Strategies for Retiring in Volatile Markets

In an ideal world, your retirement would be timed perfectly. You would be ready to leave the workforce, your debt would be paid off, and your nest egg would be large enough to provide a comfortable retirement–with some left over to leave a legacy for your heirs.

roller-coasterUnfortunately, this is not a perfect world, and events can take you by surprise. In a survey conducted by the Employee Benefit Research Institute, only 44% of current retirees said they retired when they had planned; 46% retired earlier, many for reasons beyond their control.1

But even if you retire on schedule and have other pieces of the retirement puzzle in place, you cannot predict the stock market. What if you retire during a market downturn?

Sequencing risk
The risk of experiencing poor investment performance at the wrong time is called sequencing risk or sequence of returns risk. All investments are subject to market fluctuation, risk, and loss of principal–and you can expect the market to rise and fall throughout your retirement.

However, market losses on the front end of your retirement could have an outsized effect on the income you might receive from your portfolio. If the market drops sharply before your planned retirement date, you may have to decide between retiring with a smaller portfolio or working longer to rebuild your assets.

If a big drop comes early in retirement, you may have to sell investments during the downswing, depleting assets more quickly than if you had waited and reducing your portfolio’s potential to benefit when the market turns upward.

buckets-of-change-1024x545Dividing your portfolio
One strategy that may help address sequencing risk is to allocate your portfolio into three different buckets that reflect the needs, risk level, and growth potential of three retirement phases.

Short-term (first 2 to 3 years): Assets such as cash and cash alternatives that you could draw on regardless of market conditions.

Mid-term (3 to 10 years in the future): Mostly fixed-income securities that may have moderate growth potential with low or moderate volatility. You might also have some equities in this bucket.

Long-term (more than 10 years in the future): Primarily growth-oriented investments such as stocks that might be more volatile but have higher growth potential over the long term.

Throughout your retirement, you can periodically move assets from the long-term bucket to the other two buckets so you continue to have short-term and mid-term funds available. This enables you to take a more strategic approach in choosing appropriate times to buy or sell assets.

Although you will always need assets in the short-term bucket, you can monitor performance in your mid-term and long-term buckets and shift assets based on changing circumstances and longer-term market cycles. If this strategy appeals to you, consider restructuring your portfolio before you retire so you can choose appropriate times to adjust your investments.

Stretch-IRADetermining withdrawals
The three-part allocation strategy may help mitigate the effects of a down market by spreading risk over a longer period of time, but it does not help determine how much to withdraw from your savings each year. The amount you withdraw will directly affect how long your savings might last under any market conditions, but it is especially critical in volatile markets.

One common rule of thumb is the so-called 4% rule. According to this strategy, you initially withdraw 4% of your portfolio, increasing the amount annually to account for inflation. Some experts consider this approach to be too aggressive–you might withdraw less depending on your personal situation and market performance, or more if you receive large market gains.

Another strategy, sometimes called the endowment method, automatically adjusts for market performance. Like the 4% rule, the endowment method begins with an initial withdrawal of a fixed percentage, typically 3% to 5%. In subsequent years, the same fixed percentage is applied to the remaining assets, so the actual withdrawal amount may go up or down depending on previous withdrawals and market performance.

A modified endowment method applies a ceiling and/or a floor to the change in your withdrawal amount. You still base your withdrawals on a fixed percentage of the remaining assets, but you limit any increase or decrease from the prior year’s withdrawal amount. This could help prevent you from withdrawing too much after a good market year, while maintaining a relatively steady income after a down market year.

Note: Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.

1Employee Benefit Research Institute, “2016 Retirement Confidence Survey”

Beyond Politics: What Does the Election Mean for Your Investments?

As the recent Democratic and Republican political conventions are in the rear view mirror, the presidential election season will now move into high gear! The “hype” on everyone’s minds right now is, of course, whether Donald or Hillary should win the election, and that cannot be ignored. If this post was an actual debate and I were behind the podium, the question you might ask is: How will this election affect the markets?

donald-hillary-800In previous communications, I have consistently emphasized the importance of maintaining a long-term perspective. Investors must keep their emotions in check and strive to block out the hype – the noise that can distract any of us from moving toward the attainment of your long-term financial goals.

The elections can sometimes bring out the more emotional side of our personalities, especially during a presidential election year which can cause excitement or despair, depending on your side of the aisle. I have even heard people complain that if a certain candidate wins, “The markets are doomed and so are my investments!”

Although every citizen is certainly entitled to their political beliefs, I think it might likely be very unwise to allow your political passions to drive your investment choices. It’s not about election years, or even political parties – but about investing for the long run. Nonetheless, there are some historical election year patterns that may be worth watching. Here are a few to consider, according to the 2016 Mid Year Outlook recently published by the investment research department at LPL Financial:

file0001935255693The Economic Factor: Income Growth
Income growth is one way to gauge the impact of the economy on election results, as this measure captures the impact of several key factors, including the unemployment rate, inflation, and wage growth. In the year leading up to the election, inflation adjusted, after-tax income growth of about 3% to 4% appears to be the threshold for the incumbent party to win. As of June 30th, this measure is currently growing in the 3% to 3.5% range, suggesting that the incumbent Democratic Party has a good chance of winning just over 50% of the two-party vote in November’s election.

Stock Market Performance Under Different Parties
The often spoken market mantra that “gridlock is good” suggests that a split Congress, or a President from the party opposite the one in control of both houses of Congress, would be better for markets. The downside, however, is that gridlock could limit policy action at a time when many policy experts think changes are needed on several fronts including taxes, entitlement reform, immigration, security, and others.

Historically, the combination of a Democratic President and split Congress has been best for markets, though it has occurred infrequently, with an average gain of 10.4% for the Dow Jones Industrial Average. A Republican sweep of the White House and Congress, on the other hand, has also been positive for stocks as well, with an average gain for the Dow of 7%. Election years have been strong for stocks, excluding the anomaly in 2008, the worst year of the Great Recession. Election year gains have averaged close to 10% and positive returns have occurred in a solid 87% of election years.

RisinginterestratesiStock_000078549611_MediumThe election year pattern for stocks suggests volatility may persist through the summer months until markets have more clarity on the candidates and their platforms. Once that clarity arrives, often before the election itself, stocks have typically staged a late-year rally. The path of bond yields during a presidential election year is very similar to the historical pattern for any given year.

The seasonal tendency is for yields to decline starting in late October through November; but during election years, the tendency has been for an increase in Treasury yields. Taking these historical patterns into consideration, and given the current environment, suggests that we will remain in a similar policy and stock environment as we’ve seen in recent years.

A Winning Platform
The road to long-term financial goals is filled with many potholes and road blocks. But the best election year “trade” might be to stick to your long-term investment strategy and remain focused on your investment aspirations. Over these past seven years, one of the best, but also most befuddling, bull markets in history may have made us feel like the financial markets are not functioning properly, and there’s a need to change something to “make investing great again.”

But even though a changing world presents important new challenges, staying focused on a good plan, and remaining patient may bring out the ways that “investing has always been great.” I think you have the winning platform already: invest early and often, stay diversified, and be patient through the ups and downs.

As always, if you have any questions, please email me at bill.pollak@lpl.com or call me at (925) 464-7057.

Comparing Health Insurance Options during Open Enrollment

The decisions you make during open enrollment season regarding health insurance are especially important, since you generally must stick with the options you choose until the next open enrollment season, unless you experience a “qualifying” event such as marriage or the birth of a child.

Fun Medical MGD©As a result, you should take the time to carefully review the types of plans offered by your employer and consider all the costs associated with each plan. With most health insurance plans, your employer will pay a portion of the premium and require you to pay the remainder through payroll deductions.

When comparing different plans, keep in mind that even though a plan with a lower premium may seem like the most attractive option, it could have higher potential out-of-pocket costs.

You’ll want to review the copayments, deductibles, and coinsurance associated with each plan. This is an important step because these costs can greatly affect what you end up paying out-of-pocket. When reviewing the costs of each plan, consider the following:

1) Does the plan have an individual or family deductible? If so, what is the amount that will have to be satisfied before your insurance coverage kicks in?

2) Are there copayments? If so what amounts are charged for doctor visits, specialists, hospital visits, and prescription drugs?

3) Will you have to pay any coinsurance once you’ve satisfied the deductible?

You should also assess each plan’s coverage and specific features. For example, are there coverage exclusions or limitations that apply? Which expenses are fully or partially covered? Do you have the option to go to doctors who are outside your plan’s provider network? Does the plan offer additional types of coverage for vision, dental, or prescription drugs?

In the end, when reviewing your options, you’ll want to balance the coverage and features offered under each plan against the plan’s overall cost to determine which plan offers you the best value for your money.

If you have any questions about how to approach your decisions, please email me at bill.pollak@lpl.com or call my office at (925) 464-7057!

Taxes, Retirement, and Timing Social Security

The advantages of tax deferral are often emphasized when it comes to saving for retirement. So it might seem like a good idea to hold off on taking taxable distributions from retirement plans for as long as possible. (Note: Required minimum distributions from non-Roth IRAs and qualified retirement plans must generally start at age 70½.) But sometimes it may make more sense to take taxable distributions from retirement plans in the early years of retirement while deferring the start of Social Security retirement benefits.

Some basics
sscardUp to 50% of your Social Security benefits are taxable if your modified adjusted gross income (MAGI) plus one-half of your Social Security benefits falls within the following ranges: $32,000 to $44,000 for married filing jointly; and $25,000 to $34,000 for single, head of household, or married filing separately (if you’ve lived apart all year).

Up to 85% of your Social Security benefits are taxable if your MAGI plus one-half of your Social Security benefits exceeds those ranges or if you are married filing separately and lived with your spouse at any time during the year. For this purpose, MAGI means adjusted gross income increased by certain items, such as tax-exempt interest, that are otherwise excluded or deducted from your income for regular income tax purposes.

Social Security retirement benefits are reduced if started prior to your full retirement age (FRA) and increased if started after your FRA (up to age 70). FRA ranges from 66 to 67, depending on your year of birth.

Distributions from non-Roth IRAs and qualified retirement plans are generally fully taxable unless nondeductible contributions have been made.

Accelerate income, defer Social Security
It can sometimes make sense to delay the start of Social Security benefits to a later age (up to age 70) and take taxable withdrawals from retirement accounts in the early years of retirement to make up for the delayed Social Security benefits.

file5511312030154If you delay the start of Social Security benefits, your monthly benefits will be higher. And because you’ve taken taxable distributions from your retirement plans in the early years of retirement, it’s possible that your required minimum distributions will be smaller in the later years of retirement when you’re also receiving more income from Social Security.

And smaller taxable withdrawals will result in a lower MAGI, which could mean the amount of Social Security benefits subject to federal income tax is reduced.

Whether this strategy works to your advantage depends on a number of factors, including your income level, the size of the taxable withdrawals from your retirement savings plans, and how many years you ultimately receive Social Security retirement benefits.

Example
Mary, a single individual, wants to retire at age 62. She can receive Social Security retirement benefits of $18,000 per year starting at age 62 or $31,680 per year starting at age 70 (before cost-of-living adjustments). She has traditional IRA assets of $300,000 that will be fully taxable when distributed.

file0001270953716She has other income that is taxable (disregarding Social Security benefits and the IRA) of $27,000 per year. Assume she can earn a 6% annual rate of return on her investments (compounded monthly) and that Social Security benefits receive annual 2.4% cost-of-living increases. Assume tax is calculated using the 2015 tax rates and brackets, personal exemption, and standard deduction.

Option 1. One option is for Mary to start taking Social Security benefits of $18,000 per year at age 62 and take monthly distributions from the IRA that total about $21,852 annually.

Option 2. Alternatively, Mary could delay Social Security benefits to age 70, when her benefits would start at $38,299 per year after cost-of-living increases.

To make up for the Social Security benefits she’s not receiving from ages 62 to 69, during each of those years she withdraws about $40,769 to $44,094 from the traditional IRA–an amount approximately equal to the lost Social Security benefits plus the amount that would have been withdrawn from the traditional IRA under the age 62 scenario (plus a little extra to make the after-tax incomes under the two scenarios closer for those years).

When Social Security retirement benefits start at age 70, she reduces monthly distributions from the IRA to about $4,348 annually.

Mary’s after-tax income in each scenario is approximately the same during the first 8 years. Starting at age 70, however, Mary’s after-tax income is higher in the second scenario, and the total cumulative benefit increases significantly with the total number of years Social Security benefits are received.*

Back to School and Snore Your Way to Investment Success

I hope you are enjoying these last days of summer and that you have had the chance to take a great vacation! For me, the past few weeks has brought another “Back to School” season for the family. But this time around, the school year’s start is much different!

back-to-schoolInstead of attending more high school, my twin sons, Daniel and Benjamin, are now going “Off to School” to start their freshman years at the University of California, Davis and at the University of Illinois, respectively.

I admire the dedication they have shown over the years and especially how they gracefully navigated the very competitive college admissions environment during their Senior year! As I reflected on their hard work in recent weeks, their journey has reminded me that learning is an on-going process that takes place inside and outside the classroom.

This idea is certainly applicable to just about everything in our lives, even personal finance and investments. And the financial world sometimes provides ample opportunity to “test” how well we have learned our lessons!

Recent conditions in the investment markets, for example, might be providing investors with the equivalent of a mid-term exam! During 2015, returns in the broad US stock and bond markets have struggled at times to produce positive returns.

And in recent days, of course, global equity markets have been much more volatile, temporarily serving up a 10% correction before rebounding and paring some of the losses. The past few weeks have certainly been very different from the tame price fluctuations of the past few years.

roller-coasterThere is also no shortage of economic uncertainty around the world. Investors are trying to digest a potential rise in US interest rates later this year, the rapid decline in oil prices, increasing volatility in the Chinese stock market, and other economic and political worries.

So, the weeks or months ahead might test the resolve of many investors. The “exam” may not be multiple choice, but such a period might be a good assessment of whether one is truly a long-term investor.

Staying the “course” with your investment plan might increase the odds of long-term investment success. If the markets move back into correction territory, and you stick with your plan, you will have “aced” your investment midterm and will be on your way to the coveted diploma!

On the other hand, you could try to predict short-term market movements, sell before another possible market decline and then buy back in at lower prices. But objective studies of market timing have shown that they might not be successful over a reasonable period of time and that they could potentially lead to less optimal returns.

Even the world’s greatest investors cannot reliably forecast short-term market movements, and they happily admit this fact. Here are a few opinions on the subject from some of the best investment “professors” of our time:

file000986451810Warren Buffett, known for holding stocks like Wells Fargo Bank and Coca Cola for decades, once wrote, “We continue to make more money when snoring than when active.” Peter Lynch, one of the most highly regarded mutual fund managers of his era, said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”.

The logic behind not trying to time the financial markets is compelling. Still, I recognize that it can be difficult to stay on track. To help you through these volatile times, I want to continue my practice of providing relevant financial education articles and to inspire you to make sound financial decisions! Here are a few that might help you navigate the challenging moments:

Should You Worry About China Stock Market Volatility: Many investors are wondering whether China’s stock market volatility might slow down China’s economy and eventually global growth prospects. Should you make any portfolio changes? Read more…

Five Steps to Tame Financial Stress: Studies show that most of us get stressed about money some of the time. Here are some tips that can help you through those tough moments! Read more…

Can You Count on Dividends for Reliable Income? With fixed income investments offering low yields, it is tempting to think about using dividend paying stocks as a substitute for bonds. Here are some issues to consider before you take the plunge. Read more…

Finally, use this blog as a reminder to reflect on your own situation. If you are uncomfortable with the recent market volatility, or are unsure whether your investments are aligned to your long-term financial goals, please email bill.pollak@lpl.com or call me at (925) 464-7057. I would be happy to help!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Investing involves risk including potential loss of principal.

Five Steps to Tame Financial Stress

Do you sometimes lie awake at night thinking about bills that need to be paid? Does it feel as though you’re drowning in debt? If this describes you, you might take solace in the fact that you’re not alone. A recent report released by the American Psychological Association (APA) showed that 72% of adults feel stressed about money at least some of the time, and 22% said the amount of stress they experienced was extreme.

IMG_0691The bad news is that stress can be responsible for multiple health problems, including fatigue, headaches, and depression. And, over time, stress can contribute to more significant health issues, including high blood pressure and heart disease. The good news is that there are some simple steps you can take to reduce or eliminate some of the financial stress in your life.

1. Stop and assess

The first step in reducing financial stress is to look at your situation objectively, creating a snapshot of your current financial condition. Sit down and list all of your financial obligations. Start with the items that are causing you the most stress. For debts, include the principal due, the applicable interest rate, and the minimum payment amount. If you’re not already doing so, review your bank account and credit-card statements to track where your money is going. The goal here is not to solve the problem; it’s to determine and document the scope of the problem. You might find that this step alone significantly helps alleviate your stress level (think of it as facing your fears).

2. Talk to your spouse
If you’re married, talk to your spouse. It’s important to communicate with your spouse for several reasons. First, you and your spouse need to be on the same financial page; any steps you take to improve your situation are going to be most effective if pursued jointly.

Second, not being on the same page as your spouse is only going to lead to additional stress. In fact, the APA report showed that 31% of spouses and partners say that money is a major source of conflict or tension in their relationship.

Additionally, your spouse or partner can be a valuable source of emotional support, and this emotional support alone can lower stress levels.4 If you’re not married, family or friends might fill this role.

3. Take control
First, go back and take a look at where your money is going. Are there changes you can make that will free up funds you can save or apply elsewhere? Even small changes can make a difference. And exerting control over your situation to any degree can help reduce your overall stress level.

Start building a cash reserve, or emergency fund, by saving a little bit each paycheck. Think of the emergency fund as a safety net; just knowing it’s there will help reduce your ongoing level of stress. Work up to a full spending plan (yes, that’s another way of saying a budget) where you prioritize your expenses, set spending goals, and then stick to them going forward.

2014-04-13 12.56.094. Think longer term
Look for ways to reduce debt long term. You might pay more toward balances that have the highest interest rates. Or you might consider refinancing or consolidation options as well.

Beyond that, though, you really want to start thinking about your long-term financial goals, identifying and prioritizing your goals, calculating how much you might need to fund those goals, and implementing a plan that accounts for those goals. Having a plan in place can help you with your stress levels, both now and in the future.

5. Get help
Always remember that you don’t need to handle this alone. If the emotional support of a spouse, friends, or family isn’t enough, or the level of stress that you’re feeling is just too much, know that there is help available. Consider talking to your primary-care physician, a mental health professional, or an employee assistance resource, for example.

A financial professional can also be a valuable resource in helping you work through some of the steps discussed here, and can help direct you to other sources of assistance, like credit or debt counseling services, depending on your needs.

The most important thing to keep in mind is that you have the ability to control the amount of financial stress in your life.

1,3,4 American Psychological Association, “Stress in America™: Paying with Our Health,” www.stressinamerica.org, February 4, 2015

2 Mayo Clinic Staff, “Stress Symptoms: Effects on Your Body and Behavior,” www.mayoclinic.org, July 19, 2013

Review Your Finances Mid Year

You made it through tax season and now you’re looking forward to your summer vacation. But before you go, take some time to review your finances. Mid-year is an ideal time to do so, because the demands on your time may be fewer, and the planning opportunities greater, than if you wait until the end of the year.

2015road496240933Think about your priorities
What are your priorities? Here are some questions that may help you identify the financial issues you want to address within the next few months.
1) Are any life-changing events coming up soon, such as marriage, the birth of a child, retirement, or a career change?
2) Will your income or expenses substantially increase or decrease this year?
3) Have you managed to save as much as you expected this year?
4) Are you comfortable with the amount of debt that you have?
5) Are you concerned about the performance of your investment portfolio?
6) Do you have any other specific needs or concerns that you would like to address?

Take another look at your taxes
Completing a mid-year estimate of your tax liability may reveal tax planning opportunities. You can use last year’s tax return as a basis, then make any anticipated adjustments to your income and deductions for this year.

You’ll want to check your withholding, especially if you owed taxes when you filed your most recent income tax return or you received a large refund. Doing that now, rather than waiting until the end of the year, may help you avoid a big tax bill or having too much of your money tied up with Uncle Sam. If necessary, adjust the amount of federal or state income tax withheld from your paycheck by filing a new Form W-4 with your employer.

To help avoid missed tax-saving opportunities for the year, one basic thing you can do right now is to set up a system for saving receipts and other tax-related documents. This can be as simple as dedicating a folder in your file cabinet to this year’s tax return so that you can keep track of important paperwork.

IMG_5787Reconsider your retirement plan
If you’re working and you received a pay increase this year, don’t overlook the opportunity to increase your retirement plan contributions by asking your employer to set aside a higher percentage of your salary. In 2015, you may be able to contribute up to $18,000 to your workplace retirement plan ($24,000 if you’re age 50 or older).

If you’re already retired, take another look at your retirement income needs and whether your current investments and distribution strategy will continue to provide enough income.

Review your investments
Have you recently reviewed your portfolio to make sure that your asset allocation is still in line with your financial goals, time horizon, and tolerance for risk? Though it’s common to rebalance a portfolio at the end of the year, you may need to rebalance more frequently if the market is volatile.

Note: Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.

Identify your insurance needs
Do you know exactly how much life and disability insurance coverage you have? Are you familiar with the terms of your homeowners, renters, and auto insurance policies? If not, it’s time to add your insurance policies to your summer reading list. Insurance needs frequently change, and it’s possible that your coverage hasn’t kept pace with your income or family circumstances.

Will Entrepreneurship Be Your Next Mid Life Career Move?

An exciting aspect of mid-life career change is the opportunity to seek new ways to tap one’s skills and experience developed over a lifetime. Having counseled scores of people in the midst of transition, I find it so inspiring to meet professionals who have creatively applied a lifetime of work skills to their new endeavors!

dreamstime_xs_39003948Increasingly, it appears that a larger number of baby boomers are choosing various forms of entrepreneurship as their preferred avenue to apply their knowledge and professional talent. According to the 2015 State of Entrepreneurship Report recently issued by the Kaufmann Foundation, entrepreneurship remains alive and well in the US and the birth cohort known as the “baby boomers” are actually the primary group driving this trend.

Their report cited data showing that Americans in their fifties and sixties have started businesses at a faster pace over the last decade, while that pace has continuously slowed among other age groups. The trend makes sense since entrepreneurship seems to be enjoying a renaissance for a variety of reasons, according to the Kaufmann Foundation.

Venture and angel investment levels in recent years mirror those of the late 1990s and very early 2000s. City and state governments increasingly build economic development strategies around entrepreneurship. And Baby Boomers appear well positioned to lead this trend. Professionals in their 50s and 60s have historically exhibited high levels of entrepreneurial activity, according to the Kaufmann Index of Entrepreneurial Activity cited in the report.

Who knows? With the US economy now appearing to be on more solid ground, this might be a good time for you to consider an alternative career path or entrepreneurial pursuit if you are attracted to the freedom and opportunity that comes with a non-traditional work model.

dreamstime_xs_18998686This could lead you to start a business, but it could also involve considering any number of professional paths that may entail less career or financial risk than starting your own venture. For example, you could think about consulting in your current field, or consider other types of engagements that reflect your professional passions and expertise.

Anecdotally, I meet many professionals who are seeking non-traditional work options that appeal to their professional interests and where they can think they might have greater freedom to make work choices based on their personal values. If these ideas resonate with you, then this might be an opportune moment to consider your career goals before you one day stop working!

It goes without saying that you would need to consider your personal finances, among other factors, before making a decision about a new path. Please feel to free to access our firm’s free Career Transition Workbook, which may help evaluate the financial and life planning aspects of moving in a new professional direction.

In addition to offering the Workbook, we will continue striving toward offering financial educational resources to help you make confident and informed financial decisions. Here is a sample of recent content added to our blog page, and which might help along your very own career and financial planning journeys:

Happy Belated Birthday Bull Market: After recently witnessing a sixth consecutive year of attractive stock market gains, many investors are wondering how much steam is left in the equity markets. But the possibility of continued modest stock market gains during 2015 is not as unlikely as it may seem. Read more…

Evaluating a Franchise for a Second Career: Buying a franchise might be an excellent way to break into starting a business. But how do you evaluate whether a franchise is right for you? Read more…

dreamstime_xs_15566306A Do It Yourself Approach to Retirement Planning: Worried about whether you will save enough money to one day be able to stop working? You can follow a step by step process to make your goal less overwhelming. Read more…

Starting a Business — Make Sure You Have a Plan: If the idea of starting your own venture holds some appeal, starting your own business or endeavor might be an appealing career alternative, especially if you enjoy the freedom and challenge of trying to fill an unmet market need. Here are some thoughts about preparing to make venture your fly. Read more…

I hope these thoughts and ideas help you move toward feeling more confident and settled about your financial and career goals! As always, if you have any questions, please email me at bill.pollak@lpl.com or call me at (925) 464-7057!

A Do It Yourself Guide to Retirement Planning

Each year in its annual Retirement Confidence Survey, the Employee Benefit Research Institute reiterates that goal setting is a key factor influencing overall retirement confidence. But for many, a retirement savings goal that could reach $1 million or more may seem like a daunting, even impossible mountain to climb.

DSC00566What if you’re investing as much as you can, but still feel that you’ll never reach the summit? As with many of life’s toughest challenges, it may help to focus less on the big picture and more on the details.* Start by reviewing the following points:

Retirement goals are based on assumptions
Whether you use a simple online calculator or run a detailed analysis, your retirement savings goal is based on certain assumptions that will, in all likelihood, change. Inflation, rates of return, life expectancies, salary adjustments, retirement expenses, Social Security benefits–all of these factors are estimates.

That’s why it’s so important to review your retirement savings goal and its underlying assumptions regularly–at least once per year and when life events occur. This will help ensure that your goal continues to reflect your changing life circumstances as well as market and economic conditions.

Break it down
Instead of viewing your goal as ONE BIG NUMBER, try to break it down into an anticipated monthly income need. That way you can view this monthly need alongside your estimated monthly Social Security benefit, income from your retirement savings, and any pension or other income you expect. This can help the planning process seem less daunting, more realistic, and most important, more manageable. It can be far less overwhelming to brainstorm ways to close a gap of, say, a few hundred dollars a month than a few hundred thousand dollars over the duration of your retirement.

Make your future self a priority, whenever possible
While every stage of life brings financial challenges, each stage also brings opportunities. Whenever possible–for example, when you pay off a credit card or school loan, receive a tax refund, get a raise or promotion, celebrate your child’s college graduation (and the end of tuition payments), or receive an unexpected windfall–put some of that extra money toward retirement.

Retirement may be different than you imagine
When people dream about retirement, they often picture images like exotic travel, endless rounds of golf, and fancy restaurants. Yet a recent study found that the older people get, the more they derive happiness from ordinary, everyday experiences such as socializing with friends, reading a good book, taking a scenic drive, or playing board games with grandchildren. (Source: “Happiness from Ordinary and Extraordinary Experiences,” Journal of Consumer Research, June 2014)

While your dream may include days filled with extravagant leisure activities, your retirement reality may turn out much different–and that actually may be a matter of choice.

The bottom line
Setting a goal is a very important first step in putting together your retirement savings strategy, but don’t let the number scare you. As long as you have an estimate in mind, break it down to a monthly need, review it regularly, and increase your investments whenever possible, you can take heart knowing that you’re doing your best to prepare for whatever the future may bring.

*All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

No Matter Your Age, Your Social Security Statement Matters

Fifteen years ago, the Social Security Administration (SSA) launched the Social Security Statement, a tool to help Americans understand the features and benefits that Social Security offers. Since then, millions of Americans have reviewed their personalized statements to see a detailed record of their earnings, as well as estimates of retirement, survivor, and disability benefits based on those earnings.

NPT-HEALTHSSI0114_02How do you get your statement?
Here’s how to get a copy of your statement, and why it deserves more than just a quick glance, even if you’re years away from retirement! In September 2014, the SSA began mailing Social Security Statements to most workers every five years. Workers attaining ages 25, 30, 35, 40, 45, 50, 55, and 60 who are not receiving Social Security benefits and are not registered for an online account will receive a statement in the mail about three months before their next birthday. Workers older than age 60 will receive a statement every year.

But why wait? A more convenient way to view your Social Security Statement is online. First, visit socialsecurity.gov to sign up for a personal my Social Security account (you must be 18 or older to sign up online). Once you have an account, you can view your Social Security Statement anytime you want, as often as you want.

Check your estimated benefits
Your Social Security Statement gives you information about retirement, disability, and survivor benefits. It tells you whether you’ve earned enough credits to qualify for these benefits and, if you qualify, how much you can expect to receive. As each Social Security Statement notes, the amounts listed are only estimates based on your average earnings in the past and a projection of future earnings. Actual benefits you receive may be different if your earnings increase or decrease in the future.

Amounts may also be affected by cost-of-living increases (estimates are in today’s dollars) and other income you receive. Estimated benefits are also based on current law, which could change in the future.

Retirement benefits
Social-security-statementAlthough Social Security was never intended to be the sole source of retirement income, retirement benefits are still very important to many retirees. Your statement shows estimates of how much you can expect to receive if you begin receiving benefits at three different ages: your full retirement age (66 to 67, depending on your birth year), age 62 (your benefit will be lower), or age 70 (your benefit will be higher).

When to start claiming Social Security is a big decision that will affect your overall retirement income, so if you’re approaching retirement, this information can be especially useful. But even if you’re years away from retirement, it’s important to know how much you might receive, so that you can take this information into account as you set retirement savings goals.

Disability benefits
Disability is unpredictable and can happen suddenly to anyone at any age. Disability benefits from Social Security can be an important source of financial support in the event that you’re unable to work and earn a living. Check your Social Security Statement to find out what you might receive each month if you become disabled.

Survivor benefits
Survivor protection is a valuable Social Security benefit you may not even realize you have. Upon your death, your survivors such as your spouse, ex-spouse, and children may be eligible to receive benefits based on your earnings record. Review your Social Security Statement to find out whether your survivors can count on this valuable source of income.

Review your earnings record
In addition to benefit information, your Social Security Statement contains a year-by-year record of your earnings. This record is updated whenever your employer reports your earnings (or if you’re self-employed, when you report your own earnings). Earnings are generally reported annually, so keep in mind that your earnings from last year may not yet be on your statement.

It’s a good idea to make sure that your earnings have been reported correctly, because mistakes do happen. You can do this by comparing your earnings record against past tax returns or W-2s you’ve received. This is an important step to take because your Social Security benefits are based on your average lifetime earnings. If your earnings have been reported incorrectly, you may not receive the benefits to which you’re entitled.

What if you find errors? The SSA advises you to call right away if any earnings are reported incorrectly. The SSA phone number is 1-800-772-1213 (TTY 1-800-325-0778).