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8 Things About 401(k)s Every Baby Boomer Should Know

8 Things About 401(k)s Every Baby Boomer Should Know

Sep 2021

For those considered baby boomers, retirement has now become reality with 10,000 people retiring daily. Unfortunately, research shows that 54 percent of older Americans do not have enough savings to fund their retirement.

If you’re on the pre-retirement end of this age group, it’s never too late to start setting money aside. Here are eight facts about 401(k)s that could help you prepare for your golden years.

Retirement Is Expensive: Although it can vary from one person to the next, the current total cost of retirement is estimated at $738,400.

Social Security Won’t Be Enough: It depends on your income, but even someone earning $100,000 annually will only get $2,670.37 per month. This calculator can help you determine your projected earnings.

The Money Stays with You: The best thing about a 401(k) is that the money travels with you from one job to the next.

It’s Never Too Late: Even those who are over 50 can begin to set money aside in a 401(k). In addition to saving money, you should also look for ways to boost your income during your final working years.

You Can Catch Up: The new tax plan may change this, but those over 50 can make catch-up contributions to make up for lost time.

The Money Won’t Wait Forever: Halfway through your 70th year, you’ll be required to begin withdrawing money from your 401(k).

There Are Penalties for Early Withdrawal: Before retirement age, the money will need to stay in place unless you can roll it over to another type of account.

You Have Investment Options: You may not realize that you can choose where your money goes within your 401(k).

Good fiduciary risk management is about preparing for the future and simultaneously protecting your current finances. If you haven’t begun saving for retirement through a 401(k), it isn’t too late. Check with your employer on available options, talk to an advisor, and take advantage of any opportunities you can find to save.

Tags: social security, retirement

NFPR-2019-85 ACR#324835 09/19

When Does Collecting Social Security Early Make Sense?

When Does Collecting Social Security Early Make Sense?

Sep 2021

Full retirement age (FRA) for Social Security benefits is currently between 66 and 67, depending on when you were born. Benefits are determined based on your 35 highest years of earning on record with the Social Security Administration, but will be higher or lower depending on when you file. If you file at FRA, you’ll get your full monthly benefit.

For each year you delay past FRA, however, your benefit will be increased by 8% until the age of 70. The earliest you can currently file is age 62. For each month ahead of FRA you file, benefits are decreased by a certain percentage. If, for example, you elect to begin receiving benefits at 62 when your FRA is 67, your monthly payment will be approximately 30% lower. But despite this fact, 62 is the most common age to claim Social Security benefits — often because, unfortunately, people are just not in a position to wait.

Determining the timing of Social Security benefits is an important decision that can have lasting consequences. You want to make a choice that’s in your long-term best interest. In many cases, it’s advisable to wait to receive the larger benefit, but everyone’s circumstances are different so it’s a good idea to have a discussion with a qualified financial advisor when determining what’s best for you. But here are some factors in favor of electing to receive benefits early.

You’re currently in or anticipate poor health. If you have a progressive health condition or a family history that makes early health complications more likely, then you may want to consider taking benefits early — while you’re still well enough to take advantage of your retirement years.

You’re unable to continue working and need the money. Job loss and/or disability can sometimes make it unfeasible to wait until full retirement age. If your employer-provided or private disability insurance along with other resources can’t cover your basic needs, then you may have no other option but to collect early.

Your spouse can take benefits later. This approach might let you access some Social Security income immediately, while allowing your spouse’s benefits to continue to grow. You should probably run the numbers with a professional financial advisor, however, to make sure this strategy makes sense in your specific situation.

You have qualified dependents on your tax return. If this is the case, your dependents might qualify for benefits when you take your own. Again, this is another instance where it makes sense to have an expert help determine if this is in your best interest.

You can afford to. If you dislike your job and don’t need the additional funds provided by waiting until your full retirement age or beyond, then you may want to embark on this exciting time of life as early as possible.

Social Security is a central component to most retirees’ financial plan. It’s important to make a thoughtful and well-researched decision regarding how best to use this resource to finance your retirement.

Sources:

https://www.msn.com/en-us/money/realestate/why-do-so-many-people-claim-social-security-at-62/ar-BBTbXg1

2. https://www.investopedia.com/articles/financial-advisors/012216/filing-early-social-securitywhen-it-makes-sense.asp

tags: social security, retirement

Securities are offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services are offered through NFP Retirement, Inc., a subsidiary of NFP Corp. (NFP). Kestra IS is not affiliated with NFP Retirement Inc. or NFP.

This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

Managing Investment Risks

Managing Investment Risks

Sep 2021

In my opinion, it is impossible to predict future stock market returns. Investment models can produce hypothetical returns but they can’t account for future events. So, in my opinion, investors who manage their investments based on market performance or what they perceive as opportunities for better returns have very little control over the outcome.

On the other hand, there may be market risk, interest rate risk, inflation risk and taxation risk. If your investment portfolio is not vulnerable to market risk it may be vulnerable to interest rate or inflation risk. In my opinion, over the long term, taxes may impede returns and portfolio performance. If it were possible to control the risks to your portfolio, then you could try to improve the long-term performance of your investments.

Understanding all Risks

Some investors understand the concept of risk and reward. The risk of loss associated with the stock market is called “market risk”.

In my opinion, the investors who were rattled from the steep declines in the market during the 2008 crash, and more recently in the August 2011 plunge, may have decided they have little tolerance left for market risk, and some of them may have moved their money to “less risky” investments. The problem for these investors is they have now left their portfolio vulnerable to other adverse risks. Effectively managing all of your risks entails allocating your investments along a mix of assets that can act as counter-weights to the various types of risk. * Inflation Risk There is going to be inflation. When there hasn’t been inflation, there could have been deflation or stagflation, which some would consider to more dangerous conditions for investments. When investors shift their assets to low yielding or fixed yield investments to avoid market risk, they may be exposing them to inflation risk.

Interest Rate Risk

We also know that interest rates may rise; and they could fall. Unlike changes in the direction of the stock market, changes in interest rates could come with some forewarning. For instance, when the economy slows down as it has these last few years, the Federal Reserve may lower interest rates to try to stimulate economic activity. Conversely, when the economy begins to overheat, the Feds may increase rates to try to contain inflation. Generally, when interest rates rise, the prices of debt securities decrease, and in a declining interest rate environment their prices will increase.

People who stash their money in fixed yield vehicles could also be vulnerable to interest rate changes.

Taxation Risk

At one time or another, the IRS will collect its share of your investment earnings. But, as imposing as the tax code is, it may allow investors to use means to minimize taxes. Deferring taxes, which can be done using qualified retirement plans and annuities, enables your earnings to compound unimpeded by taxes so they can accumulate more quickly; however, there is usually a tax consequence when you eventually access those funds. Understanding investment taxation, such as capital gains, loss carry forward, investment income, etc., may affect the longterm growth of your assets.

In my opinion, an effective way to manage and potentially minimize investment risks is through the broad diversification of assets under a long-term investment strategy. Investors should consider their long-term objectives and overall tolerance for risk when selecting investments.

* Diversification does not necessarily produce results.

Tags: risk management, investment risks

Securities may be offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services may be offered through NFP Retirement, Inc. Kestra IS is not affiliated with NFP Retirement Inc., a subsidiary of NFP.

This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

NFP retirement, Kestra IS and Kestra AS do not provide tax or legal advice. For informational purposes only. Please consult with your tax or legal advisor regarding your personal situation.

NFPR-2019-88 ACR#324839 09/19

Understanding Investment Risk

Understanding Investment Risk

Sep 2021

All investors – be they conservative, moderate or aggressive – need to understand that the level of returns they expect to generate is directly related to the amount of risk they are willing to assume – the higher the return, the higher the amount of risk one needs to take. It probably doesn’t dawn on most people that, regardless of where you put your money, you assume some element of risk. For instance, if you focus solely on keeping your money safe from the possibility of loss, you risk not accumulating enough money to meet your goal. In this case, trying to avoid “market risk” increases your exposure to other types of risk, such as “inflation risk” or “longevity risk.”

Essentially, you need risk in order to generate the level of returns you will need to achieve financial independence. However, risks can be managed far more effectively than investment performance. You can’t predict the direction of the financial markets, or which mutual fund will outperform the others; however, you can manage risk and even have it work for you through proper asset allocation and portfolio diversification. While there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio, by including a mix of assets and securities that act as counterweights to one another, a risk aware portfolio can potentially help returns wherever they might occur while reducing overall portfolio volatility.

Understanding the different types of risks and how they can individually and collectively impact your long-term investment performance is crucial to constructing a well-conceived portfolio that seeks to maximize your returns while reducing your overall risk.

Different Types of Investment Risk

Market Risk: The risk that most people associate with investing is market risk, the possibility of losing money due to the price fluctuations of the markets. Because it is difficult to know which way prices will move, investors can lose money if the market moves against them. However, losses are only realized if the investment is actually sold.

Inflation Risk: Many risk adverse investors and savers prefer the safety of savings accounts, CDs and government bonds. The risk they face is that the growth of their secured savings doesn’t keep pace with the rate of inflation which will, in effect, reduce the value of their money in the future.

Interest Rate Risk: The prices of interest-bearing securities, such as government and corporate bonds fluctuate in response to the movement of interest rates. As interest rates rise, the prices of these securities will decline. So, it is still possible to lose money. If the bonds are held to maturity, which can be as long as 20 or 30 years, the investor receives the full-face value of the bond.

Taxation Risk: With the possible exception of some tax-exempt bonds, all investments will trigger a tax consequence, either as a result of income earned or capital gains realized from the sale of an investment. Over a long period of time, taxes can adversely impact the return on investment. Additionally, tax laws do change, so if an investment was based on its tax treatment, it could change at some point in the future.

Liquidity Risk: Investors who are concerned with having immediate access to their money need to be aware of liquidity risk. The safest of investments, such as CDs, have some liquidity risk because if it is redeemed too early the investor could lose a part of his principal to early redemption fees. And, even though stocks and bonds can generally be liquidated at any time, investors may be reluctant to do so if they are in a loss position.

When investing, all possible risks should be evaluated against your overall tolerance for risk. The most effective way to manage risk is to invest with your specific goals in mind. Also, having a long-term investment horizon may allow your investments to work through the inevitable down and up cycles of any market.

Tags: risk management, risk, investments

Investment Planning for an Uncertain World

Investment Planning for an Uncertain World

Sep 2021

Chances are good that if you turn on the prime-time news on any given day or pull up your favorite newspaper on your iPad one of the top stories will relate to emerging risks around the world. Whether it’s strife in the Middle East, tensions with Russia, or the ever-shifting balance of power between global powers, this much seems obvious: we live in a time of both unprecedented global complexity and the technological capability to watch events unfold in real time.

Investing in a Time of Geopolitical Risk

When large investment houses start talking about geopolitical risk it’s probably a good idea to take note. Some money manager may not spend time discussing the possibility that foreign policies between countries could lead to destabilizing situations, but at the end of 2014 the chair of RIT Capital Partners (a $3.5 billion fund) issued a statement that geopolitical risk was “…as dangerous as any time we have faced since World War II…”.1

Whether such a dire warning sounds overly pessimistic or not isn’t necessarily the point. What’s important is that it reveals that large money managers are starting to pay a great deal of attention to global risk.

But how to address these risks? Historically, moving 100% into cash or government bonds hasn’t been the best way to achieve growth throughout that last 100 years or so, a period of time that has seen more than its fair share of global instability. Without moving into purely defensive investments and making overly-conservative plans how can you plan for tomorrow while being mindful of risks today?

Managing Risk - and Reward - for Potential Long-Term Success

It’s often said that without risk there is no reward, and when it comes to financial planning this maxim is particularly true. For those trying to achieve long term goals, such as retirement or estate planning, it’s often times risky to try and avoid all risk.

Being overly risk-averse toward stocks can result in low returns that hardly keep up with inflation, which may in turn increase the risk of running out of money before you die or failing to fully fund an estate. For some investors cash and bonds alone don’t offer the inflation-beating returns needed to replace an income or provide a legacy to the next generation.

Fortunately, a smart financial plan, built in a way that takes into account global risks but still seeks long term growth, can help avoid these overly-cautious decision biases.

Is Your Plan Risk – and Reward – Aware?

With all the uncertainty in the news now is a great time to evaluate your financial plan to see if its managing risks in a smart way.

Does your plan:

  • Ignore the relationship between reward (investments) and risk management (insurance), or does it address both investments and insurance in a comprehensive way?
  • Diversify investments and insurance to provide multiple sources of return and income?
  • React to the latest headlines or take emotion out of the decision-making process?
  • Rely too much on one company or country? (Note: If your pension, 401k, and life insurance are all provided by your employer or heavily invested in one country this can be a big risk.)

The best way to be sure your plan is well prepared for the risks and rewards of the global economy is to talk with a professional planner today.

After all, wouldn’t it be nice to watch or read the news and not worry about the negative headlines because you know you’ve got the right plan – and the right planner – on your side.

Tags: risk management, investment management


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