Wednesday, April 17, 2019

Low Investment Costs on Retirement Funds can Save You Money

As people approach retirement, many of them plan to take a conservative approach to handling the money in their 401(k) or IRA.  At the same time, they want to be sure that every penny they have saved over the years can be put to work earning an income for them, with as little as possible going towards unnecessary fees.  What is the best way to achieve those goals?

According to the AARP Bulletin columnist and author, Jane Bryant Quinn, who wrote the book, "How to Make Your Money Last," most retirees do not need to use a broker or financial advisor if  they decide to simply invest their money in a mutual fund and collect the dividends.  They can put their savings into funds with diversified investments, be charged either no fee or very low ones, and still be able to take a hands-off approach to their investing.

When You Should Hire a Financial Advisor

Before we discuss the low cost and zero cost funds which are now available, it is important to point out that if you have a lot of assets, a complicated financial situation, or prefer to be personally involved in choosing individual stocks and similar investment products, you should seek out a financial advisor who can help you put together a comprehensive financial plan and assist you in making investment decisions. In these situations, hiring a financial planner and utilizing their services is a wise choice.  If you decide to do this, expect the advisor to charge you up to 1 percent of the value of your assets annually for handling accounts under $1 million.  If their investment strategy is successful, it can be well worth the money.

When using a financial advisor, be sure to take full advantage of all the services, research reports, and advice the company offers.  You and your advisor should watch your investments carefully, re-balance your portfolio periodically, and make investment changes as market conditions shift.

Low-cost and No-cost Funds are Becoming More Available

For investors who do not want to spend their later years following the stock market daily, the decision to invest in mutual funds is an easier option.  Like a financial advisor, most funds will charge annual fees, which can be as much as 1.1 percent of the amount you have invested.  This will reduce the expected return on your investments.

In the past few years, consumers have discovered that they can do just as well, and sometimes better, by investing their money in low-cost and no-cost mutual funds.

In 2018, Fidelity began to offer consumers a Zero Fee Total Market Index Fund which is invested in a variety of U.S. companies, plus a Zero Fee International Stock Index Fund, another fund which focuses specifically on major U.S. companies, and one which invests primarily in midsize and smaller U.S. stocks.  There is no minimum investment in these funds, so even those retirees with very modest retirement savings can benefit from one of these funds.

In addition to the no-cost funds offered by Fidelity, both Charles Schwab and Vanguard offer a variety of low-cost funds which charge as little as 0.02 percent annually.  Before making a final decision, investors may wish to check out all their choices and talk to the staff at more than one company.  Ask about the minimum required investment, the amount of income their funds have historically paid their investors, the stocks held in each fund, and any other questions you may have.

You may also want to discuss your options with a financial planner, by scheduling a one-time appointment with one who will go through all your options.  Make sure you feel confidant in your decision before making an investment.  

You may also consider low-fee exchange-traded funds, some of which have low minimums and no sales fee.  ETFs, like mutual funds, will mirror the rise and fall of specific sectors of the larger market. They are traded on the stock market throughout the day.  

More Information on Handling Your Retirement Savings

In addition, you may wish to read my recent post on this blog, "Your Retirement Savings Can Last for Decades - Learn How."  That post goes into additional detail about the investment recommendations of Jane Bryant Quinn, and explains the 4 Percent Rule for withdrawing money from your retirement account, so you can assure yourself that your money will last as long as you do.   It also explains when it may be more realistic for some retirees to follow a 3 Percent withdrawal plan, instead. 

While you are at it, order a copy of  Jane Bryant Quinn's extremely helpful book and learn more about how to get the most from your retirement savings.  The name and Amazon link to her book is: "How to Make Your Money Last."

If you learn everything you can about handling your retirement savings, invest your money wisely, and avoid unnecessary fees and other expenses, you should be able to maximize the amount of income you will have during retirement, without running the risk that you will run out of money.  Preparing in advance and investing your assets wisely will save you a great deal of stress as you age.

For those who want to learn more about wise financial planning during retirement, Social Security, Medicare, where to retire, common medical problems (including dementia) and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional helpful articles.

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Wednesday, April 10, 2019

Your Retirement Savings Can Last for Decades - Learn How

The single issue which concerns nearly everyone on the brink of retirement is how they can be sure the money in their retirement account will last for the remainder of their life.  This is a significant and understandable reason to worry.  No one wants to reach their 80's or 90's and realize they have run out of money.  As a result, AARP teamed up with personal finance expert Jane Bryant Quinn to come up with a simple way to make sure your money lasts as long as you do.

Start with Your Guaranteed Income

Almost everyone in the United States will have a certain amount of guaranteed retirement income, even though it may not be enough for you to completely depend on.  The most common source of this income is Social Security. However, if you worked for a school or government agency, you may have a state or federal pension instead.  In addition, you may have a private pension, an annuity, income from rental property or some other source of regular, reliable income.  If you have not yet retired and your guaranteed retirement income seems to be very small, you may want to work a few more years in order to enhance the amount of guaranteed income you will have for the rest of your life.  At age 70, workers will have maxed out the amount of Social Security benefits they can receive; at age 65, their spouse will have maxed out the amount they can receive in spousal benefits.  There is no point in waiting to collect your benefits past these ages.

If your savings and assets are limited and your Social Security or other pension is small, arrange a personal appointment with someone in your local Social Security office and with your Department of Social Services.  You may be able to increase your guaranteed basic income and benefits by qualifying for Supplemental Security Income (SSI), SNAP (food stamps), or low-cost senior housing assistance.  These extra benefits are available to low income citizens and you have paid for them through your taxes, so there is no reason not to take advantage of them.  If you qualify, they can go a long way towards helping you have a modest, but survivable retirement.  

Total Up the Amount in Your Savings and Retirement Accounts

Once you have worked as long as possible and secured the highest level of Social Security benefits you can, it is time to evaluate how to make the money in your retirement savings accounts last the rest of your life.  If you have been saving a portion of your income in a 401(k) or IRA during your working years, you will be able to use income from that money to supplement your Social Security, pension or other sources of guaranteed income.  Total up the amount of cash you will have to work with upon retirement.

In addition to the money in your retirement savings accounts, you may decide to sell your current residence and downsize to a smaller home when you retire.  In some cases, this move may also give you extra cash which can be used to supplement your retirement income.  There may also be other non-income producing assets you can sell, such as coin collections, jewelry you no longer wear, or similar valuables. Pool together all the cash you can, total it up, and see how much money you will be able to put to work.

Set Aside a Cash Cushion

Take a portion of your cash savings and set it aside for emergencies, upcoming expenses, or large medical bills. If you live another 20 to 30 years after retirement, it is likely you will need to tap into this cushion occasionally to cover surprise bills you may have above your normal monthly expenses.  Sooner or later, you may have to replace a hot water heater or pay a large medical deductible, and you want to be prepared. You do not want to deplete your other assets in order to do this.  Use this emergency cushion carefully. You should avoid burning through it during the first few years after you retire, especially on something like a big trip.

If there is a dream trip you want to take after you retire and you feel you can afford it without wiping out your retirement savings, set aside some travel money at the beginning of your retirement and do not exceed this budget.  Remember, it will be difficult, if not impossible, to replace any money you spend after you retire.  Use those funds carefully.

Invest the Remainder of Your Cash 

Jane Bryant Quinn, the AARP expert, recommends that the ideal way to invest your savings and assure yourself of an income for the remainder of your life is to invest half of it in low-cost index mutual funds or exchange-traded funds that hold stock in large companies and put the other half in Treasury bond funds.  (As an aside, this blog has reported in the past that Warren Buffet also recommends that retirees invest a substantial portion of their retirement savings in low-cost index mutual funds.  It seems like good advice for most people.)

If you are unsure about which investments would be right for you, you may want to purchase Jane Bryant Quinn's book, "How to Make Your Money Last."  It offers excellent advice.  

Follow the Four-Percent Rule

The four-percent rule is one which many financial experts recommend for most retirees.  This system allows you to use four percent of your retirement savings the first year after you retire.  You can increase your withdrawal rate by the amount of inflation each year.  For example, if you have $100,000 invested, you can spend $4,000 the first year.  Then, increase the amount you withdraw by the inflation rate for that year.  If inflation is 3 percent, you can withdraw $4,120 the next year.  Even if the market has ups and downs, this system should assure you that your money will last 30 years or longer, because your withdrawals will be at least partially replaced by the dividends and interest you receive on the principal.

If you decide to avoid the stock market and put your money only in bonds and CDs, you will have a lower return and may have to change the four-percent rule, discussed above, to a three-percent rule.  This works exactly the same, but you start with a lower withdrawal rate of 3 percent.  In other words, for every $100,000 invested, you can withdraw $3,000 the first year.  If inflation is 3 percent, you can withdraw $3,090 the next year.  This very conservative approach is another way to assure yourself that you will have supplemental income for the remaining years of your life.

The one thing you do NOT want to do is to begin retirement by taking more than four percent from your retirement savings, unless you have stock investments which are doing exceptionally well and you feel certain you are not putting your future financial security at risk. Even then, you should not take more than 4.5 percent.  If you withdraw more than that, you must be prepared to also cut back your withdrawals during times when the stock market falls. If you do not want your income to fluctuate in this way, stick to a withdrawal rate of 4 percent or less.

Rearrange Your Lifestyle to Fit Your New Income

Now that you know what your income will be from your retirement savings, add that to your Social Security or pension.  Compare the total to your realistic retirement budget.

If your Social Security and other guaranteed income, when added to four percent of your retirement savings, totals less than your current income, you may have to make some changes to your lifestyle.

As mentioned above, you may need to downsize to a smaller, less expensive home.  The advantage of this is that other housing related expenses, such as property taxes, utilities and maintenance, would also be lower.

You and your spouse may also find it advisable to adjust to sharing one car, or one of you may decide get a part-time retirement job.  You need to make adjustments so your retirement expenses and income match.

If it seems impossible to match your income to your desired lifestyle at the age when you planned to retire, you may decide it would be best to wait to retire until you have paid off your mortgage or until your Social Security benefits or pension would be larger.

It will be much easier and less stressful to start out retirement with a lifestyle which fits your new income, rather than try desperately to maintain your current lifestyle, even when your income and assets do not justify it.   A few hours of planning will save you years of grief in the future.

Make Sure a Surviving Spouse can Maintain this Lifestyle

What happens when you or your spouse passes away?  Will the other spouse be able to survive financially?  Before you finalize your retirement plans, make sure both you and your spouse will be financially secure even after one of you dies.  Calculate the guaranteed survivor income plus the investment income each of you would receive individually after the death of a spouse. Make sure this reduced income will cover the fixed expenses each of you would still have for items such as mortgage payments, property taxes, utilities, car payments, food and medical bills.  If the income of either of you would not be adequate to survive individually, come up with a plan to compensate for the difference.

You may want to start your retirement off by spending even less than the 4 percent rule would allow.  This would allow your assets to grow. Purchasing life insurance policies might also be an option for some couples.  Plan ahead and decide how each of you will deal financially with being widowed. This will reduce some of the stress when the time comes.

Jane Bryant Quinn goes through all this in even greater detail in her helpful book, available here from Amazon, "How to Make Your Money Last." 

Relax and Enjoy Your Retirement

Financial worries have been shown to increase the risk of death, so it is important for every couple and individual to carefully evaluate their situation before retirement.  Once you have made the necessary adjustments so you are confident your money will last the rest of your life, you will be able to relax and truly enjoy your remaining years.

If you want to learn more about financial planning, Social Security, Medicare, where to retire, common health problems and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional helpful articles.

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Wednesday, April 3, 2019

Keep Your Drivers License as Long as Possible

Most senior citizens in the United States hope to continue to drive as long as possible.  As a resident of an over-55 active adult community, many of my neighbors in the 80s and, in some cases, their 90s are still driving.  Others, however, have lost their driver's licenses or simply given up driving their own cars.  If you hope to be able to drive as long as you possibly can, there are a few facts you should know in order to continue to enjoy the freedom of driving.

Car Crash Deaths for People Over 70 Have Decreased

According to the Insurance Institute for Highway Safety (IIHS), the number of people age 70 and over who have been killed in crashes decreased by 18 percent over the past two decades.  People in that age group were involved in fewer crashes per mile traveled, too.

One reason for this good news is that cars are safer than ever before.  Side-impact protection, including side airbags, have contributed to better safety for older drivers.  More people are able to walk away from accidents which would have killed them in the past.

Another factor in the better driving outcomes is that many older people are healthier and are able to function better than people of the same age a few decades ago.

How to Maintain Your Driving Ability

Despite the reduction in car crash deaths, it is still important for senior citizens to do everything they can to maintain their driving skills at optimal levels in order to keep their drivers' licenses.  Below are a few ways to do that:

Review the Warnings on Your Medications:  Do you take any medications which make you drowsy or warn against operating machinery after taking it?  Check with your doctor and find out if those medications can be taken before bed rather than at a time when you might need to drive your car.  You may also want to ask if there is an alternative drug which will make you less groggy.  Your doctor might also suggest that you avoid certain situations, such as driving at night.

Take a Driving Course:  We all need to brush up on our driving skills and recent changes to the laws in our state.  You may find it helpful to periodically take a class designed specifically for older drivers.  AARP offers these courses throughout the United States.  Your insurance company may even give you a discount for taking it.  You can find more information about these classes at:

Purchase a Safer Car:  You can keep yourself safer when you drive if you upgrade your older vehicle to a newer one which has a rearview camera to help you see while backing up, automatic emergency braking, collision warning systems, and blind spot or lane-departure warning systems.  All of these features are designed to help you avoid collisions.

Hire a Consultant if You have Become Nervous or too Scared to Drive:  A Driver Rehabilitation Specialist can help you feel more secure when you are behind the wheel.  They can assess your current skills, offer advice, and suggest vehicle modifications which could make driving more comfortable for you.  In some cases, you can get a senior discount or your health insurance may cover the cost of the evaluation.

When to Stop Driving

Eventually, nearly everyone will have to give up driving.  When should you turn in your car keys?  Without question, you should stop driving if you have uncorrected cataracts, severe arthritis which makes it difficult to control the car, or if you have been diagnosed with Alzheimer's disease.  You should also consider giving up your car keys if you have severe sleep apnea which leaves you exhausted during the day, or if you are prone to seizures or other health conditions which can come on suddenly, such as sudden drops in your blood pressure or blood sugar levels.

You should also stop driving when you have too much difficulty reading the street signs, if driving makes you feel anxious or stressed, or if you cannot look over your shoulder to change lanes.  You should also do some soul searching about your ability to drive when your friends and family members begin to express concern about being in the car while you drive.

Until you reach this point in your life, follow the suggestions above to continue to drive and enjoy your freedom as long as possible.

If you are interested in learning more about common medical problems as you age, travel, Social Security, Medicare, where to retire, financial planning and more, use the tabs or pull down menu at the top of the page to find links to hundreds of additional articles.

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Wednesday, March 27, 2019

Social Security: Facts Everyone Should Know

There is so much misinformation on the internet about Social Security, it has become imperative that we dispel as many of these myths as possible.  In addition, a large number of people do not understand the basic facts about this essential government program, which is especially unfortunate since the vast majority of adults in the U.S. have either paid into the program through withholding from their paychecks, or they currently receive Social Security benefits.  As a result, we researched basic factual information directly from the Social Security Administration website, as well as the AARP, and the National Committee for the Preservation of Social Security and Medicare and are sharing this information below.

Facts Everyone Should Know About Social Security

Fact: Social Security still has plenty of money to pay benefits.  The Social Security trust fund currently contains about $2.89 trillion.  In addition, millions of workers continue to pay into the program.  For decades, more money was collected than was being paid out in benefits and the extra money accumulated in the trust fund.  Starting in 2018, the Social Security Administration began to dip into the trust fund to maintain the promised level of payments.  If nothing changes in the future, the trust fund will be empty by sometime around 2034, and future retirees will only be able to collect about 79% of what they have been promised.  Benefits could continue to be paid for decades at these reduced levels, because workers would continue to pay into the system.  At no point would Social Security completely run out of money and be unable to make payments.  Fortunately, the full promised benefits could also be maintained with only a few minor changes to the program.  The National Committee for the Preservation of Social Security and Medicare has recommended specific adjustments which, if implemented by Congress, would assure beneficiaries there is no need to cut benefits in the future.

Fact: We need bi-partisan pressure on Congress to make the necessary changes and maintain the promised benefits.  Although it would require very small changes in order to preserve the full level of Social Security payouts, it has been difficult to get both political parties to agree on anything, even something as important as Social Security.  We need voters in both parties to put pressure on their members of Congress to reach an agreement and protect the program.

Fact: Only a few minor adjustments are required to protect our benefits.  Ideas for saving Social Security fall into three categories, which could be implemented gradually.  These recommendations are: raise the cap on payroll taxes above the current income level of $132,900;  raise the percentage rate workers and employers pay by 1/20th of 1 percent every year for the next 20 years, so that it will only go up by a total of 1 percent over a period of 20 years; slightly raise the age for people to collect their full retirement benefits.  That's it.  If Congress could agree to gradually make those three changes, ALL our promised benefits would be protected for ourselves and future generations, and cuts would not be necessary.

Fact: The Social Security Trust Fund has not been raided by Congress.  This often repeated story is not true. The confusion is because the money we pay in has been invested in U.S. Treasury securities and the government can use the invested money, but must pay it back with interest.  Congress does determine how much money can be used on administration and, in that way, a large amount of the incoming receipts have been eaten away by administrative costs, which is why it may appear that the trust fund has been raided.  Some people believe that modernizing systems and improving efficiency would reduce some of the administrative costs.  However, these expenses can never be entirely eliminated.

Fact:  Social Security is not meant to be your sole source of retirement income.  Unfortunately, approximately one-quarter of retirees rely on their Social Security benefits for nearly all of their living expenses after retirement.  Encouraging workers to put more money into 401(k) and IRA retirement accounts would help future retirees have a better quality of life.  This is especially important because, historically, Social Security benefits have NOT kept up with inflation. It is never too late for workers to begin saving for retirement.  The younger you are when you start, the better off you will be in the future.  Ideally, everyone should retire with a nest egg of retirement savings, as well as low debt, if they want a relaxed retirement.

Fact:  Your Social Security benefits may be taxed.  Currently, thirteen states tax your Social Security benefits. Those are Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.  However, even if you do not retire in one of those states, you are not off the hook for income taxes on Social Security. At the federal level, you may have to pay income taxes on up to 85 percent of your benefits if your combined income from all sources exceeds about $34,000 for a single retiree and $44,000 for a couple.  Many people believe that Congress should significantly raise these income levels or exempt Social Security from taxation for most people, because it makes no sense for the federal government to tax our federal Social Security benefits, except possibly for those with a very high income. Personally, I agree that paying federal taxes on federal benefits simply makes life harder for middle class retirees.

Fact: You can work and get Social Security benefits at the same time, but be careful!  If you work and collect Social Security benefits prior to your full retirement age of about 66 or 67, your benefits will be cut.  If you work after reaching your full retirement age, your benefits will not be cut, but it could increase the amount of taxes you pay on your benefits.  You may want to discuss the pros and cons of your specific retirement job and expected income with a tax professional, so you are certain that a retirement job will not hurt you more than it helps you.

Fact: The Social Security Administration only makes electronic payments into an account.  They no longer mail checks to beneficiaries; the funds have to be direct deposited into a bank account.  This has cut administrative costs and reduced the number of lost or stolen checks.  If you live in another country and have a bank account there, your benefits may be deposited directly into a foreign bank account in many, but not all, countries.  Hundreds of thousands of American retirees receive their benefits in a foreign country.  Other retirees have their checks deposited into American banks, and then transfer it into their foreign bank accounts as they need it. 

Fact:  You can only collect one type of Social Security benefit at a time.  Social Security has four different programs: retirement, disability, dependent and survivor. You can only collect from only one of these programs at a time, so it is important to discuss changes to your situation with the Social Security Administration and determine which benefit would earn you the highest income.  For example, if you currently receive benefits on your own work record and your spouse dies, you may be eligible to increase your benefits by claiming survivor benefits, instead, based on your spouse's work record.  However, you cannot collect both. You may only collect the one which will pay you the most.

Fact: The good news is that the majority of people receive more in benefits than they paid in!  According to research by the Urban Institute (which you can review at, the majority of people receive more lifetime Social Security benefits than they paid into the program during their working years, and this is true for both high income and low income earners.  Of course, there are exceptions when someone dies before they retire, or shortly after retirement, but the majority of people have significantly benefited financially from the program.  This is all the more reason why everyone should put pressure on Congress to fully finance the program.

Before you claim your Social Security benefits, you may want to learn as much as possible about the program by picking up a book which explains everything in easy-to-understand language.  You can find a variety of Social Security guides from Amazon at:  Social Security books.  

Readers can also get more information by visiting these websites:

If you are interested in learning more about Social Security, Medicare, financial planning, where to retire, common medical issues and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional helpful articles.

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