Even those who have saved millions must prepare for a lifestyle adjustment. Provided by Rotz & Stonesifer Financial Services, LLC A successful retirement is not merely measured in financial terms. Even those who retire with small fortunes can face boredom or depression and the fear of drawing down their savings too fast. How can new retirees try to calm these worries? Two factors may help: a gradual retirement transition and some guidance from a financial professional. An abrupt break from the workplace may be unsettling. As a hypothetical example, imagine a well-paid finance manager at an auto dealership whose personal identity is closely tied to his job. His best friends are all at the dealership. He retires, and suddenly his friends and sense of purpose are absent. He finds that he has no compelling reason to leave the house, nothing to look forward to when he gets up in the morning. Guess what? He hates being retired. On the other hand, if he prepares for retirement years in advance of his farewell party by exploring an encore career, engaging in varieties of self-employment, or volunteering, he can retire with something promising ahead of him. If he broadens the scope of his social life, so that he can see friends and family regularly and interact with both older and younger people in different settings, his retirement may also become more enjoyable. The interests and needs of a retiree can change with age or as he or she disengages from the working world. Retired households may need to adjust their lifestyles in response to this evolution. Practically all retirees have some financial anxiety. It relates to the fact of no longer earning a conventional paycheck. You see [...]
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Today’s impulsive moves could breed tomorrow’s regrets. Provided by Rotz & Stonesifer Financial Services, LLC When emotions and money intersect, the effects can be financially injurious. Emotions can cause us to overreact – or not act at all when we should. Think of the investors who always respond to sudden Wall Street volatility. That emotional response may not be warranted, and they may come to regret it. In a typical market year, Wall Street can see big waves of volatility. This year, it has been easy to forget that truth. During the first third of 2017, the S&P 500 saw only 3 trading days with a 1% or greater swing – or to put it another way, 1% swings occurred just 3.5% of the time. Compare that to 2015, when the S&P moved 1% or more in 29% of its trading sessions.1 The 1.80% May 17 drop of the S&P stirred up fear in some investors. The plunge felt earthshaking to some, given the placid climate on the Street this year. Daily retreats of this magnitude have been seen before, will be seen again, and should be taken in stride.2 Fear and anxiety can also cause stubbornness. Some people have looked at money one way all their lives. Others have always seen investing from one perspective. Then, something happens that does not mesh with their outlook or perspective. In the face of such an event, they refuse to change or admit that their opinion may be wrong. To lose faith in their entrenched point of view would make them feel uneasy or lost. So, they doggedly cling to that point of view and do things the same way as they always have, even though it [...]
A few things you may want to think about before filing for benefits. Provided by Rotz & Stonesifer Financial Services, LLC Whether you want to leave work at 62, 67, or 70, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first. How long do you think you will live? If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after age 67 (Full Retirement Age), your monthly benefit will be larger than if you had claimed at 62. If you file for benefits at 67 or later, chances are you probably a) worked into your mid-sixties, b) are in fairly good health, c) have sizable retirement savings. If you sense you might not live into your eighties or you really, really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them; the choice comes down to more lifetime payments that are smaller or fewer lifetime payments that are larger. For the record, Social Security’s actuaries project the average 65-year-old man living 84.3 years and the average 65-year-old woman living 86.6 years.1 Will you keep working? You might not want to work too much, for earning too much income can result in your Social Security being withheld or taxed. Prior to age 66, your benefits may be lessened if your income tops certain limits. In 2017, if you are 62-65 and receive Social Security, $1 [...]
How much might health care cost you someday? Provided by Rotz & Stonesifer Financial Services, LLC “Financially speaking, what would be the worst thing that could happen to you?” If you ask a hundred people in their forties that question, you may get a dozen different answers. Some may say “my business going under” or “losing my house.” Some might say “a divorce,” “a lawsuit,” or “being laid off.” But how many would say “a severe illness?” A catastrophic illness seems like a remote possibility to many; distant, decades away. As a result, that possibility may be overlooked in our financial planning. The healthiest of us may need to save the most for health care. This may seem paradoxical, but think about what many people in their eighties or nineties experience: years of declining health and mobility, and accompanying high health care expenses. Two projections of average retirement health care costs are very illuminating in this regard. Empower Institute (an offshoot of retirement plan administration firm Great-West Financial) has calculated the amount of money that 65-year-old males with particular medical conditions will need in order to absorb 90% or more of future health care expenses. A 65-year-old man with Type 2 diabetes, forexample, will need $88,300 (in today’s dollars) to cope with those costs, according to Empower’s projection. It also estimates that a 65-year-old tobacco user will require $114,900 and a healthy, non-smoking 65-year-old male, $143,800.1 Why the difference? According to the Empower forecast, the 65-year-old diabetic has a life expectancy of 78, versus 81 for the tobacco user, and 87 for his healthier counterpart.1 How about a healthy 65-year-old woman? Empower projects she will need a retirement health care fund of $156,000, as women [...]
What could you do (or do differently) in the months ahead? Provided by Rotz & Stonesifer Financial Services, LLC How will your money habits change in 2017? What decisions or behaviors might help your personal finances, your retirement prospects, or your net worth? Each year presents a “clean slate,” so as one year ebbs into another, it is natural to think about what you might do (or do differently) in the 12 months ahead. Financially speaking, what New Year’s resolutions might you want to make for 2017 – and what can you do to stick by such resolutions as 2017 unfolds? Strive to maximize your 2017 retirement plan contributions. Contribution limits are set at $18,000 for 401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan; if you will be 50 or older in 2017, you can make an additional catch-up contribution of up to $6,000 to those accounts. The 2017 limit on IRA contributions is $5,500, and $6,500 if you will be 50 or older at some point in the year. (If your household income is in the six-figure range, you may not be able to make a full 2017 contribution to a Roth IRA.)1 Under 40? Set up automatic contributions to retirement & investment accounts. There are two excellent reasons for doing this. One, time is on your side – in fact, time may be the greatest ally you have when it comes to succeeding as a retirement saver and an investor. An early start means more years of compounding for your invested assets. It also gives you more time to recover from a market downturn – a 60-year-old may not have such a luxury, but a 35-year-old certainly does. Two, [...]
Will you have enough money to make ends meet? Provided by Rotz & Stonesifer Financial Services, LLC You may have heard that people spend less once they are retired. Statistically, that is true. The question is whether a retiree has enough income to meet his or her expenses. Ideally, retirees should be able to live comfortably on 70-85% of their end salaries and draw their retirement fund down no more than 4-5% per year during a 30-year retirement. Are these two objectives realistic for the average retiree household?1,2 According to the most recently published Bureau of Labor Statistics data, a household maintained by someone 65 or older had a mean income of $46,627 in 2015 and a disposable income of $42,959 after taxes. That average retiree household spent an average of $44,664 in 2015. So, on average, seniors spent more than they had on hand.2,3 Basic math tells us that 46,627 is roughly 70% of 66,500 and roughly 85% of 55,000. So, a retirement income of $46,627 would correspond to about 70-85% of a typical middle-class salary in 2015. In other words, it appears all too easy for the middle-class worker to transform into the financially challenged retiree. Why is the average retiree household spending more than its net income? Three possible reasons come to mind. One, the cost of living may be rising faster for retirees than some assume. Social Security bases its cost-of-living adjustments to retiree benefits on changes in the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). Some economists think Social Security should use a different yardstick. Two, annual health care costs may suddenly jump for some seniors. Three, it is not unusual for new retirees to spend [...]
We may need to change them to better our financial prospects. Provided by Rotz & Stonesifer Financial Services, LLC Our relationship with money is complex & emotional. When we pay a bill, go to the mall, trade in a car for a new one, hunt for a home or apartment, or pass someone seemingly poor or rich on the street, we feel things and harbor certain perceptions. Are our attitudes about money inherited? They may have been formed when we were kids. We watched what our parents did with their money, and how they managed it. We were told how important it was – or, perhaps, how little it really mattered. Parental arguments over money may be ingrained in our memory. This history has an effect. Some of us think of money, finance, investing, and saving in terms of getting ahead, in terms of opportunity. Others associate money and financial matters with family struggles or conflicts. Our family history is not responsible for our entire attitude about money – but it is, undoubtedly, an influence. Our grandparents (and, in some cases, our parents) were never really taught to think of “retirement planning.” Just a century ago, the whole concept of “retiring” would have seemed weird to many Americans. You worked until you died, or until you were physically unable to do your job. Then, Social Security came along, and company pensions for retired workers. The societal expectation was that with a company pension and Social Security, you weren’t going to be impoverished in your “old age.” Very few Americans can make such an assumption today. Many are unaware of the scope of retirement planning they need to undertake. An alarming 54% of pre-retiree respondents to [...]
Things you can do for your future as the year unfolds. Provided by Rotz & Stonesifer Financial Services, LLC What financial, business, or life priorities do you need to address for 2017? Now is a good time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to lowering your taxes. You have plenty of options. Here are a few that might prove convenient: Can you contribute more to your retirement plans this year? In 2017, the contribution limit for a Roth or traditional IRA remains at $5,500 ($6,500 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA: singles and heads of household with MAGI above $133,000 and joint filers with MAGI above $196,000 cannot make 2017 Roth contributions.1 For TY 2017, you can contribute up to $18,000 to any kind of 401(k), 403(b), or 457 plan, with a $6,000 catch-up contribution allowed if you are age 50 or older. If you are self-employed, you may want to look into whether you can establish and fund a Solo 401(k) before the end of 2017; as employer contributions may also be made to Solo 401(k)s, you may direct up to $54,000 into one of those plans this year.1 Your retirement plan contribution could help your tax picture. If you haven’t turned 70½ this year and you participate in a traditional qualified retirement plan or have a traditional IRA, you can cut your 2017 taxable income through a contribution. Should you be in the 35% federal tax bracket, you can save $1,925 in taxes as a byproduct of a $5,500 regular IRA contribution.2 What [...]
Breaking down the basics & what each part covers. Provided by Rotz & Stonesifer Financial Services, LLC Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover, and where they come from. Parts A & B: Original Medicare. America created a national health insurance program for seniors in 1965 with two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long, and only under certain parameters.1 Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $161 daily coinsurance payment may be required of you.2 If you stop receiving SNF care for 30 days, you need a new 3-day hospital stay to qualify for further nursing home care under Part A. If you can go 60 days in a row without SNF care, the clock resets: you are once again eligible for up to 100 days of SNF benefits via Part A.2 Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.1 Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums [...]
They may affect our attempts to build wealth. Provided by Rotz & Stonesifer Financial Services, LLC Picture an 18-wheeler, its 4,000-cubic-foot cargo trailer filled to capacity with stacks of $100 bills. The driver shuts and locks the trailer, closing the door on roughly $10 billion. Now imagine that truck driving off to a landfill, where that $10 billion will be dumped, shredded and buried, rendered useless. As the day goes on, 170 more 18-wheelers start up their engines and carry the exact same payload to the same destination. When the convoy finishes its work, $1.7 trillion is gone. Unimaginable? Metaphorically speaking, perhaps not. The National Bureau of Economic Research, a respected non-profit think tank, says we are forfeiting $1.7 trillion in potential retirement savings. Why? Simply because of our biases.1 Two major biases can impact our saving & investment decisions. NBER identified them in a study published in its Bulletin on Aging & Health in April.1 Present bias occurs when we value the present over the future. To see how common this bias is, NBER’s research team asked people a simple question: “Would you rather receive $100 today or $120 in 12 months?” As a variation, they also offered a choice between having $100 now or having $144 after waiting 24 months. Fifty-five percent of the respondents turned out to be “present biased” – that is, they wanted to take the $100 right away rather than wait to get a greater sum.1,2 Patience, of course, is fundamental to investing and retirement saving. Present bias is one of its enemies. From another angle, it also rears its head when volatility rocks Wall Street and we see panic selling. That panic is partly fueled by present bias. [...]