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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Should Millennials Be Planning for Retirement? Yes…Unequivocally

If you’re one of the 72 million millennials in the U.S., chances are you’re still in the early stages of your career. You may not have even found your niche yet, since you have long decades for crafting a path to career development. The thought of retirement may not even have crossed your mind yet…but it should.

Why Plan for Retirement Early?

While final retirement may be the date you finally stop working (and for millennials, the earliest that might come is the 2060s), retirement itself is actually a multi-decade process. Preparing for it now is imperative in ensuring that your money lasts the duration of your life — this is particularly urgent for a generation that is expected to live longer than its Baby Boomer parents.

Let’s take a look at some of the biggest considerations millennials should be visiting in their plans for the future.

Take Care to Build Your Credit Rating

Now is the time to be building a strong credit rating, not when you’re 55. If you have never taken out a loan or opened a credit card in the past, your credit rating may be minimal, or even non-existent. If you don’t already have an active credit card, think about getting one. Just be sure not to get in over your head…pay your credit card bill in full every month, if possible.

If you do already have a working credit card, consider using a reporting service to notify the credit reporting companies of your payments for things like rent and utilities, which can help you build more credit history.

Have “Good Debt”

It’s a myth that having no debt will lead to the best credit. This doesn’t mean, of course, that you should get yourself into unsecured debt to raise your score. Some types of debt are better than others when it comes to building a credit history. These “good debts” include mortgages, car loans, home equity lines of credit, general-purpose and secured credit cards, and personal loans.

Self-Subscription

Even if you have debt, it’s a good idea to always be investing. As long as you have earned income, you should be contributing a percentage (usually 10%) of your salary to the markets. If invested correctly over many years, compound interest will make your sacrifice well worth it when it comes time to retire. Millennials have no hesitation in consuming monthly subscription services (Prime, Netflix, HelloFresh, etc.), but they seldom have a monthly “subscription” to increase their net worth! If you haven’t started your self-subscription, it’s time to find room in the budget.

Take Advantage of Your Employer’s Retirement Fund

If you’re lucky enough to be working for a company that offers an employer-sponsored retirement plan, now is the time to be contributing to it, even if you can’t contribute the maximum. It’s this early “nest egg” that will grow exponentially in value to be there for you when you finally reach your retirement years.

If you can’t contribute the maximum amount to your 401k plan, at least be sure to contribute to the point where your employer matches your contribution. This extra amount will supercharge your retirement funds for future growth. If your employer doesn’t offer a 401k plan, consider some do-it-yourself planning by opening an individual retirement account (IRA). One side benefit of these types of retirement accounts is that they lower your taxable income.

Seek Professional Advice

If you’re serious about building the right foundation for your distant retirement, seek the advice of a professional who will be able to guide you to make the most of the resources you have.

At Toomey Investment Management, Inc. (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.  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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What is Phased Retirement and Should I Consider It?

Retirement rates have skyrocketed since the COVID-19 pandemic began. Many baby boomers and older-aged employees left their jobs earlier than they originally had planned.

During what should be a happy milestone in one’s career, many were faced with hard decisions on how to maintain finances without their full salaries. Dipping into savings is an option for some. But not all. Social security payments are also lower for those who initiate benefits before the program’s full retirement age.

Beyond just the financial implications of retirement, there is also an emotional aspect that factors into how someone feels when they’ve worked 5 days a week for 30 plus years with a company and then suddenly they no longer have that piece of their life.

Phased retirement is trending more and more today as the workplace landscape also shifts.

Employer pension plans have dwindled and people are living longer overall today. With a phased approach, one is easing into retirement by keeping an income stream during the transition. Many are now even “retiring twice” as a result of finding work they can do to fill their spare time or to increase income after their initial retirement.

Some may have a workplace retirement incentive plan offered. These often require benefits-eligible employees who have completed a certain amount of years with the company. They include the ability to work part-time instead of full-time for a fixed period and allow employees to begin to withdraw retirement benefits.

The other option is to retire and then find a part-time job.

And 45 percent of U.S. workers agree. A recent Transamerica Retirement Survey of Workers found that almost half of respondents plan to reduce their work hours as they move closer to retirement.

Whether the reason is for physiologically easing into the shift in lifestyle, or to help financially support yourself after retiring, it’s important to understand phased retirement options so you can make the most informed decision.

Consider speaking with a trusted advisor about your specific circumstances. You should know for sure if you can afford to retire soon and the impact that retirement will have on your income/lifestyle.

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A Retirement Crisis in America

For most of those in the workforce today, dreaming about when they can retire and start to enjoy more time for themselves and with their families is a given. The goal to work hard, save and then retire has always been in place – but what the retirement years will look like for many is changing drastically compared to the plans that some of our elders had access to in the past.

In addition to starting to save late in life and access to potentially less federal funding for retirement in the future, we find ourselves in what many experts are calling a “retirement crisis” in the U.S. But what does this really mean and should you actually be concerned?

Let’s take a closer look.

Currently, age 62 is the earliest you can claim Social Security retirement benefits. This is when you would be able to get replacement income based on factors such as your earnings history, the year you’re born, and what age you’ll start to claim Social Security. According to the AARP, the estimated average Social Security retirement benefit in 2021 is $1,543 a month.

In the past, workers had access to additional sources of income to help boost that monthly number. For example employer-sponsored pensions or other retirement savings plans, and personal savings that they accumulated.

Today, most of those defined benefit (DB) pension plans for employees have been replaced. So instead of getting a guaranteed monthly income in exchange for the years of work they’ve put in, they have a defined contribution plan (DC), such as a 401k, 403(b), 457, etc., that allows specific monetary contributions deferred from the employee’s paycheck – and sometimes with an employer match, usually based on a percentage of the employee contributions.

With the move to more self-directed retirement plans, figuring out how much you’ll need to withhold to save enough for retirement is very difficult and salary deferrals always reduce your net spendable income. This may be why an astounding number of employees forego participation in available retirement plans. This is partially where the retirement crisis begins.

Add to this the fact that the current Social Security benefit recipients are “paid” by the Social Security payroll taxes of the current workforce; effectively, a pay-as-you-go system.  There are ominous undertones about the equity and long-term viability of the Social Security system, as we know it today.

Then there are the small businesses and private-sector workers that may not have access to a retirement plan through their employer at all due to them being too costly to manage and fund. This often leaves many failing to have any plans for how they’ll survive financially after retirement.

The reality here is that people are living longer and having fewer kids. That means a longer average duration of Social Security benefit payments but fewer workers paying into the Social Security system. So without having enough saved for their retirement years, individuals are depending much more on Social Security benefits to live – and this likely creates additional public assistance expenditures to further strain federal resources and inevitably leading to the potential for higher taxes and lower benefits.

So what can we do now?

It’s up to us as individuals to think about our retirement years now – before we’re close to the age where we are approaching retiring. Having a broad understanding of your options to efficiently and effectively save for your future can make an immeasurable difference. Our financial professionals can help ensure that you work towards securing your financial future. We understand risks, how to properly allocate assets, and help you determine how much to start saving now. Don’t wait until it’s too late – reach out today.

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Tips to Protect Retirement Income

With Americans living longer, healthcare costs rising, and many people beginning to save later in life, it’s possible to enter retirement unprepared. If you’re currently saving or planning to retire in the near future, here are some tips to help you get and stay on track.

Diversify Your Investments

Some financial investments will perform better than others and it can be difficult or impossible to predict how an individual investment will fare over the long term. That’s why it’s important to diversify.

Having a mix of assets in your portfolio can increase the likelihood that your money will grow in the long run and help shield you from the impact of an economic downturn. Of course, it’s impossible to completely insulate yourself from risk, but diversification may provide a greater measure of security than putting all of your retirement savings into one investment type or objective.

Plan to Live a Long Time after You Retire

It’s common for retirees to live well into their 80s or 90s. That means that your retirement savings may have to last for 20 or 30 years. You will have to plan accordingly to make sure that you don’t run out of money.

Factor healthcare costs into your retirement planning. As people age, they tend to require medication, as well as in-home assistance or care in a nursing home or assisted living facility. You may want to think about purchasing a long-term care insurance policy, or educate yourself about other protective strategies so you won’t have to drain your retirement account to cover those expenses.

Think about Inflation

Inflation gradually decreases the purchasing power of money. Each year that you’re retired, your cost of living will likely increase, but your savings may not grow enough to keep pace. Some types of investments, such as stocks, commodities, real estate securities, and Treasury inflation-protected securities (TIPS) may help your retirement savings keep pace with inflation so you don’t run out of money as the years go by.

Be Strict When It Comes to Withdrawals

You may accumulate a sizable nest egg by the time you retire and may be tempted to make a major purchase, such as a new car, or take a long and expensive vacation. It’s important to be disciplined when withdrawing money from your retirement account. The fact is, you don’t know how long you’ll live or whether you’ll need expensive healthcare in the future. If you withdraw too much money early in your retirement, you may come to regret it later.

Get Professional Help to Plan for Retirement

Toomey Investment Management, Inc. can work with you to develop a diversified investment portfolio to attempt to optimize performance and minimize risk. Our team can develop an integrated plan that also considers insurance and taxes. Contact us today to learn more.

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Unwrap The Gifts Hidden Inside Your Retirement Plan

As we start the new year, I wonder how many people have taken advantage of the various types of retirement plans that were available to them during the previous year. Whether employer-sponsored plans or the various iterations of Individual Retirement Accounts, it is clear to me that most people do not optimize those plans. This is likely a function of not really understanding how they work. So hopefully, this will help you learn how you can get the most from your retirement plan.

I would like to discuss the retirement plan that is most commonly offered by employers. That plan is known as a 401(k) account. The name 401(k) refers to an IRS code section that describes the account. A 401(k) plan is a retirement savings account that allows employees to “defer” receipt of a portion of their salary and redirect it to their 401(k) account. The employee can choose how their contributions are invested from the choices in the plan. That’s a nice and convenient way for you to save for retirement, right?

Well allow me to unwrap the real gifts of these plans. First, if you have a typical 401(k), your contributions will not be assessed federal or state tax-withholdings. For many employees, that translates into saving 8-15% per-dollar of contributions that you make into your 401(k) as opposed to receiving that money in your paycheck. And while the account grows through the years, there will be no income tax on the increase or profits in the account. So if Kris Kringle contributes $5000 to his 401(k), he could save $750 by eliminating tax-withholding and if he makes $2000 in earnings he will not pay any current income taxes on them either. That means your account earnings compound in three ways; on your contributions, on the prior earnings and on tax dollars you haven’t paid. If your employer likes playing Santa, then some of your own contributions may be matched, as well. With or without the match, if you do not direct as much of your salary into the 401(k) as possible, you are electing to pay more in taxes and, of course, choosing to save less for your retirement years.

Although 401(k) plans can have a wide array of features, the primary benefits mentioned above are invaluable year-over-year and will make a tremendous difference during your retirement.

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