Tag Archive | "planning for an uncertain economic future"

Do The Emotional Math When Planning for Retirement

Talk to any knowledgeable financial advisor and they’ll be able to run all sorts of calculations and predict your retirement date and the amount you’ll have saved, right down to the penny.

At least it looks that way. In fact, they can’t take into account many variables — especially the emotional factors that are so important to a happy retirement. To come up with the best retirement plan, you’ll have to look at the numbers as well as do the emotional math when planning for retirement.

Do the emotional math when planning for retirement.

Do the emotional math when planning for retirement

There are many emotional factors that can come into play as you plan your retirement:

  1. Evaluate your health, not just your medical coverage.
  2. Consider whether you actually want to be retired. After a full career, many people find that quitting work leaves them without a clear direction of what they really want to do.
  3. Understand that it’s impossible to be certain about how everything will work out.
  4. Be able to deal with spending less money than you might prefer.
  5. Be flexible with your final retirement date.
  6. Remember the other people involved with your retirement decision.

It’s easy to buy into the conventional vision of retirement — whatever that may be — but it’s more important to decide what you what and how you want to achieve it for a happy and fulfilling retirement. In addition to running the numbers, be sure to also do the emotional math when planning for retirement.

Click here to read more about doing the emotional math when planning for retirement.

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

Stop Low Interest Rates From Ruining Your Retirement

The current record-low interest rates are — we’re told — supposed to boost the economy by making it easier for businesses to borrow, but these same rates are causing havoc among retirees — and soon-to-be retirees — by slashing their interest income. Here are a few things you can do to stop low interest rates from ruining your retirement.

You have many options to stop low interest rates from ruining your retirement.

Stop low interest rates from ruining your retirement

A May survey from Gallup and Wells Fargo (WFC) confirmed what many people already know all too well: Low interest rates are destroying people’s confidence about ever being able to retire. Fully one-third of those surveyed said that they expect low rates will compel them to work longer and delay their retirement, while 45% of current workers say they think low rates will make it a lot more likely that they’ll outlive their money after they retire.

In particular, the survey points to deteriorating confidence among retirees. Last year, retirees were much more optimistic about their futures. Yet with core inflation outpacing rates on bank certificates of deposit by more than a factor of three in many cases, those living on fixed incomes are feeling the pinch — and will continue to do so as higher prices reduce the purchasing power of their nest eggs.

To counteract this disturbing trend, many retirees are doing something they probably shouldn’t, although they may have little choice.

Almost 20% of retirees have moved their money into riskier investments they probably wouldn’t have bought if rates weren’t so low. For instance, some retirees have turned to dividend-paying stocks, many of which pay out more income than bank CDs and other income-generating investments.

Only you can decide if taking on that added risk is right for you, but keep in mind that there are other options:

The best answer for most retirees involves using a combination of investments to generate income. Dividend-paying stocks may play a role in your portfolio, but putting all your money into stocks involves far more risk than the vast majority of retirees can afford to take.

A well-balanced portfolio can help:

Municipal bonds earn interest that isn’t subject to federal income tax, but they also have higher yields than Treasury bonds of the same maturity — even though you have to pay federal tax on Treasury income.

Managed payout funds make fixed payments to their shareholders over time, and even if the income the fund portfolio generates isn’t enough to cover a payment, the fund can go in and essentially return a portion of your investment back to you to cover your cash flow needs.

Now may also be the time to look into a second career. Work you enjoy — even if it’s just part-time — can help cover the income gap and give you something interesting to do during your golden years.

Low interest rates won’t last forever — although it may seem like it — so now is the time to think outside the box and modify your retirement strategy to stop low interest rates from ruining your retirement.

Click here to read more about what you can do to stop low interest rates from ruining your retirement.

Posted in Creating a Personalized Retirement Plan, Planning for Your Retirement, Retirement Plan Challenges, The EconomyComments (0)

Plan to Live On Less Income When You Retire

One option for a financially secure retirement — or rather one element of your overall retirement plan — is to plan to live on less income when you retire.

Plan to live on less income when you retire.

Plan to live on less income when you retire

Here are several tips to help you live more frugally when you retire:

  1. Figure a baseline budget
  2. Track current spending
  3. Pay down consumer debt
  4. Ease off on prepayments
  5. Re-think your car situation
  6. Inventory your stuff
  7. Research frugality sites
  8. Seek utility discounts
  9. Learn what services are available
  10. Look for a part-time job
  11. Think about taking in boarders

If all this seems a little drastic, it may be. But remember, you don’t have to do all of it, although you certainly should have a household budget — and stick to it!

Attitude is as important as any frugal hack. This is not about deprivation, but rather about smart use of available funds. If your income is reduced your outgo had better shrink too.

Accepting the reality of your situation and taking the appropriate steps — no matter how drastic they may seem — is just good, common sense, so if you need to, plan to live on less income when you retire.

Click here to read more about planning to live on less income when you retire.

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More Than Ever, You Need a Retirement Plan

Retirement prospects don’t look good for many of us, and that’s why, more than ever you need a retirement plan.

More than ever, you need a retirement plan.

More than ever, you need a retirement plan

A recent poll conducted by The Guardian Life Small Business Research Institute provides some hard data to support the sinking feeling many of us have about retirement — especially small business owners.

  • Fewer than 10 percent foresee as feasible, a traditional retirement in which individuals stop working in their mid-60s for a life of leisure
  • Two-thirds do not have a written retirement plan, and most of them are not sure if they will create one.
  • More than eight in 10 have started to save for retirement, but only half have consulted a financial advisor.
  • While the minority will have pensions, real estate and the sale of their business to fall back on, most will rely on their investments, Social Security and individual retirement accounts (IRAs).
It’s never too late to turn the situation around. Here are the basic steps you need to take to get back on — or stay on — the path to a secure retirement.
  1. Have a Plan.
  2. Understand Risk.
  3. Understand Your Retirement Investments.
  4. Save for More than Retirement.
  5. Be Realistic.

Finally, don’t panic. Analyze your situation and don’t be afraid to make the hard decisions. For most of us, retirement will be quite unlike we’ve imagined, but that doesn’t mean we’ll be miserable, especially if you recognize that more than ever, you need a retirement plan.

Click here to learn more about strategies for your retirement.

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Protect Your Retirement Accounts

Even though they may not be worth quite as much as they used to be, they’re still one of your biggest assets and it’s important to understand the threats so you can protect your retirement accounts.

Protect your retirement accounts from creditors.

Protect your retirement accounts

Why do they need protection? Because there are threats — besides market volatility — that can deprive you of your hard-earned and hard-saved retirement funds.

Retirement accounts remain among many people’s most valuable assets, even at today’s depressed values. That means you need to protect them from creditors, a category that can include former spouses or people who have won lawsuits against you.

Some assets are at greater risk than others.

The good news is that most employer-sponsored plans, including 401(k)’s, are covered by the Employee Retirement Income Security Act, known as Erisa, and are completely protected from creditors — except when those creditors are former spouses or the I.R.S., said D. James Gehring, a lawyer with Seyfarth Shaw in Chicago.

The bad news is that individual retirement accounts are not covered by Erisa. If you have filed for bankruptcy, federal law protects up to $1 million in an I.R.A. that you contributed to directly, and protects the entire account balance if the money was rolled over into an I.R.A. from a company plan, said Jonathan E. Gopman, a lawyer with Cummings & Lockwood in Naples, Fla. So it’s important to keep careful records tracing the funds.

For anything short of bankruptcy, state law determines whether I.R.A.’s (including Roth I.R.A.’s) are shielded from creditors’ claims, Mr. Gopman said.

Each state has different regulations about what is — and isn’t — at risk, but regardless of where you live, there are steps you can take to protect your retirement by creating a trust to shield them. This is attorney stuff, so be sure to consult with one to set things up properly.

Be aware that state and federal laws against fraudulent conveyance prohibit transfers intended to hinder, delay or defraud creditors.

As a rule, such transfers must be in place before there is even a hint of potential trouble, said Gideon Rothschild, a lawyer with Moses & Singer in New York, to be sure they are protected.

Of course, it’s easier to not get into trouble in the first place, but sometimes we don’t have much control. The best rule to follow is “the more you know, the better prepared you’ll be” to protect your retirement accounts.

Click here to read more about how you can protect your retirement accounts.

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How State Taxes Can Affect Your Retirement

One way to help manage the challenge of providing a financially secure retirement is downsizing. For example, although the memories of raising a family may be hard to leave behind, you probably no longer need a big house and yard. In fact, it might be a burden to maintain them. In addition to the benefits of a smaller home, you might want to take into account how state taxes can affect  your retirement.

How state taxes can affect your retirement

Some states, in spite of their many attractions, can put a big ding in your retirement funds. If you plan to relocate, here are some of the most “tax-friendly” states for retirees:

10. Pennsylvania. Pennsylvania is one of only two states (Mississippi is the other) that exempts all retirement income — including public and private pensions, IRAs and 401(k) distributions — from its state income tax.

9. Delaware. The First State is number one with many retirees, thanks to low real estate taxes, modest income taxes and no sales taxes. In fact, its highway billboards welcome visitors to the home of tax-free shopping. Social Security benefits are exempt from income taxes, and residents 60 and older can exclude $12,500 per person of qualified pension benefits and investment income, including dividends, interest and capital gains, from income taxes.

8. Louisiana. For retirees, every day is like Mardi Gras in Louisiana. Social Security and military, civil service, and state and local government pensions are exempt from state income taxes, plus up to $6,000 per person of pension and annuity income.

7. South Carolina. South Carolina extends its Southern hospitality to retirees. The Palmetto State exempts Social Security benefits from state income taxes, and it allows residents who are 65 and older to deduct up to $15,000 per person ($30,000 per couple) of retirement income, regardless of the source.

6. Alabama. Alabama is a tax haven for retirees. Social Security benefits, as well as military, public and private pensions, are excluded from state income taxes (but IRAs and distributions from 401(k)s and similar defined-contribution retirement plans are not exempt). Remaining income is taxed as high as 5%, the maximum rate that kicks in when taxable income tops $3,000. Alabama also has some of the lowest property taxes in the U.S. Homeowners 65 and older are exempt from state property taxes, but some cities assess their own property taxes.

5. Georgia. Georgia is doing its part to attract retirees to the Peach State with a sizable exemption for income taxes on retirement income. Taxpayers ages 62 to 64 can exclude up to $35,000 per person from state income taxes for a total of $70,000 per couple. Georgia residents who are 65 and older can exclude up to $65,000 of retirement income (or $130,000 per couple) from state income taxes in 2012. Retirement income is broadly defined as interest, dividends, capital gains, net income from rental property, pensions, annuities and up to $4,000 of earned income.

4. Mississippi. Mississippi turns on its Southern charm for retirees. It not only exempts Social Security benefits from state income taxes, but it is one of only two states that excludes all qualified retirement income — including pensions, annuities, IRAs and 401(k) distributions — from state income taxes.

3. Wyoming. Thanks to the abundant revenues Wyoming collects from oil and mineral companies, residents of the Equality State don’t have to fork over much of their income to taxes. There is no state income tax, so you’ll pay nothing on your Social Security benefits, pension or IRA distributions. The state sales tax is 4%, and counties can add up to 2% in additional levies.

2. Nevada. Nevada is a good bet for retirees because it shifts much of its tax burden to out-of-state tourists and gamblers. The Silver State has no income tax, so your Social Security benefits, pension, IRA distributions and even income from a part-time job won’t be taxed. Property taxes, which are assessed on 35% of a home’s appraised value, are reasonable and typically run about $1,050 per year for a $100,000 house. But sales taxes, which can top 8% in some areas, are higher than average.

1. Alaska. Alaska is a true tax haven for retirees — if you don’t mind the cold weather and you enjoy rugged outdoor beauty. In addition to enjoying no state income tax, Alaska residents benefit from the cold, hard cash of an annual dividend ($1,174 for 2011) from the state’s oil reserves that is distributed to every permanent resident who has lived there for at least one year. There is no statewide sales tax. But some localities impose a sales tax, at an average of less than 2%.

So there you have it. If you’re a hardy soul and don’t mind cold weather, Wyoming or Alaska could the place for you. And if warmer weather is more to your liking, plan a tour of the Old South and check out what those states have to offer. Wherever you plan to live when you retire, be sure to take into account how state taxes can affect your retirement.

Click here to learn more about the top ten tax-friendly states for retirees.

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The Longer You Work, The Better Your Retirement Can Be

Many older Americans are in the dog house when it comes to having enough for a financially secure retirement. Given that, there’s hope: the longer you work, the better your retirement can be.

The longer you work, the better your retirement can be

I know. The idea of working past your “official” retirement age is not a pleasant thought, especially if you’ve spent most of your career in a job you don’t like. But what if you had a job you really enjoy? One that challenges you every day? One that rewards you for being older and wiser than those young Gen X and Gen Y whippersnappers? It could happen — and you can make it happen.

Plan now to follow your passion instead of retiring.

Here’s a look at each of five job categories with a high demand for retirees:

Health Care

Home health aide and personal aide top a Bureau of Labor Statistics list of job fields expected to grow the fastest by 2018. The pay is modest, with median wages of roughly $20,000 for each in 2008. But caregiving work can be a good fit for those looking to work 20 to 25 hours a week and do something meaningful.


Many retailers welcome seniors as customer service employees or cashiers because they have found that older workers are very good at making customers happy, according to Coleman. Other retail jobs available for seniors may include retail manager, floor supervisor, stock-room associate, greeter or food company demonstration worker.


Two government agencies in particular — the Department of Veterans Affairs and the Transportation Security Administration — are known for seeking older workers. Both agencies have openings requiring little or no experience.


One of the most popular profession switches for older workers and retirees is going into computer-related work, according to Jim Toedtman, editor of the AARP Bulletin. The jobs entail such tasks as data entry or working with data communication systems and networks.

 Temp Work

Like seasonal retail work, temporary help in an office or elsewhere can be an ideal match for an older worker and employer. The worker offers flexible hours and experience and gets the opportunity for new challenges and limited-term working assignments that sometimes lead to full-time positions.

Some of these options may be just right for you — or they may not — but you get the idea. Start planning now to pursue your passion — and even make some money doing it! The longer you work, the better your retirement can be.

Click here to read more about work opportunities for retirees.

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What’s Your Retirement Planning Style?

Planning for retirement is serious, but there’s nothing wrong with the occasional lighthearted look at the subject. Mr. Spock or Homer Simpson: What’s your retirement planning style?

What’s your retirement planning style?

The Homer Simpson style

“I’m outta here! Take this job and shove it! Now let’s go to Moe’s Bar to have some beer, then we’ll go eat some donuts. I’ve got $10,000 coming to me because my Uncle Louie just kicked the bucket. That should be enough to fund my retirement.”

Does this sound familiar? Research indicates it describes the retirement plans of many Americans.

…various surveys show that about half of all Americans retire without calculating how much money they really need to generate a retirement income that will last for the rest of their lives. In fact, many just guess at the answer, and they guess way too low.

Please read on; Mr. Spock’s more logical approach is something you should seriously consider.

The Mr. Spock style

Spock would make careful plans that would increase the odds that he’ll live long and prosper. He would be carefully setting money aside in his 3001(k) plan, sponsored by his employer, Starfleet Command. He would have used his fingertip computer to calculate how much he should be saving to generate a lifetime retirement income. He’d know that the best way to accumulate savings for retirement is to invest in broad-based, galaxy-wide index funds with the lowest possible expenses.

He’d also know that the best time to draw down his government-provided benefit from the United Federation Security system would be to wait until age 80, even though many people start United Federation Security benefits at age 70, the earliest possible age with the lowest possible benefit. (Note to readers: The earliest age to start Social Security for our earth-based Social Security system is 62, which produces the lowest possible benefit. Most likely, you’ll be better off delaying the start of your Social Security benefits at least until age 66 and even better, to age 70.)

in addition to wisely saving and investing, Mr. Spock would do more.

Spock would also have read up on the various methods he could use to generate retirement income from his retirement savings so that he’d have a paycheck until age 140 — not an unrealistic age for a Vulcan who takes care of his health.

Spock would also most likely realize that at some point in his career at Starfleet Command, he’d need to move on to some other type of employment.

Having planned and invested wisely — and made plans for a second career — Mr. Spock will be in a good position to face the future with confidence.

He wouldn’t lose any sleep worrying that he’d need to live on a rocky moon in a remote part of the galaxy, just to make ends meet.

So, are you a Mr. Spock or a Homer Simpson? Probably somewhere in between. You best bet is to follow the example of Mr. Spock — after all, it’s only logical — when you evaluate your retirement planning style.

Click here to learn more about your retirement planning style.

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You May Never Be Able to Retire

Sounds ominous, doesn’t it. And quite depressing. After all, you’ve worked hard for years — perhaps at a job you really don’t enjoy — anticipating the day when you would walk out for the last time, financially secure and with golden years of retirement ahead of you. But the hard truth is, you may never be able to retire.

You may never be able to retire

What happened? What went wrong? The answer is complicated, but the fact remains that “nearly one-third, or 30% [of middle-class Americans], now plan to work until they are 80 or older — up from 25% a year ago, according to a Wells Fargo survey of 1,000 adults with income less than $100,000.”

Overall, 70% of respondents plan to work during retirement, many of whom plan to do so because they simply won’t be able to afford to retire full time.

The real kicker is that even though many of us will need to work into our 80s and beyond, we may not be able to — at least at the kind of work we know.

Nearly three-quarters of those who plan to work into their 80’s say their employer won’t want them working when they’re that old, for example. Other roadblocks, like health issues, could arise as well.

The future looks pretty grim.

Those who are unable to work as long as they intend could therefore face a very grim reality. In fact, more than one-third of Americans could wind up living at or near poverty in retirement….

Even if you just have a few years until retirement, there are things you can do to prepare, like pay down your debts and downsize. That big house you needed when the kids were growing up may be more than you need — or want! — as you get older.

A source of potential income — since you’re probably going to have to work anyway — is your hobbies and the dreams you postponed when you needed every penny to raise the family. There’s probably some way you can leverage those interests into additional retirement revenue. You may never be able to retire, but there are ways to make your golden years rewarding, productive — and profitable.

Click here to read about more Americans delaying retirement.

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The Biggest Retirement Planning Mistake You Can Make

You’ve probably heard that the average person spends more time planning a vacation than they do planning for retirement. Sure. I’ll admit it: planning for a vacation is a lot more fun. But neglecting to adequately plan for your “golden years” is the biggest retirement planning mistake you can make.

The biggest retirement planning mistake you can make

It’s an ambitious and daunting task to plan for 20, 30, or even 40 years of your life, especially in an uncertain economy. Here are some important things you’ll want to consider.

  • When to begin drawing Social Security income
  • How to generate retirement income from your IRA and 401(k) accounts
  • The most appropriate investment strategies for your retirement savings
  • How you’ll protect yourself against high bills for medical and long-term care
  • Where you’ll live
  • Developing a realistic budget for living expenses
  • The steps you’ll take to improve your health
  • What type of professional help you’ll need to properly manage your money

Do a good job planning and investing for your retirement and you’ll find a lot of other important financial matters will fall into place. Take the time now to avoid the biggest retirement planning mistake you can make.

Click here to read more about how to plan for your retirement.

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