Saving for Retirement

Let’s start with a couple of trick questions: What is the difference between a 1% return on one thousand dollars and a 1,000% return on one dollar? Nothing. Next, does it matter? Yes. And, who has more money in ten years: you or someone who invests $10,000 in the stock market today? No one knows. Finally, what is Autophagy and does it have anything to do with your retirement? Autophagy is how cells recycle damaged, diseased, or worn-out bits of microscopic machinery into new, fully functional organic stuff, see 2016 Nobel prize for Physiology or Medicine, and no it does not affect your retirement. Yet.

What does all that have to do with me you may be asking. If this discussion is framed in a retirement conversation, then these are all important questions. The likelihood that you will receive a 1,000% on anything is extremely rare, but a 1% return is much more likely although not as exciting. What is a more reasonable return? If you were to invest part or most of your retirement savings in the stock market, the average annual return since its inception is about 10% when we adjust for inflation over that time period this brings the return down to 7%. At that rate, your investment nearly doubles every ten years! Before you say the stock market is too risky, remember that stable value funds are only found in retirement plans. These are relatively conservative investments backed by a ‘wrap,’ or an insurance contract, that backs a stated positive return which are subject to the financial strength and claims paying ability of the issuer, usually an insurance company. This gives you a very valuable, relatively safe option that is not available outside a retirement plan.

If you don’t save anything or you save very little, returns don’t matter. The biggest determinant of your retirement account balance is simply how much you contribute. You cannot invest your way to retiring without putting in a substantial amount of your own money. So, how much should you contribute? That varies depending on the person. Why not do it now and adjust it as you calculate your needs? Most retirement plans are very flexible and allow for regular increases or decreases.

One rule of thumb is 10% of your pre-tax income. There are many reasons this may be a good starting point. One reason is that this may help you replace approximately 50% of your pre-retirement income if you start early enough (20’s or early 30’s) and earn about 3 – 4% per year – a reasonable return according to many investment providers when reviewing past market performance. Social Security may replace about a third of your income and the remainder would either be a reduction in your income or made up from other savings or investments.

As an advisor for over seventeen years I have heard many excuses for not saving, some bragging about investment returns, good & bad investment ideas, a variety of strategies and other interesting points, but I have never heard anyone say they have too much money!

So why not start paying yourself today by contributing to your own retirement?

A Disconnect in Views on Retirement

There’s a disconnect in views on retirement. TIAA-CREF recently conducted a survey* and found that:

  • If you are like most Americans (84%), you want a guaranteed income in retirement.
  • If you are like most Americans (72%), you have a less than favorable impression about annuities.
  • Also, nearly half of Americans (46%) fear exhausting their savings in retirement but 65% of Americans are not familiar with annuities.

Other surveys show that Americans are not prepared for retirement but for those of you who have been saving and planning, it may be wise to familiarize yourself with the benefits an annuity may offer.

To learn more about annuities and if it’s a good option for you, give us a call.

*Source: Retirement Preparedness Survey conducted by TIAA-Cref, April 2014

National Save for Retirement Week

It’s National Save for Retirement week! Along with life insurance, disability, and long-term care plans, we are also in the business of retirement plans. I want to take this moment and highlight some resources we have available for you regarding retirement plans.

For more information on what we do to help you with your retirement goals, go here.

We also have some great calculators on our website. They include:

We also have economic newsletters and just came out with 2014’s Q3 newsletter.

Lastly, I just read an article on USA Today that discusses how middle-class adults have $20K saved for retirement. They list the findings of a new study that was conducted by Harris Poll for Wells Fargo.

Take this moment to think about whether you’re doing enough to prepare for your retirement.

Planning Retirement in a Rising Tax Environment

Francis J. Lojewski wrote an article for The Wealth Channel® Magazine’s Spring 2014 edition titled, “Planning Retirement in a Rising Tax Environment“. In his article, Frank discusses challenges that retirees face and steps that may prove helpful for your clients and practice. The actual article seen from The Wealth Channel® can be found here.

Francis is a partner of Atlas Advisory Group, LLC, an M Member Firm.

60 is the new 40

The other day, a friend of mine said, “Don’t you know that 60 is the new 40?” Well, if that’s true – and I hope it is – then there is good news and bad news. The good news, of course, is that we can look forward to enjoying active lifestyles for a longer period of time. The bad news is, if we’re going to live longer, how will we pay for “stuff” if we outlive our retirement savings???

Now – and I mean right now – is the time to focus on increasing wealth through tax-saving strategies and maximizing qualified retirement plan savings. And guess what? They go together.

If you are a business owner, partner in a firm or tax advisor, listen up! There are three things you can adopt today that can really have a significant impact on the success of your qualified retirement account above and beyond a traditional 401k plan. And thus, increase the odds of having a successful outcome to secure your lifestyle through retirement.

First – make sure your current 401k plan is running at maximum efficiency. Are you able to put away every dime you can up to the limit? Or are you restricted by low employee participation?

Second – think about using flexible profit sharing plans that allow you to put money into your retirement account even if other partners or colleagues don’t share your retirement goals. Your retirement contribution wagon does not need to be hitched to theirs!

Third – use a defined benefit or cash balance plan to supercharge your retirement account. This will allow you to stockpile significant, tax-deductible, contributions today for use in retirement.

Contact Greenberg, Wexler & Eig today to see how we can help you develop a successful retirement outcome. The success of your future is our business today.

This material is intended for informational purposes only and should not be construed as legal or tax advice and is not intednded to replace the advice of a qualified attorney, tax advisor or plan provider.

Making good decisions for retirement

Baby Boomers are retiring every day and have important decisions to make.  Last year, the Government Accountability Office (GAO) offered two pieces of advice for retirees:

1. Delay the age when you elect to start receiving Social Security payments

Most people should avoid the temptation to begin payments early. While it may be tempting to start receiving Social Security payments early, you are most likely to receive a greater lifetime income if you wait until your full retirement age. Statistically if you live 12 years of more after you retire, delaying payments would make sense. Remember that Social Security does not provide enough income for most retirees so it is important to accumulate assets in other plans (i.e., IRAs and employer sponsored plans).

2. Convert your cash-balance defined benefit pension into a lifetime income annuity rather than take a lump-sum payment upon retirement

Only one third of Americans are covered by a defined benefit plan.  The rest are accumulating assets in a retirement plan and will receive a lump sum distribution.  Of course, even if an employer retirement plan only offers a lump-sum payment, retirees can go to an insurance company and buy their own annuity. However, statistics show that most retirees who are required to put in the effort themselves to find an annuity do not do so.  Converting at least a portion of a lump-sum retirement-plan payout into a lifetime income annuity may substantially increase the odds of achieving a comfortable retirement.

You can read the full article about the GEO report here.