Financial Modeling’s Role in Retirement Planning – Terry Summers

Software and Honest Inputs can Monitor Retirement

Math-based tools cannot only help project one’s readiness to retire, but life in retirement’s changing phases. Successful projections depend on fixed income sources; accumulated and complementary assets; longevity; and realistic spending.

Financial modeling is frequently used by retirement planning specialists to help clients determine three primary outcomes: if they have the ability to retire; when they’ll have the ability to retire; and lastly, how they might expect to live in retirement.

Modeling requires a variety of ingredients and removes emotion from the equation. No meaningful discussion of modeling is complete without these elements:

Income: Social Security, applicable pensions, retirement accounts and other accumulated assets that can make up any differences in spending.

Budget: Not a monthly lump sum, but a categorized listing to include both lifelong expenses like food and utilities, but mortgages that will eventually disappear. Some items are subject to inflation, and others are not. Each must be accounted for.

Longevity: Assume 100 years, because it’s happening at increasing rates, with more than 72,000 centenarians now in the United States. Today’s average life expectancies are 88 years for women, and 86 for men. Again, that’s average.

Lifestyle: Planners find that most clients underestimate the resources needed for their desires, leading them to a perceived state or retirement-readiness, when the opposite is true. To the relief of some to learn, spending tends to taper off with age, generally between 75 and 80, when the ability to travel or otherwise spend freely declines due to health, motivation or similar.

Projections based on these components can be very revealing, and by changing up the variables, adjustments can be made in spending or behavior. The impact of $1000 a month in either direction is visible, and at what point in time assets may deplete, though lifetime incomes may continue as a hedge against expenses.

A universal truth among planners is to avoid any unnecessary risk that can jeopardize an otherwise secure outcome. To these ends, it only makes sense to avoid trying to outsmart volatile markets, and instead put trust in proven, multi-dimensional modeling techniques.

Syndicated financial columnist Steve Savant interviews top retirement specialists in their field of expertise. This segment features retirement specialist Terry Summers. Right on the Money is a financial talk show distributed in daily video press releases to over 280 media outlets and social media networks.

Five Pillars May Be Able Uphold Retirement’s Basic Principles – Joe Franz

A Comprehensive and Effective Strategy Covers All the Bases, Individually and Collectively

Many aspiring or actual retirees emphasize only one area, such as income. A sound plan has multiple aspects to keep the many ripple effects in check. A team of experts working together may be able to handle the task of assembling an all-inclusive plan.

While an easy-breezy retirement can seem elusive, a well-constructed retirement plan can push those dreams closer to reality. Two of the most often-mentioned roadblocks to overcome are the fear of outliving one’s money, and the soaring cost of anticipated healthcare.

Accordingly, experts encourage a sense of urgency in creating a plan. Not just a simple plan, but one that that has the input of several subject matter experts whose ideas can work together. Additionally, they cite five key areas that should be a part of any retirement planning conversation.

  1. An understanding of the couple’s living situation, and any short and long-term goals.
  2. A facts and numbers-driven assessment of the retirees’ assets. The result should be a preservation-focused approach that highlights protection over growth.
  3. A review of taxes that allows for maximum retention of Social Security, and minimum repercussions for any heirs.
  4. Healthcare costs to include both in-home and nursing homes. According to a 2016 study by Fidelity, 65-year old couples retiring today can anticipate an average of nearly $400,000 in healthcare-related expenses; $260,000 for medical costs + $130,000 for long-term care.
  5. A legal framework to include wills and trusts that roll into an effective estate plan. A comprehensive team approach can include input involving income, investments, taxes, insurance, legal, real estate and final expenses. In addition to having a team working for them, clients can expect high levels of continuity and integrity to keep any remaining assets in the hands of family and designated beneficiaries, rather than institutions.

Syndicated financial columnist Steve Savant interviews retirement specialist Joe Franz. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.

Guiding Your Retirements’ Assets from Secrecy to Transparency – Terry & Mary Herron

Dialog Can Help Preserve Wealth, Set Expectations and Reduce Potential Conflicts.

Effective wealth transfer is increasingly making the shift from “don’t ask, don’t tell” to “open and honest communication.” Nearly everyone can benefit when methodical and measured asset management methods are put into place.

More than 75 years after winning the Academy Award for Best Picture, the 1938 film You Can’t Take It with You, starring James Stewart, bluntly reminds us of the role of asset transfer in retirement planning.

While traditionally kept under virtual lock and key by prior generations, assets – with assists from technology and financial planning professionals – are increasingly moving towards disclosure and dialog among families and beneficiaries.

Diseases like Alzheimer’s or even unexpected deaths can undermine a retiree’s intentions for an orderly distribution of assets, whether large or small in amount. Retirement specialists cite these tips for an effective transfer, one designed to keep the IRS from becoming an estate’s largest beneficiary:

Own the transfer responsibility. Intentions can be stated during estate planning, one of the key processes of preparing for retirement. Even if disposition is years away, a framework that optimizes wishes and avoids family squabbles can be specified.

Document and consolidate. Important papers, files, statements and passwords can be gathered physically, or photographed and kept for safekeeping in a safe deposit box or online via cloud storage.

Reduce or defer beneficiaries’ tax burden. Not only can certain assets be shifted to take advantage of stepped-up values upon transfer, beneficiaries armed with knowledge can plan to defend against taxation when constructive receipt occurs.

Trial a lump-sum alternative. Assets can be gifted partially in advance to teach the recipient how to handle an impending windfall. Through discipline and experience, beneficiaries can gain appreciation for a gift or the wealth building process, and hopefully avoid the perils of unsupervised spending.

Given the difficulties of wealth accumulation, it more than makes sense for retirees to have a deliberate plan that preserves and maximizes wealth for future generations or a deserving organization.

Syndicated financial columnist Steve Savant interviews top retirement specialists in their field of expertise. This segment features retirement specialists Terry and Mary Herron. Right on the Money is a financial talk show distributed in daily video press releases to over 280 media outlets and social media networks.

Myths and Misunderstandings Undermine Retirement Tax Planning – Mike Falco

Taxpayers Shortchange Themselves Through Assumptions and Reactive Accounting Practices

Largely feared, the IRS offers multiple avenues to manage income tax responsibilities. Taxpayers can benefit through knowledge, self-advocacy and the services of a proactive accountant or tax adviser.

Timing is everything, and nowhere more so than in financial planning. While it’s generally unwise to time the market with buy and sell orders, consumers have until December 31 to employ tax management strategies that can legally reduce their burden to Uncle Sam. To gain an appreciation for these techniques, let’s review several misperceptions:

Myth: Only top-tier taxpayers can give to charities through IRAs, and the distribution must pass through the giver as taxable to count as a deduction.
Reality: Any owner of a IRA can transfer a fully-deductible contribution directly from their retirement account to a qualifying charity, up to $100,000 per individual, or, $200,000 per couple. Better yet, the transferred amount is not taxable, and does not impact Social Security income.

Myth: Social Security, pension and qualified 401(k) distributions are tax-free.
Reality: They accumulate tax deferred, but their distributions are taxed at ordinary income rates. Up to 85% of Social Security can be taxable depending on upon the amount of the benefit and other income that meets the provisional income test.

Myth: CPAs are forward thinkers and implement “preventative maintenance.”
Reality: Perhaps some are, but many CPAs and tax preparers work from a mostly historical perspective. Their calculations are made after January 1 for the prior calendar year, and they are largely powerless to correct clients’ errors of omission or procrastination. But if any omissions and errors occur it may be possible to re-file.

Myth: An IRA left untouched can continue to accumulate without consequence for the benefit of its owner or beneficiaries.
Reality: Minimum distributions are required after age 70½. Any short fall between the RMD amount and the actual distribution could be subject to a 50% penalty. Distributions or re-allocations taken prior to age 70½ can reduce the amount of the required distribution, and reduce the risk of penalty. In some instances within the first year after age 70½, the penalty may be recoverable.

Syndicated financial columnist Steve Savant interviews retirement specialist Mike Falco. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.

Education and Participation Trigger Women’s Retirement Success – Shari Mattingly-Bevan

Knowledge Can Helps Overcome Inexperience

Women’s changing roles and longer life expectancies demand more involvement in household finances. Though their income provides immediate relief, mastery of financial basics prepares them for the long term and unexpected events.

Though women’s retirement portfolios are often found to be more consistent with their tolerance for risk than their husband’s, their knowledge of the larger retirement and financial picture generally lags behind their spouse’s. The culprits of this conundrum are typically the role changes of the past 40 years (including more women working outside the home) and men’s traditional role as the family CFO.

Tell-tale signs abound for the need by women to become further informed and take a more active financial management role:

  • Increasingly long lives of 88 and 86 years for women and men, respectively
  • Husbands preceding wives in passing 87% of the time
  • The emotional and financial upheaval following a divorce or unexpected death of a spouse

In fact, findings from a 2014 New York Life study indicate that 30% of widowed women “wished they’d had more detailed discussions about what might happen financially and otherwise if one us had passed,” and nearly 20% felt a need for better organization or accessibility to important papers.

Mastering the basics is key to awareness and long-term management, and include:

  • Budgeted cash-flow: the difference between monthly income and expenses.
  • Tax liabilities; and the ability to eliminate, reduce or defer them. Tools are available to model these impacts and potentially increase spendable income.
  • The availability of survivors’ Social Security benefits, even if divorced.
  • How fixed income annuities can protect assets from value fluctuations in volatile markets and be a source of guaranteed lifetime income.
  • Measuring and quantifying risk tolerance, and how to shift assets accordingly.

Getting a financial grip need not be tackled alone. A financial planner or retirement specialist can be highly beneficial in overcoming the learning curve to create a financial roadmap.

Syndicated financial columnist Steve Savant interviews top retirement specialists in their field of expertise. This segment features retirement specialist Shari Mattingly-Bevan. Right on the Money is a financial talk show distributed in daily video press releases to over 280 media outlets and social media networks.

Barbell Approach to Bonds Strengthens Retirees’ Portfolios – Mark Patterson

Staggering bonds’ maturities over time protects against interest rate risks.

Bonds can be a source of steady and sustainable income. They’re often used to complement Social Security, pensions and fixed income annuities in the income to expense match-up. Purchasing only quality-rated bonds is a defense against default.

Typically issued by companies or municipalities for capital-raising or expansion, bonds are yet another potential source of sustainable retiree income. As loans to issuers, buyers and holders of bonds are paid interest at known intervals and rates, and are repaid their principal at maturity. Bonds sold prior to maturity are subject to devaluation if interest rates have risen, and increase in value if interest rates have fallen.

Retirees often match up their known monthly expenses with traditional income sources including Social Security, pensions and qualified retirement plan proceeds. Fixed index annuities can fill in the gaps and have many benefits, although liquidity is not among them.

Bonds can pick up the income and liquidity slack, and when properly structured over time, can be an evergreen source of income and protection. Often known as laddering, a barbell approach to bonds (visualize the ratcheting motion of a lift) involves staggering bonds’ returns and expiration dates over time, frequently at five-year intervals. Given that returns and maturities are cyclical, bond portfolios can be considered om a macro level as a portfolio within a portfolio.

Important to consider when assembling a bond portfolio are the issuers’ quality grade and the bonds’ maturity dates. Quality refers to the issuers’ ability to make the stated interest payments and ultimately, repayment of principal. Desirable bonds are typically corporate grade and not rated below Triple-B. Anything less can be considered as “junk” to be avoided. Maturity dates state when the principal is due to be repaid. Long maturities can offer the highest interest rates, though they also have the most time for value fluctuation.

Bonds can be useful in mitigating two of retirement’s biggest risks, longevity – always an unknown – and then sequence of returns, the systematic draw down of assets. In both cases, bond interest payments support ongoing retirement expenses. However, as with other asset classes, bonds alone are not enough, and experts encourage asset diversification consistent with retirees’ risk tolerance and goals.

Syndicated financial columnist Steve Savant interviews retirement specialist Mark Patterson. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.

Retirement Planning is all About the Match-Ups – JD Mayotte

A good retirement strategy checks all the boxes

Planning and executing a retirement game plan requires both proactive and reactive skills. Understanding the forces that can work for and against you is key to success.

Whether you’re a man who likes sports, or a woman who fancies sportswear, it’s always about the match-up. Size and strength; speed and skill; bags and shoes; scarves and belts. No different is retirement planning, where one attribute can be a complement or trade-off to another.

As a backdrop to a discussion of match-ups, it helps to accept or recognize several retirement planning tenets: The standby 4% annual asset withdrawal rate is now below 3%. Prevailing low interest rates have made safe-haven investments like CDs a break-even proposition. Certain expenses are not only inevitable, but annual, and bound to rise over time. To counter these forces, strive to win these match-ups:

Income vs. expenses: Don’t carry a mortgage if possible, and budget for guaranteed monthly expenses including utilities, transportation, food, property taxes and Medicare. Match these up with common lifetime income streams like pensions and Social Security, and complement them with 401(k) or non-retirement assets.

Portfolio composition vs. risk tolerance: Studies show women’s’ 401(k) accounts to be more consistent with their investment comfort zones than their husband’s. Experts advocate achieving not only an alignment, but conservative adjustments over time, to protect against volatile markets and another 2008-like meltdown, which Baby Boomers cannot afford to take.

Certainty vs. longevity: Average life expectancies are now 86 years for men, and 88 for women. The longer-trending life spans are exemplified by the current 72,000 centurions – individuals age 100 or more. Fixed index annuities are an increasingly popular product that can deliver guaranteed lifetime income to outlast other assets, and even an account balance of zero. Principal amounts are paid to an insurance company, not a bank, to produce a specified monthly payment beginning at a designated age. Changes in funds’ values are tied to common indexes, and a floor protects against loss compared to the prior year-end account value. Increased payouts can offset the unreliability of Social Security cost-of living increases.

Given the forces of change and the uncertainty of longevity, a checkmate, match-up strategy can allow you to be the king or queen of retirement, and not the pawn.

Syndicated financial columnist Steve Savant interviews retirement specialist JD Mayotte. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.

Applying a layoff’s Lessons to Retirement Planning – Patrick Mueller

A future without work is a new transition that demands attention.

Whether planned or unforeseen, a phase of life without new income or benefits requires adjustments. A conservative and knowledgeable approach can be key to surviving – or even thriving – through uncertain times.

A lesson from the Great Recession is to prepare for the unexpected. Markets tanked. Jobs permanently disappeared. Lifetime workers who were unprepared and suddenly unemployed learned the importance of adaptability.

Ironically, retirement can be like unemployment when viewed as an uncertain and potentially long period without work or new income. And like managing the effects of a layoff, retirement requires skill, planning and discipline to survive.

Here’s how to apply the lessons of a career or income interruption to retirement planning, whether you’ve ever lost a job or not:

Know your expenses. Many outlays will repeat monthly or annually throughout life: taxes, utilities, food and shelter are but a few. Without knowing the numbers, it’s impossible to determine if Social Security, pensions and other income sources will leave you ahead or behind.

Assets are not the only consideration. Retirees who overlook the impacts and importance of investments, taxes, healthcare and legacy/estate planning may find that these eventually overtake their assets, which behave differently in distribution than accumulation.

Manage risk – realistically. It’s nearly universal that women’s portfolios more closely reflect their tolerance for risk than men’s. Bravado often causes men’s assets to be more at risk than they believe. A rule to keep things in check is to allot the percentage of assets equal to one’s age in years to safe-money holdings – like a fixed index annuity – that is not subject to markets’ volatility, and can produce guaranteed lifetime income.

Prepare for the long term. The duration of life and retirement is unpredictable. Life expectancies are at new highs, averaging 86 years for men and 88 for women, with married couples trending even longer. More than 72,000 individuals older than 100 are living in the United States today, and that number is only expected to grow.

Syndicated financial columnist Steve Savant interviews retirement specialist Pat Mueller. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.

Retirement Planning for Couples Requires Dual Participation – Bradley Tunnell

Leaving the responsibility to one can ultimately hurt the other

Though spouses typically divide and conquer household responsibilities, retirement planning is best shared. Putting all the planning of retirement on one spouse can burden the other at an inevitable but stressful time, particularly if the planner predeceases their spouse. Both spouses’ participation can keep the process in check and protect surviving dependents.

A 2016 report from the Centers for Disease Control indicates that deaths in the United States exceeded 2.6 million in 2014, with 70% age 65 or older. And for all the talk these days about “being present,” it’s a good bet that many surviving spouses were absent during any retirement planning process, thereby complicating the eventual resolution of the deceased’s estate.

This can be alleviated or even avoided when both spouses participate in proper retirement and estate planning. Too often the task is left to one spouse – usually the husband – leaving both spouses vulnerable to the eventualities of life and death.

When both spouses are actively engaged in the process with a qualified retirement professional, there’s greater familiarity with the details to be managed during an inevitably emotional and stressful time. Scenarios that benefit from dual planning and participation include:

Social Security: So often this is taken for granted, like the clockwork of an automated monthly deposit. Many recipients are unaware of survivor’s benefits, and to miss it for an extended period could mean no recourse for the years that precede the filing of a recovery claim. Benefits can even apply to divorcees who’ve not remarried.

Proper Documentation: People instinctively think that a will is sufficient, but revocable trusts are comprehensive and completely avoid the delays and potential publicity of probate. Experts endorse this investment and warn against the convenience of inexpensive and insufficient options found online and offline.

Trust: By collaborating with a skilled retirement planner along the way, the surviving spouse can have comfort and confidence when it’s needed most. They’ll also know the differences between fee-based and commissioned advisors, and their respective fiduciary duties.

All things considered, it pays to be present, informed and knowledgeable about a process that could be decades in the making.

Syndicated financial columnist Steve Savant interviews retirement specialist Brad Tunnell. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.

Confusion Clouds Federal Employees’ Benefits – Tom Ables

The true cost of workers’ benefits is as varied as agencies’ acronyms.

Though often lumped together, wide differences exist among federal employees’ benefits. Frequently assumed to be generous, benefits to include spouses and children can be surprisingly costly and even punitive.

FEGLI, CSRS, FERS, VA, FBI, DEA. Each applies to the federal government, but without a scorecard, it’s difficult to tell which is an organization and which is a benefit of working for an organization. Though efforts have been made over the years to align federal workers’ benefits with their private sector counterparts, key differences remain, and the feds’ benefits can be a language unto itself.

According to a 2010 Washington Post article, non-uniformed, federal government employees totaled nearly 2.8 million, including about 600,000 in the United States Postal Service. Despite the volume of workers – and many billions of dollars under management – outstanding rates and payouts are not the norm. While workers can participate in pensions, life insurance, Social Security and a 401(k)-like equivalent named Thrift Savings Plan (TSP), there are quirks that many workers don’t realize.

For example, workers can specify that a spouse receive a portion of their pension, 50% – 55%, if the worker predeceases the spouse. For that right, the worker’s pension is reduced by 10%. But it’s 20% when calculated as a 10% cost of a 50% payout. Surprising to most, the accumulated pension amount withheld is retained by the government should the spouse predecease the worker, thereby making the spouse-friendly benefit moot. For a worker retired 20 years, this could mean tens of thousands of dollars. Other quirks of the system include:

  • Eligibility of benefits and employer matches are correlated to start dates and can differ by organization.
  • TSP monies set aside in the conservative G-fund are subject to the government’s use to stir the economy in the event of a government shutdown.
  • Workers who retire to North Carolina receive their federal retirement benefits nearly tax-free and state taxes do not apply if they vested before 1989.
  • Life insurance premiums paid by the worker are often prohibitive and accelerate quickly.

For all the variances that apply to federal employees, they would do well to engage an experienced and knowledgeable retirement professional to accurately sort through the options and opportunities of retirement.

Syndicated financial columnist Steve Savant interviews retirement specialist Tom Ables. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.