Retirement Archives - AFCPE

Investor Education & Protection: Starting The Critical Conversation about Retirement in Your Community

Rachael Deleon — Wed, 25 Oct 2017 16:08:00 +0000

Did you know that:

17% of Ohioans reported that over the past year, their household spent more than their income*
27% of Ohioans reported having medical bills past due*
Nearly 60% of Ohioans do not have an emergency fund to cover three months, which means that individuals who are not balancing monthly income and expenses are not saving and may be struggling to make ends meet.*
31% of Ohioans reported using one or more non-bank borrowing methods, such as payday loans, in the past five years.*
Only 2 in 5 Ohioans have a financial plan because of a lack of knowledge, low wages, or a lack of trust in the profession.**

While these statistics are specific to Ohioans, we know that the trend is consistent, and sometimes even worse, in states throughout the country.

In May, AFCPE launched the “Building the Bridge to Ohio Investor Education Program” in collaboration with the Ohio Department of Commerce – Division of Securities, the Investor Protection Trust (IPT), and Detroit Public Television (DPTV) – to bring together a network of professionals, organizations, and resources to build a more effective continuum of care at the local level. The statewide campaign featured the airing on Ohio public television stations of the DPTV documentary “When I’m 65,” three community events (Columbus in May, Cleveland in July, and Cincinnati/Dayton in September) and pro bono financial counseling and planning. When I’m 65 is a groundbreaking national documentary and engagement program focusing on the realities of retirement in the 21st century and the financial choices that all Americans need to make to plan for a financially secure future:www.wi65.org.

Participants in the three-city event, reported the events to be an invaluable opportunity to engage with experts, learn new information, and gain new resources to use in professional work or to improve personal financial well-being. As part of the program, we designed a community discussion guide to help more individuals, families and communities begin talking about money, addressing the barriers and opportunities to retirement planning, and connect more people to trusted resources. In addition, we created a model that can be replicated in other states to address the lack of financial literacy across the nation.

As an organization, AFCPE is dedicated to building the bridge to a more comprehensive and integrated continuum of care for financial services to ensure that all people – regardless of age, income or background – can plan for a secure future.

So what can you do to help?

Facilitate the Conversation! Download our discussion guide to host a When I’m 65 screening in your community. We make the process easy – outlining what you need, how to prepare, and discussion questions to ask to drive conversation and a call to action. This guide can be used in an informal setting with friends, family, or neighbors, or in a financial education setting through your organization.

Bring the Program to Your State. If you are interested in bringing this program to your state, please contact me at rwiggins@afcpe.org.

*2015 FINRA National Financial Capability Study
**AFCPE 2017 Ohio Consumer Survey

October 25, 2017

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Surviving Retirement: RMD’s

Rachael Deleon — Tue, 30 May 2017 15:09:24 +0000

As students of our profession, financial counselors are readily exposed to the necessary steps that lead to a successful and fulfilling retirement. We learn and pass on our knowledge about the importance of a spending plan, managing credit and debt, insurance, estate planning, the list goes on. However, while we account for the financial implications, too often we are not exposed to what it means to live in retirement. One term to know. Your RMD: Required Minimum Distribution.

What’s an RMD?

If you have an IRA, you must begin to withdraw money from your tax-deferred account(s) in the year in which you reach 70 ½. There is a minimum amount (Required Minimum Distribution) that must be withdrawn each year. Getting to the correct number is relatively easy, and guidance is provided in IRS Publication 590, but it’s important to know. ShThe penalty for failing to take the correct RMD is 50% of the amount that should have been withdrawn but was not. RMD’s do not apply to Roth IRA’s, only tax-deferred IRA’s.

How do I arrive at the correct number?

Not only is the RMD number relatively easy to arrive at, but many mutual fund companies and financial advisors are willing to calculate the correct number for you. I provided some basic data for my mutual fund custodian, and my custodian determined the amount I owed and made sure the amount owed in taxes was paid to the IRS and my part of the distribution was handled per my instructions. I did double check their work to make sure I understood how they arrived at my RMD number, and I suggest you do the same.

What do I do with the money distributed to me?

The real conundrum is deciding what you’re going to do with the money distributed to you. There are several options for the distribution and your challenge is to make the right choice for you.

Decision 1: When to take your distribution.

You can take your distribution as early as January of the year in which you turn 70 ½ or as late as April 1 of the year after you turn 70 ½. If you choose the latter, you will have to take two RMD distributions that year. You can take your distribution in a lump sum or you can take it on a monthly basis. The decision is yours. The key message here is that you MUST take the full amount of your RMD by April 1 of the year after you turn 70 ½ and each year thereafter.

Decision 2: Whether to take your entire distribution in cash, take part of it in cash and reinvest the rest in a taxable account, or reinvest the entire amount with your current provider or another investment opportunity.

I know from personal experience that there is a strong temptation to use your distribution as a reward for being a good saver all those years you were working. I succumbed to the temptation. I not only took my distribution at the earliest possible opportunity (January of the year in which I turned 70 ½), but I also took nearly the full amount to buy a fairly expensive motorcycle. Shocking, maybe. Fun, you bet.

A more conservative investor, and possibly smarter investor, may have taken the entire distribution and reinvested the money. Not me. I had my eye on this motorcycle for a long time and I saw my RMD as my chance to buy it, and to some level I did see it as a well-deserved reward for a lifetime of saving. Prior to my distribution, I had responsibly determined that I had enough funds accumulated to last my lifetime and, while I think it would be nice to leave a monetary legacy for my children and I still expect to do so, I also like me enough to occasionally reward myself.

Frankly, as a financial counselor, I’d probably recommend that any money received from an RMD be reinvested in another promising and age appropriate investment. However, I followed a different path. There are many thoughts about what is right and what is wrong relative to spending in retirement. I chose the path I felt comfortable with at the time and I haven’t looked back.

What decisions have you made with your RMD?

Guest Contributor: Wayne Hanson, AFC^®

May 30, 2017

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Surviving Retirement: It’s About Diversification

Rachael Deleon — Tue, 16 May 2017 15:53:11 +0000

As students in our profession, financial counselors are typically exposed to the necessary steps that lead to a successful and fulfilling retirement. We learn and pass on our knowledge about the importance of a spending plan, managing credit and debt, insurance, estate planning, the list goes on. However, while we account for the financial implications, too often we are not exposed to what it means to live in retirement. For me, living means continuing to maintain my certification and to work in this field.

Why it important for me to still be employed and maintain my professional accreditation while in retirement?

Most of you reading this blog remember the 2007-2009 Great Recession that severely impacted the U.S. and the world economy. I was one of those giddy savers who, up to that point, had generally experienced favorable markets in which to plan and save for retirement. The Great Recession, like a bolt of lightning, changed that for many of us, with people seeing changes to their savings that amounted to 40% losses or more. It was a hard lesson on the importance of diversification, especially for those with heavily laden stock portfolios.

Now, as a retiree, I am particularly sensitive to the impact that a recession can have on one’s portfolio. Although I continue to work as a financial counselor, I primarily work on a pro bono basis, so without a regular employment income, it’s important that I maintain a portfolio that will sustain my needs throughout retirement. With that in mind, I have tried to structure my portfolio to withstand the onslaught of another hurtful recession, but there are no guarantees.

Enter Plan B

As a retiree, it’s important to have a Plan B. For me, this means having the ability to transition smoothly from retirement to workforce. I maintain close ties to my personal finance profession and keep my certification current, allowing me to quickly enter back into my professional field. While I cannot expect my former employer to hire me back, I’m confident that I can use my experience to find a position or open a private practice if necessary. I am made more confident knowing that if or when I need to go back to work there will be clients out there who need my personal finance services, because they will have experienced the same economic downfall that I have experienced.

While financial calculators can estimate the likelihood for surviving retirement comfortably, they are not a perfect science. By maintaining my professional AFC^® designation, I stay connected to the personal finance field and enhance flexibility and opportunity during my retirement. Specifically, it provides a valuable plan for sustainable income should I need it to get through a rough patch, and allows me to continue to learn and grow in an area that has always been of special interest to me.

Guest Contributer: Wayne Hanson, AFC^®

May 16, 2017

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How Financial Counseling Professionals Can Help Millennials Save for Retirement

Rachael Deleon — Fri, 27 Jan 2017 15:33:06 +0000

Saving for retirement has always been a challenge, but it’s harder than ever for many Americans today. One in three people have no retirement savings at all, and more than half of all adults have saved $10,000 or less.

When it comes to millennials, however, the news is more mixed. According to the same GoBankingRates survey,42 percent of millennials have no retirement savings. Yet those who do save are socking away a higher share of their income – about 7.5 percent compared to just 5.8 percent in 2013. Still, many millennials simply aren’t building the savings they’ll need in their later years.

AFC^® professionals are uniquely positioned to help change that trend, and it begins by educating young clients on several key points they’ll need to understand in order to save successfully.

The Value of Time

One of the greatest assets for millennials is also one of the greatest challenges: time. The ability to start small and build savings over several decades is tremendously advantageous, but many young people find it difficult to save as much as they should when they know they likely won’t be retiring for many years. Reframing this problem is one of the most important tasks a financial counselor can accomplish. Rather than being seen as a convenient excuse to put off retirement planning, young people should be guided toward the view that time is just as valuable as money when it comes to saving.

Planning for Success

Many millennials begin saving by simply stashing money haphazardly in the hope that it will someday pay off. While saving is never a bad thing in any form, young clients should always be encouraged to develop a set plan and to stick to it as closely as possible. Of course, this begins by setting realistic goals for both the client’s retirement age and the total savings they’ll need to make it happen. Whenever possible, young people should begin with their savings goals and create a budget to fit rather than the opposite.

The Many Paths to a Successful Retirement

One of the most appealing and least understood aspects of retirement planning is that it can be done in any number of different ways. Though millennials who have access to employer-sponsored retirement funds often take advantage of them, far fewer young people utilize options such as Roth IRAs, ETFs and mutual funds.

Even fewer understand the value of a health savings account, which can often make the difference between a minor inconvenience and a complete financial disaster in the event of a major medical issue. Millennials who are aware of the savings options available to them, and of the advantages and drawbacks inherent to each, tend to be far better prepared than those who don’t.

Mastering Credit and Debt

Both credit and debt have become dirty words in recent years, but millennials shouldn’t be afraid of them. They should, however, understand how to utilize them correctly. Using a credit card for routine purchases or taking out the occasional small loan can be a great way to build credit, but many young people fail to recognize the risk that larger debts pose to their ability to save for retirement. Ever-increasing student loan debt already pushes back saving for many millennials, but high-interest debts like multiple credit cards can make it nearly impossible to put aside adequate savings each month. Many people are also unaware of the assortment of federal programs that can aid in managing, reducing or even eliminating student loan debts, making this a key area to explore for those whose income is being burned away on interest and other fees.

Though surveys have shown that most millennials are optimistic about their eventual retirement, reality doesn’t always justify such a rosy outlook. Millennials simply aren’t saving enough as a group, but there’s still time for that to change. Even modest savings, if started early enough, can grow to eventually form the basis of a comfortable retirement. For that reason, the ability of skilled financial counseling professionals to guide young clients toward an effective, sustainable retirement plan is perhaps more important now than ever.

Guest Contributor: Maricel Tabalba

Maricel Tabalba is a freelance contributor for Credit.com who is interested in writing about personal finance advice for Millennials and college students. She earned her Bachelor of Arts in English with a minor in Communication from the University of Illinois at Chicago.

January 27, 2017

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