Interesting Articles

Gender gap: Men and women plan differently for retirement

This article covers a very interesting study on the differences between men and women when it comes to retirement.

For me, the biggest difference, according to the study, is that men look at the big picture and women are more detail-oriented.

One commentator noted that men may, in fact, be deceiving themselves when it comes to retirement, while women may be more realistic. Instead, they start planning later, intuitively anticipating their statistically greater amount of time spent in retirement.

How to not run out of money in retirement

I guess if the advice comes from individuals involved in managing the Yale endowment fund ($26 billion), it’s hard to disagree.

And I don’t… Adding a deferred income annuity to your retirement portfolio makes sense to them and to me.

The point they make is that the payout is so attractive because the premium is discounted in two ways. First, for interest, but also for the percentage of purchasers who don’t make it to the payment date. For example, if only, say, 30% of male retirees survive to age 90, then the premium for that one payment is discounted by 70%. Then, it’s even further discounted for interest.

Compare that to the amount you’d have to invest to be assured of that payment!

Clients are living longer, putting pressure on retirement advice

You’ve heard of the income gap, the gender gap, and now the advisor-client gap.

That’s the period between the age when your advisor retires and the age to which you survive. That gap could be 10, 20 or even 30 years.

So forget about your calling the advisor for what to do with your investment accounts, distributions from your rollover IRA account, or with questions about the tax deductibility of certain expenses.

You’re on your own! That’s why it’s so important to get a retirement plan that completes itself, without the intervention of your advisor or anyone else.

Aging-out advisors create an experience gap

While the article is focused on what the advisor industry is doing for succession planning within an organization, the point of the article is relevant to you as well.

Will your advisor retire or pass away before you do? Is your retirement income plan dependent on that particular advisor or any advisor at all?

If the firm you are working with has no obvious advisor to take over the management of your plan, could your spouse or kids take over in the event of your incapacity or passing?

As I’ve stated before, the bottom line is this: Adopt a plan that completes itself, with or without an advisor. There’s no guarantee that they’re going to be there to support your financial goals all of your life.

Does appreciating the importance of retirement planning = action?

The fundamental issue highlighted here is that understanding a problem doesn’t necessarily suggest the solution.

And that goes back to framing the issue.

It’s not that you’re not on track to hit your savings number. It’s that you can’t live on the income chest you’ve built up.

People understand that they can’t live on $20,000 plus Social Security. They’re not sure why the $275,000 they’ve saved isn’t good enough.

It’s the same person, just different framing of the issue.

The savings target they set isn’t working for them, even though they’re on track, because it won’t provide the retirement income they need to comfortably survive.

Leaving retirement accounts to our heirs

This is an important topic, even though I don’t expect all of you to be trust and estates experts.

Whether naming heirs or a trust as the beneficiary of your retirement account, there is no blanket rule of right or wrong. What is important is gathering the necessary information so you can make a decision based upon your own preferences and unique circumstances.

My perspective is this: First, create a retirement plan that works in your lifetime, providing you with the peace of mind you deserve.

Once you achieve that, go back to make sure you didn’t make any estate planning mistakes.

While it’s nice to know we’re leaving a legacy for our heirs, we must first know that we’re covering our own basic needs during our lifetime.

5 expenses that will change in retirement

It’s difficult to nail down what your expenses will be once you retire. So difficult, in fact, that many people don’t even bother trying.

What this article is really suggesting though is that everything will change when it comes to expenses in retirement. Some things will go up. Others will go down.

For example, we know that unreimbursed medical and home health care costs will increase dramatically late in life.

What’s important is the timing of these expenses.

Also, when it comes to taxes, you have considerable control by developing a plan with both secure and low-tax sources of income.

Someone reminded me earlier today that this was my 100^th post since the first one was published on this site on March 16th, 2011. Thank you to our loyal followers.

While it’s just been half a decade, a lot has changed in the external environment, but more so in my current thinking.

Here are a few observations:

• Retirement calculators continue to fail average investors.
• Despite hard evidence of increased medical and long-term care costs late in retirement, financial writers and advisors still tend to ignore these issues.
• The excitement about robo-advisors doesn’t truly support the more specialized planning needed for Boomers starting retirement
• The DOL rules (or at least their intent) are long overdue in aligning the interests of investor, advisor and provider.
• The politicians fail to consider practical, workable solutions to shore up the U.S. retirement system.

Let’s see what happens over the next 100 posts!

As for this week’s What Jerry’s Reading…

What I’m finding is that most retirement planning has not caught up with the complexities and real risks individuals have. They still appear to me to be designed by and for pension consultants’ managed pooled funds.

A warning about your ‘magic number’ for retirement

I like the idea of “warning” people about the magic savings number they’ll need to accumulate for a sound retirement. However, warning about faulty assumptions, longer life expectancies, and late-in-retirement expenses may not be strong enough.

We need to wean investors away from relying upon this number and instead translate it into a statement of the future retirement income their savings could purchase.

It’s real and not based on assumptions. The goal is to build that number over time to meet your retirement income needs.

IRA planning for long-term care and longevity

I found this to be an interesting article about smart planning combining two separate issues: your IRA Account and your long-term care needs.

It even introduces a third idea as a means of creating a more viable retirement income plan. It recommends using a QLAC to adjust the disbursement of your wealth so that you can pay the cost of living longer than the average lifespan, which is, by the definition of life expectancy, what half the population does these days.

What this all suggests to me is that planning your retirement requires more than stock and bond funds and withdrawal schemes. Your plan needs to reflect taxes, long-term care and medical costs, as well as longevity risk management.

Articles I read this week were consistently downbeat about retirement. So I thought I would counter that with some specific corrective actions.

Bank of America Merrill Lynch study finds American workforce concerned about overall financial health

As a Merrill Lynch customer, I’m glad they’re conducting these studies. The results simply confirm what I’ve been saying for awhile now.

Regular folks are not prepared for retirement.

Even if employers were to step up and play a role in devising a solution, this doesn’t address those who are self-employed, the participant who is between jobs, or those who already retired.

What we need is more investor education and a new approach to retirement planning. Individuals need to start answering these questions for themselves:

• What can your savings produce today in retirement income?
• Can you live on it?
• If not, what can you do to increase your retirement income?

Baby Boomers feel worse about retirement than they did four years ago

It seems like all the news and studies on retirement are pretty depressing these days… And those feelings are not unjustified.

So what is one to do?

Here’s what.

Find out exactly how much retirement income you’ve already built up. Consider Social Security, any pension, and pension-like income from your savings. Don’t use projections or estimates. Just factor in the hard numbers.

Then consider what can you do to get your numbers up. It’s like your cholesterol readings, but in reverse. The higher the number, the better.

If you don’t know where to start, you may find the resources in the Go2Income Learning Center useful to figure things out.

Many Americans overestimate safe retirement withdrawal rate

More bad news… While many experts benchmark the safe withdrawal rate at 4% annually for the typical retiree, most Americans thought that it was “safe” to withdraw even more than that.

The problem is: we need to strike the phrase “safe withdrawal” from the retirement dictionary. There is no such thing!

It‘s like asking the question, what’s the “safe freefall” from a plane? Even though your parachute will open, do you want to risk it?

Trust me, every study confirms that retirees prefer “guaranteed lifetime income” to withdrawals, whether they believe the withdrawals are safe or not.