Joe Lucey

They say you’re never fully prepared to have children; the same could possibly be said for retirement. Life still gets in the way of plans, but one way to work out the kinks is to “test-drive” some of your retirement plans while you’re still employed. Consider the following tips to help prepare for retirement.

Spousal Perspective – Most of us have a vision of how we would like to spend our retirement. Sometimes couples who have been together for so long that they read each other’s thoughts and finish each other’s sentences just assume they share the same retirement dreams. Not so. Often one dreams of spending more time with family while the other imagines long days of peace and quiet on the golf course. One good exercise is for each spouse to create a budget covering the expenses they imagine they’ll have in retirement. It can be quite illuminating to see the differences; comforting to find similarities.

Testing Hobbies – Perhaps you dream of gardening, travel, opening a shop or writing a book. If you haven’t spent a lot of time doing these things in the past, they could fall short of your expectations. Give your hobbies a test run before you invest a lot of money in them. You may find you rather dislike the heat, dirt and bugs that come with gardening, or the logistical work involved with opening a shop. Much like life itself, it’s important to separate the dream of what you’d like to do from the reality of what you’ll actually do in retirement.

Make Exercise a Habit – Unfortunately, newfound leisure time often leads to inactivity, so try out a few low-impact exercise options before retirement to find one you like. Walking, swimming, yoga and Pilates are among the alternatives you may be able to continue throughout a long life. If you start classes now, you’ll have a schedule to follow in retirement — which can help prevent idleness.

Off-Season Visitation – If you’re considering relocating or purchasing a second home for retirement, first be sure to visit your preferred destination during the off-season as well as the high season. For year-rounders, you may find the locale to be too cold, too hot, too crowded or too desolate for your taste. For part-timers thinking they might rent out the home part of the year, these same conditions may make it difficult to find qualified renters.

Separate Income Plans – Many couples start out retirement with two people, but unfortunately end up with only one. If their retirement plan leans too heavily on assets of one spouse — such as a single life pension plan — the surviving spouse could experience a significant drop in income. It’s important to develop an income plan for the contingency of each spouse dying first to understand how much income would remain.

Streamline Finances – You might consider consolidating the number of banking and investment accounts you have so there’s less to keep track of. Automate deposits, distributions and bill-paying as much as possible so it’s easier to monitor your incoming and outgoing income.

You’ve likely heard a few clichés when it comes to investing: stay the course; buy right and hold tight; time is more valuable than money; etc. The point is clear, if your investments align with your goals, timeline and risk tolerance, then there may be no reason to make changes to your portfolio when the markets experience volatility.

After all, we can’t control what happens in the markets, the economy or in Washington, but we can control our own investment decisions and our temperament.

For an idea of how quickly the market can recover, just look at the Dow Jones Industrial Average (DJIA) following some historically difficult periods. After the market crash of 1929, the market began its steady climb back to positive returns within one month and reached its previous levels within six months. Throughout history, the DJIA has come back from crisis declines to double-digit returns (on average) within the ensuing 12 months.

Investors tend to react to a market decline in one of two ways, either by panicking and selling or freezing and doing nothing. The hold-steady types often fare better when holding for the long-term. In the case of someone in or nearing retirement, who doesn’t have time to wait for markets to recover, staying the course may not be the practical decision.

Another concern for those in or nearing retirement is what many financial advisors call “sequence risk,” which is basically withdrawing too much income after a period of market decline. Draw too much too early in retirement, and you’re more likely to run out of money. On the other hand, if a market decline occurs further along in retirement, that risk may be reduced.

Over the past 35 years, the stock market has experienced an average drop of 14 percent from high to low during each year, but still had positive annual returns more than 80 percent of the time. Hypothetical illustrations show that since 1980, an investor who was out of the market for just 10 of the best performing days may have earned less than half of the portfolio’s earning potential.

Staying the course is not always easy, especially when your account balance is declining. One way to help counter this impact, called dollar-cost averaging, is to keep contributing and, in turn, buying increasing numbers of shares at lower prices so that the balance can rise despite poor performance.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

Are you worried the next presidential administration will impact your overall retirement plan?

Regardless of who you supported in the election, chances are that you may believe the new inhabitant of the White House will have a significant impact on your investment portfolio. And, as it turns out many Americans feel this way.

A recent study of about 60,000 investors shows that people generally take greater market risks when their party controls Washington. This same study also discovered that people affiliated with the party out of power tend to feel uneasy about the market and trade stocks more often.

Not surprisingly, this impatient approach to investing led their investment portfolio to underperform when compared to when their party was in charge. This suggests that making investment decisions based solely on who is in office and how you feel about them is not always a good idea.

History further reinforces this notion. Since World War II, stocks have seen gains under every president except Nixon and George W. Bush. And those downturns can be attributed largely to global economic factors rather than policies directed from the President.

In actuality, stocks have been shown to generally rise over time no matter who (and what party) is in charge of the White House. But this won’t stop many Americans from still choosing erroneously to make moves in their investments based solely on who our President is.

If this sounds like you, I would like to invite you to take a deep breath. As we start the new year together your resolution for 2017 should be to avoid “Politicizing Your Portfolio”. By this, I mean you should never let who is in office drive the investment strategy for your retirement.

Your investment strategy should be based on the goals you have set for your retirement not who is in office. It should be about protecting you from large market drops first, while still positioning you to make an adequate return.

The good news is that if you are a client of ours, we are working hard every day to keep your retirement investment portfolio in good shape. And if you are not already a client of ours, I would like to invite you to come in for a free, no obligation strategy session so that we can get your retirement plan on the right track.

CALL 952-460-3260 TO SET UP YOUR FREE STRATEGY SESSION TODAY

I truly want you to feel like that you have a sound retirement plan in place. So during this time you will receive actionable ideas and concrete steps towards a more secure retirement and a better financial future for yourself and your family.

CALL 952-460-3260 TO SET UP YOUR FREE STRATEGY SESSION TODAY

P.S. If your new year’s resolution was to put a plan in place for your retirement, now is the time to act. We offer a free, no obligation Strategy Session for you to walk away with valuable ideas on how you can best secure your future in retirement. Many people make resolutions but rarely follow through with them. Having a good coach is the best way to make sure you stick to your goals for the year and don’t fall off the bandwagon.

Investing in a traditional IRA while earning a paycheck is a good way to defer income taxes on the money you contribute. Currently, taxpayers who aren’t covered by a retirement plan at work may deduct the full amount of their annual contributions to a traditional IRA.

Those who do participate in a work plan may be able to deduct partial contributions, subject to the following income limits:

Filing Status	Modified AGI	Deduction Status
Single, Head of household, or Married filing separately and did not live with spouse at any time during year	$61,000 or less	Full deduction up to contribution limit
	$61,000 to $70,999	Partial deduction
	$71,000 or more	No deduction
Married filing jointly or Qualifying widow(er)	$98,000 or less	Full deduction up to contribution limit
	$98,000 to $117,999	Partial deduction
	$118,000 or more	No deduction
Married filing separately	Less than $10,000	Partial deduction
	$10,000 or more	No deduction

 

So, after years of contributing to a traditional IRA, why would anyone convert it to a Roth IRA before retiring? First of all, if you anticipate that income tax rates will increase in the future, you can avoid that bill on your retirement income by paying at a lower rate now. Second, some individuals make the conversion when they’re already retired and in a lower tax bracket. This could benefit their eventual beneficiaries who are in a higher tax bracket. However, converting may not be a good move if individuals or their beneficiaries expect to be in a lower tax bracket when the funds are distributed in the future.

The issue at hand is that contributions in a traditional IRA grow tax-deferred until distributed. Contributions to a Roth are taxed up front, grow tax-free and then are distributed tax free. So the decision to convert depends on when the individual expects to receive the funds and what tax bracket they expect to be in when that happens.

There are a few strategies a traditional IRA investor can use to help mitigate future tax bills. One is to make the conversion gradually, moving over just enough money each year to stay within the current tax bracket. Also, it may be worth considering converting before the investor turns 70 ½ to avoid having to take a taxable required minimum distribution (RMD) first.

And finally, be aware that while traditional IRA RMDs begin at age 70 ½, an individual can convert the funds to a Roth IRA at any age thereafter. A Roth IRA does not require minimum annual distributions.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.