Retirement for savers and investors (

In today’s financial environment, what would it take to generate $10,000 in annual income? I see two main consumer categories here: savers and investors.

The savers aren’t risk-takers, and they focus mainly on fixed products. The risk for the saver is the uncertainty of future rates. Looking at the current average rates from, let’s see what lump sum would be required to generate $10,000 of annual income.

Now let’s look at an investor who may have a combination of fixed, bond and equity investments. Assuming a higher rate of return than the fixed products, the lump sum required for them is even smaller. But even though they need less money up front compared to the savers, investors risk the uncertainty of rate of return and longevity.

Here are two alternatives that eliminate return and longevity risks and require smaller lump sums:

1. A fixed index annuity with an income rider would need only $181,818 to generate $10,000 a year for a 65-year-old.

2. An immediate annuity would take approximately $160,000 to generate $10,000 a year with 10-year term certain for a 65-year-old.

The income from these solutions would be guaranteed for the rest of the client’s life, regardless of interest rates or how long they live.

You can secure your clients’ retirement income many different ways. However, both savers and investors can benefit from annuity solutions — and they would potentially save money up front.

Schankerman, Steve. “Retirement for Savers and Investors.” Weblog post.LifeHealthPro. N.p., n.d. Web. 12 Aug. 2015.

FFIG green

For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.


When to file for Social Security retirement benefits early (

CY4M16 USA, New Jersey, Jersey City, Close up of woman's hand holding social security card. Image shot 2012. Exact date unknown.

Delayed gratification isn’t always the best bet when it comes to Social Security claiming strategies.

Retirees have been more willing to wait to claim Social Security in recent years. The number of men claiming benefits at age 62 dropped from 56 percent in 1996 to 35.6 percent in 2013, according to a recent analysis from the Center for Retirement Research at Boston College, which used unpublished Social Security Administration data. Among women, the rate dropped from 62.8 percent to 39.5 percent over the same period.

That said, 59 percent of retirees are still claiming before they reach full retirement age (for most workers, that’s 66 to 67, depending on your birth year), according to a March survey from Franklin Templeton.

That bucks the conventional wisdom among financial advisors and other experts that waiting is the best way to maximize benefits, especially with increasing longevity. “If you claim early and die later, you’re at greater risk of eating cat food,” said David Mendels, a certified financial planner and director of planning at Creative Financial Concepts in New York City. More clients are more worried about outliving their assets, he said, than leaving Social Security money on the table if they claim late and die early.

But early filers aren’t necessarily making a mistake. “In the last four years, everyone in the financial community has jumped on this bandwagon of defer, defer, defer,” said Mark LaSpisa, certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois. “To my mind, it’s not so cut and dried.”

When to claim ultimately comes down to the individual worker’s situation. “The magic answer is that there really is no best answer,” said Everett Lo, a project manager with the Social Security Administration. He said consumers should start planning well before they expect to retire, estimating their benefit and strategizing possible scenarios.

Several factors in particular could make it worth reassessing an early claiming strategy:

Keep in mind, though, that if your situation improves—say, you find a new job, or receive an unexpected windfall—you may be allowed a one-time reset. You’ll have to make that election within 12 months of first filing and repay all your Social Security benefits received, among other hoops, said Catherine Seeber, certified financial planner and principal for Wescott Financial Advisory Group in Philadelphia. Then you can reapply for Social Security at a later age, she said.

Big retirement plans. “There are three phases of retirement,” said LaSpisa. “Go-go years, slow-go years and no-go years.” Clients who have planned well for retirement and aren’t counting on Social Security benefits to pay the bills may find filing early gives them the extra cash flow for bucket-list travel and hobbies while they still have their health and energy. “They think if they don’t do it now, they may never be able to,” he said.

Poor health. A 65-year-old man today can expect to live to 84.3, while a 65-year-old woman can expect to live to 86.6, according to the Social Security Administration. If you have a particular health concern or other good reason to think you won’t be around that long, that can warrant filing earlier rather than later, said Victoria Fillet, certified financial planner and founder of Blueprint Financial Planning in Hoboken, New Jersey. “You need to know your family history,” she said. “Is there longevity in the family? Are you healthy?”

It’s not just your health to consider. If you have a higher-earning, older spouse in poor health, it can be smart to claim your own benefit early, said Mendels. (The potential benefit of doing so depends on your ages and eligibility.) Then you can switch to the survivor benefit after he or she passes away, Mendels said.

Other beneficiaries. If you have dependent, underage children when you qualify for retirement benefits, they may also be eligible to receive a benefit based on your record, said Fillet. The value of that extra payout can make up for the reduction in filing early. “It could be a college fund,” she said.

Retirement assets. “The real question is, ‘If I defer, where is that money coming from?'” said LaSpisa. “The money is not operating in a vacuum.” If the alternative is to draw from your portfolio, it’s worth crunching the numbers to see how a bigger drawdown in the years you delay will affect your chances of outliving your money. The reduced compounding power in your portfolio might be more damaging than taking a lower Social Security payout, he said.

Marital status. Married couples have a number of strategies they might employ, but it’s widowed individuals and those who are divorced (after being married for at least 10 years) who may particularly want to take another look at claiming early, Mendels said. Surviving spouses can opt to claim either their own benefit or a survivor benefit first, and then switch later to the other (presumably more valuable) option. Divorced individuals might claim on the divorced spouse’s benefits and wait to claim his or her own at a later date.

Grant, Kelli. “When to File for Social Security Retirement Benefits Early.” Web log post. CNBC. N.p., n.d. Web. 10 Aug. 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Goals-based investing is a means to an end (

The “envelope system” is a well-known money-saving strategy.

The idea is to save for your goals—a down payment for a home, a new car, a vacation—using a series of envelopes. Every payday, you peel off a little cash and deposit it in your envelopes, slowly chipping away at your goals.

Things have gotten a little bit more sophisticated over time, but the time-honored envelope system is the same idea behind the growing trend of goals-based investing. In investing parlance, it’s known as “mental accounts,” where each of your financial goals are funded and invested independently. Each goal, because it has a unique time horizon, has its own asset allocation and its own risk profile.

Cash in envelope savings

Altrendo Images | Getty Images

“The reality is that most of us have multiple risk profiles for multiple goals,” said Jean Brunel, managing principal of Brunel Associates, author of “Goals-Based Wealth Management: An Integrated Approach to Changing the Structure of Wealth Advisory” and a practitioner of goals-based investing since 2004.

Rethinking risk

Financial advisors have been practicing goals-based investing for about 15 years, but the strategy really took off in the wake of the financial crisis, when even the most dedicated investors had a hard time stomaching extreme losses.

Goals-based investing, advisors say, quells nerves because investors can measure the severity of a drop in their portfolios to how it relates to their goals.

“When you don’t do goals-based investing, you’re kind of anchorless,” said Daniel Egan, director of behavioral finance and investing with online advisor Betterment. “‘I want to have more money in the future’ is not a goal.”

Goals-based investing tries to marry Modern portfolio theory—the foundation of most asset-allocation strategies, first introduced by Nobel Prize laureate and economist Harry Markowitz—with investor behavior.

Modern portfolio theory holds that an optimum portfolio is one that gets the most return for every unit of risk. If it does, it is considered to be on the efficient frontier.

“I can tell you that using goals-based investing makes periods like 2008 incredibly easy to handle.”-Jean Brunel, managing principal of Brunel Associates

“The problem is that most people can’t handle a portfolio that’s on the efficient frontier,” said Jonathan Scheid, president and chief investment officer of Bellatore Financial, which provides portfolio management for financial advisors.

Scheid, along with co-authors Sanjiv Ranjan Das, Markowitz and Meir Statman, co-wrote a paper, “Portfolio Optimization with Mental Accounts,” in the Journal of Financial and Quantitative Analysis in 2008.

What’s more, modern portfolio theory is not the way that most people understand investing.

“Now when you walk into any financial advisor’s office, they’ll tell you, ‘This is the right asset allocation you,'” said Ashvin Chhabra, former chief investment officer at Bank of America’s Merrill Lynch unit and author of the recently published book, “The Aspirational Investor: Taming the Markets to Achieve Your Life’s Goals.”

“What you should be thinking about is, ‘Will my kids go to college?'” he said.

Different goals require different risk profiles. For example, an emergency fund should hardly take on any risk and, in turn, provide very little return. But there’s no fear that its value will drop.

Polyak, Ilana. “Goals-based Investing Is a Means to an End.” Web log post.Inc. N.p., n.d. Web. 7 Aug. 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Most Americans, rich or not, stressed about money (

It’s only natural to sweat the phone bill when there aren’t enough nickels to rub together. But what explains the millionaire who agonizes over the cost of new curtains, or the homeowner of sufficient means who can’t pull the trigger on a long-overdue family vacation?

Indeed, a surprising number of Americans who are otherwise financially secure are quite literally worried sick about money.

money stress

A 2015 survey by the American Psychological Association found that money is the leading cause of stress among Americans—especially for parents, younger adults ages 18 to 49 years old and, not surprisingly, those living in lower-income households. For the majority of Americans (64 percent), the survey found, money is a “somewhat” or “very significant” source of stress.

Anxiety of any shade can lead to unhealthy behaviors, such as checking one’s online bank accounts compulsively and sleep deprivation, which in turn can cause headaches and high blood pressure.

It can also create tension with loved ones. Almost a third of the adults with partners (31 percent) who were surveyed reported that money was a major source of conflict in their relationship.

Surprisingly, affluent Americans may be particularly vulnerable.

A 2015 survey of investors with a net worth of $1 million or more by UBS found that while millionaires derive significant satisfaction from the wealth they amassed, they also feel compelled to strive for more, spurred on by their own ambition, the desire to protect their families’ lifestyle and an “ever-present fear of losing it all.”

“With memories of the financial crisis still lingering, most millionaires don’t have enough wealth to feel secure,” the report stated.

Half of millionaires with less than $5 million—and 63 percent of those working with children at home—believe that one wrong move, such as a job loss or market crash, would have a major impact on their lifestyle, the survey found.

So what fuels the fear?

Fear factors

In some cases, it’s the by-product of income instability. The self-employed, business owners and those who work in industries with a high degree of turnover may be more inclined to worry about their financial future than others, said Masood Vojdani, founder and CEO of MV Financial.

Market volatility, political uncertainty and economic performance, however, can also trigger a money-under-the-mattress response, he said.

“The parents of today’s baby boomers lived a Depression-era lifestyle, and they passed that on to their kids,” said Vojdani. “We are creatures of habit, and they became savers.”

Vojdani recently worked with a client with assets of more than $5 million who was losing sleep over the economic instability in Greece and China. Specifically, he worried (without cause) that the value of his domestic real estate would be negatively affected and that a global economic meltdown would force him to go back to work.

“I often act as a therapist and tell them to spend a little because you are not coming back,” said Vojdani. “Enjoy some of this today. My job is to help them live the life they desire without worrying about every little bill.”

That requires a plan, he said.

If their primary concern is related to wealth transfer, tax reduction, succession planning or ensuring their children and grandchildren are provided for, Vojdani develops a financial plan to achieve that goal.

But he also coaches clients, especially those of means, to give some away.

“When I ask them how they want to make a difference in the world, it opens their eyes and it takes some of that anxiety away because now they have a purpose for their money,” he said.

Some anxiety surrounding money is a good thing, said Lynn Bufka, associate executive director of practice research and policy at the American Psychological Association.

“Worry can often prompt us to rein in spending or reconsider how we are allocating funds,” she said. “But if you’re adequately funding your retirement plan and saving for your kid’s college and you’re still completely stressed out and can’t stop thinking about it, it’s time to step back and determine whether your financial situation warrants that level of concern.”

Those who suffer from anxiety, she said, often make connections between things that may or may not be true. One client’s husband, for example, refused to let his wife throw a dinner party for his co-workers because he feared he would lose his livelihood if it went badly.

Schwartz, Shelly. “Most Americans, Rich or Not, Stressed about Money: Surveys.” Web log post. CNBC. N.p., n.d. Web. 5 Aug. 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

The downside of automatic 401(k) enrollment (

Nearly a third of Americans age 55 and over have no retirementsavings, and defined benefit pension plans are going the way of the dinosaur. So you’d think that employers would be doing a great thing when they automatically enroll employees in 401(k) plans.

Not exactly.

Auto enrollment, as the practice is known, does increase employee participation in retirement plans. A recent study by Towers Watson found that the share of employers with more than 80 percent participation rates in defined contribution plans increased from 50 percent in 2010 to 64 percent in 2014 as the share of companies offering automatic enrollment rose from 57 percent to 68 percent.

But the good news stops there. Employees participating in auto enrollment tend to contribute less than people who sign up for 401(k) plans on their own, often because their employers set a low default contribution level.

Vanguard has examined the defined contribution retirement plan assets it manages, and in a recent study the firm reported that average default contributions have decreased from 7.3 percent to 6.9 percent since 2007. “While automatic enrollment increases participation rates, it also leads to lower contribution rates when default deferral rate sare set at low levels,” the report concluded.

“Participation is much higher, but the savings rate is much lower, unfortunately,” said Rob Austin, director of retirement research at Aon Hewitt. He said that in the more than 140 plans Aon Hewitt recentlystudied, the rate of participation in defined contribution retirement plans reached an average of 85 percent for employers offering automatic enrollment, compared to 62 percent for those that do not.

Still, “over time, the average savings rate in plans with auto enrollment is lower than in plans that put in money themselves,” he said. “People who put in money at a default rate of 3 percent leave it there, whereas if people pick their own savings rate, they would probably pick something much higher.”

Austin said he knew of one employer that set a default contribution rate of 1 percent and then realized that employees were sticking at that low level, to their detriment, so employer dropped auto enrollment.

Employers matching less

Then there is the matter of employers’ matching contributions. A studyby the Urban Institute and Boston College’s Center for Retirement Research examined the effect of auto enrollment on the levels at which employers will match employee contributions. It found that when employees are automatically enrolled in 401(k) plans, employers set lower limits on the contribution level they match, an average of 3.2 percent, compared to 3.5 percent in plans without auto enrollment.

“Auto-enrollment policies are very successful at raising participation rates but may not boost workers’ total retirement saving if firms aim to keep their 401(k) compensation costs at a constant level,” the Urban Institute and Center for Retirement Research concluded.

Those lower match rates may in themselves affect what workers contribute. New research by T. Rowe Price suggests that roughly two-thirds of employees expecting an employer match determined their contribution rate to take full advantage of that match.

Employers have to balance several considerations when they design auto enrollment plans, experts said. For one thing, many are trying to keep their plan costs in check, so they look for ways to offset any costs resulting from increased participation.

“When we asked employers this question—why don’t you do more—two-thirds of employers said it was due to the cost,” Austin said.

In addition, setting the employees’ default contribution rate is complicated. If employers “set that number too high, it might lead people to just opt out, but if they set it too low, then people may not save enough,” said Richard Johnson, director of the program on retirement policy at the Urban Institute.

T. Rowe Price found that 60 percent of workers automatically enrolled in 401(k) plans said they would have opted out if the default rate were set at 6 percent or higher.

But that does not appear to be a danger. Some 63 percent of the automatically enrolled workers said they were enrolled at the 3 percent level or lower, and 24 percent said their default contribution rate was 1 percent. (Tweet this)

False security?

Some employers are trying to encourage employees to increase their savings by implementing automatic contribution increases, known as auto escalation.

But auto escalation has not caught on to the same extent as auto enrollment. Among the employers surveyed by Towers Watson, 54 percent offered automatic escalation of employee contributions, but only 28 percent mandated it.

Employees without features like that may be lulled into a false sense of security about their long-term financial healthy simply because they are putting something away, even if it is wildly insufficient.

“Automatic enrollment plans are a good thing. We know that they encourage individuals to save,” Austin said. “But sometimes, they can be so good that they work against you.”

Holland, Kelley. “The Downside of Automatic 401(k) Enrollment.” Web log post. CNBC. N.p., n.d. Web. 3 Aug. 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Thomas Bugbee

Futurity First Insurance Group

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