Thoughts as we finish out this 1st Week of October 2020: live long and prosper!
thoughts as we finish out this 1st Week of October 2020
When you could live much longer, and markets could earn less…don’t mess up your social security!
When planning for retirement we may need to expand our thinking: a recent Morningstar report found that investors often underestimate how long they will live. They consider their parents and other family members, but may not consider genetics, gender, income, health, and lifestyle choices: these factor into longevity. Those who think they will be around for 20 or 30 years after retirement may not be setting enough aside for their golden years. The study suggests we add an extra five years to their expected lifespan, while couples must consider that one partner may well survive the other — and need to plan for an extra eight years. “There is no consensus approach to estimating the length of retirement among financial planners, even if the decision is based on the same underlying mortality rates (or life tables),” the report said. Individuals who estimated that they had no chance of living to 75 actually had about a 50% chance of reaching that age. 😲 Why does this matter to you? I always use 100 in your financial plan…even though that is a number many say they do not even want to live to! “These models suggest you need to be planning on your assets lasting to age 95: 30 years in retirement! The report also confirms that life expectancies continue to increase and that women are still statistically more likely to outlive men.
Your Social Security check at Full Retirement Age (66 if you were born in 1954) is the Primary Insurance Amount (PIA) and is calculated based on a formula that takes a certain percentage of your highest 35 years of earnings. An individual’s spousal benefit is equal to 50% of their spouse’s PIA and the spousal benefit is not adjusted if the working spouse claims the benefit before, they reach their full retirement age. You may have heard of business owners who hire their spouse and ‘transfer’ a portion of their salary to their spouses, but this can result in lower combined overall Social Security benefits for the couple! Shifting salary away from the higher-earning spouse can often reduce the spousal benefit that the lower-earning spouse would be entitled to. 😲 Why does this matter to you? While this paragraph hurts my brain to even read it…my goal was to help those who are now planning on what their retirement will look like be sure they use their age, wages and how long they will work as they plan to maximize their social security “salary.” My first article above should bring home that you may be retired for as long as you worked! Trying to look for ways to reduce what you pay in taxes today, like hiring your spouse to work in your company, or playing with salary-splitting strategies to reduce today’s taxes, could end up really “costing” you later. As a matter of fact, focusing on minimizing what you pay in taxes TODAY could come back to hurt you when you no longer want to work. What matters is maximizing your social security benefit when you no longer want to, or can, work.
JPMorgan Chase, is one of the founding partners of Rocky Mountain Institute’s (RMI) Center for Climate-Aligned Finance, and is partnering with clients in high-carbon industries implement the ambitious, but challenging transition, to full climate alignment of their portfolios. It joins Morgan Stanley, Barclays, and other private financial institutions representing over $20 trillion in assets that have committed to align their portfolios with the climate goals of the Paris Agreement. Steering large mainstream financial institutions toward net-zero emissions requires navigating major challenges and “JPMorgan Chase has put this work at the center of its new commitment,” said Paul Bodnar, chair of RMI’s Center for Climate-Aligned Finance. “This is a small step for a bank, but a giant leap for climate alignment. Only collective action by financial institutions, with their clients, can drive progress fast enough towards a net-zero emissions global economy.” 😊 Why does this matter to you? Follow the money…and you will find change happening as banks help tackle climate change.
A picture is always worth a thousand words: below are the annual returns for different parts of your portfolio: the red is the last 5 year’s annual returns, and the blue is Northern Trust’s expected returns for the next 5 years. 😲 Why does this matter to you? If you want to know what keeps me awake at night…it is the lower expected returns we will have for the next 5 years. For a balanced portfolio, the income from your portfolio will be less than 3%...with portfolio growth also being less than 3%. With a total portfolio return of less than 5% a year you need to be very conscious of the amount of risk your portfolio is taking on. NOT having a large loss is critical.
I am looking forward to rolling out Skye 2.0 over the next few weeks!
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