NewRetirement Covering retirement, Social Security, how much you need to retire, best places to retire, Medicare, and all aspects of retirement planning. Thu, 23 Jul 2020 19:41:28 +0000 en-US hourly 1 NewRetirement 32 32 Taxes on Social Security: Don’t Get Taken for a Wild Ride Thu, 23 Jul 2020 18:51:26 +0000 As you prepare for retirement, it’s essential to understand what your taxes will be. You may think your Social Security benefits are tax-free. After all, why would the government pay you money with one hand and take it back with the other? But the truth is, you may pay taxes on your Social Security benefits…

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As you prepare for retirement, it’s essential to understand what your taxes will be. You may think your Social Security benefits are tax-free. After all, why would the government pay you money with one hand and take it back with the other? But the truth is, you may pay taxes on your Social Security benefits if you have other sources of income in retirement. 

taxes on social security
Don’t get taken for a wild ride! Take control of your retirement taxes and taxes on Social Security with a great long term plan. See below for the best retirement tax calculator!

At a certain level of overall income – that includes your Social Security benefits, paid work, withdrawals from investments, passive income or other sources – your Social Security benefits are taxed. And, if you work before full retirement age, your benefits are reduced.

There are three ways your Social Security could be reduced:

  1. Federal taxes
  2. State taxes
  3. Penalties for work income

Continue reading for more detail.

Social Security and Federal Income Tax

Once you hit a certain age, the rules for Social Security taxes are similar to other federal income taxes in that the more money you make overall, the more you are taxed.

But even at the highest tax rate, at least 15 percent of your Social Security benefits are shielded from tax.

IRS Rule of Thumb for Social Security Taxes

The IRS has a rule of thumb for savers who want to see if their social security benefits are taxable: add one-half of your Social Security benefits to all your other income, including tax-exempt interest.

Lowest Bracket: If the number is greater than $25,000 for single filers or $32,000 for married couples, you will owe tax on your benefits.

Middle Bracket: If you exceed the threshold for tax-exempt benefits, but your combined income for single filers is below $34,000, you pay tax on half of your benefits. Fifty percent of your benefits are taxable If you are married and filing jointly, and you make between the minimum amount but less than $44,000 in combined income.

Highest Bracket: Single people making more than $34,000 and married couples making more than $44,000 combined income have 85 percent of their benefits taxed. But remember, that doesn’t mean the government takes 85 percent of your benefit!

Fifteen percent of the benefit for high earners is tax-free, and the part that is taxable is only taxed at your income tax bracket, for example, 24 percent for married couples making between $168,401 and $321,450.

State Taxes on Social Security Benefits

The rules given above for taxing Social Security benefits only apply to Federal taxes.

Thirteen states also tax Social Security benefits.

  • Four states tax them the same way the Federal government taxes them
  • Nine states make exemptions for age or income, reducing the tax burden somewhat.

Thirty-seven states do not tax Social Security benefits.

States That Tax SSI Like the Federal Government:

Minnesota, North Dakota, Vermont and West Virginia apply state taxes to Social Security benefits using the same brackets as the federal government.

States That Tax SSI Benefits but Have Different Rules Than the Federal Government:

These states each have their own taxation rules for Social Security: Colorado, Connecticut, Kansas, Missouri, Montana, Nebraska, New Mexico, Rhode Island and Utah.

States That Do Not Tax SSI Benefits:

These 37 states do not tax Social Security retirement income: Alabama, Alaska, Arizona, Arkansas, California, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Washington, Wisconsin and Wyoming.

Additional Work Penalties If You Collect Social Security Before Full Retirement Age

State and federal taxes are not all you need to worry about with Social Security.  There can also be penalties – a reduction in benefits – if you have not achieved full retirement age and you are receiving work income above a certain level.

So while you are allowed to start benefits as soon as you turn 62 , the sooner you start collecting your benefits, the less your monthly benefit will be.  Conversely, the longer you wait (up to 70 years old), the more your monthly income will be.

And the other downside to starting benefits early is that if you elect to collect benefits before your full retirement age and you are receiving work income, you will get less money than if you wait to collect, and the money you get will be subject to tax.

Full retirement age for people who turn 62 in 2020 is 66 and 8 months.  Your full retirement age depends on your birth year. (Find your full retirement age here.)

Social Security Work Penalties

For work before full retirement age, Social Security will deduct money from your benefits according to the following guidelines:

  • If you are under full retirement age for the entire year, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2020, that limit is $18,240.
  • In the year you reach full retirement age, Social Security deducts $1 in benefits for every $3 you earn above $48,600 for 2020.

After you reach full retirement age, you will no longer pay a work penalty.  The month you reach full retirement age, you receive your full benefit whether you work or not.   (However, as stated above, up to 85% of your benefits may be taxed by the Federal government and state governments if you earn more than the limits.)

Summary: To put it simply, if you work before full retirement, your monthly benefit is cut by a dollar for every two dollars you make above the $18,240 limit. For example, if your monthly benefit is $800 ($9,600 per year), and you earn $28,240 ($10,000 over the $18,240 limit) from work, your benefit will be cut by $5,000 to $4,600 for the year.

But that also means that your potential tax burden is less.

If you work after full retirement age, you will receive your full benefit no matter what, but depending on how much money you make, up to 85% of your Social Security benefits will be taxable at whatever your marginal tax rate is.

How to Reduce Your Social Security (and All Retirement) Taxes 

Taxes are a significant cost and can eat away at your retirement savings and income potential.  Tax planning should be a critical component of creating a reliable retirement plan. 

Retirement Tax Calculator: Create a Reliable Retirement Tax Forecast

One of the easiest ways to reduce tax expenditures is to (legally) reduce your annual income levels to stay in the lowest possible tax bracket.  Remember, the less you earn, the less you are likely to pay in taxes.

The NewRetirement Planner makes it easy to create a tax forecast for the rest of your life.  The system automatically calculates your :

  • Federal tax based on the latest IRS publications
  • State taxes — using the specific rules for all 50 states
  • Work penalties

To create these forecasts, the NewRetirement Planner gives you robust inputs to create the most reliable projections possible.  You can:

  • Set different levels of income throughout retirement to approximate your tax bracket for each year. Additionally, it allows you to specify if annuity and/or pension income should be taxed (at both the federal and state levels).
  • Get automatic estimates for how much of your Social Security income will be considered taxable based on the state you live in and your gross taxable income by year.
  • Specify how much of your savings are in different types of taxable and non taxable accounts and it automatically calculates the tax liability (or lack thereof) for each account, as well as tax deduction handling of contributions. (And, if you live in a state that doesn’t tax retirement savings withdrawals, the NewRetirement Planner supports that, as well.)
  • Get estimates for your required minimum distributions (RMDs) from retirement accounts starting at age 72 – a significant lever when it comes to tax liability in retirement.
  • Choose if investment returns on after-tax savings should be treated as long-term capital gains or ordinary income.
  • Model a Roth conversion and get an estimate on the tax hit in the year of the conversion as well as the benefit down the road when you draw from the Roth account.
  • Model relocating and the system factors that in and uses your new state tax rates for the years following your planned move.
  • See estimated taxes, gross taxable income by source and your federal tax deductions for every year until your goal age — again enabling you to see opportunities for reducing your tax expense.

The NewRetirement Planner is the easiest way to plan retirement taxes.

Want more retirement planning tax tips? Try Retirement Planning and Your Taxes: Tips for Keeping More of Your Own Money 

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Podcast: Christine Benz — Morningstar & 25 Years of Personal Finance Thu, 23 Jul 2020 13:00:32 +0000 Episode 43 of the NewRetirement podcast is an interview with Christine Benz — author and Morningstar’s director of personal finance — and discusses the big financial and life lessons Benz has picked up over her 25-year career at Morningstar. They also talk about Benz’s works, 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances…

The post Podcast: Christine Benz — Morningstar & 25 Years of Personal Finance appeared first on NewRetirement.

Christine BenzEpisode 43 of the NewRetirement podcast is an interview with Christine Benz — author and Morningstar’s director of personal finance — and discusses the big financial and life lessons Benz has picked up over her 25-year career at Morningstar. They also talk about Benz’s works, 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and also Morningstar’s Guide to Mutual Funds: Five-Star Strategies for Success.

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Full Transcript of Steve Chen’s Interview with Christine Benz

Steve: Welcome to the NewRetirement Podcast. Today we’re going to be talking with Christine Benz, Morningstar’s director of personal finance and author of the 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and also Morningstar’s Guide to Mutual Funds: Five-Star Strategies for Success. I met Christine a few years ago at our time at INCOME conference in Chicago and I’ve been a follower of her work since then. We’re going to dive into the big financial and life lessons she’s picked up over her 25 year career at Morningstar. And so, with that, Christine, welcome to our show. It’s great to have you join us.

Christine: Steve, it’s great to be here. Thank you for asking me to be on.

Steve: Yeah, no, a lot of the folks in our Facebook community are excited to have you join us. You’re a known person out there. So, I just want to get a little bit of backstory on how you got into personal finance and into Morningstar. I saw that you originally worked editing or working on educational videos for children. And so, that seems like a big jump to go from there to now you’re one of the 100 Most Influential Women in Finance, so congratulations on that.

Christine: Well, thank you. That was a nice honor, I know. And it was a circuitous route for me for sure, into my current role. I was a liberal arts person, studied political science and Russian language, actually, for about a decade I took Russian language courses, starting back in junior high. So, by the time I got to college I was like, “Well, I might as well double major,” because I had been taking Russian for quite a while. And it’s interesting, this was in the 80s. And this was an era where in bigger high schools Russian was still one of the main languages or was an offering in high schools. Now, certainly no longer the case. But it was not atypical for high schools to offer Russian.
So, I was a liberal arts person, definitely much more into reading, analyzing, explaining things, not really into the financial side, not into the numbers side. So, I had a few jobs in publishing upon graduating from the University of Illinois. And my dad was actually an early adapter of Morningstar products. He was a mutual fund investor. He was a stock investor as well. But he really liked what Morningstar was doing, he liked the company. I think he was subscribing, because at the time we had some books that described and talked about mutual funds. And so, he encouraged me to apply there and I did and was initially hired as a copy editor. So, like reading the analyst reports.
And it all began to sink in a little bit and Morningstar had a really good internal training program where there was a series of books, even for copy editors, not necessarily people who were producing content. And so, I was really able to learn and absorb a lot along the way and became more interested in the whole topic. This was in the 90s, early 90s. Active fund management was still very much in vogue with the hotshot managers at Fidelity and Janice and elsewhere.

Steve: Right, like Peter Lynch, was he still …

Christine: He was not. Peter Lynch had retired at that point. But still Magellan was a huge thing. We were Magellan watchers at Morningstar. And so, I just became much more engaged with the whole topic, not just the investment management piece but later especially really recognizing how selecting investments is such a small piece of whether someone succeeds or fails on his or her financial journey. And so, that’s really what drove me to want to focus on personal finance and more in the financial planning realm and to really try to build out Morningstar’s offering, especially for what we have for individual investors in that area, to make us a go-to resource in the personal finance and portfolio planning type of content.

Steve: Got it. So, first you were doing copy stuff and then you became an analyst and then you got in, circled back to becoming an educator and personal finance advocate?

Christine: Yeah, yeah. I eventually headed up the U.S. analyst team, the fund analyst team, and really liked that job. I didn’t love the management piece of the job just because I’ve realized that I very much like to spend my days doing my own stuff, nothing against the analysts, they’re wonderful, but I really decided that I wanted to work on personal finance. I remember actually I was working on and dipping my toe into the personal finance, financial planning space and went through the CFP program. The idea was definitely germinating in my head that this was the type of stuff I was interested in working on.
So, I transitioned to my current position at that time, which was more than a decade ago. And it’s been a really happy home for me, just because there are such a diverse set of things that I get to work on, where I’m not … not that I would be fighting with colleagues at Morningstar, but I’m not having to battle anyone for this turf. It’s really like I have a lot of room to maneuver in a lot of different topics that I can talk about.

Steve: Oh, that’s awesome. Yeah, that’s great to hear. So, as we dive in here, I wanted to cover a couple of things. So, one is the main lessons that you’ve picked up over your career from the finance side, and then also on the life side too. Because I’ve seen in your writing, you’re starting to talk to us a little bit more of the personal side and your reflections as you get further into your career. And then we have a couple of questions from our users. But just on the financial side. So, what do you think are the … Well, actually, before what are some of the best and worst things you’ve seen over your career in financial services, just practices?

Christine: Yeah, so, starting with the best in terms of products, which is maybe a logical place to start, I think that the development of target-date funds, that’s the single home run in my career, if you ask me, in terms of helping really simplify some of the things that investors struggle with. So, how do you asset allocate a portfolio in a sane way given your proximity to needing your money? How do manage that portfolio on an ongoing basis? One great thing about all-in-one products, or someone who uses a financial advisor to manage their assets is like in a first quarter of 2020, when it was really easy to be paralyzed by … there was so much coming at us so quickly. And a lot of us were absorbed with a lot of different things during that period, like ensuring our health and safety, transitioning to working at home.
It’s so great to have some sort of a product that’s doing rebalancing back into equities in that period when they’re down. So, I think target-date funds have just been a tremendous step forward for individual ambassadors, many of whom can’t afford a good quality financial advisor and aren’t in a position to understand these issues or sort them out for themselves. So, I would start there. I think exchange-traded funds have been another great innovation.
I don’t use ETFs myself, we have index funds in our portfolio, but I think that it’s hard to ignore the tax management advantages that come along with ETFs, even relative to traditional equity index funds, which are pretty tax efficient themselves. So, I would say those are probably the two big product innovations. And then I would say more broadly, I love that the whole evolution of the discourse is moving more toward a discussion of financial planning and taking the weight off of investment management, so not just selecting active fund managers but just what value jockeying within a portfolio can bring to the table, relative to some of these other ways we might spend our precious time.
So, do we focus on counseling people on what’s the right savings rate that they should be using? Are we talking to them about tax management and minding some of these behavioral pitfalls that we see investors fall into? So, I just love that the dialog really, at least among sensible financial advisors, seems to be shifting away from the value that they can add with portfolio management. And I think that’s all for the better. Yeah.

Steve: No, I think that’s awesome. Have you seen a good evolution or any evolution away from practices that you thought were less aligned for the consumer?

Christine: Yeah, so, I guess the increasing discussion of expense has certainly been huge. And I have to say I like to think Morningstar has had a role in evolving that and pushing that forward and that we’ve been very, very attuned to the virtue of low costs for many, many years. But it seems like it’s a combination of the marketplace of investors being more aware of the role of cost. So, it’s good to see that change happening. I would say that that’s probably the key positive development that I would point to.

Steve: Yeah, I totally agree with that. I think that the people are getting more visibility into what are the underlying costs for funds and for advice fees. And also I think just more transparency and how people are paid, the movement toward fiduciaries and who’s a sales person, because financial services is also full of sales people and has been historically. Now it’s a little bit clearer, hopefully, to people. I don’t think it’s-

Christine: Yeah, we hope. I don’t-

Steve: Yeah, we hope.

Christine: I agree. Part of the I think focus on … I feel like too much of the focus in the cost realm is on product costs, like what are you paying for these funds, and I feel like advisors maybe a little too eager to shift the discussion away from any costs that they maybe bringing to the equation. But I would expect that that’s the next frontier, where already there’s much more dialog around how should you pay a financial advisor? What’s the optimal weigh in, I guess it completely depends on the investor. But I’m just glad to see more discussion in that area.

Steve: For sure. Yeah. No, that’s awesome. So, if you could go back in time and say, “Okay, here’s some key lessons for my 25 year old self,” or whatever, what do you think those big lessons would be?

Christine: Yeah, I think a few and one would be, I guess, to not be afraid to ask questions, not be afraid to ask all my dumb questions. Because a lot of times those are really good questions when you’re coming to something fresh, so you’re not trying to act like you’re cool and you’re part of the discussion. You really need to say, “Wait a minute. How is this risk parity product … ” or something like that, ” … going to add value relative to a very plain, vanilla portfolio?” So, that I think, that learning evolved for me over time. But now, I’m just much more comfortable. I think asking questions as they occurred to me, assuming that I’ve done my homework on the topic but really pushing back. So, I would say that’s one learning, is just to feel comfortable asking all of your questions.
Another one is just how much I’ve come to embrace simplicity, especially with respect to investment management that I really do think for the vast majority of investors, really simple portfolios can be incredibly effective, it can help them figure out the fewer moving parts that can help you figure out where your problem spots are, it can make management so much simpler, can certainly make tax management so much simpler. So, I really like the idea of simplified portfolios. I think that that’s another key thing that I’ve learned over time.

Steve: Definitely there’s been more talk of three fund portfolios or four fund or one fund. So, we’re seeing more of that. Do you think users are going to that themselves or are we early in the movement?

Christine: No, I think they are. And I think when you look at the flows into exchange-traded funds and exchange-traded funds and index funds have been the name of the game in terms of attracting new assets, really for several years running now, we see they’re not going to the gobbledygook, they’re not going to those strategic made-up products by and large, they’re going into the very vanilla products. So, I think that there is an increasing awareness of some of the benefits of keeping things simple from a portfolio standpoint. I think you still hear pushback, people pedaling more complicated solutions. But I think there’s a widespread recognition that less is more when it comes to portfolios.

Steve: Yeah, no, that’s great. I’m also doing some work with the FI, F.I.R.E. community and they’re all out to educate people and getting folks to take a longer term, “Hey, you can get to financial independence, it might take you 15 or 20 years, but save money, build your emergency fund, invest in low cost funds, keep it simple, rebalance, keep investing no matter what the market’s doing, up or down, and just stick with that.” And I think they’re seeing people have success in sharing it inside the community. So, it’s cool to see younger people embracing some of this stuff.

Christine: Totally. I have been so enthused by F.I.R.E. actually. And I have to say I was initially a little bit dismissive, mainly because I was like, “What? Retire early?” I have loved working and I love the mandatory intellectual stimulation that comes along with my work, but I also recognize not everyone has that and people who don’t find joy in their work should be doing something else. But I guess more importantly, I’ve just been so enlightened by F.I.R.E. because I have seen that so many of these people are focusing on being mindful about how their allocating not just their financial capital, which has been my main preoccupation for so many years, but how they’re allocating their time capital. Which I think I guess has become a bigger deal for me as I’ve aged I think more about, “Well, how am I allocating my time on this earth?” And I think the earlier you start thinking about that, the better off you are.
So, I loved getting to know F.I.R.E. and I love that overall focus on frugality, but also finding things that you want to spend money on that give you value. Like I was talking to Jeff Ptak, my cohost on our podcast, we’re talking to Mamula, who is a F.I.R.E. proponent and a really smart person, and he said, “Oh, I’ve been to every continent.” And I’m thinking, “Gosh, I’ve traveled a lot. I’m not F.I.R.E.-ing and I have not been to all of the continents. And I liked that he and his wife had really made a priority of travel in their lifetimes, even though they were pursuing the F.I.R.E. goal as well. So, I think that finding that balance is really valuable.

Steve: Yeah, what I see for a lot of these folks is, they want to get independent, financially independent, and then they’re still working hard, it’s just they’re working on things that they want to work on.

Christine: Exactly.

Steve: But they do have to be thoughtful, because I think it’s also any retirement, where you need to have something you’re going to. It’s just the next step in your journey. So, if you haven’t thought that part through, then people are going to be like, “Well, okay, I had this big goal. I want to summit the mountain. Here I am and now what’s next?” And then they can get depressed and unfocused.

Christine: Exactly. Exactly. It’s all about balance for our lives, I think. And so, one of the joys of leisure is if you’ve worked hard, leisure feels so much better. And I think that even in retirement, retirees, early retirees, later retirees need to find that balance.

Steve: For sure. So, when you deal with people, what do you see them … Well, actually, let me jump ahead. What would you say are your biggest mistakes? That you made.

Christine: My biggest mistakes?

Steve: Yeah.

Christine: I wrote an article where I took stock of some of them and they evolve over time and I would say this is usually a joint effort, my husband and I save together and are on this journey together. But a couple of things, one is that historically inertia has been a force in how we’ve done things. So, one thing that we’ve ended up with, it’s a high class problem to have, is sometimes we’ve ended up with a lot of cash in our taxable account, whether from bonuses or whatever it might be. And I have to say maybe knowing a little bit about the market is dangerous and that it never feels like a super great time to put a bunch of money to work in the market. So, you’re always like, “Ah.” And then it also feels good to us to have a very large emergency cushion, I don’t know why.
Because we actually have a lot of stocks. We have a barbell where we don’t have that much in bonds and a lot in cash and a lot in stocks. So, I would say that that certainly has been a drag on our portfolio’s longterm return, it’s provided us with peace of mind but getting money invested has been an issue. And a corollary of that is that we’re usually … I’m always telling people, “You should fund your IRA right at the beginning of a calendar year, when you can first do it.” And I have to say I’m often one of the people putting it in in March for the year that just passed.
And honestly, it’s as simple as taking money from my cash account and moving it within the same company to the IRA, it’s just a couple of mouse clicks. But still it’s something that we have dragged our feet on. Another one, and I would say I hope this not to be an issue in the future, we initially had some tax inefficient assets in our taxable account. So, until this backdoor Roth IRA opened up as an opportunity for us to at least get a little bit of money each year into an IRA, it was really our 401(k)s and our taxable account were our main venues for investing. And so, we had an active fund, we still have a couple of active funds but I hope they won’t be too terribly tax efficient, but we had one terrible tax inefficient fund in our taxable account and it wasn’t performing that well. And we were paying capital gains on it every year.
And finally, I looked at the cost basis, and because when you have these big capital gains distribution from active mutual funds, it effectively bumps up your cost bases, as you … I don’t want to get too in the weeds on tax accounting or mutual funds, but it means that when you eventually sell, it’s like you’ve prepaid your taxes on any gains that were due. So, we found that we actually didn’t owe that much to just cut it loose. And I’m hoping we’ll be more tax efficient going forward. So, those are a few things that I think in hindsight we would have done differently. But a lot more has worked out for us than not, I would say.

Steve: Right. Yeah, well, you’re in a good company. There’s a huge amount of cash on the sidelines.

Christine: True.

Steve: There has been for a while.

Christine: Earning nothing.

Steve: Yeah. Earning steadily less and less, now a zero and maybe soon negative.

Christine: Right.

Steve: Yeah. So, I’m similar. We’re a barbell like super risky, startup-y thing here, some equities, too much cash, when’s the right time? It’s so funny because we’re in the space, it’s like we know the best practices, which is just plowed in. But it shows you how strong these biases, these behavioral biases we have. I talked to Allan Roth about this stuff and Jon Clements, and it’s hard to get out of your own way. And this is where I see the value of financial advisors and other people in the mix, where it’s you get a third part, if they’re completely aligned with you hopefully they can help you do the right things. And also automation. Can you automate your savings?
That’s what a lot of the F.I.R.E. folks do is essentially they get educated and then they build a system where it’s like, “Hey, money comes in, I auto save 20% and then it gets auto invested. I do not think about it.” That’s the more sophisticated ones. stuff go to my expenses and I have it all budgeted out and it’s all fully automated so I don’t have to think about it. It’s like, when we think about it, we get in our own way of like, “Oh, well, the market just corrected 30% but then it came back.” But hey, the economy is terrible, the market is way up, that doesn’t seem to make sense. But the Fed is printing money, so, where is this going to end up?

Christine: Right. And I will say that this correction in the first quarter was one time where I was pretty active, not only did I get our IRAs invested for 2019, but I did 2020 as well. We have been buying this Vanguard International fund for our IRAs. And I had no compunction about moving the money in during the first quarter. I was like, “Okay, the timing on this feels really good.” So, I still haven’t done the conversion that I need to do on the traditional IRA contributions. And I was looking and the fund has performed so well since I made those contributions, it will actually owe a little bit of tax on the conversion, but it’s not a big deal.

Steve: It’s almost like people have to be ready. So, one thing we saw with our users is, okay, market tank, people don’t want to think about it. But people who were thinking about it were like, “Oh, it is a great time to do Roth conversions. Cost bases just came down, let’s get the money out, let’s throw it in the Roth.” But you have to be ready to go, if you want to do that tax play. Because then the market comes back and you’re like, “Okay, well, that window closed.”

Christine: Right. I still think that conversions are an attractive opportunity but less so because of market being down, more so because of secular tax roles may change where I think we’re in a pretty favorable tax climate relative to where we’ll be in the future. So, I think the longterm case for conversions is still there.

Steve: Yeah. A lot of our users for our planning software, we do essentially a lifetime tax forecasting for you based on expected returns and RMDs and so we’re showing you these illustrations, federal and state, and people are saying, “Ah, look, this is going to … this is really material for me. So, it is worth it.” And I think a lot of people believe that taxes are going to have to go up going forward, so …

Christine: I think so too. Yeah, I love that idea of year by year retirement cashflow planning as well as some tax planning related to that. I think that’s so powerful and I would say that I just think financial advisors can add so much value at that life stage because as much as I’ve tried to write about demystifying retirement decumulation, gosh it’s complicated. And it’s really hard to not only write articles about it but create any software program or anything. I know you have one, but it’s really hard to systematize this process of retirement decumulation because we’re all dragging such different assets and situations into retirement. So, I think an advisor can add a ton of value at that life stage.

Steve: At the end of this I’ll have to give you a little demo, you can try to might be helpful for you. Okay, well, cool. Well, this has been super helpful on the finance side. So, let’s jump into some of the life lessons that you’ve taken away. One of the things I saw is that you did a six week mini retirement and you had some takeaways from that. And just as a comment, I feel like for a lot of us, with this whole pandemic, it’s been like, “Hey, everyone gets to be trapped at home, I can’t really see people. But you can’t really travel.” So, we’re knocking stuff out. But it’s a little bit of a preview and I think some people are like, “Okay, I’m going to have to be pretty thoughtful about what I’m going to do with my time.”

Christine: Right. No, I think it is. I think that’s a good analogy. And yeah, I had, back in … I guess it was 2017, I took a sabbatical and we have these sabbaticals at Morningstar every six years worth of employment you get … Sorry, every four years, you get six weeks off and it’s a really nice program. The nice thing about it is that you really want to help your colleagues do theirs because you know that you will have your time to do one as well. So, in this particular one I think my husband and I, we had just celebrated our 25th wedding anniversary, so we spent some time in Spain and Portugal and we love both those places, and then I had four weeks at home. And I was thinking about it, just as a preview. And I have to say I had aging parents who have passed away.
But prior to that, I had been super immersed in their stuff. And they lived close by and I adored them. So, I was happy to be there for them. But this was just a time where it was totally my thing. And yeah, it was an interesting preview of what retirement might feel like. I’m really not planning to retire anytime soon. But I did realize again, and I’ve said balance I think is so important, but I realize that balancing tasks and jobs with my leisure time was really beneficial, even when I wasn’t working in my job. So, just making sure I had stuff to get done everyday helped me enjoy my free time that much more. And I believe that we all need to find that balance, that full-time leisure probably isn’t a great idea.
So, I think even when I retire from my job I think I’ll continue to be involved probably in my community in some fashion, more involved in my community and still working in some way. So, that was a takeaway. Another one was just a funny one like the stuff I was spending money on prior to this period, I would look at my closet and it happens now too, it’s like, it’s the Smithsonian in there. It’s shoes that I haven’t worn for months and blazers and dresses and things that I just don’t wear anymore. And I found that during sabbatical too, whereas my workout clothes were … I like to exercise a lot, but I was exercising everyday and it was summer and it was that stuff was always in the wash. So, I realized I would need to reprioritize how I would wardrobe myself during retirement.
I also found that I had a chance to focus, which was so lovely, whatever I was doing. And there’s so much research about this, about pursuing your tasks mindfully, whether you’re plating in your garden or cooking something or whatever it is you’re doing, just to be able to engage your whole brain with it, or as much more of your brain. Yes. I just saw the huge value in that. And so, I’ve tried to take some of these things away, I guess. You try to learn these lessons and you try to incorporate them into your life going forward. And I do think what we’re all living through with this pandemic is a good chance for a lot of us to explore some of these issues where we don’t have some of the same demands on our time that we did before this.
Of course parents with little kids have maybe some big demands, where I don’t know how they’re doing it. But I think for some of us who don’t have those day to day demands, it can be a good time to take stock.

Steve: Yeah, you have to be careful, I saw that you also noted that you were watching your news consumption.

Christine: Oh my gosh.

Steve: I saw them myself, I was like, “Oh, yeah, now I’m on Twitter,” and oh my god, that’s a black hole.

Christine: It is. It is. And I’m a news junkie, I’m a political junkie. And so, it’s very easy to get sucked in. And Twitter is a time suck. Even though as great as it is in many respects, it can really rob your day of some hours.

Steve: Right. I think your comment on work is interesting. Because it feels like the nature of work is going to change pretty dramatically where we’re living longer, people are engaged and if you have a really rewarding job, you have a really rewarding job. And you meet interesting people, you influence tons of folks. It would be hard to go from that to, “Hey, I’m done.” But we want to make room for the next future generations, how that looks and what that looks like I think is going to be very different over the next couple of decades. People, I think they’re going to be working longer but part-time and with much more control. Focus-

Christine: I agree.

Steve: … on things they want to do but maybe it’s 20 hours a week or something like that versus-

Christine: I agree.

Steve: … 50, 60 or whatever it is.

Christine: Yeah.

Steve: So-

Christine: No, I know. And it’s pretty bifurcated because you see people who don’t have jobs that allow them to stay at home, it’s completely different. But I think for us with the luxury to have jobs that are in-home or jobs that we can largely do at home, I think there’s the opportunity to do some thinking about what it’ll look like for us going forward. So yeah, I completely agree with that.

Steve: Yeah. All right, I actually want to jump forward to we have a question from one of our users and also I just I wanted to get your opinion on some of this industry stuff that’s happening. But from one of our users, Tom M., he had a question, more a technical question but is there a preferred asset location mix as you enter retirement or through pre-retirement? Mix being defined as percent in tax deferred, percent in Roth, percent in taxable. I just want to know if you had any best practices around that.

Christine: That’s a hard one. Ideally you would house your more tax efficient assets in your taxable account. But it really depends on the specific mix that someone’s bringing to retirement. I think that’s why one size fits all retirement planning advice can be so difficult to dispense, because we’re all going to be carrying our own separate set of stuff into retirement. But I really like the idea of thinking about once required minimum distributions kick in, thinking about being strategic about where you draw your RMDs from and using them to improve the portfolio on an ongoing basis. I’m an big evangelist for that idea that rebalancing, all the academic literature would point to it being in the category of nice-to-have in the accumulation years.
But in retirement it seems like it just becomes such a valuable tool that I think is underutilized, I think people talk too much about trying to generate income from their retirement portfolios and not enough about how to extract cashflow from their portfolios. And I think that the low yield environment is forcing everyone to reconsider the role of income production and retirement plans. So, I guess that’s a non-answer but it’s really hard to address, not knowing a specific individuals asset mix.

Steve: No, I agree with you. I think the challenges, and this is the challenge around decumulation, is that well, one, people have different piles of money, they have different views about how long they’re going to work, when they want to claim social security, how much income they need, what they want to leave for an estate and also taxes. So, if you’re facing a really high tax load in the future, that’s going to affect how you position yourself leading in retirement. And that’s what we start to think about with our software but it is hard. It’s a much more complicated problem than accumulation. The whole financial service has been focused on accumulation, decumulation is like 20 times harder. There’s just so many more moving parts so …

Christine: Exactly.

Steve: Yeah.

Christine: Exactly. And I’m glad to see the industry is starting to focus more on decumulation, creating products and services for decumulation. What we need is … and granted, it maybe can’t be productized but we need a retirement decumulation system or a product where someone, we just make a turnkey for them, similar to a target-date fund. Because there’s so much about just saying, “Okay, you’re 65 or you’re 68 or whatever, here’s your pile of money. Figure it out.” Which is what we’re doing now. And so the only choice for someone at that juncture is to seek out an advisor and they may or may not qualify for good quality financial advice, people really need the help so I’d love to see more innovation.

Steve: Yeah. Yeah, and even with advisors, if they’re still paid on accumulation or on assets on their management, they’re still incented to have you have more money. That’s one of the challenges and one of the things that I have an issue with, with that payment model, just like one of our users was like he went to three advisors and he was like, “I want income.” And he’s like, “I’m thinking about SPIA, Single Premium Immediate Annuities, and I’m thinking about taking a third of my money,” which probably I think for him is millions of dollars, “And plunking it here.” And all of them who are fiduciaries were like, “That’s a bad idea, we could deal with a bond letter,” we’ll manage the money and give it to you.” He’s like, “Well, yeah, but I still want to do this.”
And he did it himself but he couldn’t get anyone to even really engage in the conversation with him about it. So, he had to do all the analysis himself-

Christine: Exactly.

Steve: Anyway …

Christine: Exactly. Yeah, no. It’s a problem that there are a lot of conflicts that on the other side of the fence is the very complicated, expensive annuities too where certain advisors are all too eager to steer consumers into those. So, it’s really difficult landscape for consumers to navigate.

Steve: Yeah. So, I love your commentary on … we touched on certainly but we’re in this low, zero, negative environment and you recently wrote an article about how you diversify in that, and any commentary on your point of view with what’s happening?

Christine: Yeah. We have this data on Morningstar, actually in our direct software which is for institutional investors, but you could come up with these correlation matrices where you are looking at the extent to which various asset classes are correlated with one another. So, I’ve been running this data periodically and it keeps coming back to some familiar conclusions accentuated during the first half actually, so treasuries look really good from the standpoint of diversifying equity risk, probably not a surprise from that standpoint. The Bloomberg Barclays aggregate index is also halfway decent, in part because they’re so heavily weighted toward treasuries and other government bonds.
I guess a question is, especially with respect to the treasuries is whether given how low yields are today, where I think the … we’re talking today, the year on a 10 year treasury is, what, between 60 and 70 basis points, really low. It’s an open question is whether treasuries will be that kind of in future equity market cracks, maybe. Maybe. I looked at other asset classes as well, the interesting thing is we have a couple of categories, intermediate term core and intermediate term core-plus bonds, so those would be the main bond categories that we have at Morningstar, where most of the fixed income assets are actually, if they’re in funds.
And it’s interesting, the Core Plus in particular, these are funds that hold some of their assets in riskier, fixed income segments, their correlation with equities was really higher than you’d like to see, I think. Probably pretty intuitively the hold some higher risk stuff, some junk bonds, emerging markets bonds and so forth. So, I think that’s an interesting takeaway, that if you’re owning a PIMCO Total Return or a MetWest Total Return, as capable as those people are in terms of fixed income management, in some cases you’re getting some sympathy to what’s going on in the equity market. So, I think that that’s one interesting takeaway. Cash actually looked pretty good, from this latest data run.
Its correlation with stocks, it’s just flat because as you know, cash doesn’t do anything besides deliver you income so you won’t have fluctuations in your principal. But cash actually looked a little better in this data run. In part because I think what we saw in the first quarter was that extreme flight to liquidity and safety where cash benefited at the expense of nearly everything else. So, I guess another broader takeaway is that a lot of things that might be sold as good diversifiers like the whole category of alternative investments in my mind just hasn’t made a great case for itself.
From a correlation standpoint we see that … And of course these are really different products but I don’t see a compelling case for them especially given the fact that their costs can be high, often over a percent per year for performance that oftentimes falls between stocks and bonds. So, I think that to my mind that’s probably a group of assets that investors can reasonably cross off the list if they’re looking to simplify.

Steve: Yeah. I know, it’s tough though, because people are out there, especially as they’re aging and they’re looking for yield and there’s no yield out there. So-

Christine: No.

Steve: … it’s you have to take risk and there’s real risk out there too, there’s real volatility that comes with that risk. So, you have to be ready to have a large drawn perspective on this stuff.

Christine: Totally, I was thinking about something … You were probably too young to remember Garanimals, but it was this thing with tops and bottoms that would match each other. Like if the tag was blue, you would match it to some blue pants. It was this brand of products. I was thinking about that with respect to fixed income, like if the yield is under 1%, match that to your one to two year time horizon. If it’s 2% maybe that’s a three to five year time horizon. But I think that a higher yield is so instructive as a way of thinking about risk. We don’t talk about it enough as rather than examining credit qualities, examining duration, look at the yield. It is telling you everything you need to know about the risk of that product because there’s no yield hiding in plain sight, right? I mean-

Steve: That’s right. They’re not going to give it away, right? It comes at a cost.

Christine: No. Everything’s so picked over.

Steve: Yeah, right. Yeah, it’s crazy. There’s just a ton of liquidity out there but it’s looking around for how to be efficiently put to use and … anyway, a question from Morning Star, as you look forward and you’re thinking about planning and income and decumulation, does Morningstar have any big initiatives in this space?

Christine: Yeah. We have a couple of things that we’re working on in this area. Certainly we have Morningstar Investment Management that does a lot of work, mainly in the defined contribution space, working with 401(k) plans, for example. And I think that’s a big part of the discussion internally, especially as we’ve seen the secure act, for example, which allowed for annuities to be part of 401(k) plans or if there’ll be a safe harbor in 401(k) plans. So, we’re thinking a lot about this issue. I think we recognize that we have to contribute to the discussion. And I think because we have a lot of researchers working in this area, I think we have a lot to add. So, I think that it’s definitely something that we’re focused on.

Steve: Awesome. Yeah, there’s going to be a ton of, I think, innovation in this space and just a lot more focus, you’re starting to see it. I see it in the venture community, there’s been lots of Fintec investing, now there’s a little bit more of a bias towards planning and a little bit more thought about decumulation and stuff like that, which is good.

Christine: Right.

Steve: All right. Well, this is good. So, as we wrap up, just a couple of quick questions. I was curious how your podcast is going since you’ve launched this thing and it’s a new thing for you and Morningstar.

Christine: Yeah. I’ve been doing this podcast with my colleague, Jeff Ptak for about … I guess we started in maybe April, early May I think last year, of 2019. And so we’ve been doing it weekly, which it’s a lot. But the good thing is Jeff, he heads up our manager researchers, globally, so our fund analyst teams globally. And so, he has a pretty different set of interest relative to me. He’s much more interested, I would say, in investment management overall than I am, whereas I’m more interested in some of the stuff we’ve been talking about, the financial planning and the retirement planning. So, it’s nice in that I source different types of guests than he does and I’ll try to do most of the work on those episodes, so we’ll try to divide and conquer from that standpoint.
But it’s been really fun. It’s made me busier. I was talking to my husband, I’m like, “Why am I so busy?” And it’s the podcast, because it’s been a new source of work. But honestly it’s been so enjoyable to have the luxury of sitting down with these amazing people for a whole hour once a week I’ve been learning so much and finding reference points in other parts of my work. Even another fun thing is they have been listening to each other and so, we had someone on the podcast talking about financial education, he reached out because he had listened and he said, “Oh, can you put me in touch with Carol in McLanahan who focuses on a lot of different aspects of financial planning but especially healthcare planning. And so, those two connected. And so, it’s been really fun from that standpoint to make connections, but also just to be able to spend an hour listening and asking all my stupid questions.

Steve: Yeah, yeah. I get it, I like it. I mean, I could see podcasting more but it is serious work, getting ready, also it’s good, it makes me read more. Like Morgan Housel was going to come back on, he has a new book coming out-

Christine: Oh, great.

Steve: So, I’m like, “Okay, I’m going to read this book, got to prep for that, ask him smart questions. But, yeah-

Christine: Yeah, he’s fantastic. He was one of our first guests, actually. And we did a live session with him in our Morningstar investment conference. And he’s amazing.

Steve: Yeah, bright guy. All right. So, any resources that you think our audience would find beneficial? Like people you follow on Twitter or a podcast you listen to or sites or things like that?

Christine: Yeah. Good thought. Of course I have to shout out for my Morningstar colleagues, we have a lot of great free research on and all my stuff is there and my model portfolios. And speaking of my Morningstar colleagues, Ben Johnson heads up our ETF effort. I think his Twitter handle is MstarETFUS or something like that. He’s terrific, Jeff Ptak, my colleague who I do the podcast with, his Twitter handle is syouth1. Sonic Youth, the band, one. And so, he’s a good follow as well, especially if you like data.
I would say a person who’s just been … Well, several people have been super influential and helpful for me. Michael Kitsis, going way back, has been just such a tremendous resource for me. He is a machine, but-

Steve: I know, I don’t understand how he does what he does. I asked him, I was like, “How do you crank out all these articles and podcasts?”

Christine: It’s crazy. He’s got some helpers now, Jeff Levine, who works with Michael is just fantastic too. But I think that the work that those guys put out on their blog, on the Nerd’s Eye View blog, I really would be hard pressed to think of anything that is an in depth as what they do. So, for people who want to do a deep dive on planning topics I would point them there. Bogleheads community is certainly, you mentioned Allan Roth and that group of people, I’m on the Bogleheads board or the board of the John C. Bogle Center for Financial Literacy. And so, with Rick Ferri and Allan Roth and Bill Bernstein, some of my favorite people in this whole investment world and some who might not be familiar to your audience but some great people there as well. And I would say just is one of my favorite resources, just such a high level of discourse about the things that really matter-

Steve: I know. That’s an amazing community that is so in depth. And I think there is a pretty big opportunity for … I don’t know, like make it more accessible. The work is incredible but it feels like it could help so many more people if there was a way to make it easier to get … Not that the group isn’t welcoming and super helpful, because it is, but I think it maybe comes across as a little daunting, I don’t know. But when I’ve been in there … I’m not an active contributor but I’ve done some reading and it’s people are just next level … they all could be CFPs, giving guidance to other people about what to do and answering questions and stuff like that. So …

Christine: Right, no, they’re absolutely terrific. And honestly, it’s a good resource. I’ve just seen things like, “Oh, I’m looking at high end SUVs, can you help me figure out the best … not that I’m looking for a high end SUV, but even the level of discourse there on a topic very consumer focused, very plain vanilla, it’s terrific. But maybe there is some work to do in terms of making it more accessible. Because I-

Steve: I’m not trying to, I’m just-

Christine: … think they should reach more people, yeah.

Steve: Yeah. Yeah. Okay. Awesome. Well, this was great. So, I’ll just close it up here then. So, thanks, Christine, for being on our show. Thanks-

Christine: Thanks, Steve.

Steve: Yeah. It’s been really good. Thanks Davorin Robison for being our sound engineer. Anyone listening, thanks for listening, hopefully you found this useful. So, our goal at NewRetirement is to help anyone plan and manage their retirement so that they can make the most of their money and time. And if you’ve made it this far, hopefully you will follow Christine on Twitter or check out her writing at Morningstar. And some of the folks we mentioned, we’ll link out, we’ll provide links to all those things. We’re also on a private Facebook group for our community. You can also see us on Twitter @NewRetirement and then you can also check out our software. And finally, we’re trying to build the audience for this podcast. So, if you could leave us a review anywhere, iTunes or Stitcher, that’ll be super helpful, we read the comments and we try to make it better and better over time. So, thanks again and have a great day.

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Heart Health and Your Retirement Well Being Wed, 22 Jul 2020 17:25:55 +0000 With retirement, most people worry about having enough money and funding healthcare, but did you know that your heart health should really be at the top of your list of retirement concerns? Humans often worry about the wrong things. (Learn about how 16 different cognitive biases can hurt your retirement.) And there is significant evidence…

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With retirement, most people worry about having enough money and funding healthcare, but did you know that your heart health should really be at the top of your list of retirement concerns?

heart health

Humans often worry about the wrong things. (Learn about how 16 different cognitive biases can hurt your retirement.) And there is significant evidence that heart health doesn’t get anywhere near enough attention from retirees – or anyone.

Heart Disease Is the Number-One Killer, But Not Top of Mind for Most

Research shows the media puts far too much attention on causes of death like terrorism and homicide and not nearly enough on the actual number-one killer in the U.S.: heart disease.

This chart from  Our World in Data clearly shows the significant disconnect between what we are worried about and what will actually kill us.

In 2016, over 30% of all deaths were caused by heart disease.  However, heart disease made up only 2% of all Google searches and around 2.5% of media coverage.

It really does appear that we are worrying about the wrong things. But that’s not the worst of it.

Your Risks of Having a Heart Attack Increase After Retirement

A study by researchers at the Harvard School of Public Health found that retirees within a year of transitioning from work were 40% more likely to have had a heart attack or stroke than those who were still working.  The increase was more pronounced during the first year after retirement and leveled off after that.

The researchers gave several reasons why they saw a dramatic jump in heart attacks after people left work.

Retirement Affects Different People in Different Ways

For people who had a stressful job or whose job was emotionally unfulfilling or draining, retirement may come as a relief. But for people that identified themselves closely with their jobs, like university professors or doctors, leaving work can be extremely stressful.

Retirement Can Shake up Your Social Life

People who spend decades in the same job, whether they identify with the job or not, will socialize with the people at their jobs more than anyone else. Leaving that environment is like losing your entire social circle at once.

And strong friendships and personal connections can be a necessary aspect of being healthy.  Learn why loneliness puts you at risk.

Transitioning From Work Can Diminish Your Sense of Purpose

Work engages our minds as well as our bodies. For professionals, leaving work leaves a hole that used to be filled by mental challenges. Work also structures your life with goals and milestones. Once that’s gone, it possible to feel like your boat has lost its rudder.

Here are 14 reasons why work after retirement age is beneficial.

Yep, Surprise! Retirement Can Be Stressful!

These stressful life changes are why retirement is listed as a top indicator of health breakdown in the Holmes-Rahe Stress Inventory test. Heart disease in its many forms, from chronic high blood pressure to heart attacks, can be exacerbated by the shock of transitioning from working to retirement. Part of your retirement plan should be saving for health-related expenses, but an equal part should be preventing health problems now.

A good retirement will be one in which you’re active as well as free from money stress. Just like you put aside some money from every paycheck for retirement, you should take steps today to make sure you avoid poor health in the future.

Make Your Diet Heart Healthy

This is easier said than done, but there is absolutely nothing you can do (with the exception of our next tip) that will prepare you for a healthy retirement better than establishing good eating habits now.

A lot of common wisdom and official advice has changed over the last 20 years, which means old advice about how much alcohol you should drink and much sugar is OK may not be what you learned as a young adult.

Get Regular Exercise

This isn’t breaking news either, but the key to regular exercise is less the exercise than the regular.

Dr. Harvey Simon, an associate professor of medicine at Harvard-affiliated Massachusetts General Hospital did a meta-analysis of 22 studies that showed moderate exercise like walking at your normal pace for an hour a day reduces the risk of heart disease considerably.

In one study, just fifteen minutes of moderate exercise led to an average increase in life expectancy of three years.

Find a Purpose for Your Retirement

The Health and Retirement Study found that “higher purpose in life may play an important role in protecting against myocardial infarction among older American adults with coronary heart disease.” In English, that says the more purpose you find in daily activities like volunteering, starting (and finishing!) new projects and cultivating new friendships, the lower your chance of heart attack is.

Explore 4 ways to find purpose in retirement.  Still having a hard time? Explore 120 things to do in retirement or write a retirement manifesto!

Have a Detailed Written Retirement Plan

Only 30% of Americans have a long-term financial plan that includes savings and investment goals. However, research finds that people who have a formal written retirement plan are more likely to feel confident and less stressed.  In fact, they are more than twice as likely to feel very prepared for retirement than those without a written plan.

Less stress equals better health.  A well-written retirement plan equals better health and wealth.  Explore 65 retirement tips for a healthier and wealthier future.

The NewRetirement Planner is the best most comprehensive way to plan your retirement online.  It is easy to create and maintain a reliable plan for your future security.

An Ounce of Prevention

Heart disease is both the leading cause of death in the U.S. and the most preventable. If you have taken the time to think about caring for yourself and your loved ones after you stop working, you should also think about how to protect your health – particularly your heart health – for them as well.

It’s just as easy as putting money in your 401K or IRA, and the dividends you get are priceless.

The post Heart Health and Your Retirement Well Being appeared first on NewRetirement.

9 Ways to Overcome the Terror of Spending Your Retirement Savings Tue, 21 Jul 2020 17:09:00 +0000 Terror about retirement spending is not uncommon. In fact, most people are worried about spending their nest egg and running out of money. After all, you have been conditioned for decades to earn, not spend. You were probably a teenager when you opened your first paycheck and officially started the cycle of earning and spending…

The post 9 Ways to Overcome the Terror of Spending Your Retirement Savings appeared first on NewRetirement.

Terror about retirement spending is not uncommon. In fact, most people are worried about spending their nest egg and running out of money. After all, you have been conditioned for decades to earn, not spend.

retirement spending calculator

You were probably a teenager when you opened your first paycheck and officially started the cycle of earning and spending your own money. Since then, the following process has never stopped:

Work. Earn money. Spend some. Save some (hopefully)… Repeat.

And now, just because you are ready to retire, you are forced to adjust to an entirely different system. Suddenly, it’s supposed to seem totally normal to spend… Then, spend some more… And then, spend even more – drawing down the retirement nest egg that took you a whole lifetime to build?

That can be terrifying! And, if you are feeling scared, you’re definitely not alone.

How to Overcome the Terror of Spending Your Retirement Savings

If you’re uneasy and not sure you can handle watching that nest egg balance fall month after month. Don’t worry. Here are a few tips to overcome your fear of retirement spending.

After reviewing and taking action on the steps below, you’ll no longer need that brown paper bag (for hyperventilation).

In fact, you might even take your spouse on that tropical cruise you have always dreamed of.  (Wait, that was the dream before the pandemic. Maybe now you’ll splurge on the motor home and a road trip!)

1) Get Really Comfortable with Your Numbers — Use a Detailed Quality Retirement Spending Calculator

It’s pretty much impossible to look at your nest egg and automatically know that it’ll last you through your retirement. There are just too many variables at play.

It’s easy for someone else to tell you you have enough for retirement. However, it is much more powerful for you to see for yourself. It can be easy to calculate EXACTLY how a comprehensive set of your own values — your assets, spending, rates of return, inflation, income and so much more — will result in a secure future. With this detailed knowledge and sophisticated calculations, you will be able to gain a sense of financial well being and confidence and overcome retirement fears.

That’s why NewRetirement offers the most comprehensive retirement planning system. Embedded in the functionality is the best retirement spending calculator with detailed budgeting and withdrawal options.

Start by inputting some basic information and get an estimate for how long your money will last. Then, add more detail and start running various scenarios and discover your own safe spending levels.  The withdrawals feature will help you determine how to best manage withdrawals from savings.  And, easily see your projected annual income and expenses for the rest of your life.

Keep adding details, reconciling your information and stay on track to a secure future.

Related: 15 scenarios to try with a retirement calculator

2) Understand the Real Risks to Your Future Security (and Plan for Them)

Research from Transamerica found that fear of running out of money, concerns about the viability of Social Security and not being able to afford healthcare are the three biggest retirement fears.

Other factors that might put your financial security in jeopardy include inflation, unstable economic markets, unforseen emergencies, forced retirement, falling home values, an environmental disaster, a catastrophic health event or perhaps even an unpredictable pandemic.

There is a lot about the future that we can’t predict, but that doesn’t mean that you can’t plan!

Related: Use the NewRetirement Planner to learn how to plan for the unknown and you’ll feel a lot better about retirement.  Coach will alert you to

3) Get Reassured by a Financial Adviser

Have you ever sold a house before? Did you try to sell it on your own, or did you seek out an experienced professional that sells dozens of homes each year? Most of you probably went with the experienced realtor.

Why? It’s simple. It’s because you were attempting to make a transaction with the largest asset you had at the time… and it wasn’t worth the risk of getting it wrong.

Now that you’re nearing retirement, you want reassurances.

The NewRetirement Planner is unbiased and reliable and there is even a virtual retirement coach included.  However, many people want a second opinion from a live human being about retirement spending and other financial factors. Talking with a financial advisor can definitely ease your concerns about whether or not your nest egg will last as you as you do — however long that turns out to be.

Additionally, a financial advisor can help you optimize your wealth by helping you with:

  • Retirement fund management
  • Mortgage advice
  • Insurance recommendations
  • Tax help
  • Investment risk
  • Estate planning

Related: Explore questions to ask a financial advisor. Or, get matched to a fee only NewRetirement Financial Advisor who acts as a fiduciary at a low cost due to efficient use of technology. The advisor works with you via phone and with the NewRetirement Planner and the process will help you overcome any retirement fears.

4) Adopt the “Right” Kind of Spending

Money is everything – at least, that’s what you thought when you were young. Heck, that’s why you scrimped and saved! You figured that money would give you security, create options, and maybe even give you some happiness.

Well…while that’s not too far off, it’s not entirely true.

Money, all on its own, doesn’t really do that much for us. It’s what we do with that money that might lead us toward happiness. Let’s say you had $100,000 in excess cash that you could do whatever you wanted with. No strings attached. And, if you lost it all it wouldn’t affect your life whatsoever.

So, you decide to buy a… Ferrari 360 (some say the most beautiful car on the planet). The thrill is immediate: the vibration of the engine, the way it just grabs the road around those tight corners, the smell of European leather…mmmm. All sensational.

But, you know what? It gets old after a while. No matter how exotic that car is, the story is still the same. It’s awesome when you drive it — experience it — but owning it can becomes a burden.

Shift from Ownership of Things to Keeper of Memories

If you can shift your spending from ownership to experiences, spending your nest egg becomes fun and meaningful instead of a retirement fear. It’s not about fast cars, it’s not even about big houses – it’s about experiences and making memories.

It’s about having the time to do the things you’ve always wanted to do, not buying all the stuff you always thought you’ve wanted.

Countless studies have shown that people who are far more satisfied — in the present AND in the long run –when they purchase experiences than when they buy material objects.

When you spend your money on memories, you’ll stop thinking about your dwindling retirement and you’ll actually start living your life the way it was meant to be lived.

Dr. Thomas Gilovich, a psychology professor at Cornell University has studied the question of money and happiness for over two decades. He explains, “We buy things to make us happy, and we succeed. But only for a while.” He continues, “Our experiences are a bigger part of ourselves than our material goods. You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”

Related: Explore 6 ways to find meaning and purpose in retirement or think about 120 ideas for what to do in retirement.

5) Guarantee Your Income with a Lifetime Annuity

Alright, that was poetic and all…but let’s come back down to reality. It’s still freaky to spend money that you’re not actively earning. If you’re nodding your head with me (and annoyed by my touchy-feely paragraphs above), then this step is for you.

A lifetime annuity is an insurance product that allows you to pay a lump sum and in turn, receive a guaranteed monthly paycheck — for life (no matter how long that turns out to be).

In other words, if you have $250,000 and you’d like to receive a set payment each month instead of stressing about what investments to make that won’t go up in smoke and will return your desired income, then you could buy an immediate annuity and receive say, $1,000 a month. (The actual amount differs for everyone…so remember, this is just an example. Use a lifetime annuity calculator to determine your income.)

The consistent pay might be just enough to ease your tensions about your retirement. It was difficult to know how long your nest egg would last when viewed as a whole, but now that you have a set $1,000 coming in with your social security money….yeah, you can see this working.

The downside of lifetime annuities is that they are not designed to offer you stellar returns on your money. They are supposed to alleviate retirement fears and provide peace of mind.

Learn how one retiree used an annuity to guarantee an important part of his retirement income while maximizing returns with his other assets.

Related: Explore the pros and cons of annuities, estimate your paycheck with a a lifetime annuity calculator or take this quiz to assess whether an annuity is right for you.

6) Don’t Let The Money Shrink

This option is easier said than done, but it is absolutely possible. Many retirees manage to increase their wealth after retirement instead of spending it down. Review advice from retiree who had more savings at age 80 than when he first retired.

If you already have it in your mind that you’d like to leave a hefty inheritance to your children and grandchildren, then this option might just suit you perfectly.

On average, the stock market has earned approximately 7% per year since the early 1900’s. You’ve probably experienced this growth and can attest to the growth figure. But there have been many ups and downs over the last 100 years and now that you’re nearing retirement you need more certainty about returns than before. I imagine you’ll be on the search for some safer investments that yield between 3-5%.

In comes the 4% rule...

According to many investment professionals, withdrawing from your nest egg at a rate of 4% is one way to hopefully ensure that you will still have money at your death…but it’s not a hard and fast rule. Some argue that 4% is too much, some say it’s too little.

And you know what? They’re both right because everyone has different circumstances and therefore, a different scenario and no one can predict what the stock market will do.

If you’re fearful that you’re going to run out of money in retirement, then you could simply withdraw a percentage that is less than or equal to your rate of return on the money.

In other words, plan to withdraw your money at 2%-3%. It likely won’t shrink and you’ll always have comfort in the fact that you’re being ultra-conservative with your precious nest egg.

Related: Learn about problems with the 4% rule. Or, better yet, find 18 great ideas for lifetime wealth.

7) Trading Money for an Even More Valuable Asset

What’s more important than money? Family, friends, experiences…yes, all of these things. But what’s even more important that?


As the story often goes, a man lays on his deathbed with only a few more minutes to live. He knows it, his family knows it, but there’s nothing that anyone can do about it. What is the one wish of that man?


He thinks of opportunities missed, memories forgone, and precious time that was simply wasted. If only he could have it all back… but he can’t.

When it comes to retirement, don’t get scared away from it. Embrace it. You’ve worked all your life to get to where you are today, and now you have the chance to buy the world’s more valuable asset – time.

It’s the one purchase you’ll absolutely never regret.

Related: Explore 8 ways to shift your retirement perspective for a happier future.

8) Have a Purpose!

For most of your life, earning money has been a key purpose. In retirement you need to make sure you have a new reason to get out of bed everyday. And, by adopting or acknowledging a new type of purpose for retirement, it will be easier to spend your money.

You want a reason TO DO something, not a reason NOT TO DO something.

9) Go Slow, Ease Your Way into Retirement Spending

Time may be what you need to feel comfortable spending in retirement. Research from AgeWave and Merril Lynch found that it can take retirees about 18 months on average to get over feeling uncomfortable about spending money.

Explore ways to transition into retirement instead of going cold turkey.

It’s Time to Retire Confidently

So what do you think? Do the retirement spending calculations work in your favor? Do all signs point toward making the leap?

If so, you’ll be the envy of many and you’ll join the happy company of countless others that have already taken the leap.

I sure hope you’ve put that paper bag back in the cupboard at this point. You’ve been researching and planning for your retirement for a long time. You know you’ve got enough money and you’re adult enough to spend it wisely, so why not hang up your work boots and start enjoying life?

Walk through the steps above. Retire with confidence. Never look back.

The post 9 Ways to Overcome the Terror of Spending Your Retirement Savings appeared first on NewRetirement.

Prepare for Life After Retirement: 6 Ways to Find Meaning and Purpose for this Stage of Life Mon, 20 Jul 2020 20:53:00 +0000   While we’re in the daily grind of working for a living, we often visualize life after retirement as happy, stress-free relaxation. Getting a little R&R is certainly important, but there is a limit to the amount of napping, puttering around the house and daytime television a person can take. Without a plan for life…

The post Prepare for Life After Retirement: 6 Ways to Find Meaning and Purpose for this Stage of Life appeared first on NewRetirement.



While we’re in the daily grind of working for a living, we often visualize life after retirement as happy, stress-free relaxation. Getting a little R&R is certainly important, but there is a limit to the amount of napping, puttering around the house and daytime television a person can take. Without a plan for life after retirement, many retirees find themselves feeling vaguely unfulfilled and restless, craving something more but not knowing what that something might be.

Focusing on the financial aspects of retirement is important, but the personal side of your retirement plan is just as important, and could ultimately guide how you use your retirement assets.
life after retirement What kind of meaning do you hope to find for your life after retirement?
While in the workforce, you may have measured success by your professional achievements. Awards, accolades, and recognition for a job well done got you out of bed in the morning. Maybe you found joy interacting with your colleagues in days filled with meetings, business lunches, and professional networking events.

Once you leave the workplace, you need to find meaning to fill that void.

What Is Meaning? Why is It Important for Life After Retirement?

The famous psychologist Viktor Frankl knew a lot about looking for meaning in life. In his book Man’s Search for Meaning, Frankl wrote, “Happiness cannot be pursued, it must ensue. One must have a reason to be happy.”

Frankl believed that the very pursuit of happiness is what thwarts happiness, but once you have a reason to be happy – i.e. a meaning – happiness comes automatically.

  • Happiness is about looking inward. It’s about satisfying your needs and wants. Happiness without meaning results in a shallow, self-absorbed life. When things go well, when your needs and desires are satisfied, you’re happy. When things get difficult, watch out.
  • Meaning is different. It’s focused outwards, on others. It’s about taking care of others and contributing to your community or society as a whole. When we see our purpose as larger than ourselves, we no longer need to pursue happiness. It comes naturally, even in the face of temporary setbacks and discomforts.

The problem is that many people spend more time planning a vacation than they do planning their retirement. Chances are your career provided a lot of your life’s meaning over the last 40+ years.

So how do you find a replacement for that fulfillment once you’re no longer punching the proverbial time clock?

Here are six ways to help you find meaning for your life after retirement:

1. Hit the Books to Find Meaning for Life After Retirement

When you were choosing a college major or career, did you ever turn towards books to help you zero in on your passions?

Maybe it’s time to reread those guides. When you listen to podcasts or read interviews from visionaries and millionaires, one of the most common pieces of advice you’ll hear is to read a book. That advice works as well for pursuing a passion in a career as it does for finding your meaning for life after retirement.

The bookstores and libraries are full of great titles. Here are a few to get you started.

Man’s Search for Meaning by Viktor E. Frankl: If you read lists about the books successful people most often credit with being inspirational, it is a good bet that this will be a top contender.

The Art of Happiness by Dalai Lama: This book is the cornerstone of positive psychology.

The Subtle Art of Not Giving a F*ck by Mark Manson: Maybe try the millenial self help guide from a superstar blogger who shows how to stop trying to be positive all the time so that we can truly become better, happier people.

You Are a Badass, How to Stop Doubting Your Greatness and Start Living an Awesome Life by Jen Sincero: Twenty seven quick chapters with funny stories, sage advice, easy exercises, and the occasional swear word, helping you to create a life you totally love.

Jonathan Livingston Seagull by Richard Bach: Maybe go a bit retro with this 1970s classic.

A New Earth: Awakening to Your Life’s Purpose by Eckhart Tolle: The spiritual teacher and author describes ancient truths and applies them to life in the 21st century; encouraging readers live in the present moment. First published in 2005, the book sold five million copies in North America by 2009.

Gratitude by Oliver Sacks: The book chronicles the famous author’s thoughts, wishes, regrets, and, above all, feelings of love, happiness, and gratitude even as he faced the cancer that ended his life last year at 82.

The Five Minute Journal: A Happier You in 5 Minutes a Day by Intelligent Change:Using the science of positive psychology to improve happiness, The Five Minute Journal focuses your attention on the good in your life. Improve your mental well-being and feel better every day.

The Alchemist by Paulo Coelho: Although set as a novel following the journey of shepherd traveling to discover the meaning of a recurring dream, the New York Times called this book “more self-help than literature.” The journey teaches the reader about listening to our hearts, recognizing opportunity, and following our dreams. Originally published in Portuguese in 1988, it has been translated into more than 67 languages and is an international bestseller.

The Happiness of Pursuit: Finding the Quest That Will Bring Purpose to Your Life by Chris Guillebeau: American entrepreneur Chris Guillebeau set out to visit every country on planet Earth by the time he turned 35. Everywhere he went, he found people pursuing extraordinary goals. These conversations compelled Guillebeau to study the link between questing and long-term happiness.

You Learn by Living by Eleanor Roosevelt: The former First Lady penned this simple guide to living a fuller life at the age of seventy-six. The book offers her own philosophy on living with compassion, confidence, maturity, and civic stewardship. The book may be more than 50 years old, but her advice is as applicable today as it was in 1960.

The Bullet Journal Method: Track the Past, Order the Present, Design the Future by Ryder Carroll: Organize your thoughts and focus on what is meaningful to you.

2. Try an Mindfulness App

Mindfulness apps are all the rage right now.

The idea behind most of them is to help you with being aware of how you are feeling and learn to control your thoughts which will result in more happiness and meaning in your life.

Headspace: Start with their calming one-minute breathing exercise to see if this is something for you.

Calm: Voice led meditation and a range of calming background sounds.

Stop, Breath and Think: This app checks in with how you are feeling and recommends a meditation based on your mood.

365 Gratitude: 365 Gratitude is a science-based app that will motivate you to cultivate a grateful mindset in just 5 minutes a day.  Gratitude is a key component of feeling and finding meaning.

3. Meet With a Life Coach

You may work with a financial advisor to help guide your investing and saving choices, but did you realize that there are life coaches that specialize in helping you transition to life after retirement? Just as a financial advisor can help you navigate the complex and sometimes emotional choices in your financial life, a retirement coach can do the same with personal choices faced by people at or near retirement.

A retirement coach can help you view retirement not as an ending, but as a transition into a new, exciting phase of life. You may have planned your retirement financially and even planned where you wanted to retire, but what else are you going to do for the next 20, 30, or 40 years?

  • Be prepared for some tough questions about life and death, regrets or forgotten dreams.
  • They might help lead you to part-time work, humanitarian efforts, entrepreneurial adventures, or even artistic pursuits that you hadn’t considered before.
  • A retirement coach can also help navigate intangibles such as building a new social network and finding value in how you spend your time.

Coaching rates may range from $50 to $250 per hour, but many coaches offer a free initial session to ensure the relationship is a good fit. Check out the International Coach Federation Member Directory to find a credentialed coach in your area.

Want to know more? Explore 6 ways a life coach can help you have a better retirement.

4. Take Care of Your Finances

In 1943, psychologist Abraham Maslow theorized that the most fundamental human needs are physiological (air, water, food, clothing and shelter) and safety (personal and financial security, health and well-being). These basic needs must be met before an individual can focus on secondary and higher level needs such as love and belonging, esteem and self-actualization.

It makes sense. If you are spending your days worrying about whether you’ll have enough money to cover food and shelter during retirement, your time and energy will be focused on meeting those needs before you consider cultivating a social circle, engaging in a hobby or realizing your full potential.

Having our fundamental needs threatened can happen pretty easily in our retirement years if we don’t have sufficient income or savings to satisfy our basic needs for food, shelter, transportation, healthcare, etc. So start getting your finances in order as soon as possible.

Consider how you’ll satisfy those basic needs in retirement while still having something left over to devote to higher-level needs. Once those needs are addressed, your mind will be free to think about higher level issues such as cultivating friendships outside of your professional networks, realizing your own personal potential, and helping others to achieve self-actualization.

A retirement planner can be an excellent way to help you figure out if you are financially prepared for life after retirement.

NewRetirement’s Retirement Planner is designed for anyone who is worried about their retirement — especially people nearing the end of their careers who are in their 50s and 60s.

This tool makes it easy to get a detailed assessment and helps you find ways to strengthen your plan. This retirement calculator was named a best retirement calculator by the American Association of Individual Investors (AAII).

5. Identify What Gives Your Life Meaning and Purpose AND Makes You Happy

The traditional pursuits of retirement: hobbies, volunteer work, travel, part time jobs, exercise, friends, leisure, family and more can all offer you meaning, purpose and happiness. 

Try browsing 120 things to do in retirement and identify the pursuits that will deliver the trifecta of happiness, purpose and meaning.

Still stuck for a retirement purpose?  Try writing a retirement manifesto.

6. Identify Your Ikigai

The Japanese define purpose with the concept of “ikigai.”  Ikigai is the intersection of what you love, what you are good at, what the world needs and what you can get paid for.

Maybe in retirement you can have ikigai without getting paid, but it is still a powerful way of thinking about how to achieve meaning and purpose.

Learn more about ikigai and other Japanese secrets to a long and fulfilled life.

How Will You Find Meaning for This Week’s 168 Hours?

Whatever path you choose to find your meaning for life after retirement, have an open mind. This may be the first time in your life you’ve been able to work with a blank slate. Take a look at your calendar and really consider what you want to do with the 168 hours you have each week.

Get creative and strategic and retirement may just be your greatest adventure yet.

The post Prepare for Life After Retirement: 6 Ways to Find Meaning and Purpose for this Stage of Life appeared first on NewRetirement.

Retirement Calculator With Pension: Find the Inputs You Need! Thu, 16 Jul 2020 21:00:00 +0000 While pensions are not nearly as common as they once were, they are a very important part of the retirement plans for many of society’s most valued workers: teachers, police officers, fire fighters and more!  However, it is surprisingly hard to find a reliable retirement calculator with pension inputs. 5 Retirement Calculators With Pension Controls:…

The post Retirement Calculator With Pension: Find the Inputs You Need! appeared first on NewRetirement.

While pensions are not nearly as common as they once were, they are a very important part of the retirement plans for many of society’s most valued workers: teachers, police officers, fire fighters and more!  However, it is surprisingly hard to find a reliable retirement calculator with pension inputs.
retirement calculator with pension

5 Retirement Calculators With Pension Controls:

Calculate your pension accurately with inputs for tax status, COLA, survivor benefits and comparing lump sum vs. monthly income options.

Even though millions of people still have pensions, almost none of the most popular retirement calculators offer comprehensive pension inputs.  The NewRetirement Retirement Planner offers pension holders the ability to calculate their pension with all relevant inputs:

  • Lump Sum or Monthly Payments: To start, you can opt to enter either a lump sum pension payout OR monthly payments.  This alone is hugely useful, enabling you to compare which type of pension will have the best impact on your overall retirement finances. Go back and forth between options and play with the numbers until you are satisfied with your decision about your pension.
  • Survivor Benefits: You aren’t just planning YOUR retirement, if married, you are planning for you and your spouse.  Pension survivor benefits can mean the difference between a secure retirement and running out of money.
  • No Limit on Number of Pensions: For both you and your spouse, you can include as many different pensions as each of you actually have.
  • Tax Status: You can also specify whether or not each of your pensions is taxable.
  • Start Age, COLA, Taxes and Survivor Benefit:
    • If you have selected a monthly pension benefit, you specify the exact start age, whether or not there will be a cost of living adjustment, tax status and — if you have a survivor benefit —  what percentage of your benefits your heir will receive.
    • If you select a lump sum payout, you specify if it is taxable, the savings account to deposit it into, and the age when you will receive the benefit.

Here are four additional, less personalized, retirement calculator with pension options:

The AARP retirement calculator and the CalcXML offering do allow you to enter a monthly pension and an annual adjustment for it.

Some calculators like the CNN Money calculator group pensions with Social Security and other income.  This is not a great idea since you may have completely different start dates for these income sources.

The Vanguard Group calculator allows you to enter what percentage of your retirement salary will be from a pension — but not dollar amount, start date, adjustments, etc…

What Else is Important in a Retirement Calculator with Pension?

If you are serious about retirement planning, then you need to use a retirement calculator including pension inputs as well as one offering a comprehensive set of questions about other factors impacting your retirement.

Some of the following considerations may be particularly important to people with pensions, but most are critical factors to almost anyone who wants a credible retirement plan:

Retirement Job: Many people who retire with a pension opt to work in some kind of retirement job.  It is important that your retirement calculator lets you set as many different work income phases as you might have.  And, passive income sources as well.

Housing: Do you plan on moving after retirement? Downsizing or upsizing?  Look for a calculator that factors in your housing wealth.  If you own, this is probably your most valuable resource.

Social Security: Not all pension recipients are eligible for Social Security, but many are.  You will want the option of entering a Social Security start date which could be different from your pension start date.  (If married, you also obviously want separate controls for your spouse.  See more about special considerations regarding retirement calculator for couples.)

Expenses: After retirement, your spending is likely to evolve.  Make sure you use a retirement calculator that allows you to customize different phases with different levels of spending.

Assumptions: Most retirement calculators ask very few questions and make a huge number of assumptions.  However, you are not likely completely average.  If you want a reasonably accurate retirement plan, you will want to be able to play with all of the details — inflation, medical spending, rates of return on investments, debt levels, how to manage a possible long term care event and much more.

How Much Savings do You Need if You Have a Pension?

How much retirement savings you need if you have a pension will vary pretty dramatically from person to person.

It all depends on how much you spend, do those expenses change over time, do you have expensive health issues, how much of your retirement income is guaranteed for life, etc…

The basic math for figuring it out is to add up all of your lifetime retirement income sources (pension, Social Security and annuity or passive income) and see how that compares to your projected retirement spending.  If there is a gap, then you need retirement savings to fund that difference.

However, the easiest way to figure out how much savings you need is to use a retirement calculator with pension.  Just be sure that the tool you use is detailed and reliable.

The Best Retirement Calculator Including Pension

Most retirement calculators are fairly simple and only ask you for a little bit of information and then they make a bunch of assumptions to fill in the rest of the details.

These can be good for a quick estimates. But, if you are serious about retiring and especially if you have a pension, you need a tool that can really calculate the details of your own finances.

The NewRetirement retirement planning tool has been named a best retirement calculator by the American Association of Individual Investors (AAII), Forbes Magazine, The Center for Retirement Research at Boston College, MoneyBoss, CanIRetireyet and many more.

The tool is ideal for planning an early retirement because it covers a comprehensive set of information relevant to retirement and lets you customize everything.

See what real users say about the tool. Here is a sampling of recent feedback:

Unlike similar apps newretirement covers nuances like couples of different ages with pensions, plans to take social security at different ages.  It appears to accurately calculate using the data input while other apps ask the right questions but their calculations seem wildly inaccurate and unrelated to all the inputs.

Atlanta, GA – July, 2020

I like that the program allows me to plug in pension and expected social security information when so many other applications do not.

Reidsville, NC – Oct., 2019

Very concise, intuitive to use, easy to compare different scenarios, and not intrusive, does not need any of your personal details, so even people concerned about privacy can use it.

Madison, WI – Dec 14, 2019

I like that the tool includes the addition of a pension. Not many tools include that. I also like that it gives an optimistic and pessimistic view of future earnings.

Lansing, MI – June 24, 2017

The post Retirement Calculator With Pension: Find the Inputs You Need! appeared first on NewRetirement.

The Complete Guide to Reverse Mortgage Interest Rates and Fees Wed, 15 Jul 2020 13:26:00 +0000 This is the most complete online guide to all of the costs associated with reverse mortgages including reverse mortgage interest rates.

The post The Complete Guide to Reverse Mortgage Interest Rates and Fees appeared first on NewRetirement.

Many people are concerned about the costs associated with a Reverse Mortgage, as well as the impact interest rates have on both how much can be borrowed now and the future balance owed.


  • if you want or need equity from your home — either now or perhaps during an emergency,
  • are not willing to relocate to a smaller home,
  • don’t want to or are unable to face regular loan payments, and
  • are comfortable reducing the size of your estate left to your heirs…

… then the upfront costs of a Reverse Mortgage should not be a significant issue.

Additionally, understanding how interest rates — as well as home appreciation — impact future home equity can help alleviate concerns (or at least help you better understand how it all works).

reverse mortgage interest rates
All About Reverse Mortgage Interest Rates and Fees

Reverse Mortgage fees are generally only a disadvantage if you intend on moving out of the house in a short period of time. While Reverse Mortgage interest rates and fees can seem high and do indeed amount to a significant sum, the costs are not a burden to the homeowner since they are usually financed by the Reverse Mortgage itself (so there are not any out of pocket expenses).

In this article, we will help you to understand:

To help explain these details, we created an example of a fairly typical Reverse Mortgage loan. This example shows the Reverse Mortgage loan amounts, charges, and interest rates for a 70-year-old retiree, with a $300,000 house and a $50,000 mortgage.

After reviewing this article, use a Reverse Mortgage Calculator to see how much money you could receive from a Reverse Mortgage on your own home.

The Different Types of Reverse Mortgages and How to Choose a Reverse Mortgage Lender

There is currently only one Reverse Mortgage type that is widely available — the HECM Reverse Mortgage. This loan can be used on your existing home or to purchase a new home. Depending on how you take your loan amount, you can opt for either a fixed rate Reverse Mortgage (meaning the interest rate never changes as long as you hold the loan) or an adjustable rate Reverse Mortgage (your interest rate can go up or down and are tied to current market rates).

HECM programs are available from HUD-approved lenders. These lenders must adhere to the rules and regulations structured by Congress. The maximum fees and lending limits for the HECM are set by law.

Additionally, there are a growing number of proprietary products being offered directly by lenders, such as Jumbo Reverse Mortgages. These loan options typically do not have the same costs or restrictions as HUD HECM programs, and they allow high home value homeowners to access more of their home equity..

In most cases, the HECM is the most widely available and appropriate option. But, if you have a higher home value or perhaps want to access a reverse line of credit on top of your existing mortgage, you may want to consider proprietary offerings. Also, in some states there are proprietary options for higher value condominiums that are not FHA-approved for the HECM program.

How Reverse Mortgage Loan Amounts are Calculated

HUD-approved lenders will determine your actual loan amount by using:

  • The loan limit, also known as the lending limit, is the maximum home value used to calculate the loan amount
  • The value of your home — as determined by an appraisal
  • Prevailing interest rates
  • The amount of any outstanding loans against your house
  • Your age and the age of any other titleholders

The HECM lending limit nationwide is set at $765,600 for 2020. As the HECM Reverse Mortgage program is administered by the Department of Housing & Urban Development, legislation may increase (or decrease) this amount in the future. When calculating your loan amount, lenders will use the lesser of your home value or this lending limit.

Loan Amounts Available on a Typical Reverse Mortgage

In the following sections, we detail Reverse Mortgage loan amounts, fees, and interest expenses for a fairly typical homeowner.

Using the sample data listed above and rates at the time of article publication, a borrower may expect the following:

Adjustable Interest RateFixed Interest Rate
Maximum Loan Principal (loan principal limit):$172,800*$147,900*
* On a $300,000 house owned by a 70-year-old retiree using Jul-2020 rates; this is the gross amount available prior to deducting existing mortgages, the origination fee, mortgage insurance and other closing costs that vary based on company margin and current interest rates.

The Fees Associated with a Reverse Mortgage and the Actual Funds Available to the Homeowner

Now that we have an initial starting point for this Reverse Mortgage, we can calculate the various fees this sample client could expect to finance in the loan.

Reverse Mortgage Fees

Adjustable Interest RateFixed Interest Rate
Origination Fee:$5,000$5,000
Mortgage Insurance Premium:$6,000$6,000
Third Party Closing Costs (est):$3,026$3,026
TOTAL FEES:$14,026$14,026
Loan Amount After Fees:$158,774$133,874
An explanation for each fee follows below
  • Origination Fee: The Origination Fee is the upfront fee charged by the Reverse Mortgage lender to initiate the loan. The entire amount of the origination fee may be financed as part of the mortgage.
  • Mortgage Insurance Premium: Mortgage insurance costs are unique to the HECM product. HUD guidelines, last updated in Oct-2017, require that all HECM Reverse Mortgage borrowers receive Reverse Mortgage insurance, which guarantees that you will continue to receive benefits no matter what happens to your loan holder, and ensures you will never owe more than the value of the home at the time you repay the Reverse Mortgage. The amount charged is 2% of the maximum claim amount at closing, and in subsequent years, servicing mortgage insurance premium (MIP) is 0.5% of the loan balance annually. Proprietary loans, such as Jumbo Reverse Mortgages, do not require mortgage insurance.
  • Third Party Closing Costs: Third Party Closing Costs represent a number of services that may need to be undertaken before the Reverse Mortgage can be finalized. These can include appraisals, title searches, surveys, inspections, recording fees, local, state, and federal mortgage taxes, and credit checks. As these fees vary from place to place and by vendor, the amount quoted above is an approximate average. Some lenders may charge higher while others lower.

Paying Off Existing Liens — No More Monthly Mortgage Payments

For many borrowers, the number one benefit of securing a Reverse Mortgage is eliminating ongoing traditional mortgage payments. If you have an existing mortgage — or any other liens against your home — they must be paid off using the funds from your Reverse Mortgage. You may not have both a traditional mortgage and a Reverse Mortgage at the same time.

Eliminating your traditional mortgage payments can be an excellent way to improve your monthly cash flow in retirement.

In this example, the $50,000 mortgage is paid off — leaving a sum of money that can be used as the homeowner sees fit — depending on the type of loan that has been chosen.

Adjustable Interest RateFixed Interest Rate
Net Principal Limit (Net balance after fees):$158,774$133,874
Less Current Debt Payoff:$50,000$50,000
Remaining Money:$108,774$83,874

Cash Available to Borrower After Fees and Payoff of Liens

Following the deduction of the upfront fees and the payoff of the existing mortgage (a Reverse Mortgage borrower must always pay off any existing mortgages and other liens against the home), the borrower in our Reverse Mortgage example is left with the following amounts available in the form of lump sum cash or line of credit.

Adjustable Interest RateFixed Interest Rate
Remaining Money After Paying Off Fees:$108,774$83,874
Less Upfront Cash:$0$24,714
Max Upfront Cash Available:$39,654$24,714
Fixed-Rate Unusable Funds:n/a$59,160
Maximum Line of Credit (less any upfront cash):$108,774$0

The amount of cash available and when it is available to a Reverse Mortgage borrower varies depending on the type of loan you receive.

Adjustable Rate: With an adjustable rate Reverse Mortgage loan, the borrower must put all funds that are available after the payoff of liens into a line of credit or a tenure (monthly payments). A portion of the line of credit is considered immediately available (Max Upfront Cash).

There are two main advantages associated with the line of credit option:

  1. You only pay interest and annual mortgage insurance premiums on the funds you withdraw, not the total amount that is available to you.
  2. The total amount available to borrow increases each year at a fixed rate. Until you fully use your line of credit, the amount you can access continues to increase as you age giving you additional borrowing potential.

In this example, the borrower has a total of $108,774 in money available to them — to be used in anyway they wish. However, this borrower is only allowed to withdraw $39,654  (60 percent of their loan principal limit minus the mortgage payoff amount and closing costs) in the first year of the Reverse Mortgage. The remaining $69,120 (plus annual increases) can be tapped thereafter.

Fixed Rate: With a fixed rate loan, the cash you can access from the loan is more limited. If you opt for a fixed rate loan, you are only allowed to withdraw 60 percent of your principal limit. (In this example, 60 percent of $147,900 minus $50,000 mortgage and $14,026 closing costs comes out to $24,714.)

The unusable funds will just remain as your home equity.

Estimate Your Loan Amount

Monthly Payments Available to Borrower After Fees and Payoff of Liens

Instead of cash, a Reverse Mortgage borrower may opt to receive monthly payments for their lifetime — but only if they opt for the adjustable rate loan. Monthly payments are not available for the fixed rate Reverse Mortgage.

Adjustable Interest RateFixed Interest Rate
Remaining Money After Paying Off Fees:$108,774$83,874
Monthly Lifetime Cash Payments:$465n/a

Monthly lifetime payments can be an excellent way to supplement your lifetime income.

How Reverse Mortgage Interest Rates Are Calculated

Although you may be concerned about the fees on a Reverse Mortgage, the highest cost associated with this product is interest.

Method of Calculating Interest Rates

Interest rates for a Reverse Mortgage float on a base of an established benchmark interest rate index and adjust periodically within maximum allowed adjustments and within interest rate caps.

The bullets below show how the HECM Reverse Mortgage loan program calculates interest.

  • Index Base Rate: The Index Base Rate is the interest rate of the publicly published financial index upon which the Fully Indexed Rate is based. These rates fluctuate over time.
  • Margin: The margin is the lenders’ profit margin above the value of the publicly published financial index. The interest rate margin is bounded by maximums and minimums, but varies company by company.
  • MIP Margin: In addition to the upfront fee, all HECM Reverse Mortgages involve an annual margin applied towards premiums for federal Mortgage Insurance. As of July-2020, this MIP is 0.5% of the loan balance.
  • Periodic Rate Adjustments: Periodic Rate Adjustments refers to the periodic adjustment to the Fully Indexed rate. It applies only to Adjustable Rate Reverse Mortgage programs.
  • Interest Rate Caps: Interest Rate Caps are a preset maximum Margin used to calculate the maximum Fully Indexed Rate of the reverse mortgage loan. The loan may or may not reach this maximum depending on the change in Index Base Rate.
  • Initial Fully Indexed Rate: This is the actual interest rate charged at the beginning of the loan, calculated by adding Index Base Rate + Margin = Fully Indexed Rate.
  • Maximum Fully Indexed Rate: This is the maximum actual interest rate that could be charged, calculated by adding Index Base Rate + Margin + Maximum Periodic Rate Adjustments = Maximum Fully Indexed Rate. Fully Indexed Rates will likely go up and down over the life of the loan and may or may not reach the Maximum Fully Indexed Rate allowed under the program’s interest rate cap. Depending on whether you select an annually or monthly-adjusting interest rate, the cap on your interest rate will be different.

The maximum fully indexed interest rates and interest payments can be a considerable drawback for Reverse Mortgage borrowers. However, Reverse Mortgages have a significant advantage. Interest payments are added on to the principal of the loan (with no payments due until the borrower leaves the property) and the amount due on a Reverse Mortgage will never exceed the value of the property, even if the property decreases in value over the lifetime of the loan.

Comparing Reverse Mortgages to Home Equity Loans and More

A Reverse Home Mortgage is not the only way to cash in on your home in retirement. Other ways of getting money out of your home include:

I. Downsizing

II. Home Equity Loans

  • Cash-out Mortgage Refinancing with either fixed or adjustable rates (refinancing your first mortgage)
  • Second Mortgages
  • Home Equity Line of Credit

While home equity interest rates can be lower than those charged on Reverse Mortgages, the primary disadvantage of home equity loans is that you will have to make loan payments, and if the rate is adjustable, those payments can increase dramatically if interest rates go up. This is often difficult for retirees living on a fixed income. It is also possible to default on a home equity loan and lose your home.

Comparing Downsizing to a Reverse Mortgage

Downsizing can be the most economically efficient way of securing money from your home in retirement. However, the costs of moving are impossible to generalize and declining home values or a soft real estate market may make your home difficult to sell.

Nonetheless, it might be worth your while to consider how much you might be able to sell your house for and how much less you could buy another house for. If considering downsizing, you will also want to factor in the costs of using a realtor to sell your existing house and buy a new house and moving costs as well as the emotional attachment you have to your existing home.

Explore Your Options

See how downsizing, getting a reverse mortgage, or refinancing could impact your retirement plan by using our retirement calculator and going to the Housing section.

Find Out How Much Money is Available to You with a Reverse Mortgage

It’s easy to use our Reverse Mortgage Calculator to see quickly how much you may be able to access, as well as access additional resources and connect with a prescreened HUD approved Reverse Mortgage lender to get answers to all your questions — including current interest rates and fees.

The post The Complete Guide to Reverse Mortgage Interest Rates and Fees appeared first on NewRetirement.

Is a Bond Ladder Strategy Right for Your Retirement? Mon, 13 Jul 2020 12:45:00 +0000 Bonds can be a core, low-risk component of retirement portfolios. However, they do come with one significant risk factor: If interest rates go up, the bonds you already own will plummet in value.  A bond ladder strategy can be a way to reduce that particular risk. What Is a Bond? A bond is a fairly…

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Bonds can be a core, low-risk component of retirement portfolios. However, they do come with one significant risk factor: If interest rates go up, the bonds you already own will plummet in value.  A bond ladder strategy can be a way to reduce that particular risk.
what is a bond ladder

What Is a Bond?

A bond is a fairly popular type of investment. However, unlike stocks or equity-based mutual funds where you are buying a portion of a company (or companies), when you buy a bond you are actually lending money to a company or other institution and they are agreeing to pay you the face value of the bond at a predetermined date (maturity date).  They will also pay you a predetermined interest rate (coupon rate) over a specified period of time (coupon dates).

In other words, you pretty much know what you are getting back out and when.  However, it is important to note that while you know the dollar amount that you will get at maturity, you do not know how much that dollar amount will be able to purchase.

For example, if you know that the bond will pay you $1,000 in five years but the rate of inflation is at 3%, then your $1000 will only be able to buy $800 worth of goods and services at that time.  (Though you will also receive interest payments on the bond.)

What Is a Bond Ladder?

A bond ladder is a strategy of holding a range of bonds (typically 5-10) of different maturities. For example, the first bond might mature in two years, another bond might mature in four years, the next bond might mature in six years, etc.

This strategy is referred to as a bond ladder because the different components call to mind the pieces of a ladder. Using the metaphor of a bond, each individual bond you own is a rung on the ladder and the time between when each bond matures is the space between each rung.

The Benefits of Bond Laddering

Diversify Interest Rate Risk

With a bond ladder, you hold different bonds with different maturity dates and different interest rates.  This means that you are not locking yourself into just one interest rate.  You have a better chance of being able to capitalize on both rising and falling interest rates by spreading out your maturity dates.

It’s also important to note that the longer the bond maturity date is, the higher the interest rate it typically pays.

Increase Liquidity and Flexibility

A bond ladder offers investors some flexibility and liquidity.  Instead of locking up all of your money for a set period of time, a bond ladder enables you to access money at pre-determined junctures (the maturity dates).

Whenever a bond reaches maturity, you have several different choices:

  • Use the money
  • Reinvest the money in stocks or some other kind of investment
  • Reinvest the money into another rung on your bond ladder

Generate Retirement Income

Bond ladders are one way of generating retirement income.  For example, if you think that your retirement will last 15 years, with adequate funds you could buy 15 individual bonds – the first maturing in one year and the last maturing in 15 years.

Types of Bonds

Purchasing a wide variety of bonds helps you to diversify away your risk, while also enjoying a higher overall return.

  • Treasury securities are the safest bonds you can buy; unless the entire U.S. government collapses, you’re guaranteed to get your money back. However, they have the lowest returns you’ll find in the bond market.
  • Corporate bonds are rated according to potential risk, with the very best corporate bonds receiving a AAA rating. Bonds down to BBB quality (or BAA by Moody’s rating system) are considered investment-grade; anything below that is a junk bond. The lower the bond’s rating, the higher the return you can expect (assuming the issuer doesn’t default).
  • Municipal bonds can also vary in both their level of risk and level of returns, depending on the financial strength of the municipality that issues them.

For retirees, Treasury securities and AAA-rated corporate and/or municipal bonds should make up the bulk of the bond purchases. Since you’ll be living off these investments, having one or more bond issuers default on you could lead to financial catastrophe. Thus, it’s best to keep your portfolio’s risk level on the lower side.

However, a bond ladder does allow you to push your risk level just a little bit. As a rule of thumb, the more you spread out your bond investments over different bond issuers, the lower your overall risk will become. For example, if you only own bonds from five different issuers and one of them defaults, you’d lose 20% of your bond investment. But if you own 200 different bonds, 40 issuers would have to default in order for you to lose 20% of your investment.

By buying multiple bonds from different issuers for each rung of your bond ladder, you can put a small percentage of your money into lower-quality bonds and take advantage of the higher returns these bonds produce (without grossly increasing your risk levels).

Tax Considerations

The best place for your bond ladder may be inside a tax-advantaged retirement savings account. If you buy bonds as part of a standard brokerage account, you’ll have to pay taxes on the interest that those bonds pay you. But if your bonds are inside a retirement savings account, you don’t have to pay taxes on the interest until you actually withdraw it from the account (and if you have a Roth account, you will never have to pay taxes on it).

However, three are exceptions to this rule.

  • Municipal bonds issued by your state of residence: These bonds are exempt from both state and federal taxes, so there’s no point in putting them inside a tax-sheltered account.
  • Municipal bonds issued by another state: The interest on municipal bonds issued by another state is exempt from federal taxes but not state taxes (so if you live in a state that doesn’t charge state income taxes, you can buy municipal bonds from anywhere tax-free).
  • U.S. Treasury bonds: The interest from treasury securities is exempt from state and local taxes but not federal taxes.

Taxes in retirement can get extremely complicated, especially if you have several different retirement savings accounts and multiple sources of income. If you’re not sure which types of bonds would give you the best tax outcome, consult a professional tax advisor (usually a CPA or an enrolled agent). A good tax expert can save you way more on your taxes than you’ll pay for the benefit of their services.

Should You Pursue a Bond Ladder Strategy?

Bond ladders are fairly straightforward, but they are not always the best way to invest your retirement funds.

If you are interested in pursuing a bond ladder strategy, you’ll want to answer these three questions:

  • What percentage of your overall assets should be invested in a bond ladder?
  • What are the alternatives to a bond ladder (annuities, stocks, mutual funds, bond funds, CD ladders, and more) and are they better for your particular financial situation?
  • When a bond matures, what is the best reinvestment decision for you?

You can play with different variables in the NewRetirement retirement planning calculator, to see how different rates of returns and access to cash might impact your overall plan.  However, if you are intrigued by bond ladders, you might want to also discuss the strategy with a financial advisor who may be able to help you assess whether or not it is a good fit for your finances.  A financial advisor can also advise you on how to best set it up and manage it over time.

The post Is a Bond Ladder Strategy Right for Your Retirement? appeared first on NewRetirement.

28 Keys to Building Wealth (Even Building Wealth After 50) Thu, 09 Jul 2020 22:59:54 +0000 To build wealth, most people think you need a Wall Street job, good luck or just being born into advantageous circumstances. Those things definitely help, but building wealth can happen by following a few best practices and habits consistently. And, you can even begin building wealth in your 50s. It is definitely not too late.…

The post 28 Keys to Building Wealth (Even Building Wealth After 50) appeared first on NewRetirement.

To build wealth, most people think you need a Wall Street job, good luck or just being born into advantageous circumstances. Those things definitely help, but building wealth can happen by following a few best practices and habits consistently. And, you can even begin building wealth in your 50s. It is definitely not too late.

keys to building wealth after 50

Want to know how to build wealth? Make sure you are following at least some of these 28 tips:

1. Don’t Let Regret Rule Your Future

People often lament that they wish they had started investing at a younger age, or that they wish they’d invested more when they were younger. Frankly, they wish they had done a lot of things differently.

A common mistake is to let those feelings of regret prevent you from taking the best action in the present.

We all do it in some area of our lives. What’s the best way to deal with the regret? Start today with that thing you wish you’d done in the past.

Don’t let your regret rule your future.

2. It is Never Too Late to Build Wealth

It is not unheard of for people to become millionaires AFTER they retire.

And, the average age when people become millionaires is 58.5 for women and 59.3 for men according to a report from Fidelity investments.

Don’t ever think it is too late.

3. Invest Regularly and Appropriately

It is not enough to save money, you need your saving to go to work for you by investing those funds.   This statistic may surprise you, but Americans hold 58% of their investible assets in cash!  That is not the best idea.

Let’s say you’re 45 and haven’t yet saved enough for retirement. What can you do?

  • Start investing $500 a month today.
  • Allocate 80% to an S&P 500 index fund and 20% to a U.S. Treasury bond fund.
  • Assume a 6% average annual return.
  • If you started with zero, at age 65, you will have $226,719, or about $20,000 a year to live off of until you’re 85 if you keep earning the same returns.

It’s not ideal, but it’s a lot better than $0 a year.

4. Play Catch Up

Catch up contributions are the IRS’s way of making it easier for savers age 50 and up to tuck away enough retirement savings.

You probably already know that there’s a limit to how much you’re allowed to save in tax-advantaged retirement account such as IRAs and 401(k)s. Well, once you reach age 50, you’re allowed to make additional “catch up” contributions over and above those annual contribution limits.

Learn more about catch up contributions!

5. Learn and Keep Learning

Bill Gates, one of the absolute wealthiest people in the world, is famous for carrying around a tote bag full of books. He is obsessed with reading and learning.

Thomas Corley, author of “Rich Habits: The Daily Success Habits of Wealthy Individuals,” reports that 86% of rich people say that they “love reading” while only 26% of poor people agree with that sentiment.  Corley also found that wealthy people love, in particular, to read about self improvement.

Learning about personal finance — and perhaps a wide variety of other topics — is key to building wealth.

6. Find an Advantage, Play By Your Own Rules

Views about how to build and achieve wealth have changed over the last few years.

According to Pew Research, a growing majority (65%) of Americans say that the main reason a person is rich is because they possess more advantages than other people — not because they work harder than other people.

So, what are you to do if you weren’t born into wealth and opportunity? Well, being aware of the issue is helpful.  And, perhaps you can reframe what an advantage is.  Find something in your own circumstances, skills, strengths and exploit it.

You don’t have to play by all of the existing rules.  People who build wealth often take an outsider perspective and do what other people aren’t doing!

7. Set Goals. Don’t Be Afraid to Set BIG Goals. Write them Down!

Research indicates that setting goals fundamentally alters the structure of your brain, making it more likely that you will behave in ways to achieve what you want.

If you want to build wealth, make it a goal.

And, don’t be afraid to set really big goals. Another study found that setting a particularly challenging goal alters your brain structure more quickly and effectively than small goals.

Then, once you have figured out your goals, you will want to write them down! A 2015 study by psychologist Gail Matthews showed when people wrote down their goals, they were 33 percent more successful in achieving them than those who formulated outcomes in their heads.

8. Develop and Maintain a Long Term Financial Plan

Developing and maintaining a long term financial plan is a really important aspect of setting and achieving goals.

The NewRetirement Planner allows you to create a detailed and reliable plan. It helps you imagine the future you want and discover ways to achieve your goals.

The NewRetirement Planner is a free way to get a written plan in 30 minutes or less.

9. Remember that Time is Money (and Money is Time)

Every hour you have could be spent making money. And, the more money you make, the earlier you can retire to free time.

To build wealth, you want to think about the trade offs between your time and earning money.  Think about how much you can earn with each hour. How much you lose when engaged in tasks that don’t produce money.  And, think about what you want to do with your time.

10. Wake Up Early

Being happier, healthier and wealthier. These are all proven benefits of waking up earlier.

The early bird really does get the worm.

Biologist Christoph Randler found that people whose performance peaks in the morning are better positioned for career success.

11. Invest Your Bonus

It is a bonus.  That means that, if you receive one, it was supposedly not expected.  If it wasn’t expected, then you shouldn’t really need to spend that money.

So, what should you do? Sock it into your retirement savings!

12. Don’t Borrow from Your 401(k)

Just as you want to save as much money into your retirement accounts as possible, you also don’t want to borrow from those accounts.

Building wealth means that you need to let your savings earn returns and grow.  Don’t borrow from that money.  Explore other sources of emergency funding.

13. Watch College Expenditures

Whether you are still paying off your own student loans or if you are figuring out how to pay for your children’s college education, education expenditures are tricky.

It can be difficult to say no to your children and you don’t want to saddle them with student loan debt. However, you need to prioritize retirement savings.

Learn more about how to fund college education when you are trying to build wealth and retire.

14. Careful Caring for Your Own Parents

Caring for aging parents can trigger people to retire early and engage in care taking full time or spend their retirement savings to help fund hired help.

If you are considering either of these options, think carefully about your own needs for retirement security and overall generational wealth.

15. Own a Home and, If Possible, Own Someone Else’s Home

You probably know that owning your home is considered to be the best way to build long term wealth.

If you have already accomplished that goal, then it might be time to own someone else’s home.  Owning investment property can build wealth (and provide income).

Here are 8 ways to invest in real estate for retirement.

16. Quit Your Day Job — Go Out on Your Own

Building wealth requires hard work, but that doesn’t mean you have to keep your nose to the  grindstone, toiling away doing whatever it is that you do.

Depending on your experiences and risk tolerance, you may be able to quit your job, and start your own business — and hopefully increase your wealth in the process.

Check out these surprising facts about entrepreneurship and success later in life!  (Here is one to get you started: most entrepreneurs worldwide are over 55!) And, here are 12 business ideas for the over 50s.

17. Minimize Investment Fees

We can’t control how the market performs, but we can control our investment fees. Index funds and exchange-traded funds make it possible to pay almost nothing when you manage your own investments online.

Even among inherently low-cost funds, you can minimize your fees by choosing the right brokerage to invest through. Vanguard’s average index fund expense ratio is just 0.07% compared to an industry average of 0.23%.

That difference might seem insignificant. It’s not. Say you start with nothing and invest $10,000 a year over 25 years and earn a 6% average annual return. The 0.23% expense ratio will cost you an extra $12,068.

18. Don’t Try to Time the Market

There will always be people who look like geniuses for buying or selling an investment at what later turns out to be a pivotal moment. But those people were just guessing when they made those choices, and then they got lucky.

Here’s what happens when they get unlucky.

Let’s say you bought 100 shares of an S&P 500 index fund (specifically, FXAIX) on Dec. 31 for $11,200. On March 11, when the WHO announced a global pandemic, you sold all 100 shares for $9,541, losing $1,659.

About two weeks later, on March 23, you feel relieved that you minimized your losses. Stocks have gone down further. Your investment would be worth only $7,793 if you still had it.

By June 23, you were ready to jump back in. You had to pay $10,900 for 100 shares.

Now you’re back where you started in terms of your investment holdings, but you’re $1,659 poorer. This example shows why avoiding market timing is so important.

Experts recommend that you have, live by and maintain an Investment Policy Statement to help you make better decisions about your investments.

19. Live Within Your Means and Avoid Debt

Tracking your spending for a month and comparing it to your income is a good way to make sure you’re living within your means. Tracking your spending year-round will give you a better idea, especially if your expenses and income fluctuate. When you take on debt to overspend, you pay interest — the opposite of what you need to do for long-term financial security, which is earn interest.

20. Try Drastically Reducing Expenses

To build wealth, drastically reducing your expenses can be a great idea.  Downsizing your home can be the best way to make a big dent in what you spend.

21. Minimize Taxes (Legally)

You may not think of taxes as a monthly expense if your employer withholds the money from your paycheck and you never see it. But they are, and keeping what you earn is essential to building wealth. Learning about which tax breaks apply to you and how to claim them, as well as strategies to make yourself eligible for them, is a habit of the wealthy that all of us can follow.

Learn more in retirement planning and your taxes: a big list for keeping more of your own money.

22. Build and Maintain Relationships

The relationships we build through social clubs, meetup groups, work, and community are inherently worthwhile. They’re fun, they help us feel connected, and they even boost our mental and physical health.

Better health means lower health care spending. And when you build genuine friendships, you’ll have a network of people who want to help you if you fall on hard times. You’ll enrich your life.

Furthermore, your network can help you build wealth.  Author Corley found that 79% of wealthy people spend at least five hours networking each month, while only 16% of poor people devote time to these types of social connections.

23. Practice Optimism, but Beware of Optimism Bias

Harvard Medical School says that an optimistic outlook improves overall health and longevity. Longevity is not always good for your finances, but health certainly is.

That said, optimism can lead investors to overestimate their own knowledge and make foolish decisions. We should not think of ourselves as above average individuals who can outperform or time the market.

Explore 16 other lessons from behavioral finance that can help you have a more secure future.

24. Get Enough Sleep

When you get enough sleep every night, you will…

  • Make better decisions
  • Enjoy better health
  • Be less susceptible to accidents
  • Work more effectively

You’re more likely to perform your best in every aspect of your life when you’re well rested. Improved performance is a means to both earning more and spending less.

25. Maintain an Emergency Fund

According to Bankrate, 53% of Americans have less than a 3 month supply of emergency savings with 28% having none.  And, this was before the pandemic.

So, where does the money come from when the unexpected happens? More than likely, it comes from the retirement fund. And that’s a risky game to play.  Tapping retirement savings can impair your ability to build wealth. You need that money to earn returns for your future!

Most financial experts recommend saving 6 to 9 months of living expenses.

In a pickle?  Explore the best (and worst) sources of emergency money.

26. Delay Social Security

The longer you wait to start Social Security, the more money you will earn over your lifetime.

As a general rule of thumb:

  • Don’t take Social Security at 62, unless you have a very short life expectancy due to illness.
  • If you think that you’ll pass away (die) before 80 then start taking it at your full retirement age ~65-67.
  • If you think that you’ll live beyond 85, then wait until 70.

Use the NewRetirement Planner to test different Social Security claiming strategies.

27. Get Help (Fixed Fee Help)

According to the Fidelity survey, two thirds of all millionaires work with a financial advisor.  Getting a second opinion and outside advice is proven to help you build wealth.

However, you probably want to pay for that help.  Using a fixed fee advisor, rather than one who works on commissions, is a good idea.

NewRetirement offers low cost, fixed fee advice with a Certified Financial Advisor.

28. Don’t Retire

According to Gallup, the average age of retirement is 61. However, wealthy people don’t plan to retire until they are at least 70.  And, it turns out that they aren’t working for money, they keep working because they enjoy their work.

And, maybe enjoying your work is the real secret to building wealth!

The post 28 Keys to Building Wealth (Even Building Wealth After 50) appeared first on NewRetirement.

Your Guide to Developing a Retirement Withdrawals Strategy Tue, 07 Jul 2020 23:48:02 +0000   You’ve spent your entire working career saving and investing for retirement. Now it’s time to develop a retirement withdrawals strategy. When you are thinking about withdrawing money from your retirement accounts, it’s important to come up with a strategy that ensures that your savings are going to last for a lifetime, are used efficiently,…

The post Your Guide to Developing a Retirement Withdrawals Strategy appeared first on NewRetirement.


You’ve spent your entire working career saving and investing for retirement. Now it’s time to develop a retirement withdrawals strategy.
retirement withdrawals

When you are thinking about withdrawing money from your retirement accounts, it’s important to come up with a strategy that ensures that your savings are going to last for a lifetime, are used efficiently, and are not diminished by heavy taxation.

The Gap Between Your Fixed Retirement Income and Spending

Your starting point for retirement withdrawals will be any funding gap between your fixed and semi-fixed sources of income and the amount needed to fund your retirement spending.

Retirement Income

A key part of developing a retirement withdrawal strategy is to inventory all of your sources of retirement income –especially fixed income sources. Some typical sources of fixed retirement income include:

  • Social Security benefits
  • A pension
  • Annuities (annuities can fall in the fixed and variable camp, depending upon whether you annuitize the contract)

Income from a retirement job or a passive income source – for example, a rental property – should also be considered. Your retirement withdrawal needs might not be as great for the time periods when you have these types of additional income sources.

Retirement Spending

It is critical to be able to predict how much you will be spending in retirement.  It may also be useful to distinguish between your spending needs and wants.  It is important to know how much you need to withdraw to make ends meet (versus how much you would like to be able to withdraw to support your desired lifestyle).

A good retirement calculator can help you figure out your overall retirement budget.  The NewRetirement retirement planner enables you to set different spending and income levels for any time period throughout retirement. When your expected income won’t cover expenses, the calculator simulates the necessary withdrawals from savings, as well as estimating the tax expenses when drawing from qualified retirement accounts.

Inventory All Usable Assets

Usable assets are a combination of retirement and non-retirement investment accounts, as well as other sources. These other sources will vary from person-to-person.

  • Proceeds from a corporate buyout if you took advantage of any early retirement offer
  • 401(k) and similar retirement accounts
  • IRA accounts
  • Taxable investments/accounts
  • Health savings accounts (HSAs)

You might even want to include your home equity as an asset.  You can downsize or get a reverse mortgage to support efficient spending.

Will Your Savings Last Your Lifetime?

A well-known rule of thumb for determining how much you can safely withdraw from your retirement accounts is referred to as “the 4% rule.” The 4% rule was developed by financial advisor Bill Bengen in the mid-1990s.

This rule was not meant to be a hard-and-fast rule governing how much can be safely withdrawn, but it can serve as a starting point.

For example, a $1 million nest egg can safely support a $40,000 gross annual withdrawal over a 30-year period (assuming a reasonably well-balanced portfolio according to this methodology).

However, to do this calculation and then rely on it in a dogmatic way is a mistake with potentially dire consequences for investors. The  4% rule should be thought of as a great estimating tool: a “back of the napkin” approach. It’s an excellent way for someone approaching retirement to get a feel for what type of annual distributions their various retirement accounts can support.

The 4% rule, nor any other rule of thumb for that matter, is not a substitute for doing an in-depth analysis based on where you stand each year, recent gains and losses in your accounts, and your changing circumstances in retirement.

Don’t Give Up on Rate of Return Just Because You’re Retired

While you likely don’t want to invest as aggressively as a millennial, retirement is not the time to take your money and put it under the mattress either. You still need to allocate your investments in a fashion that allows for growth ahead of inflation (with protection on the downside, as well). This allocation will vary from person to person based on each individual’s unique circumstances.

Many experts recommend a bucket approach – tailoring different risk levels for your investments for different kinds of spending.  Most experts will say that there are several different approaches to investment strategies for retirement.

Use the Right Account at the Right Time

Assessing which account to make a withdrawal from is an ongoing process. The accounts and the order of tapping them will likely change a bit over time. You will want to think about: Is the account up or down for the year or overall? What is your tax situation for the year?

Consider Tax Implications

A key piece of your retirement withdrawals strategy will involve taxes. It is important to understand how taxes work for various accounts and investments, as well as for your overall tax situation. In some cases your options might be limited, but a tax-smart retirement withdrawals strategy can result in significant savings, and more importantly, can possibly help stretch your nest egg a bit longer.

Withdrawals from traditional 401(k) and traditional IRA accounts are fully taxable as ordinary income. The exception is any portion that was contributed on an after-tax basis, which is not taxed. This portion will be excluded from distributions on a prorated basis. In most cases, any distribution prior to age 59 ½ will incur a 10% penalty in addition to the taxes due.

Withdrawals from a Roth IRA are tax-free as long as you are at least 59 ½ and have met other requirements, such as the five-year rule. Withdrawals from a Roth 401(k) work in a similar fashion, though the rules are a bit different.

For non-qualified annuities (those not held inside of a retirement plan), any gains in the account are taxed as ordinary income. The premiums – the amount you put into the contract – are not taxed. If you annuitize the contract, a portion of each monthly payment will be considered a gain and, thus, taxed. In addition, a portion will be considered a return of the premium and, thus, not-taxed. If you take partial, periodic distributions from the account, the distributions will be treated as gains first (until all of the “gain layer” is depleted and taxed accordingly).

In the case of an annuity held in an IRA (or a similar type of account), the distributions will all be subject to tax just like any other traditional IRA distribution.

For investments held in a taxable account, interest and dividends received are taxable. Realized capital gains are also taxable. Short-term gains (for investments held less than a year) are taxed at ordinary income tax rates. Long-term capital gains are taxed at lower capital gains rates.

HSAs can be tapped into tax-free to cover qualified medical expenses. In an era of rising retiree medical costs, this could be a nice feature.

Taxes are an important factor as they impact the amount of spendable income you actually have. For example, $1 million in a traditional IRA does not mean that you have $1 million of spendable income because this amount will be reduced by the amount of taxes paid.

Review, Revise and Adjust

Over time it’s more likely that you will need to review, revise, and adjust your retirement withdrawals strategy in terms of the amount you take and the accounts from which withdrawals are taken.

Things change in the markets, the economy, and your own situation. Investment results will vary, in addition to your spending needs. Your spending needs are based on what is happening in your life. There could be health situations or other unforeseen events.

The bottom line here is that you need to revisit your withdrawal strategy each year, look at your needs, and look at your resources. A fixed withdrawal percentage of your nest egg over a 30 year (or greater) retirement time frame may not be realistic.

An example of being flexible might involve withdrawing extra money in the years prior to reaching age 70½ and required minimum distributions (RMDs). Depending upon your income and tax bracket, you could potentially reduce what you owe the IRS by proactively reducing the amount subject to RMDs down the road.

It may also make sense to convert some traditional IRA money to a Roth and pay the tax to avoid RMDs, as well.

It can be tempting to deplete your taxable accounts first to avoid taxes or pay them at the lower capital gains rates. This might not always be the best option as this eliminates any type of tax flexibility down the road.

Another decision that could change your withdrawal strategy revolves around when you claim Social Security.

There is a big advantage to using a detailed retirement calculator that saves your information so you can adjust your inputs over time.  You can easily see the impact of retirement withdrawals, rates of return, different levels of spending, and different levels of income.

Saving for Retirement Is A Difficult Task

Saving, investing, and planning for a comfortable retirement is a difficult task. However, the work doesn’t stop once you reach retirement. Managing withdrawals from your retirement accounts is an ongoing process. You need to be diligent and flexible in order to succeed.

Use the NewRetirement retirement planner to instantly see how much you need to withdraw each year and find out if you will run out of money.

The post Your Guide to Developing a Retirement Withdrawals Strategy appeared first on NewRetirement.