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Retirement Planning Blog

on 02 May, 2018

how to get guaranteed income pensions go away img

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.

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on 17 April, 2018

 working age investors financial literacy img

Editor's Note: This is the third part of a four-part series on financial literacy in the United States. You can find Part 1 of the series here. Stay tuned for more helpful articles on how you can reach the retirement you have worked hard to attain.

Like other working-age investors, you may have a 401(k) account — or another employer retirement plan. In anticipation of the future, you probably are socking away money for retirement. And if you are lucky, your employer is even contributing to help your nest egg grow even more.

But, with April being National Financial Literacy Month, now is a good time to be honest with ourselves. Many working-age investors don’t fully know what their investments are. Various studies, like the “Wellness in the Workplace” survey by KRC Research, have shown that, in many cases, the majority of working investors don’t understand their retirement plan make-up.  

So, take a moment to ask yourself about whether everything makes sense to you. It’s okay to admit not being fluent in your 401(k) – or even retirement in general – because money matters are hard enough for many of us. And when it comes to retirement issues, you aren’t alone.

A comprehensive barometer of U.S. adults’ readiness to make sound financial decisions is found in the TIAA Institute-GFLEC Personal Finance Index (P-Fin Index) from TIAA Institute and the Global Financial Literacy Excellence Center. This report examines financial literacy across eight common activities: earning, spending, saving, investing, borrowing, insuring, understanding risk, and gathering information.

And the findings aren’t great.

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on 26 April, 2018

 using life insurance for college education funding

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.

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on 10 April, 2018

7 ways retirement plans go bust pt 2

Editor's Note: This is Part 2 of a two-part series on different ways that a retirement plan can go bust. You can find Part 1 of this two-part series here.

In many ways, retirement is like a puzzle. It’s a matter of fitting different pieces together. You probably know what you want your retirement lifestyle to be. The next step is making that vision real. You put together a financial plan to make things happen.

But just planning for retirement isn’t a guaranteed formula for success. We also have to stick to the plan and, at times, revisit it to see if any adjustments should be made. After all, life throws curveballs and life situations change.

Even so, there are many situations that can throw a retirement plan off balance. Those variables can vary, from suddenly finding oneself as a surviving spouse to having personal health decline or taking on the responsibility of caregiver for parents.

While it isn’t a complete solution, understanding some situations that might put a financial plan on the rocks is a good starting point.

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on 23 April, 2018

financial literacy matters for happy retirement 

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. 

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on 09 April, 2018

 americans feeling stress money matters

Editor's Note: This is the first part of a four-part series on financial literacy in the United States. You can find Part 1 of the series here. Stay tuned for more helpful articles on how you can reach the retirement you have worked hard to attain.

If financial matters concern you, you aren't alone.

A recent survey conducted by Harris Poll on behalf of Purchasing Power, reveals that 87% of survey participants who are employed full-time (or have a spouse employed full-time) are at least somewhat stressed about their current finances. And 25% of the people feeling the heat over money matters measure their stress level as either "quite a bit" or "a great deal" of stress.

So what’s worrying everyone? Plenty. Household bills are the major cause of financial stress among the 900 participants in the Purchasing Power survey.

The primary stress triggers, ranked in order, are:

  • Household bills (mortgage/rent, utilities and transportation) - 47%
  • Lack of funds to cover unexpected expenses (car and home repairs) - 43%
  • Retirement planning (little/ no retirement savings, no post-employment plan) - 37%
  • Healthcare expenses - 34%
  • High credit balance - 30%
  • Accumulating credit card debt - 29%
  • Lifestyle changes (loss of/decrease in household income, elderly care) - 25%
  • Education (tuition, daycare fees, student loan payments) - 21%

 
In turn, these money stressors and others may have a profound impact on people's quality of life.

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on 19 April, 2018

 taxes affect retirement

It would be nice to think that, once you retire and no longer are "bringing home the bacon," worrying about paying taxes would be a thing of the past. But that is not the way Uncle Sam works. 

In fact, unanticipated taxes in retirement can disrupt an otherwise well-crafted retirement plan. Perhaps it's not surprising as to why financial professionals call this situation a "tax time bomb." For this reason, it’s important to consider the impact of taxes when preparing your retirement plan, so you can make well-informed choices ahead of time and budget for taxes as part of your retirement expenses.

What you will pay in taxes during retirement is unique to you and to the make-up of your retirement income sources. But one thing that seems to be universal can be this: how big a tax bite that retirees may face.

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on 05 April, 2018

7 ways retirement plans go bust

Editor's Note: This is Part 1 of a two-part series on different ways that a retirement plan can go bust. Stay tuned for the second part of our series in the coming days.

Some investors face disadvantages in retirement due to a lack of planning. Lackluster savings, minimal guards against risks, no real strategies for high-cost healthcare or long-term care… These are just a few of myriad ways in how someone may be ill-prepared.  

But there is also the other side to consider. How about when someone does have an effective plan set? Then it's different.

Say that you have created what you feel is a rock-solid retirement plan. When you finally enter this phase of life, chances are you are quite confident about your financial future. Still, planning isn't a sure guarantee of success. Oftentimes, the question of whether someone sticks to their plan is just as important.

What you may not realize is there are several factors that could actually take a retirement plan off course. Those factors may range from being an overly generous parent or grandparent to losing your spouse and needing to adjust your lifestyle to a reduced income.

While it may not be rocket science or a magic formula, knowing these common plan-derailing pitfalls might help you avoid them.

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on 18 April, 2018

equity market growth slowdown trend

Many economists and market watchers point to both national and global indicators that seem to suggest the heady days of continued market growth may be behind us. The stock market is in its 3rd-longest stretch without a new high since 2013, according to Bespoke Investment Group, which had a market commentary recently featured on MarketWatch.com.

"The Dow is around 9.2% lower from its late-January peak, while the S&P 500 is more than 8% short of its peak. By comparison, the S&P 500 achieved a max drawdown of more than 14% during a commodity and emerging-market selloff fueled by worries over China, according to Bespoke," MarketWatch reported.

Bespoke says the current slump hasn’t been unusually dramatic or long, but it has "kept equities in check after a very big run up in late 2017."

Several economic barometers have recently fallen short of expected growth projections. U.S. retail sales fell unexpectedly in January and then failed to meet expectations the following month. The U.S. added 103,000 jobs in March, well below expectations of 178,000, according to The Wall Street Journal, which noted that hiring remained strong.

Goldman Sachs’s global "current activity indicator" weakened notably in March. A record 74% of fund managers polled by Bank of America then said that the global economy was now in its "late cycle," according to a recent article in the Financial Times.

"Given that investors are already growing increasingly nervous about escalating trade tension — global equities have tumbled by more than 8 percent from their late-January peak — the bout of disappointing economic data could not have come at a worse time," the Times reported.

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on 04 April, 2018

financial literacy us 2018

Editor's Note: This is the first part of a four-part series on financial literacy in the United States. Stay tuned for more helpful articles on how you can reach the retirement you have worked hard to attain.

Now that April is here, it’s National Financial Literacy Month. This is a good time to gauge our knowledge and comfort with money matters. Why? Well, because financial literacy is something that affects all of us.

In its research, the FINRA Foundation has found that financial literacy is “strongly correlated with behavior that is indicative of financial capability.” People with high literacy are more likely to plan for retirement, have an emergency fund, and avoid expensive credit card debt. In turn, those behaviors can lead to quality-of-life outcomes, including more financial wellness, more confidence, and more peace of mind.

But in the same breath, studies show a gap between what Americans say they know and how they actually rank in their financial knowledge base. A recent study brief by the FINRA Foundation drives it home.

In the study, nearly two-thirds of Americans failed a quiz on basic financial concepts.

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