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April 30th, 2018 by

Stashing money away for retirement is complicated, so it’s not surprising that fundamental retirement guidelines have become popular over the years. Here are four that you might have come across in reading, researching, or just talking with friends. Like most guidelines, they offer helpful starting points but need to be examined critically and adjusted for your specific situation.

1. Save 10% of your pay for retirement.

This is a good beginning, but new retirement guidelines suggest putting away 15% of your salary. If you started late, you may need to save more. At the very least, save enough to receive any matching funds offered by your employer. Consider this: If you save just 6% of your salary and your employer offers a full 6% match, you are already putting away 12%!

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2. The percentage of stock in your portfolio should equal 100 minus your age.

This reflects fundamental retirement guidelines that younger people can take on more risk, while older people approaching retirement should protect their principal by converting some volatile growth-oriented stocks into more stable fixed-income securities.

Although the strategy is sound, the math may no longer be appropriate considering long life spans and low yields on fixed-income financial instruments. For example, if you followed this rule at age 40, 60% (100 less 40) of your portfolio would consist of stock, and at age 60, the percentage of stock would be 40%. Depending on your situation and risk tolerance, you may require a higher percentage of stock at either of these ages to meet your retirement goals.

3. You need 80% of your pre-retirement income during retirement.

New retirement guidelines suggest that you need 80% of your pre-retirement income during retirement. But, in fact, there is no magic number, and you may be better off focusing on your actual expenses today. Then, think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire.

While some expenses might disappear, like a mortgage or costs for transportation to and from work, new expenses may arise, such as travel, help with home maintenance, and medical costs. A typical 65-year-old couple who retires in 2017 might spend $275,000 on medical care in retirement, even with Medicare.1 Calculate how much you may need to pay for your expenses in retirement and add a cushion for “the unexpected”.

4. A “safe” withdrawal rate is 4%.

The “4% rule” suggests that you make annual withdrawals from your retirement nest egg equal to 4% of the total when you retire, with annual adjustments for inflation. This model was developed in the 1990s for a 30-year retirement with a portfolio that included 50% large-cap stocks.2Although this may be part of many retirement guidelines, some experts suggest a lower rate. Factors to consider include the amount of income you anticipate needing, your life expectancy, the rate of return you expect from your financial products, inflation, taxes, and whether you’re single or married.

Sources:
1) CNBC, October 5, 2017
2) The Balance, August 18, 2017

It’s your retirement. Plan it perfectly for you!

Retirement guidelines are helpful, but they are not exactly the same for everyone. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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April 22nd, 2018 by

future stability

In a recent survey of 3,000 Americans ranging in age from 20 to 70, almost two-thirds of the respondents said they feared running out of money during a long retirement more than they feared death.1 Fear may not be a helpful response, but this concern is not surprising considering changes in the American retirement landscape.

People are living longer during a time when traditional pensions are disappearing and medical expenses continue to climb. Social Security may provide a dependable, supplemental income throughout retirement, but benefit levels are not high enough to fund a long retirement for most people. In January 2018, the average monthly benefit was just $1,404, and the maximum benefit at full retirement age was $2,788.2

Even people with a substantial nest egg face a challenge in making their dollars last throughout a long retirement. Withdrawing too much too quickly can put you at risk of running out of money while being overly cautious and withdrawing too little might lead to a less satisfying retirement lifestyle than you might otherwise enjoy.

Planning for a long retirement

One way to help solidify your long retirement income is by purchasing a longevity annuity. It is a deferred fixed annuity that delays lifelong income payments until a future date. Often it is when the contract owner reaches age 80 or 85. Because the annuity income is deferred, the payouts are typically higher in relation to the premiums than they would be if the annuity income had been paid immediately. Purchasing the annuity at a younger age with a longer deferral period would generally give you a better premium-to-income ratio.

A longevity annuity may give you more confidence that you will have income for a long life. It also makes it easier to manage the near-term income from your dollars and financial instruments. For example, if you retire at age 65 and feel comfortable that the combined income from your annuity and Social Security will meet your income needs after you reach age 85, you could focus on funding your earlier retirement years from other monies and vehicles for a 20-year period, rather than guessing how long your nest egg dollars might have to last.

Source:
1) Money, October 19, 2017
2) Social Security Administration, 2017

Find out how to never outlive your resources.

Let me show you how to get the most from your planning! I want you to enjoy a long retirement without fear of running out of money. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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April 10th, 2018 by

Many early retirees reported reasons for retiring early that were beyond their control, such as health problems or disability, company downsizing or closure, changes in the skills required for their jobs, or having to care for a spouse or family member. However, some said they retired early by choice because they could afford to or because they wanted to do something different.1

If you’re nearing the end of your working years, you probably have a retirement timetable in mind. It may be as specific as a particular date or as general as a range of years. Regardless of your timetable, circumstances could change, and retirement might come sooner than you think.

Considering some key issues now might ease your transition and give you more choices in how you retire.

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1. Calculate The Necessary Income for Your Retirement Lifestyle.

Would you be able to maintain your desired standard of living if you had to retire early? It might be helpful to calculate your projected income based on two different retirement dates: the date you prefer and an earlier date.

Keep in mind that your Social Security benefits would be reduced if you claim them before reaching your “full retirement age” (currently 66 to 67, depending on year of birth). And the sooner you retire, the less time your investments have to pursue potential growth, so accelerating your savings now could make a big difference. Even if you retire on schedule, having a larger savings balance may give you more flexibility in your retirement lifestyle.

2. Reduce Your Debt

Lowering or eliminating outstanding credit-card balances as soon as possible could be a great step toward getting on track for retirement. Paying off auto loans would free up more income when you’re retired.

Owning your home free and clear would also be a big help in creating an ideal retirement lifestyle. However, about 37% of homeowners age 65 and older are still paying off a mortgage.2 If you foresee your mortgage being an issue in your retirement years, you may want to examine options to pay it off early, reduce payments, or otherwise modify the terms.

3. Consider Your Health

Fifty-five percent of retirees who left the workforce earlier than planned cited health problems or disability as a reason for early retirement; 17% cited caring for a spouse or other family member.3

  • Is your retirement timetable realistic based on your current health status and the health of your spouse?
  • Would you be prepared if your health changes?
  • Have you factored the cost of health care into your retirement strategy?

A married couple who retired at age 65 in 2016, with median expenses for prescription drugs, would need an estimated $265,000 to have a 90% chance of paying their health-care costs throughout retirement.4 Costs for your dream retirement lifestyle may be higher.

Sources:
1, 3-4) Employee Benefit Research Institute, 2016–2017
2) U.S. Census Bureau, 2017 (2015 data)

Plan your dream retirement!

Preparing now could help ease you into a more comfortable retirement lifestyle. Let me show you how to get the most from it. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  1-833-313-7233.

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