PAGE 44
www.theconnectionsnj.com
Spotlight on
“
SeniorS”
WHEN INVESTING, WE REMOVE
THE VAGARIES OF EMOTION.
BECAUSE THEY ARE VAGARIES.
Gary Len
Financial Advisor
29
Olcott Square, Suite 6
Bernardsville, NJ 07924-2306
(800) 220-5717
Fax: (908) 953-8244
Gary.Len@RaymondJames.com
RaymondJames.com/LTG
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC, and are not insured by
FDIC, NCUA, any other government agency or any other financial institution insurance, are not deposits or obliga-
tions of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including
the possible loss of principal. Raymond James is not affiliated with the financial institution or the investment
center. ©2010 Raymond James Financial Services, Inc., member FINRA/SIPC 10-BDMKT-0426 FID 10/10
Let’s make one thing perfectly
clear; we are not some unfeel-
ing financial au-
tomatons. We love
emotions. It’s just
that emotions can
trump logic and
play havoc with in-
vesting. While en-
tirely human, they
don’t always yield
the prudent course
of action. Especially when your
money is on the line. At
Raymond James, we employ a
thoroughness that inserts dis-
cipline into a potentially emo-
tional situation. Our unapolo-
getically deliberate approach
demands that we
don’t get caught
up in excessive
exuberance and
next big things.
Everything we do is
unflinchingly client
focused. Not trans-
action focused. For
50
years, our advi-
sors have quietly served clients
differently. It’s time to find out
what a Raymond James finan-
cial advisor can do for you.
LIFE
WELL PLANNED.
Although charming,we
cannot endorse the
wishing well as a prodent
financial strategy.
When it comes to planning for your retirement income,
it's easy to overlook some of the common factors that
can affect how much you'll have available to spend. If
you don't consider how your retirement income can be
impacted by investment risk, inflation risk, catastrophic
illness or long-term care, and taxes, you may not be
able to enjoy the retirement you envision.
Investment risk
Different types of investments carry with them different
risks. Sound retirement income planning involves
understanding these risks and how they can influence
your available income in retirement.
Investment or market risk
is the risk that fluctuations in
the securities market may result in the reduction and/or
depletion of the value of your retirement savings. If you
need to withdraw from your investments to supplement
your retirement income, two important factors in deter-
mining how long your investments will last are the
amount of the withdrawals you take and the growth
and/or earnings your investments experience. You
might base the anticipated rate of return of your invest-
ments on the presumption that market fluctuations will
average out over time, and estimate how long your sav-
ings will last based on an anticipated, average rate of
return. Unfortunately, the market doesn't always gener-
ate positive returns. Sometimes there are periods lasting
for a few years or longer when the market provides
negative returns. During these periods, constant with-
drawals from your savings combined with prolonged
negative market returns can result in the depletion of
your savings far sooner than planned.
Reinvestment risk is the risk
that proceeds available for
reinvestment must be reinvested at an interest rate
that's lower than the rate of the instrument that gener-
ated the proceeds. This could mean that you have to
reinvest at a lower rate of return, or take on additional
risk to achieve the same level of return. This type of risk
is often associated with fixed interest savings instru-
ments such as bonds or bank certificates of deposit.
When the instrument matures, comparable instruments
may not be paying the same return or a better return as
the matured investment.
Interest rate risk
occurs when interest rates rise and the
prices of some existing investments drop. For example,
during periods of rising interest rates, newer bond
issues will likely yield higher coupon rates than older
bonds issued during periods of lower interest rates, thus
decreasing the market value of the older bonds. You
also might see the market value of some stocks and
mutual funds drop due to interest rate hikes because
some investors will shift their money from these stocks
and mutual funds to lower-risk fixed investments paying
higher interest rates compared to prior years.
Inflation risk
Inflation is the risk that the purchasing power of a dol-
lar will decline over time, due to the rising cost of goods
and services. If inflation runs at its historical long term
average of about 3%, the purchasing power of a given
sum of money will be cut in half in 23 years. If it jumps
to 4%, the purchasing power is cut in half in 18 years.
A simple example illustrates the impact of inflation on
retirement income. Assuming a consistent annual inflation
rate of 3%, and excluding taxes and investment returns in
general, if $50,000 satisfies your retirement income needs
this year, you'll need $51,500 of income next year to meet
the same income needs. In 10 years, you'll need about
$67,195 to equal the purchasing power of $50,000 this
year. Therefore, to outpace inflation, you should try to
have some strategy in place that allows your income
stream to grow throughout retirement.
Long-term care expenses
Long-term care may be needed when physical or men-
tal disabilities impair your capacity to perform everyday
basic tasks. As life expectancies increase, so does the
potential need for long-term care. Paying for long-term
care can have a significant impact on retirement income
and savings, especially for the healthy spouse. While
not everyone needs long-term care during their lives,
ignoring the possibility of such care and failing to plan
for it can leave you or your spouse with little or no
income or savings if such care is needed. Even if you
decide to buy long-term care insurance, don’t forget to
factor the premium cost into your retirement income
needs.
The costs of catastrophic care
As the number of employers providing retirement
health-care benefits dwindles and the cost of medical
care continues to spiral upward, planning for cata-
strophic health-care costs in retirement is becoming
more important. If you recently retired from a job that
provided health insurance, you may not fully appreciate
how much health care really costs. Despite the avail-
ability of Medicare coverage, you'll likely have to pay for
additional health-related expenses out-of-pocket. You
may have to pay the rising premium costs of Medicare
optional Part B coverage (which helps pay for outpa-
tient services) and/or Part D prescription drug coverage.
You may also want to buy supplemental Medigap insur-
ance, which is used to pay Medicare deductibles and
co-payments and to provide protection against cata-
strophic expenses that either exceed Medicare benefits
or are not covered by Medicare at all. Otherwise, you
may need to cover Medicare deductibles, co-payments,
and other costs out-of-pocket.
Taxes
The effect of taxes on your retirement savings and
income is an often overlooked but significant aspect of
retirement income planning. Taxes can eat into your
income, significantly reducing the amount you have
available to spend in retirement. It's important to under-
stand how your investments are taxed. Some income,
like interest, is taxed at ordinary income tax rates. Other
income, like long-term capital gains and qualifying divi-
dends, currently benefit from special--generally lower--
maximum tax rates. Some specific investments, like cer-
tain municipal bonds, generate income that is exempt
from federal income tax altogether. You should under-
stand how the income generated by your investments is
taxed, so that you can factor the tax into your overall
projection. Taxes can impact your available retirement
income, especially if a significant portion of your savings
and/or income comes from tax-qualified accounts such
as pensions, 401(k)s, and traditional IRAs, since most, if
not all, of the income from these accounts is subject to
income taxes. Understanding the tax consequences of
these investments is vital when making retirement
income projections.
Have you planned for these factors?
When planning for your retirement, consider these
common factors that can affect your income and sav-
ings. While many of these same issues can affect your
income during your working years, you may not notice
their influence because you're not depending on your
savings as a major source of income. However, invest-
ment risk, inflation, taxes, and health-related expenses
can greatly affect your retirement income.
This information, developed by an independent third party, has
been obtained from sources considered to be reliable, but
Raymond James Financial Services, Inc. does not guarantee that
the foregoing material is accurate or complete. This information
is not a complete summary or statement of all available data nec-
essary for making an investment decision and does not constitute
a recommendation. The information contained in this report does
not purport to be a complete description of the securities, mar-
kets, or developments referred to in this material. This informa-
tion is not intended as a solicitation or an offer to buy or sell any
security referred to herein. Investments mentioned may not be
suitable for all investors. The material is general in nature. Past
performance may not be indicative of future results. Raymond
James Financial Services, Inc. does not provide advice on tax,
legal or mortgage issues. These matters should be discussed with
the appropriate professional.
COMMON FACTORS AFFECTING
RETIREMENT INCOME
Submitted By: Gary Len, Financial Advisor
Raymond James Financial Services
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