You’ve heard it and read it everywhere: the #1 fear people have in retirement is running out of money. That isn’t news to us anymore and it remains the #1 fear for retirees today. What is news to us, however, are ways in which you can prevent it from happening to you.
So, to help you prevent this fear from becoming your reality, I’ve put together a list of 5 huge mistakes that you MUST avoid before it’s too late (after you discover the 5 mistakes below, you’ll also want to check out these 4 retirement rules that you must STOP believing.)
The rising health care costs for retired couples is directly related to the content of a recent study. Fidelity stated it perfectly in their recent study done on couples and retirement: “American couples [are] worrying more, [and] planning less.” This produces nothing but more reasons to worry in the future. That’s because the less time you spend planning, the more time you’re allowing new problems to arise—problems such as not being able to afford unexpected medical expenses in retirement.
Searching for the right financial advisor can be an extremely tiring process. Unless you’ve worked directly in the industry yourself, it can be difficult differentiating the good advisors from the bad.
The reason for that is because there isn’t just one, single thing that makes an advisor good or bad. There are several factors to consider when trying to separate the two. To help jumpstart your search for the perfect financial advisor, start with these 8 questions to ask a financial advisor and pay close attention to how they answer.
Other than being asked the best and safest way to create an income stream in retirement, the second most asked question I receive is, “what happens to my money if my financial advisor dies?” It’s a very important topic of discussion, and one that should be way more prevalently discussed.
Sure, it’s not the most uplifting conversation to have, but it’s a necessary one. It isn’t brought up nearly as often as it should be between clients and their financial advisors, but the reality is… Everybody dies. Unless your financial advisor is a cat with nine lives, it’s crucial that he or she has a plan in place.
After all, it is your advisor’s job to protect your money, right? That commitment shouldn’t stop just because they are no longer physically here to see it through. That’s why I have created my own contingency plan for my clients, in the unlikely event that something unexpected happens to me.
This is how Investopedia.com defines a longevity annuity:
“As more people retire earlier and live longer, there is a growing concern about having sufficient income to span what may be a retirement period lasting 30 years or more. Longevity annuities guarantee that you do not outlive your retirement benefits. The insurance company agrees, in return for the premium you invest, to pay a periodic income amount for the rest of your life, starting from a designated post-retirement age.”
A great benefit of owning a longevity annuity is that the cost you pay upfront is much lower than other annuities whose payments begin right away. They also provide people with the reassurance that they will have income as they get older, which is a huge plus since today’s average life expectancy has increased…
Like anyone who is about to retire, you probably want to know how much income you will receive when you begin collecting your Social Security. There isn’t necessarily a cut-and-dry answer for this; much of it depends on you and the decisions you make in the years leading up to and during your retirement. This is true for anyone, male or female. However, for this specific blog post, I will be focusing more specifically on Social Security benefits for women.
More often than not, people claim their Social Security benefits as soon as they retire. It’s an instinctive reaction of both men and women when they retire, and I suppose on some level that makes sense. You’re retired—it’s finally time for you to cash in on your Social Security, right? Well, not necessarily…
It is no secret that investing in the stock market is a risky game to play. You are gambling with every second that your money is exposed to the volatility of the market.
That was proven on Monday when the Dow Jones saw its biggest drop since August 2011, with a 588-point decline.1
If you’ve read any of my past blogs or listened to my radio show, you know that I am NOT opposed to people investing in the stock market. I don’t feel that people should completely stay away from investing in the stock market in retirement. I just have strong opinions on how I believe people should go about it, especially when it comes to retirement (I’ll touch more on that in a minute).
It has been a while since we’ve seen this degree of chaos and panic surrounding the markets, and it started when China’s Shanghai Composite index dropped 8.5%. As of August 25, 2015, the index was down 42% from its June peak, and it seems to only be going downhill.2
These catastrophic declines aren’t only causing chaos for China’s markets.
The concept and comparison of savings vs. investments is important to understand, especially for people planning their retirement. It isn’t discussed nearly as often as I believe it should be. In my opinion, this should be one of the initial conversations financial advisors have with people heading into retirement (or anyone for that matter). I talk more about this in the link above, so I’m not going to go into too great of detail here
I just wanted to quickly mention it because it ties in directly with what I’m about to share with you today—the actual planning part. This step involves the creation of what I call your “floor and upside.
Successful implementation of this concept plays a key role in building a foolproof cash flow plan.
It’s the part where we very strategically allocate your hard-earned money in places that will allow every one of your retirement goals to be met.
You’ve probably read and/or been told to avoid investing in the stock market in retirement. While your priorities do need to shift as you plan for retirement, avoiding the stock market altogether does not necessarily need to be part of that shift unless you want it to be. There is just a slightly different way you should approach the stock market in retirement.
The first step is locking in complete protection of a portion of your income…
This is called building your floor.
According to Don Blanton (insurance industry spokesman and software creator who developed The Private Reserve Strategy™), there are three ways to make major, capital purchases like automobiles:
1) Going in debt. You may not have a choice. Millions of Americans don’t, and that is what keeps the wheels of the banking industry turning. Debtors aren’t earning any interest, so they are forced to pay interest.
2) Save up for it. Saving up for something in order to pay cash for it is an admirable discipline. Savers earn interest on their savings dollars and then pay for the purchase outright. Paying cash is better than borrowing money, but you still have to pay yourself back in some way or another. Then there’s the third way:
3) Collateralize. This method is used by individuals who could pay cash for the purchase, but they understand that second principle of compound interest: it works best if left alone to grow. These are the ones who earn compound interest on their savings and they collateralize their major purchases. This is the method most conducive to creating wealth. Collateralization simply means to pledge a portion of one’s money as security for an amortizing loan against one’s cash purchases. That way, your money is still earning interest while you are paying interest.
When you are in your career and receiving guaranteed, monthly paychecks, it’s an easier decision to gamble in the stock market. The reason I call it “gambling” is because that’s exactly what it is!
Imagine going to a casino with only $20 in hand. You place $5 into a slot machine. You have now given up complete control of that $5. What happens to that $5 from that moment forward relies on the fate of that one, single slot machine and you have absolutely zero control over what it decides to do.
So, what ends up happening? You end up losing that $5 in the blink of an eye, leaving you with $15 left of gambling money.
You decide another slot machine may give you better luck. So, you move to another slot machine and put another $5 into it. This time, you end up winning $15 from that! Great! You’re ahead now and you’re feeling confident, so you decide to go all in.