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5 Do’s and Don’ts to plan a better retirement

Some of the biggest mistakes people make when planning for retirement have to do with greed. Investors stay in the market because they think, “I’ll just wait and get a little bit more.” In this way, they are like the kid with a hand in the cookie jar who doesn’t know how to stop before they get caught.

Getting caught by the market can hurt. We’ve assembled 5 do’s and don’ts that can give you the willpower to do what you know has to be done so that you can enjoy a happy and healthy retirement.

#1: Don’t Chase the Rate of Return

As someone who has saved in vehicles such as IRAs or 401(k)-type retirement plans, it makes sense that your attention would be focused on the rate of return. However, if you are 10 or fewer years away from retirement, then you want to shift your focus and start figuring out how to protect the money you will need for income.

Today’s investing environment is more challenging than it was back in the 90s. It was easier then to earn gangbuster returns and even more secure investments such as bank CDs were paying decent returns. Today, we’re seeing a low-yield environment on traditional safe money investments and even bonds may be making a return to a bear market. Don’t be tempted to chase high returns by investing in risky investments such as cryptocurrency with the money you know you need to rely on for retirement income.

#2: Do Invest In Your Company 401(K)

While this might sound like contradictory advice, anyone who has access to a 401(k) might want to take advantage of the free match. While every company’s matching program is different, most offer a dollar-for-dollar match up to a certain percentage of your pay, usually 3 to 6 percent. That match is what can boost your returns, without exposing yourself to additional risk.

If you are behind on your contributions or getting a late start on saving, here’s some good news: you can make catch-up contributions. In 2018, on top of the $18,000 regular limit to a 401(k) plan, workers 50 and older can add an additional $6,000 per year in catch-up contributions. These contributions are tax-deductible and they grow tax-deferred. If you don’t have access to a 401(k), you can still build wealth like a millionaire if you utilize best financial practices. As you near retirement, however, it’s often prudent to shift a portion of your funds into a guaranteed investment.

#3: Don’t Be Fooled By So-Called Guarantees

One of the most common sales tactics used by variable annuity peddlers is the promise of a guaranteed rate of return. This practice has prompted the regulatory authority FINRA to issue an Investor Alert for variable annuities, and The North American Securities Administration listed “variable annuity sales practices” as one of its top investor threats.

The way variable annuities guarantee a rate of return is through an add-on feature called an income rider, or a Guaranteed Lifetime Withdrawal Benefit (GLWB) rider. The charges for these special features can cost you an additional 1 to 2 percent in addition to the underlying fund expenses, administrative fees, and the M&E expense or risk charge. Furthermore, a variable annuity’s rate of return is NOT stable. It varies with the stock market, and there is no guarantee that you will earn returns on your investment. Your actual account may still lose money even if you pay extra for the guarantees.

#4: Do Secure Your Income

Variable annuities may not offer sound guarantees, but that doesn’t mean all annuities are bad. There are two ways you can protect your money using annuities, and many famous people have owned them. An immediate annuity can turn a sum of money into an immediate income stream, guaranteeing that income amount for either a set period of years or for life. An indexed annuity with a death benefit or payout option can also give you a secure, pension-like income for life.

Be advised, however, that these guarantees are only as good as the insurance company that gives them. The Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks from 2008 to 2012. By comparison, only 14 insurance companies closed their doors, according to the National Organization of Life & Health. To shop around and compare the strength of the claims-paying ability of your insurance company, talk to one of our annuity experts.

#5: Don’t Be Fooled by Bonus Credits

One way that annuity salespeople entice hopeful investors is by offering bonus credits. These credits are designed to lure the investor into buying that particular annuity. They do that by offering what might look like free money as a lump sum bonus based on a percentage of the amount invested in the annuity, generally ranging from 1 percent to 5 percent for each premium payment you make.

Be advised, however, that bonus credits are really not free. In order to fund them, the insurance companies may impose higher fees in other areas, such as a high mortality and expense charge for a variable annuity, or a lengthy surrender charge period. What the investor should focus on instead is the amount of income that will be paid to them each month.

Getting the right investments for your hard-earned retirement money begins with asking the right questions. How much income will you get during retirement? To find out, schedule an appointment to talk with one of our retirement planning experts. We’d be happy to answer your questions and to direct you to all the right ways you can secure the money you’ve worked so hard to earn.

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