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Tuesday, September 29, 2015

Planning for Retirement When You Are Single

How does retirement planning differ for single people? At a glance, there would seem to be no difference in the retirement saving effort of an individual versus the retirement saving effort of a couple: start early, save consistently, and use vehicles that allow tax-advantaged growth and compounding of invested assets.  On closer inspection, differences do appear – factors that single adults should pay attention to while planning for the future.

Retirement savings must be built off one income. Unmarried adults should save for retirement early and avidly. Most couples have the luxury of creating retirement nest eggs from either or both of two incomes. They can plan to build wealth with a degree of flexibility and synchronization that is unavailable to a single saver. So when it comes to building retirement assets, a single adult has to start early, save big and never let up, as there is no spouse around to help in the effort and only one income from which savings can emerge.

The Social Security claiming decision takes on more importance. An unmarried person’s Social Security benefits are calculated off his or her lifetime earnings record. Simple, cut and dried.  A couple can potentially rely on two Social Security incomes before both spouses reach what the program deems full retirement age. An unmarried person cannot exploit that opportunity, so the decision to claim Social Security early at reduced monthly benefits or postpone claiming to receive greater benefits becomes critical.

 An unmarried person may someday have a huge need for long term care insurance. If there are no adult children or spouse around to serve as caretakers in the event of a debilitating mental or physical breakdown, an unmarried individual may eventually become destitute from costs linked to that sad consequence. LTC coverage is growing more expensive and fewer carriers are offering it these days, so many married baby boomers are wondering if it is really worth the expense; in the case of a single, unmarried baby boomer retiring solo, it may be.

 Housing is often the largest expense for the unmarried. In an ideal world, a single adult could pay half of the monthly housing expense of a married couple. That seldom happens. Relatively speaking, housing costs usually consume much more of a sole individual’s income than the income of a couple. This is true even early in life: according to Bureau of Labor Statistics data, married folks in their late twenties spend $7,200 per person less on housing expenses annually. So a single person would do well to find ways to cut down housing expenses, as this frees up more money that can be potentially assigned to retirement saving.1

 Saving when single presents distinct challenges. In fact, saving for retirement (or any other financial goal) as a single, unmarried person is often more challenging than it is for a married couple – especially in light of the fact that spouses are given some distinct federal tax advantages. Still, the effort must be made. Start as early as you can, and save consistently.

Posted by: Patrick Carroll at 9:30 AM
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Friday, July 24, 2015

Retirement Planning Can Start with an IRA

IRA accounts are a good “first step” in retirement planning.  When you invest through a traditional or Roth IRA, you give those invested assets the potential to grow with compounding and you also position yourself for present or future tax savings.

An IRA is an account into which various investments can be placed.  It is yours and you control it, as compared to an employer-sponsored retirement account that you lose control over when you leave a job. 

IRAs are tax-advantaged.  In both Roth and traditional IRAs, account earnings compound with tax deferral until withdrawn – that is, they grow without being taxed.  With a traditional IRA, contributions are usually tax-deductible, based on your income, but withdrawals are taxed as ordinary income after age 59 ½.  With a Roth IRA, tax-deductible contributions are not permitted, but your earnings can be withdrawn tax-free.  That is the main difference between a traditional IRA and Roth IRA.  While both give you the chance to build retirement savings with tax advantages, the traditional IRA offers you a sizable tax break today, while the Roth IRA offers you a big tax break tomorrow.

Several variables should be considering when deciding to open a traditional IRA or a Roth IRA.  One key question is whether you will be in a lower tax bracket when you retire.  If you will be, a traditional IRA might be the better choice.  If you have decades to go until retirement and think you will retire to a higher tax bracket than you are in today, then the Roth IRA may be the better option.  When considering your options, chat with a financial professional to help you make the final decision. Then again, you could always open one of each!


Posted by: Patrick Carroll at 10:02 AM
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Friday, July 24, 2015

Taking Care of Your Wealth

Families that have created high value businesses often don’t take the necessary precautions in order for it to continue after they have passed it on.  There have been countless mistakes made causing family fortunes to diminish that could have just as easily been avoided.  Staying aware of all possible financial weaknesses and being proactive with planning and long-term strategies will prolong your family’s wealth for generations.

Failing to realize weaknesses among your financial plan such as not having the correct beneficiary named can leave assets subject to probate.  An incident such as this may be inconvenient but needs to be taken care of in a timely manner or else risk losing the assets.  Only 56% of American parents have a will or living trust.  This means that just under half of American families have not yet planned for what will happen to their wealth and how it will get there.  If you factor in history of family health, separated marriages or family business owners then more extreme planning is necessary that involves coordinating the estate and succession planning.

Although technology has become a major factor in building a business it also has its’ disadvantages.  More and more computer hackers are gaining access to email accounts allowing them to have control of bank accounts, brokerage information and asset transfers. This can be devastating to a business because it not only loses money but shows weakness and flaw to clients.  Security systems can be put in place to avoid such error but it is important to meet half way.  Be on the lookout for suspicious activity and keep vital information protected.

When talking about future planning it is necessary to include anyone who might have access to the estate.  Not including children on decision making can neglect them from understanding the process of sustaining wealth.  Without keeping them updated on how and why decisions are made they will be inexperienced when it comes time for them to be the prime decision maker.

It is never too early to begin planning for your future.  Developing a strategic financial plan can have potential to increase a family’s wealth and prolong it for generations.  Collaboration between family members and professionals will enhance your future and put your mind at ease. 


Posted by: David Shober at 10:01 AM
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Friday, July 24, 2015

How Much Retirement Income Should You Withdraw?

In the first few years of retirement, some couples “live it up” and seek to do all the things they have been dreaming to do, once they retire.  Many new retirees are told that a 4-5% annual withdrawal rate makes sense.  If you withdraw 4-5% from your retirement nest egg annually and your investments steadily earn about 5-6% each year, it is possible that your invested assets can last for many years. However, that’s the scenario when the economy is stable – what happens if your portfolio only returns 1-2%? 

Ultimately, the answer is highly personal.  There is no “standard” retirement income withdrawal rate.  Your withdrawal rate should be determined in consultation with your financial professional, who can help you evaluate some very important matters:  your risk tolerance, your age and health and your lifestyle needs.  With ongoing improvements in healthcare, today’s retirees stand a good chance of living into their eighties and nineties and longer.  This is a good reason to exercise a little moderation when scheduling retirement income.  Ideally you have a retirement income plan in place along with the help of a financial professional who can review your investments and income needs and adjust your withdrawal rate over the course of your retirement.

Posted by: Patrick Carroll at 9:59 AM
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