Retirement Planning Blog

Sure, you can start your Social Security benefits at age 62. But is it better to claim early or delay benefits until a later date?

While a one-size-fits-all answer doesn’t work for everybody, a new study suggests that ill-timed Social Security strategies are costing Americans dearly.

United Income found that retirees might lose $3.4 trillion in potential income due to timing of when they enroll for their benefits. The research was a joint effort between the fintech company and former top policy officials from the Social Security Administration.

What about the income effect on retirees at a personal level?  On average, each retired household would miss out on $111,000 of lifetime benefits. And for current retirees, premature decisions could add up to collective losses of roughly $2.7 trillion.

That would average out to roughly $67,000 in lost income per household.

While many private-sector workers build their nest eggs through 401(k) plans, federal employees and members of the uniformed services have their own retirement savings and investment plan. This is called the Thrift Savings Plan (TSP).

With more than 5 million participants and close to $500 billion in assets, the TSP is recognized as the largest defined-contribution retirement plan in the world.

This fall, TSP plan participants will see significant changes to their withdrawal options.

Many participants have been asking for expanded options. But it took the TSP Modernization Act, which Congress passed and the president signed into law in November 2017, to make them a reality.

Starting November 15, 2019, after two years of planning, the Federal Retirement Thrift Investment Board (FRTIB), the agency that administers the TSP, will offer new options.

These new additions and changes are designed to give plan participants and plan retirees more choices for withdrawing their investments.

“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man,” Ronald Reagan once famously said.

And the worst time to try to fight this formidable foe is when you are in retirement, living on a fixed income. Many people have some employment, or some involvement with entrepreneurship, for a stream of retirement income.

But chances are they don't offer wage increases, or other inflation-countering benefits that you might have had in your working years, to help you keep pace.

Annuities are one of the few ways to obtain retirement income that is paid out as long as you live, making them a popular component of many retirement plans.

Investors have been using fixed annuities and fixed index annuities to provide lifetime income. These guaranteed income streams cover monthly costs and help people maintain their standard of living.

But if the annuity payout is fixed at the outset of the contract, by design it can’t be increased to keep pace with inflation. Should inflation rise 10% over time, for example, the buying power of a $3,300 monthly annuity payout erodes to $2,970.

This threat has the potential to affect a retiree’s lifestyle and could even require making unwelcome cuts in spending.

So how can investors seeking the benefits of annuities manage this inherent “inflation risk” and offset its impact? These are just a few of the ways.

Annuities come in all shapes and sizes. And when you are considering one as part of your retirement strategy, sure, it’s important to determine whether an annuity is right for your financial situation.

But there are more annuities than hedge funds in today’s financial marketplace. That is a staggering number of options. If, relative to other solutions, an annuity does help you achieve your retirement goals, then choosing the right one is just as important as its role in your portfolio.

When people plan for their retirement, they usually have one chance to get it right. Your choices will determine whether you live well in later years – or will fall short and will have to deal with the results. This applies just as much to annuity purchase decisions as well as other financial choices for your future.

If you happen to be considering a fixed index annuity for your retirement, understanding how the annuity indexing works is a crucial component.

Your index annuity has many ways of being credited interest. And you might also have a wide menu of index options, from the plain-vanilla S&P 500 price index to newly-minted “volatility controlled” indices.  

First, let’s explore how annuity indexing works. This will cover only annuities of the fixed variety.

Then we will address the new wave of indexing options that include volatility controls, which are a debated topic in the industry.

Having a financial plan is essential for a comfortable lifestyle, whether you are approaching retirement or are already retired. But what if you haven’t prepared yet for retirement?

Should you find yourself procrastinating and not developing a long-term Retirement Plan (“PLAN.xls”), take heed. This can get you into serious trouble over the long run, with your post-work lifestyle possibly taking a hit in one of two ways: by either overspending or underspending.

There is a weird psychology that can cause a retiree to drag their feet on developing a personal financial strategy. They might worry that, if they know too much about how their finances will play out over time, it will either scare them or at least disappoint them as financial reality sets in.

Think of it as a distorted version of the old saying, “What you don’t know can’t hurt you.” So, retirees spend away, figuring that they will worry about it later.

However, in the case of retirement, what you don’t know CAN hurt you. Especially when time isn't on your side, and big financial mistakes are much harder to recover from since you aren't working (or as least as much as you were earlier in your career) and the lifespan clock is ticking.

Whether dealing with overspending or underspending, the irony is that you will carry a heavy burden of worry in either case. But what you are really searching for in retirement is, above all, peace of mind.

For some time now, small business owners and their employees have had only a limited menu of effective workplace retirement-saving options.

High plan fees and other barriers have kept traditional retirement planning tools, such as 401(k)s, and income tools, such as annuities, beyond their reach.

A new bill, recently passed by the House of Representatives, aims to level the playing field for small businesses. It would also change some rules for required minimum distributions, or RMDs, which could help simplify retirement distribution planning.

The Setting Every Community Up for Retirement Enhancement Act (the “SECURE” Act) passed the House by a 417-3 vote in late May.

Now it’s on track to move forward to the Senate. With unprecedented bipartisan support in both houses, the bill is expected to have a good chance of sailing through.

If the president signed it into law – or if Congress overturned a presidential veto – the Act would represent the most substantial changes to the U.S. retirement landscape in a decade.

Editor's Note: The following article is a retirement guest post that has been authored and contributed by Katherine Brown.

Have you already saved money for your retirement years, or are you playing catch-up now? You need to be aware of certain myths and misconceptions about retirement.

Surviving and thriving during your retirement years entails knowing the truth behind these misconceptions. When you are armed with the right information, it’s easier to turn your lifelong savings into dependable strategies that can help you retire comfortably.

Making a plan to cover your long-term care needs in retirement is one of the most difficult issues you will face. No one knows what will be required in the future.

Some experts, such as Christine Benz with Morningstar, believe the probability can be quite high. In one of its bulletins (in which it also interviewed Benz), AARP estimates a 50 percent chance of someone needing some form of long-term care (LTC) at age 65 and beyond.

Of course, these statistical forecasts might not end up reflecting your personal situation. The truth? The answer may range anywhere from a price tag of zero to the need of skilled nursing care that costs hundreds of thousands of dollars over several years.

As fuzzy as that picture is, you can still plan effectively for the future potential costs of long-term care, not to mention other healthcare expenses.

Have annuities ever popped up on your retirement-planning radar? You might have come across some annuity contracts with a Market Value Adjustment feature. Several fixed index annuities and multi-year guarantee annuities (MYGAs) include this factor in their contracts.

A market value adjustment (MVA) simply refers to the ability of an insurance carrier to offer you higher rates by protecting itself against bond market declines. When an annuity has a market value adjustment in its contract, it’s called a market value adjusted annuity (or MVA annuity for short).

Normally the insurance company holds the interest-rate risk when you buy a fixed annuity. But an MVA annuity gives you the chance to earn a higher rate in exchange for sharing in some of that risk with your insurer.

After all, bond values are sensitive to interest rate movements. So one way to think of this is as a “safeguard” for the insurance carrier against bond market losses.  

If an MVA annuity happens to fall into your retirement purview, here’s a helpful look at what it might involve.

Determining how much money you need in retirement is both a mathematical and a personal issue. Like a fingerprint, the answer is unique to you and your spouse.

That is why it's so important to discuss your 30-year retirement plan early – or in other words, definitely some time before you actually retire. And just not early, but often. This approach will help ensure you and your spouse are on the same page.

Here are a few guidelines you can use in your determination of how much money you need in retirement for a comfortable lifestyle.