Articles tagged with: purchasing power

Are You Retiring Within the Next 5 Years?

What should you focus on as the transition approaches?

You can prepare for your retirement transition years before it occurs. In doing so, you can do your best to avoid the kind of financial surprises that tend to upset an unsuspecting new retiree.

How much monthly income will you need? Look at your monthly expenses and add them up. (Consider also the trips, adventures and pursuits you have in mind in the near term.) You may end up living on less; that may be acceptable, as your monthly expenses may decline. If your retirement income strategy was conceived a few years ago, revisit it to see if it needs adjusting. As a test, you can even try living on your projected monthly income for 2-3 months prior to retiring.

Should you try to go Roth? Many pre-retirees have amassed substantial retirement savings in tax-deferred retirement accounts such as 401(k)s, 403(b)s and traditional IRAs. Distributions from these accounts are taxed as ordinary income. This reality makes some pre-retirees weigh the pros and cons of a Roth IRA or Roth 401(k) conversion for some or all of those assets. You may want to consider the “Roth tradeoff” – being taxed on the amount of retirement savings you convert today in exchange for the ability to take tax-free withdrawals from the Roth IRA or 401(k) tomorrow. (You must be 59½ and have owned that Roth account for at least five years to take tax-free distributions.)1

Should you downsize or relocate? Moving to another state may lessen your tax burden. Moving into a smaller home may reduce your monthly expenses. In a perfect world, you would retire without any mortgage debt. If you will still be paying off your home loan in retirement, realize that your monthly income might be lower as you do so. You may want to investigate a refi, but consider that the cost of a refi can offset the potential savings down the line.

How conservative should your portfolio be? Even if your retirement savings are substantial, growth investing gives your portfolio the potential to keep pace with or keep ahead of rising consumer prices. Mere gradual inflation has the capability to erode your purchasing power over time. As an example, at 3% inflation what costs $10,000 today will cost more than $24,000 in 2045.2

In planning for retirement, the top priority is to build savings; within retirement, the top priority is generating consistent, sufficient income. With that in mind, portfolio assets may be adjusted or reallocated with respect to time: it may be wise to have some risk-averse investments that can provide income in the next few years as well as growth investments geared to income or savings objectives on the long-term horizon.

How will you live? There are people who wrap up their careers without much idea of what their day-to-day life will be like once they retire. Some picture an endless Saturday. Others wonder if they will lose their sense of purpose (and self) away from work. Remember that retirement is a beginning. Ask yourself what you would like to begin doing. Think about how to structure your days to do it, and how your day-to-day life could change for the better with the gift of more free time.

Many retirees find that their expenses “out of the gate” are larger than they anticipated – more travel and leisure means more money spent. Even so, no business owner or professional wants to enter retirement pinching pennies. If you want to live it up a little yet are worried about drawing down your retirement savings too fast, consider slimming transportation costs (car and gasoline expenses; maybe you could even live car-free), landscaping costs, or other monthly costs that amount to discretionary spending better suited to youth or mid-life.

How will you take care of yourself? What kind of health insurance do you have right now? If your company sponsors a group health plan, you may as well get the most out of it (in terms of doctor, dentist and optometrist visits) before you leave the office.

If you retire prior to age 65, Medicare will not be there for you. Check and see if your group health plan will extend certain benefits to you when you retire; it may or may not. If you can stay enrolled in it, great; if not, you may have to find new coverage at presumably higher premiums.

Even if you retire at 65 or later, Medicare is no panacea. Your out-of-pocket health care expenses could still be substantial with Medicare in place. Long term care is another consideration – if you think you (or your spouse) will need it, should it be funded through existing assets or some form of LTC insurance?

Give your retirement strategy a second look as the transition approaches. Review it in the company of the financial professional who helped you create and refine it. An adjustment or two before retirement may be necessary due to life or financial events.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com

Website:  www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – turbotax.intuit.com/tax-tools/tax-tips/Retirement/The-Tax-Benefits-of-Your-401-k–Plan/INF22614.html [5/7/15]

2 – investopedia.com/articles/markets/042215/best-etfs-inflationary-worries.asp [4/22/15]

 

Women, Longevity Risk & Retirement Saving

Statistics point out the need to save early, save consistently & stay invested.
Will you live to be 100? If you’re a woman, your odds of becoming a centenarian are seemingly better than those of men. In the 2010 U.S. Census, over 80% of Americans aged 100 or older were women.1

Will you eventually live alone? According to the Administration on Aging (a division of the federal government’s Department of Health & Human Services), about 47% of women aged 75 or older lived alone in 2010. If that prospect seems troubling, there is another statistic that also may: while 6.7% of men age 65 and older lived in poverty in 2010, 10.7% of women in that age demographic did.2,3

Statistics like these carry a message: women need to pay themselves first. A phrase has emerged to describe all this: longevity risk. As so many women outlive their spouses by several years or more, a woman may need several years more worth of retirement income. So there is a need to consider income sources – and investment strategies – for the years after a spouse passes away.

What does this mean for the here and now? It means contributing as much as your budget allows to your retirement accounts. Procrastination is your enemy and compound interest is your friend. It means accepting some investment risk – growth investing for the long run is looking more and more like a necessity.

You will need steady income, and you will need to keep growing your savings. In 2012, Social Security income represented 50.4% of the average annual income for unmarried and widowed woman aged 65 and older. Having a monthly check is certainly comforting, but that check may not be as large as you would like. The average woman 65 or older received but $12,520 in Social Security benefits in 2012.4

You will likely need multiple streams of income in retirement, and fortunately forms of investment, housing decisions and inherited assets can potentially lead to additional income sources. A chat with a financial professional may help you determine which options are sensible to pursue.

Your income and your savings must also keep up with inflation. Even mild inflation can exact a toll on your purchasing power over time.

Risk-averse investing may come with a price. In 2013, the investment giant Allianz surveyed Americans with more than $200,000 in investable assets and unsurprisingly learned that their #1 priority was retirement savings protection. What did surprise some analysts was their penchant for conservative investing during a banner year for stocks.5

Memories of the 2008-09 bear market were apparently hard to dispel: 76% of those surveyed indicated that given the choice between an investment offering a 4% return with protection of principal and an investment offering an 8% return but lacked principal protection, they would take the one with the 4% return.5

A substandard return shouldn’t seem so attractive. If your portfolio yields 4% a year and inflation is running at 1% a year (as it is now), you can live with it. Your investments aren’t earning much, but the Consumer Price Index isn’t gaining on you. If consumer prices rise 3.3% annually (which was what yearly inflation averaged across 2004-07), you are barely making headway. You actually may be losing ground against certain consumer costs. If inflation tops 4% (and it might, if interest rates take off later in this decade), you would have a real problem.6

Cumulative inflation can really eat into things, as a check of a simple inflation calculator reveals. An $18.99 steak dinner at a nice restaurant in 2000 would cost you $24.54 today given the ongoing tame-to-moderate inflation over the last 14 years. That’s 36.3% more.7

As much as we would like to park our retirement money and avoid risk, fixed-income investments may not always offer much reward these days. Retirees can feel like they are being punished by low interest rates, as they can see prices rising faster around them at the grocery store and for assorted services and goods. Interest rates will rise, but equity investments have traditionally offered the potential for greater returns than fixed-income investments.

Growth investing is a possible response to longevity risk. After all, you don’t want to risk outliving your retirement savings. Keeping part of your portfolio in the stock market offers you the potential to keep growing your retirement money, thereby offering you the chance have a larger retirement fund from which to withdraw proportionate income.

Michael Moffitt may be reached at 1-800-827-5577 or email: mikem@cfgiowa.com.
website: cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by the urban consumers for a market basket of consumers for a market basket of consumer goods and services.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – census.gov/newsroom/releases/archives/2010_census/cb12-239.html [12/10/12]
2 – aoa.gov/Aging_Statistics/Profile/2011/6.aspx [4/10/14]
3 – aoa.gov/Aging_Statistics/Profile/2011/10.aspx [4/10/14]
4 – ssa.gov/pressoffice/factsheets/women.htm [3/14]
5 – foxbusiness.com/personal-finance/2013/10/24/wall-streets-rallying-so-why-are-boomers-so-scared/ [10/24/13]
6 – usinflationcalculator.com/inflation/current-inflation-rates/ [4/10/14]
7 – usinflationcalculator.com/ [4/10/14]