Catching Up In the Home Stretch

Ray’s Take: There aren’t a lot of benefits to getting older, but when it comes to saving for retirement, there are a few. If you’re 50 or older and feel like you haven’t saved quite as much as you would like for your retirement plan, you could be in luck when it comes to contributions.

This savings bonus is called catch-up contributions. These are special provisions that allow you to contribute additional funds to your retirement accounts as you get closer to retirement. These contributions have the double benefit of helping beef up your retirement savings while deferring taxes.

The IRS allows those who will turn 50 or older by the end of the 2017 calendar year to make an additional $6,500 in elective contributions. And you can make those contributions each year as you move closer to retirement. The amount of catch-up contributions, historically, has increased approximately every 24 months. Catch-up contributions can really add up over time to a tidy additional amount of funds in your retirement accounts.

There are – of course – some rules relating to what kind of accounts you can use to make these catch-up contributions, and there are specific amounts that can be contributed to each type of account. Additionally, catch-up contributions only come into play if you max out the elective deferral amounts in your 401(k) or reach the contribution maximums in your IRAs. Aiming to meet maximum deferral amounts is a good starting goal.

If you have a Health Savings Account-eligible insurance policy that meets deductible requirements, that HSA is also eligible for catch-up contributions at age fifty-five and older. This can be an asset for saving additional money for health care expenses.

A financial adviser can assist you with determining the best plan for your circumstances. Time is a non-renewable resource and a critical factor to successful retirement planning.

Dana’s Take: Having the opportunity to get caught up on any of the important things in life is a great opportunity. Funding our retirements dreams are just one of those things. What about getting caught up on you? Are there things in your life that you’ve always wanted to accomplish? Or at least try?

Many of us come up with too many activities and pressures on ourselves in an effort to be everything to everyone in our lives and somehow never reaching our goals of perfection.

Take a little extra time to get to know you. When you get caught up on yourself, you see the best way to get the life you want for yourself and your family. Not just now, but all along the road of life.

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Retirement Worries to Tackle Ahead of Time

Ray’s Take: A long, happy retirement is one of the great American dreams.

Maybe you’ve watched as friends and family have stepped into that long awaited golden time. Watched as they traded in the daily grind of working for a more leisurely lifestyle on their terms. At least, that’s what it looks like on the outside.

But looks can be deceiving because there might be more lurking behind this rosy picture. Without careful planning, retirement can come with some really big surprises. A recent AICPA survey of financial planners found that running out of money in retirement was the top concern of their clients. A close second was health care. Retirement includes creating an entirely new identity, and that’s a lot harder than you may think.

Retirement planning would be a lot easier if you had a magic eight ball that could tell you how long you’ll live. That way, you’d know how many years you’ll need to support yourself without income from a job. We have 12 clients in their 90s and three over 100, and most are in very good health. That wasn’t on their radar when they retired.

The high cost of health care in retirement can be a surprise. Medicare doesn’t cover everything. The cost of health care is soaring and projected to keep going up. Do you have the reserves to pay for those rising health care costs? It’s a big thing that may change the age at which you decide to retire. And be sure to factor in long-term care in the mix. According to the Department of Health and Human Services, 70 percent of people who reach age 65 will need some form of long-term care in their lives. Often my clients think I’m planning for their kids when I try to slow the spending rate in retirement. I’m just trying to make sure they don’t have to move in with them.

Since people are living longer, not having enough money in retirement is a legitimate concern. So is the possibility that a catastrophic illness will drain retirement funds. And these worries can become obsessive, robbing you of your well-deserved retirement. So take some time to plan for the later stages of retirement long before you reach them.

Dana’s Take: There’s an old saying that proper preparation prevents poor performance. But being prepared takes time and commitment. All too often, we end up “winging it” rather than putting in the time necessary to be prepared.

Start by knowing what you want to accomplish. Focus on those things that you’ll need to do to be successful. Understand what you are preparing for so that you’re not doing extra work later to correct errors. Take your time and do it right. Success isn’t about how fast you accomplish your plan. Life is a journey. And it’s one worth taking the time to make the best we can have.

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Net Worth is Like GPS for Your Retirement

Ray’s Take: When you have your annual physical, your physician looks at a number of your vital indicators; so does your financial planner. Net worth is the value of all assets, minus the total of all liabilities. In other words, net worth is what you own minus what you owe.

And, often, income is not an indicator of net worth. It’s possible for someone with an average income to have a substantial net worth if they’re careful about debt and save money regularly. It’s also possible for someone with a very high income to spend every penny they make and then some, resulting in a negative net worth.

A regular accounting of your net worth is like GPS for your retirement. It tells you where you are now and gives you an idea of the course corrections you need to take to get to your destination.

If your net worth is not consistent with your hopes for the future, take steps to raise it. As a general rule, if the numbers come up low, spending is the culprit. You generally have more control over the outflow than the inflow. Cutting back on discretionary spending is the first step toward turning your situation around. Paying off debts is the next. Taking steps to eliminate credit cards debt, canceling memberships to things you don’t use and being more mindful of where your dollars are going are great ways to raise your net worth without having to resort to a second job.

If your net worth is high, keep building on your momentum. You can include more asset classes and further diversify. The money you’ve saved may enable you to change your lifestyle, provide the funds to travel during retirement or engage in hobbies that you couldn’t afford or didn’t have time to indulge in during your working years.

One last thing, don’t kid yourself that your assets (home, cars, etc.) are wealth. In my world, assets pay me interest, dividends and capital gains. I’m still waiting for the first check from my home.

Dana’s Take: Navigating life can be a tricky business. From deciding where to live to where to send our kids to school, we’re bombarded with decisions we know will have far-reaching impacts not only on ourselves but also on our children. Having a clear-eyed view of what we want to accomplish makes for an easier journey.

So many things in life are outside our ability to control, so taking the time to handle the things we can control gives us a much more peaceful feeling.

There’s no better feeling in life than the feeling you’re in charge. Be it your trip to the beach or your destiny.

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How Many Funds Make a Good Mix?

Ray’s Take: When it comes to building a portfolio for retirement, your goal shouldn’t be to load up with as many different types of investments as you can in the hopes that you’ll outsmart any fluctuations in the market. Diversification, like all things, has its limits.

Instead, you should work to build a well-diversified group of funds that can help you harness the power of the capital markets in a way that’s consistent with your financial needs, risk tolerance and goals. The idea is to put together a portfolio that can generate the returns needed to achieve your financial goals but won’t be so volatile that you’ll be tempted to make mistakes – from fear or greed – when the market goes through its inevitable swings. If you think you can just nimbly time your entry and exits to the capital markets, prepare to be humbled. If your adviser claims to be able to do it, you should consider finding another adviser.

There are many strategies for creating a great portfolio, but each portfolio shares some basic features. Before choosing your funds, you need to have a good idea of your goals and how much risk you can tolerate. Only then can you determine your appropriate asset allocation, which is the mix of investment assets that make up your portfolio.

When it comes to the number of funds to own in your portfolio, which can range from few to many, less is usually more, as with many things in life. If you start throwing more and more funds into the mix, you run the risk of turning your portfolio into a confusing mix of overlapping holdings. And this strategy can impact each fund in your portfolio, reducing the chances of success in reaching your goal.

Your focus should be on the diversity within your portfolio rather than the number of funds. You can own dozens of funds and still not be well-diversified. Conversely, you can own one fund that is well-diversified if that fund covers the entire stock market spectrum.

A good financial planner can assist you with makes the best decisions for your own portfolio.

Dana’s Take: According to Aristotle, temperance, or balance, is a virtue. Balance and restraint are two keys to long-term financial success. Unfortunately, our culture has changed since the 1930s from one of restraint and caution to one of instant gratification and impulsivity. While we are encouraged by the media to “just do it,” better advice might be your grandparents’ “look before you leap.”

Our grandparents’ over-cautiousness led them to live frugally and save ample amounts for their non-working years. Perhaps today’s younger generation will prefer to leave behind the overspending and consumer habits of the last few decades and pursue a simpler life with less energy spent on acquiring possessions and more spent on living.

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Early Retirement – Can You Do It?

Ray’s Take: Many people dream of making an early exit from the work routine, but making that dream a reality has some challenges. By retiring at, say, age 55 instead of 65, you have 10 fewer years of saving and investing for building a nest egg that has to support you through an extra 10 years of retirement. That double-whammy of fewer working years to save and more retirement years to spend is what makes early retirement tough to pull off.

Where will your funds come from to cover expenses? Will you be making withdrawals from deferred retirement accounts? Many have an early withdrawal penalty of 10 percent if you begin drawing from them before age 59 1/2. If you want to make the early retirement dream happen, you’ll have to plan well so that you have funds you can use that aren’t affected by those penalties until you reach the age at which those penalties aren’t a worry. Withdrawing early and incurring the penalties will reduce the amount of funds you have available to pay for your extended retirement.

Health care is another big item to consider and plan for before deciding to retire early. Medicare doesn’t become available until age 65, and even then doesn’t cover everything. How will you pay for health care prior to age 65? You’ll have to buy health care coverage on your own. That can be a budget wrecker if you’re not prepared. And estimating how much you’ll pay for health care in the future is somewhat of a guessing game.

Think about your life after early retirement before you take that leap, not after. Making it happen is entirely possible, but it will take some serious, disciplined planning. The sooner you create a plan and put it into action, the better the chance your early retirement dream will become a reality.

Dana’s Take: Early retirement and a life of leisure may sound like the stuff of daydreams, but the reality can be a big letdown for people who are used to being busy – and important. Once the newness is gone, an ugly reality can raise its head.

Boredom, a feeling of isolation because your friends and family are still working, and loss of identity due to not having somewhere to be and something to do every day are potential realities.

Creating a social network, finding hobbies you love and being physically active prior to pulling the trigger on early retirement all combine to create a much more positive retirement life.

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