Blog – Retirement Risk Advisors

Market downturn and your retirement portfolio

17May

Can Your Retirement Porfilio Handle a Drop In the Market?

BlogMay 17, 2023

Imagine you’re five years out from retiring. Your assets are performing great, and you get excited because you will have enough money to retire and travel like you’ve always wanted to!

Then a major drop in the market happens, taking with it your hopes of traveling and a good chunk of your retirement money.

This is what sequence of return risk looks like for many retirees.

What is Sequence of Return Risk?

Sequence of return risk is the risk that an individual may experience negative investment returns early in retirement, which can significantly reduce the value of their retirement savings and potentially lead to a shortfall in retirement income. This can occur even if the average investment returns over the course of retirement are positive.

To illustrate the impact of sequence of return risk, consider two retirees who have the same average annual investment returns of 6% over a 20-year retirement. However, one retiree experiences a period of negative returns in the first few years of retirement, while the other retiree experiences negative returns in the last few years of retirement. The retiree who experiences negative returns early on will have a much lower retirement income than the other retiree, even though their average annual returns were the same.

Risk Management:

Sequence of return risk is important because it can significantly impact a retiree’s financial security. If a retiree experiences negative returns early on, they may need to withdraw a larger percentage of their savings to maintain their desired standard of living, potentially depleting their savings too quickly. This can make it difficult to recover even if investment returns improve in later years. In contrast, if a retiree experiences negative returns later in retirement, they may have more time to recover from losses, as they will have already withdrawn funds from their portfolio.

There are several strategies that retirees can use to manage sequence of return risk, including:

Diversify your portfolio: Diversification can help to mitigate the impact of poor investment returns in any single asset class.
Consider a more conservative investment strategy: A more conservative investment strategy may provide more stability and reduce the risk of significant losses during market downturns especially as retirement gets closer.
Implement a withdrawal strategy: Developing a withdrawal strategy that takes sequence of return risk into account can help to ensure that retirees don’t withdraw too much from their portfolio early in retirement.
Use annuities: An annuity can provide a guaranteed stream of income, which can help to mitigate the impact of poor investment returns.
Consider working longer: Delaying retirement or working part-time in retirement can provide additional income and allow retirees to delay drawing down their savings until market conditions are more favorable.

13May

An Overview of the Enrollment Periods for Medicare

BlogMay 13, 2023

The program offers a range of benefits to help individuals manage their health care expenses, including hospital insurance (Part A), medical insurance (Part B), prescription drug coverage (Part D), and Medicare Advantage (Part C). However, to access these benefits, individuals must enroll in Medicare during specific enrollment periods.

There are various enrollment periods for Medicare, each with its own set of rules and eligibility criteria. Here is a breakdown of the different enrollment periods and what you need to know about each:

Initial Enrollment Period (IEP)

The Initial Enrollment Period is the first opportunity for eligible individuals to enroll in Medicare. The IEP lasts for seven months and begins three months before the month of an individual’s 65th birthday and ends three months after their 65th birthday. If an individual is already receiving Social Security benefits, they will be automatically enrolled in Medicare Parts A and B during their IEP.

General Enrollment Period (GEP)

The General Enrollment Period is for individuals who missed their IEP and did not sign up for Medicare during a Special Enrollment Period (SEP). The GEP runs from January 1st to March 31st every year, and coverage begins on July 1st. However, individuals who enroll during the GEP may be subject to late enrollment penalties.

Special Enrollment Period (SEP) The Special Enrollment Period is for individuals who experience certain qualifying life events, such as moving to a new area or losing employer-sponsored health insurance. The SEP allows these individuals to enroll in Medicare outside of the standard enrollment periods. The length of the SEP and the eligibility criteria vary depending on the qualifying life event.

Annual Enrollment Period (AEP)

The Annual Enrollment Period, also known as the Open Enrollment Period, is an opportunity for individuals to make changes to their Medicare coverage. The AEP runs from October 15th to December 7th every year, and changes made during this period take effect on January 1st of the following year. During the AEP, individuals can switch from Original Medicare to Medicare Advantage or make changes to their Medicare Advantage or Part D plan.

Medicare Advantage Open Enrollment Period (OEP)

The Medicare Advantage Open Enrollment Period allows individuals who are already enrolled in a Medicare Advantage plan to switch to a different Medicare Advantage plan or return to Original Medicare. The OEP runs from January 1st to March 31st every year.

Medicare Supplement Enrollment Period

Medicare Supplement plans, also known as Medigap plans, help individuals cover the out-of-pocket costs associated with Original Medicare. The Medicare Supplement Enrollment Period is a six-month window that begins on the first day of the month in which an individual turns 65 and is enrolled in Medicare Part B. During this period, individuals can enroll in a Medicare Supplement plan without undergoing medical underwriting.

inflation and interest rates on your retirement overview

11May

Retirement Planning: The Impact of Inflation and Interest Rates

BlogMay 11, 2023

Retirement planning is so much more than putting your money into a 401(k). With so few people spending the time they need on sitting down and planning their retirement, each day brings a new challenge or concern to the table. We are facing unprecedented times when it comes to traditional retirement plans. Retirements are being robbed because of financial risks that cause retirees to run out of money before they run out of retirement. And one of the biggest challenges is planning for inflation and interest rates. Inflation refers to the increase in prices of goods and services over time, while interest rates are the cost of borrowing money or the return on lending money. These two factors are closely related, and they can have a significant impact on retirement planning.

Inflation and Retirement Planning

Inflation is a key factor that can affect retirement planning. As prices of goods and services rise over time, the value of money decreases. This means that the amount of money you save today may not be enough to cover your expenses in the future. For example, if you save $100,000 today and expect to retire in 30 years, assuming an inflation rate of 2%, the purchasing power of that $100,000 would be equivalent to approximately $54,000 in today’s dollars.

To account for inflation, it is important to adjust your retirement savings goals to ensure that you will have enough money to cover your expenses in the future. This means that you may need to save more money than you initially planned. One strategy to combat inflation is to invest in assets that tend to increase in value over time, such as stocks or real estate.

Interest Rates and Retirement Planning

Interest rates are another important factor to consider when planning for retirement. Higher interest rates generally mean that your savings will grow faster, while lower interest rates can make it more difficult to reach your retirement savings goals. For example, if you invest $10,000 today in a savings account with a 1% interest rate, in 30 years, your investment would grow to approximately $13,400. However, if the interest rate was 3%, your investment would grow to approximately $24,000.

In addition to savings accounts, interest rates can also impact other types of retirement investments, such as bonds or annuities. In a low interest rate environment, these investments may not provide enough return to keep up with inflation. Therefore, it is important to consider the current interest rate environment when selecting investments for your retirement portfolio.

The Relationship Between Inflation and Interest Rates

Inflation and interest rates are closely related, and changes in one can impact the other. As mentioned earlier, inflation tends to lead to higher interest rates. This is because lenders need to charge a higher interest rate to compensate for the loss of value of the money they are lending. Conversely, if inflation is low, interest rates may also be low, as lenders do not need to charge as much to compensate for inflation.

When planning for retirement, it is important to consider the relationship between inflation and interest rates. If you are investing in assets that are sensitive to interest rates, such as bonds, you may need to adjust your investment strategy if interest rates rise or fall. Additionally, you may need to adjust your retirement savings goals if inflation is higher than expected.

457 retirement plans when and what, the affect on your retirement

09May

When Would A 457 Account Affect Your Retirement?

BlogMay 9, 2023

If you’re a government employee, you may have access to a 457-retirement account. A 457 plan is a type of tax-advantaged retirement account that is available to employees of state and local governments, as well as certain non-profit organizations.

Let’s take a closer look.

What is a 457-retirement account?

A 457 plan is like a 401(k) or 403(b) plan, but it is designed specifically for government and non-profit employees. Like a 401(k), a 457 plan allows you to make pre-tax contributions, which can help lower your taxable income. The money you contribute to the plan grows tax-free until you withdraw it in retirement. Additionally, like a 401(k), some employers offer a matching contribution, which can help boost your savings.

One key advantage of a 457 plan is that it allows you to contribute more to your retirement savings than a 401(k) or 403(b). In 2023, the maximum amount you can contribute to a 457 plan is $22,500. However, if you are 50 or will be 50 by end of the year, you can contribute a catch-up of an additional $7500.

Another advantage of a 457 plan is that you may be able to withdraw money penalty-free before you reach age 59 and a half. This is known as the “substantially equal periodic payments” provision, and it allows you to receive a stream of payments over your lifetime, based on your life expectancy.

What are the differences between a 457 and a 401(k) or 403(b)?

While a 457 plan shares many similarities with a 401(k) or 403(b), there are a few key differences. For example, a 457 plan does not have an early withdrawal penalty if you leave your job before age 59 and a half. Additionally, you can contribute the maximum amount to both a 401(k) or 403(b) and a 457 plan in the same year, which can help boost your savings.

However, one key disadvantage of a 457 plan is that it may not be as well-known or widely available as a 401(k) or 403(b). Additionally, some 457 plans may have higher fees or less investment options than other retirement plans.

Is a 457-retirement account right for you?

If you are a government or non-profit employee and have access to a 457 plan, it may be a good option for your retirement savings. However, like any retirement plan, it’s important to carefully consider the fees, investment options, and contribution limits before deciding to contribute.

Here are a few reasons why you need more than tax deferred accounts for your retirement

25Apr

Tax-Deferred Accounts: A Few Reasons Your Retirement Needs More

BlogApril 25, 2023

For many years, tax-deferred retirement accounts such as traditional 401(k)s and traditional IRAs have been a popular choice for retirement savings. These accounts allow individuals to contribute pre-tax dollars, which grow tax-free until withdrawals are made in retirement. However, as the tax landscape changes and retirees face new challenges, there are compelling reasons why retirees should consider moving away from tax-deferred retirement accounts. Here are a few reasons to consider why:

Uncertainty of Future Tax Rates

One of the main drawbacks of tax-deferred retirement accounts is the uncertainty of future tax rates. Retirees may be forced to withdraw money from these accounts when tax rates are higher, leading to a higher tax burden than they anticipated. With the national debt at historic levels, many experts predict that future tax rates will be higher than they are today. By using alternative retirement savings strategies, such as Roth IRAs or taxable investment accounts, retirees can better control their tax liability in retirement.

Required Minimum Distributions (RMDs)

Retirees with tax-deferred retirement accounts are required to take annual withdrawals, known as required minimum distributions (RMDs) once they reach age 72. These RMDs can be a burden for retirees who do not need the money for living expenses or who do not want to increase their tax liability. By using alternative retirement savings strategies, such as Roth IRAs or taxable investment accounts, retirees can avoid RMDs altogether.

Loss of Control

Retirees with tax-deferred retirement accounts have limited control over their investments, as these accounts are typically managed by the plan sponsor or financial institution. This can be frustrating for retirees who want more control over their investments or who want to invest in non-traditional assets. By using alternative retirement savings strategies, such as self-directed IRAs or taxable investment accounts, retirees can gain greater control over their investments.

No Tax Benefits for Heirs

Retirees who pass on tax-deferred retirement accounts to their heirs may be passing on a tax liability as well. Heirs who inherit tax-deferred retirement accounts must pay income tax on the distributions they receive, potentially reducing the value of the inheritance. By using alternative retirement savings strategies, such as Roth IRAs or taxable investment accounts, retirees can provide their heirs with tax-free assets that may be more valuable in the long run.

Fear of RUnning out of money in retirement

18Apr

When Rest & Relaxation in Retirement Becomes Fear of Running Out of Money

BlogApril 18, 2023

Retirement is supposed to be a time of rejuvenation and relaxation, but for many retirees, financial stress can quickly turn it into a time of worry and struggle. One of the biggest concerns for retirees is running out of money. Unfortunately, it is a major issue, and it can happen for a variety of reasons.
The following are some common reasons retirees run out of money in retirement:

Insufficient Savings: One of the primary reasons retirees run out of money in retirement is due to insufficient savings. Many people don’t start saving early enough, don’t save enough, or don’t have a good understanding of how much they will need in retirement. As a result, they may end up with a retirement fund that is too small to last their entire retirement period.
Increased Life Expectancy: People are living longer than ever before, which means retirement savings must last longer too. Unfortunately, many people do not plan for an extended retirement period, and their savings run out before they pass away. This can be particularly challenging if they require long-term care, which can be very expensive.
Inflation: Inflation is a fact of life, and it can significantly impact retirees’ ability to maintain their standard of living. Many retirees are on fixed incomes and may not be able to keep up with the rising costs of goods and services. This can lead to a situation where they need to dip into their retirement savings to cover their living expenses.
Health Care Costs: As we age, health care costs tend to increase. These costs can be particularly challenging for retirees, especially those without health insurance. According to some estimates, a couple retiring in 2020 will need about $295,000 to cover their health care costs during retirement.
Poor Investment Choices: Investing is an essential part of retirement planning. Unfortunately, some retirees make poor investment choices or do not understand how to manage their investments effectively. This can lead to a situation where their retirement savings do not perform as well as they had hoped, and they run out of money sooner than expected.
Debt: Debt can be a significant problem for retirees. Those who carry debt into retirement may find that they need to use their retirement savings to pay it off. This can quickly deplete their savings and leave them without a financial cushion.
Running out of money in retirement is a widespread problem that can happen for many reasons. However, with careful planning and thoughtful decisions, retirees can reduce or even eliminate this problem. While there are many strategies that folks can take, the most important step is to plan properly and consider the risks facing your retirement.

the overview and buzz about retirement plans having FIAs fixed indexed annuities

05Apr

The Buzz about Fixed Indexed Annuities

BlogApril 5, 2023

Consider an FIA for Your Retirement

When it comes to planning for retirement, it’s important to consider all of your options for generating income. One option that many retirees choose is a fixed indexed annuity. A fixed indexed annuity (FIA) is a type of annuity that offers a guaranteed minimum interest rate, along with the potential for higher returns based on the performance of an underlying index, such as the S&P 500. Here are some of the reasons why FIAs can be a good option for retirement planning:

Protection Against Market Losses

One of the biggest benefits of a fixed indexed annuity is that it offers protection against market losses. Unlike other investments, the principal amount invested in an FIA is not at risk of loss due to market downturns. This can provide peace of mind for retirees who are concerned about market volatility.

Guaranteed Minimum Interest Rate

In addition to protecting against market losses, FIAs also offer a guaranteed minimum interest rate. This means that even if the underlying index performs poorly, the annuity will still earn a minimum interest rate. This provides a stable source of income for retirees.

Tax-Deferred Growth

Another advantage of FIAs is that they offer tax-deferred growth. This means that the interest earned on the annuity is not taxed until it is withdrawn. For retirees who are in a higher tax bracket, this can be a significant advantage.

Flexible Payment Options

FIAs offer flexible payment options, allowing retirees to choose how they receive their payments. They can opt for a lump sum payment, periodic payments, or even lifetime payments. This allows retirees to tailor their annuity to their individual needs.

Estate Planning Benefits

Finally, FIAs offer estate planning benefits. In the event of the annuity owner’s death, the beneficiaries of the annuity can receive the remaining balance of the annuity without going through the probate process. This can be a significant advantage for retirees who are concerned about leaving assets to their heirs.

Fixed indexed annuities can be a good option for retirement planning. They offer protection against market losses, a guaranteed minimum interest rate, tax-deferred growth, flexible payment options, and estate planning benefits. It’s important to work with a trusted financial advisor to determine if an FIA is the right choice for your individual retirement goals.

30Mar

Not To Scare, but with Age Comes Long-Term Care

BlogMarch 30, 2023

As people are living longer, the need for long-term care in retirement is becoming increasingly important. Long-term care refers to the assistance that individuals may require with activities of daily living, such as bathing, dressing, and eating. In this article, we will explore the increasing need for long-term care in retirement and what individuals can do to prepare for this potential expense.

Why the Need for Long-Term Care is Increasing

The need for long-term care in retirement is increasing for several reasons:

Longer life expectancy: As people live longer, the likelihood of requiring long-term care increases.
Age-related health issues: As individuals age, they may experience a range of health issues that can impact their ability to perform activities of daily living.
Rising healthcare costs: Healthcare costs continue to rise, and long-term care expenses can be particularly expensive.
Changes in family structure: Changes in family structure, such as a decrease in the number of family members available to provide care, can make long-term care an increasingly important consideration.

The Costs of Long-Term Care

Long-term care can be expensive, and it is important to understand the potential costs associated with this type of care. The cost of long-term care can vary depending on several factors, including the type of care required, the geographic location, and the length of care required. According to a recent survey by Genworth, the national median cost of long-term care ranges from $4,576 per month for a home health aide to $8,821 per month for a private room in a nursing home.

Preparing for Long-Term Care

There are several steps that individuals can take to prepare for the potential need for long-term care in retirement:

Long-term care insurance: Long-term care insurance can help to cover the costs of long-term care, and can be a good option for individuals looking to protect their retirement savings from potential long-term care expenses.
Health savings accounts (HSAs): HSAs can be used to save for future healthcare expenses, including long-term care.
Lifestyle modifications: Making healthy lifestyle choices can help to reduce the risk of age-related health issues that may require long-term care.
Retirement planning: Including the potential costs of long-term care in retirement planning can help to ensure that individuals are financially prepared for this potential expense.

The need for long-term care in retirement is increasing, and it is important for individuals to understand the potential costs associated with this type of care. By taking steps to prepare for long-term care, such as purchasing long-term care insurance, utilizing health savings accounts, and including the potential costs of long-term care in retirement planning, individuals can help to ensure that they are financially prepared for this potential expense.

23Mar

Estate Planning IS Retirement Planning

BlogMarch 23, 2023

Retirement planning is an important part of ensuring financial stability in your golden years. It involves budgeting, saving, and investing to ensure you have the necessary funds to support your lifestyle when you retire. However, another essential aspect that is often overlooked in retirement planning is estate planning. Estate planning is the process of deciding for the management and distribution of your assets after your death. Here are some reasons why estate planning should be included in your retirement planning:

Protect Your Assets

Estate planning can help ensure that your assets are protected and passed on to your loved ones according to your wishes. Without a proper estate plan, the probate court will determine how your assets are distributed, which may not align with your preferences.

Avoid Family Disputes

An estate plan can also help avoid family disputes over your assets. It is not uncommon for families to fight over inheritances, and a clear and comprehensive estate plan can help prevent such disputes.

Minimize Taxes

Estate planning can also help minimize the tax burden on your estate. By taking advantage of strategies such as gifting and trusts, you can reduce the amount of taxes owed and ensure that more of your assets are passed on to your beneficiaries.

Plan for Incapacity

Estate planning can also include a power of attorney or healthcare proxy, which will allow someone to manage your affairs if you become incapacitated. This can be important in retirement, as the risk of cognitive decline or health problems increases as we age.

Peace of Mind

Finally, including estate planning in your retirement planning can provide peace of mind, knowing that your affairs are in order and your loved ones will be taken care of after you are gone.

In conclusion, estate planning should be an essential part of retirement planning. It can help protect your assets, avoid family disputes, minimize taxes, plan for incapacity, and provide peace of mind. It’s important to work with a qualified estate planning attorney to ensure that your estate plan is tailored to your individual needs and preferences.

07Mar

Wanna Be Tax-Free in Retirement?

BlogMarch 7, 2023

As you approach retirement, it’s important to consider tax-efficient strategies that can help you make the most of your retirement savings. By minimizing the amount of taxes you pay, you can stretch your retirement income further and make your savings last longer. Below are some tax-advantaged and tax-free retirement accounts you can utilize.

Roth IRAs

Roth IRAs are a popular retirement savings vehicle that can offer significant tax benefits. Contributions to a Roth IRA are made with after-tax dollars, which means that you won’t receive a tax deduction for your contributions. However, once you reach retirement age, you can withdraw your savings tax-free. This can be a valuable tax-free source of income in retirement.

Health Savings Accounts (HSAs)

HSAs are tax-advantaged accounts that are designed to help you save for healthcare expenses. Contributions to an HSA are made with pre-tax dollars, which can help reduce your taxable income. Additionally, withdrawals from an HSA are tax-free if they are used to pay for qualified medical expenses. This can be a valuable tax-free source of income in retirement.

Municipal Bonds

Municipal bonds are issued by state and local governments and are typically exempt from federal taxes. If you purchase a municipal bond issued by a state in which you reside, the interest on that bond is also exempt from state and local taxes. This can be a valuable tax-free source of income in retirement.

Life Insurance

Certain types of life insurance policies can offer tax-free benefits in retirement. For example, a permanent life insurance policy can provide tax-free withdrawals of the policy’s cash value. Additionally, a death benefit paid to your beneficiaries is typically tax-free.

Real Estate

Investing in real estate can be a tax-efficient strategy for retirement planning. Rental income from investment properties is typically taxable, but there are ways to offset that income. For example, you can deduct expenses such as property taxes, mortgage interest, and repairs. Additionally, if you hold the property for more than a year, any capital gains from the sale of the property will be taxed at a lower rate.