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What Happens if You’re Forced to Retire Early?

Written by adminMay 15, 2019

As Americans, we try to do our best to prepare for all outcomes. Retirement is one of those issues where we seem to be having a difficult time planning for. Many millennials and even older generations have been unable to save for retirement. They’re dealing with low wages and tons of student loan debt.

Even if you’re 100% organized and ready for retirement, what happens if you’re forced to do it earlier than planned? This is one trap even the highly organized person can fall into. Life can throw us a curveball we’re not prepared for. So, let’s prepare for it! It’s really the only way to pull off your retirement the right way without being left in the dust.

“Best way to be prepared is to have a plan. It’s why I encourage people to have a 3-6 month emergency fund that they just set aside and you can just keep that liquid in a money market account and it’s available if life were to happen,” said Chris Hogan, financial expert and author of the book “Everyday Millionaires”.

“There are all kinds of plans and options out there. Don’t sit back and not be informed. Engage with an insurance professional so you can understand what’s out there. Or what are some gaps in your coverage that you may need to purchase an additional policy to be able to protect yourself and your family.”

Are Americans Fully Prepared for Retirement?

According to new research from the Center for Retirement Research, a large percentage of us are not ready for that curveball. It’s almost as if we don’t expect anything to happen that will curtail our plans. That’s how most people plan their life. They aren’t prepared for the ‘anything can happen’ rule.

As a result, nearly 37% of older Americans are forced to retire earlier than planned. This is due to a health scare, accident, or the loss of a job. We don’t know when the economy might tank or we’ll be forced out to make room for younger, faster employees. As things change, businesses are become more high-tech and demanding different types of talent to thrive.

The key to being fully prepared for retirement is getting out of debt as fast as you can. Downsize your life if you have to. Start saving money. If you don’t have a rainy-day fund right now, that can hurt you no matter the age. Most Americans don’t even have $400 in their accounts if they needed it for an emergency. That’s an alarmingly small amount of money.

“First thing I tell people is to get serious about getting out of debt. When you get out of debt, you actually free up your money. You give yourself a raise, and it’s really important for student debt not to just hang out like it’s a relative, but you actually treat it like an enemy,” he said. “You get very, very serious. You downgrade lifestyle. You take on extra income. You do whatever is necessary to attack that debt.”

Written by adminMay 15, 2019

Entertainment

Walmart and Amazon are locked in a massive battle to be the #1 online retail giant. Amazon had a heavy lead, but in the past few years, Walmart has stepped up its game. It was losing out a lot of money to the convenience Amazon offered as a large chunk of retail sales were taking place online. Walmart decided it wanted its money back, so they revamped their website.

As the tides seem to be shifting back in Walmart’s favor (including more people shopping in the stores), Amazon decided to strike back. Rather than two-day shipping, Amazon announced it would roll out one-day shipping. They’re also working on building more Amazon Go convenience stores around the country, as well has larger distribution centers.

Not to be outdone, Walmart decided it could also offer next-day delivery on many of its own extremely popular items. Walmart still has the title of the world’s largest retailer, considering Amazon can’t currently compete. It’s all in a bit to up the convenience factor. Many of the items eligible for next day are everyday items, like diapers, non-perishable foods, and more.

Walmart’s Plan

Unlike with Amazon, Walmart only offers next day shipping as long as your order is $35 or above. They plan on starting this today in a few select markets, like Las Vegas and Phoenix. Over the next few days, the delivery area will grow to all of Southern California with the goal of hitting 75% of the U.S. by the end of the year.

Walmart still has a bit of distribution growing to do in order to make this promise. But as Amazon continues to offer more, Walmart feels the need to respond with something better to stay ahead. All retail stores are looking for ways to make life and shopping more convenient for their customers if they hope to keep them. We’ve been seeing the death of many major box-store retailers who couldn’t keep up with changing times.

“Customer expectations continue to rise,” said Marc Lore, CEO of Walmart’s U.S. e-commerce division said in a phone interview. “We’re trying to get ahead of that.” More stores are going to have to shell out millions to shorten their delivery window if they hope to compete.

Amazon Changed the Game, but Walmart Competes

Competition has always been fierce between retailers. Then, times started changing. Once formidable companies like Sears, Kmart, and JCPenney were starting to go into bankruptcy and close down. They had been on a decades-long slump, but it was Amazon who put the nail in the coffin. It was in 2005 when they started offering free two-day shipping for Prime members.

Walmart decided to offer the same only two years ago. Where they can compete is the fact that you didn’t need to pay for a membership to get the free two-day shipping. As long as your order was over $35, you qualified, where Amazon requires you to be a Prime member. At the same time, Walmart has been growing its same-day delivery service for groceries.

That’s how Walmart fought their way back in. From their thousands of locations around the country, they have a better distribution system in place. They can make deliveries in a short time span. There may never be a winner to this war, as they will both continue to innovate and change the shopping world for good.

Written by adminMay 15, 2019

Life Style

In a tough economy, we really don’t get much choice in the matter. Jobs are scarce and we’re thankful to be making money. Yet, there are times when we really should consider whether our job is pulling us down. Work shouldn’t always be exciting. That’s why they call it “work”. At the same thing, enjoying what you do is a great incentive to stick with the company.

Many of us go to college and spend tens of thousands of dollars to get a degree in a field we want to work in. At the very least, it shouldn’t be too difficult to find work in a field we enjoy. Many industries spend millions on catering to their employees to keep workers in the building and the turnover rate as low as possible.

At some point, workers get fed up. Many are considering whether to leave their job. Is it the right time? Can you find better pay and benefits somewhere else? Is the grass really going to be greener on the other side? These are answers you can’t know until you actually move on. But there are signs that will tell you when it’s time to go.

Sign #1: Work Becomes Unchallenging

If your job becomes unchallenging, you might be considering a move. As humans, we enjoy a good challenge and work that tests us. It’s not necessarily the amount of work, but the type of work we are called to do. Suzy Welch of CNBC calls it the ‘velvet coffin’. “You’re stuck in the kind of job I call a ‘velvet coffin’ — comfortable, but deadly to your brain and spirit, not to mention your career,” Welch says.

Again, this has nothing to do with the workload. Rather, we want to go home feeling like we accomplished something. We were challenged and met the challenge. It’s a rewarding work experience we’re after. If work becomes slow and boring, we won’t treat it the same and will become less productive.

Sign #2: No Sign of a Raise in Sight

Along with going home with a sense of accomplishment, we want to know that there’s room for growth within the company. We want to be rewarded for our hard work and for the skills we have. Many companies do help show their employees this satisfaction by offering raises, bonuses, and many other benefits. Many of them can be related to work performance.

Yet, if we’re putting in all this hard work and making our boss rich and the company is thriving, but we receive nothing for it, we will start to back off a bit. It’s only human nature. There’s a reason why we work. It’s for personal gain. With little opportunities for growth and proper compensation, we will consider moving on. In this case, you should find a better job that will give you what you deserve.

Sign #3: You Get No Support from Management

There’s a popular saying that goes: people don’t leave companies; they leave their bosses. There’s actually data that backs this up. Most of us are willing to work in the grind and build ourselves up within a company. But bad bosses make us beyond miserable. Even if everything else about the job is great, including the money, we will leave simply because the boss is unbearable.

Often enough, if the boss is bad, the culture at work turns sour as well. A Gallup study looked at the number of people who left their job due to a bad manager. Out of 7,000 U.S adults polled, 50% of them left due to managerial frustrations. Most of that having to do with the lack of support their bosses provide.

A good manager exists to empower the staff and to help them achieve a better culture that’s inclusive and positive. Yet, a lot of people in positions of power let that get to their head. They’re too bossy, don’t communicate efficiently, and view employees as cockroaches that can be squashed if they don’t follow order. If that’s your boss, it’s time to leave.

Sign #4: No Room for Growth

We sort of covered this previously, but that was more focused on the money aspect. In reality, your employment should consist of personal growth within your career. You gain experience the longer you’re with a company. That experience should be worth something. That means growth beyond an entry-level position.

Management opportunities, massive raises, and so much more, are a part of that process. Maybe you feel you’re in-line for that spot higher up, but someone with less experience gets the role. Or the boss is always promoting their kid ahead of you while the kid barely lifts a finger. In that situation, it’s time to move on and go where you’re more appreciated.

Written by adminMay 14, 2019

Life Style

Not everything sold there is going to be a great deal for you.

One of America’s favorite places to shop, Costco recently got second place among national grocery stores in an annual survey conducted by consumer data firm Dunnhumby.

Boasting a membership of more than 94 million members, that’s pretty remarkable, considering basic memberships costs $60 a year to buy the chain’s products in bulk.

If you are a loyal member of Costco, here are five mistakes to avoid the next time you go shopping to get the bang for your buck.

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1) Don’t Take Advantage of Non-Member Perks

There are some perks that non-members can take advantage of at Costco, such as the pharmacy. As a result of state and local laws, non-members can purchase prescriptions at many Costco pharmacies, at times saving up to 80% off even without insurance.

These savings also apply to vaccinations, and without insurance Costco is one of the cheapest places to get your flu shots. Their optical department also offers cost-effective eye exams with licensed optometrists for non-members.

And afterwards if you need to grab a bite, head on over to the food court and pick up a hot dog combo for the ever-reliable price of $1.50. Or if you need to pick up something for the afterparty, remember that you don’t require a membership to get that bottle of Kirkland Signature vodka.

2) Which Membership is Right for You

Usually the only thing holding people back from getting a Costco membership is rationalizing whether to invest in a paid annual subscription, which starts at $60 per year. The next level up, the Gold Star Executive membership costs $120 a year and offers a 2% cash-back reward up to $1000.

All it really comes down to is how much you are looking to spend in the store. If you’re looking to spend $600 a year at Costco, the basic membership comes up to about $5 a month. If you spend over $250 a month, or $3000 a year, the executive membership pretty much pays for itself.

If you’re still on the fence, to push yourself over the edge, consider tagging along with a friend who has a membership or pickup a Costco Cash card which will allow you to check out the store even without a membership.

3) Watch What You Buy

With so many great deals surrounding you when you enter Costco it can get out of hand really quickly. Consider the overall value of what you’re buying before you do, as everything is generally sold in bulk and costs 10% less on average when compared to other big box retailers.

Make sure you are paying attention to the price tag and the price per item, or you may be throwing out food that goes bad or struggling to find room to store everything that you purchase.

4) Save on Health Services

Costco members can take advantage of discounted health services at the big box retailer. Some locations offer free screenings for diabetes, osteoporosis, and heart health.

Members can also enroll in the Costco Member Prescription Program to get additional discounts on top of Costco’s already low prices on prescription medication and over the counter drugs.

5) Not Everything is a Great Deal

Most members are loyal to Costco, going there for pretty much all their household needs. However it might be wise to diversify from where you get your groceries and other household items. Even though Costco has their own coupons and promos, you can take advantage of other promotions at retailers like Amazon.

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So here’s hoping that you can make a decision as to whether a Costco membership is worth it for you. If you need any other financial advice, remember that the Financial Helpers are only a phone call away.

Written by adminMay 13, 2019

Student Loan Consolidation

It’s looking good for new borrowers who are on track to save $2.9 billion in interest.

Students looking to attend college this fall will be be able to apply for federal loans at lower interest rates as of July 1, 2019. The interest rates for new borrowers is set to drop by five-tenths of a percentage point.

This is the first interest rate reduction for federal student loans in three years, and only came about from falling bond yields which allowed the government to take out cheaper loans. For borrowers taking out PLUS loans, the average savings will range from $199 for undergraduates to $805 for graduate students.

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Breaking Down The Savings

The revised federal student loan interest rates and their savings are as follows:

Undergraduates: 4.53%, average savings of $199 based on average annual borrowing of $6,570.
Graduate students: 6.08%, with an average savings of $596 based on annual borrowing of $18,860.
Parent PLUS loans: 7.08%, saving an average of $805 on annual borrowing of $24,810.

These savings from the lower interest rates will affect grad students and parent PLUS borrowers the most. This is because they pay higher interest rates and take out larger loans.

It is self-explanatory that undergrads will claim the largest share of the $2.9 billion in savings, as they are the largest group of borrowers. An estimated 6.5 million undergraduates will save $1.3 billion, and roughly 1.4 million grad students will save $1.2 billion. The remaining $416 million in savings will be claimed by the 779,000 families who take out parent PLUS loans every year.

Of course these savings estimates are based off the assumption that borrowers will begin repaying their loans immediately. In practice this is different as a growing number of borrowers are taking more time to pay off their loans in income-driven repayment (IDR) plans.

How Interest Rates are Set

Once a borrower takes out a federal student loan, the interest rate is fixed for the duration of the loan. But the interest rate offered changes annually at the behest of Congress, and is tied to the cost of borrowing for the government.

The Department of Education sets the annual interest rate based off these parameters:

Undergraduate loans: 10 year Treasury yield plus 2.05 percentage points.
Graduate loans: 10 year Treasury yield plus 3.6 percentage points.
Parent PLUS loans: 10 year Treasury yield plus 4.6 percentage points.

No matter the yields, Congress has set limits to cap the interest rate at 8.25% for undergraduates, 9.5% for graduate students, and 10.5% for PLUS loans.

The Federal Reserve hiked interest rates four times last year, but their influence is curbed over long term rates which is driven by demand for Treasury notes and mortgage-backed securities. When investors switch from buying stocks to bonds, long term interest rates gets pushed down.

As a new borrower, it will be good to check what rates you can qualify for this coming academic year. Take note that federal loans also offer borrower protections like access to IDRs and public service loan forgiveness. And if you need any other financial advice, the Financial Helpers are here to assist you.

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Written by adminMay 13, 2019

Life Style

Back in 2018, Mark Zuckerberg had a really bad, no good day.

After it was found out Facebook had a working agreement with data analyzing firm Cambridge Analytica, where they accessed scores of private information from over 50 million Facebook users, Zuckerberg finds himself in the hot seat once again.

The term ‘once again’ is used, because this isn’t the first time he had to apologize for violating the privacy rights of users. He’s done it several times and has been fined by the FTC increasing amounts each time he’s done it.

A lot of it has to do with the way Facebook is structured. Last year, they made over $39 billion (or 98% if their revenue), from advertising alone. They make their money by taking your data and selling it to the highest bidder.

Everything you do on Facebook is recorded and tells a story about you. That’s how it creepily seems to know everything you’re thinking and every website you visit. Your profile is then sold to groups like Cambridge Analytica and ends up in the hands of politicians (or whoever wants it).

Apple’s Vastly Different Approach to the Privacy War

Apple, on the other hand, is a fierce defender of their user’s right to privacy. We can remember back in 2015 when the FBI wanted to get into the phone of San Bernardino mass shooter Syed Farook, but Apple refused to help them.

Yes, they’re that much into privacy.

Apple isn’t much into selling people’s information and they’ve built that sense of trust into their products. In fact, it’s the perfect marketing ploy for Apple who uses privacy as a sales pitch. This is why CEO Tim Cook went hard after Facebook last Wednesday after news of the information breech went viral.

Speaking with MSNBC’s Chris Hayes, Cook was quoted as calling privacy “a civil liberty and human right.”

“[When] all of a sudden something is chasing me around the web,” Cook said, “I find it creepy.”

The difference in ideals may stem from the two different business practices. To use Facebook is a 100% free experience for users, so they must make their billions somehow. They do it through advertising. Alternatively, Apple sells millions of devices, hardware, and more.

Facebook Wasn’t the First and Won’t Be the Last

It wasn’t but in 2005 when Amazon was at the forefront of everyone’s mind when it came to potential privacy violations. The Associated Press questioned whether the online retail giant was doing a little too much with the information they had on their customers.

Data collection is a massive industry. If you could amass information on whatever everyone buys, sells, what they think, who they like, who they voted for, et cetera, there’s someone out there who will spend a nice chunk of change for the info.

Is this even an issue for most users? According to Wesley Chan, one of the early product managers with Google, we already know about these issues and don’t seem to care too much.

“The problem is with Facebook and Google and even Apple, you’re already bought into the service. What alternative do you have?” Chan says. “You’re switching from Apple to Android or Android to Apple, but you’re unfortunately locked onto one of those systems, or both.”

The Coming War

It really seems as if people are finally waking up in this digital age. We’re finally starting to understand just how much of our information is freely out there. Personal details about our lives are stolen and reused time and time again.

It’s not just users who are waking up. In light of these recent revelations, several big-time companies have broken away from Facebook and even deleted their page!

Not only did “#deletefacebook” become a worldwide trend, but Elon Musk took the words to heart and actually deleted his pages (SpaceX, Tesla, and his personal account) from the giant social media site. Playboy soon followed. Sonos and other companies promised to pull all advertising dollars from Facebook as well.

All of this leaves us wondering what will happen next. Is Facebook about to go the way of Myspace? Will consumers start boycotting companies that advertise on Facebook?

Only time will tell, but it certainly seems as if things are about to change. Zuckerberg briefly mentioned in an interview that perhaps regulations on Facebook “won’t be a bad thing”, but he didn’t seem enthusiastic about the idea.

Facebook changing the way it handles advertisements and data sharing can potentially impact millions of businesses who rely on the traffic from the site, several who are already pulling their pages and disconnecting from their millions of followers.

Where do you stand on this issue? Are you okay with what Facebook does with your information? Or do you think they’ve gone far enough?

Written by adminMay 13, 2019

Credit & Debt

We often talk a lot about student debt and share solutions we think might work. We constantly throw out the numbers. 44 million Americans owe around $1.53 trillion in student loans. Many 2020 candidates are already standing on the platform demanding debt reform for students who are drowning.

The one thing we always ask ourselves in the standard of fairness: does forgiving student debt make sense? Is it the right move? Of course, if you have student debt, you’re more inclined to receive the help. Many others, including President Trump, don’t think that taxpayers should be on the hook if you decide to go to college.

We can look at both sides of the political aisle and see which ideas makes the most sense of all Americans. It’s the data that makes the final determination. According to research from the National Bureau of Economic Research, it does make sense to forgive student debt. They looked at a number of different criteria.

Forgiving Student Debt

There is a lot of great data out there from the past several years. We’ve seen a number of these big schools go down, as well as lawsuits from students to get their loans wiped away. Many of these students feel they were defrauded during the Great Recession and should have their loans forgiven. Many of them won their cases.

One big instance was National Collegiate. This company held over 800,000 private loans that totaled over $12 billion. The National Bureau of Economic research also looked at credit reports. In conclusion, they found the same, that there are “benefits of intervening in the student loan market to reduce the consequences of debt overhang problems by forgiving student debts.”

There are four key benefits that ultimately improved the quality of life for the borrower. The first was the person was able to increase their overall consumption. This means they had more money in their pocket to buy stuff. That’s great for the economy when you consider the 44 million people in debt and how much that is currently hindering economic growth.

Forgiving their student debt also lowered their overall debt by 26% and didn’t default on other loans as a result. They even found they were freer to find greater job opportunities. They didn’t feel forced to take the first job that came alone in order to keep up on their student debt. They had the time to find the right career path for them.

Psychological Benefits to Debt Forgiveness

“The thing that was interesting about this study is that the people that got the forgiveness weren’t paying anyway, so it actually did not change their monthly loan payments at all,” Ben Miller, the senior director for post-secondary education at the Center for American Progress, told Yahoo Finance. So “it suggests there might be some sort of psychological benefit to this relief that goes beyond the household balance sheet. That to me is really interesting because it suggests that there may be external benefits to debt relief that you don’t otherwise see.”

In a lot of ways, debt is a part of life. The vast majority of us cannot afford to walk onto a car lot and throw down cash to buy whatever car we want outright. No, we take out an auto loan. Same goes with buying a house. We either choose to rent or take out a mortgage which can take 30 years to pay off.

“We find that consistently across all debt categories, and both with and without county-month fixed effects, the treated borrowers are significantly more likely to reduce the number of accounts,” the researchers wrote. “Overall, these findings suggest that treated individuals are significantly more likely to reduce their leverage after the debt is discharged.”

Written by adminMay 13, 2019

Politics

As we enter the prime 2020 election messaging time, it seems as if more people are finally talking about student loans. Elizabeth Warren, Bernie Sanders, and other Democratic candidates have their own views. President Trump doesn’t seem to care too much about the student loan debt burden.

One Republican seems to be breaking with party ranks to create a plan that can help change how student loans are paid. He introduced a new bill this week called The Leveraging Opportunities for Americans Now Act, or the Loan Act. The goal of this bill would be to entirely eliminate interest from student loans

“When I finished school, I had a little over $130,000, $140,000 in student loans,” Sen. Rubio said. “And it was really a burden for a long time.” He understands the burden millions of Americans are facing. Taking out a student loan can take decades to pay back. Interest rates are a big reason why, as you end up paying thousands of additional dollars.

Rubio wants to change that.

“If you take out a $10,000 loan, rather than charging interest that grows over time, there would be a flat fee of about 25% of the size of the loan, so you’d owe $12,500,” Rubio explained. “But that fee doesn’t grow. That’s what you owe. A $10,000 loan costs $12,500, and that’s what it’s going to cost the whole time. You don’t have to worry about if it takes you 20 years, that could grow to $25,000, you know? It could double!”

A New Way to Pay for Student Loans

Rather than having your student loans grow over time, you would have a flat fee added to it. Once you graduate school, you’d automatically be entered into a repayment plan that is based entirely on your income and ability to pay. Rather than letting student loans inhibit your life, you would instead focus 10% of your earnings towards paying back the loan.

Now that it’s spring, we have a whole new class of graduates ready to throw their caps into the air. Paying back student loans is most likely on the forefront of their minds. If it’s not, they’ll have their first bill sent to them very quickly. It’s sure to dampen any graduation celebrations they have this summer.

It’s estimated that as many as 44 million Americans owe over $1.53 trillion in student loans. That’s a number that continues to grow with each passing year. Perhaps Rubio’s plan is exactly what students need to survive without accruing interest making their problem larger over time. The typical borrower holds around $25,000.

“We want to make sure we can provide these loans, provide them and pay for the cost of servicing the loans, but at the same time, not try to compound the interest rate that hurts the borrowers,” he said.

Written by adminMay 13, 2019

Politics

The midnight deadline for the U.S. and China to create a new trade agreement has come and gone. While the trade talks continue, they still didn’t stop new increased tariffs from hitting. What was once a 10% tariff on $200 billion worth of Chinese exports magically turned into a 25% tax.

China isn’t taking this situation lightly. They’ve already vowed to retaliate if a new deal isn’t struck soon. As you can imagine, these tariffs are hurting the Chinese economy. President Trump feels as if China has a major advantage over the U.S. They have what he calls a “very big imbalance” where they make a lot of money off of us and we make very little in return.

President Trump made his comments in several tweets:

“Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars’ worth of goods & products. These massive payments go directly to the Treasury of the U.S. The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars. The U.S. only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance.”

How this Impacts Us

While Trump says he’s in “no rush” to get a new trade deal done, it doesn’t just hurt the Chinese economy. The U.S. economy is being threatened as well. This is especially true if China keeps its promise to retaliate in the same manner. That means many products we buy every single day are about to become much more expensive.

“China deeply regrets that it will have to take necessary countermeasures,” China’s Commerce Ministry said in a statement. Still, we might not see the weight of this change for a few more weeks. It will take about three weeks for the products currently sitting on Chinese freighters to make it over this way. It won’t be an immediate change.

What kind of impact can we expect? The largest bulk of the tariffs are on electronics, machinery, and car parts. They also extend into everyday products, like toilet paper, orange juice, clothing, iPhones, computers, and more. The president remains optimistic that this will be a good thing for the country and our economy.

“Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch! In the meantime, China should not renegotiate deals with the U.S. at the last minute. This is not the Obama Administration, or the Administration of Sleepy Joe, who let China get away with ‘murder!'” he tweeted.

Written by adminMay 10, 2019

Uncategorized

Taking the Flooring Approach for Retirement

Planning for retirement is difficult, primarily because you don’t know how the economy will change. The stock markets fluctuate, different laws are passed over time, and that makes speculation and preparation all the harder.

What is certain is that saving up to meet your goals for the twilight years will rarely go according to plan.

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If your intention is to maintain a high-risk investment portfolio to generate retirement income, it is difficult to speculate how long that money will last. Bill Bengen, a financial planning practitioner, recommends a 4 percent withdrawal method.

This takes into account the average return as well as the sequence of returns. Once you start taking withdrawals in retirement, it is important to note that bad returns can deplete a portfolio extremely quickly.

Once most of us get to retirement, running out of money probably isn’t an option. We would like some form of safety net before even considering retirement. Most retirees rate a desirable quality of life in their twilight years as having income to cover their basic needs like housing, health care, food, and taxes.

What Is The Flooring Approach?

The gist of the flooring approach is to first lay the foundation for basic living expenses. This essential approach requires creating a secure retirement income rather than investing in a high-risk portfolio.

The first thing to do will be to determine the basic expenses per year during your retirement and making sure you’ve covered these mandatory expenses. For other expenses, you can still invest in the markets to create some side income for your retirement portfolio.

To generate this secure income, prospective retirees will have to look outside of the stock market. Using the flooring approach, retirees can lay the foundation with pensions, annuities, and bond ladders. But with the low interest rates in the current markets, building a large floor becomes more difficult.

For most retirees, social security provides the natural floor. Generally considered a secure form of income, social security helps protect retirees from complete retirement failure. Even when a retiree runs out of assets to invest, this is the safety net.

It’s Not For Everybody

Generally if you are worried about longevity risk, it is more appealing to use the flooring strategy. Annuities and lifetime income sources become more valuable the further you get into retirement.

However, you have to be careful of committing yourself to just one lifetime income option. The common downside of certain annuities is the restrictions on liquidity and the fees that come with trying to cash in early on the policy.

Make It Work For You

The smart way to do it will be to consider diversification. Look at working with a financial advisor who can build out a comprehensive retirement plan. And be prepared to ask the tough questions regarding the annuity cost and how to create a secure nest egg for yourself.

In summary, a solid flooring approach will allow your retirement portfolio to last a long time. It will create an income flow to meet your basic expenses, and give you the reassurance of security as well.

And as always, if you need advice on creating your flooring approach, the Financial Helpers are ready to assist you.

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