Do you remember the 1993 movie “Grumpy old men?” It was about a couple of retired guys that spent most of their retirement bickering with each other and fishing. You would think that a story about lifelong friends spending their retirement years on the water would be nice, but they were grumpy because the only thing they had to do was fish and fight. A successful retirement takes more than money, it takes purpose.
Most pre-retirees as concerned about not having a regular schedule and things to do vs. having enough money. Many retirees worry that they will not be able to fill their days or feel that they still have a purpose in life. A big part of retirement planning is what you will do in the 25 or more years you still have to live + making sure that you have planned financially.
If you plan diligently for your retirement dollars and time, it will be a retirement that is enjoyable.
If you have been impacted by Hurricane Irma and are short on cash, this may be the one time to use your 401(k) as a piggy-bank. Storm victims will be allowed to tap into their 401(k) accounts under the hardship withdrawal rules if they have been affected by flooding and destruction by the hurricane. Additionally, the IRS is waiving the 6 month ban on making new contributions to your 401(k) that typically go with a hardship withdrawal. Distributions must be made no later than January 31, 2018.
This is an example of how the IRS can be your friend in a time of need.
With what we have gone through recently due to the weather, most of you know how important it is to have a readily available emergency stash, at least I hope so. We lost power for over a week, so having cash on hand allowed us to go shopping for food that could be prepared on the grill or eaten right away, as well as getting gas and other essentials. Sadly, over half of Americans polled by the Federal Reserve in a recent query said they don’t even have $500 in an emergency fund.
We are becoming a nation of spenders who no longer save. Money has become a card you stick in a machine to get a product, and maybe, not get a receipt so you can actually see how much you are spending. If we are not keeping track of the small stuff, how are we ever going to handle an emergency?
I have written a few times in the past about having an emergency fund. I cannot tell you how much is the correct amount to have available in cash for your emergency, but I can tell you to have the cash!
As you look back on the impact the hurricane Irma has had on your lifestyle, please put together your emergency stash. After that, your emergency will be no big deal from a financial standpoint.
Did you jump the gun?
Whenever I meet with someone that says they are ready to retire, I ask them what they will do with their time. If the person starts rattling off a list of things they have to, and want to do, I don’t worry. If I get a blank stare, I worry that they may jump the retirement gun. Here are a few sign that you have retired too soon:
You are bored.
Boredom is a bad thing. I have seen clients spend too much money, gain a lot of weight, and start showing dementia like symptoms out of boredom. 30% of those who retire early, wish they could go back to their old careers. Consider your temperament when potentially dealing with hours of free time.
You don’t qualify for Medicare.
We all know the state of health care today is in flux. For many, premiums and/or out-of-pocket expenses are going up at an alarming pace. If you retire before age 65, you may have a COBRA policy for 18 months, then you will have to go on the exchange and get an individual health insurance policy. Navigating the choices and expenses can drive a person crazy. You must consider how potentially high health insurance costs will impact your retirement resources.
You are withdrawing Social Security benefits early.
Plain and simple: you will take a permanent cut in your Social Security benefit by drawing prior to full retirement age. Let’s say you retire at age 63 and start drawing Social Security benefits. You will take a 20% cut in your benefit for the rest of your life.
Before you pull the trigger, please discuss your retirement plans with your spouse or partner, then, hire a Certified Financial Planner™ professional to provide you with a comprehensive retirement plan that will compare retiring early or at full retirement age.
Before the big drawing of the Power Ball last week, everyone was talking about what they would do with the money if they won. Dreams of quitting work, buying a vacation home, news cars, taking care of family members, there are a lot of hopes and dreams attached to a lottery win. Reality from the standpoint of a lottery winner that I spoke to is; if you collect your winnings incorrectly, it may be the worst thing to ever happen to you.
The gentleman I spoke to just collect his winnings in his name, deposited the check in his bank account, met with a lot of financial people but never moved the funds to any investments. Within 5 years it was all gone. He had family members coming out of the wood work, charities calling at all times, his didn’t know how to say no.
Here is what anyone who wins the lottery should consider:
Don’t tell anyone that you have won. A secret is only a secret if it is not shared.
Set up a Trust to collect your winnings. The Trust will be named, not the individual, as far as the public is concerned. You can also let those who come knocking on your door for money that your Trustee makes all of the financial decisions.
Have your wish list at hand for those items that are just frivolous purchases. Scratch that itch and get it out of your system.
Make sure you have current Estate Planning in place. You want to make sure your heirs can handle your good fortune and make it last for generations.
A large part of my practice is putting together, and tweaking retirement plans for my clients. You know what they say about the best laid plans…..I say, expect the unexpected.
Things happen that we cannot control such as, getting laid off two years before your planned retirement, or a family member getting so sick that you now have to be a primary caregiver. There are all types of family emergencies that we would not think twice about tapping into our reserves to help resolve. Just think if you pulled $20,000 out of your retirement account to help with a family emergency when you were age 60, you might not have enough time on your side to make up for that generous withdrawal. You will now have to look at your retirement plans and decide what you will pull back on, or completely cut out. If you had made this type of withdrawal in your 50’s, you may pay a tax penalty, but you would have time on your side to allow your assets to replenish. The thing is, can you expect these emergencies? Most of us cannot.
Imagine that you retired in 2007 with a very healthy retirement portfolio, then the market crash of 2008 occurred, what could you do? One thought is to rein in your spending until you can recover. While no one likes to cut back their lifestyle in retirement, often due to the unexpected, change is necessary.
My advice is to save as much as you can pre-tax through your company retirement plan, add additional savings outside of that in a variety of investments from cash accounts to equities. Hire a professional to help you manage your retirement investments so they can, without emotion, re-balance your portfolio regularly, and hopefully not get hurt too much when an unexpected event enters your retirement.
I get more calls from my female clients vs. their male counterparts telling me that there is a family emergency and they need to pull funds from their retirement account to help. It pains me to liquidate the funds but I know they have no place else to turn. These withdrawals add to the double whammy of most women earning less, therefore, they save less than their male counterparts.
We are conditioned to be the caregivers. It makes sense that when a loved one is in trouble, we throw on our capes and rush to help them. We need to start turning the cape around and be a little selfish once in a while or we will be no good to anyone.
Women in their 60’s today carry much more debt than past generations. Carrying debt in our later years, with waning earning power, and the illnesses that often come with aging, means women are worse off financially. At some point if nothing can be done to increase your earning power, you need to start saying “no” to family members in financial need, plow into your debt to get rid of it, and save for your own retirement.
If we are not good to ourselves, we will be good to no one.
When I started in the investment business in 1983, there were a handful of mutual fund companies you could deposit money with and that was the extent of your choices. Today, there are open-end funds, closed-end funds, exchange traded funds, plus any number of stocks and bonds to choose from. Where does an investor go? Here are a few tips to follow:
First you need to know your time horizon for how long funds can stay invested, then when will you have to convert invested funds to income. Along with your time horizon, knowing your risk tolerance is very important. To that end, we have an extensive risk questionnaire that all of our clients complete.
Make sure you are diversified. This is a statement that I have repeated numerous times over the years. Having a variety of funds, i.e., different companies such as large cap vs. small, or growth vs. value, as well as foreign and domestic, will provide a measure of protection during volatile times.
Do your homework when hiring a professional to help you. As CFP professionals ®, we have ongoing, extensive continuing education as well as a high fiduciary standard to uphold. Ask questions about fees as well as other types of services that will be provided to you.
Investing is a big deal – this is not gambling. We are here to help you throughout your investing life.