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By Jane Bennett ClarkSee my bio, plus links to all my recent stories., From Kiplinger’s Personal Finance, October 2014
Read the headlines about retirement readiness and you’d think that at least half of us had forgotten to go to class, do our homework or study for one of the biggest tests of our lives. When exam day arrives, we’re totally unprepared.

But what if it’s just a bad dream and we wake up to find that we are on track after all?

In fact, researchers are suggesting that assessments of Americans’ retirement readiness are too dire and that most of us are in pretty decent shape. How so? Some studies underestimate people’s ability to catch up on saving after the kids are grown or overstate the level of income workers need to replace in retirement, says a report by Sylvester Schieber, the former chairman of the Social Security Advisory Board, and Gaobo Pang, of benefits consulting firm Towers Watson. Others neglect to factor in resources outside of employer-based retirement plans, such as IRAs and home equity, or the relatively high benefits that Social Security pays low-wage earners.

Part of the disconnect is that retirement benchmarks are created for large segments of the workforce rather than individuals, says Schieber. “If you’re designing a plan that’s trying to cover 10,000 people or even 1,000 people, you’re going to have to make some assumptions about how they behave. But every household’s circumstances are different.” Families whose situations don’t fit the assumptions, he says, “can’t rely on that rule of thumb for a road map to success.”

No one disputes that some portion of the population—maybe 20%—will arrive at retirement vastly unprepared. “Those are households with lower wages and lower levels of education who have struggled with basic savings skills, or people who have suffered terrible economic hardships,” says Stephen Utkus, director of the Vanguard Center for Retirement Research. But overall, the black-and-white, ready-or-not assessments of past years have given way to “a more nuanced view of preparedness,” he says. “You have to look under the covers—it’s person by person.”

Taking a closer look is key to your own retirement planning. Before you conclude that you’ve fallen short of the mark or that you don’t dare spend an extra dime of your retirement funds for fear of running out, decide what you really need based on your own finances and expectations.

Calibrate your saving

You’ve probably already gotten the memo to stash 10% to 15% of your annual income (including any employer match) in your retirement account, starting with the first month of your career and ending with the last. That strategy not only lets you take advantage of the magic of compounding (a no-brainer way to build savings), but it also encourages the habit of saving and keeps your contribution level in step with pay raises. At the end of a 40-year career, you should have enough in the kitty to see you safely through a 25- or 30-year retirement.

Straightforward as the plan may be, however, it fails to acknowledge the bumps and potholes that inevitably show up on the path from young adulthood to retirement age. Kids constitute a major detour, says Schieber. “People who have a child are probably going to be consuming differently and saving differently than if they don’t have children and don’t intend to have children,” he says. Other savings off-ramps include buying a house, paying off student debt and suffering a job loss.

How to choose between setting aside money for, say, college or a house and saving for retirement? “When I talk to people who say they are going to stop saving for retirement and start saving for college, I suggest they adjust downward, not stop,” says Utkus. Easing up on retirement savings for a few years shouldn’t slow you down too much if you’ve fueled your accounts early on.

Eventually, kids grow up, mortgages get paid off, and income rises. By the time you’re in your mid fifties, you may be able to free up 20% or more of your annual income for retirement savings. And once you hit 50, you can make an annual catch-up contribution of $5,500 to your 401(k) in addition to your maximum annual contribution ($17,500). You can also add $1,000 to your IRA on top of the annual max of $5,500.

Still, keep in mind that a late-life crisis, such as a health problem or forced retirement, could affect or even destroy your ability to recoup. Letting your savings grow over time remains the recipe for retirement readiness, says Thomas Duffy, a certified financial planner in Shrewsbury, N.J. “When you make tomato sauce, you have to let it simmer. Money’s the same way.”

Assess your target

Retirement planners generally recommend that you have enough savings at the end of your working life to replace 70% to 85% of preretirement income. The targets take into account that you’ll no longer be saving for retirement, getting dinged for payroll taxes or covering work-related expenses, such as commuting costs. To get you to an 85% replacement ratio, Fidelity recommends that you save eight times your final salary, minus Social Security and any pensions.

Some planners go further, suggesting that you aim to replace 100% of your preretirement income, on the theory that what you’ll save in some categories, you’ll spend in others. “Even if you’re not paying payroll taxes, that cost will likely be offset by a new hobby or travel. Or if you’re staying at home more, you’ll want to remodel. There always seems to be something,” says Leslie Thompson, a managing principal at Spectrum Management Group in Indianapolis, which advises clients on retirement planning.

But maybe your hobby involves reading by the fire, not skiing in Vail. Or maybe your mortgage will be paid off, or you’ll move to an area where the cost of living is much lower than where you are now. Given that your biggest spending years are when you’re raising kids, you might get along just fine with 60% of your preretirement income. A recent survey by T. Rowe Price showed that three years into retirement, respondents were living on 66% of their preretirement income, on average, and most reported that they were living as well as or better than when they were working. If you scrimp to meet a benchmark designed for somebody else, “you could be over-saving now and shorting your current lifestyle,” says Duffy.

Then there’s a retirement asset you are likely to have in abundance: time. Maureen McLeod of Lake Como, Pa., retired last year from her job as a professor at Commonwealth Medical College, in Scranton. Now, she says, “my husband and I don’t eat out as much, by choice. At the grocery store, I shop around a little more and compare prices, so I’m spending less on food. We’re not so rushed.” The fresh sushi she routinely picked up during the workweek? She buys it once a week, on senior discount day.

McLeod’s experience echoes research done by Erik Hurst, of the University of Chicago, and Mark Aguiar, of Princeton University. They report that people save on food costs in retirement not because they are eating less or buying hamburger instead of steak but because they have more time to compare prices and prepare meals. The time payoff extends to other activities, such as shopping for travel bargains or taking on household chores you might once have paid someone else to do.

Crunch your own numbers

To get a handle on how you’ll spend your time and money in retirement, make a detailed analysis of what your expenses are now, says David Giegerich, a managing partner of Paradigm Wealth Management, in Bridgewater, N.J. He recommends starting the process about five years before you turn in your office keys. “In the first two years, don’t try to clip coupons, and don’t stop going out to dinner,” he says. “Live your life so you can get a realistic picture of what you’re really spending.”

Among the obvious expenses: housing, utilities, food, gas, clothing and entertainment. The not-so-obvious? “Even if you retire your mortgage, you still have to pay property taxes and homeowners insurance,” says Thompson. Other off-the-radar expenses include annual payments for insurance premiums and future big outlays for, say, a new car or a major trip. “People say, ‘This is a one-time-only thing.’ But there tend to be a lot of one-time-only things,” says Thompson.

Add up health costs

One expense that won’t go down in retirement is health care. In 2012, premiums and other out-of-pocket expenses represented 14% of household budgets for Medicare enrollees, according to the Kaiser Family Foundation—almost three times the health spending of non-Medicare households. Fidelity estimates that a couple who retire at 65 will need an average of $220,000 to cover out-of-pocket health expenses, not including the cost of long-term care.

But hold the panic attack. Fidelity’s number represents the total a 65-year-old retired couple might pay over their average life expectancy (82 for the man, 85 for the woman). It is not the amount they would need on day one of retirement. Most retirees with health coverage spend about $5,000 a year (or $10,000 per couple) on Medicare and medigap premiums and other out-of-pocket expenses. That’s not peanuts, but the cost is factored into your salary-replacement ratio. You aren’t tasked with saving an additional $220,000 on top of it. And health care expenses aren’t unique to retirement. You probably devote a significant part of your budget to those costs now.

The first step in doing your own cost calculation is to review your health coverage. If you’ll have retiree health benefits from a former employer, you’re lucky—those benefits are increasingly rare. Most retirees rely on Medicare, including Part A for in-patient hospitalization and Part B for doctor visits; many also buy Part D policies for prescription drugs and a medigap policy to fill holes in Medicare coverage. Dental and vision care are among the expenses for which you’ll have to buy separate insurance or pay out of pocket.

That’s also true of long-term care. Medicare covers very little of this expense, so if you don’t have long-term-care insurance, consider buying it. Pricey and imperfect, it nonetheless provides some protection against one of the biggest potential financial shocks in retirement. The median annual rate for a private room in a nursing home is $87,600, according to the Genworth 2014 Cost of Care survey. The median annual cost for assisted living is $42,000. (See Options for Covering Long-Term-Care Costs.)

While you’re taking stock, also consider your health status and life expectancy. Chronic conditions, including cancer, can mean that you’ll pay much more than the average out-of-pocket amount over your lifetime. Ironically, robust health exacts its own price. “Some people think, I’m healthier than average, so maybe my health care costs will be smaller,” says Bill Hunter, director of Personal Retirement Strategy and Solutions at Bank of America Merrill Lynch. “But the danger is, healthier people live longer, so they’re paying those premiums for a longer time.”

Where you live also plays into your retirement math problem. Premiums for policies that supplement Medicare, and for Medicare Part D prescription-drug coverage, vary according to coverage level, the part of the country you live in and the companies offering them. (To see the range of plans and costs in your area, go to the Medicare Plan Finder.)

Expect to bring in a decent income in retirement? If your modified adjusted gross income was more than $170,000 (for married couples filing jointly) or $85,000 (single filers) in 2012, this year you’d generally pay a monthly surcharge that raises the Part B premium from about $105 a month to as much as $336. For Part D, the surcharge adds up to about $70 a month to the premium in 2014.

Calculate withdrawals

Arriving in retirement with a big stash of cash presents yet another conundrum: How much can you withdraw each year without running out of money? Two decades ago, financial planner William Bengen addressed that question, running scenarios that used a diversified portfolio of 50% stocks and 50% bonds. His conclusion: If you withdraw 4% in your first year of retirement and take the same dollar amount, adjusted for inflation, every year thereafter, you should have money left in your account after 30 years.

Many retirement planners still rely on that formula, not only because it has generally worked over time but also because it helps new retirees manage their wealth. “People say, ‘We have $1 million. We’re millionaires. We can spend whatever we want.’ The reality is, if you spend 10% a year, you have a high likelihood of running out of money well before your nineties,” says Stuart Ritter, a vice-president of T. Rowe Price Investment Services.

On the other side, diligent savers can be too conservative when it comes to tapping their accounts. “If you spend only 1% of your assets a year, forget about visiting your grandkids—you’re never leaving your house,” says Ritter. The 4% rule strikes a middle ground, he says. “It gives people a starting point.”

That said, benchmarks designed to take the long view don’t turn on a dime based on the current investment climate. Retire in a bear market and you could cripple your portfolio by taking that initial 4%; retire at the beginning of a bull run and a few years in you might safely bump your withdrawal to 5%. Retirees who are invested mostly in bonds might be better off starting with a withdrawal of 3% or less in this low-interest-rate environment. Retirees who are heavily in stocks should be mindful of potential corrections when they set their withdrawal strategy; if stock prices appear to be at their peak, you might want to take a smaller percentage to hedge against a future downturn.

Rather than blindly follow any benchmark, use it as the basis for devising your own plan, says Thompson, either on your own or with help. Betterment.com, an online investment service, gives its clients a tool that lets them tailor their withdrawal strategy to their goals and risk tolerance. Says product manager Alex Benke, “You can specify a lifetime horizon, and if you want a very high chance of success in terms of having your money live as long as you do, we’ll tell you over that amount of time how much you can safely withdraw from your account.” Betterment recommends that clients check in on the plan once a year. “As the variables change,” says Benke, “the advice changes.”

What if you wake up on the first day of retirement and discover you got a few things wrong after all? You’ll adjust, says Utkus. A standard of living that substitutes weekend getaways for lavish trips, and dinner out once a week instead of twice, “may actually be quite satisfying. I’m talking about people who can meet basic living costs and are thinking about how they manage the rest of their budget.”

Also remember that no one strategy or formula represents the complete solution, says Giegerich. “Retirement planning is a blending. It’s a symphony, not just the horn section.”

 

 

Robo advisers offer some advantages, but the most comprehensive financial guidance still requires human touch.

By Jan Blakeley Holman,  from Thornburg Investment Management | June 2016

A new online investment service promises to provide all consumers with low-cost expert investment portfolio management. Known as robo advisers, digital advisers and online advisers, these groups offer fully automated, low-cost, low-touch, algorithm-driven professional portfolio management.

For years, the financial services industry made all of the rules when it came to investing. If consumers wanted to assess their financial situations, determine appropriate investments, or buy and sell securities, they had to work with a financial professional. In the late 1990s, advancing technology opened the financial floodgates, and everything changed. For the first time, without the involvement of a financial adviser, consumers could easily access company information, the industry’s best investment research and trade securities economically. For some consumers, it was the answer they were looking for. Suddenly they had all of the necessary information at their fingertips; they could save money and choose not to share their intimate financial information with anyone.

When it comes to investing, individuals who do it themselves are a unique breed. Some are very knowledgeable; some are confident enough to make their own investment decisions; some are thrifty; and some are too arrogant to ask for help. But the do-it-yourself approach doesn’t work for everyone, and the majority of consumers feel more secure when working with a knowledgeable industry professional.

Do robo advisers offer the best of both worlds?

According to the firms offering these automated services, in today’s world expert investment guidance and competitive investment performance are commodities. They do not require human intervention, can be delegated to a computer and cost much less than a financial adviser. The process is simple: A consumer begins by filling out an online questionnaire that asks questions about their goals, financial situation and experience. Once that’s finished, the firm’s computer does the work of matching the individual’s investment resources, goals and risk tolerance to one of its model portfolios. If the consumer likes what she or he sees, the money is transferred, the investments are made on behalf of the individual, and the portfolio is managed. At last, these investment management firms suggest, consumers have a way to get expert portfolio management without having to choose between doing it themselves or hiring a financial adviser. Who could ask for anything more?

As it turns out, most of us.

Why financial advisers are critical

There’s no question that low-touch portfolio management will work for some, but for the vast majority of consumers, hiring a financial adviser still makes sense because:

1. Financial advisers do much more than manage investment portfolios.

Unlike the “investment brokers” of the past who only bought and sold stocks and bonds, today’s financial advisers provide a broad array of services, including goal setting, financial planning, insurance planning, investment planning, estate planning and legacy planning. Online money managers focus solely on managing investment portfolios, which makes their work somewhat one-dimensional.

2. Investing is grounded in science, but at its best, investing is an art.

Gathering economic, market and investment-related information and data; determining an investor’s resources; gauging risk tolerance and computing cash flow needs are variables that influence investment decisions, but they do not represent the entire investment process. The best investment plans integrate the scientific, data-driven strategy with the artistic flair that the financial adviser has developed from his or her years of experience, knowledge of what it takes to achieve goals and understanding of human beings, their motivation and emotions.

3. By definition, advice requires opinion and counsel.

Advice is defined as “an opinion about what could or should be done about a situation or problem; counsel.”

While market and investment opinions are readily available from a variety of sources—such as the media, the Internet, well-meaning relatives and all-knowing friends at a cocktail party—counsel is formal guidance that is delivered by a human being, not a computer. Computers are wonderful, but no computer on Earth can do what financial advisers do best: protect their clients from themselves and their emotions by calming them when life transitions throw them off-course and managing their anxiety during market downturns.

Many think of investing as a purely intellectual exercise. Intellectually, the case for investing in financial assets makes perfect sense. Our intellect, the rational mind, understands that over the long-term, investors have been rewarded for investing in stocks and bonds, staying the course and remaining invested for 10, 20 or 30 years.

Unfortunately, when markets are volatile and news is gloomy, that intellectual exercise becomes an intestinal challenge. When money is at stake, human beings become emotional and anxious. Emotions and anxiety trigger our most primitive instinct of “fight or flight,” and when that happens, we make decisions that are not in our best interest, such as selling investments into declining markets.

Consumers benefit most when they form a relationship with and receive human counsel from a financial adviser. Despite what the robo advisers say, there is never one answer, never one size that fits all. When the dust settles, it’s likely that investors will reap the rewards of technological advances in portfolio management by working with experienced financial advisers who use algorithm-driven portfolio management tools to benefit their clients.

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When you hear the words “retirement destination,” places in Arizona and Florida probably spring to mind. But broaden your horizons, and you can find plenty of other great options all across the country.

The following 15 spots may not be popular with retirees now—but contrarian living comes with benefits. Some of these places may offer tax breaks or other perks to try and lure in more older residents. Plus, the existing younger crowds might help keep you young and active.

By Stacy Rapacon,
15 Surprising Places You Never Considered for Retirement

Juneau, Alaska

Cost of living for retirees: 32.6% above U.S. average

Share of population 65+: 8.4% (U.S.: 14.5%)

Alaska’s tax rating for retirees: Most Tax-Friendly

Lifetime health care costs for a retired couple: Above average at $426,047 (U.S.: $394,954)

Seniors don’t seem too interested in facing the Last Frontier in retirement. Only 7.7% of the entire state’s population is age 65 and older. But if you crave adventure—and don’t mind long winters and vast swaths of wilderness—it pays to live in Alaska. Literally. The state’s oil wealth savings account gives all permanent residents an annual dividend. In 2015, the payout was $2,072 per person. Plus, Alaska has no state income tax or sales tax (although municipalities may levy a local sales tax), and the state doesn’t tax Social Security or other retirement benefits. No wonder Alaska ranks as the most tax-friendly state for retirees.

The capital city offers seniors an additional tax perk. For $20, residents age 65 and older can purchase a card that exempts them from the local 5% sales tax. It entitles you to free bus rides, too. Naturally, Juneau offers endless outdoor activities, from kayaking to whale watching, as well as a charming downtown.

SEE ALSO: Great Places to Retire in All 50 States

Juneau, Alaska

Boise, Idaho

Cost of living for retirees: 7.3% below U.S. average

Share of population 65+: 11.2%

Idaho’s tax rating for retirees: Mixed

Lifetime health care costs for a retired couple: Below average at $366,449

Boise is a great college town for your retirement. Boise State University provides plenty of intellectual stimulation to help keep an aging mind sharp. Its Velma V. Morrison Center for the Performing Arts hosts symphony concerts, dance performances and Broadway shows. You can also take classes at the school through the Osher Lifelong Learning Institute; membership costs $70 for a year.

Off campus, you can walk, run or bike the more than 20 miles of paved trails of the Boise River Greenbelt. Other outdoor activities to enjoy around the area include kayaking, boating, fly-fishing, golfing and skiing, just to name a few.

Boise, Idaho

Des Moines, Iowa

Cost of living for retirees: 9.1% below U.S. average

Share of population 65+: 11.0%

Iowa’s tax rating for retirees: Mixed

Lifetime health care costs for a retired couple: Below average at $372,712

There are retirement destinations of all sizes to choose from in Iowa, one of our 10 best states for retirement. For retirees looking to live in a big city on a small budget, Des Moines is a good choice. Affordability is just one reason the Milken Institute ranked the state capital seventh out of 100 large U.S. metro areas for successful aging. Des Moines also boasts a strong economy, numerous museums and arts venues, and plenty of health care facilities specializing in aging-related services.

Des Moines, Iowa

Bangor, Maine

Cost of living for retirees: not available

Share of population 65+: 14.4%

Maine’s tax rating for retirees: Not Tax-Friendly

Lifetime health care costs for a retired couple: Below average at $372,692

The cold never bothered you anyway? Then Bangor is a lovely retirement destination. The area’s great outdoors offer cross-country skiing and snowshoeing, as well as dog-sledding and snowmobiling. In the warmer months, the same trails can be used for walking, hiking or biking. And the waterfront along the Penobscot River is home to the annual American Folk Festival, as well as other concerts during the summer. Plus, despite being home to the King of Horror, Stephen King, you have little to fear in Bangor—there were only 55 violent crimes reported in 2014. That’s just 168.8 per 100,000 residents, compared with the national rate of 365.5, according to the FBI.

While the Pine Tree State can be painfully pricey, the relatively small city (population: 33,000) is more affordable than other well-known areas such as Kennebunkport (where the wealthy Bush clan has a compound) and Mount Desert (a favorite of the Rockefellers). The median home value in Bangor is $145,400, compared with $174,500 for the state and $176,700 for the U.S.

Bangor, Maine

Rochester, Minnesota

Cost of living for retirees: not available

Share of population 65+: 12.7%

Minnesota’s tax rating for retirees: Least Tax-Friendly

Lifetime health care costs for a retired couple: Above average at $403,562

If the cold winters and equally harsh tax situation don’t put you off of the North Star State, Rochester is a great place to retire. In fact, the Milken Institute rates it as the seventh-best small metro area for successful aging. It offers an abundance of health care providers, including the renowned Mayo Clinic; hospital units specializing in Alzheimer’s; and top-rated nursing homes. The local population also exhibits a healthy lifestyle, with long life expectancies and low obesity rates.

Housing costs won’t wipe out your nest egg. The median home value in Rochester of $163,700 is below the national median of $176,700 and the state median of $187,900.

Rochester, Minnesota

Columbia, Missouri

Cost of living for retirees: 4.8% below U.S. average

Share of population 65+: 8.5%

Missouri’s tax rating for retirees: Mixed

Lifetime health care costs for a retired couple: Below average at $370,190

Columbia is a great place to retire, due in large part to the three colleges that call it home. The University of Missouri, Columbia College and Stephens College bring sporting events, concerts and other artistic and cultural entertainments to the city. You’ll also find no shortage of bookstores, shops and restaurants around town. Adults age 50 and older can take courses through Mizzou’s Osher Lifelong Learning Institute; the cost is $80 for each eight-week class in the spring and fall.

The city’s top-rated hospitals and health care services are another big advantage, and they’re a big reason the Milken Institute ranking Columbia the third best small metro area for successful aging. Plus, the care is relatively affordable. For example, the median annual rate for one bedroom in an assisted-living facility is $35,640 in Columbia, less than the national median of $43,200, but more than the $30,300 median for the state. Housing costs for retirees are 13.3% below the national average.

Columbia, Missouri

Bismarck, North Dakota

Cost of living for retirees: 0.8% above U.S. average

Share of population 65+: 15.4%

North Dakota’s tax rating for retirees: Not Tax-Friendly

Lifetime health care costs for a retired couple: Below average at $372,433

The capital of the Peace Garden State offers a strong economy that allows your retirement to bloom. Especially if you’re considering an encore career, Bismarck is a good choice. It boasts employment opportunities for older adults, particularly in the service sector. For this reason, as well as the robust presence of quality health care, the Milken Institute ranks the city the fourth best small metro area in the country for successful aging.

If you’re hoping for a more leisurely retirement, there are a number of biking and hiking trails and parks around the city, as well as on the banks of the Missouri River. You can also enjoy cruising, boating, kayaking and canoeing the river during warmer months. Living costs are on par with the national averages but pricier than most of the rest of the state. The median home value in Bismarck is $163,900, while the rest of the state sports a $132,400 median. A one-bedroom occupancy in a local assisted-living facility costs a median $41,010 a year, compared with $43,200 for the U.S. and $38,865 for North Dakota, according to Genworth.

Tulsa, Oklahoma

Cost of living for retirees: 11.6% below U.S. average

Share of population 65+: 12.5%

Oklahoma’s tax rating for retirees: Tax-Friendly

Lifetime health care costs for a retired couple: Below average at $379,464

Tulsa is a very affordable big city. With a population nearing 400,000, it’s the second largest city in the Sooner State, behind Oklahoma City. But the living costs are small; for retirees, bills for everything from groceries to health care fall below average. Housing-related costs for retirees are particularly affordable, at 34.9% below average. The median home value is $122,200, well below the nation’s median of $176,700. A private room in a nursing home costs a median $64,788 a year, compared with a median annual $91,250 for the U.S., according to Genworth.

The area also offers plenty of amenities. For active retirees, there are 23 public golf courses, 135 tennis courts, 50 miles of biking and running trails along the Tulsa River, and more hiking trails on Turkey Mountain. There are also lots of dining and shopping options around town, as well as galleries, museums and theaters, including the Tulsa Art Deco Museum, Woody Guthrie Center and the Tulsa Performing Arts Center downtown. High crime rates for the city are notable but tend to be concentrated in the north side; areas of midtown and downtown offer more safety.

SEE ALSO: Great Places to Retire in All 50 States

Pittsburgh, Pennsylvania

Cost of living for retirees: 0.3% above U.S. average

Share of population 65+: 13.8%

Pennsylvania’s tax rating for retirees: Tax-Friendly

Lifetime health care costs for a retired couple: About average at $390,204

The Steel City is a good deal for retirees. Overall living costs are on par with the national average, and the median home value is just $89,400, compared with $164,700 for the state and $176,700 for the nation. Plus, the Keystone State offers some nice tax breaks for retirees—Social Security benefits and most other retirement income are not subject to state taxes.

Despite being light on costs, Pittsburgh is still heavy on attractions. (It’s one of our picks for cheapest places where you’ll want to retire.) You can enjoy the Andy Warhol Museum, the Pittsburgh Ballet Theatre, a plethora of jazz joints and all the offerings of local universities, which include Duquesne, Carnegie Mellon and the University of Pittsburgh. And if watching all the collegiate and professional sports isn’t enough activity for you, you have plenty of opportunities nearby to golf, hunt, fish, bike, hike and boat.

Sioux Falls, South Dakota

Cost of living for retirees: 5.8% below U.S. average

Share of population 65+: 10.9%

South Dakota’s tax rating for retirees: Most Tax-Friendly

Lifetime health care costs for a retired couple: Below average at $370,154

If you’ve never considered moving to South Dakota, perhaps you should. For one thing, it’s really easy to avoid crowds there. The entire Mount Rushmore State is home to fewer than 900,000 people, or 10.7 people per square mile. (By comparison, New Jersey, the most densely populated state, holds 1,195.5 people per square mile.) But Sioux Falls is filled with advantages, including a booming economy, low unemployment and hospitals specializing in geriatric services. For all these reasons, plus the city’s recreational activities (including regularly scheduled pickleball), the Milken Institute dubbed Sioux Falls the best small metro area for successful aging.

And all that comes pretty cheap for retirees. Along with low overall living costs in Sioux Falls, the median home value is $152,200, compared with $176,700 for the U.S. (The median for the state at $132,400.) Plus, the state’s tax picture is one of the best for retirees.

Chattanooga, Tennessee

Cost of living for retirees: 6.0% below U.S. average

Share of population 65+: 14.7%

Tennessee’s tax rating for retirees: Tax-Friendly

Lifetime health care costs for a retired couple: Below average at $382,360

The Volunteer State is a good choice for most retiree budgets. On top of the friendly tax situation, most areas have below-average living costs across the board for retired residents. Chattanooga’s housing-related costs for retirees are notably low, at 12.9% below average. The city’s median home value is just $138,100, compared with $176,700 for the U.S. Single occupancy at an area assisted-living facility costs a median $41,400 a year; the national median is $43,200 a year.

The city’s vibrant arts scene is a nice draw, with many galleries scattered throughout the Bluff View Art District, as well as the NorthShore and Southside districts. You can also enjoy a lot of quality music events, such as the nine-day Riverbend Festival and Three Sisters Bluegrass Festival, and you can take in theater performances year-round. For outdoor recreation, you can take an easy bike ride or stroll along the Tennessee River, or challenge yourself with area rock climbing, mountain biking, white-water rafting or hang gliding. Be aware of the high crime rates for the state and city. But also recognize that you can certainly find safe neighborhoods, such as Ryall Springs and West View—the safest neighborhoods in Chattanooga, according to www.neighborhoodscout.com.

Sherman, Texas

Cost of living for retirees: 13.0% below U.S. average

Share of population 65+: 13.2%

Texas’s tax rating for retirees: Tax-Friendly

Lifetime health care costs for a retired couple: About average at $393,414

With a population of less than 40,000, the small city of Sherman offers retirees big savings. Overall living costs are cheap, and housing-related costs for retirees are particularly affordable, at 24.8% below average. The median home value is $98,100 in Sherman proper and $79,100 in Denison (also part of the greater metro area)—well below the state’s $128,900 median. Residents can save on taxes, as well: The Lone Star state levies no income tax.

In Sherman, you can enjoy boutique shopping, unique cafés and several community gatherings throughout the year, including an Earth Day festival and free “Shakespeare in the Grove” performances. Also explore the 12,000-acre Hagerman National Wildlife Refuge, home to about 500 different wildlife species. And when you feel the urge for big-city stimulation, Dallas is about an hour’s drive away.

Spokane, Washington

Cost of living for retirees: 6.0% below U.S. average

Share of population 65+: 12.8%

Washington’s tax rating for retirees: Tax-Friendly

Lifetime health care costs for a retired couple: About average at $392,810

Located about 300 miles east of Seattle, between the Cascade Mountains and Rocky Mountains, Spokane is a nice choice for retirees looking to retreat to nature. On top of all the hiking and biking afforded by the mountains, as well as the 37 miles of the downtown Centennial Trail, the area boasts 76 lakes and rivers for you to enjoy swimming, boating, fishing and more. There are also 33 golf courses, more than 20 wineries and many breweries and distilleries around the region.

Spokane also offers affordability. Although health care costs for retirees are 10.5% above the national average, housing-related costs are 13.4% below average. The median home value is $160,500 in the city; by comparison, Seattle’s median home value is $433,800. Single occupancy in an assisted-living facility is typically about $48,000 a year in the Spokane metro area. That’s more than the national median of $43,200 a year, but less than the $55,500 state median.

Morgantown, West Virginia

Cost of living for retirees: 0.9% above U.S. average

Share of population 65+: 8.1%

West Virginia ‘s tax rating for retirees: Tax-Friendly

Lifetime health care costs for a retired couple: Below average at $389,905

West Virginia University offers a number of benefits to retirees in Morgantown. Residents 65 and up can take WVU courses at a discount. Or if you’re 50 or older, you can join the local chapter of the Osher Lifelong Learning Institute. Membership gets you access to interest groups, trips, social gatherings and program classes, including local and international history, music, computers, yoga, and more. To be a full member for a year costs $100.

The school also helps boost local health care services with its many medical facilities, including the Eye Institute, Heart Institute and Ruby Memorial Hospital. The Milken Institute actually credits the area’s large pool of doctors, orthopedic surgeons and excellent nurses for contributing to Morgantown’s high ranking (15th) among small metro areas. Health care is also relatively affordable, at 2.1% below average for retirees.

Cheyenne, Wyoming

Cost of living for retirees: not available

Share of population 65+: 13.5%

Wyoming’s tax rating for retirees: Most Tax-Friendly

Lifetime health care costs for a retired couple: About average at $395,273

Loner types should love the Cowboy State. It has a population of fewer than 585,000—that’s just six people per square mile. (By comparison, the country’s smallest state in size, Rhode Island, hosts more than a million people, with more than 1,000 people per square mile.) Even the capital city is relatively small, with fewer than 63,000 residents.

The lack of crowds doesn’t leave you a lack of activities. You have plenty of outdoor diversions, such as miles of trails for hiking, biking and horseback riding; fishing and boating; and birding and other wildlife viewing. Train aficionados can enjoy the area’s railroad history and displays of locomotives, including the world’s largest steam engine (also retired). Another big local attraction: Every summer since 1897, Cheyenne hosts the world’s largest outdoor rodeo and Western celebration, Frontier Days, now a 10-day event.

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One of the most daunting decisions faced by workers is how to invest their 401(k) plan dollars.

The simplest choice might be a target-date fund, which automatically shifts from aggressive to more conservative investments the closer you get to retirement. But some financial advisors say if you have the wherewithal, it’s worth building a 401(k) portfolio that provides a more individualized investment approach tailored to your particular goals and life situation.

“If you have the opportunity to take a more precise approach, it’s a good thing to do,” said Jared Snider, a wealth advisor with Exencial Wealth Advisors. “Sometimes one-size-fits-all ends up not fitting any one individual the best.”

As of June 30, 401(k) plans held an estimated $4.4 trillion in assets, according to the Investment Company Institute. Data from research firm Morningstar shows that $690 billion of that was parked in target-date funds.

So clearly, the majority of 401(k) investors are building their portfolios using investments outside of target-date funds. The problem, though, is that many people just randomly choose those investments.

“I come across people who have picked multiple [funds], and there really wasn’t a well-thought-out purpose for why they picked the funds they did,” Snider said.

The first thing to do is look at your 401(k) in the context of all your assets, advisors say. If you also own, say, an individual retirement account or taxable accounts—savings or stock accounts—make sure the asset allocation in your 401(k) reflects your overall holdings so you are not too heavily invested in any one market sector or lack exposure to stocks.

Also consider your risk tolerance. That is, determine to what degree you can tolerate large swings in the value of your investments due to market volatility. People who misjudge their risk tolerance might panic during a market drop and unload investments, which advisors say is unwise.

Regardless of whether you have 100 percent of your 401(k) in stocks or you have, say, 70 percent in stocks and 30 percent in fixed income such as cash or bonds, Snider said his firm generally approaches the stock—or equity—portion the same.

The tricky thing for advisors is that when it comes to a 401(k), the ideal allocation for clients is only possible to the extent that the plan allows it.

“What’s unique to 401(k) plans is that you have to use the choices the plan gives you—good, bad or indifferent,” said Charles Bennett Sachs, a certified financial planner with Private Wealth Counsel. “I try to find the least offensive funds that give me the allocation I want for my client.”

Meanwhile, Snider at Exencial said his firm’s ideal equity allocation, based on current market valuations, includes 20 percent in U.S. large-value funds and 13 percent in an S&P Index fund. That is, a fund that mimics that performance of the S&P 500 Index, which offers broad U.S. market exposure.

Additionally, Exencial dedicates about 11 percent of assets to large-cap growth funds, about 10 percent to mid-cap funds and roughly 16 percent to small-cap value funds.

Missing from that U.S. market mix is small-cap growth funds.

We tend to not like the valuations we’re seeing on small-cap growth funds,” Snider said. “They are a little rich right now. If the plan only offers a small-cap growth fund [vs. value], we’ll put that money in a mid-cap fund.”

The international stock exposure is a bit trickier due to limited offerings in many 401(k) plans. But Snider said, if possible, his firm generally allocates about 30 percent of equity exposure to international funds. That can include value funds, large-cap funds, small-cap funds and emerging-markets funds.

“We try to give broad exposure,” Snider said. “Emerging markets tend to be more volatile, so if we can, we spread it across many world economies.”

He added that when U.S. stocks are trading at a premium, international stocks tend to outperform by a small margin over the ensuing five years.

Meanwhile, Jorge Padilla, a certified financial planner with The Lubitz Financial Group, said his firm tries to represent the world market capitalization.

“If you look at the size of the U.S. stock market [in the context] of the whole world, it is about 46 percent of the world’s stock valuation,” Padilla said.

He added that his firm has been taking profits from the U.S. market and investing in overseas markets, where valuations are more promising for the next five or 10 years.

But Padilla’s advice comes with a caveat. “No one knows with confidence what will happen in the next six months or a year,” he said.

As for those whose portfolio includes fixed-income, Exencial’s Snider said his firm tends to lean toward short-duration, quality bonds.

“In the current interest-rate environment, you can’t really get a lot of return in fixed income,” Snider said.

Advisors also generally agree that once you determine your suitable allocation, it’s important to rebalance your portfolio once a year so you stick to your desired allocation.

Padilla at The Lubitz Financial Group points out that some 401(k) plans have an auto-rebalance option. If you sign up for it, the plan will automatically rebalance your portfolio at set times.

“Not a lot of the plans do it, but if it’s there, it’s a good thing,” he said. “It takes the emotion out of the process, which is important.”

If you do choose to build your portfolio without the guidance of an advisor, it’s important to research your plan’s options and attend any workplace educational seminars.

Take advantage of that opportunity and get help creating an allocation,” Snider at Exencial said. “Or if your employer has a model portfolio created, you can [mimic] that so you can stay on track and have a successful retirement.”

—By Sarah O’Brien, special to CNBC.com

By Ryan Derousseau | Contributor Jan. 21, 2016,

Pessimism seems to pervade the American psyche these days. It’s something that President Barack Obama addressed in the State of the Union, arguing that the surge of some Republican presidential candidates comes from their willingness to pour fire on this pessimistic fear of the future.

While Obama’s opinion may have some truth to it, it’s clear that Americans are more pessimistic, in general, than we used to be.

According to a NBC poll in October, only 34 percent of respondents said they believe the American dream still holds true. And 59 percent said they believe children today will be worse off than their parents. This sense that the American dream is diminishing is a distinct characteristic of young people as well. In a November Fusion poll, only 16 percent of 18-to-35 year olds felt the American dream is “very much alive,” compared to 34 percent of 18-to-35-year-olds in 1986.

Like a tree falling in a forest, if so few of us believe in the dream, then does it exist? Well that depends on what your dream is. If we’re talking about becoming a billionaire, owning a yacht and buying whatever your heart desires, then there’s always the Powerball. But if your dream consists of finding a good job, owning a home and having a great retirement, then that’s very much possible. You just might need to work a little bit harder to achieve those things than in the past.

Owning a home isn’t an unachievable hurdle. The homeownership rate for young people remains low. In the third quarter of 2015, the Census Bureau measured the number of people younger than 35 who owned a home at 35.8 percent. While that’s 3 percent higher than first-quarter rates, it’s nearly level with the rate of ownership a year ago.

Part of the reason – completely out of your control – is that home prices continue to rise. They’re up nearly 30 percent since 2012, which makes the hurdle of saving enough for the down payment that much more difficult. And lending is much tighter than it used to be. Considering poor mortgage lending practices led to the 2008 downturn, that’s actually a positive factor.

That doesn’t help you if you want to buy a home now, though. Christopher Jones, a financial planner in Nevada, says it’s rare that people come to him wanting to buy a place in 10 years – it’s more like a year or so. That limits the amount of investing options you have. “Typically when saving for a home, you have to save in low-risk, liquid places,” says Jones, who runs Sparrow Wealth Management. “You’re not going to earn much on that money.”

Instead, look at the amount of house that you need to buy. Earmark a certain amount of funds each month from your paycheck, which automatically get funneled into a savings account used for the eventual down payment, says David Shotwell, a financial planner at Rutter Baer in Michigan.

If you’re married and concerned about the financials of owning a home – after all, you’ll then have to pay property taxes, insurance, more bills and there’s no landlord to fix your problems – then you can also secure a loan based on only one person’s income. Sure, you might not get as large of a house, but it can provide you with the backstop in case something happens, like a job loss, that limits the family’s income.

Jobs are bouncing back for now. Part of the American dream was always based on the access to reliable and plentiful jobs. What’s maybe most surprising about the pessimism today is that the one thing that has truly bounced back for people since the downturn are jobs. In the most recent report, the economy added 292,000 jobs, keeping the unemployment rate steady at 5 percent. Over the past two years, the economy added more than 5.8 million positions.

But what has likely kept that pessimism is the lack of wage growth. Wage growth continues to lag jobs, only increasing 2.5 percent in 2015. “If we keep getting strong hiring, wage gains should accelerate,” says Mark Hamrick, senior economic analyst at Bankrate.com.

It’s fair to wonder when, though, considering the amount of job growth we’ve seen over the past five years.

Savings is still a long-term game. You can understand the positive response about the American dream in 1986. If worse came to worst, many workers had pensions in their back pocket. But from 1980 to 2008, the number of employees with a pension fell from 38 percent to 20 percent. While the onus may be more on you than what your parents dealt with, saving is still the best possible way to reach your American dream.

However, there’s a balance that you have to find, especially if you also have to still pay back thousands of dollars in student debt. Because of this extra wrinkle, it’s important to have clear money goals, such as paying off student loans in 10 years, buying a house in three years and retiring at age 65. “You lay all those things out, and take that paycheck and commit to each one,” Shotwell says. “If you’re paying loans off as quickly as possible, but eating dog food and living in a box, it’s not worth it.”

On the retirement side, find the amount that you can save – ideally 15 percent or above. Take advantage of your company’s 401(k) match if it offers one, as that counts toward that number. Then put it in a stock-heavy, low-cost index fund or target-date fund and relax. Even with short-term blips, like the stock market struggles at the beginning of this year, your retirement funds should be fine. “This kind of volatility is a blessing,” Shotwell says. “If you’re buying more shares on a down month, it’s allowing you to buy more shares. In the future those shares will be worth more.”

If that dream is to retire young, then make sure you save more each month to ensure that can happen. If say you want to retire under 60, Jones says that goal “exponentially increases the amount you need to save for retirement,” pushing your ideal savings rate into the 20-to-30 percent range, depending on your income.

Once you have your target date set, and your contributions automatically filing into your accounts, then you can just sit back and wait. And what’s more American than that?

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By Rachel L Sheedy

For many Americans, Social Security benefits are the bedrock of retirement income. Maximizing that stream of income is critical to funding your retirement dreams. The rules for claiming benefits can be complex, but this guide will help you wade through the details. By educating yourself about Social Security, you can ensure that you claim the maximum amount to which you are entitled. Here are ten essentials you need to know.

By Rachel L. Sheedy,
10 Things You Must Know About Social Security

It’s an Age Thing

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Your age when you collect Social Security has a big impact on the amount of money you ultimately get from the program. The key age to know is your full retirement age. For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. You can collect Social Security as soon as you turn 62, but taking benefits before full retirement age results in a permanent reduction — as much as 25% of your benefit if your full retirement age is 66.

Besides avoiding a haircut, waiting until full retirement age to take benefits can open up a variety of claiming strategies for married couples. (More on those strategies later.) Age also comes into play with kids: Minor children of Social Security beneficiaries can be eligible for a benefit. Children up to age 18, or up to age 19 if they are full-time students who haven’t graduated from high school, and disabled children older than 18 may be able to receive up to half of a parent’s Social Security benefit.

It’s an Age Thing

How Benefits Are Factored

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To be eligible for Social Security benefits, you must earn at least 40 “credits.” You can earn up to four credits a year, so it takes ten years of work to qualify for Social Security. In 2016, you must earn $1,260 to get one Social Security work credit and $5,040 to get the maximum four credits for the year.

Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. You can increase your benefit by replacing those zero years, say, by working longer, even if it’s just part-time. But don’t worry — no low-earning year will replace a higher-earning year. The benefit isn’t based on 35 consecutive years of work, but the highest-earning 35 years. So if you decide to phase into retirement by going part-time, you won’t affect your benefit at all if you have 35 years of higher earnings. But if you make more money, your benefit will be adjusted upward, even if you are still working while taking your benefit.

There is a maximum benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2016, the maximum monthly benefit is $2,639. You can estimate your own benefit by using Social Security’s online Retirement Estimator.

How Benefits Are Factored

COLA Isn’t Just a Soft Drink

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One of the most attractive features of Social Security benefits is that every year the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The COLA, which is automatic, is quite valuable; buying inflation protection on a private annuity can cost a pretty penny.

Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. For example, in 2009, beneficiaries received a generous COLA of 5.8%. But retirees learned a hard lesson in 2010 and 2011, when prices stagnated as a result of the recession. There was no COLA in either of those years. For 2012, the COLA came back at 3.6%, but dropped to less than 2% in the next few years. But bad news came again this year: Prices were flat, and thus there was no COLA for 2016. The COLA for the following year is announced in October.

COLA Isn’t Just a Soft Drink

The Extra Benefit of Being a Spouse

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Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s benefit. Put simply, if your benefit is worth $2,000 but your spouse’s is only worth $500, your spouse can switch to a spousal benefit worth $1,000 — bringing in $500 more in income per month.

The calculation changes, however, if benefits are claimed before full retirement age. If you claim your spousal benefit before your full retirement age, you won’t get the full 50%. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.

Note that you cannot apply for a spousal benefit until your spouse has applied for his or her own benefit.

The Extra Benefit of Being a Spouse

Income for Survivors

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If your spouse dies before you, you can take a so-called survivor benefit. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of his or her death (or 100% of what your spouse would have been eligible to receive if he or she hadn’t yet taken benefits). A widow or widower can start taking a survivor benefit at age 60, but the benefit will be reduced because it’s taken before full retirement age.

If you remarry before age 60, you cannot get a survivor benefit. But if you remarry after age 60, you may be eligible to receive a survivor benefit based on your former spouse’s earnings record. Eligible children can also receive a survivor benefit, worth up to 75% of the deceased’s benefit.

Income for Survivors

Divorce a Spouse, Not the Benefit

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What if you were married, but your spouse is now an ex-spouse? Just because you’re divorced doesn’t mean you’ve lost the ability to get a benefit based on your former spouse’s earnings record. You can still qualify to receive a benefit based on his or her record if you were married at least ten years, you are 62 or older, and single.

Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still take a benefit on the ex’s record if you have been divorced for at least two years.

Note: Ex-spouses can also take a survivor benefit if their ex has died first, and like any survivor benefit, it will be worth 100% of what the ex-spouse received. If you remarry after age 60, you will still be eligible for the survivor benefit.

Divorce a Spouse, Not the Benefit

It Can Pay to Delay

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Once you hit full retirement age, you can choose to wait to take your benefit. There’s a big bonus to delaying your claim — your benefit will grow by 8% a year up until age 70. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.

While a spousal benefit doesn’t include delayed retirement credits, the survivor benefit does. By waiting to take his benefit, a high-earning husband, for example, can ensure that his low-earning wife will receive a much higher benefit in the event he dies before her. That extra 32% of income could make a big difference for a widow whose household is down to one Social Security benefit.

In some cases, a spouse who is delaying his benefit but still wants to bring some Social Security income into the household can restrict his application to a spousal benefit only. To use this strategy, the spouse restricting his or her application must be at full retirement age and he or she must have been born on January 1, 1954, or earlier. So the lower-earning spouse, say the wife, applies for benefits on her own record. The husband then applies for a spousal benefit only, and he receives half of his wife’s benefit while his own benefit continues to grow. When he’s 70, he can switch to his own, higher benefit. Exes at full retirement age who were born on January 1, 1954, or earlier can use the same strategy — they can apply to restrict their application to a spousal benefit and let their own benefit grow.

It Can Pay to Delay

File and Then Suspend

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Here’s a Social Security claiming strategy that’s perfectly legal and potentially lucrative for those who will reach age 66 by April 30. Let’s say a husband decides he wants to delay taking his benefit until age 70 to maximize the amount of his monthly check. But he wants his wife to be able to take a spousal benefit, because it would be higher than her own benefit.

To make that happen, the husband, who must be at full retirement age, can file for his benefits and then immediately suspend them. Because he has applied for benefits, his wife can now take a spousal benefit based on his record. And because he suspended his own benefit, his benefit will earn delayed retirement credits for each year he waits until age 70. But if you qualify for this strategy, act fast: You must put in your request by April 29 to file and suspend your benefit under the old rules. The budget law passed in November 2015 eliminates this strategy at the end of April.

File and Then Suspend

Uncle Sam Wants His Take

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Most people know that you pay tax into the Social Security Trust Fund, but did you know that you may also have to pay tax on your Social Security benefits once you start receiving them? Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.

As a result, it doesn’t take a lot of income for your benefits to be pinched by Uncle Sam. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their benefits. Higher earners may have to pay income tax on up to 85% of their benefits.

Uncle Sam Wants His Take

Passing the Earnings Test

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Bringing in too much money can cost you if you take Social Security benefits early while you are still working. With what is commonly known as the earnings test, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2016 is $15,720. Once you are past full retirement age, the earnings test disappears and you can make as much money as you want with no impact on benefits.

But the good news is that any benefits forfeited because earnings exceed the limits are not lost forever. At full retirement age, the Social Security Administration will refigure your benefits going forward to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full year of benefits to the earnings test, at age 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.

 

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By Mark Gollom, CBC News

With a will yet to surface, Prince’s family faces a potentially long, costly and complex legal process to divvy up his assets, illustrating the importance of writing a will, even for those not leaving behind a multi-million dollar estate.

His siblings have already begun the court proceedings. A Minnesota judge appointed a corporate trust company to temporarily oversee his estate last week, saying the emergency appointment was necessary because the superstar musician doesn’t appear to have a will and immediate decisions must be made about his business interests.

But problems may already be emerging among his heirs, which would further complicate the process. CNN reported that the initial meeting between the siblings was contentious and ended in shouting.

“Especially for a man surrounded by so many lawyers and managers, etc., it’s astonishing that he didn’t have a will,” said Judith T Younger, a professor of family law at the University of Minnesota who teaches a course in property, wills and trusts.

With no spouse or children, Minnesota law states that his estate will be distributed equally among his siblings and half-siblings. But that could become complicated if they fail to agree on how certain assets should be treated and/or sold. For example, the siblings will have to come up with a valuation of Prince’s vault of unpublished music and agree on what should be done with it.

“There is still the problem — are any of these siblings experts in managing assets of this sort that he has.” said Younger.

Another issue, says Younger, is that Minnesota doesn’t have statutes that would deal directly with the inheritability of Prince’s persona — the right to commercially exploit his image through items like T-shirts and mugs.

‘Always been very careful about his properties’

“The question becomes do they get included in his estate? Had he had a will, he could have set up an arrangement with people who knew what they were doing to manage it or license it. Or perhaps he would not have wanted any postmortem publicity.”

“He has always been very careful about his properties, his music his unpublished intellectual property,” she said. “The best way to ensure that people you trust are managing and controlling it after your death is to have a will designation.”

It’s possible that Prince cared little how his estate was to be settled after his death. But as Charles Wagner, Toronto estate lawyer, pointed out, was “there no one who he’s loved in his life? Is there no one who had a special place? Is there anything he wanted to perpetuate his legacy?”

Even for those without an estate like Prince’s, getting a will is a prudent move, said Wagner.

Risk litigation

“If you want to ensure that your assets go to the people you want them to, your best bet is to go to a lawyer who knows what they’re doing …and get a good will,” Wagner said. “Otherwise you risk litigation, otherwise you risk the money going to people you don’t want.”

Joseph Gyverson, a Toronto estate lawyer, said it’s a fairly common misconception that if someone dies without leaving  a will, their estate goes to the government. That can happen if the deceased has no living heirs — otherwise legislation sets out a hierarchy as to who is entitled to inherit the estate. The general rule in North America, he said, is that the spouse will inherit everything followed by children, parents, siblings, aunts and uncles and then other next of kin.

Without a will, family members of the deceased will most certainly end up in court, Gyverson said.  And if there is any disagreement between potential beneficiaries about who should get what, the estate could be tied up in court for a long time, costing a large amount in legal fees that could eat up much of what they were entitled to receive in the first place.

Choosing the executor

There’s also the issue of choosing the state trustee, or executor of the estate, when there is no will to say who will fill that powerful role. The trustee or executor can deal with the assets according to their discretion. Without a will, a number of people could go to court to apply for that position.

“And that’s where you could get an issue with something like the Prince estate where you’ve got multiple beneficiaries, all of whom have the right to a say as to who is going to be chosen to be the executor.

“And if there are conflicting interests, they may not agree who will be the executor. Then there can be a battle over who is going to be the executor, who is going to be in control of the state. And the more complex the estate is, the more valuable the assets are in the estate, the more there is that potential to be that conflict.”

People don’t need to get a will for themselves, Gyverson said, but so the people they care about are taken care of and they’re making things easier for their friends and family when they die.

“Because when someone is in the process of grieving over lost loved ones, they don’t want to have the additional hassle of not even having a will to help them deal with the property,” he said.

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Changing or leaving a job can be an emotional time. You’re probably excited about a new opportunity — and nervous too. And if you’re retiring, the same can be said. As you say goodbye to your workplace, don’t forget about your 401(k) or 403(b) with that employer. You have several options and it’s an important decision.

“Be careful not to make hasty decisions with your workplace savings plan,” says John Sweeney, executive vice president of retirement and investing strategies. In particular, beware of cashing out, which often comes with taxes and penalties and can undermine your ability to reach your long-term goals.”

Weigh your options.

Because your 401(k) assets are often a significant portion of your retirement savings, it’s important to weigh the pros and cons of your options and find the one that makes sense for you. You generally have four choices:

  • Leave assets in a previous employer’s plan.
  • Move the assets into a rollover IRA or a Roth IRA.
  • Roll over the assets to a new employer’s workplace savings plan, if allowed.
  • Cash out or withdraw the funds.

Here are some things to consider about each.

Option 1: Keep your 401(k) with your former employer.

Check your previous employer’s rules for retirement plan assets for former employees. Most companies, but not all, allow you to keep your retirement savings in their plans after you leave. If you have recently been through a drastic change such as a layoff, this may make sense for you. It leaves your money positioned for potential tax-deferred investment growth so you can take time to explore your options.

The benefits of leaving your assets in the old plan may include:

  • Penalty-free withdrawals if you leave your job in or after the year you reached age 55 and expect to start taking withdrawals before turning 591⁄2.
  • Institutionally priced (i.e., lower-cost) or unique investment options in your old plan that you may not be able to roll into or hold in an IRA.
  • Money-management services that you’d like to maintain. (Note that these services are often limited to the investment options available in the plan.)
  • Broader creditor protection under federal law than with an IRA.

Some things to consider:

  • Typically, employers allow you to keep assets in the plan if the balance is more than $5,000. If you have $5,000 or less, you may need to proactively make a choice to remain. If you don’t, some plans may automatically distribute the proceeds to you (or to an IRA established by you).
  • You’ll no longer be able to make plan contributions or, in most cases, take a plan loan.
  • You may have fewer investment options than in an IRA.
  • Withdrawal options may be limited. For instance, you may not be able to take a partial withdrawal but instead may have to take the entire amount.
Option 2: Roll the assets into an IRA.

Rolling your 401(k) assets into an IRA still gives your money the potential to grow tax deferred, as it did in your 401(k). In addition, an IRA often gives you access to a wider variety of investment options, such as annuities,1 than are typically available in an employer’s plan. You can also continue growing your retirement savings in a rollover IRA through IRA contributions to the account. Note, however, that in certain scenarios there can be benefits in keeping rollover amounts in a separate IRA.

If you have other accounts at a financial institution that offers IRAs, you often get consolidated statements. This gives you a more complete view of your financial picture, which may make it easier to plan and effectively manage your retirement savings. It’s also easier to evaluate and manage your target asset mix if your investments are in one place. Make sure to research IRA fees and expenses when selecting an IRA provider, though. These fees vary greatly from firm to firm.

Of course, you need to weigh the costs and benefits of each approach. Managing a portfolio of mutual funds or ETFs yourself may entail far fewer investment expenses than buying a professionally managed lifecycle fund or managed account. However, if you do not have the time, investing skill, or interest in managing your own portfolio, you may be better off with a professionally managed account.

Other benefits of rolling over to an IRA may include:

  • The option of converting assets to a Roth IRA, which is a taxable event but provides federal tax-free withdrawals of future earnings, providing certain conditions are met.2 (Note that your previous or new employer plan may offer a Roth workplace savings plan and allow participants to convert non-Roth assets into an in-plan Roth account.)
  • Penalty-free withdrawals for qualifying first-time home purchase or qualified education expenses if you’re under age 591⁄2.3
  • Investment guidance and money management services through a professionally managed account.

But take into consideration that:

  • After you reach age 701⁄2, you’re required to take minimum required distributions from a 401(k), 403(b), or IRA (except for a Roth IRA) every year, even if you are still working. If you plan to work after age 70½, rolling over into a new employer’s workplace plan, or staying in the old one, may allow you to defer taking distributions.4
  • If you need protection from creditors outside bankruptcy, federal law offers more protection for assets in workplace retirement plans than in IRAs. However, some states do offer certain creditor protection for IRAs too. If this is an important consideration for you, you’ll want to consult your attorney before making a decision.

A special case: company stock

If you hold appreciated company stock in your workplace savings account, consider the potential impact of net unrealized appreciation (NUA) before choosing between a rollover or an alternative. Special tax treatment may apply to appreciated company stock if you move the stock from your workplace savings account into a regular (taxable) brokerage account rather than rolling the stock (or proceeds) into an IRA. You may want to consider asking your financial adviser or tax accountant for help on how NUA may apply in your situation.

Option 3: Consolidate your old 401(k) assets into a new employer’s plan.

Not all employers will accept a rollover from a previous employer’s plan, so you need to check with your new plan administrator. If your new employer accepts your rollover, the benefits may include:

  • Continuing to position your assets for tax-deferred growth potential.
  • Continuing to grow your retirement savings through contributions to your new employer’s plan.
  • Combining plan accounts into one, for easier tracking and management.
  • Deferring minimum required distributions if you are still working after you turn age 701⁄2.4
  • Availability of plan loans (be sure to confirm that the plan allows loans).
  • Investing in lower-cost or plan-specific investment options, if available.
  • Broader creditor protection under federal law than with an IRA.

But consider this:

  • Your 401(k) may have a limited number of investment options compared with an IRA.
  • You will be subject to the new employer’s plan rules, which may have certain transaction limits.
Option 4: Cash out.

Taking the assets out should be a last resort. The consequences vary depending on your age and tax situation, because if you tap your 401(k) account before age 591⁄2, it will generally be subject to both ordinary income taxes and a 10% early withdrawal penalty. An early withdrawal penalty doesn’t apply if you stopped working for your former employer in or after the year you reached age 55 but are not yet age 591⁄2. This exception doesn’t apply to assets rolled over to an IRA.

A $50,000 cash out could cost $21,000 in penalties and taxes.

If you are under age 55 and absolutely must access the money, you may want to consider withdrawing only what you need until you can find other sources of cash.

A pitfall to avoid

If you choose to roll over your workplace retirement plan assets into an IRA, it is important to pay close attention to the details. To be on the safe side, consider requesting a direct rollover, right to your financial institution. This is also referred to as a trustee-to-trustee rollover, and it can help ensure that you don’t miss any deadlines.

Why is this important? If a check is made payable to you, your employer must withhold 20% of the rolled-over amount for the IRS, even if you indicate that you intend to roll it over into an IRA within 60 days. If that happens, in order to invest your entire account balance into your new IRA within the 60 days, you’ll have to come up with the 20% that was withheld. If you don’t make up the 20%, it is considered a distribution, and you will also owe a 10% penalty on that money if you are under age 591⁄2. (Later, when you file your income tax return, you will receive credit for the 20% withheld by your employer.)

If you receive the proceeds check in the financial institution’s name, you must deposit it into a rollover IRA.

What you should consider when making a decision.

It’s important to make an informed decision about what may be a significant portion of your savings. As discussed above, your choice will depend on factors such as your former and current employer’s plan rules and available investment options, as well as your age and financial situation. In addition, you may want to think about your investing preferences, applicable fees and expenses, desire to consolidate your assets, and interest in receiving investment guidance. Traditional or Rollover IRA.

  • Find out your workplace savings plan rules, especially whether you can keep the assets in the plan or roll them into a new employer’s plan. Every plan has different rules.
  • Compare the underlying fees and expenses of the investment options in your plan with those in an IRA. Also, consider any fees that may be charged by your old plan, such as quarterly administrative fees.
  • Evaluate the potential tax impact of any move.
  • Assess your preferences for managing your various accounts. For example, you may like having your assets with one provider or with multiple providers.
  • Decide which type of investor you are: a “do it yourself” type, or a “you do it for me” investor who wants personalized management.
  • Speak with a financial professional who can help evaluate your decision based on your complete financial picture.

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Posted on Monday, April 25th, 2016 by Edwin C in Savings Accounts

Scared of retirement? Not confident about your retirement planning? Haven’t saved enough? Worried about the how much help your life insurance would be?

All of us plan to live a certain kind of life after we retire from our hectic jobs but to live that desired lifestyle we need to have a strong financial portfolio. While we all know that we need to save a substantial amount of money for a worry-free retirement we never know how much we will need after we give up working.

So here are 7 ways you can cover the gap while there is still time:

Wait till you Turn 65

The U.S. Census Bureau of Labor Statistics indicates that the average retirement age is 62 but still a lot of people retire at 65 or even later and are still unable to save enough. Waiting till 65 gives you extra work years which means extra savings. The later you start collecting your social security benefits, the larger is the amount of benefit you will receive. Your social security benefits increase by about 5.5% to 8% per year if you are willing to wait a little longer.

Don’t Wait to Downsize

Do not wait to let go of pompous assets like your big home or luxurious cars or collection of antique pots. Consider selling them and investing the profits. Due to lack of time, you might want to invest in the stock market and pull off the risk, but you might not notice that you also might not have the time to cover up the loss. Instead, invest conservatively so that you have the money stocked when you are in need.

Move to a No Tax state

You can move to states like Florida, Nevada, New Hampshire, Pennsylvania, Washington and Wyoming, where there is no income tax levied on pension, social security, or dividend income. The benefits can definitely include a beachside lifestyle.

Accept Government sponsored Medical insurance

The Government sponsored medical life insurance provides adequate coverage for doctor’s visits, emergency care, assisted living, respite or in-home care. What these insurances do not cover is prescription medication, drugs, dental and vision care because these are primary defaults during old age. To cover these you would need an add-on coverage offered by Medicare Advantage and Supplemental Insurance (Medigap). Consult your insurance provider to find better ways to live a healthy life after retirement. You can also consult the AARP about governmental provisions and senior plans.

Max Out Retirement Accounts

You should start funding your retirement accounts well in advance or catch up in good time. Keep adding to your 401ks, 403b, 457s, social security benefits, pensions, and annuities. 97% of all 401k plans have a catch-up provision. According to the Plan Sponsor Council of America, only 36% of plans allowing catch-up will give you a match for your catch up. They are the most tax advantageous, which means that you should keep funding these generously in the remaining years of your retirement.

Diversify using Bonds and ETFs

If you have ten years or more to your retirement, you should make more volatile investments like stocks.  They are risky investments but very fruitful. As you’re inching closer to your retirement, you wouldn’t want your portfolio to be full of risky, aggressive investments. Be more diversified by investing safely in bonds or exchange traded funds i.e. ETFs.

Join AARP

AARP is a go-to institution for the senior population. It is a popular senior citizen advocacy group and gives out financial services, insurance plans, social welfare schemes, and legal counsel for the elderly. The annual membership fee is $16, which is further discounted if you buy the years in bulk. They give out discounts to members on dining, travel, roadside assistance, auto insurance, health benefits, and more. This is a golden institution to sign up for.

There are several solutions in the market for problems like these but when it comes to retirement, you should never give up on the old school method of safety. And remember, it better late than never.

Author Bio: Joel Ray provides expert guidance on an array of topics, centered on retirement and financial planning for you and your family.  Joel shares his passion to help others, in meeting their financial goals, through his informative blogs and whitepapers.  Follow Joel @life_centra or check out his blogs and videos at LifeCentra today!

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David Hirsch, managing partner of Metamorphic Ventures

With the selloff in some big tech names such as LinkedIn and Twitter, some investors are beginning to wonder if the golden age of the Internet and mobile is over. Given the uncertainty in the global markets, it make sense then that public market investors aren’t nearly as bullish on the future growth potential of some big tech companies as they were a year or two ago.

“Even as tech stocks and unicorns falter, it has never been a better time to be an early stage technology investor.”

At the same time, there are a number of VC-backed “unicorn” start-ups in the private markets. Due to a period of low interest rates, growing companies quickly realized that they could raise large sums of money, as investors lacked yield on their capital. This allowed companies to continue scaling operations without having to worry about short-term profitability and the microscope of the public markets.

But as technology becomes ubiquitous, affecting all aspects of our lives and jobs, category-killer winners will emerge in every market and business function, as well as those catering to new platforms that arise in the process. Think Google in search, Facebook in social, Amazon in e-commerce, and Uber in transportation.

Artificial intelligence, big data, drones, and robotics are all technologies that will disrupt traditional industries and create new markets beyond what we can imagine today.

These companies might not be playing in markets as big as Google or Facebook, returns can be outsized for disciplined investors. So, even as some tech stocks and unicorns falter, it has never been a better time to be an early-stage technology investor, provided that you have access to good companies and strong founders early on.

According to Cambridge Research Associates, “Seed and early-stage investments have accounted for the majority of investment gains in every year since 1995, suggesting that, despite the deep pockets of late-stage investors, early-stage investments hold their own on an apples-to-apples basis (total gains).” The same report said that, for the last 10 years, new and emerging managers have accounted for between 40 and 70 percent of VC gains.

Smaller venture-capital funds allow for investors to achieve returns, even if the rate of failure within a portfolio is high, because fund size allows for smaller exits to produce great overall fund results.

As funds get smaller and the asset class unbundles, the question then becomes: Why should investors invest in a fund instead of direct investing in companies themselves? Good fund managers understand the risk and therefore build a portfolio of companies, weighing the risks and potential outcomes of the portfolio as a whole so that the fund’s losses are recouped by an order of magnitude by the fund’s winners (which is why MOC — multiple of capital — is more important than internal rate of return in the early stages).

Round sizes also allow early-stage investors to build nice-sized positions with strong visibility to provide additional capital when the time is right. Limited partners in these funds can also access later rounds through “Special Purpose Vehicles” (SPVs) provided that the valuations are reasonable at that point in time.

Because the funds these limited partners have invested in have been close to these companies for a period of time, they have more data and visibility into the viability of the potential investment than investors who are approaching these companies for the first time.

Furthermore, the declining cost of technology makes everyone an entrepreneur. The effect this has on the ecosystem is an abundance of companies being started, with ideas that may have failed in the past or that have a number of competitors.

VC’s spend their time understanding industry dynamics and context in which these companies are being started. Over time, strong managers develop mental models to best evaluate these companies, which is what has commonly been described as “pattern recognition” given the amount of time they spend integrated in the ecosystem.

Because this wave of technology start-ups is disrupting traditional industries and attempting to build massive companies where nothing existed before, the companies can’t be evaluated in the same way that traditional companies are, let alone across the board of their counterparts in the technology ecosystem. So while many of these great companies may never reach $100 billion in market cap, they will still provide outsized returns for disciplined investors.

When shown an early-stage investment opportunity, individual investors should ask themselves, “Why am I seeing this deal?” In my experience, that has more often than not meant that the VC community collectively passed on the investment opportunity.

Remember that these funds are smaller in size and therefore don’t have the capital to fully heavy up on their winners. General partners will often show their limited partners opportunities to co-invest in later stage investments once they feel the opportunity is de-risked in a vacuum outside of the fund structure.

So, while technology investing can be quite risky, investing in the right manager in a right-sized VC fund is incredibly less risky even when adjusted for the necessary time horizon due to the risk spread across a large base of companies, the active and ever-increasing presence of technology in our lives and economy, and the reduction of necessary exit value to return large multiples on the fund.

Commentary by David Hirsch, managing partner of Metamorphic Ventures, an early-stage venture capital firm in New York City. Prior to MV, he spent 8 years at Google, where he was on the founding team that launched Google’s advertising-monetization strategy. Follow him on Twitter @startupman.

David Hirsch, through Metamorphic Ventures, is an investor in Talkspace and Thrive Market.