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Retirement Planning Decade by Decade
R etirement planning is a life-long process. The earlier youstart, the better off you’ll be
in the end. Below are some of thekey retirement-planning actions you need to be taking from your 20s through your 60s.
Your 20s Start saving. The sooner you
start saving for retirement, the lessyou’ll have to save overall. If youstart saving $5,000 per year at age25, you’ll have just under $775,000by age 65, assuming annual returnsof 6%. Wait until age 35 to start sav-ing and you’ll have about $395,000— more than $300,000 less. Also,since you’re still decades away fromyour retirement date, don’t be afraidto take some risk with your invest-ments. You’ll have to stomach some ups and downs, but earninghigher returns from equity (orstock) investments now means more money (and less to save) as
you get older.
Other steps to take when you’reyoung: Start budgeting, avoid debt,and save for other goals, like buyinga house. Even if you’re not earninga lot right now, adopting healthymoney habits today will pay bigdividends later in life.
Your 30sAs you enter your 30s, your
income is probably heading upwardand your life is beginning to stabi-lize. You may find that you can contribute more to your retirement
Reducing Life Insurance Premiums
T hinking about purchasing a life insurance policy and looking for ways toreduce your premiums? Consider the following tips:
4Check prices for slightly more coverage. Often, insurance rates will godown as you purchase higher amounts.
4If you have one of the conditions listed on the insurance application, makesure you explain the situation in detail.
4Shop around, especially if you have a medical condition. Insurance com-panies often specialize in insuring for different preexisting conditions.
4Work on health issues. If you stop smoking or lose weight, you will typically save significant amounts in insurance premiums.
4Only obtain riders that you really need. You can save substantial amountsby only purchasing the ones you need.
4Don’t rely on rules of thumb when purchasing insurance. This can result in too much or too little coverage.
4Understand your options before purchasing insurance. There are manytypes of insurance with multiple options so that most people just rely on
the advice of an insurance professional. mmm
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savings accounts than you could inyour 20s. As your income increases,consider increasing your retirementcontributions by the amount of yourannual raise, so that you don’t fallbehind on saving. Reassess yoursavings rate and consider meetingwith a financial planner to makesure you’re saving as much as youcan — and investing it well.
Your 40s You’re at the halfway point to
retirement. If you’ve been saving for
Continued on page 2
Copyright © 2016. Integrated Concepts. This newsletter intends to offer factual and up-to-date information on the subjects discussed, butshould not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.
Joanne RiccoClient [email protected]
Gerald P. Jarzabek, CFP®, CPWA®
Senior Vice [email protected]
The BCJC GroupRobert W. Baird & Co. Inc.
200 Public Square, Suite 1650
Cleveland, OH 44114
216-737-7330 888-792-9821
216-737-7370 Fax
Michael Bongers, CFP®, CRPC®
Senior Investment [email protected]
Christine BennerFinancial [email protected]
Douglas M. CrandallSenior Vice President
Ryan W. CoxVice President
Beth HallClient Specialist
Amanda ZuhseClient Assistant
U C C E S SS WINTER 2016
the past 10 or 20 years, you shouldhave a nice nest egg by now. And ifyou haven’t gotten serious aboutsaving, now is the time to do so.You’ll have to be fairly aggressive,but you still have some time tobuild a respectable financial cush-ion. Whether you’re an accom-plished saver or just getting started,you may also want to considermeeting with a financial advisor tohelp you make sure you’re savingenough to meet your goals andinvesting in the best way possible.
A special note: People in theirlate 40s and early 50s are often alsolooking at steep college tuition bills for their children. Don’t makethe mistake of sacrificing yourretirement goals to pay for yourchildren’s college educations. Stayfocused and on track, so your chil-dren don’t have to jeopardize theirfinancial future to support you asyou get older.
Your 50s Once you turn 50, you have the
option to make catch-up contribu-tions to retirement savings accountslike 401(k) plans and IRAs. You cansave an additional $6,000 a year inyour 401(k) plan and $1,000 a yearin your IRA in 2015. That’s greatnews if you’re already maxing outyour savings in those accounts.
Your fifth decade is also thetime to start thinking seriouslyabout what’s going to happen whenyou retire — when exactly you’regoing to stop working, where youwant to live, whether you plan towork in retirement, and otherlifestyle issues. It’s also the time totake stock of your overall financialsituation. You’ll still want to keepsaving as much as you can, but you may also want to make an extraeffort to be debt-free at retirementby paying special attention to pay-ing off your mortgage, car loans,credit card debt, and any remainingstudent loans.
Retirement PlanningContinued from page 1
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Your 60s Retirement is just a few years
away. If you haven’t already, you’llwant to dial down the risk in yourportfolio so you don’t take a hugeloss on the eve of your retirement.You’ll also want to start thinkingabout a firm retirement date andestimating your expected expensesand income in retirement. If yourcalculations show that you’refalling short, it’s better to know
before you stop working. You canmake up a shortfall in a number ofways — reducing living expenses,working a bit longer, and evendelaying Social Security paymentsso you get a larger check.
Whatever your age, the key toretirement is having a plan and consistently executing that plan.Not sure how to get started? Pleasecall so we can discuss this in moredetail. mmm
Diversification: Not Just for Stocks
M ost investors know thatone of the best ways tomanage risk in a stock
portfolio is to diversify. But askthe average bond investor how tocut risk, and the answer is likely to focus on safety: Treasury securi-ties and federally insured CDs. Yetit is important to diversify yourbond portfolio across severaldimensions, including maturity,safety, and yield. Here are somechoices to consider to deal withthese challenges:
Laddering — A bond ladder isa way for buy-and-hold investorsto diversify within the same assetclass and risk category. The pur-pose is to soften the impact ofrapid changes in interest rates and obtain a smoother flow of cash from interest payments. Theway to construct a ladder is tospread your assets equally amongan array of maturities so that onlya portion of your portfolio maturesin any one year. Instead of concen-trating in bonds that mature in six years, for example, you mightcreate a portfolio consisting ofbonds that mature in two, four, six, eight, and 10 years. When theshortest bond matures, you use the funds to buy a bond thatmatures in 10 years.
Adding bonds from higher-risk but relatively safe issuers —Whatever level of safety you prefer, nearly everyone has a price
at which taking on more riskmakes financial sense. These differ-ences are referred to as yieldspreads and reflect how muchmore investors need to be paid toaccept the risk of the borrower. As economic conditions change,these spreads change, becomingnarrower or wider. When spreadsare unusually wide, bond profes-sionals see value on whichinvestors can capitalize.
Adding geographic diversity— If you own municipal bonds,are they only issued from yourstate of residence? While suchbonds generally offer the addedadvantage of exemption from stateincome taxes, diversifying yourholdings to include bonds fromother states offers three types ofpotential benefits: 1) higher yields,2) better credit quality, and/or 3) exposure to different regionaleconomic risks and opportunities.
The same can be said forinvesting in the debt of foreigngovernments. While foreign bonds carry the additional risk of currency exchange rates, forinvestors with large portfolios,adding small amounts of currencyrisk can actually reduce the overallvolatility of a portfolio.
If you think you could benefitfrom greater diversification in your fixed-income portfolio, please call. mmm
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Have you switched jobs and/or dramatically increased ordecreased your earned income?Have you retired? If you have asignificant increase or decrease in your income that has causedchanges in your lifestyle, you maywant to adjust your life insurancepolicy.
Once you retire, reevaluateyour life insurance to see if anychanges are warranted. And ifyou’re no longer commuting everyday, you may qualify for lower auto insurance premiums. Alsomake sure to review your long-term-care needs.
Have you acquired any newvaluables? Have you purchased or sold a home? Your homeownersinsurance policy, which also coverspersonal property up to specifiedlimits, typically covers new pur-chases automatically. However,make sure that any new purchasesdon’t exceed the limits of your policy, or the item may not be covered. Periodically review yourinventory of personal property andcompare it to your homeownersinsurance.
Have you made extensive renovations on your home? TheInsurance Information Instituteindicates that nearly 40% of home-owners who have significantlyremodeled their homes have notupdated their homeowners insur-ance. Make sure to review yourpolicy limits when you add signifi-cant value to your home. It’s actu-ally a good idea to review your policy periodically to make sure itwill replace your home if it is total-ly destroyed. Changes in the costof rebuilding a home can outpacethe limits of your policy, and youdon’t want to be left unprotected.
It’s a good idea to reassess yourinsurance needs at least once a year.Please call if you’d like to discussyour insurance needs in moredetail. mmm
Does Your Insurance Need Adjusting?
O f course, the policies thatwere just right for you fiveyears ago — or even one
year ago — may not be just righttoday. Thus, you should reviewyour insurance every year or after a major life event. During thatreview, consider these questions:
Have you recently married ordivorced? A marriage or divorcemay affect several different types of insurance needs, including:
4Life — If you’ve recently married, you may want to
purchase a life insurance policy that would provide a source ofadditional income to your surviv-ing spouse if you die. If you’verecently divorced, you’ll want toremove your ex-spouse from yourinsurance policies and name a newbeneficiary.
4Health — You’ll typically needto add your spouse to your
employer-sponsored health insur-ance within 30 days of marriage orwait for the open enrollment periodthat typically occurs once a year. Ifyou’re divorced, you’ll want toremove your ex-spouse from yourplan.
4Homeowners — If you’re com-bining households, you may
need to increase personal propertyinsurance so that all possessions areprotected in case of theft or damage.
4Auto — Many insurance com-panies offer discounts for mul-
tiple policies. The savings can besignificant if both you and yournew spouse have autos insured bythe same company. Insurance com-
panies that offer both auto andhomeowners insurance may pro-vide even larger discounts for thosewho purchase both types of policies.
Has your spouse died orbecome disabled? These types ofchanges warrant a reassessment ofall your insurance needs. If yourspouse has died, you’ll want torename beneficiaries on your lifeinsurance policies.
Have you had a baby? Accord-ing to the Insurance InformationInstitute, five million householdswith new babies have not updatedtheir life insurance protection. You should ensure that your lifeinsurance coverage is sufficient toprovide for the child’s needs untiladulthood, perhaps including education expenses in addition today-to-day expenses.
Also review your disabilityinsurance coverage, since you nowhave another dependent relying onyour income. Look into both short-and long-term disability coverage.Many employers offer some level of disability insurance coverage.However, don’t just assume thatcoverage is sufficient. You mayneed to purchase additional insur-ance to supplement that offered byyour employer.
Keep in mind you typicallyhave 30 days after birth to add yourchild to your employer-sponsoredhealth plan.
Are there any new drivers inyour household? If you have ateenager who has just started dri-ving, be prepared for significantauto insurance increases. Insurancecompanies often give premium discounts when the new driver hastaken a certified driver’s trainingcourse or is a good student, so makesure to check with your insurancecompany. Once your child goesaway to college, inform your insur-ance company if your child did nottake a car to college.
Risk ManagementTechniques
Financial Thoughts
5 Reasons to Start Saving More
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I t would be very expensive toinsure every risk you are subject
to, so you may decide to use otherstrategies for some risks. The pri-mary ways to manage risk include:
4Avoid the risk. There aresome risks that insurance com-
panies won’t insure or that are veryexpensive to insure. Thus, yourbest strategy may be to simplyavoid the risk.
4Reduce the risk. In manycases, you can reduce the pos-
sibility of loss through active stepson your part. For example, you canstart exercising or wear seat belts.
4Retain the risk. When the cost of insuring the risk
exceeds the benefits you wouldreceive, your best option may be toretain the risk. The use ofdeductibles and coinsurance arealso forms of retaining risk.
4Transfer the risk. Typically,this involves purchasing insur-
ance and is used for major risks thatcan’t be eliminated through riskreduction or avoidance. You shouldconsider insuring all potentiallysevere losses, such as death, disabil-ity, catastrophic healthcare costs,major property loss, and personalliability suits. mmm
I f you’re interested in gettingstarted with savings, or if youwant to save more, here are five
reasons to help keep you motivated.
1. You’ll be prepared for emer-gencies. Here’s an alarming statistic:62% of Americans don’t haveenough money saved to cover even relatively small, unexpectedexpenses, such as emergency roomcopays, minor car repairs, or a broken furnace (Source: CNBC, June7, 2015). Without cash on hand tocover these irregular but inevitablecosts, you’re more likely to turn tocredit cards or loans when the needarises.
2. You’ll be more independent.With a healthy amount of savings,you can feel more free to take risks,like starting your own business,heading back to school to train for anew career, purchasing a home ofyour own, or moving to a new city.Without savings, you’re living onthe financial edge; and you’re morelikely to find yourself stuck in situa-tions you may not be satisfied with.
3. You’ll be able to reach yourgoals. Whatever your dreams, theylikely have one thing in common —you’re probably going to need some money if you want them tobecome a reality. Few of thosedreams are achievable if you don’t
save for them.
4. You’ll be able to earn moremoney. Saving isn’t just about set-ting aside what you’ve alreadyearned. It’s also about putting yourmoney to work for you. Dependingon where you save and invest yourmoney, you can earn more just bybeing diligent about saving, ratherthan spending. And because of thepower of compounding interest,even relatively small amounts cangrow significantly, provided youdon’t touch your principal.
5. You’ll be happier. No onewants to suggest that money is theonly thing that can make us happy.But there’s also evidence that savingmoney, even in small amounts, canmake you happier. A 2013 study byAlly Bank found a strong relation-ship between saving and happiness,with 38% of people who had a sav-ings account reporting that theywere very happy, compared to 29%of people without a savings account.Those feelings of happinessincreased the more people hadsaved. In contrast, having debt (oftena consequence of a lack of savings)tends to lead to more unhappiness.
Please call to discuss how youcan make regular saving part of yourfinancial plan. mmm
A recent survey found that two-
thirds of American adults
have seen their long-term finan-
cial plans adversely affected by an
event. Those events include the
loss of a job or being forced to
take a lower-paying job (43%) and
poor investment or business per-
formance (28%). After the disrup-
tion, 80% of respondents said they
reduced their savings and/or
expenditures. The net effect was a
nearly 60% drop in the amount
saved, with 49% of respondents
saying they may need to delay
retirement or forgo it completely
(Source: TD Ameritrade, March
31, 2015).
In 2014, nearly half of
Americans said they were hit
with unforeseen expenses that
pressured their budgets in the
following categories: 46% by car
expenses, 44% by healthcare
spending, 32% by home repairs,
13% by education costs, and 12%
by insurance costs (Source: Amer-
ican Express, 2015).
When asked how much they
spend on technology each month,
37% of respondents said less than
$100, 26% said $100 to $199, 21%
said $200 to $299, and 16% said
over $300 (Source: Money, July
2015). mmm
