Beyond the Three Pillars: How to Stress-Test Your Retirement Plan

Most retirement conversations begin with what many refer to as the “three pillars” of retirement income: Social Security, pensions, and personal investments. While these pillars form the foundation of many retirement strategies, the real question is not simply whether you have them — it is whether they can hold up under pressure.

A solid retirement plan should not only look good on paper. It should be evaluated for how it may perform under real-world stress.

What Does It Mean to “Stress-Test” a Retirement Plan?

Stress-testing is the process of evaluating how a retirement strategy may perform under different scenarios, including unexpected ones. Markets fluctuate. Inflation rises. Healthcare costs increase. Tax rules change. Life expectancy can extend beyond original assumptions. Estate and legacy goals may also come under pressure if liquidity or tax consequences are not anticipated.

A plan that appears workable under ideal conditions can face challenges when volatility or shifting circumstances arise. Stress-testing helps identify potential vulnerabilities so they can be addressed while there is still time to adjust.

Key Areas to Evaluate

  1. Market Volatility and Sequence-of-Returns Risk
    How would income needs be met during a prolonged market downturn, particularly in the early years of retirement? Drawing from investment accounts while markets are declining can reduce long-term sustainability. Diversification, withdrawal strategy, and overall asset allocation all influence how resilient the plan may be.
  2. Inflation
    Even moderate inflation can erode purchasing power over a multi-decade retirement. Plans should consider rising costs in healthcare, housing, and everyday living expenses so that income strategies retain flexibility.
  3. Longevity
    Many people underestimate how long retirement may last. Structuring assets to support income for 25–30 years or longer helps reduce the risk of outliving resources.
  4. Healthcare and Long-Term Care
    Medical and potential long-term care costs are among the largest unknowns in retirement. A stress-tested plan examines how these expenses might be covered without significantly disrupting lifestyle or remaining assets.
  5. Tax Efficiency
    Withdrawals from traditional retirement accounts create taxable income that can affect net cash flow and Medicare premiums. Evaluating distribution sequencing across taxable, tax-deferred, and Roth accounts can help manage the tax impact over time.
  6. Estate and Legacy Considerations
    Retirement income decisions and estate goals are closely linked. Stress-testing should examine whether the plan maintains sufficient liquidity for potential estate settlement costs, whether beneficiary designations align with overall intentions, and how market downturns or higher spending later in life could affect what remains for heirs. Strategies such as Roth conversions, trust structures, or coordinated use of life insurance may be relevant depending on individual circumstances and tax rules. Coordinating retirement withdrawals with legacy objectives helps reduce the chance that income needs and inheritance goals work against each other.

Why Stress-Testing Matters

Retirement planning is not about predicting the future with certainty — it is about preparing for a range of possible outcomes. Running different scenarios and adjusting as needed can provide clearer insight into how the plan may hold up under pressure. The goal is greater awareness of both strengths and potential weak points so that adjustments can be considered proactively.

At Toomey Investment Management, we believe retirement planning should be forward-looking. We work with clients to evaluate income strategies, risk exposure, tax considerations, healthcare variables, and estate implications as part of a comprehensive review. The aim is to help develop strategies designed for greater resilience across a range of conditions.

Because reaching retirement is only part of the journey — maintaining financial security and clarity once you are there matters just as much. 

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401(k) vs. IRA: Which Is Better for Long-Term Growth?

If you’re just starting your investing journey, you’ve probably heard about 401(k)s and IRAs. Both can help your money grow over time, but understanding how they work—and how decisions about them evolve later—can help you make more informed choices early on.

For young professionals in Wallingford and throughout Connecticut, selecting and managing the right retirement accounts is one of the most important early financial decisions you can make.

What Is a 401(k)?

A 401(k) is an employer-sponsored retirement plan. Contributions are typically deducted from your paycheck on a pre-tax (or Roth) basis, making consistent saving automatic. Many plans offer an employer match—essentially additional money added to your savings. Investment options are selected by the plan sponsor and can vary in cost and quality. Contribution limits are generally higher than those for IRAs.

What Is an IRA?

An Individual Retirement Account (IRA) is opened independently through a financial institution and typically offers a broader range of investment choices. Traditional IRAs may provide a current-year tax deduction (subject to limits), while Roth IRAs are funded with after-tax dollars and can offer tax-free qualified withdrawals in retirement. Many people use an IRA alongside a 401(k) for added flexibility.

A Practical Starting Approach

For many early-career investors, a sensible sequence is:

  1. Contribute enough to the 401(k) to capture the full employer match.
  2. Consider funding an IRA for greater investment flexibility.
  3. Increase contributions over time as income grows.

Starting early and contributing consistently usually matter more than which single account you choose. Even modest contributions in your 20s or early 30s can grow substantially over decades due to compounding.

Old 401(k)s: Leaving the Money Versus Rolling to a Professionally Managed IRA

As careers progress, many people leave 401(k) balances at former employers. Deciding whether to leave the money in the old plan or roll it into an IRA becomes more important over time—especially as retirement approaches. When a rollover or consolidation occurs, that IRA can be placed under professional management as part of a broader investment strategy.

Potential advantages of leaving money in a former employer’s 401(k):

  • Access to institutional share classes or relatively low-cost options in some plans.
  • Strong federal creditor protection under ERISA.
  • In certain cases, the ability to delay required minimum distributions if still working and the plan allows it.

Potential drawbacks:

  • Limited investment choices.
  • Fees that may be higher after leaving the company.
  • Administrative complexity when managing multiple old plans.
  • Restricted flexibility for withdrawals or Roth conversions.

Potential advantages of rolling to a professionally managed IRA:

  • Broader investment options and easier account consolidation.
  • Greater flexibility for tax-efficient strategies, including Roth conversions and coordinated withdrawals.
  • Ongoing professional oversight for rebalancing, risk management, and alignment with retirement income needs.
  • Simplified required minimum distribution calculations and beneficiary planning.

Considerations:

  • Loss of ERISA-level creditor protection (IRA protection varies by state).
  • Advisory and investment fees should be clearly understood.
  • Rollovers must be handled correctly to avoid tax complications.

In retirement, a consolidated, professionally managed IRA can make it easier to coordinate withdrawals, manage tax brackets, and adjust investments for income needs. Leaving balances scattered across multiple old plans can increase complexity at a time when simplicity and tax coordination matter more.

There is no universal right answer. The better choice depends on the specific plan’s costs and options, your need for creditor protection, your preference for professional oversight, and how the accounts fit into your overall retirement strategy.

Building a Longer-Term Plan

Understanding 401(k)s, IRAs, and the implications of old workplace plans is an important foundation for long-term financial independence. At Toomey Investment Management in Wallingford, we help Connecticut individuals and families navigate these decisions and develop strategies aligned with their goals. If you would like to review your current approach or discuss how existing 401(k) balances might fit into a professionally managed IRA, we are available to help.

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Retirement Planning Mistakes (And How to Avoid Them)

 

Planning for retirement is one of the most important financial steps you’ll take—but it’s also one of the easiest areas to make costly mistakes. Many individuals and families approach retirement planning with good intentions, yet small missteps along the way can meaningfully affect long-term financial security. Understanding these common pitfalls can help you stay on track and build greater confidence in your future.

 

Starting Too Late

 

One of the most frequent mistakes is delaying retirement planning. Time is one of your greatest assets thanks to compound growth. Waiting even a few years can mean needing to contribute substantially more later to reach the same goals. Starting early gives your investments more time to grow and creates greater flexibility to adjust along the way.

Underestimating Retirement Needs

 

Another common issue is miscalculating how much income you’ll actually need. While some expenses may decline, others—healthcare, potential long-term care, travel, or hobbies—often rise. Inflation, especially in medical costs, can further increase the amount required over a retirement that may last 20 to 30 years or more. Without a realistic picture of future cash-flow needs, it’s easy to fall short.

 

Lack of Diversification and Inappropriate Risk Levels

 

Failing to diversify investments can expose a portfolio to unnecessary risk. Relying too heavily on one asset class, a single stock, or a narrow market segment increases vulnerability. Equally important is matching risk level to your time horizon and goals. Taking on too much risk near retirement can amplify losses at the wrong time, while being overly conservative too early can limit long-term growth potential.

 

Ignoring Tax Implications and Withdrawal Sequencing

 

Taxes can significantly reduce retirement income if not planned for carefully. Many people overlook how withdrawals from traditional IRAs and 401(k)s are taxed, how required minimum distributions (RMDs) will affect taxable income, or how the order of withdrawals across taxable, tax-deferred, and Roth accounts can change the longevity of their savings. Strategic, tax-aware withdrawal planning can help preserve more of what you’ve accumulated.

 

Overlooking Social Security and Other Income Decisions

 

Social Security claiming decisions, pension lump-sum versus annuity choices, and the timing of other income sources are often treated as afterthoughts. Claiming benefits too early or failing to coordinate them with investment withdrawals can leave meaningful income on the table over a lifetime. These decisions interact with tax brackets and cash-flow needs and benefit from careful modeling.

 

Failing to Plan for Healthcare and Longevity

 

Healthcare costs and the possibility of needing long-term care are frequently underestimated. Medicare does not cover everything, and expenses can rise sharply later in retirement. Longevity risk—the chance of outliving your assets—also grows as lifespans increase. Building flexibility and appropriate reserves into the plan helps address these uncertainties.

 

Going It Alone Without Ongoing Guidance

 

Financial markets, tax rules, and personal circumstances change over time. Without periodic review and professional perspective, it’s easier to miss opportunities, react emotionally during market volatility, or let a once-solid plan drift out of alignment with current goals. A structured approach that includes regular check-ins can help keep the plan on course.

 

Start Planning with Greater Clarity

 

These common mistakes can often be reduced or better managed with thoughtful preparation and ongoing attention. By starting early, estimating needs realistically, diversifying appropriately, coordinating tax and income decisions, and reviewing the plan regularly, you can build a more resilient retirement strategy.

If you’re in Connecticut and want to feel more confident about your financial future, the team at Toomey Investment Management in Wallingford is here to help. Reach out to discuss a personalized retirement plan tailored to your goals, timeline, and circumstances.

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Saving for Retirement: When Should You Start and How Much Should You Save?

One of the most common financial questions people ask is: When should I start saving for retirement, and how much is enough? While the answer varies for every individual, one principle remains consistent—the earlier you begin, the more flexibility and opportunity you create. That said, it is never too late to build a thoughtful and effective retirement plan aligned with your long-term personal financial goals.

Start Sooner Rather Than Later

Time is one of the most powerful tools in retirement planning, largely due to the impact of compound growth. Starting in your 20s or 30s—even with modest, consistent contributions—can lead to substantial long-term accumulation.

For example, an individual who invests $200 per month starting at age 25 may accumulate more retirement savings than someone who begins investing $400 per month at age 40. The difference is not simply the amount invested—it is the additional years those dollars have to grow and compound through disciplined managing investments.

However, if you did not start early, there is no reason to panic. Many individuals build strong retirement plans later in life by:

  • Increasing contribution rates

  • Maximizing employer-sponsored retirement plans

  • Utilizing catch-up contributions

  • Implementing tax-efficient investment strategies

The most important step is not when you started—it is committing to a structured plan today with the guidance of a trusted financial advisor.

How Much Should You Save for Retirement?

There is no universal savings target that works for everyone. The appropriate amount depends on income, desired lifestyle, retirement age, life expectancy, and overall financial obligations.

A commonly referenced guideline suggests planning to replace approximately 70–80% of your pre-retirement income. This assumes certain expenses, such as commuting or payroll taxes, may decline, while others—like healthcare, travel, or family support—may increase.

Many financial planners recommend saving 15–20% of income during your working years, including employer contributions such as 401(k) matches. However, individual needs vary based on:

  • Expected retirement lifestyle

  • Anticipated longevity

  • Other income sources (pensions, Social Security, rental income)

  • Healthcare costs and inflation

  • Legacy planning priorities

A personalized retirement strategy ensures your savings rate is realistic, sustainable, and aligned with your broader financial objectives.

Customized Strategies for Every Life Stage

Retirement planning is not static—it evolves alongside your career, family responsibilities, and financial circumstances. Each stage of life presents distinct opportunities and priorities.

In Your 20s–30s

Focus on building disciplined saving habits. Take full advantage of employer-sponsored retirement plans and matching contributions. Consider Roth accounts for long-term tax-free growth. Early-stage managing investments should emphasize growth potential and diversification.

In Your 40s–50s

Reassess your retirement timeline and savings trajectory. As earnings often peak during these years, increasing contributions can significantly accelerate progress. Strategic asset allocation adjustments, tax planning, and portfolio rebalancing become increasingly important. Financial advisors often introduce advanced planning strategies during this phase.

In Your 60s and Beyond

Shift focus toward income and distribution planning. This includes:

  • Determining sustainable withdrawal rates

  • Coordinating tax-efficient income sources

  • Preserving capital while generating income

  • Integrating legacy planning objectives

At this stage, managing investments requires careful balance between income generation, stability, and long-term security.

The Importance of Professional Guidance

Retirement planning involves more than selecting investments—it requires integrating tax strategy, risk management, cash flow planning, estate considerations, and long-term wealth preservation. Navigating these decisions alone can feel complex and overwhelming.

A trusted financial planner provides:

  • Objective analysis and personalized strategy development

  • Ongoing monitoring and portfolio adjustments

  • Risk management during market volatility

  • Alignment of retirement savings with your personal financial goals

  • Integration of retirement income and legacy planning strategies

Professional oversight helps ensure your plan remains adaptable as markets shift and life evolves.

The Bottom Line

The best time to start saving for retirement was yesterday. The second-best time is today. Whether you are early in your career or approaching retirement, disciplined managing investments and thoughtful planning can significantly impact your financial future.

At Toomey Investment Management, our experienced financial advisors design retirement strategies tailored to your life, goals, and timeline. We focus on clarity, structure, and long-term alignment—helping you build confidence in every financial decision.

Want to talk through your retirement savings strategy and ensure it aligns with your personal financial goals? Contact Toomey Investment Management today and take the next step toward a secure and well-planned future.

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Are You Taking Full Advantage of Your Employer’s 401(k) Match?

Saving for retirement is one of the most important financial steps you can take, and an employer-sponsored 401(k) plan with a matching contribution is like finding free money for your future. If you’re not maximizing this benefit, you’re missing out on a golden opportunity to supercharge your retirement savings. Here’s why taking full advantage of your employer’s 401(k) match is a no-brainer—and how a financial advisor can help you make the most of it as part of your personal financial goals.

What’s an Employer 401(k) Match?

Many employers offer a 401(k) match, meaning they’ll add money to your retirement account based on what you contribute. For example, if you earn $60,000 and your employer matches 100% up to 3%, contributing $1,800 a year gets you an extra $1,800 from them—doubling your savings instantly! It’s like a bonus that grows over time and plays a critical role in saving for retirement.

Why You Should Jump on This

It’s Free Money!
Your employer’s match is cash handed to you for your retirement. Skipping it is like leaving part of your paycheck on the table.

Your Money Grows Faster
Money in a 401(k) grows tax-deferred, letting your savings compound over time. That small match today could become a big nest egg by retirement, making it a vital part of your long-term wealth management strategy.

An Instant Boost
Where else can you double your money the moment you invest it? A 401(k) match gives you an unbeatable head start toward reaching your personal financial goals.

Don’t Miss Out on Extra Perks

Some employers sweeten the deal with options like:

Pre-Tax or Roth Contributions: Choose pre-tax to save on taxes now or Roth for tax-free withdrawals in retirement. Not sure which is best? An advisor can guide you.

Dual Plans: Work for a public sector employer? You might have access to both a 401(k) and a 457(b), letting you save even more. Maximize both with expert help.

Mega Backdoor Roth: Some plans let high earners stash extra savings in a tax-free Roth account. It’s a game-changer, but it’s tricky—make sure you seek advice first!

How to Make It Happen

Getting the most from your 401(k) is easier than you think, but it takes a plan:

  • Check your employer’s match details and contribute enough to grab every penny.

  • Review your budget to prioritize this benefit, even if you start small.

  • Choose smart investments within your 401(k) to grow your savings efficiently.

  • Work with a financial advisor to create a personalized strategy that fits your goals and complements other financial services you may be using.

Why an Advisor Makes the Difference

Navigating retirement plans can feel overwhelming—vesting schedules, investment options, tax rules, and special strategies like the mega backdoor Roth aren’t exactly light reading. A financial advisor can simplify it all, ensuring you’re not leaving money on the table and your retirement plan is built to last. They’ll tailor a strategy to your unique situation, so you can focus on today while securing your tomorrow through smart wealth management.

Start Building a Stronger Retirement Today!

If you’re unsure whether you’re maximizing your 401(k) match, we’re here to help! At Toomey Investment Management, we’ll guide you through smart retirement strategies and financial services to ensure you make the most of every opportunity and stay on track toward saving for retirement.

Schedule a consultation today and take full control of your retirement future!

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Saving for Retirement: Aligning Your Personal Financial Goals with Expert Asset Management

Planning for retirement is one of the most important financial goals you’ll ever set. Yet, many individuals delay saving for retirement or don’t have a clear strategy in place. Without a well-structured plan, it’s easy to fall behind and risk financial uncertainty in your later years. That’s where expert asset management, wealth management, and comprehensive financial services come into play.

Start with Clear Personal Financial Goals

The first step in saving for retirement is understanding your personal financial goals. Ask yourself:

  • At what age do I want to retire?

  • What kind of lifestyle do I envision in retirement?

  • How much money will I need to cover my expenses, including healthcare and leisure?

A financial planner can help assess your current financial situation and project what you’ll need based on inflation, expected returns, and potential expenses. Setting clear, achievable goals ensures you stay on track and strengthens your overall wealth management strategy.

The Role of Asset Management in Retirement Planning

Once you establish your goals, the next step is effective asset management. A well-balanced investment portfolio tailored to your risk tolerance and time horizon can make a significant difference in your retirement savings.

A financial planner can help diversify your portfolio across various asset classes, including:

  • Stocks for long-term growth

  • Bonds for stability and income

  • Real estate or alternative investments for added diversification

Asset management isn’t just about investing—it’s about making informed decisions that align with your long-term financial security and your personal financial goals. Regular portfolio reviews help adjust for market changes, life events, and shifting financial priorities—key pillars of successful wealth management.

Why Work with a Financial Planner?

Navigating retirement planning alone can be overwhelming. A financial planner provides valuable insights, helping you:

  • Create a savings and investment strategy tailored to your retirement goals

  • Optimize tax-efficient investment options

  • Adjust your financial plan as your needs evolve

  • Ensure you’re making the most of employer-sponsored retirement plans and IRAs

  • Create a nuanced estate plan to help protect your assets during, and after life

Toomey Investment Management offers personalized financial planning services and expert financial services designed to help you maximize your retirement savings and achieve financial peace of mind. By working with an experienced advisor, you can confidently build toward a secure financial future and enjoy the retirement you’ve always envisioned.

Start Planning Today

It’s never too early—or too late—to start saving for retirement. Contact Toomey Investment Management today to develop a customized financial strategy built around your personal financial goals, supported by experienced wealth management.

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The Three Pillars of Retirement: Pension, Social Security, and Personal Investment Income

We all have plans (or dreams) to retire one day. While dreams are important, the foundation for retirement is just as critical. Will you have enough money to fund your retirement? Establishing clear personal financial goals and working with a knowledgeable financial planner can help turn those dreams into a reality.

Three Types of Retirement Income

For many Americans, there are three elements of a solid retirement planning strategy: pension income, social security income, and personal investment income. In this blog, we’ll provide an overview of these three types of income and how they contribute to saving for retirement.

Pension income. Once a common benefit among U.S. employers, traditional pensions in the United States are on the decline, with more companies switching from providing direct pensions to outsourcing the process to defined contribution plans such as 401Ks.

According to the Bureau of Labor Statistics using data from March 2023, 73 percent of civilian workers had access to retirement benefits. The take-up rate (defined as the percentage of workers with access to an employer-sponsored benefit who choose to participate) for retirement benefits was 77 percent.

Social Security. While social security can provide some income for day-to-day living, living on social security alone is nearly impossible for people in many parts of the country.

“A popular rule of thumb is that you’ll need about 80 percent of your pre-retirement income to maintain your current lifestyle. Unfortunately, Social Security benefits supply only about half of that if you’re an average earner,” according to SmartAsset.com. Individuals still working can check their estimated benefits on the Social Security website, and see estimates of their benefits at early, standard, and late retirement ages.

Personal investment income. Personal investment income is money earned from the buying, owning, and selling of investments. These investments not only provide capital for living expenses during retirement, but they also generate other income streams, including capital gains, dividends, and interest on the investments from products such as corporate or government bonds or CDs. Designing a long-term investment strategy aligned with your goals is a key element of successful asset management.

Not Everyone Qualifies for All Three

Not all Americans are entitled to or have access to all three of these income vehicles, which means it’s even more important to consult with a knowledgeable financial planner who can provide alternatives to ensure plan stability. This substitution begins with a comprehensive needs analysis, enabling investors and advisors to construct a proposal that highlights the strengths, weaknesses, or limitations their plan circumstances may present.

Choose an Experienced Retirement Planning Partner

Toomey Investment Management, Inc. is a Wallingford, Connecticut-based independent registered investment adviser (RIA) advisory firm that offers clients expertise in independent portfolio management, tax planning and preparation, risk management, and estate planning. Their comprehensive services aim to create a durable, effective wealth management strategy customized to client needs.

A prudently designed retirement income plan is crafted to client specifications with a central focus on flexibility and durability. Whether you’re focused on building wealth, saving for retirement, or securing long-term income, our team is here to help.

When we partner with clients, there is a shared interest in the longevity of the plan. We tell our clients on day one: this is a business of variables, and we aren’t doing our jobs if the product we provide isn’t a durable one.

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Why You Need Risk Management

If you built your financial plans five, ten, or more years ago, you may find upon close examination, that they no longer fit your life today. Whether from outside circumstances such as market fluctuations or outlooks to internal changes such as approaching retirement, or changes in your family situation, any risk analysis you may have done in the past may not be relevant today.

It’s a given that as humans get older, their priorities change. Carefree youth is for building a career and spending money, whereas with middle age, priorities such as children (and their college funds), charity donations, post-retirement life, and protection for one’s estate for heirs loom larger on the horizon. For this reason, it’s wise to engage in a new round of risk management for your finances to ensure that your strategy matches your life as it is now.

First, Update You Will

We believe that roughly every five years, legal documents such as a will/living will and healthcare proxies should be reviewed. It is important that the wishes outlined in your will correlate with your beneficiary designations of certain assets. Even if you have a living trust in place, a properly set up will is going to help the trust function properly. If there has been a significant change to your finances, relationships, or property, it’s likely time to visit your attorney to get everything up to date.

Update Your Life Insurance

Life insurance needs to change as we get older. For many of us, a small policy – often through one’s employer – is sufficient for our needs. Later, we may turn to term life policies that are generally affordable, though they are not permanent. Ideally, older Americans should be looking for permanent insurance policies that will last their entire lifespan as long as the premiums are paid. These policies often come in the form of universal, variable, variable universal or whole life, and have cash value with a rate of return, and in most cases, the death benefit will never change.

Consider Disability Insurance

As we get older, the chances that we’ll be out of commission for either the short term or the long term due to health issues become greater. You may wish to pick up a short-term disability policy that will pay benefits for three to six months in case of accident, injury, or illness. With these policies, you can often have the majority of your earned income paid directly to you with no restriction on expenses.

Long-term disability insurance offers an important benefit for those who may be at risk of losing the income they need to survive financially because of permanent illness or injury. These benefits are typically 40 to 70 percent of the policyholder’s income. Long-term disability can be purchased with different elimination periods, and for durations usually stated in years. Some policies will pay until retirement.

What to Know About Long-term Care Insurance

As the population lives longer than ever, chances are greater that we could live to the point where we require others to care for us. Many people mistakenly believe that programs like Medicare will pay for long-term care. (It will not.) Medicaid may cover long-term care, but only after your assets have been reduced to near zero. For this reason, it may be wise to entertain a long-term care policy to avoid exhausting our assets and placing the burden of care onto loved ones. Long-term care insurance is a policy that helps pay for the costs associated with long-term care, either at home or in a care facility. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.

Talk to a Professional

Toomey Investment Management, Inc. is a Wallingford, Connecticut-based financial advisory company that offers clients risk management services as well as asset protection.

At TIMI, our business model is designed to treat all of our clients equally and fairly. We realized long ago that the financial industry dedicated many resources to capturing money from prospective clients but much less to service and accountability for existing clients. At Wallingford, Connecticut-based TIMI, we listen carefully, keep in touch, and return your calls and communications quickly, so you can count on us. We will work effectively to optimize your financial situation and solve your problems. Call us at 203-949-1710 or visit our website for more information.

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Is an Annuity Right for You?

Annuity Written On Yellow Sheet And Piggy Bank With Money.

Americans today are living longer than previous generations. That’s the good news. The challenge is coming in saving for retirement and ensuring those savings last a lifetime. 

Meeting the challenges of retirement savings has always been a difficult prospect, but in today’s volatile economic environment and a reduction in the income provided by employer-sponsored pensions, the challenges are steep and require more knowledge and initiative. 

In most cases, pensions have been replaced by defined contribution plans, such as 401(k)s and individual retirement accounts (IRAs). This means that employees and investors must bear most of the responsibility for building their own retirement portfolios. Because of the nature of 401ks and IRAs, these savings are much more exposed to the whims of global financial markets, leaving savers with more uncertainty.  

Increasingly, financial advisors are recommending annuities to help alleviate retirement savings uncertainties and replace the guaranteed income that a pension would supply. 

Different Types of Annuities

There are different ways to invest in annuities based on the purchaser’s needs. Investors can purchase a fixed annuity in which the payments are spelled out exactly ahead of time in the contract. Alternatively, investors can purchase a variable annuity that will invest funds in the market. While there is more potential for growth with a variable annuity, there is also more risk since it’s essentially based on an investment portfolio and subject to market whims. 

Before you choose an annuity, it’s a good idea to consult with a financial investment management advisor to determine what type and configuration are right for you. Regardless of which type of annuity you choose, the power of tax deferral means you can build up your retirement savings more quickly, leaving you with more money to do work for you. 

What Are the Benefits of Annuities?

With an annuity contract, investors are essentially buying a stream of payments that will be made to them over time to protect against the risk of outliving their income. There are many different annuity types, allowing investors to find one that ideally fits their lifestyle and retirement plans. There are benefits available that guarantee income, as well as locking in death benefits for loved ones. 

Because annuities are tax-deferred, annuity holders don’t pay taxes until they withdraw their money. Deferred annuities take advantage of this deferred tax paradigm by putting off tax payments until retirees begin receiving income distributions. The growth that happens in the tax-free interim can significantly build a retirement portfolio. 

As an example of how this tax-deferred process can work, consider the purchase of a $100,000 annuity compounded at a five percent annual rate for 20 years. Tax-free, this money would grow to $265,330. If the investor withdrew that money in a lump sum and paid a 32 percent tax rate on it, they would come out with $212,424. However, if the saver put the $100,000 into a taxable investment account, they would realize only $149,765 in that time.

What Are the Drawbacks of Annuities?

After going through the Rolodex of great benefits annuities may offer, many people find themselves asking the age-old question: what’s the catch? Any time you see guarantees with an insurance-related product, there is almost always a caveat or trade-off that needs to be considered in the decision-making process.

Limited investment options are a theme in many index and variable annuities. Are there any contracts with more investment flexibility than others? Absolutely. But every annuity limits contract holders to a list of funds/crediting strategies, and in some cases, dictates account allocations and caps returns on a particular index. This can often result in muted returns that the investor would not otherwise be subject to in a taxable brokerage account. 

Many annuities come with a base M&E (mortality risk and expense) charge, sometimes coupled with living and/or death benefits — guaranteeing payments during life, or locking in death benefits for heirs – that almost always come with additional expense. In fact, it would not be abnormal to see some annuity contracts costing over 3% in annual fees. While some investors are happy to pay such an expense for security and peace of mind, others may opt to forgo the insurance benefit because they believe they emulate the same benefits in the market without the expense.

Is An Annuity Right for Me?

Although all portfolios should be tailored on a case-by-case basis, annuities should be recommended with elevated care. Not only are annuities often expensive, but it is not uncommon for contracts to come with multi-year surrender charges that may prevent contract holders from accessing their money without penalty. These are some of the reasons that annuities have gained a less-than-stellar reputation.  With that said, when an investor has been made aware of the pros, cons, and mechanics of an annuity, it can play an invaluable role in the confidence of their retirement income plan. 

Consult a Financial Advisor

At Toomey Investment Management, Inc. (TIMI), our business model is designed to treat all our clients equally and fairly. We realized long ago that the financial industry dedicated many resources to capturing money from prospective clients but much less to service and accountability for existing clients. At Wallingford, Connecticut-based TIMI, we listen carefully, keep in touch, and return your calls and communications quickly, so you can count on us. We will work effectively to optimize your retirement savings options and solve your problems. Call us at 203-949-1710 or visit our website for more information. 

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Have You Checked the Beneficiary Designation of Your Retirement and Other Accounts?

It’s a common mistake to believe that because you have a will, you don’t need to name beneficiaries for your other financial accounts such as IRAs and other retirement accounts, life insurance policies, and annuities. After all, your chosen heirs will get them in the end, right?

Not necessarily. It’s worth checking to see who is currently named as the beneficiaries of these accounts. You may have designated them so long ago that you’ve forgotten. But it’s important to note that even if you have a will, beneficiary designation on the account overrides a will. So you might just be leaving your IRA to an ex-spouse or family member who has passed away, or only your older children and not your younger ones.

Despite the wording of your will, the individual named as a beneficiary of your accounts will receive that money, even if the designation was made years or decades ago. Your will only covers the distribution of your assets included in the probate estate.

Take A Few Moments to Check the Beneficiary Designation

Aside from the fact that your beneficiary designation may be out of date, it’s possible that you never actually named a beneficiary. This means that after you pass away, your estate will become the beneficiary. Unfortunately, at that point, the money will become subject to the long and expensive probate process, which may leave your heirs waiting a long time to inherit.

It’s also important to name contingency beneficiaries to your accounts. This means that if your first beneficiary were to die before you (or at the same time as you in, say, an accident) the money would then pass on to the contingency beneficiary or beneficiaries. If you have children, this is a good way to ensure that the money will go to them if you and your spouse were to die at the same time.

Examine the Wording of Your Beneficiary Designation

You may have nebulous language in your beneficiary designation that leaves benefits for your “children.” If you don’t name them specifically, the inheritance issue could become murky, particularly if you have a blended family. Be sure to name each beneficiary specifically to avoid complexities and family arguments, and to understand what the term “per stirpes” means. It’s also worth designating contingent beneficiaries for each of your children in case they were to predecease you. Also, avoid designating one child as a beneficiary under the assumption that he or she will share the money with their siblings. The designated beneficiary has no legal obligation to do so.

Seek Professional Advice

Good estate planning helps protect your family and your beneficiaries. Look for a financial services firm that will stress-test your estate to make sure you’re addressing all aspects of your death benefits. The end result is an evolving plan that helps protect your family and friends.

At Toomey Investment Management, Inc., we are a dual registered, Independent RIA. This means that we retain the independence and flexibility to associate with a number of broker-dealers/custodians to can offer a range of products or services. We believe our business model best enables our comprehensive and objective approach as financial fiduciaries.  If you feel like we would be a great match for you and your family, please call us at 203-949-1710 or visit our website for more information.

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