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Retirement: Don’t Make These 3 Big Savings Mistakes

If you don’t use your employer’s 401(k), you’re committing one of the worst retirement mistakes possible, according to Cameron McCarty, president of Vivid Tax Advisory Services.

“What I want viewers and our clients to do is to contribute as much as they can,” McCarty told Yahoo Finance recently.

The days of pension plans are fizzling out. Instead, workers are offered 401(k)s — employer-sponsored retirement plans that allow employees to contribute a portion of their paycheck before taxes to retirement savings. These contributions are invested and, over time, grow into a nest egg you can tap when you retire.

To nudge workers, a third of employers auto-enroll their employees into a 401(k) plan, a two-fold increase from a decade ago, according to a recent analysis from Fidelity Investments.

But simply signing up doesn’t merit a pat on the back, McCarty said. Younger workers should max out their annual contributions, if possible, and not doing so is the second mistake McCarty sees.

For 2019, that means you should contribute as close to the $19,000 annual limit as you can. The limits, determined by the Internal Revenue Service, typically change every year, and are usually announced in November for the upcoming tax year.

The third mistake to avoid, according to McCarty: Not taking the money your employer will contribute to your retirement.

Some companies will match your annual 401(k) contributions up to a certain amount. The average employer match is 4.7%, according to Fidelity.

“I don’t want my clients or your viewers to be the 20% of Americans that make this big mistake,” said McCarthy in a conversation with Yahoo Finance. “And that’s taking advantage of the free money your employer is giving you.”

By: Dhara Singh

Source: Retirement: Don’t make these 3 big savings mistakes

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11 Disruptive Questions Millennials’ Singles’ Day Poses For Your Retirement And For Business

It’s the biggest shopping day on the planet. Alibaba alone chalked up $38 billion in sales for 2019. No, it’s not a religious, patriotic holiday, or even the one time biggest online shopping day of the year, Black Friday – it’s Singles’ Day in China and much of the world. But what’s good for Alibaba, may not be good for your retirement and many industries.

Started as Bachelors Day by students at China’s Nanjing University in 1993 as a kind of ‘anti-Valentines’ day to celebrate being single, the day evolved into Singles’ Day. November 11 or 11/11 was chosen because it provided the powerful symbolism of four 1’s.

And, while the celebration of being single may have begun in China, the lifestyle and business of ‘singledom’ is spreading fast. Retailers in Southeast Asia, Europe, and North America are all riding the singles wave. According to Forbes writer Sergei Klebnikov, Adobe projects that nearly 25% of retailers plan to offer a Singles Day special. Amazon, Apple, Bed Bath & Beyond, Estee Lauder, Foot Locker, Happy Socks and countless other retailers are all too happy to jump on the singles lifestyle bandwagon.

Today In: Money

But, there is more to Singles’ Day then a retail push. Singlehood points to a larger disruptive demographic trend that is shaping lifestyles, your retirement, and the even the markets we invest in today.

According to Pew Research, 61% of young Americans under the age of 35 are without a partner. Up sharply from 33% in 2004. Likewise, the number of people living alone in Canada has doubled over the last three decades. In Europe more than half of the households in Paris, Munich, and Oslo are households of one. Entire nations, such as Sweden and Denmark have more than half of their populations living alone.

So what might this new demographic landscape mean for lifestyles, retirement, and countless industries?

To continue the theme of Singles’ Day on 11/11, here are 11 questions about life tomorrow in a world of one.

1.    Who will buy the homes of retirees today that are typically two, three or more bedrooms? Will homes with one bedroom become the new normal and homes with two bedrooms be considered a spatial luxury – and those with three-plus simply a waste? How might real estate developers rethink communities that are predominantly households of one?

2.    How many wine glasses will you buy? Watch out household goods industry, rather, than buying a set of eight, or even four glasses, as well as all the other things that stock household cabinets and closets – we may buy only one or two of what we need. For those retirees thinking they are going to downsize by handing off that china set with service for 12 to their kids – good luck. As I observe in a previous article, no one wants your stuff.

3.    Who will you buy luxury gifts for? Singles’ Day certainly shows that people are willing to buy things, but will they buy luxury? Will luxury brands begin crafting a new vision of the virtue of treating yourself in contrast to decades of sales based upon treating that special someone as well as marking engagements and anniversaries? Perhaps a whole new socially acceptable celebration of buying your own watch for your retirement will become a new normal.

4.    Is a party of one the new normal for leisure? Will restaurants work harder to make a retired single more comfortable and not feel alone? Hotels, cruise ships, and theme parks have traditionally marketed to couples and families. What will leisure look like in a world of one?

5.    Will being a pet parent mean more than ever? If a partner is not moving in, will pets become your significant other in youth and later life, thereby getting an even bigger boost of wallet share?

6.    How will you share the burden? Managing a household has many moving parts. Typically tasks are split between a couple by conscious decision and often by default. Will retired singles over time learn to do it all, or will there be a growth industry for services once shared with that special someone?

7.    Will there be even fewer children? The birthrate continues to tumble. The industrialized world, as well as many industrializing nations, are seeing a record drop in the number of children being born each year. Will the celebration of one, mean none?

8.    Does singlehood provide greater career freedom? If there is only one person in a household, does that reduce the fear of losing a job or easily moving from one position that does not quite fit? Employers may find a new mobility in single employees who do not need to worry, nor manage, the financial risks of supporting multi-person household. However, will that newfound freedom in youth, present a longer-term financial risk in retirement for singles?

9.    How will you finance retirement alone? Having a partner may increase household consumption and costs – but it may also provide more income and retirement savings. The longevity risk of ones life span outliving ones wealth span may be greater for lifelong singles.

10. Who will care for you? Most of us, at some point, will require care in older age. A partner, or adult child, typically provides family care to an elderly loved one. In a world where neither may exist, does that present a new challenge for individuals planning retirement – and perhaps a new demand for private and public services?

11. Does alone necessarily mean lonely? While it is possible to be alone, but not lonely, will a society with a growing number of households of one portend an even greater rise in the global epidemic of loneliness and social isolation for young and old alike?

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I lead the Massachusetts Institute of Technology AgeLab (agelab.mit.edu). Researcher, teacher, speaker and advisor – my work explores how global demographics, technology and changing generational attitudes are transforming business and society. I teach in MIT’s Department of Urban Studies & Planning and the Sloan School’s Advanced Management Program. My new book is The Longevity Economy: Unlocking the World’s Fastest Growing, Most Misunderstood Market (Public Affairs, 2017) . Follow me on Twitter @josephcoughlin.

Source: 11 Disruptive Questions Millennials’ Singles’ Day Poses For Your Retirement And For Business

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Alibaba CEO Daniel Zhang discusses Singles’ Day and the company’s strategy.

Six Things to Do When Your Aging Parents Have No Retirement Savings

It sounds like the makings of a sitcom, but your parents may end up rooming with you if they haven’t started saving for retirement.An analysis for the Harvard Health Letter using U.S. Census Bureau data concluded that some 3.4 million people aged 65 or older were living in a grown child’s home in 2016.

Before you start counting the ways your life will change once your parents move in, prepare to do some information gathering. Your parents may not have much in savings, but the faster you can get their finances in order, the better off you’ll all be.

1. Get your siblings on board 

Start by having an informal chat with your siblings to share perspectives. Has anyone already had this conversation with mom and dad? If so, how’d it go? Also find out who’s willing to join forces with you to ensure your folks have a good plan for the future.

2. Invite your folks to an open conversation about finances 

Your parents may be defensive about their financial situation, so it’s important to set the tone carefully. Do your best to treat this as a shared circumstance. You’re not fixing or blaming. You’re simply looking out for them by planning for their future.

By starting the conversation with an offer to help, you can keep from playing the blame game. You might say, “Mom and Dad, I’d like to help you guys plan for your later years. Can we set aside some time to talk about financial stuff?”

3. Ask for the numbers 

It may feel better to talk about finances in generalities, but to be successful, you need to resist that urge. You can be most helpful when you know how much your parents spend, their income, what they own, and what they owe. It’s also useful to chat openly about how stable they think their income is. For instance, Mom may plan on working another 20 years, but things are more complicated if she’s worried about getting pushed out next year.

When you understand their income outlook, you can broach the topic of Social Security benefits, and help them strategize on when to take those benefits. If they aren’t sure where they stand with Social Security, help them set up an online account withmy Social Security. And while you’re at it, see if they’ll share passwords to their other financial accounts in case you need to check in on those.

If your folks have a ton of debt or are borrowing to cover their expenses, help them find ways to spend less. Review their credit card statements and checking accounts for subscription services they don’t use, encourage them to shop around for cheaper rates on home or auto insurance, and introduce them to streaming TV so they can cancel cable.

A consistently high grocery bill is a harder challenge to tackle. You might introduce them to a grocery delivery service to minimize impulse purchases. A produce delivery service can also eke out some savings, as these focus on less expensive, seasonal produce that’s locally sourced.

Once your parents’ spending is in line with their income, every bit of savings should go towards paying down the debt.

5. Consider downsizing on homes and cars 

If your parents are open to it, downsizing now may result in more freedom later. Selling an extra car raises some quick cash to pay down debt, and also reduces insurance and maintenance expenses. Downsizing the home may be a tougher conversation to have, but it’s worth exploration. A smaller place that’s fully paid off provides a lot more security for your parents than a bigger place with a mortgage. Ongoing maintenance and expenses will be less, too.

6. Brainstorm new streams of income 

Even after you help your parents streamline their debt and expenses, they probably won’t have access to the traditional, work-free retirement lifestyle if they haven’t been saving diligently for years. That’s not to say they’ll be fully dependent on Social Security either. They could start up aside hustle to generate income and protect their lifestyle.

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The joint effort pays off 

A little teamwork between you and your folks could have them on sustainable financial ground in just a few years. In other words, the best way to head off the parent-roommate situation is to start those tough conversations now.

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Source: Six things to do when your aging parents have no retirement savings

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More Canadians are living well into their eighties. Chances are that many of us will be involved in caring for at least one aging parent and will be concerned if their retirement savings will be enough. Planning ahead will help ensure your parents’ financial independence and for you – piece of mind. BlueShore Financial advisor David Lee explains the nuances of financial planning for aging parents, including RRSPs, Canada Pension Plan, Old Age Security, Long Term Care Insurance and more. Learn more about helping your parents with their financial plan: https://www.blueshorefinancial.com/We…

These Are Retirement Numbers All Couples Should Plan On, But Don’t

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Shortly after wrapping up my lecture on the future of retirement, a petite older woman approached me. Confidently, she quickly positioned herself between me and other attendees that had follow-up questions. She came close and began speaking to me at a volume that may have been more appropriate several feet away, saying: “I don’t know who he is! He is always there—every day!”

Before I could ask her whom she was describing, I noticed an older man standing slightly to the side, but a little behind her. She continued, picking up her pace, and volume.

“He just doesn’t understand. I have a daily routine!”

The man now seemed to be stepping back — almost shrinking away. She turned to him and rhetorically asked: “Isn’t that true?!”

Not waiting for his response she turned to me, seemingly looking to me to agree, or referee, saying, “My husband! Now that he is retired, he is always looking to me to feed him, entertain him, and keep him busy!”

Today In: Money

Not waiting for my reply, she took the old man by the arm and walked toward the exit.

This was not the first time I heard from an older woman, a now common refrain, voiced by many women with retired partners—“I married him for life, but not for lunch.”

People 50 years old and older have the highest divorce rate of all age groups. In fact, according to Pew Research, the Baby Boomer divorce rate, the so-called gray divorce, has doubled since the 1990s.

Social observers have offered many reasons—among them, most often voiced by women, is: “He bores me.” That reason may not be altogether incorrect, just a little incomplete.

What if the cause of many divorces is poor planning? Not retirement planning in the financial sense, but longevity planning. The failure to plan how, as a couple, they will spend nearly a full third of their adult lives together. A far more concentrated time together than all the previous decades they shared.

There is a new retirement math that has nothing to do with money, and everything to do with living well—together. This new math includes numbers you and your partner didn’t imagine, let alone plan on.

Relationships are typically measured in years. We even assign symbolic gifts to achieving years of togetherness: 25 years is a silver anniversary, 50 years is golden, etc. But, in all those early decades—how much time do you really spend together? Between raising children, careers and countless other activities and responsibilities that only grow in number, and intensity, from young adulthood through midlife, a couple may find they spend years living together, but very few hours actually being together.

The New Math Of Retirement Togetherness

How much time do we actually spend with our partners?

There are 168 hours in a week. Assume that about 8 hours each day are spent sleeping, totaling 56 hours a week, leaving 112 waking hours.

The Bureau of Labor Statistics reports that the average work day is about nine hours, five days a week. For most, that means 45 hours of work away from their partner, leaving 67 hours.

Just getting to work and going home takes time, too. The nation’s average commute time is nearly 30 minutes one way to work, unless you share Boston’s commute with me, then you are sitting nearly idle for an average 49 minutes. Assuming at least an hour per day to travel to and from work, that is an additional five hours from home, leaving 62 waking hours together—assuming that Saturdays and Sundays are days off.

On any given Monday through Friday, however, a couple may spend only a mere six hours truly together. And that is six hours of togetherness counting showers, bio-breaks, meals, children and all the other big and little tasks that make up a day.

Now, let’s consider retirement. A clean break from the workplace. A dividend of 45 waking hours per week are given to you—with interest. Because the end of the daily grind, also ends the daily work commute, another five-plus hours of freedom is gained to spend with your mate.

Suddenly instead of being limited to a just six waking hours per day with your partner, you have scored an additional ten waking hours at home!

Overnight, you went from 6 to 16 hours together! Every day!

Cause for celebration? Perhaps. For many, it is a surprise. Instead of a time to be celebrated, if not fully planned for, it may be a time that brings unanticipated complexity and even conflict between partners.

Many couples cash in their retirement dividend of more time together by making trips dreamed of decades before. Others plan on spending time with friends, family and, grandchildren. However, leisure travel for most is only a week or two a year. Family visits are typically over holidays and long weekends. In sharp contrast, life after full-time work is a daily event that continues for decades.

Retirement planning today focuses primarily on financial security. It is now necessary to develop a longevity plan, that includes money, but also a comprehensive and collaborative discussion that couples must have about what they will do, and how they plan to live together in the many years that is likely to be a full one third of their adult lives.

For now, many may not have a plan, but they are muddling through. Women appear to be taking action to ensure that their later years are filled with activity and income— not just activity planning for their retired mate. The Boston College Center for Retirement Research reports a sharp rise in the average retirement age of women.

Some men are taking a defensive approach. Pete, my Uber driver, keeps busy by staying on the road four to five days a week. With a full head of white hair, dressed in khakis, polo shirt, and sweater, Pete looks more like someone on his way to a member meeting of a high-end golf club, than someone who has found navigating traffic for seven to eight hours a day a side hobby.

I ask him why does he work so many days in retirement? As he puts it, “Retirement has been a great change after years at a desk. I am outside, and I get to meet and talk with interesting people.”

Looking at me in the rearview mirror, he adds, with a big smile: “There’s another reason too. Driving gets me out of the house before the wife kills me.”

More reading: Why 8,000 Is The Most Important Number For Your Retirement Plan

Great Places To Follow Your Passions In Retirement

Follow me on Twitter.

I lead the Massachusetts Institute of Technology AgeLab (agelab.mit.edu). Researcher, teacher, speaker and advisor – my work explores how global demographics, technology and changing generational attitudes are transforming business and society. I teach in MIT’s Department of Urban Studies & Planning and the Sloan School’s Advanced Management Program. My new book is The Longevity Economy: Unlocking the World’s Fastest Growing, Most Misunderstood Market (Public Affairs, 2017) . Follow me on Twitter @josephcoughlin.

Source: These Are Retirement Numbers All Couples Should Plan On, But Don’t

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Saving for retirement means navigating a potential minefield of high fees and bad advice. Billy Eichner and Kristin Chenoweth share some tips. Connect with Last Week Tonight online… Subscribe to the Last Week Tonight YouTube channel for more almost news as it almost happens: http://www.youtube.com/user/LastWeekTonight Find Last Week Tonight on Facebook like your mom would: http://Facebook.com/LastWeekTonight Follow us on Twitter for news about jokes and jokes about news: http://Twitter.com/LastWeekTonight Visit our official site for all that other stuff at once: http://www.hbo.com/lastweektonight

How GE Shafted Its Retirees

Remember “defined benefit” pensions?

That is the kind of plan in which the employer guarantees the worker a set monthly benefit for life. They are increasingly scarce except for small closely held corporations.

The same rules apply for small closely held businesses as for large corporations.

These plans can be great tools for independent professionals and small business owners. But if you have thousands of employees, DB plans are expensive and risky.

The company is legally obligated to pay the benefits at whatever the cost turns out to be, which is hard to predict.

The advantage is you can use some hopeful accounting to set aside less cash now and deal with the benefit problems later. The problem is “later” comes faster than you would like, and procrastination can be a bitch.

That Brings Us to the Lesson for Today

In October 7, General Electric (GE) announced several changes to its defined benefit pension plans. Among them:

Today In: Money
  • Some 20,000 current employees who still have a legacy-defined benefit plan will see their benefits frozen as of January 2021. After then, they will accrue no further benefits and make no more contributions. The company will instead offer them matching payments in its 401(k) plan.
  • About 100,000 former GE employees who earned benefits but haven’t yet started receiving them will be offered a one-time, lump sum payment instead. This presents employees with a very interesting proposition. Almost exactly like a Nash equilibrium. More below…

The first part of the announcement is growing standard. But the second part is more interesting, and that’s where I want to focus.

Suppose you are one of the ex-GE workers who earned benefits. As of now, GE has promised to give you some monthly payment when you retire. Say it’s $1,000 a month.

What is the present value of that promised income stream? It depends on your life expectancy, inflation, interest rates and other factors. You can calculate it, though. Say it is $200,000.

Is GE offering to write you a generous check for $200,000? No. We know this because GE’s press release says:

Company funds will not be used to make the lump sum distributions. All distributions will be made from existing pension plan assets in the GE Pension Trust. The company does not expect the plan’s funded status to decrease as a result of this offer. At year-end 2018, the plan’s funded ratio was 80 percent (GAAP).

So GE is not offering to give away its own money, or to take it from other workers. It is simply offering ex-employees their own benefits earlier than planned. But under what assumptions? And how much? The press release didn’t say.

If that’s you, should you take the offer? It’s not an easy call because you are making a bet on the viability of General Electric.

The choice GE pensioners face is one many of us will have to make in the coming years. GE isn’t the only company in this position.

Unrealistic Assumptions

When GE says its plan is 80% funded under GAAP, it necessarily makes an assumption about the plan’s future investment returns.

I dug around their 2018 annual report and found the “expected rate of return” was 8.50% as recently as 2009, when they dropped it to 8.00%, then 7.50% in 2014, to now 6.75%.

So over a decade they went from staggeringly unrealistic down to seriously unrealistic. They still assume that every dollar in their pension fund will grow to almost $4 in 20 years.

That means GE’s offered amounts will probably be too low, because they’ll base their offers on that expected return.

GE hires lots of engineers and other number-oriented people who will see this. Still, I doubt GE will offer more because doing so would compromise their entire corporate viability, as we’ll see in a minute.

Financial Engineering

GE has $92 billion in pension liabilities offset by roughly $70 billion in assets, plus the roughly $5 billion they’re going to “pre-fund.”

But that is based on 6.75% annual return. Which roughly assumes that in 20 years one dollar will almost quadruple.

What if you assume a 3.5% return? Then you are roughly looking at $2, which would mean the pension plan is underfunded by over $100 billion—and that’s being generous.

GE’s current market cap is less than $75 billion, meaning that technically the pension plan owns General Electric.

This is why GE and other corporations, not to mention state and local pension plans, can’t adopt realistic return assumptions. They would have to start considering bankruptcy.

If GE were to assume 3.5% to 4% future returns, which might still be aggressive in a zero-interest-rate world, they would have to immediately book pension debt that might be larger than their market cap.

GE chair and CEO Larry Culp only took over in October 2018.

We have mutual friends who have nothing but extraordinarily good things to say about him. He is clearly trying to both do the right thing for employees and clean up the balance sheet.

He was dealt a very ugly hand before he even got in the game.

GE needs an additional $5 billion per year minimum just to stave off the pension demon. That won’t make shareholders happy, but Culp is now in the business of survival, not happiness.

That is why GE wants to buy out its defined benefit plan beneficiaries. Right now, the company is on the wrong side of math.

It doesn’t have anything like Hussman’s 31X the benefits it is obligated to pay. Nor do many other plans, both public and private. Nor does Social Security.

Tough Choices

To be clear, I think GE will survive. Its businesses generate good revenue and it owns valuable assets. The company can muddle through by gradually bringing down the expected returns and buying out as many DB beneficiaries as possible. But it won’t be fun.

Pension promises are really debt by another name. The numbers are staggering even when you understate them. We never see honest accounting on this because it would make too many heads melt.

If I am a GE employee who is offered a buyout? I might seriously consider taking it because I could then define my own risk and, with my smaller amount, take advantage of investments unavailable to a $75 billion plan.

I predict an unprecedented crisis that will lead to the biggest wipeout of wealth in history. And most investors are completely unaware of the pressure building right now. Learn more here.

Follow me on Twitter. Check out my website.

I am a financial writer, publisher, and New York Times bestselling-author. Each week, nearly a million readers around the world receive my Thoughts From the Frontline free investment newsletter. My most recent book is Code Red: How to Protect Your Savings from the Coming Crisis. I appear regularly on CNBC and Bloomberg TV. I’m also Chairman of Mauldin Economics, a research group that provides monthly analysis and recommendations to thousands of readers around the world. I was previously CEO of the American Bureau of Economic Research. Today I am President of the investment advisory firm Millennium Wave Advisors, LLC. I am also president and registered principal of Millennium Wave Securities, LLC a FINRA and SIPC registered broker dealer. When I’m not traveling to speak at conferences and events, I live in Dallas, TX. I’m also the proud father of seven children.

Source: How GE Shafted Its Retirees

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What Is The Average Retirement Savings in 2019?

It costs over $1 million to retire at age 65. Are you expecting to be a millionaire in your mid-60s?

If you’re like the average American, the answer is absolutely not.

The Emptiness of the Average American Retirement Account

The first thing to know is that the average American has nothing saved for retirement, or so little it won’t help. By far the most common retirement account has nothing in it.

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Sources differ, but the story remains the same. According to a 2018 study by Northwestern Mutual, 21% of Americans have no retirement savings and an additional 10% have less than $5,000 in savings. A third of Baby Boomers currently in, or approaching, retirement age have between nothing and $25,000 set aside.

The Economic Policy Institute (EPI) paints an even bleaker picture. Their data from 2013 reports that “nearly half of families have no retirement account savings at all.” For most age groups, the group found, “median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.”

The EPI further found these numbers even worse for millennials. Nearly six in 10 have no retirement savings whatsoever.

But financial experts advise that the average 65 year old have between $1 million and $1.5 million set aside for retirement.

What Is the Average Retirement Account?

For workers who have some savings, the amounts differ (appropriately) by generation. The older you are, the more you will have set aside. However there are two ways to present this data, and we’ll use both.

Workers With Savings

Following are the mean and median retirement accounts for people who have one. That is to say, this data only shows what a representative account looks like without factoring in figures for accounts that don’t exist. This data comes per the Federal Reserve’s Survey of Consumer Finances. (Numbers rounded to the nearest hundred.)

• Under age 35:

Average retirement account: $32,500

Median retirement account: $12,300

• Age 35 – 44:

Average retirement account: $100,000

Median retirement account: $37,000

• Age 45 – 55:

Average retirement account: $215,800

Median retirement account: $82,600

• Age 55 – 64:

Average retirement account: $374,000

Median retirement account: $120,000

• Age 65 – 74:

Average retirement account: $358,000

Median retirement account: $126,000

For households older than 65 years, retirement accounts begin to decline as these individuals leave the workforce and begin spending their savings.

Including Workers Without Savings

When accounting for people who have no retirement savings the picture looks considerably worse. Following are the median retirement accounts when including the figures for people with no retirement savings. The following do not include mean retirement accounts, as this would be statistically less informative than median data.

• Age 32 – 37: $480

• Age 38 – 43: $4,200

• Age 44 – 49: $6,200

• Age 50 – 55: $8,000

• Age 56 – 61: $17,000

How Much Should You Have Saved For Retirement?

So that’s how much people have saved for retirement, or more often don’t. Now for the more useful question: How much should you have saved for retirement?

The truth is that there’s no hard and fast rule. It varies widely by your age, standard of living and (perhaps most importantly) location. Someone who rents an apartment in San Francisco needs a whole heck of a lot more set aside than a homeowner in the Upper Peninsula of Michigan.

The rule of thumb is to estimate by income. Decide the income you want to live on once you retire, then picture your life as a series of benchmarks set by age. At each age you want a multiple of this retirement income saved up. Your goal is to have 10 to 11 times your desired income in savings by retirement.

• By age 30: between half and the desired income in savings

• By age 35: between the desired amount and double the desired income in savings

• By age 40: between double and triple the desired income in savings

• By age 45: between triple and quadruple the desired income in savings

• By age 50: between five times and six times desired income in savings

• By age 55: between six times and seven times desired income in savings

• By age 60: between seven times and nine times desired income in savings

• By age 65: between eight times and 11 times desired income in savings

So, if you earn $50,000 per year, by age 40 you will want to have between $100,000 and $150,000 in retirement savings set aside. The formula grows later in life for two reasons. First, as your savings accumulate they will grow faster. Second, as you approach retirement it is often wise to accelerate your savings plan.

What You Should Do Next for Your Retirement Savings

Retirement is approaching a crisis. In the coming decades millions of Americans will get too old to continue working without the means to stop. Millennials, crippled by debt from graduation, will turn this crisis into a catastrophe in about 40 years. And Social Security, designed to prevent exactly this problem, covers less than half of an average retiree’s costs of living.

It’s beyond the scope of this article to discuss exactly how this happened, but if you’re one of the many people who have fallen behind on retirement savings, don’t panic. There’s plenty you can do. But… it might not necessarily be easy.

The key is to think about retirement savings like a debt. This is money you owe to yourself and it charges reverse interest. Every day you go without adding money to your retirement account is a day you lose investment income. That’s money that you’ll need someday and won’t have.

Next, take stock of where you are. How much will you want to live on in retirement and how much do you have saved today? Use our chart above. That will tell you how far behind you are compared to where you need to be. Are you a 40 year old with $25,000 in savings who will want to live on $50,000 per year in retirement? Then you’ve got $75,000 you need to make up for.

Now, begin catching up. Chip away at that debt every week and every month. Pay into your 401k and IRA the same way you would whittle down a credit card. By thinking about it this way, as a specific goal, you can take away some of the fear of saving for retirement and turn it into an achievable (if large) amount. It’s not just some big, black hole you can never fill. It’s a number, and numbers can go down.

It won’t necessarily be fun. You might have to cut back on luxuries or take on some extra work, but even if you start late in life you can catch up on your retirement.

Now’s the right time to start.

By:

Source: What Is The Average Retirement Savings in 2019?

Dimensional Vice President Marlena Lee, PhD, explains how her research on replacement rates can help you prepare for a better retirement outcome. See more here: https://us.dimensional.com/perspectiv…

Tune Up Your 401(k) For 2019

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How comfortable are you with how much risk you’re taking in your 401(k)? Does your employer offer a Roth option? Are you getting the full employer match? Those are some of the pertinent questions you should be asking about your workplace retirement account, says Denis Higgins, a CPA with Edelstein Wealth Management in Boston.

Higgins looked at a new client’s 401(k) and saw he wasn’t getting the full employer match money because he frontloaded his contributions and the employer didn’t have a true-up provision to make him whole. There was nothing that could be done for that plan year, but management at the small healthcare company where he worked added a true-up provision for the next plan year, so the exec got thousands more in employer match money in his 401(k) account.

There’s no check engine light that goes on, so it’s easy to ignore a poorly tuned 401(k). Easy, but hazardous to your retirement wealth.

Here are some things to check for under the hood.

Check your plan documents. “Know that the plan rules are the rule book,” says Ed Slott, a retirement plan expert and CPA in Rockville Centre, New York. You should download a copy of your 401(k)’s summary plan description (SPD) so you have it to double-check what HR tells you. Does your plan have a brokerage window (you can invest in more than just what’s on the limited plan menu)? Does it allow in-service distributions where you can take penalty-free withdrawals at age 59 ½ even if you’re still working? Does it let you delay required distributions if you work past age 70 ½? Does it allow for traditional aftertax contributions that can help you (combined with your employer) save up to $56,000 a year? These are all provisions that the law allows for, but your employer plan might not.

Fine tune your contributions level. If you are relatively new on the job, you may have been automatically enrolled in your 401(k), with contributions set at just 3% of salary. That’s not enough to fund retirement and might not be enough to capture your full employer match. If money is tight, raise your contributions when you get your next raise. Check if your employer offers automatic escalation, which increases your contribution level for you. If you’re able to save big, aim to contribute the legal max: That’s $19,000 if you’re under 50 and $25,000 if you’re 50 or older (you usually must separately choose to make all or part of the $6,000 catch-up contribution).

Look into the Roth option. Check if your employer offers a Roth option. Instead of making pretax salary deferrals, you contribute on an aftertax basis. Roth money grows tax-free and comes out tax-free, giving you tax flexibility when you start taking money out.

Reassess your asset allocation. If you were automatically enrolled, your money is probably in a target date fund, which reduces your exposure to stocks as you age. That’s not a bad choice, if fees are reasonable. If you’re older and picked your own investments years ago, the bull market may have left you more heavily in stocks than you want. Use an asset allocation tool provided by your plan or a free one such as PersonalCapital.com.

Rebalance. Higgins recommends the auto-rebalancing feature that more employers are offering. “It takes out the emotional decisions,” he says. Otherwise, get quarterly statements and rebalance at least annually to keep on track. At the same time, you should reassess your risk level, taking into consideration any life changes, he adds.

Confirm your beneficiary designations. Remember it’s your beneficiary form—not your will or living trust—that controls who gets your 401(k) when you die. Make sure to name both primary and contingent (alternate) beneficiaries.

Run a lifetime income illustration. Have you modeled how long your 401(k) balance will last over your lifetime? “The challenge a lot of people are having is that they’ve built up this war chest and don’t have any idea what to do next,” says Joseph Adams, an employee benefits lawyer with Winston & Strawn in Chicago. Some employer plans include lifetime income illustrations on your statement. If not, run one on your own. Vanguard has a free retirement income calculator here.

Fees. Some target date funds charge less than 0.10% of assets a year, while others charge more than 1%. You can see how the fees in your company’s 401(k) compare overall at Brightscope.com.  Analyze your own fund fees at Personal Capital or FeeX.com.

Author’s note: This is an updated version of an article that ran in 2017.

I’m an associate editor on the Money team at Forbes based in Fairfield County, Connecticut, leading Forbes’ retirement coverage. I manage contributors who cover retirement and wealth management. Since I joined Forbes in 1997, my favorite stories have been on how people fuel their passions (historic preservation, open space, art, for example) by exploiting the tax code. I also get into the nitty-gritty of retirement account rules, estate planning and strategic charitable giving. My favorite Forbes business trip: to Plano, Ill. to report on the restoration of Ludwig Mies van der Rohe’s Farnsworth House, then owned by a British baron. Live well. Follow me on Twitter: http://www.twitter.com/ashleaebeling Send me an email: aebeling@forbes.com

Source: Tune Up Your 401(k) For 2019

How Does Sequence Of Returns Risk Impact Your Retirement?

For many investors, a long bull market like the one we’re in is leading to some frayed nerves.

When will there be a downturn? The “when” question is especially relevant to investors nearing or at retirement age. While it’s true that returns have historically evened out — for the 93-year period between 1926 to 2018, large cap stocks have gained a 10% compounded rate of return — what happens if your retirement happens to occur during a year the market suffers a loss over 20%?

After all, if this sort of downturn occurs in your twenties or thirties, it’s a setback, but time and earnings potential are on your side, explains Roger G. Ibbotson, Chairman and CIO at Zebra Capital Management and professor in the practice emeritus of finance at the Yale School of Management. If the same downturn occurs during retirement, would your portfolio be able to weather the downturn?

Implementing safeguards against this possibility can protect your portfolio from sequence of returns risk — the potential that years of bad returns early in your retirement could deplete your retirement savings for the future. Ibbotson advises that conservative withdrawals in early retirement, several streams of cash flow and a diverse portfolio including bonds and annuities can all be tools to help ensure your retirement savings won’t freefall even if the market does.

Scroll down for a guide to sequence of returns risk and how to protect your portfolio from a potential market downturn.

Consider De-risking Before Retirement, Even In A Bull Market

While some camps stay true to a buy-and-hold strategy, Ibbotson recommends de-risking your portfolio as you approach retirement, regardless of how the market is performing. According to Ibbotson, “twenty-percent proofing” your portfolio — or safeguarding your portfolio from historic losses in early retirement — can help ensure your retirement savings are able to survive a substantial market dip.

“When you’re young, you’re in what’s called an accumulation phase,” explains Ibbotson. You have high human capital (the value of future earnings, like income) but low financial capital (investments in stocks and bonds). Early on in your career, when you’re primarily dependent on human capital, you can afford to take more risk with your financial capital. But as you evolve toward the “pre-retirement phase,” when you might not be earning a steady income and are more reliant on the financial capital you’ve grown over time, it may be a good idea to de-risk your portfolio.

Rethink A Standard Annual Withdrawal

While a retirement plan based on a standard yearly withdrawal rate can give you a good ballpark of your returns and cash-flow expectations, this model doesn’t account for large market fluctuations at a key moment: early in retirement, when you begin taking withdrawals. Even if the market eventually evened out to an average that’s not far from your expected return, being dependent on those withdrawals through a bear market could hurt your savings for decades to come because so much of your portfolio would have been depleted by market losses in early retirement.

Of course, you may be required to take required minimum distributions (RMDs), and you may also depend on retirement withdrawals to fund your expenses. But following the popular 4% rule of thumb — plan on withdrawing 4% of your retirement savings each year — in early retirement could leave your money vulnerable during a bear market, Ibbotson argues. “Since you can’t predict when a downswing will occur, it’s best to be conservative during early retirement, when you don’t have the luxury of time and human capital potential to make up the difference,” he says.

Consider Alternate Retirement Income Streams To Ride Out A Market Downturn

In addition to de-risking your portfolio, it may be smart to consider alternate income streams that won’t make you overly dependent on portfolio withdrawals in early retirement, says Ibbotson. “There’s a longevity risk to consider as well, which means that you may need money to last for thirty plus years,” he says.

Some ways to mitigate longevity risk — and put yourself in a stronger position to ride out a potential bear market — include working into retirement to provide a source of cash flow (which may also eliminate the need to take out RMDs on your 401(k)), making sure you’re maximizing Social Security benefits or downshifting and earmarking that money as funds for your early retirement, giving your nest egg more time to grow. Depending on your circumstances, a HELOC or second mortgage taken in early retirement can also help safeguard your retirement savings, says Ibbotson. Even lowering your withdrawal rate slightly in the first years of retirement can protect your savings from a market downturn during those early years.

Consider “Laddering” Bonds And Annuities

While bonds may have lower rates of return than stocks, their low risk and guaranteed principal return can be one way to de-risk your portfolio. One strategy to consider is called a bond ladder, says Ibbotson. This is a set of bonds purchased specifically to mature in different years, so instead of investing in a single $100,000 bond, you might invest in ten $10,000 bonds. One might mature in one year, another in three, another in five and so on, diversifying cash flow and protecting against market dips.

The same is true for annuities. Annuities can be purchased over a period of years and purchased from an array of insurance companies, which can minimize the risks of market fluctuations or the underperformance of one insurer. Annuities can be purchased as a fixed, variable or hybrid product, with aspects of both fixed and variable annuities. One popular example of a hybrid annuity product is a fixed-indexed annuity (FIA). Fixed annuities guarantee both an interest rate — around 2.5 to 3.5% as of publication date — as well as the principal. Variable annuities are typically riskier, as neither the interest nor the principal is guaranteed. Meanwhile, a product such as an FIA guarantees a stated return on the investment along with an investment return based on market performance. As the annuity reaches the annuitization stage, this money can then be used as income.

Keep Plans Flexible

Strategy exists so you can change course if necessary. Having several options for how to weather a stock market slump can help ensure you won’t run out of savings. As with any retirement planning options, speaking with a financial advisor can help you navigate the best course of action for you, your money and your retirement goals.

This content was brought to you by Impact PartnersVoice. Certain opinions expressed herein are those of Professor Roger Ibbotson and/or others acting in an academic and/or research-related capacity and not as a representative or on behalf of Zebra Capital Management, LLC (“Zebra Capital”). Roger Ibbotson is Professor in the Practice Emeritus of Finance at the Yale School of Management and the Chairman and Chief Investment Officer of Zebra Capital.  

Annuities have limitations. They are long-term vehicles designed for retirement purposes. They are not intended to replace emergency funds, be used as income for day-to-day expenses or fund short-term savings goals. All guarantees and protections are subject to the claims-paying ability of the insurer. You should read the contract for complete details.

This material is not a recommendation to buy, sell, hold or roll over any asset, adopt a financial strategy or purchase an annuity policy. It does not take into account the specific objectives, tax and financial conditions or particular needs of any specific person. You should work with a financial professional to discuss your specific situation. 

The content herein includes the results of academic research conducted by Professor Ibbotson and others outside of the services provided by Zebra Capital and which may have been funded, in whole or in part, by parties unaffiliated with Zebra Capital. The results of that research should not be considered as having any relevant or material financial bearing on the services provided by Zebra Capital.

Zebra Capital is entitled to receive certain compensation in consideration for, among other things, the granting of certain license rights and/or sub-licensing rights of certain of its intellectual and other property rights to one or more third parties for the creation, sponsorship, compilation, maintenance and calculation, among other things, of one or more indices to which certain fixed indexed annuities make reference.

Revolutionizing retirement for baby boomers with relevant tips, tricks, and strategies for a new age in retirement preparation.

 

Source: How Does Sequence Of Returns Risk Impact Your Retire

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Boomers’ Retirement Reality Requires Careful Planning

Work longer or reduce your standard of living – or do some combination of the two. These are the hard choices facing most working boomers as they transition out of the workforce and into retirement. The fact is, most boomer workers haven’t accumulated sufficient savings to retire full-time at age 65 and meet the goals that financial advisors commonly express for retirement income, according to a recent report from the Stanford Center on Longevity (SCL). This report analyzes boomers’ assets, debts, and the amounts they’re saving for retirement. Let’s take a look.

Source: Boomers’ Retirement Reality Requires Careful Planning

Retirement Quote 3 — Success Inspirers’ World

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“Be kind to retired people; and treat them with respect. They were once vibrant just like you if not more vibrant. And if God blesses you with long life, one day you will be where they are today.” (Romilia Quotes)

via Retirement quote 3 — Success Inspirers’ World

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