10/24/17

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® 

10/17/17

Americans Underestimate Long Term Financial Needs

By Javier Simon, September 2017, Plansponsor.com

Despite being confident about their current financial situation, a large portion of Americans significantly underestimate the projected costs of living in retirement, according to a recent survey by independent adviser Financial Engines. The study found that 58% of respondents at least 65 years of age and 76% of those between the ages of 55 and 64 believe the average married couple retiring at age 65 would need between $50,000 and $200,000 for health care. Financial Engines estimates the actual figure is $266,000.

Moreover, 64.9% of respondents to a financial literacy quiz offered by Financial Engines did not know they could defer claiming Social Security benefits until age 70, potentially earning between 6% and 8% in additional lifetime benefits under current conditions for each year they delay between ages 62 and 70.

And even though 47.3% of respondents said they felt “somewhat or much more secure” about their finances compared to five years ago, only 8% of those people passed the financial literacy quiz. Overall, only 6% passed the quiz, which covered topics around financial decisions people are likely to make during their lifetime.

“It’s not surprising that Americans are feeling better about their financial situations given low unemployment and a record-breaking stock market,” says Andy Smith, CFP and senior vice president of financial planning at Financial Engines. “But as our quiz shows, there’s a persistent problem with financial literacy in this country. When it comes to your finances, poor decisions you make today can cost you for the rest of your life.”

Financial Engines found that people struggled most with quiz questions regarding long-term financial decisions such as paying for health care in retirement. And as the health insurance industry undergoes ongoing uncertainty, studies show many Americans are highly concerned about health care costs in retirement. Many workers currently facing increasing costs have stomached the blow by cutting into their retirement savings.

But managing health care costs is not the only long-term financial issue many people are having trouble with. The Financial Engines survey found more than half (51.4%) of people significantly underestimated how much life insurance they should have, which is recommended to be 10 times their annual income. Several survey takers also undermined expected longevity in retirement. Plan sponsors may be able to help employees alleviate the financial downside of living longer by introducing longevity annuities to investment menus.

Financial Engines notes, “While no one knows exactly how long they will live, many people underestimate standard assumptions for life expectancy, which can lead them to save much less than they need. Nearly three out of four people (72%) were unaware that the typical 65-year old man can expect to live about another 20 years, on average, with 61% underestimating longevity by at least five years. The Social Security Administration estimates that a man age 65 today can expect to live, on average, until the age of 84.3 years old. A typical woman age 65 today can expect to live, on average, until age 86.6.”

Smith adds, “Often, people don’t have a realistic idea of their cost of living or how expensive things will be in retirement. While each person has a unique financial situation, it’s important to remember that you are not alone. Take advantage of helpful online planning tools and if you want more personalized help, reach out to a financial professional you trust – someone who can help clarify complex issues and guide you through the financial planning process.”

For its study, Financial Engines surveyed 1,000 individuals between the ages of 18 and 65 who are employed full-time, part-time or self-employed. The survey and panel were both fielded using the Survata Publisher Network. Fielding was executed in July 2017.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

10/10/17

Why It’s Easier to Reinvent Yourself Living Abroad

What Expats Say About Why and How They Forged New Lives

By Chuck Bolotin, Nextavenue.com, September 6, 2017

As the founder of Best Places in the World to Retire, I’ve heard many of our expat contributors say that one reason they moved abroad was to “reinvent” themselves. And based on what they’ve told me, I’d say it’s easier to reinvent yourself living abroad than while you’re living in the United States.

To reinvent yourself requires a belief in free will; that you are the inventor who created you. Very few expats I’ve met, and none who told me their reinvention stories, could be described as fatalists. Many, like Anne Dyer, defied stereotypes and faced what most people would consider to be long odds, though.

Reinventions Out of Facing Long Odds

Dyer came to Mexico from Oklahoma more than 30 years ago, relocating to what was then a male-dominated village, at a time when doing so was nowhere as common or easy as it is today. Not only that, she opened a business from scratch and succeeded — all as a middle-aged, single woman. (Dyer still operates several successful businesses today.)

In more extreme and unexpected cases, American women like Anne Gordon (now Anne Gordon de Barrigón) didn’t know they were searching for something or that they would be so open to reinvention. She arrived in Panama as an animal trainer in 2004, to work on a film that hired the Emberá tribe as actors. Gordon de Barrigón was so touched by the warmth of the Emberá people, she wound up staying in Panama and marrying an Emberá man. Now she shares her love of the Emberá on tours she runs in the rainforest.

The concept of reinventing oneself is fundamentally optimistic and outward-facing, traits shared by those two women along with the other reinventing expats described below. They believe that they are in charge of their own future and could alter what otherwise would be called their destiny.

Many of the expats had reached middle age or close to it and were re-thinking their lives, especially in light of a heightened awareness of their mortality. Going forward in the same way as before was not satisfactory to them. Instead, they were searching for a way to change their lives to create themselves anew along the lines of their own, newly more self-aware design.

Very few of the expats wanted to completely discard their past and change everything. For most, reinvention involved only a part of their lives, while they retained the rest “as is.”

Phil McGuigan used to be a partner in high-powered law firm in Chicago. Now, he puts some of these skills to use directing an umbrella organization of charities in Boquete, Panama that regularly brings in large containers of supplies for locals in need. McGuigan raises the money from his previous partners and well-heeled clients. He has gone from top-floor boardrooms to rural outposts with no running water, and clearly loves it.

4 Reasons Reinventing Abroad Is Easier

Here are four reasons expats said it was easier for them to reinvent themselves while living abroad:

1. The shock of being in unfamiliar circumstances.  By definition, expats intentionally put themselves in unfamiliar circumstances, where they cannot act exactly as they did in their home country and get the same outcomes. I have been told that this can foster a re-evaluation and a new perspective, along with new opportunities for growth.

Chris Frochaux is a “serial re-inventor,” at first, out of necessity, because his father was a diplomat and the family moved from country to country. As an adult, Frochaux chose a life of constant reinvention. He has lived in France, Italy, Ivory Coast, Senegal, Switzerland, the U.S., Argentina, and now Panama. About his life in Panama, Frochaux says: “I love this country. And you will too, if you choose to embrace it on its own terms instead of expecting it to conform to your country’s standards.”

2. The shock (and joy) of being around new people.  Just as expats are in a new cultural and physical environment, they are also in a new social environment, within which they’re not bound by the grooved-in interpersonal kabuki dance they performed in the past.

Expats have told me how liberating it was to start fresh relationships. Describing their past, they told me about the growth-inhibiting triad of behaviors being heavily influenced by: what others expected of them, others expecting them not to change and then their tending to conform to others’ expectations of not changing.

But as expats meet new people, they are free to create relationships intentionally to help become their best, reinvented selves.

When Greg Gunter came to San Miguel de Allende, Mexico, he created new social connections, including a serious ongoing relationship with a Mexican woman and her family. Two parties held back to back made a big impression on him. The first was with mainly Mexicans, and lasted about eight hours. The next night, Gunter went to a party of mainly expats, which lasted just a few hours. When he was asked by his Mexican friends why the expat party was so short, it hit him. “In Mexico, work is always secondary to spending time with friends and family, unlike in the U.S. If I had stayed in the U.S., I probably never would have experienced a different way to interact with people, and changed my perspective because of it,” Gunter said.

3. The lower cost of living, allowing for more free time and generates less stress.  Expats have told me that because of lower costs, they could take the time to paint or form that rock and roll band they always wanted to; many have had the time to volunteer, which further changed their view of themselves and fostered positive change and growth.

Mike Cobb is involved in several offshore businesses and was recently instrumental in building a health clinic to bring primary health care to rural Nicaraguans. “I wouldn’t have the time to reflect or get involved as much if it weren’t for the ‘silly inexpensive’ cost of living here,” says Cobb. “Living here, we can easily afford housekeepers, gardeners and handymen. Not only do we have more time, but our stress is less, all our relationships better and we’re able to get involved in things that matter to us on a deeper level.”

4. Seeing and being around people who see and do things differently than you do.  Many expats told me that being around locals in places like Mexico, Panama, Belize and Nicaragua who had materially much less than they did helped them reinvent themselves for many reasons.

One is that this gave the expats more of an understanding for others who were not as fortunate. Another: When they saw these people seemed to be much happier than those they knew back home, it challenged their previous assumptions that more material goods make people happier. This caused them to reevaluate what made them happy (almost always to become less materialistic) and to gain new focus and dedication to that.

Dave Drummond, now based in Belize, has been working in international real estate development and international financial services for 14 years. If he had those careers in the U.S., he says, they would keep him cloistered among higher-echelon business investors and allow precious little interaction with anyone else. Not so for him in Belize.

Drummond related a story of watching a group of local children in Belize playing. “There were no parents, no babysitters, no one supervising; just young kids enjoying life with nary a care in the world. They were laughing, giggling, and shouting as children should while playing with nothing other than a simple ball and a stick. They didn’t have a gaming device, they didn’t have a tablet or any electronics at all. They only had what they could find and yet, they had more than they needed. They had the safety of the village, the simplicity of their game, and the freedom to enjoy having fun,” he said.

His conclusion: “It is not what you have that makes your life enjoyable; it is being able to do what you enjoy in life that does; a simple life concept I’m fortunate to be reminded of in Belize almost every time I walk out my office door.”

The Worst Reason for Moving Abroad

A common answer our expats give on our site to the question “What is the worst reason for moving abroad?” is: “To run away from something.” Moving abroad alone won’t reinvent you. You are the one who has to reinvent you.

If you really wanted to, you could do it from your home country, in the same house you’ve lived in for decades. Moving abroad just makes it a whole lot easier.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

10/2/17

Helping Without Hurting Your Retirement

By Holly Gallagher, September 10, 2017, Traverse City Record Eagle

A large portion of the millennial generation has come of age during complex and challenging economic conditions. While the economy and job market have begun to improve, the headwinds that millennials have faced in starting their careers and making long-term financial plans have led to a few trends that are affecting their parents’ generation as well.

Many parents of adult millennial children find themselves wondering how much they should help their kids. Providing financial support to a family member can affect their own retirement plans.

Staying in the nest longer

One way young adults are staying afloat is by staying in their parents’ homes. By providing free or cheap housing, parents arguably are preventing their young adult children from falling into greater debt. The expectation, of course, is that these young adults will progress in their careers and eventually have enough earning power to achieve financial independence. But can you count on this happening? More important, what’s the exit strategy?

Footing the bill

If you’re still on the hook for financial support for your young (or not-so-young) adult child, you’re not alone. According to a 2014 American Consumer Credit Counseling survey, more than one-third of U.S. households provide regular financial assistance to adult children including paying rent, repaying student loan debt and covering car payments and cell phone bills.

Even if you haven’t dipped into your IRA to pay for your daughter’s wedding (and, please, don’t do that), these smaller amounts — a couple of thousand or even a few hundred dollars at a time — can have a detrimental effect on your retirement savings if they continue over the long term.

Is it a loan or a gift?

Another element to consider when providing substantial financial support to your child is the annual IRS gifting limit. For 2016, couples can gift up to $28,000 before having to report the amount to the IRS. In some instances, the same limit can be applied if you loan the money to your child (e.g., as a down payment on a house), but either consider it interest-free or charge below-market interest. For any amounts over these limits, you’ll be on the hook for taxes.

It’s important to note that gift and estate tax rules differ from state to state, and each situation is different. Consult with a qualified tax professional about the impact to your tax bill.

Setting a precedent

As parents, your goals are noble and well-intentioned — but do your actions foster the habits that will lead to financial success and independence? Or are they possibly setting the expectation that you’ll continue to fund a lifestyle that your children may never be able to afford on their own?

Learning to live within our means can be a challenge at any income bracket, and cutting your kids off financially or enabling bad habits is a tough line to tread. Here are some compromises you might consider:

  • Charge rent. Don’t necessarily expect market value for your accommodations, but you have the right to set boundaries that keep both parties feeling comfortable with the arrangement.
  • If not rent, pick an expense and be consistent. Among utilities, groceries and other expenses, there are many different ways your millennial can be accountable for at least some household needs.
  • Set boundaries. Separate wants from needs — you don’t need to finance your kids’ vacation or spa visits.
  • Live within your own means. Unless you want to end up on their doorstep someday when your retirement funds run out, be disciplined about sticking to your budget and savings plan.

Above all, make sure to discuss your actual spending needs both as a family and with your financial and tax professionals. You’ve put time and effort into building a sustainable retirement plan. Don’t derail your hard work by giving away more than you can afford.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

09/26/17

If You’re Dreaming of Retiring, it’s Important to Make a Plan — and Commit to it

By Michelle Singletary, September 9 2017, Washington Post

The go-to strategy to encourage people to save for their retirement years has been to frighten them with the numbers.

The average cost of retirement is more than $700,000, according to a study released this year by Merrill Lynch. If you want a swanky retirement, you’ll obviously need more. Fidelity Investments estimates that health care and medical expenses alone will total $275,000 for the average 65-year-old couple retiring in 2017.

And then there’s the scariest number of all. If you retire at 65, you could live an additional 25 years. The horror: You could outlive your savings.

This scared-straight approach is supposed to make us save more. But as television host Phil McGraw likes to say, “How’s that working for you?”  It’s not.

Despite dire reports of a looming retirement crisis, many households have little if anything saved. A GoBankingRates survey found that 55 percent of Americans have put away less than $10,000 for retirement.

“Ninety-two percent of working families have retirement account balances that do not meet recommended savings targets,” researcher Nari Rhee wrote in a report for the National Institute on Retirement Security. “The ‘American Dream’ of retiring after a lifetime of work will be long delayed, if not impossible, for many.” Scared?

Don’t be, says Chris Hogan, a former debt collector and banker who is now a financial coach for Ramsey Solutions.

Hogan’s tactic is to motivate, not intimidate. His book “Retire Inspired: It’s Not an Age, It’s a Financial Number” (Ramsey Press, $24.99) is the Color of Money Book Club selection for this month.

“If you’re like a lot of the people I’ve coached over the years, the very word retirement might give you the same shivers you’d get from watching a Stephen King movie,” Hogan writes. “That fear might get your attention for a moment. And while fear can be a wake-up call, it is also a negative emotion. Fear doesn’t create energy, and it doesn’t really cause lasting change.”

So what causes enduring change? A retirement dream with a plan, Hogan says.

He says to ask yourself: “What is that one dream you have for your future? That one thing that would make you wake up every day and think, ‘I get to do this?’ ”

I’d like to travel for months at a time. And when I’m not on the road, I want to continue working in the financial literacy field and volunteering at my church and in prisons. But to make my dream come true, I can’t be worried about money. My house has to be paid off. I need financial security to free me up to serve.

Here’s the thing: A secure retirement isn’t accidental.

“People generally don’t enter retirement with no savings because their plan didn’t work; they retire broke because they didn’t have a plan in the first place,” Hogan writes.

Here are Hogan’s five fundamentals of an inspired retirement.

●You’ve got to dream. “Dreaming is an action.”

●You’ve got to have a plan. “Let the plan be your GPS to get you to your retirement dreams.”

●You’ve got to execute your plan. “It involves investing, budgeting, avoiding debt.”

●You have to commit to the plan. “Commitment means embracing the sacrifices necessary to get you to your dream.”

●You’ve got to be vigilant. “Vigilance means knowing that ‘stupid’ is always lurking around the corner. It is the admission that someone is always trying to sell you something you really don’t need. It is watching out for people trying to get you to invest in a risky, once-in-a-lifetime opportunity that will most likely leave you broke and embarrassed.”

You also have to watch out for the happy dance in retirement. Hogan tells the story of one couple who decided to upgrade to a bigger home. With the move came more expenses they hadn’t planned for.

The couple had to go back to work. They had to “un-retire,” Hogan said. “So at a time when they should’ve been simplifying life, they actually complicated everything with one bad financial decision.”

Here are three of my favorite quotes from the book:

●“Debt is a thief.”

●“The word deserve puts you on the fast track to stupid.”

●“Taking personal responsibility for your own retirement is the first step toward success.”

Fear can be a powerful motivator. But frighten people too bad and they give up. They see their retirement number as unattainable.

Hogan doesn’t ignore the scary statistics. He just turns them around to inspire people to work toward the best retirement they can afford.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

09/19/17

Financial Security Is Up, Despite Low Financial Literacy

By Think Advisor.com, September 8, 2017

Americans feel more financially secure than they did five years ago, despite financial literacy being low, according to a survey released Thursday by Financial Engines.

Almost half of Americans surveyed said they feel more secure than they did in 2012,  but over half underestimated the appropriate amount of life coverage for their situation.

  • Nearly two-thirds didn’t know they can defer Social Security benefits until age 70.
  • Less than a quarter are confident about claiming Social Security benefits at all.

“It’s not surprising that Americans are feeling better about their financial situations given low unemployment and a record-breaking stock market,” Andy Smith, senior vice president of financial planning at Financial Engines, said in a statement. “But as our quiz shows, there’s a persistent problem with financial literacy in this country. When it comes to your finances, poor decisions you make today can cost you for the rest of your life.”

Financial Engines found that people struggled most with questions about their long-term financial well-being. Subjects like Social Security, planning for health care in retirement and determining their life insurance needs were areas where they needed the most help.

When asked to estimate how much they would need for health care, three-quarters of those between ages 55 and 64 and nearly 60% of respondents closer to retirement guessed between $50,000 and $200,000.

A 2015 report by HealthView Services put a married couple’s estimated cost of health care in retirement, including insurance premiums, co-pays, dental, vision and out-of-pocket costs, at nearly $400,000.

“Often, people don’t have a realistic idea of their cost of living or how expensive things will be in retirement,” Smith said. “While each person has a unique financial situation, it’s important to remember that you are not alone.”

Smith noted that advisors’ value to investors isn’t going unrecognized, as employers increasingly offer “financial planning resources as a benefit to their employees, often at a significantly discounted rate and without the asset minimums that many financial advisors require.”

 To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

09/5/17

3 Stupid Retirement Moves

By Maurie Backman, Aug 19, 2017, The Motley Fool

Retirement is a milestone that countless workers look forward to. But if you’re not careful, the wrong decisions could spell trouble for your golden years. Here are a few glaring retirement mistakes you’ll want to avoid at all costs.

1.    Waiting too long to start saving

It’s easy to make excuses for why you’re not setting money aside for retirement early on in your career. Maybe you’re not earning all that much money, or you’re struggling to keep up with your student loan payments. What many people don’t realize, however, is that by holding off on retirement plan contributions for even a few years, you’re giving up a world of growth. Thanks to a concept known as compounding, those who save for retirement steadily through the years can grow their nest eggs into sizable sums, even if those individual contributions are relatively small year after year. The following table, in fact, shows how much you stand to gain if you start saving just $200 a month at various stages of life:

If You Start Saving $200 a Month at Age… Here’s What You’ll Have by Age 65 (Assumes an 8% Average Annual Return)…
25 $622,000
30 $413,000
35 $272,000
40 $175,000
45 $110,000
50 $65,000

You can’t help but notice the difference between giving yourself a 40-year savings window versus a 15-year window. And, yes, if you start saving money that much earlier, you’ll end up spending more out of pocket to build your nest egg, but in our example, that $622,000 you’d get by starting at age 25 comes at a cost of just $96,000 in contributions. That’s a $526,000 gain! The point here is that holding off on retirement savings can really limit your ability to take advantage of compounding, so even if your monthly contributions aren’t much to write home about, they’ll help your savings efforts over time.

2.    Banking on Social Security alone

There’s a reason more than 40% of near-retirees don’t have any savings to show for — they’re convinced they’ll be able to get by on the income they collect from Social Security. The reality, however, is that most seniors can’t live on Social Security alone. That’s because those benefits are only designed to replace roughly 40% of the average worker’s pre-retirement income.

Most people, however, need at least 80% of their previous earnings to cover their expenses in retirement, and without independent savings, you’re likely to fall short. And if you think you’ll manage to get by on just 40% of what you used to earn, consider this: The average healthy 65-year-old couple today will spend $400,000 or more on healthcare costs in retirement. Over a 20-year period, that’s $20,000 a year on medical bills alone. Given that the average Social Security recipient today collects just $16,320 annually, it kind of makes you rethink how far those benefits can be stretched.

 3.    Not having a plan

While not having to report to a job might seem like something to celebrate, losing that structure and schedule could end up throwing you for a serious mental loop. According to the Institute of Economic Affairs, retirement increases the likelihood of clinical depression by 40%, and a big reason is that many seniors struggle to find their purpose once they no longer have a job to go to. Not only that, but for many people, work serves as a key social outlet, and losing those connections later in life could impact your well-being.

That’s why it’s critical to go into retirement with not just a financial plan, but a road map for what you’re going to do with your newfound free time. Of course, your available income will play a huge role in dictating the latter. You can’t, after all, say you’ll travel three months out of the year if your savings can’t support that lifestyle. But if you come in prepared with a realistic means of occupying your days, you’ll be less likely to regret the decision to retire in the first place.

Retirement isn’t the sort of thing you want to mess around with, so it pays to start thinking about it as early on in your career as possible. If you begin saving at a young age, understand what you’ll get out of Social Security, and map out a plan for your senior years, you’ll avoid the mistakes that cause so many people to wind up cash-strapped and unhappy down the line.

To Your Successful Retirement!

Michael Ginsberg, JD, CFP®

08/29/17

The 3 Phases of Retirement and How to Plan for Them

By Wendy Connick, Aug 16, 2017, Motleyfool.com

When workers think about what retirement will be like, they often imagine it as a single monolithic event — as if they can pursue their favorite activities every day until their last. But in reality, retirement is a three-stage event, and for most retirees, each stage is considerably different. Knowing how your expenses will likely change over time will help ensure that your money lasts as long as you do.

The first decade: retired life begins

During the first decade or so, new retirees are stretching their wings and learning just what this retirement thing is really like. Because new retirees are relatively young, they’re often in good health and have a relatively high energy level, so they’re ready and eager to embark on adventures like world travel. However, our natural desire to live it up after decades of work means that this first decade is typically an expensive one for retirees. That’s why it’s important for retirees to build significant flexibility into their initial budget, perhaps planning to spend 10% to 20% more per year during the first 10 or so years of retirement. For example, if you think you’ll need $50,000 in annual income in retirement, aim instead for $55,000 or $60,000 per year. With this approach, if it turns out you were optimistic about your income needs, you’ll still have enough to get by.

Part of the challenge of this early retirement period is that while you need a relatively large income, you also want to keep your retirement account withdrawals fairly low. After all, the money in those accounts needs to last you for the next 20 to 30 years; if you deplete them too much early on, you’ll be sure to run out of money down the road. Assuming your investments earn average returns (say, 7% per year if you’re invested mostly in stocks), it’s best to limit your withdrawals to 3% to 3-1/2% of the entire balance per year for the first five to 10 years of retirement. If your returns are particularly good during the year, you can take a little more. On the other hand, if your returns are bad or even negative, keep your withdrawals as small as you can possibly manage.

The second decade: settling in

Once the first decade of retirement has passed, you’ve had time to get used to this whole retirement thing and have likely sated your taste for adventure. You may also begin to experience some chronic health issues that reduce your energy or even your mobility. Thus retirees in their second decade tend to live more quietly. This is a time when many retirees choose to focus on family activities. Some feel like their current home is “more house than they need,” inspiring them to downsize and perhaps to move closer to family or friends.

Spending typically drops during this phase of retirement. Americans aged 75 and older spend 23% less on average than those aged 65 to 74, according to a Bureau of Labor Statistics study. That’s partly because elderly Americans travel less — the BLS says the 75-and-up crowd spends 35% less on transportation than the 65-to-74 group — and downsizing your living situation also helps to cut expenses. At this point, you can also bump your retirement account withdrawals, raising the percentage to 4% to 5% per year depending on your returns. On the other hand, medical expenses are likely to be somewhat higher than they were during the first decade. If your healthcare expenses are much higher than they were in the previous decade, consider switching to a different Medicare plan – a plan with higher premiums but better coverage might end up saving you money at this point.

The third decade: winding down

By this time you’re in your 80s or 90s and probably have much less energy than you did at the beginning of retirement. Many retirees at this stage move to assisted-living facilities or require other types of long-term care. It’s best to explore different long-term care options before you actually need them so that you can find the best caretaker or facility for you. It’s also a good idea to arrange for a power of attorney with a trusted advisor or family member so that if you become unable to make decisions for yourself, someone with your best interests at heart will make them for you.

Most of your living expenses will drop still further at this point, but your medical expenses will likely rise, especially if you’re getting substantial long-term care. Unless everyone in your family lives past 100, you’re probably reaching the end of your life and can thus increase your retirement plan withdrawals to 8%, 10%, or even more depending on your returns. That said, if you want to preserve capital for your heirs, then you may choose to cut back on your withdrawals.

Planning for the three stages

Since your health and energy levels will be highest at the beginning, it’s wise to pursue your highest-activity desires during your first decade of retirement. Just keep an eye on your budget so you don’t overspend and cause problems for yourself later. During the middle and later stages of retirement, many retirees experience feelings of isolation — so this is a good time to be close to family and friends. And remember: You worked hard for decades to be able to enjoy a pleasant and comfortable retirement. This part of your life should be all about you, so put your time and energy into enjoying yourself!

To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 

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®