How ready for retirement are you?

Quick Check: How Ready for Retirement are You?

Retirement readiness is not an overnight success story. It is not a simple formula either. It takes dedication, hard work, and good strategies. Why? Because it is simply not just retirement savings. Below is a quick check to assess your readiness for your golden years whether you are 5-10 or even a year away from retirement!

Financial Wellbeing

As the biggest stressor of retirement, financial wellbeing is budgeting, savings, income streams, and planning. Here are some categories to review for your retirement planning

  • Housing, including utilities and maintenance
  • Healthcare costs (covered later)
  • Daily living: food, transportation
  • Entertainment and travel

Having an idea of where you stand now will help determine how much you should have for retirement assets.

Emergency Fund

Planning for the unexpected helps immensely when it comes to retirement readiness. When there is financial uncertainty, the emergency fund is the perfect security blanket. Advised to be kept separate from normal savings, the emergency fund should have roughly 3-6 months of living costs.

Debt Elimination

The less debt you need to pay in retirement, the better off you will be. Retires are often relying on fixed income streams, so beginning a repayment strategy now while you are still working would be ideal. If you can, paying down debts with higher interest rates would save a lot of money for you down the road.

Retirement Needs
As a CPA, knowing what you need and how you want to life your retirement helps set realistic goals and plans. This should include where you want to reside, what age you plan to retire, and even length of retirement. With longevity increasing by the day, it is estimated that retirement will last between 20-40 years for many. While evaluating your needs, this is a great time to also compose a timeline for when certain benefits/income streams begin.

Healthcare & Insurance

Health insurance is a major factor for retirement, and unfortunately will be the biggest expense you will face in retirement. Not including long-term care, a newly retired couple will need a minimum of $300,000 for medical expenses alone. This number is predicted to increase yearly, too. Moreover, should you have a long-term care event, without coverage, you are looking at approximately another $140,000 annually.

Now part of health care costs is insurance. Medicare only covers so much, and that depends on the plans you go with. Other than Part A each Part or supplemental plan has a premium. You may need prescription drug coverage, which is where Part D of Medicare may help. Consider a supplemental plan under Part C. Do further research into what a private health insurance company may offer so you know what options you have and are able to get the best price for what you need. Long-term care insurance is another premium monthly, but it would help a lot should you need it. There are some options where you may add a rider to a life insurance policy to help cover the costs long-term care would entail.

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How Inflation Silently Robs Your Retirement

Even with careful retirement planning, one risk that is often not planned for well-enough is inflation. Inflation alone can hit retirement assets the hardest. The budget retirees begin with will change easily within the first 5-10 years—even 20 years down the road. It is most likely that inflation, assuming a rate of 3-4%, will cause daily living expenses to double within 20 years. Retirees should plan for this because, according to life expectancy statistics, folks live 20-24 more years.

That said, the following things should be taken into consideration when planning the silent killer of retirement:

  1. With aging comes more health concerns and more medical bills. Given that inflation will increase day-to-day life, it is predicted that health care costs and services will increase, too.
  2. Social Security benefits will increase for retirees. In 2020, benefits went up by 1.6% which was an additional $24 paid out; accounted when considering cost-of-living adjustments. However, the extra money from SS is offset by huge cost increases across the board. For example, medical services and cost go up; as does Medicare costs. SS should only be considered a baseline for retirement funds.
  3. As mentioned, living expenses are predicted to double within 20 years due to inflation. With inflation, spending power for retirement assets could drastically be reduced if not accounted for properly.

Tacking this silent killer and its concerns takes careful planning and risk managing.

With life expectancy, family medical history and personal medical concerns need to be discussed. Family history of heart disease and cancer will affect your life expectancy. This in turn will determine how long your funds will need to last. If your family members are known to pass away early on or live well into their 90s, this will also factor into how long your funds will need to last. Longer life expectancy means a longer time inflation will affect cost and standard of living.

Reviewing medical history in advance will also allow for the retirement budget to account for any major medical expenses that could arise. For example, a history of knee injuries could mean a knee replacement in your early 70s. Your occupational hazards could cause late-life conditions. If you spent your working years in a steel mill, you have a higher risk for COPD. Planning for these major medical expenses in advance will allow for inflation to be accounted for, for the money to be there if necessary. In retirement, folks spend $250,000-300,000 in medical costs alone.

To account for inflation a realistic budget plan should be set. This includes daily expenses, monthly bills, and additional spending such as travel and hobbies. Factoring into this budget, would be those said medical costs, too. Once a budget and cost-of-living expenses are decided, it is important to review how high inflation rates and the historically low interest rates affect other return rates and income during retirement.

Have a strategy addressing inflation in place. Begin with small withdrawal rates and increase as cost-of-living and inflation go up. During retirement, the small withdrawal rates will be a huge part of your income. Larger withdrawal rates will make deplete retirement funds much sooner—potentially running out of money before running out of retirement. If possible, during working years, saving more will go a longer way. Investing your future retirement younger will also help offset inflation. Consider different income sources: Annuities, long-term care policies, life insurance policies.

Creating an income strategy and working with a Retirement Risk Advisor is key to a safe and secure retirement. Discussing options that can reduce inflation and provide the best management for retirement will save you money and time and give you peace of mind.

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Market Volatility: Invest Smart, Know the Risks

Investing into the market for retirement funds is a risky business. Retirees often purchase individual stocks or invest in financial products such as mutual funds, exchange-traded funds (ETFs), or even variable annuities. There are other options such as defined contribution plans that invest into stock market and sometimes a company’s stock. 401(k)s are a common option offered by employers with a matching percentage. Having various investments allows for a more diversified portfolio, leading to a better chance at the safe and secure retirement you have always dreamt of.

However, invest smart and know the risks: the financial markets have significant fluctuations. There is a huge chance of majorly reducing retirement funds due to a bad down in the stock market. Therefore, long- and short-term investments are encouraged.

With the roller coaster of the financial markets, timing is everything when it comes to withdrawing from retirement savings & investments. Unfortunately, what may happen with the return of these investments is more negative than anything to the investor. Meaning, more of the account or assets may need to be liquidated to ensure spending power and keep that consistent stream of income. This is called sequence of return risk. An example of this was with the 2008 Recession; where the market declined and many lost their homes, their other investments, their retirements. For those who have awhile to save and plan are able to likely recover loss. Retirees with less time or who need their income soon will have to sell their investment assets while the market is down to reduce further loss and keep that income. A great loss is encountered if assets cannot be recovered.

Diversification of these assets/investments is important. Individual assets, such as the mutual funds and ETFS, may be managed professionally. These funds may have a focus on small to larger companies, even with specific fields or industries in mind. For individually chosen stocks and annuities, consider stock investments. Within these various options, there are performance and choice risks. Investment for retirement funds is a choice that should be taken with research and guidance.

As mentioned, there is always risk with investing—especially for your dream retirement. The following are some great strategies to limit the risks.

Diversify. Hold various investments across the classes (i.e. hold bonds and stocks). The more spread out and full the investments are better at loss absorption your portfolio is. For example, loss in individual stocks can be offset by holding stocks in 15+ companies and balancing the funds throughout these. If you were to hold the same amount over 5 companies/stocks, you are exposed to a greater risk if one of those companies crashes versus if you have the funds spread over 15 or more. Even considering fixed income investments is great! These will not yield as much return, however.

Long term is best. With investments, time is typically on your side. Especially in the case of recovering losses. It is rare you will see recovery happen overnight—it takes years. Those near or in retirement will want to monitor their investments closely because if a major loss occurs, you may be better off selling. Top experts suggest relying on income-generating policies while moving funds from the stock market throughout your retirement years.

Roll with the pooled. Like carpooling to an event, a pooled investment is smaller contributions from individual to make a larger investment fund. Some examples are mutual funds and target-date funds. Oftentimes these are done with financial experts and there may be fees involved.

Remember fees. Higher fees do not necessarily mean a higher yield on investments. They reduce the overall return, so monitoring and understanding them is important for your financial wellbeing. 401(k)s and other defined contribution plans may have fees; sometimes a fee may be charged if using a financial advisor for advice and portfolio management.

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Staying connected while retirement to the cpa community

CPAs: Want to Stay Connected to the Profession in Retirement?

There’s a fork in the road when it comes to retirement. You leave behind your career to begin a new fulfilling chapter in life, but how do you fill your time? Some travel, others spend those years making hobbies a lifestyle or help raise their grandchildren. However, what if you aren’t quite ready to step away from the financial field but want the flexibility retirement offers?

You could consider remote work or meeting new people and learning new things! Or maybe the goal is just to supplement your retirement income streams. Now, consider when you are working in retirement there may be additional tax or Social Security risks involved.

The following are great ways to stay connected to the CPA community:

Consulting

Nearing retirement means that you are typically looking for a part-time gig with likely not as much demand as a full-time job. Fortunately, a lot of businesses, even CPA firms, are always looking for financial professionals with experience. Having the skills from your working years means that you are fit for the job. Plus, consulting gigs are not demanding, offer great flexibility, and create a stable stream of income.

Contract jobs

Want something like a consulting gig, but only seasonally? Contract assignments are an option! These could include only working during the tax season or doing seasonal bookkeeping. Contract jobs are much more common for experienced workers than entry-level positions.

Teaching

If you wish to do something related to the field, but not quite the same, consider teaching. Many four-year universities and community colleges are looking to hire professors. You may even be able to offer training services through businesses. Another great teaching opportunity is tutoring, and this can be done at a college or even high school level. Luckily, moreover, this can be done in-person or even online. Some virtual services offer great passive income opportunities!

Research

Since you spent most of your life practicing patience and have a sharp eye for detail, those skills would make you a great researcher. Be it with finance or another field, gathering and organizing data is something you could still do, even part-time. Research into your local universities, get in contact with your network, and see if anyone is looking for research help. You might like it!

Grant writing and administration

Putting together grant applications utilizes the skills you have mastered as a CPA. You help write the grant and then if the money is funded you can help manage and track the funds or project. Stepping into grant writing and administrative work uses your knowledge of bookkeeping, tax legislation, and project management. You easily become and asset to their team (and sometimes these are offered as contract gigs)!

Your retirement years do not have to be spent completely giving up what you love, what you have done for so long. There are new ways to keep yourself in the field especially as the digital and virtual world expands! You may even find a new passion.

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Understanding Financial Independence, Retire Early (FIRE)

Brought to light from the 1992 book Your Money or Your Life by Vicki Robin and Joe Dominquez, the Financial Independence, Retire Early (FIRE) community was born as a movement that analyzes spending in terms of working hours as the ‘payment.’ For example, if your hourly pay is $12, a tube of toothpaste at $4 is 20 minutes of work. Being founded on the extreme frugality of spending, the movement is heavy on saving and investing, too.

With their dedication to saving and investing, FIRE followers aim to retire decades before 65. Those within the community typically work to save, invest that money, and when their assets are about their 25-30 times their projected annual expenses, will retire fully in their 30s or 40s. Some may work part-time. To maintain their desired lifestyle, FIRE folks will withdraw 3-4%. There have been various FIRE perspectives come to life since its rise in 1992 depending on lifestyle needs. The core three are as following:

  • Fat FIRE – This style takes aggressive savings and investment strategies and is more suitable for those with larger incomes than the average worker. Oftentimes this is the FIRE lifestyle for someone who does not want to reduce their standard of living.
  • Lean FIRE – With extreme saving and investing methods and a minimalistic lifestyle, the restricted living often has these folks living on $30,000 or less a year.
  • Barista FIRE – As the mid-grounds for Fat and Lean, folks here typically quit their traditional full-time jobs and use a combo of minimalistic living with freelance or part-time work. This is typically to maintain health benefits, support themselves, and not touch their retirement funds.  

More to FIRE than Meets the Eye:

FIRE does not mean entirely quitting work nor does just apply to retiring early. There are many accessible elements that could be applied to your retirement planning and financial health. Planning for your future is the core of the FIRE community. It is about getting better with your money—be it better saving, methodical investing, or intentional spending:

  1. Planning – In 2021, a study showed 25% of Americans did not have a retirement savings at all. Of those, almost 40% felt they would never get on track to have the retirement they want. FIRE emphasizes the importance of planning and saving.
  2. Discipline – To achieve what your plan entails there is a great amount of discipline involved. FIRE is about maximizing your income and minimizing your overall expenses. Setting a budget, strictly sticking to it, creating income streams now and saving.
  3. Invest wisely – Ideally, taking a certain percentage of your monthly income to invest is the idea of FIRE. The money adds up over time and grows. Strategies under FIRE are a little more extreme, encouraging to sometimes invest large amounts than the typical working person.

For further information on FIRE and much more, listen to our podcast episode “F.I.R.E., Side Hustles, and Retirement with the Financial Panther” of The Retirement Risk Show.

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Working Smarter, Not Harder: Leveraging Your Life Insurance Policy

An unconventional strategy for retirement, to maximize your life insurance policy is premium finance. Premium finance is where policyholders will pay substantial premiums via borrowing from a third-party lender—tying up the bank’s money versus your own capital. With some premium finance loans regular payments may begin shortly after the origination of the loan. However, there is a choice to capitalize interest into the arrangement with the expectation that the cash-value growth of the life insurance will outperform the accruing loan interest.

Premium financed life insurance allows the policyholder to purchase significantly more life insurance for a fraction of what is needed to support such a massive policy. This strategy keeps the policyholder’s other assets free to perform and produces an impressively tax-free internal rate of return for seemingly nothing out-of-pocket.

Ideally, the best method for premium financed life insurance polices is to create a compounding snowball effect for the cash value growth. The policy takes on the loan using built-in features. Moreover, it is when and if, the compounding cash value overcomes the hurdle of the premium finance loan’s interest rate. Future policy distributions may become death benefits to heirs, be tax-exempt retirement income, or possibly both.

How does premium financing work?

An affluent or emerging affluent individual with generally good health and a reputable credit rating may apply for a life insurance policy—be it for estate planning or retirement planning. For premium financing to occur, most of these policies will be whole life insurance or indexed-universal due to their stability and ability to offer higher loan-to-value ratio. With strong, long-term performance, the financed insurance policy will be funded at a maximum premium allowance for the first 4-7 years.

Depending on the situation, sometimes the borrower will pay the first premium themselves to avoid the need to post collateral. Often borrowers will involve a 3rd party lender to the larger premiums with the intent to begin interest-only payments directly to the lender. However, to fully capitalize on premium financing, borrowers roll the accruing interest into the loan with the high hopes the cash growth will outdo the finance loan.

This goes to say, the policyholder should prepare for posting collateral. If designed correctly, the life insurance can serve as the collateral due to its cash value growth.

Benefits to Premium Financed Life Insurance Policies:

  1. Ability to keep other assets active and growing.
  2. Replaces need to pay insurance premiums during your high-income working years.
  3. Potential for extremely positive arbitrage between cash value growth and premium finance loan rate.
  4. Potential of tax-exempt retirement income or greater death benefit payout.
  5. More cash value that compounds for you, not against you.

For more information on premium finance benefits and qualifications, listen to The Retirement Risk Show’s “Premium Finance: A Leveraging Method of Life Insurance” episode.

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International Living During Retirement

After having a taste of the working life and some traveling, retirees often consider living on foreign soil. Panama and Costa Rica are the two most sought out locations for retiring outside the U.S. If you are thinking settling aboard is in your future, the following are items you should consider before moving out of the country.

Preparation

            First and foremost: simplify your financial life where possible. Condense assets and prepare to do a lot of online banking. Make sure you have online access setup for your accounts and investments that will remain U.S-based.          

            If you can, find a community of American retirees wherever you are planning to settle. Those with experience retiring in the area are your best resource. This can be done by online social groups (i.e. Facebook) or by researching.

            Prepare to spend before you even get on the plane. While living expenses may be less per month in some areas, you may have to put several months’ rent down for a home. This could be up to $5,000. That does not consider travel there and moving belongings which could easily be another $5,000.

Credit History & Banking  

            What has been a determining factor throughout life for interest rates, mortgage, car payments? You guessed it! Credit score! The credit history you have built for decades will not likely transfer with you when moving aboard. If you can before, build up a credit history there—cell plan, lease, etc. It is recommended keeping a credit card or two from the U.S. active. This way you can use these for online shopping, travel expenses. This will keep your American credit score active.

            Unfortunately, it may be easier to build a credit history overseas than get a bank account within the country you settle. This goes for getting a credit card there, too. Why? The Foreign Account Tax Compliance Act (FATCA) was enforced beginning summer of 2014. This law requires foreign banks to report any accounts of U.S. citizens. Because of FATCA, extra fees are charged if foreign banks work with Americans. Many turn Americans away. In addition, U.S. citizens must file a Foreign Bank & Financial Account report for accountability.

            With the foreign banking laws, other laws have been put in place called “anti-laundering rules.” These rules require providing proof of funds when depositing between U.S. and a foreign account. For example, if you have a large lump sum deposited into your foreign bank account from a house or business sale, you will need to provide documentation of this sale for the money to be properly deposited.

            Another matter to consider is the exchange rate for currency. If you are using an ATM for your U.S. account, what you pull and receive will be based on that day’s exchange rate. The rate may change frequently and there will be fees associated depending on what account you are withdrawing from. Before moving out of the country, find cards that have small or no fees for foreign transactions and withdrawals.

Investments & Social Security

            Top advisors recommend keeping most investments within the U.S. This allows for better reporting and efficiency fund management. Having investments in the world stock markets are riskier, with an additional risk when it comes to the currency rate. By keeping investment assets U.S-based, funds are easily be distributed and oftentimes uninterrupted. Doublecheck that an international address will not a problem. Some agencies have policies that require an American address. Retirees that have moved out of the country have reported that policies have been paid out or closed due to this; this led to tax issues and messing up the three-bucket system. Research into your policies before moving.

            Unlike the issues that investments may have overseas, social security benefits are still paid out. The funds are directly deposited into bank account. The only downside is that Medicare is not given when living aboard.

Taxes

            Living aboard comes with a double taxation price tag. Depending on the laws and other regulations, you will have to file taxes for the United States and wherever you have settled. This is heavily dependent on your financial situation. Luckily, there are some tax breaks you may qualify for living on foreign soil: Foreign earned income exclusion and foreign tax credit.

            First, as of 2021, the foreign earned income exclusion permits $108,700 per individual. A married couple filing together potentially could exclude $217,400. This income exclusion does not apply to retirees who have zero income from working—401(k) and IRA distributions are not earned income. Secondly, the foreign tax credit allows qualified foreign taxes paid to offset U.S. tax liability. The credit is what American retirees rely on the most when living aboard due to itemization.

            Remember, if maintaining a U.S. address, state and local taxes may still be owed. Make sure when you are filing and claiming deductions and credits that you have converted the dollar correctly so no errors may result in major consequences.

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Self-Employed? Consider Self-Directed Retirement Plans

Self-employment is a beautiful thing. It offers a certain type of freedom, but it adds the stress of having to fund your own retirement unlike an employer providing a traditional 401(k) plan. Depending on your circumstances, certain self-directed plans may fit your business and retirement goals more: Traditional or Roth IRA, Solo 401(k), SEP IRA, or SIMPLE IRA.

Traditional or Roth IRA:

Known as the easiest way to save when self-employed for retirement, an IRA plan allows you to potentially rollover an old 401(k). For traditional IRAs tax deductions are permitted on whatever you contribute. No deductions on Roth IRAs, but you get to enjoy tax-free withdrawals in retirement.

2022 Contribution Limit: $6000 if under 50, $7000 if over 50. (Note: Roth IRAs have income limits so if you make too much you may be ineligible).

IRAs do not have designated employee elements. So, if you are hiring employees, they would have to open their own IRAs.

Solo 401(k):

This plan is best for the self-employed with no employees—and if applicable, a spouse could contribute. A solo 401(k) mirrors a traditional 401(k), but you are the employee and employer.

Let’s break that down. Pretend you are two people. As the employee you can contribute like you would with a standard employer sponsored 401(k) plan. In 2022 that would be whichever is less: up to $20,500 or 100% of your salary deferrals (plus a $6000 catchup if eligible). As the employer, you can make additional contributions, maxing at 25% of income.

Since the plan works like a standard 401(k), you make the contributions are tax-deferred, meaning you are taxed upon withdrawal.

Notes: This plan is great for saving loads of money for retirement. However, these contributions are per person, not per your plan. If you have other employment that offers a 401(k) (or your spouse does if contributing to the solo 401(k)) these contribution limits cover both 401(k) plans.

For more on solo 401(k)s, listen to The Retirement Risk Show episode “The Strategy for Self-Employed.”

SEP IRA:

Having simpler maintenance than a solo 401(k), SEP IRAs are flexible so that you do not have to contribute annually. Self-employed people or business owners with only a few employees benefit the most from this plan. Although no catchup contribution, SEP IRAs have the same contribution limits are solo 401(k)s: lesser of $61,000 or 25% of compensation (though limited at $305,000 in 2022).

Luckily, you can deduct the lesser of your contribution, restricted at the cap of $305,000. Withdrawals are taxed as income in retirement.

If you have employees, you must contribute the same to theirs as you did to yours. So if you did 15% for yourself, you must match and contribute 15% to each eligible employee. (Note: you are counted as an employee, that is why).

Note: There is no Roth SEP IRA.

SIMPLE IRA:

As the top choice for mid to large businesses up to 100 employees, SIMPLE IRAs are easy to setup and the employees own their own accounts. However, contribution limits are less than SEP IRAs and solo 401(k)s. Employees can contribute up to $14,000 (and a catchup amount of $3000 if over 50) in 2022. If as the employer you are contributing, too, the max contribution limit is $20,500.

Although these accounts are not as flexible, contributions are deductible and tax-deferred to withdrawal in retirement. Whatever contributions are made by the business is tax deductible as a business expense. Note: A 401(k) SIMPLE is also an option. However, these are more expensive to setup and require much more oversight

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Combatting the Blues in Retirement

From working years to the freedom years, retirement is a major life change. An era of structure is met with no given structure. This life change is a major transition for many retirees, and it is important to not only prepare your financial portfolio but take steps to tend to your mental health just the same. When 20% of retirees report “retirement blues” it is important to understand why and how to combat it. Mental health should always be taken seriously.

            The loss of structure from the pre-retirement years is reportedly the biggest factor into retirement related depression, loneliness, and anxiety. Having a career or a major role in raising the family provided a sense of identity, and when retired most folks lose that sense of identity. The daily routine and social interactions of coworkers and employees becomes obsolete. The extra time at home becomes an adjustment for everyone living in the household, too. The extra tension puts strain on relationships, making the transition into a comfortable retirement harder. And for retirement to be enjoyable it is important to speak up and take action to prevent the onset of mental health concerns.

            Easing these feelings can be done in a variety of ways. One suggestion is staying active socially and physically. Discovering new and even old hobbies would be a fabulous start! Get into cooking more, gardening, or sewing; take up photography or painting. Become more involved with family. Go to lunch with siblings, cousins, or children. Take grandkids out to the movies. Increase your involvement in your community or neighborhood: join or start a book club, volunteer as a dog walker for a local shelter; join a committee or run for a political position within your town!

Moreover, consider working part-time instead of retiring fully; or work part-time in a complete career change! Keeping at the “work life” routine may provide the crutch for not losing your identity. If you wish to not return to the traditional work style, consider turning a hobby into a side hustle or new business. This way you are staying active and can turn a passion into an extra stream of income.

Staying physically active is important, too, for mental health. If you are able, stroll your neighborhood and explore your local parks and trails. Get a gym membership or take fitness classes. Not only is the exercise good for your body, but it is also good for your mentality. If you cannot, consider a car ride through the park or a trip to the store. Getting fresh air and stepping out of your home is great!

Lastly, while all the above activities and recommendations may help, it is not a cure for the retirement blues—depression, anxiety, or loneliness. Do not be afraid to speak to your doctor or see a therapist. Evaluate what is important to you and what you want from your retirement years.

Finding what gives you purpose and ignites your soul is what will lead to a happy retirement!

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Retirement Security & Behavioral Finance

Your mind is wired with cognitive biases that influence your decision making—something that does not make planning your retirement as you wish and need easy. Behavioral finance studies the impact cognitive functions, social, and emotional factors have on financial decision making. Understanding this can increase overall financial health and allow for a more secure and successful retirement.

Loss Aversion Understanding

Research shows that folks are more stressed by losing money than gaining it. This is call loss aversion. This can make investment management and retirement planning problematic. In order to achieve a risk-based retirement plan and obtain reducing those Top Ten Risks, having a basic plan is the best first step for a secure retirement. You need to know your options!

Know Yourself

Naturally, folks are risk averse—but even this instinct needs to be well-informed. Understanding your motivations and wants for retirement allows you to set goals. When brainstorming your retirement wants and goals, try different ways of phrasing them. Going with the one that feels more motivating is what you should chose.

Know How Your Money Can Buy You Happiness

Think of your retirement as a trade: time and money. You spend decades dedicated to working and retirement is now your time. While planning for retirement keep that in mind! And financially, think about what will bring you happiness. Traveling? Starting a new business after retirement? Downsizing your home and spending more time with family? Knowing how you wish to focus your money promote you to stay motivated and overcome cognitive biases as you focus.

Decisiveness is Key

Ironically, good decision-making skills comes in handy here. Understanding your cognitive biases and having your goals properly aligned means success will allow you to better make those decisions—even understanding your past decisions will help!

The basics for retirement decision making are comprehensive retirement risk understanding, risk-based testing and planning, and knowing strategic options to reduce the risks.

Be Friends with Your Future

Ever heard of present bias? This is our tendency to value the current moments more than the future ones. For example, you are more likely to spend money on something that will make you happy now than you are to invest or save it for your future self. Present bias is actually a major factor in why folks have a hard time saving and planning for retirement.

Visualize your retirement goals. Keeping in mind your future self not only will help with retirement planning, but it will help your overall well-being!

For more information on behavioral finance and how it will help your retirement and your clients’ retirement, listen to our episode “Turning Knowledge into Action” on the Retirement Risk Show.

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