10 Tips for Retirement Savings

Retirement just kind of happens. If we live long enough, we’ll eventually reach a point where we either leave our careers, opt for another, less intense work life, or finish working for a living altogether. There was a time when companies included pension plans in their compensation packages and employees could look forward to receiving a percentage of their salaries to live on for the rest of their lives. Social Security benefits used to be enough to offset the cost of living, so that a person could retire based on Social Security income alone. In the 21st century, neither of these hold true any longer.

Instead, it’s up to the individual to create a comfortable retirement for him or herself. Luckily, those who still look forward to retirement will have the longest post-retirement life spans, thanks to continued advances in health care. In other words, it’s a good idea to do as much as possible to ensure that you will have a secure and enjoyable retirement.

Learning precisely how to do that can be daunting. Speaking with a certified financial planner or advisor can certainly help, but there are steps you can also take to help create a bright future after your working life ends.

10.) Make a Plan for Retirement

Saving for retirement can be a bit difficult to figure out at first. If you need to get a handle on what you need to do to create a large nest egg, you need to begin with a plan. The U.S. Department of Labor recommends that you start by determining your net worth — the total value of your assets minus the value of your debts (things like the value of your house minus the value of what you still owe on your mortgage). You want this number to be positive, with your assets worth more than your debts. Don’t be disconcerted if that’s not the case. Even if you find your net worth is negative (as many people do), start there to figure out what you can do to make it positive.

First, determine what you’ll need to contribute to reach your retirement goal. You want a nest egg that can annually deliver between 70 to 90 percent of your pretax, pre-retirement salary. How much will you need to contribute to reach that goal? More importantly, how will you ensure those contributions are made?

Next, you need to create a budget of your recurring expenses and include your savings contributions as a monthly expense. A budget will also clearly show you where your money’s going and should also provide some insight into what debts should be dealt with first. Now that a plan’s in place, you’re going to need to change your mindset in order to stick to it.

9.) Get in the Saving Mindset

Saving up for years just so you can make 70 to 90 percent of your old salary annually when you retire sounds like a mind-boggling idea. How can you save that much while you’re still living your life before retirement? Fortunately­, there’s compound interest — small amounts of money contributed to a retirement savings account like a 401(k) or Roth IRA that can grow by leaps and bounds over the course of a few decades. Still, you have to plant a seed to grow a tree, and when it comes to saving for retirement, it can be difficult to have the discipline necessary to pay now in order to benefit later. This is where a savings mindset comes in.

Look at the budget you prepared as part of your plan. Is a significant portion of your monthly income being sent off to credit card companies? Then you need to become an attack dog, bent on aggressively paying off your credit card debt. One of the great ironies of saving well is that it often entails doing some serious spending, at least at the outset.

You should designate an amount of your pretax income to contribute to your retirement savings on a monthly or bi-weekly basis and have it taken out of your paycheck, just like your taxes. It’s easiest to save money when you don’t have it in your hands; you’re effectively taking the decision of whether to save that money out of your control.

Take on the outlook that the money you save for retirement doesn’t exist, except for in the future. In other words, stay out of your savings account.

8.) Take Advantage of Retirement Plans

It may seem like a no-brainer to take advantage of a program at work where your employer matches your retirement fund contributions, but not everyone sees it this way. In fact, about one-third of people who have a 401(k) plan available at work don’t contribute. You should consider doing so, especially when employers offer contribution matching programs. Under these programs, not contributing is like turnin­g down free money — with compound interest.

There are a number of types of retirement savings account plans that employers can offer. Among the most popular are the 401(k) plan and the IRA (individual retirement account). Both have their advantages (see Tip 6) and disadvantages, and are widely available at most mid-sized to large companies.

Those who work at small businesses have options as well, as do the self-employed. Check with your employer, a financial consultant or the federal government about various available retirement savings accounts. You might also consider contributing to more than one account. Diversification is an essential ingredient to saving a nest egg.

7.) Diversify, Diversify, Diversify

The saying, “Don’t put all of your eggs in one basket,” couldn’t apply more to saving for retirement. Financial advisors, investment bankers and economists will all tell you that the more diverse a portfolio, the safer it is. A person heavily involved in just one type of investment is more vulnerable to financial problems if the markets associated with that investment tank.

The most common diversification suggestion is to divide a portfolio among stocks (which can offer big pay-offs but can also be high risk) and bonds (Treasury bills that offer little to no risk, but pay out less than stocks). Depending on who you talk to, you’ll hear different percentages for splitting your portfolio between stocks and bonds. One good rule of thumb is to keep your bond percentage close to your age adjusting as life goes on; so if you’re 30, about 30 percent of your portfolio should be in bonds. By the time you retire, 60 to 70 percent of your portfolio should be in bonds.

Don’t stop with just stocks and bonds when diversifying your portfolio. Look for other ways to spread risk among your investments. Investing in largely unrelated sectors, like pharmaceuticals and telecommunications, is a good idea. You should also consider investing in economies throughout the world, rather than companies in just a handful of countries or a single region.

6.) Consider a Roth IRA

There’s long been a debate over which is preferable — a Roth IRA, where savings are taxed when they are contributed, or a 401(k), where contributions aren’t taxed until they’re removed, or until the account matures.

Both make sense, and the 401(k) usually wins because enough interest has accrued over the life of that account to offset (and then some) the taxes levied against it upon maturity.

Since the recession of 2008-09, however, the assumption that a 401(k) will always pay off has come into question. Also, with the unparalleled U.S. government intervention in the markets and in banks, it’s a pretty sure bet that younger workers who have just started to save for retirement will see much higher taxes to pay for that financial intervention by the time their 401(k)s mature.

These two factors make Roth IRAs worth considering. While paying taxes up front (and thus, having less to invest) might hurt now, it’s worth crunching the numbers once more. You might find you’ll lose less money in the long run.

5.) Manage Your Mortgage

If you own a home, you’ve got both a huge debt and a very valuable asset. You can use a home to your advantage as both. If you’re a young saver and own a home, it’s a good idea to keep an eye on interest rates. If they begin to fall, consider refinancing your mortgage to a lower rate. Using any extra money that formerly went to the recurring monthly expense of your higher mortgage payment can then go towards your retirement savings contributions. It’s a good idea to do the math first, however. Paying off mounting credit card debt will likely prove a better use for the extra income, since credit cards almost always have a higher rate than a home mortgage. If the opposite is true for you, refinancing your mortgage is definitely a good idea.

Avoid the temptation of taking out a second mortgage to consolidate your debt unless you trust your spending habits have been curtailed to fit a saving mentality and the cost of paying off your credit cards and other debt is more expensive than the additional mortgage payment each month.

Ultimately, the best thing you can do with your mortgage is to pay it off by the time retirement rolls around. The loss of a recurring monthly expense in the hundreds or thousands of dollars like a mortgage payment is an instant and substantial increase in income.

4.) Cut Investment Fees

John Bogle, the founder of the Vanguard investment firm (which holds more than $1 trillion in assets), points out that investment constitutes a $600 billion industry. That’s not in investment, that’s in fees alone. To paraphrase Bogle, no matter how the markets are doing, investment firms still make more than half a trillion dollars per year.

Cutting investment fees as much as possible is one sensible way of protecting a nest egg. What appear to be piddling amounts can wreak havoc over the life of a retirement account. For example, a one-time $10,000 investment that earns 8 percent annually over 25 years will have more than $16,000 (28 percent) less at maturity with a 1 percent annual fee levied against it than it would without the fee [source: NADART].

An investor will find it difficult to avoid all fees with a retirement account. It pays to look around though; some advisors charge fewer fees than others. For example, a good certified financial advisor will charge only an annual fee, usually 1 percent of the value of your portfolio. This means the advisor has ample incentive to build your wealth. Other advisors may charge transaction fees in addition to an annual fee. Familiarizing yourself with fees before signing on with an advisor can help you save money in the long run.

Be careful going overboard with ditching fees, however. Part of what you’re paying for in an advisor is expertise.

3.) Keep Working

This is likely to be the least popular tip, but it’s the most realistic one. Increasingly, the idea of checking out of the work force at age 65 is going the way of being able to retire on Social Security checks. The good news is, we’re generally staying healthier and more active longer, which means we also can work longer. It stinks, but it also gives your portfolio the chance to continue increasing in value for a few more years. Remember, compound interest really adds up over time.

A person entering retirement age has a few options available. One is to simply stay at the same workplace. You can also undertake a step-down method, either by decreasing the hours logged at work or by finding another, less demanding job. The downside to the step-down method is that it will likely result in less income. Having paid off your mortgage and other substantial recurring expenses and being willing to live a bit cheaply for a few years works well while you’re gradually decreasing your work load. If you’re willing to trade money for free time, it will pay off.

2.) Budget on the Back End

You’ve cut corners and saved for the last couple decades. You’ve been good about not touching your nest egg. You diversified your portfolio well and weathered some economic downturns. Now that you’ve reached the end of your work life, you’ve got a substantial treasure chest that’s all yours. Don’t blow it.

Create a budget you can stick to just before you retire. After years of creating new budgets as your net worth grew more and more positive, you should be a pro at making budgets by now. This is not to say that you have to look forward to living frugally for the rest of your life, just wisely. What is it you’ve always envisioned yourself doing when you retire? If it’s travel, then create a travel category as a monthly expense in your retirement budget. If it’s spending time with your family, then create a “spoil the grandkids” category.

You can still live your retirement years the way you like; sticking to a budget will help keep you from outliving your nest egg.

1.) Purchase Long-Term Care Insurance

It’s a pretty depressing thought, sure, but we’re all going to die one day. Unfortunately, none of us can say how and when we’ll die. That’s why it’s a good idea to purchase long-term care insurance. This specialized form of insurance covers the cost of health care that extends long beyond a typical hospital stay.

On the surface, buying long-term care insurance doesn’t seem to have much to do with saving for retirement. Remember, however, that smart saving also involves spending at times. With long-term care insurance, you’re actually buying a policy that protects your retirement savings. Having to spend your nest egg on long-term care — which can easily reach into the tens and even hundreds of thousands of dollars, depending on the quality and length of the care — is not what you’ve been saving up for throughout your career.$

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Forget Skipping Coffee, Here’s How to Really Save Money

You’re probably not saving enough for your retirement. If you’re young, you need to be putting away about 15 percent. If you’re older and haven’t been doing that, then you need to be saving even more to catch up. Maybe 20 percent. Maybe 25. Seriously, check out the calculator.

When presented with these facts, many people react not with alarm but with outrage. Americans don’t save enough because by and large they seem to believe it’s not possible to save that much money. And for genuinely poor families, that may be true. But the problem of under-saving is much more widespread than that. Most of the people who have told me that it was impossible to save 15 to 25 percent of their income were relatively successful professionals who could expect to earn an above-average income over the course of their careers.

These people — the kind of people who are most likely to be reading this blog — absolutely could and should be saving more.

Americans today save a lot less than their parents and grandparents

In 2014, the average savings rate was 4.8 percent, far short of what the average American worker needs to enjoy a comfortable retirement.

Americans used to save a lot more. A generation ago, the savings rate was between 7 and 10 percent. Two generations ago, Americans saved 10 to 13 percent of their income.

And while some of this might reflect a rising cost of living, especially for education and medical care, it’s also a result of increased consumption. For example, the average American today has a house that’s 50 percent larger than the average house three decades ago.

There are probably people who live on a lot less than you do

America is a rich country, but our high incomes are not evenly distributed. In 2012, the richest 20 percent of households had incomes of at least $104,097. The poorest 20 percent made less than $20,600.

What this means is that unless you’re at the very bottom of the economic ladder, it’s easy to find examples of people living more frugally than you. A household that made 2012’s median income, $51,017, could save 20 percent of their income if they lived like a family at the 40th income percentile, $39,765. Similarly, a household whose income was at the 60th percentile, $64,582 could save more than 20 percent of their income if they lived like a family making the median income.

That’s not to say that it’s easy to cut expenses. Money makes our lives easier, which is why we like spending it. Cutting expenses is a painful process. But the fact that millions of people do it proves that it’s possible. And it’s important to remember that you face a tradeoff between a better quality of life now and a better quality of life later. If you don’t tighten your belt now, you might be forced to tighten it more dramatically when you reach retirement age.

Saving now is easier than saving later

When it comes to saving money, young workers have several advantages over older workers. One is rising incomes. Workers’ incomes tend to grow fastest early in their careers as they gain experience and seniority. Later in their career, they’re more likely to stay at the same (hopefully higher) income level.

This means that for many young workers, saving money may not require any actual belt-tightening. It just means not boosting their spending when they get raises. It means keeping a roommate for a few more years rather than getting your own place. It means keeping a 1-bedroom apartment instead of looking for a place with two bedrooms. It means continuing to patronize cheap bars and restaurants rather than moving upscale.

Even better, if you develop more frugal habits today, that can reduce the amount of income — and, therefore, savings — you need when you reach your retirement age. If you never upgrade from a Honda to a BMW during your working years, then you don’t have to worry about whether you’ll be able to afford a BMW in your golden years. So saving aggressively early in your career has a double benefit: it increases the amount of cash you have in the bank, while simultaneously reducing the amount you’ll feel like you need later.

Most importantly, thanks to the power of compounding interest, dollars you save early go a lot farther. If you follow sound investment principles, you can expect every $1 you save at age 25 to grow to between $4 and $10 (adjusted for inflation) by age 65. A dollar saved at 35 will grow three to five times by 65. So if saving an extra $1,000 this year is difficult, imagine how much worse off your 65-year-old self will be when he or she has to cut expenses by $5,000.

Focus on big-ticket items

Often, when people try to cut costs, they do it by reducing small, optional expenses — like making coffee at home instead of buying it from a coffee shop. But while trimming those kinds of expenses never hurts, it’s often more important to focus on expenses that people think of as the essentials — especially housing costs.

Obviously, everyone needs a place to live, so you’re not going to be able to eliminate housing costs altogether. But there are a lot of things you can do to reduce them. You can get a smaller apartment or get a roommate. You could move further out in the suburbs where you can get more housing for less money. And if your personal circumstances allow it, it’s worth considering moving in with parents to save money.

Housing costs account for such a large fraction of many peoples’ incomes — especially in big cities — that even modest reductions can free up a lot of cash.

Cars are another big-ticket item that may offer room for savings. Some people view a new, expensive car as a status symbol, but you can probably find a used car that will do the same job while saving you thousands of dollars.

Consider moving to a cheaper metropolitan area

If you live in a big metro area like New York or Chicago, it might be a struggle to find affordable housing even if you get a tiny apartment or move far out into the suburbs. In that case, it’s worth thinking hard about whether you really need to live in an expensive metropolitan area.

Housing costs are dramatically lower in other parts of the country. Philadelphia has many of the same amenities as other coastal cities but is dramatically cheaper than New York or Washington DC. And the Midwest and the Sun Belt have cities that are cheaper still. Minneapolis offers an appealing combination of high incomes and low housing costs. And if the cold weather doesn’t suit you, Southern cities like Dallas and Atlanta are equally affordable.

Of course, some people have careers that require them to live in a particular, expensive city. And it might be difficult to earn a comparable salary in a lower-cost area. But many people could move to a much less expensive city without taking a big pay cut. If you’re one of them, you could dramatically improve your standard of living.

It’s OK to save less if you’re building human capital

Most working adults should be saving 10 to 20 percent of their income each year. An important exception is young people who are accepting a dramatically lower income in the short run to prepare them for more lucrative or prestigious careers later on.

The most obvious example is people who are still in school. If you’re waiting tables to cover the costs of getting a college degree, or if you’re a graduate student with a $15,000-per-year stipend, it’s going to be hard to save money for retirement. In this case, it’s best to think of your education as a kind of savings in its own right — you’re acquiring a valuable credential that will allow you to earn, and save, a lot more money in the future.

A similar point applies to people who are just starting out in a highly competitive career, like acting, writing, or fashion. Almost everyone in these industries starts out working a low-paying day job like bartending, waiting tables, or answering phones until they’re able to get enough work to practice their passion full-time. Again, this is best thought of as a kind of investment: you’re developing a skill that — you hope — will later allow you to earn a good living in a career you’ll enjoy a lot more than bartending.

But it’s important to be realistic. At age 25, it might be reasonable to live paycheck-to-paycheck as you focus all your energy on breaking into an acting career. But if you’re still doing that at age 30, you need to start planning for the possibility that you’re never going to get your big break. You need to either get a more lucrative job or cut expenses enough to save 10 to 15 percent of your bartending income.

Tackle peer-pressure head-on

Pressure from peers can be a major force driving higher spending. If you go out to eat with a group of friends and one of them wants to order a bottle of wine, it’s awkward to be the one who objects to the added expense. But Megan McArdle has some good advice on dealing with this kind of situation:

Go to the mirror. Take a long, loving look at yourself. And then repeat after me: “I can’t afford it.” That is what you say to friends who suggest going out when you don’t really make enough money to even stay in. It’s what you say to yourself when you’re feeling bad and want a splurge. There is nothing shameful about making very little money, so there’s no reason you shouldn’t tell your friends that you’re on a tight budget.

McArdle was writing about people who were having trouble finding work, but this is good advice for anyone who is trying to keep their spending down. If your friends are worth keeping, they should be more than happy to work with you to find activities that fit in your budget. More importantly, some of your friends might feel the same way, and be grateful to you for speaking up.$

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3 Easy Ways to Save More for Retirement

Investing for retirement is difficult…

Keeping a constant eye on the markets, studying economics, staying on top of every trend without a misstep… that’s time-consuming and confusing.

Worse, the 401(k) system is broken: Lack of guidance, poor websites, and limited investment options make most individuals’ first foray into investing confusing.

But you can’t hide from it. No one is going to rescue your retirement for you.

The good news is it doesn’t have to be so tough. As you’ll see below, there are just three keys to understanding 401(k)s. Learn these and you will truly change the quality of life in your retirement…

Let’s get started…

There are only three things you need to think about to earn an extra six figures in your retirement plan…

1. Asset Allocation
2. Low Fees
3. Index Funds

Let’s quickly cover asset allocation…

Asset allocation means how you divvy up your capital among several categories of assets. By taking a broad view of the possible asset classes to hold, you can meet your retirement goals. Changes in the market get smoothed out by the diversified nature of the portfolio… leaving you to sleep well at night.

The key is doing it from the start and sticking to it.

First, you set aside some cash for emergencies… Then, start with a simple allocation: Decide between stocks and bonds. If you have a longer-term view and a high tolerance for risk, you might make your allocation 80% stocks and 20% bonds. If you are closer to retirement and don’t like volatile returns, you could do 70% bonds and 30% stocks.

Most of us fall somewhere in between those extremes. When starting off, I suggest using an “in the middle of the fairway” asset-allocation plan: 60% stocks and 40% bonds. It ensures you harness the proven wealth-building power of stocks… while also using the conservative, income-producing power of bonds.

The point is to combine assets, like stocks and bonds, that are not perfectly correlated (meaning their price movements are not closely related to each other). Blending them in a portfolio smoothes out your total returns.

As you get closer to retirement, you can adjust your allocation to match your risk tolerance. For example, you can use the “60/40” asset allocation while you are in your 40s, 50s, and 60s… and then start increasing your allocation more to bonds when you reach your 70s.

Once you are comfortable with that basic stock-bond allocation, you can start to get more complex, dividing your categories among, say, domestic and international stocks. Or you can divide your bond allocation among corporate, federal, and municipal bonds. You can also add a small allocation to precious metals, or what I call “chaos hedges.”

That’s Step 1. With allocation, we’ve protected your portfolio from deep swings and ensured you’ll have money until the end. Now, let’s get into the nitty-gritty of fixing your 401(k)…

Hidden fees pervade the financial industry…

The fees on fund investments are even worse. The fees always look small to the untrained eye. A mutual fund can easily charge 2%-3% of assets without looking too expensive.

When the percentages are that small, it can seem like it’s not worth your time to fret over fees. But that’s completely wrong.

Remember, these aren’t one-time fees. It’s a 2% hit every year. Over time, that 2% adds up substantially. And it’s particularly egregious considering you can find funds with fees as low as 1%, or even 0.25%.

Even more troubling, each year you pay a fee, you lose decades of compounding that would grow on top of that money.

The results add up…

Consider an investor who saves $5,000 a year, earns 8% in returns on investments, and pays a 2% annual fee. Over 40 years, he amasses $786,000.

If he cut that fee to 1%, he would finish with $1,045,000.

Think of how hard you work to save $5,000 every year for 40 years. It’s not easy. No matter how much you earn, life gets expensive. Over all that time, you set aside $200,000.

But here’s the catch, you can earn an additional $259,000… by just spending five minutes controlling the fees on your funds.

That’s easy money.

And you can do even better than that. You should be able to get your fees to less than 1% if your plan has reasonable options.

Skeptics might wonder… When we switch to cheaper funds, aren’t we going to get worse performance? Don’t bargain prices mean bad funds?

Nope. The truth is the exact opposite…

The cheapest funds in the game are index funds.

Index funds don’t have a Wall Street trader behind them, trying to outcompete everyone else and beat the market. (The majority of the smart guys fail.) Rather, index funds follow simple rules designed to help them track the overall performance of a particular asset class, like U.S. stocks or Treasury bonds.

Most “actively managed” funds (those with a manager trying to pick the best stocks) underperform the market year after year. In fact, 96% of actively managed mutual funds fail to beat the market over a sustained period.

That means you don’t have a 50-50 chance of picking a “good” fund or a “bad” fund… It hardly even matters which one you pick. The vast majority are bad and won’t beat the market.

On the other hand, index funds don’t need to pay superstar managers or an army of analysts. Ironically, they keep costs extremely low and provide better performance.

Investors are finally catching on. The index fund industry is growing. According to the Investment Company Institute Fact Book, the percentage of stock assets held in index funds has grown from only 9.4% in 2000 to 20.2% in 2014. Over the last seven years, more than $1 trillion have flowed into index funds. Vanguard’s Bond Index Fund recently surpassed PIMCO’s Total Return Fund as the largest bond fund in the world.

It’s likely your plan offers a few mutual funds that track an index.

By following these three simple steps, you can fix your 401(k) and boost your lifetime returns by hundreds of thousands of dollars… in just a few minutes.

So take the time to review your retirement plan today… It will be the easiest money you make in your entire life.

Here’s to our health, wealth, and a great retirement.

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10 Ways to Improve Your Finances in One Day

LITTLE FIXES, BIG RESULTS

Starting on the path to financial health can be overwhelming. But as you start paying attention to your money management techniques, you’ll notice that it’s not the big things as much as it is your small, daily decisions that truly impact your finances — for better or worse. In just an hour or two, you can complete a small task to make a big improvement in your financial situation.

1. DO WHAT YOU’VE BEEN DREADING

Often emotions win out in the struggle to wisely manage money, and negative feelings like shame or fear can make it seem easier to just avoid the financial tasks hanging over your head. Don’t give in to these emotions. Be proactive — the only thing that will actually make financial problems better is facing and fixing them.

If you have a financial task that you’ve been dreading and avoiding, like calling a collections agency that you owe or setting up a payment plan for back taxes, now’s the time to take care of it. Doing so will give you peace of mind and relief. But most importantly, it will give you the chance to directly address and handle any issues before they end up costing you even more money and stress.

2. SET UP AUTOMATIC SAVINGS TRANSFERS

If you set savings goals but can’t ever seem to stick to them, setting up automatic transfers to your savings account makes it easy and simple to stay on course. Figure out your savings purpose and goal — maybe you’re hoping to buy a car in a few months or want to step up your retirement contributions. Once you have a dollar amount for your total savings goal, calculate how much you’ll need to save each paycheck to reach it. Then use your bank’s online tools to set up a recurring transfer that moves money into your savings account as soon as you get paid.

3. PURGE RECURRING EXPENSES

If you’re paying for subscriptions to magazines you never read or pay more for your cable bill than you do for car insurance, it’s time to purge your recurring expenses. Spend about an hour reviewing recent expenses, keeping an eye out for monthly charges like cable bills and subscription fees as well as services you could do yourself, like housecleaning. Look for services you don’t use much or could live without and cancel them.

For services you need, contact your service provider ask if there are any current offers, promotions or discounts that you could take advantage of to secure a lower rate. Or, you could try and get an upgrade at the same price you’re currently paying. If you can’t get a deal from your current service provider, shop the competition to see if other companies are willing to offer a discount to give you a reason to switch over. The best part about cutting or lowering monthly expenses is that it’s a one-time effort that will help you save money long term.

4. CONTEST A FEE

If you’ve been slapped with a bank fee or other fee you don’t think is justified, speak up. Call your service provider and politely ask that the fee be waived. If it was charged in error, ask the company to correct the error — you might even be given a small discount as a consolation.

If the fee was legitimately levied, you can still request that the service provider waive the fee or lower it. If the fee is from your bank, for instance, maybe a bill payment went out a day before your paycheck was deposited resulting in an overdraft. Make sure to mention how excellent of a customer you usually are and how important this request is to you. Chances are good that retaining your business is worth waiving a $30 fee to your service provider.

6. MAKE AN EXTRA DEBT PAYMENT

If you’re in debt, whether you owe a high credit card balance, student loans, car loan or mortgage, making an extra payment will help you get a guaranteed return today. To make an extra payment, figure out how much extra you can afford, whether it’s $50, $100 or $500. Every bit can help you get ahead of interest and chip away at the principal of your loan or credit balance, which is the actual money you owe that is accruing interest.

Some personal finance experts recommend targeting your debt with the highest interest rate first, which would typically be a credit card balance. Submit the extra payment as you normally would through your bank’s online bill pay or you lender’s account management system. Next, start planning how you’ll make your next extra payment and get closer to owing zero.

7. GO ON A 24-HOUR SPENDING FAST

If you don’t think you have the extra funds to cover an additional loan payment or to save more money, try going on a 24-hour spending fast, making it your goal not to buy anything or spend any money that day. It might take some planning to arrange your day so you won’t need to spend money. Pack a lunch with what’s in your fridge, ask a coworker for a ride to work or stick with free water at the after-work happy hour.

Refraining from spending can make you aware of the triggers that prompt you to pull out your wallet, like driving past a coffee shop or getting invited out for lunch. By not spending, you can get a clearer picture of which expenses you truly need and which ones are simply bad habits you have formed.

8. CHECK YOUR CREDIT REPORT

You’re entitled to get a free copy of your credit reports once a year. If it’s been 12 months or more since you last reviewed your credit report, visit AnnualCreditReport.com to request free copies of your credit reports. All you have to do is fill out a short form, and once your information is verified, you’ll get access to an online copy of your report that you can also download and print out.

Review your reports to assess your payment history and look for errors. Credit report mistakes are actually fairly common; a Federal Trade Commission study found that one in four consumers have identified errors on their credit reports. Review all the credit accounts, loans and personal information listed in the credit report to ensure they are all your own because sometimes people find that their information has been confused with someone who has a similar name.

In addition, check for any negative marks like a late or missed payment that seems inaccurate. You can dispute any possible errors with the credit bureau and the lender that reported the information to the credit bureau, according to the Consumer Financial Protection Bureau.

9. SET A MONEY GOAL AND MAKE A PLAN

Some money goals involve doing some homework and require more than a day to achieve, but you need to get started. Use today to put your plan into action and get informed so that you are a step closer to accomplishing your financial goals. When you aren’t sure where to start, begin by researching your financial goal and obstacles you might encounter. With a simple search engine query, you can find articles and tools that can help you understand how to accomplish your goal.

For something like buying a home, for example, there could be several steps you need to take, such as improving your credit score, saving a down payment and maybe even trying to increase your salary so you will meet lenders’ income requirements. Once you have an overview of how to proceed, you can move on to the next step tomorrow.

10. FIND A BETTER INTEREST RATE

Whether it’s interest you’re earning or interest you’re paying, finding a more favorable rate will go a long way in moving your finances in the right direction. If it’s an interest rate on a loan or credit card, you can try simply asking for a lower rate. Credit card issuers will often lower your interest rate when asked.

For loans, many banks and credit unions will offer interest rate discounts if you set up direct payments or meet other requirements. Some lenders provide similar discounts to student loan borrowers.

You also want to make sure you’re getting a good rate on your deposits, like a savings account, money market account or even your checking account. By shopping around and comparing the annual percentage yields and dividends offered by different financial institutions, such as credit unions and online banks, you might find a better rate that will help your money grow faster.

Managing Post-Retirement Risks: The Stock Market

Stock market losses can seriously reduce retirement savings. But common stocks have substantially outperformed other investments over time, and thus are often recommended for retirees' long-term investments as part of a long-term investment mix.

Predictability

Individual stocks rise and fall based on the outlook for the stock market and the specific company. Individual stocks are more volatile than a diversified portfolio.


Stock index funds are diversified, but they still are exposed to the ups and downs of the stock market.


Managing the Risk

Stock market investors should diversify widely among investment classes and individual securities, and be prepared to absorb possible losses. Because it may take many years to recover losses, older employees and retirees should be especially careful to limit their stock market exposure.


A variety of polled investment "funds" exist, ranging from mutual funds and exchange-traded funds to managed accounts to hedge funds.


Hedge funds, which are private investment funds that participate in a range of assets and a variety of investment strategies, may offer some protection, but they can be complex and have high expense charges.


Stock funds offer opportunities to invest in both U.S. companies and international stocks.


Conclusion

Some financial products let an individual invest in stocks and guarantee against loss of principal. However, expenses on these products may be high, and the financial firm may limit losses by shifting most funds to bonds, thus reducing the stock exposure.


Younger workers can afford to take more risks because they have time to make up short-term losses and can postpone retirement. Older individuals might want to allocate a smaller proportion of assets to the stock market.


Target-date (or "life-cycle") funds gradually shift some of their assets out of stocks as the investor gets older. In target-date funds designed by different fund managers, the allocation to stocks at a given age varies. Proposed regulations would increase disclosure to consumers about target-date funds to bolster understanding of what these funds do and don't do.


When significant personal assets are in company stock, the risk of job loss is compounded by possible loss of savings if the company does poorly or goes out of business. Even if a company appears strong, it is safer to diversify those assets among other investments.$


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Managing Post-Retirement Risks: Longevity

The past decade has seen not only economic uncertainty and volatility, but also an increased emphasis on individuals taking responsibility for securing their financial well-being in retirement. As a result, today's retirees may be exposed to a variety of risks that can affect them both as individuals and as members of society.

Longevity: Outliving Retirement Resources

Managing one's own retirement funds over a lifetime has many pitfalls, even with expert help. Nobody knows how long the money must last.

Life expectancy at retirement is an average, with some retirees living longer and a few living past 100. Counting on living only to a certain age is risky, and planning to live to the average life expectancy for someone their age will be inadequate for about half of retirees. In theory, retirees want to make sure their money will last a lifetime without cutting back on expenditures or reducing their standard of living. In practice, unexpected events may make this very difficult.

A licensed insurer is the only entity outside the government that can contractually guarantee to pay lifetime income. However, purchasing an annuity involves trade-offs; the household must give up the account balance to purchase the income stream. Financial products from firms that aren't in the insurance business could run out of money to pay income to a long-lived individual.

Predictability

Long lifetimes are difficult to predict for individuals. It's easier to predict the percentage of a population with a long life than to do so for an individual. In the total population, women live longer than men and wives outlive husbands in most cases.

Longevity has increased over time. Any medical breakthroughs could bring additional improvement.

Managing the Risk

Social Security, traditional pensions and immediate payout annuities all promise to pay an individual a specified amount of income for life. In addition, they may also pay income to the surviving spouse or other named survivor. Some newer products can help protect retirees from outliving their assets.

Deferred variable annuities and indexed annuities can include guaranteed lifetime withdrawal benefits that guarantee the availability of annual withdrawals up to a specified amount, even after withdrawals have exhausted the account value.

"Longevity insurance" is an annuity that guarantees a specified income amount but does not start paying benefits until an advanced age, such as 85. This niche product may fit into a carefully designed financial plan.

"Managed payout" plans, offered in several forms by financial services firms, enable the retiree to draw down assets gradually. Lifetime income from such plans is not guaranteed, but is set at a level that provides a high probability that income can be received for many years, e.g., to age 90. In some cases, a "contingent deferred annuity" can be added to guarantee that the income payments will continue for a lifetime.

A Reverse Mortgage can convert home equity into ongoing monthly income as long as the homeowner lives in the home. Administrative charges for these mortgages can be high.

Conclusion

"Payout annuities," also called immediate annuities or income annuities, can be useful for retirees because they maximize the amount of guaranteed lifetime income available from a sum of money.

Some mutual fund companies are offering "annuity alternative" arrangements to ensure liquidity in retirement with cash/mutual fund structures that can be blended with annuities.

An annuity that seems unattractive to buy at retirement age may make sense later. Multiple annuity purchases can be made over time to average interest rates inherent in their purchase prices. People generally should not annuitize all their assets, but they may want to consider annuities in their overall retirement plan.

Financial projections can be very useful in retirement planning , but actual experience will differ. All retirees should review their expected income needs and sources at least every few years and adjust spending if necessary.

Reverse mortgages can help to mitigate risk in some cases, but they may also increase it in others. Care is needed in the use of these products. The mortgage proceeds can be paid in a lump sum, as a monthly income, or as a line of credit.

Annuities and reverse mortgages differ in an important way. When interest rates are higher, you get higher monthly payments when you buy an annuity. In contrast, when interest rates are higher, you get lower monthly payments if you take out a reverse mortgage.

Retired individuals with outstanding mortgages can effectively improve their monthly cash flow by replacing the conventional mortgage with a reverse mortgage, using the lump sum proceeds of the reverse mortgage to pay off the conventional mortgage.$

Next up: Inflation

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Retirement Income Planning: Risky Business



With millions of baby boomers in or nearing retirement, a huge concern is what to do with the trillions of dollars in retirement savings that they have accumulated. How do they reinvest their savings, ration it over time, or protect it from taxes?

Few employer-sponsored retirement plans offer advice or options for converting savings into retirement income. Many people will leave their plans with a lot of money but no strategy for investing it, protecting it from taxes, or spending it. Without a strategy, an employee may withdraw her money in one lump sum, fail to roll if into an IRA, and lose 25 percent of it to taxes in the first year. Obviously, the a sense of an income plan raises the risk of running out of savings during retirement. 

Running out of money in retirement is too large a risk to self-insure. Retirees need the best information and tools to help them determine how much income they will need, where the money will come from and how to make it last. They need access to safe, affordable lifetime income products.

Given the continued importance of individual responsibility in accumulating and managing retirement assets, there is a greater need than ever before for education and guidance. Individuals who do not fully understand their situation can be unduly influenced by emotions. For example, as the Hueler Companies noted in in its written statement to the United States Senate Special Committee on Aging in June 2010, research indicates that retirement decisions are often influenced by behavioral factors - such as fear of the unknown, lack of trust, and desire for control.

Retirement age plays a critical role
One of the most important decisions individuals face is when to retire. The Society of Actuaries 2007 and 2009 Surveys Post-Retirement risk indicate that many people do not fully understand the impact of retiring later, and that they underestimate the impact of working longer. In addition, the decisions surrounding Social Security claim in age are misunderstood, especially by couples.

An unprecedented challenge 
The challenge for those who are pension-less - including those who have ample savings - will be to convert those savings into do-yourself pensions. The new retiree will face three important risks: sequence-of-return risk, investment risk, and longevity risk. These risks exist for almost everyone, but not everyone chooses to acknowledge them - and even fewer choose to insure against them. Transferring these risks are for people who choose not to ignore:

• Investment risk: The possibility that your portfolio won't earn enough to support you in retirement.
• Sequence-of-returns risk: The chance that, just before or after you start drawing down your savings, a sharp market downturn and take a huge bite out of your portfolio and greatly increase your chance of running out of money too soon.
• Longevity risk: The chance that you'll outlive your financial resources.

In the distant past, many people worked at a single company for their entire career. At retirement, most people left the company with a pension that took care of their retirement income needs for the rest of their life.

When it came to figuring out retirement income, all one had to basically do was fill out a form to determine how they wanted to take their pension and whether or not they wanted to include a spouse. From there, their job was quite simple: merely deposit each check every month (before direct-deposit days) for the rest of their lives.

All the difficult and complicated decisions as to...

• Where to invest
• How to get the most amount of income
• How to compensate for inflation
• How to ensure one wouldn't run out of money
• How to keep income flowing to a surviving spouse

...were left in the hands of professional actuaries and managers who collectively spent all their time making all these complex decisions for us.

These days, however, things have changed quite a bit. Especially of the last decade, pensions have quickly become a dinosaur of the past. Only a select few still get them and for those that do, governments and corporations are successfully reducing, and in some cases, completely eliminating them.

So it's now up to us individuals to do the job that those full-time, experienced pension managers once provided. In most cases, retiring simply means retiring from one's job but the work isn't over. In many cases, it's just begun and this new work is being the CEO of your own retirement company. Are you prepared to handle this responsibility and these risks on your own?$

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Annuitizing Retirement

Retirement today requires more planning than for previous generations. Americans are living longer - many will live 20 to 30 years or more in retirement. Finding a way to make savings last over such a long period of time is one of the biggest challenges of today's retirees.

In addition, sources of steady retirement income have changed. Fewer workers are covered by traditional employer-provided pension plans that provide a lifetime benefit. Also, Social Security is not likely to provide future retirees the level of benefits that it provides today. Americans need other ways to create and guarantee lifetime income so their standard of living doesn't decline with age.

To achieve a secure retirement, more and more retirees are including an individual annuity in their plans. An annuity can provide a steady stream of income for life, shifting the burden of managing savings from you to your life insurance company. No other personal financial product offers this guarantee of lifetime income. For many, the income guarantee helps offset worries associated with running out of money.

To assure yourself an income during retirement, consider "annuitizing" a portion of your retirement savings. Annuitizing means converting some of your assets into regular income that can last for a specific number of years or for life. This post will explain the pros and cons of annuitization and help you decide if it's the right way to help meet your retirement income needs.

Should you annuitize?
You should annuitize if you want to reduce the risk of outliving your assets. Because you receive a guaranteed income stream, annuitizing can help protect your standard of living in retirement.

When is the best time to convert to an income stream?
It depends on your situation. It could be at retirement  or whenever you need to replace other sources of income.

How much income could you receive by annuitizing?
It depends on the amount you convert, your life expectancy, interest rates, and the payment option you choose.

Can you change your mind after annuitizing?
The decision to convert is irrevocable - you can't change your mind. And once you choose an annuity payment option, the decision becomes irrevocable as well.

Benefits of Creating an Income Stream with a Portion of  Your Retirement Assets

• Guarantee yourself - and someone else, if you wish - an income for life. (Other distribution methods - automatic withdrawals, lump-sum distributions - don't do this.)
• Spend more comfortably, knowing that your risk of running out of money is reduced.
• Create your own pension.

Set up your income stream to meet your priorities
By choosing the right payment option and calculation method, you can tailor your income stream to meet your needs, and, if you wish, the needs of your spouse or others.

Choose a payment option

Option 1: Life annuity.
If you choose yourself as the "annuitant" - the person whose life expectancy will be used to calculate each annuity payment - you'll be guaranteed income for as long as you live.

Option 2: Joint and last survivor annuity.
If there are two annuitants, such as you and your spouse, payments will continue as long as either of you is living. The survivor, or joint annuitant, can receive payments that are 100%, 75%, or 50% of the original amount.

Option 3: Life annuity with period certain.
You'll receive payments for a specific periods ranging from 5 to 30 years. If you die before the period ends, your beneficiary receives the remaining payments. This option is available only with fixed payments.

Other income options are available. You also can choose to receive income in a series of payments for a specified number of years.

All annuity contracts offer their owners the right to convert the money in their annuity to a guaranteed lifetime income. If the owner buys an immediate annuity, the conversion takes place within a year of the purchase date. If the owner buys a deferred annuity, he has the right to convert at some future date.

Federal Tax Treatment
Earnings on a deferred annuity build up free of current federal income tax. When you withdraw money or receive income payments, the portion that comes from earnings is taxed as ordinary income. With an immediate annuity, you pay ordinary income taxes on any earnings when you receive payments. The portion of the payment that represents your initial contribution is not taxed if your annuity was purchased with after-tax dollars.

Because taxes are deferred until money is withdrawn or received as income, there are tax penalties for early withdrawals. If you choose to withdraw money from your deferred annuity before you reach age 59 1/2, you will trigger a 10 percent tax penalty on the earnings portion of the amount withdrawn plus the income tax due on earnings.

Annuity earnings also may be subject to state taxes, which vary according to state. Check with a local tax adviser for more information.$
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Fundamental Indexing: A Different Approach

Investors generally can divided into two camps: those who believe the market constantly misprices stocks, leaving opportunities for active traders to take advantage of; and those who accept the "efficient market theory" and believe that it is better to just hold index funds. But this "active versus passive" debate often leaves out a third viewpoint.

That view reflects the belief that while the market is not always perfectly efficient, it is difficult to consistently pick enough "winners" to overcome the management fees, trading expenses and income taxes associated with active stock trading.

Passive investors - meaning those who think that the market's pricing generally reflects the approximate current value of a company, given its future prospects - typically turn to index funds as the vehicle of choice. An index, like he S&P 500 or the Barclays U.S. Aggregate Bond Index, represents that particular small or large part of the market: If the market goes up or down, the index will move in parallel, since it is invested in the same way the market itself is constructed. Index funds are less expensive to operate, as their managers do not have to work to continually beat the market.

That said, most indexes have some disadvantages. Traditional indexes are "market cap weighted" (number of shares outstanding times their stock price). The higher the relative market value of a company, the greater portion of the index it will represent. However, when securities become over- or under-valued, market cap-weighted indices must assign a greater relative share to overvalued stocks; as a result, the market-cap indices exaggerate the market movement. For example, if a tech stock is trading at an excessive price/earnings (PE) ratio, a market-cap index will hold a larger amount of this stock than a similarly-sized company trading at a reasonable PE ratio.

Fundamental indices represent a different approach. Company size is measured by four equally weighted factors: sales, cash flows, book value and dollar value of dividends paid. These four factors are used to generate a ranking of the stocks in the sector being tracked. Note that his method completely ignores stock price, so while the market may be overvaluing that tech company mentioned above, the mispricing has no impact on how the stock ranks in a fundamental index. The fundamental methodology does not completely avoid owning "overvalued" stocks; it just holds them based on a truer measure of their value, not their stock market value. There is a large overlap when comparing the two - the names are most often the same, but the ranking is different.

Not many advisors have made the switch to fundamental indices, and we're glad they haven't. It's one more way that we can create an advantage for our clients. As we continue to scan the horizon for "best practices," we'll bring you what we find, so that there will be more and more ways for you to benefit from working with Retire Village.$

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Retirement: Five Financial Risks Ahead

In retirement, there are five major financial risks that must be accounted for. Your retirement income plan needs to have a solid strategy that helps you address and navigate these risks.

1. Interest Rate Risk. Traditionally, bonds were a great option to provide interest income to help supplement a retirees' Social Security or pension benefits. If a retiree required an extra $40,000 in annual income, and bonds were paying 4%, they would have to purchase $1 million worth of bonds. This would basically be an all-in strategy, where all of a person's savings went into bonds. That was ok when people retired at 65 and lived to age 72. Now, we have potentially 30-year periods in retirement. This leaves the retiree exposed to interest rate risk. Just what is interest rate risk? A fundamental principle of bond investing is that market interest rates and bond prices generally move in opposite directions. When market interest rates rise, prices on fixed-rate bonds fall. Interest rate risk is common to all bonds, even U.S. Treasury bonds. A bond's maturity and coupon rate generally affect how much its price will change as a result of changes in market interest rates. A bond's yield to maturity shows how much an investor's money will earn if the bond is held until it matures. If you have to sell your bonds before maturity, say when interest rates are rising, they may be worth less than you paid for it.
2. Market Risks. Another strategy is a mix of stocks and bonds. Bonds provide interest and stocks would give growth, providing a hedge for inflation. The problem with this drawdown strategy is that the markets have to cooperate. If you start taking income when markets are down, you are really decimating your portfolio. You're exponentially increasing the chances of running out of money in retirement. Stocks and bonds can be down at the same time. Market risk is the possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets. Market risk cannot be eliminated through diversification, though it can be hedged against. The risk that a major natural disaster will cause a decline in the market as a whole is an example of market risk. Other sources of market risk include recessions, political turmoil, changes in interest rates and terrorist attacks.
3. Longevity Risk. Individuals often underestimate longevity risk. In the United States, most retirees do not expect to live past 85, but this is in fact the median conditional life expectancy for men at 65 (half of 65-year old men will live to 85 or older, and more women will). For individuals, insurers provide the majority of products designed to help individuals manage the risk that they outlive their assets. Individuals without defined benefit plans can ensure lifetime income by purchasing annuities within their defined contribution plans and personal retirement accounts.
4. Inflation Risk. Inflation risk, also called purchasing power risk, is the chance that the cash flow from an investment won't be worth as much in the future because of changes in purchasing power due to inflation. Although the record inflation of the 1970s is history, inflation risk is still a common worry for income investors. Inflation causes money to lose value, and any investment that involves cash flows over time is exposed to this inflation risk. The ramifications of this can be serious: The investor earns a lower return than he or she originally expected, in some cases causing the investor to withdraw some of a portfolio's principal if he or she is dependent on it for income. It is important to note that inflation risk isn't the risk that there will be inflation, it is the risk that inflation will be higher than expected.
5. Healthcare Risks. Inflation on healthcare costs coupled with living longer in retirement can spell disaster if not properly managed. Compounding this issue further is the rate of inflation on items such as prescription drugs and preventive care, which have historically exceeded the 3% general rate of inflation. According to a 2011 Fidelity Investments study, a 65-year-old couple would need $230,000 to pay for medical expenses through retirement, not including long-term care costs ranging from $35,000 for assisted living facilities and home health care, all the way up to $70,000 or more for nursing home care. These are significant expenditures which show no sign of decreasing. Traditional solutions such as Medicare and Medicaid are helpful, but they aren't always enough to meet an individuals needs. Around 69% of pre-retirees are very or somewhat concerned about having enough money to afford adequate healthcare; 51% of retirees share that level of concern. Additionally, 63% of pre-retirees are concerned about having enough to pay for long-term care; 52% of retirees share that concern.

If you are nearing retirement, or are already there, you need a strategy that addresses ALL of these risks. Professional mountain climbers know that most fatalities and injuries happen on the way down the mountain, not during the climb. Likewise, you have successfully navigated your way to the retirement savings summit. Now, you need a way to safely de-cumulate. There are a lot of risks to staying retired. If your current advisor is not helping you address all, or at least most of these risks, it's time for a second opinion.$

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Managing Retirement Decisions: Designing a Monthly Paycheck

"Where's My Paycheck?" That is a common question for new retirees and near-retirees when they start mapping out the retirement journey ahead. In their working days, many had regular pay checks coming in to cover ongoing expenses. But what will take its place in retirement?

Social Security checks provide a portion of monthly income for most older people. Some also receive monthly checks from a traditional pension plan. These sources typically form the foundation of a retiree's income plan. But to maintain their standard of living, many people also need additional monthly income during retirement. How to build that additional income stream is the challenge.

For many, the discussion revolves around two questions: "Should I just take withdrawals from my savings and investment accounts whenever I need money beyond my Social Security or pension check? Or, should I purchase financial products - like annuities - that will pay me a guaranteed income stream?"

The choice between taking withdrawals and purchasing an income annuity involves many trade-offs, so it pays to look at the issue from many angles before reaching a decision.

A good place to start is to assess how much flexibility you are likely to need. Early in retirement, for example, people may have considerable flexibility to spend discretionary funds on hobbies or vacations. In the later years, however, this flexibility may decline or uncertainty may rise concerning health care costs or long-term care costs.

Early Steps

An early step in the retirement planning process is to project future sources of income and estimated expenses. Sources of future income may include Social Security, work-related pensions, or income from continuing to work.

Some income items will adjust for inflation, like Social Security, and others, like most corporate pensions, are fixed for life.

For future expenses, experts suggest splitting them into two categories: 1) required living expenses, including taxes; and 2) discretionary expenses.

Individuals who have mortgage debt at the time of retirement need to decide whether to pay down all or part of the debt. A key decision factor is the amount of assets and liquidity that will remain after paying down debt. Ask this question: Will the pay-down of debt be too constraining?

Those who have work-based retirement plans may have decisions to make before considering purchase of any retirement products.

Prior to separation from the company, retirement plan participants will likely be given a choice between: 1) Leaving your money parked in the plan; 2) Take a lump-sum distribution; 3) Roll the money into an IRA; 4) Take periodic distributions; or 5) Purchase an annuity through an insurer recommended by the plan sponsor.

Keep in mind that employer offers usually come with a fixed time frame for making a decision. Also, if the participant is married, they will have to consider the impact their choice might have on their spouse.

Products with Lifetime Guarantees

Once an individual chooses an approach and income plan, he or she will need to scope out the available products that can help implement the plan. To the extent that future required living expenses exceed future income, people may decide to fill the gap with a product containing guarantees. Some examples follow.

Income annuities. The most straightforward choice would be an income annuity. This is an insurance policy. The purchaser pays a certain dollar amount up front and the annuity pays a fixed amount per month for life. Income annuity products come with various features that make them adaptable for individual situations. For example, income annuities:

• Cover either single or joint lives. 
• Come with various refund options - for example, a guarantee that payments will last at least 10 years even in event of death of the payee. (The more attractive the refund feature, the lower the monthly payment.)
• Pay a flat monthly amount for life, in most cases, or make payments that step up by a set percentage each year. 
• May adjust the monthly payments each year for actual inflation. Not all income annuities do this. 

Other products.  Annuities, including variable annuities with a guaranteed lifetime withdrawal benefit (GLWB) , fixed annuities and fixed indexed annuities with guaranteed income riders, also 

offer lifetime income that retirees may want to consider. 

Bottom Line

When comparing regular investments versus products with longevity guarantees, retirees and their advisors will find some very attractively priced regular investment products available. These include index funds and exchange-traded funds, both of which cost a fraction of 1 percent a year. 

Some retirees and near-retirees may prefer to invest in products with guarantees. The market for income annuities is competitive, and low-cost products are available. 

In choosing these products, they will need to pay attention to the tax effects. Tax treatment varies among the different financial products, so after-tax results may look quite different from before-tax results. They should also pay attention to the financial strength of the insurance company selling the product. 

It is essential to work with advisors who are experts in this market and who understand tax effects. Advisors and individuals who use financial projection software in their planning should check to be sure the software takes tax considerations properly into account.$

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