Retirement Planning Blog

If you have already created a confidence-boosting retirement plan, congratulations! You are on track to achieving the rewarding retirement of your dreams.

But what happens if you put this necessary task off? If you take a "someday" approach to stopping to assess your needs in retirement and exploring strategies and solutions that can help you achieve them?

It’s not hard to find out. You may even have watched people you know and care about struggle financially in their golden years. A time in their lives that was supposed to be free of financial pressures -- or at least relatively, so we think -- instead forces them to make unpleasant choices just to stay afloat.

Most often, poor financial decisions (or a lack of planning) — fueled by the emotional pressures of life changes or financial stressors — tip that first domino that can begin to topple a care-free retirement.

It takes discipline in matters of money and financial planning to ensure your money works for you, instead of the other way around.

Because you don’t want to find yourself going down the wrong path to retirement, consider these consequences of not taking action to create a plan that can provide you benefits such as reliable income for life.

The Great Recession that began in late 2007 was a painful period in many Americans' lives. Everyone who was invested in the market, people who were overextended in mortgages, and those who lost jobs as a result of a crippled economy, were among the millions affected. 

Since then, many people have recovered from the financial setbacks. Nevertheless, a new study by the Federal Reserve Bank of San Francisco suggests that challenges linger. According to Fed researchers, the long-run effects of the financial crisis cost every American an estimated $70,000 in lifetime income.

The researchers point to a big decline in domestic output levels as a primary cause of those losses. Based on early-2000s Congressional Budget Office forecasts, our national gross domestic product remains well below what its 2007 trend implies we might have been at now. And it's said to be unlikely that the economy will ever make up that lost territory.

While that specter raises many questions, it brings up another important, practical query. How should people preparing for retirement overcome this gap? 

Are you part of the majority of federal civilian employees in the Federal Employee Retirement System? Or maybe you are a member of the uniformed services. If so, you probably have access to the Thrift Savings Plan, one of the workplace benefits that people receive as United States government employees.  

The Thrift Savings Plan (TSP) is a 401(k) like plan for federal workers. It allows you to contribute to your retirement fund and receive a matching contribution from your federal agency.

According to recent statistics, over 5 million people participate in the TSP, which has more than $500 billion in assets under management.

One common issue for many federal employees is they don’t understand their TSP accounts and what it can offer them. If you find it hard to navigate, no sweat. Here’s a quick rundown of some must-know facts about your Thrift Savings Plan account that can be of benefit.  

Like other folks, you probably see waves of retirement advice from the papers, financial talkshows, online news sources, and other outlets. Much of that advice assumes that among couples, both spouses are approximately the same age. That often results in solutions designed to address the needs of couples entering their retirement years together.

But what about couples with sizable age differences? Their different retirement timelines are likely to present unique problems. When such is your situation, how can you plan for your retirement effectively?

If one spouse is eligible to retire 10 or more years ahead of the other, that spouse will be making choices that not only affect their own retirement. It impacts their partner's retirement, as well. Those decisions could have a dramatic impact on the younger spouse’s lifestyle now and during their own golden years.  

Not only does their age disparity affect their retirement plan, it means that life events, both those foreseen (e.g., retirement or required minimum distributions) and unforeseen (e.g., the need to help care for aging parents), will be faced at different stages in their lives.

As a postal or federal employee, you have high-quality federal benefits. In time, they will play directly into your retirement, whether you will be eligible to retire in the next 15 years or are a new career hire.

Among your many benefits are programs that directly affect your financial future. Tax-advantaged retirement savings plans, guaranteed-pension payouts, and cost-efficient life insurance coverage are just a few of those programs.

Your challenge is to ensure that you maximize what is available to you. Making smart choices early will help you reap rewards for the rest of your life. So, it’s important to weave your federal employee benefits into your complete financial picture to set yourself up for the most successful retirement possible.

To get there, you need to avoid the mistakes some federal employees make with their benefits and retirement planning. These slip-ups can cost you tens of thousands of dollars in lost benefits. And what's more, once these mistakes are made, they can't be reversed or changed.

Once, reverse mortgages were considered to be the financial stepchild of retirement income sources. But respected authorities like Wade Pfau have shed new light on its potential uses in a retirement strategy. Now, growing shares of financial professionals, retirees, and other Americans see their benefits for certain situations.

If you have any pre-conceived notions about reverse mortgages, you might have formed them while watching those TV commercials with Tom Selleck, Robert Wagner, Henry Winkler, or one of many other well-known personalities.

You might ask, "What roles might a reverse mortgage play in my retirement income plan?" That is a good question. Let’s take a look at some potential uses for a reverse mortgage, including what it may involve.

Photo Credit: Fisher Investments, Featured in USA Today Special, Source Link. Photo is strictly intellectual property of its owner. All Rights Reserved. 

Long-time money manager Ken Fisher says he hates annuities. And he isn’t exactly shy about it. Since 2013, the head of Fisher Investments has run many blistering anti-annuity promotions – from critical columns and print ads to aggressive TV spots and online display advertising.

Over time, those promotional spots have driven market awareness, boosting Fisher's profile as a well-recognized annuity critic. Many campaigns still run today, with the ads building on the Fisher celebrity, retirement tips, annuity leg sweeps, or other stickler points.

But while the annuity marketing blitz has been a success, a recent article raises questions about Fisher’s strong public stand against annuities.

It may point to what some call a contradiction between the “I hate annuities” mantra of Fisher advertising campaigns and the investment holdings of Fisher’s firm.

At InvestmentNews, reporter Greg Iacurci writes that while the infamous anti-annuity ads were running, Fisher Investments itself was invested in companies with large annuity business.

If you are a retiree in your 70s or older, you may feel well positioned to weather potential financial shocks. But if you have yet to enter your golden years, you may face more difficulty maintaining your future retirement standard of living in the aftermath of financial shocks.

That is the consensus of a 2018 report from the Center for Retirement Research (CRR) at Boston College. Unveiled back in February of 2018, the report is entitled "Will the Financial Fragility of Retirees Increase?"

Its conclusion? Future retirees may not be able to rebound from financial jolts, such as those from unexpected medical expenses or the death of a spouse.

That brings up an important question. Why would tomorrow’s retirees be at a greater disadvantage than those who have already retired?

Current retirees may be benefitting from company-sponsored retirement plans in addition to their own retirement assets.  Not so for future retirees who face "inadequate savings and the limited income that safe withdrawal rates provide, reducing the cushion between their incomes and fixed expenses," according to the report.

Another alarm sounded in the report: "If households choose to hold a significant portion of their savings in equities to increase the income their savings provide, they will be more exposed to sharp market downturns that arrive early in retirement."

Before you commit to an annuity as part of your retirement plan, it’s good to know the basics of this retirement tool. Every year, Americans put hundreds of millions of dollars into new annuity policies. Yet there still seems to be a measure of annuity misconceptions and confusion among consumers.  

You may have seen that a quick internet search of the word "annuity" delivers a wildly diverse set of opinions! And every financial pundit has their own take on annuities. Some of the loudest voices on the internet even claim to be against them, all the while offering annuity or annuity-like solutions to their following.

To help you sort through the noise, we break down common annuity myths and supplement the conversation with some facts.

Most people would be thrilled at the prospect of 10% average annual returns or higher in retirement. But now that folks are living longer, they face more challenges than just adequate returns. With decades of retired living on the horizon, people must ensure their portfolios last as long as they might need them.

Sequence of returns risk can affect your long-term income the most in your early-retirement years. That is the timespan just before and right after you retire. You may have heard of that period called the “retirement red zone,” or generally the 10-year spread prior to and after retirement.

It's true that average returns for the S&P 500 from 1928 to 2017 have exceeded 10%. But averages can be deceiving for long-term income planning. What matters just as much is the order of returns, or the actual timing of when a portfolio grows or loses value. As we will see, losses in those early years could make or break your income goals, setting up the risk of running out of retirement money.

This potential hazard is called sequence of returns risk, or just sequence risk. To illustrate it, we will talk about it in two formats: by analogy and then through two hypothetical portfolio scenarios.