Top Living Expenses Seniors Underestimate After Retirement

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Are You Underrating These Retirement Costs?

People underestimate what their costs of living in retirement will be in three critical ways:

1. Assuming you’ll spend less in retirement than while working: “The majority of people have never really sat down and calculated what they’ll need every month,” Pamela says. “You need to be comprehensive in listing out all expenses.” List everything you might spend in retirement, including expenses such as travel, hobbies and spending on grandkids. Don’t forget assigning numbers for major but often unexpected costs such as car repair, helping out a child financially or major home repairs.

2. Underestimating the impact of inflation: “We’ve been the beneficiaries of historically low inflation rates in recent years. It’s easy to forget that inflation has been a lot higher over the years – in some years it’s been 10% a year and even higher. But even low rates of inflation eat away at the value of your savings.” If inflation averages just 3% per year, it will swallow more than $117,000 of the average Social Security benefit over 20 years, according to the LIMRA Secure Retirement Institute. “Inflation averaged 3.22 percent a year from 1913 to 2020, so factor in at least 3% inflation per year – 4% if you want to be on the safe side,” Pamela says.

3: Underestimating health care expenses. “Out-of-pocket medical expenses in retirement is an area where many people are significantly underestimating their costs,” Pamela says. A 65-year-old couple retiring now will need $275,000 to cover out-of-pocket health care costs, according to a study by Fidelity, and that does not include nursing home or home health care. At least 70% of people over age 65 will require long-term care services, and more than 40% will need nursing home care, according to the U.S. Department of Health and Human Services. The typical nursing home stay costs more than $250,000, and Medicare does not cover these expenses.

Pamela shares steps people can take to make up a retirement savings shortfall, including:

1. Increase the amount you save each year by at least 1 to 2 percent. “You won’t feel the pinch, but you’ll be surprised by how much your savings will grow.”

2. When calculating how much you’ll need in retirement, use the currently recommended savings withdrawal rate of 2.8% , and assume you’ll live to at least age 95.

3. Save more where your money is guaranteed to grow every single year, even when the market is crashing. Pamela advocates The Bank On Yourself wealth-building strategy that’s never had a losing year in more than 160 years. She also shares details of a “Bank On Yourself for Seniors Plan” for people over 60 that comes with a long-term care benefit and covers home health care for up to three years.

About Pamela: Pamela Yellen is founder of Bank On Yourself, a financial investigator and the author of two New York Times best-selling books, including her latest, “The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future.” Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans.

5 Reasons Startups Should Overestimate Expenses and Underestimate Income

Don’t become a startup failure, use these 5 tips to better succeed

Learning to live without a stable, predictable income stalls many entrepreneurs before they even start. Not knowing the amount you’ll be bringing in each week, month, and year can be hard to balance while shelling out those early startup expenses.

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What is the best way to protect yourself from becoming stretched too thin? Learn to overestimate your expenses and underestimate your income. You’ll be setting yourself up for success long-term by using conservative estimates to your earnings and liberal estimates to your spending.

Are you still worried about living without a predictable paycheck? Have you gone around in circles creating a budget? Not sure how to prepare for the unplanned expense? Retirement? Healthcare? Emergencies? Wells Fargo and The Journal of the American Bankers Association are in agreement that it pays to overestimate your expenses and underestimate your income. Still not convinced that this is the best option for you?

Here are the top 5 reasons why it pays to inflate your expenses and downplay your revenue.

1. Be prepared for the worst case scenario

No matter how passionate you are about your new business, success is not a guarantee. You’ve worked hard to put your vision into practice. You’ve been diligent, provided the best service possible, and done everything to attract the right clients. So your profit should be guaranteed, right?

Unfortunately, not all clients will honor your agreements. Many entrepreneurs have learned this the hard way, to the detriment of their businesses (and sanity). It’s why 50 percent of all startups fail within the first five years. Sometimes that payout you were counting on arrives weeks late, a huge credit card payment is declined, or a check that was mailed just doesn’t show up at all. If you’ve budgeted for greater spending and less income, your disappointment will be the worst takeaway from this experience. The alternative is worrying whether each client is going to pay on time if checks will clear, and if funds will transfer in time.

2. Emergencies won’t catch you off guard

Have you ever had a hospital visit that was convenient? Or a car accident that didn’t ruin your day? You’ve done your homework and have an emergency fund stashed away (right?) Unforeseen events can quickly drain your emergency fund dry, and then some. You’ve heard the saying: “When it rains, it pours.” Big expenditures seem to have a way of piling up on top of each other.

Having a little wiggle room in your budget won’t take the sting off of the emergency room bills. It will keep you from having to trade your business for that office job you couldn’t stand.

3. You’ll be flexible

As an entrepreneur, it will take some time for you to generate a steady, predictable income, if this ever happens at all. The longer you are in business, the better you’ll be at predicting your expenses. But surprises still pop up from time to time. Suddenly needing to stay home for a week with your bedridden pre-teen? No problem if you’re getting significantly more from each client than you budgeted for. Electricity bill twice what you’d budgeted? You’re still okay because you expected your cell phone bill to be significantly higher. Wanting to take your new client out for a business lunch? You get the idea.

The best part? You won’t ever have to put up with the “Why don’t you get a real job” nonsense again.

4. You can accept a contract that doesn’t pay

Have you ever met the client of your dreams, only to realized that they just can’t afford you? Are you hoping to barter for services, but not sure if you can still make ends meet? If you plan to spend more and don’t count on a huge profit, you’ll have a greater opportunity to choose the business you want.

If you’re living by the skin of your teeth, you may have to put pro-bono work on the backburner. Being able to take on these charity cases can remind you why you went into business for yourself in the first place. You’ll have the chance to barter with other self-starters for things that you really want, without worrying about how you’ll put food on the table at the end of the day. Bonus: Great networking comes from unpredictable channels. You’ll also be contributing positively to your community by giving back.

5. Stash away extra income

Ever reach into your pocket and find a $20 bill that you didn’t realize was there? This one is pretty self-explanatory. If you’re consistently bringing in more money than you budget for, you’re going to have a little extra cash at the end of the day. Consider putting the additional funds into a high-return savings account in order to build up interest. Remember that you’re in charge of planning for retirement, emergencies, healthcare, and your children’s college expenses, to name a few. Or you can simply invest it back into your business. Either way, you’re planning for a positive future for yourself, your family and your company.

Don’t fall into the trap that so many startups sink into. Enjoy peace of mind by preventing surprise expenses that impact your business negatively. You’ll enjoy a greater takeaway at the end of the day. You’ll also be prepared for emergencies, and clients who aren’t always as reliable as you’d like. You can build your business to withstand the best and the worst by expecting to make less money, and planning to spend more. Your budget (and sanity!) will thank you.

Have you found it helpful to overestimate your expenses and underestimate your income? Do you have other positive experiences to share? We’d love your feedback in the comments below!

Best Annuities

Latest update: March 24, 2020

Annuities are a great way to generate income during retirement. Read about the best annuity companies, tips for investing and more.

3 Best Annuity Companies 2020

  • Acts as fiduciary
  • Easily compare annuity rates in real-time

Blueprint Income specializes in simple fixed and income annuities and delivers the best digital experience in the industry. Blueprint Income is appointed to sell products from more than 30 insurers. The Company has hundreds of reviews and is rated 4.8/5.0 stars by an independent third party site.

  • Compare top annuities
  • Low fees

AnnuityGator is an annuity marketplace, allowing customers to compare to annuities to find the best option. Independent annuity professionals provide honest advice, better products and personalized products for your situation.

  • Designed to fill financial gaps for life after 90
  • Issued by MassMutual

Are you worried about your parents outliving their savings? AgeUp is a new product that will help provide a stable source of income for your loved ones if they live into their 90s and beyond. AgeUp is sold by Haven Life Insurance Agency and issued by MassMutual. Get a quote now.

  • Network of Certified Financial Planners
  • Multiple financial instruments

Based out of Baltimore, MD, Facet Wealth is a financial planning firm with national registration. Facet helps clients of all budgets achieve their goals of financial freedom. Facet Wealth’s network of certified financial planners can assist in the growth of your retirement, savings, wealth planning, or investment accounts.

  • Affordable deferred fixed annuities
  • Trade and rebalance without penalty

Fidelity offers three classes of annuities. If you own an annuity and want to switch it to Fidelity, you can get a tax-free, low-fee exchange with their Personal Retirement Annuity.

  • High financial strength rating
  • Live customer service representatives

MassMutual has one of the best financial strength ratings in the industry. It offers five types of annuities and is best for those who are new to annuities and how they work.

  • Innovative risk management
  • Offers life, travel, and auto insurance

AIG is trusted by nearly 2.5 million people to help them prepare for retirement. AIG is best for those looking to customize an income solution for a portion of their retirement portfolio.

From 401(k)s to multiple types of IRAs like Tradtional, Roth and even Precious Metals IRAs, there’s no shortage of retirement planning options for you to look into. Annuities are another great option you might not know much about but can help you with having a steady income during your retirement. Let’s take a look at what annuities are, how they work and the top three annuity companies on the market.

We selected the three best annuities companies after researching and evaluating 20 of them. We stacked their ratings from independent companies, benefits, commissions, fees and the financial health of the insurance companies that back the annuities against each other for our evaluations. The annuities companies that ranked highest are AIG, Fidelity and MassMutual. In this guide, we will discuss the types of annuities, share tips for choosing one that will fit your needs and we’ll share our detailed evaluations of the top annuities companies. You will also find helpful frequently asked questions about annuities in this guide.

Top tips:

  • If you buy an annuity when interest rates are low, you’ll get less value overall. Wait to buy until rates increase
  • You can transfer all or a portion of your 401(k) or IRA into an annuity
  • Look for and pay attention to words like “surrender charges” and “withdrawal rates” in the contract

Tips for a Wise Annuity Buyer

Investing a lump sum with one of our best annuity companies today will lead to a steady monthly cash stream in the future. As with any investment, it is essential to be informed and to understand the costs and the income. Wise investors research the market, annuity companies, types of annuities available, benefits and risks as well as the fees and commissions. The ins and outs of some annuities are so intricate that even the most seasoned investor can find themselves scratching their head wondering what the best choice is.

What Is An Annuity?

If you’re new to annuities, start with knowing what this type of investment is: cash invested as a lump sum to produce a monthly income stream for life or a fixed period. The monthly income starts right away if you buy an immediate annuity, or in the future, if you buy a deferred annuity. A deferred annuity provides more substantial payout than an immediate annuity since the backing insurance company has more time to invest your funds. Pension funds are annuities, although this retirement benefit is rarely offered by employers anymore. Social Security is another example of an annuity.

Who Should Invest In An Annuity?

Annuities are best suited those who have maxed out tax-deferred contributions to 401(k) plans and IRA plans. The Internal Revenue Service (IRS) defines the maximum allowable contributions to pretax 401(k) and profit sharing plans, and both Roth and traditional IRAs. According to the Insurance Information Institute, there are no limits on the amount that you can invest in an annuity.

IRA and 401(k) accounts have hardship withdrawal or loans features if you need money for medical care, education and some other expenses. An annuity is not as flexible; once you make a deposit, the contract locks into a surrender period of two to over 10 years where you will pay fees along with a tax penalty if you withdraw any of the money.

Annuities carry annual fees, transfer fees, expense risk charges and other fees. Investor.gov explains more about annuities fees with information from the Security and Exchange Commission (SEC). Be prepared to compare the expenses of retirement accounts or see an independent financial planner for guidance.

There are a few types of annuities, like tax-sheltered, singled life, or joint. Low-cost fixed or variable annuities are often the best option as a part of a retirement portfolio. Monthly payments will fluctuate with a variable annuity, while fixed annuities pay out one monthly amount. No annuity is protected or insured, but they are considered safe investments.

Annuity Types

There are two main types of annuities: Deferred and Immediate. Within these two main categories, your annuity can either be fixed or variable depending on whether your payout is a fixed sum tethered to the market’s overall performance, a group of investments or a combination of the two.

  • Deferred Annuity – If you choose a deferred annuity, your money is invested for a predetermined period of time until you hit retirement and are ready to start making withdrawals.
  • Immediate Annuity – With an immediate annuity, you’ll start getting payments sooner after you’ve made your initial investment. Immediate annuities are good for people approaching retirement age.

Another way to look at the two is, a deferred annuity accumulates money over time while an immediate annuity pays out fairly quickly.

Annuities And Income Taxes

The main upside to annuities is that they guarantee an income stream and are safe investments. You pay no income taxes until you start to receive payouts in retirement when your income should be lower. If you use pretax dollars from an existing IRA or 401(k) to buy an annuity, the payout will be fully taxed. If you buy an annuity with after-tax dollars, you will not pay taxes on the payout portion of your original investment, only the gains. Taxes are assessed at the regular income rate and not the capital gains rate.

The downside to annuities is that they are elaborate financial instruments that come with various fees and costs. You should seek professional assistance to help you choose the type that works best with your retirement portfolio and understanding future tax implications.

When to Invest In An Annuity

Experts will tell you an annuity is not the first or even second retirement investment you should make. Max out other retirement savings accounts that offer tax-deferral or contribution matching. As a general rule, you should be investing at 15 percent of gross income in these accounts before you consider an annuity. To determine eligibility for Roth and traditional IRAs, see the IRS retirement plan rules.

Order of Retirement Fund Investments
1. Employer Plan with Matching If your employer matches contribution to a 401(k)
or 403(b) or other employer plans, contribute up to the
maximum matching.
2. Roth IRAs Contribute to a Roth IRA with after-tax income
(withdrawals are tax-free after the age of 59½). First,
determine if you are eligible for a Roth. If you’re not
eligible, skip to the next option.
3. Employer Plan Contribute the maximum allowed for the remainder
non-matched portion of your employer-based plan.
4. Traditional IRA Withdrawals will be taxed at a lower rate since your
income will likely go down in retirement.
5. Annuity Contribute to a tax-deferred annuity. You can invest in an
annuity within an IRA if you prefer.

Our Search For The Best Annuity Companies

We searched and came up with an extensive list of 20 companies

2. We evaluated annuity companies based on our expert-guided buying criteria: independent ratings, benefits and fees, commissions, and the financial health of the insurance companies that back the annuities

3. We provided you the best annuities companies for consideration

Annuity Company Reviews

You can buy annuities directly from the insurance companies that issue them, or from independent brokers, banks and other financial groups. With over 40 major insurance firms issuing annuities and hundreds selling them, knowing where to start your search can be daunting. Luckily, we did the hard work for you. Our in-depth annuity analysis focuses on each company’s industry reputation, the variety of offerings and other criteria.

We researched the top 20 annuity companies, then narrowed the list to our top three based on specific criteria we set by extensive research of government and consumer information on investing wisely to get the best of both worlds — benefits now and benefits down the road. The result was a list of three of the best annuity companies.

After our evaluation, we chose the best annuities companies. Each of these companies stood out above the competition.

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