How to Know if Your Retirement is on Track?

Presented by Matt Clayson

The journey to financial independence and wellness starts with saving. But for many people, that can be a challenge, especially in trying economic times.

But there are strategies and mechanisms that can help you get on track for retirement.

If you are not currently saving … start

For people in their younger years, starting a retirement savings plan can be the biggest challenge, but also the most important step toward ensuring financial security and well-being in the future, even if that future seems far off.

Why can it be a challenge? Often, those just starting out in their career and working life are saddled with a large amount of student loan debt. That presents a question about whether it’s better to direct resources to paying off debt or start building a nest egg for retirement. The answer will be different depending on individual circumstances, but will probably lie somewhere in the middle.

Those starting out also likely face lower paychecks than those whose experience have allowed them to command a higher salary. Amid living expenses and day-to-day demands, setting aside money for retirement savings can seem like less of a priority.

Which is a mistake. For one thing, many employers offer incentives for company-sponsored retirement savings programs, typically matching a certain percentage of contributions. Not taking advantage of such saving plans amounts to essentially turning down a pay raise. Also, starting a savings program, especially in early years, takes better advantage of compounding interest over time.

That math can help those starting a savings program in later years, too.

If you think you can’t afford to save, you may want to look at moves to improve your financial wellness and allow at least some funds to go into a savings program. These steps include:

  • Creating a budget. This is central to getting a handle on your personal finances. It will also likely identify areas where cutbacks may be possible in order to direct some money to savings.
  • Learning to manage debt. This is the area that trips up many people. Credit cards can lead consumers to rack up more in obligations than is necessary or wise. On the other hand, some types of debt are necessary. Understanding the kind of debt you have and having a plan to tackle it is a positive step.
  • Managing student loans. For those starting out, student loans may be a part of the debt load. Beyond setting an overall debt plan, investigate the specific options available to you for student loan debt.

Those already saving may still want to take a couple of steps to make sure they are on course to meet their retirement goals.

First and foremost, make sure you are on track. This will help you gauge how your savings are stacking up against your likely needs.

If you are falling behind, you may consider ways to save more, especially if you still have a number of years until your likely retirement. Since many people have some portion of their paycheck deposited directly to a retirement savings account, some simply try increasing that percentage.

Additionally, you may want to do some retirement savings account housekeeping. This can include checking to be sure your beneficiaries are current and taking steps to make sure you are always current on your account status. But, perhaps more importantly, it also includes making sure your investment asset allocation is correct for your age and risk tolerance.

If you are approaching retirement … double check

Estimates vary as to how much in savings you should have to maintain your current standard of living in retirement. They typically range from six to nine times your annual income and can be affected many factors, like geography and market conditions.

If you find that you are falling short, there are steps you can take. For one, most qualified retirement savings plans allow for stepping up contributions as you approach retirement. Make sure you are taking full advantage of those provisions.

Also, you should check on your Social Security status and formulate a claim strategy. Many file for benefits as soon as they can. But benefits grow the longer you wait. So for some, it might make more sense to delay filing, depending on the level of their retirement savings, their health, or the possibility of continuing to work for more years.

Conclusion

No matter your age, saving is a critical element of financial wellness. So, it’s important to understand where you stand in the savings cycle in relation to the retirement you’d like to have. And whether you are early in your working years or nearing retirement, understand the options and steps you can take to try and make sure that your retirement savings meet your needs.

Feel free to reach out to schedule a discussion with our retirement planning specialist.

The Fed’s Inflation Fight and the Markets

Markets have been troubled. Open any brokerage or 401(K) statement and you are likely to see a page of red. It seems that nearly everything has gone precisely the wrong way: bonds are down, stocks are down, and gas prices (along with the price of nearly everything else we purchase) are up.

Fear and uncertainty abound, and the headlines foreshadowing the end of the world are not helping.

And yet…perspective matters.

There are three important points:

  1. While painful, what has occurred is a healthy and needed reaction to the withdrawal of liquidity.
  2. I am beginning to find more optimism in our monetary policy than I have in nearly three decades.
  3. This is not the time to react emotionally. Even if we are pushed into a recession, if history is any indication, we will likely be fine.

With that, let us begin.

Liquidity and monetary policy

As we’ve discussed in previous updates, the U.S. Federal Reserve is the Central Bank to the United States and, as the name states, is essentially the lender of last resort. The Fed (as it is colloquially referred) has very crude tools. It can:

  • Signal what it’s going to do by talking.
  • Raise and lower the rates at which banks borrow (through one mechanism called the Federal Funds rate).
  • Expand its balance sheet by (essentially) printing currency and buying bonds.

For the sake of brevity today, generally speaking, the Fed cuts rates when unemployment is too high and raises rates when inflation is too high (remember the dual mandate).

Yet, for four decades, the Federal Reserve has provided more and more liquidity by steadily lowering rates. And yet, for four decades, growth has been, by and large, strong and unemployment has been, by and large, reasonably low (with some exceptions).

This introduced a strange dynamic where each time the Fed cut rates, it would cut much more deeply than when it would raise rates … hence, rates fell over a long period of time.
This is, in essence, just an expansion of liquidity. If a consumer would want to borrow $10,000 at 5 percent, they would probably be willing to borrow a much higher sum at 3 percent.

More broadly, in the last three years, for example, the Federal Reserve has created (through the Treasury) an additional $5 trillion (yes, trillion) out of thin air to help counteract the economic effects of COVID-19. In 2007/2008, the Fed introduced a bit over $1 trillion to counteract damage from the Global Financial Crisis. To be clear, some of this was absolutely needed and a good deal of it was remarkably effective.

And yet, as with anything, there are no absolute decisions, only tradeoffs. The obvious consequence is we have increased the money supply in the United States and, therefore, the value of our dollars has diminished. This, along with pent-up demand from COVID and supply chain disruptions, caused inflation to rise … and has created a very specific form of inflation referred to as monetary inflation.

As such, once it was clear inflation wasn’t “transitory,” the Fed finally began taking steps to reverse the cycle.

First it signaled it was slowing or stopping the expansion of its balance sheet, then it signaled it was going to raise rates and now it is in the process of raising rates.

As markets (both financial and physical) went up because rates went lower, markets go down when rates go higher. On the margin, the introduction of liquidity makes prices increase and the removal of liquidity makes prices decrease.

This is both logical and, in aggregate, a healthy move to begin focusing more intensely on the real economy and less intensely on the performance of markets.

Market performance during recessions

The question on the minds of many is therefore how far will the Federal Reserve go? Will the Fed bring inflation back down? Yes, I believe so. Will the Fed irreparably crush markets? No, I don’t believe so. Will the Fed push us into a recession? Well, possibly…

Which brings us to Chart 1: market performance during a recession, after a recession, and during “normal” times.

The period following recessions is quite good, however, as markets recover and generally with less of the unhealthy excesses that exacerbated the sell-offs in the first place. These periods are so good, in fact, that over the seven recessions from 1970, the year immediately following the end of the recession were slightly better than “normal times.”

Therefore, what to make of it all and what are investors to do?

  • First and foremost, breathe. We have been through inflation, pandemics, wars, poor policies, high rates, low rates, high unemployment, low unemployment, and many other difficult environments before. Incentives drive behaviors and markets are driven by incentives. Those incentives haven’t changed and, as providers of capital, we, as investors, must still rely on those principles above all else.
  • Second, recognize our human brain isn’t very good at market timing. Markets are down and if you have experienced the pain thus far, there is very little expected value in trying to time the market going forward. Even the most sophisticated investment organizations in the world can’t time markets very well.
  • Third, go back to your plan. Market sell-offs are wonderful opportunities to refresh on goals and objectives. Refresh on how much you are spending and whether savings rates are high enough. Dare I say there might even be opportunities (as most equities are now less expensive and most bonds are now yielding more)?
  • Fourth, review your fixed-income (e.g., bond) portfolio. The yield curve is now inverted which means shorter-term bonds are often yielding more than longer term bonds, and those shorter-term bonds are often associated with less risk. There are many other factors involved, of course, but where possible, consider shortening duration (the maturity of the bonds in your portfolio) if you haven’t done so already. Remember, inflation is not yet under control and it is unclear how soon that will happen.

In closing, take a moment to breathe, do not react emotionally, and use the difficult markets as an opportunity to reaffirm your long-term plan.

 

Securities, investment advisory, and wealth management solutions offered by MML Investors Services, LLC member SIPC, a registered broker-dealer, and a registered investment adviser. CRN202506-301948

Will I Have Enough Money to Retire?

Presented by: Matthew A. Clayson

Will I have enough money to retire? It’s a common question and one that has increased in magnitude lately — especially for people in their 40s and 50s.

Indeed, the uncomfortable truth is that only about half of Americans believe they are on track to retire when they want to, according to a recent MassMutual Consumer Sentiment Survey. And more than half worry about running out of money in retirement.

That can generate a feeling of frustration. You’ve been working hard for over 20 years. You’ve been saving as much as you can. Then, the market crashes, and your savings disappear. It’s not too late to bounce back.

Even if you’re 55 years old and decide that today is the day to begin saving in earnest, you still have time to build up income for retirement.

On your mark, set your priorities, go

Determine what you want out of your retirement…what are your priorities? Sit down with a pen and paper and start a list. Empower yourself to make the important decisions today that will set tomorrow in motion:

  • When do you want to retire?
  • Where do you want to live?
  • What kind of lifestyle do you want to lead? How much will you want for spending each month?

These are just some of the questions you should be asking — and answering — yourself about retirement catch-up. So, take the first step and start making some decisions.

Save more, spend less

The most obvious advice still applies: save more, spend less. But there’s more to it than that.

Create a budget to help you stay on track — and actually stick to it every month. Decide where you can trim your expenses. What can you live without now so you can have more later?

If your budget isn’t working, you may want to consider downsizing to a smaller home or a less expensive location to help maintain your standard of living. This may be a difficult exercise, but remember you’re trying to catch up.

Speaking of catching up, if you will be age 50 or older at the end of the calendar year, you can take advantage of retirement catch-up contribution options to accelerate the growth of your retirement accounts. The IRS updates contribution limits periodically; checking for the most recent information can help ensure that you are making the most of the options available to you. The bottom line: make the maximum contributions possible to your employer’s retirement plan, including any available catch-up options.

Think outside the box

There are certain financial products and savings instruments that you may not be familiar with, but that may help you get more out of your money. Many people opt to consult a financial professional to help become aware of retirement catch-up options and lay out a plan.

In addition, there may be opportunities to earn extra income, either by working extra hours or turning hobbies into side businesses, that can be considered to help catch up on retirement savings.

Delay retirement (The beach will wait for you)

People are working longer than ever before. Delaying your retirement by three years from age 62 to 65 can boost your assets significantly — thanks to the combination of making extra contributions to your employer-sponsored retirement plan, not taking withdrawals, and allowing your funds more time to grow.

In addition, if you anticipate receiving Social Security retirement benefits, it’s important to understand that monthly benefits differ substantially based on when you start receiving them and the filing option you choose. For every year you postpone collecting benefits beyond your full retirement age (typically 66 or 67), you can earn an annual delayed retirement credit of up to 8 percent. That’s a big bump in benefits every year up to age 70.

On the flip side, filing for benefits before your full retirement age can permanently reduce your monthly income. Benefits will decrease based on how early you retire. What’s worse, if you begin receiving Social Security benefits early, your surviving spouse may not be able to receive your full Social Security benefit if you pass away.

The bottom line is that there are real steps and strategies you can take today to help secure your future. It’s never too early or too late to evaluate your current retirement savings plan — or create a new one.

Feel free to reach out to us with any questions and if you would like to speak with our retirement planning specialist.

 

Matt Clayson is a registered representative of and offers securities and investments services through MML Investors Services, LLC. Member SIPC(www.sipc.org). Supervisory Address: 101 Federal Street, Suite 800, Boston, MA 02110. 617.439.4389. CRN202502-1735773

5 Steps to a Midyear Financial Review

Summer is the perfect time for barbeques, but it’s also good opportunity to take the pulse of your saving and spending plan with a midyear financial checkup.

With the first part of the year in the rearview mirror, a quick look at your monthly budget can yield valuable insight into whether you’re on track to meet your 2021 savings goals. It can also help identify areas of waste and provide motivation to set new goals.

  1. Check your retirement contributions. Savers should, at minimum, contribute enough to collect any employer match to which they are entitled, he said. Not doing so leaves free money on the table. Ideally, you should aim to max out your tax-favored retirement plans, such as a 401(k) or IRA, which not only helps to build your future nest egg, but also potentially yields a valuable current-year tax deduction. The annual contribution limit for 401(k) plans is $19,500. The total annual contribution limit for Traditional and Roth IRAs this year is $6,000. (That limit is $26,000 and $7,000 for participants age 50 and older.)
  2. Tackle debt. Next, review your debt. If your debt level going up, you need to understand what’s happening with your financial situation and correct your spending pattern. Some debt, including student loans and home mortgages, are common and necessary, but credit card balances with double digit interest rates can cripple your budget.
  3. How’s your emergency fund? The mid-year check-up is also an opportune time to be sure your rainy day fund is up to snuff. Most financial professionals recommend having three to six month’s worth of living expenses set aside in a liquid account, such as a money market fund or savings account.
  4. Monitor your spending. If your debt level has been stagnant since January or you’re finding it tough to meet your savings goals, put the next lazy day to good use and get your budget under control. The National Foundation for Credit Counseling suggests consumers, track their spending for at least 30 days to get a better sense of where their money is going. Look for opportunities to liberate cash flow by halting memberships in clubs you don’t use, slashing your cable bill, and swapping one trip per year for a staycation. Most financial professionals recommend saving 10 to 15 percent of your annual salary for retirement. That’s easiest done by “paying yourself first” through automated deferrals at work.
  5. Tackle your taxes. Most of us only pay attention to taxes in December, when it’s too late to implement many of the most effective tax-saving strategies. If you meet with your tax professional now, however, you can potentially still maximize deductions. Specifically, financial experts and tax professionals routinely suggest taxpayers check their withholding to be sure they’re on track to pay what they owe and nothing more. Look too, for opportunities to maximize charitable deductions,

The year is still young for those who are serious about getting their financial house in order. By examining your finances or working closely with a financial professional, you can potentially use the remaining months of the year to maximize your tax deductions, eliminate debt, and develop a saving and spending plan that will help you meet your financial goals.