7 Planning Steps for Middle-Income Retirements

Americans need more retirement planning and investment advice than ever before. We are increasingly responsible for our own retirement investments, courtesy of the move away from traditional pensions to self-directed retirement accounts. We are still trying to recover from the recession. Tax rates could change sharply as Congress wrestles with complex fiscal cliff issues. And according to survey after survey, we don't know enough about investments and personal finance to make good decisions on our own.

There are roughly 110 million middle-class households. According to financial planning research, at most two million, or a bit less than 2 percent, receive financial planning services. The Society of Actuaries (SOA) hardly sounds like the group that would be riding to the rescue of the other 108 million. Yet the SOA has assembled a wealth of research and practical advice aimed at middle-income retirement needs.

In terms of our attitudes about getting professional help, the SOA's research has reached some blunt conclusions:

1. Individuals don't trust financial advisers, don't understand the value of financial advice, and further, don't even have enough financial knowledge to seek and perhaps even understand professional advice.

[Read: How to Improve Your Finances at Every Age.]

2. Tradition drives non-affluent households to rely on family and friends for financial advice. Couples suffer from gender stereotypes that often prevent them from seeking help. Financial advisers don't know how to connect to the middle-class market, particularly recent immigrants.

3. The financial advisory industry thinks it can't make money advising middle-class households. Its business model emphasizes selling investment products and generating related fee income. This sets up conflicts of interest and may lead to actions that produce adviser fees but aren't in the best interest of a client. This, of course, provides yet more reasons not to trust advisers, which takes us back to item 1.

If people can get past these issues, there remains the significant matter of exactly what kind of planning and investment needs are appropriate for middle-market consumers. The SOA has developed a seven-step planning process. Many of the steps are complex, and make it clear why you may need outside advice.

1. Quantify assets and net worth. Tabulate current investments and savings, plus other tangible assets such as your home. Factor in future set-asides for retirement plus projections for how your holdings will appreciate by the time you want to retire. Split financial assets into different buckets based on their tax treatment, with tax-deferred investments such as 401(k)s going into one bucket and investments with different future tax liabilities into another. Housing is both an asset and a future expense, so think about whether you'll need your home to generate income and how you'd like to live in retirement.

[Read: 7 Signs You're Getting Bad Financial Advice.]

2. Quantify risk coverage. What kinds of insurance make sense and how will this protection affect your need for retirement income? For example, how much additional health insurance makes sense beyond basic Medicare, and can you afford to self-insure some health expenses with out-of-pocket spending? What about disability insurance? Long-term care? Life insurance?

3. Compare expenditure needs against anticipated income. Understand that retirement expenses will differ from preretirement needs. Separate retirement expenses into basics--food, housing, utilities, and insurance--and discretionary items such as travel, restaurant meals, and entertainment. Look at your retirement earnings the same way. How close does your guaranteed retirement income--Social Security, pensions, and annuities--come to matching your basic expenses? How much income is likely to come from investment accounts and other assets with uncertain returns? How does this discretionary income total compare with your discretionary expenses? Is there room left over to provide for an emergency reserve fund?

4. Compare amounts needed for retirement against total assets. This step is closely related to balancing retirement expenses and income. Determining how your assets can be converted into lifetime streams of retirement income can be a complex process. By using variables such as the date you retire, future investment gains, anticipated inflation, future tax rates, and even your life expectancy, you can build a model that produces realistic prospects for your retirement finances.

5. Categorize assets. Look at your retirement as a series of time periods, and try to group your assets so they produce the income streams appropriate to different periods. In the short run, for example, you want to avoid being forced to sell investments at bad prices. So you might want to use liquid assets, such as money-market funds or CDs, which can be sold without much risk of costing you big future investment gains. Many advisers also help clients put holdings into what are called "laddered" accounts, which are designed to throw off income at different stages of the retirement ladder.

[Read: Need Income From Your Retirement Fund? Try These.]

6. Relate investments to investing capabilities and portfolio size. Maybe you can properly oversee some mutual funds. But would you have the skills to self-direct more sophisticated investments? How much risk should you have in your portfolio? One of the reasons the rich get richer is that they have enough resources to tolerate some high-risk investments that will probably outperform more conservative portfolios. For most people, including many active investors, correctly assessing their risks and building an appropriate risk-adjusted portfolio is beyond their skills or even interests.

7. Keep the plan current. A financial plan is not a document to be filed away and forgotten. It should be looked at, perhaps at the end of each quarter of the year, to see if adjustments are needed. And there can be major life changes, the SOA notes, that could have equally big impacts on a retirement plan:

-- Health status or healthcare costs change

-- Life expectancy

-- Investment returns are differing greatly from what has been assumed

-- Inflation expectations change

-- Assumed employment income changes

-- Expected retirement date changes

-- Failure to fully realize expected benefits from employer's pension plan or other private pensions

-- Public policy changes

-- Death of a spouse

-- Other change in marital status

-- Loss of ability to live independently

-- Unexpected needs of dependents

-- Change in housing needs

-- Bequest objectives change



More From US News & World Report

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Shareholder committees could curb UK bosses' pay bonanza - report
    Shareholder committees could curb UK bosses' pay bonanza - report Reuters - 16 minutes ago

    British public companies should be required to create shareholder committees responsible for proposing executive pay, to help constrain the spiralling salaries of top bosses, said a report published on Thursday. The report, by lawmaker Chris Philp … More »

  • Sunovion Pharma to buy Canada's Cynapsus for $624 million Reuters - 42 minutes ago

    The announced purchase price of $40.50 per share in cash was a 120.5 percent premium over that closing price. Through the deal, Sunovion will acquire Cynapsus’ drug candidate, APL-130277, which is currently in its phase three clinical trial stage. … More »

  • Salesforce third-quarter revenue forecast misses, shares fall
    Salesforce third-quarter revenue forecast misses, shares fall Reuters - 55 minutes ago

    For the third quarter, Salesforce said it expected an adjusted profit of 20-21 cents per share and revenue of $2.11 billion-$2.12 billion. Analysts on average were expecting an adjusted profit of 24 cents per share on revenue of $2.13 billion, … More »

  • EU VP tells British to 'get their act together'
    EU VP tells British to 'get their act together' AFP News - 1 hour 7 minutes ago

    Britain's political leaders should "get their act together" and tell the EU what they want from their divorce, European Commission Vice President Frans Timmermans said in an interview with AFP. Timmermans, the Dutch right-hand man to commission … More »

  • AP NewsBreak: Ritz's office backed app deal without bidding
    AP NewsBreak: Ritz's office backed app deal without bidding Associated Press - 1 hour 25 minutes ago

    Indiana schools Superintendent Glenda Ritz's office approved a lucrative technology contract that state government officials said should have been subject to competitive bid, awarding it to a company that ... … More »

  • Dollar weakens on contrasting economic data AFP - 1 hour 41 minutes ago

    The dollar weakened against the euro and the pound on Wednesday as dueling data on both sides of the Atlantic offered a mixed picture of economic conditions. Towards 2100 GMT, the euro was at $1.1156, ... … More »

  • Oil Slump Sparks Stock Losses as S&P 500 Wipes Out August Gains Bloomberg - 1 hour 45 minutes ago

    Energy share sled declines as New York-traded crude fell below $45 a barrel on data showing U.S. stockpiles climbed more than analysts had projected last week. The S&P 500 ended the month down 0.1 percent, ending its longest run of gains in two … More »

  • Business Highlights Associated Press - 2 hours 1 minute ago

    ___ Historic commercial flight from US lands in Cuba The first commercial flight between the United States and Cuba in more than a half century landed Wednesday, re-establishing regular air service severed ... … More »

  • France's Orange says in talks with Iran's MCI on potential cooperation
    France's Orange says in talks with Iran's MCI on potential cooperation Reuters - 2 hours 2 minutes ago

    French telecoms operator Orange is in negotiations with Mobile Telecommunication Company of Iran (MCI), the country's largest mobile operator, "regarding a number of areas of potential cooperation and business topics," a spokesman said. The … More »

  • BP OKs Whiting refinery Tier 3 hydrotreater Reuters - 2 hours 6 minutes ago

    BP Plc's (BP.L) 413,500 barrel per day (bpd) Whiting, Indiana refinery has received corporate approval to build a new hydrotreater to meet Tier 3 gasoline standards that will be required by the U.S. Environmental Protection Agency, according to a … More »

  • WeChat Chatter Fuels China Money Exodus Into Hong Kong Policies Bloomberg - 2 hours 26 minutes ago

    Forget about restrictions imposed by mainland regulators trying to halt the exodus of billions of yuan out of China and into Hong Kong policy purchases. For Hong Kong part-time agent Wen, who declined to give her first name, it’s been that easy to … More »

  • Italy and Germany signal tougher EU stance on migrants
    Italy and Germany signal tougher EU stance on migrants AFP News - 2 hours 27 minutes ago

    Italian Prime Minister Matteo Renzi and German Chancellor Angela Merkel agreed Wednesday to step up efforts to send migrants with no right to asylum in Europe back to their homelands. "All of us in Europe must work for the repatriation of those who … More »

  • Energy drags Wall St lower; S&P down slightly in August
    Energy drags Wall St lower; S&P down slightly in August Reuters - 2 hours 29 minutes ago

    Stocks ended lower on Wall Street on Wednesday, as energy shares tracked oil prices lower, and the S&P posted a loss for August, the first negative month for the benchmark index since February. The Nasdaq gained 1 percent in August and the S&P shed … More »

  • How the Dow Jones industrial average fared on Wednesday Associated Press - 2 hours 32 minutes ago

    U.S. stocks took small losses Wednesday as energy companies fell with the price of oil and chemical and materials companies traded lower. That pulled the market lower for August, ending a five-month winning ... … More »

  • H&R Block and Brown-Forman tumble, Chico's FAS rises Associated Press - 2 hours 33 minutes ago

    Stocks that moved substantially or traded heavily on Wednesday: H&R Block Inc., down $2.54 to $21.66 The tax preparer reported a bigger first-quarter loss and less revenue than analysts expected. Brown-Forman ... … More »

  • US stocks fall, dragged down by sinking oil prices AFP - 2 hours 46 minutes ago

    US stocks fell modestly Wednesday, pulled down by sinking oil prices, closing out a sluggish August which saw the S&P 500 score its first monthly loss since February. At the close the Dow Jones Industrial ... … More »

  • Infoblox reports 4Q loss Associated Press - 2 hours 49 minutes ago

    On a per-share basis, the Santa Clara, California-based company said it had a loss of 18 cents. Earnings, adjusted for one-time gains and costs, came to 8 cents per share. The results exceeded Wall Street ... … More »

  • Cloud management company Box's quarterly revenue jumps 30 percent Reuters - 3 hours ago

    (Reuters) - Cloud management company Box Inc's (BOX.N) quarterly revenue jumped 30.3 percent as the company added customers. Its net loss narrowed to $38.1 million, or 30 cents per share, in the second ... … More »

  • Salesforce.com tops Street 2Q forecasts Associated Press - 3 hours ago

    The San Francisco-based company said it had profit of 33 cents per share. Earnings, adjusted for one-time gains and costs, were 24 cents per share. The results beat Wall Street expectations. The average ... … More »

  • Shoe Carnival posts 2Q profit Associated Press - 3 hours ago

    On a per-share basis, the Evansville, Indiana-based company said it had profit of 22 cents. The footwear retailer posted revenue of $231.9 million in the period. Shoe Carnival expects full-year earnings ... … More »

  • Markets Right Now: Stocks edge lower on Wall Street Associated Press - 3 hours ago

    The latest on developments in global financial markets (all times local): 4:00 p.m. Stocks are closing out their first losing month since February as a quiet summer continues on Wall Street. A thin batch ... … More »

  • Ireland says Apple CEO spoke to PM, committed to stay
    Ireland says Apple CEO spoke to PM, committed to stay Reuters - 3 hours ago

    Irish Prime Minister Enda Kenny spoke to Apple (AAPL.O) chief executive Tim Cook ahead of the European Union's announcement of a 13 billion euro (11.04 billion pounds) back tax bill and the U.S. firm committed to remain in Ireland, Kenny's office … More »

  • US stocks slip as lower oil prices sink energy companies
    US stocks slip as lower oil prices sink energy companies Associated Press - 3 hours ago

    U.S. stocks are down slightly in afternoon trading Wednesday as energy companies fall with the price of oil and makers of chemicals and other materials take losses. Stocks are on track for their first ... … More »

  • Feds: Company tied to polygamous group used child labor Associated Press - 3 hours ago

    Federal labor lawyers have filed another child labor case against a Utah-based company tied to a polygamous group alleging underage laborers were put to work for long hours for little pay in dangerous ... … More »

  • Grain lower, livestock mixed Associated Press - 3 hours ago

    Grain futures were lower Wednesday on the Chicago Board of Trade. Wheat for Sept. fell 2.25 cents at $3.61 a bushel; Sept. corn lost 2.50 cents to 3.015 a bushel; Sept. oats was off .75 cent at $1.61 a ... … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    0.119-0.004-3.25%
    N21.SI
    0.36+0.01+1.41%
    E5H.SI
    0.9950.0000.00%
    Y92.SI
    4.02-0.08-1.95%
    Z74.SI
    0.22-0.02-6.38%
    5ME.SI
  • % Gainers
    % Gainers
    NamePriceChange% Chg
    0.285+0.035+14.00%
    5SY.SI
    0.60+0.07+13.21%
    BKB.SI
    0.23+0.03+12.20%
    I06.SI
    0.50+0.05+11.11%
    BFK.SI
    0.67+0.05+8.06%
    5CP.SI
  • % Losers
    % Losers
    NamePriceChange% Chg
    0.305-0.060-16.44%
    BQO.SI
    0.105-0.020-16.00%
    578.SI
    0.181-0.019-9.50%
    P36.SI
    0.21-0.02-6.67%
    1A4.SI
    0.22-0.02-6.38%
    5ME.SI

Market Data

  • Currencies
    Currencies
    NamePriceChange% Chg
    1.3618-0.0003-0.03%
    USDSGD=X
    1.5200+0.0004+0.03%
    EURSGD=X
    1.7898+0.0002+0.01%
    GBPSGD=X
    75.8110+0.022+0.03%
    SGDJPY=X
    5.6950+0.0039+0.07%
    SGDHKD=X
    2.98960.000.00%
    SGDMYR=X
    9,769.7354+2.2061+0.02%
    SGDIDR=X
    4.9013+0.0011+0.02%
    SGDCNY=X
    1.0241+0.0005+0.05%
    AUDSGD=X
  • Commodities
    Commodities
    NamePriceChange% Chg
    1,312.90+1.50+0.11%
    GCZ16.CMX
    18.64+0.01+0.07%
    SIU16.CMX
    90.17-1.67-1.82%
    ^XAU
    2.070.00+0.19%
    HGU16.CMX
    44.86+0.16+0.36%
    CLV16.NYM
  • Bonds
    Bonds
    TreasuryYield (%)Yield Change
    1.180.00
    ^FVX
    1.570.00
    ^TNX
    2.230.00
    ^TYX