MARCH 2016

Retirement Pitfalls for Baby Boomers

S ince the first baby boomerretiree started collectingSocial Security payments in

2007, millions more members of thisinfluential generation have retired.Now, as many as 10,000 babyboomers are retiring every day,according to statistics from the PewResearch Center.

Unfortunately, not all of thoseeager retirees are totally preparedfor their golden years. These unpre-pared boomers face some big retire-ment challenges. Fortunately, manyof them are surmountable, providedyou know what to watch out for.Here are five big retirement pitfallsbaby boomers need to guardagainst. Retiring Too Soon

Boomers have seen a lot ofchanges in the retirement landscapeover the course of their lives. Manyplan to rely on a mix of pensions,

personal savings, and Social Securi-ty to support themselves in retire-ment. Unfortunately, for some, thatthree-legged stool may be wobbly,failing to provide them with theincome they need for decades tocome. 

A lot of boomers are aware ofthe gap between their retirementneeds and what they have saved. In fact, Pew’s study found that 60%plan to delay retirement becausethey can’t afford to stop working.The remaining 40% may be in a

Significant Ages for Retirement Planning

A ge 50 — You are now eligible to make catch-up retirement plan contributions,including to 401(k) plans and IRAs. Age 55 — You can now leave your company and withdraw from all qualified

plans except IRAs without incurring the 10% federal income tax penalty.Age 59½ — Funds can be withdrawn from all qualified plans, including IRAs,

without paying the 10% federal income tax penalty.Age 60 — Widows and widowers are eligible for Social Security benefits.Age 62 — You are eligible for reduced Social Security benefits. However,

if you work, you’ll lose $1 of benefits for every $2 of earnings over $15,720 in 2016, until you attain full retirement age for Social Security purposes. Somedefined-benefit pension plans may provide full benefits.

Age 65 — You are eligible for Medicare benefits. Most defined-benefit plansprovide full pension benefits. If you were born after 1937, you will be eligible forfull Social Security benefits sometime between age 65 and 67.

Age 70 — If you postponed retirement past full retirement age to increase yourSocial Security benefits, you should start collecting at age 70.

Age 70½ — You must start taking minimum required distributions from tradi-tional IRAs and other qualified plans. You are not required to take distributionsfrom Roth IRAs. If you are still working, you do not have to take distributionsfrom other qualified plans until you retire. mmm

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better place financially than theirpeers. Or they may not have givenretirement much thought yet. Notcarefully projecting your retirementincome can lead some people toretire too early, only to find out afew years later that their moneydoesn’t go as far as they hoped.Smart planning can help avoid thispitfall. Spending Too Much

After decades of working, manyboomers are eager to spend their

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Copyright © 2016. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. Thisnewsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis ofthese subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any lossor damage resulting from errors or omissions or reliance on or use of this material.

Patricia Kummer, CFP®

Certified Financial PlannerTM

8871 Ridgeline Boulevard, Suite 100Highlands Ranch, CO 80129

(303) 470-1209 ♦ (877) 767-0763(303) 470-0621 Fax

www.kummerfinancial.com24-hour Market Update Line (303) 683-5800

retirements indulging in the hobbiesand adventures they’ve put off overthe years. Given that today’s olderadults are healthier than everbefore, it’s not unusual to findretirees living very active — andvery expensive — lifestyles. That’sgreat in many ways, but boomerswho want to get out and see theworld run the risk of draining theirbank accounts too soon. Thatdoesn’t mean you have to curtailyour dreams, but it does mean youshould plan for them. If an around-the-world cruise is on the agenda,make sure you’ve budgeted for it. Not Being Smart aboutSocial Security

Sixty-five percent of Social Security recipients get at least halfof their income from the program.Even those who are less dependenton Social Security checks still counton that money to get them throughretirement. It’s an especially valu-able source of income since yourSocial Security payments are consis-tent and adjusted for inflation.

For those reasons, it’s especiallyimportant to make smart decisionsabout when to take your benefits. If you start your claim early, youcould lose out on thousands of dollars over your lifetime. General-ly, it’s better to delay benefits for aslong as possible, though there maybe times when an early claim makessense. Given how complicatedSocial Security can be, it’s often best to talk to an expert about howto get the most out of the program. Not Planning for Health-care Costs

A 2014 Financial Advisor maga-zine survey found that 62% of babyboomers are terrified of healthcarecosts in retirement, while 72% said itwas their number-one retirementconcern. They have good reasons tobe scared. One study found that

Retirement PitfallsContinued from page 1

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healthcare costs will eat up 67% ofolder boomers’ lifetime Social Secu-rity benefits. Younger boomers mayend up spending 90% of their SocialSecurity on health costs. While itcan be hard to predict exactly howmuch you’ll need to spend in thisarea, you can manage the costs bysetting aside funds for healthcare(perhaps in a health savingsaccount), purchasing long-term-careinsurance, and taking steps to stayhealthy.  Not Emotionally Preparingfor Retirement

One of the biggest retirementpitfalls for boomers has nothing todo with money. Rather, it has to dowith planning for the emotionalchanges that come with retirement.Particularly if your life revolves

around work, the transition toretirement years can be difficult.While thinking about whether youhave enough money to retire isimportant, you should also thinkabout how you plan to fill yourdays once you stop working. If youand your spouse are suddenly inthe house all day together, that canalso be an adjustment.

Before you hand in your notice,look into volunteer work, part-timejobs, and social activities that canfill your days. You may even con-sider a retirement dry run — takinga few weeks or months off fromyour job and living as if you wereretired to see how you like it.

Make sure you avoid anypotential retirement pitfalls by calling to discuss your plan.mmm

Do You Really Need 70%?

A general retirement planningrule of thumb indicates thatyou’ll need 70% to 80% of

your preretirement income. Manyestimates now indicate that may betoo little for those who want to livean active retirement lifestyle. Butwhen you realize how much youneed to save, it’s tempting to ques-tion whether you really need even70% of your preretirement income.

First, you should prepare adetailed analysis of your expectedexpenses after retirement. Howmuch you will need depends inlarge part on how you plan tospend your retirement years. Howcan you help ensure that yourexpenses will be lower? Considerthese tips:

4Pay off your mortgage.Mortgage payments often

consume 30% or more of an indi-vidual’s gross income. Eliminatingthis expense can drastically reduceincome needed for retirement. Ifyou can’t pay off your mortgage,consider selling your home andpurchasing a smaller one for cash.

4Get rid of other debts. It’snot unusual for consumer

debt payments to equal 10% to20% of an individual’s take-homepay. Try to enter retirement debtfree.

4Keep your automobile.Instead of purchasing a new

car every couple of years, keepyour current car for as long as it’sin good working order.

4Look for ways to reducetravel and leisure expenses.

Look for and use senior discounts.Plan activities for nonpeak times.

4Consider relocating. Thecost of living varies signifi-

cantly from city to city and state tostate. You may be able to reduceyour living expenses substantiallyby moving to another locale. Youalso need to decide whether youwant to move away from family,friends, and familiar surroundings.

4Work at least part-time. Ifyou still don’t have sufficient

funds to support yourself duringretirement, consider working atleast part-time. mmm

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$100,000, you would need a savings-to-income ratio of 20 whenyou retire. You might then developbenchmarks over your workingyears to help you gauge whetheryou are on track to achieving thatgoal.

4What is your savings rate?Calculate what percentage of

your income you are saving on anannual basis. Typically, you’ll wantto save a minimum of 10% a year.This would include 401(k) contribu-tions and individual retirementaccount contributions. If youremployer matches your 401(k) con-tributions, you can include thosecontributions as part of your annualsavings.

4How have your investmentsperformed? Now may also be

a good time to thoroughly analyzeyour portfolio’s performance overthe past year. Measure the perfor-mance of each investment, compar-ing it to an appropriate benchmark.This can help you identify portionsof your portfolio that may need tobe changed. Also calculate youroverall rate of return and compareit to your targeted return. If youractual return is lower than thereturn you targeted when designingyour investment program, you mayneed to increase your savings, selectinvestments with higher returnpotential, or settle for less money inthe future.

Please call if you’d like helpreviewing your personal financialratios or assessing whether you areon track in pursuing your financialgoals. mmm

Check Your Financial Ratios

W hen reviewing the finan-cial health of a company,it’s common to look at

financial ratios, such as earnings pershare, price/earnings ratios, bookvalue, and total return. The reasonfinancial ratios are so popular isthey give you a means to evaluatefinancial information, while allow-ing you to track changes in a company’s performance over time.

Consider using the same concept to assess and track your personal financial situation. Atleast annually, prepare a net worthstatement and calculate variousfinancial ratios. Comparing thoseratios over time will help you assesswhether you are making progresstoward your financial goals.

You should start by preparing anet worth statement, which lists allyour assets and liabilities, with theexcess representing your net worth.All assets should be listed, includ-ing vested balances in retirementplans and 401(k) plans, personalproperty, jewelry, and householditems. Assets should be valued atthe price you would obtain if yousold them now, not the amount youpaid for them. You’ll also want tolist your annual income, for ease incalculating some of the ratios.

Now, ask yourself the followingquestions about your finances:

4Has your net worth grown bymore than the inflation rate?

Calculate the percentage of growthin your net worth over the past yearand compare that to the inflation

rate. To make progress toward yourfinancial goals, your net worthshould increase by more than theinflation rate.

4What is your ratio of assets toliabilities? A ratio of less than

1 indicates you have more liabilitiesthan assets — a negative net worth.If that is the case, take active stepsto reduce your liabilities. This ratioshould increase over time, whichindicates you are reducing debts.

4What is the trend in your liabilities? Review the

amounts and types of debt out-standing. Mortgages are typicallyused to purchase a house or otheritems that appreciate in value andare considered good debt. Creditcard balances and auto loans areused to finance items that typicallydon’t appreciate in value andshould be kept to a minimum.

4What percentages of yourassets are liquid and nonliq-

uid? Nonliquid assets includeitems like your home, other realestate, jewelry, and works of art.Although they may increase invalue over time, they can be diffi-cult to sell quickly at full marketvalue. Liquid assets, such as bankaccounts and stocks, are more easilyconverted to cash. You want suffi-cient liquid assets to cover financialemergencies.

4What is your savings-to-income ratio? For this ratio,

your savings equals all assets desig-nated to help fund your retirement.It typically won’t include yourhome, since you will probably livethere after retirement. First, youneed to decide what this ratioshould equal at retirement. It isbasically the amount of savings youwant at retirement age, preferablydetermined after a careful analysisof all appropriate factors, dividedby your annual income. Forinstance, if you want retirementassets equal to $2,000,000 when you retire and you currently earn

Should You Consolidate?

Why Tax Planning Matters

W ith workers of all ages stayingat jobs for an average of just

4.4 years, many people are buildinga collection of retirement accounts.That can create some challenges. Forone, job hoppers may end up withless in savings as they lose out onemployer-matching contributionsby leaving before they’re fully vest-ed, cashing out savings when theyleave an employer, or having towait to be eligible to participate inan employer’s plan. Another bigchallenge is what to do with allthose different accounts.

If you have multiple 401(k)plans, there are a few good reasonsto consolidate. One is that it simpli-fies recordkeeping. When you canrestrict yourself to just one or tworetirement accounts, you’ll receivefewer account statements and haveless paperwork to file. You’ll easilybe able to tell how much you havesaved, since you’ll only need to lookat the balances for one or twoaccounts. Finally, when it comestime to take required minimum dis-tributions in retirement, you caneasily determine how much youneed to take, rather than having tototal up the balances in a half-dozenaccounts or more. mmm

B y engaging in tax planning,you can have more controlover your financial future.

Here’s why. Tax planning matters for your

income today — At this level, taxplanning involves shielding as muchof your income from taxes as reason-ably possible while keeping youroverall financial goals in mind.Because taxes can be complicated,many people choose to work with an accountant to make sure they are taking advantage of all credits, deductions, and other tax-minimization strategies.

Tax planning matters for yourlong-term financial goals — Beingstrategic about taxes can also make iteasier for you to achieve your long-term financial goals. Consistent taxplanning can also free up additionalincome you can use to reach yourlong-term financial goals. Moneysaved on taxes can later be allocatedto saving for a down payment on ahouse, used to pay down studentloan debt, saved for other major pur-chases, or to fund your retirement.

Tax planning matters for yourretirement — Tax planning andretirement are closely linked. Moneycontributed to a traditional IRA or401(k) plan can be deducted fromyour taxes in the year you make thecontribution. While there are manyadvantages to avoiding taxes today,

you may also want to put somemoney into a Roth IRA. While you won’t get a current-year taxdeduction for money contributed tothese accounts, you will get tax-freeincome in retirement. Many retireesappreciate the option of having bothtaxable and tax-free income streams in retirement.

Tax planning matters for your heirs — Many people hope to leave some of their wealth to theirchildren, other relatives, and/orfavorite charities. If that’s part of yourlong-term financial plan, you’d bewise to consider taxes as you draw up your plan for your estate. Forexample, if you want to leave moneyto your children, you might want toput money in a Roth IRA, since yourchildren will be able to draw tax-freeincome from the account. Or, youmight start transferring some moneyto your heirs while you are still alive,taking advantage of the annual gift-tax exclusion. Other tax-planning strategies you might look into includeusing life insurance, charitableremainder trusts, charitable leadtrusts, or donor-advised funds.mmm

What’s New at Kummer FinancialH appy Spring and thank you

for your continued businessand support! We appreciate yourreferrals, and we always welcomethe opportunity to help those youknow. Please do not hesitate to letus know of any changes in yourworld so we can keep your plancurrent.

Taxes are an important part of your plan, so please send us acopy of your 2015 tax return, ofwhich you may provide an elec-

tronic copy through the clientportal, mail, or drop off to us. Ifyou do not have a secure clientportal established through KFS,please contact us for access towww.clientwealthcenter.com.This is a secure place to upload orreceive confidential information.

Please help us congratulatePaula Degener in receiving her CERTIFIED FINANCIAL PLANNER®

(CFP®) designation! Also, wel-come Eric Haberkorn to our team

of planners.In our education series, we

will be announcing our latestspring seminar topic soon. Detailswill be available on our websiteand Facebook page, and all arewelcome. Also, be sure and staycurrent with our economicupdates posted to our websiteand Facebook. Watch the News-flash for current events and theweekly updates to our MarketHotline.