Retirement Planning Blog

25x Retirement Rule: How Does It Work?

25x-rule

You may be familiar with the Rule of 25x as a method for estimating how much you will need to save for your retirement. But most of us don’t really know what the Rule of 25x is or how it works. Is it still useful in today’s retirement world? 

At its simplest, the Rule of 25x says, if you save 25 times what you would like your annual income in retirement to be, that sum could last for 30 years.

As with every retirement rule, whether it’s the three-legged stool for retirement income or the Rule of 120, the Rule of 25x is imperfect. It’s good to remember these imperfections when using the Rule of 25x for planning your retirement.

This article will examine how the Rule of 25x works, some of its problems, and alternative ways that you can work to ensure that you will have enough lifelong income in retirement.

Read More

Beware the Retirement Red Zone in Your Retirement Planning (Updated for 2023)

Beware the Retirement Red Zone in Your Retirement Planning

When a football team gets the ball inside the opposing team’s 20-yard line, they are considered to be in the “red zone.” There it’s more likely that they will score.

If you are within ten years of retirement (either before or after), then you are in what many financial professionals consider to be the “retirement red zone.” Famously coined by Prudential, the retirement red zone is a crucial stage for your long-term lifestyle.

Why? Because how your retirement portfolio behaves during this period can substantially affect your standard of living during your golden years.

Just as it’s critical that a football team can come away with points from the red zone, it’s also imperative that you manage your assets well during this critical period. Read More

What Is a Cap Rate and How Does It Work in an Annuity?

annuity-cap-rate

An annuity cap rate is the uppermost limit on how much a fixed index annuity can grow in value for a certain timespan. The fixed index annuity earns interest based on a benchmark index. When the benchmark index goes up in value, the annuity is credited interest based on a portion of that growth. When the benchmark index falls in value, the annuity is simply credited nothing for that period, and the principal and previous interest earnings stay intact.

The interest credited to an annuity can’t go any higher than the cap rate. Among fixed-type annuities, a fixed index annuity is generally the only kind of annuity that has cap rates. A cap rate is also known as a ‘cap’ in financial circles.

Many retirement savers like fixed index annuities for their growth potential while having principal protection for their money. But in exchange for that protection, that growth potential can be limited by other ways than just caps: participation rates and spreads.

In this article, we will cover annuity cap rates in more detail – and briefly touch on spreads and participation rates, since they also serve as growth limitations for annuities.

Read More

What Is the Participation Rate in an Annuity?

what-is-the-participation-rate-in-an-annuity-img

In a nutshell, the participation rate in an annuity is the portion of the gain in a fixed index annuity that you will be credited with. Your annuity will be credited that portion as interest. Fixed index annuities have benchmark index options into which you can put money so that it can earn interest.

Generally, a fixed index annuity is the only kind of fixed-type annuity that will have participation rates. In this article, we will discuss participation rates in an annuity and how they work.

Read More

24 Retirement Planning Mistakes That Cost You Big Time

24-retirement-planning-mistakes

When it comes to saving and planning for retirement, there are several mistakes that can be made along the way. To avoid those crucial errors and set the groundwork for a secure retirement, it’s good to think about the future, plan ahead, and check that your financial goals are well-grounded.

To that end, keep in mind these twenty-four common retirement planning mistakes. While this isn’t an exhaustive list, it’s a good starting point, whether your “sayonara” to the workplace is on the horizon or you still have some years to go.

We will go into each of these frequent mistakes in more detail, but here is a quick sum-up:

  1. Having no retirement plan
  2. Not calculating how much you will need to retire
  3. Not knowing how much retirement income you will need
  4. Not taking full advantage of retirement plans and accounts
  5. Failing to capitalize on an employer match
  6. Not increasing retirement savings after a pay raise
  7. Neglecting to do annual reviews on your financial progress
  8. Not regularly checking beneficiaries on retirement accounts
  9. Raiding your qualified retirement plan early
  10. Cashing out your retirement accounts
  11. Underestimating how long retirement might last and its cost
  12. Failing to shift to a more conservative approach near retirement
  13. Not talking with your spouse about your personal retirement goals
  14. Thinking about retirement only in financial terms
  15. Not calculating required minimum distributions
  16. Not planning for taxes in retirement
  17. Taking Social Security too early (if not right for your situation)
  18. Forgetting about inflation in retirement
  19. Assuming you won’t work in retirement
  20. Thinking that you might be able to work for all of retirement
  21. Failing to account for retirement healthcare costs
  22. Starting retirement planning way too late
  23. Despairing because you started late
  24. Retiring too early

Read More

Is Dave Ramsey Wrong on Annuities?

is-dave-ramsey-wrong-on-annuities

Among financial pundits today, Dave Ramsey certainly has a large following and has helped people with various areas of personal finance, such as getting out of debt. Millions tune into his radio show. That being said, Ramsey has very strong opinions on annuities. The question is whether his anti-annuity stances are on the mark.

While opinions are subjective, Dave Ramsey has been incorrect on the facts of annuities that he discusses on occasion on his show. In some cases, the inaccuracy has been notable.

For retirees needing a guaranteed lifetime income stream, guaranteed growth above what bonds or other fixed-interest assets offer, and other guaranteed benefits from an annuity for their goals, it’s a huge disservice to completely disregard these options as part of a retirement strategy. Just as millions of listeners turn to Ramsey for how to get out of debt, millions of people have benefited from having an annuity in their retirement financial plan.

One issue with Ramsey’s annuity positions is that annuities come in all sorts of flavors, just as mutual funds do. Each type of annuity has different strengths, downsides, and benefits in what they can offer. It’s a straw-man argument to group them all together as being the same.

While this isn’t meant to be exhaustive, here are a few instances where Dave has it wrong on annuities — especially fixed index annuities — and how keeping annuities as a serious consideration in retirement planning is better for the public.

Read More

Annuity Stability in Market Crashes

what-happens-to-an-annuity-if-the-stock-market-crashes

Nobody can ever predict what the stock market will do in the future. If you have an annuity or are thinking about getting one, what can happen to your annuity if the stock market crashes? Will the market downturn impact your annuity? The short answer is that it depends on the type of annuity that you have. Other factors can come into play as well.

In this article, we will cover what can happen to your annuity when the stock market crashes. Keep in mind the five primary annuity types as you read this guide on annuities and market crashes: immediate annuities, fixed annuities, multi-year guarantee annuities (MYGAs), fixed index annuities, and variable annuities. As you will see, only the last two types of annuities can be affected by a stock market crash.

Read More

Medicare Updates for 2023 — What You Should Know

If you are at least 65 and aren’t covered by an employer health insurance plan, then you will probably need to enroll in Medicare.

Every year, there are copays, deductibles, and premiums to be paid. These numbers typically adjust from year to year, so you don’t have to be caught unprepared when they change this year in 2023.

Once again, Social Security recipients have been given a large COLA (cost of living adjustment) for their benefits, which can play into these updates here. Here are the critical numbers that are important to know regarding Medicare benefits in 2023.

Read More

What Happens if Your Life Insurance Company Goes Under?

what-happens-when-your-life-insurance-company-goes-under

Millions of people depend upon annuities and life insurance for financial protection. For many years, life insurance companies have made good on the contractual guarantees that they have pledged to their annuity and life insurance policyholders.

Nevertheless, at various points in time, some life insurance companies go under. You might wonder about what can happen when your insurance company goes out of business. The good news is that this sort of event is relatively rare.

When they fail, banks have FDIC insurance and investment firms have SIPC coverage. Life insurance companies are regulated at the state level, so they don’t have federal insurance coverage, but there are other financial protections to guard policyholders against the risks of this scenario.

Here’s what you need to know if the life insurance company with which you have your policy becomes insolvent.

Read More

What’s the Cost of an Annuity? (How Annuity Pricing is Determined)

cost-of-an-annuity

You might be considering an annuity as part of your retirement strategy. The benefits of tax-deferred growth and a guaranteed income stream in retirement can be quite appealing. But before you commit to putting your initial premium into an annuity, it’s good to know what other costs of an annuity are involved.

Does your annuity come with benefits that have additional costs? Does the base contract have any features that will cost you in some way? How much are you paying for the specific benefits that are provided with your particular annuity contract?

Understanding your options, and their pros and cons, can help you make a well-informed decision. Here, we will discuss the different fees and charges that are assessed by life insurance carriers when they issue these contracts.

Read More

Next Steps to Consider

  • Start a Conversation About Your Retirement What-Ifs

    retirement planning services next steps

    Start a Conversation About Your Retirement What-Ifs

    Already working with someone or thinking about getting help? Ask us about what is on your mind. Learn More

  • What Independent Guidance
    Does for You

    independent vs captive advice

    What Independent Guidance
    Does for You

    See how the crucial differences between independent and captive financial professionals add up. Learn More

  • Stories from Others
    Just Like You

    safe money working with us

    Stories from Others
    Just Like You

    Hear from others who had financial challenges, were looking for answers, and how we helped them find solutions. Learn More

Proud Member