Pervasive Misinformation Could Cost You in Retirement
In our many years working with clients, we have noticed a disturbing trend: most people are investing based upon two faulty premises, both of which are pervasive myths and neither of which are in an investor’s best interest:
The Myth of “Riding Out the Market”
The Myth of Getting a “10%+ Annual Return”
Have you heard these? Are you investing based upon them? If so, you’re not alone. However, we’re here to tell you that these myths are old-school and outdated, and they aren’t serving you as well as you may believe.
Do You Have Responses to these Critical Retirement Planning Considerations?
All retirees have their own unique beliefs about what a successful retirement looks like, yet too many are unable to answer important financial questions about achieving that success. And, when you can’t find answers to your most pressing money questions, it’s difficult to feel financially secure.
In our 50+ years of experience, we’ve come to realize that there are nine specific questions you need to be able to answer about your money in order to plan – and achieve – a successful retirement:
How much money can you safely take out of your assets for income?
How long will your money actually last?
Can you guarantee you will never run out of money?
How can you protect your assets from volatility and losses?
How much income tax will you pay on your income distributions?
How much will you lose if the market takes another big drop?
Is it OK to start spending some of your money?
What are the total fees you are really paying and how can you reduce them?
What is going to happen if you or your spouse pass away?
If you can’t answer these nine questions, it means your retirement planning is based on hope and luck – not the best recipe for success. Read on to learn Momma’s Secret Recipe, instead.
Annuities Can Generate Reliable Income, Though They Often Get a Bad Rap
When you think about financial planning and the money you’ll live on in retirement, stocks and bonds probably come to mind. These market-based investments are often in the spotlight, and it’s true that they can help you grow your wealth. However, it’s also true that they may a number of downsides, one being that growth is unpredictable. This means that if you’re approaching retirement, or you’re already retired, one poorly timed downturn in the market could greatly set you back or even lead to you running out of money in retirement.
Since risk is inherent in investing, many people look for safer options. However, things like checking accounts or even high-yield savings accounts may not be the answer. Though they won’t lose money in a technical sense due to FDIC insurance, the value of your savings may still erode over time due to inflation.
So, what’s a savvy saver to do? One potential option is an annuity. If you’d like to save for retirement and create a guaranteed income stream – one that isn’t directly tied to the markets – a fixed indexed annuity offers an excellent option for consideration. Unfortunately, annuities get a bad rap because of misinformation, stereotypes, and myths. Below, we’ll tackle five of the most common reasons people hesitate to consider annuities as a viable retirement income option.
Be Intentional About Who Will Guide Your Retirement Planning
We all dream of a relaxing, carefree retirement that allows us to enjoy the fruits of our decades of hard work. However, this may be possible with proper planning. Whether you’re getting an early start or you’re nearing retirement age, it’s helpful to seek out the guidance of a professional financial advisor to ensure you’re taking the right steps to maximize your nest egg.
With so much riding on your retirement planning, it’s important to be intentional about the advisor you choose. You’ll want to find someone who you feel comfortable with, who takes the time to answer questions, and who can provide the type of advice and services you need.
With that in mind, consider the following ten questions as a suggested interview for potential financial advisors:
You Have More Power Than You Realize to Keep Your Finances on Track
The COVID-19 pandemic and ensuing economic turmoil have caused many people to reexamine their finances. Even if you have taken control of your financial future by being diligent about saving for retirement, it’s normal to feel out of control when facing an uncertain economy and the prospect of a recession that may last for some time.
So, how can you shield your retirement portfolio in troubling times? Luckily, you have more power than you realize when it comes to recession-proofing your nest egg. These five tips will help you stay on track even in an economic downturn.
Tip #1: Bulk Up Your Savings
The typical rule of thumb is to maintain an emergency fund with three to six months of living expenses, but an economic downturn could last longer than that. Aim to up your cash reserves to one year’s worth of expenses and utilize a high-yield savings account to maximize your efforts. Doing so can give you greater peace of mind when unpredictable financial events happen.
There is no disputing that the COVID-19 pandemic has been a tragic event for millions. Illness, death, job loss, fear, and a world essentially shut down for weeks on end has wreaked havoc – and it isn’t over just yet. Truly, the negative impacts of this global health crisis cannot be overstated.
And yet, as is often the case in times of turmoil, there is a silver lining if we look closely. Below we’ll examine five ways that COVID-19 may positively impact your retirement.
1. We’ve been forced out of our routines.
Routines can be positive, certainly. More often than not, though, they become less routine and more “rut.” We begin living life on autopilot, which can rob us of opportunities, experiences, and fresh perspectives, but we stay in the rut because it feels safe and certain. If there is anything that can be unequivocally said about this pandemic, it is that it has dragged each and every one of us out of our usual ruts. Though it has created much uncertainty, it has also caused us to think about many aspects of our lives in new ways – and this can be a good thing if we remember to look for the opportunities that may present themselves.
When President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act on March 27, he enacted the largest aid package in American history.[i] One important impact is that Required Minimum Distributions (RMDs) for 2020 are, in essence, suspended. In this way, the federal government chose to sacrifice short-term tax revenue in order to provide immediate financial relief to retirees.
This change bears discussion, however, as there are many questions about what the CARES Act means for those who have already taken their 2020 RMDs, as well as any impact on taxes and inherited accounts.
Let’s begin with a review of the basic tenets of the RMD portion of this new law.
Understanding the CARES Act
This relief package allows defined contribution plans, including 401(k)s, 403(b)s, 457(b)s and IRAs to suspend 2020 RMD requirements. Now, RMD rates were already a bit lower since 2020 is the first year, per the SECURE Act[ii], in which the age change from 70.5 to 72 began, but skipping RMDs in 2020 altogether is a meaningful change. With so many Americans facing financial struggles due to the COVID-19 pandemic, the flexibility to opt-out of distribution means that retirement portfolios have more time to recover from the current market volatility.
Beginning 16 years ago, April was declared Financial Literacy Month as part of a strategy to enhance and increase nationwide financial literacy. It was implemented with the hope that it would lead to increased government advocacy of financial literacy programs, as well as spark more interest in programming already offered through schools, non-profit organizations, and businesses.
The creation of a month-long focus on financial literacy was a pointed acknowledgment of its importance in helping Americans gain necessary financial knowledge – knowledge that proves integral during a time of crisis like we are facing now with the COVID-19 (coronavirus) pandemic.
Though prevention is always preferable over a cure, it’s never too late to learn more and change your financial behaviors. Doing so can help you become more resilient in the face of financial adversity during times of personal or worldwide crisis. So, here are three ways you can personally celebrate Financial Literacy Month this year:
Sadly, as is the case in any crisis, there are those among us who are looking to capitalize on cruelty and take advantage of heightened vulnerabilities. Hackers are trying to lure victims to click on COVID-19 related hyperlinks that contain malicious software and other computer viruses. In some cases, these scams look like official messages from the government and they send people to fake websites where their sensitive information can be stolen.
The following guidelines can help you protect yourself from these digital scams and stay clear of suspicious links you may come across in your internet travels.
How to Spot a Phishing Email
Phishing is a practice in which scammers send emails that appear to be from legitimate organizations. In the case of COVID-19, they may promise to share important information about the coronavirus or how to keep your family safe. In short, they prey on a public fearful of a dangerous virus.
On March 27 the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to address the unprecedented public health and economic crisis related to COVID-19.
This $2 trillion bill is meant to impact both individuals and businesses and contains significant tax-savings measures. It could affect prior tax years while also creating immediate cash-flow.
Impact on Individuals
Stimulus Checks
Perhaps the most impactful provision for American citizens is the CARES Act’s promise of cash payments of up to $1,200 per single individual and $2,400 for a married couple. Parents will also receive an additional $500 per qualifying child. Payments are phased-out for individuals with incomes greater than $75,000 and for married couples filing jointly with income greater than $150,000.
