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Rehearsing for Retirement

Try living as a “retiree” for a month or two before you commit to leaving your career.

Provided by: Warren Street Wealth Advisors

  

Imagine if you could preview your retirement in advance. In a sense, you can. Financially and mentally, you can “rehearse” for the third act of your life while still enjoying the second.

 

Pretend you are retired for a month or two. Take two steps to act out your rehearsal – one having to do with your budget, the other with your expectations.

 

Draw up a retirement budget & live on it for one, two or three months. Make a list of essential expenses (groceries, gas, utilities, mortgage, medicines), and then a list of discretionary expenses (movie tickets, dinners out, spa treatments, what have you). This may reveal that you can live handily on less than what you currently spend each month.1

 

Next, list your income sources for retirement. They might include Social Security benefits (depending on when you want to claim them), IRA Required Minimum Distributions, pension checks, dividends, freelance or consulting payments, or other revenue streams. Investment income is also in the mix here, so check with a financial professional to determine a withdrawal rate off of those accounts that you can safely maintain through your retirement – it might be 3%, 3.5%, or even 4%. When you have your list, stack the projected total income up against your essential expenses and see how much you have left over.2

 

Try living off of that level of monthly income for a month or more while you are still working. If it covers your necessary monthly expenses and not much else, then some adjustments in your retirement strategy might be needed – a housing change, a change in your retirement date.

 

See how it feels to retire. Before you conclude your career, try to arrange some “previews” of your retirement lifestyle. If you want to serve your community, volunteer avidly for a month or two to get a taste of what daily volunteer work is like. If you see yourself traveling enthusiastically at the start of retirement, take a dream vacation or even a couple of consecutive trips (if your schedule allows) to see how they truly fit into your financial picture.

 

Your “rehearsal” need not be last-minute. If you think you will retire at 65, you could try doing this at 63 or 60 (or even before then). The earlier you attempt it, the more time you have to alter your retirement plan if needed.

 

What else should you consider as you rehearse? Besides income, expenses, and the day-to-day retirement experience, there are a few other factors to gauge.

 

How much cash do you have on hand? Starting retirement with a strong cash position provides you with some insulation if you happen to retire during a market downturn. The possibility of a bear market coinciding with your entry into retirement may make you want to revisit your portfolio allocations as well.

 

Take a second look at your projected monthly income. Will it be consistent? If it will vary, you will want to address that. If you are in line for a pension, you will face a major, likely irrevocable financial decision: should it be single life, or joint-and-survivor? The latter option would reduce your pension income in retirement but give your spouse 50% or more of your pension payments after you die. Your employer might also offer you a lump-sum pension buyout; if that turns out to be the case, you will have to decide if the lump sum constitutes the better deal versus a lifelong income stream.3

 

How about your entry into Medicare? You may enroll in it at medicare.gov within a 6-month window of your 65th birthday (that is, beginning three months prior to your birthday month and ending three months after it). If you sign up before your birthday, you will be covered beginning on the first day of your birthday month. Sign up following your 65th birthday, and you may have to wait up to six months for coverage.3

 

If you plan to stay on the job after 65, sign up for Medicare Part A anyway (the part that pays for hospital care) within the usual 6-month window. It will not cost you anything to do so, and sometimes Part A makes up for shortcomings in employer-sponsored health plans. You can enroll in Part B and other Medicare component parts later – within eight months of your retirement, to be precise. You will want to pay attention to that 8-month deadline, as your premiums will jump 10% for every 12-month period afterward that you refrain from enrolling.3

   

Rehearsing for retirement can be very insightful. Some new retirees leave work abruptly only to have their financial and lifestyle assumptions jarred. As you want to make a smooth retirement transition to a future that corresponds to your expectations, test-driving your retirement before it begins is only wise.

 

Warren Street Wealth Advisors

190 S. Glassell St., Suite 209

Orange, CA 92866

714-876-6200 – office

714-876-6202 – fax

714-876-6284 – direct

 

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

     

Citations.

1 – bankrate.com/financing/retirement/take-a-retirement-test-drive/ [12/13/13]

2 – blogs.wsj.com/experts/2014/12/05/how-to-practice-retirement-before-you-retire/ [12/5/14]

3 – time.com/money/3615581/test-drive-retirement/ [2/9/15]

 

 

4 Money Blunders That Could Leave You Poorer

Not to do listA “not-to-do” list for the new year & years to follow.

Provided by: Warren Street Wealth Advisors

   

How are your money habits? Are you getting ahead financially, or does it feel like you are running in place?

 

It may come down to behavior. Some financial behaviors promote wealth creation, while others lead to frustration. Certainly other factors come into play when determining a household’s financial situation, but behavior and attitudes toward money rank pretty high on the list.

 

How many households are focusing on the fundamentals? Late in 2014, the Denver-based National Endowment for Financial Education (NEFE) surveyed 2,000 adults from the 10 largest U.S. metro areas and found that 64% wanted to make at least one financial resolution for 2015. The top three financial goals for the new year: building retirement savings, setting a budget, and creating a plan to pay off debt.1

 

All well and good, but the respondents didn’t feel so good about their financial situations. About one-third of them said the quality of their financial life was “worse than they expected it to be.” In fact, 48% told NEFE they were living paycheck-to-paycheck and 63% reported facing a sudden and major expense last year.1

 

Fate and lackluster wage growth aside, good money habits might help to reduce those percentages in 2015. There are certain habits that tend to improve household finances, and other habits that tend to harm them. As a cautionary note for 2015, here is a “not-to-do” list – a list of key money blunders that could make you much poorer if repeated over time.

 

Money Blunder #1: Spend every dollar that comes through your hands. Maybe we should ban the phrase “disposable income.” Too many households are disposing of money that they could save or invest. Or, they are spending money that they don’t actually have (through credit cards).

 

You have to have creature comforts, and you can’t live on pocket change. Even so, you can vow to put aside a certain number of dollars per month to spend on something really important: YOU. That 24-hour sale where everything is 50% off? It probably isn’t a “once in a lifetime” event; for all you know, it may happen again next weekend. It is nothing special compared to your future.

 

Money Blunder #2: Pay others before you pay yourself. Our economy is consumer-driven and service-oriented. Every day brings us chances to take on additional consumer debt. That works against wealth. How many bills do you pay a month, and how much money is left when you are done? Less debt equals more money to pay yourself with – money that you can save or invest on behalf of your future and your dreams and priorities.

     

Money Blunder #3: Don’t save anything. Paying yourself first also means building an emergency fund and a strong cash position. With the middle class making very little economic progress in this generation (at least based on wages versus inflation), this may seem hard to accomplish. It may very well be, but it will be even harder to face an unexpected financial burden with minimal cash on hand.

 

The U.S. personal savings rate has averaged about 5% recently. Not great, but better than the low of 2.6% measured in 2007. Saving 5% of your disposable income may seem like a challenge, but the challenge is relative: the personal savings rate in China is 50%.2

 

Money Blunder #4: Invest impulsively. Buying what’s hot, chasing the return, investing in what you don’t fully understand – these are all variations of the same bad habit, which is investing emotionally and trying to time the market. The impulse is to “make money,” with too little attention paid to diversification, risk tolerance and other critical factors along the way. Money may be made, but it may not be retained.

 

Make 2015 the year of good money habits. You may be doing all the right things right now and if so, you may be making financial strides. If you find yourself doing things that are halting your financial progress, remember the old saying: change is good. A change in financial behavior may be rewarding.

     

Warren Street Wealth Advisors

190 S. Glassell St., Suite 209

Orange, CA 92866

714-876-6200 – office

 

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

    

Citations.

1 – denverpost.com/smart/ci_27275294/financial-resolutions-2015-four-ways-help-yourself-keep [1/7/15]

2 – tennessean.com/story/money/2014/12/31/tips-getting-financially-fit/21119049/ [12/31/14]

Talking About Money Before & After You Marry

Talking About Money Before & After You MarryNo money secrets should stand between the two of you as you wed.

Provided by: Warren Street Wealth Advisors

 

 

 

No married couple should suffer from financial infidelity. If you hide debt, income or assets from your spouse, it can lead to a fight and possibly even an impasse in your relationship.

 

Communication & transparency are essential when it comes to money. That truth should be recognized by every couple tying the knot, or even just cohabitating. Yes, financial matters can prove hard to discuss – but if you can’t talk about them together, that’s already a serious problem.

 

That problem may affect more couples than we realize. In 2013, 7% of engaged individuals who answered a National Credit Counseling Foundation poll said that if they discussed money issues with their fiancé, it would prompt a fight; 11% felt such a talk would uncover financial secrets, and 5% said it would “cause us to call off the wedding.”1

 

On the bright side, 32% felt a conversation about financial matters would be “a productive and easy conversation to have.” The most frequent response (45%) was that a money discussion would be “awkward,” but also necessary for the health of the marriage.1

  

You have to tell your future spouse about your debts. Do it before you get married, not after. That debt will become your spouse’s financial concern as well as yours. The two of you should plan together to pay down your individual debts in the coming months or years. Again, this represents a shared commitment. Don’t put your name on your deeply indebted spouse’s credit card. Attaching your name to that account will have minimal impact on your FICO score, but you don’t want to pay a (literal) price for your spouse’s runaway financial impulses.2

 

If you have six credit cards between the two of you, see if you can slim it down to three or four – the ones with the lowest fees and best rewards programs. Or see if you can just use those three or four and let the other accounts lie dormant. That might be a better move than just canceling the excess credit cards – that could hurt you, especially in the case of older accounts. About 15% of your FICO score is based on the duration of your credit history, so if that was good history, you don’t quite want to say goodbye to it.2

 

Think about a new joint credit card account for the two of you. If you feel your spouse needs debt counseling before you can make that move, don’t be shy about requesting it. Even if your spouse has been living on plastic, think twice about leaving him or her without a credit card. You want (and need) to show some credit history.

 

You will have to compromise. The most valuable verb in marriage is also really valuable when it comes to your shared financial life. Maybe you’re a good saver, a future “millionaire next door” – and yet your spouse is a comparative spendthrift. If you can’t compromise on a “money policy,” then maybe you can find a middle ground by saving for a special experience. Or, maybe each of you can set aside a bit of money per month to spend or save purely at your discretion.

 

You may want to pay the bills proportionately. If one of you earns 70% of the household income, then maybe that spouse should pay for 70% of the household bills and expenses. To many newlyweds, that seems entirely fair.

 

Build retirement savings & an emergency fund together. Financially, there are few better ways to signify your long-term commitment to one another.

 

Wait on a big purchase. Consider waiting 24 hours (if you can) before going through with it. Or, alternately, set a dollar limit on such purchases – give each other limited financial autonomy I making major purchases that ends at X hundred or X thousand dollars. If the money exceeds that limit, then you both have to discuss it before it can occur.

 

Make a budget. In fact, strive to make a zero-based version, a budget in which income minus expenses comes precisely to zero each month. This is a way of accounting for each and every dollar spent (actual or projected) and a way to pinpoint potential monthly savings or redirection of income toward expenses.

 

Watch those taxes. Should you file your taxes jointly? Not necessarily. That is wise for many couples, but if your incomes vary greatly it may be better to file separately. Consult a tax preparer for an answer. Also, look at your W-4 at work. It may be time to adjust your withholding status. If your spouse isn’t employed, you get to add another withholding allowance. Assuming he or she is employed, you can turn to irs.gov to learn how many allowances you are due in total. Then, you can divide that total by two. You and your employer need to follow the instructions on the W-4 so you don’t withhold more or less than you should.

 

Talking about money isn’t always pleasant, but candor, communication and full disclosure can lead to clarity in your financial lives.

 

Warren Street Wealth Advisors

190 S. Glassell Street, Suite 209

Orange, CA 92866

 

Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.
Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered
Investment Advisor. Warren Street and Cambridge are not affiliated.

 

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

  

Citations.

1 – nfcc.org/press/multimedia/news-releases/two-thirds-of-engaged-couples-express-negative-attitudes-toward-discussing-money/ [5/31/13]

2 – washingtonpost.com/news/get-there/wp/2014/09/23/for-richer-or-poorer-a-financial-plan-for-newlyweds/ [9/23/14]