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Asset Allocation
Often financial "experts" make asset allocation difficult to understand. My goal in this series of articles is for you to understand asset allocation thoroughly, in an easy to understand format.Retirement Investments Demystified
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Regrettably, most Americans are not saving enough money toward their retirement. In addition, those who have saved diligently, often neglect to put their investments in the correct asset categories to ensure proper growth of their retirement portfolio. You do not have to make these same mistakes. First, start your retirement savings plan now. Every penny counts. Even saving $100 a month can make a tremendous difference in how comfortable your retirement will be. Assuming an 8% return on your investments of $100 a month and that your current age is 50, would give you $34,747 at age 65. The table below gives more examples based on the rate of return and the amount saved per month.
The second step is to determine your ideal asset allocation mix. Asset allocation is how your investment portfolio is divided across different asset classes or investment types. Think of your portfolio as a pie. Your portfolio pie should have several slices - each representing a different asset class. These slices should consist of a combination of stocks, bonds and cash. Determination of the correct amount for you to have in each of these slices - to form your portfolio pie - takes some work. In order to find your ideal mix, you should complete one of the short questionnaires by either Fidelity or MFS.com. Once you have your ideal mix identified, you can plug these percentages into the retirement calculator found at retirementcalc.com. This will help to identify if there is any shortfall with your current plan. If there is a shortfall, you can plan to work more/longer, take a smaller annual withdrawal amount, and/or increase your savings rate. Again, you can plug these "what if" scenarios into the retirement calculator until you no longer have an investment shortfall. Finally, educate yourself about investing. This does not mean you have to depend solely on your own financial talents. Even the most seasoned investors need some professional retirement planning help. To start building a financial plan, try a FREE subscription to Retirement Intelligence Information Services. At no cost, you will receive the www.retirementcalc.com Retirement Calculator 2.0 (a $24.95 value) along with the bi-monthly newsletter full of financial information to inform and empower you to take over control of your own investments. Make your retirement investing plan virtually mistake-proof. Copyright © 2008, Retirement Calculator, Inc. All rights reserved. |
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Analysis of the Economics of Early Social Security Withdrawal
Robert J. Phillips
Chief Retirement Consultant
Deciding whether or not to take the early withdrawal of social security at age 62 can be difficult. If you need this income at 62 to fund your retirement the decision is fairly straightforward. Take it early! On the other hand, if you have another source of revenue to fund your retirement your decision will be primarily based on lifestyle, health and investment preferences.
Several factors can affect your decision. First is your life expectancy. If you are in good health and have a family history of living beyond 90 then waiting for full benefits may be best. Two other factors impact this decision. First and most important is the value of money or your expected return from your investments. If you are using other investments instead of social security to fund your retirement you should use the rate of return of these investments as your value of money. There is another way to look at the value of money. If you do not require the social security money to live, you can invest the distributions for the future. The rate of return of this investment is your value of money. If your investments will make larger returns such as stocks this would favor taking the early withdrawal.
The last factor impacting your decision is inflation. Social security includes an annual adjustment based on inflation. You cannot control this variable but you should be aware of its impact. If future inflation is significant it will favor a later full distribution
FREE Social Security Calculator:
Find Out Your Breakeven AgeWe developed a calculator to assist in analyzing the impact of taking early benefits at age 62 or waiting for full benefits at age 66 to 67 depending on the year you were born...If you were born in 1960 or later your full benefits will begin at age 67 and your reduction for early benefits at age 62 will be 30%. If you were born between 1946 and 1960 your full benefits begin as early as age 66. We have included a chart that summarizes information.
To use the calculator you need to input your year of birth. You also need to input a value of money up to 10% and a projected inflation adjustment. The calculator analyzes income generated over time from both the early and full benefit investments. It calculates the age at which full social security will catch up and breakeven with the early withdrawal. If you were born before 1960 your breakeven age will be impacted by the year you were born. An early breakeven age favors waiting for full benefits.
The social security calculator is not the final answer whether to take an early withdrawal but it does give you additional economic data to assist in that decision. Ultimately you must balance income, investments and lifestyle to optimize your enjoyment during your retirement years.
