Retirement Planning Blog

Why Financial Literacy is Vital for a Happy Retirement

Why Financial Literacy is Vital for a 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. Read More

How can Taxes Affect Your Retirement?

How can Taxes Affect Your 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. Read More

Working-Age Investors and the Growing Need for Financial Literacy

Working-Age Investors and the Growing Need for Financial Literacy

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. Read More

7 Ways Retirement Plans Go Bust (Part 2)

7 Ways Retirement Plans Go Bust (Part 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. Read More

Americans Feeling the Heat Over Their Money Matters

Americans Feeling the Heat Over Their 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. Read More

7 Ways Retirement Plans Go Bust (Part 1)

7 Ways Retirement Plans Go Bust (Part 1)

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. Read More

Two-Thirds of Americans Struggle with Financial Literacy

Two-Thirds of Americans Struggle with Financial Literacy

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. Read More

5 Steps to Building a Retirement Income Plan

5 Steps to Building a Retirement Income Plan

Remember those television commercials from a decade ago showing people walking around town carrying a giant orange “retirement number” under their arms?

That is what everyone thought a retirement plan should look like. A big number that you divvy up and draw down during your golden years. With that strategy you are taking 100 percent of the risks many retirees may face, from market volatility to longevity risk to healthcare risk.

Modern thinking has taught us that, as the average life expectancy continues to climb (Could age 90 be the new 70?), our real concern should be more than a magic number for retirement savings. It should be creating a retirement income plan that ensures we will have income in retirement that lasts as long as we will. Read More

3 Money Risks that Scare Gen Xers More than Retirement Costs

3 Money Risks that Scare Gen Xers More than Retirement Costs

Generation Xers, you have probably heard yourselves referred to you as the “Sandwich Generation.” For those of you on the upper end of Gen X’s age range (35 to 55) this means that, not only are you likely to be responsible for caring for your long-living parents. You will also likely provide some financial support to your children. For many Gen X parents, that may be helping with college tuition. 

And there you are in the middle, needing to build a retirement nest egg and prepare for your own future needs, like the possibility of long-term care. What’s more, you have to account for all the other routine expenses facing retirees.

You may not be feeling like the middle of a sandwich as much as you are feeling like the middle of a famous chocolate sandwich cookie. The two rigid outside edges (financial support for both parents and kids) may seem like they are squishing you—and your financial future—in the middle.

In a recent survey, the Insured Retirement Institute found three key money risks that worry Gen Xers. Below are those money concerns, as well as some ideas to help you preserve your financial strength and maybe even “Double Stuf” your retirement resources in the face of them. But first you need to start the conversation. Read More

How Does the Earnings Test Apply to Social Security Benefits?

How Does the Earnings Test Apply to Social Security Benefits?

Choosing when to take your Social Security benefits — whether that moment is before, at, or beyond your Full Retirement Age (or Normal Retirement Age) — could be one of the most important decisions you will make for your retirement income plan.

Why is knowing your Full Retirement Age (FRA) so critical? Claiming your Social Security benefits prior to reaching your FRA results in a reduction of your benefit, a reduction that lasts for your entire life. Since Social Security is likely to be the largest “income asset” for many people, understanding what could reduce that payout, and potentially how to avoid that reduction, is paramount.

It’s not just that. If you are working and take Social Security benefits before attaining your Full Retirement Age, the Social Security Administration will also reduce your benefits payments should your earnings exceed certain limits. This is called the “Earnings Test” by the SSA and financial professionals. According to Transamerica Center for Retirement Studies, 53% of workers plan to work past 65, and 56% plan to work after they retire.

Given that lots of Americans have working plans for their retirement future, how could the Earnings Test affect their benefits payments? For one, it isn’t clear to many people exactly what earnings apply toward the Earnings Test — and therefore what could affect their benefits payouts. Read More

Next Steps to Consider

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