07/31/17

Here’s How Much a Job Loss Now Will Cost You by Retirement

By Dan Kadlec, June 19, 2017, Money.com

When Americans struggle financially—if they face a job loss or a bout with illness, for example—one of the first places they turn for relief is their retirement savings accounts. This makes some sense, at least in the short term: Such accounts typically provide ready cash. But the long-term costs are significant, and they plague more people than you might imagine.

Incredibly, 96% of Americans experience four or more “income shocks”—defined as a 10% or greater decline in pay, as the result of something like a job change, job loss, or ill health—in their working years, according to a study led by Teresa Ghilarducci at The New School for Social Research. Taken alone, minor income shocks don’t necessarily have devastating consequences for retirement savings, according to the study, which was also supported by the National Endowment for Financial Education. One 10% setback typically results in as little as $1,166 less savings at retirement. By comparison, having less-than-excellent health ultimately reduces retirement savings by up to $34,500, the study finds—and poor health reduces a nest egg by up to $86,300, on average.

But repeated shocks, as widely experienced in the modern economy, add up: Four 10% income dips in a career may result in more than $10,000 in reduced savings, the study finds. Researchers also looked at more severe shocks, in which an individual lost all income for at least a year. This also is more common than you might believe, especially over a long time frame: Some 61% of workers went at least one year by age 70 with no income. A quarter suffered through at least four such episodes, according to the research.

In these cases, retirement savings would be reduced by an average $6,218 per episode—or nearly $25,000 after four no-income years. These are just averages, and if they seem low that’s because many people are able to leave their savings untouched—and even continue saving—through any work-related hiccups. Affluent people experience little impact on retirement savings, typically because they have other assets to draw from. Income shocks are also less of a nest-egg problem for people with an emergency fund.

Two-earner households weather income shocks better as well. In some cases, a couple may even choose the drop in income–with one partner leaving a job to, say, care for kids or an aging parent. But low-income households, and those with few additional liquid assets, feel the bite. These are the families most likely to raid a 401(k) plan or other retirement savings for day-to-day expenses. Economic shocks explain at least 32% of early withdrawals by workers in low-income households, according to the study.

The researchers take issue with the argument that the retirement savings crisis is a result of Americans lacking saving discipline. The bigger problem, they conclude, is regular and largely unavoidable income disruptions, coupled with a retirement system that allows many to raid their long-term savings. “Under a retirement savings system that requires a lifetime of consistent and voluntary contributions, life gets in the way,” says Ghilarducci. “People suffer economic shocks such as job loss and protect their standard of living by decreasing or halting their retirement contributions. Only those with the most resources weather these storms with their retirement nest eggs intact.”

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

07/24/17

The Big Mistake Most People Make When Planning For Retirement

By Shelley Seale, June 22, 2017, TheWeek.com

Preparing for your “golden years” is a big focus of any financial plan. Will you invest in real estate and the stock market to save? Do you have an IRA or company retirement plan? These are all great questions. But making sure you’re covered financially is only one part of the bigger picture. The question that is often overlooked when planning for retirement is how, exactly, you want your life to look after you retire. As in: What do you want to do with your time?

Retirement planning isn’t just about the money, but is equally about the significant life changes you will face. “People come into our office wanting to retire and they are clear what they want to retire from: a job, a career, a bad commute, the rat race,” explains Cass Grange, a senior adviser associate at Lucien, Stirling & Gray Advisory Group in Austin, Texas. “What they often lack is a vision of what they want to retire to: a meaningful life filled with connections and purpose. This takes time to build and plan. And planning your life after working is just as crucial as the financial piece of retirement planning.”

The important thing, when looking down the road to retirement, is to get specific. What’s important to you? What do you want an average day to look like? Where do you want to be? Those are some big questions to be asking now, especially if you’re decades away from leaving the workforce. But Grange has found that people tend to view their own ages differently through time. Before 50, they tend to think of themselves as being 12-15 years younger than they actually are, which can lead to unrealistic timelines for planning and saving.

“They often tell me, ‘I’ll just work until I am 80. That is my retirement plan!’” she says. Then in their 50s they get tired or downsized, or have health issues, and they come in and say, “I’m done working, I want to retire.” In other words, retirement — or the urge to retire — can sneak up on you. The sooner you start planning as if you’re retiring tomorrow, the sooner you can retire tomorrow, and the better that retirement will be. Start by making a list of the things you’d like to do.

Here’s a good example: Jessica and Bill (whose names have been changed for this article) were in their 50s and both working full-time. They had saved a significant amount of money already, and owned four rental properties. Their sole focus, for many years, had been on saving and surviving. But they hadn’t really thought about what retirement would actually look like for them. After some long, soul-searching conversations with Grange, Jessica and Bill finally put their retirement dream into words: They had always wanted to have a little cabin on a lake.

After hearing this, Grange urged the couple to hone in on how exactly this would work. The clients protested. “But we were going to wait until we retire to do this,” they said. But Grange was adamant. Why should they wait another 20 years to iron out the details of their dream, when they could do it now?

“I asked if they had any idea where they’d like to do this,” says Grange. The family had rented a cabin on the same lake in northern Minnesota for decades. They knew exactly which lake they wanted to be on, and how much it would cost. In fact, the couple had enough money to buy the cabin now. They bought a cabin that summer and have enjoyed it most summer weekends since then.

As Jessica and Bill did, decide where you want to be. If your dream is to live in the mountains, pick a city and start looking at property prices, so you know what you’re getting yourself into. The worst thing that could happen is to realize at 65 that you can’t afford to chase your retirement dream.

The other reason to get specific is because sometimes people spend years dreaming of retirement, but once they get there, they’re confused or unsure of how to spend their time. After decades of doing the same job, this much free time can lead to loneliness or a loss of a sense of purpose — especially because so many people take not just money from their jobs, but meaning as well.

If you enjoy what you do, try looking for a charity or nonprofit you can volunteer for in retirement. Don’t just say you want to volunteer, actually find the right program for you. A person’s network of friends and family makes a huge difference in the success of retirement, Grange says. Even if you’ve started planning late in the game, it’s never too late to take purposeful steps.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

07/17/17

Pre-retirees Unsure About Executing Retirement Income Strategies

By Javier Simon, June 22, 2017, Plan Sponsor

According to a survey by the American College of Financial Services, 74% of respondents failed a 12-question retirement income quiz. Unlike their younger counterparts, individuals nearing or in retirement don’t have the luxury of long time horizons in which to grow their nest eggs. They are at a point where developing a strategy to sustain their assets and draw retirement income is critical. However, many lack the knowledge to do so effectively. Of those who passed, only 5% scored a “B” (80%) or higher.

In particular, several respondents failed to correctly answer questions around preserving assets and sustaining income in retirement. The survey found only 38% know that $4,000 is the most they can afford to “safely” withdraw per year from a $100,000 retirement account, and only 34% know that a substantial negative investment return at retirement age is more damaging to portfolio sustainability than the same negative return a number of years before or after retirement.

The study also indicates most respondents lack knowledge of best practices to execute near retirement. Only 33% understand the benefits of working two years longer or deferring Social Security for two years as opposed to increasing contributions by 3% for five years just prior to retirement. Moreover, fewer than half know that using a portion of their portfolios to purchase a life annuity can protect against longevity risk. In fact, the lack of knowledge behind annuities was of particular concern to researchers. Rating scores on sections from best to worst, “annuity products in retirement” took the top followed by “company retirement plans” and “paying for long-term care expenses.”

According to the survey, only 29% know that buying an annuity product will be less expensive for an older person than a younger one; only 17% know the lifetime income payout rate for a 65-year-old male is roughly in the 6% to 7% range; and only 14% know a deferred annuity with a guaranteed lifetime withdrawal benefit can pay income even if the investment drops to zero.

However, 74% say having a source of guaranteed lifetime income in retirement is important. Furthermore, the research highlighted several areas for which older Americans scored very well. Subjects marked by high proficiency include housing finances, Medicare issues, the principle of inflation, the role taxes play in retirement, and life insurance concepts.

Next: Demographics Play Key Roles in Literacy

The survey found major gaps in score levels along the lines of gender, asset amounts, and education levels. More men (35%) passed the quiz than women (18%). More than half (82%) of women failed the quiz, suggesting the need for targeted communication and education based on particular concerns that may be more common among females.

Not surprisingly, higher passing levels seemed to correlate more closely with those who had substantial assets. For example, 49% of those with at least $1 million in assets passed the quiz, as opposed to 20% who passed with less than $1 million in assets. Of those who passed, 40% had at most a graduate degree, 32% had at most a college degree, and only 9% never graduated college.

Surprisingly, the study found that more people who weren’t working with financial advisers passed than those who were working with advisers. Thirty-four percent of people without advisers passed, and only 22% of those working with advisers did as well.However, the study also shed light on what people value in advisers. Of respondents with an adviser, 52% stated it was extremely important for their adviser to act as a fiduciary. Moreover, 76% of respondents with advisers found it extremely important that their adviser educate them on retirement risks.

Moving forward, it’s imperative that advisers educate clients about these risks, focus on areas of low proficiency, and re-enhance dimensions of high proficiency. A thorough evaluation of a client’s financial literacy can also help, as 61% of respondents reported they were very or extremely knowledgeable about retirement income planning; however, only 33% of them passed the literacy quiz—with a mean score of 51.87%.

The 2017 RICP Retirement Income Literacy Survey Report can be found at Retirement.TheAmericanCollege.edu.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

07/10/17

Retirement is a Journey, Not a Destination

By David Adams, June 23, 2017, Financial IQ.com

As advisors, we’re trained to help clients set some magic number for how much they need to save by age 65. Then they can retire, start taking Social Security and live off their investments. Only then can they start to travel and live life. But after 15 years of working as an advisor, I had an experience with my father that led me to change my entire perspective on retirement.

My father was an example of the typical retirement pattern. He worked in retail for 40 years. In his 60s he was still working 80 hours a week. One day while moving boxes around at work he fell and hurt himself. The injury wasn’t serious but I became concerned about his health. I told him he needed to slow down or retire but he kept telling me he needed to keep working to a certain age to be sure he had the money he needed to retire.

Six months later he was rushed to the emergency room because it appeared he was having a stroke. Thankfully it turned out to be high blood pressure instead. Once again, he insisted he needed to go back to work. I went to see him and begged him to quit, saying, “Dad, I’m not losing you to retail.” But he kept insisting he couldn’t leave his job because he didn’t have enough money to retire. I told him, “You can always have more money, but if you wait another two years to retire you may not be healthy enough to enjoy it.” We went back and forth like this for several days until finally he agreed to quit.

Like my father, many of my clients approach retirement from a place of fear. I tell these clients that financial planning is important, but it’s equally important to find a balance where you enjoy life along the way. They need to make retirement a journey and not just a destination.

For example, I have a client with about $1.8 million in his retirement account who was wearing himself out working awful hours. He had been telling me he wanted to quit for years but kept insisting that he couldn’t. We talked about potential solutions, such as taking a pay cut or getting a lower-pressure job that would cover the bills and still allow him to spend more time with his wife. But he was always too afraid to pull the trigger — until his wife got really sick. That was a wake-up call for him.

He finally did make the transition away from his high-stress job and today he’s very excited. He’s going to take on some consulting work and make about a third as much as he was before he quit. But he’s let go of the idea that he needed to save $2.5 million before he retired.

When clients insist they need to keep working to save a little bit more money before they retire, I tell them there’s never going to be enough to make them feel fully secure. They’re never going to feel totally comfortable, no matter how much is in their accounts, if they approach saving for retirement from a place of fear.

I encourage them to change their thinking about retirement and stop thinking about it as a static dollar amount or age deadline, but rather as a dynamic process. Going through this very same experience with my own father taught me how important it is to support clients in finding ways to live life now so they can think of retirement in a more balanced way.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

06/26/17

If you build it, they’ll stay; Boomers remodel their homes

By Joyce Rosenberg, April 5, 2017, AP.com

The small businesses that dominate the home remodeling industry are expecting robust growth in the next few years, thanks partly to baby boomers who want to remain in their homes.

Home remodelers say they’ve had a pickup in projects from boomers who are in or approaching retirement and are seeking to modify their houses. It’s a trend known as “aging in place,” an alternative to moving to smaller quarters or a warmer climate. Many of these homeowners are hoping to make their surroundings easier to manage and safer in case they have health problems.

They’re replacing bathtubs with walk-in showers, installing safety rails, widening doorways and building ramps — features known as “universal design” since they can be used by anyone, regardless of physical ability. Boomers are also redoing their kitchens and sprucing up other areas — since they’re staying put, they want to enjoy their surroundings.

Zach Tyson estimates that 30 to 40 percent of his revenue is now coming from boomer renovations, up from 15 to 20 percent five years ago. Most of the projects come from homeowners who are healthy and mobile now, but want to be prepared if illness or injury hits.

Besides making bathrooms safer, they’re enlarging rooms so wheelchairs or walkers can be used more easily, and also to give the rooms a more open feel. “It’s trending up, for sure,” says Tyson, co-owner of Tyson Construction in Destrehan, Louisiana.

The oldest of the 76.4 million boomers, the U.S. generation born after World War II, are turning 71 this year. As more of them retire and make decisions about where they want to live, there will be a great need for accessible housing, according to a report released in February by Harvard University’s Joint Center for Housing Studies.

“A large share of these households live in older homes in the Northeast and Midwest, where the housing stocks have few if any universal design features,” the study said.

The report predicts home improvement spending by homeowners 65 and older will account for nearly a third of the total amount of remodeling dollars by 2025, more than twice the portion that group spent in 1995-2005. Owners age 55 and over already account for just over half of all home improvement spending.”The boomer activity seems to be driving the market,” says Abbe Will, a research analyst at the Harvard center.

That’s a change from the past, when older homeowners generally handled maintenance, repairs and landscaping but tended not to renovate. And some of the boomer-driven remodeling is coming from younger homeowners who expect their parents might later come to live with them and want to be ready, Tyson says.

The requests Tiffany and Bryan Peters get from boomer customers include replacing traditional turning doorknobs with lever handles that can be pushed down. Homeowners want motion-sensor light switches and faucets, and non-slip flooring.

In bathrooms, they’re replacing fixtures with models that are designed for people with disabilities — showers than can accommodate wheelchairs, and toilets at the same height as wheelchairs, Tiffany Peters says.”We’ve definitely experienced an increase in requests for aging-in-place work,” says Peters, who with her husband owns a Handyman Connection franchise business in Winchester, Virginia. “We get several requests a month.”

Home remodeling companies began seeing an increase in boomer spending about 18 months ago and expect it to contribute to their growth in the next few years, says Fred Ulreich, CEO of the National Association of the Remodeling Industry, a trade group.

“We see this as something that is dramatically affecting the marketplace,” Ulreich says.

Boomers typically live in homes that are several decades old, prime targets for remodeling, Ulreich says. Unless they move to a brand-new home that’s designed for aging in place, their decision is likely to mean remodeling.

Sal Ferro says boomers are his biggest group of customers, but he’s not getting many requests for aging-in-place projects. It’s more renovations to make their homes more enjoyable.”They’re finally getting the projects done that they always wanted. They’re getting that kitchen or bathroom,” says Ferro, owner of Alure Home Improvements, based in East Meadow, New York.

Some remodeling companies are specifically marketing to boomers, sending salespeople to trade expos and events those customers are likely to attend.

Miracle Method, a franchise business that refinishes kitchens and bathrooms, has increased its outreach to boomers, says Erin Gilliam, the company’s marketing manager. Franchise owners say much of the 11 percent growth in the franchise’s overall business in the past year was driven by boomers, she says.

Gilliam’s husband, Gabriel, sees the trend in the franchise he owns in Salt Lake City. He estimates that revenue from boomers has risen between 10 and 20 percent, and the growth is prompting him to hire more workers. He has five staffers now, having added one per month the past three months, and expects to reach 10 in the next year.

“I’m hiring as quickly as I can,” he says.

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

06/12/17

Prepare Now For These 3 Retirement Risks

By Jim Sandager, April 10, 2017, DesmoinesRegister.com

Navigating retirement is difficult. What makes retirement planning so challenging is that there are so many unknowns that you need to prepare for, including the length of retirement, your spending needs and the performance of your portfolio.

These myriad of unknowns produce specific risks that can jeopardize your financial future. Fortunately, the chances these risks sabotage your retirement can be lessened with a bit of proactive planning. Today, I want to focus on three risks that can jeopardize your ability to sustainably spend in retirement, and what you can do today to prepare for them.

Sequence Risk

If your retirement happens to last 20+ years, there’s a good chance you’ll experience a market downturn at some point. Sequence risk is the risk that there’s a market downturn early in retirement rather than later in retirement. Imagine you’re retiring with $500,000 in savings and need to withdraw $100,000 living expenses after the first year and $0 after the second year. If the markets have a great first year and return 50%, you’d have $650,000 after your spending needs. If the markets drop 33% the second year, you’d wind up with $435,500.

Now let’s flip those results and assume a 33% drop after the first year and then a 50% gain the second year. In this scenario, you’d have $352,500 remaining. In other words, because you were unlucky to retire in a bear market, you have about $80,000 less than the person retiring in a bull market. That’s why you need to have an adequate amount of money in less volatile investments to weather a rocky market.

Longevity Risk

No one knows how long retirement will last. Because of this uncertainty, it’s better to take a more conservative approach and plan for a retirement that could last into your mid-90s (or maybe even longer!). As we continue to live longer and longer, it’s important to continue to have a portion of your portfolio allocated in stocks. Historically, equities have been great at outpacing inflation, and it’s these long-term gains that will be critical in preserving your savings and spending power throughout retirement.

Risk of Unexpected Expenses

Unexpected expenses may not be unique to retirement, but how they impact you is. When you retire, your income is relatively fixed. Every time you need to increase the amount you’re withdrawing in order to pay for a large unanticipated expense further endangers your long-term financial security. When thinking about your retirement spending plan, make sure you have an outlet to tap into so that it doesn’t wreak too much havoc on your overall financial plan.

There are key retirement risks outside of the realm of spending that you need to be ready for (I’ll touch on those in my next column). That said, preparing for these spending risks is a fundamental tenet of financial planning. Having a plan to better ensure sustainable spending is a key to accomplishing the goals you have for your retirement.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

05/30/17

Try Mental Accounting To Make Your Retirement Dreams Come True

By Robert Powell, April 5, 2017, USA Today

You might not know what it’s called, but odds are high you do it – you craft systems that enable you to make countless decisions about money without breaking into a sweat. Or at least so writes Diane Garnick, the chief income strategist at TIAA and the author of a just-published white paper, Income Insights: Mental Accounting in Retirement.

According to her paper, this system – more formally referred to as mental accounting in the world of behavioral finance – “is an economic concept that suggests people code, categorize and evaluate activities based on a variety of subjective criteria, ignoring that funds are transferable.”

Others share that point of view. “Mental accounting is essentially the household equivalent of financial accounting, but it is often done without conscious thought,” says Richard Thaler, a professor at the University of Chicago Booth School of Business and author of Misbehaving: The Making of Behavioral Economics. “A primary insight is that people treat various mental ‘buckets’ of money as non-fungible, meaning that there are implicit rules against taking money from one account – the children’s college savings account – and spending it on something else, like a new TV.

And this system, according to Garnick’s paper, holds the possibility of delivering tremendous benefits. “With the right architecture, it can save us precious time, economize our thinking and increase our self-control,” wrote Garnick, who is also a board member at CFA Institute Research Foundation.

How so? Well, to understand ‘how so’ requires a bit of background. Prior to retirement, people routinely allocate some portion of their money to many buckets, and often over commit ourselves — 25% to housing, 25% to food, 25% to loans, and of course, another 50% to entertainment. “We don’t necessarily make the best decisions, but if we make a mistake we have time on our side,” Garnick wrote.

In an email, Garnick noted that mental accounting enables people to immediately discover which retirement goals they will be able to achieve. “This framework enables a 30-year-old to quickly see if they are saving enough to enjoy hobbies in retirement or if they will be just scraping by, ” she wrote. “The insight offered by mental accounting can be powerful since it gives people time to adjust their savings to meet their needs.”

Mental accounting in retirement

But come retirement, your mental accounting requires a change in mindset, wrote Garnick. Among other things, you no longer have time on your side should you make a mistake with your money.

So, rather than allocate some funds to many buckets all at once, Garnick proposes fully funding one bucket before moving on to the next. “This framework offers transparency into the age-old question of how much guaranteed lifetime income each household needs while simultaneously offering savers insight into which goals they are on track to meet,” she wrote.

For instance, instead of allocating 25% to housing, allocate a portion of your retirement income to funding necessities (housing, transportation, personal items, entertainment and taxes), then fund health care expenses, then emergencies, then fun or what some call discretionary, and lastly bequest.

And this change in mindset won’t be easy. “I think the most difficult aspect of mental accounting and retirement savings is when households switch over from saving up for retirement to spending down,” says Thaler. “This requires an entirely new mindset. Most of our lives we live on a budget: Spend less then you earn, and put some aside for later. Then they are confronted with the much more difficult task of taking a pile of money and making it last over an uncertain lifetime. Hard!”

Would a budget be better than mental accounting?

On the surface, it might seem a budget would be better than mental accounting. But that’s not necessarily the case. “While creating a detailed budget is ideal, many of us don’t invest the time necessary to start one, let alone maintain it with all of life’s unexpected expenses,” wrote Garnick. “Mental accounting provides a framework that enables people to make decisions at the margin without placing their economic future at risk.”

The four-box approach

To be fair, mental accounting resembles what some call the four-box strategy whereby you use guaranteed sources of income (such as Social Security, a traditional defined benefit plan, a guaranteed lifetime income annuity) to fund essential expenses, including recurring health care expenses, and risky assets (your retirement accounts) to fund discretionary expenses and bequests.

And that approach has merit too. “When it comes to retirement there are two kinds of people in the world,” wrote Garnick. Those with old-fashioned pension plans and those in the YOYO generation, which stands for ‘you’re on your own.’”

And both kinds of people, Garnick said, can be well served by securing guaranteed income that covers their necessities. This includes social security, a pension if you have one, and guaranteed lifetime income for the YOYO generation.

As for matching risky assets with discretionary expenses an expert said it’s a good strategy too. “If (investors) treat retirement accounts as long-term investments that should remain untouched, they are more likely to reach their financial objectives,” said Victor Ricciardi, a finance professor at Goucher College and co-editor Investor Behavior: The Psychology of Financial Planning and Investing.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

05/23/17

Who Holds The Purse Strings For Couples?

By Karen Demasters, April 7, 2017, FinancialAdvisor.com

LIMRA, a research organization for the insurance and financial services industries, set out more than 50 years ago to find out who makes the financial decisions for young couples.

The firm has now completed its survey three times since 1965 and found that the person making the decisions, or whether the couple makes decisions jointly, has shifted over the years. The latest survey of 1,043 households of 25 to 44-year-olds with at least $35,000 in annual income shows decision-making is somewhat evenly split among the three categories considered by LIMRA: men, women and joint decisions.

Men are the financial decision-makers in 30 percent of the households and women in 34 percent. The couples in the report made joint decisions in 36 percent of the households.

In the first study in 1965, men were the decision-makers in a much smaller percentage of the households. In only 27 percent did men make the financial decisions, while in 39 percent it was the woman and in 34 percent it was both of them.

By 1990, the numbers had shifted. Men made the decisions 34 percent of the time, women 38 percent of the time, and couples together only 28 percent of the time. The financial decision-maker is defined by LIMRA as the person who pays the bills, keeps the budget and tracks expenses.

The decision-maker is 32 percent more likely to be extremely concerned about financial worries, including saving for retirement and maintaining the current standard of living should a wage earner become disabled or die. The study also found that 60 percent of couples do not strongly agree on their financial goals. In those cases, financial advisors must talk with both spouses, LIMRA says.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

05/1/17

The 7 Elements of a Successful Retirement

By Nick Ventura, April 12, 2017, Marketwatch.com

Start with well-defined goals, and revisit them at least annually. The closer you get to retirement, the more often you should sit down and think about your overall retirement strategy. In Ernie Zelinski’s “How to Retire Wild, Happy and Free,” the author makes the argument that setting your retirement goals expands far beyond managing your finances. Retirement planning should encompass all areas of your lifestyle, from where you live and where you travel to how you spend your day and what truly are your income requirements. Cookie cutter percentages and rules of thumb serve merely as benchmarks. Successful retirement planning requires flexibility and the willingness to look at all aspects of your life.

Many people get great satisfaction from work. So, if you are retired, and you like to work, pick something you like to do and gain emotional satisfaction from that activity. This includes working for charitable causes, hobbies, family involvement, etc. These “jobs” may or may not come with financial remuneration. But that’s not the point; many people derive emotional satisfaction and self-worth from working.

Another aspect of retirement is lifetime learning. Staying relevant in today’s technology economy requires a willingness to learn and adapt. Consider this: most medical professionals would agree that 20% to 30% of medical knowledge becomes outdated after just three years. Keeping current on technology and medicine will certainly enhance your retirement success.

Budgeting is more than setting a top-line spending number based on a pre-arranged percentage. Often times, we work from the bottom up, exploring what a client actually spends, instead of what they think they spend. It is not uncommon for individuals to drastically underestimate their spending on non-essential items. How much is your cell phone bill? Cable bill? Groceries? Starbucks?! We encourage clients to look at these as recurring payments. Not $140 a month, but $1,680 a year. Big difference, right? Getting as granular as possible is liberating when planning your retirement income.

While many planners suggest that a client will need two-thirds of their working salary to live comfortably in retirement, our experience shows that they may need anywhere from 50% to 150%. That’s a big range. Only by taking the time to define your goals, and the expenses that accompany them, can we put an accurate “spend” and “income” figure on a retirement portfolio. Even the best crafted budget has to be flexible. Emergencies happen. Grandkids happen. Sadly, health concerns happen. For both positive and negative circumstances, budgets can, and will, expand and contract. Build contingencies into your budget and income plan for a successful retirement.

Let’s consider income. Retirement income can come from many sources. Social security, pensions, retirement accounts, annuities, dividends, even earned income. As financial planners, we often hear stories from clients who “forgot” that they had earned an pension from an employer that they had left decades ago.

Take the time to go through your employment history and discover what benefits you may have forgotten. The impact could be meaningful from a cash-flow perspective. Inheritances can also create retirement income. Again, we often see clients receive an inheritance and immediately spend it. We’d rather go with the gift that keeps on giving – by investing the inheritance along the same lines of a retirement asset and creating a lifetime income stream.

Invest for your whole life. Just as your budget is not going to be static during your retirement years, the idea that your investment portfolio should never change is obsolete as well. We live in a world of massive disruption and change. Years ago, retirees would abide by the rule taking 100%, subtracting their age, giving them the “appropriate” allocation to the equity market (blue chips only!). Today’s world does not permit such simplicity of thought.

This philosophy created an asset allocation for retirees that was heavily dependent upon the fixed income markets. Risk in today’s fixed income markets is considerably less predictable. When creating income in a portfolio, investors should examine many different sources of income. Is it time for fixed or variable rate income sources? Are dividend producing stocks inexpensive or overvalued? Is real estate a proper asset to produce income? In finding these answers, a successful retirement income stream can become multifaceted and flexible.

Some investors have opted for “all-in-one” strategies, where a glide path mutual fund encompasses their entire retirement portfolio composition. These funds become gradually more conservative the closer an investor gets to retirement. Some funds manage “to” the retirement date, while others manage “through” the retirement date. If you own one of these vehicles, do you know what the fund is designed to accomplish? These funds use historical data to project out into the future the ideal asset allocation. We don’t know what the future holds, and advocate investments that have the ability to be flexible.

Successful retirement comes down flexibility. Flexibility of goals. Flexibility of income streams. Flexibility of spending. Flexibility of retirement investments. Flexibility of the overall plan. As you design your retirement plan, take the time to build in flexibility. It will help build peace of mind, and lead to a more successful retirement.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

04/17/17

Worried you’ll run out of money in retirement? Then don’t make these rookie mistakes

By Katie Young & Sharon Epperson, April 13, 2017, CNBC.com

Being newly retired is definitely a reason to celebrate — and spend — some of the hard-earned money you’ve saved over the years.

Yet with Americans living longer, experts say you need to plan for a retirement that could last 30 years or more. Add in ever-rising medical costs, mostly stagnant Social Security checks and all of a sudden that pile of cash doesn’t look so big.

The issue of outliving your money is a real threat. To avoid having that happen don’t make these classic new-retiree mistakes.

Spending too much too soon

Making the transition from earning money to spending money when you first stop working is tricky. Especially if you’re healthy and eager to enjoy all that new free time.

“We get this all the time, where recently retired clients will do a trip to Europe or Asia, then spend four weeks in the Caribbean, saying, ‘When we get older we’ll slow down,’” said Chris Schaefer, who leads MV Financial’s Retirement Plan Practice Group, Bethesda, Maryland. “They’re eating so much of principal in early retirement that they don’t have enough to last.”

Schaefer suggests that working with a financial planner to create a withdrawal strategy for your retirement accounts is key. He says a good starting point is taking out no more than 4 percent of your total nest egg a year.

Overspending on the house

Wanting to be debt free is an admirable goal and one that works for many retirees. However, if you haven’t paid off the mortgage yet, rushing to do so may not be your best move.

As long as you have the cash flow to comfortably make the payments, Schaefer says don’t sacrifice your retirement savings by using a big chunk to pay it down. Instead keep it invested where it should continue to grow.

Plus having a mortgage offers tax benefits you can still claim as a retiree.

Overspending on the kids

Once you retire it’s time to let the 35-year-olds take care of themselves.

“Over the last 10 years we’ve seen this more and more with millennials not able to get out on their own,” Schaefer said.

So, if you’re paying rent for your adult children, or their cellphone bill, car payments or other recurring costs, it’s time to sit down with them and tell them it’s over.

Making smart decisions early on will help stretch your money further so you can retire well.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®