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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…

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IRS Announces Higher 2020 Retirement Plan Contribution Limits For 401(k)s And More

How much can you save for retirement in 2020? The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2020: 401(k) contribution limits are up; traditional IRA contribution limits stay the same; almost all the other numbers are up.

The amount you can contribute to your 401(k) or similar workplace retirement plan goes up from $19,000 in 2019 to $19,500 in 2020. The 401(k) catch-up contribution limit—if you’re 50 or older in 2020—will be $6,500 for workplace plans, up from $6,000. But the amount you can contribute to an Individual Retirement Account stays the same for 2020: $6,000, with a $1,000 catch-up limit if you’re 50 or older.

So super-savers age 50-plus can sock away $33,000 in these tax-advantaged accounts for 2020. If your employer allows aftertax contributions or you’re self-employed, you can save even more. The overall defined contribution plan limit moves up to $57,000, from $56,000.

Today In: Money

Sounds unreachable? During 2018, 13% of employees with retirement plans at work saved the then maximum of $18,500/$24,500, according to Vanguard’s How America Saves. In plans offering catch-up contributions, 15% of those age 50 or older took advantage of the extra savings opportunity. High earners are really saving: 6 out of 10 folks earning $150,000+ contributed the maximum allowed, including catch-ups.

Want to join in? We outline the numbers below; see IRS Notice 2019-59 for technical guidance. For more on 2020 tax numbers: Forbes contributor Kelly Phillips Erb has all the details on 2020 tax brackets, standard deduction amounts and more. We have all the details on the new higher 2020 retirement account limits too.

401(k)s. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is $19,500 for 2020—a $500 boost over 2019. Note, you can make changes to your 401(k) election at any time during the year, not just during open enrollment season when most employers send you a reminder to update your elections for the next plan year.

The 401(k) Catch-Up. The catch-up contribution limit for employees age 50 or older in these plans is $6,500 for 2020. That’s the first increase since 2015 when the limit rose to $6,000. Even if you don’t turn 50 until December 31, 2020, you can make the additional $6,500 catch-up contribution for the year.

SEP IRAs and Solo 401(k)s. For the self-employed and small business owners, the amount they can save in a SEP IRA or a solo 401(k) goes up from $56,000 in 2019 to $57,000 in 2020. That’s based on the amount they can contribute as an employer, as a percentage of their salary; the compensation limit used in the savings calculation also goes up from $280,000 in 2019 to $285,000 in 2020.

Aftertax 401(k) contributions. If your employer allows aftertax contributions to your 401(k), you also get the advantage of the $57,000 limit for 2020. It’s an overall cap, including your $19,500 (pretax or Roth in any combination) salary deferrals plus any employer contributions (but not catch-up contributions).

The SIMPLE. The limit on SIMPLE retirement accounts goes up from $13,000 in 2019 to $13,500 in 2020. The SIMPLE catch-up limit is still $3,000.

Defined Benefit Plans. The limitation on the annual benefit of a defined benefit plan goes up from $225,000 in 2019 to $230,000 in 2020. These are powerful pension plans (an individual version of the kind that used to be more common in the corporate world before 401(k)s took over) for high-earning self-employed folks.

Individual Retirement Accounts. The limit on annual contributions to an Individual Retirement Account (pretax or Roth or a combination) remains at $6,000 for 2020, the same as in 2019. The catch-up contribution limit, which is not subject to inflation adjustments, remains at $1,000. (Remember that 2020 IRA contributions can be made until April 15, 2021.)

Deductible IRA Phase-Outs. You can earn a little more in 2020 and get to deduct your contributions to a traditional pretax IRA. Note: Even if you earn too much to get a deduction for contributing to an IRA, you can still contribute—it’s just nondeductible.

In 2020, the deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $65,000 and $75,000, up from $64,000 and $74,000 in 2019. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $104,000 to $124,000 for 2020, up from $103,000 to $123,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000 in 2020, up from $193,000 and $203,000 in 2019.

Roth IRA Phase-Outs. The inflation adjustment helps Roth IRA savers too. In 2020, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $196,000 to $206,000 for married couples filing jointly, up from $193,000 to $203,000 in 2019. For singles and heads of household, the income phase-out range is $124,000 to $139,000, up from $122,000 to $137,000 in 2019.

If you earn too much to open a Roth IRA, you can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions. To learn more about the backdoor Roth, see Congress Blesses Roth IRAs For Everyone, Even The Well-Paid.

Saver’s Credit. The income limit for the saver’s credit for low- and moderate-income workers is $65,000 for married couples filing jointly for 2020, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married filing separately, up from $32,000. See Grab The Saver’s Credit for details on how it can pay off.

QLACs. The dollar limit on the amount of your IRA or 401(k) you can invest in a qualified longevity annuity contract is increased to $135,000 from $130,000. See Make Your Retirement Money Last For Life for how QLACs work.

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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: IRS Announces Higher 2020 Retirement Plan Contribution Limits For 401(k)s And More

The IRS announced changes to contribution and benefit limits for 2019. CSIG’s Alison Bettonville, CFA highlights the limit changes that affect various qualified retirement plans. Highlights include: -402(g) limit increased to $19,000 -415 or the Total Annual Additions limit increased to $56,000 -Catch up contributions limit remained at $6,000 -Compensation limit increased $280,000 -Highly Compensated Employee definition increased to $125,000 To the extent that any portion of the information submitted by CSIG contains material that is copyrighted, the recipient shall observe the protection of such material as provided under applicable copyright laws. Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate risk of loss. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal, or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of equity securities may rise or fall because of changes in the broad market or changes in a company’s financial condition, sometimes rapidly or unpredictably. International investing involves a greater degree of risk and increased volatility. There is no guarantee that companies that can issue dividends will declare, continue to pay, or increase dividends.

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

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

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The Formula You Are Using To Determine How Much To Save For Retirement Is Broken

If you are trying to figure out how much money you need to save for retirement, there’s an easy rule of thumb that you can use: simply multiply your expected annual expenses in retirement by twenty-five.

For example, if you expect to spend $100,000 annually once you’re retired, you’ll want to have a $2.5 million portfolio saved up. If you’d like to play around with the numbers to estimate your own retirement needs, you can use this simple retirement calculator.

This retirement savings rule of thumb is based on the 1998 landmark study conducted by Carl Hubbard, Philip Cooley and Daniel Walz, in their seminal study known as the Trinity Study. They built on the 1994 work of William Bengen, who originally coined the ‘4% Rule’.

Today In: Money

The Trinity Study evaluated safe retirement withdrawal rates, and found that 4% was sufficient for the majority of retirees. A safe withdrawal rate simply refers to the amount of money that can be taken out of an account and allow you to reasonably expect the portfolio to not fail, or run out of money. In this case, the 4% withdrawal rate refers to the amount of money that will be withdrawn from the balance of the retirement portfolio in the first year of retirement. In subsequent years, the balance withdrawn will simply be an inflation adjusted number based on the total dollar amount withdrawn the year prior.

The Trinity Study has become so well-known, that it has been adopted by hopeful retirees from all walks of life, including those hoping to retire early. The FIRE movement (Financial Independence, Retire Early) is a lifestyle movement with the goal of allowing individuals to retire as early and quickly as possible.

However, one detail that the movement is getting wrong and completely missing, is the fact that the Trinity Study’s 4% rule of thumb was based on a 30 year retirement period. This time horizon was determined to be on the conservative end of retirements by the authors of the study. If you work until you’re 65, having a 30 year retirement seems pretty reasonable. I don’t think many would argue that living until the age of 95 is a short life by any means.

The problem arises due to the FIRE movement seeking a much longer retirement period. If you retire at 45 years old, you may need a portfolio that will survive another 45 to 50 years in order to avoid running out of money. In this case, making a judgement error could end up meaning re-entering the workforce at an advanced age. For this reason, relying on a 4% withdrawal rate is an extremely risky decision if you plan to retire early.

This begs the question of what a more appropriate withdrawal rate is if you plan to retire early. The answer is that it depends. In general, the study found that as the balance between stocks and bonds shifts towards equities, a portfolio is more likely to withstand the test of time. So inherently, your risk tolerance will need to be factored into the equation. If you are comfortable with 75%+ of your portfolio being in stocks (and stomaching the increased risk), you might be safe with a 3% withdrawal rate. If you prefer less volatile investments, a lower rate is more conservative.

This is bad news for a lot of you hoping to retire early.

For one, it would mean having to save an additional $833,000 if you hope to spend $100,000 annually like in the example above. Unless you are an exceptionally high earner, it’ll likely mean having to work for several additional years or having to continue to earn additional income even after retirement.

With the buzz surrounding the gig economy and the seemingly endless ‘side-hustle’ opportunities available, this seems like a surmountable hurdle. The deficit in retirement savings required also highlights the impact of having to save for retirement as efficiently as possible.

This means fully taking advantage of your 401(k), IRA, and other tax-advantaged accounts. It also means evaluating whether it makes sense to refinance your student loans or not. Avoiding credit card interest fees and other forms of high interest debt are a must. In addition, maximizing your earning potential will also help safeguard your nest egg from market turbulence and economic uncertainty.

Just as important, you’ll also want to avoid making costly investment mistakes. One that comes to mind is erroneously viewing your vehicle as a sound investment. Another pitfall is picking individual stocks in lieu of index funds or ETFs. To set yourself up for success, minimizing fees and diversifying your investments is the name of the game.

Does all of this mean that the 4% rule is futile and should be completely ignored? Absolutely not. The authors of the Trinity Study ran simulations to find what the safe withdrawal rate would be for varying time horizons. But at the end of the day, they were just that: simulations. Even if you only had an expected 15 year retirement and used a conservative withdrawal rate, there is always the chance that your portfolio could fail. The same is true in the opposite direction: there’s always the chance that a 4% withdrawal could be sufficient for a 50 year retirement.

The question you have to answer is whether you are comfortable taking that risk. I know I’m not.

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

Camilo Maldonado is Co-Founder of The Finance Twins, a personal finance site showing you how to budgetinvestbanksave & refinance your student loans. He also runs Contacts Compare.

Source: The Formula You Are Using To Determine How Much To Save For Retirement Is Broken

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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…

60 Seconds: Yes, You Need a Will. Like Now. – TheStreet

Image result for the will testament

From Aretha Franklin to Prince, so many famous, wealthy people have died without having a will.

It’s nuts. Their heirs may have to spend an exorbitant amount of time fighting the courts – and each other – to determine who gets what.

Download Now: To be a profitable investor you first need to know the rules. Get Jim Cramer’s 25 Rules for Investing Special Report

You can’t take your assets with you. Get it? Everyone should have a will – and you don’t need to be famous or wealthy to need one.

Give me 60 seconds and I’ll tell you why.

Granted people often are uncomfortable talking about their mortality.  And rockstars Amy Winehouse and Kirk Cobain, who both died at 27, probably presumed they were way too young to even need one.  But they had millions at their death.

Not Just for the Rich and Famous

Regardless of your age, net worth or level of fame, you are doing your heirs a HUGE favor by taking care of everything now, says Robert Westley, CPA/PFS member of the American Institute of CPAs Personal Financial Specialist, PFS, Credential Committee.”

(Unless, of course, you enjoy watching your heirs fight over your stuff rather than resting in peace.)

So start making a list of everything you have — include investment accounts, artwork, even those vintage cars in the garage.

And if you have young kids, don’t forget to pick their guardians. You don’t want your chronically unemployed brother to end up with them.

Creating a will doesn’t have to be a complicated process. You just need a few key documents and you most likely can get what you need from sites like Quicken WillMaker or LegalZoom.

If you have substantial wealth, then you probably are going to need an estate plan, maybe even a trust, and an attorney to help carry out your wishes.

Beneficiaries Override Your Will

Big note here: A bunch of your assets are not even controlled by your will.  Anything with a beneficiary designation – like your 401(k), IRA or insurance policies – is dictated by those designations, says Westley.

They override your will. So if in your will you state that you want your kids to inherit your IRA but your ex-spouse’s name is still listed as the beneficiary because you forgot to update it, guess who’s coming in on a windfall?

So check all that now.

And drop the excuses. This is not just for old rich people.  We all know that you can get hit by a bus while you are walking on the street or even reading this.

You Need to Revisit

And finally this is not a one-and-done, says Westley.

“Many individuals assume that once they’ve completed their estate plan and will there is no need to revisit it. The reality is, estate documents are static, while an individual’s life is dynamic and ever-changing,” he says.

People die, get divorced, buy new stuff, sell old stuff.  So your will needs to be revisited, often.

So get on it, and for more tips, follow me @tracybyrnes.

Source: 60 Seconds: Yes, You Need a Will. Like Now. – TheStreet

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

ment?

Too Many Americans Will Never Be Able to Retire

Traditionally, Americans could look forward to a comfortable retirement. After four decades in an office or a factory, sometime in their 60s they would lay down their burdens and enjoy a final couple of decades with time to relax, spend time with family and friends, and reflect on their life. But since the financial crisis, older Americans have been increasingly staying in the workplace……

Source: https://www.bloomberg.com/opinion/articles/2019-01-23/america-needs-more-young-workers-to-support-aging-population

The Fears And Anxieties Of Retirement

As I sit here drinking my morning coffee, I find myself wondering about the thoughts on the minds of my clients and other prospects that I’ve met over the years. The issues for many are the same: anxiety and fear of planning for retirement or being retired. When considering those fears and anxieties, 10 questions seem to surface most often……….

Source: The Fears And Anxieties Of Retirement

Think Again If You Plan To Work Longer – Teresa Ghilarducci

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When 52% of older workers are pushed out of their jobs, working longer is not their choice. The stark truth is that a significant share of older workers  — age 55-64 — are not anywhere near being on track to afford retirement. The median retirement account balance for older workers is only $15,000. Even the highest income workers — those earning over $200,000 per year who are in the top ten percent of the income distribution — do not have enough money to retire and maintain their standard of living. Their median account balance is under a year’s salary at $200,000 and 15% of the highest earners have no retirement plan except Social Security…….

Read more: https://www.forbes.com/sites/teresaghilarducci/2018/10/08/think-again-if-you-plan-to-work-past-65/#8602bc95f97b

 

 

 

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