Vasilios “ Voss” Speros Tip of the day!

Vasilios “ Voss” Speros Tip of the day!
https://www.google.com/+VasiliosVossSperos 602-531-5141

3 Strong Reasons Why You Should Invest in Your 401(k)

     401(k) retirement plans are popular investment vehicles for people that are employed. Employees can utilize employer sponsored 401(k) plans in order to invest regular amounts of their income into mutual funds, stocks, or bonds.

     401(k) plans are straightforward investment structures for people who want to put money toward their retirement while they desire little involvement with investment decisions at the same time.

Essentials of a 401(k)
      In a nutshell, 401(k) retirement plans offer employees the opportunity to invest a part of their monthly income in a mutual fund or stock (including company stock) and benefit from a payroll tax deduction in return.

     Retirement savings contributions are not taxed at the time of contribution, which is a major benefit of a 401(k), but they will be taxed later on when funds are distributed.

     401(k) plans are classified as defined-contribution plans meaning employees absorb the risk of their investments and their employer does not make a guarantee with respect to future pension payments.

     Many employers, however, offer a 'matching contribution' which means that they will match any employee contributions, though this will likely be capped at some percentage of the employee's compensation.

     Employees can usually withdraw their funds when employment ends and they enter retirement, when they reach the age of 59.5 years or the plan is terminated. Many 401(k) plans also include hardship conditions under which participants may access their 401(k) assets in times of extraordinary need.

     If you like to read up on 401(k) plans, consider the ‘resource guide’ from the Internal Revenue Service which has a bunch of helpful information and clarifies any further questions you might have.

     Put simply: You are not required to pay taxes on your contributions now and you might get your employer to chip in via matching contributions. Sounds like a sweet deal.

     Further advantages of utilizing the 401(k) route for retirement saving are presented below and employees are advised to take full advantage of this investment vehicle to build up their nest egg:

1. Compounding leads to higher capital returns
     The biggest advantage a 401(k) offers is the feature of compounding. 

     This has profound implications for investors as their investment returns are not taxed during the life of the 401(k): Not having to pay taxes on investment returns translates into a higher asset base that continues to earn more money for the future retiree over time. This compounding effect works to the benefit of the investor and can lead to a portfolio that can accumulate quite substantially over long periods of time.

     Employees should proactively talk to their employers and seek out their 401(k) offers. The maximum amount of compensation in 2014 that employees can defer stands at $17,500.

2. Structured approach to retirement planning
     401(k) plans are a great concept to lend structure to your retirement planning. First of all, contributions to your plan will be made automatically and on a regular basis.

     Secondly, employees and investors might find it a daunting task to decide what stocks or asset classes to invest in and at what times. Utilizing a 401(k) puts retirement planning on autopilot as investment decisions will no longer be a cause of worry for you.

3. Smoothing out volatility
      Another convincing reason to invest in a 401(k) relates to smoothing out market volatility.

     At any particular time, the stock market could tank and with it the value of your 401(k). If you make regular contributions via such a plan you will continue to make investments in stocks and mutual funds when their values are consolidating in a recession and are therefore cheap.

     If you participate in your 401(k) retirement plan over many years, the inherent fluctuations of the stock market as well as the fluctuations in economic activity will balance out and work to your benefit.

The Bottom Line
      401(k) retirement plans are great investment vehicles for employees who desire a structured, low-maintenance approach to retirement planning.

     Understand that the major benefit of a 401(k) lies in offering you the benefit of compounding, which allows you to earn substantially higher returns over long periods of time.

How to get even more income during retirement
      Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of, that can help ensure a more comfortable retirement for you and your family.

Vasilios "Voss" Speros 602-531-5141
Spence Cassidy and Associates

vsperos@scaaz.com
#LifeInsurancePhoenix #RetirementStrategiesPhoenix
http://www.scaaz.com/
http://1lifeandretirementstrategies.blogspot.com/
https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b
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Vasilios “ Voss” Speros Tip of the day!

Vasilios “ Voss” Speros Tip of the day!
https://www.google.com/+VasiliosVossSperos 602-531-5141

Understanding and setting a safe withdrawal rate

Q: My wife and I have saved for retirement for nearly 30 years. We have a decent retirement account (with traditional and Roth IRAs, mutual funds, a limited number of individual stocks, 401(k) retirement plan and savings). The total is more than $700,000. I'm currently drawing full Social Security, and my wife starts at age 62 in four years. I have a retirement income from 30 years in the armed forces. I'm thinking of retirement within the next year or so.

My question: When I start withdrawing from my investments and retirement funds, what is a decent burn rate? And what would be a decent rate of return for the funds with a conservative investment strategy given the current financial climate? I'm nine years older than my spouse and want her to live comfortably after I pass. Our ages are 67 and 58. 

A: It's good you have saved for 30 years because your "planning horizon" is at least 30 years. While you and your wife, alone, have life expectancies of about 82 or 83, the odds are that one of you will live longer, perhaps substantially longer. Even if your wife lives only to her expectancy of 83 years, that's 25 years and she has a 50 percent chance of living longer. Having such a long period to plan for makes all the studies of "portfolio survival" very important.

Using historical data, a portfolio that is 50 to 75 percent equities has a high probability of surviving the full period at a starting withdrawal rate of 4 to 4.5 percent, no higher. The dollars withdrawn are then expected to rise with inflation in each successive year. In other words, the studies assume that you will be spending as much money at age 95 as you plan to spend at age 60. Increase the initial withdrawal rate, and the portfolio failure rate rises rapidly. Most financial planners are reluctant to suggest withdrawal rates of more than 6 percent.

An increasing body of research indicates that a 4 to 4.5 percent withdrawal rate is too rich for our current financial markets, largely due to high stock valuations and low interest rates on fixed-income investments. Whether starting from current stock and bond yields or from more modest return expectations, the latest portfolio survival exercises show that withdrawal rates should be lowered to 3 to 3.5 percent.

As a practical matter, a rate that low simply won't work for most people -- even people like you who've saved for 30 years. Fortunately, you have some major offsets that reduce the danger of running out of money. They may allow you to withdraw at the historical rate -- that 4 to 4.5 percent initial amount. Those offsets are:

(1) Because you have both Social Security and a military retirement income, you've got a strong "base" income. This means that much, perhaps most, of your standard of living is probably covered by guaranteed income rather than investment income. This gives you a bit more freedom to risk that the portfolio might not survive. Retirees with Social Security and investment income alone can't afford such a risk.

(2) It is well documented that our spending declines as we get older and that our peak spending years are in our mid-50s. While everyone (quite reasonably) worries about rising medical expenses, consumer spending data shows that our other spending decreases a good deal more.

(3) While one of you may survive for 30 years, the reality is that one of you will be widowed for a significant part of that time. That's sad, but it also means that the living expenses you plan for now will drop when one of you dies, reducing the need for withdrawals from the remaining principal.

(4) Financial planners want to be 95 percent certain that your money will last at least 30 years. In fact, the chance that either of you will be alive in 30 years is under 5 percent. I find this a good argument for erring on the side of spending a bit more now, while you are alive. After all, you have a much larger chance of being dead than you have of running out of money.

If you could increase your overall retirement income by 50-75% without adding any more additional money to your plan, what would be your reason not to find out?

Vasilios "Voss" Speros 602-531-5141
Spence Cassidy and Associates
#LifeInsurancePhoenix #RetirementStrategiesPhoenix
http://www.scaaz.com/
http://1lifeandretirementstrategies.blogspot.com/
https://www.linkedin.com/pub/vasilios-%22voss%22-speros/60/722/67b
vsperos@scaaz.com
85018