Wealth Accumulation

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We would like to wish everyone Merry Christmas, Happy Holidays and A Happy New Year.

Thursday, December 25th, 2014 Wealth Accumulation Comments Off on Happy Holidays

Women Retirement Income Guaranteed

The majority of women still unfortunately earn less than men during their working years. The statistics support the fact that most women live longer than men, and will likely end up alone.  When it comes to retirement savings, women continue to lag behind men.  They’ll spend enormous time and energy taking care of everyone else, then neglect themselves.

The good news for women: they live longer, so they will have longer to enjoy their retirement. The bad news: they live longer, and so their retirement will be much more expensive than for their male counterparts.  While living longer is clearly a positive, it also means women have a greater possibility of outliving their retirement savings.

Women tend to outlive their husbands. Only one-third of women over sixty-five are married, and on average women will survive their husbands by fifteen years.  The combination of being on their own and living longer means that women need far more retirement income than do most men.

Women have a 50% greater chance of being impoverished after age 65 than men. So they’re impoverished and, because they worked fewer years on account of child rearing, lower income and less time in the workforce also means lower Social Security income which is a potentially significant blow to retirement income.

Women often think that they can rely on their husbands’ pensions, but they are wrong. Let’s assume that a couple is living on the husband’s pension, and the woman dies. Though grief-stricken, the husband suffers no financial detriment, and goes on collecting his full pension. But let’s say the husband dies first, as is ordinarily the case.

His wife will probably get only 50% survivor benefits, which won’t come close to providing her the income she needs to carry on her life-style. No wonder 41% of older women are living close to the poverty line. Not surprisingly, most widows who are poor now were not poor before their husbands died.

Because so many women work in part-time jobs or for employers who don’t offer retirement benefits, fewer have defined benefit pension plans. And those with plans have smaller pensions because of less time in the workforce. Women may also be less likely to participate in retirement plans because of lower compensation.

The three top simple goals for financial well-being include making a plan, paying off your bills and planning for the future no matter what your gender. Men and women have the same financial opportunities (and risks), the same vehicles for saving, investing, and borrowing.  However, their circumstances and choices can be very different.

With longer life expectancies and longer time horizons, women investors are well served to invest in asset classes that will continue to grow once their retirement begins. Putting most of your eggs in one basket can throw a wrench into your retirement plans.

Volatility in the stock market can make your stomach churn, when most of us are faced with financial trouble, we lose sleep and the volatility of an unstable stock market causes even the most savvy investors to reach for the Pepto-Bismol.

With all of the ups and downs in the stock market, many investors have been asking this question, “Is there a way to make money in the stock market and still have a way not to lose my principal is the market goes down?”  Women who want to take advantage of the growth potential of the stock market should consider a fixed-indexed annuity.  A fixed indexed annuity is an annuity that earns interest that is linked to a stock or other equity index. One of the most commonly used indices is the Standard & Poor’s 500 Composite Stock Price Index (the S&P 500.

Considering this, there is one thing an annuity does really well, which is to provide a hedge against longevity risk, and if you are buying it for that reason, an annuity can be a good investment.   An annuity allows an investor to convert a lump sum in a 401(k) or other investments into a stream of periodic income payments over the annuitant’s lifetime.  Since you’re building a paycheck that might last 20 or 30 years, a woman retiree or near-retiree who wants to avoid the stock market and is looking for a predictable rate of return a fixed indexed annuity is certainly worth consideration..

A fixed indexed annuity with an income benefit can be a good idea as a safety net for a woman planning for retirement in the next 10 years or so:  With fixed indexed annuities, you have the opportunity to grow your underlying assets with exposure to the stock market. But if the market has the kind of colossal downturn we’ve seen recently and you’re retiring at just the wrong time, you’ll know you have income protection.

If you buy a inflation-adjusted immediate annuity, you’re done with your investment decisions regarding the money you spend on the annuity. Your payout is now locked in — and your retirement paycheck won’t be adjusted for changes in capital markets.

Many conservative women investors like the idea of an annuity because they like the certainty of an income stream over their life expectancy or their beneficiary in the case of a joint annuity. Annuities offer a measure of protection against market downturns, may provide a guaranteed investment return, and grow tax-sheltered until you withdraw the money.

Women should live confidently when it comes to money know-how because being strong savers, future planners and organizers comes pretty easily to the female being. So be strong, be confident, and be financially sound because you are informed, involved and intelligent knowing annuities is the best investment tool for safe and secure retirement income.

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Tuesday, September 30th, 2014 Wealth Accumulation, Wealth Management Comments Off on Women Retirement Income Guaranteed

Life Cycle Retirement Success

The main goal of life cycle finance is to effectively distribute a person’s income from the working and earning years over their entire life. Saving becomes important in order to fund the later years, when one leaves the workforce and rely on those assets to supplement Social Security, employer pensions and other income.

In life many of the important financial choices we face are shrouded in uncertainty and fraught with risk. For instance, we can’t predict with accuracy the financial needs of our families, the returns we will earn on our investments or how long we will live in retirement.

Retirement is a fairly recent phenomenon. In the past, life expectancy was much shorter, and those lucky enough to live a relatively long life worked until they were no longer capable, and they didn’t live long after they stopped working.  One note of caution as you’re thinking about retirement strategies: nothing will make up for the fact that you haven’t saved enough.  Savvy retirees know that successful portfolio oversight is just one part of financial success in retirement.

Managing expenses is also essential. Anticipating near- and longer-term expenses is an important part of the process so it is important to model out how big-ticket items and unplanned expenses will affect the portfolio’s cash flow.

Investors face a difficult investing environment, with low yields on fixed-income investments and an economy on the mend. Some investors may opt to “chase return,” meaning they put their assets into riskier and sometimes complicated products that promise higher yields than they can get in more traditional investments. Investors should realize that they could be taking on more risk if they invest in products with higher returns.

Thankfully, experts say there are a number of strategies to avoid or at least mitigate the risk of outliving your assets or what some describe as longevity risk. If you knew your date of death, retirement planning would be a breeze. Unfortunately, you likely don’t know when you’ll die. That means you have to plan for an unknown — how many years you and, for some, your spouse might live.

The first reality is that most people live longer than they expect.A 65-year-old couple has an 88 percent chance that one of them will live to age 80; a 73 percent chance one will live to age 85; and a 49 percent chance one will live to age 90. So they will be collecting benefits for a long time.

Think strategy rather than plan. Start by turning off the stock market report. Nothing is more useless than knowing whether the Dow is up or down 100 points today.  A strategy allows for contingencies. It specifies types of actions to take, depending on what scenario unfolds. In other words, you have to plan to make sure you don’t run out of money before you run out of life. And that’s no easy task.

The immediate annuity: a retirement paycheck to yourself is a better strategy: Not only does it provide more financial security to retirees, there are positive psychological benefits. Some of them are simply different numbers, such as the idea of a “retirement paycheck”.  Here’s how they work: you turn over a lump sum of money to the insurance company in exchange for a stream of income that will last as long as you do, with that monthly check reflecting how much you can put down, your age today and how long the insurance company figures you’ll live.

If you’re a 65-year-old woman, you can turn $200,000 into a lifetime (inflation-adjusted) income of between $1,000 and $1,100 a month; if you’re 70, the same sum will bring you as much as $1,230 a month. Those dollar figures may not sound immense. But especially for those in their late 40s to mid-60s who are starting to realize that they may not have saved enough for retirement, they could be a big help when combined with social security payments.

While many Americans are not prepared for retirement, and only 54% of non-retired respondents have some kind of retirement account, we feel that workers should continue to use tax-advantaged savings accounts like 401(k)s to boost their retirement security, however, there are some problems with  401(k)s that should be addressed.

The advent of 401(k) retirement savings since the late 1970s was supposed to help secure and boost the retirement savings of baby boomers. The plans, originally conceived as a supplement to pensions, have since mostly replaced them.

The investment industry has said for the past 30 years that 401(k)s are a big improvement over pensions, giving employees more investment choice, more control over retirement planning and more portability amid the frequent job changes of the modern workforce. That, at least, was the promise held out by the industry that now holds $4 trillion in retirement assets.

It hasn’t worked out that way. The median balance in 401(k) and individual retirement accounts for households headed by people ages 55 to 64 who had accounts at work was just $120,000 in 2010, according to the Center for Retirement Research at Boston College.

More troubling companies that adopted 401(k) plans have realized they can adjust them, tinkering with the plumbing and, in the process, costing workers millions in retirement savings.  The corporate cutbacks are adding to employees’ financial anxieties at a time when incomes are stagnant and even those earning low-six-figure incomes aren’t accumulating enough retirement savings.

Companies also save costs through lengthy vesting requirements, forcing employees who leave to forfeit unvested contributions. Another form of skimping occurs when companies delay 401(k) matches until the end of the year or early the following year.

Contributions to a traditional 401(k) are not subject to income tax withholding and are not included in your taxable wages, and earnings on Roth 401(k) contributions are tax-free. In 2014, you can contribute up to $17,500 to your 401(k). And if you’re age 50 or over, you can contribute an additional $5,500 for a total of $23,000.

A good portfolio is well-balanced and when we’re putting together portfolios and balancing portfolios, an annuity becomes more of the foundational portion along with Social Security. It’s looking at things that are market related and things that are not market related. If you cannot stomach the ups and downs, find your investments elsewhere; that’s the secret. An annuity is slanted towards providing income, whether for the future or an immediate need, this is where an annuity is well-suited.

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Sunday, February 16th, 2014 Wealth Accumulation, Wealth Preservation Comments Off on Life Cycle Retirement Success

Risk of Dying Too Late

During retirement, people need to convert a pot of accumulated assets into a stream of regular cash flow akin to the monthly paycheck they received during their workdays. The assets you have accumulated and grew over your working life are meant to provide you retirement income.  The challenge is anticipating potential swings in the value of those investments while providing a relatively predictable level of income.

Adding to the challenge, with the increasing cost of medical needs, increasing life expectancies, as well as fewer pension benefits and Social Security benefits, retirees are finding it harder to get by on the amount of savings that they had previously thought would be adequate.

Greater life expectancy also revealed itself as a source of anxiety when investors were asked what they perceived to be the greatest risks to financial futures, with the second most popular answer being clients having to spend more than they earn.

Since the financial crisis, there’s no question that the nation’s population is concerned about their financial standing. Plenty of investors saw the huge declines in their portfolios, while others had their pensions stripped or other financial hardships.

On the heels of such events, there’s one fear that the majority of soon-to-be retirees share, the most common shared concern is living beyond their savings — a.k.a. running out of money.

However half of over-60s say they have no idea how to convert a pension pot into an income when they retire.  Retirees have depended on the 4 percent rule to help guide their future financial planning since the mid 1990s. The rule goes that if a retiree withdraws up to 4 percent from their savings every year, their nest egg should last for the next 30 years. However, it seems the rule is out of date with current economic realities of low returns.

How much retirees can safely withdraw from their retirement account each year is a mostly a function of current stock values and interest rates, which tend to predict near-term returns. And when stock market valuations are well above and bond yields are well below their historical averages, as they are today, retirees should withdraw much less than 4% of their portfolio, assuming they want their nest egg to last over the course of their household’s lifetime.

An initial withdrawal rate of 3% might be an even safer starting point. “Since there are so many variables – age and remaining lifespan, longevity, risk aversion, asset allocation, and the like, it’s hard to say anything really general except that the finding is that ‘3% is the new 4%.

Today, the choice is effectively an annuity versus income drawdown, both of which have their advantages and their faults. By offering structured payouts in the future, an annuity can give some sense of security to a retiree that’s concerned about outliving their income.

For Americans who will not be retiring with a meaningful stream of pension income, income annuities offer that potential. Because an income annuity is purposefully consuming both interest and principal to create an income stream, the individual distributions are likely to be higher than anyone could justify taking from a balanced portfolio of investments, where maintenance of the principal balance is often the goal.

The purpose of an annuity is always income, whether you need money now, or in the future.  It can be helpful to think of an annuity as being similar to other types of investment vehicles.  For instance, a CD is an investment vehicle between you and a bank, and a municipal bond is an investment vehicle between you and a municipality.  An annuity is an investment vehicle between you and an insurance company.

While overweighting a retiree’s income portfolio with income annuities may be problematic, avoiding the income solution may not be in the retiree’s best interest either. Income Annuities, while underwritten by bonds, prove to be better bonds in respect to retirement income because of their ability to pool risk. Risk pooling is combining the uncertainty of individuals into a calculable risk of large groups.

A life annuity’s main strength is that it creates a “Personal Pension” income stream by insuring the “Risk of Dying Too Late.”

Monday, December 9th, 2013 Wealth Accumulation Comments Off on Risk of Dying Too Late

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