Special Report

Your Mid-Career Guide
to Retirement Planning

Here's everything you need to do to cross the financial finish line in good shape for your future.

Coming Up Next Week: Did You Do It Right?

Your Retirement Planning Team
Week of March 20

Who should be on your retirement planning team

  • The People Who Should Be On Your Retirement-Planning Team
    Retirement planning is one of the few things in life for which you don’t get a second chance. It takes decades to prepare for the day you leave the workforce, making every move you make and every dollar you save extra important. Almost anyone can benefit from some help from a financial advisor as they contemplate retirement (see Do You Need a Financial Advisor?). But as you gain more wealth, it’s likely that a single advisor won’t be able to handle all the issues you will need to resolve. But who should be part of your team? Whom do you need to ask for help? Review this list of professionals to help decide. Financial Planner Financial advisor is a bit of a catch-all term, so let’s break things down a bit more. For retirement purposes, you first need a financial planner. This is an individual with the knowledge and experience to help you plan and achieve your long-term financial goals. Certified Financial Planners (CFPs) are skilled at tax planning, asset allocation, risk management and estate planning. (For more, see Financial Advisor vs. Financial Planner.) If you’re early in your career and don’t have a lot of assets, a financial planner might be all you need for now. But as your assets grow and your financial picture gets more complicated, you’ll probably bring other people into the mix. Portfolio Manager Your financial planner is perfect for planning asset allocations and setting you up in some basic investment products, but as your assets change, you may want someone who specializes in investing strategy. A portfolio manager understands hedging strategies, how to mix different investment products to fit your risk profile and how to adjust your portfolio over time to match your retirement goals while being tax efficient. This term is often used for professionals who manage large mutual funds, but some service the individual investor as well. Look for portfolio managers who work on a fee basis rather than commission. Although many commission-based advisors are skilled professionals, their pay structure invites a conflict of interest where your interests may be contrary to theirs. Advisors who are paid either hourly or by a percentage of assets are compensated based on performance. (For more, see A Day in the Life of a Portfolio Manager.) Accountant You probably won’t need an accountant until your finances become complicated, but once they do, things like taxes become a much bigger headache. How do you reduce capital gains taxes? Should you have a Roth or Traditional IRA? What do you know about the alternative minimum tax? Are you planning to leave money to the next generation? Your financial planner will know a lot about these subjects; however, once your net worth moves beyond $200,000, it might be time to get the help of an accountant. And if you own a business, you definitely need one. (For more, see How to Find a Smart Accountant.) Insurance Agent Retirement is supposed to be about saving enough money, right? This is true, but protecting your wealth is equally important. That’s where insurance comes in. As you age, medical expenses tend to rise, so what kind of health insurance do you need? How do you keep from paying too much? How does Medicare fit into the mix? How about life and long-term care insurance? There are many types of insurance in these two categories alone. And don’t forget about annuities. These are often seen as investment products though they actually fall into the insurance category. You can get the advice of an insurance agent, but be careful. Their compensation is often commission-based, so their primary goal is to sell you a policy. There are also fee-only insurance advisors who will help you evaluate your insurance needs and find the right policy. These advisors aren't paid by commission so their interests are aligned with yours. Fee-only insurance advisors are expensive – often $300 per hour or more – but they can save you far more than that by finding you the most appropriate policies for your needs. (For more, see What Your Life Insurance Agent Makes – on You.) Estate Planning Attorney Attorneys often enter the picture when you get into estate planning. While financial planners have basic knowledge of the topic, estate planning is highly complicated and most people will need the help of an attorney to get the job done right. Attorneys may plan for the disposition of the client’s estate, keeping the estate out of probate, planning for estate taxes, and providing creditor protection, to name a few tasks. (For more, see Do You Need an Estate Planning Lawyer?) Your Team Has to Work Together Let’s use a sports analogy. Think of yourself as the manager. It’s your job to put together a winning team, and it’s not just about their raw talent. You have to consider personalities. Do these individuals work well with others? Will they take direction even when it involves compromise? Are they OK not being the main person in charge? As you assemble your team, try to find people who are like-minded in their plans for you, can work with other professionals and may even be around your age. You don’t want your team retiring before you do. The key person is probably your planner, whose role is rather like the coach who decides when to bring in the other players. Ask About Referrals Your financial planner should be the kind of person who recognizes when he or she is in over his/her head – and is professional enough to bring in other team members when it’s time. But you still have to vet them. If your financial planner recommends somebody, ask  if he or she is receiving a referral fee. Either way, if you receive a referral, evaluate at least three other people in the field just as you should do when you choose your initial planner in the first place. The Bottom Line As you accumulate wealth and find yourself buying properties, investing assets and thinking about leaving a legacy, a single financial planner won’t be enough. Bring in other team members as necessary and build a team that doesn’t work on commission whenever possible. If you end up with a great deal of wealth, private banking is another option to investigate as you look at options for retirement planning (see Which Are the Top 10 Private Banks?). Be sure to analyze the fees involved – and the amount of your time various options will take – and decide which choices make the most sense for your needs.
    by Tim Parker
Maximizing Tax Advantages
Week of March 13

Get the maximum retirement tax advantages

  • Taxes on Retirement Assets: How to Pay Less
    Retirement planning can be tough. It is hard enough to save for a comfortable retirement during your working years. Once you actually retire, managing your withdrawals and your spending can be complicated. One important and complex area in both parts of your life is managing the process in the most tax-efficient manner. If you have portions of your nest egg in various types of accounts ranging from tax-deferred to tax-free (a Roth) or taxable, it can be a challenge to decide which accounts to tap and in what order. Required minimum distributions (RMDs) also come into play after age 70½. Here are some tips for those saving for retirement, for retirees and for financial advisors advising them. (For related reading, see: Should Retirees Reinvest Their Dividends?) Fatten Up Your 401(k)  Contributing to a traditional 401(k) account is a great way to reduce your current tax liability while saving for retirement. Beyond that your investments grow tax-deferred until you withdraw them down the road. For most workers, contributing as much as possible to a 401(k) plan or a similar defined contribution plan like a 403(b) is a great way to save for retirement. The maximum salary deferral for 2016 and 2017 is $18,000 with an additional catch-up for those age 50 or over of $6,000, bringing the total maximum to $24,000. Add any company matching or profit-sharing contributions in and this is a significant tax-deferred retirement savings vehicle and a great way to accumulate wealth for retirement. The flip side is that with a traditional 401(k) account, taxes – at your highest marginal rate – will be due when you withdraw the money. With a few exceptions, a penalty in addition to the tax will be due if you take a withdrawal prior to age 59½. The assumption behind the 401(k) and similar plans is that you will be in a lower tax bracket in retirement. As people live longer and the tax laws change, though, we are finding this is not always the case. This should be a planning consideration for many investors. (For more, see: Are 401(k) Withdrawals Considered Income?) Use IRAs Money invested in an individual retirement account (IRA) grows tax-deferred until withdrawn. Contributions to a traditional IRA may be made on a pre-tax basis for some, but if you are covered by a retirement plan at work, the income limitations are pretty low. The real use for an IRA for many is the ability to roll over a 401(k) plan from an employer when they leave a job. Considering that many of us will work at several employers over the course of our careers, an IRA can be a great place to consolidate retirement accounts and manage them on a tax-deferred basis until retirement. Considerations with a Roth IRA A Roth account, whether an IRA or within a 401(k), can help retirement savers diversify their tax situation when it comes time to withdraw money in retirement. Contributions to a Roth while working will be made with after-tax dollars so there are no current tax savings. However, Roth accounts grow tax-free and if managed correctly, all withdrawals are made tax-free. This can have a number of advantages. Besides the obvious benefit of being able to withdraw your money tax-free after age 59½ and – assuming that you’ve had a Roth for at least five years – Roth IRAs are not subject to RMDs, the required minimum distributions  that have to begin when you reach 70½. That's a big tax savings for retirees who do not need the income and who want to minimize their tax hit. (For more, see: Why Boomer Retirements Will Be Vastly Different Than What They Planned For.) For money in a Roth IRA, your heirs will need to take required distributions, but they will not incur a tax liability if all conditions have been met. It is generally a good idea to roll a Roth 401(k) account into a Roth IRA rather than leaving it with your former employer in order to avoid the need to take required distributions at age 70½ if that is a consideration for you. Those in or nearing retirement might consider converting some or all of their traditional IRA dollars to a Roth in order to reduce the impact of RMDs when they reach 70½ if they don’t need the money. Retirees younger than that should look at their income each year and in conjunction with their financial advisor, decide if they have room in their current tax bracket to take some additional income from the conversion for that year. For more, see Why Age 70 Is Pivotal for Retirement Planning. Open an HSA Account If you have one available to you while you are working, think about opening an HSA account  if you have a high-deductible health insurance plan.  In 2016, individuals can contribute up to $3,350 per year; it rises to $3,400 in 2017.  Families can contribute $6,750 in both years. If you're age 55 or older,  you can put in an additional $1,000. The funds in an HSA can grow tax free. The real opportunity here for retirement savers is for those who can afford to pay out-of-pocket medical expenses from other sources while they are working and let the amounts in the HSA accumulate until retirement to cover medical costs that Fidelity now projects at $245,000 for a retiree couple where both spouses are age 65. (For more, see: How to Use Your HSA for Retirement.) Withdrawals to cover qualified medical expenses are tax-free. Choose the Specific Share Method for Cost Basis For investments held in taxable accounts, it is important to choose the specific share identification method of determining your cost basis when you have purchased multiple lots of a holding. This will allow you to maximize strategies such as tax-loss harvesting and to best match capital gains and losses. Tax-efficiency in your taxable holdings can help ensure that more is left for your retirement. Financial advisors can help clients to determine cost basis and advise them on this method of doing so. Manage Capital Gains In years when your taxable investments are throwing off large distributions – to the extent that a portion of them are capital gains – you might utilize tax-loss harvesting to offset the impact of some of these gains. As always, executing this strategy should only be done if it fits with your overall investment strategy and not simply as a tax-saving measure. That said, tax management can be a solid tactic in helping the taxable portion of your retirement savings portfolio grow. The Bottom Line Saving for retirement is mostly about the amount that is saved. But at all phases of saving for retirement there are things investors can do to help mitigate taxes that can add to the amount ultimately available in retirement. This is an area where knowledgeable and experienced financial advisors can add real value to your retirement planning. (For more, see: 5 Investments You Can't Hold in an IRA.)
    by Roger Wohlner
  • Tax Avoidance Vs. Tax Evasion
    Evading taxes is illegal, but avoiding paying unnecessary tax is one of the keys to building wealth.
Planning Retirement for Two
Week of March 6

How to schedule retirement for you and your spouse

  • Retirement: The One Thing Couples Shouldn't Do Together
    Many working couples dream of the day when they can retire and sail off into the sunset together. The investment and insurance industries have done much to convince the public that this ideal is possible only with the help of certain products and services, and the financial media has endorsed that idea. However, working couples should take a moment to consider whether retiring at the same time is a wise course of action. This article will compare the financial ramifications of joint retirement versus one spouse working longer than the other, and why the latter option may be more advantageous in the long run. It's a good idea to start thinking about these issues earlier than you may realize – say, at mid-career, when there is still time for each partner to map out a trajectory of  how and when they'd like to leave the workforce and how those plans mesh together. Why Shouldn't Couples Retire Together? There are both financial and emotional reasons why it may be easier for many working couples to stagger their retirement dates. Financially speaking, the advantages are threefold. When one spouse works longer, the amount of Social Security benefits the couple is entitled to will increase. In addition, the continued income from the working spouse gives the couple a few more years to save for retirement. Finally, a spouse who works an extra three to five years will likely have a shorter period over which to draw on his or her retirement assets, allowing for larger withdrawal amounts each year. The Financial Impact The following example clearly shows how much of a difference an extra five years of work can make for a couple: Example – The Benefits of Working Longer Larry and Sally Griffen are both 60 years old, born in 1957. They each earned an average of $40,000 per year during their working years. Both come from families with longevity, and each expects to live to age 90. Larry and Sally both plan to retire at age 65. At their current rate of saving, the couple will have $300,000 of joint retirement assets by that time. When each reaches full retirement age, at 66 and 6 months, they  will be entitled to full Social Security benefits Assuming that the Griffens' investments earn an average of 6% per year, they can expect to receive approximately $14,750 per year in retirement in addition to their Social Security benefits, assuming depletion of assets by age 90. The Griffens can realistically expect their joint retirement income to drop to close to 50% of their pre-retirement income, depending on when they decide to start drawing Social Security. The Social Security benefits online calculator reports that Larry and Sally can each expect an annual benefit of approximately $18,850 if they each retire at age 66½. This would bring their total annual retirement income up to approximately $52,450 ($18,850 + $18,850 + $14,750) per year – a roughly 30% drop in income, from their $80,000 pre-retirement income. But then Larry starts to contemplate what would happen if he were to work for another five years. If he did, then he could step up his contributions to accumulate another $30,000 in his retirement plan (15% of $40,000 = $6,000 x 5 years, plus investment growth) and would draw on it for five fewer years. If the Griffens are able to postpone any retirement plan distributions until Larry retires at 70 (since he will still receive his salary), and Sally begins taking Social Security at age 66½,  they could reasonably expect to have a total of approximately $437,000 in retirement assets. Larry will also get a enhanced Social Security benefits of  $28,332 per year (instead of $18,500). If their investments continue to grow at 6% and they deplete their assets at age 90, their total annual retirement plan distributions would come to about $36,000, plus $47,182 of total Social Security benefits. This effectively replaces the income from their jobs until age 90. Of course, the Griffens would be wise to draw on their plan assets a little more slowly, so they have a cushion in case one or both of them should live past their estimated life expectancy. This example clearly illustrates the financial impact that just a few more years of work can have on a couple's retirement. The triple power of increased Social Security benefits, increased retirement savings and the reduction of time over which to draw on those savings can mean the difference between a financially secure retirement and one that is marked by financial hardship. Impact on Health Insurance Another major factor to consider is health insurance. If, in the previous example, Larry continues to work for another five years, he can keep his health coverage provided through his employer. This would save the couple from having to pay for five years of higher health insurance premiums at an individual rate. Emotional Reasons for Retiring Separately Retirement in the modern era can be an emotionally complex proposition. Losing one's sense of identity through work can be a major adjustment for some, while others are able to make this transition with relatively little difficulty. When a working couple retires, they suddenly find themselves at home together all the time, without the separation of work that they may have become accustomed to. This sudden shift can often disrupt a couple's established relational boundaries. As such, it may be easier for couples if only one spouse goes through this process at a time, especially if either spouse expects to have difficulty adapting to the new lifestyle. This gives at least one of the spouses (perhaps the one who is expected to have more difficulty with the process) some time alone to begin creating a new identity while some elements of their relationship, including separation during the day, remain stable. If both spouses retire at the same time, the emotional impact on each partner – and on their relationship as a couple – can create friction that might otherwise have been avoided. If both spouses struggle to find new paths for themselves, they may end up taking their frustrations out on each other. The Bottom Line Retirement is a complex and expensive phase of life. When couples stagger their retirement dates, they can reap both financial and emotional rewards that will make this vital transition easier. Life may, of course, shape which partner ends up retiring first and change the plans the couple made when they were younger. One person's job situation may shift, or health issues or problems with other family members could intervene. But thinking about it in advance will make this process easier, whatever happens. There are many resources available that couples can turn to for help in the decision-making process. For more information visit www.ssa.gov or consult your financial advisor and retirement counselor. Retirement Planning for Couples will also help you with these issues.
    by Mark P. Cussen, CFP®, CMFC, AFC
  • How Your Spouse Affects Retirement Planning
    Make your spouse's income count when it comes to retirement planning. 
Do This If You Started Late
Week of February 27

Catch-up Strategies if You Started Late

  • 6 Late-Stage Retirement Catch-Up Tactics
    People approaching retirement age with little in savings may have a bumpy road ahead. But certain steps can build a nest egg as rapidly as possible, and to ensure at least some money will be there for support in retirement. TUTORIAL: Retirement Planning Basics 1. Fund Your 401(k) to the Hilt An employee in this age category who is offered a 401(k) at work should consider funding it to the maximum amount. To provide you with a sense of how powerful maxing out a 401(k) can be, consider the following: An individual who is 40 years old and who contributes $17,500 annually to a 401(k) could accumulate more than $1.3 million in savings by age 65. This assumes an 8% return and no employer contributions (see Figure 1). That's a powerful savings tool, and it's evidence that workers nearing retirement should seriously consider funding their 401(k)s as soon and as much as possible. If this individual increases savings by a catch-up amount of $5,500, at age 50, this would lead to an additional $271,000 in savings. Note that for 2017, these figures are $18,000 and $6,000 (catch0up), for a total of $24,000 and even more earnings potential. Figure 1 2. Contribute to a Roth IRA Roth IRAs offer investors a great way to save and grow money on a tax-deferred basis. There are some income limitations. For example, for 2017, if you are single and your modified adjusted gross income (MAGI) is $118,000 or more a year, your contribution limit is reduced; if you are single and your MAGI is $133,000 or more your contribution limit is nil. For married folks filing jointly, there are contribution limitations for those with MAGI of $186,000. And at or above $196,000, the contribution limit is nil. How much can one potentially sock away with a Roth? Consider the following example: A 40-year-old who invests $5,500 each year (the 3017 limit) and obtains an annual rate of return of 8% has the potential to accumulate more than $434,000 by age 65. Even a person who waits until age 50 and starts saving $6,500 per year (using the same return assumptions) can save as much as $190,000 by age 65.   A fully funded Roth IRA and 401(k) can help to rapidly build retirement assets. 3. Consider Home Equity While a home should not usually be considered a primary source of retirement income, it can provide liquidity during retirement. To that end, older individuals might consider borrowing against the equity in their homes in order to fund living expenses. However, a reverse mortgage may make more sense because lending institutions may shorten repayment periods and increase repayment amounts for older borrowers (see Can the New Reverse Mortgage Boost Retirement Income?). Selling a primary residence outright and moving to a smaller and less costly home may also make sense for older individuals; in many cases they rarely need a big house, as children are usually off on their own. However, selling a home should not be taken lightly. After all, in many instances, it takes the homeowner 30 years to accumulate full equity ownership in the house. Therefore, it would be a shame not to obtain the largest amount possible from a sale. (For tips on selling your home, see Need Retirement Income? Sell Your House! and Downsize Your Home to Downsize Expenses.) That said, individuals should consider current market conditions and whether it is the most advantageous time to sell. Naturally, homeowners should also consider any tax consequences. Married homeowners who file a joint tax return can generate profits of up to $500,000 without owing federal tax on the capital gains. For single individuals, the limit is $250,000. This is assuming that you meet certain requirements, such as that the home being sold is your primary residence and that you have not benefited from the capital gains exclusion on another home during the past two years. Additional requirements are explained in IRS Publication 523, available from the IRS. Finally, sellers must consider the cost of living in the area they will be moving to. In other words, it's wise to make sure that the cost of buying a home and the cost of everyday items like groceries are generally less. 4. Take Full Advantage of Allowable Deductions It's important to note that standard deductions aren't for everyone. In fact, if you have a large amount of mortgage interest, deductible taxes, business-related expenses that weren't reimbursed by your company, and/or charitable donations, it probably makes sense to itemize your deductions. (For more insight, read Which is better for tax deductions, itemization or a standard deduction?) Sit down with a CPA and go over your personal situation to determine whether it makes sense to itemize. Then get in the habit of saving receipts and keeping good records. Remember, in the end it's not always what you make, but what you save that counts – particularly as you get closer to retirement. 5. Tap Into Cash Value Policies While tapping an insurance policy for its cash should be considered a last resort, if the original need for the insurance is no longer there, it may make sense to cash out. However, before ever canceling any policy or accessing its cash value, you should first consult a tax advisor and an insurance professional to review your individual needs. 6. Get Disability Coverage Don't forget to either obtain disability coverage or make certain that your job offers some sort of group disability benefit. The idea behind obtaining such coverage is simple: to protect yourself and at least a portion of your income and nest egg just in case the worst should happen. Your chances of becoming disabled depend on your career and your lifestyle, but according to a data released by the U.S. Census Bureau in 2014, approximately 57 million Americans report some level of disability. Given that the U.S. population is around 300 million, that's a substantial number – 19% of "the U.S. civilian noninstitutionalized population," according to the report. It means that in order to protect your income and improve the chances that you will retire with some form of nest egg, it makes sense to at least consider some form of disability coverage. The Bottom Line Individuals in their 40s and 50s who have done little or no retirement planning are certainly at something of a disadvantage. However, with the proper planning and a willingness to save and invest, the odds are not insurmountable. If you are in this age group and feel you are not where you want to be in the retirement planning game, you may find Retirement Savings Tips for 45-to-54-Year-Olds and Retirement Savings Tips for 55-to-64-Year-Olds helpful.
    by Glenn Curtis
  • Six Rules For Successful Retirement Investing
    You can improve your chances of enjoying a comfortable retirement by starting to follow some simple rules sooner rather than later. First, understand your investment options. A variety of tax-deferred vehicles are available, some through your employer and others through a bank or brokerage. Look into your choices, and understand how their risks and rewards suit your style and goals. Common retirement savings instruments include 401(k)s, defined benefit plans, and Individual Retirement Accounts. Second, start saving early. This lets you take advantage of the power of compounding interest. Say you invest $10,000 when you’re 20, and it grows 5% each year. When you’re 65, you’ll have $89,850. Third, do the math. Add up your assets and subtract your liabilities to calculate your net worth. Checking your net worth each year lets you adjust your processes, if necessary, to achieve your financial goals. Write down specific goals, such as retiring at 65 or traveling abroad, so you know what you’re saving for. Fourth, keep your emotions in check, since emotional reactions can impede your savings’ growth. Be realistic – not every stock will be a winner. Learn from your mistakes and successes, and maintain a balanced portfolio. Fifth, pay attention to fees, which erode your gains. Figure out what you’re spending, and find other investments if the fees are excessive. And sixth, get help when you need it. A lack of investment knowledge is no excuse for failing to prepare. Instead of saying, “I don’t know what to do,” consult with a financial planner, investment adviser, CPA or other professional.
Your Retirement Career
Week of February 20

Your Retirement Career (If You Want One)

  • Planning Your Second Career
    Whether by choice or out of necessity, Americans are working longer. According to a survey conducted by retirement-planning website RetiredBrains.com, 86% of business professionals plan on working after they become eligible to retire, and many of these will seek out new career paths as they extend their working years. These second careers, or "encore" careers, provide continued income during retirement while allowing individuals to pursue work that is personally fulfilling, and takes advantage of their knowledge, energy, talent and time. Mid-career is not too soon to start looking ahead, in case the career you're interested in requires training you could try to start while you're still in your current field. Here, we take a look at a few important considerations when planning a second career. Identify Your Skills and Interests Many people who embark on a second career do so not just for the money, but for the opportunity to stay productive and do something they are passionate about. Identifying your skills is often easier than narrowing down your true interests and passions. Because you may be in your second career for the next 10 or 20 years, however, it’s important to spend the time and make an effort up front to figure out how you can combine your skills and interests into work that is rewarding. Ideally, you should begin planning your second career while you are still working. This will give you time to really think about and plan your next act while you still have the security of a paycheck. Art Koff, Founder of RetireBrains.com, advises that it is important "for someone interested in pursuing a second career is to give this serious consideration while they are still working. [This includes] checking with their current employer as to possible avenues that might be open to them, as well as maintaining their contacts and even expanding their network, giving them a maximum number of opportunities after they 'retire.'" When searching for your passion, it may be helpful to reflect on what you enjoyed doing as a child, and what career "dreams" you had as a young adult. Think about what you would do if money were no object (imagine you’ve won the lottery – what would you do?) Allowing yourself to dream a little can help point you in the right direction toward finding a way to combine your skills and interests. Education and Training Your existing skill set may not match your interests, and you may have to learn new skills through education and training. Professional programs, graduate schools and community colleges cater to people with work and family obligations, and offer evening, weekend and online classes to provide students with the flexibility they need. You may be able to complete the necessary coursework while still working in your current field, enabling you to "hit the ground running" when you switch careers. As an added bonus, you may be eligible for tuition reimbursement through your current employer. Check with your employer for details, and be sure to find out what happens if you leave within a certain period of time (for example, you may have to repay the tuition reimbursement if you leave within the year). In addition to updating your skill set, you may need to revitalize your resume, focusing on relevant work and experience. If it has been a while since you've written a resume, you may want to consider a resume coach who can help you construct a well-organized resume that showcases your expertise, experience and accomplishments. Where the Jobs Are It can be helpful to consider fields that exhibit strong job growth when refining your second career. According to Encore.org, a non-profit website that provides information for people pursuing encore careers, most job opportunities fall into five categories: Education According to a MetLife Foundation and Encore.com survey, 30% of people in second careers are working in education. Despite budget cuts in many school districts, math, science, special education and ESL jobs are still available. Other roles in the K-12 setting include adjunct teachers, coaches/mentors, content advisers, project coordinators and tutors. HealthcareThe healthcare industry is expected to expand significantly over the next two decades as boomers age and increase demand: estimates indicate a 22% increase between 2008 and 2018. Emerging jobs such as community health worker, chronic illness coach, medications coach, patient navigator/advocate and home modification specialist add depth to the more traditional careers available in healthcare. Environment Although "green" jobs may be difficult to find, they represent an area of growing interest for people pursuing second careers, and changes in the production and consumption of energy may lead to an increase in the number of jobs available. While many green jobs require specific technical skills, there are job opportunities for professionals without specific environmental backgrounds, such as those who have worked in project management, architecture, engineering, accounting, human resources and marketing. Government By September 2017, 31% (nearly 600,000) of the career employees of the federal government will be eligible to retire, according to the U.S. Government Accountability Office. Because of its aging workforce, the government is facing labor shortages in key skilled positions, including administrative roles, the medical and health field, and security and law enforcement. To browse government jobs, visit www.usajobs.gov or your state's employment website. Non-profits While many non-profits have struggled since the financial crisis of 2008, the country's 1.5 million non-profit organizations employs about 10% of the workforce in the United States. As one of the fastest-growing job sectors in the last 10 years, non-profits provide job opportunities for a wide variety of workers, including accountants, artists, attorneys, carpenters, computer programmers, designers, educators, electricians, event planners, fundraisers, human resource professionals, managers, marketers and many others. Entrepreneurship The U.S. Small Business Administration (SBA) refers to the growing number of individuals who are 50-plus and turning to small business ownership as "encore entrepreneurs." According to the SBA, 15% of workers between the ages of 50 to 64 are self-employed, and that figure increases to 25% for workers who are 65 and older. Entrepreneurship provides the opportunity to turn a lifetime interest or hobby into a personally rewarding and potentially profitable career. Visit www.sba.gov and search for "encore entrepreneur" for tips on starting and running a small business, as well as financing options. The Bottom Line A second career can provide opportunities whether you are worried about outliving your retirement savings, or you want to stay productive and do something meaningful later in life. After decades in the workforce, many people have the knowledge, energy, talent and time to devote to a new career that can provide both a paycheck and a purpose. The best time to start planning your second career is before you retire; that is, while you are still working in your "first" career. This will give you the time you need to plan, research and make important decisions regarding your second act. Being proactive about the process, rather than expecting things to just "fall in place," can help ensure a productive and fulfilling second career. For more, see Don't Retire Early – Change Careers Instead and On a Retirement Job Search? Try These Agencies.
    by Jean Folger
  • Quit Your Job To Trade Stocks?
    Changes in technology have turned trading into a career field that’s easy to enter. But staying in it is a different story. Ultimately, your success depends on you. The first and most common option the average person explores is trading from home. But day trading – buying and selling investments in the same day – takes lots of capital. The minimum equity requirement for a pattern day trader is $25,000, which must always be maintained. Other markets that require less capital include the foreign exchange market. Accounts can be opened with $100, and with leverage an investor can control large amounts of capital. But using leverage compounds a trader’s risk, and education in any trading activity becomes even more important when leverage is involved. The contract for difference market also requires little capital. A CFD is an agreement between two parties that involves no ownership of an underlying asset. Instead, the parties settle their difference in cash. Profits and losses are realized through the speculation of an underlying stock. Someone who would prefer to trade from a trading floor instead of their home should look at proprietary trading firms, which trade for direct gain instead of commissions. They give traders firm capital and assume part of the responsibility, relieving some of the pressure on traders. These firms also offer training and guidance. In the end, quitting your job to trade stocks requires a plan. If you’re going out on your own, decide what markets you’ll target and create a comprehensive strategy. Then explore online brokers and find a mentor.
Alternative Retirement Investments
Week of February 13

Non-traditional retirement investments

  • Top Alternative Investments for Retirement
    Planning for retirement is a daunting task for anyone. The fear of not having enough to live on after you have left the nine-to-five is a big motivator for starting to save early in your career. But it’s also one reason investors are turning to alternative investments in pursuit of higher, sustainable long-term returns in a world of low interest rates. These assets include private equity, hedge funds, managed futures, real estate, commodities, metals and collectibles, to name a few. (See: IRA Assets and Alternative Investments.) A report by PricewaterhouseCoopers has predicted a big shift towards these investments going forward: “Between 2015 and 2020, alternative assets are expected to grow to $13.6 trillion in our base case scenario and to $15.3 trillion in our high case scenario.” The report goes on to say that global pension fund assets will reach $56.6 trillion by 2020, “with alternative assets expected to play a considerably larger role in their asset allocation mix.”  Here are our top picks for alternative investments for retirement, in case you want to jump on the bandwagon. Bitcoin Bitcoin, the virtual currency, is emerging as a new asset class that’s fast becoming mainstream, even gaining acceptance by regulators. Investing into Bitcoins for retirement is now possible via a self-directed IRA. This qualified individual retirement account is currently the only U.S.-based fund approved by the IRS that allows investors to keep the digital currency in their retirement portfolios. The process of adding Bitcoins to your self-directed IRA (SIDRA) is simple and fast. First, you open a SIDRA through a secure e-sign application; next, the new account is funded via a rollover or transfer. Finally, you need to complete a Bitcoin allocation order. The account requires a minimum deposit of $5,000 and only charges a small upfront fee with no recurring annual charges. The regulations and rules for the Bitcoin IRA are the same as for standard self-directed IRAs (all IRAS, in fact), which means no access to your money until you’re 59½ (or pay a penalty for early withdrawal). While individuals can simply own Bitcoins as well, Bitcoin IRA provides a structured way to do so with the benefits of tax-advantaged retirement saving and without the hassle of safekeeping. (For more, read: How to Add Bitcoins to Your Retirement Account.) Real Estate Investors who want to diversify, generate returns and hedge against inflation often turn to real estate. Individuals can park money in a good commercial or residential property and benefit from rental income while the value of the property appreciates over time. You can also hold real estate through a real estate investment trust (REIT) or in a self-directed real estate IRA. While real estate has its shortcomings, a Morgan Stanley survey of millionaires finds that it is still the most traditional and popular alternative asset class. (Learn more from: Simple Ways to Invest in Real Estate.) Peer-to-Peer Lending Peer-to-peer or social lending works in a way that is advantageous to both borrowers, who get loans at interest rates lower than banks, and lenders, who can earn higher rates of return than bank deposits provide. It’s a customized process that has recently become very popular. One of its disadvantages, given the absence of an authorized body to manage the transactions, is the risk of default. But that can be somewhat minimized by choosing more than one peer-to-peer platform from which to lend out money. These include Lending Club, Prosper, Upstart, Funding Circle, Peerform, Pave, Daric, BorrowersFirst and SoFi. (See also: The 7 Best Peer-to-Peer Lending Websites.) Private Placement Private placement represents a way of raising capital through an unregistered securities offering. “Private and public companies engage in private placements to raise funds from investors. Hedge funds and other private funds also engage in private placements,” notes a U.S. Securities and Exchange Commission (SEC) bulletin. While private placement is usually offered to institutional and accredited investors, individuals (nonaccredited) can invest in private placements (in LLCs, partnerships, small businesses, land trusts and more) by means of a self-directed IRA. Although these investments can be rewarding, there is also a high degree of risk. Consult a financial advisor on the best course of action for you and be sure to refer to the SEC’s Regulation D when reviewing this form of investment. (See: How does private placement affect share price?) Gold One of the few tangible liquid assets, gold has traditionally played the role of an effective inflation hedge. While over the years its correlation with stock prices has risen (hence it’s not the best way to diversify), it remains a darling in times of crisis. You can hold gold as bars, coins or jewelry, of course, but there are more innovative ways to invest, including gold exchange-traded funds, gold mutual funds investing in companies involved in gold mining, and gold futures and options. There is also the self-directed IRA route – either gold on its own, or along with other precious metals, such as platinum and silver. Overall, irrespective of the form, an allocation of 5% to10% towards gold is considered ideal for an investor’s portfolio.  (For additional insights, check out: Gold in an IRA: What You Need to Know and What Moves Gold Prices?) The Bottom Line Alternative or nontraditional investments have advantages over traditional assets like stocks and bonds, including high income levels, diversification, risk substitution and a hedge against downside. One way to invest in these assets is via a self-directed IRA through custodians and trustees (see: Self-Directed IRA: Rules and Regulations). Or, given the limits on total IRA contributions, you might consider investing in these assets directly, as a long-term regular investment. Given that some alternative assets are still maturing, a smart course might be to combine one or more of them with traditional investments for a balanced retirement portfolio.  
    by Prableen Bajpai, CFA (ICFAI)
  • Michael Green on Volatility
    REAL VISION TV As a former manager at Canyon Partners and Bain Capital, Michael Green‘s approach to valuation and the macro world is rooted in the derivatives market. As the founder of Ice Farm Advisors, he has built his career on identifying and profiting from where market participants are mispricing risk insurance.  Real Vision TV is a financial video-on-demand service offering over 500 in-depth interviews with the world’s sharpest independent analysts, fund managers, geopolitical strategists, economists and investors. Free from groupthink, advertising or bias, Real Vision presents its viewers with the very best economic information and financial insight available and then allows them to make up their own minds, and profit from knowledge.  Visit Real Vision TV and start a free 7-day trial.
The Investment Vehicles to Use
Week of February 6

Do you have the investment vehicles you need?

  • Six Critical Rules for Successful Retirement Investing
    Retirement planning is the process of identifying your long-term income, determining your intended lifestyle and defining how to reach those goals. When planning for retirement, you'll need to consider a variety of factors, such as when you'll retire, where you'll live and what you'll do. Keep in mind with each additional year you hope to retire early, your investment needs greatly increase. Also consider the difference in cost of living among cities, or even among neighboring ZIP codes. Add on daily expenses, medical expenses, vacations and emergencies, and you begin to see how the costs of retirement add up. Your retirement goals will depend largely on the income you can expect during your retirement and will likely evolve as your plans, risk tolerance and investment horizon change. While specific investing “rule of thumb” guidelines (like “You need 20 times your gross annual income to retire” or “Save and invest 10% of your pre-tax income) are helpful, it’s important to step back and look at the big picture. Consider these six essential rules for truly smart retirement investing. 1. Understand Your Retirement Investment Options You can save for retirement in a variety of tax-deferred vehicles, some offered by your employer and others available via a brokerage firm or bank. It's important to take advantage of all your options, including investigating what kind of retirement benefits your employer may offer; some employers still offer defined benefit pensions, which is a big bonus during a time of volatility in the stock market. When building your portfolio in a retirement account, it's important to understand the risk/reward relationship when choosing your investments. Younger investors may focus on higher risk/higher reward investments, such as stocks, because they have decades left to recover from losses. People nearing retirement, however, are less able to recover and therefore tend to shift their portfolios toward a higher proportion of lower risk/lower reward investments, such as bonds (see Retirement Strategy: Should You Be Buying More Stocks?). Retirement vehicles and common portfolio investments include: Retirement Vehicles 401(k)s and Company Plans – Employer-sponsored plans, including 401(k)s, that provide employees with automatic savings, tax incentives and (in some cases) matching contributions. Defined Benefit Plans – An employer-sponsored retirement plan in which employee benefits paid during retirement are based on a formula using factors such as salary history and duration of employment. Individual Retirement Accounts (IRAs) – Individual savings accounts that allow individuals to direct pretax income, up to annual limits, toward investments that can grow tax-deferred.  Roth IRA – An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. SEP – A retirement plan that an employer or self-employed individual can establish. Contributions to SEP IRAs are immediately 100% vested, and the IRA owner directs the investments. SIMPLE IRAs – A retirement plan that can be used by most small businesses with 100 or fewer employees. Portfolio Investments Annuities – Insurance products that provide a source of monthly, quarterly, annual or lump-sum income during retirement. Mutual Funds – Professionally managed pools of stocks, bonds and/or other instruments that are divided into shares and sold to investors. Stocks – Securities that represent ownership in the corporation that issued the stock. Bonds – Debt securities in which you lend money to an issuer (such as a government or corporation) in exchange for interest payments and the future repayment of the bond’s face value. Exchange Traded Funds (ETFs) – Uniquely structured investment funds that trade like stocks on regulated exchanges that track broad-based or sector indexes, commodities and baskets of assets. Cash Investments – Low-risk, short-term obligations that provide returns in the form of interest payments (for example, CDs and money market deposit accounts). Direct Reinvestment Plans (DRIPs) – Plans offered by corporations that allow you to reinvest cash dividends by purchasing additional shares or fractional shares on the dividend payment date. 2. Start Early No matter what you read about retirement investing, one piece of advice stays the same: Start early. Why? Barring a major loss, more years saving means more money by the time you retire.  You gain more experience and develop expertise in a wider variety of investment options. You have more time to survive losses, which increases your ability to recover from major hits and gives you more freedom to try higher risk/higher reward investments. You make saving and investing a habit. You can take advantage of the power of compounding – reinvesting your earnings to create a snowball effect with your gains.   Remember that compounding is most successful over longer periods of time. Here’s an example to illustrate: Assume you make a single $10,000 investment when you are 20 years old and it grows at 5% each year until you retire at age 65. If you reinvest your gains (this is the compounding), your investment would be worth $89,850.08.  Now imagine you didn't invest the $10,000 until you were 40. With only 25 years to compound, your investment would be worth only $33,863.55. Wait until you're 50 and your investment would be valued at just $20,789.28. This is, of course, an overly simplified example that assumes a constant 5% rate without taking taxes or inflation into consideration. It’s easy to see, however, that the longer you can put your money to work, the better. Starting early is one of the easiest ways to ensure a comfortable retirement. 3. Do the Math You make money, you spend money. For many, this is about as deep as their understanding of cash flow gets. Instead of making guesses about where your money goes, you can calculate your net worth. Your net worth is the difference between what you own (your assets) and what you owe (your liabilities). Assets typically include cash and cash equivalents (for example, savings accounts, Treasury bills, certificates of deposit), investments, real property (your home and any rental properties or a second home), and personal property (such as boats, collectibles, jewelry, vehicles and household furnishings). Liabilities include debts such as mortgages, automobile loans, credit card debt, medical bills and student loans. Adding up all of your assets and subtracting the sum of your liabilities leaves you with the total amount of money you truly possess (your net worth), and a clear view of how much money you'll need to earn to reach your goals.  As soon as you have assets and liabilities, it’s a good time to start calculating your net worth on a regular basis (yearly works well for most people). Since your net worth represents where you are now, it’s beneficial to compare these figures over time. Doing so can help you recognize your financial strengths and weaknesses, allowing you to make better financial decisions in the future. It’s often said that you can’t reach a goal you never set, and this holds true for retirement planning. If you fail to establish specific goals, it’s difficult to find the incentive to save, invest and put in the time and effort to ensure you are making the best decisions. Specific and written goals can provide the motivation you need. Examples of written retirement goals: I want to retire when I’m 65. I want move to a small house near the kids. I want to travel internationally 12 weeks each year. I’ll need $48,000 each year to do these things. To retire at 65 and spend $48,000 for the following 20 years, I'll need a minimum net worth of $960,000 (a simplified figure that does not take into consideration taxes, inflation, changes to Social Security benefits, changes to investment earning rates, etc.). 4. Keep Your Emotions in Check Investments can be influenced by your emotions far more easily than you might realize. Here's the typical pattern of emotional investment behavior:  When investments perform well Overconfidence takes over. You underestimate risk. You make bad decisions and lose money. When investments perform badly Fear takes over. You put all your money into low-risk cash and bonds. You don’t make any money. Emotional reactions can make it difficult to build wealth over time, as potential gains are sabotaged by overconfidence and fear makes you sell (or not buy) investments that could grow. As such, it is important to: Be realistic – Not every investment will be a winner, and not every stock will grow as your grandparents’ blue-chip stocks did. Keep your emotions in check – Be mindful of your wins and losses – both realized and unrealized. Rather than reacting, take the time to evaluate your choices and learn from your mistakes and successes. You’ll make better decisions in the future. Maintain a balanced portfolio – Create a blend of stocks, bonds and other investment instruments that make sense for your age, risk tolerance and goals. Re-balance your portfolio periodically as your risk tolerance and goals change. Why Investors Need to Rebalance Their Portfolios will give you the details. 5. Pay Attention to Fees While you  are likely focus on returns and taxes, your gains can be drastically eroded by fees. Investment fees cause you to incur direct costs – the fees that are often taken directly out of your account – and indirect costs – the money you paid in fees that can no longer be used to generate returns. Common fees include: transaction fees expense ratios administrative fees loads Depending on the types of accounts you have and the investments you select, these fees can really add up. The first step is to figure out what you're spending on fees. Your brokerage statement will indicate how much you're paying to execute a stock trade, for example, and your fund’s prospectus (or financial news websites) will show expense ratio information. Armed with this knowledge, you can shop for alternative investments (such as a comparable lower-fee mutual fund) or switch to a broker that offers reduced transaction costs (many brokers, for example, offer commission-free ETF trading on select groups of funds). To illustrate the difference that a small change in expense ratio can make over the course of an investment, consider the following (hypothetical) table: Source: Investopedia estimates As the table shows, if you invest in a fund with a 2.5% expense ratio, your investment would be worth $46,022 after 20 years, assuming a 10% annualized return. At the other end of the spectrum, your investment would be worth $61,159 if the fund had a lower, 0.5% expense ratio – an increase of more than $15,000 over the 2.5% fund’s return.  6. Get Help When You Need It "I don’t know what to do" is a common excuse for postponing retirement planning. Like ignorantia juris non excusat (loosely translated as ignorance is no excuse), lack of knowledge about investing is not a convincing excuse for failing to plan and invest for retirement. There are plenty of ways to receive a basic, intermediate or even advanced "education" in retirement planning to fit every budget, and even a little time spent goes a long way, whether through your own research, or with the help of a qualified investment advisor, financial planner, Certified Public Accountant (CPA) or other professional.  You're planning for your future well-being, and "I didn't know what to do" won't pay the bills when you're 65. Your Retirement-Planning Team will give you some ideas of where to turn. The Bottom Line You can improve your chances of enjoying a comfortable future if you make the effort to learn about your investing choices, start planning early, keep your emotions in check and find help when you need it. While these steps may seem overly simple, a lack of action can have huge consequences for your financial future. Stay informed and engaged in your retirement planning now to reap the benefits of a well-invested retirement plan later. 
    by Jean Folger
  • How Your Spouse Affects Retirement Planning
    Make your spouse's income count when it comes to retirement planning. 
Allocating Your Retirement Funds
Week of January 30

Understand how to allocate

  • 5 Things to Know About Asset Allocation
    With thousands of stocks, bonds and mutual funds to choose from, picking the right investments can confuse even the most seasoned investor. But if you don't do it correctly you can undermine your ability to build wealth and a nest egg for retirement. So instead of stock picking, you should start by deciding what mix of stocks, bonds and mutual funds you want to hold. This is referred to as your asset allocation. What Is Asset Allocation? Asset allocation is an investment portfolio technique that aims to balance risk and create diversification by dividing assets among major categories such as cash, bonds, stocks, real estate and derivatives. Each asset class has different levels of return and risk, so each will behave differently over time. For instance, while one asset category increases in value, another may be decreasing or not increasing as much. Some critics see this balance as a recipe for mediocre returns, but for most investors it's the best protection against a major loss should things ever go amiss in one investment class or sub-class. The consensus among most financial professionals is that asset allocation is one of the most important decisions that investors make. In other words, your selection of stocks or bonds is secondary to the way you allocate your assets to high and low-risk stocks, to short and long-term bonds, and to cash on the sidelines. We must emphasize that there is no simple formula that can find the right asset allocation for every individual – if there were, we certainly wouldn't be able to explain it in one article. We can, however, outline five points that we feel are important when thinking about asset allocation: 1. Risk vs. Return The risk-return tradeoff is at the core of what asset allocation is all about. It's easy for everyone to say that they want the highest possible return, but simply choosing the assets with the highest "potential" (stocks and derivatives) isn't the answer. The crashes of 1929, 1981, 1987 and the more recent declines of 2007-2009 are all examples of times when investing in only stocks with the highest potential return was not the most prudent plan of action. It's time to face the truth: Every year your returns are going to be beaten by another investor, mutual fund, pension plan, etc. What separates greedy and return-hungry investors from successful ones is the ability to weigh the difference between risk and return. Yes, investors with a higher risk tolerance should allocate more money into stocks. But if you can't keep invested through the short-term fluctuations of a bear market, you should cut your exposure to equities. 2. Don't Rely Solely on Financial Software or Planner Sheets Financial-planning software and survey sheets designed by financial advisors or investment firms can be beneficial, but never rely solely on software or some pre-determined plan. For example, one old rule of thumb that some advisors use to determine the proportion a person should allocate to stocks is to subtract the person's age from 100. In other words, if you're 35, you should put 65% of your money into stocks and the remaining 35% into bonds, real estate and cash. More recent advice has shifted to 110 or even 120 minus your age. But standard worksheets sometimes don't take into account other important information such as whether or not you are a parent, retiree or spouse. Other times, these worksheets are based on a set of simple questions that don't capture your financial goals. Remember, financial institutions love to peg you into a standard plan not because it's best for you, but because it's easy for them. Rules of thumb and planner sheets can give people a rough guideline, but don't get boxed into what they tell you. 3. Determine Your Long- and Short-Term Goals We all have our goals. Whether you aspire to build a fat retirement fund, own a yacht or vacation home, pay for your child's education or simply save for a new car, you should consider it in your asset-allocation plan. All these goals need to be considered when determining the right mix. For example, if you're planning to own a retirement condo on the beach in 20 years, you don't have to worry about short-term fluctuations in the stock market. But if you have a child who will be entering college in five to six years, you may need to tilt your asset allocation to safer fixed-income investments. And as you approach retirement, you may want to shift to a higher proportion of fixed-income investments to equity holdings. 4. Time Is Your Best Friend The U.S. Department of Labor has said that for every ten years you delay saving for retirement (or some other long-term goal), you will have to save three times as much each month to catch up.  Having time not only allows you to take advantage of compounding and the time value of money, it also means you can put more of your portfolio into higher risk/return investments, namely stocks. A couple of bad years in the stock market will likely show up as nothing more than an insignificant blip 30 years from now. 5. Just Do It! Once you've determined the right mix of stocks, bonds and other investments, it's time to implement it. The first step is to find out how your current portfolio breaks down. It's fairly straightforward to see the percentage of assets in stocks versus bonds, but don't forget to categorize what type of stocks you own (small, mid or large cap). You should also categorize your bonds according to their maturity (short, mid or long term). Mutual funds can be more problematic. Fund names don't always tell the entire story. You have to dig deeper in the prospectus to figure out where fund assets are invested. The Bottom Line There is no single solution for allocating your assets. Individual investors require individual solutions. Furthermore, if a long-term horizon is something you don't have, don't worry. It's never too late to get started.  It's also never too late to give your existing portfolio a face-lift. Asset allocation is not a one-time event, it's a life-long process of progression and fine-tuning. 
    by Investopedia Staff
  • Strategic Asset Allocation to Rebalance Portfolios
    Strategic asset allocation is a portfolio strategy that involves setting target allocations for various asset classes, then yearly rebalancing the portfolio to maintain these original allocations. Allocations can deviate due to differing returns from various assets. Balanced diversification can reduce risk and improve portfolio returns. Strategic asset allocation is an investment strategy focused on the needs of the investor rather than the constant tracking of the markets, and is thought to remove the influence of emotion from investment strategies.  
When Should You Retire
Week of January 23

Planning when to retire

  • Planning on Retiring Later? Think Again
    There’s a problem in the United States. It’s a big problem, and it’s affecting nearly everybody in the workforce. The problem has to do with retirement. Although the U.S. stock market rocketed higher in recent years and took retirement account balances with it, American workers are still woefully behind on their savings. For most, there’s virtually no way they’ll have enough money to retire like people did 20 years ago, barring a winning lottery ticket, a surprise inheritance or some other unexpected windfall. The New Normal People planning to retire in the next 10 years or more have resigned themselves to the fact that they will probably work well into retirement (see The Impact of Continuing to Work in Retirement). Those at mid-career are looking ahead and figuring that they also may have to work longer. Adding to the doom and gloom surrounding retirement savings is a 2015 report detailing what retirees can actually expect. There’s no doubt that workers have adapted to what is the new normal. The 25th annual Retirement Confidence Survey, conducted by the Employee Benefit Research Institute, found that 36% of people surveyed expected to work beyond age 65. That’s up from 11% in 1991, according to the study. A surprising 10% said they never plan to retire.  The complicating factor: There’s strong evidence that your health may not cooperate with your plan to keep working well past retirement age to make ends meet, What Actually Happens Although workers seem to expect to have a longer work life, the study found that the actual retirement age hasn’t risen to match expectations. In 1991 only 8% of workers said they retired after age 65. In the latest survey, that number had only reached 14%. Only 6% reported retiring at 70 years old or later. The median retirement age for most people is 62  – much earlier than what will likely be required to maintain the standard of living retirees had during their working years.  Why are people leaving the workforce earlier than planned? In the majority of cases, it had to do with health issues: 60% cited health problems or disability. Others cited changes in the workplace, such as downsizing or closings; caring for a spouse or other family members; and changes in skills required to perform their job. It’s not all negative, however. Some said that they could afford it, and others went into another career.  Finally, the percentage of employees expecting to work for pay in retirement stood at 67%, but only about 23% actually did it. The majority of people who were working during retirement years said they enjoyed working (83%) or wanted to stay active and involved (79%).  The Takeaway What do all these stats mean? Possibly most important is to not “kick the can down the road,” as the cliché goes. Believing that you’ll solve the retirement problem by working longer rather than saving more now isn’t likely to work. Second, the survey consistently finds that American workers are unrealistic about what retirement will really look like. For example, 46% of people in the workforce believe that their employer-sponsored retirement plan will be a major source of income, but only 21% of current retirees say that's the case for them. While 28% of workers think the same thing about an IRA, only 16% of retirees say that's enough. Only 9% of current workers are "very confident that the Social Security system will continue to provide benefits of at least equal value to the benefits received by retirees today."  But right now, 63% of current retirees cite the payments as a primary means of income. Of course, Social Security (see Types of Social Security Benefits) is in better shape now than many believe it will be in 10 years. But if the worst-case-scenario plays out – if Social Security were to end – workers would have to replace that money, about $1,300 a month on average, in retirement.  This may not happen, but financial planners advise planning for worst-case scenarios. Beating the Trend You’ve heard it before: If you want to stay healthy longer, you need to eat right and exercise. The first step in your plan is to do what you can to stay as healthy as possible. Only 21% of all Americans 18 or older meet physical activity guidelines for cardiovascular and muscle-strengthening activity. Many chronic illnesses – including Type 2 Diabetes, heart disease and some cancers – are directly related to lack of exercise.  Save as much as possible while you're still working. If you can, take advantage of catch-up contributions permitted to your IRA and 401(k). Next, think about what you would do to earn income in your later years. If you’ve spent your life in a career that involves a lot of physical activity, it will likely become harder to perform that job as you age. Think about becoming a consultant in your field, entering management or finding another career that doesn’t involve as much physical labor (see 10 Money-Making Jobs for Retirees). If you're in a job that lends itself to consulting, consider doing what you can to build your visibility in your field (becoming active in a professional organization, for example) and doing some consulting before you're ready to retire. For more ideas, see Peri-Retirement: The New Life Transition and Don't Retire Early – Change Careers Instead. The Bottom Line As if Americans needed any more bad news about retirement, statistics show that the current workforce has a level of optimism about their retirement that probably won’t pan out when they get there. Instead of making plans that rely on the unknowns of the future, make plans for today. Figure out how to save more by cutting expenses and investing a higher percentage in your retirement accounts. Max out your 401(k) up to the employee match and invest in an IRA (for details, see I Maxed Out My 401(k)! Now What?).    
    by Tim Parker
  • Want To Retire Early? Think Again
    The idea of retiring early, say around the ripe young age of 55, may sound appealing. But be careful – there are several good reasons not to turn in your nametag just yet. First, you may not have saved enough. Many baby boomers still have kids in college and parents who need help. Add in a high mortgage or a big credit card bill, and your nest egg might not suffice. You may outlast your savings. According to Social Security, about one in every three 65-year-olds will live to age 90. If that’s you, you had better factor that in to how long your savings need to last. You might miss work’s daily routine, which helps your mind remain sharp. You might not be able to afford your bucket list. In retirement, do you want to settle for a trip across the state, or do you want to take that cruise around the Mediterranean? Remaining in the workforce will build your savings and help you eventually live your dreams. Your Social Security benefits will be diminished. You probably know claiming them early means reduced benefits. But if you stop working early, your benefits will be even smaller, because they’re based on your top 35 earning years. If you die before your spouse, he or she will collect your benefits. So if you start collecting Social Security early, your spouse will be living on a smaller amount. Finally, if you retire early, it’s hard to go back. It’s much more challenging for job seekers older than 55 to find work. And when they do, it usually pays less. An early retirement package might not fill your needs. Examine it before taking the plunge.
How Much Money You Need
Week of January 16

Cost out what you'll need

  • Retirement Savings: How Much Is Enough?
    Ten percent is the historical recommended savings rate. Is this simple rule an accurate metric for saving for retirement today? And what does that mean if you've reached mid-career and haven't been saving that much? First, take a look at the savings landscape. You may be surprised that the actual, reported savings rate is well below the 10% rule. There is an extreme mismatch between the U.S. savings rate and the optimal savings rate. According to the St. Louis Federal Reserve Bank, today’s savings rate is less than 5%. Other reports also list the U.S. consumer savings rate below the 5% level. Let's look at how these assumptions could play out for a future retiree. 5% Retirement Savings Rate We'll start with how saving 5% of your earnings during your working life would play out when it's time to retire.  Let’s assume that Beth, a 30-year-old, makes $40,000 per year and expects 3.8% raises until retirement at age 67. Further, with a diversified portfolio of stock and bond mutual funds, Beth expects a return of 6% annually on her retirement contributions.  With a 5% savings rate throughout her working life, Beth will have $423,754 saved up (in 2051 dollars) at age 67. If Beth needs 85% of her pre-retirement income to live on and also receives Social Security, then her 5% retirement savings are significantly short of the mark. To match 85% of her pre-retirement income in retirement, Beth needs $1.3 million at age 67. A 5% savings rate doesn’t even place her savings at 50% of the funds she'll need. Clearly, a 5% retirement savings rate isn’t enough. So how much does a saver need to sock away in order to enjoy a comfortable retirement? You'll find various calculators out there, but here's  what to expect. Savings Rate: What's Enough? Keeping the above assumptions about her salary and expectations, a 10% savings rate yields Beth $847,528 (in 2051 dollars) at age 67. Her projected needs remain the same at $1.3 million. So even at a 10% savings rate, Beth misses her preferred savings amount. (For more, see: How to Save More for Your Retirement.) If Beth pumps up her savings rate to 15%, then she reaches the $1.3 million (2051) amount. Adding in anticipated Social Security, her retirement will be funded. Does this mean that individuals who don’t save 15% of their income will be doomed to a sub-standard retirement? Not necessarily. Conservative Assumptions As with any future projection scenario, we’ve made certain conservative assumptions. Investment returns might be higher than 6% annually. Beth might live in a low-cost-of-living area where housing, taxes, and living expenses are below the U.S. averages (see Least Expensive States to Retire In). She might need less than 85% of her pre-retirement income, or she may choose to work until age 70. In a rosy case, Beth’s salary might grow faster than 3.8% annually. All of these optimistic possibilities would net a greater retirement fund and lower living expenses while in retirement. Consequently, in a best-case scenario, Beth could save less than 15% and have a sufficient nest egg for retirement. (For more, see Retirement Planning: How Much Will I Need?) What if the initial assumptions are too optimistic? A more pessimistic scenario includes the possibility that Social Security payments might be lower than now. Or Beth may not continue on the same positive financial trajectory. Or, Beth might live in Chicago, Los Angeles, New York or another high-cost-of-living region (see The Most Expensive States to Retire In) where expenses are much higher than in the rest of the country. With these gloomier hypotheses, even the 15% savings rate might be insufficient for a comfortable retirement. No one knows the future or what savings rate is enough. Nor do we know our eventual investment returns. Fortunately, savers can control how much they save. It's important to understand how returns compound. There’s no disputing the fact that starting to save earlier and saving as large an amount as possible will pay off in the long run. Measuring Your Needs If you've reached mid-career without saving as much as these numbers say that should have put aside, it's important to plan for extra savings or income streams from now on to make up for this shortfall. (For more, see How to Catch Up with Your Retirement Savings and The Income Property: Your Late-In-Life Retirement Plan.) Alternatively, you could plan to retire in a location with a lower cost of living, in the U.S. or abroad, so that you will need less (see Retirement: U.S. vs. Abroad). If you're looking for a single number to be your retirement nest egg goal, there are guidelines to help you set one. Some advisors recommend saving 12 times your annual salary. Under this rule, a 66-year-old $100,000 earner would need $1.2 million at retirement. But, as the former examples suggest – and given that the future is unknowable – there is no perfect retirement savings percentage or target number. The Bottom Line To be smart about saving for retirement, you need to understand the impact of several retirement savings concepts. Starting to save earlier gives your money more time to compound. Where you retire has a major impact on how much money you need in retirement. Future unknowns such as inflation, Social Security and salary trajectory require being conservative when estimating what you need. Also be careful when predicting future investment portfolio returns: 8% or 9% may be unrealistic. Some people do extremely well – at least in some years – but projections this high are above historical norms for a balanced stock and bond mutual fund portfolio. Finally, it's helpful to think of retirement savings as way to take your income during the earning years and spread the money across your lifespan. (For more, see Will Your Retirement Income Be Enough?)
    by Barbara A. Friedberg
  • How Much Should I Save for Retirement?
    Tom Zgainer shares his tips for pinpointing a retirement goal to help support your intended lifestyle.
Plan the Retirement Life You Want
Week of January 9

First, plan your retirement life

  • How to Dream Up the Right Retirement Goals
    When it comes to retirement, the emphasis often falls on how much you need to save. While it’s important to know what your target number is, you can't figure it out if you don't have a picture of where and how you want to live once your working years come to an end. Do you want to stay where you are or relocate? Do you plan to keep working or use your new free time to get truly expert at a longtime hobby? How much do you hope to travel? If you don’t have a plan in place, you may find yourself at loose ends – or low on cash. But it's not just money. Taking the time to consider what kind of lifestyle you’re after can set you up for a purposeful next chapter of your life instead of one you just drift into. It will also help you establish a solid figure for how much you need to save to realize that dream. Starting at mid-career is a perfect time because it gives you many years to lay the building blocks for the best possible future. You're also far enough along to know yourself better and to see where your work, your family/friends and your interests are starting to take you. (Read also: 5 Steps to a Retirement Plan.) And that future starts with projecting yourself ahead where you think you'll want to be. To Downsize or Not to Downsize? If you own a home, one of the first things you’ll have to decide is what you plan to do with the property once you retire. According to a study from Merrill Lynch entitled “Home in Retirement: More Freedom, New Choices,” 64% of retirees say they’re likely to move at least once in retirement. Among those who make a move, 51% opt for a smaller home. (See: Finding Your Perfect Place to Retire.)  The Bureau of Labor Statistics estimates that the average 55-to-64-year-old spends 32% of his or her income on housing each year. Those ages 75 and older dedicate 36.5% of their income to housing. Downsizing can reduce your expenses, which may be important if your nest egg is a bit smaller than you expected. See Avoid the Downsides of Downsizing in Retirement for a fuller discussion. On the other hand, hanging on to your home could provide you with an additional income stream in retirement if you opt for a reverse mortgage. If you’re eligible, a reverse mortgage could supplement your savings or Social Security benefits. The main downside is that your heirs would be responsible for paying it off once you pass away. That could affect your ability to pass the home on to your adult children or grandchildren, which is something to keep in mind. How Does a Reverse Mortgage Work? explains the details. Hitting the Road in Retirement For many savers, travel is an integral part of their retirement plans. The 17th Annual Transamerica Retirement Survey of Workers found that 65% of all workers cite travel as their top retirement dream (start thinking about it with Retirement Travel: 5 Trips That Cater to Retirees). Still others have a more permanent sort of travel experience in mind. A survey from TransferWise notes that 35% of Americans say they’d consider putting down roots in a different country. Retirement: U.S. vs. Abroad will give you some ways to start thinking about it. Moving overseas can potentially reduce your cost of living, depending on which country you decide to call home. On the other hand, if you plan to spend part of the year cruising the high seas while maintaining your current home base, you could be looking at a higher price tag. Whether you decide to travel occasionally, expatriate to a more exotic locale or become a retirement nomad, you need to be aware of what that entails for your savings.(Read: Retirement Lifestyle Planning: How to Be a Nomad.) Timing Your Workplace Exit Will you want to keep working? Working in retirement may seem like a contradiction but that’s a choice that many retirees make. Another Merrill Lynch survey, entitled “Work in Retirement: Myths and Motivations,” found that 47% of today’s retirees have worked in retirement or plan to at some point. Seventy-two percent of pre-retirees age 50-plus say they actually want to keep working after they retire. (For more, take a look at Impact of Continuing to Work in Retirement.) For some retirees, continuing to work or delaying retirement to work longer is a matter of necessity. A 2015 Wells Fargo study revealed that the median savings of Americans ages 60 or older was just $50,000 (their goal was $300,000). Among those ages 55 to 59 with a goal of $500,000, the median savings was $150,000, but that’s still a far from the $1 million or more that most retirement experts recommend.  Working longer or on a part-time basis may be a reality that you have to prepare for if you’re concerned about a savings shortfall. While Social Security benefits can add to your income, you shouldn’t be banking on that alone to tide you over. According to the Social Security Administration, the average monthly payable benefit was just $1,341 as of January 2016.  Even if you have decades to go until retirement, you need to be thinking now about what your plans for work will look like. The more you’re able to save, the more flexibility you may have. Instead of continuing to work for your employer, for example, you could use retirement as an opportunity to launch your own business. (See: Why to Start Your Own Business During Retirement.) The Bottom Line Everyone wants to have an enjoyable, financially comfortable retirement, but it takes planning to make it happen. Mid-career is the perfect time to get serious about how you think your retirement years could take shape and start moving to make it happen. The more invested you are early in the process of mapping out your retirement future, the brighter it’s likely to be.    
    by Rebecca Lake
  • How To Build A Retirement Plan
    Learn more about planning for retirement.
Assess Your Retirement Readiness
Week of January 3

How ready are you for retirement?

  • Where Are You on the Road to Retirement Readiness?
    When it comes to retirement readiness, you may not be as prepared as you think. According to TIAA’s 2016 Lifetime Income Survey, fewer than half of Americans know how much they have saved for retirement, and only 35% know how much monthly income their savings will generate. At the same time, TIAA’s Voices of Experience Survey reveals that Americans are retiring earlier, with 54% leaving the workforce behind before age 65. (For more, see Early Out: A Realistic Plan to Retire Younger.)  Mid-career is a good time to sit down and assess where you are and where you hope to be when you retire. You may find that you're already doing a good job – or that you really have to step it up now in order to reach the place you hope to be by the time you retire. The older you get, the more it will take to catch up, so the time to start is now. How to Assess Your Retirement Readiness Despite all the discussion of the need to prepare more carefully than ever before for retirement, many pre-retirees are still falling short. This is true even for people who are quite close to R-Day: Only 39% of American sixtysomethings have more than $250,000 set aside for their later years, according to the 16th Annual Transamerica Retirement Survey.  Perhaps the only thing worse than having too small a nest egg is not saving anything at all. The Federal Reserve estimates that one in five people who are age 55 to 64 have zero set aside. Even if you're that badly off at mid-career, you still have time to put yourself in a much better place before you retire. To know where you are – the only way to figure out what to do next – the first step is to assess your own retirement readiness. The good news: You're still at mid-career. (To see how you stack up compared to others in your age group, see The Average Retirement Savings by Age for 2016.) Tally Up Your Current Savings The first step in gauging how well you’ve prepared for retirement is looking at what you’ve saved so far. That includes money you’ve accumulated in an employer’s retirement plan, such as a 401(k) or 403(b), as well as an Individual Retirement Account (IRA). If you have money saved in an IRA CD or a taxable investment account, you’d want to add those in as well. If you haven’t saved anything at all, start by determining the best place(s) to allocate some of your income for retirement. An employer’s plan should be your first choice if your company offers one, particularly if there’s a matching contribution. Just remember to save at least enough to qualify for the match.   A 2015 report from Financial Engines found that in 2014 employees who didn’t chip in enough to get the company match missed out on an average of $1,336 in added savings. That’s money you can’t afford to lose every year if you’re already falling behind on the savings path. (For more, see How 401(k) Matching Works.)  It's also important to tally up your other assets: the value of your home, any expensive art or other valuables, your car(s), even a boat, if you have one. Also figure in any income you think may come to you in the future, such as an inheritance you already know about. Don't forget to estimate how much Social Security or other pension income might come your way, even though mid-career is a little soon to know those figures in detail. What Will My Social Security Check Look Like? can help. Be Realistic About Your Retirement Goal Once you have an idea of what you have saved, the next step is comparing that to your target retirement number. This means understanding how much monthly income you’ll need your savings to generate once you’re no longer working. According to TIAA’s Lifetime Income Survey, 45% of high-income earners knew how much income they could expect in retirement, while only 27% of lower-income earners were able to say the same. We'll be talking more about how to set your target number in the next installment of Your Mid-Career Guide to Retirement Planning. Some general points to get you started: Ultimately, your individual number is based on several factors: your age and current savings rate, the age at which you plan to retire, how much you have saved already and the type of lifestyle you plan to maintain in retirement. The longer your time horizon is, the better, particularly if you haven’t made much progress to date with saving. For example, a 30-year-old making $45,000 a year would need to defer 10% of his or her income into a 401(k) to retire at age 65 with $1 million in savings. That’s assuming a 7% annual return and a 100% employer match. By comparison, a 50-year-old with that same salary and a $200,000 401(k) balance would need to save 35% of income to hit the $1 million mark. If you're in your 40s you're somewhere in the middle. If you're not getting that 7% return, you'll need to save even more. Running the numbers on what you’ve saved versus what you need to have in retirement can be eye-opening, even depressing, but it’s necessary to be realistic about your future and ensure that you’re on the right track. From there you can move on to the next step, which is finding ways to increase your savings. Look for Opportunities to Fill the Gaps If you’ve determined that your current savings aren't going to be enough to cover your retirement needs, there are two things you can do to address the potential shortfall. The first is to step up your savings rate. If you can’t afford to go from saving 10% of your salary in your 401(k) to 20% right away, you can still take smaller steps to move toward that goal. Check with your plan administrator to see if your plan allows for step-up contributions and elect to increase your deferrals by 1% to 2% each year. That way you’re saving more, and if you’re getting raises at the same time, you won’t miss the extra money that’s coming out of your paycheck. In 2016 and 2017, you can save up to $18,000 in a 401(k).  If you’re already maxing out your employer’s plan, it’s time to look at where else you can save for retirement while enjoying some tax benefits. For 2016 and 2017 you can park up to $5,500 in a traditional or Roth IRA. You can save an additional $1,000 per year if you’re 50 or older. Note that there can be income limitations to the deductibility of IRA contributions if you or your spouse (if married filing jointly) are covered by a retirement program at work. Click here for details. A health savings account (HSA) is another savings avenue if you’re enrolled in a high-deductible health plan (HDHP). These plans allow you to save money for qualified medical expenses, but once you reach 65 you can make withdrawals from an HSA for any reason penalty free. You’ll just pay regular income tax on the distributions. The Bottom Line Getting retirement ready is an ongoing process and requires careful planning. Looking at where you are now and where you’d like to end up is essential for shaping your goals. A financial advisor can help you with making the right decisions to increase your savings. If you’re thinking of consulting an advisor, be sure to check the fee schedule, so you understand what you’re paying for.        
    by Rebecca Lake
  • What’s The Minimum I Need To Retire?
    You might easily be able to retire on $1 million. Then again, you might not. It all comes down to your personal situation. Many financial professionals say 4% is the amount a retiree should be able to withdraw each year while expecting his portfolio to survive at least 30 years. That’s $40,000 a year from $1 million that should last from ages 65 to 95. Add Social Security, and that’s around $70,000 a year. If your lifestyle in retirement will require more, you can’t retire on $1 million. Knowing how much you need for retirement boils down to projecting all future expenses, which is tricky. You can come up with a budget that accounts for every penny you’ll need to maintain a desired lifestyle, but what if something happens? $1 million is not enough for many retirees. It’s extra-risky to retire early, before Social Security and Medicare kick in, with only $1 million. You limit your options. More money set aside provides added flexibility, and increases the chances that you’re able to do what you want until you die. Once you reach $1 million, focus on what you can control, or at least affect, like your health and variable costs. Matching future income estimates with expenses requires accounting for everything. That includes wedding gifts for grandkids, vacations, car repairs or whatever need arises. If you want to retire with $1 million, define what your retirement will be, take stock of your assets, debts and expenses, and look at what the future holds. $2 million might be a better goal to strive for.

Coming Up Next Week:Did You Do It Right?

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