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How to Have Enough Money for an Early Retirement
NewsThe road to retiring early isn’t easy. It takes time and discipline to earn, save, and invest as much as you possibly can.
Many Americans dream of having more free time in their later years. Perhaps you want to relocate some place warmer. Or maybe you feel led to do volunteer work, or even set off on a brand new business venture. Whatever the reason, the question is the same: What would it take for me to retire at 60? Or even younger? Unfortunately the reality of quitting work can be far different from the fantasy.
In order to retire from your job early entails finding a way to replace the income it provides, or produce enough income to fund your lifestyle. which is why unfortunately, early retirement isn’t for everyone. In fact, it isn’t for most people. Just 11 percent of today’s workers plan to retire before age 60, according to an Employee Benefit Research Institute (EBRI) survey. For many of those who do take the plunge, the reality of early retirement can turn out to be far different than the dream. But it’s not impossible.
5 questions to ask yourself before retiring early include:
Here are three moves to help make the early-retirement fantasy a reality.
1. Making Adjustments to your Current Budget
You can get by with less if you’ll have other sources of income. Retiring early means making some changes to how you earn and spend money, so in the future you get to relax. For many people, that means cutting their budget to the bare minimum. To learn to budget is a very important life skill. Here are some tips you can use to budget successfully.
− Where you can reduce your expenses on unnecessary items.
− Whether your budget is perhaps unrealistic.
− Whether you have to adjust your budget.
2. Calculate your Annual Retirement Spending
Living on a small portion of your income translates into needing less money for retirement. To do that, take a look at your current monthly spending and consider what will go down, what could go up, and what might be added or eliminated altogether. Add your final monthly expense estimates up, multiply by 12 and you have the magic number: your annual retirement needs. Most financial advisors recommend increasing it by 10% to 20% so you have some wiggle room.
There are a few exceptions to the early distribution rules. One popular among early retirees is to start a series of substantially equal periodic distributions, which are allowed by the IRS provided you follow specific protocol. Working with a financial planner to develop a strategy for tapping your investments while ducking taxes — where you can — and avoiding penalties.
3. Invest for Growth
When it comes to investing, there’s no shortage of ideas. At the risk of stating the obvious, retiring early means (1) you have a shorter period during which you can save, and (2) you have a longer period during which the money you’ve saved needs to support your spending.
Both of those mean investment returns are going to be your best friend. And to achieve the best returns, you need to invest in a balanced portfolio geared toward long-term growth. We recommend low-cost index funds, with an allocation that is tilted toward stocks for as long as you can stomach it. Here are5 smart investing strategies to follow when investing for growth.
And remember, you can’t control all the risks associated with early retirement, but what you can control is having a plan. Work with a financial advisor that is knowledgeable in early retirement planning to develop a customized portfolio, and help you manage your finances before and during retirement.
Summary
It takes planning and discipline to retire early. The earlier you start investing, the more you can benefit from compounding. That’s why you need to get going as soon as possible!
Not all financial advisors have the same level of experience or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.
If you have any questions on our company, services, values or more, contact the retirement income experts at Agemy Financial here today. Our trusted advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call.
How Retirement Planning and Life Insurance go Hand-in-Hand
NewsLife insurance, first and foremost, is about protecting loved ones after you’re gone. But some insurance types can actually help you in retirement as well.
Most people think of life insurance in terms of the payout it provides beneficiaries after the policyholder dies. But did you know that certain life insurance policies can financially assist you through your lifetime and into your golden years?
Why Life Insurance is Vital
Life insurance plays a significant role in protecting you and your family during your primary income-earning years. Ultimately, striking the right balance between investing for your future so you can retire when and how you want to, and purchasing the right amount of life insurance to protect your interests today is ideal.
What’s more, insurance transfers the financial risk of life’s events to an insurance company, and a sound insurance strategy can help protect your family from the financial consequences of those events. A strategy can include personal insurance, liability insurance, and life insurance.
The Retirement Planning Connection
For many of us, life insurance is something to worry about “later.” Or, if provided by an employer, just another part of the employee benefits package. But life insurance can and should be an important aspect of retirement planning.
During retirement, it is well advised to financially prepare for unexpected expenses. Did you know that medical bills are the leading cause of bankruptcy in America? This disturbing fact is that over half of those who are forced to file for bankruptcy have health insurance. Without an emergency cash fund, where will you come up with the money to pay the doctor if your health insurance is denied?
You may be able to cover income shortfalls by using your life insurance for retirement income.
Using Life Insurance for Retirement Income
First things first, you need to understand the different types of life insurance and how they can assist your cash flow in retirement. Unlike ‘term’ life insurance, which covers only a set number of years, ‘permanent’ life insurance is meant to be for life. Permanent life insurance can provide a source of supplemental retirement income, which include whole life, universal, and variable life insurance policies. Here’s a breakdown of the differences you should be aware of:
Determine a Retirement Plan That’s Right for You
Before deciding on an insurance plan, you should decide what you want your golden years to look like. Some key questions to consider include:
Since choosing a life insurance policy with a cash value component requires a bigger investment, it’s important to understand how this aspect of your policy works and what your options are for using it.
What Can I Do With the Cash in a Permanent/Cash Value Plan?
Permanent/Cash Value policies provide a living benefit, or a perk of your policy that you can use while you are in fact alive and well. Here’s a look at the ways you can use your life insurance to accumulate cash value:
Income Tax Advantages
While its primary function is to help protect loved ones in the event of your passing, life insurance, in particular whole life insurance, can also help you and your beneficiaries manage tax consequences. The following three advantages apply to whole life insurance and other permanent insurance policies:
1. The death benefit is generally paid out income tax free: Life insurance policy payouts can be pretty hefty and avoiding a major tax bite can be consequential.
2. The total cash value accumulates on a tax-deferred basis: Whole life insurance builds up cash value over time as you pay premiums. This is money that grows without the IRS dipping their hands in.
3. You can access the cash value of the policy on a tax-advantaged basis: Money borrowed or taken from the cash value of a life insurance policy is not subject to taxes up to the “cost basis” – the amount paid into the policy through premiums.
Conclusion
Generating income during retirement is challenging. Fortunately, your life insurance policy can be a valuable source of funds to cover retirement expenses by offering tax-free income, (be part of a tax management strategy), and enhance the overall returns from an investment portfolio.
And don’t forget that life insurance only gets more expensive the longer you wait, so starting as soon as possible will only help you in the long run. For more information on how you can best utilize your life insurance policy in retirement, contact the trusted financial advisors at Agemy Financial here today.
Why Choose Agemy to Achieve Your Personal and Financial Goals?
NewsNot working with a financial planner? You could be missing out. If you are serious about building long-term wealth, Agemy Financial Strategies offers a variety of services you aren’t getting that you may not even know about.
Deciding whether to get a financial advisor or manage your own investments is a big decision. But did you know financial planners assist in more than just managing your money? A good financial planner can organize your overall financial picture and implement strategies that will help you achieve your goals, from organizing your estate to retiring when you want.
To answer the common question of “Do you need a financial advisor?” consider the services and benefits of a financial advisor:
Whether you’re a busy executive, business owner, working parent, caretaker or even retired – the truth is, everyone can use professional advice.
About Agemy Financial Strategies
Financial advisors aren’t exactly hard to come by. But not all financial advisors are created equal. Finding the right fiduciary for your financial needs, objectives, and unique circumstances is a must when it comes to building a solid working relationship that helps you make smart financial decisions.
At Agemy Financial, our services specialize in retirement income planning, or as we like to say, “helping you make it down the mountain.” Many financial advisors and financial planners will help you to build your assets and “get up the financial mountain.” However, Mr. Agemy, “a financial sherpa,” and his team focus on helping investors who have already “climbed the wealth accumulation mountain, plan and strategize to have enough income in retirement to have a safe and pleasurable journey “back down” and enjoy the best of life. Agemy Financial’s objective is to see that our clients can retire and stay retired.
Our purpose is to educate investors – whether that be planning for retirement, legacy planning, wealth management, or just holding your hand when it’s time to leap into retirement. Celebrating 30 years in business, and we remain steadfast in our dedication to serve and educate investors.
Our Process
We understand personal finance isn’t interesting to everyone! And it doesn’t have to be. But if you’re neglecting your finances, it’s likely worth giving us a call. When we get started working with you, our initial assessment includes gathering a complete picture of your assets, liabilities, income, and expenses.
We then synthesize all of this initial information into a comprehensive financial plan that will serve as a roadmap for your financial future. Our full spectrum of financial services includes:
Estate
Manage personal affairs while you’re alive and control the distribution of wealth upon your death.
Insurance
A well-structured insurance strategy can help protect your loved ones from the financial consequences of unexpected events.
Investment
Create an investment strategy that’s designed to pursue your risk tolerance, time horizon, and goals.
Lifestyle
How to strike a balance between work and leisure is just one aspect of the wide-ranging Lifestyle matters.
Money
Managing your money involves more than simply making and following a budget.
Retirement
Steps to consider so you can potentially accumulate the money you’ll need to pursue the retirement activities you want.
Tax
Understanding tax strategies can potentially help you better manage your overall tax situation.
Our Core Values
Our firm exists for the purpose of helping people achieve their personal and financial goals. Our philosophy is to deliver quality financial programs and teach principles for successful living. We live, work and breathe by the following three values:
Summary
Not all financial advisors have the same level of experience or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.
If you have any questions on our company, services, values ore more, contact us here today. Our trusted advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call.
Your Easy-to-Understand Guide on Retirement Planning in 2022
NewsDecember 29, 2021
The road to retirement may seem rocky at best, especially with the ever-changing legislation. Although everyone’s retirement is different, 2022 is going to have some big differences from 2021 that will affect almost every retiree and retirement saver to some degree. But fear not, Agemy Financial Strategies is here to help simplify the process and help set you up for a positive retirement outlook.
The ultimate goal for so many is a wonderful and relaxing retirement. Ideally, the road to retirement would come off without any major snags and roadblocks in your plan. Unfortunately that is not normally the case and retirement plans always face challenges. This can be from the volatility of the markets, healthcare plans and the affordability factor or even the risks posed by annual inflation. In addition, you’re likely to face decades on a fixed income, and won’t necessarily have flexibility in your finances like you may have had in previous years.
Retirement planning in 2022 can seem more difficult and complex. There are more volatile conditions than ever with healthcare costs going up, and uncertainty with Social Security. This is why it’s so important to be as prepared as possible before you’re retired and always make room in your planning for unexpected problems. Here is an easy-to-understand guide on retirement planning in 2022 to make sure you’re ready for anything the future may bring.
Review Your Current Financial Retirement Plan
Your life isn’t set in stone, and your financial plan shouldn’t be either. When’s the last time you tweaked yours? Where will your retirement money come from? If you’re like most people, qualified-retirement plans, Social Security, and personal savings and investments are expected to play a role. Once you have estimated the amount of money you may need for retirement, a sound approach involves taking a close look at your potential retirement-income sources.
If you haven’t already, the first thing we recommend to do before creating a retirement plan is to review your financials. It’s important to assess the current retirement plan that is tailored to their goals and factors in things like cost of living, Social Security, and medical expenses. Paying off your debt before retirement to give you more financial flexibility. Financial planning is a process, and it’s one that requires proactivity to work well. While some of the other milestones listed here are good indicators that it’s time to review your plan, don’t wait until something happens to do something about it.
Planning Your Retirement Distributions
Saving money for retirement is only part of ensuring a financially secure future. The other half involves making smart decisions about withdrawing that cash.
The typical “Retirement Age” or the date at which you plan to retire is always established by the contribution plans defined in plan documents. The important thing to remember, this date cannot be later than when you or the retiring party reaches 65 years old. 65 is additionally the age of retirees where the defined benefit plan is calculated.
To make it simple, when you reach this age of retirement, you have the option to receive your benefits in full. If it is a defined benefit plan, then your benefit will come in installments similar to salary paychecks.
There’s a lot of retirement distribution strategies that can be used to stretch money further for a long retirement, and these can be combined and changed over time. Current market conditions, tax rates and a person’s expected longevity are all factors that need to be considered.
Rather than pick a single method to use throughout retirement, talk to Agemy Financial Strategies about how to make the following retirement withdrawal strategies work together.
With the right professional guidance, selecting the right combination of methods can help ensure retirement accounts don’t run dry.
Prepare for Inflation
A study by the National Endowment for Financial Education showed that 96 percent of Americans experienced four or more such “income shocks” by the time they reached age 70. As shown in 2021, inflation can really pick up at times that are unexpected and can severely impact anyone who isn’t prepared. It can also devastate a financial plan that relies heavily on fixed income investments like bonds. If you don’t have the option to re-invest your retirement income, inflation will hit your purchasing power hard. Over time, your dollars will be worth much less.
What this means is you need a financial plan that already factors in for inflation. What we typically recommend is building up a financial plan that has growth assets included. This way your income has more potential to rise over time and you won’t be left making the same income you did for the last decade or more.
With prices rising at their fastest rate in decades, people in retirement or approaching it should take extra care to protect their savings.
Plan Healthcare Carefully
This may or may not come as a surprise; but retiring present day is equal to how much health insurance costs. If you’re someone that is putting off retirement until you’re old enough to get Medicare, double check that this is the cheapest alternative for you and look into all healthcare options.
If you retire before age 65, you have several options for health insurance until you reach eligibility for Medicare. Which options you are eligible for and are best for you depend on your individual circumstances. You may enroll in the state health insurance marketplace, continue your employment-related benefits through COBRA or state continuation, enroll in your spouse’s health plan, or apply for Medicaid. The Affordable Care Act (ACA) has made health insurance coverage when retiring before age 65 a much less challenging situation. This is especially true for people with medical conditions or limited finances—both of which could be obstacles for early retirees seeking coverage in the pre-ACA era.
While planning for retiring in 2022, it’s important to have an affordable healthcare plan. However, it’s not as simple to know what the options are and set up a plan as it was when you were employed and working with your employer on a healthcare plan that worked for you. The retirement income advisors at Agemy can help you achieve your healthcare goals in a safe and secure manner.
Final Thoughts
A retirement plan in 2022 may seem like a daunting task, but financial advisors at Agemy Financial Strategies are here to help you put yourself and finances in the best position for success.
Finding the right financial advisor that fits your goals and lifestyle doesn’t have to be hard. The trusted team at Agemy Financial Strategies is here for your every step of the way to make some real progress on your journey to financial freedom this coming year.
After the stress of the end of a year has settled down for 2021, give us a call to get your retirement plan on track in 2022. Our team at Agemy Financial Strategies wishes you a happy, healthy, and prosperous New Year!
Volatility Returns to the Stock Market, and May Well Stick Around
NewsSeptember was a rocky month for the stock market and may have offered a stark preview of what the final weeks leading up to the presidential election will be like for Wall Street. Towards the end of the month, both the Dow Jones Industrial Average and the S&P 500 were flirting with correction territory, which officially means a 10% decline from their peak highs.* Meanwhile the Nasdaq was down by more than 10%, as the tech rally that has helped buoy the index and the markets in general throughout the Covid-19 crisis ended. With one of the most contentious elections in American history now just weeks away, and the coronavirus still pummeling parts of the economy, a nervous, mostly down-trending market may very well be the norm right up to November 3rd, and possibly beyond that.
In truth, what we saw in September was typical from a historical perspective. The two months before a presidential election are almost always a volatile period for the markets for two reasons. One is simply uncertainty over the election’s outcome, and that’s obviously a big factor where this race is concerned. Most polls continue to show Joe Biden leading among voters, and Wall Street knows a Biden victory would likely mean a rollback or amendment of the Trump administration’s corporate tax cuts. That, of course,
could further undercut economic growth at a time when it’s already shrunk massively due to the pandemic. On the other hand, there is plenty of debate as to whether a Trump victory would automatically be better for the economy and trigger a new market rally—particularly in light of the pandemic.
The other issue that typically makes big investors nervous just before an election is the legislative inertia that occurs. Politicians are too focused on politics to get anything done, and that’s a major concern this year since the House and Senate have yet to agree upon a follow-up to the Coronavirus Aid, Relief and Economic Security (CARES) Act approved in March.** This is true despite the fact that lawmakers and economists almost universally agree that additional relief measures are needed, especially with all the uncertainty still surrounding the pandemic as we head into fall.
Autumn’s Unknowns
As I’m sure you’re aware, the U.S. surpassed 200,000 deaths linked to Covid-19 in September, the most of any nation in the world.*** Meanwhile, infection rates began spiking again across much of Europe, and in parts of America as schools reopened. Will that trend continue as autumn deepens? It’s possible, and the economic impacts could ramp up again too as outdoor seating options that have allowed many restaurants and other businesses to hang on during the summer months disappear in colder parts of the country. The dining industry has already been hit extremely hard by the pandemic. According to an economic impact analysis by Yelp, over 50% of its restaurants had already closed permanently by early summer, and the number has likely increased since.****
Even if no major resurgence in infections does occur this fall, the economic fallout of the coronavirus crisis seems likely to drag on for other reasons. Those include the psychological impact of the pandemic, and the comfort level most consumers have attained with alternative forms of shopping and recreation. Already, major chains have announced they will not host traditional in-store “Black Friday” sales this year, and for the first time ever, the Macy’s Thanksgiving Day Parade will be an entirely virtual event!
So far, the massive shift to things like e-commerce, videoconferencing, and virtual entertainment has managed to offset the impact of business closures and social distancing rules and helped limit some of the economic damage from Covid-19. However, the longer-term repercussions of this shift have probably yet to be felt as they relate to things like jobs, bottom-line corporate growth, and overall economic stability. Big investors know this, and it’s another reason they’re likely to keep “one finger on the trigger” in the last quarter of the year, ready to pull out if nervousness gives way to fear and triggers another major market downturn.
Uncommon and Unprecedented
While a nervous market in the months before an election is historically common, there also some things about our current situation that make it very uncommon—namely the pandemic and the highly divisive political climate surrounding this election. So far Wall Street has shown amazing resilience in the face of these issues, but that’s due largely to another factor that isn’t merely uncommon but entirely unprecedented. That is the massive amount of artificial stimulus the Federal Reserve has pumped into the economy since the Financial Crisis 10 years ago— which has become even more massive as a result of the pandemic.*****
Will the Fed’s “steroids” continue to pump up Wall Street and stave off another major correction even if coronavirus cases see another major spike this fall? Or even if another relief and stimulus package is not approved? Or even if there is a lengthy legal and congressional battle over the results of the election that prolongs legislative inertia and keeps Washington stuck in the muck like a stalled Jeep?
The bottom line is that these are all important questions to consider as you review your financial strategy this fall. Are you playing smart and sufficient financial defense at this crucial time? Are you well-positioned to take advantage of new opportunities that may emerge one day when the markets and economy are more stable again? Because, rest assured, that day will come!
*Marketwatch.com **“Virus Bill Blocked in Senate as Prospects Dim for New Relief,” AP, Sept. 10, 2020 ***“Unfathomable US Death Toll from Coronavirus Hits 200K,” AP, Sept. 22, 2020 ****“Yelp Finds 53% of Restaurants Have Permanently Closed,” Eater.com, June 26, 2020 *****“Stock Markets Have Now Seen the Peak of Fed Stimulus,” MarketWatch, Sept. 17, 2020
Big Tech & the Fed are Still Keeping Wall Street Happy — For Now
NewsTwo down and one to go. Or should I say two up and one to go? I’m talking, of course, about the top three major stock market indexes. In August, the S&P 500 joined the Nasdaq in surpassing its record peak high from before the start of the Covid-19 pandemic.* Only the Dow Jones Industrial Average has not yet (as of this writing) set a new record—although it, too, has been getting close. The situation reveals some interesting and important things about the market’s recovery overall, and about how things could play out in the next two months leading up to one of the most contentious presidential elections in U.S. history.
As you know, all the major indexes dropped by nearly 40% in March right after Covid-19 was declared a pandemic. That was a flight to safety, and all the markets fell quickly before starting to inch back up as the economic impacts of the crisis became clearer. One impact was that some industries would actually benefit from all the shutdowns, including the tech industry. That’s why the Nasdaq—which is very tech heavy—managed to rally past its pre-pandemic peak by early June. The S&P rallied more slowly but has also benefited from having the nation’s seven largest tech giants among its 500 companies. In fact, those seven companies—which include Microsoft, Apple, Amazon, and Facebook—make up 25% of the index’s weighting, and therefore its growth. So, if those companies are doing really well, it skews the index, making it somewhat deceiving as a snapshot of the recovery overall.
Normally, when the whole stock market is at or near a record high, it means that more than half the stocks being traded are also at record highs. However, right now the opposite is true: far less than half the stocks are at record highs, and the market is largely being carried by these tech companies and a few other major players, such as large retailers who’ve adapted to the pandemic with online sales.** The bottom line is that this recovery has very little breadth, and we’re still waiting on a broader recovery that includes more of the traditional high-dividend-paying consumer companies. In the meantime, the market may continue nudging higher based on pure momentum, even pulling the Dow up past its pre-pandemic peak eventually (provided investors aren’t creating another tech “bubble” that’s destined to burst and bring the whole market down with it, as we saw in early 2000).
The Fed Factor
Of course, the even bigger factor in the market’s recovery (as I’ve pointed out frequently) is the Federal Reserve. In response to the pandemic, the Fed announced more quantitative easing and lowered interest rates to near-zero—moves that always make Wall Street happy because they create cheap money and push everyday investors up the risk curve and into the stock market. Then in August, the Fed announced plans to keep interest rates near zero for the next three or four years, giving the markets a level of forward guidance that was (like many of the Fed’s actions in recent years) unprecedented. While I still believe the stock market could see another big correction of at least 20% or more before this crisis is over, if anything can prevent that downturn from happening, it might be this latest announcement by the Fed. Here’s why:
Low interest rates (as I already mentioned) push everyday investors up the risk curve by making other investment options appear less attractive. They also artificially inflate the present value of stocks by making discount rates lower. In addition, while low interest rates are supposed to stimulate the economy by creating so-called “healthy” inflation, we’ve already learned from the Financial Crisis that it doesn’t work that way. The Fed kept interest rates near zero for seven years after 2008, and all it really did was fuel a big asset recovery that was largely out of whack with the much slower and weaker economic recovery. I foresee the same thing happening again because Baby Boomers are still the nation’s biggest spenders. With interest rates low, the market high, and the economy plagued by uncertainty, I believe they are more likely to continue saving and investing rather than spending. All of this could help keep the stock market buoyed even if earnings and employment numbers remain below pre-pandemic levels for a while.
Of Pandemics and Presidents
On the other hand, all that economic uncertainty I mentioned could end up playing a much bigger role in the markets than it has so far, regardless of the Fed. The coronavirus pandemic has been blamed for over 200,000 American deaths, and although new cases have decreased from the huge spikes we saw in July, they remain as high now as they were at the height of the economic shutdown in March and April. With schools reopening this month and cooler weather soon to limit outdoor dining and recreation options in many states, cases and deaths could very well start rising again, leading to more business closures and more unemployment. Let’s not forget, too, that an estimated 30 million Americans are still collecting unemployment now, and that Congress has yet to agree on a second round of coronavirus relief.*** Could all these factors be a time bomb ticking away at the base of the booming markets? Only time will tell.
Of course, the other big factor heading into the fall is the presidential race, one of the most divisive and uncertain in our nation’s history. While Wall Street—generally speaking—loves Donald Trump, a large faction of the country does not. Most polls have shown Democratic nominee Joe Biden leading among voters for some time, and a Biden victory would most likely mean a rollback of Trump’s corporate tax breaks and a resulting decrease in corporate profits. If Biden is still leading by a healthy margin in October (which is historically already a shaky month for the markets), could it trigger a major selloff? Again, only time will tell. For now, my advice for investors in or near retiring is to stay focused on income—and on setting your portfolio up to take advantage of some potential new opportunities that may emerge when the uncertainty lessens and the world makes a little more sense again.
*“S&P 500 Sets First Record Since February”, Wall Street Journal, Aug. 18, 2020
**“Stocks Mixed but Tech Shares Keep Party Rolling,” Yahoo Finance, Sept. 1, 2020
***“How Many Americans Are Out of Work Right Now?”, Market Place, Aug. 6, 2020