NOT FOR DISTRIBUTION

Transcription

1 INVEST IT S YOUR FUTURE STRUGGLING WITH STUDENT LOANS? SEE PAGE 4 FOR MORE ON THIS TOPIC, SCAN THE QR CODE. When Should I Take Social Security? 3 Factors to Consider Before Claiming Your Benefits Social Security is an important part of your retirement safety net. In fact, for nearly half of all Americans age 65 and older, Social Security provides most of their retirement income. 1 That s why it s important to weigh the key factors involved in deciding when to take Social Security before claiming your benefit. These include: 1. Your income needs in retirement: Life in retirement does tend to be less expensive than when you re working, but the difference might not be as significant as you expect. While certain expenses decrease in retirement, such as gas for commuting, other expenses, such as medical expenses, tend to increase. A study by Aon Hewitt2 determined that retirees require 85 percent of their preretirement income during the first year of retirement. That means if your income was $42,000 a year, or $3,500 a month, when you were working, you would need $35,700 annually, or $2,975 monthly, for that first year in retirement. 2. Your life expectancy: Americans are living longer. A 65-year-old man, on average, can expect to live to age 84.3, while a 65-year-old woman can expect to live until age One in four 65-year-olds can expect to live to age 90. Of course, individual factors such as family history, past health problems and current health are important to take into consideration, too. Most retirees, though, should plan for a long retirement, and delaying when you take Social Security for as long as possible can help you lock in a bigger retirement benefit. In fact, waiting to claim your benefits until after your full retirement age can increase your benefit amount by as much as 8 percent per year.4 Social Security website, socialsecurity.gov, or visiting a nearby Social Security office. Growth in Social Security Retirement Benefits Delaying Social Security until or after your full retirement age increases your monthly benefit. Age Monthly Benefit Impact 62 $ $800 80% 64 $866 87% 65 $933 93% 66 $1, % 67 $1, % 68 $1, % 69 $1, % 70 $1, % 3. Your spouse: It s a good idea to coordinate Social Security claiming strategies with your spouse. For example, a lower-earning spouse may receive a higher benefit by claiming spousal benefits based on the higherearning spouse s record. You can go through all of your options to determine the best way to maximize your Social Security retirement income by registering with the Example assumes a full retirement age of 66 with a monthly benefit of $1,000. Source: When to Start Receiving Retirement Benefits, U.S. Social Security Administration. 1 Retirement Security: Most Households Approaching Retirement Have Low Savings, U.S. Government Accountability Office, May 12, The Real Deal: 2012 Retirement Income Adequacy at Large Companies, Aon Hewitt, Life Expectancy Calculator, U.S. Social Security Administration. 4 Retirement Planner: Delayed Retirement Credits, U.S. Social Security Administration. FALL 2017

2 WHY TIMING THE MARKET DOESN'T WORK Nobody has a crystal ball, so basing investment decisions on predictions about which way the market is going to move, and when, is not a sound investment strategy. While investors may guess correctly some of the time, over the long term, guessing wrong ultimately undermines returns, according to a 2017 report from market researcher Dalbar, Inc. Guess Right Ratio Throughout the Years % 50% 50% 0% 20% 40% 60% 80% 100% 58% ARE YOU FALLING BEHIND? The average equity mutual fund investor leaves money on the table by trying to time the market. Here s the negative impact on annualized returns through 2016: 67% 67% 67% 83% 83% AVERAGE EQUITY MUTUAL FUND INVESTOR 7.26% 3.64% 4.79% 3.98% S&P 500 INDEX 11.96% 6.95% 7.68% 10.16% Source: 23rd Annual Quantitative Analysis of Investor Behavior, Dalbar,

3 TAKING ACTION Accounting for Life As Life Changes, You May Need to Adjust Your Retirement Strategies Just as you get used to one stage of life, the next change comes barreling along. College, marriage, kids divorce? While some of these life events are expected, many aren t. In a world that is constantly changing, the keys to a successful retirement strategy are resilience, consistency and flexibility. Resilience is the ability to regain your footing in the wake of challenging life events. Many of us face disruptions as we age, including divorce, the death of a spouse, unexpected illness or a period of unemployment. Through these periods of upheaval, preserving the retirement assets you have already accumulated may be the best you can do while you get back on track. Once the dust has settled, you can contribute a higher percentage of your salary than you had been to maintain your retirement savings goals. Consistency includes contributing to your retirement plan on a regular basis. Younger workers can establish a pattern by contributing as much as possible to their employer-sponsored retirement plans. Employees farther along on their career paths can find creative ways to boost contributions, such as directing raises toward retirement savings rather than giving in to the temptation to increase spending. Over the course of a career, prioritizing retirement savings translates into more retirement security. Flexibility means preparing for life events rather than reacting to them. This might include helping your child search for more scholarships and college financial aid rather than cutting back on your retirement plan contribution to help fund college costs. Or it might involve engaging in a collaborative divorce proceeding with your soon-to-be ex-spouse to minimize legal fees, preserve savings and maintain your retirement plan contribution. Tis the Season (for Overspending) Here s how to make sure the spirit of the season doesn t swamp your budget. Set a Budget: The best way to curb spending is to set a firm budget and stick to it. For some accountability, use a low-fee prepaid debit card or an app such as PayPal for all your holiday spending. Align Expectations: Talk with your spouse, kids, friends and colleagues and set reasonable spending limits. Create a List: Make a list on your phone so it s with you wherever you are shopping. Track Prices: Find the best deal with apps such as Slickdeals, Hafta Have and BuyVia, and websites such as camelcamelcamel.com. Consider using coupons and rewards programs from retailers that are available online and can be used both online or at brickand-mortar stores. Shop Early: You re likely to find better deals if you have more time. Start the process by mid-october to avoid the last-minute holiday panic. Try Secret Santa: If you re dealing with large families, groups of friends or colleagues, there s no need to break the bank with one-on-one gifting. Instead, draw names and make a fun game out of it. 3

4 TRENDWATCH How Student Loans Could Impact Your Retirement Plan Strategies for Managing Student Debt While Saving for Retirement As college becomes increasingly expensive, more employees with student loans are struggling to pay off their debt and save for the future at the same time. By failing to save enough, their long-term financial goals, such as a secure retirement, may suffer. Aon Hewitt research reveals that employees with student loans participate in employer-sponsored retirement plans at a lower rate than those without student loans 71 percent compared to 77 percent. Workers who are making student loan payments also tend to save less overall for retirement, in most cases no more than 5 percent of their paychecks. Of workers with college debt, approximately half are spending $3,000 a year or more on student loan payments. N TI O U Consolidate Student Loans TR IB Consolidating student loans may increase your payment options and eliminate paperwork headaches associated with dealing with numerous lenders. If you consolidate and decide to change your payment option, be careful not to increase your debt through a longer payment period, which may increase the amount you owe when you factor in interest. Consolidation may provide a better picture of what you owe and how long it will take to pay off your loans, providing more clarity about your overall financial situation. Then you may be able to find some room in your budget to increase your retirement contributions. O T FO R D IS Take an hour or two to go over your loan statements, credit card statements and checkbook to get a sense of where you re spending your money. Look for ongoing flexible expenses that you can either eliminate or trim. For example, you could decide to cut the cord and go with streaming services such as Netflix or Hulu, potentially saving $50 or $100 a month on cable TV. Increase Your Retirement Contribution Over Time Think about any raises, bonuses or salary increases you ve received during the past year or two and how much your regular paycheck went up as a result. Even if that amount is $25 a paycheck, directing that increase into your retirement plan instead of boosting your spending can make a big difference over time. Using that $25-per-paycheck example, if you are paid every other week, directing $25 a paycheck equals $650 a year. If your employer offers a company match, that additional contribution may be worth even more. With some careful thought and planning, it s possible to juggle paying off student loans while saving more for retirement. Track and Eliminate Unnecessary Expenses You could dedicate the savings to your retirement plan by immediately increasing the amount of your payroll deduction through your employer s online retirement savings portal. N STUDENT LOAN PREVALENCE SOURCE: STUDENT LOANS HURTING WORKERS ABILITY TO SAVE FOR RETIREMENT, AON HEWITT, OCT. 18, % 48% 28% 26% 13% All Millennials Established Millennials Emerging Millennials (Born ) (Born ) (Born ) Gen-Xers (Born ) Baby Boomers (Born ) All Employees 4

5 LIFE AND MONEY Managing Your Health Costs Regardless of what happens to the Affordable Care Act, health care costs will continue to rise and probably faster than inflation. Here s how to help keep your expenses in check during the different stages of life. STARTING OUT $1,129 Average employee-paid premium for all employer-sponsored health plans (single coverage) in $1,300 Minimum deductible to qualify as high-deductible health plan 2 Even if you seem very healthy, you shouldn t sacrifice your health care to save money. Consider low-cost solutions, such as a high-deductible health plan tied to a health savings account (HSA) or a flexible spending account (FSA) offered by your employer. HSAs and FSAs provide a tax break for all the money you contribute to them. If you don t have a regular doctor, walk-in clinics and urgent care centers can offer cost-effective convenience but make sure your health insurance plan covers them. If you need prescription drugs, consider asking for generics when they are available, and shop around to compare prices. Prescription prices can vary considerably from pharmacy to pharmacy. Also, don t forget about dental insurance. It typically covers regular check-ups and preventive care that can save you money in the long run. BUILDING UP $11,685 Average annual health care costs paid by a family of four covered by an employer-provided plan 3 8% Percentage rise in the cost of prescription drugs between 2016 and Health care costs can rise significantly as you reach middle age, especially if you have kids. Manage your family s health care spending by planning ahead and maximizing your insurance. For example, if you reach your family s $5,000 annual deductible, you may want to plan other health care visits or procedures for that year since they will be covered by your insurance after your deductible s been met. Also, review your coverage needs annually and choose a plan that will cover your family s health care most effectively. Don t forget to stay in your health plan s network whenever possible since out-of-network services generally cost more and keep an emergency savings fund for unexpected health-related costs. ENJOYING IT 65 Age you become eligible for Medicare 5 $7,620 Average annual out-of-pocket costs for Medicare beneficiaries in good health 6 Medicare is not free. Even the most basic coverage under Part A carries a deductible, and there s a monthly premium for Part B coverage. Consider a Medicare Supplement plan ( Medigap ) or Medicare Advantage plan to cover out-of-pocket expenses. Keep in mind that routine dental care, eye exams and glasses are not covered by Medicare, so you will need a separate plan to cover those services. As you get older, your health care costs will probably rise, so review your supplemental insurance coverage every year to make sure it still fits your needs Employer Health Benefits Survey, Kaiser Family Foundation, Sept. 14, High Deductible Health Plan, HealthCare.gov. 3, Milliman Medical Index, Milliman.com, May 16, Learn About Medicare, U.S. Social Security Administration. 6 Average Annual Medicare Bill in 2017: $7,620, Medicare World, Feb. 6,

6 SMART MOVES Q A Does it make sense to lease rather than buy a new car? It depends on your personal preferences and financial priorities. If you like driving a newer car with the latest features, it may make more sense to lease. Leases can cost less because many dealers offer no or low down payments along with lower monthly payments. Leased cars also come with warranties that help you save on repairs and maintenance expenses. On the downside, leasing involves ongoing monthly payments that last as long as you lease. When you purchase a car, you eventually pay the loan off. At that point, you own the car, which gives you equity in that asset something you don t get with leasing. When the lease ends, you re required to return the car in good condition and will be charged for damage beyond normal wear and tear. Leases also carry strict mileage limits, and if you exceed them, you will have to pay for the additional miles you ve driven. Finally, in the event of a change to your personal or financial situation, owning is more flexible than leasing because it is very difficult to get out of a lease. Q A Does it make sense to pay off my mortgage early? Paying off a mortgage early can save thousands of dollars in interest over the course of a 30-year loan. If you are near retirement and close to paying off your mortgage, making those last few payments can free up funds to support your retirement lifestyle. While many homeowners do receive the mortgage interest tax deduction, the amount of that deduction is usually far less than the mortgage interest they are paying. If you value peace of mind and are not comfortable with the idea of making monthly payments for a long period of time, it can make sense to pay off your mortgage. However, an early payoff may not be smart if it causes you to skimp on other priorities, such as saving for retirement. Contributing as much as possible to your employer-sponsored retirement plan offers many tax advantages and may also include a company match. Those savings add up over time, providing more monthly income in retirement. Also, if your mortgage has a low interest rate, you may be able to earn more from investing than you ll save by paying off your mortgage early. Finally, if you are considering moving within the next few years, it may be better to continue making regular mortgage payments, since you can t be sure what your house will be worth when you sell. You ll need to evaluate your situation and decide what makes sense for you. Consider discussing this decision with your financial advisor if you have one. This newsletter does not provide, nor is it intended to provide legal, tax or financial advice. Further, Alight Solutions LLC does not endorse any of the companies or their respective services referenced herein. IIYF