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Del Gallo Financial Services, LLC presents articles below from the Financial Planning Association (R) - Financial Planning Perspectives

Please follow our series of articles that are focused on informing readers about important issues affecting their planning.

8/1/16

FPA(R) - Financial Planning Perspectives

Will Your Money Last? Risks to Retirement Income

Description: To be viable, a retirement income strategy needs to account for the effects of longevity, inflation, health care expenses, and the uncertain future of Social Security.

Synopsis: A sound retirement income plan takes into account several financial risks, including the potential for the retiree to outlive his or her assets, the effects of inflation on future income, rising health care costs, and the uncertain future of the Social Security system. For example, inflation increases the future cost of goods and services; inflation can also erode the value of assets set aside to meet future costs if the assets earn less than the rate of inflation. In addition to these considerations, a plan should take care to avoid excessive withdrawals in the early years of retirement that could lead to premature depletion of assets. The overall objective of planning should be to create a sustainable stream of income that also has the potential to increase over time.

Body:

With so much at stake when planning a retirement income stream, it pays to take a step back and see whether your plan takes into account the major obstacles to retirement income adequacy. When you take this big-picture view, consider the five major challenges most retirees face: the potential for outliving one's assets; the threat of rising living costs; the impact of increasing health care costs; uncertainty about the future level of Social Security benefits; and the damage to long-term financial security that can be caused by excessive withdrawals in the early years of retirement.

Understanding each of these challenges can lead to more confident preparation.

Examining the Issues

Longevity. While most people look forward to living a long life, they also want to make sure their longevity is supported by a comfortable financial cushion. As the average life span has steadily lengthened due to advances in medicine and sanitation, the chance of prematurely depleting one's retirement assets has become a matter of great concern.

Consider a few numbers: According to the latest government data, average life expectancy in the United States climbed to 77.9 years for a child born in 2007, compared to 47.3 years in 1900. But most people don't live an average number of years. In reality, there's a 50% chance that at least one spouse of a healthy couple aged 65 will reach age 89 (see table).1

Perspectives on Longevity: Probabilities of Reaching Specific Ages

Inflation, or the tendency of prices to increase, varies over time as well as from region to region and according to personal lifestyle. Through many ups and downs, U.S. consumer inflation averaged about 3% since 1926. If inflation were to continue increasing at a 3% annual rate, a dollar would be worth 54 cents in just 20 years. Conversely, the price of an automobile that costs $23,000 today would rise to more than $41,000 within two decades.

For retirees who no longer fund their living expenses out of wages, inflation affects retirement planning in two ways: It increases the future cost of goods and services, and it potentially erodes the value of assets set aside to meet those costs -- if those assets earn less than the rate of inflation.

Health care. The cost of medical care has emerged as a more important element of retirement planning in recent years. That's primarily due to three reasons: health care expenses have increased at a faster pace than the overall inflation rate; many employers have reduced or eliminated medical coverage for retired employees; and life expectancy has lengthened. In addition, the nation's aging population has placed a heavier burden on Medicare, the federal medical insurance program for those aged 65 and older, in turn forcing Medicare recipients to contribute more toward their benefits and to purchase supplemental insurance policies.

The Employee Benefit Research Institute has estimated that if recent trends continue, a typical retiree who is age 65 now and lives to age 90 will need to allocate about $180,000 of his or her nest egg just for medical costs, including premiums for Medicare and "Medigap" insurance to supplement Medicare. Because of the higher cost trends affecting private health insurance, the same retiree relying on insurance coverage from a former employer may need to allot nearly $300,000 to pay health insurance and Medicare premiums, as well as out-of pocket medical bills.

Social Security. The demographic forces that have led to an increasingly older population are expected to continue, putting more pressure on the financial resources of the Social Security system -- the government safety net that currently provides more than half of the income for six out of 10 Americans aged 65 or older.

In fact, the number of workers supporting each Social Security beneficiary through payroll taxes is projected to decline from 2.8 in 2013 to 2.1 in 2032. At that ratio there would not be enough workers to pay scheduled benefits at current payroll tax rates. If no action is taken to fix Social Security's financial problems, the system's trust funds may be exhausted by 2034.2 These trends have raised uncertainty about how Social Security can be financed in future years and whether benefit levels and eligibility requirements may have to be changed as the population continues to age.

Excess withdrawals. The decision about how much money may be safely withdrawn each year from a retirement nest egg needs to take into consideration all the risks mentioned above. But retirees also must consider the fluctuating returns that their personal savings and investments are likely to produce over time, as well as the overall health of the financial markets and the economy during their withdrawal period.

The stock market's collapse in 2008 after a short bull market illustrates the dangers of withdrawing too much too soon. Withdrawing 7% or even more per year from a retirement portfolio during the bull market years might have seemed a reasonable rate. But the ensuing bear market in stocks raised the possibility that the value of a retiree's portfolio might be reduced as a result of stock market losses, increasing the chance that the retiree would outlive his assets. According to one analysis, the average maximum sustainable withdrawal rate over any 30-year period for a balanced portfolio of stocks and bonds was 6.3% after adjusting for inflation. One strategy that may potentially avoid premature exhaustion of assets is to adopt a relatively conservative withdrawal rate of 4% to 5% a year. The same study showed that a withdrawal rate of 4% was sustainable in 95% of the periods studied.3

Addressing the Risks

While the risks discussed above are common to most people, their impact on retirement income varies from person to person. Before you can develop a realistic plan aimed at providing a sustainable stream of income for your retirement, you will have to relate each risk to your situation. For example, if you are in good health and intend to retire in your mid 60s, you may want to plan for a retirement lasting 30 years or longer. And when you estimate the effects of inflation, you may decide that after you retire you should continue to invest a portion of your assets in investments with the potential to outpace inflation.

Developing a realistic plan to address the financial risks you face in retirement may seem beyond you. But you don't have to go it alone. An experienced financial professional can provide useful information, as well as valuable perspective on the options for successfully managing what may stand in the way of your long-term financial security.

Source/Disclaimer:

1Source: Social Security Administration, Period Life Table, 2007 (latest available).

2Source: Social Security Administration, Fast Facts and Figures About Social Security, 2015. 3Source: DST Systems, Inc. This example is a compilation of all 30-calendar-year holding periods from 1926 to 2015, based on a portfolio of 60% U.S. stocks and 40% long-term U.S. government bonds, with annual withdrawals adjusted for actual historical changes in the Consumer Price Index. The example is not intended as investment advice. Actual sustainable withdrawal rates ranged from 3.7% to 11.4% in the periods studied. Please consult with your own personal financial advisor if you have questions about choosing a withdrawal rate and how it relates to your own financial situation.

Del Gallo Financial Services, LLC (DFS,LLC) does not endorse the (FPA(r)), Financial Planning Association (r), and makes no representation as to the completeness or accuracy of information provided from these articles, sites and sources. Nor is DFS, LLC liable for any direct or indirect technical or system issues or any consequences arising out of the client(s) access to or use of those articles, sites and sources. Del Gallo Financial Services, LLC’s (DFS, LLC) can provide access to its' Disclosures, Agreements, Privacy Notice, ADV II, and those reading these or any articles, sites, and sources should review, understand, and agree with all planning, legal, and tax implications with their own personal Attorney, CPA, and other financial professionals before implementing any recommendations or acting on any information for themselves or their family. These articles are not investment advice but are for general information purposes to begin the planning discussion with your own personal advisors, since every individual's circumstances are unique. DFS, LLC does not provide legal or tax advice. Del Gallo Financial Services is a Registered Investment Advisor and Licensed Insurance Agency. Please see DELGALLO.COM for additional details.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. , Del Gallo Financial Services, LLC (DFS,LLC), nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. or Del Gallo Financial Services, LLC (DFS,LLC) be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

Article by the FPA(R), Financial Planning Association(R) , "Financial Planning Perspectives"

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7/1/16

FPA(R) - Financial Planning Perspectives

Resources to Help Those Caring for a Loved One at Home

Description:
An overview of resources available to people caring for a family member or loved one at home.

Synopsis:
Being a caregiver can be overwhelming, particularly if you are juggling other responsibilities, such as working or raising a family. Knowing where to turn for help can make a difference -- both in the quality of care your loved one receives and in lessening the stress and responsibilities on you. This article provides some of the resources you can turn to for help.

Callout:
Being a caregiver can be overwhelming, particularly if you are juggling other responsibilities, such as working or raising a family. Knowing where to turn for help can make a difference -- both in the quality of care your loved one receives and in lessening the stress and responsibilities on you.

Body:

If you provide home-based care to a loved one, you are not alone. Millions of Americans provide unpaid family care every year.

Being a caregiver can be overwhelming, particularly if you are juggling other responsibilities, such as working or raising a family. Knowing where to turn for help can make a difference -- both in the quality of care your loved one receives and in lessening the stress and responsibilities on you.

Where to Go for Assistance: Elder Care Support

If the person you are providing care for is 65 or older, there are many resources available to you. One of the first stops to make is the U.S. Administration on Aging (AoA), which can be found online at www.aoa.gov. The AoA is dedicated to helping "elderly individuals maintain their dignity and independence in their homes and communities."

The AoA also maintains a Web site called the Eldercare Locator (www.eldercare.gov) that can help caregivers find local agencies that provide home and community-based services such as transportation, meals, home care, and support assistance.

Other helpful online resources:

- The Medicare website (www.medicare.gov) details the various types of home health care services that are covered under Medicare and furnishes tools designed to help those in need of care choose home health care providers. Be sure to access the booklet "Medicare and Home Health Care."

- ElderCarelink (www.eldercarelink.com) is a referral service consisting of over 50,000 senior care providers across the United States and includes nursing homes, assisted living facilities, adult daycare, and home care services.

- The Visiting Nurse Association of America (VNAA) website (www.vnaa.org) has a database of visiting nurses in your area. The VNAA is an association of individuals who provide cost-effective health care to the elderly and the disabled.

- If your loved one is a veteran, the U.S. Department of Veterans Affairs (www.va.gov) provides a detailed listing of VA health care benefits. Additional services can be obtained from the nonprofit Disabled American Veterans (www.dav.org), including claims assistance and transportation to VA hospitals.

- The consumer-facing site of the National Association for Home Care and Hospice (www.nahc.org/consumer) offers guidance and resources to help caregivers find services in their area.

- Both the National Cancer Institute (www.cancer.gov) and Cancer.Net (www.cancer.net) have extensive sections devoted to caregivers that include guidance on finding support services, including home health care.

Where to Go for Assistance: Caregiver Support

The National Family Caregivers Association (NFCA) has a wealth of resources for caregivers at its Web site (www.thefamilycaregiver.org), including an online support network and a library of helpful tips on topics ranging from reducing stress to care management techniques. Other resources include:

- The Family Caregiver Alliance (www.caregiver.org) started as a small task force created to assist San Francisco-based caregivers. It has now grown into a national organization dedicated to advancing the development of high-quality, cost-effective programs for caregivers in every state.

- AARP (www.aarp.org) has a number of online communities devoted to caregivers, including those specific to loved ones who are suffering from cancer and Alzheimer's. There is no age requirement to participate in any of AARP's communities.

- The National Alliance for Caregiving (www.caregiving.org) also has online resources to help those who are providing help to others, including its Family Caregiving 101 site (www.familycaregiving101.org), which offers education and support.

The average family caregiver works either full or part-time -- in addition to nearly 20 hours of care per week.* Those responsibilities really add up. So do your best to heed the advice of the many advocacy groups encouraging caregivers to carve out some time to take care of themselves, both physically and mentally.

Source/Disclaimer:

Required Attribution

Article by the FPA(R), Financial Planning Association(R) , "Financial Planning Perspectives"

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