Retirement Planning Blog

The mantra for success in real estate is "location, location, location." For success in retirement, the canned phrase becomes "income, income, income."

 When you retire, you no longer have a salary from full-time employment. Or maybe you were an entrepreneur, so you brought home the bacon in other ways, such as business ownership. Either way, your income situation will probably change.

A key factor for living well is how much money you can expect to receive every month from your own unique mix of retirement income sources. However, some Americans may fall short of the income they need for their golden years. Consider research done by the Employee Benefit Research Institute, for instance.

In one study, center researchers found that as many as 40% of baby boomers in the study may run out of money in retirement. According to the Employee Benefit Research Institute’s Retirement Readiness Ratings, released in 2014, only 56.7% of “early” baby boomers (born from 1948 to 1954) and 58.5% of late boomers (1955 to 1964) will have the financial resources required to meet their retirement expenses. The remaining retirees would struggle with income that falls short of their needs.

The EBRI’s model indicates that a household is considered likely to run short of money if its assets can’t meet "minimum retirement expenditures." This is a combination of expenses from the federal Consumer Expenditure Survey (as a function of age and income); some health insurance and out-of-pocket health expenses; and expenses from nursing-home and home-health care.

Guess what, class. The results are in… and most of us did not pass a very important test. Nearly half of Americans age 50+ failed a basic Social Security quiz, according to a newly released nationwide consumer poll by MassMutual Life Insurance Company.

Why should this news alarm us all? Because Social Security is a major income source for many Americans in retirement. And if we don’t know how to maximize our benefits, or even know what questions to ask regarding how to get our best payout, it can hurt us. We may be leaving money on the table when we need that income the most -- whether enjoying healthy income for your lifestyle or enjoying greater income certainty for monthly retirement expenses.

In some sense, it’s as if each point not scored is potentially a dollar amount of benefits we may lose, unless we start paying closer attention. It's time to consider how much in Social Security benefits we have accrued and start exploring strategies to maximize them.

"Getting Social Security right is critically important to inform plans for other income stream needs later in life as it may be difficult, and sometimes not even possible, to hit the reset button," said Mike Fanning, head of MassMutual, U.S. "This is not a retirement planning conversation. This is a longevity planning conversation, and near-retirees have the power and responsibility to ensure that they protect and receive every dollar they deserve in Social Security retirement benefits when the time comes."

You may not realize it, but Uncle Sam becomes your partner in your retirement.

Back in 2010, Lincoln Financial Group sponsored a survey of affluent retirees that shows how big of an effect taxes may have. The survey gathered data from people ages 62 through 75 with annual household incomes greater than $100,000.

Of all retirement spending areas, the study found that federal income taxes were the retirees' largest expense. "They are greater than many individuals planned for prior to retirement—and a growing source of concern," the survey reported.

If you don’t want everyone’s least favorite uncle to be the "majority owner" of your retirement income, it’s important to take steps to maximize the tax efficiency of your retirement income plan.

Whether you are one of the estimated 75 million Baby Boomers, 66 million Gen Xers or 75 million Millennials, you have an opinion on your retirement, whether it's now or not quite here yet.

What's also important are the concerns you most worry about most and how ready you think you will be when your retirement day finally arrives. Perhaps not surprisingly, many of us differ in those retirement views by generation. And it matters because of how millions of Americans approach their financial affairs.

Spouses, parents, children, family members, friends, colleagues. These people are a few of many folks to whom Americans may turn for seeking second opinions, weighing their retirement anxieties against others' own, gauging their financial progress, and dealing with other money matters.

Luckily for all of us, companies conduct periodic research to give us insight into what drives our attitudes and behavior on planning for and living in retirement. Their studies can also show how our expectations may actually match up—or in many cases—differ from what we believe lies ahead for us. These results have the potential to enlighten us into action to better help us achieve what we each want for our own retirement.

In its just-published seventh annual Retirement Income Strategies and Expectations (RISE) survey of investors, Franklin Templeton Investments sought to understand perceptions and concerns about retirement savings strategies. The RISE survey specifically looked at how retirement concerns differ by generation.

Not only did the survey find differences between generations, it also uncovered differences between genders within the same generation.

The latest is in on how many people think they will be financially comfortable in retirement.

Nearly half of non-retired Americans said they foresaw an uncomfortable retirement, according to new findings from Gallup. Meanwhile, 51% predicted they would have enough money for comfortable living in the golden years.

What’s the verdict for after retirement? Good news on that front, as the numbers go up. Almost 8 in 10 retirees (78%) reported that they were financially comfortable.

It’s a trend that has been pretty consistent since Gallup started tracking the data in 2002. In past years, 72% and 83%, respectively, were the lowest and highest measures of retired Americans reporting financial retirement comfort.

Many people know about life insurance and how it may give financial protection. What about using life insurance in retirement? Just look online, and you will find all sorts of opinions on the subject.

No question about it, everyone’s retirement will be different. However, health costs may be a substantial expense for many households, as research shows. And while we all hope to get lucky and be like those octogenarians who take up running and finish a marathon, reality (and statistics) suggests we should be ready for the alternatives.

There’s good news. Consumer demands and care needs have evolved. In response, life insurance companies have come out with new-generation life insurance products – “hybrid” policies that have a death benefit, but that also let you accelerate those benefit proceeds for qualifying health situations.

Are annuities taxable? It's an important question if you are shopping for annuities with the goal of guaranteed income. An annuity can help us sleep better at night, knowing how much income the contract will provide each month and that it can last as long as we do.

But while guaranteed income may sound good, there is also the flip-side to consider. You may wonder about whether annuity contracts might pose a potential tax trap.

It's smart to consider the topic. And why? Because taxes are a primary concern for people in retirement. While released in 2010, a survey by Lincoln Financial Group still has relevance today. 

The study of affluent retirees found that federal income taxes were their largest expense. Among the respondents—age 62 through 75 with annual household incomes greater than $100,000—taxes were their largest expense. The survey results show that nearly 1 of every 3 dollars a retiree spent went to taxes.

Good news, though. A 2016 article by the Center for Retirement Research suggests that a "tax time bomb" may not be inevitable for many retirees. However, that premise is based upon 2007 U.S. household taxpayer numbers crunched by the Hamilton Project.

And other research, like a 2014 study on middle-income household awareness of retirement tax issues by Bankers Life, shows that taxes could well be a considerable chunk of future retiree spending. 

All of which leads back to that question: How could throwing annuities into the mix affect a tax bill?

Once upon a time, pensions were a staple of the U.S. retirement system. But in the last 20 years there has been a seismic shift in the way employees fund their retirement. In 1998, an estimated 50% of current Fortune 500 companies still offered their salaried employees a pension, or also known as a defined benefit plan. Today that number sits at just 5%.

With this type of plan, a company makes regular contributions to their pension fund and then provides monthly payments or “partial paychecks” to retired employees throughout their retirement. In that sense, pensions give retirees a source of 'guaranteed income.'

Working tenures in previous decades generally lasted much longer than they do now in our current highly-mobile, job-hopping workplace. You could be with the same employer for 20 or more years, with your defined-benefit pension accruing value over your career. Pensions were often a main motivation for people to stay with the same employer. After investing your work life with that company, you were financially rewarded in retirement.

At retirement, the pension would give the financial comfort of knowing where your money was coming from, month to month, from guaranteed monthly paychecks coming in the mail. For years, the U.S. retirement system was built on this foundation. Then, bit by bit, employer pension circumstances gradually began to change.

Company pensions started to dwindle in number, and while today's continuing shrinkage in pension plans can be attributed to many factors, one well-respected economist points out the effects of recent economic events.

It probably wouldn’t surprise you to learn that the cost of college tuition has gone up since back in the day when you got your degree. But how much college tuition has climbed may surprise you.

According to the College Board’s "Trends in College Pricing 2017" report, students at public four-year institutions paid an average of $3,190 in tuition for the 1987-1988 school year, with prices adjusted to reflect 2017 dollars.

Fast-forward 30 years and that average is $9,970 for the 2017-2018 school year. If you weren’t a math major, don’t worry, we have a calculator. That's an eye-popping 213% increase. And that is not even taking into consideration the increased cost of room and board, not to mention everything else that causes the college cash register to keep ringing.

Editor's Note: This is the last feature in a fourt-part series on financial education for April, which is National Financial Literacy Month. To see the first part of this series, click here.

As Benjamin Franklin is credited with saying, “An investment in knowledge pays the best interest.” But actually investing in gaining more financial knowledge is an activity that many Americans don’t seem to do.

While studies suggest that lots of people understand the value of financial literacy, the truth is many things compete for our time. When so much is going on, it’s easy to put learning time for money matters on the back-burner. Even so, what we know drives our money behaviors and decisions, and so a gap in knowledge can hit home in many ways.

This is a complex problem for several reasons. For instance, in one survey, GoBankingRates found that over half of Americans have less than $1,000 in savings. In another study by TD Ameritrade, 96% of Americans knew what they paid for streaming media services like Netflix, but only 27% knew what they paid in 401(k) plan fees.

In fact, the majority of investors in the TD Ameritrade survey thought they paid no employer plan fees, didn't know if their plans had fees, or didn't know how to determine the fees. Other studies have also captured similar data with investors and their familarity with their employer retirement plans.

All of this adds up to an ongoing cycle of money headaches, mistakes, and disappointments for many households.