5 Risks to Your Retirement

  Published inRetirement

There are many risks to your retirement savings. Here are five of the more common ones.

Starting too late -  When you are young it seems like retirement is far way.  However, by starting to invest for your retirement while you are young it will be much easier to save enough for a comfortable retirement.

Not saving enough -  Just saving enough to get your 401k match is better than doing nothing but it probably won’t add up to enough for you to be able to retire.  Even the conventional 10% figure probably isn’t enough.  Another bonus to saving more is the ability to retire early.

Lack of diversification – It is possible to be over diversified but most people’s savings suffer from a lack of diversification.  Putting all your money into your company’s stock is a common example.   That didn’t work to well for Enron employees.  You should have your retirement savings in several investments.

Taking too little risk -  People are naturally adverse to losing money.  The stock market slide in 2008 has made even more people risk adverse.  Saving your money in a money market paying 1% isn’t going to allow you to retire.  You need to take some risk.

Taking too much risk -  Examples of this would be betting all your money on one stock or one sector.  This could have a huge return but it could also cripple your chances of retirement.  You also need to move more of your money out of stocks and other riskier investments and into fixed income investments as you get closer to retirement.

That is just a brief overview of potential risks to your retirement savings.  Now that you have an idea of what the risks are you can do further research and educate yourself to avoid or minimize these risks.

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5 Questions You Should Ask About Target Date Retirement Funds

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A Target Date Retirement Fund seems like an easy way to save for your retirement.  You just invest your money in the fund that matches your planned retirement date and you are all set.  Of course, investing for retirement is not that easy.  There are several questions you should ask when deciding to use a target-date retirement fund to save for your retirement.

How risky is the fund? -  Not all target-date retirement funds have the same level of risk.  Two funds with a target date of 2025 could have wildly different proportions of equity and fixed-income investments.  You need to decide what is an appropriate level of risk for your goals.What are the fees? -  Funds also differ on the fees they charge.  Paying too much in fees can seriously affect the performance of your target-date retirement fund.  Make sure you are not paying too much in fees.How much should you invest?  -  These funds will not tell you how much you need to save for retirement.  You need to figure that out on your own.Do you have other retirement savings? -  These funds are designed to be your sole retirement investment vehicles.  If you have other retirement savings that will change your investment allocation and you need to adjust accordingly.What happens when you hit the target-date? – Some of the target-date funds are designed to end when you hit the retirement target-date while others are designed to continue and hopefully provide you with an appropriate return on your money while retired.  Whichever is the case with the target-date retirement fund you choose you need to make sure that your investment will provide you with a sufficient income during retirement.

These five questions are a good starting point when choosing a target-date retirement fund.  Be sure to investigate a prospective target-date retirement fund thoroughly before using it to save for your retirement.

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retirement

Why Plan for Retirement?

This is a question that I come across quite often when researching and discussing retirement planning and options. Despite the constant news coverage of impending doom in regards to Social Security many Americans are still counting on their social security payments to support them through their retirement. The sad fact is that it simply isn't possible because the money isn't there. Sadder still is the fact that even if the money were there, it is doubtful that it would be enough to get the average American through their twilight years.

Americans are living longer than they have in decades past. In addition to longer lives we are leading more active lives. Gone are the days when retirees sat at home reading newspapers and mowing the lawn every other afternoon. Today's retirees are traveling, taking classes, learning to dance, and trying new things that they didn't have the opportunity to experience while setting aside funds for the future and going about the business of raising their own families. Now they are taking the time to do all these great things and these wonderful activities and pastimes require funds in order to enjoy.

This is the number one reason you should begin as early as possible not only setting aside funds for your retirement but making active plans on methods by which you can invest those funds in order to maximize the potential of limited funds. This is the time that it is best to take your plans, goals, and concerns to a financial planner and see what advice he or she can give you on setting specific goals, better defining your plans, and making the most of your investment means while establishing a realistic investment strategy that will not leave you feeling strapped for cash month after month.

We often overlook the important role that a good financial planner and good planning play in our financial futures. The same could be said of our financial retirements. We need to take every opportunity that is available to us in order to maximize our money. A good financial advisor will know of funds and strategies that we have never heard of. It makes sense to go to an expert when it concerns our family's future. We see experts when it comes to matters of law, health, and taxes-why on earth shouldn't we see an expert for our finances?

Why is it so important to have a plan? The long and short answer to this question is so that you won't end up needing a job in order to put food on your table once you've reached retirement age. The sad truth is that many of our retired citizens are finding themselves strapped for cash financially and barely able to make ends meet. If they are fortunate enough to have homes that are paid for, they often find the property taxes are a little more than they can handle without some sort of assistance. Medications are expensive despite government programs to keep costs down for our elderly, and then there are those who are simply living longer than their original retirement plans had accounted for. Combine all these factors with the fact that the cost of living has gone through unprecedented increases over the last two decades and you have some very real reasons to make plans for your future retirement.

It is best to begin making these plans as early as possible. It is not impossible to recover, however, if you begin the process a little later. The problem is that you will need to make some extra investments along the way in order to make up for lost time. The sooner you begin making plans for your financial retirement the healthier your retirement options will be. The best way to go about this is to define your retirement goals, make plans, and then take your goals and plans to a financial advisor and get his or her input. Investing smarter is much wiser than investing harder.

The Vital Years For Retirement Planning

The Vital Years For Retirement Planning


If you're in your 30s, serious planning for retirement begins now. Odds are you have never taken a close look at your earning potential and long-term needs, or thought much about all the savings and credit options before you. Now is the time to get real about such things because your life is changing in ways that you may only be beginning to appreciate.

For one thing, you're getting older. You're not old by a long shot but the door is starting to close on the certainty of long-term investment gains. "The most powerful force in the universe is compound interest," Albert Einstein famously declared. But the magic only happens through consistent saving over many, many years. Delay is costly. Consider: Had you started saving $5,000 a year in a Roth IRA at age 20 you would today be on track to accumulate $1.9 million by age 65 (assuming 8% annual returns). But now, at age 30, you need to save more than twice that amount each year ($11,200) to get the same result and if you are 40 you need to sock away $26,400 a year. The earlier you begin the less you need to save. In the example above, lifetime contributions that began at the age of 20 totaled just $225,000; at the age of 30, $392,000; and at 40, a staggering $660,000.

Read more: http://www.time.com/time/specials/packages/article/0,28804,1930805_1931673_1931666,00.html#ixzz0nrFwLUvc

Retirement Plans Under Siege

Retirement Plans Under Siege

Get Serious About How Long You'll Live

Get Serious About How Long You'll Live


Get Serious About How Long You'll Live

By Dan Kadlec

 By living into their 80s en masse, the members of this demographic have upset all the mortality tables and crippled our pension system, which is partly why we're in such a mess. Well, guess what? You may live longer than you expect too. Getting a handle on your likely longevity is Job 1 when it comes to planning the rest of your life. Spend a few minutes at longevitycalculator.aarp.org. Assuming decent health and habits, you will be amazed to learn that someone in their 50s today can reasonably expect to live to near 100, a mark that many younger folks will easily surpass. This unprecedented longevity is a blessing, of course. But it's also a game changer in that you'll have to stretch out your assets over a longer period of time, which will give rise to longer careers, bridge jobs to retirement and an explosion in annuities and other products that guarantee income for life. Your greater longevity should also prompt you to lengthen the period you plan to take distributions from your IRA or 401(k). Calculations should be based on a 4% initial withdrawal that rises 3% (not 3 percentage points!) every year to adjust for inflation over 30 years starting at around age 70.


Read more: http://www.time.com/time/specials/packages/article/0,28804,1968812_1968807_1968795,00.html#ixzz0nSWbufFR

Retirement: From Point A to Plan B

If you had a plan for retirement, chances are it has been up-ended in the latest market meltdown. As I mentioned in this retirement blog, Retirement-minded savers and retirees that committed their hard earned money to the

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Retirement Decision: RMD versus Roth IRA

As you are painfully aware, the before-tax money you’ve put away for retirement, and which has been growing tax deferred, has a co-owner: Uncle Sam.  The tax laws say you must start withdrawing and paying taxes on this money when you reach age 70

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Retirement and Longevity Risk: The Solution

plans do not guarantee you a lifetime income nor do you get a guarantee against losses if you selected market investment choices. Most retirement-minded people would much prefer to have a defined benefit plan that guarantees a lifetime come; however, most companies no longer sponsor such plans because they are too expensive. But, wouldn’t it be nice to have this lifetime income guarantee like your father and grandfather? You can easily create your own defined benefits plan to provide guaranteed lifetime income. Here’s how!

You are generally permitted to remove your money from an employer-sponsored retirement plan when you retire, quit, die, become disabled and maybe borrow from your money if you have a financial hardship. On rare occasion your employer will be enlightened about ERISA regulations and know about In-Service, Non-Hardship Withdrawals provisions. Such provisions, when made available by your employer, permit withdrawals regardless of age, without triggering taxes (must be trustee-to-trustee transferred), while still working and participating in the same employer’s plan. The ISNHW provisions have only recently been brought to the forefront because of litigation associated with the high fees, losses and fiduciary lapses. Ironically, many large firms have added this flexibility to their plans as a litigation-prevention device. Most small businesses have not taken action because they are unaware of the provisions and those responsible for alerting them (outside third-parties who manage the money or administer the plan for the employer) have not done so. The notice has been withheld because (a) the parties advising the small business are unaware or (b) they do not want to lose fees which are based on the amount of money in the plan. If money is withdrawn from the plan, third party fees are likely to be reduced. But, unless you can get your money out of your employer’s retirement plan, you cannot take steps to convert it into a guaranteed lifetime income. If you wait until you retire or quit to move your money, it may be too late because the market values could drop precipitously at any time. Of course, they could also rise precipitously at any time. This

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Retirement Investing: Two Back and One Forward

may not cooperate by coming back. If your portfolio was General Motors, Ford, AIG, Citicorp, Lehman Brothers, WaMu, Frontier Airlines, Mervyn’s, Circuit City and other victims of the Great Recession, there is no

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Bank CDs Versus Guaranteed Lifetime Income

Written by DrShelby Posted October 7, 2009 at 8:30 am

Lower interest rates have spilled over into banks, and one-year CDs paying 1.5% or less are commonplace. This is a huge decline from a year or two ago when comparable CDs were paying more than 3%. As I mentioned in my Retirement Blog, CD rates are marching in an unclear direction, you may be uncertain about how to keep your income at the level you need and still get the security you have with FDIC. Keep these points in mind: your new rate a year from now may be higher or lower, and CD interest is subject to income taxes. Before you renew that CD with the ridiculously low rate, consider another alternative that offers a guaranteed income stream, with safety, AND can leave you with more money.

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The Dangers of Investing for a Lifetime Income

peaked at 14164.53 and then started a dramatic decline until March 09, 2009, when a trough of 6547.05 was reached. This 53.8% shrinkage played havoc with retirees’ portfolios and forced many back to work or slimmed down their lifestyles. If you had $500,000 at the peak and were withdrawing $25,000

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Ten Biggest Misconceptions about Fixed Annuities

No other savings vehicle is as misunderstood, under appreciated and maligned as fixed annuities. Most people who can benefit from annuities have been bombarded by misinformation, biased opinions and outright lies. The truth is: fixed annuities are safe because they are guaranteed by insurance companies, a great place to keep retirement money because they pay tax-deferred competitive returns, and all of your money is working 100% of the time. Like all investments, fixed annuities are sometimes not suitable nor should anyone have all their retirement money in fixed annuities.

Sometimes those providing information about fixed annuities have hidden agendas, biased opinions and/or little knowledge. Many personal financial columnists for newspapers and magazines fall into this category: their opinion is tainted by their brokerage background, the agenda is to get you to put your money in market investments that compete with annuities, and their limited knowledge was supplied by the brokerage industry. Why is the brokerage industry biased? Because they offer investments that compete with fixed annuities! In their mind an

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Should You Buy Gold as a Retirement Hedge?

This is a question I get constantly on this Retirement Blog. Like most decisions in life the answer is: maybe and maybe not! It depends on what you’re trying to accomplish. Historically, gold has been used to hedge against government failure, inflation, economic uncertainty or as an investment. For example, when governments have been on the brink of toppling (wars, coup d

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Making Your Retirement Money Long

What will you do if you run out of money during retirement? What are the consequences if your surviving spouse doesn’t have enough money? These serious questions are reality for many retirees. Nonetheless as I mentioned in my retirement blog, the fear of running out of money  has not kept many retirees from speculating with their retirement money. Much of this

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Getting to Know Roth IRA Conversions

Tax-free Roth IRA conversion is a topic that can help many of you have more money for retirement … an important law change in 2010 has been a real game changer. Everyone needs to find out if a tax-free Roth IRA is right for them.

Before we get into the specifics of Roth IRA Conversion, let me tell you a story…

I live in a big city and frequently have to pay to park my car. The other day I was downtown, pulled into a parking garage, briefly read the sign which said $2.00 an hour for hours 1 through 24…I didn’t read the small print which said something about prices could be changed …I took a ticket and parked. When leaving 8 hours later I stopped at the booth and handed the attendant my ticket

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Retirement Pension

•Having adequate resources does not necessarily equate to easy choices about asset allocation. I had a terrific start (lots of face cards) but did not want to risk losing the hand by following a strategy with which I was unfamiliar. Additionally, I did not want to let my bridge partner down. In pension land, having lots of money to invest should not equate to a "bet the bank" mentality (i.e. adopting an overly complex approach). Moreover, the interest of beneficiaries (like other partners) must be taken into account.


•Some losses are imminent. Sometimes a few cards are purposely lost in early rounds as a way to gain a superior position for an ultimate win. In investing, markets can bounce around, tempting institutions to pull and run. Establishing trading limits that comport with pre-established goals and risk tolerance levels makes sense. Confusing long-term goals with short-term actions can sometimes be costly and ill-advised.

•Switching partners from time to time offers fresh insights but is likewise hard work. Bridge takes a round robin approach that rattled me at first. After all, if I was winning with a particular partner, why should I have to change? What I've learned is that each new pairing requires a re-examination of the relationship, especially a focus on how to properly communicate with one another. While some investment relationships are ongoing, many are not. The need to clearly exchange mission-critical information is an important skill. Just as any failure on my part to discern my bridge partner's intent during the bidding process can lead to ruin, so too can a breakdown in communication between asset owner and advisor. As the consulting industry consolidates in favor of larger organizations, client communications will be tested as parties get to know each other from scratch. (Note: Interested readers may want to check out "Consultant market set for further contractions," Professional Pensions, April 30, 2010.)

•Skill is essential but sometimes luck dominates. As much as I focus on learning the game, bridge can frustrate. If you are dealt a bad hand, you simply have to get through it, be patient and know that discipline is not a guarantee of high returns. Investing is much the same. A good process is paramount but does not mean that a portfolio's return in any given quarter is going to outbeat a particular target.

•Know where you are going. Journalist Chuck Palahniuk observes that "If you don't know what you want, you end up with a lot you don't." If I stop thinking ahead several plays in bridge, I will unlikely miss my chance to win a particular hand. If an asset owner falls short in proper goal-setting, achieving objectives is going to be hit or miss and could certainly induce all sorts of unpleasant consequences - economic and regulatory.

Finally, bridge requires thought and hard work but can be tremendously rewarding. I learn new things all the time. The life of an investment decision-maker is challenging at best and exposes individuals to tremendous fiduciary liability at worst. Yet numerous professionals make pension stewardship their life's work because it is fulfilling, interesting and satisfying.