Sunday 31 May 2015

Retirement: Leaving work leaves some vulnerable-Rodney Brooks


Here's a number that may shock you: There are 2.5 million American seniors with alcohol and drug problems, and anywhere from 6% to 10% of elderly hospital admissions are the result of alcohol or drug problems.
"Drug misuse and abuse in the elderly is of special concern because it can cause cognitive and physical impairment — putting this population at greater risk for falls, motor vehicle accidents and making them generally less able to care for their daily needs," according to a report by the Center for Applied Research Solutions in Santa Rosa, Calif. "Elderly individuals are particularly vulnerable to prescription drug misuse."
Jamie Huysman, a physician and clinical adviser to Caron Treatment Centers, a drug and alcohol treatment center that recently announced a new center specifically for seniors, says retirement in itself doesn't cause unhealthy habits, but the sense of isolation and depression that some retirees feel can contribute to substance abuse.
"Sometimes the way we leave our job, whether we quit, are phased out or laid off, there is anger and pain. These things lead to events that trigger us. Those things can accelerate alcohol use."
Meanwhile, drug and alcohol abuse are separate issues, he says. Seniors are three times more likely to take prescription medications. "Drugs have become prevalent," he says. "Doctors see 30 to 40 patients a day. Pain is legitimate, and pain management is legit. It takes five minutes to say yes, and 45 minutes to say no.
"Sometimes they do have legitimate pain," he says. "Inadvertently, they become addicts or alcoholics."
Janet Taylor, a New York psychiatrist and AARP consultant, says most people think of drug abuse as illegal substances, but prescription medication is a big issue.
"The proportion of seniors on prescription drugs has tripled," she says. "The risk is enhanced. When people get prescriptions from doctors, they can be abused or misused. You feel like it's OK because you get it from a doctor."
"There are reasons why seniors may be more likely to have higher rates for drug abuse," she says. "Many are going through transitions in their lives. They may be bored. They may have physical problems that make them less mobile. Sometimes they have more free time. They may start drinking earlier in the day. But as you get older your metabolism changes. Those are some of the contributing factors to a pattern of abuse and misuse."
Huysman says that up to 50% of seniors in assisted living and skilled nursing facilities have a substance- or alcohol-abuse problem.
"Can you imagine someone who has been in the workforce for many decades and finds him or herself now among the non-working and who essentially feels adrift?" says Lynnette Khalfani-Cox, an author and personal finance expert who runs the site AskTheMoneyCoach.com.
"If someone hasn't planned and doesn't have a strong sense of what they are going to do outside of whatever role they have played in the last decade, it is disorienting," she says. "It is not just a matter of being financially prepared. It's a life purpose question. A lot of our identities are wrapped up in our titles and careers."
A look at the problem of senior drug and alcohol abuse, according to Caron Treatment Centers:
•Health problems related to substance abuse cost Medicare more than $233 million annually.
•Nearly 50% of nursing home residents have alcohol-related problems.
•Older adults are hospitalized as often for alcoholic-related problems as for heart attacks.
Huysman says elderly patients can get addicted "right under our nose."
"When they are isolated, which seniors get, nobody sees this decline in observable behavior," he says. "They are the fastest-growing group of addicts and alcoholics in our nation."
He says sometimes in retirement there is a feeling of depression, purposelessness or a big financial strain. Sometimes there is marital strain. "They all contribute to abuse," he says.
"I went through a downsizing," Khalfani-Cox says. "It was jarring and shocking and unnerving in my 30s. Imagine a person who is 60 and goes through a downsizing and unexpectedly has to leave the workforce because of illness or having to be a caretaker. We know it is common for 40% to 50% of people to retire before they intended to," Khalfani-Cox says.
Bob Stammers, director of investor education at the CFA institute, tells clients that they can have problems if they don't know clearly what their goals are in retirement. "A lot of people don't know what retirement looks like," he says.
"A lot of people think they will sit at home," Stammers says. "Then they get home and want to travel. And they don't have the finances to do it, because they didn't plan. You have to know what your goals are so you can plan."
And they must prepare personally, as well as financially, he says. "A lot of people don't realize how much they identify with work. Sometimes retirement isn't pleasant because they aren't active and aren't engaged."

Culled from US Today

Saturday 30 May 2015

The Best (and Worst) Countries For Retirement Planning -Eric McWhinnie


Retirement comes at you pretty fast. If you don’t stop and save once in a while, you could miss it. Saving as early as possible and on a consistent basis is a golden rule in personal finance, no matter where you live. This makes sense considering the price tag associated with a retirement that can last two or more decades. However, workers across the globe struggle with retirement preparedness.
Saving enough money for retirement is easier said than done, regardless of the language. Only 39% of employees globally are habitual savers, meaning they always make sure to save for retirement, according to new research from Transamerica Center for Retirement Studies (TCRS) in collaboration with the Aegon Center for Longevity and Retirement. In fact, a paltry 21% save for retirement occasionally, and 22% are not saving for retirement but intend to do so. Six percent have never saved for retirement and don’t intend to. Making matters worse, respondents expect retirement to last on average 20 years. The study polled 16,000 workers and retirees in 15 countries.
While improved economic activity has slowly lifted retirement readiness sentiment in many countries, the majority still receive low scores, measured by the Aegon Retirement Readiness Index (ARRI). As the chart below shows, working age people in India feel the most prepared for retirement, scoring a 7.0 out of 10 on the ARRI. India is followed by China, Brazil, and surprisingly the United States. However, Australia, The Netherlands, and France all scored below the global average of 5.9. Japan feels the least prepared at 4.8, with Hungary and Spain close behind at 5.1 each.
Source: TCRS
Source: TCRS
“People are living longer than ever, and are inspiring changes in how we think about working, active living and healthy aging,” said Catherine Collinson, president of TCRS, in a press release. “For many, our retirement will likely last much longer than our childhood. Given this promise of increased longevity, individuals and families need to habitually save, invest, plan, and prepare for a financially secure retirement.”
How can individual workers prepare for a multi-decade retirement? Placing money aside for retirement on a regular basis is one of the simplest solutions to significantly raise ARRI scores. Over one-third of habitual savers achieved a high index score of at least 8.0, compared to 3% of those who only hold aspirations to save. More importantly, this is a realistic solution to those willing to take control of their money. The average global habitual saver earns about $41,000 annually (equaling $29,000 in emerging markets), which is not much higher than the typical salary in most countries surveyed.
Source: TCRS
Source: TCRS
Once you commit to saving on a regular basis, having a plan can help keep you on track. Unfortunately, in no survey country are there more than a quarter of people with a written retirement strategy. China, India, Brazil, and the United States are home to the most active retirement planners. In Japan, only 5% of citizens have a written plan, followed by Hungary and Poland at 6% each. Taking the planning process one step further, 56% of Indians and 40% of Americans claim to have a backup plan for expected financial shocks, including savings, spouse’s income, critical illness insurance, and downsizing the home.


Culled from wallstreetcheatsheet

Friday 29 May 2015

Need income from your pension? Here are six alternatives to an annuity-By Richard Evans

If you are determined to avoid annuities but still need an income from your pension, these are the main options

One of the great benefits of the new pension freedoms is that they make it easier for savers to take an income from their retirement fund without buying an annuity. While an annuity pays a guaranteed income for life, it does so at the cost of surrendering your savings at the outset; when you die, there is nothing to pass on to your family.
The alternative offered by the new freedoms is to retain ownership of your pension savings but draw an income from them, either by taking income from investments, such as dividends, or withdrawing some of the capital. Either way, there should be money left to pass on to your family. If you need your retirement fund to produce an income, however, the question is how to invest it to best effect.

There is a huge array of choices, but they mostly fall into a few simple categories, which we examine in turn.
Cash
Cash doesn’t pay very much at the moment, but it does offer the certainty of capital preservation (but do remember the £85,000 limit of the deposit guarantee scheme).
Only certain types of savings account can be held in a self-managed pension. Currently, the best rate is 2.9pc on five-year bonds from Bank of Baroda and State Bank of India. This website has up-to-date best buys for these special accounts. You’ll also need a self-managed pension (Sipp) that offers unrestricted access to cash accounts; many do not.
• I've got £150,000 in cash. Would investing in a B&B be better than a pension?
Bond funds
Bonds have traditionally been seen as a safe bet for steady income, although there are fears that some are currently overvalued. “Strategic” bond funds have the most flexibility to adapt to changing market conditions.
Among those most widely recommended by financial advisers – and chosen by “fund of fund” managers for their clients’ money – are Jupiter Strategic Bond (which currently yields 5pc), Henderson Strategic Bond (4.9pc) and M&G Optimal Income (2.7pc). Less well-known funds include TwentyFour Dynamic Bond (4.5pc).
Equity Income funds
Most bond funds with decent yields offer limited scope for capital growth. Funds that invest in shares, on the other hand, hope to grow both income and capital over the long term, although savers need to be prepared for the possibility of falls. Share-based funds that target a decent yield are called equity income funds.
Among the favourites of fund experts are Woodford Equity Income (a new fund with a current target yield of 3.4pc), Threadneedle UK Equity Income (3.7pc), JO Hambro Capital Management UK Equity Income (4.1pc) and Artemis Income (3.4pc).
There are also similar funds that invest overseas, to offer further diversification. They include Newton Asian Income (4.3pc) and Schroder Asian Income (3.9pc).
Multi-asset funds
If you only choose bond funds, you are unlikely to get much growth in either capital or income. With equity income funds, both are possible – but you are also exposed to stock market falls. A blend of the two with other assets should dampen the ups and downs while offering the chance of some growth in income and capital.
While you could build your own multi-asset portfolio, perhaps using some of the funds above along with property funds (see page 6), you could also buy a single fund that holds a mix of assets. Some are structured as ordinary funds, possibly with separate managers for the different assets, while some buy holdings in other funds – the “fund of funds” or “multi-manager” approach.
Popular examples of the former include Premier Multi-Asset Monthly Income (4.7pc) and JP Morgan Multi-Asset Income (3.6pc).
Well-regarded multi-manager income funds include F&C MM Navigator Distribution (4.5pc) and the Old Mutual “Generation” range, which aims to produce a set income of either 4pc or 6pc. The funds achieve this by, in effect, selling some capital growth to other investors.
Investment trusts
Arguably, some of Britain’s venerable generalist investment trusts are ideal for retired savers who want income with the chance of capital growth. Many have records of maintaining or increasing dividends that stretch back decades.
One example is City of London, managed by the veteran investor Job Curtis. The trust yields 3.6pc and has increased its dividend in each of the past 48 years.
Another favourite among income seekers is the Edinburgh Investment Trust, formerly managed by the celebrated investor Neil Woodford and now run by Mark Barnett of Invesco Perpetual. It yields 3.3pc.
But before you buy an investment trust – they are traded on the stock market, as these funds are structured as companies – check for any “premium”. This is an extra price you sometimes have to pay, and results from the fact that the trust’s share price can rise above that of its constituent assets.
Currently, City of London trades at a minimal premium of 1.5pc, while Edinburgh is actually available at a discount of 3.6pc to the value of its assets.
Exchange-traded funds
“ETFs” are just 15 years old, but are gaining ground among private investors because of their low charges. Like investment trusts, they trade just like shares, but premiums and discounts are extremely rare.
These funds tend to be “passively” managed, meaning that there is no fund manager making decisions about the assets to buy. Instead, these funds simply track a stock market index, such as the FTSE 100. However, some target income, thanks to the existence of indices that focus on dividend-paying shares.
One example is the SPDR UK Dividend Aristocrats fund, which yields 3.8pc. It owns shares in high-yielding companies that have maintained or increased their dividends for at least the past 10 years. Similar funds for the US and European markets are available.
Even cheaper is a simple FTSE 100 index-tracking ETF. The index currently yields 3.4pc.

Culled from The Telegraph

Thursday 28 May 2015

Need a Job? 5 Part-Time Retirement Jobs That Pay Well- Megan Elliott


pay day
Source: iStock
If having a job is part of your retirement plan, you’re not alone. Just over half of workers over age 60 say that they plan to continue working after their official retirement date, according to a 2014 survey by CareerBuilder, an increase of 9% from 2013. Overall, 40% of people over age 55 are working in some capacity, a Merrill Lynch study on work in retirement found. That’s the highest level since the 1960s.
Many people who seek out retirement jobs do so because they need the extra cash. Paltry savings, pension cuts, and high health care costs can all conspire to keep people in the workforce longer than they may have initially planned. But money isn’t the only motivator for the post-retirement job searcher. Retirees may also keep working because they want to keep busy, learn new skills, maintain social and business connections, start a new business, pursue a particular passion, or give back in some way.
“The old idea of retirement of moving somewhere sunny and playing a lot of golf, that’s a 50-year-old idea,” Andy Sieg, head of Global Wealth & Retirement Solutions for Bank of America Merrill Lynch, told the Washington Post. “People are screaming out for a new proposition. They want to stay engaged and be in the workplace.”
Fortunately, if you’re ready to get out of the rat race but not quite prepared to give up working entirely, there are many options available. We’ve put together this list of five part-time jobs that can give retirees the flexibility they want while also allowing them to pad their bank accounts.
Source: Thinkstock
Source: Thinkstock

1. Consultant or freelancer

Consulting is one of the most popular post-retirement jobs, CareerBuilder’s survey found. That’s not surprising, given that that the transition from full-time work to retirement can be a tough one. People who’ve spent their past few decades focused on their career may find themselves at a loss once they stop working. Becoming an independent consultant or freelancer means you can continue to do what you love, keep your professional skills fresh, stay in touch with colleagues, and make some money.
The job is flexible, and you can set your own hours, determine a reasonable rate to charge, and pick and choose clients with whom you work. How much you’ll earn as a consultant will depend on your industry, the amount of effort you put into marketing your services, and the demand for your skills. Given all the opportunities available, perhaps it’s no wonder that half of retirees surveyed by Merrill Lynch say they plan to continue to work in some capacity in their current career after they retire.

2. Tutor or teacher

Sharing your knowledge with a younger generation can be a rewarding way to earn extra cash. The average hourly rate for tutors is $16.44, according to Payscale, with higher pay going to those with expertise in tough subjects like physics. Rates can be far higher for those with teaching experience – private tutors may charge up to $75 an hour, according to Care.com.
A flexible part-time gig as a substitute teacher is another appealing option for many retirees, though the pay varies widely by state, according to the National Education Association. In Alaska, substitutes with a teaching certificate can earn up to $125 per day (about $17.85/hour based on a seven-hour school day), while in Minnesota, pay ranges from $70 to $130 per day. In Oklahoma, the typical district pays only $40 to $55 per day.
Every state or school district has its own rules about who can serve as a substitute. In Delaware and Vermont, a high school diploma is sufficient, while in Colorado and Minnesota substitutes generally need to have a teaching license or credential. Generally, substitutes without teacher certification are paid less than those with a credential.
senior woman and girl
Source: iStock

3. Babysitter

If you’ve raised kids of your own (or even played the role of doting aunt or uncle), you may be able to put that experience to good use with a part-time gig as a babysitter. The average hourly rate for a sitter in 2014 was $13.44, per Care.com. Age could work in your favor when it comes to pay. When Care.com surveyed parents, about half said they would pay $5 more per hour for an experienced caregiver.
If you’re serious about picking up some extra work as a babysitter, you can likely earn more and find jobs more easily if you brush up on your first aid and safety training. Fifty-three percent of parents polled by Care.com said that was the most important skill they look for in a sitter. To find jobs, you can simply let family and neighbors know you’re available, or use online services to broadcast your availability to a larger number of people.

4. Tour guide

If you’re comfortable speaking in front of large groups of people and have a head for dates and trivia, a job as a tour guide could be just the thing. The average tour guide earns $12.56 per hour, according to the Bureau of Labor Statistics (BLS). You’ll probably take home slightly more if you work for a private tour company or travel service, and a bit less if you work for a museum or local government historic site. Some tour guides may also earn tips.
Not surprisingly, tour guide jobs are more plentiful in areas with lots of out-of-town visitors, museums, and historic sites, including New York City, Honolulu, Boston, and San Francisco. Average wages for tour guides are highest in Washington, D.C., Wyoming, Alaska, and New York, per the BLS.
tax help
Source: Thinkstock

5. Tax preparer

Retirees with business and accounting experience can make extra money around tax time by preparing tax returns. The average tax preparer wage is $21.09 per hour, according to the BLS.
There are surprisingly few requirements you need to meet to become a tax preparer. Whether you’re setting up your own shop or working for a big company like H&R Block or Jackson Hewitt, you’re required to have a Preparer Tax Identification Number from the IRS, which costs $64.25 when you first register and $63 per year thereafter. The IRS also has a voluntary program for tax preparers, which includes continuing education and a listing in the tax preparer database once you complete the training.
In addition, the IRS hires seasonal employees during its busy time of January through May. Available jobs might include positions as a clerk, tax examiner, or data transcriber.
Culled from wallstreetcheatsheet

Wednesday 27 May 2015

3 Top Retirement Planning Hacks for the Digital Age-Sheiresa Ngo



Source: Thinkstock
Source: Thinkstock
Planning for retirement can be overwhelming. You have to determine how much you’ll need to live comfortably, set a realistic retirement age, and establish a plan for covering unexpected costs. Luckily, there are several online tools and apps that can assist you with tracking your progress. Whether you’re just starting your career or close to leaving the workforce for good, you can still benefit from what these tools have to offer. Here are three digital tools that can help you navigate the retirement planning waters.

Source: Thinkstock
Source: Thinkstock

 1. AARP Retirement Calculator

The thought of possibly running out of money when you need it most is unsettling. This handy online calculator can help you determine if you have enough cash saved to last throughout your golden years.  Once you answer a few questions about your current savings, salary, and supplemental income, you’re on your way to getting a snapshot of your situation. If your initial calculations show that your nest egg is underfunded, you can simply enter new information such as a later age for retirement or more frugal lifestyle requirements.
RetirePlan3Settings
Source: RetirePlan

2. RetirePlan

If you often have your iPad by your side, RetirePlan will offer both convenience and utility. This iPad app assists you with getting answers to questions that may come up during your retirement.  The RetirePlan app is unique because it allows for variables to be taken into consideration, such as a major purchase or an inheritance, which are not often seen in other retirement planners. There is also a feature that can show you hypothetical scenarios such as a stock market crash or a change in spending habits. After entering your data, you’ll see an updated graph that shows you whether or not your proposed retirement plan will work out for you. There are also sliders that help you visualize how different values will affect your plan.  Once you are done, you can email your completed plan.

3. The Flexible Retirement Planner

This tool uses Monte Carlo simulation, which is a method used to guess the likelihood of different outcomes by implementing several simulations with random variables. With The Flexible Retirement Planner, you can account for unexpected situations and add annual changes to your finances. Users can choose from conservative, flexible, and stable retirement spending models when it comes to future expenses.  In addition, you are given the option to adjust figures such as the percentage of inflation, portfolio returns, and tax treatment. A probability for success is given after you complete your calculations.


Culled from wallstreetcheatsheet

Tuesday 26 May 2015

Thinking your way to a better retirement - By Anne Tergesen


Retirement
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View photo
Thinkstock
Here’s a 21st century concept: A free web tool and mobile app that aims to help people think more effectively about what they really want in retirement.
Designed by Shlomo Benartzi, a UCLA professor and chief behavioral economist at Allianz , the app follows a seven-step process that incorporates research from the fields of behavioral finance and psychology.
The app is designed to “give people a place to think,” says Benartzi, “It sounds a bit funny. After all, we use websites and apps to do things like get information and shop. It’s rather unusual to have an app that’s dedicated to helping people think, but I think that’s what’s really needed” in retirement planning.
Benartzi is the co-creator, with the University of Chicago’s Richard H. Thaler, of “Save More For Tomorrow,” a program used by more than half of the nation’s 401(k) plans to get participants to agree to automatically increase their retirement plan contributions annually.
Going offline
While the Retirement Goal Planning System may be helpful to people of any age, it is best suited to mid-career and older workers. The reason: entry-level employees have one overriding retirement-oriented need — to save as much as possible. But as people age, “the one-size-fits-all approach” no longer works says Benartzi. “Their circumstances and preferences are all so different.”
The app’s goal: To help people “step back and ask – What do I want to achieve? What am I missing? And what matters most to me?” – all key questions that you should ideally answer before sitting down with an financial adviser to construct a retirement plan.
The program starts by asking users to go off-line and list “all the goals you have for retirement” on a blank sheet of paper.
Step two: To browse a “master list” of a dozen goals — compiled with input from “dozens of financial advisers and hundreds of individuals” — and add to the initial list, Benartzi writes in a companion book titled, “Thinking Smarter: Seven Steps to Your Fulfilling Retirement…. And Life.” The “master” goals include: financial independence, travel & leisure, healthcare, a second career, bequests, self-improvement, social engagement, and giving back.
Why the two step goal-setting process? To ensure you don’t forget or overlook anything that’s important to you. For a variety of reason — including a tendency to “think too fast” and only focus on “the options in front of you” — people often make this mistake, says Benartzi.
Buckets
After refining your goals, the app asks you to sort them into three buckets — choosing the three “most important,” the four that are “moderately important” and the five “least important.” Again, behavioral techniques are behind the bucket exercise, says Benartzi.
“It’s really hard to rank your top 10 goals, so we don’t ask people to decide what’s their 7th most important goal and what’s their 8th. It’s a lot easier to put things into three categories.”
The final four steps involve “stress testing” one’s goals, by imagining a range of outcomes — from the worst possible retirement to the best. Because people often find it hard to “stretch their imaginations enough,” the program prods them — by giving them good and bad scenarios and asking them to come up with a story to explain these outcomes.
“If you ask people to predict how old or young they might be when they die, it’s very difficult for them to” fathom dying soon, says Benartzi. “But if you tell them, ‘let’s assume you die next year. Tell us how that happened,’” they can better imagine that outcome — and might re-prioritize their goals as a result, he adds.
To get users to “think through what might change in their lives in unexpected ways,” the program asks them to think about their 20- and 30-year-old selves – and whether their priorities and goals have shifted in the intervening years.
“People who didn’t think they’d want children now say they wish they had started on their families earlier,” he says. “The purpose is to point out how difficult it is to predict what we’ll be like in ten or twenty years.”
The solution? Step six, which prods users “to learn from others who have experienced retirement,” says Benartzi. Again, the program gives users specific examples of people in their 60s, 70s, and 80s — such as “a lady in her 80s for whom travel is not that important” — and asks them to come up with explanations for those preferences.
“People find it easy to understand that” someone in her 80s who doesn’t travel may be constrained by her health, he says. “Once you raise those possibilities, it’s easier for them to imagine what might change down the road” — which again, might cause a user to shift his or her goals and priorities.

Culled from Marketwatch

Saturday 23 May 2015

5 reasons you can't retire early-By AJ Smith


Retirement
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View photo
Thinkstock
Whether it's friends, family members, old co-workers or even acquaintances, it can be baffling to watch young people (maybe even younger than you!) enjoying retirement. In addition to wondering how they did it, this scenario can also leave us wondering what is holding us back from living the good life.
Since most of us won't win the lottery or inherit billions, retiring early will likely take some careful planning. While you dream about your new life of traveling whenever you want, relaxing every day or taking more time for your hobby, it's important to calculate how much you need to save for retirement and take a look at the financial choices you are currently making. If calling it quits (or working for yourself) before age 65 is a serious goal, it's a good idea to make sure you are avoiding these roadblocks to early retirement.
1. Waiting to Save
Not saving for retirement is probably the No. 1 thing holding you back from retiring early. The sooner you want to leave the work force, the longer you will need your nest egg to last and the sooner you should get started. It's a good idea to start early and continually increase your contributions to get to your goal. Making your contributions to various retirement saving options automatic can help stave off any temptation to spend this money now.
2. Not Taking Advantage of an Employer Match
If you are lucky enough to work somewhere that has a retirement plan with matching contributions, it's important to make the most of it. This means putting at least enough money into the company 401(k) to get the full match. Otherwise, you are leaving free money on the table.
3. Carrying Debt
Student loans, mortgages, car payments, credit card debt — it seems there are a million obligations for your money. This may be holding you back from early retirement, since debt can cost you tens of thousands of dollars over the course of a lifetime. The best thing you can do for your financial health is make a plan and pay these debts down aggressively. If you need some extra motivation, crunch the numbers for how much you pay in interest over time versus the returns you could be earning in a retirement account or other investment. Then, once the debts are paid off, continue to aggressively put that money away — into a retirement account.
Also, keep in mind that your credit score can save you money by earning you lower interest rates on the debt you already carry. For example, if you improve your credit, you can refinance your home loan at a lower rate and save money that can then be put toward your early retirement goal. You can check your credit scores for free on Credit.com to see where you stand.
4. Ignoring the Budget
Making a carefully crafted budget is a great first step — but you have to stick to it. It's important to make sure you are calculating your expenses (now and for the future) realistically. This includes housing costs, utilities, transportation, health care and food as well as whatever extras are important for you, whether it is vacations, eating out, car, home or clothing upgrades.
5. Forgetting About Taxes
When you are ready to take money out of a tax-advantaged account like 401(k) or traditional IRAs, your money will be subject to your regular income tax rate. If that seems obvious, don't forget about early withdrawal penalty, where you pay 10% on money you take out before age 59½. It's a good idea to consider and calculate your taxes before you leave your day job without enough money socked away.
Culled from Credit.com

Wednesday 20 May 2015

Will you be able to work in retirement?-By Suzanne Woolley


Many people want to earn income later in life—or need to—but unexpected events often quash those plans



Working in retirement
In the past, somebody working in retirement might have been pitied. Today, it's more like envy.
The rocking-chair retirement image has been smashed to bits, both by desire to keep working and by dire retirement savings realities. Many Americans want to work well beyond age 65 if their bodies and employers allow. In a 2014 Merrill Lynch Bank of America survey, boomers expected 17 percent of their retirement funding to come from employment income; that number jumped to 26 percent for millennials. But a mounting number of surveys drive home the fact that counting on income to be earned in retirement is risky.
The latest piece of unwelcome evidence, in a survey of middle-income baby boomers by insurance firm Bankers Life, isn't entirely gloomy, but does serve as a reality check. (Middle income is defined as between $25,000 and $100,000 in annual household income; about 1,000 middle-income and 2,300 retired boomers, 51 to 69, were surveyed.) Many middle-class workers just don't get to work as long as they want to, which puts their retirement savings plans at risk. The 28 percent of retired boomers surveyed who are or have been employed in retirement often earn significantly less than in their previous job, with close to 75 percent saying their hourly compensation is "much less" than before.

On the flip side, people in professional services who can do part-time consulting work often wind up having bonus income in retirement, said financial planner Michael Kitces. His wealthy clients often get bored after six to 18 months, and so have encore careers they didn't count on.
While 60 percent of the people in the Bankers Life survey want to retire at 66 or later (or never), the chart below from the Merrill Lynch Bank of America report shows 64 as the average retirement age for men. An earlier study, looking at the median retirement age, found that since 1991 it has been stuck at age 62.

Part of the reason more workers aren't making the transition into retirement jobs is that many companies aren't set up to accommodate flexible working arrangements, according to a recent survey from the Transamerica Center for Retirement Studies. But it's health issues that quash many middle-class workers' plans for working into their retirement.
Oh, and that part of the Bankers Life survey that wasn't entirely gloomy? The majority of the 28 percent of retired middle-class boomers who either are working or have worked for pay during retirement say it's not because finances forced them to but because they wanted to work. The extra money's nice, they say, but so is staying mentally alert, keeping active, having a sense of purpose and staying in touch with colleagues.

Work has a way of being much more fun when you do it out of choice, rather than need.
Culled from Bloomberg.com

Monday 18 May 2015

Who Cares About Your Retirement Plan?-Eric McWhinnie


Source: Thinkstock
Source: Thinkstock
Nobody cares about your retirement as much as you, but employers across the nation are taking a greater interest in financial well-being programs. In fact, the majority of companies feel a sense of responsibility for the financial wellness of their employees, altering the benefits, resources, and financial education they offer.
A new study by Bank of America Merrill Lynch finds that 83% of all employers believe they should take a role in providing financial wellness programs to workers. Nearly three-quarters of plan sponsors surveyed, including 90% of large companies, defined as those with $100 million or more in 401(k) plan assets, believe that financial wellness solutions will be standard elements of benefits packages in 10 years, with large companies leading the way in implementing programs.
Today, nearly one-quarter of plan sponsors have a strategy in place to help employees improve their financial wellness, with more intending to add it in the next two years. This not only helps workers plan for retirement, but also makes good business sense as financial wellness programs increase employee satisfaction, loyalty, engagement, and productivity. Saving for retirement and planning for health care costs are the top two areas of guidance provided by employers. Yet rising costs threaten how employers spend benefit dollars.
Over the past two years, 83% of employers have experienced a rise in health care costs, on average by 11%. Among companies that have experienced an increase, 60% have passed along at least a portion to employees, with small companies the least likely to do so. Half of all human resource professionals reported a significant to moderate impact on other benefits, with 55% reducing benefit spending as a result. The most common benefit reduced was 401(k) and pension plans, followed by employee education and equity compensation.
Employers are also increasing their use of health savings accounts (HSAs), which are tax-advantaged accounts specifically used to pay for qualified healthcare expenses. The coinciding insurance plans with HSAs carry higher deductibles and lower premiums, so they are often seen as an attractive method to lower health care costs. HSAs may also be used as a crucial part of retirement planning, but eight in 10 employers report that they believe their employees view the accounts mainly as near-term spending accounts rather than long-term retirement savings vehicles.
While employers believe financial wellness programs should have a role in the workplace, they do not appear to be a priority for job hunters. “We do not hear our clients—from start-ups to Fortune 1000 firms—say candidates are shopping job offers based on benefits,” explains Michael Case Smith, Managing Director with Edge 401k Funds, in an email statement. “What we anticipate in the future is a push to maximize benefits once employees are on board with ancillary tools and services: benefits ‘hamburger helper’ if you will.”
Culled from wallstreetcheatsheet

Saturday 16 May 2015

How boomers can avoid going bust in retirement- By Lou Carlozo



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"Take a deep breath." "It's never too late." "Get some professional help." While those snippets are indeed culled from experts, they're not therapists -- though you might need one while facing the panicky prospect of a bone-dry retirement account.
If you're a baby boomer on the cusp of retirement, you could find yourself staring down this problem soon. Perhaps you missed out on compound interest by not investing young. Maybe the Great Recession decimated your individual retirement account. Medical or financial emergencies might've forced you to tap your funds as a last resort.
No matter the cause, refreshing a depleted retirement account is tough -- unless, of course, you've gone "bucket list" and want to drain it now. A newly released HSBC global retirement survey of 1,001 people age 25 and older shows that about 1 in 4 working Americans feel it's better to spend all their cash during the course of a lifetime and let children create their own wealth.
Dipping into an IRA "isn't necessarily a bad idea," says Brian Schwartz, vice president and senior financial advisor at HSBC Bank USA in Farmingdale, New York. "A client once told me: 'Now the clock is ticking on me.' They want to start doing the things they've always dreamed of but had to put aside to take care of the costs associated with raising a family."
But what if the clock's also ticking on your dream of financial security? Here are 10 nuggets of wisdom from investment pros -- meant to help cook a slender nest egg into something to feed you in retirement.
Don't throw the "Hail Mary" pass. What seldom works in the closing seconds of a football game could spell disaster in the retirement game, says Kendrick Wakeman, CEO of FinMason, a financial education company. "Please don't put all your money into high-risk investments in the hopes of scoring some sort of a big win that will suddenly allow you to retire in the manner you dreamed about in your 20s," Wakeman says. That even means approaching stocks with caution. "As you get closer to retirement, the risk of loss in the stock market looms larger since there will not be much time to recover after a crash," he says.
Consider overlooked financial resources. While it's risky to count on unknowns such as real estate appreciation, you may have cash streams available outside the traditional retirement realm, says Jennifer Acuff, wealth advisor with TrueWealth in Atlanta. For example, "Understand your options with respect to Social Security and any pensions you might be entitled to from current or previous employers," she says.
Sacrifice. Numbers don't lie, but the bright side is that decreasing your expenses will help smaller retirement pools shrink slower, says John Diehl, senior vice president of strategic markets at Hartford Funds. "There is hope that some of these folks can make up cash shortfalls, but it may require sacrifices, which some people refuse to make," he says. And here's a pointed perspective from Michael Chadwick, CEO of Chadwick Financial Advisors in Unionville, Connecticut: "It's amazing when I work through the numbers that some people think manicures, landscapers and maids are a need," he says. "I've found people with less stressful and happier lives -- as they're not trying to substitute physical possessions for personal happiness."
Define "comfortable retirement." Especially if you've gone into your hand-wringing with a preset number or a vague image of cruise line frolic, it's time to get down to brass tacks. "Many boomers haven't really thought this through, while others are in full-stage denial," says Bellaria Jimenez, managing director with MetLife Premier Client Group, based in Cranford, New Jersey. "Unfortunately, many of these boomer clients do not have the accumulated assets they will need to provide for the 'comfortable' lifestyle they envision." That's when the time comes for a sharper picture that pays attention to the financial realities at hand -- along with the ones that can be changed.
Play the Social Security card. You won't survive solely on the money in your retirement fund, but from Social Security as well, says George Fraser, managing director of Retirement Benefits Group in Phoenix. "I advised one 66-year-old client making $26,000 a year to immediately file for his Social Security benefit since it was more than his salary," he says. The $32,000 a year he and his wife received in government benefits allowed him to use nearly all of his salary to make the maximum contribution to his company's 401(k) plan. That $24,000 a year "made a big difference," he says.
Create a detailed budget. Accounting for the money coming in and going out will give you some peace of mind in catching up by way of a road map. However, "We are not talking about scribbling a few figures on a napkin," Wakeman says. "You need to get a detailed budgeting tool such as Mint.com or LearnVest.com ... These tools can help you develop a budget that lets you start saving for retirement and, just as importantly, helps you stick to it."
Free up money by lowering fees. Assuming you have some investments going, chopping those fees can make a shocking difference, says Erik Laurence, vice president of marketing and business development at FeeX, a free service that finds and reduces hidden fees within investment accounts. "All else being equal, if you can reduce your fees from 1.75 percent down to 0.25 percent, this is equivalent to an additional 1.5 percent per year of return that will compound to help top off your account," he says.
Work a little longer. If you're looking forward to hanging up your hat now, this prospect may not appeal to you -- but it can provide extra padding for when it really counts. "The good news is this type of approach can work," especially when coupled with smart budgeting, says David Twibell, president and founder of Custom Portfolio Group, LLC in Englewood, Colorado. He's helped clients who survived the 2008 market crash, "and to their credit, they faced this challenge head on, cut back on their expenses and decided to work a little longer than they originally expected. ... Their hard work paid off and they are now retired with enough savings," he says.
Work the "three levers." A secure retirement, no matter your current situation, balances out your savings level, time until retirement and spending level in retirement. "That's often the secret -- looking for ways to make incremental changes across multiple fronts, which together can provide much more leverage than any one strategy alone," says Dave Yeske, managing director at the wealth management firm Yeske Buie and director of the financial planning program at Golden Gate University's Ageno School of Business. "The beautiful part of this story is that all three of those levers are within your control."
Keep calm and (don't) tarry on. What sounds like mere behavioral advice will make all the difference regarding the speed and rationality you take to your retirement quandaries. "Avoid panicking or standing out on a ledge," says Catherine Collinson, president of Transamerica Center for Retirement Studies. "It's totally counterproductive and a waste of precious time and energy that could be put to better use in terms of taking steps forward to improve your financial situation." One step she recommends is both commendable and courageous: "Take a close look in the financial mirror."
Culled from US News

Friday 15 May 2015

The slacker's guide to saving for retirement -By Amanda Reaume



Slacker
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Now more than ever, our lives are filled with competing obligations. Every day we divide our time between work, caring for our families and friends, volunteering, improving our educations, running errands and working out — among many other things. It can be exhausting!
At the end of the day, most of us just want to sit in front of the TV or our laptops and spend a little time unwinding while watching "Game of Thrones" or cat videos. I like to call the inner voice that tempts us to veg out in front of the latest "Scandal" episode or watch that 10 th cat video our inner-Lazy Person. We spend so much time and energy fighting with that inner-Lazy Person to make more responsible use of our time. But what if we can harness the power of the Lazy Person when it comes to something as important and stress-inducing as saving for retirement?
The last thing most of us want to think about at the end of a long day is what happened in the stock market or what mutual funds we should buy next, but we often feel obligated to take control of our finances. After all, most of us know that even if we follow all the thrifty tips we can find, if we don't invest our money we won't have enough to retire on.
But retiring without adequate savings will be the unfortunate reality for many Americans. The Federal Reserve's 2014 statistics showed that 31% of people had no money saved for retirement.

So, what if the simplest and most stress-free way to invest was also one of the best ways to invest your money? Who knew it could be smart to be lazy?
My Lazy-Person Epiphany
When I first started working, I wanted to put some of my savings into the stock market but I found that it took a significant amount of time and energy to learn how the stock market worked and to research stocks. During this period, I made some unfortunate investments and lost what was a significant amount of money for me at the time.
If I knew then what I know now, I would have gotten started investing in the stock market by investing in index funds. An index fund is a fund that owns stocks of companies listed within particular stock market indexes. These funds generally provide returns on your investment that keep pace with the average stock market return. Index funds are what I like to call the Lazy Person's retirement savings vehicles, but they also might be the Smart Person's retirement savings vehicles for the following reasons. Keep in mind that index funds may not be a smart investment for everyone, and you should consult with a financial adviser if you have any questions about how these investments work or the risks that come with them.
1. We're More Likely to Take Action
When we perceive something to be difficult, we tend to put it off. The simpler we make something the more likely we are to do it. If we expect ourselves to put time and effort into painstakingly learning how the stock market works and then diligently researching individual stocks, we're less likely to pause our cat videos and actually start our research.
2. Picking Stocks Is Difficult to Do Well
Successfully picking particular stocks often requires you spend a significant amount of time researching to be successful, and even then it's not foolproof. Even people who pick stocks for a living can make bad calls. If you don't know much about investing, this can be a huge barrier to actually getting started. The likelihood that an individual investor can beat the stock market is actually quite low.
3. You're Automatically Diversified
Diversifying your investments is key because it helps you mitigate your risk. For example, if you invested only in tech stocks and the tech sector does poorly your entire investment portfolio would lose money simultaneously. If, however, you had some tech stocks, some energy stocks, and some consumer good stocks, one sector could perform poorly and not affect the overall return of your portfolio significantly. One of the upsides to index funds is that they automatically diversify your investments, which means that you don't have to spend a lot of time picking stocks from diverse sectors.
How to Do It
You ca set up an automatic payment into your retirement or investment accounts to take one step out of the retirement saving process. Rather than having to make a contribution on a monthly or annual basis, set up a paycheck deduction or an automatic bank transfer into your retirement or investment accounts that you don't have to think about or consciously remember to do. While you might have to consciously buy index funds every month or two if you can't set up automatic purchases, you're still making the saving aspect as easy as possible.

Culled from Credit.com

Thursday 14 May 2015

How Not to Spend Your Retirement Money Like a NFL Player-Eric McWhinnie


Tom Szczerbowski/Getty Images
Tom Szczerbowski/Getty Images
Nobody spends their paycheck quite like a professional athlete. Blessed with talent, opportunity, and multi-million-dollar contracts, pros can live the good life at an extraordinary young age. Spectators may feel envy, but important money lessons can be learned from these pros, especially when it comes to spending habits and retirement planning.
Four researchers recently conducted a study to test one of the central predictions of the life cycle hypothesis that individuals smooth consumption over their economic life cycle, meaning people save when income is high to compensate for when income is likely to be low, such as in retirement. In order to focus on an extreme example, the researchers decided to study players in the National Football League (NFL) — whose income typically spikes for only a few years. Data was collected on all players drafted by NFL teams from 1996 to 2003. The results are sobering.
Mansions, luxury cars, and a posse big enough to fill a stretch Hummer with its own wet bar all come at a cost. Despite a median level of earnings totaling about $3.2 million, one in six players (15.7%) had filed for bankruptcy by the 12th year of retirement. Some bankruptcies even occurred by the second year of retirement. Adding insult to injury, a longer playing career or higher career earnings did little to lower the bankruptcy rate.
“Our findings are different from what the life-cycle model predicts,” said Kyle Carlson, Joshua Kim, Annamaria Lusardi, and Colin F. Camerer, in a working paper published by the National Bureau of Economics. “First, players declare bankruptcy relatively soon after retirement. After only two years post-retirement many players have gone into bankruptcy. Second, annual bankruptcy (‘hazard’) rates are not affected by a player’s total earnings or career length. Having played for a long time and having been a successful and well-paid player does not provide much protection against the risk of going bankrupt.”
The researchers believe NFL players may not save enough during their primetime years because of optimism about career length, poor financial decisions, or social pressures to spend. This makes sense considering that higher earnings fail to significantly lower bankruptcy risk, and that the median length of a player’s NFL career was only six years in the study. It’s also a valuable lesson on how much money you actually keep is more important than how much you make.
Entering retirement with a low net worth is like celebrating before reaching the end zone — you’re asking for trouble. You can avoid spending your money like a pro athlete by recognizing the difference between wants and needs well before retirement age. You may want a shiny new car, which now costs an average of $33,560, but you only truly need reliable transportation. You may want a McMansion that’s suitable for a magazine cover, but you only truly need shelter in a safe location.
To take that philosophy one step further, calculate how much your so-called want will cost you in labor hours and see if you still want it. For example, a worker making $25 per hour would need to work about 1,342 hours to afford that shiny new car, not including other expenses like payroll taxes, sales taxes, and property taxes. In comparison, a reliable used car costing $10,000 would only cost 400 hours in the same scenario. This is just one example, but it can be applied to anything you buy. More importantly, it forces you to reconsider your purchases and may even help you avoid spending money on things you can’t truly afford.
Culled from wall streetcheatsheet

Sunday 10 May 2015

How to make the 4 percent withdrawal rule work for you-By Kira Brecht


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The so-called "4 percent rule," long considered a safe amount one should withdraw each year in retirement, is now the subject of much debate. Some experts argue that it is too high, while others say it is too low. Still, many financial advisors say it is a good starting point for retirees to determine how much of their nest egg to spend on an annual basis.
Here's how the 4 percent rule works : "One could withdraw 4 percent of his or her retirement-date portfolio value, adjust this amount for inflation in subsequent years and sustain withdrawals over 30 years using a diversified portfolio with 50 percent to 75 percent stocks," says Peter Mallouk, president and chief investment officer of Leawood, Kansas-based Creative Planning, an independent wealth management firm.
Financial advisors say the rule can be a good starting point. "Just like an airline pilot has a flight plan that he or she is to follow when starting out, retirees need a retirement cash-flow plan for their future when embarking on the next phase of their lives," says Joe Franklin, president of Franklin Wealth Management, a financial services firm based in Hixson, Tennessee. "In both cases, course corrections are going to be needed based upon turbulence, storms, unforeseen emergencies and many other factors. A plan that factors in these types of issues is going to work better over time."
There are several important variables retirees need to understand about the 4 percent rule, and a few adjustments they can make to meet their needs, experts say.
Don't convert savings to all bonds and CDs. As you hit retirement age and begin taking withdrawals, it is important to maintain a diversified portfolio and keep some of your assets in stocks to generate enough gains to keep your assets growing. "If you have a well-diversified portfolio with a heavy equity exposure, you should see annual returns of 6 percent, 7 percent or more," says Travis Sollinger, director of financial planning at Fort Pitt Capital Group, a Pittsburgh-based investment management firm. "The reason the 4 percent rule can work is if you average 6 percent on your money and are only taking out 4 percent, you still should see modest growth in your portfolio."
If you have a 60-40 split between stocks and bonds in your portfolio, he advises maintaining that allocation because "your years in retirement will still be significant."
Diversify internationally to boost returns and decrease risk. Many advisors suggest maintaining an allocation to international stocks to add diversification and potentially boost returns. "The [4 percent] rule assumes only a few asset classes are used in a client portfolio ... we believe using a globally diversified portfolio can potentially produce a return and risk characteristics that support a higher withdrawal rate," Mallouk says.
Don't overspend in good years. Stock market cycles mean some years produce outsized returns, while other years yield paltry gains. In the years when the market posts significant returns, retirees should stick to their plan and try not to splurge. "If your account is up 20 percent, the tendency is to say, 'I don't want to limit myself to 4 percent. I can take 10 percent.' You have to maintain discipline," Sollinger says.
Stay the course in bad years. Consider using a "bucket" approach to investing, and set aside enough cash to cover your bills for one and a half to two years. Keeping some money in safe investments such as short-term CDs can help you manage your fears about losing too much in bear markets. "Put these assets into something where there is no risk at all. These are short-term investments to get you through the rough times. Don't freak out, don't change your allocation, don't move away from your plan," Sollinger says.
Consider additional retirement income strategies. Future health care costs are a big unknown in retirement, which means retirees should add other income streams to the mix. A 65-year-old couple may need an average of $220,000 to cover medical expenses throughout retirement, according to a 2014 estimate from Fidelity Benefits Consulting.
"Medicare supplements and long-term care insurance can help those that have not saved as much as others," Franklin says, adding that Social Security income can help provide "more certainty to the retirement income picture."
"Many who want additional certainty look to private pensions or retirement income strategies where some of the income is guaranteed over their lifetime by insurance companies. Many of these currently guarantee lifetime income over 4 percent," he says.
Tap a financial advisor for guidance. A financial advisor can assist you through this process and help determine a withdrawal strategy that works for you. "A financial planner is going to know the questions you should be asking but don't know to ask. He or she is likely to have seen retirees make many mistakes in the past and can help guide you away from making these mistakes yourself," Franklin says.
He adds: "A good financial planner knows the common pitfalls to avoid and can help guide clients toward the correct path, even if it is not a popular one."
Culled from US News

Saturday 9 May 2015

Is Retirement Just a Pipe Dream for the Middle Class?- Eric McWhinnie


Source: iStock
Source: iStock
The once indispensable middle class is losing grip of its retirement dreams. A new report finds that an alarming amount of Americans are not placing any money aside for their so-called golden years, and the situation actually worsens as they near retirement age.
Retirement funds are in short supply. According to the fifth annual Wells Fargo Middle-Class Retirement study, 34% of middle-class Americans are not currently contributing anything to a 401(k), individual retirement account (IRA), or other retirement savings vehicle. Furthermore, 31% of all respondents say they will not have enough money to “survive” on in retirement, and 19% have zero retirement savings.
While your 50s are typically a time to make final preparations and adjustments for retirement, the middle class is moving in the opposite direction. Wells Fargo finds that 41% of middle-class Americans in their 50s are not currently contributing anything to retirement accounts, and 48% believe they will not have enough money to “survive” on in retirement. On average, people in their 50s are only saving $78 per month for retirement, compared to $200 per month by people in their 30s and 40s.
“Saving for retirement isn’t easy. It requires sacrifice, and it’s not something people can push off and hope to achieve later in life. If people in their 20s, 30s or 40s aren’t saving today, they are losing the benefit of time compounding the value of their money. That growth can’t be made up later, so people have to commit early in life to make savings a regular discipline year after year — it is the only way most people will achieve their financial goals to carry them through retirement,” said Joe Ready, director of Institutional Retirement and Trust.
A significant gap remains between expectations and reality. According to the report, middle-class Americans have saved a median of $20,000 for retirement, which is down from $25,000 last year. This is well below their own estimates needed for retirement. Middle-class Americans across all age groups in the study expect to need a median savings of $250,000 for retirement.
However, this gap does not appear likely to close anytime soon. Sixty-eight percent of all respondents say saving for retirement is harder than expected, while 61% admit they are not sacrificing “a lot” to save for retirement.
Culled from wallstreetcheatsheet