Social Security: Delay Benefits at the Expense of Personal Savings?

Posted on January 22, 2015 | Financial Planning

With the exception of only the top income quintile, Social Security is the largest source of retirement income for all Americans.

While many retirees also heavily rely on their investments to provide income, they face a challenge in balancing their personal savings against Social Security benefits.

The problem is that retirees have two goals that often compete:

Obtain the highest Social Security benefits and, if married, the highest benefits for the surviving spouse. This generally entails delaying benefits, ideally to the latest possible age of 70.
Minimize savings withdrawals in the early years of retirement, particularly before 70. This generally entails taking benefits as early as possible.

However, since it is difficult for those who retire before age 70 to do both, investors should be looking for the best compromise for their situation.

Even for middle-income retirees, the outcomes can vary by hundreds of thousands of dollars. The free T. Rowe Price Social Security Benefits Evaluator tool ( can help preretirees choose their strategy. Using that tool, a T. Rowe Price study examined some of the trade-offs involved, which depend on retirees’ marital status.

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Misunderstanding Variable Universal Life Can Lead to Adverse Consequences

Posted on October 8, 2014 | Financial Planning

I have been skeptical of variable universal life insurance policies (VULs) since they became popular enough to show up on my radar screen in the late 1980s.

In the beginning my skepticism was just instinct. Then experience proved that it wasn’t misplaced. Though I have been consistent in my published columns, I continue to refine how we should think about and treat variable universal life. This article is probably my bottom line on this type of insurance policy.

Almost all clients view variable universal life as similar to whole life and universal life, buying these policies for family protection or associated with estate planning. But as we will see, variable universal life policies are very different.

Virtually all variable universal life policies I have reviewed have these characteristics: a.) illustrated (represented based on hypothetical assumptions) to have level death benefits from the day purchased until death; b.) invested in risky sub-accounts [primarily stocks]; and c.) a premium that the client believes is his or her “policy’s premium.” Buyers of variable universal life are very loyal to their premium. The premium is based on an assumed constant investment yield that the selling agent selects during the sales process, which they justify based on some construct of historical data. The constant investment yield is mandated by regulators.

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Does Social Investing Generate Higher Returns?

Posted on September 15, 2014 | Financial Planning


Socially responsible investments have attracted much money, many investors, and many studies. We have studies of socially responsible mutual funds, socially responsible indexes, “sin” stocks, stocks with good and bad environmental records, and stocks with good and bad employee relations. But some parts of our knowledge are inconsistent with other parts and some gaps in our knowledge remain.

The Social Investment Forum, a national nonprofit organization promoting the concept, practice, and growth of socially responsible investing, describes socially responsible investing as “an investment process that considers the social and environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis.”

Screening is the most prevalent form of socially responsible investing, followed by shareholder advocacy and community investing. Negative screening excludes or reduces the portfolio weights of companies with weak environmental, social, or governance records, and positive screening includes or increases the portfolio weights of companies with strong records.

Negative screens that exclude tobacco companies have been the most popular screens among socially responsible mutual funds, followed by screens that exclude companies associated with alcohol, gambling, and weapons. Negative and positive screens related to community relations come next in popularity, followed by screens related to the environment, labor relations, products and services, and equal employment.

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Achieving Financial Security by Conquering Personal Debt

Posted on August 29, 2014 | Financial Planning

Overloading on debt is expensive. In addition, credit can be an important lifeline in the event of a crisis, and if you have used all your credit, you have removed a valuable cushion of security.

Debt is a major hindrance to achieving financial security for many Americans. Here are some tips on how to conquer debt.

Reduce Use of Credit Cards

Nearly three quarters of the people who use credit cards leave unpaid balances from month to month. Compounding monthly the unpaid balance on a credit card means you’re effectively paying an even higher interest rate than that stated.

If you need a credit card for convenience, pay it off each month. If you can’t control your charging, cut up your cards.

Debt experts find that people who pay cash instead of charging not only eliminate expensive interest charges, but also typically spend 25% to 30% less in the first place. The only tough part about spending cash is that it is more difficult to track when drawing up a spending diary.

Reduce Current Debt

If you currently are heavily burdened with debt, there are several steps to consider. First, of course, is to start paying off your debt, and two approaches are possible: You can pay off the highest-interest debt first, which would save you the most money; or you could pay off the lowest balance first.

You may want to consider consolidating your loans. Home equity loans, whose interest rates can be reasonable and whose interest payments are usually tax-deductible, are a popular avenue. But you may be putting your home at risk to pay off, say, a car loan, when in fact it might be better to sell the car and buy a cheaper one. Remember, too, to be cost-effective the interest rate on the consolidation loan needs to be less than the interest rate you were paying before on the multiple loans, or the payoff time needs to be stretched out to lower monthly payments. Also, if you consolidate your loans, but then spend the savings, you’re not coming out ahead.

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Lifetime Investment Strategy

Posted on August 8, 2014 | Financial Planning

While individuals invest more money in Treasury bills, bank accounts, bonds and real estate than in equities, there has always been a mystique and allure about the stock market. To many investors, it offers an irresistible challenge. While the historical returns are high, the volatility of the stock market creates risk.

Sometimes, this risk makes itself very apparent; other times it is more subtle. However, some risk is always present because it is the reason for the higher returns. Those who wish to earn more than the Treasury bill rate must assume risk. This booklet is designed to help you understand risk and its relationship to return. It will also provide guidelines for the long-term successful management of your stock portfolio.

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The 10 Myths of Retirement Planning

Posted on July 9, 2014 | Financial Planning

Retirement planning requires a clear-eyed analysis of future needs and income. Yet many individuals view retirement through rose-colored glasses.

Here are some of the most common myths and how you can bring reality into focus.

Myth #1: You will not need as much money during retirement as you do now.

The general rule of thumb says that you will need approximately 70% of your pre-retirement income in order to maintain a lifestyle similar to that which you currently have. This may be true if you live your current lifestyle. However, when you retire, you will have more free time for travel, leisure activities, hobbies, and other things you might like to do during your retirement years.

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Retirement Income: Repairing the Damage to Assure the Flow

Posted on May 28, 2014 | Financial Planning

Having suffered severe losses in their retirement nest eggs last year, many retirees living off of their savings are reviewing their investment and spending plans, searching for new plans of action to ensure their savings can sustain them throughout their lifetime.

There is no question that bear markets can be devastating—particularly for new retirees—if action is not taken to compensate for the loss. The sooner you adjust, the better.

But what is your best course of action?

While the instinct may be to flee the risk of equity markets, postpone retirement or go back to work, an alternative strategy would be to consider temporarily reducing annual withdrawals from your nest egg.

A new T. Rowe Price retirement income study compared various withdrawal adjustment strategies for new retirees who suffered a 30% decline in their portfolios in their first year of retirement, under two different assumptions of future stock market performance, and compared to a switch to a 100% bond portfolio.

Our study found retirees can boost their chances of not outliving their assets over a full 30-year retirement period by simply holding their withdrawals constant for the next five years. In fact, simply holding withdrawals steady over the next five years provides a much more secure solution than switching to a 100% bond portfolio allocation in the second year.

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What Graduates Need to Know About Making Financial Decisions

Posted on May 21, 2014 | Financial Planning

Today’s college graduates are usually enthusiastic and well-trained in their discipline.

But they are often clueless about financial matters.

Unfortunately, the fallback position is typically to do nothing. But these early-year “non-decisions” can have a detrimental effect on their financial well being throughout their working lives, and especially in retirement. If only they had known how important it is to make good decisions in these early-year financial matters!

This article is aimed directly at the younger generation, and it designed to help them avoid such financial mistakes.

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The Portfolio Review: Why It Is Important and How to Do It

Posted on May 16, 2014 | Financial Planning

The start of a new year is the perfect time to review your portfolio. If you have not been monitoring your portfolio on a regular basis, now is the time to resolve to do so in the future.

Doing your own review periodically (quarterly or at least yearly) will help you understand whether you are on course to meeting your goals, or whether you need to change your strategy or tactics. The objective of such a review is to catch mistakes and to correct your course on a timely basis, with the ultimate goal of improving your results.

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Retirement Income: Repairing the Damage to Assure the Flow

Posted on April 4, 2014 | Financial Planning

Having suffered severe losses in their retirement nest eggs last year, many retirees living off of their savings are reviewing their investment and spending plans, searching for new plans of action to ensure their savings can sustain them throughout their lifetime.

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