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Confidence Wealth & Insurance Solutions September 9, 2014 No Comments

Ask the Expert: Can I Retire Early?

Question: Can I retire early? Is it possible? What do I need to do?

-Barbara from Los Angeles

Answer: Yes Barbara, there are ways that will allow you to consider early retirement, but there are some things you must consider. Retiring early means:

fewer earning years
less accumulated savings
freedom to do more activities that could add to your living expenses – activities that you couldn’t do when you were working – such as traveling, social events, dining out, etc.

Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. Depending on how early you actually retire, you may find that you’re going through those retirement accounts more quickly than you had originally intended. This could pose a problem both for your later retirement years when you need income the most.

The first thing I want you to do is to project your retirement expenses

know when your retirement will likely start
how long it may last, the type of retirement lifestyle you want
estimate the amount of money you’ll need to make it all happen

One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll need to save by the time you retire. Focus on your actual expenses today and think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire. While some expenses may disappear, like a mortgage or costs for commuting to and from work, other expenses, such as health care and insurance, may increase as you age. If travel or hobby activities are going to be part of your retirement, be sure to factor in these costs as well.

Don’t forget to take into account the potential impact of inflation.

Remember, what you spend today will not be the same from what you spend 15 years down the line, even if you purchase the same items.

A longer retirement also means inflation will have more time to eat away at your purchasing power. If inflation is 3% a year (its historical average since 1914) it will cut the purchasing power of a fixed annual income in half in roughly 23 years. Factoring inflation into the retirement equation, you’ll probably need your retirement income to increase each year just to cover the same expenses.

Source: jemstep.com

Second, identify what sources of retirement income will be available to you to meet those needs.

When you compare your projected expenses to your anticipated sources of retirement income, you may find that you won’t have enough income to meet your needs and goals. Closing this difference, or “gap,” is an important part of your retirement income plan. In general, if you face a shortfall, you’ll have five options:

save more now
delay retirement or work during retirement
try to increase the earnings on your retirement assets
find new sources of retirement income
or plan to spend less during retirement

Third, you must take longevity into consideration.

How long will you need your retirement savings to last? We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. The problem is particularly acute for women, who generally live longer than men. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago. To guard against the risk of outliving your savings, you’ll need to estimate your life expectancy.

Remember;

The longer you delay retirement, the longer you can build up your retirement savings.
Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early?
If you work part-time during retirement, you’ll be earning money and relying less on your retirement savings, leaving more of your savings to potentially grow for the future (and you may also have access to affordable health care)
If you’re married, and you and your spouse are both employed and nearing retirement age, think about staggering your retirements. If one spouse is earning significantly more than the other, then it usually makes sense for that spouse to continue to work in order to maximize current income and ease the financial transition into retirement.
If you’re going to be using the money from your IRA or retirement plan to fund your retirement, remember that in addition to income taxes, there may be penalties if you withdraw the funds prematurely. Or, there may be a limit on what you can withdraw without penalties.

Retirement is also a state of mind. Don’t underestimate the psychological issues involved in deciding when to retire. Many people welcome the opportunity to reinvent themselves. Others postpone retirement or return to some form of work so they can continue to feel connected and productive.

Confidence Wealth & Insurance Solutions August 20, 2014 No Comments

How Does Divorce Affect Social Security Retirement Benefits?

One of the challenges of planning for retirement is that an unexpected event, like divorce, can dramatically change your retirement income needs. If you were counting on your spouse’s Social Security benefits to provide some of your retirement income, what happens now that you’re divorced?

What are the rules?

Even if you’re divorced, you may still collect benefits on your ex-spouse’s Social Security earnings record if:

Your marriage lasted 10 years or longer
You are age 62 or older
Your ex-spouse is entitled to receive Social Security retirement or disability benefits, and
The benefit you’re entitled to receive based on your own earnings record is less than the benefit you would receive based on your ex-spouse’s earnings record

If you’ve been divorced for at least two years, and the other requirements have been met, you can receive benefits on your ex-spouse’s record even if he or she has not yet applied for benefits.

How much can you receive?

If you begin receiving benefits at your full retirement age (66 to 67, depending on your year of birth), your spousal benefit is equal to 50% of your ex-spouse’s full retirement benefit (or disability benefit). For example, if your ex-spouse’s benefit at full retirement age is $1,500, then your spousal benefit is $750. However, there are several factors that may affect how much you ultimately receive.

Image source: http://pubs.aarp.org/aarpbulletin/201411_DC?pg=14#pg16

Are you eligible for benefits based on your own earnings record? If so, then the Social Security Administration (SSA) will pay that amount first. But if you can receive a higher benefit based on your ex-spouse’s record, then you’ll receive a combination of benefits that equals the higher amount.

Will you begin receiving benefits before or after your full retirement age? You can receive benefits as early as age 62, but your monthly benefit will be reduced (reduction applies whether the benefit is based on your own earnings record or on your ex-spouse’s). If you decide to receive benefits later than your full retirement age, your benefit will increase by 8% for each year you wait past your full retirement age, up until age 70 (increase applies only if benefit is based on your own earnings record).

Will you work after you begin receiving benefits? If you’re under full retirement age, your earnings may reduce your Social Security benefit if they are more than the annual earnings limit that applies.

Are you eligible for a pension based on work not covered by Social Security? If so, your Social Security benefit may be reduced.

Planning tip: If you decide not to collect retirement benefits until full retirement age, you may be able to maximize your Social Security income by claiming your spousal benefit first. By opting to receive your spousal benefit at full retirement age, you can delay claiming benefits based on your own earnings record (up until age 70) in order to earn delayed retirement credits. This can boost your benefit by as much as 32%. Because deciding when to begin receiving Social Security benefits is a complicated decision and may have tax consequences, consult a professional.

What happens if one of you remarries?

Benefits for a divorced spouse are calculated independently from those of a current spouse, so your benefit won’t be affected if your spouse remarries. However, if you remarry, then you generally can’t collect benefits on your ex-spouse’s record unless your current marriage ends. Any spousal benefits you receive will instead be based on your current spouse’s earnings record.

What if your ex-spouse dies?

If your marriage lasted 10 years or more, you may be eligible for a survivor benefit based on your ex-spouse’s earnings record.

Image source: http://www.facethefactsusa.org/facts/think-you-know-who-gets-social-security-think-again-infographic

For more information on how divorce may affect your Social Security benefits, contact the SSA at (800) 772-1213 or visit socialsecurity.gov.

Important Disclosure

Confidence Wealth & Insurance Solutions August 14, 2014 No Comments

The $849,000 Cost of Being a Woman

While men may save more, a study¹ shows that women face nearly $850,000 in additional expenses just for simply being born female.

So what’s behind the high cost of being a woman?

Longevity. It’s no secret… women are living longer!
Career breaks due to raising children and taking care of elderly parents among others
Higher insurance costs – According to the National Women’s Law Center, women spend one billion dollars more each year on healthcare costs than men do during the same year.
Income inequality – The wage gap is not a myth. Women earn an average of just 77 cents for every dollar earned by men.²
Long-Term Care – A woman typically spends about three more years in long-term care compared to men.

Think that’s all? Other factors such as death and divorce causes 90% of women to lose a second household income, making it harder for them to save.

What can we do?

Negotiate for better wages
Increase your savings goals
Keep debt low. Use your credit card less often.
Focus on career growth

¹ https://www.saveup.com/blog/disadvantage-of-being-female-infographic/
² http://www.whitehouse.gov/equal-pay/myth

Confidence Wealth & Insurance Solutions August 5, 2014 No Comments

7 Tips to Help Achieve Financial Success

Can’t get started?

You’re thinking about achieving financial success and you may be wondering how to get started. It’s not as hard as you may think it is. You will need to take small steps, building on each step as you gradually gain traction. Here are 7 steps to get moving. The plan is easy and actually fun to follow:

1. Start with emergency savings

You need to set up an account to save for emergencies. It’s never touched unless it’s vitally necessary to repair the car or make large home repairs, or pay unexpected medical bills. Start with whatever you can afford and gradually watch it grow. This step will take a while, but once it is done you can set it on the back burner.

2. Pay off your debts from small to large.

It is the little bills that fester that gradually become more costly with fees and interest. Pay those ones off from smallest debt to largest debt. If you have two credit cards with the same amount of debt, pay the one with the higher interest rate first. Gradually as the smaller debts fall away, you will notice you have more funds to pay off the larger debts. Get them paid off too.

3. Set aside 3 to 6 months living expenses

The chance of losing your job in today’s economy is a scary reality. You should set aside savings equal to what you would earn over 3 to 6 months. This money will allow you the breathing room you need so you can look for another job without worry about how you will keep yourself and your family financially afloat. The living expense savings will allow you to keep your emergency savings socked away.

4. Invest in your future

Now that you have your emergency funds and living expenses set aside, and you have paid off your debts, you can start planning for your financial future. We suggest you take 15 percent of your current income and begin investing in your company’s 401K plan or another preferred retirement plan.

5. Save for your children’s educations

Research the expected costs for your children’s education based on projections for 10 or 20 years in the future and begin to save funds for their education. Contact the Local universities to learn about special savings plans available for parents to save toward tuition and then get on board as soon as you are able.

6. Pay off your home as early as you can

Tack on to your regular monthly payments as much as you can so that you can reduce the principle earlier. If you can add on as little as $200 a month to your house payment you can pay off your home years earlier than projected, thus reducing your interest payments and gaining more financial freedom.

7. Use your new found freedom to help others

Now that most of your debt is taken care of with careful savings and planning, you can use your wealth to help others. Of course, you will be helping yourself as well with tax write-offs for donations but you will also have the knowledge that you made other peoples’ lives a little bit better.

Confidence Wealth & Insurance Solutions July 23, 2014 No Comments

Retirement Planning for Women

Retirement planning for women face special challenges. Because our careers are often interrupted to care for children or elderly parents, we may spend less time in the workforce and earn less money than men in the same age group. As a result, our retirement plan balances (e.g. Social Security benefits, and pension benefits) are often lower. In addition to earning less, we generally live longer than men, and they may face having to stretch limited retirement savings and benefits over many years.

To meet these financial challenges, you’ll need to make retirement planning a priority.

Retirement Planning for Women: Begin saving now

To help improve your chances of achieving a financially comfortable retirement, start with a realistic assessment of how much you’ll need to save. If the figure is substantial, don’t be discouraged–the most important thing is to begin saving now. Although it’s never too late to save for retirement, the sooner you start, the more time your investments have to potentially grow.

The chart below shows how just $2,000 invested annually at a 6% rate of return might grow over time:

Note: This is a hypothetical example, and does not reflect the performance of any specific investment. Results assume reinvestment of all earnings and no tax.

Save as much as you can–you have many options

If your employer offers a retirement savings plan, such as a 401(k) or a 403(b), join it as soon as possible and contribute as much as you can. It’s easy to save because your contributions are deducted directly from your pay, and some employers will even match a portion of what you contribute. If your employer offers a pension plan, find out how many years you’ll need to work for the company before you’re vested in, or own, your pension benefits. Women struggling to balance work and family sometimes shortchange their retirement savings by leaving their jobs before they become vested in their pension benefits. Keep in mind, too, that because your pension benefits will be based on your earnings and on your years of service, the longer you stay with one employer, the higher your pension is likely to be.

Most employer-sponsored plans allow you to choose from several investment options (typically mutual funds). If you have many years to invest or you’re trying to make up for lost time, you may want to consider growth-oriented investments such as stocks and stock funds. Historically, stocks have outperformed bonds and short-term instruments over the long term, although past performance is no guarantee of future results. However, along with potentially higher returns, stocks carry more risk than less volatile investments. A good way to get detailed information about a mutual fund you’re considering is to read the fund’s prospectus, which can be obtained from the fund company. It includes information about the fund’s objectives, expenses, risks, and past returns. We can also help you evaluate your retirement plan options.

Save for retirement–no matter what

Even if you’re staying at home to raise your family, you can–and should–continue to save for retirement. If you’re married and file your income taxes jointly, and otherwise qualify, you may open and contribute to a traditional or Roth IRA as long as your spouse has enough earned income to cover the contributions. Both types of IRAs allow you to make contributions of up to $5,500 in 2014 (unchanged from 2013), or, if less, 100% of taxable compensation. If you’re age 50 or older, you’re allowed to contribute even more–up to $6,500 in 2014 (unchanged from 2013).

Plan for income in retirement

Do you worry about outliving your retirement income? Unfortunately, that’s a realistic concern for us women. At age 65, we can expect to live, on average, an additional 20.3 years.¹ In addition, many women will live into their 90s. This means that we should generally plan for a long retirement that will last at least 20 to 30 years. We should also consider the possibility of spending some of those years alone. According to recent statistics, 36% of older women are widowed, 14% are divorced, and almost half of all women age 75 and older live alone.² For married women, the loss of a spouse can mean a significant decrease in retirement income from Social Security or pensions. So what can you do to help ensure you’ll have enough income to last throughout retirement? Here are some tips:

Estimate how much income you’ll need. Use your current expenses as a starting point, but note that your expenses may change by the time you retire.

Find out how much you can expect to receive from Social Security, pension plans, and other sources. What benefits will you receive should you become widowed or divorced?

Set a retirement savings goal that you can work toward, and keep track of your progress.

Save regularly, save as much as you can, and then look for ways to save more–dedicate a portion of every raise, bonus, cash gift, or tax refund to your retirement savings.

Consider how you can help protect yourself and your family from potentially substantial long-term care expenses. By planning ahead, you could help preserve your choices for care and may avoid becoming a burden on your family.

What’s your excuse for not planning for retirement?

I’m too busy to plan

Perhaps you’re so wrapped up in balancing your responsibilities that you haven’t given retirement planning much thought. That’s understandable, but if you don’t put retirement planning at the top of your to-do list, you risk shortchanging yourself later on. Staying focused on your goal of saving for a comfortable retirement is difficult, but if you put yourself first it could pay off in the end.

My husband takes care of our finances

Married or not, it’s critical for women to take an active role in planning for retirement. Otherwise, you may be forced to make important financial decisions quickly during a period of crisis. Unfortunately, decisions that are not well thought through often prove costly later. Preparing for retirement with your spouse could help ensure that you’re both provided for, and pave the way to a comfortable retirement.

I’ll save more once my children are through college

Many well-intentioned parents put their own retirement savings on hold while they save for their children’s college education. But if you do so, you’re potentially sacrificing your own financial well-being. Your children have many options when it comes to financing college–loans, grants, and scholarships, for example–but there’s no such thing as a retirement loan! Why not set a good example for your children by getting your own finances in order before contributing to their college fund?

I don’t know enough about investing

Commit to spending just a few minutes a day learning the basics of investing, to help you become knowledgeable. And remember, you don’t have to do it by yourself–we will be happy to work with you to set retirement goals and help you choose appropriate investments.

¹ The National Vital Statistics Report, Volume 61, Number 4, May 2013
² U.S. Department of Health and Human Services Administration on Aging, A Profile of Older Americans: 2013

(310) 824-1000