Retirement Savings – European Forum – Family Mediation http://europeanforum-familymediation.com/ Sun, 10 Oct 2021 11:16:47 +0000 en-US hourly 1 https://wordpress.org/?v=5.8 https://europeanforum-familymediation.com/wp-content/uploads/2021/03/europenaforumfamilymediation-icon-70x70.png Retirement Savings – European Forum – Family Mediation http://europeanforum-familymediation.com/ 32 32 4 financial steps to take before retiring https://europeanforum-familymediation.com/4-financial-steps-to-take-before-retiring/ Sun, 10 Oct 2021 10:02:00 +0000 https://europeanforum-familymediation.com/4-financial-steps-to-take-before-retiring/

The decision to retire will have a profound effect on how you spend your time and where your money comes from. Before giving up a salary, make sure that you are in good financial shape and that you will not regret your decision to retire.

Following these four steps can help confirm that you are ready and can give you a good idea of ​​what life will really be like for you as a retiree.

Image source: Getty Images.

1. Decide on a safe withdrawal rate

Deciding on a safe withdrawal rate is one of the most crucial steps before retirement. Your withdrawal rate determines how much income you will get from your savings and whether you run out of money in retirement.

Traditionally, many retirees followed the 4% rule. This allowed a 4% withdrawal from your account balance in the first year. Each year you would adjust the amount for inflation. Unfortunately, this strategy can now put you at risk of running out of money, as the lifespan has lengthened and the projections of future returns have changed.

There are a number of other approaches, including using the minimum required distribution tables prepared by the IRS to set a withdrawal rate. Pick one before you retire and estimate how much income your nest egg will provide to make sure it’s enough.

2. Set a budget

It is not only important to know how much income you will receive as a retiree, but also how much you will spend.

As you approach retirement, come up with a sample budget that takes into account all of your fixed and discretionary costs. Don’t forget things like travel if you plan to enjoy your retirement discovering the world.

Compare your budgeted expenses with the amount of income you will get from your nest egg and social security. If you fail, you may want to make a few changes before you retire, or you may need to work longer to save more and allow a delayed Social Security claim to earn bigger monthly checks.

3. Research tax rules

Understanding how your retirement income will be taxed, including your Social Security benefits, retirement income, and distributions from your retirement accounts, is essential.

The rules differ depending on your state, but the federal government begins to tax Social Security benefits once the interim income reaches $ 25,000 for single filers or $ 32,000 for married spousal filers. Provisional income is half of your Social Security checks plus all taxable income and some non-taxable income.

Be sure to check your state’s tax rules as well as IRS requirements to prepare for what your pre-tax income will look like as a retiree.

4. Check your insurance coverage

Finally, you’ll need to make a plan to get comprehensive insurance coverage, especially since health care is one of the biggest expenses retirees face.

This is especially important if you retire before Medicare goes into effect at age 65, as you may need to stay on an employer’s plan through COBRA or purchase independent insurance. But even if you are already Medicare eligible, you may want a Medigap or Medicare Advantage plan to provide broader coverage. You will want to know how much it is likely to cost you and what your personal expenses might be.

By budgeting, assessing your sources of income, and determining the effect of taxes and health care on your retirement income, you can make an informed decision about whether you are truly able to support yourself without employment for the rest of your life.

The $ 16,728 Social Security bonus that most retirees completely ignore
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “social security secrets” could help you boost your retirement income. For example: a simple tip could net you up to $ 16,728 more … every year! Once you learn how to maximize your Social Security benefits, we believe you can retire with confidence with the peace of mind we all seek. Just click here to find out how to learn more about these strategies.

The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Fidelity sees 50% increase in women investing outside of retirement https://europeanforum-familymediation.com/fidelity-sees-50-increase-in-women-investing-outside-of-retirement/ Fri, 08 Oct 2021 21:10:48 +0000 https://europeanforum-familymediation.com/fidelity-sees-50-increase-in-women-investing-outside-of-retirement/

What would you like to know

  • While two-thirds of women report investing outside of retirement accounts and emergency funds, many keep significant savings in cash or bank accounts.
  • Although half of the women said they were more interested in investing, only 41% said they were comfortable with their investment knowledge.
  • Yet, female self-directed investors outperform their male counterparts, according to Fidelity’s analysis of 5.2 million accounts.

Two-thirds of women in new study say they now invest their savings outside retirement accounts and stock exchange emergency funds, a 50% increase from 2018, Fidelity Investments reported Friday.

At the same time, many women can still keep large savings in cash or bank accounts, earn minimal interest and therefore miss out on thousands of dollars in potential earnings, the study found.

CMI Research conducted a survey in July of 1,200 American women and 1,200 American men, all aged 21 or older, with personal income of at least $ 50,000, who actively contribute to a savings plan. retirement to work, such as a 401 (k) or 403 (b) plan. Fidelity has not been identified as the sponsor of this study.

More and more proactive

Fidelity said there was already a noticeable increase in 2018 in women managing their finances more, and that momentum has continued as the pandemic has disproportionately affected women.

In fact, he said, the events of the past 18 months have prompted even more women to make their finances a priority, building up emergency savings, creating or updating financial plans and moving from saver to investor.

Yet there are still plenty of opportunities for those who are not yet investing, as well as for those who may still have significant savings aside. Taking proactive steps can bode well for the future, Fidelity said.

An analysis of the investment behavior of its retail clients, comparing the annualized return on assets of 5.2 million self-directed retail accounts from January 2011 to December 2020, showed that, on average, women not only made positive returns on their investments, but also outperformed their male counterparts by 40 basis points.

Over the past year, Fidelity said, its own clients have also seen a growing commitment to saving and investing for the future:

  • Women opening new retail investment accounts rose 43% year-on-year as of June 30.
  • On average, 9.2% of women contribute to workplace savings accounts, based on a Fidelity analysis of 23,600 corporate CD plans and 19.8 million participants as of June 30.
  • The number of women receiving advice from Fidelity increased by 37% between July 1, 2019 and June 30, 2020.

Fidelity expects this momentum to continue, as 9 in 10 women say they plan to take additional steps to become more engaged in the next 12 months. But women will need additional support and education to help them reframe the way they invest, he said.

Although half of the women in the study said they were more interested in investing since the start of the pandemic and 42% said they now have more to invest, only 41% said they were comfortable with their investing knowledge.

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How can I access my retirement savings earlier? https://europeanforum-familymediation.com/how-can-i-access-my-retirement-savings-earlier/ Thu, 07 Oct 2021 11:00:07 +0000 https://europeanforum-familymediation.com/how-can-i-access-my-retirement-savings-earlier/

Retirement savings accounts like IRAs and 401 (k) offer many benefits for long-term savers. But one downside is that they usually freeze your investments until “retirement age,” which the IRS has decided to be 59 and a half. Withdrawing your funds before this age usually results in an early withdrawal penalty of 10%, with a few exceptions for specific expenses like buying a first home or paying large medical bills.

But if you are planning to retire earlier than usual and have a lot of money in your retirement accounts, you may want to start withdrawing those funds before age 59 1/2. Here’s how.

Image source: Getty Images.

Withdraw Roth contributions

If you have a Roth IRA, you can withdraw the amount you contributed at any time. The gains on these contributions must however remain blocked until 59 1/2 in order to avoid the penalty.

So if you diligently contribute $ 5,000 a year to your Roth IRA for 20 years, you can withdraw up to $ 100,000 before age 59 1/2 without penalty. Hopefully, your account has a lot more than that after 20 years of investing, and any higher income will continue to grow tax free.

Since you have already paid tax on these contributions, there is no additional tax on the withdrawal.

Remove Roth conversions

If you convert funds from a traditional IRA or other retirement account to a Roth IRA, you can withdraw the converted amount without penalty after five years. If you plan ahead, that means you can access any retirement savings within five years and avoid paying a penalty on the withdrawal.

The ability to pull out Roth conversions enables a strategy called the Roth Conversion Ladder. Each year, you convert the amount you think you need to meet your spending expectations from a Traditional IRA into a Roth. You will pay taxes when you convert.

Five years after the conversion, you will be able to start making annual withdrawals from your Roth IRA without penalty. For example, if you made a Roth conversion in 2021, you will be able to withdraw the amount you converted from early 2026.

Take advantage of the rule of 55

401 (k) plans have a special rule that says if you separate from your employer in the year you turn 55 or older, you can immediately start receiving 401 (k) distributions from that employer. This is commonly referred to as the Rule of 55.

If you want to access all of your retirement savings, you can transfer the old 401 (k) and IRAs into your current 401 (k) just before you retire from service. Then, when you quit your job, you can start making withdrawals without penalty. It is important to note that you should keep the funds you plan to withdraw in your most recent 401 (k) until you are 59 1/2, as the early withdrawal rule only applies to this account. specific.

One way to take advantage of this is to establish a 401 (k) solo for yourself if you can generate some form of business income. Many brokerage firms offer single master 401 (k) solo plans at no additional cost and a wide range of investment options. Make sure you choose a provider that will allow you to transfer the old 401 (k) and IRA into the 401 (k) solo.

The idea is that once you have all of your savings in solo 401 (k) all you need to do is stop making business income in the year you turn 55 or older. Then you can immediately start making withdrawals. Consult with your accountant to tailor a plan to your own situation and make sure you handle all the details properly.

Substantially equal periodic payments

Section 72

In order to use 72

Only pay the penalty if you owe

Here are some creative ways to access your retirement savings before age 59 1/2. While you can still pay the penalty and withdraw funds directly if you absolutely have to, proper planning will allow you to keep more of your money. If you plan things right, you may be able to retire sooner than you think.

The $ 16,728 Social Security bonus that most retirees completely ignore

If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “social security secrets” could help boost your retirement income. For example: a simple tip could net you up to $ 16,728 more… each year! Once you learn how to maximize your Social Security benefits, we believe you can retire with confidence with the peace of mind we all seek. Just click here to find out how to learn more about these strategies.

The Motley Fool has a disclosure policy.

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The best places to live in retirement https://europeanforum-familymediation.com/the-best-places-to-live-in-retirement/ Thu, 07 Oct 2021 00:54:13 +0000 https://europeanforum-familymediation.com/the-best-places-to-live-in-retirement/
parasols
(© Le Panda Rose – stock.adobe.com)

One of the top priorities when you retire is finding a place to settle down, using any savings you may have accumulated over the course of your life to settle in in style and comfort. Of course, some places will be more accommodating than others for retirees, and some are even suitable for people looking to settle down for the rest of their lives. So today we’re going to take a look at some of the best places to live in retirement.

The best places to live in retirement

South Carolina is a popular place for retirees; specifically, Oceanfront Homes for Sale in Myrtle Beach constitute an important part of the attraction for the state. And that should come as no surprise. The beachfront property is popular with those who prefer the heat.

Of course, one of the most important factors that goes into your retirement destination is what you can afford. Not everyone will be able to afford the best of retirement life. For those who find themselves in this situation, they might consider heading to Pensacola, Florida. Florida is the stereotypical destination for retirees, but to be honest, it’s for good reason. With a total of just under 500,000 inhabitants with a rate of 22% of people aged 60 or over, it is an excellent compromise between “too small” and “too large”. Mortgage costs aren’t that bad, totaling around $ 1,300 per month, while the median monthly rent is around $ 1,000. A retiree should be able to retire here in comfort. Not only that, but there is so much aquatic life for you to enjoy, ranging from dolphins to sea turtles and so much more.

However, if you prefer to live somewhere inland, you can visit Chattanooga, Tennessee. The cost of living is even more affordable than in Pensacola, being around $ 800 and $ 1,200 for rent and mortgage, respectively. The economy and work available in the region could also be beneficial for retirees who wish to continue working. A retiree with a passion for technology will find many opportunities in this field that they may not have if they decide to relocate elsewhere. Grand Rapids, Michigan is suitable for those who prefer a cooler retreat, and it’s just as affordable ($ 860 for the rent and $ 1,250 for the mortgage). It is also a great place to discover in general, with the beautiful lakes that it (partially) claims. It also has a fantastic art scene for those of you with that discerning eye.

Of course, many retirees have a war chest ready for their retirement and may want to spend a little more. In that case, a place like Orlando, FL might fit that person’s MO to a T. It’s a bit more expensive than a Pensacola, with a rent of around $ 1150 and a mortgage of around $ 1500, but it’s great if you want to be able to go out and enjoy a bigger city. On top of that, it’s conveniently located close to Walt Disney World, so if you want to bring your grandchildren to visit you, you can use a theme park as a carrot.

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An argument to bring back a contractual “lottery” for retirement savings https://europeanforum-familymediation.com/an-argument-to-bring-back-a-contractual-lottery-for-retirement-savings/ Wed, 06 Oct 2021 15:23:54 +0000 https://europeanforum-familymediation.com/an-argument-to-bring-back-a-contractual-lottery-for-retirement-savings/

Have you ever heard of a tontine? It is something like a financial contract that collects and invests money from a group of people.

There is a catch though: the people involved will never see their money refunded, although they will usually get returns on their investment, and ultimately all that money will go to the last person who survives.

It’s like a lottery, but to see who lives the longest. It’s not surprising to see it used as a murder plot in fictional media, like the 1966 movie “The Wrong Box” or in an episode of The Simpsons. But tontines were used in real life in the United States until the turn of the 20th century, when their use was more or less banned.

Some economists argue that a tontine could be used positively in retirement plans. Chris Farrell, principal contributor to Marketplace economics, joined Marketplace Morning Report host David Brancaccio to discuss the merits of reinstating the tontine contract in the United States.

Below is an edited transcript of their conversation.

Chris Farrell: So this film, “The Wrong Box” is about a tontine, this financial contract where a certain sum of money is set aside and, moreover, we cannot recover the money, and it is invested for the benefit of a group of people. Now here’s the twist: When some people die, their share of the fund goes to the survivors of the group. So, with periodic interest payments, distributed only to survivors, the longer you live, the higher the payment. So tontines could provide income for group members who, you know, are living longer than expected.

David Brancaccio: Why have these tontines fallen out of favor in the United States?

Farrell: OK, so they were very mundane. And I still love it, that a tontine funded the construction of the original New York Stock Exchange house in the Tontine Coffee House. Life insurance tontines were popular in 19th century America, but it was a very lightly regulated product and attracted all kinds of scams and abuse from promoters. So in the early part of the 20th century, rather than better regulation, it was essentially banned.

BrancaccioQ .: So now a financial arrangement that has been, as you say, abused and looks disgusting should be resurrected to help current retirees perhaps manage their income in their old age? Explain, Chris.

Farrell: Hey, it’s finance. OK, no, seriously, that’s what retirement experts argue in the Brookings Institution’s publication, “Wealth After Work.” And finance professor Moshe Milevsky, he’s also released a book, “King William’s Tontine”, and he’s advocating for resurrecting the tontine for retirement savers. So there are a lot of twists and turns to create the actual financial product, but let’s take the 30,000-foot perspective. First, it addresses the fear of outliving your assets. The design is more transparent than Annuities, which is a competitive product. They are cheaper for the client than annuities for a variety of reasons. And finally, and probably the biggest draw, they offer the prospect of higher returns, depending on when the people in the pool die. And regulators are confident they could possibly prevent a lot of abuses.

Brancaccio: Okay, a perfect plan. All you have to do is live longer than everyone else. Does anyone use tontines this way here in the 21st century?

Farrell: Well, former Swiss Air employees are taking advantage of the untimely deaths of their colleagues and you have also had thoughts on the tontines affecting retirement savings plans in places like Sweden and Japan. So, you know, the tontine exists and it might be a partial solution to the fear of outliving your assets.

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NZX-listed stocks support record growth in Kiwi retirement savings https://europeanforum-familymediation.com/nzx-listed-stocks-support-record-growth-in-kiwi-retirement-savings/ Wed, 06 Oct 2021 00:15:00 +0000 https://europeanforum-familymediation.com/nzx-listed-stocks-support-record-growth-in-kiwi-retirement-savings/

October 6, 2021 – Shares of NZX-listed companies are emerging as the asset class of choice for managed funds, KiwiSaver and other pension plans, with the Reserve Bank’s latest QMF survey showing a total of nearly $ 250 billion under management as of June 30, 2021.

NZX Managing Director Mark Peterson said it was a great pride for the New Zealand Stock Exchange team to see holdings of listed stocks rise 7% to a record high of 119.3 billion dollars, with significant investments in local businesses.

NZX-listed and international stocks now represent more than 41% of total funds under management, up from around 35% in early 2020 before the COVID-19 pandemic.

“As New Zealand stock exchange, Te Paehoko o Aotearoa, we always want to be seen as the natural home for Kiwi businesses, and we also recognize the importance of local capital markets in ensuring domestic investors have easy access and fast to a pipeline of local businesses.

In addition to investments in managed funds and pension plans, Mr Peterson says New Zealand has a relatively large retail investor base and over the past year NZX has seen the re-engagement most important with stocks. [shares] as an investment category over the past 30 years.

“Retailer participation has reached unprecedented levels in our stock market, aided by the growing popularity of online trading platforms – Jarden Direct, Sharesies and ASB Securities – which allow easy and low cost access for retail investors and informed individuals.

“It’s positive for our market and stimulates interest and investment among our issuers,” he says. “We are absolutely proud to be able to allow Kiwis to have global innovators Fisher & Paykel Healthcare, Pushpay, Pacific Edge, Serko and other industry leaders such as Mainfreight right in front of them and at their fingertips, as that choice investment on NZX.

The total value traded on the NZX of $ 27 billion in the first half of 2021, across more than eight million transactions, reflects increased interest from all segments of investors.

The COVID pandemic significantly boosted and accelerated activity in the New Zealand equity market in 2020, and NZX’s business continued to operate at a structurally higher level in 2021.

Mr. Peterson says there is a strong recognition of the value of being listed on NZX.

“The COVID crisis has demonstrated the clear value of being listed on NZX; easy access to capital and we believe that’s a factor, along with NZX’s origination business, in the growth we’re seeing in new listings.

Primary capital raised in the first half of 2021 rose 47% to $ 3.4 billion.

“As all businesses and investors face the prospect of high uncertainty – including the prospect of rising interest rates and rising inflation – we work closely with our clients to ensure that they are aware of the opportunity to raise different forms of capital to meet their needs. “

Mr. Peterson says NZX’s focus remains on the unique role that NZX and our public procurement can play in supporting the resilience and long-term success of our customers and the economy.

With retail and institutional investors seeking a wider range of investment opportunities and ready to support our NZX-listed companies, we are optimistic about the pipeline and the potential for new listings, ”he said. declared.

© Scoop Media

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5 easy ways to increase your retirement savings next week https://europeanforum-familymediation.com/5-easy-ways-to-increase-your-retirement-savings-next-week/ Tue, 05 Oct 2021 09:25:00 +0000 https://europeanforum-familymediation.com/5-easy-ways-to-increase-your-retirement-savings-next-week/

Planning for retirement can easily become overwhelming, even if you are able to save regularly. Some people choose to postpone it because they don’t know where to start, but that only makes their job more difficult. A better approach is to break the complex task of planning for retirement into simpler steps and tackle them one at a time.

Here are some steps you can take now to improve your retirement preparation within a week or two.

Image source: Getty Images.

1. Rethink your budget

Saving more money for retirement can be as easy as remaking your monthly budget. Look at your bank and credit card statements for the past few months and look for areas where you could reduce your spending. It could mean cooking more instead of dining out or canceling an old gym membership you don’t use. Instead, put that extra money into your retirement savings.

2. Go for your 401 (k) match

If your business offers a 401 (k) match, you should do your best to claim the whole thing every year. This is basically a bonus, but you only get it if you put in some money for your retirement. It could be worth hundreds or thousands of dollars today and potentially tens of thousands of dollars or more when you retire.

Speak with your company’s HR department if you’re unsure how their 401 (k) match works. Figure out how much you need to contribute to get the full match and compare that to what you are already contributing. If possible, increase your contributions a bit to enjoy the full game.

3. Open an IRA

Consider opening an IRA if you don’t have access to a 401 (k), if you’ve reached the maximum, or if you don’t think it’s right for you. IRAs have lower contribution limits – just $ 6,000 in 2021, or $ 7,000 for adults 50 and over, compared to $ 19,500 for 401 (k) or $ 26,000 for adults 50 and over. more – but they also offer a wider choice of investment options. Plus, you can choose to pay taxes on your contributions in exchange for tax-free withdrawals later or take tax relief today and pay taxes on your distributions in retirement.

You can open an IRA with any broker and choose from an almost endless variety of stocks, bonds, mutual funds, exchange-traded funds (ETFs) and more. This makes it easier to find investments that match your long-term goals, and it can help you reach your savings goal faster.

4. Ditch expensive investments

All investments have fees, but some are higher than others. You want to keep these costs to a minimum so that you can keep more of your profits. It’s up to you to decide what fees you’re comfortable with, but ideally you would try to pay less than 1% of your assets in fees each year.

Index funds are a great choice for those who are trying to keep costs low while achieving strong returns. These are mutual funds or ETFs that mimic a market index, such as the S&P 500. While these indexes show losses in some years, their average annual returns tend to be quite good over the long term.

5. Automate your contributions

The automation of your pension contributions ensures that you do not forget to make them. It can also help reduce emotional investing decisions, as you won’t have to watch how your investments are doing every time you’re ready to add more money to your account.

If you have a 401 (k), you should be able to carry forward a percentage from each paycheck or a fixed amount to each pay period. Most IRAs allow you to connect to a bank account so that you can automatically transfer funds each month. You are free to change the amount or timing of your contribution at any time, so you can adjust it as your situation evolves.

None of these changes will make you a millionaire overnight, but they can help you establish good financial habits that will make reaching your retirement goals much easier. Once the system is down, continue to contribute regularly and review your retirement plan at least once a year. See if you can identify new opportunities to increase your savings.

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How to retire early https://europeanforum-familymediation.com/how-to-retire-early/ Mon, 04 Oct 2021 16:55:39 +0000 https://europeanforum-familymediation.com/how-to-retire-early/
investment
(© WavebreakmediaMicro – stock.adobe.com)

Many people dream of having a lot of free time in their golden years, but if you want more time sooner, you might have considered retiring earlier. There may be many reasons for you to do this, but there are ways to make your dream of quitting your job sooner than you realize you can realize.

Seeks to invest

One of the best things you can do for yourself is start saving for retirement when you’re young. That way, you can take advantage of as many years as possible for your money to grow and earn interest. Sure, you might already have a traditional 401 (k) account or another, but get creative with other ways to invest. For example, you might consider getting into penny stocks. If you are considering going this route, you can take a guide to online trading to learn more about the potential for making money and how you can get started.

Submit a fictitious budget

Whether or not you can retire will depend on how much money you need each month. It’s a good idea to be specific, even if you don’t know what the cost of living will be in a few decades. However, now is a great time to budget and practice living with it. This way you can see if the numbers are achievable. Especially if you are planning to relocate like many retirees do. For example, North Carolina is a great place to retire due to the weather, recreational opportunities, etc., but do you know what it would cost you to live there full time?

You can start working backwards to see how much you will need to maintain your desired standard of living each year. With your target number in mind, it’s time to create a plan for the amount of money to set aside for each paycheck. There are investment calculators that you can use to determine how much you can actually expect to get from your investment. This way you can see how much to save each month.

Meeting with a financial advisor

It’s important to watch your money and ask your financial advisor about anything you don’t understand. If something doesn’t make sense, you can talk to a financial advisor about your concerns and receive professional advice. It’s a good idea to meet with an advisor before making any important decisions. They could give you some tips to be smart about how you retire. For example, even if you feel ready to give up your job, it’s a good idea to think about the practical side of things. An advisor can help you determine if you and your spouse are on the same page about how you will use your funds during your golden years.

You might want to talk to the counselor about where and how you will live. For example, some couples choose to downsize while others decide to be closer to their families, even though the cost of living is higher. There are some things you can do if you feel like you are not on the right track to reaching your savings goal. For example, now is the time to get out of debt, even if it’s just a mortgage. Debt can deplete your retirement savings faster than almost anything else.

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How to make retirement planning less stressful https://europeanforum-familymediation.com/how-to-make-retirement-planning-less-stressful/ Sun, 03 Oct 2021 12:34:26 +0000 https://europeanforum-familymediation.com/how-to-make-retirement-planning-less-stressful/

Planning for retirement is a dynamic process that involves decades of managing your life savings in various investment vehicles until you retire. While many invest in 401 (k), real estate, bonds, and stocks, doing so without knowing the underlying principles of these asset classes often leads to poor returns and even losses. Additionally, the impulse selling and buying of assets during market upheavals could derail a well-planned retirement card.

There are more important questions that many Americans do not have answers to. How much do you need for your retirement? When to start saving? When Can You Really Retire? Some say saving 10 times your annual income at age 67 is decent enough to navigate smoothly in retirement, but that estimate could change dramatically over the next two decades. Many aspire to retire before age 55, but the actual average retirement age is well over 60. This huge gap between reality and retirement expectations could be attributed to several factors:

Start saving for retirement late

Personal debt of US households nearly hit a record high of $ 15 trillion in the second quarter of 2021. Student loans, credit cards and personal loans alone have kept Americans from saving early in life. which cost them precious years of compound interest on investments. The pandemic may have played a role in the sharp rise in personal debt. TheBalance estimated that 50% only had $ 250 in disposable income left after paying their bills and monthly installments.

Excessive dependence on social security

Thinking that Social Security benefits will protect you in retirement could create an illusion of financial security throughout your working years. While the Social Security Administration (SSA) allows eligible people to apply for benefits from age 62, you actually receive less monthly income than those who claim at age 66. An SSA report said the average monthly benefit in 2021 was at $ 1,544 with more than 65 million workers receiving a staggering $ 1,000 billion in benefits this year.

In addition, the report mentions that the number of Americans aged 65 and over is expected to increase from 56 million currently to 78 million by 2035. This scenario could force sub-Saharan Africa to cut benefits or raise taxes in order to respond to a growing population The benefits of SSA in the future. The big picture is that a secure income stream after a certain age could lead many people to a comfort zone where they might not be looking for higher returns through different investment vehicles.

Attach emotional value to money

Watching your life savings plummet during market downturns is no easy task. Unguided investors with little knowledge of market dynamics often fall prey to market swings, where they sell investments for fear of losing more money during a downtrend. If you withdraw from your 401 (k) prematurely, for example, you could break the compound interest momentum. It could push back your retirement goals for years.

Additionally, a National Financial Educators Council survey found Americans lost a total of an astronomical $ 415 billion in 2020 due to a lack of financial literacy. While emotional money movements certainly have a role to play, there are several factors such as hidden fees that increase with your assets or the attempt to synchronize the market, among others, could make your current financial crisis worse.

Importance of Guided Retirement Planning

An April 2020 Betterment survey found that 52% of respondents believed they needed to tap into long-term savings over the next twelve months. More than 36% of people under 20 expected a delayed retirement due to the pandemic, while 37% of people aged 45 to 64 did not know how their investments were faring in the crash scholarship holder.

In contrast, 650 billionaires increased their collective worth by $ 1,000 billion during the COVID-19 pandemic, bringing their cumulative value to over $ 4 trillion. The bottom line here is that good financial planning could grow your retirement funds over time, regardless of momentary but inevitable fluctuations in the market.

When planning for retirement, people tend to think about choosing the right mix of stocks and bonds, exploring different asset classes, and monitoring and adjusting their portfolios to create a fortune they will not survive. . It is crucial to understand that an important aspect of financial planning is to protect your money during recessions as much as to aim for high returns when the market is booming.

Today, fintech companies are using artificial intelligence to create robo-advisers capable of creating personalized portfolios based on your life goals. These complex algorithms are capable of selecting stocks, allocating assets, and even making investment decisions on your behalf. While robo-advisers are gaining popularity due to their ease of use and low fees, in-house financial advisers still have a hunch and experience that robo-advisers cannot provide.

An in-house financial advisor can create a roadmap that covers the full spectrum of personal finance such as investing, savings, and taxes. Certified Financial Planners (CFPs) take 1,000 hours of classes where they are trained to understand your risk appetite, spending habits, long-term goals, and even your fears that could lead to emotional cash flows. When something is wrong in the market and you fail to figure it out, a financial advisor can objectively assess the situation to guide your investment decisions so that you don’t regret them later.

Misconceptions About Financial Advisors

While a financial advisor can make a huge difference in your long-term financial gains, there are still some misconceptions. SmartAsset, a billion-dollar fintech company that connects individuals with approved financial advisors, conducted an online survey in which 57% of 159 financial advisors mentioned that clients thought advisors were ” too expensive “or” were too expensive “.

Typically, financial advisers charge one to two percent of assets under management (AUM). Assuming an advisor charges two percent of the assets under management and currently manages $ 100,000 in assets, the annual fee is $ 2,000. However, given that the average returns for S&P 500 stocks are 10%, these fees could be insignificant for long-term gains.

On the other hand, some investors refrain from partnering with financial advisers, fearing biased investment choices that benefit the advisor. One simple solution is to find advisors with a Certified Financial Fiduciary (CFF) certification from the National Association of Certified Financial Fiduciaries (NACFF). This certification implies that the financial advisor is legally and ethically bound to recommend investments in your best interest.

Financial advisers generally follow suitability and fiduciary standards. While the former requires advisors to find investments that are right for your portfolio, the latter ensures that an advisor is working to give you the best possible investment advice.

How to find financial advisors

Many people start by consulting friends and relatives to see how their advisors are handling their investments. A Bank of America survey in 2021 said 45% of 2,000 respondents turned to financial advisers to better manage their investments. The report mentions that many look to the reputation, fees, and even personal recommendations of advisors to refine their search. While it may seem simple, finding advisors you can work with for decades can be time consuming. If you prefer the online route, you can also be bombarded with confusing advice matching services.

New York-based fintech SmartAsset can help you speed up your financial advisor search by connecting you with up to three licensed fiduciary advisors near you in minutes. Over 65 million people use their wide array of award-winning tools and precision calculators to manage their personal finances, including retirement planning, investments, debt, taxes, and real estate. Their smart financial modeling simulation also offers insight into what your financial future might look like based on the decisions you make today.

In addition, SmartAsset’s financial advisory services are led by a dedicated concierge team that connects you with licensed advisors. All you need to do is take a quick online quiz about your financial goals and retirement expectations. Financial advisors will then be recommended to you based on your answers, and you can interview them and check their references to see if they are right for you.

Partner with a financial advisor today.

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Should investors create their own target date fund? https://europeanforum-familymediation.com/should-investors-create-their-own-target-date-fund/ Sat, 02 Oct 2021 16:00:00 +0000 https://europeanforum-familymediation.com/should-investors-create-their-own-target-date-fund/ Target date retirement funds are often found in 401 (k) companies, IRAs, and other investment vehicles. But many investors in such funds wonder if they could not achieve similar or better returns by creating replicas, at no cost.

We did a little test and found that as long as you have the time and diligence to monitor and adjust your portfolio over time, then yes, the do-it-yourself version on average outperforms the target date fund of. origin by eliminating its fees and expenses.

A target date fund is most often a mix of stocks and bonds in which the allocation of investments shifts from riskier to more conservative as the investor’s year of retirement approaches. An investor preparing to retire in 2040, the current average year for all target date retirement funds, can save an average of 0.14 percentage points in expenses and fees per year, which translates to more than 2 percentage points of cumulative return over a 10-year period.

And, even better, if you’re a younger investor with an approximate retirement date of 2060, you can save an average of 0.17 percentage point in fees per year, which can generate an increase of over 3 percentage points. cumulative returns over 10 year period.

To implement this study, my research assistant Tyler Harb and I first collected allocation data from the prospectuses of all US-based target date retirement mutual funds. Many were very specific about what they were invested in (other mutual funds, mainly) and the importance of the allocation. Some have been unwilling to reveal the names of the funds they have invested in, but have described them in terms specific enough that we can identify them as, say, a large or mid-cap US equity fund. Using this data, for each target date fund, we created a replica fund with the same content and allocations, and then ran market simulations to see what kind of return an investor would get using a version. DIY compared to its original.

To give each target date fund a chance to fight back against its aftershock, we have chosen its cheapest option among different share classes. For the funds that we have placed in the replicas, we have chosen the share class with the most assets under management. We then assigned each investment within the replicas the same weight as that present in the original fund.

Benefits for young investors

The first interesting result is that, on average, an investor in a 2040 target date branded fund can expect to pay an expense ratio of around 0.32 percentage point per year. But if investors wanted to build the same fund (using the same mutual fund offerings), they could do so for around 0.18 percentage point per year. This equates to an excess return of 2.5 percentage points over a 10-year period.

The second interesting finding is that for longer-term retirement funds, for young people who will not retire for decades, savings are even more important.

DIY pays off

Excess returns that can be obtained by “doing it yourself” instead of buying the fund at maturity.

Excess return over a 10-year period

Expense ratio for the fund at maturity

Matched do-it-yourself fund expense ratio

10-year excess returns, per targeted retirement year

2020

2025

2030

2035

2040

2045

2050

2055

2060

Investors who buy a 2060 target date branded fund can expect to pay an expense ratio of 0.34 percentage points per year. If they build the same underlying fund, they could do so for an average of 0.17 percentage points per year (using the same fund family offerings). This equates to an increase of more than 3 percentage points in returns over a 10-year period.

One factor in this advantage for young investors is that as a fund’s retirement date advances into the future, the fund manager avoids short-term debt, inflation-protected bond funds. and high dividend stocks for large caps. equity, international equity and small-cap equity funds. This difference in ownership allows the investor on average to save a few hundredths of a percentage point on expense ratios. The second factor is that as a fund’s retirement date lengthens, the fund family charges more for that product, perhaps because younger investors are less price sensitive when it comes to savings. ‘invest.

A positive

As for the positive side of target date funds, 10% of the funds in our sample were actually sold ‘at cost’, meaning that the target date retirement fund expense ratio was the weighted average of the components. underlying. Thus, an investor would not save money by trying to replicate these target date funds.

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What is your opinion on maturity funds? Join the conversation below.

On the flip side, over 10% of target date funds had an expense ratio greater than 0.60 percentage point per year compared to the DIY portfolio. The result: investors replicating the target date fund would earn more than 10% additional returns over a 10-year period.

Overall, adventurous and diligent investors (especially young investors) should note the cost savings of starting their own fund. Of course, the downside to doing it yourself is the desire to time the markets and rebalance too often. But if you can control that urge, a DIY portfolio can earn you a few percentage points in retirement.

Dr Horstmeyer is Professor of Finance at George Mason University’s Business School in Fairfax, Virginia. We can reach him at reports@wsj.com.

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