Retirement Planning Checklist to a Worry Free Life

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Retirement should be worry-free, but many in the United States don’t have any retirement savings. Your goal should be to retire with as little stress and worry as possible.

It’s possible, but you’ll need to make sure that you begin securing your retirement today.

We’re going to outline an eight-point retirement planning checklist to help you retire worry-free.

8-Point Retirement Planning Checklist

1. List All of Your Retirement Goals

You can’t know where you’re at in reaching your goals if you haven’t defined them yet. Planning starts with your goals. Make a list of answers to the following questions:

  • What is your definition of a happy retirement?
  • Want to travel? Which destinations will you go to?
  • Want to spend time with family? How often will you travel to see them?
  • Would you like to move closer to family?
  • How much money do you want to spend or give away during retirement?
  • Will you help pay for a grandchild’s college education?

While this step may seem tedious, it can really put your retirement into perspective.

2. Know Your Numbers

Retirement is all about numbers. Money is a number’s game, and throughout your lifetime, you likely have made and contributed to a lot of accounts. You need to know how to access these accounts, how much money you have in them and where your money is allotted.

You may have an IRA, 401(k), annuity, brokerage and several other accounts.

When you have all of these accounts available and know their numbers, you need to consider your spending. Spending habits will typically have three main parts:

  1. Needs, or money to live
  2. Wants, or money to use for vacation, etc.
  3. Legacy, or money you would like to give away

You’ll need to consider that your money will come from your IRAs and 401(k)s, and then consider your income from Social Security, pension or other income streams.

Inflation will also play a role in your retirement planning because you’re not earning anymore, yet prices are still going up. All of these numbers will help you better know your financial situation when retiring.

3. Social Security’s “Big Picture”

When’s the best age to retire? Most places will tell you 70 – that’s a long time to wait. You can retire at 62, 67 or 70. Sure, the earlier you retire, the less you’ll receive. There’s a lot more to consider.

The moving parts may mean taking your Social Security earlier is more beneficial.

4. Educate Yourself on How to Invest Your Savings

Retirement savings should be invested. You’ll find two main forms of investing: active and passive. The main differences are:

  • Passive. You’ve likely been doing this for a long time. A 401(k) is passive in that you buy, hold and don’t do anything else. People that bought into Amazon back when it IPO’d, for example, have likely held on to it and reaped the benefits. Rebalancing may occur where you change up your asset allocation slightly, but it’s not on the level of an active investor.
  • Active. You manage the portfolio daily based on the current market. This is a time-consuming strategy, but you can hedge your losses and control your risk tolerance best.

Educate yourself on these two methods of investing your retirement savings, and you’ll have greater control of your retirement planning.

5. Understand Medicare

An integral part of your retirement planning checklist is to understand Medicare. Your health is so important, and we recommend talking to a Medicare expert. You need to have a plan to take care of Medicare.

There are a lot of options available, and they’re very complex with gaps.

At least one year prior to retirement, sit down with an expert that can help you understand your Medicare options, what’s covered, what’s not covered and how you can cover some of these gaps.

6. Put Your Legal Documents in Order

Estate planning is an essential part of retirement planning. Sit down and look over your estate planning documents. We’re talking about your:

  • Wills
  • Trusts
  • Power of Attorney, etc.

Have an attorney overlook your will. Have things changed since you’ve had these documents drafted? Update your legal documents to have the beneficiaries up to date. Do this with all of your documents.

7. Long-term Care Planning

People are living longer. Hopefully, you never have to go into a long-term care facility, but if you do, it’s a major expense. There are different layers of expenses:

  • Assisted living
  • Nursing care

You can self-insure these expenses, or you can take out an insurance policy that rises throughout your lifetime. Hybrid plans also exist, which will have long-term care plans and possibly life insurance in one.

Deciding how to cover the costs of long-term care will help you sleep well at night knowing that you can have a basic plan if you need help in the future.

8. Write Out a Retirement Income Plan

A written retirement income plan seems daunting, but it’s an integral part of every retirement planning checklist. Your retirement relies on your plan. There are a lot of items included in your plan that you’ll outline:

  • Retirement accounts
  • Expenses
  • Future expenses
  • Renovations
  • Car purchases
  • Inflation
  • Paying for your grandkid’s childhood expenses

When you think through almost everything that you can before retiring, you’ll have a plan to refer to and update as needed. You’ll also be able to see how your current actions are impacting your retirement.

If you follow these eight points, we’re confident that you’ll be on the path to a worry-free retirement. 

Need extra help or want to follow a proven program for retiring with peace of mind. Our 4 Steps to Secure Your Retirement mini course can help.

Click here to learn more about our course and how we’ll help you secure your retirement.

How Much Money You Need to Retire?

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When can you afford to retire?

Our clients often come to us wanting to know a set figure or amount to save that will mean they can retire. But it’s more complicated than just how much you have in your savings. There are lots of different factors to consider when creating a financial plan for a stress-free retirement.

In this post, we’re going to look at two example scenarios to show you what other variables impact your retirement savings and why the amount you’ve saved doesn’t necessarily mean you’ll have a better or longer retirement.

You can watch the video on this topic above or, to listen to the podcast episode, hit play below, or read on for more…

How much money do I need to retire?

The amount you need to have saved to retire is entirely dependent on your situation. No fixed amount or formula applies to everyone. Even if you had saved a million dollars, you’d still have to work through all the different variables to find out if it was enough for you to retire.

There are many variables and things to consider, including:

  • What age you want to retire
  • Your spending
  • Inflation
  • Healthcare costs
  • Your guaranteed income

When you want to retire has a huge impact on how much you need to save. You should consider both your savings and your spending habits whether you want to retire early or closer to retirement age, around 66 or 67 when you’ll receive Social Security.

Your spending is one of the biggest factors influencing your financial retirement plan. Living within your means before and after retirement is crucial to managing your money with longevity in mind.

Inflation also plays a part in how much you’ll need to retire. It’s been relatively low over the last decade, but inflation can change at any time. We set inflation at 3% for our retirement plans. This is the average inflation rate over the last 100 years. If inflation rates do rise higher than average, this typically only lasts for a short period and then readjusts. But it’s something to be aware of, as it will impact your spending and your savings.

Another factor that we cannot necessarily plan for is future healthcare costs. If you need long-term care or face health challenges in the future, it could take a chunk of your savings. While you can’t always prepare for these things in advance, you can take financial precautions, such as taking out insurance.

The one variable you can count on is how much guaranteed income you’ll have in retirement. Most people will have a pension or Social Security. Knowing how much guaranteed income you have in place helps you figure out how much extra you’ll need to save to cover your expenses.

How much you should save for retirement

We’re going to show you two scenarios to better understand how some variables affect savings and why it’s important to manage your money properly in retirement.

In the first scenario, there is Mary. Mary is 60 and has saved one million dollars ($1,000,000).

In the second scenario, there is Susan. Susan is 67 and has saved half a million dollars ($500,000).

Which do you think is going to have a longer retirement based on their age and savings?

Let’s run through these scenarios without changing any factors other than the amounts that each have saved and their ages. In both scenarios, the retirees will get $3,000 of Social Security each month, starting at age 67.

Scenario one: can I retire with a million dollars?

At age 60, Mary retires with one million dollars in IRA assets and has a spending plan of $6,500 a month. That means she needs $6,500 of guaranteed income coming into her bank account every month to pay the bills and live the life she wants to lead.

In both scenarios, the retirees are facing an inflation rate of 3%. This means that Mary’s spending is increasing by 3% a year. After ten years of retirement, inflation alone pushes Mary’s $6,500 up to $9,000 of spending each month.

Mary has invested her one million dollars, so it’s increasing at 5% on an annual average basis. This grows her savings at a decent rate of return, but she is withdrawing these funds to cover her rising costs. Mary has to rely solely on her savings immediately after retiring, as her Social Security payments won’t start until she’s 67.

There are some other factors at play, but to keep this simple, based on Mary’s spending and inflation, it will take only 13 years for her assets to run out. Mary will still have her Social Security payments, but these aren’t nearly enough to cover the lifestyle she’s built and grown accustomed to.

So, even though Mary retired with one million dollars at age 60, which seems like a powerful position to be in, she only makes it to age 73 before she has no more savings.

Scenario two: how much do I need to retire at 67?

Now let’s look at the second scenario. Susan retires at age 67 with half a million dollars saved in an IRA. Susan immediately gets $3,000 of Social Security each month, just like Mary did at 67. But Susan also has a pension of $500, taking her guaranteed income up to $3,500 a month.

Susan wants a different lifestyle from Mary. She plans to spend only $4,000 a month – $2,500 less than Mary. By the time Susan is 80, inflation will push her monthly spend up to $6,000 a month, still less than Mary’s original monthly spending.

In both scenarios, inflation does make a big impact. But for Susan, inflation isn’t as detrimental to her savings. Susan needed to take less out each month than Mary to supplement her guaranteed income and so it’s a more manageable withdrawal over the long-term.

In this scenario, Susan’s spending habits mean she can comfortably maintain her lifestyle in retirement past age 90 before she runs out of her assets.

How to manage your money in retirement

Retiring later, having a pension (even if it’s small), and reducing your spending can make a significant impact on how long your assets will last you. Even though Susan had saved half the amount Mary had, she had a far longer retirement plan because she retired seven years later, took a small pension, and reduced her spending budget.

If Mary had reduced her monthly spending by $1,500 to $5,000, it would have added almost ten more years to her retirement plan. This reduction alone would mean that she’d be 82, instead of 73, before her assets run out.

Your spending is arguably one of the easier factors to change within a retirement plan. It can be very helpful to take a good look at your spending habits now and consider what they’ll be in the future so that you can get an idea of what your retirement could look like.

How to plan your savings for retirement

If someone has saved more money than you for retirement – don’t panic. People have very different circumstances. They may need more money to cover costs or plan to spend more in retirement. Having more savings doesn’t necessarily mean a longer, more worry-free retirement.

A written retirement plan can help you understand how all of these factors will affect your situation and prepare accordingly. It gives you peace of mind that your finances are set for your future.

We’ve put together a complimentary video course to help you prepare for retirement financially. If you want to put a strategy in place for your retirement savings and spending, the free mini-video series is available to access here: Four Steps to Secure Your Retirement.

How to Retire Comfortably and Be Happy

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Retirement planning should allow you to retire comfortably and be happy. You should find a comfortable medium, where you can retire and maintain the lifestyle that you want to enjoy. The lifestyle you live, and your spending habits will have a major impact on your ability to be comfortable in retirement.

Today, we’re going to outline a five-step process to follow so that you can retire the way you want.

5-Step Process to Retire Comfortably and Be Happy

1. Defining “Comfortable” for You

What is your definition of “comfortable?” Some people want to hit a monetary goal of $1 million before retiring. Once these individuals hit this milestone, they’ll retire. For other people, they want to have the income they need to pay their bills or travel.

Identifying what you want to do in retirement will help you define what comfortable is for you:

  • Do you want to be able to travel whenever you want?
  • Do you want to give money to charity or to your family members?

A lot of people are comfortable when they’re able to pay their bills and put food on the table. You might not want to travel or give money away to grandchildren – that’s perfectly fine. The goal here is to understand what you envision for retirement and what would make you comfortable exiting the workforce.

Knowing your definition of comfortable will help you prepare for retirement.

2. Know Your Risk Tolerance

Investments always have risks, but there are safer ways to allocate your assets as you age. The typical way people approach risk tolerance is:

  • Invest in riskier investments when you’re younger – you have time
  • Slowly start adjusting your portfolio for less risk as you get closer to retirement

Oftentimes, we find that people don’t adjust their investment portfolios, leaving them open to a high level of risk exposure. Could you risk your retirement losing 20% to 30% of its value because of high risks?

For some people, they have more than enough money and can afford to keep the majority of their investments in stocks. But there are ways to lower your risk tolerance and still retire comfortably without worrying about stock market fluctuations or volatility in the markets.

3. Write Down Your Plan

Make your retirement plan real by putting it in writing. A lot of people have plans in their heads, but they don’t put their plans to paper. When you create a retirement income plan on paper, it helps you:

  • Refer to the retirement plan
  • Make adjustments easily to your plan
  • Visualize your ability to retire

If you don’t know where to start when writing your plan, work with a professional that can help you devise a successful retirement plan.

4. Educate Yourself on Retirement Income Strategies

You’ve worked towards your retirement by putting money into IRAs, 401(k) and other investment vehicles. The tax consequences are different for each option. For example, some IRAs are tax-free, and some are pre-taxed.

A traditional IRA is basically ordinary income. Roth IRAs are tax-free.

There are a lot of ways to withdraw money from these accounts. You need to have a plan so that you can withdraw the money you need without suffering from major tax burdens or financial strain in the process.

And there’s also different streams of income, such as Social Security or a pension, which is guaranteed income. Dividend stocks that are income generating may be part of your portfolio, but the stock market isn’t guaranteed income. There are risks and advantages to stocks, and this is really what you need to educate yourself on.

Creating a retirement plan that is comfortable and that you can depend on is the key to a stress-free retirement.

5. Focus on Your Retirement Plan – Not Everyone Else’s Plan

Life is stressful enough, and comparing your retirement plan to someone else’s plan only makes it more stressful. Don’t start comparing your plan to your neighbor’s, brother’s, sister’s or other person’s retirement plan.

Why?

Your lifestyle may be different. Your neighbor may have $300,000 saved but no pension plan to rely on. You may be comfortable living on $40,000 a year and have already paid off your mortgage, but Joe down the street may struggle to get by on $120,000 a year because he needs the newest vehicles, takes expensive vacations and always has the “best of the best.”

When you compare your retirement to other people’s retirement, you need to look at the entire picture. You might not have the same savings or amount stashed away in a 401(k) as someone else, but your retirement may be a lot more secure.

Want to take your retirement planning to the next level? We’ve created a mini course called 4 Steps to Secure Your Retirement that you can follow to retire comfortably and happy.

If you want to discuss your retirement goals or make sure that you can comfortably retire, one of our team members will be more than happy to help you.

Click here to schedule a 15-minute complimentary call with us today.

Why should you add an income rider to your annuity?

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How can an annuity income rider give you more peace of mind in retirement.

A core part of planning for retirement is ensuring that you have as few worries as possible. That’s why we make it a priority to ensure that all of our clients’ essential income needs are covered by their guaranteed income.

There are three main ways to guarantee income in retirement. The first is a pension, the second is Social Security, and the third is adding an income rider to an annuity. This third option creates, in essence, a personal pension paid directly to you every month for the rest of your life.

You can watch the video on this topic further down the post. To listen to the podcast episode, hit play below, or read on for more…

In part five of our “Annuities – Why Ever Use Them” series, we discussed attaching an income rider to an annuity to produce guaranteed income. We encourage you to read part five before reading this post as we go into further detail about why we recommend adding an income rider to an annuity and explain how their rates of return work.

Our annuities series breaks down this product in short, easy-to-understand episodes to help you discover how this product works and why it’s a beneficial income source in retirement.

To get the full picture about how to make an annuity work for you, read the “Annuities – Why Ever Use Them” posts on our blog, listen to the episodes on the Secure Your Retirement podcast, or watch them on our YouTube channel.

Why add an income rider to an annuity?

Many people opt for an income rider for the same reasons they’d take a pension or Social Security. It can give you more than just guaranteed income – it can provide you with peace of mind that your essential income needs will be covered in the future.

When you’re planning for retirement, you’ll work out how much income you need every year to cover your essential costs. This is where an income rider can be very useful. We often use them to plan for our clients, considering what income they’ll need 5-10 years down the road.

Understanding annuity income riders

In most cases, income riders come with a fee. This is usually around 1%. However, if the income rider is built into the annuity and doesn’t come with a fee, the rider may not have the highest possible rate of return.

Generally, built-in riders will not generate as much guaranteed income because the insurance company won’t be making enough money to pass it on to you.

If an agent states that their annuity has a 6% or 7% rate of return, it’s important to note that this is only for the income rider. This rate is not going to grow your principal at 6% or 7%. To get this maximum value from this income rider, you need to take income.

If you have a fixed index annuity, your principal will still grow, as we detailed in Part 4, How Fixed Index Annuities Grow Your Money With Low Risk. But this rate isn’t the same as the income rider.

Annuity income riders and rates of return

Let’s use a hypothetical example. If you add $100,000 into a fixed index annuity, it may earn 3%, depending on the index’s performance. Your income rider base, however, will grow separately at 7%. In 10 years, your original account value could be about $130,000, but your income rider may be worth around $200,000 in value.

A good way to think about these numbers is to consider what money you can access. If you were to pass away, the insurance company would only give your annuity’s account value (in this example, $130,000) to your beneficiaries. This is also what you would be able to walk away with if you decided to close your annuity.

But if you want to take income, this will be based on the income rider’s growth (in this example, $200,000). The insurance company will pay out a percentage of this figure to you as income.

Say this pays out at 6%, then you’ll get $1,000 a month, or $12,000 a year, guaranteed, for the rest of your life. This does not come out of or affect your account value.

If you did not have an income rider but wanted to take this same amount out of your account, you’d reduce your principal by a massive 10% in one hit. Over time, your annuity would empty, as you’d be withdrawing money faster than it could grow.

Why we recommend annuity income riders

What’s great about an income rider is, even if your account value drops down to zero, you are still guaranteed that income for the rest of your life. It’s a type of longevity insurance that can’t be beaten.

It’s best to think of an annuity and income riders as two separate entities. One is death benefit and walkaway money (your account value, the money you put into the account), and the other is like a pension that you cannot outlive. When the time comes to pay out your guaranteed income, these two sides do not affect each other.

So, if you’re concerned about covering your essential income needs, then adding an income rider to an annuity is a good option. This way, you’ll know you have a guaranteed $1,000 (or however much is possible in your situation). It won’t fluctuate and will be delivered to you every month for the rest of your life, from when you decide to take income.

To learn more about how an income rider could fit in with your personal retirement plan, get in touch with us. We offer a complimentary 15-minute phone consultation to discuss your specific needs and how you can put our advice into action. Book your free call with our expert advisors today.

How to Rollover Your IRA and 401k

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How do IRA and 401k rollovers work?

Retirement accounts are a great way of saving for the future, but they’re not preferable for everyone. If you want to move your money out of your 401k, 403b, 457, or IRA, the best way is to do a rollover.

If done correctly, rollovers are tax-free and a straightforward solution to moving money between retirement accounts. But there can be rules, limitations, and risks involved. In this post, we explain the process of doing a 401k or IRA rollover, when you’ll be eligible, and the reasons why you should consider one.

[You can watch the video on this topic above or, to listen to the podcast episode, hit play below, or read on for more…]

 

 

How to rollover your IRA and 401k

A rollover is a term meaning the action of moving money from one account into another account.

You’ve likely accumulated money in several retirement vehicles throughout your career. You might have 401ks, 403bs, 457s, IRAs. If you decide to move your money from where it is currently to a new institution, this is a rollover.

You can do a rollover between any employer plan, even if they’re the same. For example, you can move your money from one 401k into another 401k, or you can go from a 401k to an IRA account.

There are two main types of rollover. One is a direct rollover, which is a straightforward, trustee-to-trustee transfer. The other is a 60-day rollover, which can be riskier.

 

How to rollover your IRA and 401k using a trustee-to-trustee transfer

A trustee-to-trustee transfer moves your money from one institution directly to another institution. To do this, your existing account holder has to make out a check to your new account holder, with your name listed as “FBO” (for the benefit of).

Let’s use an example. If you have a 401k or an IRA held with Fidelity, but you want to move it to Charles Schwab, Fidelity has to write a check addressed to Charles Schwab followed by FBO and your name.

 

Key things to know about a trustee-to-trustee transfer:

  • The check is not made out to you, so you cannot put it into your account
  • The government have not put a limit on how many trustee-to-trustee transfers you can do so you can do this as many times as you like
  • This is a simple, straightforward, and risk-free way to do a rollover
  • If you are moving money into an IRA, you should set this up before you instruct your institution ­– you do not have to put money into an IRA to open one

 

How to do a 60-rollover for your IRA and 401k 

With a 60-day rollover, your institution writes the check directly out to your name. From this date, you have just 60 days to put it into an IRA, otherwise, it will be taxable. If you’re under the age of 59 and a half and you go over the 60-day limit, you’ll owe a 10% penalty as well as tax.

For 401ks, there is one additional caveat. 401ks are required by law to withhold 20% of your money, even if you get them to write a check out to you. This can be an issue.

If you have $100,000 in your 401k, for example, and the institution withholds $20,000 in taxes, you only have $80,000. You will get that $20,000 back, but only when you next file your taxes. To complete the rollover in the meantime, you’ll need to find an additional $20,000 to roll over the full amount.

 

Key things to know about a 60-day rollover:

  • You have to complete your rollover within 60 days, or you will be taxed
  • If you’re under the age requirement, you will also face a penalty
  • You can only do one 60-day rollover in a calendar year

We prefer using a trustee-to-trustee transfer. This way, you do not run the risk of having to pay income tax on your money, and it’s a more straightforward solution.

 

Why you shouldn’t use a 60-day rollover as a personal loan

Some people choose to use a 60-day rollover as a personal loan, but we advise against it. You may do this to loan yourself money in an interest-free way.

This is a high-risk strategy as you’re bound by the 60-day rule to get your money back into that account. This is a fixed rule and if you miss your 60-day deadline for any reason, whether you didn’t manage your time well, or you didn’t have enough money to put it back in to your account in time, then you’re faced with an irreversible problem, and bigger tax bill, and potentially a penalty too.

It’s a very risky strategy and not one that the IRS likes, so we urge you to be cautious if this is something you’ve heard or read about.

 

What makes you eligible to rollover your IRA and 401k

If you’re under age 59 and a half and you try to take money out of any retirement account, such as 401ks and IRAs, you will be penalized for it.

However, if you’re over age 59 and a half, the government now considers you eligible to use that money. Most 401k, 403b, and 457 plans allow you to do rollovers whenever you want. So, if you meet the age requirement, you can do a rollover without any penalties or tax concerns, providing you do it correctly.

One other way you become eligible for a 401k rollover is following a separation of service. This is when you leave your company for one of the following reasons:

  • Transitioning into a new company
  • If you get laid off
  • If you retire before 59 and a half

If you’re leaving your company, you may want to consider doing a rollover as you may not be eligible again for some time.

 

Why should you rollover your IRA and 401k

Your company might match your 401k contributions and offer you investment choices, so why would you choose to rollover your 401k into an IRA?

Firstly, 401ks have lots of hidden fees. You may not be aware of just how much you’re losing in fees for your 401k. Sometimes your employer will pay these, but they can also be passed along to you, the participant, without you knowing.

With an IRA, there’s a far higher level of transparency. You own every aspect of your IRA, so you can know each fee that gets charged to your account – if any. There are no admin fees with an IRA, so the only possible charges will be mutual fund or ETF fees if you use your IRA to buy those.

Secondly, it’s a myth that you get better rates if you have a 401k with a big company. It is not true that you get better rates based on what company you’re with. It’s also worth noting that your investment options are very limited in a 401k. An IRA has far more investment opportunities available.

Thirdly, 401k plans limit how much activity your account can have within a given year. Some plans may only allow you to make a change once every quarter or biannually. If you like to manage your money actively, then an IRA might be more suited to you.

It’s also challenging to manage your funds in a 401k. If you want a financial planner to help you handle your 401k, there’s very little that they can do. With an IRA, a financial planner can manage and monitor your money much more closely.

Finally, if you have multiple retirement accounts, you may want to make them easier to manage by consolidating them all into a singular, traditional IRA.

So, those are the reasons why you might want to rollover your 401k into an IRA. But why might you not want to?

There’s one time when you might not want to do a rollover, and that’s if you’re aged between 55 and 59 and a half and you’re no longer employed with the company your 401k is with. The IRS allows people above the age of 55 to take distributions of their 401k without penalties. If it’s in an IRA, you have to be 59 and a half to avoid the penalty. If you’re within this window and want access to your 401k money, we advise you to take distributions instead of doing a rollover.

 

How to execute a rollover

To do a trustee-to-trustee transfer or 60-day rollover, call your institution directly. They will have specialists available to help you do a transfer, but they are not there to give you advice, so make sure you’ve researched your options beforehand.

If you’re continuing to work at your company, this is called an in-service rollover. In this case, you stay in-service at your company, keep the 401k account, but roll out the balance into a traditional or Roth IRA account. Your 401k will stay the same, you will still make contributions and get the match, but your previous balance will now be in an IRA.

When you speak to your institution, they’ll ask you to verify your identity and address and then ask where you’re sending the money. Make sure you already have your IRA in place so that you can send the money over smoothly.

Your institution will then write the check out to the new institution if it’s a trustee-to-trustee transfer or directly to you if it’s a 60-day rollover.

You will rarely need to do any paperwork, and if you do, your institution can walk you through any documents that they need. Your institution may also ask you to review a tax notice, which explains the tax-risk of a 60-day rollover, much like we have in this post.

Ultimately, a rollover should be a simple, smooth process, resulting in putting your money in an account that you’re happy with.

If you’re considering doing a rollover or have any questions about IRAs, 401ks, 403bs, or 457s, our team can answer them. We work with these accounts every day and can offer you tailored advice and information based on your situation. Do consider booking a complimentary 15-minute call with us to find out how we can help you.

Retirement Planning Tips

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Are you beginning to think about retirement planning? Finishing work and entering retirement is your chance to enjoy your golden years and unwind from the hustle and bustle of life. However, one of the most common questions we are asked is ‘how much do I need to retire?’ so, to help you, we have put together seven retirement planning tips to help secure your retirement.

 

  1. Understand your spending

When it comes to retirement planning, the first thing you need to understand is spending. This doesn’t mean your current salary, but what you bring home each month after you have taken out your savings and bills. You should exclude any bills, such as your mortgage, which might have been paid off by the time you retire.

 

By understanding exactly what you need to spend each month, you will be able to begin creating a much clearer plan for retirement.

 

  1. Break down your expenses

You should break down your expenses into three core areas, your essential needs, your wants, and then your giveaway money. Your essentials will cover things such as your and your grocery shop, everything you need to stay alive and happy. Your wants will then be those things to help you maximize your retirement fun, from holidays and golf members to spending time with your family and treating the grandkids. Finally, the giveaway money is the amount you want to donate to charity or leave behind.

 

  1. List your guaranteed income

Your guaranteed income refers to the money that you will still be receiving after retirement. This can be from things such as your pensions, annuity, or social security. This money should help you cover those essential expenses you listed earlier.

 

  1. Don’t rely on the 4% rule

The 4% rule for retirement is the idea that you live off 4% of your assets each year. While in theory, this can be an effective strategy for retirement planning; in reality, we believe it is a flawed method as it does not take into account the volatility of the market.

 

We recommend a different approach for you to secure your retirement by creating a clear plan that allows you to weather whatever the future might have in store.

 

  1. List your accounts by type

Another important retirement planning tip is to make a list of all of your accounts by type. This means things such as your 401K, a traditional IRA, brokerage account, and savings account. Each of these will be taxed differently, so this list will help you work out what you need.

 

  1. Consider your investments

When it comes to investing for retirement, many of us opt for a more aggressive strategy when we are younger. This high-risk option can yield more significant results, but you should start to reconsider the level of risk exposure you are willing to face as you get older. It is important you understand your risk tolerance and what you could potentially lose.

 

  1. Don’t worry if you have ‘enough’

Don’t worry about if you have enough for retirement. We work with clients with vastly different levels of savings, but what is most important is your retirement plan. If you end up spending more money each month than your savings can afford, then no matter how big your initial amount is, it will soon diminish.

 

You should focus on generating a spending plan that matches your lifestyle, not how much you have saved.

 

 

 

Looking to take your retirement planning to the next level?

Are you looking to cement your future? When it comes to retirement planning, there are a lot of moving parts that can make things seem complex, but our ‘4 Steps to Secure Your Retirement’ mini-series will take you through the process to a brighter retirement. Want to find out more? Get started today.

How to Get Guaranteed Income with a Fixed Indexed Annuity

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If your Social Security benefit or pension won’t provide you with enough guaranteed monthly income to keep you comfortable in retirement, an annuity can help.

You can watch the video on this topic further down, to listen to the podcast episode, hit play below, or read on for more…

 

There are often limited resources for securing guaranteed income in retirement, but if you have or are considering opening an annuity, you may be able to access an “income rider”. An income rider is an additional annuity feature designed to guarantee income for the rest of your life.

 

In this post, we continue our “Annuities – Why Ever Use Them” series by diving into how a fixed index annuity provides guaranteed income using the income rider.

 

Our annuities series is a comprehensive guide to this complex product. If you want to learn more about annuities, we encourage you to read the posts on our blog, listen to the episodes on the Secure Your Retirement podcast, or follow the links below to watch them on our YouTube channel:

 

Why choose a fixed index annuity? A quick summary

We believe there are three reasons why you would want to add a fixed index annuity to your portfolio. The first is good accumulation. Fixed index annuities accumulate similar to a bond, but with the added benefit of no downside risk. The second is the death benefit, and the third is guaranteed income.

 

Before we discuss how to get guaranteed income from your annuity, here is some high-level information to help you understand how annuities work, the different types, and why we recommend a fixed index annuity.

 

  • Deferred annuities are either fixed or variable.
  • Variable annuities are linked to market investment through buying mutual funds. The rates are often high for variable annuities, and they come with risk. To make a decent return on your variable annuity, you have to overcome these fees and more.
  • Fixed annuities have guaranteed principals, meaning you cannot make a loss, which is why we prefer them.
  • There are two types of fixed annuity, traditional and indexed – both guarantee your principal.
  • The traditional annuity is similar to a CD (certificate of deposit). You give your principal to an insurance company, and they provide a return based on a fixed rate for a number of years.
  • With an indexed annuity, your return is linked to an index such as the S&P 500 or the NASDAQ. Even though indexes can fall, your principal is guaranteed, so the worst a fixed index annuity can earn in a year is zero.
  • The crediting methods for fixed annuities are based on a point-to-point annual reset. For example, if you open an annuity on January 1st, 2021, you’ll earn your interest on January 1st, 2022.
  • If you have a fixed index annuity, your interest will be calculated depending on what strategy you use. This could be a cap or participation strategy. To learn more about caps and participation rates, read our blog post, Fixed Index Annuities: How They Work and Things to Consider, or watch the podcast episode.

Our “Annuities – Why Ever Use Them” series covers many of these points in much greater depth, so if you have any questions about how annuities work, please visit the other articles on our blog.

 

A fixed index annuity is our recommended option, especially for retirees who need access to a higher guaranteed income.

 

Why guaranteed income is important in retirement

When planning for your retirement, you want to ensure that you have enough guaranteed income to cover all of your essential income needs. Your income needs fall into one of three categories:

  • Essential: anything you need to pay for, e.g., your water bill
  • Wants: anything that isn’t necessary but gives you a better quality of life, e.g., vacations
  • Giveaway money: for gifting to your children or a charity

We believe that at least your essential outgoings should be covered by your guaranteed income.

 

Most retirees have two guaranteed income sources, their pension and Social Security. Beyond this, there are limited options to secure guaranteed income. One option is to add an income rider to your fixed index annuity.

 

The cost of a fixed index annuity income rider

Adding an income rider to your annuity gives you a lifetime income benefit. This is a powerful tool to help you take care of your essential income needs and grant you continued access to your principal. But, if you’re aiming for your highest guaranteed income, you’re going to have a fee.

 

There can be two different types of fees with an income rider. The first is a clear-cut fee, where the insurance company will charge you a percentage of your principal. This is usually around 1%. The second is a built-in fee, where you won’t be charged directly, but you will see a reduction in return.

 

 

How a fixed index annuity income rider works

A fixed income annuity already accumulates money for a death benefit. The income rider income generation is separate from this. Bear in mind that this income value is not lump sum money. If an insurance agent tells you that their annuity can give you 6% growth, this rate is for income purposes and isn’t available as a lump sum.

 

Let’s use an example to demonstrate. If you have $100,000 in a fixed index annuity with an income benefit growing at 6%, in roughly ten years, your annuity will be worth around $200,000. You cannot take this as a lump sum – this figure is a calculation based on how much income the annuity generated. That 6% growth-rate of $200,000 equates to $12,000 a year of guaranteed income. That’s $1,000 a month guaranteed income for the rest of your life, generated by the fixed index annuity income rider alone.

 

Suppose you’ve calculated your essential income needs at $4,000 per month, but your Social Security will only give you $3,000. In that case, we can work out how much you should put in a fixed index annuity with an income rider to guarantee that extra $1,000.

 

The income rider creates, in essence, a pension that you cannot outlive. Even if your annuity account’s value decreased to zero, you would continue to receive payments through the income rider.

 

 

Why an income rider could suit your future

If you’re married, you may want the guaranteed income to last for the entirety of both yours and your partner’s lives. You can choose to have survivorship, but this will decrease your monthly income, similar to a pension.

 

You do not have to decide whether your annuity income rider is dual or single life until you start taking income. This is a plus point for annuity income riders as it offers flexibility for the future. If you set up an income rider today but won’t need your income for the next five or ten years, you won’t have to choose dual or single income until you’re ready to take it.

 

In most cases, you can start taking income from your annuity after a year. But, just like a Social Security benefit or pension, the longer you wait, the higher your income will be.

 

How could an income rider increase your guaranteed income?

We understand that annuities are a complex and often confusing product and visualizing how they suit your situation can be difficult. If you’d like to see how an annuity could benefit your specific retirement plan, we can help.

 

 

Our advisors can show you how an income rider could impact your guaranteed income when you book a complimentary 15-minute phone consultation. On the call, we can discuss how an annuity would work for you and how it could help you meet your essential income needs. If you want to speak to a team member, book your call today.

Long-Term Care Insurance: Traditional vs. Hybrid

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Which long-term care insurance plan is right for you?

 

If you want to protect against the financial strain of future healthcare challenges, you might be considering buying a long-term care insurance plan.

 

There are many different types of long-term care insurance policies. They vary from how much your premium is, to the benefit they provide, so it’s important to understand which plan best suits your financial situation.

 

You can watch the video on this topic at the top of this post, to listen to the podcast episode, hit play below, or read on for more…

In this post, we share a high-level overview of traditional long-term care insurance, the differences between the traditional and hybrid models, and how you can adjust the options to fit your needs.

What is long-term care?

 

Long-term care is when you need continuing assistance in your daily life. This includes help with getting around, bathing, and other requirements within your home or assisted living facility. It also covers full-time medical care, such as a nursing home.

 

If you’re paying for long-term care insurance, both traditional and hybrid models have the same qualifier. A doctor would need to verify that you need help with two out of the six Activities of Daily Living for your insurance policy to start paying out. The six activities are bathing, dressing, eating, transferring, toileting, and continence.

 

Regular health insurance and Medicare don’t cover long-term care, so insurance could be a good idea if you want to protect your assets.

 

Buying long-term care insurance

 

Insurance for long-term care is similar to any other insurance. It’s a personal decision to transfer risk from yourself to an insurance company so that they can cover any unexpected costs.

 

Think about your car insurance, home insurance, or life insurance. You buy it to protect yourself in case something happens – but you may never use it. Long-term care insurance works in the same way.

 

There are two different types of long-term care insurance plans: traditional and hybrid. They both transfer risk from yourself to an insurance company and have the same qualifiers but have very different costs and benefits.

 

Understanding traditional long-term care insurance

 

Traditional long-term care insurance is a standalone policy, and it includes customizable options to better suit your needs.

 

Like any other insurance, you can pay monthly or annually to keep your insurance plan in force (active). You’ll also have to make decisions on the following items to ensure that your long-term care plan is right for you.

1. Your benefit

 

If you need long-term care, you can decide whether to take your benefit on a monthly or daily basis. Typically, your benefit can range from around $3,000 to $12,000 a month. Depending on how much benefit you want, your premium will change. If you want less benefit, your premium will be lower, and it will be higher if you want more.

 

2. Your benefit period

 

Your benefit period is how long your insurance will cover your long-term care needs. You can choose to have your policy cover your bills for a set number of years or cover you for the rest of your life.

 

3. Your inflation rate

 

It’s vital to keep up with the rising cost of care, so inflation is crucial to bear in mind when choosing a long-term care insurance policy. Many traditional policies have inflation protection built-in, and you can choose from a 3, 4, or 5% compound inflation rate.

 

If you qualify for a policy that covers $3,000 a month, for example, but you don’t need long-term care for another 10, 20, or 30 years, your policy may no longer cover your needs without inflation protection.

 

However, if you have inflation protection at a 5% compound rate and need long-term care next year, the insurance company will cover around $3,150, versus the original $3,000 you signed up for.

 

4. Your waiting period

If you need long-term care and have been approved to receive your insurance money, you’ll need to cover your expenses for a certain period. This is called the ‘waiting period’ and is typically 30, 60, or 90 days.

 

This is very similar to the deductible on your car insurance. For example, you may have to pay the first $500 for any damages to your car, and then your car insurance will pay for anything above that. The waiting period is when you have to use your own assets to cover a set amount of time before your insurance company will pay.

 

It’s important to consider how much risk you want to cover, as costs can mount quickly in your waiting period.

 

The pros and cons of a traditional long-term care insurance policy

 

One of the main positives of a traditional long-term care insurance policy is that you can manipulate each of these four factors to build the policy you want. However, they all affect your premium.

 

But a drawback to the traditional plan is that there is no cash value. Like car insurance, you pay to stay in force, but you don’t build up any cash reserves. So, if you start your policy in your early 50s and never need long-term care, you could pay thousands of dollars for peace of mind alone.

 

Some insurance companies will allow you to pay part of the premiums upfront, but the majority are paid on an annual basis and continue for as long as you’re using the policy. Once you’ve been approved for a policy, companies can’t reject or turn-off your insurance, so long as you continue to pay your premiums.

 

However, premiums can rise. In the past, they’ve risen every 3-5 years, and this may eventually put a strain on your cash flow. If this happens, and you want to adjust your premium, you can reduce your service based on the four factors above. Otherwise, you can cancel your policy and cover any long-term care costs that may arise using your own assets.

 

Understanding hybrid long-term care insurance

 

Hybrid long-term care insurance is designed for those who feel unsure about paying for insurance premiums when they may never need long-term care. These policies allow you access to your money and provide other benefits alongside covering long-term care.

 

In this post, we’ll detail two of the hybrid long-term care insurance models.

 

Long-term care annuity hybrid

The long-term care annuity hybrid combines an annuity and long-term care benefit. With this hybrid, your cash grows in an annuity with the added benefit of long-term care insurance. You also have an interest rate, and you can access those funds whenever you need to.

Let’s use an example. If you put $100,000 into your long-term care annuity hybrid, that $100,000 is still your money and accessible to you. You can earn interest on this money and grow your cash as if it’s in a regular annuity.

 

Depending on your age and your situation, the long-term care side will determine how much of your annuity can be used for long-term care. For example, you might be able to use three times the amount you put into the annuity. In this example, that’s $300,000 of long-term care benefit.

 

If you don’t need long-term care, then your $100,000 will continue to grow through the interest rate. You can also add it to your estate plan and distribute it to your beneficiaries at the end of your life.

With the annuity hybrid, you won’t have to worry about rate increases on long-term care insurance, and your money always stays accessible to you.

 

Triple hybrid – long-term care, cash value, and life insurance

 

If you’re unsure about what cover you might need in the future but want to keep your cash flow options open, then a triple hybrid insurance policy provides comprehensive cover and has a cash value.

The triple hybrid is similar to the long-term care annuity hybrid but offers life insurance as an extra.

Let’s use another example. If you put $100,000 into a triple hybrid insurance plan, you could have:

  • $300,000 for long-term care
  • $250,000 instantly of death benefit which can go to your heirs tax-free
  • Cash value close to $100,000, accessible to you

An advantage of both hybrid policies is that your beneficiaries can receive their benefits if you don’t need long-term care. Also, you won’t need to worry about rate increases as insurance premiums on hybrid policies are fixed.

Hybrid long-term care insurance is often favored over the traditional plan, but there’s lots to think about before deciding which plan is right for you. You may opt not to buy an insurance plan at all and instead finance any long-term care using your own assets.

If you want to talk to an expert about which long-term care insurance plan is right for you, our team can help. Book a complimentary 15-minute call with us, and we can explore what insurance solutions suit your unique situation and answer your questions about long-term care.