If you’ve been carefully building up your retirement savings, the daily headlines featured on the news and in the papers may make you feel as though you should stop contributing to your retirement fund.  After all, with an estimated loss of $500 billion to $2 trillion from retirement accounts in the United States alone, many individuals feel that any contributions made towards their 401k or investment strategies is money lost!

However, refusing to contribute to your retirement savings is exactly what you should not during this time! 

Despite the bear market, your retirement plans still need to remain a top priority, since your savings are greatly affected by time; in other words, if you put off contributing for a few years, you could lose tens of thousands of dollars!

And that’s not the only dismal news.  Many baby boomers are planning to count their Social Security as a stable monthly income; however, given the sheer size of the baby boomer generation, Social Security could become a thing of the past as the government becomes more financially squeezed. 

If you want to protect your retirement savings, it’s important to be proactive even during a time of financial uncertainty.  Check out a free online retirement calculator to determine exactly how much you’ll need to save in order to meet your goals; if you find that you won’t have enough at your desired retirement age, consider retiring later or getting another source of income to make up for the shortcomings.  Additionally, if you’re currently living beyond your means, straighten out now!  Budget your income, and make sure to emphasize the importance of contributing to your retirement funds – it should be as essential as paying the mortgage or utility bills!  Besides, contributions to your retirement fund reduce your taxable income, so you’ll definitely make up for it later in the year.

Most importantly, find a savvy investment advisor who is on the same page as you in regards to your retirement plans.  Your investment advisor should help you to maximize your savings as much as possible, while still compiling your portfolio with safe investments.  Remember, your investment advisor should work based on your goals, not the other way around! Learn more about such plans at www.iamllc.biz.

For more information on smart retirement planning, visit www.kenhimmler.com, the IRA and 401K experts!

Authored by Ken Himmler, Sr.

Technorati Tags: investment strategies, retirement, retirement age, retirement calculator, retirement planning, retirement savings

Given the current state of the economy, you might be surprised to learn that real estate investment is still a viable financial option for retirement, especially as the housing market continually dips to new dramatic lows.  However, if you’re smart about your investment research – and are far away enough from retirement to wait long-term for your investment to appreciate – then property investment is still a smart retirement move to make.

Real estate investment can help you to build equity and increase your net worth; additionally, real estate can also be let to individuals and families in order to build a secondary revenue stream.  Since all real estate eventually appreciates over time – it’s important to remember this, even in the midst of an economic recession – you’ll be able to borrow against this equity to fund additional investment options, including shares, stocks and other property investments. 

However, don’t just wait for your real estate to gain in value; take advantage of your property by renting it out to trustworthy tenants.  It’s a great way to gain another significant income stream, which can then be used to fund your Roth IRA or other retirement options.  Be sure to charge enough monthly rent to cover any mortgage fees, maintenance costs and additional expenses that usually arise as a landlord.  

Additionally, you can also opt to flip houses for a profit.  If you have a good credit score and can afford a fairly large down payment, take advantage of the plunging housing market by buying properties that look to rebound in the future.  You’ll walk away with a nice pocket full of cash, which can then be used to make your retirement more comfortable.

Before you dabble in real estate investment, however, make sure you take the time to research the local market and get advice from a professional.  These steps will guarantee that your investments turn into viable profits for your retirement fund. Visit www.kenhimmler.com for more retirement advice.

Authored by Kenneth Himmler, Sr.

Technorati Tags: financial option, real estate investment, retirement, retirement income

Before you retire, take the time to figure out just how much money you’ll need for retirement. One of the biggest concerns for retirees is whether their retirement savings will last the rest of their lives–will they run out of money? Social Security is not the guaranteed source of retirement income it once was, and people generally don’t want to depend on public assistance or their children during their retirement years.  Whether you might run out of money hinges upon several factors; how much money you’ve saved, how long you need your savings to last, and how quickly you spend your money, to name a few.  You’ll be better off if you can tackle these issues before retirement by maximizing your retirement nest egg.  But, if you are entering retirement and you still have concerns about making your savings last, there are several steps you can take even at this late date.  The following are tips and ideas to help make sure you don’t outlive your money.

Tips to help make your savings last longer

You may be able to stretch your retirement savings by adjusting your spending habits.  You might be able to get by with only minor changes to your spending habits, but if your retirement savings are far below your projected needs, drastic changes may be necessary.  Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return.

Make major changes to your spending patterns

If you have major concerns about running out of money, you may need to change your spending patterns drastically in order to make your savings last.  The following are some suggested changes you may choose to implement:

·         Consolidate any outstanding loans to reduce your interest rate or monthly payment. Consider using home equity financing for this purpose.

·         If your home mortgage is paid in full, weigh the pros and cons of a reverse mortgage to increase your cash flow.

·         Reduce your housing expenses by moving to a less expensive home or apartment.

·         If you are still paying off your home mortgage, consider refinancing your mortgage if interest rates have dropped since you took the loan.

·         Sell your second car, especially if it is only used occasionally.

·         Shop around for less expensive insurance.  You’d be amazed how much you can save in a year (and even more over a period of years) by switching to insurance policies that have lower premiums, but that still provide the coverage you need.  Life and health insurance are the two areas where you probably stand to save the most, since premiums can go up dramatically with age and declining health.  Consult your insurance professional.

·         Have your child enroll in or transfer to a less expensive college (a state university as opposed to a private one, for example).  This can be a particularly good idea if the cheaper college has a strong reputation and can provide a quality education.  You could save significantly over the course of just two or three years.

Make minor changes to your spending patterns

Minor changes can also make a difference.  You’d be surprised how quickly your savings add up when you implement a written budget and make several small changes to your spending patterns.  If you have only minor concerns about making your retirement savings last, small changes to your spending habits may be enough to correct this problem.  The following are several ideas you might consider when adjusting your spending patterns:

·         Buy only the auto and homeowners insurance you really need.  For example, consider canceling collision insurance on an older vehicle and self-insure instead.  This may not save you a bundle, but every little bit helps. Of course, if you do have an accident, the amount you saved on your premium could be wiped out very quickly.

·         Shop for the best interest rate whenever you need a loan.

·         Switch to a lower interest credit card.  Transfer your balances from higher interest cards and then cancel the old accounts.

·         Eat dinner at home, and carry “brown-bag” lunches instead of eating out.

·         Consider buying a well-maintained used car instead of a new car.

·         Subscribe to the magazines and newspapers you read instead of paying full price at the newsstand.

·         Where possible, cut down on utility costs and other household expenses.

·         Get books and movies from your local library instead of buying or renting them.

·         Plan your expenditures and avoid impulse buying.

Manage IRA distributions carefully

If you’re trying to stretch your savings, you’ll want to withdraw money from your IRA as slowly as possible.  Not only will this conserve the principal balance, but it will also give your IRA funds the opportunity to continue growing tax deferred during your retirement years.  However, bear in mind that you must start taking required minimum distributions (RMDs) from traditional IRAs (but not Roth IRAs) after age 70½.

Use caution when spending down your investment principal

Don’t assume you’ll be able to live on the earnings from your investment portfolio and your retirement account for the rest of your life.  At some point, you will probably have to start drawing on the principal.  You’ll want to be careful not to spend too much too soon.  This can be a great temptation particularly early in your retirement, because the tendency is to travel extensively and buy the things you couldn’t afford during your working years.  A good guideline is to make sure you don’t spend more than 5 percent of your principal during the first five years of retirement.  If you whittle away your principal too quickly, you won’t be able to earn enough on the remaining principal to carry you through the later years.

Portfolio review

Your investment portfolio will likely be one of your major sources of retirement income.  As such, it is important to make sure that your level of risk, your choice of investment vehicles, and your asset allocation are appropriate considering your long-term objectives.  While you don’t want to lose your investment principal, you also don’t want to lose out to inflation.  A review of your investment portfolio is essential in determining whether your money will last.

Continue to invest for growth

Traditional wisdom holds that retirees should value the safety of their principal above all else.  For this reason, some people totally shift their investment portfolio to fixed-income investments, such as bonds and money market accounts, as they approach retirement.  The problem with this approach is that it completely ignores the effects of inflation.  You will actually lose money if the return on your investments does not keep up with inflation.  The allocation of your portfolio should generally become progressively more conservative as you grow older, but it is wise to consider maintaining at least a portion of your portfolio in growth investments.  Many financial professionals recommend that you follow this simple rule of thumb: The percentage of stocks or stock mutual funds in your portfolio should equal approximately 100 percent minus your age.  So, for example, at age 60 your portfolio should contain 40 percent stocks and stock funds (100% - 60% = 40%).  Obviously, you should adjust this rule according to your risk tolerance and other personal factors.

Basic rules of investment still apply during retirement

Although you will undoubtedly make changes to your investment portfolio as you reach retirement age, you should still bear in mind the basic rules of investing. Diversification and asset allocation remain important as you make the transition from accumulation to utilization.

Laddering investments

Laddering investments is a method of controlling your investments to avoid having them all mature at the same time.  The principle of laddering is simple: Stagger the maturity dates of the associated deposits or investments so that they mature in different time periods.  You can apply laddering to any type of deposit, loan, or security having a specified maturity date, such as bonds.

Laddering can reduce interest rate risk

Interest rates rise and fall in response to many factors. Consequently, they are largely unpredictable. Whether you apply laddering to a cash reserve or use it in portfolio investing, minimizing interest rate risk is one of its most important benefits.  Thus, you are unlikely to be consistently locked into lower-than-market interest rates.

A single large deposit or investment that matures during an interest rate slump will leave you with two undesirable choices regarding reinvestment.  You can hold the money in a low-interest savings account until rates improve or roll it over at the now low rate.  However, a later rebound of interest rates can catch you locked into the prior low rate for an extended period.  Breaking your investment into smaller pieces and laddering maturity dates allows you to avoid this situation.

How do you do it?

When you first begin your laddering strategy, you will need to acquire several term deposits (e.g., certificates of deposit) or securities with specified maturity dates. Initially, your individual investments should have terms of varying lengths, and you should intend to hold them until maturity.  This will set up your staggered maturity dates.  For example, you might purchase three separate certificates of deposit–one with a three-month term, one with a six-month term, and one with a nine-month term.  When you reinvest as your CDs mature, your new investments should each be of the same length to perpetuate the staggering, or laddering, of maturity dates.  Keep your laddering strategy intact by promptly redepositing each maturing investment for a new term.

Long-term care insurance

A catastrophic injury or debilitating disease that requires you to enter a nursing home can destroy your best-laid financial plans.  You will need to decide whether to take out a long-term care insurance policy that may cover nursing home care, home health care, adult day care, respite care, and residential care.  If you decide to purchase such a policy, you’ll need to choose the best time to do so. Typically, unless you have a chronic condition that makes you more likely to require long-term care, there is generally no reason to begin thinking about this issue before age 50.  Usually, there is no reason to purchase such a policy before age 60.

Won’t Medicare pay for any long-term care expenses you might incur?

Contrary to popular belief, Medicare will not pay for most long-term care expenses, and neither will any health insurance you may have through your employer.  Medicare benefits are only available if you enter a nursing home within 30 days after a hospital stay of three days or more.  Even then, Medicare typically will only provide full coverage for 20 days of skilled nursing home care in Medicare-approved facilities. (Most people do not require skilled nursing care, as this is generally defined as the care of a physician or registered nurse).  After 20 days, Medicare will cover part of the cost of care.  You will pay $128 per day in 2008, and Medicare will cover the rest.  No further coverage is available after 100 days.  Studies show that approximately 40 percent of all people over age 65 will require nursing home care sometime before they die.  The average nursing home stay is about 462 days, and if you are part of that 40 percent, your long-term care expenses could easily use up your hard-earned savings, leaving you with little or no money on which to live.

What about Medicaid?

Medicaid is sponsored jointly by federal and state governments.  Each state’s Medicaid program is required to provide certain minimum medical benefits to qualified persons, including inpatient hospital services, nursing home care, and physicians’ services.  States also have the option of providing additional services. All states require proof of financial need.  However, each state has different rules regarding benefits and eligibility, so it is essential that you understand your state’s Medicaid program before you decide that Medicaid will provide adequate long-term care coverage.

How much does long-term care insurance cost?

Unfortunately, long-term care insurance can be quite expensive.  If you begin coverage when you are younger, premiums will be more reasonable, but you will likely be paying for the insurance for a much longer period of time. Although the cost of LTCI varies depending on your age, the benefits, and the insurer you choose, a person aged 65 to 69 purchasing an individual policy can expect to pay premiums of between $2,000 and $10,000 per year.

For more information on financial planning, visit www.iamllc.biz   

Technorati Tags: investing, IRA distributions, long term care insurance, medicare, portfolio, retirement, savings

You’ve worked hard your whole life anticipating the day you could finally retire.  Well, that day has arrived!  But with it comes the realization that you’ll need to carefully manage your assets so that your retirement savings will last.

Review your portfolio regularly

Traditional wisdom holds that retirees should value the safety of their principal above all else.  For this reason, some people shift their investment portfolio to fixed-income investments, such as bonds and money market accounts, as they approach retirement. The problem with this approach is that you’ll effectively lose purchasing power if the return on your investments doesn’t keep up with inflation.

While generally it makes sense for your portfolio to become progressively more conservative as you grow older, it may be wise to consider maintaining at least a portion of your portfolio in growth investments.

Spend wisely

Don’t assume that you’ll be able to live on the earnings generated by your investment portfolio and retirement accounts for the rest of your life.  At some point, you’ll probably have to start drawing on the principal.  But you’ll want to be careful not to spend too much too soon. This can be a great temptation, particularly early in retirement.

A good guideline is to make sure your annual withdrawal rate isn’t greater than 4% to 6% of your portfolio.  (The appropriate percentage for you will depend on a number of factors, including the length of your payout period and your portfolio’s asset allocation.)  Remember that if you whittle away your principal too quickly, you may not be able to earn enough on the remaining principal to carry you through the later years.

Understand your retirement plan distribution options

Most pension plans pay benefits in the form of an annuity.  If you’re married you generally must choose between a higher retirement benefit paid over your lifetime, or a smaller benefit that continues to your spouse after your death.  A financial professional can help you with this difficult, but important, decision. For more advice on this topic, also visit http://kenhimmler.com/.

Other employer retirement plans like 401(k)’s typically don’t pay benefits as annuities; the distribution (and investment) options available to you may be limited. This may be important because if you’re trying to stretch your savings, you’ll want to withdraw money from your retirement accounts as slowly as possible.  Doing so will conserve the principal balance, and will also give those funds the chance to continue growing tax deferred during your retirement years.

Consider whether it makes sense to roll your employer retirement account into a traditional IRA. IRAs usually offer greater withdrawal flexibility than employer plans.  A rollover to an IRA also allows you to consolidate your retirement assets.

Plan for required distributions

Keep in mind that you must generally begin taking minimum distributions from employer retirement plans and traditional IRAs when you reach age 70½, whether you need them or not. Plan to spend these dollars first in retirement.

If you own a Roth IRA, you aren’t required to take any distributions during your lifetime.  Your funds can continue to grow tax deferred, and qualified distributions will be tax free. Because of these unique tax benefits, it generally makes sense to withdraw funds from a Roth IRA last.

Know your Social Security options

You’ll need to decide when to start receiving your Social Security retirement benefits.  At normal retirement age (which varies from 65 to 67, depending on the year you were born), you can receive your full Social Security retirement benefit.  You can elect to receive your Social Security retirement benefit as early as age 62, but if you begin receiving your benefit before your normal retirement age, your benefit will be reduced.  Conversely, if you delay retirement, you can increase your Social Security retirement benefit.

Consider phasing

For many workers, the sudden change from employee to retiree can be a difficult one.  Some employers, especially those in the public sector, have begun offering “phased retirement” plans to address this problem.  Phased retirement generally allows you to continue working on a part-time basis–you benefit by having a smoother transition from full-time employment to retirement, and your employer benefits by retaining the services of a talented employee.  Some phased retirement plans even allow you to access all or part of your pension benefit while you work part time.

Of course, to the extent you are able to support yourself with a salary, the less you’ll need to dip into your retirement savings.  Another advantage of delaying full retirement is that you can continue to build tax-deferred funds in your IRA or employer-sponsored retirement plan. Keep in mind, though, that you may be required to start taking minimum distributions from your qualified retirement plan or traditional IRA once you reach age 70½, if you want to avoid harsh penalties.

If you do continue to work, make sure you understand the consequences.  Some pension plans base your retirement benefit on your final average pay.  If you work part time, your pension benefit may be reduced because your pay has gone down. Remember, too, that income from a job may affect the amount of Social Security retirement benefit you receive if you are under normal retirement age.  But once you reach normal retirement age, you can earn as much as you want without affecting your Social Security retirement benefit.

Facing a shortfall

What if you’re nearing retirement and you determine that your retirement income may not be adequate to meet your retirement expenses?  If retirement is just around the corner, you may need to drastically change your spending and saving habits.  Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return.  And by making permanent changes to your spending habits, you’ll find that your savings will last even longer. Here are some suggested ways to stretch your retirement dollars: also visit Ken’s blog at http://kenhimmler.com/ for more strategies. 

• Refinance your home mortgage if interest rates have dropped since you obtained your loan, or reduce your housing expenses by moving to a less expensive home or apartment.
• Access the equity in your home. Use the proceeds from a second mortgage or home equity line of credit to pay off higher-interest-rate debts, or consider a reverse mortgage.
• Sell one of your cars if you have two.  When your remaining car needs to be replaced, consider buying a used one.
• Transfer credit card balances from higher-interest cards to a low- or no-interest card, and then cancel the old accounts.
• Ask about insurance discounts and review your insurance needs (e.g., your need for life insurance may have lessened).
• Reduce discretionary expenses such as lunches and dinners out.

By planning carefully, investing wisely, and spending thoughtfully, you can increase the likelihood that your retirement will be a financially secure one.

For more information on financial planning, visit www.iamllc.biz 

Technorati Tags: retirement, retirement benefit, retirement portfolio, social security

When you determine how much income you’ll need in retirement, you may base your projection on the type of lifestyle you plan to have and when you want to retire. However, as you grow closer to retirement, you may discover that your income won’t be enough to meet your needs. If you find yourself in this situation, you’ll need to adopt a plan to bridge this projected income gap.

Delay retirement: 65 is just a number

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. This will allow you to continue supporting yourself with a salary rather than dipping into your retirement savings. Depending on your income, this could also increase your Social Security retirement benefit. You’ll also be able to delay taking your Social Security benefit or distributions from retirement accounts.

At normal retirement age (which varies, depending on the year you were born), you will receive your full Social Security retirement benefit. You can elect to receive your Social Security retirement benefit as early as age 62, but if you begin receiving your benefit before your normal retirement age, your benefit will be reduced. Conversely, if you delay retirement, you can increase your Social Security benefit.

Remember, too, that income from a job may affect the amount of Social Security retirement benefit you receive if you are under normal retirement age. Your benefit will be reduced by $1 for every $2 you earn over a certain earnings limit ($13,560 in 2008, up from $12,960 in 2007). But once you reach normal retirement age, you can earn as much as you want without affecting your Social Security retirement benefit.

Another advantage of delaying retirement is that you can continue to build tax-deferred funds in your IRA or employer-sponsored retirement plan. Keep in mind, though, that you may be required to start taking minimum distributions from your qualified retirement plan or traditional IRA once you reach age 70½, if you want to avoid harsh penalties.

And if you’re covered by a pension plan at work, you could also consider retiring and then seeking employment elsewhere. This way you can receive a salary and your pension benefit at the same time. Some employers, to avoid losing talented employees this way, are beginning to offer “phased retirement” programs that allow you to receive all or part of your pension benefit while you’re still working. Make sure you understand your pension plan options.

Spend less, save more

You may be able to deal with an income shortfall by adjusting your spending habits. If you’re still years away from retirement, you may be able to get by with a few minor changes. However, if retirement is just around the corner, you may need to drastically change your spending and saving habits. Saving even a little money can really add up if you do it consistently and earn a reasonable rate of return. Make permanent changes to your spending habits and you’ll find that your savings will last even longer. Start by preparing a budget to see where your money is going. Here are some suggested ways to stretch your retirement dollars:

• Refinance your home mortgage if interest rates have dropped since you took the loan.
• Reduce your housing expenses by moving to a less expensive home or apartment.
• Sell one of your cars if you have two. When your remaining car needs to be replaced, consider buying a used one.
• Access the equity in your home. Use the proceeds from a second mortgage or home equity line of credit to pay off higher-interest-rate debts.
• Transfer credit card balances from higher-interest cards to a low- or no-interest card, and then cancel the old accounts.
• Ask about insurance discounts and review your insurance needs (e.g., your need for life insurance may have lessened).
• Reduce discretionary expenses such as lunches and dinners out.

Earmark the money you save for retirement and invest it immediately. If you can take advantage of an IRA, 401(k), or other tax-deferred retirement plan, you should do so. Funds invested in a tax-deferred account will generally grow more rapidly than funds invested in a non-tax-deferred account.

Reallocate your assets: consider investing more aggressively

Some people make the mistake of investing too conservatively to achieve their retirement goals. That’s not surprising, because as you take on more risk, your potential for loss grows as well. But greater risk also generally entails greater reward. And with life expectancies rising and people retiring earlier, retirement funds need to last a long time.

That’s why if you are facing a projected income shortfall, you should consider shifting some of your assets to investments that have the potential to substantially outpace inflation. The amount of investment dollars you should keep in growth-oriented investments depends on your time horizon (how long you have to save) and your tolerance for risk. In general, the longer you have until retirement, the more aggressive you can afford to be. Still, if you are at or near retirement, you may want to keep some of your funds in growth-oriented investments, even if you decide to keep the bulk of your funds in more conservative, fixed-income investments. Get advice from a financial professional if you need help deciding how your assets should be allocated.

And remember, no matter how you decide to allocate your money, rebalance your portfolio now and again. Your needs will change over time, and so should your investment strategy.

Accept reality: lower your standard of living

If your projected income shortfall is severe enough or if you’re already close to retirement, you may realize that no matter what measures you take, you will not be able to afford the retirement lifestyle you’ve dreamed of. In other words, you will have to lower your expectations and accept a lower standard of living.

Fortunately, this may be easier to do than when you were younger. Although some expenses, like health care, generally increase in retirement, other expenses, like housing costs and automobile expenses, tend to decrease. And it’s likely that your days of paying college bills and growing-family expenses are over.

Once you are within a few years of retirement, you can prepare a realistic budget that will help you manage your money in retirement. Think long term: Retirees frequently get into budget trouble in the early years of retirement, when they are adjusting to their new lifestyles. Remember that when you are retired, every day is Saturday, so it’s easy to start overspending.

For more information on financial planning, visit www.iamllc.biz 

Technorati Tags: lifestyle, retirement, retirement age, retirement income, retirement portfolio