Tag Archive | "investing for a secure retirement"

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.

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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 RetirementComments (0)

Tips If You Plan To Retire in 2013

If this is the big year for you, congratulations! It’s been a long haul, but that’s all in the past and it’s time to relax and enjoy the golden years. To make sure you’re able to do so, here are some tips if you plan to retire in 2013.

Make your retirement more enjoyable with these tips if you plan to retire in 2013.

Tips if you plan to retire in 2013

Unfortunately, you can’t just walk out the door one last time and wave good-bye. You still have things to do.

1. Make sure you are vested in your retirement benefits.

2. Strategize about when to claim Social Security.

3. Sign up for Medicare on time.

4. Protect your savings.

5. Develop a plan for spending down your assets.

6. Don’t forget to take required minimum distributions.

7. Consider maintaining your connection to the workforce.

Sure, it’s the end of your working career, but it’s also the beginning and there are lots of options available. Make your retirement rewarding and follow these tips if you plan to retire in 2013.

Click here to read more about tips if you plan to retire in 2013.

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2013 Guesses About Retirement Investments

As we ease into 2013, it seems just about everyone has ideas — predictions, if you will — about what the new year will bring. Bearing mind that your speculation is as good as mine and that “past performance is no guarantee of future returns,” here are some of the headline-making 2103 guesses about retirement investments.

2013 guesses about retirement investments. What will happen to your money this year?

2013 guesses about retirement investments

One thing is pretty certain: since the Great Recession, the stock market has managed to claw it’s way back to record levels. It also looks like things will continue to get better.

Optimism about the economy and the political scene brought strong gains for the stock market in 2012, despite occasional jitters over the so-called fiscal cliff. There are reasons to think the rally will continue through 2013. Europe is getting better. China is stronger. Maybe our own economy will pick up as unemployment goes down, consumers build confidence, and politicians agree to compromise.

That said, we can safely bet that diversity in your investment portfolio is a good thing, because — let’s face it — no one really knows what the future holds for China, Europe or anywhere else in the world and you want to be prepared. Then there’s the infamous “presidential cycle.”

Research tells us that the stock market tends to follow a presidential cycle. Stock prices go up during a presidential election year like 2012 by an average of about 8 percent. This past election year brought us almost twice that, some 15 percent.

Marshall Nickles of Pepperdine University suggests

…while the presidential cycle theory is historically accurate, it does not necessarily predict stock prices. The market is subject to various forces, many of them unforeseeable, and a recognized pattern may not anticipate the next turn in the market.

A report from John Hancock Mutual Funds confirms

…the observation that the stock market ekes out small gains during a president’s first two years, then goes gangbusters during the president’s second two years. John Hancock puts the chances of a stock-market gain during a presidential election year at 74 percent. But the chances of a gain during the first year of a presidential term fall to 57 percent. And this study calculates an average return of just 4 percent.

Then there’s the Santa Clause rally.

Yale Hirsch of The Stock Trader’s Almanac looked at the last five trading days of the year plus the first two of the new year. Since 1950, those seven days have averaged a 1.5 percent gain in stock prices (an annualized rate of over 50 percent). He also found that this Santa Claus rally often predicts the next year’s market. If the Santa Claus rally arrives on schedule, it’s a good sign. If it doesn’t, then the following year often turns bearish.

Ho! Ho! Ho! You may find it entertaining to look at the numbers, trends and predictions — I do — but don’t bet the farm on them. Instead, remember that they’re 2013 guesses about retirement investments.

Click here to read more about 2013 guesses about retirement investments.

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Fight Inflation In Your Retirement

If you’ve lived long enough to be thinking seriously about retirement, you remember inflation. While it’s not a problem right now, just like everything else, it’ll come around again, and if you’re on a fixed income it’s important that you’re able to fight inflation in your retirement.

Buying a home will fix your monthly payments for decades, helping you fight inflation in your retirement.

Fight inflation in your retirement

It’s important to plan ahead now, so you’re prepared when inflation rears its ugly head again. Here are some ideas that can help:

Buy a home. There are many reasons to rent in retirement, but one of the advantages of home ownership is that you can hedge against inflation by getting a fixed mortgage, fixing your monthly payment for decades.

Find lower-cost alternatives to replace what you enjoy. It’s true that inflation makes the same item cost more, but you can still slash your budget by using alternatives that are less costly. In order to not feel deprived, look for replacements that are truly similar to what you currently enjoy.

Skip some expenses regularly. Inflation will affect your budget less as an absolute dollar amount if your overall expenses are lower. Once in a while, try to skip your expenses.

Limit lifestyle inflation. There are many expenses that creep up as time goes on, but there are often other expenses, such as electronics costs, that go down over time as well. A major source of inflation is actually self-induced via lifestyle inflation.

Buy stocks of companies that make more when you have to pay more. One way to at least take part in price increases is to invest in companies that benefit when they charge you more. Proctor and Gamble (PG), for instance, is a company that will make more money when the products they sell cost more on the shelves.

Retirement will be a challenge for nearly all of us, but looking back over what you’ve accomplished, you should feel confident you can make it work, especially if you take steps to fight inflation in your retirement.

Click here to learn more about how you can fight inflation in your retirement.

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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.

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Plan Now To Avoid Retirement Risks

While the following advice is targeted for women — men, keep reading — there are valuable lessons for all of us about how to plan now to avoid retirement risks.

Plan now to avoid retirement risks and increase your chances of a long and financially secure retirement.

Plan now to avoid retirement risks

Statistically, women continue to live longer than men. This puts the security of their retirement at greater risk in spite of the dramatic growth in the number of working women and the slow — some might say glacial — movement toward salary equality with men.

Anna Rappaport, an aging and retirement expert and spokesperson for the Society of Actuaries (SOA) reports:

I think we thought that because women have been working more, that the [financial] gap between women and men would have gotten a lot better by now. If you asked us 10 or 15 years ago, we would have said that gap was going to go away. But it hasn’t.

This gap poses serious problems for women in their golden years, but similar situations can affect men as well.

Research by the SOA puts forth a compelling case that women and their spouses face a very unpleasant future unless they do a much better job of managing their assets and income today. And that future, sadly but realistically, is likely to eventually involve just the woman.

Tbe good news is there are things you can do now — and plan to do in the future — that will reduce the risk of a financially shaky retirement.

In addition to setting aside more retirement funds, Rappaport advises women to think more carefully about Social Security claiming strategies. The goal is to maximize older-age income. By continuing to work past age 65, for example, it might be possible to delay Social Security benefits. For most people, the current full retirement age for claiming Social Security benefits is 66. If benefits are claimed as early as possible—at age 62—the lifetime monthly benefit will be only 75 percent of what it would be if benefits were not elected to start until age 66. And for each year beyond 66, the benefit of delaying election increases by 8 percent a year for the next four years. (Except for annual inflation adjustments, Social Security benefits are usually capped at age 70.)

Work longer, postpone taking your Social Security benefits, save more, these are solid — although perhaps distasteful — strategies. But something else we don’t often think about can have a devastating effect — the need for long-term health care.

“Another big issue for women is planning for long-term care,” Rappaport says. “They live longer but also face longer periods of disability.”

It’s been truly said that old age is not for sissies. But there’s much we can do to prepare for an uncertain future. Plan now to avoid retirement risks and increase your chances of a long and financially secure retirement.

Click here to read more about how you can plan now to avoid retirement risks.

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Credit Card Debt Can Ruin Your Retirement

Credit card debt is a fact of life for most Americans, but many of us don’t think about the disastrous effect it can have on our future. The truth is, not only can it cause havoc with your current finances, credit card debt can ruin your retirement.

Credit card debt can ruin your retirement.

Credit card debt can ruin your retirement

You’re probably familiar with the concept of compound interest — it’s what makes building a healthy retirement nest egg possible. But that same principle is at work with debt.

Let’s say you’re the average American with $6,500 in credit card debt at a 14.5 percent interest rate. That means your estimated initial minimum payment will be $130 a month. And if you just pay the minimum, you’ll have to make payments for 26 years to pay off the balance, paying a whopping grand total of $8,938 in interest charges.

Wouldn’t it be nice to add that much to your retirement fund instead of paying it on purchases that have long since been cast aside?

So credit card debt, when you carry a balance for years, takes away from the income that you can save for retirement. But if you’re like most people, you may still want to split the difference – putting part of your disposable income into retirement savings and part of it into paying extra on your credit card.

Even “splitting the difference” isn’t always a good idea, especially if you’re paying a high interest rate on a large balance.

If your credit card has a 15 percent interest rate, but your IRA is only earning 8 percent, it almost always makes more sense to pay off your credit card debt ASAP, and then to put more money into your IRA. You’ll get more bang for your buck this way – by paying off the credit card as quickly as possible, you’ll save more interest than you would make by putting that extra money into retirement savings.

Of course, there’s always an exception to the rule. In this case, it’s the employer matching contribution to your 401(k). (By the way, a hefty employer match is about the only reason for putting money into a 401(k) instead of other investments.)

The only exception here is if your company matches part of your retirement savings. If you get a company match, you’re getting free money. Don’t pass it up. Contribute enough annually to your retirement account to get all of the possible company match.

Carrying credit card debt into retirement creates an even worse financial scenario, primarily because most of us will be on a fixed, limited income. High interest rates on credit card debt can ruin your retirement, so pay it down and only use the card for purchases you know you can pay off quickly.

Click here to read more about how credit card debt can ruin your retirement.

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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.

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Your 2013 Retirement Gift From The IRS

Don’t get too excited, it’s actually a very small gift — and it won’t put your retirement savings ahead of the game in any way. But it is better than nothing — I suppose — so here’s your 2013 retirement gift from the IRS.

Your 2013 retirement gift from the IRS. It won’t make your retirement much better.

Your 2013 retirement gift from the IRS

On Oct. 18, the IRS announced that the contribution limits for the most commonly used retirement accounts — IRAs and 401(k) plans — would be going up. For 2012, you can put as much as $5,000 into an IRA and up to $17,000 in a 401(k) account. In 2013 those amounts increase $500 for both types of accounts. The additional amounts that those age 50 or older are allowed to put in will remain the same – an extra $1,000 for IRAs and $5,500 for 401(k)s.

It baffles me that you can still contribute more to a 401(k) — with all their problems — than you can to an IRA which gives you much more flexibility in planning and saving for your retirement. But that’s the government for you….

The reason for the changes? Inflation. Inflation adjustments are designed to let your retirement savings keep pace with rising costs of living.

You’re being thrown a bone so that at least — hopefully — your retirement savings can keep up with inflation; assuming you can afford to plunk down all that cash and still make ends meet.

The real problem is that so many Americans have been beaten down by the poor judgment and misguided policies of big business and the government, that we can barely save anything at all. So, happy new year and here’s your 2013 retirement “gift” from the IRS.

Click here to read more about your 2013 retirement gift from the IRS.

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