05/15/17

7 Reasons to Work Part Time in Retirement

By Emily Brandon, April 10, 2017, US News & World Report

The financial benefits of a part-time job in retirement are obvious. You bring in some extra income, which gives your savings more time to grow. But many retirees also continue to work for the mental stimulation and social perks. Here’s a look at some of the benefits of getting a part-time job in retirement:

Social opportunities. If you do most of your socializing with colleagues at work, you might find retirement to be isolating. Retirees seldom get invited out to lunch to chat about the latest project or to company gatherings. A part-time job will give you new co-workers, customers or clients to chat with. You might decide to go out for drinks after work or get an invitation to the holiday party. “Some of the hazards of retirement, such as a lack of socialization, are really mitigated if you continue to work,” says Dr. Michael Roizen, the Cleveland Clinic’s chief wellness officer and co-author of “AgeproofLiving Longer Without Running Out of Money or Breaking a Hip.” “The people who don’t retire or who come back to work part-time live longer and live healthier with less disability.”

New challenges. After the initial thrill of sleeping in and relaxing wears off, you might want to try something new in retirement. A job can provide mental challenges that keep your mind active and your brain working properly. Writing a report, making a sale or learning how to use a new technology all take mental effort and provide stimulating new challenges for your retirement years. “Try to think of the things that you feel good about or passionate about or have an interest in,” says Sally Balch Hurme, author of “Get the Most Out of Retirement.” “Leaving your regular job allows you to explore something new.”

Physical activity. Without a job to go to, you might find yourself watching increasing amounts of TV. At a minimum, most jobs require you to get dressed and drive to your workplace. Some jobs require standing, lifting and other forms of physical activity. “The people who work are more physically active,” Roizen says. They are less likely to develop chronic diseases if they are still physically active in retirement.”

An identity. The first thing you are asked when you meet someone new is often, “What do you do?” Most people answer this question with their job title. Retirees often lack a simple answer. Your job typically says something about the role you play in your community. A part-time job can give you a sense of purpose and an opportunity to feel useful to someone else. “You can build on your past experiences, your past skills and your past colleagues to look for that part-time job, or you can create your own new part-time job based on your interests,” Hurme says. “Your enthusiasm for the topic or the area will put you ahead in becoming a successful employee.”

Extra income. Some people need to work in retirement to pay for basic necessities, while others earn a paycheck in order to improve their retirement lifestyle. A retirement job might make it possible to eat at nicer restaurants, take on more ambitious travel plans or spoil your grandchildren. A paycheck allows you to withdraw less from your savings every month, which gives your nest egg more time to grow and can help your savings last longer. “People don’t realize how much they can affect their prospects by retiring later,” says Steven Sass, a research economist for the Center for Retirement Research at Boston College. “You need less money and you have more in your 401(k) and from Social Security.”

Health insurance. Some part-time jobs come with health insurance, which can be particularly important for people who retire before age 65 and are too young to qualify for Medicare. If you can find a part-time job that provides health coverage, you might be able to retire at a younger age than you otherwise would. Just make sure you take care to enroll in Medicare when you turn 65 or leave the job providing the health benefits.

Set your own schedule. Working 40 or more hours per week with a limited amount of vacation time makes it difficult to fit in all the other things you want to do. A part-time job boosts your leisure time, but also maintains your connection to the workplace. You might be able to work half days, a few days per week or for only part of the year. The rest of the time you are free to pursue hobbies, relaxation or travel. Work is less stressful when you aren’t required to be there quite so much.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

02/14/17

Older Veterans Often Miss Out on Long-Term-Care Benefits of Up to $2,210 Each Month

By Kevin Richards, January 2017, Kiplinger.com

Many older war-era veterans and surviving spouses over the age of 65 across America are missing out on a major element in securing their retirements: the Aid and Attendance benefit for long-term care.

The Aid and Attendance benefit is available to veterans and their spouses to help offset recurring medical costs and some of the costs for home care and assisted living care. This is a benefit for senior veterans who served during wartime—World War II, the Korean War, Vietnam and the Gulf War—for at least 90 days of active duty and who are 65 or older, as well as their surviving spouses. It doesn’t matter if the veteran served stateside or internationally, saw combat or didn’t, was wounded or wasn’t. If the veteran’s doctor—not a VA doctor—affirms the veteran or spouse needs assistance, then he or she may be eligible for Aid and Attendance, regardless of Social Security, Medicare, pensions or other benefits.

These benefits can be quite substantial, even if they are a variable number. Under Aid and Attendance, a veteran living alone can receive as much as $21,456 annually, or $1,788 a month. A married veteran can receive as much as $26,550 annually, or $2,210 a month. A surviving spouse is eligible for as much as $13,788 annually, or $1,149 a month. These benefits are paid directly to the veteran or surviving spouse and are tax-free. Payments are retroactive to the date of application.

Many veterans and surviving spouses are not aware of the Aid and Attendance benefits they have earned, or they are confused about them. Too many veterans are told they can’t have a certain level of income or assets to apply for Aid and Attendance. That’s simply incorrect. As long as the veterans and surviving spouses meet the criteria, they are eligible for those benefits for the rest of their lives.

Some of this confusion and lack of knowledge is perfectly understandable, since the application process can be complex. The U.S. Department of Veterans Affairs (VA) cannot give veterans legal or financial advice on how to get qualified for the Aid and Attendance benefits. Even worse, if a veteran asks about the benefits, the VA will simply tell them to apply. The VA will not tell veterans the requirements or how a veteran can qualify based on the rules. Only around 20% of veterans who apply on their own for Aid and Attendance benefits ever receive them.

However, if a veteran follows the rules, they are able to receive the benefits. That’s why it’s important to get the facts about Aid and Attendance benefits from credible, unbiased sources with the ability to provide the correct information. The VA cannot and will not do that.

There are billions of dollars already set aside in Aid and Attendance benefits that veterans and surviving spouses have earned. Veterans and their families should not feel guilty about having earned these benefits through their noble efforts and service.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

10/4/16

Majority of Today’s Retirees Have a Pension

By Lee Barney, September 26, 2016, editors@assetinternational.com

Eighty-one percent of today’s retirees receive some income from a pension plan. For 42% of these people, their pension provides half or more of their retirement income, according to a study by the Insured Retirement Institute (IRI). However, for those not yet retired, only 24% have a defined benefit (DB) plan.

IRI estimates that as many as 56 million Baby Boomers will not receive retirement income from a pension, and that future retirees will need upwards of $400,000 to make up for this income shortfall. “Replacing pensions and achieving financial security these plans provide to retirees will be a key issue for future generations,” says IRI President and CEO Cathy Weatherford. “As Baby Boomers retire in greater numbers over the next decade, and as Gen Xers begin to leave the workforce, financial professionals have an historic opportunity to help Americans create their own pensions, through Social Security optimization and the use of lifetime income strategies, to help their clients attain the same security, lifestyles, confidence and positive outlooks as the participants in this study.”

The study also discovered that nearly 60% of retirees have worked with a financial adviser, and 93% of these people say the advice they received has been effective. Seventy-two percent of retirees who own an annuity are satisfied with it. Retirees also face unexpected expenses; 40% have suffered a major health event, such as a heart attack or stroke, and 25% have faced a major non-medical event, such as a major home repair.

More than one-quarter, 27%, have relocated their primary residence in retirement, and of these people, 60% did so for lifestyle reasons, and 30% in order to lower their cost of living. While 67% of retirees think their chance of requiring long-term care is less than a 25% chance, the Department of Health and Human Services (HHS) believes that 70% of those turning 65 today will need such services. Sixty-percent think that Medicare will pay for their long-term care expenses.

Greenwald & Associates conducted the survey among 806 retirees between the ages of 65 and 80 who retired with at least $50,000 in investable assets and have been retired for at least five years.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

01/4/16

YOUR MONEY-How to care for two parents at once without going broke

By Chris Taylor, Nov 23 2015 Reuters Markets

For years, Madeleine Smithberg has been at the forefront of American comedy as co-creator of “The Daily Show” and a talent coordinator for “Late Show with David Letterman.” That sense of humor was especially handy during the last few years. That is because Smithberg had to cope with not one, but two elderly parents in rapid decline.

“It’s heartbreaking,” says Smithberg, 56, who heads a production company in Los Angeles. “And yet it’s invisible, because nobody talks about it.” Dealing with one aging parent is challenging enough, whether you are helping navigate the complex healthcare system, paying for an assisted living facility or struggling with cognitive decline as the parent slips away. But the emotional and financial stress can be more than double if you are caring for both parents at the same time.

“It’s like having toddlers,” says Smithberg, whose father passed away in 2014 after she moved her parents to Los Angeles. “They’re hot, they’re cold, they’re hungry, they ask repetitive questions, and their needs become the most important thing in the world at that second… The biggest challenge of all is holding onto your patience.” According to a new study by Northwestern Mutual, the childrearing comparison is apt: 59 percent of Americans feel that taking care of two parents between ages 85 and 90 would be even harder than handling two kids between ages 3 and 5.

Caregivers may also have kids of their own. In that case, it’s not just the “Sandwich Generation” – it’s a Triple-Decker. The Northwestern Mutual report found that 38 percent of those surveyed have not planned at all for handling the financial burdens of caring for elderly parents. The costs can be gigantic: National median costs for an assisted-living facility are now $43,200 annually, according to insurer Genworth Financial in its annual Cost of Care study. A private room in a nursing home? $91,250. That is more than enough to blow up any financial plan. The following is advice on how to care for your parents without going bankrupt yourself.

LONG-TERM CARE

“Long-term care, long-term care, long-term care.” That’s the simple advice from Smithberg. Her father had taken out coverage for himself and his wife, which she calls “the best thing he ever did.” Long-term care insurance covers expenses for nursing home or home care if you become incapacitated – most of which is not covered by Medicare. The coverage, like the care, can be extremely expensive, and to be sure, it did not cover all of Smithberg’s parents’ assisted-living costs. But, combined with their own life savings, the policy has meant that she has not yet had to dip into her own savings to pay for their care.

HAVE THE TALK

Being that it’s the New Year and everyone is talking about their goals and desires, it’s the perfect time to have the talk. Don’t let the opportunity slip by to discuss your parents’ expectations, should illness arrive. Find out if they have advance directives – documents that spell out what treatment they would and would not want during a life-threatening health crisis. Make sure you establish who has power of attorney, should they need someone to make important decisions.

CONSIDER A REVERSE MORTGAGE

Reverse mortgages allow homeowners aged 62 and above to borrow against their home equity and to receive either a lump sum, a series of monthly checks or a line of credit that can be tapped as needed. The upside of a reverse mortgage? With the bank paying you every month, instead of the other way around, that check can help cover costs for in-home caregivers. Tom Davison, a financial planner in Columbus, Ohio, is working with a 90-year-old woman whose daughter moved in with her as a caregiver. “A reverse mortgage could help (the daughter) pay her the wages she has given up,” Davison said. The downside, of course: The family home will eventually become property of the bank.

GET HELP

Your first instinct as a child may be to drop everything and handle all your parents’ needs yourself. But if it comes at the cost of your own career, think about the ripple effects – on your retirement savings, on the needs of your own kids, even on your own sanity. With Americans extending their lifespan – 76.4 years for men, 81.2 years for women, according to the National Center for Health Statistics – this is a family challenge that won’t be going away anytime soon.

Denver financial planner Kristi Sullivan recommends hiring a case manager to do the heavy lifting. ”For an hourly fee, these people can handle tasks quickly that it might take you hours to do – scheduling doctor’s appointments, handling medical payments and dealing with insurance, helping find a good nursing home or in-home care,” Sullivan says. “Spending this money may seem expensive, but it’s less than putting someone’s career on hold to become a full-time caregiver.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

06/15/15

Don’t Be Scared of Retirement

US News & World Report, By Tom Sightings  May 18, 2015

Many retirement fears are overblown or untrue. There’s no reason to be nervous about retirement if you make sensible financial choices. I’m not saying you shouldn’t live within your means and save for retirement. For that matter, you should probably exercise and eat your vegetables, too. But sometimes you have to stand back, gain some perspective and ignore all the anxious advice you get about retirement. Scaremongering often comes from people trying to push a political agenda or sell you a financial product. Here are five ways pundits and politicians try to scare retirees.

1. Social Security is going broke. Social Security is not going broke. The system has the resources to pay full benefits until the mid-2030s. That gives Congress two decades to make some adjustments, which is plenty of time, even for politicians. If nothing changes, Social Security will still be able to pay 75 percent of its obligations. Nobody wants to take a 25 percent pay cut, but that’s not the same as going broke. Also, consider that when our parents took their first Social Security checks around 1980, the average monthly benefit for a retired worker was $321. Accounting for inflation, that $321 would be worth about $900 in today’s dollars. But the Social Security Administration says the average benefit for today’s retired worker is $1,333. That’s a lot better than what our parents got.

2. You’re not saving enough to retire. The Employee Benefit Research Institute, a Washington-based think tank, reports that a third of adult Americans have not saved anything for retirement. But that means two-thirds have saved at least something. Furthermore, the older people are, the more they’ve saved. Less than 5 percent of workers under age 35 have assets worth $250,000 or more, but about a quarter of workers age 45 and older own assets worth at least that much. The vast majority of Americans have built up a nest egg. They may not have enough for an affluent retirement, but it will be enough, along with Social Security, to keep them out of poverty and stave off starvation, especially if they’re willing to move to an area with a lower cost of living.

3. Your medical bills will send you into bankruptcy. Fidelity has published reports saying the average 65-year-old couple will end up spending about $220,000 on health care. But that’s an average, not a certainty. It’s true that Medicare does not pay for all your medical expenses. That’s why it’s important to purchase a supplemental insurance plan, which typically costs a fraction of the cost of regular health insurance. It’s also true that if you become incapacitated and are forced into a nursing home, the expense can be astronomical. That’s why you should consider long-term care insurance, especially if you have assets you want to protect.

4. There’s a war on seniors. Janet Yellen has allegedly declared war on seniors by keeping interest rates low. President Obama has supposedly declared war on seniors by raiding Medicare to pay for his health plan. And financier Stan Druckenmiller warned that the mushrooming costs of Social Security and Medicare will bankrupt the nation, and he joined the chorus calling for drastic cuts in these programs. But remember 2005? A re-elected President Bush proposed replacing part of Social Security with individual retirement accounts. His idea got nowhere. Of course, seniors should be watchful of politicians trying to target retirees for major cuts in benefits. But the idea that there is an organized war on seniors is the product of politics and paranoia.

5. Your expenses will increase after you retire. Maybe that’s true if you have a bucket list that includes an extensive European vacation or shopping excursions to Rodeo Drive. But a retiree with a small earned income and some investment income is likely to pay lower taxes. You may even pay no tax on your Social Security benefit. Your housing costs could go down if your mortgage is paid off, and your local government probably offers a senior discount on real estate taxes. You could save even more by moving to a smaller, less expensive place. Presumably you will not be supporting your kids. Plus, you will no longer have to set aside 5 to 10 percent of your income to save for retirement.

There are plenty of reasons to plan ahead for retirement, from both financial and personal standpoints. But don’t let the pundits scare you into thinking it’s hopeless. You have a lot of resources, including your own brain power, that can help you make retirement the positive experience we all hope it will be.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

11/3/14

Your partner’s plan for retirement should agree with yours

Washington Post, by Michelle Singletary

Retirement  is something I’ve increasingly been thinking about. My husband and I have set a goal of retiring once our youngest child finishes college in about eight years.

We’ve talked about whether we might move. We know we eventually want to live close to our children when they start their own families. We want to do full-time ministry work helping people with their financial problems.

If you’re married, I believe you should adopt the “two ‘yeses’ and one ‘no’ ” rule, which means you both have to agree to whatever major decisions you make, from buying a dining-room table to your retirement choices.

Without a mechanism to negotiate and come to a compromise, you’ll end up in the situation in which one wife has found herself.

“My husband is facing a medical issue that will probably mean the loss of his current job,” the woman wrote. “He just told me that he’s planning to retire after his surgery. He has $30,000 in savings, and he’s 56. I’m 43 and had worked out a financial plan based on both of us working until our full retirement ages. Now, I’m stuck trying to pay off a mortgage and make necessary home improvements on one income. Our budget works out on one income as long as we don’t have to fix the roof. Rent would cost more than our mortgage. This is an awfully long time for me to be footing all the bills. I’m already working a side job. Any suggestions?”

The woman said she feels she’s being held hostage to her husband’s retirement plans.

I received the question during a recent online discussion in which my guest was Carrie Schwab-Pomerantz, author of “The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions.” We didn’t get to the question during the chat, but here’s our take on the situation.

Before even addressing the retirement issue, Schwab-Pomerantz recommends that the husband check whether he has any legal protections against losing his job because of the surgery. He should find out if he’s covered by the Family and Medical Leave Act. The federal law entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons. Eligible employees may take up to 12 weeks of leave in a 12-month period.

If the husband can’t work because of a health issue, however, he needs to determine whether he’s eligible for Social Security disability insurance. If he has a private disability insurance policy, he needs to see if he can file a claim, Schwab-Pomerantz said.

“While your husband sounds like he has a serious health issue now, he should think about his recovery and whether he’ll eventually be healthy enough to find another line of work — perhaps something part-time or less physically demanding,” Schwab-Pomerantz said. “Having him bring in some amount of income would be tremendously helpful to your situation.”

If your spouse can’t work and isn’t eligible for financial assistance, you’ll need to look carefully at your new cash-flow situation, Schwab-Pomerantz points out.

“You’re probably going to have to make some significant changes to your lifestyle,” she said.

Ask yourself some tough questions: Which non-essentials can you cut back? Are you sure it is more expensive to rent when you factor in property taxes and maintenance? Can you consider minimizing your housing costs by moving to a less-expensive neighborhood or taking in a renter?

Next, look at the income side of your balance sheet. At age 56, the husband is six years away from being able to collect Social Security. If he elects to take the benefit early, his retirement payments will be reduced by 28 percent compared with waiting until his full retirement age, according to a Social Security table, which you can find at www.ssa.gov by searching for “Benefit Reduction for Early Retirement.”

These are just some of the important issues to factor into the decision to retire. “Unfortunately, there are no magic answers,” Schwab-Pomerantz said.

I recommend that couples read “The Couple’s Retirement Puzzle: 10 Must-Have Conversations for Transitioning to the Second Half of Life” by Roberta K. Taylor and Dorian Mintzer.

If you’re married, you can’t unilaterally decide to retire if you have a choice. It’s unfair to your spouse.

“It is naïve to think that decision-making can be based solely on what you want,” Taylor and Mintzer write. “The realities of living need to be taken into consideration, particularly in an economy where people often have not been able to save adequately for retirement. . . . Ultimately, your goal is to come up with a plan you both can agree to.”

 

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

08/25/14

Retirement Reset: Sandwiched Boomers put plans on hold

It seems the very things that helped define the Baby Boom generation are also working against its efforts to retire. Boomers are free-spirited, independent and active. They married later in life and had children even later.

As a result, they find themselves taking care of their ailing parents at the same time many are still taking care of their children. For many, the strains on their resources are proving to be yet another reason to delay retirement — thus, the name the “sandwich generation.”

“People who want to retire have to delay that,” says Lanta Evans-Motte, financial adviser at Raymond James in Beltsville, Md. “This is during the time when they are at peak earnings and can put away the most money. But it’s also when a lot of them are having to turn around and spend a lot of money and time taking care of their parents, their children and in some cases, their grandchildren.”

A new study by the Pew Research Center says a record 57 million Americans (or 18% of the population) live in multigenerational households. While that research did not specifically address how many near-retirees are taking care of both parents and children, it’s clear the trend is increasing.

There are already enough pressures on Boomers hoping to retire. The average person has a retirement savings balance of $81,000, according to Fidelity. And 50% of people in a recent survey don’t expect to retire at 65. (Of those, 24% don’t expect to retire at 70.) But the new trend is straining resources even more.

“It’s so common, having both aging parents and having kids come back into the house, ” says Scott Hanson, principal with Hanson McClain Investment Advisors in Sacramento. “Costs go up when that happens, even if they don’t think they will.”

Katherine Dean, head of wealth planning at Wells Fargo Private Bank, says that potential retirees are being squeezed by two things: Young people who are struggling to get jobs, and parents who are living longer. The latest statistics from a National Endowment for Financial Education survey says 42% of people ages 18 to 29 are getting some kind of financial help from their parents. “Those two things are setting up a perfect storm,” she says.

Stories of the sandwich generation started with Boomer parents who, because they had children late in life, still had high school and college-age children at home when the health of their own parents started to deteriorate. That group has expanded greatly. Boomers are finding that even if their parents or children don’t live under the same roof, and even if their parents are in good health, they sometimes need financial support.

“Everyone wants to help their children,” Dean says. “If they have aging parents, they want to help them, too.”

Some tips from family and financial experts for dealing with the financial and psychological pressures.

1. Consider your own emotional and financial health. ”You can’t let aiding others destroy your own retirement and your own future,” Dean says. “You have to make those decisions in concert with your own goals. Beware of the emotional aspects. It can take a toll.”

“They have to understand the resources,” Evans-Motte says. “Can they really afford to do it? In some cases, they can afford it, but have to cut back on their discretionary spending. In other cases, they can’t afford to do it. Then you have to deal with the guilt part.”

“We work for the client,” says Ron Weiner, CEO of RDM Financial Group in Westport, Conn. “We don’t work for the children. We don’t work for the parents. Our job is to analyze everything going on and solve the rate of return they need, after taxes and inflation, to achieve all their stated goals.”

Make sure all the family members are on board, says Robert Fragasso, of Fragasso Financial Advisors in Pittsburgh. “Often, (taking care of a parent) falls on one of the children.”

2. Set ground rules and expectations. “If you have a child moving back in, let’s get it in writing,” Dean says. “How are you going to contribute to the household? Will you help out with chores? Will you get a job, even if it’s at McDonald’s or Target? Will you pay rent?

“What I’ve found is children really appreciate it because they are going through something difficult,” Dean says. “Setting boundaries and giving guidelines is great for both parties. It’s just difficult to do.”

Amy Goyer, AARP family and caregiving expert, says it’s also important to talk through the use of space. “The younger generation wants their privacy and wants to come and go as the please. The older generation feels the same, and the parents are in the middle. Space in one of the problems that cause most conflicts.”

3. Talk about finances: ”The talk about expenses and finances is often a sticky subject,” Goyer says. “With any family, that could be the case. It is often helpful to create a shared household budget and keep individual budgets separate. Be clear about who’s paying what: ‘I pay the mortgage, you pay for this, I buy food and you give me $100 a month.’ ”

“A lot of kids don’t know what things cost,” Dean says. “They’ve never had a budget. Have them create a budget. If they want this type of apartment or this kind of iPhone, create a budget so they know what they need to shoot for to make that a reality. There is still such a sense of entitlement. They need a little bit of a wake-up call.”

4. Update your financial plan. If you already have one, update it to include your new realities.

“They have to continuously update their own retirement calculations,” says Jim Stoops, vice president and financial consultant with Charles Schwab in Naperville, Ill. “Plans need to be revised once a year. Everything changes. You have to know where you stand for the next 12 months.”

“Get the right kind of financial investment advice,” Fragasso says. “Make sure the adviser knows elder care planning.”

“We can’t tell them you can or you can’t,” Weiner says.”It’s their money. We can point out that they are on a path to very difficult circumstances.”

6. Plan for the unexpected. It’s easy to plan for aging parents,” Hanson says. “The surprise comes when a child comes back, and often, it’s a failed marriage. The kids will come back in with a couple of their children. Those are a little more challenging.

“People need to be retirement-ready,” Hanson says. “They never know what will happen. Maybe the kids move back in with young ones. It’s important for people to think about all the things that might happen, down to what may derail our plans and plan around them. It’s not just how much … you save in your 401(k).”

“It’s a very prevalent, emotional, distressing issue,” Weiner says. “The human being seems to have an enormous propensity to make the wrong financial decision in emotional times. We all get frightened. We give up. We all feel children or parents should be our focus and we need to suffer. But by being smart, you can solve a lot of problems.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

08/18/14

Why You Should Prepare for the Next Bear Market Now – Develop a contingency plan for the next stock market dip while your investments are performing well.

By David Ning July 30, 2014 |

Avoid taking on too much risk just because your investments are performing well right now.

The stock market is going gangbusters these days, with the S&P 500 close to surpassing 2,000 points. As many people are celebrating their paper worth, I can’t help but remember a few short years ago when the S&P 500 dropped to the 600s. While the index may never fall back to that level, bear markets will one day hit us hard again. It’s a good idea to develop a plan for the next bear market now, while your asset values aren’t free falling and clouding your judgment. That way, you will be less tempted to make a permanent move that derails your solid retirement plan the next time the stock market takes a dive. Here are some of the sensational claims that could wreak havoc on your retirement plans if you buy into them during the next bear market:

Someone will claim that buy and hold is dead. Index investing is making many Wall Street brokers unhappy because every dollar invested in a low cost index fund is another dollar gone from the pool that pays them commissions. The next time the stock market dips, you will again hear how buy and hold is not going to work this time and that you need to time the market to be successful. Of course, you are always going to make a killing if you can accurately get out right before declines and get back in after the carnage. Unfortunately, those who succeed in getting out and back in are only the lucky few, while practically everybody else who tries ends up paying extra taxes and missing out on gains that follow. People who sold around 2009 didn’t get the full value of the recovery.

Financial pundits will say that this time is different. While they may be right that the reason for the big decline is slightly different each time around, don’t let anyone fool you into thinking that a drop in stock valuations is permanent. Unless there’s a catastrophe that permanently wipes out huge parts of the world, betting on the world stock market coming back to new highs is a very sure bet. Remember that stocks aren’t only pieces of paper people want in bull markets. Buying stock is buying the right to own a piece of the profits a company generates. If you buy an index, you are betting that at least some of the companies within the index will once again make higher profits, which has always happened because world economies have always bounced back. That’s why you should think very carefully if you sell after valuations go down, because doing so means you won’t be participating in the extremely high chance that valuations will once again march upwards. Stocks have endured the great depression, two World Wars, high inflation and all kinds of asset bubbles and still came out the best yielding asset class over the long term. What makes you think it won’t survive the next shock?

Everyone will tell you that you had too little in bonds. It’s always tempting to reduce your bond exposure in bull markets and increase it during bear markets, when you really should be doing the opposite. Remember in 2009 and 2010 after the big crash when just about everybody was saying that you needed more bonds? If you followed that advice, any dollar moved into bonds then saw a modest increase while stocks rallied hard for about five years and counting. Once you realize the stock market is crashing it is already too late to profitably shift your money to bonds because stock valuations are low. You are severely increasing the odds of buying high and selling low by moving to bonds after declines. The prudent asset allocation strategy may be the opposite. It might be painful to do, but selling bonds and buying stocks after equity values go way down actually increases the odds of outperformance.

 

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

08/11/14

Faring just fine in retirement

BY NICK THORNTON, July 30, 2014 •

Here’s what could be considered a bit of contrarian news: a lot of recent retirees are faring just fine as they sail through their golden years, thanks to their ability to draw on Social Security.

That’s according to a survey by T. Rowe Price that looked at how retirees are doing one to five years after they’ve left the workforce and who rely, in part, on the 401(k) plans they continue to be enrolled in or savings from 401(k)s rolled into IRA accounts.

The retirees surveyed have considerable assets, with nearly half claiming $500,000 or more in household assets (investable assets plus home equity minus debt).

Stocks and stock mutual funds account for 38 percent of their reported wealth and 13 percent of their overall wealth is in mutual funds diversified among other asset classes.

Real estate accounts for a good portion of illiquid net worth: eight in 10 recent retirees said they own homes with an average of $191,000 in equity.

While withdrawals from 401(k)s and IRAs are certainly vital to their survival, these retirees also say they are dependent on Social Security, which accounts for 43 percent of their income. Defined benefit plans provide 19 percent of income, and withdrawals from defined contribution plans and IRAs account for 18 percent.

Almost half of the retirees surveyed said they have an established withdrawal plan from savings accounts. The median drawdown was 4 percent of investable assets over the past 12 months. One quarter of retirees withdrew 8 percent or more; one quarter withdrew only one percent.

Retirees also are definitely living on less. Three years into retirement, the average reported income is 66 percent of pre-retirement income.

But that hasn’t affected quality of life, as 89 percent say they are somewhat or very satisfied with their retirement lifestyle.

Meanwhile, workers over 50 report being much more anxious than retirees, despite having considerable assets themselves.

Almost a quarter (22 percent) fear they will run out of money in retirement, and nearly half don’t think they will have enough savings to cover health care costs.

Median household assets for workers approaching retirement was $465,000, nearly as much as retirees’. They’re understandably more aggressively invested, with 60 percent of their assets parked in stocks, stock mutual funds, or asset allocation funds, according to the study.

Aimee DeCamillo, head of T.Rowe Price Retirement Plan Services, says the study shows those approaching retirement that there is hope for a satisfactory lifestyle in retirement, and the cash to support it.

“For workers approaching retirement, we know there is anxiety and uncertainty as they look ahead and think they can’t possibly be prepared for retirement. But the study demonstrates that you can do it,” says DeCamillo.

She says the study also underscores the vital role Social Security plays in providing a retirement foundation.

Most surveyed workers (80 percent) said they plan on waiting until full retirement age before drawing Social Security, with 34 percent saying they’re willing to wait until age 70 to receive the maximum benefit.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

08/4/14

The wealthy enjoy working, even in retirement

The rich love to work and aren’t likely to view retirement as an opportunity to kick back and bid good riddance to their careers.

A survey by Merrill Lynch and Age Wave looks at misconceptions about retirement and finds that one-third of respondents with a net worth of $1 million to $5 million are still working in retirement. That compares with 15 percent of the population with $250,000 or less.

Among those with a net worth of more than $5 million, 29 percent are still working.

What’s more, the wealthy are more likely to say they continue working in retirement because they enjoy what they’re doing.

When asked the most important reason to work, 65 percent of wealthy respondents say it is because they want to stay mentally active, versus 10 percent who say they work for the money.

Other reasons to continue working include maintaining social connections and a sense of identity.

But these rich, active retirees don’t necessarily want to be glued to their desks every day. They are seeking a career-life balance, with more than half of the respondents saying that work during retirement is more fun than it was before and 90 percent saying they have more flexibility.

“This study confirms that as people live longer and healthier lives, they’ll continue to find satisfaction from work even after they retire from their primary career,” Ken Dychtwald, founder and CEO of Age Wave, said in a release. “People have come to realize that retirement doesn’t necessarily represent the end of an active life, but rather the beginning of new and exciting chapters.”

To Your Successful Retirement!
Michael Ginsberg, JD, CFP®