The Diversified Blog

A wealth management blog dedicated to creating a long lasting sustainable retirement.

Millennials: On Investing and Retirement

Move over Baby Boomers. These days all eyes are on Millennials, those young adults between the ages of 18 and 34 who are now America's largest living generation.1 According to the U.S. Census Bureau, Millennials in the United States number more than 75 million -- and the group continues to expand as young immigrants enter the country.1

Due to its size alone, this generation of consumers will undoubtedly have a significant impact on the U.S. economy. When it comes to investing, however, the story may be quite different. One new study found that 59% of Millennials are uncomfortable about investing due to current economic conditions.2 Another study revealed that just one in three Millennials own stock, compared with nearly half of Generation-Xers and Baby Boomers.3

On the Retirement Front

How might this discomfort with investing manifest itself when it comes to saving for retirement -- a goal for which time is on Millennials' side? According to new research into the financial outlook and behaviors of this demographic group, 59% have started saving for retirement, yet nearly two-thirds (64%) of working Millennials say they will not accumulate $1 million in their lifetime. Of this group, half have started saving for retirement -- 37% of which are putting away more than 5% of their income -- despite making a modest median $27,900 a year.2

As for the optimistic minority who do expect to save $1 million over time, they enjoy a median personal income that is about twice that -- $53,000 -- of the naysayers. Three out of four have started saving for retirement and two-thirds are deferring more than 5% of their income; 28% are saving more than 10%.2

So despite their protestations, their reluctance to embrace the investment world, and a challenging student loan debt burden -- a median of $19,978 for the 34% who have student loan debt -- Millennials are still charting a slow and steady course toward funding their retirement.2

For the Record …

Here are some additional factoids about Millennials and retirement revealed by the research:

•  The vast majority (85%) of Millennials view saving for retirement as a key passage into becoming a "financial adult."

•  A similar percentage (82%) said that seeing people living out a comfortable retirement today encourages them to want to save for their own retirement.

•  Those who have started saving for retirement said the ideal age to start saving is 23.

•  Those who are not yet saving for retirement say they will start by age 32.

•  Of those who are currently saving for retirement, 69% do so through an employer-sponsored plan.

•  Three out of four said they do not believe that Social Security will be there for them when they retire.

•  Most would like to retire at age 59.
 
Source(s):

1.  Pew Research Center, "Millennials overtake Baby Boomers as America's largest generation," April 25, 2016.

2.  Wells Fargo & Company, news release, "Wells Fargo Survey: Majority of Millennials Say They Won't Ever Accumulate $1 Million," August 3, 2016.

3.  The Street.com, "Only 1 in 3 Millennials Invest in the Stock Market," July 10 2016.
 

Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Business Owner or Corporate Exec: Are You On Track to Retire (Someday)?

If you are a business owner, corporate executive or similar professional, “success” often means at least two things. There’s the career satisfaction you’ve worked your tail off for. Then there’s that question that starts whispering in your ear early on, growing louder over time:

Am I on track to retire on my own terms and timeline? (And if not, what should I do about it?)

While every family’s circumstances are unique and personalized retirement planning is advised, the ballpark reference below can help you consider how your current nest eggs stack up. It shows the savings you’ll want to have accumulated, assuming the following:

•  You’re saving 10–16% of your salary (or equivalent income) and receiving an annual raise of 3%.

•  Your annual investment return is 6%.

•  At retirement (age 65) you want to spend 40% of your final salary (with Social Security making up an additional 20–40% of the same).

•  You plan to withdraw 4% annually from your portfolio.

Salary vs. Age vs. Desired Savings Today (To Retire at 65)



Still feeling a little overwhelmed by the size of the chart? Let’s look at some plausible scenarios.

Let’s say you are a 40-year-old couple earning $100,000 annually. The table suggests you should have saved about $317,000 by now. If you continue to save 10–16% of your salary every year and the other assumptions above hold true as well, you should be on track to retire at age 65 and replace 40% of your final paychecks by withdrawing 4% of your portfolio each year. If you’re already 50 and pulling in $200,000, your savings should be right around $1.067 million to be on track in the same manner.

Do your numbers not add up as well as you’d like? No need to panic, but it’s likely you’ll want to get planning for how you can make up the gap. That may mean saving more, retiring later in life, investing more aggressively or employing a judicious combination of all of the above.

If you’re not sure how to get started, I recommend turning to a professional, fee-only advisor who you’re comfortable working with. He or she should be able to offer you an objective perspective to help you decide and implement your next steps. In the meantime, here is one tip to consider.

How To Channel Your Salary Increases Into Retirement Assets

As you approach retirement, many business owners’ or corporate executives’ salaries tend to increase, while some of their expenses (such as the mortgage) remain level. If that’s the case and you’re behind on your retirement savings, you may be able to direct your annual salary increases into increased saving.

For example let’s say you’ve been saving 7% of your salary, or $10,500/year, and you receive a 3% raise.  Take that extra 3% ($4,500) and direct it into savings. Without having to alter your current spending, you’re now saving 9.7% of your salary or $15,000 total.  If you get another 3% raise the following year, do it again and you’ll be saving $19,635 or about 12.3% of your $159,135 salary.

And so on. If you can’t allocate all of every raise every year to increased savings, do as much as you’re able and the numbers should start adding up, without having to significantly tighten your belt. Who knows, as you and your spouse see the numbers grow, you may even begin to enjoy the exercise.

One repeated caveat before we go: Remember that the table above offers only rough saving guidelines. It’s certainly not the final word, and should not be taken as such. In addition to saving for retirement, you’ll want to ensure that the rest of your financial house is in order, so your plans won’t be knocked off course by life’s many surprises.

Again, a financial professional can assist. He or she can help ensure that your investment portfolio is well diversified (to manage investment risk), your estate plan is current, your advance directives and insurance policies are in place, and your tax strategies are thoughtfully prepared. 

So, start with the chart, and give us a call if we can tell you more.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.



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The DOL Revisits Conflict of Interest Rules

Over the past several decades, there has been a significant shift in the retirement savings landscape away from employer-sponsored defined benefit pension plans to defined contribution plans, such as 401(k)s. At the same time, there has been widespread growth in assets in IRAs and annuities.

One consequence of this change, according to the U.S. Department of Labor -- the governmental body that oversees pensions and other retirement accounts -- is the increased need for sound investment advice for workers and their families.

The DOL says its so-called "conflict of interest" rules are intended to require that all who provide retirement investment advice to employer-sponsored plans and IRAs abide by a "fiduciary" standard -- putting their clients' best interest before their own profit.

Originally proposed more than a year ago, the "final" rules -- introduced in April 2016 -- have been revised to reflect input from consumer advocates, industry stakeholders, and others. Following are some of the key takeaways from the DOL's final regulatory package.

The Role of the Fiduciary

According to the DOL's definition, "a person is a fiduciary if he or she receives compensation for providing advice with the understanding that it is based on a particular need of the person being advised or that it is directed to a specific plan sponsor, plan participant, or IRA owner. Such decisions can include, but are not limited to, what assets to purchase or sell and whether to roll over from an employment-based plan to an IRA. 1 In this capacity, a fiduciary could be a broker, registered investment adviser, or other type of adviser.

The Best Interest Contract Exemption

The DOL's final rules include a provision called the Best Interest Contract Exemption (BICE). This exemption is intended to allow firms to continue to use certain compensation methods provided that they "commit to putting their client's best interest first, adopt anti-conflict policies and procedures, and disclose any conflicts of interest that could affect their best judgment as a fiduciary rendering advice" -- among other conditions.2

How does the BICE affect you? The contract provisions of the BICE are slated to go into effect January 1, 2018. At that time, IRA clients entering into a new advisory relationship should expect to sign the contract either before or at the time that a new recommended transaction is executed. IRA clients already working with an investment adviser as of January 1, 2018, may receive a notice from their adviser describing their new rights, but they should not be required to take any action unless they object to the terms of the notice.

Clients receiving advice about investments in an employer-sponsored retirement plan should receive the same general protections and disclosure, but should not expect to receive a contract to sign.

Education vs. Advice

The DOL's final rules clarify its position that education about retirement savings is beneficial to plan sponsors, plan participants, and IRA owners. As such, the DOL said that plan sponsors and service providers can offer investment education without becoming investment advice fiduciaries.

Further, the DOL stated that communications from plans that identify specific investment alternatives can be considered "education" and not a "recommendation" because plans have a fiduciary who is responsible for making sure the investment offerings in the plan are prudent. Since there is no such responsible fiduciary in the IRA context, references to specific investment alternatives are treated as fiduciary recommendations and not merely education.

Time to Get on Board

The new regulations are expected to take effect in the spring of 2017 (at the earliest) to allow all affected parties to adapt to and incorporate the changes.

To learn more about the new regulations and how they may affect you, visit the Department of Labor website.
 

Source:

United States Department of Labor, "FAQs About Conflicts of Interest Rulemaking."


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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What to Know About Annuities

Are you retiring soon and looking into your options to start drawing down your savings from your employer-sponsored plan? Are you also concerned about making sure your money lasts as long as you need it to? If so, annuities may make sense for you.1 Annuities, simply put, reduce the risk that you will outlive your savings. Here is how to decide whether an annuity is right for you.

Understanding Annuities

Annuities are contracts offered by insurance companies that pay a stream of monthly payments in exchange for a premium. An immediate annuity is one in which you receive payments right away. A deferred annuity is one where you purchase a contract, but don't receive payments until after a set period of time.

While annuities reduce the risk that you will outlive your savings (and suffer a drop in your standard of living), they do so at a cost. They are not liquid -- once you have purchased one, it can be expensive or impossible to change your mind later. For this reason, using a portion of your savings to purchase an annuity may be most attractive when:

•  You (and your spouse) expect to live for many more years.

•  You have relatively low income from other sources (e.g., from Social Security or defined benefit pension plans).

•  You are relatively more averse to risk.

Which One Is Right for You?

Whether the amount of the annuity is right for you -- or even if you should annuitize -- involves a lot of issues, such as your other assets, savings, income, and taxes. If you're only taking care of yourself, the lifetime payment option might be a good choice. If there are other people counting on the income, you'll want to look into the other options.

Another issue for you to think about is today's low interest rates. One way to deal with this is to "ladder" smaller investments in immediate annuities over several years to take advantage of potentially higher interest rates.

Regardless of your decision, here are three key factors to keep in mind.

•  Comparison shop. Payment rates will differ significantly from insurer to insurer. Look carefully at the fees and expenses. Examine the rates and terms they offer.

•  Find a reputable company. Investigate the stability and financial strength of the companies you are thinking of purchasing an annuity from. Be sure to include the main insurance company rating agencies -- A.M. Best, Moody's, Fitch, Standard & Poor's, and Weiss -- as part of your due diligence process. And don't forget to ask your agent for a current listing of COMDEX scores for insurance carriers. COMDEX is a service that compiles scores from a range of ratings agencies and assigns a score to each company from 0 to 100 -- 100 being perfect.

•  Watch for additional costs. At their core, immediate annuities are a very simple product, but extra features come with additional costs. Be sure to read the fine print.
 
Source/Disclaimer:

1.  Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They are sold only by prospectus. Guarantees are based on the claims-paying ability of the issuer and do not apply to a variable annuity's separate account or its underlying investments. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value. Withdrawals made prior to age 59½ may be subject to a 10% additional tax. Surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail i This email address is being protected from spambots. You need JavaScript enabled to view it. .

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

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Brush Up on Your IRA Facts

If you are opening an IRA for the first time or need a refresher course on the specifics of IRA ownership, here are some facts for your consideration.

 

IRAs in America

 

IRAs continue to play an increasingly prominent role in the retirement saving strategies of Americans. According to the Investment Company Institute (ICI), the U.S. retirement market had $24.7 trillion in assets at the end of 2014, with $7.3 trillion of that sum attributable to IRAs.1 Today, some 41 million -- or 34% -- of U.S. households report owning IRAs.2

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How Much Should You Save for Retirement?

Here is a nice video provided by Dimensional Fund Advisors:

 

This is just one in a series of videos which explain the reasons why we choose Dimensional Funds.

 

How Much Should You Save for Retirement? - How much should you be saving for retirement? Massi De Santis, PhD, explains that the answer should be customized for each individual, based on how their income grows prior to retirement.

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Trading Places: Baby Boomers More Aggressive Than Millennials in Retirement Goals

Popular investing wisdom states that the younger you are, the more time you have to ride out market cycles and therefore the more aggressive and growth-oriented you can be in your investment choices. But that is not how individuals surveyed recently are thinking or behaving with regard to their retirement investments.

 

In fact, the new study sponsored by MFS Investment Management suggests that Baby Boomers take a more aggressive approach to retirement investing than the much younger Millennials -- those who are 18 to 33 years old. Further, each group's selected asset allocation is inconsistent with what financial professionals would consider to be their target asset allocation, given their age and investment time horizon.

 

For example, Baby Boomers, on average, reported holding retirement portfolio asset allocations of 40% equities, 14% bonds, and 21% cash, while Millennials allocated less than 30% of their retirement assets to equities, and had larger allocations to bonds and cash than their much older counterparts -- 17% and 23% respectively.

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Research in Focus: How Much Do You Need to Save for Retirement?

Here is a nice article and video provided by Massi De Santis, PhD of Dimensional Fund Advisors: 

How much should you be saving for retirement? In this client-ready video, Massi De Santis, PhD, explains that the answer should be customized for each individual, based on how their income grows prior to retirement.

Click HERE to watch the video.

More detailed information can be found by clicking on the following title to download: How Much Should I Save for Retirement?

 

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