Retirement

How the Sequence of Investment Returns Can Negatively Impact Retirees

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A look at how variable rates of return do (and do not) impact investors over time.

What exactly is the “sequence of returns”?

The phrase simply describes the yearly variation in an investment portfolio’s rate of return. Across 20 or 30 years of saving and investing for the future, what kind of impact do these deviations from the average return have on a portfolio’s final value?

The answer: no impact at all.

Once an investor retires, however, these ups and downs can have a major effect on portfolio value – and retirement income.

During the accumulation phase, the sequence of returns is ultimately inconsequential.

Yearly returns may vary greatly or minimally; in the end, the variance from the mean hardly matters. (Think of “the end” as the moment the investor retires: the time when the emphasis on accumulating assets gives way to the need to withdraw assets.)

An analysis from BlackRock bears this out.

The asset manager compares three model investing scenarios: three investors start portfolios with lump sums of $1 million, and each of the three portfolios averages a 7% annual return across 25 years. In two of these scenarios, annual returns vary from -7% to +22%. In the third scenario, the return is simply 7% every year. In all three scenarios, each investor accumulates $5,434,372 after 25 years – because the average annual return is 7% in each case. (1)

Here is another way to look at it.

The average annual return of your portfolio is dynamic; it changes, year-to-year. You have no idea what the average annual return of your portfolio will be when “it is all said and done,” just like a baseball player has no idea what his lifetime batting average will be four seasons into a 13-year playing career. As you save and invest, the sequence of annual portfolio returns influences your average yearly return, but the deviations from the mean will not impact the portfolio’s final value. It will be what it will be. (1)

When you shift from asset accumulation to asset distribution, the story changes.

You must try to protect your invested assets against sequence of returns risk.

This is the risk of your retirement coinciding with a bear market (or something close). Even if your portfolio performs well across the duration of your retirement, a bad year or two at the beginning could heighten concerns about outliving your money.

For a classic illustration of the damage done by sequence of returns risk, consider the awful 2007-2009 bear market. Picture a couple at the start of 2008 with a $1 million portfolio, held 60% in equities and 40% in fixed-income investments. They arrange to retire at the end of the year. This will prove a costly decision. The bond market (in shorthand, the S&P U.S. Aggregate Bond Index) gains 5.7% in 2008, but the stock market (in shorthand, the S&P 500) dives -37.0%. As a result, their $1 million portfolio declines to $800,800 in just one year. (2)

Here is a good chart from investmentmoats.com which helps visually explain what how early negative returns in retirement could potentially impact final portfolio value:

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If you are about to retire, do not dismiss this risk.

If you are far from retirement, keep saving and investing knowing that the sequence of returns will have its greatest implications as you make your retirement transition.

Sources

  1. blackrock.com/pt/literature/investor-education/sequence-of-returns-one-pager-va-us.pdf
  2. kiplinger.com/article/retirement/T047-C032-S014-is-your-retirement-income-in-peril-of-this-risk.html
  3. http://investmentmoats.com/budgeting/retirement-planning/explaining-sequence-of-return-risk-and-possible-solutions/
  4. https://retireone.com/sequence-of-returns/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

How to Balance Portfolio Risk and Reward as You Get Closer to Retirement

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As you approach retirement, it may be time to pay more attention to investment risk.

If you are an experienced investor, you have probably fine-tuned your portfolio through the years in response to market cycles or in pursuit of a better return. As you approach or enter retirement, is another adjustment necessary?

Some investors may think they can approach retirement without looking at their portfolios. Their investment allocations may be little changed from what they were 10 or 15 years ago. Because of that inattention (and this long bull market), their invested assets may be exposed to more risk than they would like.

Rebalancing your portfolio with your time horizon in mind is only practical.

Consider the nature of equity investments: they lose or gain value according to the market climate, which at times may be fear driven. The larger your equities position, the larger your losses could be in a bear market or market disruption. If this kind of calamity happens when you are newly retired or two or three years away from retiring, your portfolio could be hit hard if you are holding too much stock. What if it takes you several years to recoup your losses? Would those losses force you to compromise your retirement dreams?

As certain asset classes outperform others over time, a portfolio can veer off course.

The asset classes achieving the better returns come to represent a greater percentage of the portfolio assets. The intended asset allocations are thrown out of alignment.1

Just how much of your portfolio is held in equities today? Could the amount be 70%, 75%, 80%? It might be, given the way stocks have performed in this decade. As a StreetAuthority comparison notes, a hypothetical portfolio weighted 50/50 in equities and fixed-income investments at the end of February 2009 would have been weighted 74/26 in favor of stocks by the end of February 2018. (1)

Ideally, you reduce your risk exposure with time.

With that objective in mind, you regularly rebalance your portfolio to maintain or revise its allocations. You also may want to apportion your portfolio, so that you have some cash for distributions once you are retired.

Rebalancing could be a good idea for other reasons.

Perhaps you want to try and stay away from market sectors that seem overvalued. Or, perhaps you want to find opportunities. Maybe an asset class or sector is doing well and is underrepresented in your investment mix. Alternately, you may want to revise your portfolio in view of income or capital gains taxes.

Rebalancing is not about chasing the return, but reducing volatility.

The goal is to manage risk exposure, and with less risk, there may be less potential for a great return. When you reach a certain age, though, “playing defense” with your invested assets becomes a priority.

Sources

  1. nasdaq.com/article/how-to-prepare-your-income-portfolio-for-volatility-cm939499

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Why Medicare Should Be Part of Your Retirement Planning

person using black blood pressure monitor

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The premiums and coverages vary, and you must realize the differences.

Medicare takes a little time to understand.

As you approach age 65, familiarize yourself with its coverage options and their costs and limitations.

Certain features of Medicare can affect health care costs and coverage.

Some retirees may do okay with original Medicare (Parts A and B), others might find it lacking and decide to supplement original Medicare with Part C, Part D, or Medigap coverage. In some cases, that may mean paying more for senior health care per month than you initially figured.

How much do Medicare Part A and Part B cost, and what do they cover?

Part A is usually free; Part B is not. Part A is hospital insurance and covers up to 100 days of hospital care, home health care, nursing home care, and hospice care. Part B covers doctor visits, outpatient procedures, and lab work. You pay for Part B with monthly premiums, and your Part B premium is based on your income. In 2018, the basic monthly Part B premium is $134; higher-earning Medicare recipients pay more per month. You also typically shoulder 20% of Part B costs after paying the yearly deductible, which is $183 in 2018.(1)

The copays and deductibles linked to original Medicare can take a bite out of retirement income.

In addition, original Medicare does not cover dental, vision, or hearing care, or prescription medicines, or health care services outside the U.S. It pays for no more than 100 consecutive days of skilled nursing home care. These out-of-pocket costs may lead you to look for supplemental Medicare coverage and to plan other ways of paying for long-term care.(1,2)

Medigap policies help Medicare recipients with some of these copays and deductibles.

Sold by private companies, these health care policies will pay a share of certain out-of-pocket medical costs (i.e., costs greater than what original Medicare covers for you). You must have original Medicare coverage in place to purchase one. The Medigap policies being sold today do not offer prescription drug coverage. A monthly premium on a Medigap policy for a 65-year-old man may run from $150-250, so keep that cost range in mind if you are considering Medigap coverage.(2,3)

In 2020, the two most popular kinds of Medigap plans – Medigap C and Medigap F – will vanish.

These plans pay the Medicare Part B deductible, and Medigap policies of that type are being phased out due to the Medicare Access and CHIP Reauthorization Act. Come 2019, you will no longer be able to enroll in them.(4)

Part D plans cover some (certainly not all) prescription drug expenses.

Monthly premiums are averaging $33.50 this year for these standalone plans, which are offered by private insurers. Part D plans currently have yearly deductibles of less than $500.(2,5)

Some people choose a Part C (Medicare Advantage) plan over original Medicare.

These plans, offered by private insurers and approved by Medicare, combine Part A, Part B, and usually Part D coverage and often some vision, dental, and hearing benefits. You pay an additional, minor monthly premium besides your standard Medicare premium for Part C coverage. Some Medicare Advantage plans are health maintenance organizations (HMOs); others, preferred provider organizations (PPOs). (6)

If you want a Part C plan, should you select an HMO or PPO?

About two-thirds of Part C plan enrollees choose HMOs. There is a cost difference. In 2017, the average HMO monthly premium was $29. The average regional PPO monthly premium was $35, while the mean premium for a local PPO was $62.(6)

HMO plans usually restrict you to doctors within the plan network.

If you are a snowbird who travels frequently, you may be out of the Part C plan’s network area for weeks or months and risk paying out-of-network medical expenses from your savings. With PPO plans, you can see out-of-network providers and see specialists without referrals from primary care physicians.(6)

Now, what if you retire before age 65?

COBRA aside, you are looking at either arranging private health insurance coverage or going uninsured until you become eligible for Medicare. You must also factor this possible cost into your retirement planning. The earliest possible date you can arrange Medicare coverage is the first day of the month in which your birthday occurs.(5)

Medicare planning is integral to your retirement planning.

Should you try original Medicare for a while? Should you enroll in a Part C HMO with the goal of keeping your overall out-of-pocket health care expenses lower? There is also the matter of eldercare and the potential need for interim coverage (which will not be cheap) if you retire prior to 65. Discuss these matters with the financial professional you know and trust in your next conversation.

Sources

  1. medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html
  2. cnbc.com/2018/05/03/medicare-doesnt-cover-everything-heres-how-to-avoid-surprises.html
  3. medicare.gov/supplement-other-insurance/medigap/whats-medigap.html
  4. fool.com/retirement/2018/02/05/heads-up-the-most-popular-medigap-plans-are-disapp.aspx
  5. money.usnews.com/money/retirement/medicare/articles/your-guide-to-medicare-coverage
  6. cnbc.com/2017/10/18/heres-how-to-snag-the-best-medicare-advantage-plan.html 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Do Rising Interest Rates Mean for You? (The Upside and The Downside)

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Interest rates are rising.

The Federal Reserve has hiked the benchmark interest rate twice this year, and it expects to make two more hikes before 2019 arrives. It projects the federal funds rate will approach 3.5% by 2020. (1)

Are you retired, or about to retire?

You will be happy to know rates of return are improving on fixed-income investments. Take 1-year certificates of deposit, for example. Back in 2015, most of them were yielding 0.25%. Now their return is around 2.3%. Money market funds and even deposit accounts should soon feature slightly higher interest rates. The downside of this? If fixed-income investments grow increasingly attractive, investors may pull money out of equities. (4)

Do you have a lot of credit card debt?

The APR on your credit cards should continue to rise in response to the Fed’s moves. (2)

Do you have a fixed-rate mortgage?

You are unaffected. If you have an adjustable-rate mortgage, your payments may reset higher at the start of the next adjustment period. (3)

Are you a business owner seeking a short-term loan?

Try to arrange financing now. The cost of short-term borrowing increases when the Fed hikes. (2)

Do you own a business that sells high-end merchandise?

Your sales may be impacted. Higher interest rates force consumers to put more money toward debt. That means less disposable income to spend on the good life.

Sources

  1. bondbuyer.com/articles/fed-raises-rates-officials-boost-outlook-to-four-hikes-in-2018
  2. smallbusiness.chron.com/interest-rates-affect-businesses-67152.html
  3. tinyurl.com/y74tqh6q
  4. marketwatch.com/story/rising-interest-rates-give-retirees-good-news-and-bad-news-2018-06-20

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Women Need to Know Before Deciding to Retire: Challenges & Opportunities

thinking woman in white jacket and white scoop neck shirt blue denim jeans sitting on brown wooden bench beside green trees during daytime

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A practical financial checklist for the future.

When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration estimates that today’s average 65-year-old female will live to age 86.6. Given these projections, it appears that a retirement of 20 years or longer might be in your future. (1,2)

Are you prepared for a 20-year retirement?

How about a 30- or 40-year retirement? Don’t laugh; it could happen. The SSA projects that about 25% of today’s 65-year-olds will live past 90, with approximately 10% living to be older than 95. (2)

How do you begin?

How do you draw retirement income off what you’ve saved – how might you create other income streams to complement Social Security? How do you try and protect your retirement savings and other financial assets?

Talking with a financial professional may give you some good ideas.

You want one who walks your walk, who understands the particular challenges that many women face in saving for retirement (time out of the workforce due to childcare or eldercare, maintaining financial equilibrium in the wake of divorce or death of a spouse).

As you have that conversation, you can focus on some of the must-haves.

Plan your investing.

If you are in your fifties, you have less time to make back any big investment losses than you once did. So, protecting what you have is a priority. At the same time, the possibility of a 15-, 20-, or even 30- or 40-year retirement will likely require a growing retirement fund.

Look at long-term care coverage.

While it is an extreme generalization to say that men die sudden deaths and women live longer; however, women do often have longer average life expectancies than men and can require weeks, months, or years of eldercare. Medicare is no substitute for LTC insurance; it only pays for 100 days of nursing home care and only if you get skilled care and enter a nursing home right after a hospital stay of 3 or more days. Long-term care coverage can provide a huge financial relief if and when the need for LTC arises. (1,3)

Claim Social Security benefits carefully.

If your career and health permit, delaying Social Security is a wise move for single women. If you wait until full retirement age to claim your benefits, you could receive 30-40% larger Social Security payments as a result. For every year you wait to claim Social Security, your monthly payments get about 8% larger. (4)

Above all, retire with a plan. Have a financial professional who sees retirement through your eyes help you define it on your terms, with a wealth management approach designed for the long term.

Sources

  1. cdc.gov/nchs/products/databriefs/db293.htm
  2. ssa.gov/planners/lifeexpectancy.htm
  3. medicare.gov/coverage/skilled-nursing-facility-care.html
  4. thestreet.com/retirement/how-to-avoid-going-broke-in-retirement-14551119

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What a Target-Date Retirement Mutual Fund Is and How to Use It Properly

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Are these low-maintenance investments vital to retirement planning, or overrated?

Do target-date funds represent smart choices, or just convenient ones?

These funds have become ubiquitous in employer-sponsored retirement plans and their popularity has soared in the past decade. According to Morningstar, net inflows into target-date funds tripled during 2007-13. Asset management analysts Cerulli Associates project that 63% of all 401(k) contributions will be directed into TDFs by 2018. (1,2)

Fans of target-date funds praise how they have simplified investing for retirement. Still, they have a central problem: their leading attribute may also be their biggest drawback.

How do TDFs work?

The idea behind a target-date fund is to make investing and saving for retirement as low-maintenance as possible. TDFs feature gradual, automatic adjustment of asset allocations in light of an expected retirement date, along with diversification across a wide range of asset classes. An investor can simply “set it and forget it” and make ongoing contributions to the fund with the confidence that its balance of equity and fixed-income investments will become more risk-averse as retirement nears.

In a sense, a TDF starts out as one style of fund for an investor and mutates into another. When he or she is young, it is an aggressive growth fund, with as much as 90% of the inflows assigned to equities. By the time the envisioned retirement date rolls around, the allocation to equities and fixed-income investments may be split closer to 50/50. (2)

With such long time horizons, TDFs are truly buy-and-hold investments.

That has definite appeal for people who lack the time or inclination to take a hands-on approach to retirement planning. TDFs also usually have low turnover, with some distributions taxed as long-term capital gains. (1)

Are pre-retirees relying too heavily on TDFs?

Putting retirement investing on “autopilot” can have a downside – and that may be worth an alarm or two, given Vanguard’s forecast that 58% of its retirement plan participants (and 80% of its new plan participants) will have all of their retirement plan assets in TDFs by 2018. So in noting the merits of TDFs, we must also look at their demerits. (2)

The asset allocation of a target-date fund is not exactly dynamic.

As it is geared to a time horizon rather than current market conditions, TDF investors may wince when a severe bear market arrives – it could be a case of “set it & regret it.” They will need the patience to ride such downturns out. If they sell, they defeat the purpose of owning their TDF in the first place.

Additionally, some investors are conservative well before they reach retirement age.

A fortysomething risk-averse investor might not like having a clear majority of his or her TDF assets held in equities.

An investor will not be able to perform any tax loss harvesting with assets invested in a TDF (that is, selling “losers” in a portfolio to offset gains made by “winners”) and if all of his or her retirement savings happen to be in the TDF, you have to pull money out of the TDF to put it in other types of investments that might generate tax savings. (1)

Fees can be high

Because most TDFs are funds of funds – that is, multiple mutual funds brought together into one giant one – it may mean two layers of fees. (2)

The glide path is very important.

All TDFs have a glide path, the glide path being the rate or pace at which the asset allocation changes from aggressive toward conservative. With some TDFs, the glide path ends at retirement and the asset allocation approaches 100% cash. With others, the fund keeps gliding past a retirement date with the result that the retiree maintains a foot in the equities market – potentially very useful in the face of longevity risk, or as it is popularly known, the risk of outliving your money. The glide path of the TDF should be agreeable to the investor. The problem is that an investor may agree with it more at age 40 than at age 60. (1)

Here is a sample equity glide path for Vanguard’s target date funds:

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One feature can make TDFs even more appealing.

In 2014, the IRS and the Treasury Department permitted TDFs held in 401(k) plans to add a lifetime income option. That let a TDF investor receive a pension-like income beginning at the fund’s target date. Companies sponsoring 401(k)s can even elect to make such TDFs the default plan investment; that is, employees who wanted to direct their money into other investment vehicles would have to inform their employers that they were opting out.

Younger retirement savers should take a look at TDFs.

If you are not enrolled in one already, you may want to weigh their pros and cons. While not exactly “the cure” for America’s retirement savings problem, they are deservedly popular.

Source

  1. money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/04/07/3-questions-to-ask-before-choosing-target-date-funds
  2. time.com/money/3616433/retirement-income-401k-new-solution/
  3. nextavenue.org/article/2015-02/target-date-funds-pros-and-cons
  4. https://www.vanguard.com/pdf/s167.pdf

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Planning Income For Life: Using The Bucket Strategy in Retirement

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Constructing a portfolio this way may help you ride through a bear market in retirement.

The bucket approach may help you through different market cycles in retirement.

This investing strategy, credited to a Florida financial planner named Harold Evensky, has simple and complex variations. It assigns fixed-income and equity investments to different “buckets” with the goal of providing sufficient cash flow to retirees during different stages of their “second acts.” (1,2)

The simplest version involves just two buckets.

One holds the equivalent of 1-5 years of cash reserves (in deposit accounts and/or fixed-income investments), and the other holds everything else in the investment portfolio. When you need to fund your expenses, you turn to the cash and the fixed-income vehicles and leave equities untouched. Rebalancing your portfolio (that is, selling investments in an overweighted asset class) lets you increase the size of your cash bucket. (1,2)

Other versions of the bucket approach have longer time horizons.

In one variation designed to be used for at least 25 years, a cash reserve bucket is created to fund the first two years of retirement, its size approximating 10% of the portfolio; the cash comes from FDIC-insured sources or Treasuries. A second bucket, intended to generate somewhat greater income, is planned for the rest of the first decade of retirement; this bucket is filled with longer-duration, fixed-income investments and comprises about 35% of the portfolio. The third bucket (the other 55%) is designed for the years afterward and contains a sizable equities position; the goal here is to realize some growth and compounding for a decade, then tap into that bucket for income. (1,2)

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In glimpsing the details of the bucket approach, you can also see the big picture.

Suppose a bear market occurs just as you retire. Since your retirement income strategy pulls cash from deposit accounts and fixed-income investments first, your equity positions have time to rebound. You have a chance to avoid selling low (and selling off part of your retirement fund).

Is the bucket approach foolproof?

No, but no investing strategy is. In the worst-case scenario, you drain 100% of the cash bucket(s) and end up with an all-equities portfolio. That is hardly what you want in retirement. Bucket allocations must be carefully calculated, and periodic bucket rebalancing is also needed.

The bucket approach may have both financial and psychological merits.

Most retirees use the 4% rule (or something close) when withdrawing income: they take distributions from various accounts and asset classes, perhaps with little regard for tax efficiency. If Wall Street stumbles and their portfolios shrink, they may panic and make moves they will later regret – such as selling low, abandoning stocks, or even running toward alternative investments in desperation.

When you use a bucket approach, you first turn to cash and/or liquid securities for retirement income rather than equities. Psychologically, you know that if a bear market arrives early in your retirement, your equity holdings will have some time to recover. This knowledge is reassuring, and it may dissuade you from impulsive financial decisions.

Sources

  1. seattletimes.com/business/about-to-retire-heres-how-to-cope-with-stock-market-shocks/
  2. news.morningstar.com/articlenet/article.aspx?id=839521
  3. https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-retirement

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

7 Ways to Replace Your Income In Retirement

Thinking about retirement? Wondering where your income will be coming from. Here are the top 7 sources of income for your retirement:

 

INCOME SOURCE #1

SOCIAL SECURITY

Provides Foundation for Average Person’s Retirement

Social Security provides the foundation for the average person’s retirement income. So long as you’ve paid into the system, you will receive it. It’s a good starting point, but unfortunately it usually isn’t enough to help you maintain the lifestyle you may be accustomed to.

INCOME SOURCE #2

DEFINED BENEFIT PENSIONS

Employer Funds This Plan and Provides Lifetime Income

If you have a pension, congrats. Unfortunately pensions are becoming a thing of the past as the burden of retirement funding is falling on the employee. In a pension, the employer funds the plan and agrees to provide you a specified amount of lifetime income. This is a direct contrast to #3 the defined contribution plan

INCOME SOURCE #3

DEFINED CONTRIBUTION PLANS

These Are Your 401(k)’s and 403(b)’s

These are designed to help you , the employee, save for your retirement. They can be funded by both you and your employer but it is your responsibility to contribute and choose the investments. During retirement it is up to you to figure out how to convert these funds into retirement income

INCOME SOURCE #4

IRAs

Funded With Money You Contribute or Rollover

IRAs are individual retirement accounts funded with money you contribute or with money you have rolled over from an old employer’s retirement plan. You can begin withdrawing money from the account for retirement without penalty after you turn 59 1/2

INCOME SOURCE #5

ANNUITIES

Can Provide a Fixed or Variable Amount of Money

Annuities are insurance products that can provide a fixed or variable amount of money during retirement. You do give up some control over your money, however they can help you create guaranteed income for life.

INCOME SOURCE #6

TAXABLE INVESTMENTS

Often Held in Savings or Brokerage Accounts

These are any investments you hold outside your retirement plans. These assets could be held in savings accounts or brokerages accounts. Depending on how have this money invested you can use the dividends, interest and capital gains on these investments to help create retirement income.

INCOME SOURCE #7

JOBS

You May Still Need or Want to Work in Retirement

Even though you are retired you may still want or need to work. If you are healthy and able to still work, a job can help with your retirement income strategy.

 

What Is Covered Under Each Part of Medicare

Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover, and where they come from.

Medicare was created in 1965 as a national health insurance program for seniors. It was made up of two original components, Part A and Part B.

Part A = Hospital Insurance

National Health Insurance Program for Seniors

It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long, and only under certain parameters.

Part B = Medical Insurance

Part B Covers:

  • Physical Therapy
  • Physician Services
  • Medical Equipment
  • Medical Services

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.

Keep in mind, Part B isn’t free. You pay monthly premiums to get it along with a yearly deductible. The premiums vary according to the Medicare recipient’s income level.

Part C = Medicare Advantage

Part C Covers:

  • Prescription Drug Coverage
  • Vision
  • Dental

Part C are medicare advantage plans. Insurance companies offer these Medicare-approved plans. Part C plans offer seniors all the benefits of Part A and Part B and more: many feature prescription drug coverage, vision and dental benefits. To enroll in a Part C plan, you need have Part A and Part B coverage in place.

Medigap

Addresses Gaps in Part A & B Coverage

Medigap Covers:

  • Copayments
  • Coinsurance
  • Deductibles

Medigap plans address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you.

Part D = Prescription Drug Plans

While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare.

Visit Medicare.Gov for More Info

I hope this helps to demystify medicare a bit. There is a lot more to know about these plans but this should be enough to get you started in the right direction. If you need more information be sure to visit Medicare.Gov.


Sources:

  1. This material was prepared, in part, by MarketingPro, Inc.
  2. mymedicarematters.org/coverage/parts-a-b/whats-covered/
  3. medicare.gov/coverage/skilled-nursing-facility-care.html
  4. medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html
  5. tinyurl.com/hbll34m
  6. medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/when-can-i-join-a-health-or-drug-plan.html
  7. medicare.gov/supplement-other-insurance/medigap/whats-medigap.html
  8. ehealthinsurance.com/medicare/part-d-cost
  9. medicare.gov/part-d/coverage/part-d-coverage.html
  10. medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/five-star-enrollment/5-star-enrollment-period.html

 

5 Reasons You’re Not Ready To Retire (And What To Do About It)

Thinking about retirement? Not quite sure if you are ready? Here’s what you can do to get ready for a successful retirement:

REASON #1:

YOU DON’T HAVE A PLAN

Know Your Expenses And How You Will Pay For Them

This is a sure sign you are not ready. You need to know what your expenses are during retirement and how you are going to pay for them. Without a well thought out plan there is no way you are ready to retire. So, spend the time to build your plan or sit down with a CERTIFIED FINANCIAL PLANNER™ to help you.

REASON #2:

YOU HAVE TOO MUCH DEBT

Difficult to Pay Off When Living on a Fixed Income

Too much debt can really derail your retirement plan. Once you retire and are living on a fixed income it will become increasingly difficult to pay that debt off. In addition, too much debt can make dealing with financial emergencies nearly impossible.

REASON #3:

YOU HAVEN’T BUILT A RETIREMENT PORTFOLIO

You Need to Convert Your Savings Into Lifetime Income

During the accumulation phase of your retirement savings years, your goal is to save and grow your portfolio. As you enter retirement you need to refocus that goal and create a decumulation portfolio. Basically you need to convert your savings into lifetime income. In order to do this you’ll need to change your investment strategy. If you are still investing your portfolio with the sole purpose of growing it than you are probably not ready for retirement.

REASON #4:

YOU AND YOUR SPOUSE DON’T AGREE

The Change in Income Can Affect Your Lifestyle

So far I’ve just been talking about the financial aspects of retirement, but there is more to it than that. It’s important that you and your spouse are on the same page. Maybe you are ready but they are not. The change in income can affect your lifestyle so you want to make sure that you talk about this change and work through the issues this may cause before you decide to retire.

REASON #5:

YOU DON’T KNOW WHAT YOU’LL DO

This Can Lead to Overspending or Depression

Once you retire you will have a lot of time on your hands. Have you thought about what you will do with it? Not having a gameplan for your time can lead to overspending and even depression. Make sure you think through what you want to do, how you will pay for it and if it is really feasible. If you haven’t given this any thought, you are definitely not ready.


Sources:
1. This material was prepared, in part, by MarketingPro, Inc.