Whether you’re just starting out, need a few reminders on how to stay on course, or could use some advanced tips on how to make your retirement investments work for you, this is a great place to start. Here we'll offer budget and health basics, a primer on investing, and downloadable resources you can complete on your own, or share with your financial professional.
Choose where you are on your journey below to get started.
Building a budget might start to alleviate financial stress you may be feeling. You can spend confidently knowing you’ve made room in your budget so you don’t have to second-guess your purchases. It can also help you avoid credit blunders and improve your credit score, which is essential for gaining access to lower interest rates when you borrow for a car or a home. Credit scores can also affect your car insurance rate, application processes for home rental, or even a job.
To start, examine your essential (needs) and discretionary (wants) expenses. Essential items can include housing, a vehicle (plus fuel and insurance), food, and retirement contributions. Discretionary expenses can include concerts, dining out, travel, and gifts.
It’s easy to make your retirement contributions automatic if you have access to a plan through your job. Most employers deduct retirement plan contributions directly from your paycheck — in most cases before taxes — so you won’t have to make space in your budget. Sometimes employers match your contribution, so you can get the most out of automatic contributions when you contribute as much as (or more than) the match.
Have a Transamerica retirement account through your employer?
Whether or not you have access to a retirement plan through your work, there are still options for you. Consider an individual retirement account (IRA). These are even accessible if you have a plan at work if you want to boost your retirement investment potential!
Can you predict the future? Neither can we. Workplace benefits such as accident insurance can go a long way – and cost you less per month than some designer T-shirts – so you don’t have to foot the bill when the unexpected occurs.
If your family relies on you, term life insurance can help your loved ones maintain their lifestyle if something happens to you. Accident or medical expense insurance can cover the costs that your major medical insurance doesn’t.
Accidents happen, and the high deductibles associated with many of today’s major medical plans could leave you footing the bill. Thankfully, Transamerica’s employee benefits can help fill gaps in your major insurance, providing cash payments that may help cover deductibles and other medical expenses. Dependable protection — it’s no accident.
How would an individual who is seeking to invest in a wide selection of stocks and bonds find the time and expertise to research, allocate, weigh and manage this kind of portfolio? Mutual funds are one of today's most popular answers to that dilemma.
A mutual fund is a collection of stocks, bonds or other investment securities that is professionally managed. In this case, the manager is essentially pooling money from a group of investors, creating a portfolio and managing it on their behalf. Each investor owns shares, which represent a portion of the holdings of the fund. When an investor buys a fund, their money is used to purchase new shares. Each fund has a dictated objective, which is outlined in the fund prospectus, and the manager will continue to buy and sell stocks and securities according to the intended objective.
Part of the popularity behind mutual funds is due to their strengths and advantages:
1. Professional management: Mutual funds give retail investors the opportunity to have a professional manage their money. This is helpful when time and expertise is lacking.
2. Accessibility: Mutual funds allow retail investors to access investments they might not be able to on their own.
3. Simplicity: Purchasing a mutual fund is relatively easy, and many do not require a large minimum investment. There are literally thousands of mutual funds out there.
4. Diversification: Mutual funds, by definition, spread your investment across many assets, which may include hundreds of companies. In theory, this also spreads out your risk as well.
5. Transparency: Mutual fund holdings are available to the public.
6. Track record: Funds maintain performance results and they are professionally audited to ensure accuracy.
7. Liquidity: You can request that your shares of a mutual fund be liquidated at any time.
8. Government oversight: Mutual funds are registered with the Securities and Exchange Commission (SEC) and subject to SEC regulation.
It's important to consider all the risks of any investment. Including loss of principal, investors should also be aware of the following:
1. Fees
Mutual funds have lots of expenses, and most of them are passed on to the investors in the form of fees or sales charges. Fees vary widely from fund to fund.
2. Taxes
Some mutual funds pass on capital gains to investors, which is a taxable situation. Not all mutual funds make these kinds of distributions in the same way, however, so it is important to find out before you purchase them.
3. Professional management
Managers are not created equal. Therefore, not all will perform up to expectations. And they still get paid even if the fund under performs.
You can learn more about sales charges and fees with the following guide on choosing a share class.
Investing for your retirement calls for a long-term approach. The money you put away today is planting the seeds for your retirement in the years to come. In today’s world, we get new information so quickly, it can be hard to keep that long-term perspective.
This might help you see the long-term picture. The stock market will always have ups and downs, but history has shown that over decades, the market will generally trend upward over time. Retirement planning means investing for the long-haul, with less focus on occasional dips or peaks.
What does risk mean in terms of investing for retirement? How much risk are you comfortable with?
When you’re younger – in your 20s, 30s, and into your 40s – it’s common to invest more aggressively, with the idea being that you have time to potentially make up for any market dips. An aggressive portfolio would include more stocks, and fewer bonds or cash.
As retirement approaches in your 50s and 60s, it’s typical to become more conservative and to replace some of those stocks with bonds and cash, which are generally considered less volatile. That’s because we’re now trying to protect our investments heading into retirement.
That’s the general philosophy, but risk is a deeply personal thing. If having a lot of your retirement investments in stocks is going to keep you awake at night, a portfolio heavily weighted with stocks may not be for you.
Please note, investments are subject to market risk, including the loss of principle. Past performance is no guarantee of future results.
Many reports today show that Millennials are taking a more conservative approach to investing than professionals recommend. This shouldn’t come as a surprise, considering the lingering effects of the “Great Recession,” which has caused Millennials to be more wary of investing than previous generations. The problem here is that playing it too safe for too long may not enable you to reach your retirement income goal. If you’re young but nervous about risk, there are still investment strategies you can pursue.
But in general, a properly diversified investment strategy may help reduce the overall risk of your portfolio while still pursuing growth.
And please remember, all investments involve risk, including loss of principal, and there is no guarantee of profits. You should carefully consider your objectives, risk tolerance, and time horizon before investing. There is no assurance that any investment will meet its stated objective.
In simple terms, diversification is a technique that mixes different kinds of investments in your portfolio, such as stocks, bonds, and cash. An appropriate diversification strategy can help decrease the risk of putting too many eggs in one basket.
Think of diversification as a well-balanced meal with cash, bonds, and stocks as your carbohydrates, proteins, and fats. An investment in just one of these asset classes doesn’t provide a balanced mix, depriving your portfolio of essential vitamins and nutrients needed for healthy growth.
Don’t forget: Diversification does not assure or guarantee better performance, cannot eliminate the risk of losses, and does not protect against an overall declining market.
Equities
Stocks are also known as equities. They allow you to buy shares of an individual company. In essence, you become an owner of that company, albeit a very small owner. These are the riskiest of the three investments, since their value tends to fluctuate more from day to day – but they also have the potential for the highest returns.
Fixed-income investments
Next, we have bonds, or fixed-income investments. With bonds, you essentially loan money to companies or governments. In exchange for your investment, the entity pays you interest for a pre-determined number of years. At the end of the term, the bond will mature and (provided the entity can cover its debts), you’ll receive your initial money back, plus interest. While bonds are generally considered more conservative then stocks, they can be impacted by inflation and interest rate changes.
Cash equivalents
The third kind of security is cash or cash equivalents. All three types of securities can be included in mutual funds. Instead of worrying about which individual stocks to own, or what bonds to purchase, you can invest in multiple companies and bond types through mutual funds.
Fund managers create different funds for different tastes. One fund could focus on big, established companies, while another one focuses on low-risk bonds. Whatever the choice, the fund manager determines the investment strategy and decides what goes into the fund. You then purchase shares of the overall fund, giving you access to many different stocks, bonds, and/or cash equivalents.
Say you've invested in a mix of equities that suits your goals. The market could experience a period of growth - or decline - and all of a sudden the balance of equities you once felt comfortable with is now askew. Time to rebalance.
The same could apply if your goals and needs change. If your risk tolerance changes, you'll probably want to rebalance so you're exposed to the types of investments that fit your needs. Always monitor your investments to make sure your mix stays in a balance you’re comfortable with.
Where did the time go?
You’re in your prime earning years, but expenses tend to rise, too. Bigger house, more expensive vacations, and, if you have them, kids need financial support with sports and college expenses. You might even be a caregiver for an older relative.
You’re well into your working career, and you’ve learned a lot. Sometimes it can be helpful to get another perspective on ways you can optimize your budget, get enough physical exercise, cover your family with appropriate insurance, and fine-tune your spending habits to help set yourself up for a bright future.
Consider this a refresher on ways you can leverage your momentum to propel yourself toward the next decade and beyond.
Even if you don’t have access to an employer-sponsored retirement plan like a 401(k), there are still options.
In 2018, you can contribute up to $5,500 to an individual retirement account (IRA). And if you're 50 or older, you can contribute another $1,000 in "catch-up" contributions.
When asked, "What concerns you most about your financial future," 1 in 5 said that an unexpected personal or family health crisis could significantly eat into savings. It was the most popular answer.
“Transamerica Wealth and Health Survey,” Luntz Global Partners, 2016
How much is your health worth?
On average, a day’s worth of healthy meals costs only $1.50 more than the least healthy ones.1 Up to half of all premature deaths in the U.S. are due to preventable factors like diet, tobacco use, and physical inactivity.2
1 “Eating healthy vs. unhealthy diet costs about $1.50 more per day,” Harvard School of Public Health, 2013
2 “Up to Half of U.S. Premature Deaths Are Preventable; Behavioral Factors Key,” Population Reference Bureau, 2015
The next step awaits.
The prospect of retirement – whatever that means to you – is on the horizon. You may feel the need to make up for lost time or reassess how much income you will need as your lifestyle shifts.
Plus, when it comes to health, what are the things your doctor thinks you should know as you get older?
Up until now, your goal has likely been saving for retirement. Now that it’s time to really get ready to retire, the first step is to determine how much you can sustainably spend in retirement and how long you will need it to last.
It’s important to consider all of your potential sources for retirement income, including any employer-sponsored plans you may participate in, Social Security, and any pension benefits that may be applicable.
In this cheat sheet, we'll guide you on some important things to consider.
Our retirement counselors can help you with the complexities that arise with an approaching retirement. These counselors are here for you, with insights on how to create a retirement income strategy, optimize Social Security, or which healthcare options may be available.
If you're thinking about retiring in the next two years or so, give us a call at 866-616-4191 Monday through Friday, 9 a.m. to 6:30 p.m. ET.
Register for a live webinar to get ready for retirement, learn about health care in retirement, and how to maximize Social Security.
High five! This is your time.
Hopefully your hard work has paid off and you’re ready for the next step on your journey. We’re here to help with some of the more complicated questions you may have about making your assets last – and provide some encouraging words along the way.
Retirement, for most, won't be all leisure. However, it's interesting to note how longer life spans can lead to more than just a single "retirement" stage toward the end of our lives.
You could experience up to four separate stages in retirement, according to findings by a recent Merrill Lynch and Age Wave study. Where are you? Where will you want to be? And how will your retirement strategy get you there?
The month in which you turn 65 is the month you become eligible for Medicare. Anyone not collecting Social Security should enroll in Part A three months prior to your 65th birthday to avoid a gap in health insurance coverage. Most people will be eligible for premium-free Part A coverage.
Unless covered by an employer-sponsored health plan, you must also enroll in Medicare Part B to avoid future penalties.
If you continue to work, you can check with your employer’s plan to see how it integrates with Medicare and whether or not you are eligible to opt-out of Part B.
If you turn 66 before January 1, 2021, Full Retirement Age for Social Security is your 66th birthday.
Assuming you have not received a retirement or disability benefit yet, in the month following your 66th birthday, you are eligible to collect your full retirement benefit. If eligible, a full spousal benefit may be available in place of your benefit, if it is a greater amount.
Social Security generally recommends applying for benefits three months prior to the month you would like them to start.
The year in which you turn 70½ is referred to as the “first distribution year” and required minimum distributions (RMDs) from qualified accounts must begin. The IRS allows the first RMD to be postponed until April 1 of the year following the “first distribution year.” Subsequent RMDs are due by year end of each year.
Postponing the first RMD results in the need to take both the first and second RMDs in the same tax year.
Retirement is roughly a two-phase process:
1. Accumulation – The aim is to grow your financial assets by investing regularly according to a plan designed to meet your needs.
2. Payout – You begin to tap into your accumulated financial assets to fund your retirement lifestyle or to pay for other spending priorities.
