Tag Archive | "planning and investing for your 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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Start Your Retirement Debt Free


It isn’t easy to do, but before you retire, you should eliminate as much of your debt as possible. You’re going to be on a fixed income and your financial future will be much more secure if you start your retirement debt free.

Start paying off your debts now and start your retirement debt free.

Start your retirement debt free

We like to reward ourselves for a job well done. And, believe me, if you’re able to eliminate your debt before you retire, that’s a very big job, very well done. So, while you may feel the need to celebrate — and you should — don’t let yourself slide back into debt. It’s all too easy to do.

Here are some tips to help you get out of debt and stay that way.

  1. Loosen up on the budget and breathe, just a little.
  2. Pay with cash — or charge only what you have the cash on hand to cover.
  3. Don’t splurge. Plan.
  4. Identify your money triggers.
  5. Redirect the money you spent on debt payments each month to savings.
  6. Develop a support group of like-minded debt-free friends.
  7. Never forget the nightmare of how living with debt felt.

Start now to pay down your debts, especially those with high interest rates — like credit cards — and you’ll be able to start your retirement debt free.

Click here to learn more about how you can start your retirement debt free.

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China’s Financial Problems Could Destroy Your Retirement


China is one of the United States’ largest international creditors. And, while it’s nice of them to lead us money, it looks like their economic activities could come back to bite them and China’s financial problems could destroy your retirement.

Addiction to credit may mean China’s financial problems could destroy your retirement.

China’s financial problems could destroy your retirement

While the Chinese government has passed many reforms allowing a more robust competitive economic environment to develop, these changes are coming slowly and — combined with low deposit interest rates — have forced many Chinese to turn to other, more risky investments.

China’s economy has become a credit junkie, requiring increasing amounts of debt to generate the same unit of growth. Between 2007 and 2012, the ratio of credit to GDP climbed to more than 190%, an increase of 60 percentage points.” In 2012, new credit to the non-financial sector totaled 15.5 trillion, that’s equivalent to 33 percent of 2011 GDP.

What does that mean and why should we care?

A lot of China’s debt is supported by real estate which is put up as collateral for the loans. Banks’ official exposure to property is listed as 22 percent of the loan book. But that doesn’t account for exposure to real estate through their loans to local government financing vehicles (LGFVs) and off-balance sheet credit instruments.

Sudden drops in real estate prices caused a jump in debt problems and non-performing loans.

Oh yeah. A real estate bubble. You remember what that’s like, don’t you.

As we struggle to rebuild our own economy, the US is very susceptible to economic trends around the world. If it’s economy crashes — or even just dips substantially — China’s financial problems could destroy your retirement.

Click here to read more about how China’s financial problems could destroy your retirement.

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Increase Your Retirement Savings


The secret to a financially secure retirement is simple: save enough money. But, as with most truisms, it’s much easier said than done. What’s a hard-working American to do? Here are some tips to help you increase your retirement savings.

Plan to work longer to help increase your retirement savings.

Increase your retirement savings

All of the following suggestions are much like “save enough money” — simple to understand, but sometimes very hard to do. If you’re successful however, you’ll have gone a long way toward ensuring a financially secure retirement.

  1. Make retirement saving a priority. If you want to increase the chances that you will stick to any course of action, you need to make it a priority.
  2. Figure out how much you need to save. According to the Employee Benefit Research Institute, more than half of Americans haven’t even calculated how much money they need to save for a comfortable retirement.
  3. Look at your current expenses. Now that you know how much money you should be putting toward retirement, it’s time to find that money…. Honestly look at where your money is going. Look for the waste. Stop spending money on things you don’t need (and probably don’t want), and put that money toward your retirement.
  4. Find ways to make more money. After cutting expenses, you still might not be hitting your mark. If this is the case, look for ways to make more money.
  5. Increase your automatic investment. Your best option for making sure that your retirement contributions increase is to automate your efforts.

And, one of my favorites:

Postpone retirement, or don’t retire at all (at least not in the conventional sense). Stay active. Find a part-time — or even a full-time — job doing something you really enjoy. Remember, you’re not working to replace your full-employment income, but to supplement your retirement savings.

Increase your retirement savings now and plan to supplement those savings after you “retire” and you’ll make that money go a lot further.

Click here to learn more about how you can increase your retirement savings.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Plan Challenges, Saving for RetirementComments (0)

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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Working Longer May Not Save Your Retirement


Working longer is a frequently-sited strategy for ensuring a financially secure retirement and it offers many benefits such as more years of employment to save and maximizing your Social Security benefits. But just working longer may not save your retirement.

Working longer may not save your retirement, but it may help make your  golden years more fun, interesting — and rewarding.

Working longer may not save your retirement

There are many other factors that come into play when you consider postponing your retirement. How much you’re earning now is critical.

As you might expect, projections for the lowest pre-retirement income quartile are the most sobering. This group would need to defer retirement to age 84 before 90 percent of them would have even a 50 percent probability of achieving comparable pre-retirement living standards.

You’ll have to really love what you do to make working until you’re 84 seem attractive. The future looks brighter for those earning more, but not much.

The results improve with income levels, but even among those in the highest income quartile, 90 percent have only a 50 percent chance of having enough to retire by 70.

Even if you’re relatively young and plan to work longer, the projections are still grim.

When broken out by age, the news isn’t much better: For one-third of households in which the people were between ages 30 and 59 as of 2007, working until age 70 won’t provide adequate income in retirement.

One way to look at this and make the picture seem a little brighter is to broaden your definition of “work.” Even if you hate your current job and want to get out of it as soon as possible, your skills and experience may have many applications that will allow you to work less, generate income to offset your retirement expenses, and actually enjoy what you’re doing.

Working longer may not save your retirement, but it may help make your  golden years more fun, interesting — and rewarding.

Click here to learn why working longer may not save your retirement.

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Save Your Retirement From Financial Advisors


Almost all of us — to some degree — have bought into the myth that financial planners know what they’re doing and that we should follow their advice because they’re — well — experts. They’re not. It’s not really their fault, either. You see, they’ve bought into the myth as well. Maybe now is the time for you to save your retirement from financial advisors.

Take the time now to learn about investing and save your retirement from financial planners.

Save your retirement from financial advisors

When it comes to saving for your retirement here’s all the specific advice I’d ever share:

  1. Start saving young and save as much as you can.
  2. Live within your means.
  3. Don’t touch the principal.
  4. Diversify to mitigate the effects of inevitable market swings — the more diverse, the better.

Everything else is just smoke and mirrors because — as all financial planners will tell you — past performance is no guarantee of future results. We cannot — and they cannot — predict the future. Yet we persist in believing the myth. The problem, according to Ms. Helaine Olen, a freelance journalist and author of “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry” is this:

…“most of the financial advice published and dished out by the truckload is useless” — that it is simply “oblivious to the messiness of the human condition.”

And that “human condition” makes us our own worst enemies.

Ms. Olen writes that the “financial therapy movement,” for all of its flaws, “has hit on one universal truth: When it comes to money, the vast majority of us are nuts. Bonkers.” She counts some of the ways: “We don’t open our 401(k) statements. We ‘forget’ to pay our bills or file our taxes until the last minute.” Financial literacy is alarmingly low. Many of us don’t budget at all.

Our own lack of experience and understanding about investing and finance make us easy targets for those unscrupulous individuals who know they’re blowing smoke, but do it anyway.

A 2009 AARP survey found that nearly one in 10 people over 55, or about 5.9 million Americans, had attended a free financial seminar in the last three years.

At the World MoneyShow, an annual event in Orlando, 80 percent of attendees were over 55. The author [Ms. Olen] writes that “a panicked baby boomer is their best customer.”

Knowledge is power — even just a little bit of knowledge. Learn about investing. Like anything else, it’s scary and incomprehensible at first, but before long, you’ll know at least as much as most professionals and you may be able to save your retirement from financial planners.

Click here to read more about how you can save your retirement from financial planners.

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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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