Will You Outlive Your Money for Raytheon Employees?

Will You Outlive Your Money?

According to a recent report by the Employee Benefit Research Institute (EBRI), many workers who are approaching retirement age are not financially prepared for retirement. The report found that nearly half of all workers aged 55 and older have less than $100,000 saved for retirement, which is unlikely to be enough to sustain them in retirement. 

With that taken into account, before retiring from Raytheon, determine how much money you will need for retirement. One of the greatest concerns for retirees is whether their retirement savings will last for the remainder of their lifetimes; will they run out of money? Social Security is no longer a reliable source of retirement income, and most people do not wish to rely on government assistance or their offspring during their golden years.

How much you have saved for your Raytheon retirement, how long you need your savings to last, and how rapidly you spend your money, to name a few, will determine whether you will run out of money. You will be better off if you can maximize your retirement nest fund prior to retiring from Raytheon. However, if you are about to retire from Raytheon and are still concerned about the longevity of your savings, there are still steps you can take. The following advice and suggestions will help you avoid outliving your funds.

Tips to Help Make Your Savings Last Longer

By modifying your spending habits, you may be able to extend your retirement funds. While you can get by with only minor changes to your spending habits, drastic changes may be required if your Raytheon retirement savings fall far short of your projected needs. If you consistently save and earn a reasonable rate of return, even a small amount of money can quickly accumulate.

Make Major Changes to Your Spending Patterns

For our Raytheon clients with significant concerns about running out of money, it may be necessary to drastically alter your spending habits in order for your savings to last. The following modifications are suggested for your consideration:

• Consolidate any outstanding loans to reduce your interest rate or monthly payment. Consider using home equity financing for this purpose.
• If your home mortgage is paid in full, weigh the pros and cons of a reverse mortgage to increase your cash flow.
• Reduce your housing expenses by moving to a less expensive home or apartment.
• If you are still paying off your home mortgage, consider refinancing your mortgage if interest rates have dropped since you took the loan.
• Sell your second car, especially if it is only used occasionally.
• Shop around for less expensive insurance. You'd be amazed how much you can save in a year (and even more over a period of years) by switching to insurance policies that have lower premiums, but that still provide the coverage you need. Life and health insurance are the two areas where you probably stand to save the most since premiums can go up dramatically with age and declining health. Consult your insurance professional.
• Have your child enroll in or transfer to a less expensive college (a state university as opposed to a private one, for example).

This is an especially excellent idea if the less expensive college has a solid reputation and can provide a quality education. Within two or three years, you could save a significant amount of money.

Make Minor Changes to Your Spending Patterns

We would like to remind our Raytheon clients that even small adjustments can have a significant impact. When you implement a written budget and make a number of small changes to your spending habits, you'll be surprised at how rapidly your savings will accumulate. For our Raytheon clients who have only minor concerns about the longevity of their retirement savings, minor adjustments to their spending patterns may be sufficient to rectify the issue. When modifying your expenditure habits, you may wish to consider the following suggestions:

• Buy only the auto and homeowners insurance you really need. For example, consider canceling collision insurance on an older vehicle and self-insure instead. This may not save you a bundle, but every little bit helps. Of course, if you do have an accident, the amount you saved on your premium could be wiped out very quickly.
• Shop for the best interest rate whenever you need a loan.
• Switch to a lower-interest credit card. Transfer your balances from higher-interest cards and then cancel the old accounts.
• Eat dinner at home, and carry 'brown-bag' lunches instead of eating out.
• Consider buying a well-maintained used car instead of a new car.
• Subscribe to the magazines and newspapers you read instead of paying full price at the newsstand.
• Where possible, cut down on utility costs and other household expenses.
• Get books and movies from your local library instead of buying or renting them.
• Plan your expenditures and avoid impulse buying.

Manage IRA Distributions Carefully

For our Raytheon clients attempting to maximize their savings, you should withdraw funds from your IRA as gradually as feasible. This will not only preserve the principal balance, but it will also allow your IRA funds to continue growing tax-deferred during your Raytheon retirement years. However, we'd like to remind our Raytheon clients that you must begin taking required minimum distributions (RMDs) from traditional IRAs (but not Roth IRAs) after age 7012 (age 72 if you reach age 7012 after 2019). If you do not withdraw at least the minimum amount, the difference will be subject to a tax of 50 percent.

Note: Required minimum distributions for defined contribution plans (other than Section 457 plans for nongovernmental tax-exempt organizations) and IRAs have generally been suspended for 2020.

Use Caution When Spending Down Your Investment Principal

Do not presume that you will be able to rely solely on your investment portfolio and retirement account for the remainder of your life. Eventually, you will likely need to begin drawing on the principle. These consumers should avoid spending too much too quickly. In the early stages of retirement from Raytheon, the tendency is to travel extensively and purchase items that you could not afford during your working years. A reasonable rule of thumb is to spend no more than 5% of your principal during the first five years of your Raytheon retirement. If you deplete your principal too rapidly, you will not earn enough on the remaining principal to sustain you through the later years.

Portfolio Review

Your investment portfolio will likely be one of your primary sources of income during retirement. Therefore, it is essential to ensure that your risk tolerance, investment vehicle selection, and asset allocation are appropriate in light of your long-term goals. While you want to avoid losing your investment's principal, you also want to avoid losing to inflation. A evaluation of your investment portfolio is essential for assessing the long-term viability of your savings.

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Continue to Invest For Growth

According to conventional wisdom, retirees should prioritize the security of their principal above all else. As they near retirement, some individuals convert their entire portfolio to fixed-income investments, such as bonds and money market accounts. The problem with this approach is that it wholly disregards inflationary effects. If the return on your investments does not keep up with inflation, you will actually lose money.

Your portfolio allocation should generally become more conservative as you age, but it is prudent to maintain at least a component of your portfolio in growth investments. Numerous financial experts recommend following this straightforward guideline: The proportion of equities and stock mutual funds in your portfolio should roughly equal 100% minus your age. At age 60, for instance, your portfolio may consist of 40% stocks and stock funds (100% - 60% = 40%). Clearly, the manner in which you implement this guideline will depend on your risk tolerance and other personal factors.

Basic Rules of Investment Still Apply During Retirement

When you reach retirement age, you will undoubtedly make adjustments to your investment portfolio, but you should not forget the fundamentals of investing. Diversification and asset allocation continue to be essential as you move from accumulation to utilization.

Caution: Asset allocation and diversification cannot guarantee a profit or insure against a loss. There is no guarantee that any investment strategy will be successful; all investing involves risk, including the possible loss of principal

Laddering Investments

Laddering is a strategy for spacing out the maturities of your investments so that they do not all mature simultaneously. Laddering can be applied to any deposit, loan, or security with a specified maturity date, including bonds.

Laddering Can Reduce Interest Rate Risk

Interest rates fluctuate in response to numerous factors. As a result, they are generally unpredictable. Whether you use laddering to manage a cash reserve or a portfolio, minimizing interest rate risk is one of its most significant advantages. Investing at different periods and under different interest rates reduces the interest rate risk associated with your portfolio. Therefore, it is doubtful that you will be consistently locked into below-market interest rates.

A substantial deposit or investment that matures during a period of low interest rates will leave you with two undesirable reinvestment options. You can either keep the funds in a low-interest savings account until interest rates improve, or you can roll them over at the present low rate. However, it is crucial that our Raytheon clients are aware that a subsequent increase in interest rates could leave them tied into the previous low rate for an extended period. By dividing your investment into smaller parts and stepping up maturity dates, you can avoid this circumstance.

How Do You Do It?

Initially, you will need to acquire a number of term deposits (e.g., certificates of deposit) or securities with predetermined maturities. Initially, the terms of your individual investments should vary, and you should intend to hold them until maturity. This will establish your varying maturity dates. For instance, you could purchase three distinct certificates of deposit, one with a three-month term, one with a six-month term, and one with a nine-month term. When you reinvest as your CDs mature, your new investments should be of the same length to maintain the staggered, or laddered, maturity dates. Maintain the integrity of your laddering strategy by promptly reinvesting each maturing investment for a new term.

Long-Term Care Insurance

The need to enter a nursing home due to a catastrophic injury or debilitating illness can devastate your best-laid financial plans. You must determine whether to purchase long-term care insurance, which may include coverage for nursing home care, home health care, adult day care, respite care, and residential care. For our Raytheon clients who wish to purchase such a policy, the optimal time to do so must be determined. Unless you have a chronic condition that increases your likelihood of requiring long-term care, there is typically no reason to consider this issue before age 50. There is typically no purpose to purchase such a policy prior to age 60.

Won't Medicare Pay for Any Long-Term Care Expenses You Might Incur?

Medicare will not pay for the majority of long-term care expenses, contrary to conventional belief, and neither will health insurance through Raytheon companies. Medicare benefits are only available if a nursing home is entered within 30 days of a three-day or longer hospital stay. Even then, Medicare typically covers only 20 days of specialized nursing facility care in Medicare-approved facilities. Medicare will fund a portion of the cost of care from day 20 to day 100. After 100 days, no additional coverage is provided.

What About Medicaid?

Medicaid is jointly funded by the federal government and individual states. Each state's Medicaid program is required to provide certain minimum medical benefits, including hospital inpatient care, nursing home care, and physician services, to qualified individuals. Additionally, states have the option to provide additional services. Every state requires evidence of financial need. Before deciding that Medicaid will provide adequate long-term care coverage, these Raytheon clients must understand their state's Medicaid program due to the fact that each state has distinct rules regarding benefits and eligibility.

How Much Does Long-Term Care Insurance Cost?

Unfortunately, insurance for long-term care can be quite expensive. If you commence coverage at a younger age, your premiums will be more affordable, but you will likely pay for the insurance for a significantly longer period of time. The cost of LTCI will vary based on your age, desired benefits, and chosen insurer.

Conclusion

Retirement planning is like preparing a recipe for a successful and fulfilling retirement. Just as a recipe requires a set of ingredients and directions to achieve a delicious dish, retirement planning requires a well-thought-out strategy and financial plan to achieve a comfortable retirement. Ingredients such as savings, investments, and Social Security benefits, along with careful planning for expenses, healthcare costs, and unexpected events, all play a role in the recipe for a successful retirement. And, just like a recipe, it's important to follow the directions carefully to ensure the desired outcome.