A New Way of Thinking in Retirement Savings

I’ve recently teamed up with Merle Gilley and he has a series of short, free videos that will introduce you to this new way of thinking to protect and grow your money.

Click or enter this web address into your browser: http://www.myfamilyfinancialmiracle.com and enter promo code 000817 for instant access.

Over the years, Wall Street has done a great job advertising for qualified plans such as (IRA, 401(k), 403b) by using those cute commercials we've all seen; "Follow the green line to financial independence." - "Setting aside orange money for retirement." - "What's your number for retirement?" and there are countless others.

It's marketing, it's a sales job and most individuals have bought into their premise because it's easy to set up and contribute to using payroll deductions. Wall Street is nothing more than a casino, and you know the saying, “The house always wins." Just like in a casino, you have the possibility of a big payday, and you've heard it over and over again how someone has made millions in the stock market. They don't tell you about the others, which are most individuals, who lose even if the stock market should go up. What does the average everyday person know about investing in the stock market? Not much. They rely on their stock brokers and in most cases their company's 401(k) administrator for advice. And how much training does your 401(k) administrator have? If you're lucky, you're in a big enough company that can afford larger firms to control your 401(k) who have the education to help. Unfortunately, most 401(k)s only offer expensive mutual funds that you can invest in.

Recent studies have shown that most individuals don't completely understand their 401(k) plan.  Most know the basics but not the details.

Bad News - The mean average 401(k) balance for individuals retiring today, as reported by Vanguard at the end of 2014, is $202,800; however, the median balance is only $72,957.  What does this mean?

A critical difference - $202,800 is the average; however, the median of $72,957 is a more appropriate number to use because it reflects what you would get if you ranked all the accounts by the size of their balance and then picked the one right in the middle. Imagine a series of five numbers: 50, 50, 50, 50, and 300. Their average is 100, but their median is 50. If they represented 401(k) balances, which number would more accurately reflect the typical saver's situation? Given the average and median balances of $202,800 and $72,957, respectively, it's clear that some people have very big balances, while most do not. The "typical" saver has just $72,957 after 40 plus years of savings.

Well, how would you like to create your own retirement plan, without government intervention and without the fear of losing money when the market corrects, but at the same time allows penalty free, anytime tax free withdrawals?

New IRS codes and strategies developed in 1999 have paved the way for the average person to do just that. These plans:

•    Allow you to contribute as little or as much as you’d like.
•    Protect your Investments and principle.
•    Don't lose money to the Stock Market.
•    Provide potential double digit growth.
•    Allow penalty free, tax free, anytime withdrawal.
•    Remove the IRS.
•    Start at any age, you’re never too young or too old to start building financial independence.
•    Help you build a retirement income that you'll never outlive.



Click or enter this web address into your browser: http://www.myfamilyfinancialmiracle.com
and enter promo code 000817 for instant access.

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The 4% Rule, Is It enough for retirement?

As a financial planner I get asked this question a lot:  How much money can I take out of my IRA during retirement and not outlive my money?

This is a loaded question and there are a lot of variables to consider; however, the rule of thumb that most financial planners have used for decades is 4% per year.  This is called "the 4% rule" and can be Googled if you need more information.

The four percent rule seeks to provide a steady stream of funds to the retiree, while also keeping an account balance that will allow funds to be withdrawn for a number of years. The 4% rate is considered to be a "safe" rate, with the withdrawals.

Some of the variables that I mentioned are:

• When do you start withdrawing
• Rate of return on investment (market gains and losses)
• Taxes
• Inflation
• Medical expenses
• Emergency needs

However, one of the questions needing answered first is, "How much money do I need during retirement?"

I usually sit down with a customer and find out their monthly needs and the many different streams of income they'll have during retirement.  For example:

• Social Security Benefits and if they are maximizing these benefits
• IRAs
• Other Investments
• Savings
• Pensions
• etc.

It's ingrained into our heads that we should retire at age 65.  Did you know that Social Security's Full Retirement Age is actually 66 if you were born between 1943 and 1953?  They calculate your benefits using your full retirement age and deduct approximately 8% each year you retire before and add 8% to each year after up to age 70.

Everyone should know when and how much you'll get at full retirement and then talk to a financial advisor on how and when you can maximize it.  There are hundreds of options when filing for Social Security and you should know them because everyone has a different situation.  Don't be afraid to talk with an advisor, it doesn't cost you anything and the Social Security Administration is restricted from helping you decide your options.

Let's say that you've determined that you need $5,000 a month in retirement to continue to live the lifestyle you're accustomed to.  Let's also assume that you'll retire at age 66 with a Social Security Benefit of $1,500 a month, a little bit over the average.  That leaves you $3,500 a month short.  But that's okay because you had a 401(k) and saved like they told you to and so now you're ready to live your retirement dream.

Recent studies have shown that most individuals don't completely understand their 401(k) plan.  Most know the basics but not the details. 

One of the biggest problems of the program is not the program itself but the fact that individuals use it as a savings account instead of a retirement plan.  I'm sure you know someone, possibly yourself, who has taken money out of their plan and paid the penalty for bills, purchase items, pay off debt, etc. 

The Bad News - The mean average 401(k) balance for individuals retiring today, as reported by Vanguard at the end of 2014, is $202,800; however, the median balance is only $72,957.  What does this mean? 

A critical difference - $202,800 is the average; however, the median of $72,957 is a more appropriate number to assess because it reflects the typical saver's situation. Given the average and median balances it's clear that some people have very big balances, while most do not. The "typical" saver has just $72,957 after 40 plus years of savings.

Now let's add the 4% rule to the IRA.  If you retired at the beginning of the century and have saved in your account what most individuals have then it breaks down like this.  I'm assuming the account was invested in the S&P 500 and I'm also assuming a standard 1.5% management fee and only 1% of other fees.  There are 17 different fees they can charge so I'm being conservative.

As you can see with a starting balance of $72,957 and using the 4% rule you can withdraw $2,557 the first year.  Taking into account market volatility and fees for the next 15 years you can take an average of $1,612 a year.  That's only $134 a month.  A far cry from the $3,500 needed.  Doesn't look pretty does it?

It doesn't get much better if you were one of the lucky ones and saved the average of $202,800.

With this example, starting balance of $202,800 and using the 4% rule you can withdraw $7,107 the first year.  Taking into account market volatility and fees for the next 15 years you can take an average of $4,481 a year.  That's only $373 a month.  See you at Wal Mart.

Let's say you really concentrated and was able to save ONE MILLION DOLLARS in your 401(k). Great job!  Are we ready for a financially secure retirement?  Not really.  Here's the numbers.

Starting with $1,000,000 and using the 4% rule you can withdraw $35,045 the first year.  Taking into account market volatility and fees for the next 15 years you can take an average of $22,094 a year. That's $1,841 a month. You've saved a Million Dollars and unless you do something to protect your money or change your lifestyle you'll probably be counting pennies into your retirement.

These examples did not take into account the realities of life and other variables I mentioned above.

This is not an article about annuities, but if you put the $1,000,000 into an annuity you could protect your money from the market fluctuations and have a guaranteed income of $40,000 a year for the rest of your life.

Would you be interested to learn of another way to save for retirement that:

• Lets you retire 100% tax-free
• Is NOT reportable to the IRS
• Pays you an average of 5% per year
• Has paid out, on average, for 121 straight years 
• And which, unlike traditional retirement plans like IRAs and 401(k)s, lets you withdraw money anytime you like, for whatever reason you like, and with no penalties whatsoever.

You need to talk to me or another safe money advisor if:

• If you're close to retirement
• If you're in the middle of saving for retirement
• If you're just starting to save for retirement

It's best to be prepared and plan from the start for a RETIREMENT INCOME and not a bag of money!

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Ten Things To Know About Social Security

Happy Birthday Social Security!

The social security program was signed into law by FDR on August 14th, 1935, making it 80 years old. At the time, most people had lost any savings they had during the Great Depression, leaving them with little for retirement. Some companies provided pensions, but they were a rare benefit. The program was only meant to last 10 years.

(A portion of this article is a reprint from CNNMoney (New York) August 14, 2015: 11:44 AM ET)

This is part 1 of a 5 part series on Social Security and retirement.  Future articles will discuss: Retirement Planning: How much to save. 7 Ways to maximize your social security benefits. Should you tap into your social security benefits early? Most twenty-somethings are actually saving for retirement. Why the 401K may not be your best option to save for retirement.

The program was largely uncontroversial, said Eric Yellin, a history professor at the University of Richmond. It sailed through Congress and was hugely popular all the way into the 1970s, he said. Things have changed. Now, Social Security is more of a political punching bag. As the presidential election heats up, reforming the program will undoubtedly be a hot topic.

Here's what you should know to keep up with the conversation.

1. The average retiree gets 12 more years of Social Security benefits than she did in 1940. 

It's not just because we're living longer, but we're also retiring early, said Gene Steuerle, an expert at the Urban Institute.

2. Current average retiree age: 64

Average retiree age in 1950: 68
That's because in 1959, Congress created the "early retirement age." In exchange for reduced benefits, you can retire as early as 62.

3. So what is the retirement age? 

You have to be at least 66 years old to retire today and get your full benefit. The age is already going up. If you're 55 or younger today, you'll have to wait until you're 67. The Social Security website can help you figure it out.

4. There are fewer than 3 workers for every retiree. 

In 1960, there were 5 workers paying into the system for every person collecting benefits. It dropped to 3 workers in 2009, according to the Social Security Administration. And now it's even less. Thank the Baby Boomers and the Great Recession.

5. 60 million retirees get Social Security checks.

In 1940, the first year benefits were paid, just 220,000 Americans were signed up. Since then the program has expanded to give benefits to spouses, widows and widowers.

6. Social Security never had a huge trust fund.

And it was never "raided," Steuerle said, as many people believe. It's a pay-as-you-go system, so today's workers are paying for today's retirees.

7. But it will still be around for Millennials.

While most 20-somethings don't think they'll be getting anything when they retire, that's probably not true.  Even if Congress doesn't reform the system at all, Social Security will be able to pay full benefits through 2034, and then three-quarters of scheduled benefits through 2089.

8. The tax rate was lower in 1940. 

Social Security has always been funded by the payroll tax, but back then it was only 2% and was split between you and your employer. You weren't taxed on any wages above $3,000 ($48,700 in 2015 dollars). Now it's a combined 12.4% on wages up to $118,500.

9. Today's average monthly Social Security check is $1,221 and one in three people depend on it to cover 90% of their expenses. 

Your benefit is not based on what you've paid in. Instead, it's based on your lifetime earnings.

10. There is a 70% difference between taking your benefits at age 62 compared to age 70.

Final piece of advice, don't go online or to your local social security office and file without first counsulting a social security professional.  There are more than 20 different ways file for social security and the social security customer service representatives are restricted from giving advice on when and how to file.  Talk to a professional and know your options so you can maximize your benefits, it won't cost you anything but time.

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Help from a Retirement Income Certified Professional

With more than 10,000 baby boomers retiring everyday their number one concern is “Will I outlive my money?”

No matter how old you are, you’ve most likely made the statement, “I can hardly wait until I retire, then, I can do whatever I want.”  Unfortunately only a small percentage of retirees can actually retire financial secure to do whatever they want.  Over 90% of retirees have to find a way to supplement their retirement and live out their golden years.  We’ve all seen them at Wal-Mart, in fast food joints, grocery stores, etc. and we silently hope that we won’t end up doing that.

Seniors are living longer and longer due to advancements in healthcare, eating habits and exercise.

According to data compiled by the Social Security Administration:

• A man reaching age 65 today can expect to live, on average, until age 84.3.
• A woman turning age 65 today can expect to live, on average, until age 86.6.

And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.

The current paradigm is that most people will retire around 65/66 years of age.  That means that 25% of todays 65 year olds will live 30 years past their retirement date.  Which begs the question, will you have enough money without an income to live another 30 years in good health?

Seniors are more active in their retirement years and aren’t satisfied with just sitting on the porch watching the grandkids play in the yard.  After all, 60 is the new 50.  They want to do things, and who can blame them, but these things cost money.

Lawmakers are telling you that social security will run out in 2033, that’s only 18 years from now; however, did you know that the average social security check is around $1,300 a month before taxes, and yes, you may have to pay taxes on your social security.  Can you live on $1,300 a month?  Do you know when your full social security benefits kick in and how much you’ll receive?

So how do we prepare financially for our retirement years?

IRAs, 401Ks and Stock Market accounts are great ways to accumulate and grow wealth: however, distribution of that wealth is a problem for most seniors.

When it comes to retirement planning, the 4% rule has stood as a tried-and true method of drawing retirement income from an investment portfolio without depleting the principal of the portfolio prematurely. This rule states that a retiree can usually withdraw about 4% of the value of his or her portfolio each year, provided that the portfolio is allocated at least 40% in equities. However, this traditional strategy has recently come under fire from retirement experts who claim that this rate of withdrawal is no longer realistic in the current economic environment.

The discouraging news is that a panel of retirement planning experts with Morningstar, a company that provides independent research on both individual securities and the financial markets, recently released a paper that indicates that it is impossible for retirees to be able to withdraw 4% of their portfolios each year and expect them to last for 30 years.

Another challenge for leaving your money in an investment portfolio is the fluctuation of the stock market.  People tend to have short memories when the market has been booming for the last 7 years and have forgotten the financial losses people endured in the stock market correction of 2008.  You most likely know someone, maybe it’s yourself, that had a lot of money in their IRA and lost upwards of 40%.  I speak to customers every day that tell me that their account is still not back to where it was before the correction.  This period was devastating to those customers who had retired, counting on this money for income, only to lose a large enough portion where they had to go back to work.

Retirement INCOME Planning is a new niche of Certified Planners and is designated as a Retirement Income Certified Professional (RICP).  These professional planners have a fiduciary responsibility to you, not the companies they represent, and specialize in helping you plan for an INCOME during retirement that you won’t outlive without the worry of the fluctuation of the stock market.

It’s never too early to start planning and the sooner you start the easier it will be to meet your goals of retiring and being able to do anything you want; however, if you’re over age 55 with an old 401K that you’re not contributing to or an IRA, we need to talk today!

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