What If You Can’t Afford To Retire?

““Cessation of work is not accompanied by cessation of expenses.”” – Cato the Elder (2nd centuryB.C.)

Aging baby boomers are starting to realize that there is very little chance most of them will be able to retire at 55 or 65 and live off their savings. That’s because most of those closing in on retirement don’t have enough saved. A recent survey conducted by The Insured Retirement Institute found the following:

* Only 60 percent of baby boomers report having any retirement savings
* 36 percent said they plan to retire at 70 or later
* 27 percent are confident they will have enough for retirement

The survey found that 27 percent of baby boomers are confident they will have enough money to last through their retirement, down from 33 percent a year ago and 37 percent in 2011. Only 6 in 10 boomers report having any retirement savings, down from roughly 8 in 10 in previous surveys.

Of those who were willing to answer, about 40% have an investable net worth of less than $50,000, 60% less than $100,000, and 80% less than $250,000.

If you figure on making 6% on your money, this means fewer that one out of five Americans who are nearing retirement age have the wherewithal to enjoy a passive retirement income of more than $15,000.

How well can you live on $15,000 a year?

And it’s only getting worse. During the Great Recession, government numbers showed that Americans were in a net spending rather than saving mode. Fortunately, that has turned around but the vast majority of Americans are not rich enough to retire and they are getting less rich every year.

I'’ve made the argument that retirement,– the idea of not working, of living off passive income – was a short-lived phenomenon in this country. It was sold to us by the government and by the banking and the insurance industries, yet it only worked (and only partially) for one complete generation:– the parents of the baby boomers, who benefited from the appreciation of their homes.

Other than that, most Americans have worked most of their lives,– just as most Europeans, most Asians, and most Africans have done since recorded history.

Still, it’'s a great fantasy and one you should not give up on entirely.

If you work hard and invest your savings, you can still retire comfortably. But you’'ll have to do those things over a long period of time,– which you may not have. (Or you’'ll have to get lucky, which you shouldn'’t count on.)

But even if you are able to stop working and live off your savings, retirement may turn out to be less than the wonderful experience you’ve imagined. A former colleague of mine retired with a personal net worth in excess of $20 million about five years ago. Since that time, he has done everything you can do in retirement:– traveled the world, spent time with his family, played a lot of golf, etc. But the other day, he pulled me aside and said, “Ray, let’s do something together. I’ve got to get my blood moving again.”

He wasn’t talking about golf. And he’s not alone. The golf courses of America are full of lonely retirees fantasizing about the good old days when they were involved in something meaningful.

And they are right. There is nothing more rewarding than working on something you think is important. And there’'s nothing less satisfying than whiling away your time with distractions, waiting for your body to shut down.

Someone smart once told me that they should invent a new period of life for Americans today. After the working years, there should be something called the Semi-Retirement or Post-Daily Grind or the Golden Working Years, during which you get to (a) do something you really enjoy doing, (b) do it as many hours as you wish, and (c) get paid good money for doing it.

In the Internet age, I believe this is going to be possible for many of us,– and it will definitely be possible for you if you start planning on it now. It doesn’t matter if you are 55 or 35, there is a way to shift the course of what you are doing now toward some rewarding activity that meets all your needs:– intellectual, physical, emotional, and financial.

The trick is to do work that you love. And it may be that the work you are doing now isn’t lovable. A  Rutgers University study found that 70% of those asked would be OK with working into their “retirement years” if they could find some part-time work they could do outside of their current employment.

Work that’s enjoyable (probably something different from what you are doing now) and work that can be done part-time (20-30 hours a week). Does 't that sound like good “unretirement” work to you?

Let’s add two more qualifications:

* The work should be in a desirable location.

* It should enable you to associate with agreeable people.

That meets my three standards –to enjoy what you do, where you do it, and with whom you do it.  

If you can find work that meets those requirements and pays you a reasonable financial reward, you will probably be very happy to forget about retirement altogether,– at least for a while.

In future messages we will talk about how to go about finding such work. Right now, I'’d like you to think about it. What would you do if you could do anything? Where would you do it? What kind of working relationships would suit you best?

It may be that you will decide to become a free-lance copywriter. Or maybe you will work as an Internet artist, or a cyberspace interior decorator. Your love of horticulture may be transformed into a part-time source of income for you. Anything is possible.$

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The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

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If You Want to Retire in the Next Five Years, Do These 9 Things Now

Time for one last push to get you where you want to be

By the time you hit 60, you’ve hopefully built up a significant savings balance. But even if the number is big, you have to be careful about protecting what you’ve built, while still taking advantage of opportunities where you can find them. Here are some ideas to help you get the retirement you want:

Have a career Plan B. The last years of your career will be crucial savings years, but they can be perilous. On average, unemployed Americans 55 to 64 have been jobless for 11 months. So to help ensure you can work until your planned retirement date, lay the groundwork for a backup plan—whether it’s a short-term project, freelancing, or a business idea.

Downsize the house. As seen in the chart below, housing accounts for the largest share of spending in retirement. Swapping a $250,000 house for a $150,000 one puts cash in your pocket—and frees up $3,250 a year in taxes and upkeep, according to the Center for Retirement Research.

Want to retire early? Factor in better health. Ending your career well before you turn 65 requires extra preparation, for a pretty obvious reason: You have more years to fund. Another challenge, though, is that you’ll probably be in excellent health and active for more of that time. That’s also why you’d like to do it, of course, but it means that you are likely to spend more. Younger retirement-age people spend 36% more than those 75 and over, according to Census data. Plan for the extra spending with a more ambitious savings goal. Deciding whether to retire early now? Add a generous allowance for the cost of your travel plans and hobbies to your regular budget—theretirement-expenses worksheet at Vanguard.com is a helpful tool—and make sure it all still fits with a safe spending plan.

Take some profits. You spend a lifetime building wealth, yet success and failure can come down to a handful of years—those just prior to and after you stop collecting a paycheck. The odds say that given how long retirement is, you should keep the bulk of your portfolio in equities. Yet you don’t get to play out thousands of scenarios. you get only one try. Dial down equities to half or less as you near this danger zone. You can always take on more risk after, when the stakes are smaller.

Don’t eat the seed corn. Common advice for retirees is to withdraw 4% of savings in year one and then adjust for inflation. But due to low yields, says economist Wade Pfau, that’s too aggressive now. A 2.9% withdrawal gives you a 90% chance of a 50% stock/50% bond portfolio lasting 30 years. If that seems low, start higher, but protect your capital by spending less in bad market years. 

Put your assets in the right place. Once you’ve maxed out your IRAs and 401(k)s, use taxable accounts for the most tax-efficient investments in your mix. They include index and buy-and-hold equity funds that trade infrequently and generate few capital gains distributions.

Rethink your target. If you’re close to retirement but don’t like the look of your balance, take heart. Most retirement advice and online calculators assume you are going to spend the same amount, adjusted for inflation, each year after you stop working. In reality, spending tends to decrease as you move through retirement, according to David Blanchett of Morningstar Investment Management. When working out your retirement budget, make a distinction between fixed, essential costs and those you may have more flexibility with.

Maximize Social Security. What if you could earn 8% a year on your money risk-free, and all you’d have to do is be patient? Well, there is such a thing: Social Security. A person who would get $24,000 a year tapping his benefit at 62 can expect that sum to swell to $42,000 by waiting until 70. That looks even better when you consider that the payment lasts even if you live a long, long time.

Avoid taxes in retirement. There may be years when you fall into the 15% bracket ($74,900 taxable income for couples). Take advantage by selling your long-standing holdings with big gains. why? The long-term capital gains rate for those in the 15% bracket or below is 0%. That’s right: nada.

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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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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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Managing Post-Retirement Risks: Employment

Many retirees plan to supplement their income by working at a bridge job part-time or full-time.

Today's jobs often make few physical demands and may even be done at home. Some organizations prefer to workers because of their stability and life experience. But success in the job market may also call for technical skills that retirees cannot easily gain or maintain. Training and retraining have become increasingly important for those who want to work at older ages.

Predictability

Employment prospects among retirees vary greatly because of demands for different skills, and can change with health, family or economic conditions.

About half of all retirees retire earlier than planned, often because of job loss or poor health.

Managing the Risk

Retirement plans rarely allow for phased retirement, so a bridge job usually means working for a new employer. Re-hiring of retirees also is growing more common. These kinds of jobs often have lower pay or benefits.

Postponing retirement may be the most powerful way for workers to improve their retirement security. This allows retirement savings to keep growing while the workers accumulate more benefits from Social Security and retirement programs. Medicare-eligible retirees can take a job knowing that they will have health care coverage, even if the employer does not offer it.

Conclusion

Retirement planning should not rely heavily on income from a bridge job.

Many retirees welcome the chance to change careers and move into an area with less pay but more job satisfaction, or fewer demands on their time and energy. However, it may be difficult to find jobs in tight employment markets.

Terminating employment before age 65 may make it difficult to find a source of affordable health insurance before Medicare is available. Note that COBRA coverage usually ends after 18 months (36 months if disabled). As of 2014, health care coverage is available through state exchanges (most states).$
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Managing Post-Retirement Risks: Inflation

Inflation should be an ongoing concern for anyone living on a fixed income. In the recent era of relatively low inflation, workers may not know about or remember the double-digit inflation of 1947, 1974 or 1979-81. Even low rates of inflation can seriously erode the well-being of retirees who live many years.

Predictability

Average past inflation can be calculated from historical data, although actual experience over a typical period of retirement may vary widely. Past inflation data can provide some help in estimating retirement needs, but there is no guarantee that future inflation will match historical experience.

Managing the Risk

Many investors try to own some assets whose value may grow in times of inflation. However, this sometimes results in trading inflation risk for investment risk.

Investment returns from common stocks have increased more rapidly than consumer prices in the long run. But in the short term, stocks don't offer reliable protection against inflation. The historically higher returns from stocks are not guaranteed and may very greatly during retirement years.

Inflation-indexed Treasury bonds grow in value and provide more income as the Consumer Price Index goes up. Many experts say that retirees' investments should include some of these securities.

Inflation-indexed annuities, not widely used in the United States, adjust payments for inflation up to a specified annual limit. Annuities with a predefined annual increase also are available. These kinds of annuities cost more than fixed-payment annuities with the same initial level of income.

Investments in natural resources and other commodities often rise in value during periods of long-term inflation, but the values may fluctuate widely in the short run.

Conclusion

Inflation can be a major issue, especially as retirement periods lengthen. Inflation is not highly predictable.

Retirees can set aside assets that will permit a gradual increase in consumption.

Providing for expected inflation one way or another, although costly, is needed in any realistic plan for managing resources in retirement.

Delaying receipt of Social Security will build up valuable inflation-indexed benefits for retirees and spouses.

When housing values were increasing, homeowners seemed to have a hedge against inflation, but this has not been true in recent years.

Current and future retirees who have expected to use their home equity as a source of retirement income may be sorely disappointed, especially if housing values continue to decline. Strategies that rely on increases in the value of housing and selling quickly are very risky, since the value may not rise and it may take a long time to sell the house.$

Next Risk: Interest Rates

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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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Inflation During Retirement (Makes Me Want To Holler)

"Inflation, no chance
To increase, finance,
Bills pile up, sky high
This ain't livin', no, this ain't livin'"

Marvin Gaye, Inner City Blues

Inflation. You can't afford to ignore it. People retiring today can expect to live another 20 years, according to Social Security figures. But, since roughly one in five of us will live past age 90, we have to account for 30 more years when making our financial plans.

Once you're retired, you live on a fixed income. There are no more raises, bonuses, or employer contributions to your retirement plan. Even if you can afford your lifestyle today, you have to worry about what's going to happen over the next 30 years as prices inevitably rise, some years more than others. Will Social Security keep up? Will your investments produce enough income?

Remember hearing about the era when grandma paid 20 cents to see a movie? Think back to your own childhood. How much did an afternoon at the movies cost when you were 10? A lot less than it does now! That's inflation.

The reason this matters to you and your retirement savings is that inflation can eat away at your money from two directions:

1. Inflation erodes savings. Inflation doesn't just literally reduce the number of dollars you possess, but it does reduce your purchasing power. The interest rate your savings account or CD is paying is likely well below the rate of inflation, which means that the cost of goods and services is climbing much faster than the value of each dollar in that savings account or CD. For example, assume that your annual budget for 2014 requires a net total income of $50,000. You can expect that purchasing exactly the same goods and services in 2019 will cost more with inflation. That's why many employers periodically offer cost-of-living raises to help you keep up. Unfortunately, your savings account does not get a comparable raise. On average, each dollar you own loses purchasing power and therefore value every year.
2. Inflation depletes budgets. During retirement, when you're no longer a full-time wage earner, budgeting becomes especially important. To help increase the likelihood that your savings will last through retirement, you'll have to establish a budget. The problem is that $50,000 per year in 2019 is expected to buy fewer goods and services than it will in 2014. And in 2024, $50,000 will probably buy even fewer goods and services than it did in 2018. You get the picture. You can't plan to spend the same amount of money year after year and continue to meet your needs in exactly the same way. So, as a retiree, you'll need to give your budget a cost-of-living adjustment every couple of years in order to continue buying the same goods and services.

You'll need to be especially aware of inflation in a few areas:

Medical costs are on the rise, and they're significantly outpacing CPI inflation averages. In retirement, you're likely to need more medical care than you do at a younger age, so carefully consider medical inflation as you plan your retirement. 

Food costs can be volatile. For example, dairy, beef and grains have seen pricing spikes in recent years due to factors such as drought, livestock illnesses and changing farming practices. Expect more of the same in the future. 

Fuel costs, like the price of gas, tend to affect most goods since shipping prices increase with fuel prices. As shipping costs rise, so do costs for goods that are shipped. And if you plan to travel in retirement, you'll also feel the impact of fuel inflation on how much it will cost you to fly or drive. 

What can you do to fight inflation during retirement?

First, as you calculate your retirement needs, you must incorporate inflation into your planning. You can find a variety of online calculators to help you do this, or else consult a financial professional. 

Second, a portion of your retirement portfolio should remain invested even during retirement. Bonds, CDs, money market funds, and bank savings accounts alone, which are generally considered relatively safe places to put your money, may not provide enough growth to outpace inflation. A portfolio consisting of stocks, bonds and annuities can greatly enhance your chances of meeting your financial goals during retirement. For more information and online calculators, visit my website.$

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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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Destination Retirement: Women Take the Wheel

Women have many decisions to make when approaching that point in life called retirement. There are critical decisions that will help them arrive safely at a financially secure old age.

Women retiring today are more financially independent than their mothers and grandmothers were. They have spent more time in the labor force than their forbears. Many have held highly paid jobs. As a result, many more women are eligible for their own Social Security and pension benefits than ever. In addition, the Retirement Equity Act helps to ensure that married women will not unknowingly miss out on survivor benefits from pensions for which their husbands might be eligible.

Even so, women face financial challenges. For instance, intermittent work history and part-time employment with few benefits have been the norm for millions of women who are now about to retire. Women have also generally earned less than men over their working lives.

The result is that women generally have lower savings accounts, Social Security benefits, pension benefits, and 401(k) accumulations than men. This has long-term implications since the life expectancy of women is longer than that for men. It is compounded by the fact that women typically marry men older than themselves, so many spend more years alone in old age. Their retirement years frequently include periods of caring for spouses and other older relatives as well.

Urgent: All women need to get a big picture understanding of their family finances, even if not directly involved with managing the money. This prepares them to handle not only everyday finances but also the future financial challenges of retirement.

Getting Papers in Order
The decisions women face in retirement range from choosing the family and personal papers to keep in a safe place to deciding how to handle special needs and situations.

Paperwork gathering is especially critical when retirement is approaching. Women should know the location of all important papers. They should also tell the location to their adult children (or key relative or friend).

If they already have a will, they should update it. If they do not have a will, now is the time to draft one.

A married woman should make sure her husband has a will and know its location. But ideally, married couples will make out wills together, and each spouse will know how the other intends to dispose of property. Both should also have a living will and durable power of attorney for health care, which are documents providing guidance on end-of-life preferences.

Figuring Out How Much Retirement a Will Cost
Women who are thinking about retiring should take a careful look at how much money they are likely to need in retirement and the possible sources of this money. They should be aware that, if they spend resources too fast, they may encounter serious financial problems later on. That is especially so since women live longer than men on average, and most often outlive their husbands and a few will live beyond age 100. A financial planner/adviser can provide personalized assistance and advice. Online calculators can help as well.

Many retirement experts recommend that retirement income replace 70  percent to 80 percent of pre-retirement earnings to maintain pre-retirement living standards. That can work well if the woman has moderate retirement savings, stable health care premiums and little change in consumption. Unexpected expenses or an active retirement could require a higher replacement rate.

Retirees also need supplemental health insurance plus a contingency fund to pay for health care costs not covered by primary insurance (typically Medicare). For couples, retirement resources must last for the lives of both. For singles, estimate the need at about 75 percent of the need for a similarly situated couple.

Unfortunately, few options exist for retired women who do not have an assured, adequate stream of income and health care insurance. One thing they can do is opt for a lower standard of living - for instance, by moving to a smaller home or less expensive community. They can also strive to stay healthy and thus avoid out-of-pocket health and long-term care costs.

Another option: Women can work longer. This has many advantages. Women will gain more time to save, may have higher earnings that replace lower earnings years in the Social Security benefit formula, and will need to finance fewer years of retirement. In addition, for each year they work between age 62 and age 70, they will receive higher monthly benefits from Social Security. This can make a big difference later in life when out-of-pocket health costs often soar.

Reviewing the Retirement Plan
Because women live longer than men and have, on average, lower Social Security and pension benefits, women should pay a good deal of attention to survivor benefits. Here are some factors to review:

• Defined benefit (DB) pensions. These are also called traditional pensions. They typically pay out retirement benefits as monthly income. DB plans may also offer a lump-sum distribution option. Married couples with DB plans should consider taking a joint and survivor income if they want benefits to be paid to the survivor after the first spouse dies. Since women tend to live longer then men, electing this option could make a big difference in a woman's later years.
• Defined contribution (DC) plans. These plans allow workers to deposit money into various investment accounts, where it grows tax deferred. An example is a 401(k) plan. At retirement, retirees can opt to take money out via an immediate lifetime annuity (which makes monthly payment to the retiree for life) or take a lump-sum distribution. Those having no source of monthly income other than Social Security may want to consider the annuity option, at least for part of their money. Those with additional sources of monthly income might benefit from either option.

Starting Social Security
When should one start taking Social Security? This is one of the most important decisions women can make. Social Security accounts for half or more of the retirement income of nearly six in 10 older women (aged 65+) in beneficiary families. For about one in six older women, it is the only source of income.

Here is a general guideline: The later the start date, the larger the monthly benefit. However, women need to consider several other factors too.

For instance, married women and divorced women who had been married for at least 10 years to a worker eligible for Social Security can be entitled to Social Security benefits in one of three ways: 1) As a retired worker. 2) As a spouse or survivor of an eligible worker. 3) As a dually-entitled beneficiary.

Men can qualify for benefits in the same way. But due to their generally higher career earnings, they rarely receive spouse or survivor benefits.

Important: Husbands who delay collecting Social Security until they are age 70 will ensure that their wives have the largest survivor benefit possible.

Assessing Divorce and Other Special Situations
Women face a number of retirement decisions that don't fit the broad categories above. The following are examples:

• Divorce: As noted, if married for at least 10 years, a divorced woman is eligible for Social Security benefits and, if her ex-husband dies, survivor benefits based on her former husband's earnings record. She will receive either her own retired worker benefit or the spouse or survivor benefit, whichever is higher.Women who are in the process of divorcing can generally secure rights to pension benefits of the husband, but this is subject to negotiation. They need to understand their husband's benefits and know which benefits have legal protections that apply to them. Divorcing women should also make sure their lawyer has expertise with Qualified Domestic Relations Orders (QDROs). It is very important that a QDRO be written correctly; the format varies by state. Public employee benefits have different rules, but the benefits can be divided on divorce as well.
• Women living with a partner: Unmarried women living with a partner generally lack the same protections as spouses except in states that recognize common law marriages. Common law marriage requirements vary by state. Cohabiting couples should work with a lawyer and financial advisor to ensure that the surviving partner inherits, retains, or acquires the rights to specified assets. They should make these decisions well before retirement.
• Women in second (or subsequent) marriages: Remarriage raises complicated financial planning decisions, especially when children and/or substantial assets are involved. Seeking the advice of a financial planner and tax advisor is a good idea.
• Long-term care insurance. this is a particularly important consideration for women, since it is common for women to live many years alone in old age. Some women have no family members available to help them, at least not on a regular basis. The insurance will help pay for their home and nursing care when they are frail, and it may provide access to care advisors  who will offer guidance.

The road to retirement can be a bumpy one for women. Fortunately, many resources are available to provide guidance on the decisions that lie ahead!$

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