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How Can You Make Your Retirement Money Last?

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All retirees want their money to last a lifetime.  There is no guarantee it will, but, in pursuit of that goal, households may want to adopt a couple of spending and investing precepts.

One precept: observing the 4% rule. This classic retirement planning principle works as follows: a retiree household withdraws 4% of its amassed retirement savings in year one of retirement, and withdraws 4% plus a little more every year thereafter – that is, the annual withdrawals are gradually adjusted upward from the base 4% amount in response to inflation.

The 4% rule was first formulated back in the 1990s by an influential financial planner named William Bengen.  He was trying to figure out the “safest” withdrawal rate for a retiree; one that could theoretically allow his or her savings to hold up for 30 years given certain conditions (more about those conditions in a moment).  Bengen ran various 30-year scenarios using different withdrawal rates in relation to historical market returns, and concluded that a 4% withdrawal rate (adjusted incrementally for inflation) made the most sense.1

For the 4% rule to “work,” two fundamental conditions must be met.  One, the retiree has to invest in a way that will allow his or her retirement savings to grow along with inflation.  Two, there must not be a sideways or bear market occurring.1

As sideways and bear markets have not been the historical norm, following the 4% rule could be wise indeed in a favorable market climate.  Michael Kitces, another influential financial planner, has noted that, historically, a retiree strictly observing the 4% rule would have doubled his or her starting principal at the end of 30 years more than two-thirds of the time.1

In today’s low-yield environment, the 4% rule has its critics.  They argue that a 3% withdrawal rate gives a retiree a better prospect for sustaining invested assets over 30 years.  In addition, retiree households are not always able to strictly follow a 3% or 4% withdrawal rate.  Dividends and Required Minimum Distributions may effectively increase the yearly withdrawal.  Retirees should review their income sources and income prospects with the help of a financial professional to determine what withdrawal percentage is appropriate given their particular income needs and their need for long-term financial stability.

Another precept:adopting a “bucketing” approach.  In this strategy, a retiree household assigns one-third of its savings to equities, one-third of its savings to fixed-income investments, and another third of its savings to cash.  Each of these “buckets” as a different function.

The cash bucket is simply an emergency fund stocked with money that represents the equivalent of 2-3 years of income the household does not receive as a result of pensions or similarly scheduled payouts.  In other words, if a couple gets $35,000 a year from Social Security and needs $55,000 a year to live comfortably, the cash bucket should hold $40,000-60,000.

The household replenishes the cash bucket over time with investment returns from the equities and fixed-income buckets.  Overall, the household should invest with the priority of growing its money; through the investment approach could tilt conservative if the individual or couple has little tolerance for risk.

Since growth investing is an objective of the bucket approach, equity investments are bought and held.  Examining history, that is not a bad idea: the S&P 500 has never returned negative over a 15-year stretch in recent memory – the 15 years ending in March 2009, when it bottomed out in the last bear market.2

Assets in the fixed-income bucket may be invested as conservatively as the household wishes.  Some fixed-income investments are more conservative than others – which is to say, some are less affected by fluctuations in interest rates and Wall Street turbulence than others.  While the most conservative, fixed-income investments are currently yielding very little, they may yield more in the future as interest rates presumably continue to rise.

There has been great concern over what rising interest rates will do to this investment class, but, if history is any guide, short-term pain may be alleviated by ultimately greater yields.  Last December, Vanguard Group projected that, if the Federal Reserve gradually raised the benchmark interest rate to 2.0% across the three-and-a-half years ending in July 20149, a typical investment fund containing intermediate-term fixed-income securities would suffer a -0.15% total return for 2016, but return positively in the following years. 3

Avoid overspending and invest with growth in mind.  That is the basic message from all this, and, while following that simple instruction is not guaranteed to make your retirement savings last a lifetime, it may help you to sustain those savings for the long run.

 

Citations

1 – money.cnn.com/2016/04/20/retirement/retirement-4-rule/ [4/20/16]

2 – time.com/money/4161045/retirement-income/ [5/22/16]

3 – tinyurl.com/hjfggnp [12/2/15]

 

The Chapters of Retirement

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The Chapters of Retirement

The five phases of life after 50 & the considerations that accompany them.

 

The journey to and through retirement occurs gradually, like successive chapters in a book. Each chapter has its own things to consider.

 

Chapter 1 (the fifties). At this stage of life, retirement becomes less like a far-off dream and more like a forthcoming reality. You begin to think about when you can retire, and about taking the right steps to retire comfortably.

   

By one measure, men have their peak earning years in their mid-fifties. Data from the Federal Reserve Bank of New York shows the median male worker earning 127% of his initial salary at that time. The peak earning years for women are harder to statistically gauge, as some women leave the paid workforce for years-long intervals. In inflation-adjusted terms, earnings actually peak earlier in life. PayScale estimates that on average, pay growth for women flattens at age 39 (at a median salary of $60,000), and at age 48 for men (at a median salary of $95,000). So by the fifties, many people are receiving raises to keep up with the cost of living, but essentially earning the equivalent of what they made a decade or more ago.1,2

 

During your fifties, you may contend with “lifestyle creep” – the phenomenon of your household expenses growing along with your pay raises. These increased expenses may include housing costs, education costs, healthcare costs, even eldercare costs. Despite these financial strains, the inflow of new money into retirement accounts must not cease; your retirement plan assets should not be drawn down through loans or withdrawn too early.

 

Chapter 2 (the early sixties). The anticipation builds at this point; you start to think about the process of retiring and the precise financial and lifestyle steps involved. You also begin to think about the near future – not only what you will do next, but how you will do it.

 

According to the Center for Retirement Research at Boston College, the average American man now retires at age 64, the average American woman at age 62. So the reality is that the early sixties coincide with retirement for many people. This reality is worth noting in light of the difference between Americans’ envisioned and actual retirement ages. Last April, a Gallup poll asked pre-retirees when they expected to leave the workforce: 37% saw themselves working past 65, 32% before 65, and 24% at 65. The same poll asked older, retired Americans when they had stopped working full-time, and 67% of those respondents said they had done so before 65.3,4

 

You may have to act on your plans to volunteer or start an encore career earlier than you think. If you do not have a set plan for the next chapter, a phased retirement may give you more of an opportunity to determine one.

 

This is also a time to dial down risk in your portfolio, especially if a bear market occurs right before you retire. You have little time to recover from a downturn.

 

Chapter 3 (the start of retired life). The first year or so of retirement is akin to a “honeymoon phase” – you have the time and perhaps the money to pursue all kinds of dreams. The key is not to spend wildly. Lifestyle creep also affects new retirees; free time often means more chances to spend money.

 

The good news is that you may spend less than you think. Transportation, insurance, housing, clothing and food costs may all decline. The common view is that you will need to live on 80% of your end salary for a comfortable retirement, but in a 2014 T. Rowe Price survey of retirees, the average respondent was living on 66% of his or her pre-retirement income. Eighty-five percent of those retirees said they were maintaining their standard of living with less money.5

   

Chapter 4 (the mid-sixties through the late seventies). This is when some people get a little restless. It is also when some people find their retirement savings growing disturbingly smaller. You may get bored with all-leisure, all-the-time and want to volunteer or work on your own terms, health permitting. You may want to adjust your retirement income strategy or see if new streams of income can be arranged.

 

Chapter 5 (eighty & afterward). The last chapter of retirement is one frequently characterized by the sharing of legacies and life lessons, a new perspective on the process of living and aging, and deeper engagement (or reengagement) with children and grandchildren. This is also the time when you should think about your financial legacy, and review or update your estate plan so that when you leave this world, things are in good order and your wishes are followed.

 

Before and during your retirement, it is wise to keep in touch with a financial professional who can guide and consult you when questions about income, investments, wealth protection, and wealth transfer arise.

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – marketwatch.com/story/peak-earnings-for-men-come-in-their-early-50s-2015-06-18 [6/18/15]

2 – fastcompany.com/3025564/how-to-be-a-success-at-everything/when-are-your-high-earning-years-how-much-you-should-make- [1/30/14]

3 – crr.bc.edu/briefs/the-average-retirement-age-an-update/ [3/15]

4 – gallup.com/poll/182939/americans-settling-older-retirement-age.aspx [4/29/15]

5 – news.investors.com/investing/073014-711065-people-adjust-to-lower-income-in-retirement.htm [7/30/14]

 

 

 

The New Gradual Retirement

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Working a little (or a lot) after 60 may become the norm.

Do we really want to retire at 65? Not according to the latest annual retirement survey from the Transamerica Center for Retirement Studies which gauges the outlook of American workers. It found that 51% of us plan to work part-time once retired. Moreover, 64% of workers 60 and older wanted to work at least a little after 65 and 18% had no intention of retiring.1

Are financial needs shaping these responses? Not entirely. While 61% of all those polled in the Transamerica survey cited income and employer-sponsored health benefits as major reasons to stay employed in the “third act” of life, 34% of respondents said they wanted to keep working because they enjoy their occupation or like the social and mental engagement of the workplace.1

It seems “retirement” and “work” are no longer mutually exclusive. Not all of us have sufficiently large retirement nest eggs, so we strive to stay employed – to let our savings compound a little more, and to leave us with fewer years of retirement to fund. We want to keep working into our mid-sixties because of two other realities as well. If you are a baby boomer and you retire before age 66 (or 67, in the case of those born 1960 and later), your monthly Social Security benefits will be smaller than if you had worked until full retirement age. Additionally, we can qualify for Medicare at age 65.2,3 We are sometimes cautioned that working too much in retirement may result in our Social Security benefits being taxed – but is there really such a thing as “too much” retirement income? Income aside, there is another question we all face as retirement approaches.

How much control will we have over our retirement transition? In the Transamerica survey, 41% of respondents saw themselves making a gradual entry into retirement, shifting from fulltime employment to part-time employment or another kind of work in their sixties.1 Is that thinking realistic? It may or may not be. A recent Gallup survey of retirees found that 67% had left the workforce before age 65; just 18% had managed to work longer. Recent research from the Employee Benefit Retirement Institute fielded roughly the same results: 14% of retirees kept working after 65 and about half had been forced to stop working earlier than they planned due to layoffs, health issues or eldercare responsibilities.3

If you do want to make a gradual retirement transition, what might help you do it? First of all, work on maintaining your health. The second priority: maintain and enhance your skill set, so that your prospects for employment in your sixties are not reduced by separation from the latest technologies. Keep networking. Think about Plan B: if you are unable to continue working in your chosen career even part-time, what prospects might you have for creating income through financial decisions, self-employment or in other lines of work? How can you reduce your monthly expenses?

Easing out of work & into retirement may be the new normal. Pessimistic analysts contend that many baby boomers will not be able to keep working past 65, no matter their aspirations. They may be wrong – just as this active, ambitious generation has changed America, it may also change the definition of retirement.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate.

Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. Citations. 1 – forbes.com/sites/laurashin/2015/05/05/why-the-new-retirement-involves-working-past-65/[5/5/15] 2 – ssa.gov/retire2/agereduction.htm [6/11/15] 3 – money.usnews.com/money/blogs/planning-to-retire/2015/05/22/how-to-pick-the-optimal-retirement-age [5/22/15]

The Psychology of Saving

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The Psychology of Saving

 

How many households have the right outlook to build wealth?

 

Provided by M. Zachary Zinser

 

Why do some households save more than others? Building household savings may depend not only on cash flow, but also on psychology. With the right outlook, saving becomes a commitment. With a less positive outlook, it becomes a task – and tasks and chores are often postponed.

 

Financially speaking, saving is winning. Sometimes that lesson is lost, however. To some people, saving feels like losing – “losing” money that could be spent. So assert Ellen Rogin and Lisa Kueng, authors of a recently published book entitled Picture Your Prosperity: Smart Money Moves to Turn Your Vision into Reality. They cite a perceptual difference. If people are asked if they can save 20% of their income, the answer may be a resounding “no” – but if they are asked if they can live on 80% of their income, that may seem reasonable.1

 

There may be a gap between perception & behavior. Since 2001, Gallup has asked Americans a poll question: “Thinking about money for a moment, are you the type of person who more enjoys spending money or more enjoys saving money?”2

 

While more respondents have chosen “saving money” over “spending money” in every year the poll has been conducted, the difference in the responses never exceeded 5% from 2001-06. It hit 9% in 2009, and has been 18% or greater ever since. In 2014, 62% of respondents indicated they preferred to save instead of spend, with only 34% of respondents preferring spending.2

 

So are we a nation of good savers? Not to the degree that these poll results might suggest. The most recently available Commerce Department data (January 2015) shows the average personal savings rate at 5.5% – a percentage point higher than two years ago, but subpar historically. During the 1970s, the personal savings rate averaged 11.8%; in the 1990s, it averaged 6.7%.2,3

    

What reminders or actions might help people save more? Automated retirement plan contributions can assist the growth of savings, and are a means of paying oneself first. There is the envelope system, wherein a household divides its paycheck into figurative (or literal) envelopes, assigning X dollars per month to different packets representing different budget categories. When the envelopes are empty, you can spend no more. The psychology is never to empty the envelopes, of course – leaving a little aside each month that can be saved. Households take an incremental approach: they start by saving one or two cents of every dollar they make, then gradually increase that percentage, household expenses permitting.

 

Frugality may help as well. A decision to live on 70% or 80% of household income frees up some dollars for saving. Another route to building a nest egg is to invest (or at least save) the accumulated consumer savings you realize at the mall, the supermarket, the recycling center – even pocket change amassed over time.

 

How many households budget like businesses? Perhaps more should. A business owner, manager, or executive may realize savings through this approach. Take it line item by line item: spending $20 less each week at the supermarket translates to $1,040 saved annually.

 

Working with financial professionals may encourage greater savings. A 2014 study on workplace retirement plan participation from Natixis Global Asset Management had a couple of details affirming this. While employees who chose to go without input from a financial professional contributed an average of 7.8% of their incomes to their retirement plan accounts, employees who sought such input contributed an average of 9.5%. The study also learned that 74% of the employees who had turned to financial professionals understood how much money their accounts needed to amass for retirement, compared to 54% of employees not seeking such help.4

 

Saving money should make anyone feel great. It means effectively “paying yourself” or at least building up cash on hand. A household with a save-first financial approach may find itself making progress toward near-term and long-term money goals.

 

  1. Zachary Zinser may be reached at Zinser Benefit Service, Inc..

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – businessinsider.com/mental-trick-save-money-2015-1 [1/27/15]

2 – gallup.com/poll/168587/americans-continue-enjoy-saving-spending.aspx [4/21/14]

3 – bea.gov/newsreleases/national/pi/pinewsrelease.htm [3/2/15]

4 – bostonglobe.com/business/2014/09/06/advice-seekers-save-more-study-finds/dJmUUXz78twO9OxLcRTqdN/story.html [9/6/14]

 

5 Ways to Relieve Stress at Work

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No matter what time of the year it is, stress always finds us.  The National Stress Institute reports that 80% of workers feel stress at work and nearly half say they need help learning how to manage stress.  In honor of National Stress Awareness Month in April, we’re sharing simple ways to reduce on-the-job anxiety and help you have happier work days.  Give these a try anytime, whether you’re under a tight deadline or just want to practice having more of a work-life balance.

Download a relaxing app

These days, we have access to almost everything at the tip of our fingers.  Check out your smartphone’s app store to find a variety of relaxation apps.  For iPhone users, some of the best are Equanimity-Meditation Timer and Tracker and iZen Garden.  Android users can try Qi Gong Meditation Rlaxation and Worry Box – Anxiety Self-Help.  Or, check out Breathe2Relax on your iPhone or Android phone, which guides you through diaphragmatic breathing exercises known to interrupt stress receptors in the body.

Perform a self-hand massage

Giving your hands some love can work wonders for you, especially when you rely on them so much.  Take 5 minutes to complete the exercises below.

  • Pinch the tips of each finger and thumb on your right hand for a few seconds.  Repeat on your left hand.  The pressure applied to your fingers should be firm, but not painful.
  • Go back to each tip and pinch them again, this time squeezing from side to side.
  • Grasp each finger at its base and tug firmly.  Allow your grip to loosen slightly, from the base to the fingertip, until you finger slips out of your grasp.
  • Using your thumb and index fingers, rasp the webbed area between your thumb and index on the other hand.  Keeping a firm hold, tug at the skin gently until the fleshy web snaps away from your grasp.  Repeat on all fingers.
  • Rest the palm of your hand inside the palm of your free hand.  Use your thumb to massage the back of your hand.  Continue thumb massaging each area on the back of each hand.
  • Cradle your wrist inside your free hand.  Use your thumb to massage the inner wrist.  Repeat on other hand.
  • Massage the palm of each hand with your thumb.
  • Press your thumb firmly in the center of your palm.  Take a few deep breaths and center yourself.

Watch a funny video

How can you not crack a smile or have a chuckle when watching a dog perform tricks or a little kid learning how to ride a bike?  Research suggests that laughter has both long-and short-term health benefits, including an improved immune system, better sense of self and enhanced mood.  Even if you can’t access YouTube at work, read a cartoon, share a joke with a co-worker or Google funny images.  Whatever floats your boat!

Practice deep breathing

It’s no secret that breathing exercises help reduce stress and coalm an anxious mind.  The ancient practices of yoga and tai chi, or example, use breathing as the central force to find balance between the body and mind.  Perform the technique below once or twice a day, or whenever you start to feel your stress levels reaching maximum capacity.  Throughout the exercise, breath from the abdominals so that more oxygen reaches your lungs.

  • Place one hand on your chest and the other on your abdomen.
  • Exhale through the mouth, taking a slow, deep breath through your nose.  Hold for a count of 7, if possible.
  • Slowly exhale through the mouth for 8 counts.  As you’re doing this, contract your abdominal muscles.
  • Repeat the cycle 4 more times for a grand total of 5 deep breaths.

Read inspring quotes

When you’re running low on positive vibes, there’s no better way to give yourself a boost than peeking into the minds of great people.  It helps to know that even the more privileged among us have experienced similar struggles.  Start with these well-organized sites: ThinkExist, BrainyQuote, GoodQuotes.

 

It’s easy to overlook the impact that stress has on our well-being when deadlines and personal stressors get in the way.  (There are just not enough hours in the day!) But making time to relax and regroup can only help your efforts to get the job done, and get it done in a way that won’t harm your health.

 

Sources

http://www.mayoclinic.com/health/stress-relievers/MY01373

http://www.healthline.com/health-slideshow/top-anxiety-iphone-android-apps#2

http://www.mayoclinic.com/health/stress-relief/SR00034

http://www.amsa.org/healingthehealer/breathing.cfm

STRESS FACTS

This material provided for informational use only and should not constued as medical dvice or used in place o consulting a licensed medical professional.  You should consult with your doctor.

 

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