Heard on the Street…

True story: this week my 7-year old son and I were driving home from church in a silent truck.  Then, all of a sudden, he yelled out “Everybody knows that!”.   Of course I replied asking, “Everybody knows what?”  His answer: “In 15 minutes you can save 15% or more on car insurance.”  Admittedly, this was not quite what I expected.  Then a few seconds later came his follow-up, “Dad, what’s a percent?

Many times we believe something just because we hear it over and over, regardless of whether we fully understand it or take time to research its validity.  Believe it or not, this happens in the investment world as investors buy into the “hottest stock tip” or become frightened after listening over and over to doomsday predictions.  Regardless of their specific situation or well developed plan, it somehow becomes easier to stray off path when the “noise” gets louder – whether from family, a friend’s so-called “successful investment story” or the news and media.  Remember, you must maintain faith in your plan.

Playing the “what-if” game can be dangerous just like following the latest trend can leave you at risk.  There’s a time to turn down the volume… and when things seem just too good to be true, don’t hesitate to ask your advisor.  It can be good to get a second opinion or an objective viewpoint before making a clouded or emotional decision that you come to regret down the road.

Saving early enough?

I attended a brief seminar last week that featured a former Department of Labor investigator.  As current trends in the qualified retirement plan area were discussed, the following statistic came up among pre-retirees: “the largest regret about my retirement is that I didn’t save enough (or at all) during the first five years I worked” – Did you know that by beginning to save when you get your first job, especially during the first 5 years, you can dramatically increase your retirement success rate?  Two key factors come into play: 1) your investments have longer to compound and grow, and 2) most who do so develop a positive habit of disciplined saving.  If this window has passed by, do you have loved ones you need to encourage to start investing now?  And if you are late, why not start now anyway?  Call us and we can help.

Well-equipped for retirement?

According to the Population Reference Bureau, 76.4 million Americans were born in the period 1946–1966.  For retirement, a majority of these Baby Boomers must rely on the 401(k) system or equivalent defined-contribution plans (where the worker does a majority of the savings and, in many cases, may receive matching contributions from their employer).  This is because the key retirement predecessors, “defined-benefit” plans (such as pensions), have increasingly become a thing of the past.

What’s troubling is the Quantitative Analysis of Investor Behavior 2014 DALBAR survey results indicate that investors are not very effective in managing their own investment portfolios.  And among other things, the survey shows that workers aren’t saving enough for retirement.  To quote Dr. Olivia Mitchell, Executive Director of Wharton’s Pension Research Council “more than half of U.S. retirees will rely on Social Security for more than 50% of their total income.”  This will sadly leave them with the painful choice of a significant drop in their standard of living, or even more concerning, the risk of outliving their retirement savings.  One simple conclusion, workers should seek help to review and plan for their retirement – a second set of eyes to help them get, or even stay, on track.

Improving your Retirement Picture

In a recent national retirement plan survey conducted by Matthey Greenwald & Associates of Washington, D.C., employer retirement plan participants shared some interesting facts. Here is a clip of some of the key findings provided by American Century Investment Services: 

  • A majority of participants, particularly older participants, have at least some regret about not doing a better job saving for retirement. In fact, participants gave themselves roughly a C+ on putting money away for retirement and on investing. 
  • The large majority of participants across all age groups wish they had saved more in the first five years of their working lives. 
  • Only one in ten strongly agrees that they knew what they were doing with their investments. 
  • Seven in ten are at least fairly interested in having a program that would increase their savings by 1%. 
  • Roughly two-thirds in each age group expect the financial advisor to play a major role going forward when it comes to preparing for retirement. 

Does all this make sense to you?  If we can help you or someone you know have enough for retirement please give us a call now.  We are ready to help.

Life expectancy and retirement

There are a lot of factors to consider when it comes to retirement planning.  If you’ve ever plugged in assumptions on a retirement calculator to try to determine “your number” then you know what I’m talking about.  One thing you want to avoid underestimating is your average life expectancy.  This is a key number telling you how many years your retirement income will need to last.  You will need to take into consideration factors such as your family medical history, your current health, etc.  While people are generally living longer, your family history plays a primary role in how you should view your life expectancy.  Remember, if you live into your 90’s you may need to plan for a lower investment withdrawal rate over your golden years.

Are you maximizing your income?

In May we blogged about your retirement income stream, specifically the potential benefits of delaying your Social Security if you are able to do so.  Did you also know that your Social Security is permanently reduced if you claim your benefits early?  Remember, it is important to maximize any source of income during retirement.  This includes Social Security, as well as other potential income streams like pensions and annuities.

For those who are willing to wait, or who can work a little longer, there are additional strategies you can consider in order to “maximize” the benefits you receive from Social Security.  To help determine this, there are three key factors to consider:  1) how long you are planning to work, 2) your marital status and age differences, and 3) your health and family medical history.  By sorting through these key points and working with a professional, you should be able to determine if strategies such as “file & suspend”, “switch strategies”, or “filing a restricted application” can benefit you by increasing the amount you receive over your lifetime.  The benefits can be significant.

Your Retirement Income Stream

According to retirement studies conducted by J.P. Morgan, two-thirds of the average American’s retirement income comes from their Social Security and their earnings.  And many of these people find themselves having to work longer and retire later.  And remember, Social Security benefits only replace 27% of higher incomes (past wages of at least $113,700) and up to 58% of lower incomes (past wages of $20,172) of one’s past wages (Source: 2013 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund).

One simple way for a 60-year old pre-retiree to improve their situation is to delay starting their Social Security income.  According to The Social Security Administration each year you wait to draw Social Security you gain an increase of approximately 7%, much like receiving a “raise” in your retirement pay check.  And though a few can’t delay, we have found with some adjustments many can wait to begin this benefit until at least their full-retirement age (age 66 if you were born between 1943–1954).  This may be a particularly important consideration if a spouse has “good genes” and stands a reasonable chance of living into their 90’s.

To possibly help, remember that the Social Security Administration now provides access to online benefit calculators through their website, www.ssa.gov.

Millennials Choosing to Rent

According to several recent studies the younger generation today would rather rent than own their home.  True, the recession has done a number on their job opportunities.  Plus, many are busy paying down debt and working hard to make themselves ready to own one day.  But unfortunately we all know tougher mortgage credit requirements are eliminating “too many” good, potential home buyers.

What’s alarming is that a greater number that can buy are simply choosing to rent.  And the main reason… well, you guessed it: they are saying that they aren’t ready to settle down.  They possess a strong desire to travel and explore before they get more “serious” with life.

So what’s the concern? Well, a couple things come to mind.  First, the obvious negative effects on our economy from less Americans owning homes.   Second, if this group chooses to rent for a long period of time before they purchase a home their personal wealth could suffer long-term.   With the time-value of money principles working against them and delaying this traditionally effective form of saving (building equity) through home ownership at young ages, some of this generation may never replenish the cost of such a delay.

Balancing Act

Chuck Swindoll once said, “The longer I live the more I appreciate balance, and yet the more I see of extremes.”  Most of us do appreciate balance.  And most of us do see the extremes around us because they typically reveal something unexpected, or perhaps even dangerous.  This naturally grabs our attention, at least for the moment.

As an investor, you have likely experienced times when the market seems to be overreacting to something.  During these times it’s often best to step back and turn down the volume on the TV set.  Remember, if you developed an investment strategy and the appropriate level of risk tolerance in your plan, then you’ve already prepared for extreme times.  In other words, you have “balanced” your portfolio based on risk, goals and time horizon.  This balancing act can help you get through these times with a degree of confidence that comes from being prepared.

And don’t forget, just like in life, we need to “rebalance” our investments from time to time.  When your situation changes, or as you get older, you will likely change your goals and adjust your risk tolerance accordingly.  Don’t fail to consider key changes in life and in turn adjust your investment portfolio.  A periodic rebalancing can help smooth out the bumps in the road and help to keep you on track.

Getting Back on Course

On a camping trip with the kids this past weekend, my daughter stayed in the woods to cut down a tree branch… my friend and his kids continued hiking back to our campsite.  When she had finished, we picked up our gear and began our trek to catch up with everyone else.  But unaware, I took a wrong turn and led us deeper into the woods.  After about ten minutes of hiking, it was apparent to her that we were lost.  A few minutes later she started to tear up and become afraid.

Having hunted in these same woods over fifteen years I knew we were safe.  My frustration was that I had led us in the wrong direction… and I knew it would take much longer now to get back to camp.  Her shoes were wet, her spirit beginning to break, and all she wanted was to be back with her friends (and to eat lunch).  Can’t say I blame her… as an eight year old (like her) I remember getting lost in my Mamaw’s neighborhood one time.  The word “fun” has never been used to describe that experience. 

Now, in the woods with my daughter, I began to experience a different fear… “what if” my six year old son had turned back for us and not continued on with my friend and his kids?  JB could easily assume that my son had stayed with me and would likewise be unaware anything was amiss.  That meant my son could be lost in the woods by himself… perhaps even feeling like I did as a lost child?  And to make matters worse, I left my cell phone in the tent, so there was not any quick phone call back to make sure all was okay (or to get a simple four-wheeler ride back to camp).

The mind began to run… and in a short while I was starting to feel a little panic like my daughter.  I had no control over my son’s situation and that is difficult for a parent.  But that’s when a simple thought landed.  I had a choice… to feed my daughter’s fear, or to turn our current situation into a learning experience.  We stopped, I said a quick prayer for my boy (and for us) and then began to point out signs to her.  Observing what was around us, we rather quickly found our way out of the woods and onto a familiar trail.  Then I let her take over and she eventually led us out to the road.  From there, we were back at camp within a few more minutes only to find her brother roasting s’mores over the campfire.

Thinking back on this experience I am reminded how easy it is to get caught up in hype, fear, or chasing trends with our investments that the “noise” around us soon causes us to lose focus.  We become distracted, and before long realize we aren’t following our plan.  We have taken a wrong turn and are no longer on course… or we simply become afraid, which can lead to emotional decisions that aren’t good for us.  There is much value in learning to stop and observe before we take action.  Through this practice we can make better decisions to get us back on track, and it’s how my daughter learned to get out of the woods!

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