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Is it Time to Retire?

Your Line to Retirement • January 19, 2015
One of the most common questions we hear about Social Security is, “How am I supposed to live on that?”. The answer, of course, is really quite simple: You aren’t supposed to live on your Social Security benefits. Social Security was never intended to be a retirement plan. It was originally conceived as a back-up, supplemental income for retirees, the disabled, and widows whose bread-winning husbands passed away. President Franklin Roosevelt described Social Security as a type of government-sponsored, supplemental insurance program: “The [Social Security] Act does not offer anyone, either individually or collectively, an easy life — nor was it ever intended so to do. None of the sums of money paid out to individuals in assistance or in insurance will spell anything approaching abundance. But they will furnish that minimum necessity to keep a foothold; and that is the kind of protection Americans want.” In order to ensure a more comfortable retirement, you should begin planning years in advance. Social Security will be an important part of your budget, but it shouldn’t be your only source of income. To protect yourself against inflation and rising costs of living, consider some of the following actions to boost retirement income: Maximize your income: Ask for raises when they are deserved. Go back to school or take other measures to further your job skills. Take on a second job during years of lower earnings. Work as long as possible. Social Security uses a formula to calculate your Social Security benefits, based on your highest-earning 35 years of work. Work at least 35 years so that there are no zeros averaged into your calculation. Plan ahead. Every year that you work, set aside money in a retirement plan. Wait to retire. Don’t claim Social Security until you reach “full retirement age” – the age at which you can claim full benefits. Consider a partial retirement. Take on consulting work in your old field, continue working part-time, or start a home-based business to boost your retirement earnings.

After years of hard work, you might begin to feel impatient about your retirement. If you’re itching to travel, visit friends and family, enjoy your favorite hobbies, or simply escape the daily grind of your work life, ask yourself these five questions to assess your retirement readiness.

Are you expecting growth in your retirement fund? Since market conditions can be unpredictable and volatile, it’s generally not a good idea to depend upon dramatic growth in your assets that may or may not actually manifest. Instead, retire when even a modest return from your account would be sufficient to fund your lifestyle.

How much debt are you carrying? Excess debt can cause considerable stress and financial strain during retirement. Working just a few more years to pay off your debt might be a worthwhile goal, so you can retire worry-free and with more room in your monthly budget.

How will you pay for medical expenses? Hopefully, you’ll enjoy good health for a long time. But none of us can predict the future, and high out-of-pocket medical expenses are common for many retirees. In fact, the average couple retiring today can expect to spend about $220,000 on medical care throughout retirement. Make sure you have a plan to cover unexpected medical bills, expensive prescriptions, and long-term nursing care.

What about other expenses? There may come a time that you wish for a little extra money to cover any surprises that come your way. Think carefully about the legacy you wish to leave to your family; right now you may be at your earnings peak and able to set aside money for their future.

Are you relying on Social Security? Social Security was always meant to be a supplement to retirement income, since most seniors could not live comfortably on their benefits checks alone. You can retire early at age 62, but your check will be permanently reduced. By waiting until your full retirement age to retire – age 65 to 67, depending upon your birth date – you can ensure a larger monthly check.

A Look at Mortgage Term Life Insurance

By Your Line to Retirement • January 19, 2015
What are the pros and cons of paying premiums for mortgage protection? A potential “helping hand” for a homeowner’s heirs. No one wants to saddle their heirs with the hard choice of paying off an unsettled mortgage or selling or losing a home. A mortgage term life insurance policy can provide relief in such a dilemma. Simply put, this is a term life policy designed for homeowners. If you die owing a huge sum to a mortgage lender, the proceeds from the policy will pay off the note. Why, and why not? The pros and cons of mortgage term life are simply stated. On the plus side, you are paying (relatively) little for a lot of potential mortgage protection, which could be useful if your heirs are in no financial shape to make mortgage payments. On the negative side, term insurance is term insurance. If you live past the term of your mortgage term life policy, no benefit will be forthcoming for all those premiums. You don’t find many fans of mortgage term life insurance in the mortgage industry. Their argument is that a regular life insurance policy might do the job just as well, and give your heirs more flexibility besides. Still, quite a few homeowners want mortgage term life insurance and appreciate its designated purpose. Basic types. The cheapest type of mortgage term life is the level premium/level benefit policy. You can commonly purchase them with 20-, 25- or 30-year terms. As the name implies, the premiums are guaranteed to stay level for the entire policy term, and the benefit amount does not decline with time. You can still find the original kind of mortgage term life policy, in which your premiums stay level but your coverage shrinks as your mortgage balance diminishes. While some banks and insurers still offer these “old school” policies, they are getting scarce. An interesting alternative. Some homeowners decide to get a return-of-premium term life policy instead of a mortgage term life policy. With an ROP term policy, the insurance company will give you all of your premiums back if you outlive the term (provided, of course, that you’ve kept your policy in force). Someone with 20 years left on a home loan could get a 20-year ROP term policy for an amount comparable to their mortgage balance and get all the money paid into the policy back without a tax consequence if they are alive two decades later. 1 That money could be used for any need or objective. So how is this different than private mortgage insurance? Well, PMI isn’t about protecting you at all – it’s about protecting the lender in case you default on your home loan. It diversifies that risk to a third party. Should you look into these options? You might be in a situation in which you really don’t want to risk burdening your heirs with an existing mortgage – especially if they are trying to pay off one themselves. Or, maybe you want a more flexible insurance option that could be used to pay off a mortgage or meet other needs. Talk to your financial or insurance advisor today to explore this a little further.

Don't Make This Mistake with Your 401(k)

By Your Line to Retirement • January 19, 2015
If you have kids, you’re either dreading the cost of college or already dealing with the pressure. Today, the average cost of an education at a public university is $22,286 per year. Private schools cost even more, averaging $44,750 annually. For most people, providing their children with a solid education is a high priority, so it’s no wonder so many parents feel driven to make desperate decisions. Unfortunately, desperation can drive us to make poor decisions with our money. Before you drain your retirement account to pay that tuition bill, stop and consider the ultimate cost to you. You may feel that you can afford to lose a few thousand from your retirement account, but that’s not all you’ll lose. You would also lose the compounding interest that money would have accumulated over the rest of your life, and you may also incur significant fees for withdrawing the money. You could end up struggling once you retire, or being forced to work longer than you had planned. Raiding your 401(k) fund to pay for college can be one of the worst financial mistakes you’ll ever make. Luckily, it’s also a mistake you can easily avoid. You have many other options available to you, such as grants, scholarships, loans, work study programs, and so on. Families who don’t believe they’ll qualify for financial assistance are often surprised – especially if they have more than one family member in college at the same time. Talk to a financial aid counselor at the school of your choice, and you may find that you have more options than you previously imagined. If you start planning early enough, you can prevent an educational funding crisis from ever hitting your family. A 529 savings plan allows you to set aside money for college with taxes deferred. Talk to your financial advisor about the benefits and risks of a 529 savings plan, and protect your retirement fund while giving your children their best start in life.
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