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Archives for October 2017

Annuity Options

For retirees concerned about outliving their retirement income, one option to consider is to use a portion of assets to purchase an annuity. Annuities offer many different options, from starting income payouts right away with an immediate annuity to delaying them until a later date with a deferred annuity.

An annuity is a long-term contract with an insurance company that can be purchased for a lump sum or over a period of time. That premium guarantees a stream of payouts for a specific period of time, or even life, for one or both spouses.1Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company, so it’s important to research the company before making a purchase. A financial professional can help you determine which type of annuity suits your needs and objectives. We will be happy to give you more information about annuities and discuss options with you; give us a call to set up a meeting.

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs.

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.

“Spendaphobia”: The Reluctance to Spend

It is widely recognized that America’s economic growth since the 2008 recession has been slower than that of past recoveries. Some economists believe this is due in part to Americans putting more money into savings and spending less. The desire by a large percentage of the population – including baby boomers – to contribute to their savings has trimmed consumer spending, thus impeding higher economic growth.

There is even some concern among research analysts that as more baby boomers retire, money withdrawn from their 401(k) plans could put a drain on returns of remaining investment assets. Historically, balanced portfolios have yielded an average of 8 percent a year. However, more recent estimates project that returns between 2005 and 2050 will average 0.9 percentage points lower.

The reasons behind this potential decline are unclear. In fact, recent research reveals that retirement income withdrawals are probably less of a factor than previously thought. That’s because many retirees, in anticipation of living longer and concerned they might outlive their income, are spending less than the amount of retirement income they regularly receive. According to a Vanguard survey, retirees who hold at least $100,000 in savings actually reinvest about 40 percent of the money they withdraw from 401(k)s, IRAs and other retirement accounts. This means that while they may not be spending it, which influences economic growth, they’re likely not crippling the securities markets, either.

One notable observation is that many retirees find it difficult to make the transition from saving their hard-earned dollars to spending it in their retirement years. Some refer to this phenomenon as “spendaphobia.” Rather than traveling, buying a second home or indulging in other traditional retirement spending patterns, these retirees tend to be frugal.

It’s important to find a balance between wanting to preserve your nest egg and allowing yourself to enjoy some indulgences. One key is to develop a prudent but reasonable spending strategy, with separate contingency accounts and/or insurance products to help pay for large or unexpected expenses like a medical condition, assisted or long-term care, or even buying a new car or replacing the roof on your house. When retirees create a distribution strategy that helps prepare their nest egg for longevity, inflation and market volatility, spendaphobia may be reduced or eliminated. After all, it’s your retirement; you’ve worked hard to get there, so you should enjoy it. We can work with you to help you develop distribution strategies for your retirement income; just give us a call at (952) 460­-3260.

 

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.

The Power of Meditation

The Science of Worrying

Worrying; it’s part of being human. Retirees might be concerned about running out of income, poor health or how the world has changed and what that means for their grandchildren. Parents might worry about everything from money and work to family, health and nutrition. The problem is, the more we worry, the less we are able to focus on other things.

According to psychologist Sian Beilock, worrying is a task in itself. For instance, if we worry while driving the car, we are technically multi-tasking. A potential problem with multi-tasking is that we may become a jack of all trades and a master of none. If we don’t learn to improve our focus, it can impact the goals we wish to achieve.

According to Beilock, we can’t write, or speak in public or even fully concentrate on what other people are saying if we’re worried about something else. To help alleviate this negative impact of worrying, she suggests writing down your worries before you take on another task. One study Beilock performed showed students who wrote down their worries for 10 minutes before taking a test scored higher than those who didn’t — even if their worries were simply about the taking the test.

Writing can lead to a sense of catharsis, liberating the canvas of our mind so we can concentrate on other things. And frankly, any activity that can help alleviate our worries may be worth giving a try.

The Power of Meditation

The good news is brain research reveals financial decision-making peaks at around age 53, which is a common age for people to start thinking strategically about how to turn invested assets into a source of income when they retire. The bad news is those tactical brain skills are past their peak around age 60, and they diminish further as we age.

Unless we actively exercise our brains to increase gray matter and keep healthy brain cells actively growing and dividing, as we grow older, we often begin to suffer from age-related cognitive decline. Through the use of MRIs, researchers have attempted to identify what parts of the brain may correlate to money management thought processes. While it is too soon to identify specific regions, what is clear is that as we age, we may lose some of that financial capability.

However, studies have shown brain exercises can be an effective deterrent to cognitive decline. And if you don’t like doing crossword puzzles, there are other options. Meditation and other mindfulness activities are linked to slowing down the cellular aging process in the brain. A small study revealed gray matter is thicker in the brain of people who meditate for 40 minutes a day. One study even determined the brain can rebuild gray matter after just eight weeks of meditation.

Meditation has also been shown to positively affect clinical symptoms of gastrointestinal disorders, irritable bowel syndrome (IBS) and inflammatory bowel disease (IBD). It is generally believed the practice evokes a relaxation response in the body that not only improves symptoms in these disorders but also generates a network of anti-aging genes and improved cellular health.

Another study found people who have consistently practiced meditation for many years (4 to 46 years of meditation experience; 20 years on average) have younger brains — defined by higher concentrations of tissue in regions of the brain that are commonly depleted by aging. On average, the brains of long-term meditators were 7.5 years younger at age 50 than the brains of non-meditators, and are an additional one month and 22 days younger for every year after 50.

Scientists have proposed numerous explanations for how meditation produces these results, including:

  • Stimulating growth in neural structures
  • Promoting increased connectivity and efficiency within neural networks
  • Buffering the brain and nervous system against the harmful effects of chronic stress
  • Reducing pro-inflammatory response
  • Stimulating telomerase activity (promotes cell growth and division)
  • Inhibiting age-related brain change

These new findings are some of the reasons why meditation is being introduced into both schools and the work environment. The practice requires very little in terms of time, money or effort, and can be practiced alone in the privacy of your own home.

Mastering Meditation

One method of mastering a subject is to “overlearn” it. This is characterized by studying a concept until you fully grasp it, and then studying it even longer so it is cemented into the mind. This practice could be an ideal way of learning meditation. The longer you do it, the better you’ll master it and the more positive its impact may be on cognitive skills. Here are a few tips:

  • Get into a comfortable position — you don’t have to sit cross-legged on the floor.
  • Let your thoughts and feelings flow freely — you don’t have to block them out.
  • Let these impressions drift without judgement until you feel relaxed — this gets easier with practice.
  • Set a timer – you can relax and better enjoy your experience if you don’t have to keep checking the clock.

Assessing Risk in Retirement Income

When it comes to investing, there’s no such thing as a “safe bet.” Every type of financial vehicle has some level of risk, even checking and savings accounts. Back in the 1920s, people believed that the safest place to keep their money was a bank, and they were right. But as they witnessed during the Great Depression, even those assets were not 100 percent safe. Bank runs caused banks to deplete their cash holdings, and they had to call in loans and liquidate assets to try to keep up with withdrawal demands, which subsequently led to bank failures. In response, the government created the Federal Deposit Insurance Corporation (FDIC), which insures deposits up to $250,000 per depositor, per FDIC-insured bank, per ownership category.

Throughout history, bank deposit accounts have generally been considered the safest place to keep assets. However, today’s longer lifespans illustrate that risk takes many forms, including the potential risk of outliving your money if you don’t save enough, have a well-diversified financial portfolio to help outpace inflation and seek out multiple sources for reliable income streams. We can recommend a variety of strategies to help retirees pursue each of these goals, based on individual circumstances. Give us a call, and let’s discuss your options

Consider even Social Security. The agency projects that by 2034, its Trust Fund will be reduced to the point where it can pay out only 74 percent of promised benefits to retirees. While it’s unlikely this safety net will collapse, Congress will need to take steps to keep the fund fully solvent.

However, individuals who invest in 401(k)s should be aware that even if their company closes or goes bankrupt, vested 401(k) assets belong to the account owner; the employer or the employer’s creditors can’t touch them.

Another factor that can potentially affect your retirement assets is the impact long-term inflation can have on cost of living expenses for people who spend 20 to 30 years or more in retirement. Inflation has remained low for many years, and some market experts believe that, as a result, many investors are not well-prepared for a resurgence of inflation.

With the knowledge that investing offers the possibility of growth but also the risk of loss, it’s a good idea to consider working with a financial advisor to help tailor a financial portfolio to your specific goals, timeline and tolerance for different types of risk. Your financial advisor may also suggest annuities, and although they are not investments, some annuity contracts credit interest earnings that are linked to the performance of an external market index. These types of annuities, often referred to as fixed index annuities, offer a combination of higher interest growth potential and guaranteed income. The guarantees are backed by the insurance company so it’s important to check out the credit rating and financial strength and experience of the issuing insurer.

 

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.

Trends in Philanthropy

Americans are big givers, data on philanthropic donations suggests. In 2016, we donated more than $373 billion to charitable organizations – a record amount – and Indiana University’s Lilly Family School of Philanthropy projected 2017 would see a 3.6 percent increase in giving.

Among the recipients of this largess were progressive causes that appeared to be at odds with the new presidential administration. Organizations such as the International Refugee Assistance Project, American Civil Liberties Union and Sierra Club all experienced surges in donations in the weeks following the presidential election.

Another growing trend in charitable giving during the past year has focused on helping individuals become more organized and goal-oriented when they choose their causes and how they donate. Corporations, too, are becoming more strategic and sophisticated in their giving, and they expect to see measurable results through their efforts.

Employee expectations also are driving changes in corporate philanthropy. Studies in recent years demonstrate that employees prize jobs with companies that are socially and environmentally responsible.

Philanthropy Tax Tips from the IRS

This is the time of year when many people make charitable contributions to organizations they support. The following IRS guidelines can help ensure your donations to eligible organizations qualify for a tax deduction:

  • Taxpayers must itemize deductions to claim a donation.
  • For monetary donations, retain a bank record or receipt with the date, amount and name of the recipient organization for your records.
  • Receipts (from the charity, if possible) for non-cash gifts must include a reasonably detailed description of the item(s), date contributed and name of the charity, as well as the fair market value of the donation and the method used to determine that value. Additional rules apply for a contribution worth $250 or more.
  • Some travel expenses, such as lodging and transportation, associated with performing services for a qualified charity may be tax-deductible.
  • In general, taxpayers may deduct up to 50 percent of adjusted gross income, but in some situations, the deduction may be limited to 20 percent or 30 percent of adjusted gross income.

 Avoid Charity Scams

  • Avoid donating to an unsolicited request; choose which charities you wish to support and say “no” to others that come calling.
  • Do not give into pressure to donate right away; take time to investigate the organization.
  • Do not provide your bank account or credit card information over the phone unless you initiated the call.
  • Send contributions directly to the charitable organization (not to a professional fundraiser).
  • If a caller says you’ve donated to his or her charity in the past, ask for verification of how much and when.
  • If you suspect you’ve been solicited by a scam charity, report it to the Federal Trade Commission, www.ftc.gov/complaint.

As you consider gifts this holiday season, remember that charitable donations offer advantages for both donors and receivers. If you have questions about your charitable donations and whether they are tax deductible, we will be happy to refer you to a qualified tax professional.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time.

Distribution Strategies

It can take years to build up a retirement nest egg. However, without a prudent distribution strategy in place, funds can drain pretty quickly. About half of larger employers that sponsor a 401(k) plan offer a systematic withdrawal option to help retirees establish an automatic stream of income. If that’s not an option with your plan, or if you have a wide array of retirement accounts from which to draw income, you may find it beneficial to develop a coordinated income plan.

Some financial advisors recommend what’s referred to as a “bucket strategy.” This simply means that you assign different retirement income sources to different buckets, usually stratified by a timeline. For example, one bucket may be for immediate income or emergencies, with enough funds to cover expenses for a few months. It would need to be allocated to an easily liquidated account, such as a savings or money market account.

Then you may want to assign a bucket that can provide income over a short timeframe, such as one to five years. This may be an effective way to create a “bridge” between the time you want to retire and the delay of drawing Social Security benefits to help maximize the amount to which you can receive. This short-term bucket might have assets invested in short-duration fixed-income securities, such as Treasury, state and municipal bonds.

As you enter the middle of your retirement, you may want to have a third bucket for providing income over the next five to 10 years. This bucket may be composed of longer-term bonds and perhaps some reliable yield stocks, such as utilities. The last bucket is designed to provide income for later retirement years. This may hold some stocks that perform better over the long term with a strong track record for paying dividends. By waiting until later in retirement to tap this bucket, these securities have the opportunity to grow undeterred by taxes and withdrawals.

Retirees concerned about outliving their buckets may want to consider adding fixed annuities to their overall financial strategy. An immediate annuity can provide immediate payouts early on in retirement, or a deferred annuity can be scheduled to distribute payments at a later date. Either way, both types of  annuities are insurance contracts that guarantee a stream of income for a specific period of time or even for life. We suggest that you work with a financial professional who can help you determine if an annuity would be an appropriate fit for your financial strategy and can recommend which type of annuity would be suitable for your unique situation. We can work with you to help create a financial strategy designed to help you meet your goals; just give us a call.

Downsizing a Stock Portfolio

It’s important to remember that whenever you sell individual stocks or securities, it normally results in a capital gain or loss, which can affect your income taxes.

A capital gain or loss is the difference between the amount paid for the asset and the amount for which it eventually is sold. The tax rate on a net capital gain generally is determined by how long the asset was owned and the taxpayer’s income, but it ranges between 0 percent and 20 percent. However, there are certain types of net capital gains that can trigger a 25 percent or 28 percent tax rate.

 

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.

Danielle Christensen

Paraplanner

Danielle is dedicated to serving clients to achieve their retirement goals. As a Paraplanner, Danielle helps the advisors with the administrative side of preparing and documenting meetings. She is a graduate of the College of St. Benedict, with a degree in Business Administration and began working with Secured Retirement in May of 2023.

Danielle is a lifelong Minnesotan and currently resides in Farmington with her boyfriend and their senior rescue pittie/American Bulldog mix, Tukka.  In her free time, Danielle enjoys attending concerts and traveling. She is also an avid fan of the Minnesota Wild and loves to be at as many games as possible during the season!