Tag Archives: Retirement Strategy

Retirement Withdrawal Strategies

Retirement Withdrawal StrategiesRetirement withdrawal strategies are all over the map and it really depends on who you talk to or what you read. As someone who is thinking about retirement and wondering how much money I will have to spend every year, I have been following the retirement withdrawal strategies put forth by many financial planners. Bottom line with all of these guys is that they are trying to sell me something so I need to figure out for myself what the best approach is for my personal situation. There are three main strategies with many combinations of them all, so I thought it would be a good idea to review these for readers. You will have to figure out for yourself based on your personal situation which one or what combination is best for you.

Retirement Withdrawal Strategies

Follow the 4% rule – the simplest one is to take 4% of your balance of savings  calculated at the end of the previous year. Since your portfolio will vary every year, your income will vary every year as well. If your portfolio is generating less than 4% in terms of dividends and interest, then your portfolio is going to decline each year and so is your income. Something to think about!

Income only rule – is a good one in that you never touch your principle, but your income will also vary with this approach as well since dividends change, interest rates change and distributions from mutual funds change every year. If you can live on the income only, you will have a better chance of your savings lasting well into your retirement with some left over for the kids.

Variable Amount rule – this approach is based on taking out a fixed amount each year based on how well your portfolio is doing. In good years, you get to take more out, while in bad years when the market is down, your income will be down as well.

Can you live with these variables or are you the type that needs to have a fixed amount coming in each month year over year? The answer to this question will help determine which approach or combination of approaches you decide on!

Retirement Withdrawal Strategies – How long will you live?

The other big unknown is how long will you live? This will determine just how long your money will last and how much you will be able to spend each year. Be realistic,  take your health into account and your genes when making this assumption. Good luck with your retirement plan!

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Don’t count on a pension to stay afloat in retirement

Don't count on a pension to stay afloat in retirementYour 40 years old. You have worked for the same company for the past 20 years. There is an expectation to retire with a full pension around 55 or 60 years of age. Is this a good assumption to makee? Can you depend on your company to do the right thing when the economy gets difficult? The sad reality is that layoffs, down sizing, right sizing or what ever you want to call it are a reality for many consumers. Don’t count on a pension to stay afloat in retirement.

When it happens at age 40 or older it can be difficult to recover the same wage level and also prepare for retirement when you have to use some of your savings to get by while you look for a job.This is the reality for many Americans and the answer is that you have to assume that it will happen and plan for it and not count on a pension to stay afloat in retirement. If you are one of the fortunate few that do not get laid off or otherwise lose your job, then the plans you put in place are a huge bonus towards your retirement and will allow you to do far more than you ever planned in retirement.

Don’t count on a pension to stay afloat in retirement

This is a conservative assumption to make for many consumers who have good jobs now, however if you are one of the lucky ones and do get a pension when you retire, then you will be better off anyway since you will have both your pension and savings to rely on and enjoy during retirement years.

If you have not started saving now, start immediately. With the interest and dividends reinvested your retirement savings can add up quickly making you more comfortable as you approach retirement years. Even just knowing that you have the savings you need will give you the confidence to retire early and enjoy life, start a new career or what ever turns your crank and not worry about having to count on a pension to stay afloat in retirement.

Count on a pension to stay afloat in retirement

Here are five rules that will help you on your way to prepare for retirement with or without a pension:

  • Pay off credit card balances each month
  • Retire off your mortgage before you retire
  • Pay off other debt before you retire
  • Never miss a payment on a loan, utility payment or any other kind of payment
  • Put away at least 10% a year towards retirement
  • Live within your income level and do all of the above

If you can follow these rules throughout your life, you will be in excellent shape regardless of whether you receive a pension or not. The best part, you don’t need to count on a pension to stay afloat in retirement, you have independence from your job and you have the freedom to live your live in the manner you wish even if you do get laid off.

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Retirement: Three Areas to Focus On

Retirement: Three Areas to Focus On Retirement: Three Areas to Focus On when you are planning for your retirement. Many people do not even think about retirement until they are in their late 40’s or early 50’s and by that time it could be too late to save enough money to live the kind of life that they dreamed of in retirement. Start planning and above all saving for retirement as early as possible to avoid surprises. At the very least you will be able to retire with a pleasant nest egg, if your company or government pension plans more than make up for your savings. Too many people have counted on a company pension plan only to find that it disappears when the company goes bankrupt. Retirement: Three Areas to Focus On

Retirement: Three Areas to Focus On

These three areas that consumers should focus on are as follows:

  • Income
  • Mortgages & loans
  • Savings plans

We will discuss each one in more detail as consumers planning for retirement are forced out of jobs or find that they are being forced to retire early or other reasons such as health, supporting loved ones, and a variety of other issues.

Income – as part of your plan for retirement it’s important to understand where your income is going to come from. This could be a combination of government pension payments, employment pension payments and from your savings.

Mortgages and loans

Most people would like to retire with their home fully paid for, the car fully paid for and no other loans to be concerned about. This is an excellent objective however the reality is that the majority of people will retire owing some money. Take a very close look at the debt that you have today, how quickly you will be able to pay it off and whether you will carry any of that debt into your retirement years. Understanding the loan payments and mortgage payments and the impact it will have on your income and money left over for other activities will play a big part in helping you decide when you can financially retire.

Savings plans

Once you have looked at your income, and the debt that you will carry into retirement it is now an easy matter to figure out what savings rate you will have to achieve while you were still working in order to live the kind of retirement life that you would like during retirement. This is all about quality-of-life during retirement and ensuring that you have sufficient funds available to live that life. You may find that you need to save much more money to sustain your lifestyle or at least the lifestyle that you plan for your retirement.

Take a few minutes now to prepare initial estimates of what your income will be during retirement, what your loans and mortgage payments will be, and also your current savings and how much money per month you can expect to derive from your savings. Once you have these figures you will have a quick understanding of whether you need to go into more detail and plan for your future retirement.

Retirement Income Strategies

Retirement Income StrategiesDeveloping your own personal retirement income strategies can be a little daunting for many people. This can be a large complex problem if it is not broken down into individual small steps. But if you can break it down and use the assistance of a financial planner to help with some of the steps, consumers can end up with a well thought out plan that will help them meet realistic goals and objectives for their retirement. The wheel in the picture demonstrates how to get started. Not that this is a circular wheel with no end point. That is because after you have developed your first view or your retirement income strategies, each consumer will  at regular intervals update the plan following the same systematic approach. We will discuss each of these steps in a little more detail.

Retirement Income Strategies – Self Assessment

The first step is to gather all of your financial data that you have currently. This includes your current savings as well as your current debt. It also includes loans, mortgages and retirement plans that you may be eligible for when you retire from your company or personal plans. This is a snap shot of your financial situation at the present time.

Goal Setting

The next step is to set some realistic goals. These include when you anticipate retiring, when you will have your home paid off and how much debt you may carry into retirement. What are your plans for retirement? Will you travel a great deal or do you plan to continue working. What large expenses will you have in retirement. How do you see your life in financial terms when you retire. This leads to understanding the level of income you will need to generate to maintain the lifestyle that you desire in your retirement years.

Information Gathering

Gathering all of the information you will need to develop your plan is the next step. Investment plans, investment advisers, interest rates, dividend rates, payout rates from mutual funds, retirement plans, current expenses and costs for everything from heating your home to budgets for groceries etc should be considered. Use several simplifying assumptions to make it easier. Use a program or work with an adviser to completed your retirement plan strategy.

Retirement Income Strategies – Taking Action

Once you have a plan, most likely you will find that you need to make some changes. They could include focusing on paying off your home faster. Or saving more money for retirement that you planned, reducing your expenses etc. The important thing is to begin taking action now. Focus to ensure that your retirement strategy, goals and objectives can be met.

Reviewing and Updating

Are you done once you have completed all of these steps? Some people will feel that they are done and can afford to sit back and relax until they retire. This is not true. Our lives change, we retire earlier or later than planned. We have more expenses than planned, inflation is higher, our goals may change and on and on. At the very least review your retirement strategy once per year. Then update everything. You may find that your goals, savings plan etc may need to be adjusted slightly. You will want to ensure that you can enjoy the life you planned for in retirement.

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Mid Year Tweaks to Your Retirement Plan

Tweaks to Your Retirement PlanGold is down significantly from the beginning of the year. Many people who are the so called gold bugs have lost significant amounts of money as a result. Stocks are up a great deal. They are also volatile with quite wide swings. This volatility can unnerve many investors who depend on their savings for their retirement income. It might be time to make mid year tweaks to your retirement plan. Monitor your retirement savings and make cautious adjustments to ensure that your plan is not jeopardized over the long term. Work with an adviser to ensure that you do not sell low and buy high. If you can live on the income and not touch your principle, you will be sheltered from any of these wild swings.

Tweaks to Your Retirement Plan

Interest rates edging up over the past few months for loans and mortgages. Many people who did not lock in a mortgage interest rate before the rise are now wondering if they should put off buying a home. An increase of 1% can add hundreds of dollars a month depending on the size of the mortgage. Recently interest rates have settled down. Governments in North America are suggesting that they will remain low for the next year and a half.

The economy is slowly improving and for those people who have a job, life is tolerable. But if you do not have a job or if you are just making enough to pay the bills, retirement savings are something that you dream about vs. actually having. Let’s hope the slow economic improvement continues. It is better than drastic increases which can go down equally as fast providing for a lot of turmoil in people’s lives. Although frustrating for many people, a long slow improvement is actually better for everyone than a fast trip up and then down over the cliff.

Storm Clouds Brewing

Never the less, there are lots of storm clouds churning away. Europe is still unstable but making progress. China is slowing it’s growth forecast and even in the US the slow economic improvement is a worry for many people. There have not been any major storms this year that affected the economy or the oil industry. But there have been a lot of smaller storms that have hurt people really badly, however not on the scale of some of the bigger hurricanes.

There is always something going on and with all that is currently taking place, it is time to review your retirement plan. You may need to make mid year tweaks to your retirement plan if necessary based on a thorough balanced review. Tweak only if necessary to balance your retirement plan, to reduce risk, to increase income and to make cash available when you need it. Check with your financial adviser to confirm you have a well balanced retirement plan. Invest for the longer term and avoid reacting to short term stimuli from outside sources on the stock market.

Life After Age 65

Life After Age 65This is an entire repost from Sun Life Financial. We thought our readers would find this interesting. We are doing many posts about retirement and looking for different viewpoints. This is about Life After Age 65. Men and women have different views of life after 65, Sun Life Financial study finds

Does the “Men are from Mars, Women are from Venus” idea fit when it comes to retirement?

Life After Age 65 – the Article

TORONTO, Jan. 21 /CNW/ – The gender gap seems to have extended into Canadians’ views of retirement with twice as many men (32 per cent) than women surveyed saying they want to work past age 65, according to the second edition of the Sun Life Canadian Unretirement(TM) Index.

“We also found that men and women had diverse opinions around what factors should be considered in a retirement plan, with women more likely to cite long-term care, low interest rates and death of a spouse,” said Kevin Dougherty, President, Sun Life Financial Canada. “Interestingly, we found that Canadians on the whole were significantly more confident about their retirement if they had worked with a financial advisor for a year or more than those who did not have an advisor.”

Other Findings

Other survey findings show that men and women think differently about financial planning and confidence in retirement:

– Seven in 10 women (71 per cent) who said they will be working past
age 65 said they will be doing so to earn enough money to pay for
basic living expenses compared to 65 per cent of men. More women
(61 per cent) also believed their company pension will not be enough
to live on compared to men (56 per cent).
– Forty-nine per cent of Canadian women surveyed were very confident
they would have enough money for basic retirement living expenses
compared to 57 per cent of men.
– Twenty-nine per cent of women were very confident they will have
enough money to enjoy the lifestyle they want compared to 36 per cent
of men.
– Women tended to be less confident about the overall economy and their
personal finances compared to men.

“Women have substantial reasons for worrying that they won’t have enough money to enjoy the lifestyle they want in retirement,” said Alison Konrad, Professor of Organizational Behavior at the Richard Ivey School of Business, University of Western Ontario. “The average Canadian woman earns about 66 per cent of what the average Canadian male earns. So even though women tend to put a larger percentage of their income into their retirement nest eggs, men save almost $1,900 more each year.”

Measuring Canadians’ overall retirement confidence

The Sun Life Canadian Unretirement(TM) Index measures the confidence that Canadian workers have towards issues that influence retirement. The lower the index number, the more negative or pessimistic the outlook is on issues that influence retirement.

This second of multiple studies yielded an overall index score of 51 on a scale of 0 to 100, compared to a score of 50 in December 2008. This compares to the American Unretirement(SM) Index score of 44.

Confidence levels were significantly higher for Canadians who worked with a financial advisor. The overall index score was 51 for all working Canadians surveyed. Those who did not have an advisor scored 48, while those Canadians surveyed who have worked with an advisor for a year or more were much more confident, scoring 54.

The Index is a blend of confidence scores in five sub-indices: Macroeconomics (score = 40), Government Benefits (score = 47), Personal Finance (score = 49), Employer Benefits (score = 47), and Health (score = 70).

Which of these describes what you think you will be doing at age 66, shortly after the normal retirement age?

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                      Women    Men  Women    Men  Women    Men  Women    Men
                     --------------------------------------------------------
                      30 to  30 to  40 to  40 to  50 to  50 to  60 to  60 to
                         39     39     49     49     59     59     65     65
    -------------------------------------------------------------------------
    Working full time    7%    13%    13%    17%    13%    21%    15%    32%
    -------------------------------------------------------------------------
    Working part time   24%    29%    19%    31%    26%    35%    31%    36%
    -------------------------------------------------------------------------
    Fully retired/
     not working for
     money              68%    57%    68%    51%    59%    43%    53%    31%
    -------------------------------------------------------------------------
    No longer living     1%     1%     1%     1%     2%     1%     1%     1%
    -------------------------------------------------------------------------

What should a retirement plan address?

    -----------------------------------------------------------
                                                  Women    Men
    -----------------------------------------------------------
    Won't have money to leave to heirs              42%    37%
    -----------------------------------------------------------
    Changes in marital status                       48%    37%
    -----------------------------------------------------------
    Family members have unforeseen financial
     needs                                          54%    50%
    -----------------------------------------------------------
    Financial market risk                           60%    58%
    -----------------------------------------------------------
    Death of a spouse                               67%    56%
    -----------------------------------------------------------
    My rate of return won't be high enough          66%    59%
    -----------------------------------------------------------
    Employment risk - job market or personal
     health problems                                65%    59%
    -----------------------------------------------------------
    Employer health benefits stop when I stop
     working                                        62%    63%
    -----------------------------------------------------------
    Money will be locked in when I need it          66%    64%
    -----------------------------------------------------------
    Low interest rates                              71%    60%
    -----------------------------------------------------------
    Money won't last my full lifetime               67%    64%
    -----------------------------------------------------------
    Long-term care needed                           72%    60%
    -----------------------------------------------------------
    Poor health results in extra costs or
     care needed                                    71%    68%
    -----------------------------------------------------------
    Inflation                                       79%    71%
    -----------------------------------------------------------

Methodology

The study was conducted by Fleishman Hillard from August 17, 2009, to September 9, 2009. Telephone interviews were conducted by Interviewing Service of America using a random-digit dial (RDD) sampling method. Quotas and weights were applied to gather a sample of 1,202 people working either full- or part-time, which was representative of the Canadian working population between the ages of 30 and 65. The sample was also representative in terms of gender and region census break. Analysis and construction of indexes involved the application of factor analysis. Final indexes are based on summated averages across the attributes which make up an index.

Age groups were divided by workers in their 30s, 40s, 50s, and 60+ and by three ranges of total assets, not including the net worth of the person’s place of residence (less than $100K, between $100K and $500K, and greater than $500K). This sample has a margin of error of plus or minus three per cent at the 95 per cent confidence interval.