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The complexity of the Rubik’s cube makes it more difficult and highly motivating. It took Erno Rubik about a month to solve the cube puzzle, and it took thirty-six years for some mathematicians to figure out how to solve the same puzzle in twenty moves. Basically, there are 43,252,003,274,489,856,000 ways to arrange the squares.

Unfortunately, retirement planning has become a Rubik’s cube for most Americans. Several factors, ranging from stock market volatility to health issues, long-term care, and housing costs, impact most Americans’ ability to save, creating an unsolvable puzzle.

During the outbreak of the COVID-19 pandemic, America suffered economic damage, aside from health issues. Many lost their jobs and were placed on the unemployment insurance scheme. While the food banks were facing unprecedented demands, there was also an eviction crisis threatening society. The possibility of retirement has been worsened, all thanks to cashed-out savings and lost jobs.  

Amidst these issues, the retirement security of working Americans was already weak before the pandemic peaked. 

Higher Risk, Fewer Rewards

A recent report by the National Institution on Retirement Security entails the struggles of Americans regarding retirement. The report showed that it was not easy for a worker to manage all the risks independently. The burden of higher risks is seen in the move from defined pensions with a beneficiary to defined contribution plans like 401(k)s.

Only one-third of working Americans participated in the defined benefit plan, even in the corporate pension plan’s prime period. However, the burden of saving and investing was taken off the shoulders of those who participated in a pension. 

With a defined benefit plan, risks like interest rate risks, longevity risks, and market timing risks are borne collectively rather than individually. This is one of the strengths of a defined benefit plan that makes it appealing. 

Two issues were mentioned in the report—the first being low-interest rates. Low-interest rates are good for borrowers but never good for savers. In the 1980s, retirement savers could expect double digits of their returns for ten years from a Treasury bond; but today, the interest drastically reduced to 1%. This forces retirees to either invest in riskier assets or lose their income during the drawdown stage.

Another issue is the late start in saving for retirement. The report calculates a savings projection beginning at age 25 and a second projection beginning at 40. In a late-start scenario, the employee makes 78% of their total contributions for retirement but loses 60% of the investment returns. Contributing at an early stage will make the retirement systems efficient. Unfortunately, two-thirds of Millennials haven’t saved anything for retirement.

Long-term care costs further complicate the burden of retirement. The majority of older Americans will need long-term care in their later years. One in seven will spend more than $250,000, while about half will never pay for the services rendered. 

Today, the single largest payer as regards long-term care costs in the United States is Medicaid. Many families still struggle with Medicaid coverage because it’s a time-consuming and complicated process. 

Long-term care shouldn’t be burdensome and complicated. And this is exactly what Washington State is currently pursuing. As of 2022, Washington workers will be paying $0.58 for every $100 earned via a payroll deduction. After meeting the requirements target, the worker is entitled to a benefit worth $100/day for a year with a totality of $36,500 in today’s dollars. This starts in 2025. 

The benefit cap rises with inflation, and it can be used on anything ranging from long-term care such as nursing home stays and home modifications. This will likely reduce Medicaid as more people choose home-based stays.

Other challenging parts of the puzzle are healthcare and housing costs, which are rising continuously. Seniors typically have higher healthcare costs as they age due to developing health conditions. The rise in costs is more of a challenge for retirees living on a fixed income.  

Then again, more and more Americans are retiring with mortgages. About 46% of older Americans had mortgage debt in 2016, according to a report by the Harvard Joint Center for Housing Studies. This compared to 24% thirty years ago. Fewer near-retirement Americans between the ages of 50-64 years old tend to own a home than those age 65 and older.

Despite the experts’ suggestions on how to solve the retirement puzzle, retirement is getting harder by the day. Many risks rose as a result of the COVID-19 pandemic outbreak. Many older Americans were unable to meet up with their yearly target for retirement. In this aspect, the policymakers need to take a step toward building forward-looking solutions, which will enable Americans to be self-sufficient while they age. If these measures are not considered, older Americans will be forced to turn to government programs and their families to meet up their most basic needs. That will be a costly, burdensome, and unsustainable approach to follow.

Most people think about retirement in two different ways. They think of retirement as a period of freedom when they can use their time to do anything they like. On the other hand, they think that planning for retirement is tasking. Especially when you begin your savings late, or you are bothered that you will not live the life you desire after retirement. It might help if you made a good plan to generate investment earnings from investment plans, such as the TSP.

Below are the four strategies that have worked for many people. If your money is in the TSP, you can implement only one of the strategies. Adequate knowledge about these strategies puts you in a better position to live your desired lifestyle when you retire.

Strategy of Systematic Withdrawal  

The most common strategy for generating income during retirement is the systematic withdrawal. The systematic withdrawal is when you save money in your retirement plan for several years, and then you finally withdraw it again. It is a bit more complex than the regular savings in an investment account, and it is the only strategy that you can implement if your money is in the TSP. 

Due to a lack of flexibility with the TSP, it does not apply to other strategies. When you save in retirement plans such as the TSP and 401(k) plans, your savings are used to buy many investable products, and the value of this product fluctuates over time. If you withdraw from your retirement savings, you are gradually selling these products while your bonds and stocks are shrinking.

After each withdrawal, you will have a smaller amount of savings that can yield more money for you. Suppose you want to use a systematic strategy. In that case, you must consider the amount of money you will need for a particular period of time so that your income will suffice you longer.

Bucket Strategy 

This strategy is also referred to as time segmentation. With this strategy, you can partition your investments into divisions depending on when you want to make use of the income they will generate over time.  

For instance, if you plan to spend thirty years after retirement, you can generate more income by designing a near-term investment bucket for the first ten years, a mid-size bucket for the next ten years, and a long-term bucket for the last ten years. The longest investment bucket contains a risky investment that will accumulate huge rewards as time passes. The near-term investment bucket has less risky investments that you will not bother about when the market fluctuates.

Although you don’t need the money in the long-range bucket now, you have to create a great diversity within each bucket in case of any potential risk. You need to adjust the bucket because you will not want all your money to be in the riskier investment when you are in your third stage of retirement. You will want to segregate your money between high- and low-risk investments. 

The bucket strategy applies mostly to investors who are making investments. Still, they want to be in control of the risk associated with their investments. This strategy gives you a better understanding of risk and how to maintain your balance during market fluctuations. However, it requires you to pay adequate attention, since you need to adjust the bucket depending on the market situation. 

Income Portfolio Strategy

The income portfolio strategy doesn’t generate income by selling your investments. Instead, it uses your investment to generate revenue. For instance, if you have $900,000 as an investment, you can create a bond ladder, which will create more income with time. You can also generate income that will pay for your living by getting stocks that will pay dividends, and this does not require you to sell your investments. You can distribute your income portfolio between bonds, stocks, and CDs. 

This strategy is the best for investors who need a small amount of investment income after retirement, and those who receive rental income and a pension serve as auxiliary sources of income. The income portfolio strategy gives your money a firm foundation because it doesn’t require you to sell your investments. Since you are not selling your investments, you will indeed have peace of mind. The only deficit with this strategy is the fluctuation of income every month.

Essential Versus Discretional Strategy

This strategy is referred to as a flooring strategy. It allows you to separate your needs from your wants when you retire. 

This strategy’s ultimate goal is to provide income that will cover your essential needs, such as food, health insurance, housing taxes, etc. These essential needs are non-avoidable, and the income you will use to pay for them should be from a source that has a low risk and is very stable. Examples of such stable income sources include the money you receive from Social Security, bond ladders, annuities, and reliable pension income.

Once you make the necessary arrangements that will cater to your needs, other things are secondary. The finance for your wants, such as traveling to Europe, will benefit from the income you generate from risky investments because these investments exhibit high fluctuations. The point here is that you can always adjust your wants depending on the economic condition. 

This strategy works best for people who want to get along with the economic flow or people with a less rigid outlook. It ensures constant provision for your essential needs while balancing the reward and risk. 

These four strategies will help you to generate more income during your retirement period. You will create more income by choosing the best strategy that fits you.

It’s been months since the pandemic started, and millions of Americans are still struggling with the financial impacts. Over a million people filed for unemployment over the last week, and data from the Labor Department showed the unemployment rate has risen to about 15 percent. 

You have a few options if you lose your job. You can try to survive on the unemployment benefits and savings until you find another job or retire. Early retirement comes with many challenges, mainly because you won’t have time to save more. However, if you don’t have any other options, there are ways you can make it work. Although it may not be easy, you can do a few things to ensure you live comfortably in retirement.

1. Look into Your Healthcare Options

Losing your job means losing the healthcare coverage that comes with it, and it’s a significant risk to be without healthcare insurance, especially in a pandemic. If you are age 65 or above, then you are eligible for Medicare. However, if you are younger, you’ll need another plan. If married, you may get healthcare coverage through your spouse’s employer; otherwise, you should consider enrolling in COBRA insurance or buying healthcare insurance in the marketplace. 

Buying health insurance through the Affordable Care marketplace depends on where you live and what’s available there. The cost varies, so shop around and research various options to find the one that fits your needs and budget. 

2. Consider Claiming Social Security Early

You can start claiming Social Security benefits once you are 62 years old, and in some cases, it’s a smart thing to do. If you decide to retire early, claiming Social Security benefits will provide sufficient funds to go a long way in allowing you to make ends meet once you are eligible. Early Social Security withdrawal also means you’ll withdraw less from your retirement savings. 

However, ensure you consider the benefits and disadvantages before filing for Social Security. Keep in mind that when you withdraw from Social Security before reaching the full retirement age (FRA) – which is 66½ years, depending on when you were born, your Social Security benefits will be reduced by up to 30%. And if you wait a few years after hitting FRA, your benefit amount might increase by 32%.

If your savings are sparse, consider leaving your Social Security for a few more years to take advantage of the bigger checks. If you can handle it, delaying your benefits can prove beneficial, but ensure it doesn’t lead to draining your retirement savings.

3. Create and Follow a Budget

When you retire earlier than planned, there’s a need to become creative with your spending to ensure your savings last as long as possible. Create a budget mapping out all your expenses. Once you discover where the money is going, divide your expenses into various categories and reduce each category’s amount. The more you can cut down, the longer your retirement savings will last.

Conclusively, while retiring early comes with a significant risk, if you don’t have a choice, the tips above can help you make the best out of your situation.

When it comes to retirement, saving too much can be just as damaging as not saving enough. For the aggressive savers out there, you’re probably accustomed to putting a higher percentage of income away from an earlier age. If you’re comfortably in the seven figures with some time to go until retirement, are you saving too much? 

Of course, we cannot possibly address individual situations in one article, so if you’re concerned, speak with a financial advisor (they can provide tailored advice). Generally speaking, there is such a thing as saving too much. It’s an excellent problem to have, but it still requires careful management to meet your goals and enjoy life the way you want. 

What do we mean? Well, we shouldn’t sacrifice today to live comfortably in retirement. Saving is great, but you’ll never be as young as you are right now. Often, it’s about finding the balance between living now and living in retirement. Although we don’t like to think about it, many older workers are robbed of their retirement years; this is hard to take when they made sacrifices at a younger age to have more money in retirement. 

If you’re not a huge spender and you’re happy with life right now, there’s no reason why you shouldn’t continue aggressive saving strategies. If you’re living frugally, it sounds as though you should readdress the balance. 

Ultimately, the debate over whether you have saved too much comes down to how you’re living now. If you’re happy in life and have seven figures in a retirement account, and you’re financially comfortable, we don’t see any reason to change. The critical question is how you feel right now. 

• Are you focusing so much on tomorrow that you forget today?

• Are you foregoing experiences in your desire for financial security? 

• Do you find yourself continually making sacrifices or saying ‘no’ because of money?

We think the only reason to re-evaluate savings is if you lack joy in life right now. This being said, we appreciate that some will have concerns over large tax bills in later life. Two main factors affect a tax bill:  

• The amount you withdraw over a single year 

• The number of accounts from which you withdraw 

Many retirees make the mistake of withdrawing from accounts that are all pretax dollars; with every withdrawal, there will be an unwanted tax bill. The way to beat this is to have traditional accounts with pretax dollars, and Roth accounts with after-tax dollars; withdrawals from the latter are tax-free. 

These days, every account and system has benefits and drawbacks, so do your research and speak with experts before making big decisions. When it comes to saving money, numerous supplemental accounts and alternatives are available from life insurance to taxable investment portfolios. 

Even for those who are over-saving, you can never neglect retirement planning. Just because you’re saving heavily, this doesn’t mean you will have a well-rounded nest egg when the time comes. It would help if you also addressed the important questions like when to start claiming Social Security, how to deal with additional income, health issues in the family, and how to enjoy retirement so that you don’t waste all those years of aggressive saving.

Additionally, we shouldn’t forget estate planning if you want to leave some money for loved ones or charities. As well as saving for you, we’re sure you’re also saving for others. Without proper estate planning, there’s a risk your money won’t go where you want it to go. When you give money to charity, you’re subjected to less tax.  

In truth, the laws and regulations are always changing. With the Secure Act passing last year, the stretch IRA provision was removed for inherited accounts, leading to higher tax bills for those left behind. 

Conclusion 

There’s nothing wrong with aggressive saving as long as you aren’t reducing your standard of living. We believe in finding a balance between the present and the future. It’s all well and good having financial resources in retirement, but this is wasted if you don’t have the health, experiences, memories, and motivation now. 

If you’re happy in life and are still managing to save well, you deserve congratulations; this isn’t something that everybody can do! 

A survey done by the Employee Benefits Research Institute stated that one-third of retirees found expenses in retirement higher than expected pre-retirement, including one-tenth of retirees. 

This survey found the difference considering the most concerning medical and dental expenses: 25% higher, and another 13% called expenses much higher than their expectations. 24% of retirees said their housing expenses are much higher than expected, and 21 percent said travel, entertainment, and leisure activities. 

Only 10-12% said their expenses in the categories mentioned above were lower than their expectations. There were some special categories of a survey that considered two more types of spending: long-term care expenses and financially supporting family members. In both cases, about 50% of the respondents said those expenses were not accountable. The researchers also conducted sampling to study these reports before and after the pandemic hit. They found that people reporting higher and much higher than expected—for the former category increased from 18% to 31% and 14% to 21% in the latter category. 

The survey report also mentioned, “When they asked retirees about their overall lifestyle in retirement now, compared to their expectations before they retired, only 28% said it was much better or somewhat better than what they expected.”