Funding Your Retirement
If your retirement funds are substantial you would probably also be wise to work with an estate planner or financial adviser in conjunction with your account and attorney.
Obviously as you get closer to retirement your investment strategies should change. By the same case once you are retired, where you have your funds and how you generate income and where you get money for every day expenses should change substantially. Unfortunately we regularly hear how unscrupulous con-men (and women) have separated seniors from their hard earned savings. Using online tax software like TurboTax to keep track of your finances will help, but it is important to stay on top of this.
We have also heard that if it sounds too good to be true it usually is a bad investment, but far too few seniors take this advice to heart.
Obviously as you get closer to retirement your investment strategies should change. By the same case once you are retired, where you have your funds and how you generate income and where you get money for every day expenses should change substantially. Unfortunately we regularly hear how unscrupulous con-men (and women) have separated seniors from their hard earned savings. Using online tax software like TurboTax to keep track of your finances will help, but it is important to stay on top of this.
We have also heard that if it sounds too good to be true it usually is a bad investment, but far too few seniors take this advice to heart.
Here is an excellent Government site: investor.gov/seniors-care-package/
You can navigate this site to find information to make it easy for seniors to learn about savings and investing wisely. Information includes:
- Investing wisely (for seniors and caretakers)
- How to pick a financial professional
- Evaluating your retirement options
- Questions you should ask about your investments
- Questions you should ask people who sell investments or provide investment advice
- Variable annuities: What you should know
Early withdrawal generally should be a last resort
The federal tax penalty for taking money out of a 401(k) or IRA before age 59 ½ is 10% of the amount of the distribution. That penalty goes on top of any tax owed on the amount withdrawn. State taxes and penalties may also apply. For example if you were to take $1000 from your retirement account in additional to your federal tax you would have a federal penalty of $100 plus possible state taxes and penalties. Be aware there are certain exceptions that would allow you to avoid the penalty but not the tax. It is important to talk with a CPA or accounting professional if you plan to make an early withdrawal.
Questions to ask when choosing a financial adviser
What firm are you associated with and can you provide me with information on this firm including how long they have been in business?
(i) Investment advice that beats the market averages on the downside as well as the upside should be considered.
(ii) As a general rule it is better to have an adviser who is paid on a fee basis as opposed to a commission when investments are purchased or sold. Some advisers who are also brokers might buy and sell to create revenue for themselves while not necessarily choosing the best investments for their clients. This is called churning.
- How long have you been a financial adviser?
- Can you provide me with a few clients as references?
- Can you provide me with a list of credentials you have earned including the college you attended and degrees you received?
- What strategies do you use for investment decisions and how do they affect a client’s taxes?
- Do you have any involvement with regulatory compliance within your company?
- What has your record been as far as stock selection versus the Dow Jones and other averages? (i)
- How do you and your firm make money? Commissions, fees, some combination.(ii)
- See Walter Undergrave's article 4Tips for Finding the Right Financial Advisor
(i) Investment advice that beats the market averages on the downside as well as the upside should be considered.
(ii) As a general rule it is better to have an adviser who is paid on a fee basis as opposed to a commission when investments are purchased or sold. Some advisers who are also brokers might buy and sell to create revenue for themselves while not necessarily choosing the best investments for their clients. This is called churning.
Receiving financial advice
Results from a TIAA-CREF survey found that 81% of women who had obtained financial advice were more likely to feel informed about retirement planning and retirement saving than women who hadn’t. Additionally, 63% of women who had received financial advice felt confident that they were saving sufficiently for retirement. 87% of the women surveyed by TIAA-CREF said they had taken “positive steps” in their financial lives as a consequence and 64% altered their spending habits and 53% took an organized approach to managing debt.
What is investment risk tolerance?
As you get older, the mix of investments that you should own changes along with your financial situation and how close you are to retirement. Your investment risk tolerance tells you whether you can – or should – try to grow your nest egg faster with riskier investments, or whether you should play it safer with more conservative investments.
Why does it matter?
Having the wrong mix of investments can be big trouble:
To check the risk on your investments use this calculator. Fill in the information anonymously and see where you are or will be.
What should you do about it?
If possible, you should work with a financial adviser to make sure that you have the right investments. However, if you don’t have one, don’t want one, or just want to make sure that the advice you’ve received makes sense, you can use the calculator below to estimate the right level of investment risk for your personal situation. Then, you can compare the results with your current investments to make sure that you are taking the right amount of risk. If not, you can either work with an advisor to make some changes, or—for the do-it-yourself crowd—you can search for investment products with the same level of risk to match your personal investment risk tolerance. Whatever you do, please do it before a market correction as this happens from time to time.
Why does it matter?
Having the wrong mix of investments can be big trouble:
- Too much investment risk means you could lose a big chunk of your savings when the market crashes, as it normally does every 5 to 10 years or so. While themarket will eventually recover, it might take several years, and if you’re close to retirement then you might need that money sooner. Even worse, too much investment risk could lead you to panic when the market crashes and sell all your investments at the wrong time, compounding your losses.
- Too little investment risk means that your nest egg might not last as long as you do! More conservative investments are right for some people – especially those closer to retirement – but they won’t grow much over time. That means you’ll have less money available to spend in retirement, and you might not be able to retire when you want.
To check the risk on your investments use this calculator. Fill in the information anonymously and see where you are or will be.
What should you do about it?
If possible, you should work with a financial adviser to make sure that you have the right investments. However, if you don’t have one, don’t want one, or just want to make sure that the advice you’ve received makes sense, you can use the calculator below to estimate the right level of investment risk for your personal situation. Then, you can compare the results with your current investments to make sure that you are taking the right amount of risk. If not, you can either work with an advisor to make some changes, or—for the do-it-yourself crowd—you can search for investment products with the same level of risk to match your personal investment risk tolerance. Whatever you do, please do it before a market correction as this happens from time to time.
Annuities
When planning your retirement it is important to select a financial adviser to assist you.
The selection of a trusted adviser should be one of the most important decisions you make.
If you are considering purchasing an annuitiy it is important that you carefully read your annuity contract and examine illustrations before investing. Purchasers of annuities should not just accept what a financial adviser tells you.Before you purchase any annuity you must understand what type an annuity is right for you as there are many different kinds. Deferred annuities allow you to invest for retirement without paying federal income taxes until you withdraw your funds or decide to “annuitize” and receive periodic payments for life. There are also income, immediate or payout annuities where you invest a lump sum and receive periodic payments usually for life. In either of these types of annuities, you can select a fixed or variable annuity. A fixed annuity allows your investment to earn a set rate of interest determined by the insurance company marketing the annuity. This interest is paid for a specific period. A variable annuity allows you choose from a selection of investments--often mutual funds.
Most annuities come with surrender fees. If you decide to withdraw your investment within a specified period you will pay a penalty. Also, if you opt for an immediate annuity, the insurance company offering the annuities will keep any remaining balance unless you have made prior arrangements
Areas to check:
The selection of a trusted adviser should be one of the most important decisions you make.
If you are considering purchasing an annuitiy it is important that you carefully read your annuity contract and examine illustrations before investing. Purchasers of annuities should not just accept what a financial adviser tells you.Before you purchase any annuity you must understand what type an annuity is right for you as there are many different kinds. Deferred annuities allow you to invest for retirement without paying federal income taxes until you withdraw your funds or decide to “annuitize” and receive periodic payments for life. There are also income, immediate or payout annuities where you invest a lump sum and receive periodic payments usually for life. In either of these types of annuities, you can select a fixed or variable annuity. A fixed annuity allows your investment to earn a set rate of interest determined by the insurance company marketing the annuity. This interest is paid for a specific period. A variable annuity allows you choose from a selection of investments--often mutual funds.
Most annuities come with surrender fees. If you decide to withdraw your investment within a specified period you will pay a penalty. Also, if you opt for an immediate annuity, the insurance company offering the annuities will keep any remaining balance unless you have made prior arrangements
Areas to check:
- Check the term. Contracts run for a specific number of years If you purchase the annuity at 60 the term could be until your become 95. Check to make sure that the initial guaranteed rate will last for the entire contract.
- Check rates as sometimes your initial rate is excellent but once your initial guarantee period ends your rate can drop.
- Check the guaranteed interest crediting rate after initial guarantee period. You want to know your rate over the life of the contract.
- Since there may be substantial inflation you need to be confident that the minimum interest rate does not suffer by comparison.,
- Check surrender charges paid if you decide to cash out the annuity early. There are often substantial fees if you cash out immediately should you need the moneys for some unexpected emergency. These fees usually decline over the life of the annuity to a point where there are no charges at all.
- Check if there are riders and what they say.
- Check to see if the interest rate is guaranteed and how it is calculated.
- Check to make sure you can’t lose principal.
- Check to see if you can take a partial amount of your investment out of your contract without paying a surrender charges. There may be a circumstance where you need monies and you should know ahead of time what it will cost you to get it
- Check to see if there are any other fees. Most annuities have charges or commissions related to the cost of selling or servicing the annuity.
- Check to see if there are any contract or transaction fees.
- Lastly check to see if these kinds of fees or state premium taxes on your premium can be subtracted directly from your contract value.
Retirement Income Calculators
This tool has been designed by T. Rowe Price to help you determine how much you may have available to spend each month in retirement, the likelihood your savings will last throughout your retirement and provide options to make up for potential shortfalls. Share some information about your retirement needs and investments — it should take about 10 minutes. This calculator will run 1,000 market simulations to evaluate your chances of success and offer some tips to help improve your situation.
CNN Calculator Enter your age, retirement age and what you have saved so far and the calculator will project how much money you will have at 67 years of age.
Vanguard Retirement nest egg calculator How long will your retirement nest egg last? How much could your investments grow? Answer a few questions to see a long-term projection. Then try making a few changes to view the impact on your results.
CNN Calculator Enter your age, retirement age and what you have saved so far and the calculator will project how much money you will have at 67 years of age.
Vanguard Retirement nest egg calculator How long will your retirement nest egg last? How much could your investments grow? Answer a few questions to see a long-term projection. Then try making a few changes to view the impact on your results.