Paul Tyler

4 Reasons for a Retirement Hardship Withdrawal

April 21, 2023 2023, Media, Paul Tyler No comments

By Brian O’Connell | April 18, 2023

Retirement plan hardship withdrawals are increasingly prevalent throughout the U.S. in recent years, with multiple reasons for the trend.

According to data from Vanguard Group, more Americans took retirement withdrawals in the last quarter of 2022. In fact, hardship withdrawals from 401(k) plans reached an all-time high in October 2022.

Retirement savings experts cite high inflation, rising credit card debt and lack of savings for the shift toward higher 401(k) plan withdrawal activity.

“Retirement plan withdrawals make sense when there is no other reasonable option available, such as when money is needed for an emergency expense,” says Michael Collins, chartered financial analyst and professor at Endicott College in Beverly, Massachusetts. “Hardship withdrawals are also an option for those experiencing an immediate and heavy financial burden, such as job loss, illness or disability.”

Before you raid your 401(k) or IRA for early cash, get to know the realities – and the benefits – of taking out a retirement plan hardship loan.

401(k) Loan vs. Retirement Plan Hardship Loan

Retirement plan withdrawals are different from 401(k) loans, and plan participants should know the difference before taking money out.

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“Retirement plan withdrawals are when money is taken from the plan in order to cover a financial hardship, such as medical expenses, funeral costs, higher education expenses, home repairs, purchase of a primary residence or to prevent eviction or foreclosure,” Collins says. “401(k) loans are taken from an investor’s account and paid back with interest over a period of time.”

High loan costs. The main downside of taking out retirement plan savings from 401(k)s and IRAs is that, in doing so, savers are grabbing cash from their retirement-bound future selves.

“First of all, you’ll pay an effectively huge fee to tap into your account – usually 10% plus federal and state taxes,” says Paul Tyler, chief marketing officer of Nassau Financial Group in Hartford, Connecticut. “Second, you’ll lose the long-term compounding effect of every dollar you pull out of your account.”

For example, take a retirement savings account that grows at a modest 6% over a 20-year period. “Withdrawing even $100 is really like taking over $320 from your future self,” Tyler says.

It gets worse the earlier you take out the loan. “A $10,000 hardship distribution for an employee in the 25% tax bracket would pay $3,500 in taxes and penalties,” says Greg Mykytyn, senior vice president at Commerce Street Peak Advisors in Dallas. “A 35-year-old taking a $10,000 hardship distribution would reduce their retirement savings by $110,000 assuming an 8% rate of return.”

That’s not the goal with 401(k) plan savings. “They’re designed savings to create your income in retirement, not reduce it,” Mykytyn notes.

401k Hardship Withdrawal Reasons

Real life has a way of intruding on personal money management issues, and there are instances when a hardship retirement plan withdrawal may be justified. These household financial scenarios fall into that category.

1. Medical Emergencies

When do retirement plan withdrawals make sense? Start with medical costs.

“There are situations where the need to get money to cover a short-term financial emergency is stronger than the need to contribute to your long-term financial health,” says Megan Yost, senior vice president and retirement plan engagement strategist at Segal Benz, the communications division of Segal, a human resources and benefits consulting firm. “For example, medical care expenses for yourself or a loved one or housing payments necessary to prevent eviction.”

2. Home Repairs

If your home is damaged in a natural disaster such as a hurricane or tornado and you don’t have the funds to cover the repairs, a hardship withdrawal may be necessary.

“However, it’s important to explore other options such as disaster relief programs or loans before tapping into your retirement savings,” advises Glen Hedrick, a financial advisor at Old North State Wealth Management in Wilmington, North Carolina.

3. Eviction or Foreclosure

If you’re facing eviction or foreclosure and you don’t have the funds to catch up on payments, a hardship withdrawal may be necessary.

“Try exploring other options, such as loan modification or refinancing, before tapping into your retirement savings,” Hedrick says.

4. Funeral Expenses

If you have an unexpected death in the family and you don’t have the funds to cover the funeral expenses, a hardship withdrawal may be necessary.

“Examine other options, such as life insurance or personal loans, before tapping into your retirement savings,” Hedrick adds.

Use Loans as a Last Resort

A retirement plan withdrawal before age 59 1/2 should be a last resort.

“You want to make sure that you have exhausted all other alternatives first,” says Kendall Meade, a certified financial planner with SoFi, in San Francisco. “It may make sense if you have exhausted all other options and are unable to keep up with your essential bills.”

Early Retirement Savings Plan Withdrawals: The Bottom Line

As part of the SECURE Act 2.0 legislation passed last December, Congress included a provision allowing Americans to pull up to $1,000 from their 401(k) or IRA tax-penalty free.

That doesn’t mean you should make raking cash out of your retirement account a regular pastime. “Talk to a financial advisor before you make any decisions about how to handle a financial emergency,” Yost advises. “Many employers offer free financial advice as part of their benefits. And don’t be shy about asking if the financial advisor is a fiduciary, which means they’re obligated to keep your best interest in mind.”

Additionally, many employers have started offering a broader range of benefits to help people manage both their short- and long-term financial needs.

“Employees should explore the benefits that are available to them through their workplace, including financial counseling and advice,” Yost adds. “Still, a financial advisor can best help you make personalized decisions about the best ways to access cash in an emergency with the least negative consequences to your overall financial situation.”

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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.

Annuity Issuers Vie for Shelf Space as Small Distributors Are Rolled Up

April 11, 2023 2023, Media, Paul Tyler, Scott Hawkins No comments

Annuity issuers are operating in an increasingly concentrated marketplace, but also one where the ranks of the top sellers have been fluid recently.

By Warren S. Hersch|March 29, 2023

Annuity issuers are increasingly competing for product shelf space, as private equity-owned aggregators gobble up agents and brokerage firms.

That has pushed issuers to make it easier for distributors to do business with them, said Scott Hawkins, head of insurance research at the global investment management firm Conning, who spoke at a retirement technology forum on Monday.

They must be able to serve increasingly larger distributors efficiently while continuing to cater to the many smaller firms.

“This means their wholesaling operations have to be top-notch,” he said, adding the carriers must establish relationships with independent marketing organizations that can effectively manage relationships amid the ongoing consolidation.

The Monday event, hosted by Nassau Financial, was held at the Applied Innovation Exchange offices of Capgemini, an information technology services and consulting firm.

Acquisitions between 2018 and 2022, including buyouts of asset managers, insurance agencies and broker-dealers, were driven in part by a wave of retirements of older agents and advisors looking to sell their business, Hawkins said. Increased costs of doing business because of expanding regulatory requirements, and the need to invest in new technologies, also contributed to the trend, he said.

Hawkins also identified as a key trend concentration in the life insurance industry. The top 25 carriers in 2021, the last year for which data is available, generated more than 80% of premiums, he said. And the top 10 carriers nabbed about half the total.

“That’s important because these big players can command distributor shelf space,” he said.

But there also has been fluidity in rankings near the top, Hawkins added, observing that 13 of the top 25 carriers had moved up or down by at least five places over the five-year period from 2017 to 2021. So, for example, if a carrier was ranked 11th in sales for a product category in 2017 and then 3rd in 2022, it rose eight positions in the rankings.

Fluctuating consumer interest in the products underpin these changes, and this fluidity has driven new product development, he said.

Hawkins said the rise in interest rates has led to an increase in life insurers’ portfolio yields, reversing the squeeze on profitability in earlier years.

Citing Limra data, he noted the uptick in yields boosted rates paid on fixed-rate annuities: The average amount credited on five-year guaranteed annuities rose to 4.3% in December from 1.9% in January of 2022. The rise led to a spike in sales of the fixed-rate products. Meanwhile, variable annuity sales fell 20%, the result of a less bullish stock market.

Restructuring of the Annuity Market

Hawkins framed a restructuring underway in the annuity market in terms of sellers and buyers of annuity policy liabilities. Sellers, he said, want to offload blocks of fixed annuities because the rates paid the on contracts are higher than what they’re earning on their investment portfolios.

And they’re angling to divest less profitable variable annuity contracts. Hawkins said stock market volatility has forced carriers to increase reserves to support guaranteed living benefits. A rise in the cost of carriers’ variable annuity hedging programs, and their wanting to redeploy capital to other, higher-growth businesses, also underpinned moves to offload these contracts, he said.

But the buyers, mainly private equity-owned companies, have already purchased much of the low-hanging fruit: closed blocks of fixed-rate annuities that they could acquire at low cost.

As their returns on investment decline, annuity issuers have shifted their sights to other areas, including focusing more on businesses selling variable annuities and individual life policies and arranging pension risk transfer deals. They’ve also moved into funding agreement-backed securities and making loans, Hawkins said.

“Companies are acquiring a source of private credit, which they’re using to increase their investment returns,” he said.

Hawkins said that investments in insurance technologies have resulted in improved productivity, as measured by a greater rise in premiums written in recent years (up 52%) relative to employee headcount (up 13%).

“That suggests that this technology investment is paying dividends,” he said. “Insurers are able to do more business with fewer people, and the people they have are focused on doing the high, value-added activities that support growth and profitability.”

The technology investments he added, have also spurred carriers to shed through automation low-paying administrative and clerical positions, and to increase recruitment of more expensive, high-value workers in much demand, including people with computer and mathematical skills.

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How Much Should You Have in Retirement Savings at 65?

April 10, 2023 2023, Media, Paul Tyler No comments

At age 65, you may be retired or preparing to retire soon. It’s an age when you may be concerned about the size of your retirement nest egg.

If you’re already retired, will it be enough to last for the rest of your golden years? If you’re not yet retired, how much more should you aim to save to get your nest egg to a place where you can stop working and have peace of mind?

While there is no one-size-fits-all answer to this question, there are a few rules of thumb you should keep in mind.

Aim for $700K at a Minimum

Larry Hendrickson, founder and managing partner at G&H Financial Group, notes that the amount of retirement savings you should have if you retire at 65 will depend on your personal living costs. It also will depend on whether or not you want to leave an inheritance.

He broke down a few scenarios to see how far different amounts of savings would go if you are a single individual with a desired annual retirement income of $55,000 or a married couple with a desired income of $75,000.

His calculations assume an average annual Social Security benefit payment of $30,708 per year for singles or $61,416 for couples, an inflation rate of 3.5% up to age 80 and a rate of 2.5% thereafter, a Social Security inflation rate of 1.5% and an investment return rate of 4% up to age 95.

“A single individual with $800,000 in a retirement account, spending $55,000 a year with 3.5% inflation and a rate of return of 4% will run out of money at age 95,” he said. “If they passed away at 94, there would be $28,141 left in the retirement account. If the individual desired to leave a legacy, they would need a balance of $900,000 in their retirement. Then at age 95, their beneficiaries would divide $269,985.

“A married couple with $700,000 set aside for retirement would leave $23,979 if they lived until age 95,” he said. “With a retirement account [balance] of $800,000, they would leave $348,328.”

At $900,000, the remainder would be $672,658. At $1 million, it would be $996,998.

Bill Waggoner, partner at Stoney Creek Advisors, LLC in Rochester Hills, Michigan, recommends that a couple who is 65 aim for $1 million in retirement savings.

“Every case is special because everyone has different goals, expenses and needs in retirement,” he said. “As a rule of thumb today, for the average middle-American couple around age 65, I usually suggest accruing a portfolio of around $1 million to retire comfortably and avoid returning to work during retirement.”

How To Calculate Your Ideal Retirement Savings Amount at 65

Paul Tyler of Nassau Financial Group in Hartford, Connecticut, notes that calculating your ideal retirement savings amount can be quite complex.

“You first need a very clear-eyed view of your income and expenses in retirement,” he said.

Income includes Social Security, pensions, annuities and other sources of income, such as rental property. Expenses should include day-to-day expenses, healthcare costs and some financial cushion for unexpected expenses.

Once you know these numbers, use the “4% drawdown rule” to calculate the savings needed, Waggoner said.

“This is one of the oldest ‘rules’ in retirement planning,” he said. “The 4% drawdown rule states that you should be able to take 4% from your investments annually without touching your principal. This approximation is based on the historical 4% to 5% average growth rate that most financial advisors use to gauge growth in retirement investments.”

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What Gen X Women Need To Know To Get Ready for Retirement

April 10, 2023 2023, Media, Paul Tyler No comments

Gen X women are now between the ages of 43 and 58, which means retirement is on the not-too-distant horizon for some of them. However, instead of looking forward to this phase of life, many women in this generation dread it.

A 2019 study conducted by the Employee Benefit Research Institute found that members of Generation X feel less confident about retirement than millennials and baby boomers. The study found that over half of Gen Xers don’t believe their current financial circumstances will allow them to live comfortably throughout retirement, afford the same lifestyle in retirement, have enough money to last their entire life or cover basic expenses in retirement.

So why is this generation, in particular, feeling so anxious about retirement? And why could women be more at risk for feeling this way? Here’s a look at why Gen X women may feel less prepared for retirement than boomer or millennial women, and what they can do to feel more ready.

Reasons Gen X Women Don’t Feel Ready for Retirement

Several factors could lead Gen X women to feel they are not prepared for their retirement years. Here’s a look at some of the hurdles women of this generation could be facing.

Debt

Student loan debt could take more of a toll on the finances of Gen X women than women of other generations.

“Gen X is the first generation of women for whom student loans are a significant financial burden,” said Melissa Mabley Martin, wealth advisor at Bartlett Wealth Management. “The oldest baby boomers paid an average of $243 per year for tuition at a public college and $1,088 for a private college. It was possible to ‘work your way through school.’ By the time Gen X entered university, costs had skyrocketed at a rate well above general inflation, and it was no longer financially feasible for the average person without significant savings to get through school without loans.”

Although millennials are also burdened with student loan debt, Mabley Martin believes a lack of financial literacy may play a role in why Gen X could have taken on more debt than the next generation.

“The difference between Gen X and millennials is that millennials are likely better educated about the consequences of taking out excessive student loans,” she said. “Gen X was sold hard on the importance of getting a good education so that you could get a higher-paying job — in essence, that the degree would pay for itself with a higher salary. Millennials went in with their eyes wide open, and also benefitted from lower rates on fixed federal student loans.”

The Economy

While every generation has had to weather certain economic storms, the state of the economy has taken a toll on Gen X in particular.

“When the ‘tech wreck’ and September 11th happened, Gen X was in their early 20s to mid-30s — peak years to save for retirement,” Mabley Martin said. “When the financial crisis hit, most women in Gen X were mid-career. Unemployment skyrocketed and savings stalled during those prime earning years. The COVID recession a little more than 10 years later was short, but the fallout from the pandemic forced many women to leave the workforce altogether either to supervise remote learning or to care for aging parents.”

The Caregiving Conundrum

Gen X women have had to bear the brunt of caregiving — times two. This can take a major hit on their ability to save for retirement.

“Generation X is commonly referred to as the ‘Sandwich Generation,’ saddled with providing care and financial support to both their parents and their children,” Mabley Martin said. “According to the AARP, the average caregiver in America is a 49-year-old woman. These caregiving responsibilities are unpaid and, unsurprisingly, are reported to be affecting a woman’s ability to save for retirement. And it doesn’t end when those children reach adulthood. More than half of adults ages 18 to 29 reported being supported financially by their parents.”

Changing Retirement Income Options

“Defined benefit programs, [aka] pensions, were common for baby boomers — not just for government employees but at the corporate level,” Mabley Martin said. “These are virtually nonexistent today.”

In addition to not having the same access to pensions as their predecessors, the Social Security program may look different by the time Gen X reaches their retirement years.

“Social Security, which is a primary source of retirement income for the majority of Americans, is projected to have a shortfall beginning in 2035,” Mabley Martin said. “For beneficiaries 60 and younger, the Social Security statements now contain what is essentially a warning that they will be able to pay out approximately $800 of every $1,000 in current benefits given current laws. Millennials should have enough time to pivot and make plans to supplement any potential shortfall in Social Security benefits, but the oldest Gen X women are now rapidly approaching 60. It may be too late to do anything other than push out your retirement date and continue to work.”

What Gen X Women Can Do To Prepare for Retirement

Although it may seem like the deck is stacked against them, there are still levers Gen X women can pull to increase their retirement readiness. The No. 1 thing to do is create a solid financial plan, Mabley Martin said.

“Careful financial planning is essential to a successful financial future,” she said. “This isn’t just true for Gen X women, but it’s going to be particularly important [for them] because, unlike members of younger generations, their savings don’t have the benefit of a long time horizon. They may need to save more or work longer or both in order to ensure they have sufficient resources to fund their retirement.”

Paul Tyler of Nassau Financial Group in Hartford, Connecticut, notes that it’s important for women of this generation to have their own retirement savings, independent of their spouses.

“Women in particular need to recognize they will likely outlive their spouse or partner, and actively plan to build predictable income for later in retirement,” he said, “whether through an IRA, 401(k) or annuity.”

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Are I Bonds a Good Investment for Retirees?

March 29, 2023 2022, Media, Paul Tyler No comments

Brian O’Connell
March 24, 2023

For retirees, I bonds represent a robust portfolio option in 2023 – and savvy investors know it.

Take the March 2023 I bond composite rate, which stands at 6.89%. That’s a good and safe return for retirement investors, who know only too well that capital preservation is the name of the game in retirement.

Add a decent and guaranteed asset appreciation, and it’s no surprise that investors are lining up to purchase I bonds. In January 2023, I bond sales crested $4.2 billion – that’s a new record for any January since I bonds were created in 1998.

What do retirees need to know about I bonds, and how to buy them? Here’s a quick checklist.

I Bonds Defined.
Return Risk.
Laddering Strategy.
Good Tax Benefits.
How to Buy I Bonds
Investment Caveats.

I Bonds Defined

Known more formally as Series I U.S. Savings Bonds, I bonds are inflation bonds issued by the U.S. government. They’re especially useful for retirees, who need guaranteed income and asset appreciation in retirement.

“For retirees, they’re a safe investment,” says Rachel Christian, senior writer for The Penny Hoarder and a certified educator in personal finance. “The U.S. government has never defaulted on its bonds, so your money is well-protected. If inflation goes back up, you’ll get a higher interest rate, which can be a great hedge against inflation during retirement.”

The government offers I bonds to all investors, but especially retirees, as a personal firewall against runaway inflation.

“In a high inflationary period – like today – investment and economic risk are very real for retirees,” says Paul Tyler, chief marketing officer at Nassau Financial Group. “The tradeoff is that the rate is guaranteed only for six months versus other kinds of bonds that offer a set interest rate for the duration of the bond.”

I bonds don’t pay interest as you own them. Rather, the interest accrues and you get paid when you sell or the bond matures.

“You can cash them in after a year of purchase, but if redeemed within five years you will lose three months’ worth of interest,” says Brian Walsh, senior manager of financial planning at SoFi.

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7 Things To Know About Social Security and Retirement for 2022

October 5, 2022 2022, Media, Paul Tyler No comments

Given that a recent GOBankingRates survey found that 23% of Americans have nothing saved for retirement, it’s clear that many will be relying on Social Security to fund their golden years. And even if you do have retirement savings, you’ll want to be strategic about taking your benefits in a way that’s optimal for you.

Gabrielle Olya

September 26, 2022

You Shouldn’t Rely on Social Security To Fund Your Whole Retirement

If you’re expecting Social Security to fully fund your retirement, you could be in for a rude awakening. The average monthly benefit is $1,542.22 as of June 2022.

“Social Security today only covers a portion of the average American’s expected income needs in retirement,” said Henry Yoshida, CFP and CEO of Rocket Dollar, an investment platform that allows individual investors to use tax-advantaged funds for alternative investing.

If you’re in that 23% of Americans who have nothing saved, start saving ASAP so that you’ll be in better financial standing when you reach retirement age.

Delaying Taking Your Benefits Can Pay Off

You can start to collect Social Security benefits at age 62, but it may pay off for you to wait.

“If you are able to delay taking Social Security after eligibility, you can significantly increase the income [compared to] that minimum amount at the earliest possible access date,” Yoshida said. “For example, if you take Social Security at 62 and your income is $2,364, if you can wait to access Social Security until age 70, the income is $4,194.”

However, Waiting Until Age 70 Isn’t Always the Best Option

It’s true that if you delay taking Social Security until age 70, the amount you receive will be larger than if you start receiving your benefits before, but this doesn’t mean this is always the best option.

“You need to evaluate how that decision impacts your asset balances over time,” said Emily Casey Rassam, senior financial planner at Archer Investment Management. “If you look at the complete picture, which includes a projection of your investment portfolio balance over time, it may make more sense for you to take Social Security earlier. Often, if you delay Social Security until age 70, you are drawing down assets significantly, and that can hurt your long-term asset trajectory. Like all financial decisions, a comprehensive financial plan can tell the whole story and help you make decisions with all of the relevant data organized.

65 Isn’t the Full Retirement Age for Everyone

When deciding when to collect Social Security, it’s important to understand what you’ll receive at what age.

“Age 62 is the earliest you can take benefits. For every year an individual delays taking benefits beyond their full retirement age — which varies depending on when you were born — through age 70, the annual benefit increases by 8%,” said Richard Freeman, senior director and wealth advisor at Round Table Wealth Management. “Conversely, for every year an individual takes benefits earlier than their full retirement age, their annual benefit is decreased 8%.”

Freeman said that his clients often assume their full retirement age is 65, but this is not always the case. If you were born in 1943 or later, your full retirement age ranges from 66 to 67.

Your Benefits Are Calculated Based on your 35 Highest-Earning Years

It’s important to understand how the Social Security Administration calculates your benefit amount.

“The primary insurance amount — or amount you get based on your own record — is based on the worker’s highest 35 years of earnings,” said Herman “Tommy” Thompson, Jr., a certified financial planner with Innovative Financial Group in Atlanta. “Most people think it’s based on your last five years. I’ve been talking about Social Security for 18 years and every time I say this, someone is surprised!”

Your Spouse (or Former Spouse) Can Impact Your Benefit Amount

Thompson said it’s important to understand how benefits are calculated when you are the surviving spouse.

“When a spouse dies, the higher Social Security amount remains for the [surviving] spouse, assuming they were married for at least nine months,” he said. “Not half. Not both. The higher remains. Widows and widowers can claim as early as age 60.”

And if you are divorced, you may be able to claim your ex-spouse’s benefits.

“A divorcee can still claim on an ex-spouse’s record if: (1) The individual is at least 62, (2) they were married for at least 10 years, (3) the individual is currently unmarried and (4) the ex-spouse is receiving a benefit or has been divorced for at least two years,” Thompson said.

Social Security (Probably) Won’t Run Out

You’ve likely seen headlines about Social Security running out in 2035 — but this is a worst-case scenario and not something that should cause you to panic. However, you may need to adjust your retirement plans depending on how the gap in funding will be bridged.

“The death of Social Security has been greatly exaggerated,” said Paul Tyler of Nassau Financial Group in Hartford, Connecticut. “If Congress doesn’t add additional funds to the trust, payroll taxes on current workers will continue to support the program. However, the taxes would not fund 100% of the expected benefits. The gap could be closed by imposing means testing, deferring full retirement ages beyond 67 or increasing taxes on benefits. Any of these modifications would require many people to adjust their retirement plans.”

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Financial Literacy Is Not A Passing Grade On A Finance Exam Or Having A Large Bank Account

September 7, 2022 2022, Media, Paul Tyler No comments

MP chatted with Paul Tyler, Chief Marketing Officer for Nassau, leading the marketing strategy, direct-to-consumer channel, and innovation activity. Tyler drives the branding of insurance companies and affiliated asset management companies. He built a direct-to-consumer channel for Nassau Financial Group. In addition, Tyler launched Nassau Re/Imagine, an Insurtech-focused incubator based in Hartford. Before his role at Nassau Financial Group, Tyler worked at other insurance companies in various roles in strategy, marketing, operations, technology, sales, and compliance. He earned his A.B. from Princeton University and his J.D. from Cornell Law School.

Personal Finance Generally

What is financial literacy, why do so many people struggle with it, and how can we become more financially literate?

I’d first start with what financial literacy is not.

It’s not receiving a passing grade on a finance exam.

It’s not having a large bank account.

It’s not staying current with market news.

Achieving financial literacy means that you 1) are both aware of and shape your financial habits, 2) make smart decisions with your money, and 3) allocate your savings in a manner that leads to long-term financial stability.

How can we manage our money more confidently, and what would this look like in practice?

Start with innovative, small steps.

Many studies have proven that significant behavior changes start when a person makes small changes consistently over time.

For instance, people who weigh themselves daily tend to be more successful in managing their health. A similar easy financial step is simply setting the same time each week to review your account balances and weekly charges.

Once every three months, take a look at your retirement plan balance.

Simply creating awareness will start to have a very positive effect on your outlook and behavior.

How does our health affect our wealth, and what can we do to ensure we’re on track to a prosperous future?

Health, wealth, and happiness are connected at the hip.

Studies have proven that credit scores correlate with life expectancy.

Does one directly impact the other? I’ll leave that for future scientists. However, it intuitively makes sense that someone who pays their bills on time has less stress than someone who doesn’t. That person probably also gets regular checkups with the doctor. The person probably also exercises moderately every week.

Start building some order in your life today!

Budgeting and Saving

What three out-of-the-box strategies can you share to help us improve our personal budgeting, and why these three?

Turn savings into a game. Good rewards can quickly change behavior.

1. “Round Up”

The first game is to save your change simply.

Roll up each transaction to the nearest dollar and transfer the change to your savings account. You will be surprised how fast your savings grow. Many banks have automated programs that make this easy to do.

2. “Put a Prize on the Table”

The second is to create a set of personal rewards for saving a certain amount of money each month.

These could range from going to a special restaurant to getting the headphones you always wanted. You must carefully consider what savings targets make sense and what you can reasonably achieve.

3. “You Really Did Save…”

If those aren’t enough, try the “receipt game.”

Every time you get a receipt from a store or pharmacy, you usually have an amount the store claims you saved.

Make it real.

Transfer that amount from your checking into your savings account.

What strategies should we use to save more, and why might these be the most effective?

The most successful long-term savings plan is to spend less than you earn. Spending is the only lever that’s really under our full control.

If you carefully control your expenses, your savings account will grow. This means challenging a lot of your monthly expenses that may not really be essential.

What should we look for in a bank account, how might this change be based on our financial situation, and why?

Never leave your money and forget it.

Figuring out the best bank account does depend on the stage of your financial journey. If you are just starting, you should pay close attention to fees and minimum deposit requirements. Great savings habits can be crushed if high fees wipe away the results.

Also, pick a bank with one of the free, automated savings programs that will grow your account balances. Later in life, as your balance grows, you will want to pay close attention to the yields you earn and the ability to link the account to a low-cost brokerage account easily.

Handling Debt

What steps should we take to reduce our current debts, and why?

The first step is to figure out how to get your effective interest rate as low as possible. Credit card debt is the most expensive. Generally, a home equity loan is one of the cheapest. Consolidate the debt on the most favorable terms possible. You may be able to get all debt moved to a card with a low A.P.R. If you are lucky, you may be able to pay off the credit card with a home equity loan. Once you have done this, start paying it off as fast as possible. You will likely need to change your spending habits. However, if you don’t, the long-term consequences can be destructive.

What are some commonly made debt reduction mistakes, and how can these mistakes be avoided?

My biggest mistake is people paying off the wrong bills first. The financial firm with the most effective collection process may not be the first to pay if the total interest is the lowest. Prioritize paying off the bills with the biggest drag first.

Investing

What three out-of-the-box tips can you share to help us better approach personal investing, and why these three?

Even in a rapidly changing world, some basic investment principles remain constant.

1. Don’t try to time the market

Keep investing consistently in the market through your 401(k) or a brokerage account.

2. Allocate your assets to sectors, not stocks

Over time, how much of your money is in stocks v. bonds will matter much more than whether you properly timed your investment in Tesla.

3. Don’t overreact to market events

Ignore the ups and downs and keep your money hard at work where it should be kept.

What are smart places to park cash, and why?

Before retirement, keep your savings in a smart mix of high-yielding savings and bank CDs.

As you near retirement, explore the benefits of allocating some to fixed annuities that will create tax-deferred accumulation and higher interest rates over a 3- to 7-year period.

Should investments into VC funds be included in one’s portfolio?

Don’t even consider putting money in a VC fund until you max out your traditional retirement savings.

And even at that point, be cautious.

You will see portfolio recommendations ranging from 1-2% to 10-20% in alternatives.

Remember that venture capital funds tend to be less liquid than most alternatives.

While the return may be high, the time horizon to realize that result maybe 5 to 10 years.

Insurance

What types of insurance should we consider being covered by, and why?

Life and business events drive your insurance needs.

Insurance is an asset that should match a liability on our balance sheet. Life events create liabilities.

For instance, when you rent an apartment, you need insurance to protect your property and protect you from getting sued by other tenants for the damage caused by your leaky faucet.

If you have kids, you need insurance to pay for their care if something terrible happens to you.

When you buy a house, you’ll need homeowners’ insurance.

If you start a business with a partner, you’ll need insurance to cover expenses if something happens to one of you.

When you get closer to retirement, you should consider protecting some of your savings from an ill-timed market downturn with an annuity.

Other

Everyone should take their financial security into their own hands.

Educate yourself and your loved ones.

Build a plan.

And most importantly, act on it!

Responses provided by Paul Tyler, Chief Marketing Officer for Nassau.

Topic Contributors

Questions based in part on topics and comments provided by:

Jen Hemphill, Accredited Financial Counselor at Association for Financial Counseling and Planning Education (AFCPE®)
Herman Thompson, Jr., CFP®, ChFC®, Certified Financial Planner® at Innovative Financial Group
Leslie H. Tayne, Esq, Financial Attorney and Founder/Managing Director at Tayne Law Group
Linda Hamilton, Executive Vice President and Chief Operating Officer at Iroquois Federal
Ann-Marie Anderson, Financial Advisor at PHP Agency
Paul Dilda, Head of Retail Strategy, Products and Segments at BMO Harris Bank at BMO Financial Group
Matthew Benson, CFP® Owner and Certified Financial Planner™ at Sonmore Financial
Josh Richner, Outreach and Marketing Coordinator at National Legal Center
Ken Tumi, Founder at DepositAccounts.com and expert at LendingTree
Martin A. Federici, Jr., Chief Executive Officer at MF Advisers, Inc.
Ba Minuzzi, Founder and Chief Executive Officer at UMANA

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How To Save for Retirement as a Single-Income Earner

August 23, 2022 2022, Media, Paul Tyler No comments

Planning for retirement is challenging for everyone, but it can be especially difficult for single individuals. Single-income earners need to prepare financially without the decision-making and income support of a spouse or partner. How can they get ahead of retirement and long-term financial planning?

If you’re planning on retiring single, take these steps to ensure you are able to positively position yourself for retirement.

Create a Financial Fallback Plan

Single-income earners may discover there’s a gap between what they think they need for retirement and what is actually required. Scott Pedvis, financial advisor with Wells Fargo Advisors, recommends singles create a financial fallback plan.

“A financial backup plan can involve a higher cash emergency savings and more robust disability and long-term care insurance protection than couples might select,” Pedvis said.

Without a second income, Paul Tyler, chief marketing officer at Nassau Financial Group, said a single person really has only one retirement saving lever to pull which is clearly labeled “expenses.” Singles may adjust their everyday lifestyle to help keep expenses low and embrace the habit of being intentional when it comes to making changes in financial planning.

Retire Comfortably

“A single person doesn’t have a partner to help think through the tough questions, including how to care for elderly parents, pay for healthcare if employment ends earlier than planned and covering inevitable long-term care costs,” Tyler said. “The decision process may be simpler with only one voice in the conversation. However, you need to prompt the dialogue yourself.”

Build a Network of Professional Advisors

While a single individual may prompt financial planning dialogue on their own, they do not necessarily need to go about every aspect of retirement alone.

If you need advice about important financial matters, don’t be afraid to reach out for guidance and support. Pedvis said singles retiring can build a trusted network of professional advisors. Among these members include a financial advisor, accountant, attorney and healthcare providers to be allies in their corner.

What about the role of family and friends in your network? Pedvis said it’s great to have strong relationships with friends and family to help you in times of need. However, single individuals need to make sure neither friends nor family members take advantage of their independent status or create serious financial burdens for you.

Retire Comfortably

Take extreme care before turning over your financial matters and decisions to anyone else, whether they are a loved one or a professional. Pedvis recommends single individuals stay actively involved in these decisions and work alongside people they trust to make decisions in their best interests. In the event you should become incapacitated, consider evaluating the possibility of engaging a corporate trustee to manage your finances.

Get Estate and Wealth-Transfer Plans in Place

Don’t delay when it comes to estate planning. Gather together the following key documents to form the foundation of an estate plan.

Will
Power of attorney (POA) for financial matters
Durable power of attorney for healthcare
Health Insurance Portability and Accountability Act (HIPAA) release authorization
Living will
Revocable living trust

“Carefully designate beneficiaries of assets in IRAs, employer-sponsored retirement plans, insurance policies and annuities,” Pedvis said. “Lay out clear directions for the distribution of remaining assets for your heirs and don’t forget about your digital assets and accounts.”

Plan for Change

Someone who plans to retire single may still experience life changes before their retirement date.

There’s still time for singles to enter into committed relationships or get married. If any of these life events happen, Pedvis said to make adjustments accordingly in your financial plan and plan for change.

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The Retirement Safe Withdrawal Rate Explained

August 23, 2022 2022, Media, Paul Tyler No comments

A reliable stream of funds to live on is a necessity for retirees. When a retirement fund is depleted, the retiree must rely on other sources of income to survive or return to work if possible. However, a properly calculated safe withdrawal rate can keep you from spending down your retirement savings too quickly.

A safe withdrawal rate:

Helps you avoid running out of money in retirement.
Will need to account for up and down stock market years.
Depends on the account holdings and risk exposure.
Can be used to pay for retirement expenses.

What Is the Safe Withdrawal Rate Method?

A safe withdrawal rate represents the maximum percentage of retirement funds a retiree may take from an investment portfolio on an annual basis without depleting the investment account too soon. Once you have determined a safe withdrawal rate, a retiree can then go ahead and plan a reliable household budget for retirement that may stretch 30 years or more.

How to Calculate a Safe Withdrawal Rate

Like the 4% retirement withdrawal rule, the safe withdrawal rate model usually leads to a retiree using no more than 3% or 4% of their total available retirement investment funds on an annual basis. For example, a 60% stocks and 40% bonds retirement portfolio allows for a 4% withdrawal rate with a high degree of confidence that the retiree will have sufficient funds for a 30-year retirement. “You could put 60% of your money in the S&P 500 and the 40% balance in an A+ corporate bond fund,” says Lyle Solomon, principal attorney of Oak View Law Group in Rocklin, California. “That scenario is simple, as there’s nothing more to think about other than collecting the money.”

To follow this withdrawal protocol, you would withdraw 4% in the first year of retirement, and that amount gets increased by the amount of inflation in subsequent years.

If your nest egg is $100,000:

Year 1: 4% of your $100,000 nest egg is $4,000.
Year 2: If there was a 3% inflation rate, you would withdraw $4,120.
Year 3: If there was a 2% inflation rate, you would withdraw $4,202.

However, a retiree doesn’t have to withdraw exactly 4% of his or her nest egg annually and could make adjustments based on stock market performance. You could choose to reset your withdrawal rate if the value of your retirement nest egg drops from year to year. “In that scenario, you could reset that year and restart at a 4% withdrawal rate of what’s left,” Solomon says. “In contrast, if your nest egg is growing by leaps and bounds, you could choose to increase the withdrawal rate.”

Pros and Cons of the Safe Withdrawal Rate Strategy

Like any investment management strategy, the safe withdrawal rate has its upsides and downsides. “The primary benefit of the safe withdrawal rate method is that it’s simple to understand and can encourage people to control their expenses,” says Paul Tyler, chief marketing officer at Nassau Financial Group in Hartford, Connecticut. “Controlling expenses is perhaps the biggest lever retirees can realistically control.”

The biggest risk with using the safe withdrawal rate strategy is that everyone has their own definition of a safe withdrawal rate. “Let’s say you decided 4% was the right amount for you to withdraw,” Tyler says, “Do you keep withdrawing this amount for the rest of time? What if the stock market drops and your account value dips, too? These are the questions a retiree should ask their trusted investment advisor.”

What Retirement Withdrawal Rate Is Right For You?

Determining your safe withdrawal rate starts with getting help from a retirement planner. A good money manager can look at your expenses and other sources of retirement income to develop a plan that works for your unique financial needs. “Any retiree, working with his or her advisor, must carefully establish a safe retirement withdrawal rate based on factors including predicted lifespan, the size of your portfolio, your outgoing costs and the amount of retirement income you already receive,” Solomon says.

The first step is to determine your financial needs. Then calculate how much of your expenses will be covered by Social Security, a pension or other sources of retirement income. Remember to factor in your life expectancy, perhaps by using a life expectancy calculator, and take into account any health concerns. You will also want to consider tax efficiency when timing withdrawals from your retirement accounts. “Make sure to review that plan every year,” Tyler says.

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7 Things To Know About Social Security and Retirement for 2022

August 8, 2022 2022, Media, Paul Tyler No comments

By Gabrielle Olya

To help you best understand Social Security and clear up any misconceptions about the benefits system, GOBankingRates spoke with financial experts and asked them what they want everyone to know about Social Security. Here’s what they said.

You Shouldn’t Rely on Social Security To Fund Your Whole Retirement

If you’re expecting Social Security to fully fund your retirement, you could be in for a rude awakening. The average monthly benefit is $1,542.22 as of June 2022.

If you’re in that 23% of Americans who have nothing saved, start saving ASAP so that you’ll be in better financial standing when you reach retirement age.

Take Our Poll: Do You Think You Will Be Able To Retire at Age 65?

Delaying Taking Your Benefits Can Pay Off

You can start to collect Social Security benefits at age 62, but it may pay off for you to wait.

However, Waiting Until Age 70 Isn’t Always the Best Option

65 Isn’t the Full Retirement Age for Everyone

When deciding when to collect Social Security, it’s important to understand what you’ll receive at what age.

Freeman said that his clients often assume their full retirement age is 65, but this is not always the case. If you were born in 1943 or later, your full retirement age ranges from 66 to 67.

Find Out: Understanding Social Security Retirement Age and Why It Matters

Your Benefits Are Calculated Based on Your 35 Highest-Earning Years

It’s important to understand how the Social Security Administration calculates your benefit amount.

Your Spouse (or Former Spouse) Can Impact Your Benefit Amount

Thompson said it’s important to understand how benefits are calculated when you are the surviving spouse.

And if you are divorced, you may be able to claim your ex-spouse’s benefits.

Social Security (Probably) Won’t Run Out

Read the full article: https://www.gobankingrates.com/retirement/social-security/social-security-retirement-things-everyone-should-know/