Category Archives: Retirement

BIGGEST RETIREMENT SAVINGS MISTAKES.

According to Northwestern Mutual’s 2018 Planning & Progress Study, a shocking 21 percent of Americans have nothing at all saved for the future, and 78 percent say they are extremely or somewhat concerned about not having enough set aside for retirement.

Everyone’s path to retirement is different, but there are general rules that can help guide your savings strategy over time. Here are retirement tips for each stage of your life:

Your 20s: Not taking the advantage of time
Fresh into your new job out of college in your 20s is an exciting time and can set the foundation for a successful financial future. The biggest mistake to avoid during this time is not getting started early and missing out on the most powerful retirement savings factor out there: time.

Recency bias can push young savers to dedicate more than is required to student loans lessening the ability to compound savings. It may be natural to think of retirement as a lower priority since it is decades away compared to student loans, both can be done at the same time.

Be sure to understand how your employer’s match works and maximize this if possible. Even if you have doubts about your current job in the long-term, most retirement savings can be transferred to your next employer or an individual retirement account should you choose to switch jobs.

Your 30s: Getting housed in
Life changing events such as marriage and children will likely start coming into play during this time. As these events occur, some savers may find themselves buying a house too early.

While you should not feel pressure to stay cramped-up in a small apartment, be sure look at your first home purchase from all angles. Buying a home too small for your growing family might not work for your needs years down the road. Spending lavishly on a big home might seem sensible now, but consider what happens in the event of a move or job transition.

Your 40s: Shifting your focus
Your early years are considered the accumulation phase but do not think that your 40s are a time to neglect retirement contributions. By this time, there are may be many different areas that need financial attention in your life. How much should you be setting aside for your child’s education? Should you use that new bonus for a home remodel?

Questions during this time can get complex and it is important to prioritize what saving areas need the most attention. Now is a good time to consult with your GuideStream financial advisor to break down these various areas and your goals for each.

Your 50s: Inaccurate assumptions
By your 50s, you likely have a clearer picture of what your savings situation looks like and can begin preparing for when you want to retire and the expenses you expect to have.

Too often, savers underestimate what they will need throughout retirement. According to a recent study featured in Wealth Professional, 15 percent of retirees globally do not have enough income to live comfortably and another 43 percent say they could have used a little more income after retiring.

Similar to your 40s, these decisions of when to retire and how much will be needed can be complex to navigate. With the help of your GuideStream financial advisor, consider all of the factors that may be in play. These can include upcoming healthcare costs, what happens in the case of an underperforming market, and other scenarios.

RETIREMENT PLANNING FOR SMALL BUSINESSES.

Planning for retirement as a small business owner is important for you and your employees. Small businesses have unique needs. Thankfully, you have various options when it comes to retirement plans and a little bit of exploration can help you find a solution that best fits the needs of you and your employees.

Some of your retirement plan options include:

• SEP IRAs
• SIMPLE IRAs
• Traditional or Safe Harbor 401(k)s
• Profit-sharing plans

A Simplified Employee Pension (SEP) IRAis funded by employer contributions. Benefits for all employees must be uniform (ie: the same percentage of compensation). Contributions are limited to the lesser of either 25% of the employee’s compensation or $55,000 per year. SEP IRAs allow you a relatively low-maintenance way to contribute to your employees’ retirement, and contributions are deductible by the employer for income tax purposes.

A Savings Incentive Match Plan for Employees (SIMPLE) IRA allows for both employer and employee contributions. Employee contributions are limited to $12,500 per year, and employers have to either match up to 3% of employee contributions or contribute 2% of the employee’s salary.

Like a SIMPLE IRA, a401(k) Plansallow employees to save money in a tax-deferred account for retirement. Traditional 401k plans hold “pre-tax” money, so the money will be taxed when it’s withdrawn from the account for retirement expenses. 401k plans can be set up to allow Roth (or “after-tax”) contributions as well. Employees can contribute a regular amount into the account, straight out of their paycheck. 401k contribution limits are significantly higher than Traditional IRA limits. An employee could defer $18,500 for 2018, plus an additional $6000 if he/she is age 50 or over. Employers can choose to match funds contributed by employees. Keep in mind that 401k plans require a bit more administrative work and legal documentation. A Safe Harbor 401k plan mandates employer contributions.

A Profit-sharing Plangives employees a portion of company profits. Employers have a great deal of latitude when it comes to contributions: employers can give as much as they want (up to the annual contribution limit, which is the lesser of $55,000 per year or 100% of the employee’s compensation) or none at all, depending on the year’s profits. Contributions do have to be distributed proportionately to the employees. The administration of a profit-sharing plan can be burdensome for some employers, depending on the number of participants in the plan.

There are two major things to consider when selecting a plan: contributions and administration. If you’re considering starting a plan for yourself and your employees, you should discuss your options in detail with your financial advisor and your CPA.

*information adapted from an article written by Advicent Solutions, an entity unrelated to GuideStream Financial. 

DON’T TAKE OUR WORD FOR IT. . . Thoughts from your GuideStream Team

Any professional has a built-in bias for their work due to their passion and understanding of their industry. Ours is no different. However, if we ask everyday people about retirement planning, it is interesting to hear what they share.

MoneyTips (an online financial forum) recently surveyed retirees about the advice they would give those still working and how retirement has differed from what they expected. We think their answers are insightful and we want to offer a few suggestions as well.

When asked, “What is the best advice you would give to people planning to retire?”

• 36.8% said to “start planning today” o Time is your friend when it comes to money. It is much harder to save later in life which often leads to working longer than planned. 

• 28.7% said to “save more than you think you need” o General rule of thumb is save 15% of your income. If you have contribution matching from your employer, that is a great way to start earning an instant return on your savings. 

• 26% said to “take care of your health” o We only get one life and it is easier to keep it healthy than try to get it back once lost. We consider food and exercise an investment equally as important as saving for your retirement. Don’t neglect it. 

Literally, 91.5% of retirees listed one of these 3 pieces of advice as the MOST important thing regarding their FUTURE retirement lives. We agree with them and help clients think about these things.

Second question was, “What are your biggest miscalculations about retirement?”

• 20.9% answered, “how unhealthy I would be” o This is the one area of retirement where it can seriously jeopardize the best prepared plans. Healthcare is a huge expense and unless properly planed for; can financially ruin people. Medicare and Supplemental insurance are key. 

• 19.4% answered, “how much more I needed to save” o Understanding future cash flows is critical. Social Security should be considered as one piece of your plan, not your entire plan. We help people understand the savings and expected portfolio returns ‘math’ and how it helps fund their retirement. 

• 14.3% answered, “how bored I would be” o Retirement can be a great time to volunteer, help with grandkids, write about your childhood for your children and grandchildren, teach someone something or learn something new with your spouse. Just get involved doing something you enjoy or find fulfilling. 

• 10.1% answered, “how much longer I would live” o This is called Longevity Risk and it is real. Advances in medicine continue to improve lives and longevity. If retired at age 67, your life expectance is 85 if male and 87 if female. Many will live into their 90’s, therefore it is best to plan for it. 

Nothing about our future can be predicted with 100% accuracy, however, by understanding what decisions and situations we may face helps us take appropriate action today. That is the true power and value in planning and we recommend having a trusted guide by your side through the journey.

*MoneyTips Retirement Survey Findings January 12, 2018

It seems as if there has been increasing coverage in the media recently regarding early retirement. The prospect of having an extended retirement is incredibly appealing for many Americans.—However, with pensions becoming increasingly less common in the workplace, workers are required to be more autonomous in how they plan for their retirement; for many, the need to bolster self-directed savings makes the prospect of an early retirement seem more like a pipedream than a possibility. Though everyone has varying financial situations and future expectations, here are a few things to keep in mind when working towards your own early retirement.

Create a current household budget
Before you solidify a plan of action for retiring early, you need to take inventory of your current expenses and general spending habits. If your spending habits inhibit you from saving a sizable portion of your earnings in pre-retirement, it will be incredibly difficult to retire early. If possible, try to find ways to cut discretionary expenses and evaluate your saving habits. By developing a budget, you will put yourself in an advantageous situation. In fact, maintaining a household budget will put you in the minority of American adults; according to a Gallup poll, only one in three Americans maintain a detailed household budget.

Forecast future needs
In addition to considering how inflation will affect your budget in the future, it will be wise to also consider that certain costs, such as healthcare, will increase significantly in retirement. When calculating your needs in retirement, be sure to include rising costs and unforeseen expenses. Failure to account for increasing needs could potentially leave you short of cash at a time when you may not be physically fit enough to work the hours required to cover the shortfalls.

Stay disciplined
Cutting out your favorite guilty pleasures in order to save for the future can be difficult, especially when those around you might be going on lavish vacations and buying luxury cars. By saving your money in the meantime and remaining focused on your goal, you will significantly improve the likelihood of being able to retire early.

Consider investing
Though everyone has a different financial situation and tolerance for risk with their money, investing in the stock market has historically produced higher returns over a long timeline than keeping money in a bank. Given low interest rates on most bank accounts, a savings account may not grow your money significantly enough, especially if your retirement plan is predicated on seeing significant growth on your savings. Though investing in the stock market inherently carries risk of potential losses, investing long-term has historically proven beneficial to investors.

Work with your financial professional
In addition to personally taking measures to ensure an early retirement, remember that your trusted financial professional is dedicated to working with you to help achieve your goal. Reach out to your Guidestream Financial, Inc. professional to help you work towards achieving your dream.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Recent estimates indicate that the Social Security Trust Fund will run out of its surplus in 2034. Once this occurs, program payouts are expected to be worth only about 77 percent of current benefits. Unfortunately, one-third of retirees rely on social security payments for at least 90 percent of their retirement income. With social security payouts likely headed for significant reduction, contributing to self-directed retirement accounts is more crucial than ever. Just how are Americans doing when it comes to saving for their future?

How America Saves
According to a TransAmerica Center survey, the typical American expects to retire at 67 but actually ends up retiring five years earlier than anticipated.
A shortened career means less time for earning and saving, as well as more time spent withdrawing from accounts. This further emphasizes how saving for retirement is even more crucial than some Americans might assume.

 

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

by Kirk A. Hoffman

A three legged stool analogy is often used for planning and saving for retirement.  The three legs represent personal savings, employer provided benefits, and government benefits.  For public school employees, 403(b) plans are used for individual savings.  School districts pay into 403(b) plans and/or the state pension program to provide an employer benefit.  Social Security provides the government benefit.

One of many tools available for the personal savings portion of a goal focused financial plan is an annuity.  Annuities have two phases, the accumulation phase and the pay-out phase.  Annuities can be part of a 403(b) plan to accept and accumulate contributions.  The accumulation phase is pretty straight forward.  Contributions go in on a tax deferred basis and taxes on earnings are deferred.  More questions arise once a plan participant reaches retirement and the pay-out phase begins.

There are several options available at the pay-out phase:

Interest/earnings only.

Under this option, the participant withdraws only the interest and earnings on the account.  The principal balance is not accessed.  This can be done on a monthly, quarterly, semi-annual, or annual basis.  Taxation on the principal is deferred until death.  (Required minimum distributions at age 70 ½ may require some principal distribution).

Systematic withdrawal based on a percentage or dollar amount.

Under this option, the participant establishes a regular withdrawal percentage or dollar amount.  The plan participant could outlive the withdrawals depending on the withdrawal rate and earnings.

Guaranteed life income.

The real power of an annuity is that it can provide guaranteed life income.  Under this option, the annuity is set up to pay out, like the participant’s pension and social security, monthly income for life.  Just like with the pension, there are various guarantees that can be selected:

Life only – payments cease at death

Life with a period certain (5, 10, 20 years) – payments for the longer of life or the

guaranteed number of years.

Joint and Survivor – based on two lives, payments cease at the second death

Joint and Survivor with period certain (5, 10, 20 years) – payments for the longer of

life of the two individuals or the guaranteed number of years.

The monthly payout is affected by the selected guarantees.  The more guarantees, the lower the monthly payment.

There is no better tool to create another guaranteed income stream to go along with a pension and Social Security than an annuity.  It works well if you are in good health and you have a history of longevity.  You cannot outlive the income.  It removes you from the markets so you are not subject to volatility which provides peace of mind for risk adverse individuals.

Every investment tool has positives and negatives.  Some negatives of annuitizing are that you give up access to the principal and potential higher earnings that could be realized from other investments.  These are significant factors to consider.

A professional advisor can assist in determining if creating another guaranteed income stream with an annuity is a good fit for your particular situation and if it will contribute to accomplishing the goals defined in you financial plan.