Retirement Planning With Annuities

You know how important it is to plan for your retirement, but where do you begin? One of your first steps should be to estimate how much income you’ll need to fund your retirement. That’s not as easy as it sounds, because retirement planning is not an exact science. Your specific needs depend on your goals and many other factors. Many financial professionals suggest that you’ll need about 70 percent of your current annual income to fund your retirement. This can be a good starting point, but will that figure work for you? It depends on how close you are to retiring. If you’re young and retirement is still many years away, that figure probably won’t be a reliable estimate of your income needs. That’s because a lot may change between now and the time you retire. As you near retirement, the gap between your present needs and your future needs may narrow. But remember, use your current income only as a general guideline, even if retirement is right around the corner. To accurately estimate your retirement income needs, you’ll have to take some additional steps. Your annual income during retirement should be enough (or more than enough) to meet your retirement expenses. That’s why estimating those expenses is a big piece of the retirement planning puzzle. But you may have a hard time identifying all of your expenses and projecting how much you’ll be spending in each area, especially if retirement is still far off. To help you get started, here are some common retirement expenses:

Food and clothing

• Housing: Rent or mortgage payments, property taxes, homeowners insurance,property upkeep and repairs
• Utilities: Gas, electric, water, telephone, cable TV
• Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation
• Insurance: Medical, dental, life, disability,long-term care
• Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs
• Taxes: Federal and state income tax, capital gains tax
• Debts: Personal loans, business loans, credit card payments
• Education: Children’s or grandchildren’s college expenses
• Gifts: Charitable and personal
• Savings and investments: Contributions to IRAs, annuities, and other investment accounts
• Recreation: Travel, dining out, hobbies, leisure activities
• Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of assisted living
• Miscellaneous: Personal grooming, pets, club memberships

Don’t forget that the cost of living will go up over time. The average annual rate of inflation over the past 20 years has been approximately 2.5 percent. (Source: Consumer price index (CPI-U) data published annually by the U.S. Department of Labor, 2013.) And keep in mind that your retirement expenses may change from year to year. For example, you may pay off your home mortgage or your children’s education early in retirement. Other expenses, such as health care and insurance, may increase as you age. To protect against these variables, build a comfortable cushion into your estimates (it’s always best to be conservative). Finally, have a financial professional help you with your estimates to make sure they’re as accurate and realistic as possible.

Decide when you’ll retire To determine your total retirement needs, you can’t just estimate how much annual income you need. You also have to estimate how long you’ll be retired. Why? The longer your retirement, the more years of income you’ll need to fund it. The length of your retirement will depend partly on when you plan to retire. This important decision typically revolves around your personal goals and financial situation. For example, you may see yourself retiring at 50 to get the most out of your retirement. Maybe a booming stock market or a generous early retirement package will make that possible. Although it’s great to have the flexibility to choose when you’ll retire, it’s important to remember that retiring at 50 will end up costing you a lot more than retiring at 65.

The age at which you retire isn’t the only factor that determines how long you’ll be retired. The other important factor is your lifespan. We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. You may even run the risk of outliving your savings and other income sources. To guard against that risk, you’ll need to estimate your life expectancy. You can use government statistics, life insurance tables, or a life expectancy calculator to get a reasonable estimate of how long you’ll live. Experts base these estimates on your age, gender, race, health, lifestyle, occupation, and family history. But remember, these are just estimates. There’s no way to predict how long you’ll actually live, but with life expectancies on the rise, it’s probably best to assume you’ll live longer than you expect.

Once you have an idea of your retirement income needs, your next step is to assess how prepared you are to meet those needs. In other words, what sources of retirement income will be available to you? Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. To get an estimate of your Social Security benefits, visit the Social Security Administration website http://www.ssa.gov. Additional sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your job earnings will be another source of income.

Make up any income shortfall If you’re lucky, your expected income sources will be more than enough to fund even a lengthy retirement. But what if it looks like you’ll come up short? Don’t panic–there are probably steps that you can take to bridge the gap. A financial professional can help you figure out the best ways to do that, but here are a few suggestions:

• Try to cut current expenses so you’ll have more money to save for retirement

• Shift your assets to investments that have the potential to substantially outpace inflation (but keep in mind that investments that offer higher potential returns may involve greater risk of loss)

• Lower your expectations for retirement so you won’t need as much money (no beach house on the Riviera, for example)

• Work part-time during retirement for extra income

• Consider delaying your retirement for a few years (or longer)

Handling Market Volatility

Conventional wisdom says that what goes up, must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when it’s your money at stake. Though there’s no foolproof way to handle the ups and downs of the stock market, the following common sense tips can help.

Don’t put your eggs all in one basket

Diversifying your investment portfolio is one of the key ways you can handle market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of different investments such as stocks, bonds, and cash alternatives (e.g., money market funds, CDs, and other short-term instruments), has the potential to help manage your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another, but diversification can’t eliminate the possibility of market loss.

One way to diversify your portfolio is through asset allocation. Asset allocation involves identifying the asset classes that are appropriate for you and allocating a certain percentage of your investment dollars to each class (e.g., 70 percent to stocks, 20 percent to bonds, 10 percent to cash alternatives). An easy way to decide on an appropriate mix of investments is to use a worksheet or an interactive tool that suggests a model or sample allocation based on your investment objectives, risk tolerance level, and investment time horizon.

Focus on the forest, not on the trees

As the market goes up and down, it’s easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio. Although only you can decide how much investment risk you can handle, if you still have years to invest, don’t overestimate the effect of short-term price fluctuations on your portfolio.

Look before you leap

When the market goes down and investment losses pile up, you may be tempted to pull out of the stock market altogether and look for less volatile investments. The small returns that typically accompany low-risk investments may seem downright attractive when more risky investments are posting negative returns. But before you leap into a different investment strategy, make sure you’re doing it for the right reasons. How you choose to invest your money should be consistent with your goals and time horizon.

For instance, putting a larger percentage of your investment dollars into vehicles that offer safety of principal and liquidity (the opportunity to easily access your funds) may be the right strategy for you if your investment goals are short-term (e.g., you’ll need the money soon to buy a house) or if you’re growing close to reaching a long-term goal such as retirement. But if you still have years to invest, keep in mind that stocks have historically outperformed stable value investments over time, although past performance is no guarantee of future results. If you move most or all of your investment dollars into conservative investments, you’ve not only locked in any losses you might have, but you’ve also sacrificed the potential for higher returns.

Look for the silver lining

A down market, like every cloud, has a silver lining. The silver lining of a down market is the opportunity you have to buy shares of stock at lower prices.

One of the ways you can do this is by using dollar cost averaging. With dollar cost averaging, you don’t try to “time the market” by buying shares at the moment when the price is lowest. In fact, you don’t worry about price at all. Instead, you invest a specific amount of money at regular intervals over time. When the price is higher, your investment dollars buy fewer shares of stock, but when the price is lower, the same dollar amount will buy you more shares. Although dollar cost averaging can’t guarantee you a profit or protect against a loss, a regular fixed dollar investment may result in a lower average price per share over time, assuming you invest through all types of markets. Please remember that since dollar-cost averaging involves continuous investment in securities regardless of fluctuating price levels of such securities, you should consider your financial and emotional ability to continue purchases through periods of low price levels.

Don’t count your chickens before they hatch

As the market recovers from a down cycle, elation quickly sets in. If the upswing lasts long enough, it’s easy to believe that investing in the stock market is a sure thing. But, of course, it never is. As many investors have learned the hard way, becoming overly optimistic about investing during the good times can be as detrimental as worrying too much during the bad times. The right approach during all kinds of markets is to be realistic. Have a plan, stick with it, and strike a comfortable balance between risk and return.

Don’t stick your head in the sand

While focusing too much on short-term gains or losses is unwise, so is ignoring your investments. You should check up on your portfolio at least once a year, more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance. If you need help, a financial professional can help you decide which investment options are right for you.

Asset Allocation

Asset allocation is a common strategy that you can use to construct an investment portfolio. Asset allocation isn’t about picking individual securities. Instead, you focus on broad categories of investments, mixing them together in the right proportion to match your financial goals, the amount of time you have to invest, and your tolerance for risk.

The basics of asset allocation

The idea behind asset allocation is that because not all investments are alike, you can balance risk and return in your portfolio by spreading your investment dollars among different types of assets, such as stocks, bonds, and cash alternatives.

Different types of assets carry different levels of risk and potential for return, and typically don’t respond to market forces in the same way at the same time. For instance, when the return of one asset type is declining, the return of another may be growing (though there are no guarantees). If you diversify by owning a variety of assets, a downturn in a single holding won’t necessarily spell disaster for your entire portfolio.

Using asset allocation, you identify the asset classes that are appropriate for you and decide the percentage of your investment dollars that should be allocated to each class (e.g., 70 percent to stocks, 20 percent to bonds, 10 percent to cash alternatives). The three major asset classes Here’s a look at the three major classes of assets you’ll generally be considering when you use asset allocation.

Stocks: Although past performance is no guarantee of future results, stocks have historically provided a higher average annual rate of return than other investments, including bonds and cash alternatives. However, stocks are generally more volatile than bonds or cash alternatives. Investing in stocks may be appropriate if your investment goals are long-term.

Bonds: Historically less volatile than stocks, bonds do not provide as much opportunity for growth as stocks do. They are sensitive to interest rate changes; when interest rates rise, bond values tend to fall, and when interest rates fall, bond values tend to rise. Because bonds offer fixed interest payments at regular intervals, they may be appropriate if you want regular income from your investments.

Cash alternatives: Cash alternatives (or short-term instruments) offer a lower potential for growth than other types of assets but are the least volatile. They are subject to inflation risk, the chance that returns won’t outpace rising prices. They provide easier access to funds than longer-term investments, and may be appropriate if your investment goals are short-term.

Not only can you diversify across asset classes by purchasing stocks, bonds, and cash alternatives, you can also diversify within a single asset class. For example, when investing in stocks, you can choose to invest in large companies that tend to be less risky than small companies. Or, you could choose to divide your investment dollars according to investment style, investing for growth or for value. Though the investment possibilities are limitless, your objective is always the same: to diversify by choosing complementary investments that balance risk and reward within your portfolio.

Decide how to divide your assets

Your objective in using asset allocation is to construct a portfolio that can provide you with the return on your investment you want without exposing you to more risk than you feel comfortable with. How long you have to invest is important, too, because the longer you have to invest, the more time you have to ride out market ups and downs.

When you’re trying to construct a portfolio you can use worksheets or interactive tools that help identify your investment objectives, your risk tolerance level, and your investment time horizon. These tools may also suggest model or sample allocations that strike a balance between risk and return, based on the information you provide.

For instance, if your investment goal is to save for your retirement over the next 20 years and you can tolerate a relatively high degree of market volatility, a model allocation might suggest that you put a large percentage of your investment dollars in stocks, and allocate a small percentage to bonds and cash alternatives. Of course, models are intended to serve only as general guides. You may want to work with a financial professional who can help you determine the right allocation for your individual circumstances.

Seven Essential Things You Need to Know About Social Security

As more baby boomers reach retirement age, they’re realizing the valuable role Social Security will play as a source of lifetime income. Claiming benefits can be far more complex than you may realize. Here are seven essential things about Social Security to understand as you determine how it will fit into your overall retirement income strategy:

1. You can start claiming benefits anytime between ages 62 and 70

When you’re working and paying Social Security taxes (via your paycheck), you earn credit toward your retirement benefits. To qualify for these benefits, you need to contribute at least 40 credits to the system, which is typically 10 working years (although it does vary). Alternatively, if you have never worked and you’re married to someone who qualifies, you may earn a spousal benefit. When claiming your own benefit, you can begin receiving Social Security at age 62 or delay receiving Social Security up to your 70th birthday.

2. Full retirement age is changing

The age to qualify for a “full” retirement benefit from Social Security used to be 65. Now it is up to 66 (for those born between 1943 and 1954). It increases by two months per year for those born between 1955 and 1959. For those born in 1960 or later, full retirement age is currently defined as 67.

3. The longer you wait, the larger your benefit

The amount of your benefit depends on the age you choose to first begin receiving income. For example, if you collect beginning at 62 and your full retirement age is 66, your benefit will be about 25 percent lower. On the flip side, your benefit will increase by about 8 percent each year you delay taking Social Security after your full retirement age up to your 70th birthday.

4. Spousal benefits give married couples extra flexibility

If both spouses worked, they each can receive benefits based on their own earnings history. However, a lower earning spouse can choose to base a benefit on the higher earning spouse’s income. A spousal benefit equals 50% of the other spouse’s benefit. Note that if you claim a spousal benefit before full retirement age, it will be reduced. The maximum spousal benefit you can collect is by taking the benefit at your full retirement age (based on the benefit your spouse would earn at his or her full retirement age). You also can choose to collect a spousal benefit initially and delay taking your own benefit, allowing your benefit amount to increase. Then you can claim your benefit when you turn 70.

5. There may be a long-term advantage if a higher earning spouse delays Social Security

If the higher earning spouse is older (or has more health concerns that could affect longevity), it may make sense to delay taking Social Security as long as possible up to age 70. When the spouse with the higher benefit dies, the surviving spouse will collect the higher benefit that was earned by the deceased spouse. The higher the deceased spouse’s benefit, the larger the monthly check for the surviving spouse.

6. Claiming benefits early while still working can reduce your benefit

If you begin claiming benefits before your full retirement age but continue to earn income, your retirement benefit could be reduced. If your earnings are above a certain level ($15,720 in 2015), your Social Security checks will be reduced by $1 for every $2 you earned in income above that threshold. In the year you reach full retirement age, that threshold amount changes. $1 is deducted for every $3 earned above $41,880 up to the month you reach full retirement age. Once you reach full retirement age, you can earn as much income as you want with no reduction in benefits.

7. Benefits you earn may be subject to tax

According to the Social Security Administration, about one-third of people who receive Social Security have to pay income tax on their benefits. You may want to consult a tax professional to determine what impacts this will have on your overall benefits.

The Best Market for Apartment Investing

I love NY. I live here and even though I get my heart broken by the Jets, I am a proud New Yorker. Do you know how many apartment buildings I own in NY? None. Not one. I use a phrase that I heard a long time ago:

“Love where you live, invest where it makes sense”

Many new apartment investors often want to invest close to home. Being able to drive over to your investment property should not appear on your list of criteria when determining if an investment is worthwhile. It’s no longer wise to just play in your backyard; you have to find the multifamily markets that offer the biggest upside. This is what we teach our apartment coaching clients to look for:

The Market Look for apartment markets that have positive long-term outlooks for employment and economic growth, rent trends, and appreciation (both forced and market appreciation). You want to make sure that you stay away from markets where job growth is significantly declining, and where corporations that are in a long-term downward cycle affect the local industry.

How to find the right Apartment Market

It’s critical that the markets you choose fit your investment criteria. We don’t recommend that anyone pick a market first and force a strategy into that market.

Strategy always should push the markets that you go into. It’s no surprise that in the NY Metro area markets where we are located, deals that can support double-digit cash flow returns are few and far between and most times you will find a better market for your strategy other than where you live. That’s just how we started.

It wasn’t until we went out-of-state and started doing in-depth research on market demographics that our business really took off.

There are a few key areas you need to research to determine if a market is right for your given strategies. This is the information we use and the exact same process we take ourselves through to pick our successful markets.

A few key points to remember:

• It does not have to be the “hottest” market to invest in

• Look where you live, invest where it makes sense!

• Not everyone can invest in their own backyard

• Any market you decide on needs to have positive fundamentals

Your key research areas will be:

• Population Trends

• Demographic Profile

• Employment

• Comparative Advantages

• Local Governments

• Market Fundamentals

• Vacancy and Rent Growth

Population Trends

We dial in from a “top down” approach analyzing data in the following way:

• State Level

• Metropolitan Statistical Area level (MSA)

• MSA’s larger than 200,000 – County level

• City level

• 10 Year Historical – 5 Year Forecast