What’s Your Retirement Vision?

Wouldn’t it be disappointing to dream about a comfortable retirement and then find yourself unable to enjoy your leisure years because of limited financial resources? Unfortunately, this is a possibility for people who underestimate retirement expenses and the rising cost of living.

Evaluate Spending and Costs

Although your expenses may change when you retire, reductions in some areas (such as clothing and transportation to and from work) could be offset by higher costs in others. For example, your home energy expenses may be higher if you spend more time at home, and health-related costs typically increase as you grow older.1

Some expenses, such as food and housing, may stay about the same. Home-related expenses represent at least 42% of spending for Americans aged 50 and older, regardless of whether they are retired.2 One study found that even though three out of five workers expect to spend less in retirement, half of retirees said their spending in the early years of retirement was about the same or higher than it was when they were working.3

Where you live could play a significant role in your overall expenses. If you’re living on a limited income, your money might go further in some cities and states than it could in others (see the cost-of-living chart). You’ll need to consider not only the cost of housing, food, and utilities but also taxes. States have varying rules for taxing pension and Social Security income, and property and sales taxes may vary not only by state but by county.

Enjoy the Lifestyle You Want

As you calculate the savings it may take to retire, remember to factor in your retirement wants as well as your basic needs. What do you picture for your retirement? The top retirement dream for today’s older Americans is vacation and travel.4 Perhaps you’d like to see South America or go fly fishing in Alaska. Maybe you want to work on your golf or tennis game, or enjoy a hobby that you don’t have time for now. You might like to volunteer for your favorite charity or move closer to your children and grandchildren.

Sixty-nine percent of middle-income Americans say they’d like to work in retirement in order to “stay busy.”5 While this could be a worthwhile goal, wouldn’t it be nice to work on your own terms — to pursue your passion instead of a paycheck?

If you’re young, retirement may seem too far off to worry much about. If you’re approaching the end of your working years, you may have a clearer picture of life after work. Regardless of your age, a solid financial strategy could help you retire more comfortably.

1–2) Employee Benefit Research Institute, 2012
3) Employee Benefit Research Institute, 2010
4) AARP, 2011
5) Journal of Financial Planning, August 2011
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.
Posted in Retirement | Tagged , , , | Leave a comment

Doing Your Heirs a Favor

The passing of a loved one is never easy for friends and family, but it can be even more difficult if the survivors do not have the information they need to make decisions and take care of final arrangements.

Legal documents such as a will and powers of attorney are important, but a letter of instructions — which is not a legal document — could be just as advantageous for your heirs. It enables you to express your final wishes and provide guidance regarding the many personal and financial matters that your heirs may face after your passing.

A letter of instructions can convey any information that might help your loved ones. Here are some topics to consider addressing in the letter.

  • People to contact, such as attorneys, financial professionals, insurance agents, and accountants.
  • The location of important documents, including your will, insurance policies, birth certificate, marriage and/or divorce papers, Social Security and Medicare cards, tax returns, vehicle titles, and deeds to real property.
  • Your wishes for final arrangements such as a memorial or funeral service and organ donation.
  • Information on your bank and retirement accounts, including account numbers, PINs, and passwords.
  • A list of creditors and the location of bills.
  • A description of any important information to be found on your computer, including login IDs and passwords.

Store your letter in a safe, yet accessible place; tell your loved ones where they can find it; and give copies to the executor of your estate and other trusted individuals. Because some information in the letter may change over time, consider updating it regularly.

It may not be pleasant to think about what might happen after you’re gone, but leaving a clear letter of instructions could be a final act of gratitude for your heirs.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.
Posted in Legacy Building | Leave a comment

Balancing Stability and Growth

A recent study indicates that only 10% of investors aged 65 and older are willing to assume above-average or substantial investment risk, compared with 19% of investors aged 50 to 64 and 26% of those aged 35 to 49.1

One of the most basic investing principles is that assets with greater growth potential generally carry greater risk. An investor who is two or three decades away from retirement could decide to be more aggressive in pursuing growth because there may be more time to recover from any potential losses.

As retirement approaches, conserving principal typically becomes more important — and even more so after retirement. Many investors address this concern by transitioning to a more conservative asset allocation (see chart). Asset allocation is a method to help manage investment risk; it does not guarantee against investment loss.

Continuing Need for Growth

Even though the strategy described above is a good rule of thumb, you cannot afford to become complacent with your investments during retirement. Without some growth in your portfolio, withdrawals from your savings could quickly reduce your principal, and inflation could erode your spending power. The challenge is to find an appropriate balance between the need for growth and the desire for principal preservation. Here are some factors to consider.

You may have more time than you think.Your savings may have to last longer than you originally anticipated (possibly for 20 to 30 years of retirement), but you may also have more opportunity for your investments to pursue growth.

Consider your other income. Social Security was never intended to be a primary source of retirement income. Income from other sources — such as rental property, a business, or an inheritance — might give you more flexibility in your investment strategy.

Your goals could require a different approach. Assess your retirement goals and the cost to pursue them. You shouldn’t assume risk just because you have expensive goals. But a clear picture of what you want to achieve in retirement might help you develop a more appropriate strategy.

Be comfortable with your investments. Consider your risk tolerance. If you choose a more aggressive approach, be prepared for more volatility in your portfolio and a greater chance of loss. Conversely, if you don’t feel comfortable with market ups and downs, remember that a conservative portfolio may have lower growth potential.

Regardless of your approach, there’s no guarantee that your investments will perform as expected. All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.

There is no simple answer to finding the appropriate balance between stability and growth, but it’s an issue you should address regularly before and during retirement. We can examine your approach and suggest ways to help your portfolio work smarter for you.

1) Investment Company Institute, 2011
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. Copyright © 2012 Emerald Connect, Inc.
Posted in Investing, Retirement, Risk Management | Leave a comment

Insurance for Two Could Benefit Your Heirs

Since the federal estate tax was established in 1916, the amount exempted from the tax has been raised substantially over time. The $5 million exemption for 2011 and 2012 is the highest in history, and the 35% top estate tax rate is the lowest in 70 years.1

However, these generous provisions may not last. After 2012, the federal estate tax is currently scheduled to revert to a $1 million exemption and a 55% top tax rate. Many families with a home and large retirement accounts could easily have estates worth $1 million or more. A survivorship life insurance policy is one way to help heirs pay estate taxes, probate costs, and other final expenses.

Preserving a Legacy

 

 

 

 

 

 

 

 

 

Also called second-to-die insurance, a survivorship life insurance policy insures two people and pays a benefit after the death of the second person. The premiums are usually less expensive than premiums for a single life insurance policy, because they are based on the life expectancies of both insured individuals.

The unlimited marital deduction allows assets to pass to a surviving spouse free of federal estate taxes, so estate taxes typically do not become an issue until estate assets pass to nonspouse heirs. Thus, a survivorship life insurance policy could pay a benefit at the time it may be needed most.

Moreover, by purchasing the survivorship policy in an irrevocable life insurance trust, the proceeds may not be considered part of your taxable estate. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisors before implementing such strategies.

Even if you are not concerned about the estate tax, a survivorship life policy could be a relatively inexpensive way to leave a legacy, especially considering that an individual life insurance policy may be more expensive or difficult to obtain later in life. Survivorship life might also be used to insure business partners.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

With the uncertain future of the estate tax, now may be a good time to consider a survivorship life insurance policy. Even if the estate tax doesn’t apply to your estate, the insurance proceeds could benefit your heirs or a favorite charity.

1) Internal Revenue Service
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.
Posted in Legacy Building, Life Insurance, Risk Management, Tax Planning | Leave a comment

For Better, For Worse: Communicating About Retirement

A recent survey suggests that many couples are not communicating clearly about retirement goals and strategies, even as  they approach retirement age. The couples surveyed were at least 46 years old with a minimum annual household income of $75,000 or at least $100,000 in investable assets.1

Only 41% said they handle decisions on retirement savings and investments together, and 73% disagreed on whether they had a detailed strategy for retirement income. Many couples also disagreed on when they would retire and whether they would continue to work in retirement.2

In general, wives expressed less confidence than husbands about handling retirement-related financial decisions (see chart). This trend is of special concern considering that women often have longer life expectancies than men and may eventually have to make financial decisions on their own.3

Talk It Over

Recognizing and working through these kinds of issues could help prevent unpleasant outcomes. Even if you and your spouse communicate well about retirement, it may be helpful to discuss these basic topics:

  • When each of you plans to retire. Where you would like to live. What kind of lifestyle you envision.
  • Whether either or both of you plan to continue with some type of work.
  • How much income you expect when you retire, your expected sources of income, and your confidence in the amounts they could provide.
  • How well you both understand your investments. Whether you both know where official documents are located and have all necessary account information.

Preparing for retirement can be a major challenge. Making sure you and your other half are in agreement and working toward common goals may help you avoid wasted effort and lost opportunities.

1–3) financial-planning.com, June 29, 2011
 
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.
Posted in Legacy Building, Retirement | Tagged , , , , , | 1 Comment

Everyone Procrastinates, But Why?

When it comes to procrastination, doing it now may mean having to do it later, too. In 2011, 20% of workers planned to postpone retirement. The poor economy and a change in employment situation were the most common reasons for workers to stay on the job.1

We can’t know whether any of these people postponed their retirement dates because they got a late start on their saving goals. But as you can see in the table, even five years can make a big difference.

Everyone knows that procrastination is the enemy, yet not only do we all do it, sometimes we have no choice. Effective time management often requires us to put off one task until another is finished. Rather than wrestle with the inevitability of procrastination, a more useful exercise might be to examine why we procrastinate.

Not Knowing What to Do

Many people correctly assume that they don’t know much about finances, but one of the benefits of working with a professional is access to strategies and education. Although there is no assurance that working with a financial professional will improve investment results, a professional who focuses on your overall objectives can help you consider options that could have a substantial effect on your long-term financial situation.

Afraid to Act

Waiting until your fears subside before deciding to act could be the stepping stone to two classic mistakes: basing your investment decisions on emotion and failing to recognize the opportunity cost of waiting. Risk is an inherent aspect of investing, and few people can assume risk without at least some fear. But inaction is also risky because time is one of the key ingredients to financial success. Procrastination can carry a high opportunity cost by decreasing the amount of time that your investments have available for compounding.

Life Happens

The day-to-day demands of having a career, raising a family, and caring for a home often take precedence over investment needs. Most people schedule time to get the oil changed, visit the dentist, and get their hair done. Why not then schedule regular appointments to review investment matters and measure progress toward financial goals?

Squandering time is one mistake that many people may never recover from. If you’ve been meaning to get around to some aspect of preparing for your financial future, now is the best time to get started.

1) Employee Benefit Research Institute, 2011
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.
Posted in Investing, Retirement, Risk Management | 3 Comments

Consider Your Retirement Needs, but Don’t Forget Your Retirement Wants

You might have read or heard that you need to replace about 80% of your pre-retirement income to maintain your standard of living in retirement. Although some research validates this guideline, consider that half of today’s retirees say their spending is higher or about the same as it was when they were working.1–2

The idea that you may need less income in retirement considers that your income tax burden may be lower when you quit working and that you probably are not contributing a large chunk of your salary to retirement plans. Variables that can influence the replacement ratio — positively or negatively — include your living expenses, overall debt level, health-care costs, and whether you will receive an employer-provided pension.

Rather than focusing on how much money you’ll need to get by in retirement, take some time to envision a retirement lifestyle that you can really get excited about. Unless you plan to spend retirement being frugal, there’s a good chance that you could need more than 80% of your pre-retirement income to fund the lifestyle you seek.

More Time, More Money?

Retirement may be the first time in your life when you are free to travel, play golf, go back to school, focus on hobbies, and pursue other interests that you simply didn’t have time for during your working years.

What a disappointment it would be to retire and finally have the time, but not the money, to do as you please. If you would find it difficult to afford your ideal retirement lifestyle on your current income, it could be an indication that you are underestimating how much income you’ll need in retirement.

Changing Needs

As we grow older, what once may have been considered a luxury can become a necessity. In their list of “basic needs,” more than half of baby boomers include an Internet connection, special occasion gifts, and pet care. Many baby boomers would add family vacations, dining out, professional haircuts/coloring, movies, and their children’s or grandchildren’s education to the list of basic needs.3 And for 98% of baby boomers, health-care coverage is not a luxury but a basic need, one that they are extremely concerned about being able to afford.4

Underestimating Costs and Spending

The danger of underestimating how much you expect to spend in retirement is that it could lead you to save too little or invest too conservatively during your working years. Among the 46% of workers who have attempted to calculate how much money they will need for retirement, 44% made changes to their retirement savings strategies as a result, with the majority of changes involving saving or investing more.5

To prepare for a retirement that you can truly look forward to, consider the luxuries that your retirement-needs calculation may not account for. It could mean the difference between living well and just getting by.

1) CNNMoney, October 8, 2009
2, 5) Employee Benefit Research Institute, 2010
3) MarketWatch, August 6, 2010
4) Society for Human Resource Management, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

 

Posted in Retirement | Leave a comment

Ways to Save More

About two out of three American workers are saving for retirement, but less than half are confident that they will have enough money to live comfortably throughout their retirement years.1 However, even those who are confident may not have realistic expectations.

Consider that a $250,000 account earning a 5% annual return could provide an income of about $1,000 per month (without dipping into principal). Yet only 10% of workers have savings of $250,000 or more.2

Saving for retirement might seem daunting, but you may be able to increase the amount you are saving without making huge sacrifices. Taking some small steps today might make a big difference when you are ready to retire.

Save an extra 1% of your salary each year. Raising your retirement contribution in small increments may not have much effect on your take-home pay, but the long-term results could be significant (see chart). The IRS sets annual contribution limits for retirement plans, but the amount you can actually contribute will depend on your plan’s rules.

Give your retirement a raise. The next time you receive a pay increase, try to divert part or all of it toward your long-term financial goals. Recall the last time you received a raise and how quickly the extra money was absorbed by your spending. You might find it easier to save a raise if you don’t allow yourself to spend the extra money.

Make payments to yourself. When you pay off a debt, such as a car loan or a credit-card balance, consider pretending that you still owe the monthly payment — to yourself. Because the payment is already built into your budget, this could be a simple way to make additional progress toward your long-term goals.

Avoid credit-card debt. Some forms of debt, such as mortgages and auto loans, may be necessary for your basic lifestyle. The same usually cannot be said of credit-card debt. Before you put a major purchase on your credit card — one that you may not be able to repay in full when you receive the next statement — consider that the expense is likely to increase the amount of time it could take to reach your retirement goals.

Cut out a small expense. Life’s little pleasures — coffee drinks, bottled water, eating in restaurants — are important, but you might be surprised by their true cost. For example, saving $5 per day would equal $150 per month. If this amount were contributed to an account earning an 8% annual return, the balance could reach more than $140,000 after 25 years.

These hypothetical examples are used for illustrative purposes only and do not represent the performance of any specific investment. Fees, expenses, and taxes are not considered and would reduce the performance described if they were included. Actual results will vary.

If you don’t have a lot of money to devote to your long-term financial goals, you may have an equally important asset: time for your savings to grow. Finding small ways to save more today could help you enjoy a more comfortable lifestyle in retirement.

1–2) Employee Benefit Research Institute, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. © 2011 Emerald Connect, Inc.

Posted in Retirement | 10 Comments

Using Living Benefits for Retirement Income

In a 2011 study by the National Institute on Retirement Security, 84% of respondents expressed concern that current economic conditions could affect their ability to retire comfortably, and 73% said stock market volatility makes it difficult to predict how much they could save by retirement.1 Clearly, uneven market performance has increased anxiety about having an adequate retirement income.

Pensions once offered a stable income for a large percentage of retirees, but this has changed dramatically. In 1975, almost nine out of 10 private-sector workers had a traditional pension, compared with just one out of three in 2005.2

Purchasing the guaranteed living benefits that are available with some variable annuities (for an extra cost) is a potential way to establish a predictable income stream. Some investors may find that the increased stability may be worth the cost of these guarantees.

Guaranteed minimum accumulation benefit. The value of the annuity will not fall below a certain amount (usually equal to the amount of premiums paid, regardless of market performance) after a specified term.

Guaranteed minimum income benefit. The income payment will be based on the greater of the actual contract value or a minimum amount. Benefit payments can begin after a specified waiting period.

Guaranteed minimum withdrawal benefit. A percentage of the annuity premiums paid can be withdrawn annually for a defined period of time (including life, if specified), regardless of market performance.

A variable annuity is a long-term investment vehicle designed for retirement purposes. There are contract limitations, fees, and charges associated with variable annuities, which can include mortality and expense risk charges, sales and surrender charges, investment management fees, administrative fees, and charges for optional benefits.

Withdrawals reduce an annuity’s living and death benefits and values. Variable annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59½. Any guarantees are contingent on the claims-paying ability of the issuing company. The investment return and principal value of an investment option are not guaranteed. Because variable annuity subaccounts fluctuate with changes in market conditions, the principal may be worth more or less than the original amount invested when the annuity is surrendered.

Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1–2) National Institute on Retirement Security, 2011

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Posted in Retirement | 10 Comments

Women Hit Harder by Public Sector Job Losses

The public sector has shed 581,000 jobs since December 2008, and women account for 81% of those who lost their positions, according to a new analysis released Friday by the Institute for Women’s Policy Research.

Many jobs were lost at the state and local level, where women are most likely to work as elementary and middle school teachers.

Between December 2008 and July 2011, the number of public sector women employees at the local level fell 4.7%, while the number of men decreased by only 1.6%, the IWPR analysis found.

At the federal level during the same period, the disparity was even starker. While women employees’ ranks shrank by 3.2%, the number of men employed increased by 5.3%—possibly owing to increased employment in areas such as homeland security and civilian employment in the Department of Defense.

The IWPR said in a statement that layoffs have resulted from state and local government budget cuts brought on by the recession and dwindling economic stimulus funding. While the private sector added 17,000 jobs in August, the public sector lost an equal number.

“The American Jobs Act proposed by President [Barack] Obama will ensure investment in the country’s infrastructure and education,” Jeffrey Hayes, senior researcher at IWPR, said in the statement. “The boost in funding will help women employees in the public sector, in turn allowing them to invest in their families, their communities, and in the economy overall.”

The administration’s proposal includes a $30 billion investment in education to prevent the layoffs of up to 280,000 teachers while keeping more law enforcement officials and firefighters on the job.

Posted in Uncategorized | 1 Comment