The Retirement Mindgame

The Retirement Mindgame

Your outlook may influence your financial outcome.

Provided by Jose Medina 

What kind of retirement do you think you’ll have? Qualitatively speaking, what if the success or failure of your retirement begins with your perception of retirement?

A whole field of study has emerged on the psychology of saving, spending, and investing: behavioral finance.  Since retirement saving is a behavior (and since other behaviors influence it), it is worth considering ways to adjust behavior and presumptions to encourage a better retirement.

Delayed gratification or instant gratification? Financially speaking, retiring earlier has its drawbacks and may lead you into the next phase of your life with less income and savings.

If you don’t love what you do for a living, you may see only the downside of working longer rather than the potential boost it could provide to your retirement planning (i.e., claiming Social Security later or tapping retirement account balances later and letting them compound more). If you see work as a daily set of unfulfilling tasks and retirement as an endless Saturday, Saturday will win out, and your mindset will lead you to retire earlier with less money.

On the other hand, if you change your outlook to associate working longer with retiring more comfortably, you may leave work later with a bigger retirement nest egg – and who wouldn’t want that?

If you don’t earmark 66 or 70 as your retirement year, you can become that much more susceptible to retiring as soon as possible. You’re 62, you can get Social Security; who cares if you get less money than you get at 66 or 70 if it’s available now?

Resist that temptation if you can. While some retirees claim Social Security at age 62 out of necessity, others do out of inclination, perhaps not realizing that inflation pressures and long-term care costs may render that a poor decision in the long run.

Social Security wants you to wait until you reach what it calls Full Retirement Age (FRA) to claim your benefits. For those born after 1942, FRA is 66, 67, or somewhere in between. When you take benefits earlier than that, your monthly benefit payments are reduced by as much as 25%. That reduction is permanent.1

Some people are misinformed about this. In a 2017 Fidelity Investments poll, 38% of respondents thought the reduction was temporary and that their monthly benefits would suddenly increase when they reached their FRA.2

Setting a target age for retirement – say, 65, 66, or even 70 – before you turn 60 can help mentally encourage you to keep working to that age. Providing your health and employment hold up and you can work longer, patience can lead you to have more Social Security income rather than less.   

Take a step back from your own experience. For some perspective on what your retirement might be like, consider the lives of others. You undoubtedly know some retirees; think about how their retirements have gone. Who planned well, and who didn’t? What happened that was unexpected? Financial professionals and other consultants to retirees can also share input, as they have seen numerous retirements unfold.

Reduce your debt. Rather than assume new consumer debts, which advertisers encourage us to take on, commensurate with salary and career growth, pay down your debts as best you can with the outlook that you are leaving yourself more money for the future (or for unexpected situations).

Save and invest consistently. See if you can increase your savings rate on the way toward retirement. Don’t look at it as stripping money out of your present. Look at it as paying yourself first on behalf of your future.

Jose Medina may be reached at 469-777-8082 or info@medinaadvising.com. Click Subscribe to receive our newsletter that includes financial tips and tools from financial gurus. Subscribe.

http://www.medinaadvising.com

This material was prepared for J I Medina Investments and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – gobankingrates.com/investing/mistakes-even-smart-people-make-retirement/ [1/8/18]

2 – fool.com/retirement/2017/12/14/why-do-so-many-people-claim-social-security-at-62.aspx [12/14/17]

Why A Financial Professional Matters.

Why Having a Financial Professional Matters

A good professional provides important guidance and insight through the years.

Provided by Jose Medina

What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long lasting.

A good financial professional can help an investor interpret today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncounseled investor may make self-defeating decisions.

Some investors never turn to a financial professional. They concede that there might be some value in maintaining such a relationship, but they ultimately decide to go it alone. That may be a mistake.

No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. In long bull markets, investors risk becoming overconfident. The big-picture narrative of Wall Street can be forgotten, along with the reality that the market has occasional bad years.

This is when irrational exuberance creeps in. A sudden market shock may lead an investor into other irrational behaviors. Perhaps stocks sink rapidly, and an investor realizes (too late) that a portfolio is overweight in equities. Or, perhaps an investor panics during a correction, selling low only to buy high after the market rebounds.

Often, investors grow impatient and try to time the market. Poor market timing may explain this divergence: according to investment research firm DALBAR, the S&P 500 returned an average of 8.91% annually across the 20 years ending on December 31, 2015, while the average equity investor’s portfolio returned just 4.67% per year.1                

The other risk is that of financial nearsightedness. When an investor flies solo, chasing yield and “making money” too often become the top pursuits. The thinking is short term. 

A good financial professional helps a committed investor and retirement saver stay on track. He or she helps the investor set a course for the long term, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount.

As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional explains the subtleties of investment classes and how potential risk often relates to potential reward. Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life. 

This is the value a financial professional brings to the table. You cannot quantify it in dollar terms, but you can certainly appreciate it over time.    

Jose Medina may be reached at 469-777-8082 or info@medinaadvising.com.

http://www.medinaadvising.com

This material was prepared for J I Medina Investments and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.     

Citations.

1 – zacksim.com/heres-investors-underperform-market/ [5/22/17]

Managing Student Loan Debt

Managing Student Loan Debt

 A review of some options for federal and private loans.

Provided by Jose Medina 

Are you dealing with student loan debt? Have you explored ways to try and restructure it or have it forgiven?

No one wants to carry five figures of education debt into middle age or retirement, but some do. The burden is not just financial. Last fall, the Madison Capital Times asked student loan borrowers in the state of Wisconsin how they felt about their education debt. Sixteen percent said they were “terrified” of it, and another 30% indicated they felt only slightly less so. Fortunately, you may have possibilities to manage and reduce the debt load and the anxiety it breeds.1

For a better chance of refinancing a student loan, lift your credit score. The average credit score for borrowers able to refi in 2017 was 764, according to online education loan marketplace LendEDU. A 764 score means you have excellent credit; 850 is as high as you can go, and 700 is considered an “average” FICO score. If you are offered new terms, you may or may not like them; LendEDU says that the average interest rate on a newly refinanced loan last year was 5.56%.2

It is hard to arrange new terms of payment; LendEDU reports that more than half of student loan borrowers who applied for a refi in 2017 were turned down. Some borrowers reject the refinancing offers they get. In about 25% of states, you can also approach state refinance authorities, which tend to set the bar lower for qualifying credit scores. Keep in mind that if you refinance a federal loan, you may lose eligibility for an income-driven repayment plan that limits your monthly payment to 10-20% of your discretionary income.2,3

If refinancing is not possible, consider both common and unusual financial options. You could find a new job, one at which you can negotiate a higher salary than you now earn (in this economy, that might not be so difficult). Ask for a raise from your current employer. Sell things or freelance as a path to generating extra cash you can apply to your loans. Alternately, find the cash through frugality. Go car free, room with someone, sublet your apartment, or downsize to a less expensive residence. Think outside the box: would it be cheaper, better, and more fun to live in another country? Could you get a job that pays your rent for you?

Can your loan be forgiven? The channel the federal government offers toward student loan forgiveness is not for everyone. The Public Service Loan Forgiveness (PSLF) program asks you to work for a non-profit, in a public service capacity, for ten years. Some borrowers look at those conditions and see career and salary compromises they are unwilling to make.4

If you have no interest in working in the non-profit sector, there are possible paths toward federal student loan forgiveness apart from the PSLF. Some states have their own payment assistance programs, some of which require less than five years of work for eligibility. Sometimes the assistance depends on the borrower moving to a rural community within the state or pursuing a STEM, medical, or educational career.4

Can you go to work for a big company? If you do, your employer might be willing to help. A small percentage of corporations are matching the student loan payments their employees make. Others are offering workers $1,200-$2,000 a year to apply toward repayments.4

Those who serve in the Army, Navy, Air Force, and National Guard can potentially take advantage of student loan forgiveness programs within those service branches. The Army’s Student Loan Repayment Program (SLRP) can put as much as $65,000 toward repayment of an active-duty soldier’s education loans. Veterans may also find themselves eligible for these programs.4

Teachers can also pursue Teacher Loan Forgiveness (TLF). Through this federal program, you can arrange to have as much as $17,500 in federal education loans waived once you have taught math or science for five years at the high school level or special education classes for five years at any grade level. You must work for an educational services agency or teach at a school where students are primarily low income to be eligible for TLF.4

There is one inescapable fact about all this: eradicating student loan debt takes time. You may live with that debt for a decade or longer; the good news is, you can save, invest, and plan to build wealth even while carrying such debt. Be sure to talk with a financial professional about that possibility.

Jose Medina may be reached at 469-777-8082 or info@medinaadvising.com.

http://www.medinaadvising.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/y72vtnp2 [1/8/18]

2 – time.com/money/5104919/average-credit-score-student-loan-refinancing/ [1/17/18]

3 – studentloanhero.com/featured/strategies-broke-cant-pay-your-student-loans/ [6/22/17]

4 – forbes.com/sites/andrewjosuweit/2018/01/31/5-ways-you-can-get-student-loan-forgiveness-that-dont-involve-public-service/ [1/31/18]

 

Good Reasons to Retire Later

                                             Good Reasons to Retire Later                                     

                                   Working longer might work out well for you.

Provided by Jose Medina

 Are you in your fifties and unsure if you have enough retirement savings? Then you have two basic financial choices. You could start saving and investing more of your pay than you currently do, or you could work longer so you have fewer years of retirement to fund.

 That second choice might be more manageable, and it may also work out better financially.

Research suggests that working longer might be a good way to address this shortfall. Last month, the National Bureau of Economic Research (NBER) published a paper on this very topic, and its conclusions are significant. The four economists writing the report maintain that when you reach your mid-sixties, staying on the job just one more year could help you greatly. Waiting a little longer to file for Social Security also becomes a plus.1

What was the most noteworthy finding? By the time you are 66, staying on the job just an additional three to six months will do as much for your standard of living in retirement as if you had contributed 1% more to your retirement plan for 30 years.1

Here is an example from the report, with an asterisk attached. A 66-year-old who has directed 9% of their earnings into an employee retirement plan during the length of their career retires. Had they simply put 10% of their pay per year into that retirement plan rather than 9%, they would have retired with 11.11% more money in that account.1

If they work for another year, retire at 67 and file for Social Security benefits at 67, they may put themselves in a better financial position. In this simple example, Social Security benefits would constitute the other 81% of their retirement income. They are just slightly past their Full Retirement Age as defined by Social Security, so by retiring at 67, they receive 108% of the monthly Social Security benefit they would have received at 66.1,2

The asterisk in this scenario is the outlook for Social Security. In the future, will Social Security benefits be reduced? That possibility exists.

Working full time until age 67 may be a tall order for some of us. Right now, only about a third of American workers retire after age 65; about a fifth retire at age 60 or younger. Perhaps the ambitious, energetic baby boom generation will alter those percentages.3

Working one or two more years may be worthwhile for several reasons. Your invested assets have one or two more years to compound before potentially being drawn down – and when assets have grown for decades, even a year of compounding is highly significant. If you have $350,000 growing at 6% annually in a retirement fund, waiting just a year will enlarge that sum by $21,000 and waiting five more years will leave it $118,000 larger – and this is without any inflows.3

Spending another year on the job may help you become fully vested in a pension plan, and it also positions you to receive greater Social Security payments (assuming you are currently 62 or older). Wait until age 65 to retire, and you can leave work without having to worry about buying health insurance – Medicare is right there for you. You also keep your mind active by working longer, and you maintain the friendships you have made through your career or workplace.3

Retire later, and you may do yourself a financial favor. Consider the idea, and be sure to consult with the financial professional you know and trust today regarding your retirement prospects.

Jose Medina may be reached at 469-777-8082 or info@medinaadvising.com.

http://www.medinaadvising.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – marketwatch.com/story/you-may-want-to-work-longer-heres-why-2018-01-22/ [1/22/18]

2 – bloomberg.com/view/articles/2018-01-23/the-remarkable-financial-benefits-of-delaying-retirement [1/23/18]

3 – fool.com/retirement/2017/04/23/5-benefits-of-delaying-retirement.aspx [4/23/17]