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How Inflation Could Affect Your Retirement

In recent months, Procter & Gamble has raised prices for its Tide, Gain, Downy and Bounce product portfolio. It recently announced that this spring, consumers also will start paying more for many of its personal health care brands. The company is hardly alone. Nestle, Danone, Unilever and other consumers goods giants say their prices will continue to rise due to high inflation.1

Inflation is a two-faced beast. On one side, a healthy increase in prices indicates a growing economy. However, when prices increase substantially over a short period of time, it can signal other problems. The obvious problem is the world is still in the throes of a pandemic, and periodic flare-ups cause supply chain disruptions and inventory shortages. Also, the Federal Reserve has altered its monetary policy to allow higher levels of inflation in order for slow-growing areas of the economy to benefit. The sum total of these factors is that, right now, we are seeing greater inflation than we have in more than 20 years.

The thing that makes inflation more controversial than other economic factors is that it has an immediate impact on household budgets in a way that global trade agreements and adjusted interest rates typically do not. While, in time, fiscal and monetary intervention will set in to curb short-term price hikes, today’s environment is a great reminder of just how harmful rising prices can be on a household budget. While many working families can cut back or alter product choices, a lot of retirees already made those types of adjustments to their budgets when they stopped working. That makes it harder for those living on fixed incomes to adjust to rising consumer prices.2

For example, the value of a pension declines when inflation climbs at an annual rate that exceeds the pension yearly increase. Let us know if you’d like to find new ways to supplement your household income as inflation rises during retirement.

If you look at inflation in the United States from a historical point of view, today’s rising prices are not nearly as bad as they used to be. In fact, baby boomers lived through “The Great Inflation” era from 1965 to 1982 — so they are well aware of the devastating impact of runaway inflation. A recent survey discovered that people nearing retirement view today’s inflationary hike as a cautionary tale and are planning for the worst:3

  • 33% expect to need a bigger nest egg for retirement
  • 36% say the pandemic has reduced or will reduce their standard of living
  • 21% say they will need to work longer and delay their retirement to make ends meet
  • Although most participants say their portfolio has outperformed in recent years, most don’t think it will be enough to fund their retirement needs

As for steps they are taking, baby boomers and near-retirees are boosting their nest eggs by reducing their current spending (62%), taking a part-time job (32%), increasing investments (25%), delaying retirement (21%), and adopting a more conservative withdrawal rate from their savings (14%).4

Unfortunately for many pre-retirees, their retirement savings are not where they need to be — especially if they hope to offset inflation while living on a fixed income for 20-plus years. Not only does today’s typical boomer household still have an average of $28,672 in debt, but the median 401(k) account balance is $61,738 for 55- to 64-year-olds. The lack of retirement preparedness is even worse for women. According to a Census Bureau report, approximately 50% of women ages 55 to 66 have no personal retirement savings (compared to 47% of men).5

Avery Hartmans. Business Insider. Jan. 19, 2022. “P&G warns that price hikes for everyday products aren’t over yet.” https://www.businessinsider.com/procter-gamble-price-increases-laundry-detergent-healthcare-products-inflation-2022-1. Accessed Feb. 2, 2022. Peter G. Peterson Foundation. April 14, 2021. “What is inflation and why does it matter?” https://www.pgpf.org/budget-basics/what-is-inflation-and-why-does-it-matter. Accessed Feb. 2, 2022. Megan DeMatteo. Money Talks News. Oct. 15, 2021. “The Top Reason Baby Boomers Are Putting More Away for Retirement.” https://www.moneytalksnews.com/slideshows/the-top-reason-baby-boomers-are-putting-more-away-for-retirement/. Accessed Feb. 2, 2022. Ibid. Jason Lalljee and Hillary Hoffower. Business Insider. Jan. 19, 2022. “Boomers don’t have nearly enough retirement savings, especially women.” https://www.businessinsider.com/boomers-dont-have-retirement-savings-women-have-less-than-men-2022-1. Accessed Feb. 2, 2022.
­­We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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COVID, Life and Insurance

By mid-January 2022, the United States had recorded more than 865,000 deaths attributed to COVID-19. Once the vaccine was available in early 2021, life insurance companies expected COVID-related deaths to decline. However, the inability to effectively contain the virus has led to the highest death rates ever seen in the history of the life insurance business.

What does that mean for life insurance premiums going forward? Given the number of benefit payouts over the past two years, it could mean stricter underwriting. After all, if people are going to die earlier than their expected lifespan, there will be less time to accumulate premiums — so they may have to increase rates to pay for more people dying at younger ages.

Presently, insurers are not asking new applicants whether they are vaccinated, but some are requiring blood and fluid testing — which may give them those answers. The way insurers stay solvent is by being good at identifying risk, and COVID is a risk that’s going to make life expectancy more difficult to gauge as the virus continues. While some underwriters use nonmedical factors to establish risk — such as population statistics — the current wave of premature deaths due to the pandemic does not bode well for premiums established this way either.1

It has always been important to have safety net solutions to secure your family’s finances should the main breadwinner pass away. The pandemic has not changed that in any way, but it has raised the risk of premature death. While Social Security, Medicare and Medicaid are the government’s attempts at creating income and health care safety nets, for most households that is not enough.2 Now is a good time to consider more life insurance coverage while premiums are at pre-pandemic rates. Please contact us if you’d like an insurance review to make sure you are properly covered should something happen to either the breadwinner(s) or the caregiver(s) in your household. We have solutions that can combine the need for life insurance, retirement income and long-term caregiving if necessary.

Do life insurance policies cover COVID-19? For the moment, yes. All existing policies must adhere to their terms and cover the death of policy owners. However, if applying for a new policy, it is important that you complete your application form honestly and correctly. If you don’t disclose that you’ve already had COVID or that you recently traveled to a highly affected area, your policy can deny benefits.

Has COVID-19 made it harder to get a new life insurance policy? Yes, it has. It can take longer to get approved for a policy if you’ve been infected with COVID-19 or have recently been in an area with a high outbreak. Some policies have reduced the oldest age for which they will issue a policy. And if more reliable life-saving vaccines and treatments are not developed, the industry could incur higher costs associated with life insurance policies.3

According to a new workplace study by Aflac, one-third of employees think supplemental insurance is more important now than they did before the pandemic. Nearly 50% (including 63% of millennials) have purchased at least one new benefit — life insurance, critical illness insurance or mental health resources — due to the pandemic. Just because we may survive this pandemic doesn’t mean we won’t suffer from its effects. In the past year, one-third of America’s workforce reported that the wear and tear on their mental health has impacted their job performance.4

In 2020, life insurance policies paid out over $90 billion, which was more than a 15% increase over the prior year. That was the largest year-over-year increase since the influenza pandemic of 1918. Perhaps the silver lining is that with more people facing the reality of their own mortality, more have been actively purchasing life insurance. The industry sold more than 43 million policies in 2020, representing a record $3.3 trillion in life insurance coverage.5

 John Hilton. InsuranceNewsNet. Jan. 10, 2022. “Sky-High COVID-19 Mortality Not Affecting All Life Insurers The Same.” https://insurancenewsnet.com/innarticle/sky-high-covid-19-mortality-not-affecting-all-life-insurers-the-same. Accessed Jan. 19, 2022. Harry Stout. InsuranceNewsNet. Jan. 10, 2022. “Why We Need To Build America’s Personal Financial Safety Net.” https://insurancenewsnet.com/innarticle/why-we-need-to-build-americas-personal-financial-safety-net. Accessed Jan. 19, 2022. Sterling Price. ValuePenguin. Jan. 20, 2022. “How Is the Coronavirus Affecting Life Insurance?” https://www.valuepenguin.com/life-insurance-coronavirus-faq. Accessed Jan. 19, 2022. InsuranceNewsNet. Jan. 18, 2022. “Pandemic Changed How Americans Make Benefits’ Decisions, Aflac Finds.” https://insurancenewsnet.com/oarticle/pandemic-changed-how-americans-make-benefits-decisions-aflac-finds. Accessed Jan. 19, 2022. Chris Morris. Fortune. Dec. 9, 2021. “Life insurance payouts see highest increase in over 100 years.” https://fortune.com/2021/12/09/life-insurance-payouts-2020-record-high-covid/. Accessed Jan. 19, 2022.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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What Retirement Means for Men and Women

In general, retirement rates have increased during the pandemic. Before COVID-19, the retired population grew by about 1 million retirees per year. But during 2020 and 2021, 3.5 million more people retired.1

As it turns out, part of the “Great Resignation” that we’ve all been hearing about has been driven by the “Great Retirement” of women age 65-plus. Furthermore, older Americans who are married or widowed are more likely to be retired than their single peers, according to an analysis by the Federal Reserve Bank of St. Louis.2

Regardless of your status — single, married, man, woman, older or younger — there are plenty of retirement income strategies for every demographic. One of the key goals is to identify what you want your retirement to look like — bigger and better than when you were working, about the same or a downsizing of your expenses. We can help you figure out a strategy.

Thinking about what you want to do in retirement is an important step, and that can differ between men and women, even husbands and wives. A recent study that surveyed retirees in both the U.S. and Europe found consistencies in how men and women approach retirement. Men may suddenly develop more significant relationships with family members and friends. Women, who typically have already developed these relationships and sustain them during retirement, tend to spend more time involved in the lives of their grandchildren. Interestingly, wealthier men tend to gift more money to their children after they are retired than beforehand.3

Notably, a lot of the recent female retirees worked in retail, trade, leisure and hospitality, which put them at a higher risk for COVID exposure. That may have led to a decision to quit to avoid exposure and also to help with child care for their grandchildren. It is also likely that many of these women are married and have income and retirement resources through their spouse.4

When planning for retirement, it’s a good idea for couples to consider common activities they can do together. Not only does this help strengthen their bond, but it’s cheaper than funding numerous individual activities by each partner. Consider volunteering together, traveling, finding new hobbies — and have fun!

 Richard Fry. Pew Research Center. Nov. 4, 2021. “Amid the pandemic, a rising share of older U.S. adults are now retired.” https://www.pewresearch.org/fact-tank/2021/11/04/amid-the-pandemic-a-rising-share-of-older-u-s-adults-are-now-retired/. Accessed Jan. 24, 2022. William M. Rodgers III and Lowell Ricketts. Federal Reserve Bank of St. Louis. Jan. 4, 2022. “The Great Retirement: Who Are the Retirees?” https://www.stlouisfed.org/on-the-economy/2022/january/great-retirement-who-are-retirees. Accessed Jan. 24, 2022. Center for Retirement Research at Boston College. Dec. 9, 2021. “Men Make Bigger Changes After Retiring.” https://squaredawayblog.bc.edu/squared-away/men-make-bigger-changes-after-retiring/. Accessed Jan. 24, 2022. Megan Leonhardt. Fortune. Jan. 6, 2022. “Meet today’s retirees: Women over 65 who fled the workforce over COVID fears.” https://fortune.com/2022/01/06/retirees-women-over-65-covid/. Accessed Jan. 24, 2022.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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Retirement Plans for Self-Employed People

As America’s work environment continues to evolve, one thing that has become evident is that — in many cases — the work-from-home (WFH) model has proved to be effective and even cost-efficient. However, many companies with significant investments in their office buildings and campuses are not likely to want their employees to keep working from home permanently. For workers who do not want to comply with return-to-office mandates, there may be a solution: Work with your employer to transition into an independent contractor.

At the end of 2021, the National Labor Relations Board announced it will consider revamping the current legal standard for determining whether workers are independent contractors or employees.1 Presently, many companies classify workers as independent contractors but still control much of the way they conduct their jobs. Yet they don’t provide the benefits of a full-time worker. As these standards begin to change, it may become more beneficial for independent contractors, especially if they establish their own benefits through an effective pricing model.

In 2020, the number of sole proprietorships grew, and business analysts predict this trend will likely continue.2 There are about 57 million “gig workers” in the U.S., with projections that they may represent up to half of the U.S. workforce by 2023.3

One of the drawbacks of working for yourself is not having access to a 401(k) plan and company match. However, there are plenty of options for self-employed folks. One of the elements of transitioning to independent contractor status is increasing your hourly wage. For example, if your current salary averages out to $30 an hour, you’ll want to charge around $50 an hour or more to cover your expenses, such as equipment, health and life insurance, and a retirement plan. If you’d like to discuss the various retirement plans available to self-employed individuals, please contact us. In the meantime, we’ve outlined various plans below.

SEP

With a Simplified Employee Pension, you may contribute as much as 25% of your net earnings, up to $61,000, in 2022. You can set up a SEP plan as late as the due date of your income tax return for that year (including extensions).4

Individual 401(k) Plan

With an individual 401(k) — also referred to as a solo 401(k) — you can take advantage of a much higher employer match, as long as your business has the revenues. In 2022, a self-employed person may contribute up to $20,500, plus an additional $6,500 for those age 50 or older. The kicker is that you also may contribute up to an additional 25% of your business’s net earnings — for a total contribution of $61,000.5

SIMPLE IRA

With a Savings Incentive Match Plan for Employees, you may contribute up to $14,000 (in 2022), an additional $3,000 if you’re 50 or older, plus either a 2% fixed contribution or a 3% matching contribution.6

Traditional IRA

A traditional IRA allows fully or partially deductible contributions depending on your filing status and income. Traditional IRA investments are not taxed until withdrawn. If withdrawn before age 59½, the owner may be subject to a 10% penalty as well as regular income taxes.7

Roth IRA

While Roth IRA contributions are not deductible, qualified distributions are tax-free. Other features include the ability to make contributions after age 70½ and no annual required minimum distributions after age 72.8

For tax years 2021 and 2022, the total contribution you can make to all of your IRAs combined is capped at $6,000 ($7,000 if you’re age 50 or older), or your taxable compensation for the year (if less).

Fisher Phillips. Jan. 3, 2022. “Unhappy New Year for Gig Economy Companies? Labor Board Will Reconsider Independent Contractor Standard in 2022.” https://www.fisherphillips.com/news-insights/gig-economy-companies-labor-board-independent-contractor-2022.html. Accessed Jan. 17, 2022. Tyler Gallagher. Forbes. Jan. 12, 2022. “Entrepreneurship Forecast For 2022: Stats, Trends And Analysis.” https://www.forbes.com/sites/theyec/2022/01/12/entrepreneurship-forecast-for-2022-stats-trends-and-analysis/. Accessed Jan. 17, 2022. Nasdaq. Jan. 12, 2022. “Gig Economy Retirement Planning.” https://www.nasdaq.com/articles/gig-economy-retirement-planning. Accessed Jan. 17, 2022. IRS. Nov. 15, 2021. “Retirement Plans for Self-Employed People.” https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people. Accessed Jan. 17, 2022. Ibid. Ibid. IRS. Jan. 3, 2022. “Traditional IRAs.” https://www.irs.gov/retirement-plans/traditional-iras. Accessed Jan. 17, 2022. IRS. Nov. 5, 2021. “Roth IRAs.” https://www.irs.gov/retirement-plans/roth-iras. Accessed Jan. 17, 2022.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.
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