XYZ Strategy #1

As a kid, my parents jokingly shouted “XYZ” if I ever exited the bathroom without zipping up my pants!  Let’s be honest, sometimes we get going so fast that we forget some of the most basic, fundamental needs we have.  As a Gen-X (ages 38-48) or a Gen-Y (ages 19-37) investor, did you know that you are a part of a group that boasts one of the highest earnings power?  Maybe you are moving along so fast that you need to stop to reconsider your plans for the future – something that seems way off, but in reality something that may come quicker than you realize.  Doing so can help you Zip-up (take care of) some essential needs in regard to your financial hopes and plans… these are the XYZ Strategies.

XYZ Strategy #1Develop a strong, sound savings strategy

Many Gen-X investors are doing this.  Many Gen-Y investors are starting (or have thought about it).  And some of you have an inheritance you unexpectedly received, providing a solid foundation on which to build.  Regardless of your situation, a key need for you is to develop a disciplined investment strategy.  This is how you accumulate net worth over time, and also build up what you need for retirement.  So what defines a strong savings strategy?  Here are some five basic criteria to consider.

1) Just begin – if you haven’t already, you need to start saving.  Do you realize it is much more difficult to save later on in life than it is today?  This, not to mention the opportunity cost of forfeited compounding, inflation, etc. are reasons to start today.  Plus, the math tells us that you shouldn’t be required to put aside as much now compared to waiting to start years later (when you get that pay raise, after you get married, once the car is paid off, etc.) saving for that goal.

2) Go automatic – systematic bank drafts work best and take the emotions out of investing.  There’s no second guessing and you don’t miss $’s that aren’t in your checking account.  If you get paid on the 15th and 30th each month, set up drafts for the 16th and 31st each month.  Before you realize it, the years pass and you could have significant accumulated savings that you funded without the pain of writing a check each month, or wondering if “now” was the right time to invest.  Dollar cost averaging is a proven, sound investment strategy.

3) Stick to your guns – in other words, don’t stop your plan… not when your car breaks down, not when the A/C unit stops working or the roof needs repair, not even when you have unexpected medical expenses.  That’s what your emergency fund is for.  Instead, benchmark that you won’t stop saving – and that you will even increase the amount you save every year.  When is the best time for this?… usually after your annual employment review (or bonus).

4) Spread it out – while you can’t argue with the tax-advantages of saving in a company retirement plan (401k, SIMPLE IRA, etc.) or a Roth IRA (tax-free growth over time), it is still important to diversify your savings.  Sound investors will also have taxable accounts (individual, joint, TOD, etc.) and disciplined families will have accounts set up for their children (UTMA, 529, ESA, etc.).  Not putting all your eggs in one basket doesn’t just apply what you invest in, but also to the type of accounts you are funding over time.

5) Ask for help – set aside the pride and work with an advisor.  It’s a sound way to receive professional, objective advice and it’s never a bad idea to have a second set of eyes on things.  Plus, they look at investments most every day – it’s what they are paid to do.  Let’s face it – life happens and before we know it time has slipped by, so enjoy the weekend and let your advisor worry about the investments.

Actuaries Say Retirement Worries are Increasing

Below is some informative material prepared by Karen DeMasters of Financial Advisor News on 8/16/2012 that talks about retirement views of both pre-retirees over age 45 and retirees.  It is apparent that both retirement income and the need for sufficient financial resources are on the top of retiree’s minds.  We hope this post finds you doing well and off to the beginning of a good Fall season …

Actuaries Say Retirement Worries are Increasing – More than one-third of pre-retirees over age 45 do not expect to be able to retire, an increase of 6% over the number reported in 2009. That pessimistic view comes from the latest survey by the Society of Actuaries, “2011 Risks and Process of Retirement Survey Report.” The society surveyed 1,600 people over the age of 45, including 800 retirees and 800 pre-retirees.

Of those who do not expect to retire, 45% say it is because they lack the financial resources to do so. Of those with financial concerns, three-quarters of retirees and 87% of pre-retirees say they will need extra income. Fifty-nine percent of retirees and 80% of pre-retirees say they need to build more assets. And 33% of retirees and 61% of pre-retirees say they need to keep employee benefits.

“Current trends in retirement indicate that people may need to work longer than they originally planned,” says actuary and retirement expert Carol Bogosian, spokesperson for the Society of Actuaries.

“Individuals often have a difficult time estimating how long they can expect to live, how much they will earn on their investments and how much they can spend each year to avoid running out of money,” she adds. “In fact, many people are just guessing about how much money they will need in retirement.”

The majority of both pre-retirees (89%) and retirees (77%) also say staying active is a reason to keep working in retirement. However, those who do expect to retire often overestimate the amount of time they will be able to keep working. While half of retirees report they retired before age 60, just one in 10 pre-retirees think they will retire that early. Half of pre-retirees expect to work until at least age 65.

“There is a big gap in the age at which pre-retirees expect to retire and actual retirement ages of those who have retired,” says Bogosian. “This may be partially due to involuntary retirement and health problems. This gap, together with the failure of many people to plan for a long enough retirement period, may indicate significant future financial problems for many.

For those retirees who have continued working, half have found employment with a company other than the one they retired from, while 29% have continued to work for the same company. Twenty-two percent have started their own small businesses or become self-employed. Thirty-one percent of pre-retirees who plan to retire say they will also start a small business.”  –Karen DeMasters

Re-Building Retirement Wealth, Part 4

Most have heard the phrase “don’t put all your eggs in one basket,” and pretty well understand the wisdom within this statement. But have you taken this a step further and applied it to diversifying your retirement income? We have seen many times that diversification among retirement income planning has been overlooked. And this can be a critical need for a retiree… so consider what some of the sources of retirement income you have in place. Perhaps you can identify with one or more of the following basic sources of retirement income:

Investment portfolio or savings – Income is generated from one’s investment portfolio, which is solely dependent on the stock and bond markets, such as a 401(k) plan, IRA or other accounts which may include mutual funds, individual securities, etc.

Employer benefits – Some still have an employer benefit (such as the Federal or State government, a large corporation, etc.) such as a Defined Benefit retirement plan which will send monthly checks after you retire.

Annuities – Another effective strategy can be variable annuities that offer lifetime benefits without annuitizing (via a Guaranteed Income Rider), which ultimately pays the policy annuitant a monthly income benefit for life, and the beneficiary receives the balance at death.

Rental and/or income property – Working assets that generate a constant flow of income, such as real estate, a trust or other account or inheritance property.

Notes Receivable – Can include private notes that others owe you or even arrangements with another party that can provide a set monthly income.

Timber proceeds – In the case of land ownership, periodically a timber cut or thinning can provided additional cash flow.

Oil/Gas partnerships – Can provide periodic income to the limited partner who assumes no liability beyond the funds they contribute to purchase units in the partnership.
During retirement the best of both worlds is at least stable income, but with some potential to increase over time. It is quite possible diversifying your retirement income may help produce that outcome.

Re-Building Retirement Wealth, Part 3

In this part, let us remind you of the importance of attempting to grow your investment portfolio reasonably. Consider this… if you have ever played baseball, how many home runs did you hit? Or maybe as a spectator, how many home runs have your children or grandchildren hit on a consistent basis? So now you get it! Just as base hits are easier to get, a reasonable investment return probably stands a better chance to happen with possibly less risks. Let me say it again – if your retirement plan’s success depends on you hitting home runs with your investment portfolio, then stop that! Make adjustments now (save more, spend less, work longer if necessary, even consider working part-time during retirement, etc.). Keep in mind, a reasonable goal may be more successful if no more than a 4% to 6% long-term result could get the job done.

Re-Building Retirement Wealth, Part 2

In Part 1 posted on 3/4/10 we discussed the benefits of a reasonable lifestyle, both today and during retirement. So let me illustrate to you what I meant and the benefits of spending within reason. Notice how much someone needs at age 66 to support a much higher standard of living. I would call this “living within your harvest.”

To illustrate, let’s make the following basic assumptions for a married couple:
— Current age of 55 and Retirement age of 66
— Combined Social Security income of $2,400/month (in today’s dollars)
— Growth rate on investments of 4% post-retirement
— Retirement period of 19 years (live to age 85)
— Current inflation rate of 3% annually

Based on these assumptions, someone may need to have accumulated the following amounts at retirement (Source: American Funds retirement calculator):

Living Expenses during Retirement —- Amount Required at Retirement (age 66)
$6,000/month —- $1,066,488
$10,000/month —- $2,158,247

Keep in mind this is just for simple illustration purposes, makes common assumptions, and assumes no market volatility. In real life, change is frequent and retirement assumptions, rates of return, inflation, etc. can vary from year to year. Plus, it’s very common that individuals will experience some type of unexpected need during their retirement years (such as increased medical expenses)… requiring more savings or a lifestyle change. Remember, everyone’s situation is different and should be monitored closely by a financial professional.

So what do you think? Which spending level can you truly afford?

The above information is for illustrative purposes only and is not intended to provide investment advice or portray actual investment results. Your financial situation and goals may change, so you might want to revisit the American Funds retirement calculator at least once a year. Be sure to discuss your results with your financial professional. The above information does not take certain factors into account, including early withdrawal penalties, required minimum distributions and holding periods. Regular investing does not ensure a profit or protect against loss. Hypothetical annual rates of return are not intended to reflect actual results; your results may vary based on market conditions. The above information compounds earnings annually and assumes that withdrawals are made at the beginning of the year. To access the American Funds retirement calculator go to

Re-Building Retirement Wealth, Part 1

Almost everyone I talk with, from young to old, seems to be worried about their future. Whether their fears have been heightened due to the economy, the stock market, or the political climate, their concerns usually center on “will I have enough” to retire. In other words, “What if I can’t work as long as I need to?” or “If I want to stop at some reasonable age, will I be able to?” So let’s review over the next several weeks what may help. With each entry we’ll try to address a strategy or “hot topic” that may be helpful.

Live Reasonably. Good marketers have done an excellent job motivating us to want more and more. But the truth is we can’t afford many things we spend our money on. So look at what you are spending (make a detailed list) and then ask yourself what kind of lifestyle you can afford, not just today but later. Next, start finding ways to spend less and save more. Remember, bad habits are hard to break. Reducing spending is almost like pulling apart human flesh. So don’t wait too long to start re-establishing good spending and savings habits. To develop & monitor your spending plan, consider using Quicken or the Mvelope System. And if it helps any, remember that most of the “rich” can’t afford the “yester-years” any more than the rest!