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Longevity

What Are the Obstacles to Successful Retirement Planning?

There are a number of obstacles that you may face in planning for your retirement:

 Discipline to Save

  •  Many people find it difficult to form the habit of “paying themselves first,” by making regular deposits to a savings plan.

 Saving to Spend

  •  Money is saved for retirement purposes, but then is spent to make purchases.

 

 Income Taxes

  •  Income taxes can erode the growth of your retirement savings.

Longer Life Expectancies

  •  Longer life expectancies increase the risk of retirees outliving at least a portion of their retirement income.

Inflation

Longer life expectancies also increase the risk of inflation eroding the purchasing power of retirement income.

  • For example, if inflation increases at 3.5% a year, it would require over $1,400 in 10 years in order to maintain the original purchasing power of $1,000.

 

 

 

 

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With advances in medical treatment and technology, many people now survive critical illnesses that would have been fatal in the past.  As a result of this increased life expectancy senior Americans have the opportunity to watch grandkids grow into adulthood and start families of their own.  Enjoying some great grandkids is a real possibility.

Some unhappy news; many retirees will at some point become critically ill as the following statistics demonstrate.  The need for planning in order to avoid becoming destitute is more important than ever.

Cancer:

  • Men have a slightly less than 1 in 2 lifetime risk of developing some form of cancer. For women, the lifetime risk is a little more than 1 in 3.
  • Between 2002 and 2008, the 5-year relative survival rate for all cancers was 68%, up from 49% in 1975 – 1977.
  • It is estimated that over 1.6 million new cancer cases were diagnosed in 2013.

(Source: Cancer Facts and Figures 2013; American Cancer Society)

Heart Disease:

  • An estimated 80 million Americans have one or more types of heart disease.
  • Each year, an American will suffer a heart attack about every 34 seconds.
  • The lifetime risk for cardiovascular disease at age 40 is 2 in 3 for men and more than 1 in 2 for women.
  • It is estimated that the total costs of cardiovascular diseases in the U.S. was over $448 billion in 2008.

(Source: Heart Disease Facts, Centers for Disease Control and Prevention, July 2013)

Stroke:

  • Someone in the United States has a stroke every 40 seconds.
  • Stroke is a leading cause of serious, long-term disability in the U.S.
  • It is estimated that Americans paid about $38.6 billion in 2010 for stroke-related medical costs and lost productivity.

(Source: Stroke Fact Sheet, Centers for Disease Control and Prevention, July 2013)

Will you have sufficient funds available to pay for:

  • Any insurance co-payments and deductibles;
  • Alterations to your home and/or automobile to meet any special needs;
  • Out-of-town transportation and lodging for medical treatment;
  • Treatments not covered by traditional health insurance; and/or
  • Shorter-term home health care during your recuperation?

Surviving critical illnesses increase our life expectancies, we will live longer than ever before.  At the same time, fortunately annuity ownership is rising  An annuity is the only guaranteed financial  hedge against longevity.  More than ever a retiree’s goal should be lifetime income not just income for 20-30 years.

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How Can an Income Annuity Protect Against the
Risk of Living Too Long?

The purpose of an annuity is to protect against the financial risk of living too long…the risk of outliving retirement income…by providing an income guaranteed* for life.

In fact, an annuity is the ONLY financial vehicle that can systematically liquidate a sum of money in such a way that income can be guaranteed for as long as you live!

Here’s How an Income Annuity Works:

The annuity owner pays a single premium to an insurance company.

  • Beginning immediately or shortly after the single premium is paid, the insurance company pays the owner/ annuitant an income guaranteed to continue for as long as the annuitant is alive. There are other payout options also available.
  • With a cash refund provision the insurance company pays any remaining funds to the designated beneficiary after the annuitant’s death.

Seeking a secure life long retirement income?  Click the video box to left of this post.

 

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Why would anyone want to restrict their Social Security payments? 

Well, it’s not the payments being restricted it is the type of application that is filed.  The restricted application is filed when, for example,  a wife wants to receive her husband’s spousal benefit instead of her own Social Security benefit.  The idea here is to allow the possibly still working wife or early retired wife to receive monthly SS payments from the spousal benefit of her retired husband. This allows her own SS benefit to accrue credits each year until age 70 when she would then stop the spousal benefit from her husband’s SS  and begin drawing from her own benefit.  For a middle income couple this could increase total Social Security payments by $40,000 to $50,000 depending on earnings during their working years.

This is one of many combinations of Social Security planning and these options have been around for a longtime, some of them since the very beginning of the program.  What is different now?  Retirees are coming to understand Social Security is a life income annuity with a cost of living feature built in requiring understanding and planning to maximize the benefits.

There at least 81 different Social Security combinations and options to consider when signing up for retirement benefits and it takes a computer program to calculate them all to determine the best one in an individual situation.

If you would like to explore your Social Security benefit options contact Tim Barton, ChFC for an analysis.  List your SS estimated monthly benefit for both spouses and current age in the comment section.

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Government regulations dictate senior’s retirement income plans.  The question; Is this government “retirement plan” the best option?

If they have a traditional IRA, 401(k) and/or any other qualified retirement plan they must take Required Minimum Distributions (RMD) upon reaching age 70- 1/2.  If they do not take RMD as required the penalty is a harsh 50%.  Most seniors follow the RMD plan so it must be the optimal way to receive retirement income… Right?

The new reality is nothing could be further from the truth.  Expected longevity continues to increase well past the I.R.S. life tables used to calculate RMD withdrawals.  This could  set up a dangerous financial situation later in life.

The alternative solution and one most seniors have not considered  is a Life Income Annuity.  Rollovers from IRAs and 401(k)s are easy and there are no taxes due or 10% penalty even if income is started before age 59.

Advantages of Life Income Annuities are significant and perform better than RMD plans:

  1. After enduring a decade of sub economic performance, low interest rates,  disappearing pensions and a decreasing Social Security trust fund seniors need protection from steep market swings. Income annuities eliminate market risk by providing a steady monthly pay check.
  2. Saves the golden decade of retirement; the 10 years from age 70 – 80.  RMDs are scheduled to be lower during this time and increase later.  The lifetime annuity has on average a 60% higher payout  during the golden decade and guarantees these payments for life with any remaining principal paid to beneficiaries.
  3. Prevents the RMD crash.   A typical life income annuity starts payments at age 70 about 60% higher than RMD withdrawals.  It is true RMDs increase with age but assuming a 3% growth rate at their peak they  will provide an income 15% lower than the annuity.  After the RMD’s peak withdrawal years the  annual income begins decreasing until the money runs out.

Lifetime annuities take the RMD drop off  and longevity risk away while offering a higher payout.

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

 

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Roth IRA Enhancement

March 17, 2013 by

The Roth IRA may be one of the most under used retirement income strategies.  Due to the deductibility of other retirement saving plans like Traditional IRAs and the 401(k); Roth IRAs are usually just an afterthought. After all who does not want to pay as little income tax as possible?  It seems a very simple rational decision. Initially a Roth has no effect on the amount of income tax due because the taxpayer receives no immediate tax deduction.   

Today one of the most relevant retirement/tax planning question is –

Do you think tax rates are headed down, stay the same or will they go up in the future? 

Clearly if you feel tax rates are going rise at some point then the decision is to pay a smaller tax now or a bigger tax on a larger sum later.  A Roth IRA is worth serious consideration, especially if you consider an enhancement by utilizing available lifetime income options.  

The new generations of annuities offered today either have income options built in or offer the option to purchase a guaranteed lifetime income rider. Using either of these options the annuity owner has the ability to start lifetime income at a specified age. 

If retirement planning is being done correctly income points are identified.  These are points in time when a retiree needs to start an income stream.  

To help understand the magnitude of the enhanced Roth advantage let’s use a simple example.  A future retiree is currently 49, they start contributing to a Roth annuity with lifetime income available as early as age 59 ½. The Roth’s income benefit base has grown to $100,000 with an annual tax free lifetime payout of 5% available ($5,000).  Whether or not they actually plan to retire at this early date they should start the lifetime income payout.  Why?  Because the income is for life, the earlier it is started the greater chance they will live long enough to get into company money.  In other words they would receive all of their money, interest earned and then they receive company money for as long as they live.  If cost of living increases are built onto our $5,000 yearly income example so much the better.   

Besides, even if still working, who wouldn’t appreciate some additional tax free income every year after age 59 ½?

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

 

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Americans in retirement and those soon to be retirees have serious concerns. According to the Reclaiming the Future Study conducted in 2011-2012 by Allianz Life:

Fear # 1American Retirement Crisis/Unprepared:

  • 92% of Americans believe there is a retirement crisis and fear they are unprepared

When asked “Do you believe there is a retirement crisis in this country?”

  • 92% answered absolutely or somewhat.

In the age group 44-54

  • 54% said they feel unprepared for retirement.
  • 57% of all respondents worry about their nest egg safety and it may not be large enough.
  • 47% fear they will not be able to cover basic living expenses.

 Fear #2Americans fear outliving money more than they fear death

  • Increasing longevity mean more people are spending more years in retirement.  
  • 77% of all age groups worry about living too long.  So much so a shocking 61% feared outliving their assets more than they feared death. 

The market meltdown of 2008-2009 caused a profound financial rethinking for Americans. 

  • 53% reported their net worth was significantly eroded in a very short period of time.
  • 43% had their home values drop
  • 41% realized they were not “in control” of their financial futures as they’d thought.

 As a result of this financial turmoil many research participants said they changed their behaviors.

  • Cut back on spending
  • More interest in financial news and studying the markets

The majority agreed- “That the safety of my money matters more.” 

“Asked to consider the features that would be most important to them if they could build the ideal financial product?”

  • 69% of survey respondents said they would prefer a product that was “guaranteed not to lose value”
  • Only 31% would choose a product that is not guaranteed with the goal of “providing a high return.”

Annuity-like solutions are gaining relevance and appeal.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

 

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Horseshoe crabs have a protein that tags bacteria and tells their body to destroy it.  This led 15 year old sophomore Riley Ennis to ask this question.  “If we could take their name tag, a bit of the patients tumor mix them together and stick them back in the patient will you be able to teach the body to recognize and destroy the cancer?”

Because Riley Ennis was interested in the ocean as a kid he watched a Nova TV special about horseshoe crabs which caused him to ask the question above and led him to this research-

He mixed a vaccine, the bad stuff, cancer and protein, red dye (immune system tracker) to see how the immune system responds.  This mix was injected into an octopi to see if the red dot would show where all the immune cells moved to.

If there was a red dot it would show the octopus was attacking the cancer.  Watch this astounding video to see what happens.

The Red Dot | Boston McConnaughey & Andrew Hancock from Focus Forward Films on Vimeo.

Too many times the news focuses on young adults who get in trouble while ignoring those are setting out to bring a better life to all of us.  Riley Ennis is clearly on a noble mission.  With his success and that of many others we may all live quality lives of 100 years or more.

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Outliving one’s assets is a major concern for today’s retirees. One common approach to address this concern has been the “4% rule,” which is a generally accepted rule of thumb in financial planning for retirement income. It says to withdraw no more than 4% of an asset in retirement annually, and then increase the withdrawn amount by 3% each year to help offset the effects of inflation. Many believe the 4% rule provides a strong likelihood for retirement assets to last 30 or more years.

One problem with the 4% rule is that it does NOT GUARANTEE you won’t run out of money. In fact, with today’s historic market volatility and longer life expectancies, it’s predicted that up to 18 out of 100 people WILL RUN OUT OF MONEY in retirement using the 4% rule.

What if there was a different strategy that could provide the same amount of retirement income as the 4% rule and might even require fewer assets to do so? Additionally, this strategy would protect your income from market loss and GUARANTEE that income would last throughout your lifetime.

This strategy exists today and can be implemented using a fixed index annuity with a guaranteed lifetime income benefit or a secure lifetime retirement income annuity.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

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Reveled - the government is using outdated longevity models.  This not my headline;

rather a Sunday’s New York Times’ headline  from an article written by Gary King and Samir S. Soneji describing the troubling state of Social Security. 

Many of points they raise are well known.  For example in 2010 Social Security spent $49 Billion more than it took in.  This was the first Social Security ran a deficit and the money was drawn out of the trust funds. Current government projections have the $2.7 Trillion trust funds running out in 2033.  

Most startling is the revelation the government is using outdated longevity forecasting models.  

NYT writes:

 “Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing.”

I had no idea the government Social Security projections are still base on the 1935 life expectancies! Come on it’s 2013, 78 years later. Perhaps they are all so busy staring at computer screens they have forgotten to look out the window to see the new reality of longer life.

It is no secret, people are living longer and medical science is projecting we may start living even longer.  The largest growing population segment in the U.S. is Americans reaching the age of 100.  Much of the retirement income planning I do addresses this problem and I have frequently written (How Lone Would You Live?) about increased longevity and its potential cost. 

You can read the New York Times article in its entirety here Social Security it’s Worse Than You Think.

What does this mean?  Unless we get a course correction Social Security is going to run out money sooner than currently projected.

 What can you do to protect your retirement?

Make sure you have a good portion of your retirement dollars in properly reserved insurance plans that are designed to guarantee lifetime income no matter how long you live. Also make sure the income has potential to increase in the future to offset inflation or anyother unforeseen income reductions. 

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

 

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There are a number of obstacles that you may face in planning for your retirement:

Longer Life Expectancies

  • Longer life expectancies increase the risk of retirees outliving at least a portion of their retirement income. Those reaching age 100 are fastest growing population segment in the United States.

Discipline to Save

  • Many people find it difficult to form the habit of “paying themselves first,” by making regular deposits to a savings plan.

Saving to Spend

  • Money is saved for retirement purposes, but then is spent to make purchases.

Income Taxes

  • Income taxes can erode the growth of your retirement savings and as I write this we do not know what the 2013 tax rates will be.

Inflation

  • Longer life expectancies also increase the risk of inflation eroding the purchasing power of retirement income. For example, if inflation increases at 3.5% a year, it would require over $14,000 in 10 years in order to maintain the original purchasing power of $10,000.

Since Social Security and your company pension plan probably will not provide the income you need for a financially-secure retirement, how can you overcome the obstacles you face in planning for retirement?

For help you may ask questions in the comments or contact me privately here: Tim Barton Chartered Financial Consultant

 

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You are wondering what to do after your doctor explains you have a serious medical condition.  Not only is the thought of living out your remaining time, perhaps a bit impaired disturbing,  you and your spouse are wondering how to make your money last.  With the possibility of a future filled with increased medical bills and current yields at record lows,  you fear your savings are going to have to be drawn down to the point of depletion.

A possible solution is the medically underwritten annuity.  When applying for a medical annuity you provide your medical records to the insurance company who will then review them to determine your actuarial age.

After determining  the actuarial age it is compared to your chronological age and if  actuarial age is greater the annuity’s monthly income is increased accordingly.  This adjustment can be done jointly  even if your spouse’s health is good.

It has always been important and more so in this low interest rate environment to make sure a retiree’s savings lasts the rest of their and their spouse’s life.  The effort put into getting quotes on a medical annuity can bring a welcome peace of mind making it time well spent

On the positive side; medical science continues to advance at a fast pace so the initial prognosis could  in the end, turn out to be wrong, in which case you get to enjoy good health and a higher than normal lifetime income stream.

You may ask questions in the comments or contact me privately:

Tim Barton

Chartered Financial Consultant

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Forever, now that is a long time. If you could; would you choose immortality?  What would you do in exchange for immortality?  In a poll done by YouGov an online polling organization found out that not everyone wants to go on with life forever. 

 

 

Less than half of Americans 42% would choose eternal life.  Surprising to some folks, men are more likely to want continued life 48% whereas only 36% of women would choose indefinite life. 


When asked if living forever would require them to-

  • Live in extreme poverty 13%
  • Give up all human contact 18%
  • Perpetual nakedness 30% 

Perhaps this is just a silly entertaining poll but long life is worth thinking about.  The largest growing segment of the U.S. population are those folks over the age of 100.  Medical technology is advancing rapidly and many diseases that would have resulted in sure death a few years ago now thankfully now have very high survival rates.

According to several studies the biggest fear of retirees is not death rather it is running out of money.

If you could choose today–

Would you live forever?

Would money you have affect your decision?

You may ask questions in the comments or contact me privately Tim Barton, ChFC

 

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Imagine tomorrow at your local medical center the doctor asks you, “How long do you want to live? Just give me your desired age of death and I will conveniently make the arrangements.”

This must be make-believe fantasy. Well, not so fast. Consider what the Aubrey DeGrey, SENS Foundation’s chief science officer says about this possibility.

I call it longevity escape velocity — where we have a sufficiently comprehensive panel of therapies to enable us to push back the ill health of old age faster than time is passing. And that way, we buy ourselves enough time to develop more therapies as time goes on.

In other words medical science is moving faster than we are aging.

DeGrey continues.

I’d say we have a 50/50 chance of bringing aging under what I’d call a decisive level of medical control within the next 25 years or so and what I mean by decisive is the same sort of medical control that we have over most infectious disease today.

Wow 50/50! Most of us would take those odds in any wager. But this is no ordinary wager; we’re talking life here and a lot of it. The ramifications to society as we know it are hard to imagine.

Exit questions.

How long would you choose to live?

Would the amount of your retirement savings dictate whether you choose to live or die?

If you are not retired when would you plan to retire assuming this new dynamic?

Perhaps we are on the threshold of these things no longer being an academic discussion.

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