Retirement Planning Blog

Don’t Be Deceived by These 7 Annuity Myths

Don't Be Deceived by These 7 Annuity Myths

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. Read More

Fed Study: Every American Lost $70,000 in Retirement Income from 2008 Financial Crisis

Fed Study: Every American Lost $70,000 in Retirement Income from 2008 Financial Crisis

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? Read More

Understanding Reverse Mortgages for Retirement Planning

Understanding Reverse Mortgages for Retirement Planning

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. Read More

Retirement Income Planning for Couples with Age Gaps

Retirement Income Planning for Couples with Age Gaps

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. Read More

Will Future Retirees Be More Vulnerable to Market Downturns?

Will Future Retirees Be More Vulnerable to Market Downturns?

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.” Read More

Sequence of Returns Risk in Retirement

Sequence of Returns Risk in Retirement

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. Read More

When Should You Retire?

When Should You Retire?

Like most of us, chances are years ago you imagined the ideal age you would stop working and start living your dream retirement. A new study reveals that the answer to “what’s the optimal retirement age” depends on the age of the person you ask.

Bankrate.com surveyed Americans of different generations. While each had its own idea of the ideal retirement age, on average those surveyed believe the best age to retire to be 61.

Gen Xers and Millennials chose 61 and 60, respectively, as their ideal ages. Baby boomers (ages 64-72) and the silent generation (age 73+), possibly making a more seasoned estimate of the optimal retirement age, chose age 64 to 65.

Everyone wants to retire comfortably, especially after years of hard work. But age forecasting isn’t necessarily the best way to approach this. Just-as-critical questions to ask (if not more so) are: “What income do I want to retire at?” and “What financial resources will I need to enjoy my preferred lifestyle?” Read More

Working in Retirement: The New Norm?

Working in Retirement: The New Norm?

What do you plan to do the first day you actually retire? Plan that dream trip? Write that first page of your novel? Explore new opportunities to partake in hobbies or other interests? Just take a deep breath and learn to relax?

If you are like most of the retirees surveyed in the 2018 Retirement Preparedness Study, your retirement years may look a lot like your working years.

Or, at least, that is what working-age Americans foresee for their retirement futures. Commissioned by PGIM Investments and conducted by The Harris Poll, the study found that 52% of pre-retiree baby boomers expect to have a full-time or part-time job during retirement.

This finding is in sharp contrast to the lifestyle of current retirees, with only 6% of them working for a paycheck. Pre-retiree Gen Xers are even more convinced they will need to work in retirement, according to the study, as a substantial 58% responded this way. Read More

Roger Ibbotson Weighs in on Fixed Index Annuities

Roger Ibbotson Weighs in on Fixed Index Annuities

When Roger Ibbotson recently published a new report on fixed indexed annuities and their place in an optimized retirement portfolio, everyone took notice. Few economists and financial researchers garner the attention and level of respect that he does.

He is Professor Emeritus at Yale School of Management, former chairperson of research firm Ibbotson Associates, and chairman as well as chief investment officer at Zebra Capital Management. Ibbotson is also a prolific author, having conducted financial research on many topics including investment returns, mutual funds, international markets, portfolio management, and valuation.

In past studies, his analysis has been groundbreaking and his principles adopted by financial markets at large. So, it’s not surprising why his research on fixed index annuities has gained such wide attention.

In his latest study, Fixed Indexed Annuities: Consider the Alternative, Ibbotson expands his view of the use of a fixed index annuity (FIA). Here, he defines a fixed index annuity as a tax-deferred retirement savings vehicle that “eliminates downside risk while allowing for the opportunity to participate in upside market returns.”

As baseline benefits, he believes that fixed index annuities, if properly structured, can help control financial market risk and mitigate longevity risk. Read More

Retirement Planning for Women

Retirement Planning for Women

It’s well documented that women often earn less than men in the workforce. While progress toward pay equality is a hot topic, less discussed are the factors women face when trying to plan for their ideal retirement.

Among the hurdles that are unique to women:

  • lower lifetime earnings
  • wages lost when leaving the workforce for child rearing or caregiving
  • part-time work without access to benefits, including retirement benefits
  • longer lifespans leading to longer retirements
  • longer exposure to retirement risks

These factors can definitely affect the quality of life women enjoy during their retirement. Which makes having a strong retirement plan more critical than ever. Read More

Next Steps to Consider

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