3 Steps You Can Take to Minimize Risk

The year is flying by. It may be hard to believe, but we’re already halfway through 2019. Did you set financial goals at the beginning of the year? If so, how are those goals looking at the halfway point?

The good news is you have six more months to hit your objectives. Whether your goal was to save more money, pay down debt, or simply organize your financial strategy, you still have time to make it happen before the end of the year.

This also may be a good time to review your retirement plan. Generally, the financial markets have had a good year. As I write this, the S&P 500 is up more than 13 percent year-to-date. However, that hasn’t come without turbulence. The index lost nearly 5 percent in May.1

If you’re approaching retirement, it’s important to periodically review your retirement strategy to make sure it aligns with your risk tolerance and time horizon. If you suffer a loss, you may not have time before retirement to recover. Below are a few tips to help you reduce your risk exposure in the second half of the year.

Rebalance your allocations.

It’s possible that your target allocation is perfect for your risk tolerance and time horizon. However, it’s also possible that your actual allocation doesn’t match your target.

Investment portfolios naturally become unbalanced over time. Some asset classes perform better than others. Some increase in value while others decline. This happens all the time with investments and financial markets.

However, as asset classes increase and decrease in value, they also become unaligned with your target allocations. For instance, an asset that was supposed to account for only 5 percent of your allocation, may account for much more if it increases in value. Similarly, an asset that declines in value may account for much less than its target percentage. The result is a portfolio that doesn’t match your desired allocation and may even have more risk than you want.

Fortunately, you can correct this issue by rebalancing your allocation back to the desired target. In fact, it’s good to do this regularly, even on a quarterly basis. Many financial professionals can set up your account to automatically rebalance so you know you’re always aligned with the right strategy.

Shift to more conservative assets.

When was the last time you reviewed your allocation? If it’s been a while, you may need to do more than rebalance. It could be time to change your allocation altogether.

As people get older and approach retirement, they tend to become more conservative. This is because your time horizon has shortened. You have fewer years until you retire and actually need to use your money. A more conservative allocation reduces the odds of a sizable loss. It helps you protect what you have while still potentially growing your assets.

Review your strategy and discuss it with your financial professional. Is it time to move to a more conservative allocation? If so, consult with your financial professional to determine what types of strategies are right for you.

Consider an annuity.

Finally, you may want to consider additional risk protection tools. One possible tool is an annuity. Some annuities, like fixed indexed annuities, offer upside potential without the downside risk that exists in the equity markets.

With a fixed indexed annuity (FIA), you receive interest that is tied to the performance of an external index, like the S&P 500. If the index performs well, you receive a portion of the upside performance as an interest payment. If the index performs poorly and loses value, you don’t receive interest, but you also don’t lose any money. In other words, your principal is protected from loss.

An FIA can be an effective tool to minimize risk in your portfolio. There are a number of different FIAs available, so it’s important to explore your options. Your financial professional can help you determine if an FIA is right for your circumstance.

Ready to reset your strategy for the second half of 2019? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

1https://money.cnn.com/data/markets/sandp/

 

18924 – 2019/5/29

4 Trends That Are Changing Retirement

There was a time when retirement was fairly simple. Workers stayed with one employer for most of their career. When they decided to retire, they could enjoy a healthy pension from their employer and Social Security benefits from the government.

Today’s retirees face a much different set of circumstances. Many employers no longer off pensions. Instead, workers are responsible for funding their own retirement by contributing to 401(k) plans and other retirement accounts. Social Security is still a valuable resource for retirees, but it’s unlikely to fully fund a comfortable retirement.

There are other trends and changes that are creating challenges for future retirees. Below are a few of the biggest. If you haven’t planned for these issues, now may be the time to do so.

Longevity

Today’s retirees are living longer than ever. According to the Society of Actuaries, there’s a 50% chance that one member of a 65-year-old couple will live to at least age 94. There’s a 25% chance that one spouse will live to 98.1 If you retire in your mid-60s, your retirement could last 30 years.

Usually, a long lifespan is a good thing. However, it can create some planning issues in retirement. The longer you live, the longer your money has to last. If you spend too much in the early years of retirement, you may not have enough left in the later years.

Rising Health Care Costs

According to Fidelity, the average 65-year-old couple will need approximately $285,000 to pay for medical expenses in retirement.2 Think that number sounds high? Consider the costs of items like premiums, deductibles, and co-pays.

You’ll likely have Medicare coverage in retirement after age 65, but Medicare doesn’t pay for all medical expenses. Your coverage depends on your specific plan. While some plans are robust, others may only cover the basics, like hospitalizations and visits to the doctor.

You can prepare for significant healthcare costs by putting away more money today. You may want to consider a health savings account (HSA), which allows you to grow assets tax-deferred and make tax-free withdrawals for qualified medical expenses.

Job Changes

The average baby boomer has held nearly 12 jobs in their career. Granted, nearly half of those are between ages 18 and 24. However, that’s still means the average baby boomer held nearly six jobs after age 24.3 That’s a far cry from the time when people worked for one employer for nearly their whole career.

A new job usually means a new 401(k) plan, and it may also mean an old 401(k) balance with the former employer. Research suggest that nearly 41% of people cash out their 401(k) plan when they switch jobs.4 Those cash outs can be costly. They’re taxable and may result in a 10% early distribution penalty.

Changing jobs may be the norm these days but cashing out your 401(k) plan doesn’t have to be. The next time you change jobs, explore all your options, including rolling your plan into an IRA. If you cash out, you may expose your retirement assets to unnecessary taxes and fees.

Family Dynamics

Family structures have been changing in America for decades. From 1960 to 2016, the percentage of children who live with married parents dropped from 88% to 69%.5 Blended families are on the rise, with more kids living with single parents or stepparents.

These changing dynamics can complicate retirement plans. If you remarry, you may not only add a new spouse, but also new children who need support. You and your new spouse may also have different views on retirement or different approaches to supporting children.

Estate planning can also be a concern in a blended family. You may want to protect your spouse, but also leave a legacy for your children from a previous marriage. It often takes careful planning and delicate conversations to address these issues. A financial professional can help you and your new spouse develop the right strategy for your goals.

These trends demonstrate why it’s more important than ever to have a retirement income plan: money you can count on to cover expected – and unexpected – bills. A financial professional can help you determine answers to questions such as, “Do I have enough saved?” and “Am I going to be okay?”


Ready to tackle the challenges you might face in retirement? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1 https://www.fidelity.com/viewpoints/retirement/longevity

2 https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

3 https://www.bls.gov/news.release/pdf/nlsoy.pdf

4 https://www.workforce.com/2018/02/14/retirement-account-bank-account-employees-cash-401ks-record-numbers/

5 https://www.census.gov/newsroom/press-releases/2016/cb16-192.html

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18768 – 2019/4/11

Late on Retirement Planning?

Tips to Jumpstart Your Savings

It’s graduation season. Do you have a graduate who finishing up on college? If so, this is a time to celebrate your child’s accomplishment and their entrance into adulthood.

It also may be a time to celebrate your new freedom. You have one less dependent in the house and one less tuition bill to pay. You might see a healthy boost in your bank account and budget in the near future, especially if you’re now an empty-nester.

Before you start spending all that extra cash, this could be a good time to review your retirement strategy. If you’re behind on your savings, you’re not alone. Many people wait until after their kids graduate and leave the home before they get serious about saving for retirement.

The good news is there’s still time to get back on track. Below are three steps you can take today to boost your savings and take back control of your retirement strategy. If you’ve waited until your kids were grown to get serious about retirement, now is the time to take action.

Use a budget.

Do you use a budget? If the answer is no, you have company. According to a recent survey, 60% of Americans don’t use one. ¹ That’s an unfortunate statistic because a budget is one of the most powerful financial tools at your disposal.

A budget is especially important if you now have a boost in cash flow because you’re no longer supporting a child or making tuition payments. You can use your budget to plan and analyze your spending so that additional cash flow goes toward retirement instead of unnecessary purchases.

There are a variety of online tools you can use to create your budget. A spreadsheet can also be effective. The key is to set spending goals for each type of purchase and then regularly review your budget to make sure you hit your targets.

Boost your contributions.

The most effective way to boost your retirement assets is to simply contribute more money to your retirement accounts each year. Once you turn 50, you have an opportunity to increase your savings rate through something called “catch-up contributions.” A catch-up contribution is simply an extra allowable contribution amount for those approaching retirement.

In 2019, you can make a regular contribution of up to $19,000 to a 401(k). However, if you are 50 or older, you can contribute an additional $6,000, giving you a total allowable amount of $25,000. You can contribute up to $6,000 to an IRA, plus an additional $1,000 if you are 50 or older. ² Catch-up contributions can help you boost your savings and get your retirement back on track.

Guarantee* your assets and income.

As you approach retirement, you may find that you have less tolerance for risk. That’s natural. After all, you don’t have as much time as you once did to recover from a substantial market loss.  Of course, you also need to keep growing your assets, so you can’t avoid risk completely.

How do you balance a need for growth with aversion to risk? One way is with an annuity. Many annuities offer growth opportunities with downside guarantees*. For instance, a fixed indexed annuity allows you to earn interest that is linked to a market index. If the index performs well, you may earn more interest. If it performs poorly, your principal is protected from loss.

Annuities also offer ways to create a guaranteed retirement income stream. You can convert a portion of your assets into a cash flow that will last for life, no matter how long you live. That could provide some certainty and predictability as you head into retirement.

Ready to get your retirement on track? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and goals and implement a strategy. Let’s connect soon and start the conversation.

1 https://money.cnn.com/2016/10/24/pf/financial-mistake-budget/index.html

2 https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18775 – 2019/4/16