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RETIREMENT IS A PROCESS

There are no “one size-fits all” solutions to assuring you have the retirement you have hoped for all your working life. With a process in place you can have the retirement you always wanted. We have a five- step process to assist you with your retirement needs.

Risk Management

In the last several years many people have turned to more conservative investment options. As more people near retirement, they have been looking for conservative alternatives to Stock Market risk. Indexed products can help alleviate market down turns and will gain when the market goes up.

Life Insurance

Life insurance can have several purposes. Depending on the need you may need the coverage for a specified period of time or there may be a need for an indefinite time frame. A term insurance plan can provide coverage for a specified period such as the duration of a loan. Permanent insurance, also known as universal life, will provide coverage for the life of the policyholder. Permanent coverage can be used to help supplement retirement, provide for the sale of a business, or help strengthen a pension payout.

Business Continuation

Many small businesses have a need to find a way to pass the business to a family member or key employee. Many business owners have turned to a permanent life insurance plan to help fund the sale of the business. The plan will have enough cash to facilitate the sale or enough death benefit as well. The business may want to make sure the employee stays with the company by using a permanent plan as an additional retirement fund.

Social Security

Most people have many questions surrounding the complicated decisions of Social Security. There are many options in deciding when to start taking your benefits. These decisions have a profound affect on future benefits for the beneficiary as well as the surviving spouse. Delaying the benefit can provide for significant growth in the benefit. However that may not be possible depending on the financial situation at retirement. We use software to show all the options and help pick the best for your situation.

Private Pensions

Clients often say, if only I had a pension like my parents. Pensions have become increasingly rare. Most people have a 401(K), 403(B) or other employer-sponsored plan. These plans are offered in place of a traditional pension. Employer-sponsored plans contain a considerable percentage of the funds saved for retirement. With this reality, the employer-sponsored plans must be viewed as a pension. Insurance products can be structured to provide a pension-like income that will last for your lifetime as well as your spouse’s lifetime. It is possible to have a pension like your parents had. 

Risk Management

In the last several years many people have turned to more conservative investment options. As more people near retirement, they have been looking for conservative alternatives to Stock Market risk. Indexed products can help alleviate market down turns and will gain when the market goes up.

Life Insurance

Life insurance can have several purposes. Depending on the need you may need the coverage for a specified period of time or there may be a need for an indefinite time frame. A term insurance plan can provide coverage for a specified period such as the duration of a loan. Permanent insurance, also known as universal life, will provide coverage for the life of the policyholder. Permanent coverage can be used to help supplement retirement, provide for the sale of a business, or help strengthen a pension payout.

Retirement Income Planning

The decision to retire for most people is a difficult one. The change of not having a consistent paycheck can be stressful. Fewer and fewer retirees have a pension making a retirement income plan essential to achieving their retirement goals and dreams.

Social Security

Most people have many questions surrounding the complicated decisions of Social Security. There are many options in deciding when to start taking your benefits. These decisions have a profound affect on future benefits for the beneficiary as well as the surviving spouse. Delaying the benefit can provide for significant growth in the benefit. However that may not be possible depending on the financial situation at retirement. We use software to show all the options and help pick the best for your situation.

What is the best age to claim Social Security

5 MIN. READ

As you approach age 62, the question of when and how to claim Social Security will appear on the horizon. For many it feels like a daunting, even impossible task.  Widespread rumors that Social Security will soon be gone only complicates the situation. Take heart; it’s not that bad, especially if you get experienced help.

When should you claim your benefits?

You can claim Social Security benefits at any time after you reach the age of 62,however it may not be the best time to do so. Based on the year you were born; you will have a designated full retirement age (“FRA”). Each month prior to reaching your FRA, your full benefit is reduced by a set amount which remains in place for the remainder of life. Conversely, if you wait beyond your FRA, you can receive an 8% increase in your benefit for each year you delay thru age 70. By so doing, your total monthly benefit is 132% of your primary benefit amount. However, this is only the beginning of your decision-making. There are many other factors to consider.

Whenever you decide to claim your benefits, be aware that the Social Security Administration requires up to four months to process your claim and you will not receive a benefit payment for at least a month after you file. Accordingly, the earliest you can file is at 61 years and nine months. Before you make the decision to file, there are several factors for you to consider.

Factors to consider

When making your decision, remember to include the following considerations:

Your health. Will you be well enough to continue working until age 70? If you need to retire for health reasons, then the cost/benefit analysis changes. You may receive less, but your health problems might not let you wait to file your claim. If you’re single and need the income to retire, then there’s no reason not to do so.

Although you can receive benefits prior to your FRA, you cannot receive Medicare until you are 65. In other words, if you retire and start receiving reduced benefits at 62, you may need to spend a large chunk of your monthly benefit on medical insurance. Given the cost of health insurance for an individual, this factor alone may make claiming at 62 a financial mistake since you will net so little.

Your break-even age. break-even analysis determines the age at which the benefit you will receive is equal to the benefit you would receive by waiting to defer your benefit claim until a later age. For most people, the breakeven age is usually somewhere in your late 70’s or early 80’s. At a certain age, you will have received as much from the lower benefit as you would have by waiting; from that point forward, the higher benefit would be a reward to you for waiting.

The needs of your spouse. Equally important, if you’re married, consider your spouse. If he or she also claims at 62, the spousal benefit will be reduced in the same way as any early claim. If, however, you predecease a spouse who is relying on your earnings, he or she will receive your full monthly benefit from then on. Thus, the longer you wait, the greater the potential benefit for your spouse. A married couple will generally benefit more in the long run from waiting than a single person. This is even more true when both spouses have income, and the lower-earning spouse can claim his or her own earnings initially and later receive the higher-earning spouse’s survivor’s benefit.

Your expected longevity. On the other hand, potential longevity does need to be considered. If you’re a single woman relying on your own benefits, you should remember that you will likely outlive a single man of a similar age. Because you will depend on your Social Security income longer, inflation will impact you more. The effect of inflation should be included in your calculations when determining the right time to claim benefits.

Your tax burden. Taxes are also an important consideration in the timing of claiming your benefits and the Retirement Professors can help. If you have stopped working, or plan to do so when your benefits start, then it is less likely that your benefits will be subject to federal income tax. On the other hand, if you are still working, and are below your FRA, up to 85% of your benefits will be subject to income taxes at your marginal rate (that is, at the highest rate you pay). Another important point to consider is your other retirement assets and their distribution combined with your Social Security benefit. This combination could put you in a higher tax bracket, causing an increase in your tax burden.

Your potential benefit changes. Finally, although the story that the system is going bankrupt is a myth, there are real financial issues facing future benefits. The system has always been a pay-as-you-go system, beginning with 41 workers paying the benefit for one retiree in the 1930s and reaching today’s ratio, in which 2.4 workers pay the benefits of each retiree. It’s clear this ratio can’t continue, and some politically difficult changes will have to be made.

Getting help

There are many, many ways to claim Social Security. The numbers cited can range from CNBC’s estimate of 81 strategies to Bankrate’s 567 ways. In either case, you’ll want to look at a variety of strategies and factors before you claim.

There are also a lot of ways to find advice for claiming Social Security. The SSA has a website and staff that are friendly and helpful but be prepared to wait on its phone lines. AARP also provides general advice and tips on when and how to claim. The internet can give you valuable information if you have time to sort through the 75,000,000 results that come up in the search “tips for claiming Social Security benefits.”

Greg Rieckhoff (Your Safe Money Guy) can help guide you through the maze of Social Security issues. He can help you make the right choices for you and your spouse to get the most, and the most appropriate, benefits for your retirement.

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Private Pensions

Clients often say, if only I had a pension like my parents. Pensions have become increasingly rare. Most people have a 401(K), 403(B) or other employer-sponsored plan. These plans are offered in place of a traditional pension. Employer-sponsored plans contain a considerable percentage of the funds saved for retirement. With this reality, the employer-sponsored plans must be viewed as a pension. Insurance products can be structured to provide a pension-like income that will last for your lifetime as well as your spouse’s lifetime. It is possible to have a pension like your parents had. 

Why Losses Hurt So Much More Than Gains Help

In the year 2020, those of us in the market experienced a wild roller coaster ride of losses and gains. The constant swing between the pain of loss and the pleasure of gain. The question is, though, why do losses hurt so much more than the pleasure we get from gains? There are two main reasons.

The first is simple arithmetic, a 50% loss takes a 100% gain just to break even. Although you may assume a 50% loss would take a 50% gain to equalize, that’s not the case. Let’s break it down further, a 50% loss on $20 is $10. A 50% gain on  $10 is $5. The total is only $15, you lost $5. So, you need a 100% gain on the $10 to get back to your original $20.

Losses also hurt more since the majority of us naturally loss-averse. Indeed, experts say the pain of a loss is twice as powerful as the pleasure of a gain. As a result, we engage in a lot of (sometimes) counterproductive behavior to avoid the pain of loss. Although this pain/pleasure analysis may be more complicated than originally thought, we still hate to lose. Not only is there the emotional pain, but the simple arithmetic of making up losses is equally painful.

So what can you do? You can find ways to reduce risk while still looking to achieve gains.

Be the house, not the gambler

You may be thinking, “If I take big risks, then I could get big rewards.” While that may be true, you aren’t guaranteed that win. More often than not, in fact, you won’t get that win. Take this scenario as an example.

Think of yourself as a casino rather than a bettor. A typical gambler will risk bigger and bigger bets while chasing losses at the tables. Investors, too, will often chase their losses and hold on to failing investments, waiting for them to come back. Both of them would do better by being the house to take the least amount of risk to get consistent return.

A casino knows that it will never experience a dramatic win, but it will consistently, day in and day out, make money on every bet that is placed (ranging from a low 0.5% on video poker to a whopping 30% on Keno). That so-called house advantage, essentially the price you pay to play the game, comes in on every bet placed, allowing the house to make lots of small, consistent profits instead of seeking one exciting windfall. A smart investor also seeks this kind of steady return instead of chasing that one Microsoft IPO stroke of luck.

Get professional help

Leveraging a professional financial advisor could potentially help you reduce the amount of risk. But not all financial advisors help you in the same capacity.   So, what kind of investment professional should you use?

Who are the professionals?

Essentially, there are two types of investment professionals who work with individual investors: registered representatives (RRs) of broker-dealers and investment advisory representatives (IARs) of registered investment advisors. RRs are compensated on transaction-based commissions (that is, they only get paid when they sell you something), and they are governed by the SEC’s Best Interest Rule. IARs are compensated through a flat fee based on the assets under management and are, by law, fiduciaries to their clients.

The differences are subtle, but the SEC has gone to great lengths to help clarify the difference. In essence, an RR must have your best interest in mind when they make a transaction recommendation, while an IAR always has a fiduciary duty to act in your best interests only.

What will they recommend?

An RR will sometimes face pressure to sell you products as their firm directs and, in any case, can only sell you products actually offered by that firm. An IAR, on the other hand, has virtually the entire universe of investments available for use and can thus focus solely on your interests rather than on what a big firm might want them to sell.

A fee-based fiduciary IAR working in your best interests, like Financial & Tax Architects, will get to know your financial goals and objectives, help you figure out how much income you will need in retirement, and help you structure your assets and income to best meet those goals. They will not focus on selling you a product but on serving your needs, which will help you take the least amount of risk to get the highest return.

In the end, the IAR will, in consultation with you, create and help you maintain a detailed financial plan, taking you through the accumulation phase of your investments into planning for the period when you will rely on that income for maintaining your life in retirement.

Consider creating your own private pension

One other tactic you can take in fine-tuning your retirement plan with your investment professional is to create a private pension for yourself. You can do this by buying an annuity specifically designed to provide the income you need to achieve and maintain your financial goals.

Annuities have a bad name, and many advisors hate them. However, an annuity, like a pension, is a contract purchased to provide a given stream of income. There are fixed annuities, variable annuities and, most recently, indexed annuities. In today’s interest environment, fixed annuities provide low returns for high fees while variable annuities put your money in the market like a mutual fund, but do it at a higher cost.

Indexed annuities, when properly constructed and focused on your needs, can provide income that tracks a market index without putting your money at risk in that market. Working with an advisor who really understands this kind of annuity, such as Your Safe Money Guy, can allow you to create one or more private pensions to keep your post-retirement income at the levels you need to live your desired lifestyle.

In other words, be the house

In the end, your best bet is to be the house, not the gambler. Take the least amount of risk to get the highest return. Professional advice is crucial to achieving this, so reach out to the experts at Your Safe Money Guy to get started.

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