We hear a lot in the news about concerns that Americans aren’t saving enough for retirement. It’s not surprising for news to lead to an increased concentration on saving for the future. On average, retirement planning may be the top financial planning priority but that doesn’t necessarily mean that everyone shares this sense of urgency. Continue reading “Can You Really Save More Tomorrow?”
When you see your 401(k) balance or even a projection of your future balance when you retire, do you really know what that number means for your retirement? If you’re like most people, you probably don’t. A $200k balance may look like the most amount of money you’ve ever had so you can easily think it will be more than sufficient even if it turns out to be nowhere near enough to generate the income you’ll need to retire comfortably. Continue reading “3 Hidden Pitfalls Coming to a 401(k) Statement Near You”
“Americans flunk retirement quiz.” That was a headline in the December 3, 2014 edition of USA Today. In a recent survey conducted by the American College of Financial Services, 80% of surveyed Americans age 60 to 75 with at least $100,000 in household assets received a failing grade when given a basic retirement-income literacy test. Continue reading “How to Pass the Retirement Income Literacy Test”
One thing I love about my colleague and friend, Doug Spencer, is his ability to make the complicated simple. Take retirement planning for example. Some people approach retirement planning as though it involves complicated math, an ability to predict the future, and an ounce of luck. Continue reading “Retirement Planning, Dougie Style!”
Within the past few weeks, I have had more than a few people ask about a prior employer offering a lump sum payout vs. leaving it in the plan and taking a monthly payout at a later date.I’m not sure if companies are making this “the lump sum season” intentionally or not, but there has been a major influx of conversations about this topic. I’m figuring for every person that is asking, there are probably many more sitting there silently and trying to make the decision on their own. That sounds like a great reason to write a blog post. Here is the process that I walk through with a person to help them evaluate their options when they have a lump sum opportunity. Continue reading “Should You Take a Pension or a Lump Sum?”
It has often been said that the only constant in life is change. As a parent, I find that change is both exciting and scary as heck because you never know what lies around the corner. This statement about anticipating change definitely remains true when the IRS is concerned. Continue reading “How the IRS Can Help You Save More For Retirement in 2015”
One of the questions I get asked frequently by people who are on track to retire is if they should buy long term care insurance (if they don’t already own it) or if they should cancel it (if they already own it).Lately, that has been a very difficult question to answer. Companies that offer long term care insurance are raising premiums, sometimes very substantially, and there are no guarantees that they won’t go even higher in the future. So if you are considering purchasing a LTC policy or cancelling your existing LTC policy, what are some things that you should factor into your decision? Continue reading “Be Long Term Careful”
I read this astonishing article today titled “3 reasons to ditch your IRA.” The author makes the case against contributing to traditional IRAs but all his arguments could be used against traditional pre-tax 401(k) plans as well. Before you cancel your pre-tax retirement account contributions, let’s take a look at his arguments and why they might be problematic: Continue reading “3 Reasons Not to Ditch Your IRA”
According to a new report by the Centers for Disease Control and Prevention’s National Center for Health Statistics, Americans are living longer—o.1 years longer to be exact—as the national life expectancy has reached a new record high of 78.8 years. Women, with an average life expectancy of 81.2 years, live on average 4.8 years longer than men, at 76.4 years. While some may see this purely as a blessing, it does present a financial challenge for today’s women. Namely, women may need to save more for retirement than men in order to account for these additional years. Here are five things women can do to help address this added financial challenge: Continue reading “Living Longer May Not Be All Good News For Women”
It’s always fun to sit back and watch others get caught up in a little friendly competition as they support their teams. Unfortunately, some people take their love of sports too far and this can have a drastic impact on their financial future. Take for instance a dedicated Royals fan who recently acknowledged in a post game “fan on the street” interview that he cashed in part of his retirement savings to purchase a ticket to the World Series. I am convinced that at the time of this interview, he probably wasn’t thinking his statement would get picked up by national media outlets and blogs. Perhaps the most embarrassing aspect of his professed fandom was his stated profession- financial advisor.
Most of America knows that prior to this season, the Kansas City Royals suffered a 29-year playoff drought, which left most Royals fans in a delirious state throughout the playoffs. But this financial advisor from the Kansas City area took his loyalty to insanity – he pulled nearly $1,000 from his IRA to get a ticket just four rows behind the Giants dugout. He checked to see if the withdrawal would trigger a penalty, which it would, and did it anyway. (Note: The IRS imposes a 10% penalty on IRA withdrawals prior to age 59 ½ plus these distributions are also subject to ordinary income taxes.)
The first thing many financial planners throughout the country likely thought was this guy must be nuts talking to the KC Star reporter and admitting this. It would be like Dr. Oz saying he eats a gallon of Dreyer’s ice cream in front of the TV every night. As a financial advisor, he should know better, and what’s that about him checking on it? Every qualified advisor helping folks with their investments should know the IRA withdrawal rules offhand – that’s basic stuff! And finally, financial planners tell clients to have 3 to 6 months of take home pay at hand for emergencies and unforeseen life events… like a Royals trip to the World Series. Apparently, some people just can’t eat their own cooking.
So why do seemingly smart people do stuff like this? One might be the sheer excitement of the playoff opportunity – “a once in a lifetime chance.” Psychological research says overspending usually happens in the face of emotional stress – good and bad.
Then there’s the desire to be seen as important and getting ahead. What financial advisor wouldn’t want to be seen four rows behind the dugout by friends or on TV? This guy got so excited by the idea, he let all his financial control gates down.
As retirement savers, we simply can’t afford to be like this guy, especially considering that only 1 in 5 Americans are confident in their ability to retire comfortably. Impulse buys and YOLO moments are a major concern, especially for those with one month or less of cash ready for emergencies. Retirement accounts, even small ones, aren’t to be taken lightly enough to raid for baseball tickets or our guilty pleasures…until we’re actually retired. Doing otherwise risks the fact we’ll never enjoy those ballgames in retirement but instead may have to sell hot dogs at the park to those that DID save enough to go.
Here is some good news for our financial advisor who could benefit from some long term planning. The IRS allows us up to 60 days to pay back the funds from an IRA withdrawal to avoid the 10% early withdrawal penalty. This would be considered a rollover and prevent the distribution from being taxable. Just be aware that this type of IRA to IRA rollover can only be performed once every 12 months.
Better yet, just avoid thinking of your IRA as an emergency fund in the first place. This will help you avoid future tax headaches and preserve your retirement savings and future growth potential. In the case of our determined Royals fan, avoiding early IRA withdrawals can also decrease the likelihood that your peers will question your financial savvy.
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In my last blog post, I addressed the myth that Social Security benefits are based on an accumulation of assets and that collecting a spousal benefit would reduce the amount a spouse would otherwise be eligible to receive. This brings up another myth that is circulating out there that suggests that one has to be married in order to collect a spousal benefit. That is not the case. Continue reading “Social Security Myth #5: You Only Receive A Spousal Benefit If You Are Married When You Retire”
Saving for retirement is a must these days and retirement confidence in general is pretty low. Our recent retirement preparedness study revealed that only about 20% of employees feel they’re on track to reach their desired income in retirement. In order to bridge this gap, it’s no secret many of us need to save more. 
Continue reading “Can The IRS Help You Save For Retirement?”
One of the most valuable aspects of the Social Security formula is the accrual of spousal benefits for couples that have been married for at least one year at the time they file for benefits. However, some think of these benefits as a pool of money that somehow is split between the two of them. For this reason, they sometimes fall under the misconception that if one of them starts to collect a spousal benefit, the other’s benefit will be reduced. Continue reading “Social Security Myth #4: Collecting a Spousal Benefit Reduces the Amount Your Spouse Will Receive”
You’ve worked hard both in the professional world and at home raising your family and retirement is just around the corner. Now it is your turn to relax – somewhat — and do the things you love and want to do. But what if you haven’t finished paying off your student loan debt? Continue reading “How to Manage Student Loan Debt in Retirement”
In my previous two blog posts, I’ve addressed the myths of Social Security insolvency and calculating Social Security using final average earnings. Next up is a myth concerning the receipt of benefits while employed. Most of us know that the earliest we can collect a Social Security retirement benefit is age 62, but that doesn’t mean most of us plan to stop working by then. For this reason, I am often asked about the implications of collecting a Social Security benefit while working. Continue reading “Social Security Myth #3: You Will Lose Benefits If You Collect While You Are Working”
Last week, I addressed the first myth about Social Security benefits, namely that they won’t be there by the time you’re eligible to receive them. For this week’s post, I’d like to address another common myth related to how benefits are calculated: Benefits are based on your last five years of earnings. Continue reading “Five Myths About Social Security: Myth #2 – Social Security Is Based on Your Last Five Years of Earnings”
When I facilitate a workshop or webcast on retirement planning, I like to poll my audience to see which areas of retirement planning they would prefer to spend more time talking about. The audience generally ranks saving and investing for retirement as their top two choices but depending on who is in the audience, Social Security may rank as third. Even when it doesn’t, I find it amusing that a government benefit that some are skeptical will even be there by the time they retire ends up being the topic that generates the most questions. I guess it’s because it’s a source of retirement income that many are familiar with yet so few truly understand. Continue reading “Things You Need to Know About Social Security: Will It Be There?”
As a financial planner, I feel that it is important to encourage people to realistically think about what their retirement will look like. No matter how young or old, now is always a good time to plan for the future. It is not uncommon for some of these popular questions to come up during a typical conversation: Continue reading “Retirement: You Might Need to Visualize It to Realize It”
Some couples could benefit from a split strategy in retirement but I don’t mean breaking up with your loved one. The Wall Street Journal‘s MarketWatch blog recently highlighted a split strategy for couples when deciding on the best time to take Social Security benefits. One spouse (the lower income earner) takes benefits as early as possible, which is at age 62. The other spouse would wait until age 70 to take their own benefit but at their full retirement age (66 to 67 – depending on your year of birth) would claim the spousal benefit based on the lower income earning spouse. Continue reading “Should You Split Up With Your Spouse In Retirement?”
Should you make pre-tax or Roth 401(k) contributions? I recently read this article by Penelope Wang called “The Great Retirement Account You’re Not Using” that argues for Roth contributions. However, I still think pre-tax contributions make more sense for most people. Here is my response to each of her main arguments: Continue reading “In Defense of the Traditional 401(k)”
