We focus our effort on improving your retirement, today we start by looking at moving targets in Washington. Healthcare reform is dead. There is no coherent tax reform strategy. The budget talks will inevitably end in an impasse. They have no chance at a comprehensive immigration policy. Have you thought any of those things? Of course, you have, and now we have a stop-gap budget. There is a very high level White House outline of tax reform. The Affordable Care Act is back in the crosshairs, and immigration continues to brew on the side. Smart money seems to indicate that the House Republicans’ tax outline from last fall is the likely jumping off point. You can learn more about that here: http://www.taxpolicycenter.org/publications/analysis-house-gop-tax-plan/full. Should the ACA repeal and replace fail again (Don’t look now but the Republican health care bill is in trouble again. Again.) All the more reason to believe they will fight mightily to get something done on taxes.
The apparent lesson of the first 100 days is that this will not be easy. Turns out the Washington system is so dysfunctional that you cannot simply will it to work. Coalition building, which should be a deal maker’s forte, seems to be a giant vacuum. The far right of the Republican party want little to do with progress, standing on principle. The Democrats see that as an opening to stand firm. So, how does the deal maker in chief make these big things happen? Seems to me there will have to be some serious horse trading. If neither the Freedom Caucus nor the Democrats play, we may be in for a long two years. Unfortunately, big things need to get done and there is no template for making that happen.
With all these moving targets where does that leave you and me? Well, we have said this before, focus on what you can control. Today we will throw out a few facts, figures and ideas to help you improve your retirement. Perhaps a little pressure on your elected representatives to move some of these big agenda items will help, too.
Moving Targets: What is the landscape now? What can you be doing?
As always when it comes to major policy changes in DC, don’t hold your breath. It is best to plan given what you do know and what you can control.
Then again, knowing what you are up against is perhaps the best place to start. Imagine this, global central bankers continue to intervene in the world economy on unprecedented scale. Presumably this cannot go on forever … what is their plan? What is yours? BAML: The ‘$1 trillion flow that conquers all’ explains everything happening in markets
In the what else is new category we find another study indicating that Americans are not saving nearly enough for a secure retirement. Hopefully since you are this far down in the piece you are not among them … or committed to changing your ways. Only 1 in 10 Americans in Peak Financial Health
So, start working on your own situation. These 3 easy steps can improve your retirement savings – in less than an hour and Slash your retirement costs with these 5 tips (everyone read #3)
Retirement planning is a vital tool in your retirement security arsenal. No one is doing this for you – if you are not paying them. Social Security alone will not deliver a secure retirement. If you are like most Americans, you are not saving enough for a secure retirement. So, you need to arm yourself with a plan and start following it.
Retirement Planning: Where are you now?
Inasmuch as you probably do not believe you need to spend this time, why not assess your situation. If you are like most Americans you simply have not saved enough and do not save enough. Here’s how much the average family in their 40s has saved for retirement The most alarming statistic: to be financially ready to retire at 67, Fidelity says, you need to have six times your salary saved by 50. Do you? Will you? Did you?
Part of a retirement plan is a retirement budget. Since you will likely be on a ‘fixed income’ in retirement, managing expenses is vital. Knowing your expenses is an important part of developing your retirement plan. How to set a retirement budget
The flip side of your retirement budget is your retirement income. Just how will you be generating retirement income? Social Security? 401(k)? Pension? Working? Somehow you have to zero in on a balanced budget – income and expenses matching up over a likely very long time. What’s your retirement strategy?
This piece takes a more comprehensive look at the problem – expenses and income. Some good food for thought and guidance here. The 7 elements of a successful retirement
Retirement Planning: Plugging the gaps.
What should you be doing as you approach retirement age? Are there specific steps you should be taking? This article has some interesting perspective on moves to make before you stop working. An Investing Roadmap for Pre-Retirees (you may need to create a login, but access to Morningstar data is not a bad thing to have)
Since you just signed up for access to Morningstar, why not look at dividend stocks? One inexpensive way to generate quality income from dividend stocks is through a dividend ETF. This focuses on Schwab, but talks about the competitors, too. High-Quality Dividends for a Slim Fee
I loved the concept of this piece: focus on sequence, longevity and unplanned expenses. Fact is we talk a fair bit about the first two, and the last one is a good addition when thinking retirement planning. It is a super simple article, but helps reinforce the point. Take the time to read it. Prepare now for these 3 retirement risks
I usually focus on a particular area in these posts, but today we consider two core investing skills. These may apply to your accumulation or distribution phase. Either way they are valuable skills to have in your arsenal.
Core Investing Skills: Protecting your principal balance.
No matter whether you are in the accumulation phase or the distribution phase, you want to protect your principal. Now, you do not want to do that at all costs, i.e. zero risk investing. You still need to grow your principal, you just do not want to lose it all – even on a paper basis. This article introduces a great term ‘margin of safety.’ Notionally you devote some portion of your principal to risk coverage. It seems like a good way to think of the concept. What to Do About Fading Stock Market Momentum
The article on stock market momentum does not tell you how to create your margin of safety. There are myriad ways to do so, and they depend – to a degree – on where you are in the retirement life cycle. A Qualified Lifetime Annuity Contract (QLAC), for instance, is a great element of a margin of safety for someone in the distribution phase. This article delivers a very specific, rather unusual approach. It focuses the majority of assets on a steady return and a very small portion on ‘home run’ investments. It is not for the faint of heart, or is it? The Holy Grail of Investing – The Barbell Approach
If that is too crazy for you, you may consider options as a means of delivering your margin of safety. This provides a nice primer for you to start. Options Strategy and Tactics: Diagonal Spreads
Core Investing Skills: Delivering consistent income in retirement.
As noted above, the QLAC is a great vehicle, if you can get it, for creating margin of safety in the distribution phase. It is also a great way to deliver consistent income in the distribution phase. Indeed, this article does a nice job of summarizing the prudent role an annuity can play in retirement security. It points out some of the key decision points – health in particular – and notes that annuities work beyond the QLAC. A Simple Way to Get Guaranteed Income in Retirement Whatever your preconceived notion of annuities, you need to do this research. This is Not Your Father’s 401(k): The Retirement Product You Should Know About Finally, another one that touches on the salient points around immediate annuities (outside your plans). The right way to get the retirement income you need
The other basic way we talk about delivering consistent retirement income is through dividend stocks, good ones. This is a very good article about the why of dividend stocks. Response to ‘Should You Build a Portfolio of Dividend Stocks?’
This piece takes a somewhat different tack, arguing that dividend growth investing works in both accumulation and distribution phases. It is a very valid perspective, and one worth considering. The Dividend Growth Investing Mindset
Finally, we all know the very best dividend stocks tend to be fluid and opportunities present themselves. High-Dividend Stock Yields 10%, 11 Straight Dividend Hikes, Pullback Buying Opportunity and 10 High-Yield Dividend Aristocrats Worth Considering
We often speak of your distribution phase here as the income phase of your retirement planning. It is the time after the accumulation phase ends … once you retire. When you begin to draw down on your retirement savings your mindset must change and your decision making, too. Everyone … even financial advisors … focus their time, energy and attention on the accumulation phase. That makes sense because it used to be the bigger timeframe (and more lucrative for financial advisors). Now though, with longevity increasing, you may actually be in the distribution phase for a longer time. So, how do you most efficiently draw down your assets to deliver the comfortable, secure retirement you want?
Your Distribution Phase: Changing strategies to create lasting income.
The most important component of your distribution phase strategy is to generate enough income for as long as you need it. Without entering into the longevity risk discussion today we can focus on ways to optimize your retirement savings. This is an outstanding article based upon the Stanford Center on Longevity and Society of Actuaries work on the topic. Here’s an ‘income menu’ that could help retirees make their savings last
In a similar vein, while this seems like a sales pitch I think you can extract some value gratis. It may help you in the accumulation phase to adjust your saving strategy. It may help you in your distribution phase to optimize your withdrawal pattern. One online tool helps you turn many retirement factors into money magic
We speak often of dividend stocks (good ones) as a means of generating income and preserving principal. This article takes a look at the multi-generational potential for a solid dividend investing approach. Never Run Out of Money: The Gift That Keeps on Giving
To be fair we always temper our dividend discussions with the need to remain vigilant. Here the Motley Fool helps illustrate that point. 3 Most Wildly Overvalued Dividend Stocks
Your Distribution Phase: Remain vigilant, understand market conditions, and history.
Clearly there is some luck involved in retirement planning success. Far more is dependent upon hard work, by you or someone helping you. Whether it is the accumulation phase or your distribution phase you need to have a strategy. The 3 Characteristics of a Good Investing Framework
If you believe that a downturn is inevitable and coming soon, then understand what works. Here is an interesting look at Beta vs Volatility over time. Low Volatility and High Beta Stocks Prior to Last Downturn
Finally, in the vein of history as a guide, don’t be fooled by seemingly compelling charts. This author picks apart a classic chart to make you think hard about market timing. The World’s Most Deceptive Chart
Happy St. Patrick’s Day, a day when the Luck of the Irish becomes topic for barroom discussion. One thing we all know is that a successful retirement has very little to do with luck. Beyond the possible sequence of return risk luck – good or bad – your retirement hinges far more on the effort you put into planning.
Luck of the Irish: Understand the environment in which you are investing.
Even the best plans need course correction, and understanding the environment is always a good place to start. Yes, retirement saving is long horizon, still there is room for prudence in where you invest new money. How is the economy doing? Do markets match up with macroeconomic reality? Is the Economy Doing Well?
Luck of the Irish: Leverage a combination of savings tools.
The foremost saving tool to leverage: compounding. That’s right, you do not need a government program to effectively save for retirement. You need to start early and be consistent in your saving habit. The power of compounding will repay you in spades. The Power of Compounding: A Patience Game (note that he points out the need to stay aware of the environment here)
While this comes at it from a different angle, the employer’s, it illustrates the power of the HSA. This tool is the Swiss Army Knife of saving, looking to become more powerful in Republican circles. What Clients Need to Tell Employees About HSAs
Luck of the Irish: Remain calm.
Understanding compounding, being diligent and consistent in investing you will accumulate a nice sum of money. Markets do have downturns and the key is not to panic. This article helps put this into better perspective for you. Early in the Accumulation Stage, Price Risk Can Look a Lot Different
Luck of the Irish: Focus on income in the distribution phase.
Once you retire the key is to transition your thinking to distribution of money from your savings. The distribution phase is largely about income, yet preserving principal is not a bad thing. You have the difficult balancing act of greater longevity and theoretically capped principal. That’s why we often highlight good dividend approaches and annuities as tools. Here’s an ‘income menu’ that could help retirees make their savings last Dividends Pile Up with This High-Yield Dividend ETF With Rising Rates Ahead, Stick with High-Quality Dividend Growers The right way to get the retirement income you need 4 Overlooked Tax Breaks for Retirees
With all the focus on process here it goes without saying that you must Have a Retirement Plan. Still this latest study indicates that it may not be that simple. We all know that many, many Americans have little or no retirement savings. I suppose that should indicate a lack of a plan, but more often assume it is simply an unfortunate prioritization. That makes it no less vital to focus, plan and execute for your later life. 10 alarming facts about women and retirement risks
Have a Retirement Plan: It starts with the fundamentals.
The simplest retirement plan begins with saving as much as possible as early as possible. Take advantage of time and compounding. Be consistent in saving for retirement. Take advantage of tax advantaged savings vehicles. Scary as it may be, be more aggressive than you think you should – more equity weighting.
Have a Retirement Plan: Sweat the small stuff.
Fees will kill your retirement savings returns, always be diligent about them. Maintain a diversified portfolio. There is no such thing as a set and forget retirement plan – at least not a successful one. Plus, remember the key risks you face in retirement: longevity risk, medical expenses, sequence of return risk, and others. You must face reality in the magnitude of the challenge and keep your eye on the ball.
Have a Retirement Plan: Change your mind set in retirement – distribution not accumulation.
While you must stay invested and saving (if you can) in retirement you also have to change your mindset. Now is the time to draw down your nest egg – this is the distribution phase. That may translate into different types of investments. Dividend stocks are often highlighted as ways to throw off income and maintain principal. Like everything, dividend stocks are a moving target. So, we are back to remaining diligent … even in the distribution phase. Dividend Champion Portfolio March Update
Another way to tackle the distribution transition is to consider lifetime income products – like Qualified Lifetime Annuity Contracts or other, similar solutions.
Have a Retirement Plan: No matter how you tackle it, get started.
Finally, something we can all agree on: retirement insecurity. Perhaps through persistence or saturation or simply self-awareness people are coming around to the unnerving truth. Whether driven by slow starts, low balances, Social Security, longevity risk, medical costs or something else, people are concerned. Democrats and Republicans Alike Worry About Retirement Security
Just in case you think that is all overblown, the Congressional Budget Office just released this study on Social Security. Social Security ‘broke’ by 2029: What’s not in it for you?
Retirement Insecurity: Don’t just sit there, do something about it!
We have talked many times about the QLAC (Qualified Lifetime Annuity Contract) and the potentially vital role it can play. These Government authorized ‘longevity insurance’ annuities provide you income for life within your qualified plans … when plan sponsors provide them. Seems that may be getting some traction now. Employers are trying to solve their workers’ retirement income problem It doesn’t hurt to bring it up with your employer.
We say it here virtually every installment, use all the tax advantaged tools you can when saving for retirement. Just in case you missed that, there’s this. 6 Tax-Efficient Strategies to Keep More of Your Money in Retirement
Retirement Insecurity: Save more while you are working and be smart about it.
I admit I have not heard of this before, but it is very, very interesting. If you are still working it is worth the time. Another way to measure retirement readiness: Your ‘Power Percentage’
Like most people you likely do not know how much you need to retire. There are plenty of guides, most pretty well useless. This may be, too, but it is great food for thought and might just get you motivated. The 25X Rule to Early Retirement
If you happen to subscribe to the Financial Times this might be interesting reading. If not, it says that looking through US regulatory filings shows that the most successful investors have one thing in common. They all disregard macro trends in favor of betting on individual companies and industries. You might say ‘so what’ I’m not going to do that, but wait then there is this article. Here if you are willing to invest the effort you may well join that club by doing some really interesting analytics on individual stocks, ETFs and more. If nothing else do yourself a favor and read the beginning. The Schwab US Equity Dividend ETF vs. the S&P 500 Index: A Comparative Case Study
Retirement Insecurity: Change your mind set in retirement – distribution not accumulation.
In the perfect world, you manage to get appreciation of your assets and income. That’s where dividend stocks can be helpful by throwing off income without liquidating assets. It is a fluid environment, though, and you should stay on top of your choices. Dividend Champions for March 2017
In case you have not yet figured it out, longevity risk is a giant one for your retirement. That means dealing with it explicitly is a priority. In turn that means you may need to think outside the box on how to address this risk. Life Insurance in Retirement: Who Needs It?
With each installment, we try to impart financial wisdom on our readers. It generally comes by way of general rules and valuable pointers. This time we turn the focus to distilled financial wisdom. First from the Oracle of Omaha, Warren Buffett in his annual letter to shareholders. It is a lengthy read, but always worthwhile. You can find that here: Warren Buffett’s letter to Berkshire Hathaway investors explains how to use fear to your benefit. The second piece comes from Jim Gallagher, a personal finance columnist, it is here: 23 years of personal finance wisdom distilled into one final column. Before this one gets too dated I figure why not share Jeff Gundlach’s mid-January opinion piece. Here’s Jeff Gundlach’s full presentation on expensive stocks, the economy under Trump, and the Federal Reserve
Financial Wisdom: Always optimize the incentives Government provides.
I will start by saying Social Security is not given to you by Government, you fund and earn it. Still, there is an art to extracting the most value. This is the surefire way to maximize your Social Security benefits
Another really popular topic here is Health Savings Accounts (HSAs). We will not rest on this one until you fully appreciate the value of these. How Health Savings Accounts Work
Financial Wisdom: You need to be very, very attentive to your longevity risk.
You saw it above in the piece on Social Security and this article, too, deals squarely with longevity risk. Many find fault with annuities as a solution, but the guarantees have value and should not be dismissed. The biggest problem with traditional retirement planning
Financial Wisdom: Invest as wisely as you possibly can.
One thing vital to your planning is to understand that it is never a ‘set it and forget it’ process. This article helps drive that point home. Investor’s Alpha: Proper Asset Allocation
Then again, things are subject to change … what impact will Artificial Intelligence have on individual retirement investing? This article may give you some insight and hope. Artificial Intelligence Hedge Funds Outperforming Humans
Investing wisely also means being aware of your environment. This article, just published this morning, shares a Monte Carlo simulation for market performance in March. As with all prognostications, take it for what it is worth, but it is fascinating. I recommend reading it through. A Monte Carlo Simulation of the S&P 500 for March 2017
Stick to Fundamentals when it comes to your retirement planning. At the very least focus on the fundamentals first. You start with consistently saving as much as possible from your first day of work. You add to that using all the tools provided by the Government, i.e. tax advantaged savings. Next you focus on balancing fees and performance. You must keep in mind that fees will eat your returns alive. You also need to remember that retirement investing is a long horizon game. That means you should stay aggressive in your investing and not panic or chase markets. Lastly, when you do retire, change your mindset from accumulation to distribution. You are no longer adding to your assets, now you must make them last as you take income and enjoy retirement.
Stick to Fundamentals: Leverage tax advantaged savings.
This is not the first time and will not be the last that we mention Health Savings Accounts (HSAs). We also often comment on the incredible burden of healthcare in retirement. It is time you put the two together in your mind. Leverage the HSA structure to minimize the exposure in your later years. The Best Retirement Account You Don’t Know About Health Savings Account: Your Extra Retirement Funds
Stick to Fundamentals: Keep a keen eye on total returns.
Yes, we talk about fees a lot here, too, and they are hugely (bigly if you will) important. You still have to balance with performance. So, look at total returns or net returns, i.e. returns after fees. Vanguard is keeping the pressure on their competitors. More Fee Cuts at Vanguard
One interesting spin on total returns has to do with sequence of returns risk. It is hard to find a well written piece on this, but here is one. The bottom line is that when you retire matters. There are good years and bad years, and being aware may make a monumental difference. How Timing Impacts Your Retirement Portfolio Longevity
Stick to Fundamentals: Once you retire, change your mindset.
Once you retire you are no longer in the accumulation phase. Now, in the distribution phase, you have to manage principal, income and withdrawals. That calls for a different mindset. How to Invest During Your Retirement Years
Yes, you will find a million tips on how best to do all this. Here is one that balances the fundamentals. 3 ETFs to Help You Make More Money in Retirement
We have turned our focus back to your retirement and plenty of disgruntled people out there will be well served by Optimizing Trump. What that means is identifying the potential implications of a Trump presidency for your retirement and addressing them now.
Optimizing Trump: Locking in things as best you can before it gets any crazier.
One of our common themes is income generation in retirement. Whether using tools like longevity annuities or investing in the finest dividend stocks, securing income streams matters.
Plenty of dividend stocks and funds, and plenty of tips on them, too. This one is intriguing, though. One of the Best Dividend Growth Stocks Around Regardless of the State of the Economy
This is way, way in the weeds for most, but it portends something worth understanding. The bottom line is that the Fed bought up lots of stuff in propping up the economy. Now, they are thinking about exiting some, specifically mortgage backed securities. It is good to be aware, at least. Everyone is suddenly worried about this U.S. mortgage-bond whale
Optimizing Trump: Finding weaknesses before they overwhelm.
Safe to say whether you like Trump or not, you probably expect there will be turmoil at some point. Turmoil equals uncertainty, and uncertainty drives volatility. If Trump Flares Up Uncertainty, Profit from These ETFs
Optimizing Trump: always focus on the fundamentals … fees, longevity, etc.
It has been some time since we have harped on the fact that you will live longer and that means you will need more savings. Perhaps the oracle of The USA Today will lend some credence to the argument. How much do you need to fund retirement? More than you think.
Now a somewhat different angle on the same topic…your spouse is likely not the same age. That matters. Retirement Planning? Couples, Mind the Age Gap