Category Archives: Financial Planning

How to Pay Off Your Mortgage Before You Retire

My Comments: Retirement is the third stage of our lives. #1 is childhood when our needs are provided for by adults; #2 is adulthood when our needs are met by our efforts; and #3, retirement when you quit working for money and money has to work for you.

If you’re lucky, you don’t need to learn a new skill set to retire successfully. Or you understood what had to happen before you retired. One of those things is not having to pay more than necessary for shelter.

In a perfect world, you are happy with where you live and like whatever it is you live in. And before you retired, you figured out how much extra you had to pay each month to make the mortgage disappear just when you quit working.

Wendy Connick, Sep 28, 2017

Housing is the single biggest monthly expense for many families, so if you don’t have a housing payment to worry about during your retirement years your savings will last you a lot longer. Paying off your mortgage by the time you retire isn’t complicated; it just requires a little preparation.

Your repayment plan

If you know how much you owe on your mortgage, your interest rate, and how long it will be before you retire, figuring out how to get rid of the mortgage in time isn’t difficult. You can even use a mortgage payoff calculator to see the effect of adding extra payments.

For example, let’s say that you owe $220,000 on your mortgage at 5% interest, and it’s scheduled to be paid off in 25 years. However, you plan to retire in 20 years. Making an extra principal payment of $170 per month would get you paid off in 19 years and 11 months, and incidentally save you just over $38,000 of interest over the life of the loan.

Sticking to the plan

Coming up with a repayment plan is the easy part — sticking to it is a lot harder. Scraping up an extra $170 every month for the next 20 years can be a daunting task to undertake. Fortunately, there are ways to make saving that extra payment a lot easier.

First, make sure that the extra payments you make are to the mortgage’s principal, not a combination of principal and interest like your regular payments. Putting the extra money into the principal means that the loan will be paid down much faster, and you’ll save a lot more money on interest during the life of the loan.

Next, find a way to automate your extra payment. Ideally, this would mean setting up an automatic extra principal payment with your mortgage company, to happen along with your regular monthly payment. If the mortgage company can’t or won’t set this up for you, the next best option is to do an automatic transfer from your checking account to a special, dedicated savings account.

The biggest benefit of the second approach is that rather than taking a single large sum each month, you can spread your transfer out into multiple tiny transfers, which will be less disruptive to your checking account balance. For example, instead of doing one $170 transfer each month, you could transfer $5.70 every day from your checking to the special savings account. When it’s time for you to make your mortgage payment, you just make the extra principal payment straight from the savings account.

The biweekly payment option

Switching to a biweekly (every other week) payment system, instead of a monthly one, is another way to pay off a mortgage faster — assuming that it will take care of your loan balance in time. Splitting your monthly payment into two biweekly payments works because there are 52 weeks in a year, so it comes out to the equivalent of 13 monthly payments per year instead of just 12.

The main argument against biweekly payment schedules is that the extra money goes to both principal and interest, just like your normal payments. That means that your extra payment won’t go as far toward paying off the loan quickly as if you’d made the same extra payment toward principal only. Also, many lenders charge to make the switch from monthly to biweekly payments. So unless you have a significant reason to do so, stick with making extra principal payments. It’s the simplest way to have a retirement free from monthly housing bills.

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Could a Reverse Mortgage Save Your Retirement?

My Comments: No, I am not trying to sell you a reverse mortgage. I AM saying you should NOT dismiss them out of hand. Under the right circumstances, they are a valuable tool. As a disclaimer, you should know that I arranged one for myself a year ago.

As a financial planner, I’ve encouraged clients to look closely at a reverse mortgage many times over the years. Financial freedom comes in many forms and reverse mortgages are increasingly a contributor to that freedom. Their reputation as a bad thing has diminished significantly of late. Their benefits can be very real and a solution to some of the financial threats you face in retirement.

By Kira Brecht | November 15, 2016

As baby boomers retire at the rate of 10,000 per day, many of them are woefully underfunded for their future retirement needs.

While reverse mortgages have gotten a bad rap over the last decade, the product has changed and become more regulated. Reverse mortgages are now gaining a lot of attention as a viable option for retirement income.

Most people tend to underestimate their life expectancy, save less than they should and fail to consider how much health care might cost in retirement, says David W. Johnson, associate professor of finance at the John E. Simon School of Business at Maryville University in St. Louis.

“Although we are living longer, we are also experiencing more health issues with our increased life expectancy,” Johnson says. “The typical 65-year old couple will need $305,000 to cover out-of-pocket health care costs over their lifetime. Most people have not planned for these type of expenses. Increased life expectancy and unexpected expenses increase the possibility of outliving your assets.”

As baby boomers move into retirement without sufficient income sources, many Americans are going to be unable to meet their basic financial needs in retirement, says Jamie Hopkins, associate professor at The American College of Financial Services in Bryn Mawr, Pennsylvania, and co-director at the New York Life Center for Retirement Income.

“This retirement income shortfall is nothing less than a crisis facing the United States,” Hopkins says.

Reverse mortgages are another tool in the retirement toolbox that could offer seniors cash flow needed to cover living costs. Admittedly, Americans have a strong negative bias toward reverse mortgages, Hopkins says.

“Much of that negative bias is rooted in misconceptions and issues with bygone reverse mortgage issues. The reverse mortgages of today are not the same as reverse mortgages 10 year ago. As such, reverse mortgages deserve a second look today,” Hopkins says.

“Reverse mortgage loans are one of the most misunderstood financial products in existence,” Johnson says.

One of the most common misconceptions is that the bank will own your home if you take out a reverse mortgage, says Reza Jahangiri, chief executive officer at the American Advisors Group in Orange, California.

“In actuality, with a reverse mortgage loan, borrowers retain ownership of their home, as long as they stay current on their property taxes, homeowner’s insurance and otherwise comply with the loan terms,” Jahangiri says.

“I believe in the product enough that I recommended a reverse mortgage for my own parents. I have seen firsthand how a reverse mortgage made a difference in the quality of their lives during retirement,” Johnson says.

The market has become simplified in recent years. The Home Equity Conversion Mortgage is used for nearly all reverse mortgages, Hopkins says. It is essentially a government loan sold by private companies.

“The HECM is extremely well regulated. However, that does not mean there are not differences between companies,” Hopkins says. “You should still shop around for the best rate, lender, service, and fees.”

For most seniors, the majority of their wealth is stored in their home, which is not a very liquid asset. A reverse mortgage is a way for homeowners to unlock some of the equity in their home without having to make monthly mortgage payments.

Who is eligible? To be eligible for a Home Equity Conversion Mortgage, you must be a homeowner 62 or older, own your home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan. You need to have sufficient financial resources to pay for property taxes and insurance, and you must live in the home.

“The loan becomes due and payable when the last remaining homeowner leaves the home permanently,” Jahangiri says.

A reverse mortgage is a non-recourse loan, as the home is the only collateral that can be used to repay the loan balance.

“This means that if the sale of the home does not cover the entire loan balance, then FHA pays the difference, not the borrower’s family,” Jahangiri says.

How much could a borrower expect to receive? “Depending on their age, homeowners typically can tap between 50 percent and 75 percent of the home’s appraised value, with a maximum loan limit of $625,500. The older the borrower and the lower the interest rate, the higher the available loan amount,” says Tom Dickson, national leader financial advisor channel at Reverse Mortgage Funding in Bloomfield, New Jersey.

Another option that’s growing in popularity is one where a borrower takes out a reverse mortgage standby line of credit, Jahangiri says.

“This is a great option for borrowers who aren’t interested in tapping their equity unless an emergency arises or when they feel the funds are needed,” he says.

Tapping into your home equity through a reverse mortgage HECM line of credit can be an effective way to avoid selling your investments when they drop in value, Hopkins says.

“Let’s say the market drops 30 percent next year. Would you rather sell your stocks that are down 30 percent to get your retirement income or would you rather borrow from your home equity at 3 to 4 percent interest? The answer is clear,” Hopkins says. “You would be much better off using your home equity in a down market year. Doing this could substantially increase the sustainability of your retirement portfolio and help make your money last for a lifetime,” Hopkins says.

Repay loan to keep the house. If leaving your home to your heirs is important to you, a reverse mortgage may not be the best option.

“As home equity is used, fewer assets may be available to leave to your heirs,” Dickson says. “It should be noted that you can still leave the home to your heirs, but they will have to repay the loan balance.”

Just like any other financial product, it is important to educate yourself before you sign on the dotted line and it can pay to shop around.

There are about 10 reverse mortgage companies that do almost all the business in the industry, Hopkins says.

“Just like with a traditional mortgage you need to shop around,” he says. “LendingTree.com can allow you to do that. Check out at least three reverse mortgage companies before moving forward with one.”

The 7 Elements of a Successful Retirement

My Comments: Just 7? No, there are lots more, but you have to start somewhere.

The first element reflects my personal approach to this. There has to be a real understanding of the difference between strategies and tactics. There’s a reason that seems militaristic because it is. I’ve just borrowed it to use in financial planning.

Nick Ventura/Apr 12, 2017

Start with well-defined goals, and revisit them at least annually. The closer you get to retirement, the more often you should sit down and think about your overall retirement strategy. In Ernie Zelinski’s “How to Retire Wild, Happy and Free,” the author makes the argument that setting your retirement goals expands far beyond managing your finances. Retirement planning should encompass all areas of your lifestyle, from where you live and where you travel to how you spend your day and what truly are your income requirements. Cookie cutter percentages and rules of thumb serve merely as benchmarks. Successful retirement planning requires flexibility and the willingness to look at all aspects of your life.

Many people get great satisfaction from work. So, if you are retired, and you like to work, pick something you like to do and gain emotional satisfaction from that activity. This includes working for charitable causes, hobbies, family involvement, etc. These “jobs” may or may not come with financial remuneration. But that’s not the point; many people derive emotional satisfaction and self-worth from working.

Another aspect of retirement is lifetime learning. Staying relevant in today’s technology economy requires a willingness to learn and adapt. Consider this: most medical professionals would agree that 20% to 30% of medical knowledge becomes outdated after just three years. Keeping current on technology and medicine will certainly enhance your retirement success.

Budgeting is more than setting a top-line spending number based on a pre-arranged percentage. Often times, we work from the bottom up, exploring what a client actually spends, instead of what they think they spend. It is not uncommon for individuals to drastically underestimate their spending on non-essential items. How much is your cell phone bill? Cable bill? Groceries? Starbucks?! We encourage clients to look at these as recurring payments. Not $140 a month, but $1,680 a year. Big difference, right? Getting as granular as possible is liberating when planning your retirement income.

While many planners suggest that a client will need two-thirds of their working salary to live comfortably in retirement, our experience shows that they may need anywhere from 50% to 150%. That’s a big range. Only by taking the time to define your goals, and the expenses that accompany them, can we put an accurate “spend” and “income” figure on a retirement portfolio. Even the best crafted budget has to be flexible. Emergencies happen. Grandkids happen. Sadly, health concerns happen. For both positive and negative circumstances, budgets can, and will, expand and contract. Build contingencies into your budget and income plan for a successful retirement.

Let’s consider income. Retirement income can come from many sources. Social security, pensions, retirement accounts, annuities, dividends, even earned income. As financial planners, we often hear stories from clients who “forgot” that they had earned an pension from an employer that they had left decades ago.

Take the time to go through your employment history and discover what benefits you may have forgotten. The impact could be meaningful from a cash-flow perspective. Inheritances can also create retirement income. Again, we often see clients receive an inheritance and immediately spend it. We’d rather go with the gift that keeps on giving – by investing the inheritance along the same lines of a retirement asset and creating a lifetime income stream.

Invest for your whole life.
Just as your budget is not going to be static during your retirement years, the idea that your investment portfolio should never change is obsolete as well. We live in a world of massive disruption and change. Years ago, retirees would abide by the rule taking 100%, subtracting their age, giving them the “appropriate” allocation to the equity market (blue chips only!). Today’s world does not permit such simplicity of thought.

This philosophy created an asset allocation for retirees that was heavily dependent upon the fixed income markets. Risk in today’s fixed income markets is considerably less predictable. When creating income in a portfolio, investors should examine many different sources of income. Is it time for fixed or variable rate income sources? Are dividend producing stocks inexpensive or overvalued? Is real estate a proper asset to produce income? Can alternative investments like MLP’s create an income stream? In finding these answers, a successful retirement income stream can become multifaceted and flexible.

Some investors have opted for “all-in-one” strategies, where a glide path mutual fund encompasses their entire retirement portfolio composition. These funds become gradually more conservative the closer an investor gets to retirement. Some funds manage “to” the retirement date, while others manage “through” the retirement date. If you own one of these vehicles, do you know what the fund is designed to accomplish? These funds use historical data to project out into the future the ideal asset allocation. We don’t know what the future holds, and advocate investments that have the ability to be flexible.

Successful retirement comes down flexibility. Flexibility of goals. Flexibility of income streams. Flexibility of spending. Flexibility of retirement investments. Flexibility of the overall plan. As you design your retirement plan, take the time to build in flexibility. It will help build peace of mind, and lead to a more successful retirement.

Nick Ventura is the founder and chief executive of Ventura Wealth Management.

6 Retirement Lessons

My Comments: My professional efforts these days are focused on helping people make good decisions about their retirement. My grey hair lends itself to this demographic.

So my posts tend to favor ideas and thoughts that are relevant to many people either starting to navigate these transitional waters to retirement, or are already there.

Nov 4, 2016 | Andrea Coombs

Are you a retirement “do-it-yourselfer,” convinced you can plan for your own retirement without paying for a financial adviser? That’s all well and good, but given that money managers work with people in a variety of financial situations, their experiences with the problems that prevent people from retiring can offer insights into how to overcome those challenges.

I spoke to a few experts to find out how they handle that difficult situation: a client who wants to retire but whose financial picture suggests she shouldn’t yet do so.

Ideally, of course, advisers want people to seek financial advice early on, years before they plan to retire. “Then we have the ability to help you work towards your goals over a period of time and make adjustments as things change,” said Nancy Skeans, managing director of personal financial services at Schneider Downs Wealth Management Advisors in Pittsburgh, Penn.

But sometimes people don’t show up at the adviser’s office until they’re eager to leave the workforce for good. In those cases, she said, advisers sometimes are forced to deliver bad news.

“We just had that situation with an individual and his wife,” Skeans said. “He’s thinking about retiring in two to three years. It was very obvious to me when I looked at his balance sheet, coupled with what I backed out as to their spending, that if they retired immediately they would put themselves into a precarious situation.”

One red flag was that this couple hadn’t accounted for their retirement tax bill. “All of their assets were in tax-deferred accounts,” Skeans said. “Every dollar they spend is going to be a dollar plus the taxes. That means, if you’re trying to support a standard of living after tax, you’re going to have to gross that money up.”

So, one lesson is to remember that the government is going to take a bite out of your retirement account. Here are more lessons financial advisers say they’ve been forced to teach new clients:

1. Be disciplined about a budget

In 2008, Skeans said, a client who was about 64 years old was laid off. “He decided he wasn’t going to look for other work,” she said. “We ran the projection. Obviously, at that point in time the portfolios were down because of the market and I was deeply concerned.

“Fortunately the guy was a finance guy, a controller for a small company. He heard us loud and clear that the biggest thing he and his wife needed to do was stay within a budget,” she said.

At the time, Skeans talked with the couple about how to stabilize their finances through reduced spending. “He was very adamant he did not want to go back to work,” she said. “We were able to help him and his wife structure a budget and they have stuck to it and continue to do so.”

And now? “Eight years later, their portfolio is just slightly below where it was eight years ago,” Skeans said.

2. Take a practice run

People sometimes underestimate what they’ll spend in retirement, especially in the early years when they suddenly find themselves with plenty of free time and energy, said Tripp Yates, a wealth strategist at Waddell & Associates in Memphis, Tenn.

“I’ve seen it where people do a budget for retirement and they tell me, ‘OK, we’ve done all the numbers and we can live off $50,000 a year,’” Yates said. Too often, that’s a bare-bones budget that doesn’t take into account travel and other activities. “The first five to 10 years of retirement, people are probably going to spend more rather than less, because they’re in fairly good health and want to enjoy that time,” he said.

One way to get a good handle on your spending is to test-run your retirement budget, he said. In one recent conversation with a couple, he told them: “Maybe one spouse who really wants to retire can. The other spouse continues working and maybe we take six months to a year and try to live on that budget, practice, see if it’s actually doable before both husband and wife call it retirement,” Yates said.

3. Don’t focus on the market

Given the media’s attention on the market’s every move, it’s no surprise that people seeking help from an adviser often fret about what happen next. That’s the wrong focus, said Robert Klein, president of the Retirement Income Center in Newport Beach, Calif. (Klein is also a writer for MarketWatch’s RetireMentor section.)

“People read so much in the media about performance and that’s naturally their focus until you show them on paper it’s all about your goals and planning for those and controlling what you can control,” he said. While investors must make sure their investments are diversified, there’s no way of knowing when the market might take another steep plunge.

“You have to control what you can control and develop prudent strategies that are going to work no matter what the market does,” Klein said.

4. Be clear about your goals

Retirement planning is about more than “just having X dollars in income,” Klein said. Figure out what you want retirement to look like, and then work from that. “It’s about a lifestyle in retirement. What are they going to be doing day-to-day in retirement?” he said. “Then you can focus on the finances: ‘What is it going to take so I can do that?’”

For some people, a hard look at a retirement lifestyle leads them to choose to work longer, Klein said. “A lot of people are better off working longer even if they can afford to retire. They just don’t have the hobbies. It’s a whole different routine when you retire,” he said. “Phased retirement is really good for a lot of those people, so they can take baby steps into retirement,” he added.

5. Use software that provides a picture

If you’re planning your own retirement, are you using financial software that will create projections as a chart? “Most people don’t communicate with numbers, they communicate pictorially,” said Kimberly Foss, founder of Empyrion Wealth Management Inc. in Roseville, Calif.

Foss said she shows clients a simple chart depicting how long their money is likely to last if they retire now. In some cases, she might produce a second chart that shows how spending less might make their outlook improve, and then talk with the client about options, such as downsizing the house or refinancing, working longer or delaying the purchase of a new car.

For one couple, seeing those pictures and having that discussion made all the difference, Foss said. They wanted to spend the same amount of money in retirement that they’d been spending while they worked, but the size of their savings account didn’t support that goal. So, they switched from the country club to a lower-cost health club, refinanced into a cheaper mortgage and started cooking at home more rather than eating out.

Reducing those costs and others preserved their portfolio for the long haul. Said Foss: “It created the income so that they could retire.”

6. Get real with your adult children

In some cases, people retire but unforeseen expenses put their financial security at risk. Skeans said one client unexpectedly found herself supporting her adult daughter and grandson, who live in her home, even as she herself recently entered a care facility.

“She’s taken out enormous amounts of money to help her daughter and grandson,” Skeans said. “She’s supporting their household and she’s paying the cost of assisted living. I said, ‘If you continue at this pace, this portfolio is going to be gone in five years.’”

Skeans said if the client sells her home—that is, asks her daughter to find her own place—that money would bolster her finances. “She should be able to make it and still leave something to this daughter in the end,” Skeans said. “She said, I’m going to talk to my daughter about that.”

3 Secrets to a Comfortable Retirement

My Comments: These lists are usually somewhat pathetic. Why just 3 secrets; why not 5? And these are not really secrets. But I needed something to try and catch your attention today so here are 3 Secrets!

I think it’s very possible that the next 30 years are going to be far less ‘profitable’ than were the last 30 years. So if you are in your 40’s and have enough presence of mind to know that there’s a high chance you’ll live into your 90’s, what follows makes a lot of sense. But I can tell you that when I was in my 40’s, having enough money to enjoy retirement never crossed my mind.

Walter Updegrave  |  January 17, 2017

The main goal of retirement planning is to be able to maintain roughly the same standard of living after your career as during it. But achieving that goal can a challenge. For example, the latest Transamerica Retirement Survey of Workers found that 40% of baby boomers expect their standard of living to fall during retirement, 83% of Generation Xers believe they’ll have a harder time achieving financial security than their parents, and only 18% of millennials say they’re very confident about their retirement prospects.
So how can you avoid having to ratchet down your lifestyle after calling it a career? Here are three ways:

1. Live below your means during your working years. This simple concept is something that many people have difficulty pulling off. Indeed, a 2016 Guardian Life survey on financial confidence found that nearly two-thirds of Americans say they’re not good at living within their means, let alone below them. But this is critical for two reasons: By saving consistently, a portion of your earnings today will be available for future spending when the paychecks stop. And the lifestyle you will be trying to continue in retirement won’t be as costly as what it might have been without the saving.

Granted, some people face such difficult financial circumstances that they have little choice but to spend all they earn. The issue for most of us, however, is finding a way to turn the resolve to save into actual dollars in a retirement account. The best way to tilt the odds in your favor is to make saving automatic, such as by enrolling in a 401(k) or other workplace retirement plan that moves money from your paycheck before you can even get your hands on it.

Generally, you want to set aside 15% or so of pay each year (including any money your employer kicks in), although you may need to step it up a bit if you’re getting a late start. If you can’t hit your target right away, you can work up to it gradually by boosting your savings rate a percentage point or so each year you receive a raise. If a 401(k) or similar plan isn’t an option where you work, you can sign up for an automatic investing plan and have money transferred each month from your checking account into an IRA at a mutual fund company.

Putting your savings regimen on autopilot allows you to bypass the chief obstacle to saving—you, or more accurately, your natural impulse to spend. It makes it more likely that the money you intend to save actually ends up getting saved. Further, if, say, 10% to 15% of your paycheck is going into your 401(k), then you pretty much have to arrange your life so that you’re able to live on the remaining 85% to 90%. In other words, you’re effectively forced to live below your means.

This approach isn’t foolproof. You can always sabotage yourself by running up lots of credit-card or other debt in order to overspend. But if you avoid piling on debt, save consistently and track your progress periodically—which you can do with a good retirement calculator like this free version from T. Rowe Price—you’ll reduce the chance that you’ll have to live a more meager lifestyle than you’d envisioned in retirement.

2. Learn to take pleasure in small things. Preparing for a secure and comfortable retirement is certainly important, but you don’t want to focus on saving and controlling spending so much that you don’t enjoy life. Fortunately, you don’t have to live large to be happy. On the contrary. Research shows that the pleasure you receive from spending even on major expenditures and big luxuries quickly fades. So indulging in more small, less-expensive purchases may actually lead to greater happiness than splurging on high-price items.

For example, in a paper titled “If Money Doesn’t Make You Happy, Then You Probably Aren’t Spending It Right,” researchers exploring the relationship between spending and happiness note that “if we inevitably adapt to the greatest delights that money can buy, then it may be better to indulge in a variety of frequent, small pleasures—double lattes, uptown pedicures, and high-thread-count socks—rather than pouring money into large purchases, such as sports cars, dream vacations, and front-row concert tickets.”

Clearly, you’re not going to eliminate all big-ticket expenditures during your life. But to the extent that you can find less costly yet still effective ways to treat yourself, you’ll free up more money to save for retirement and be better able to manage your spending after you retire without forcing yourself to live like an ascetic.

3. Get a bigger investment bang for your savings buck. Saving regularly by living below your means is the surest way to avoid seeing your standard of living fall in retirement. But another form of saving—reducing the amount you shell out in investment costs and fees—can also help. How? Simple. Morningstar research shows that lower costs tend to boost returns, which allows you to build a larger nest egg during your career and can lower your risk of depleting your savings prematurely after you retire.

The easiest way to reap the benefits of lower investing costs is to invest your savings as much as possible in a broadly diversified portfolio of index funds or ETFs, many of which you can find with annual expenses of 0.20% or less, vs. 1% to 1.5% for many actively managed funds. Low-cost index funds and ETFs can also bestow an advantage beyond their cost savings—namely, the more you stick to a straightforward mix of stock and bond index funds, the less likely you are to fall for gimmicky or exotic investments that can make it more difficult to manage your retirement portfolio and possibly drag down long-term returns.

I can’t guarantee, of course, that following these three guidelines will allow you to maintain your pre-retirement standard of living throughout your post-career life. But I can say that doing so should definitely tilt the odds in your favor.

Walter Updegrave is the editor of RealDealRetirement.com.

5 Totally Free Ways to Get Ready for Retirement Using the Social Security Website

SSA-image-3My Comments: There is a lot of talk these days about the Trump administration wreaking havoc with something that has become synonymous with retirement for many millions of Americans. But I have my doubts since those same millions also vote and are unlikely to sit by idly if their benefits are threatened.

Yes, you have reason to be nervous (I am…) but no need to panic. So… look for changes that will help Social Security become more financially robust as the years pass and respond pro-actively to changes in society. Things like raising the limit on earnings that are subject to the FICA taxes and possibly raising the age to start taking benefits. Those are realistic options that you must encourage our elected leaders to explore.

In the meantime, do as the writer says and open an online account. Once set up, the site is remarkedly user friendly, and good information is everywhere.

Karen Damato on January 5, 2017

Check out your options.

You’ve paid into Social Security for decades. Now, as retirement approaches, it’s time to figure out how to get the most from the system. Among all the guides and online tools that can help, don’t overlook the many resources—all free—on the Social Security website.

Here are five steps you should take, sooner rather than later, at ssa.gov as you work to master the sometimes surprising math of Social Security.

1. Sign up for a My Social Security account. You can use your online account to generate, at your convenience, a statement showing your Social Security earnings and estimated payouts (more on that in a minute)–and, later, to manage your benefits. Another reason to open an account is to protect yourself: Identity thieves can potentially hijack your benefits by opening a fraudulent account in your name. You can block their access by getting there first, cybersecurity expert Brian Krebs has written on his blog.

2. Review your Social Security statement. Check that the earnings posted to your account are correct. (You should do this at least every few years.) You’ll also see estimates of your future benefits–and benefits for your family–based on a couple of assumptions.

For people who don’t have an online account, the Social Security Administration mails printed statements a few months before you reach 25, 30, 35, 40, 45, 50, 55 and 60. You’ll get them annually after that if you aren’t already receiving Social Security benefits. You can also fill out a form to request a printed Social Security statement be mailed to you.

3. Check out the impact of early or late retirement. The Social Security website has simple tables that show you how much your benefit will be reduced or increased from your full benefit amount based on your exact age (in years and months) when you begin. This retirement planner for full retirement age shows the FRA for each birth year. Click on your year of birth to see exactly how much your benefit would be reduced by each month of early claiming. (While the tables show the haircut for claiming as early as age 62, note that the vast majority of people actually can’t start until one month after their 62nd birthday.)

There’s a similar tool that lets you see the benefit of any delayed retirement credits you’d earn by deferring the start of benefits past your FRA. On the right side of the screen, use the dropdown menu to select your year of birth and hit “Change” to see a month-by-month table.

4. Do some simple calculations. Social Security’s Retirement Estimator is a handy first stop to explore your future benefits because it can incorporate your earnings history from the Social Security database. That keeps you from having to type in all those year-by-year figures.

5. Explore more what-ifs. The Retirement Estimator may not let you explore all the scenarios you would like. If that’s the case, move on to the most flexible tool that Social Security offers, the Detailed Calculator. It enables you to play around with various estimates of future part-time earnings and possibilities for when you might stop work and when you might start collecting.

Plan to commit some time and brainpower to figuring this tool out. It isn’t intuitive and doesn’t have a snazzy interface. You must download the Detailed Calculator to your computer, and it might not work on your particular system. But if you read the instructions carefully, it’s not hard to get comfortable with. Unlike with the Retirement Estimator, you will need to type in your history of year-by-year earnings (which probably won’t be as big a hassle as you are thinking at this minute)–but then you can keep changing your estimated future earnings to see the impact of various work scenarios.

You can save your earnings history and come back to the tool over and over.

How to Get Financial Advice That Is in Your Best Interest

Piggy Bank 1My Comments: Remember the phrase ‘the birds do it, the bees do it…”? Well, attorneys do it, CPAs do it, architects do it, doctors do it, and so should financial advisors. BTW, politician’s don’t do it.

I’m talking about acting in the best interest of the client and/or patient. The Obama administration worked several years to bring about a standard within the financial industry that would mandate advice in the best interest of clients and customers. Finally, a watered down version of what has become known as “the DOL fiduciary rule” was agreed to and full implementation will be on April 1, 2017.

However, the Trump camp has indicated it’s willingness to reverse the implementation of the rule. I’m assuming this is because they believe the folks on Wall Street and their minions don’t need to be told and/or required to work in our best interest as citizens.

Many of us in the advisory services side of things think the rule does not go far enough. Many of us have already pledged to act as a fiduciary in our relationships with clients. But the companies for whom we might be working or representing are not going to be held accountable under a fiduciary standard. It’s still a buyer beware world. The ‘law of the jungle’ will prevail.

By JOHN F. WASIK      JAN. 13, 2017

In April, financial advisers for the first time will be required to put retirement investors’ best interests first.

But there is a catch. The new requirement, known as a fiduciary rule, was imposed by the Labor Department during the Obama administration, and could be blocked by the Trump administration or congressional action before it takes effect.

With its fate uncertain, investors can still protect their interests, by exercising vigilance, finding advisers who will act as fiduciaries, and understanding the issues involved in the first place.

“What’s been most striking to me is that when I talk to consumers, they say that they thought advisers were supposed to be working in their best interests all along,” said Linda Leitz, a fee-only certified financial planner in Colorado Springs. The reality is that many advisers are not required to act in investors’ best interests.

That was supposed to change for retirement investors under the fiduciary rule, pushed by Thomas E. Perez, the secretary of labor, and strongly supported by Senator Elizabeth Warren, a Massachusetts Democrat.

The rule, scheduled to take effect in April, bans potential conflicts of interests for advisers in retirement accounts; a broader fiduciary rule, covering all investment accounts, has been under consideration by the Securities and Exchange Commission but has not been approved.

The fiduciary rule has opposition.

The insurance industry and Wall Street have been fighting it, and several business groups, including the U.S. Chamber of Commerce, have sued to stop it.

Republican congressional leaders have said they want to eliminate it, and Representative Joe Wilson, Republican of South Carolina, this month introduced a bill that would delay it for two years. The House of Representatives last year considered legislation to eliminate the fiduciary rule, along with most of the Dodd-Frank financial reform law.

While the rule could be postponed or eliminated, it has already caused many companies to curtail the sale of retirement mutual funds and insurance vehicles that charged high commissions and fees or were clearly unsuitable for clients. And retirement investors can still benefit from trends that have been reshaping the financial service industry for decades.

Low-expense funds that largely cut the cord with broker-advisers have become more popular. Last year, investors moved $375 billion into low-cost exchange-traded funds, according to preliminary figures from BlackRock, the investment manager.

Fund giants like BlackRock, Fidelity Investments, Vanguard Group and Charles Schwab offer low-cost funds and have been lowering expenses in recent years. The companies also offer robo-advising services or provide funds for automated platforms. Fidelity, Schwab and Vanguard also offer direct, personalized financial planning services.

The low-expense trend has been aided by the emergence of automated “robo” portfolio managers like Betterment, Personal Capital and Wealthfront, online platforms that combine low-cost portfolios of mutual- and exchange-traded mutual funds with investment advice.

The industry’s longstanding product-oriented marketing machine also is being disrupted by a more people-centered model adopted by fiduciary advisers who give specific advice on taxes, college planning or estate planning. That momentum will be difficult to stop.

“The industry is increasingly putting the person at the center of the equation,” said Tricia O. Rothschild, chief product officer for Morningstar.

“There are something like 310,000 financial advisers in the U.S. now, which is about 40,000 fewer advisers than there were 10 years ago,” she said. “The only part of the market where we’re seeing growth is from advisers moving from commission-based to more fee-based models.”

With products sold on commission, investment advisers typically have greater incentives to make decisions that are profitable for themselves and their firms.
Fee-based advisers, however, tend to have incentives to provide information that is tightly aligned with clients’ financial goals.

Combined with a greater awareness of investment expenses — billions of investor dollars have flowed into low-cost index funds — the tide continues to shift away from commission-based products.

Some 80 percent of investor funds flowed into cheap, passive mutual and exchange-traded funds in the third quarter of 2016 alone, according to Broadridge Financial Solutions, which tracks mutual fund assets.

The ranks of fee-only personal financial planners have been growing as well. Many of them are fiduciaries who eschew commissions, charge hourly or flat rates and favor low-cost passively managed investment portfolios based on traditional mutual funds or exchange-traded funds that track indexes and do not try to beat the market.

The National Association of Personal Financial Advisors, which represents fee-only financial planners, has grown to more than 2,700 members, from about 1,700 members in 2007, an increase of 60 percent.

“Napfa’s growth over the last 10 years is due to a variety of factors that include growing consumer preference for fiduciary-level advice delivered under a fee-only compensation model,” said Geoffrey Brown, the association’s chief executive.

Yet the asset management industry is still dominated by broker-advisers, who operate on a loosely defined legal standard for investment “suitability.”
Broker-advisers often cannot be sued by customers, who typically are required to use an industry-sponsored arbitration forum in a dispute. Many investors are not even familiar with what the fiduciary standard — which gives them the ability to sue advisers — means.

Even without the Labor Department’s fiduciary rule, there are ways to determine whether an adviser is likely to work in your best interest.

Many certified- and fee-only financial planners, registered investment advisers and personal financial advisers who are also certified public accountants operate under the fiduciary model.

The key question to ask an adviser is: “Are you a fiduciary?”

Next, ask how the adviser is compensated. While earning a commission is not necessarily a red flag, those who charge flat or hourly fees or a set percentage based on assets under management may have fewer conflicts.

To determine whether advisers have conflicts, ask to see their Form ADV, a government disclosure form about their sources of compensation, which they must provide on request.

Consider your needs. If you need pre-retirement or estate planning, or divorce or retirement advice, you may want specialists in those areas.

Looking for a comprehensive, soup-to-nuts financial plan? Then a certified financial planner may be the right person.

You can always combine an automated service such as a robo-adviser for portfolio management with an adviser who can provide customized advice on estate plans, retirement income and college planning.

In any case, it is wise to find out whether the advice you receive is really intended to benefit you.

Source:https://www.nytimes.com/2017/01/13/business/how-to-get-financial-advice-that-is-in-your-best-interest.html