional 1 percent.

Take the time to learn about investingplease!

In addition to good wines, Australians appear to put more emphasis on financial literacy programs than we do.  A sobering Securities and Exchange Commission report found Americans lack understanding of rudimentary financial concepts like interest rates, mortgages, risk and inflation.  More advanced ideas like portfolio diversification or differences between stock and bonds flummox investors.  The lack of basic fiscal knowledge inhibits your ability to retire comfortably.

Many of us are woefully ignorant about the most basic investing concepts. There’s a lot Australians can teach us about retirement.

Click here to read more about investing wisely and what Australians can teach us about retirement.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Investment Options, Saving for Retirement0 Comments

Take Responsibility For Your Retirement

If you’ve put off learning about investments and how to manage your money for retirement, it’s time to stop procrastinating and start learning. The reason? Many of the companies we think we can trust to handle our retirement plans, we can’t. You have to take responsibility for your retirement.

Take responsibility for your retirement

A case in point is the banking industry. During the financial crisis of 2008-09, The US Treasury invested more than $200 billion in 700 banks…

…including $25 billion each to the nation’s largest lenders, including Wells Fargo (WFC), JPMorgan Chase (JPM), Citi (C), and Bank of America (BAC). Citi and BofA received other aid as well.

This was done on the condition that these institutions would then loan the money to small businesses. Guess what. They didn’t.

Instead, according to Rebel Cole, a DePaul University economist:

Small business loans outstanding dropped 18 percent, from a peak of $659 billion in 2008 to $543 billion in 2011…. TARP banks cut their lending to small businesses by 21 percent in that period, compared to a 14 percent drop at other banks.

That’s right. Banks that did not receive bailout money loaned more to small businesses than banks that did.

It’s fairly common knowledge that banks received a huge bailout and that the money has been paid back, but the fact is, they didn’t do what they were supposed to do with the bailout money. Instead of loaning it, they improved their own capital position, thereby contributing to the bankruptcy of many small businesses that couldn’t get loans.

There are (at least) two lessons here:

  1. Invest in the stock of financial institutions because they will always take care of themselves first and many are “too big to fail.”
  2. Don’t trust someone else to manage your retirement finances because “they will always take care of themselves first.”

Cynical, I know. But realistic. The only way to be sure you have enough for your “golden years” is to take responsibility for your retirement.

Click here to read more about the bank bailout and how banks failed small businesses and Americans.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Investment Options, The Economy0 Comments

Afraid to Invest for Retirement

After the last ten years, it’s hard to know which end is up when it comes to planning for retirement. Many of us, confused, depressed and without a nest egg, find that we are afraid to invest for retirement.

Afraid to invest for retirement

And it gets worse. Many of us are also trying to plan and save for our children’s college and other major expenses we know are coming. Here’s an example:

Tom, 41, and Gianna, 37, have dreams of a solid financial future. But the couple, parents of a 6-year-old, are at the point where they’re not sure what to do next.

“How do I make my money earn more for me without taking excessive risk? We are frozen in indecision,” Tom says. “I fear that we are not contributing enough (for college savings).”

They’re also concerned about whether or not they have enough life insurance.

Kim Viscuso, a certified financial planner with Stonegate Wealth Management says,“Many Americans feel that they are frozen in indecision even if they are fortunate enough to have good jobs,” Viscuso said. “They may feel grateful to have a good job but they are not sure how much savings is enough. They want to know where to invest their savings so it can earn more without taking excessive risk.”

There is no easy solution. Investing, like anything else, requires a commitment of time and energy even to learn the basics. And if you want to feel confident enough to discuss your retirement needs with a financial professional, or even tackle the challenge of retirement planning yourself, the more you know, the better prepared you’ll be. One thing’s for sure, though. If you want to be prepared for retirement, you can’t be afraid to invest for retirement.

Click here to learn more about planning for your retirement

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