Interesting Articles

“Older Americans Are More Afraid of Running Out of Money Than Death,” according to a Fox News article I read this week.

I have to admit, I’m a little tired of articles with come-on titles and no helpful advice.

There’s only one vehicle that an individual can purchase with personal savings that lasts for life – an income annuity.

Find out what your Income Power is, and then decide if you have enough so you can leave a legacy.

The order you want to plan for is: lifetime income, followed by liquidity for emergencies and finally a legacy for the kids.

Another article, “Early Retirement Planning Can Aid Mental Health,” gives more reasons for planning for your retirement in your 50s. It seems that it improves your psychological outlook.

Our view has always been that early retirement planning improves your financial outlook, whether it be smarter investing, or tax and legacy planning.

Maybe, just maybe, these two benefits are linked together. We all know the stress that current money woes can present. Planning ahead for retirement can definitely reduce that future money stress.

One article that I read shared some common (and costly) investment mistakes that unwary couples make when it comes to their retirement planning.

While I have a knee-jerk negative reaction to lists of “5 mistakes,” “7 challenges,” or “9 flaws,” every once in a while they include some points that bear repeating.

In this story, one of the key mistakes for planning a couple’s retirement is to not plan for the couple. Oftentimes, the emphasis is only put on planning for the breadwinner.

It’s likely that the surviving spouse will live 5 to 7 years beyond the passing of the first spouse, on average. Income and care must be available for that period.

On PlanAdvisor, there was an article on how “Small Changes to the Defined Contribution Framework Could Pay Dividends.”

The article recommends three primary changes: encouraging contributions, maintaining smart asset allocation while building savings, and delivering efficient distribution strategies.

The last is one we’ve talked about on our blog in the past. We strongly support the smart addition of income annuities to the investment mix for any retirement plan.

We also believe that making this a default option for defined contribution plans would go a long way to creating better retirement income streams for future retirees.

The bottom line is: While choice is great when it comes to the distribution of one’s retirement income, have participants elect their choices out of options that the experts design with future income in mind.

I recently read an article called “When Retiring Early is not a Choice.” The first section of the article discussed the trade-off of deferring Social Security benefits to as late as possible versus taking them early, stating that:

To really come out ahead from delaying Social Security requires a client to live into their 80s; otherwise, they would generally better off taking a reduced benefit earlier and collecting for as long as they live.

There are two points I would make here:

1. There’s a lot of debate as to whether it’s a good deal to get a 32% higher benefit if you delay from 66 to 70. To the lay person, that may seem like a great deal. However, if you analyze it using actuarial tables, you find that the Social Security system is essentially paying you 4% on the money you deferred. In this environment, that’s an okay rate of return. But in a higher interest rate market, a greater increase might be justified. In other words, you might do better taking the money early and investing it yourself.
2. Besides the financial tradeoff, there are individuals who need the money simply to retire. This is where considering alternative saving sources that you might tap works well, like using the equity in your home to supplement your retirement income.

In an earlier blog post, I suggested that there ought to be a universal IRA offered by the federal government.

This article from CBS News talks about states coming up with programs to promote and encourage savings. Their hope is to prod reluctant retirement savers to start planning for their retirement income.

While laudatory, it’s critically important that individuals see these plans as accumulating future income rather than just savings.

These federal and state plans must encourage people to participate by making it a default election, or foster greater participation in other smart income choices.

One of the articles I read from Time magazine this week aimed to provide four key numbers intended to make retirement planning less daunting.

If only retirement planning were that simple – just remember four numbers and everything about retirement will take care of itself.

These “numbers” or “rules of thumb” presuppose a particular approach for accumulating and distributing your retirement savings.

However, the assumed approach is not the only method. The approach we favor deals with only one number. 100%.

We focus on getting to a place where 100% of your planned-for expenses are covered by real income.

There’s nothing daunting about retirement when you know you’ve got it covered!

As we’ve reported in this blog, retirement calculators fail for lots of reasons. Researchers at Baylor and Texas Tech have published a study that only proves our point.

However, it’s not so much the calculation that is flawed, it’s the strategy being measured.

Developers of these calculators, which evaluate “withdrawal” strategies, fail to consider more effective strategies involving income annuities and debt.

A recent article on the Huffington Post aimed to share the key to leaving stress behind in retirement.

I’m not the psychotherapist in my family, my wife is–but when it comes to retirement I’ve got some ideas on how to deal with stress. Start by defining the sources of that stress.

First, while planners deal with “longevity” risk, individuals are worried about “mortality” risk, or when they’ll pass away. Investors shouldn’t have to bear either of these risks, financially. It’s why they have life insurance, income annuities or both!

Second, investors are often stressed by deciding between generating income and leaving a legacy. Our advice – take care of your income first.

Third, there is the stress of how markets and interest rates can rock your plan. Again, you can manage and minimize this risk, and pass on market risk to your kids.

I hate to say it, but the article and I agree–current planning approaches are not stress-relievers.

I just read that the European Union is asking Apple to pay the Irish government $14 billion in taxes that Apple avoided through forming shell companies in Ireland.

Individual investors don’t have to go that far to save tax money in retirement – and to increase spendable income. This article on “How to Build Tax-Efficient Withdrawal Strategies for Retirement” goes a long way to identify some of the (completely legal) strategies to do just that.

The problem is that solutions seem to be available only to investors with their own financial planners or very astute tax accountants.

It’s our view that we ought to democratize this advice and make it available with minimal, if any, charge to everyone.