Fong Law Group

Should seniors retire early under the coronavirus crisis?

疫情下長者是否需要提早退休 （廣東）

疫情下長者是否需要提早退休（國語）

Five Tips for Starting Retirement Planning in Your 50s

When it comes to retirement planning, many Americans find themselves underprepared. A majority of baby boomers (born between 1946 and 1964) and Generation X’ers (born between 1965 and 1978) often end up without retirement savings or don’t have realistic expectations about post-retirement costs. According to the Insured Retirement Institute, only 25 percent of boomers are confident of having sufficient savings in retirement. If you are in your 50s and nearing retirement without substantial savings or a plan, don’t despair -- it is never too late to start planning.

Although every working professional should contribute towards retirement from their early days, for various reasons they often delay the process. If you are nearing your 50s without a post-retirement plan and see yourself working for another 10 to 15 years, this is an opportunity to plan judiciously and save for your retirement right away.

Here are five strategic steps for achieving the best retirement plan:

1. Set Specific and Practical Goals

Proper retirement planning begins with setting specific goals. Calculate your current income, total savings, and ongoing investments to understand how much you could save, and be sure to set realistic goals.

While providing for emergency expenses and paying off a mortgage can be your short-term and intermediate goals, saving up for retirement should be your long-term goal. An annual financial review is helpful in evaluating your past goals and understanding your earnings as well as liabilities.

2. Plan a Realistic Budget Focusing on Retirement

Review your monthly and yearly expenses and list the factors that are likely to remain constant for the next few years. Now allocate funds to each category in a way that will allow you to save more for your retirement.

According to financial experts, if you are saving for retirement after 50, it is best to contribute 30 percent of your salary towards this end. If you find that goal difficult to meet, look at your budget list and reduce optional expenses.

3. Pay Off Debts

Paying off debts early will help you meet your retirement budgets and ease the financial burden. According to an AARP report, 44 percent of Americans continue to pay for their home after they retire.

Clearing off outstanding debts, credit card bills, loans, and mortgages will make it much easier to prioritize retirement funds.

4. Invest in Retirement Plans

401(k)s, 403(b)s and IRAs are some of the retirement plans available in the U.S.  While 401(k)s are one of the most popular plans, not all companies offer them and those that do have their own, often restrictive, investment rules. Then there are two types of IRAs:  traditional and Roth IRAs.

To make the best choice among the many retirement plan options, it is essential to have a thorough understanding of IRA vs 401(k), Roth IRA vs 401(k) and other investment alternatives, as well as contribution limits.

5. Diversify Your Investments

Investment diversification will help keep you on a firm financial footing. Do not stash all your money in banks; instead, create an investment portfolio and explore your options.

It is important to diversify and distribute your money among multiple sectors. Considering the volatility of markets, diversification of your investment portfolio safeguards your capital and helps it grow.

It’s Time to Step Up a Gear

A concrete retirement plan with emphasis on savings is essential to ensure a comfortable and healthy post-retirement life. Saving for your retirement is the first priority and the sooner you start, the better your chances of achieving your retirement goals.

A Note to Younger People: Heed the Voice of Experience

“If you could, what financial advice would you give your younger self?”

We like to think that we live without regrets, but it’s not always easy to do, especially when it comes to planning for retirement, says The Washington Post in “The top regrets of retirees.” A study looking at retirees found that many, and especially women, admitted that they had made mistakes in their retirement planning. The report from Global Atlantic was based on data from more than 4,200 retirees and pre-retirees in America. The company wanted to learn how expectations for retirement costs lined up with reality.

The expectations often did not.

The risk of running out of money is real, said the report, noting that 39% of retirees said they had planning regrets. Here are the top reasons for regret:

They found themselves relying too much on Social Security for income.

They did not pay down debt before retiring. Many people today are retiring with a mortgage. People used to pay off their mortgage before retiring, but it’s less and less common now.

They didn’t save enough. Most people didn’t start saving for retirement, until they turned 31. Missing almost a decade in saving can make a huge difference over time. Let’s say an employee puts away $50 every time she gets a paycheck—twice a month—and puts the money into an account with a 6% annualized return. If she started saving at age 23, by retirement age she’d have $227,150 in that account. If she waited to start saving until age 31, the account would be worth $128,578—$88,572 less. If she was able to save $100 per paycheck, by retirement, she’d have $434,299 versus $257,156.

The power of time and compounding makes a huge difference. Compounding is the process through which an asset’s earnings are reinvested to earn additional earnings over time. The more time your assets have to grow, the most compounded growth can occur.

Age 31 seems relatively young to start thinking about retirement, but by waiting that long, workers are missing out on almost a decade of savings, asset accumulation and the associated potential of compound returns.

The survey also revealed that women are more likely than men to have retirement planning regrets. How’s this for a difference: 62% of women had retirement regrets, versus 47% of men. The women also noted that once they realized their mistakes, more women than men adjusted their lifestyles to increase savings, by cutting expenses, like traveling or eating out.

If you have retirement regrets, your best course of action is to do the best you can now, without worrying about what you didn’t know in the past.

Reference: The Washington Post (Dec. 10, 2018) “The top regrets of retirees.”

How Much Will You Really Spend in Retirement?

“It’s the question at the heart of so much retirement planning: How much money will I need in savings when I’ve stopped working?”

To get at this number, people look at a few different sources, including online calculators, and articles like this one from The New York Times titled “The Myth of Steady Retirement Spending, and Why Reality May Cost Less.”

Sooner or later, they learn about the 4% rule, a popular rule that says if you invest in a mix of 40% bonds and 60% stocks, your retirement will be fine, if you just spend 4% of your savings every year. Your nest egg will stay intact, and you will be financially fine for three decades. That’s assuming you retire at age 65 with $1 million and you withdraw $40,000 every year, until you run out of money at age 95. It also assumes that you’ll supplement your own retirement savings with money from Social Security and any other income sources. If you need any more than that, cut your spending or keep working.

Could it be that simple? No, not really.

The truth is, retirees don’t always spend the same amount of money every single year. Having to keep working for several years after you would have liked to retire, just so you can get to that magic $1 million number may not be necessary for everyone.

Some retirees find that they spend a lot more in the early years of their retirement. They may need to help their own aging parents, or adult children. Others spend big on travel, seeing the world while they still have their health and mobility. However, those expenses usually slow down as we age.

There are different phases of spending in retirement, just as there are different phases of spending in your younger years. Statistics from the Bureau of Labor Statistics confirm this spending decline. The mean spending for households headed by people ages 55 to 64 in 2017 was $65,000. For those between the ages of 65 to 74, spending declined to $55,000. After 75, it dropped to $42,000. That is with housing costs remaining the same and health care costs increasing. The categories of entertainment, transportation, clothing, food and drink all dropped.

A study by Morningstar contends that retirement spending resembles a smile: starting off high, then declining, then increasing towards the end of life. The increases at the end of life are directly related to health care costs. However, generally speaking, retirees in their 70s and 80s tend to spend less.

Whether you follow the 4% rule are not, there are always unexpected costs to be considered in retirement. Your retirement may last more than two or three decades. Withdrawing too much from investments during a sharp market downturn, could cause your overall portfolio to shrink and possibly never recover. A retirement budget that takes inflation and market fluctuations into consideration, is necessary at any asset level.

Reference: The New York Times (Nov. 29, 2018) “The Myth of Steady Retirement Spending, and Why Reality May Cost Less”

Make Sure Your Retirement Is About Having Fun

“We spend decades dreaming of the day when life won’t be dictated by alarm clocks, commute times, meeting schedules and office politics. Then reality sets in: Retirement can be kind of a drag. There may be 20-plus years of it ahead of you.”

What? How can retirement be a drag? You’re not going to the office every day, subjected to the personalities and pitfalls of office politics. The first month is glorious, then it sets in: you’re on your own now. No schedule, no one telling you what to do. The lack of structure isn’t for everyone, says Next Avenue in the article “How to Keep Retirement From Being A Drag.”

The simple fact is, most people plan for the financial and legal aspects of retirement: how much they need to save, how much of a bite inflation will take, the cost of healthcare, long-term healthcare, etc. However, most people neglect to think about the emotional impact of retirement.

Work is where many people get their sense of purpose and their identity. Talk to any working parent who steps out of their career trajectory for a few years. It’s a similar shift, except there is no smiling cooing baby to keep you busy. If you don’t have projects, meetings, or deadlines, or the community of the workplace, what defines you?

This sense of being adrift occurs to people regardless of their income level and may be even more intense for successful people who are used to running a business, commandeering a company or managing a busy desk.

Here are some suggestions for making sure your life during retirement is enjoyable and has purpose and meaning.

Set your alarm and have a reason to get up every day. After you’ve taken the big trip, spent time with your grandchildren and organized your closets, what’s next? It’s time for you now, time to do things that you’ve always wanted to but for reasons of time, could not. That might mean taking up a sport, expanding a hobby, becoming an active volunteer or returning to school to explore a subject you love?

Consider yourself to be on a fixed salary. The transition from paycheck to drawing down savings can be unnerving. You’re sitting on a huge pile of money—but it must last two or even three decades. Create a post-retirement budget before you retire and don’t forget to include healthcare, taxes and potential emergencies. Also consider which assets to draw from and in what order. Do you use your 401(k) funds first, or start with cash? Avoid this retirement rookie mistake: taking out too much cash in the initial stage of retirement.

Talk with your partner and family. Will you both retire at the same time? If one is still working and the other is not, how will you divide up chores? If your work schedules meant you didn’t see each other for more than a few minutes during the week, spending 24/7 together is a big change. Do you expect to spend all your time together, or will there be some “me” time? Will your children expect you to babysit on a regular basis?

Moving into the retirement years is a big change in life, and the more prepared you are, both in terms of having an estate plan, retirement funds and a plan for your time, the more fulfilling and enjoyable your retirement will be.

Reference: Next Avenue (Nov. 29, 2018) “How to Keep Retirement From Being A Drag”

Do You See Yourself in Any of These ‘Seven Deadly Sins’?

“All of these retirement planning sins can set you back from achieving important goals. If you have a nagging feeling that you could be doing a better job of retirement planning, check out these seven offenses and learn how to get back on track.”

We’re only human, and we don’t always do exactly what we’re supposed to do. That applies to retirement planning, according to the article “The 7 Deadly Sins of Retirement Planning” from The Reader’s Digest. Take a little time to reflect on these sins and see if any of them are getting in your way of reaching your retirement goals.

Pride. Sometimes we think retirement planning should be simple, and when it gets complicated, our knee-jerk reaction is to be prideful and refuse to allow anyone to help us. If you’re not a professional retirement planner, how will you know what to watch out for? You won’t. A mistake could make the difference between a heavenly retirement and one that is delayed or never arrives. Swallow that pride about the difficulties of building a portfolio or investment strategy and be open to getting help.

Envy. If you spend 30 years trying to keep up with the Jones’ extravagant spending, who knows if you’ll ever be able to retire? Just because a neighbor, friend or relative spends on new luxury cars, or sends their kids to pricey private schools, doesn’t mean you need to do that, unless you can afford to—all while saving for retirement. Live below your means and save for the future.

Wrath. This is a dangerous emotion. If you’re angry about a situation at work, for instance, and you leave without good financial planning, you could put your retirement savings at risk. It often takes longer than you think to find a new job. Leaving voluntarily makes you ineligible for unemployment benefits. Paying for COBRA insurance is usually a lot more expensive than an employee group benefit plan. Hate your job/boss/co-workers? Wait until you have a new job lined up before leaving.

Greed. Chasing investment trends or listening to your brother-in-law’s latest get-rich quick scheme rarely leads to success. A professional advisor with a long-term plan will almost always yield a better return.

Sloth. Lazy about retirement planning? You have to do the planning, the savings, track your expenses and keep an eye on your money and your taxes. Have you made the effort to have a will, power of attorney and health care directive made for you and your spouse with an estate planning attorney? A missed step could doom your retirement and create a crisis for your family.

Gluttony. This is kind of like greed’s younger, sloppier cousin. Are you being greedy about making money, to the detriment of any other goals? A goal-oriented investment plan will serve you better.

Lust. Are you yearning for a billionaire’s lifestyle, with an income that is more middle class? Leave the lust for the jets, diamonds and furs behind and focus instead on a realistic plan.

Make sure that your retirement doesn’t fall victim to these deadly sins and prepare for the real retirement that’s in your future.

Reference: The Reader’s Digest (Nov. 2018) “The 7 Deadly Sins of Retirement Planning”

Make Estate Planning Simpler with a Checklist

“While advanced estate plans can be very in-depth, there is a way to simplify one's estate planning process.”

Ask an average person to define estate planning, and chances are good they’ll start describing long meetings with a lot of paperwork and complicated forms. However, that doesn’t have to be the case, says this article from InsuranceNewsNet.com, “A simple way to simplify estate planning.” It focuses on the use of beneficiary designations on a number of accounts that can make an estate plan a much simpler experience in many situations.

Beneficiary designations are primarily used on the following types of accounts:

• Employer-sponsored retirement plans, like 401(k)s
• IRAs
• Life insurance policies
• Annuities
• Transfer on death investment accounts
• Pay-on-death bank accounts
• Stock options
• Executive deferred compensation plans

Making sure to keep track of the person who has been named the beneficiary and keeping that information up to date is extremely important. It’s not always done correctly. The consequences of having the wrong person named on the asset can be infuriating and, unfortunately, permanent.

The importance of the beneficiary designation means you’ll want to:

• Remember who you have named a beneficiary of what account. People usually name their spouse as a primary and a child as a contingent. If you only have a primary, consider a charity that has meaning to you as the contingent beneficiary.
• Update your beneficiary designations, as life events occur. That includes births, deaths, marriages, divorces, etc.
• Read the instructions on the beneficiary designation. Not all forms are alike.
• Don’t name your estate as a beneficiary.
• Understand the tax implications of naming the beneficiaries. Not every asset has the same tax treatment.

Speak with your estate planning attorney to ensure that your beneficiary designations align with your estate plan. Remember that beneficiary designations supersede any provisions in your will. You should also talk with your beneficiaries—you may learn that they don’t want to inherit your asset (i.e., a person who is considering a divorce may not want the additional complication of a large inheritance).

Reference: InsuranceNewsNet.com (Nov. 2, 2018) “A simple way to simplify estate planning”

What are the Key Risks in Retirement Planning?

“The key take-away …there are five key risks in retirement and a three-step process to solve the problem.

Retirement planning is not easy for couples or individuals, or the people who counsel them, according to a recent article in Wicked Local (Topsfield) titled “Your Financial Views: How your retirement can be the ‘golden years’.”

A conference on planning discussed a Harvard Business Review study called “The Crisis in Retirement Planning” that challenged how consumers and the financial industry look at retirement. The author said that the process is broken, which is why many families are not enjoying their “golden years.” The article presents five key risks and some solutions.

The first of the five key risks concerns investments. What if there is a market downturn that reduces your retirement savings significantly?

The second concerns inflation, which was practically dormant for many years.  It is currently heating up again. Your assets and income need to be structured to keep up with inflation.

Withdrawal-rate risk is third. Typically, in the first few years of retirement, people tend to spend more than when they were working. It makes sense. Most people spend more money on Saturdays. When you’re retired, every day is Saturday.

The fourth is sequence-of-returns risk. This involves the order in which investment returns occur and the impact of those returns on people who are near retirement, transitioning into retirement or recently retired.

Finally, the fifth is longevity risk. If you live long enough, goods will be more expensive and the likelihood of a market downturn increases.

The solution is to change how you think about retirement planning. It’s as much about accumulating savings, as about how your retirement accounts will produce a good monthly income stream.

Start by listing your basic necessary expenses and then list your discretionary spending. It is important to know the difference between what you want and what you need. You should structure your income to give you the basic necessary items for life, by incorporating Social Security, pensions and guaranteed income annuities, as well as your retirement savings accounts. Use the remaining assets to protect yourself against inflation and produce any additional income.

Don’t forget to include estate planning in your retirement plan. This includes a will, a power of attorney and medical directive. By having an estate plan, you protect your surviving spouse and heirs from the expenses and stress of settling an estate. An experienced estate planning attorney will be able to help you create an estate plan that aligns with your financial retirement goals.

Resource: Wicked Local (Topsfield) (Aug. 7, 2018) “Your Financial Views: How your retirement can be the ‘golden years’.”