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®