retirement planning

May 6, 2015May 4, 2015

Don’t Let a Disruption Derail your Retirement Plans

Everyone wants to have a fulfilling and less burdensome retirement, but one has to face the reality that not everyone can experience this. That is why planning your retirement ahead is very crucial. There are times when even the most prepared people face the financial setbacks that prevent them from saving enough for their retirement. These derails can be in the form of bills and emergencies that have to be tended to. Planning ahead may help but it is not enough to guarantee certainty.

According to Real Deal Retirement, there are three ways to eliminate the possible setbacks while preparing for your senior years; thus, not letting any disruption derail your retirement plans.

1. Consider alternate realities.

Forecast the possible scenarios. No one can really tell what is going to happen before or after your senior years, but you can forecast the things that can possibly happen. By doing so, you can prepare yourself for the possible setbacks of each forecasted scenario before reaching your senior years.

2. Create a safety margin.

If there are inevitable circumstances that happen while you are saving for your senior years, you must have had a plan that is flexible enough to handle all the possible setbacks and damages that these circumstances may cause. Some people try to increase their savings through investment. It is important to know your risk tolerance level. The risk tolerance refers to the amount of money you can bear to lose for investment, such as the money invested in stock market.

It is recommended to keep a percentage of your salary for your retirement while you are still young or strong enough to make money. It is always advisable to prepare for any expense through budgeting. Forty-four percent of the TD Ameritrade’s pollsters answered that saving money helped them recovered from financial disruptions and the other 36% answered that it is by getting an earlier start in saving money that helped them recovered from financial setbacks.

3. Take action quickly.

If you suddenly encountered a disruption on your retirement plans, it is important to take an immediate action. Cut on your expenses and enhance your savings. Proper budgeting is one of the key factors to help you use your money wisely. Just in case an emergency happens and you need to use one of your untouched savings, your retirement savings must be placed as the last resort.

It is important to part some of your budget for emergency and health so that these will be the first ones that you can spend when an emergency happens. If there is really a need for you to use your retirement savings, it is recommended to pay your tax and penalties first. As much as possible, do not use all of your retirement savings to pay for your debts and other expenditures.

The general rule is to reduce the amount of expenditures and save more. If you are one of the lucky people who earn a good value on their paycheck, it is still recommended for you to be prepared for all the possible setbacks because there is no harm in preparing for your senior years.

March 30, 2015March 16, 2015

What to Know Before You Downsize Your Home

When you picture the home where you’ll spend your retirement, what do you see? For many, the answer is a small bungalow near the beach, a spiffy little condo in the mountains, or a tiny, maintenance-free townhome near their grandchildren. But not all share this dream.

A recent study by Merrill Lynch found nearly 33 percent of Baby Boomers buy bigger homes when they retire. They aren’t interested in downsizing; rather, they want a larger property where scattered family can gather for holidays, or spare rooms for boomerang children. Fifty-one percent choose the reduce-and-simplify route, moving into smaller dwellings to achieve greater financial freedom (64 percent) or fewer maintenance requirements (44 percent).

If you’re among the latter—and considering downsizing—there are a few things financial and real estate experts suggest you determine before you proceed.

1. Know what you want.

The answer to this question isn’t all dollars and cents. In fact, the decision to downsize (or not) is often more about quality of life than it is about money. Talk to your partner about what really matters to both of you at this stage in your lives. Do you want to live closer to your family? Do you long to be part of a senior-focused community? Will less space prevent you from entertaining, practicing your hobbies or participating in other favorite free-time pursuits?

2. Know what your current home is worth.

How much can you actually get for it in today’s real estate market? Numerous surveys have shown that homeowners typically overestimate the value of their property by 10 to 20 percent. Request a competitive market analysis (CMA) from a Realtor familiar with your area. This report will show you the sales price of comparable homes in your neighborhood. You might also consider hiring an appraiser.

3. Know what a new home will cost you.

Real estate markets are improving around the nation. While this means your current property might be worth more than it was a few years ago, it also means that you’re unlikely to find a rock bottom deal on a new place. Once you’ve determined what you need (number of bedrooms, bathrooms, square footage, etc.) and where you’d like to live (such as a preferred neighborhood or metropolitan area), work with a Realtor to get an idea of what such a property is likely to cost you.

4. Know how much you’ll save.

Whether you’ve always wanted to downsize or are now feeling financially pressured to do so, figure out how much a move will actually save you. A smaller, less expensive home should have lower property taxes. And moving from a single-family property to a condo or townhome can certainly reduce your maintenance and utility costs. However, moving from the suburbs to the city usually means an increase in cost of living. Consider all the variables before making a decision.

Downsizing your home—especially if you’re able to net a nice profit in the process—can be a great way to supplement your retirement savings. However, it’s not the only option. Talk to your financial planner about alternative ways to tap into home equity and reach your retirement goals.

March 19, 2015March 16, 2015

Annuities for Retirement: How do Annuities Work?

Some people say that annuities are not good investment plans because of their high expenses. On average, an immediate annuity owner must pay 2%-3% annual fees, including insurance, management, and other recurring fees. This amount is considered a huge bite compared to other investment options.

While annuities require high fees, they are good retirement investment options. Annuities for retirement guarantee a stable source of income to the annuitants after their retirement.

What are Annuities?

Annuities are basically insurance products and also retirement investment options. They provide payments that could last for as long as the annuity owners live.

Although annuities are created by insurance companies, most of them are actually purchased from insurance brokers, financial advisers, financial planners, or even from banks. Furthermore, most of these sellers ask for commissions, which may amount to as much as 10 percent. This is one reason some people do not like annuities.

Nevertheless, some investment companies that sell annuities for retirement do not charge commissions. These are known as direct-sold annuities. These firms include companies associated with Vanguard, Fidelity, Ameritas Lite, T. Rowe Price, Schwab and TIAA-CREF.

These companies also do not ask for surrender charges. A 7% surrender charge may be required when an annuity owner changes his mind and returns the purchased annuity a year after the purchase. A decrement of 1 percent is deducted to the charge every passing year (e.g. 1 year, 7%; 2 years, 6%; etc.)

(Talk with your financial advisor about all of the options available and review the value and costs of what they offer from the viewpoint of total value you’ll receive over the life of owning that financial product.)

The amount of payment one receives from an annuity depends on the length of the payment period. The shorter the payment period, the larger the payment returns. Owners of annuities for retirement can choose the length of the payment period. It could be either a payment for a limited number of years, or a payment for the rest of the owner’s life.

Types of Payments and How Annuities Generate Income

Basically, there are two types of payments that owners receive from annuities for retirement: fixed and variable. These types of payments are related to the investment option an annuity offers.

In simpler terms, buying an annuity is as if you had given your money to an institution without expecting to receive back the same total amount. The institution, in turn, promised to give you an income return monthly, quarterly, annually, or in one sum.

The institution will invest your money to a subaccount (usually a mutual fund). Your money might be invested in stocks, real estate, etc. In this way, your money will generate steady retirement income and continue to grow.

In variable payment, the annuity owner can choose how his money be invested. The amount of payment or the future value of his annuity depends on the performance of his chosen fund. The growth of the money through investment is tax-deferred. This is the great advantage of annuities for retirement. In addition, when the time to receive the payments comes, an annuity owner will only be taxed based on regular income tax rate. Nevertheless, if the performance of his chosen fund is poor, the annuity owner may receive less payment.

In fixed payment, as its name implies, the annuity owner receives a fixed amount regardless of any circumstances. But the owner cannot choose an investment option. It is the responsibility of the institution to choose what investment option would generate greater investment returns.

Payout Options

Owners of annuities for retirement can choose among four payout options. The first option is Payment for Guaranteed Period. It is a type of fixed payment for a limited period; say, $8,500 annually for 10 years. If an annuity owner dies before the stipulated period expires, a beneficiary will continue receiving the payment.

The second option is Lifetime Payment. The annuity owner will receive payments as long as they live and ends when they pass away. No beneficiary is involved in this option. The payment can be fixed or variable. The amount of payment an owner receives is calculated based on the money invested and life expectancy of the owner.

The third option is Life with Period Certain. This is a combination of the first two options. The annuity owner will receive payments as long as they live and when they die, a beneficiary will continue receiving the payments for a limited period set by the annuity owner when they were alive.

Joint and Survival Annuity is the last payout option. The annuity owner will receive payments as long as they live. When they pass away d, their beneficiary, typically the spouse, will continue receiving payments for the rest of his/her life.

Annuities for retirement are complicated. To avoid a wrong decision, it is best to contact your trusted financial advisor for assistance regarding annuities.