Retirement Archives - Page 8 of 10 - NorthStar Capital Advisors

Guessing at Retirement?

Here are some startling facts when it comes to retirement planning:

75% of middle-class Americans say their estimates of their retirement needs are based on “some sort of guess”.
Middle-class American believe the median cost of their out-of-pocket health care in retirement will be $47,000 when the actual number according to the Center for Retirement Research is $260,000.
On average, middle-class American expect to withdraw 10% of their nest egg annually in retirement. Most experts recommend annual withdrawal rates of only 3% to 4%.
34% of middle-class Americans expect to live off of 50% or less of their pre-retirement income. Since the median household income is ~$50,000, these folks are planning on living off of less than $25,000 per year.

Are you playing the guessing game or have you done detailed calculations of your retirement needs?

NBC’s Chris Hansen Investigates Annuity Sales to Seniors

NBC’s Chris Hansen conducted an undercover investigation focused on the predatory sales tactics used in the sale of equity-indexed annuities to senior citizens.

Watch the video below or read the transcript to,

go behind the scenes to uncover the sales tactics insurance agents use
inside free-dinner seminars to catch the questionable pitches
inside training sessions to reveal insurance agents being taught to scare seniors and puff their credential with deceptive books, magazines and radio shows

Prominent in the program is Annuity University which trains insurance agents. Annuity University has been sued for running a dishonest scheme to deceive, coerce, and frighten the elderly. Read more about Annuity University in this Wall Street Journal article.

Minnesota Attorney General Lori Swanson, who reviewed NBC’s footage, and who has filed several suits alleging fraud in the sale of annuities to seniors, tells Hansen: “…what is tragic about it is when those agents go into the seniors’ homes, it is literally the wolf among the lambs.”

“Treat’em like blind 12-year olds”
Commentary: Annuities are a suckers bet

Quick Check: Are Your Retirement Savings On Track?

The two greatest impacts on your retirement savings over time are starting early and saving consistently. Beyond that, how do you know if you’re on track to have enough set aside to retire comfortably? Fidelity Investments recently published convenient “rule of thumb” that provides convenient, age-based targets to help you gauge your progress.

What’s the end game look like?
If you’ve saved eight times your annual salary by your last year of work before retiring, you should have enough money to replace 85% of your annual income for a 25-year period, including social security.

Age-based targets for retirement savings. For example, at age 35 you should have saved one times your annual salary. By age 55 you should have 5 times your salary. Ultimately retire at age 67 with eight times your annual salary set aside in retirement savings.

Here are the key milestones for getting to 8x and beyond:

age 25: start saving for retirement beginning at 6% of annual salary and increasing this by 1% per year until it reaches 12%; employer provides a 3% matching contribution
ages 31-67: setting aside 12% of annual income for retirement savings with an additional 3% matching contribution from the employer
age 35: you should have saved one times your annual salary
age 45: you should have saved three times your annual salary
age 55: you should have saved five times your annual salary
age 67: retire with eight times your annual salary in retirement saves
age 67-92: live off your retirement savings

Recognize that this is a broad guide and each person’s requirements will vary by the specifics of their situation. Nonetheless, this provides a quick and easy reality check.

What if you check your actual retirement savings and you’re coming up short against these targets? Try to increase your retirement contributions to close the gap. Sit down with an investment advisor to review your investment portfolios and make sure they are optimized for success.

Age-based retirement savings targets for an individual making $100,000 per year.

Source:
Fidelity Outlines Age-Based Savings Guidelines to Help Workers Stay on Track for Retirement

Myth Buster: Individual Investors are NOT Fleeing Stocks

The reports of my death are greatly exaggerated — Mark Twain

Stocks may be feeling a lot like Mark Twain once felt — discounted prematurely!

The financial media would have you believe that retail investors have been running, not walking, away from stocks. However, a massive, new study of U.S. investors shows the cold, hard facts say otherwise.

A recent Vanguard study sheds light on how individual investors are approaching stocks. Vanguard reviewed the retirement accounts of 3 million Americans. As of 2011, the average individual investors had an asset allocation that consists of

65% in stocks
17% in cash
10% in bonds
10% in balance funds
(these add up to >100% because of rounding in the components)

Retirement savers have two-thirds of their money riding on stocks. This allocation has declined only 8 percentage points since peaking in 2007.

Moreover, 71% of new contributions are going to purchase additional stocks, up 1% from 2010 and 3% from 2009.

What has changed significantly is how investors are purchasing their stocks. Purchases directly through diversified stock funds is only 38% of contributions — down sharply from 51% in 2007. However, stocks purchased via target-date funds are up.

So investors may be thinking they have been selling stocks but they continue to invest in them indirectly.

To quote Jason Zweig:
the public’s infatuation with stock funds isn’t dead. It’s alive and well, but it’s going in by the back door.

Your 401(k) Is NOT Free

Fees charged on 401(k) retirement accounts are so obscure that most American are under the impression that they are free!

An AARP poll published last February demonstrated that 71% of respondents believe they do not pay fees on their 401(k)’s. An additional 6% said we not sure if fees were levied.

In fact, there are two main fees associated with 401(k) plans: investment management fees and administrative fees. A study from Deloitte and the Investment Company Institute release last November reported that the median 401(k) expense ratio is 0.78% but has a wide range from 0.28% to 1.38%. These fees can be justifiable if the investment performance is good, but investors need to recognize that they are definitely paying a fee.

New rules are about to take effect that will force plan sponsors to disclose the total fees or expense ratio that investors must pay.

2011 IRA Contribution Reminder

Here’s an important reminder if you have an individual retirement account (IRA) or are considering opening an IRA.

2011 contributions to your IRA accounts can still be made up through April 17th.

Maximum Annual Contributions (IRAs and Roth IRAs only):

• $5,000 for tax year 2011
• Age 50+: Catch up contributions of an additional $1,000

Pitfalls of Variable Annuities

The guy that’s about to make a fat commission from selling you a variable annuity probably won’t tell you about the often overlooked pitfalls of this complex financial product.

A variable annuity is effectively a mutual-fund account wrapped inside an insurance policy. It consists of three parts: (1) a general account, (2) subaccounts, and (3) a death benefit.

Larry Swedroe elegantly summarizes the disadvantages of variable annuities in his book “Investment Mistakes Even Smart Investors Make and How to Avoid Them.”:

the high cost of the insurance
the high operating costs of the investment accounts
the lack of passive low-cost investment choices
the conversion of preferentially taxes capital gains into highly tax ordinary income

Think carefully before buying a variable annuity. If you feel you truly need this product, look for one with lower cost structures and better investment choices such as those offered by AEGON, Schwab, TIAA-CREF and Vanguard.

Your 401(k) is NOT Free

It’s nearly impossible for most 401(k) participants to determine how much they pay in fees. Those fees are not typically disclosed to investors. But a bright light is about to shine in this dark corner as new Labor Department rules will require 401(k) fee disclosures.

According to the Investment Company Institute, participants of small 401(k) plans (100 participants) pay on average 1.30% per year. Large plans (1000 participants) typically charge 1.08% per year.

This transparency to the actual costs will put pressure on employers and plan providers to exercise better due diligence. This includes switching to lower cost funds, combining inexpensive funds with personalized advice, and creating simple disclosure statements.

Smart Tips for Spotting Retirement Scams

There’s a tremendous appeal to retiring early and scam artists know it. You may even receive an invitation to an “early retirement seminar” replete with flawed or fraudulent investment pitches. The SEC has written a new guide to help you avoid potential scams like this.

To learn more, go to www.sec.gov/investor/alerts/earlyretirement.pdf

Smart Money Newsletter ~ September 2011

Here’s the September issue of Smart Money. This is a complimentary newsletter published by NorthStar Capital Advisors that covers financial education, money management, and investment strategies.

Click the cover image to view or click here to download it directly. You can always get the latest issue of Smart Money by visiting www.nstarcapital.com/newsletters.

The lead article describes how financial fraudsters come in all guises and often scam people in their most intimate social circles. Please help protect yourself, your friends, and your family by learning to recognize these swindlers and sharing this article with others.

The Investing 101 column walks you through the asset allocation puzzle, the biggest decision you will make regarding your investments. The newsletter also covers college savings and advice from Warren Buffett.

We hope you find this information useful. Please feel free to share with family and friends if you find it valuable.

Thank you

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