The Federal Government Takes Steps to Stabilize the U.S. Economy

On Friday, March 27, Congress passed, and President Trump signed into law, the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act. The new law is designed to stabilize the economy by providing financial relief to millions of American families and small businesses. Here’s an overview of some of the key features of the CARES Act legislation.

Federal income tax filing date extended
The IRS has extended the 2019 tax-filing deadline from April 15 to July 15. The extension is automatic and does not require you to file an extension request. You can file any time up to July 15 and if you expect a refund you may want to file as early as possible to get your refund sooner. If you file before July 15, you do not have to pay any taxes you might owe until July 15. Some state filing deadlines may not be extended, so check with your tax advisor to confirm when any state tax returns are due.

Cash payments for many Americans
A big part of the CARES Act involves direct payments to individuals. If you are a single adult with income of up to $75,000 you will receive $1,200. Payments will be reduced by $5 for every $100 of income above $75,000. Individuals earnings over $99,000 will not qualify for this benefit.

Married couples with combined income up to $150,000 will receive $2,400. Payments will be reduced by $5 for every $100 of combined income above $150,000. Couples with combined income of more than $198,000 will not qualify for this benefit. Parents will also receive a maximum of $500 for each child age 16 or younger in their household, with similar income-based adjustments. Qualifying income will be determined by your most recently filed tax return (2018 or 2019). Payments will also be made to people who were not required to file a tax return.

Unemployment payments have also been increased. An additional $600 per week will be added to any state unemployment benefits paid through July 31. Unemployment benefits will be extended by an additional 13 weeks for claims filed through December 31, 2020.

Relaxed retirement plan rules
Depending upon your plan provisions, you may withdraw up to $100,000 from your retirement accounts as a “COVID-19 emergency” distribution. These distributions are exempt from the 10% early withdrawal penalty. The exemption applies to withdrawals made since January 1, 2020. Any taxes due on the withdrawals can be spread out over three years. To qualify, you must have been directly impacted by COVID-19 and meet other U.S. Treasury requirements.

If you are over age 70-1/2, you do not have to take a Required Minimum Distribution (RMD) in 2020. This waiver also applies to inherited IRAs. Contact your tax advisor if you’ve already taken a RMD in 2020. You may be able to return the funds to your account or reclassify your withdrawals as special coronavirus retirement distributions. If you are age 70 or older and still employed, you can now continue making contributions to a traditional IRA.

If your workplace retirement plan permits loans and depending upon your plan loan provisions, you may now borrow the full vested value of your account, up to $100,000. But please keep in mind that retirement plans are designed to fund your retirement. You should only consider loans or withdrawals if you have exhausted all other funding options that might be available to you.

Larger charitable giving deductions
If you itemize deductions, your cash donations to qualified charities are now deductible up to 100% of your Adjusted Gross Income (AGI). If you use the standard deduction, you can deduct up to $300 in cash donations. Please make sure your donations are given to legitimate charities that are recognized by the IRS.

Expanded COVID-19 Medicare coverage
The reduction in Medicare reimbursements imposed in 2011 has been suspended from May 1, 2020 through December 31, 2020, which will increase payments to hospitals and other providers. In addition, hospitals will receive a 20% payment increase for patients diagnosed with COVID-19. Medicare telehealth services are being broadened to enable retirees to get medical advice from home.

More diagnostic tests, immunizations and preventive services will be covered by regular insurance for all insured Americans.

Relief for federally-backed mortgages
If your mortgage is federally backed, you can ask the servicer for forbearance (stop making payments) for up to 180 days, and this request may be extended for an additional 180 days. Federally backed mortgages include those purchased by Fannie Mae and Freddie Mac, insured by the departments of Housing and Urban Development, Veterans Affairs or Agriculture or made directly by USDA. Check with your mortgage servicer to see if you qualify.

Benefits for students
If you have federal student loans outstanding, you don’t have to make any principal or interest payments until after September 30, 2020. There will be no penalty for these deferred payments and interest will not accrue.

There are additional benefits available for current students. Students unemployed due to COVID-19 may be able to continue receiving work-study payments from their institutions. Recipients of Pell Grants or federally subsidized loans who have been forced to drop out of school because of COVID-19 will not have to return that money. Any grants or loans students have received will not count against their lifetime eligibility.

Small business benefits
Small businesses and nonprofits with less than 500 employees, along with individuals who are self-employed, operate as a sole proprietor or as an independent contractor, are eligible for an Economic Injury Disaster Loan emergency advance of up to $10,000 from the U.S. Small Business Administration. Restaurants and hotels are also eligible. These loan advances do not have to be repaid if certain guidelines are followed.

The CARES Act also increases the deductibility of business interest expense for 2019 and 2020 to 50% of Adjusted Gross Income (AGI). Self-employed individuals are eligible for up to 39 weeks of unemployment compensation, through December 31, 2020.

Neither Edelman Financial Engines, a division of Financial Engines Advisors L.L.C., nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances. AM1141313

Market Update, Q1 2020: An Unprecedented Quarter

Despite a promising start to the quarter, with equities reaching all-time highs in mid-February, markets took an abrupt downward turn in March. The dramatic spread of COVID-19 in Europe and the U.S. brought economic activity to a sudden halt as governments ordered people to stay at home. Businesses large and small, suddenly had to close as measures were implemented to slow the spread of the virus. Equity markets dropped dramatically as volatility spiked and unemployment soared. Large-cap stocks in the S&P 500 plunged to end the quarter down 19.6 percent. Stocks of smaller companies, represented by the S&P SmallCap 600 index, fell even further, losing 32.6 percent in Q1.

International stock markets were similarly impacted, with the MSCI Europe, Australasia, and Far East (EAFE) index falling 22.8 percent for the quarter. Emerging markets were also down sharply. Adding to the volatility, a plunge in oil prices sent ripples of anxiety across the energy sector.

With the sudden economic turmoil, short-term interest rates were slashed to zero by the Fed and other central banks. The prices of U.S. Treasuries, especially those with long maturities, soared as investors sought refuge from falling equity prices. Overall, the Bloomberg Barclays U.S. Aggregate Bond Index gained 3.2 percent for the first quarter.

The Financial Engines perspective.

The term “unprecedented” is overused in the financial press, but the first quarter brought conditions we have never seen before. The global economy went from healthy growth and full employment to near hibernation in a few weeks. Financial markets clearly anticipate difficult economic conditions to persist for some time – how long will depend on the success of measures taken by authorities to suppress the spread of the virus. We understand the events of the past month have been unnerving for you and your family. But we also know that acting on emotion makes for poor decisions. We continue to firmly believe in our approach to investment management; that a diversified portfolio tailored to your goals is the key to your long-term success. We are closely monitoring financial markets and making adjustments as necessary to your portfolio. Our advisors are here to answer your questions, and to help you keep your retirement plan on track. And most importantly, we want to wish you and your family good health during these challenging times.


Why Market Volatility Doesn’t Matter as Much as You Think

By Wei Hu, Vice President, Financial Research, Financial Engines

If you’re worried about how the recent stock market declines might affect your retirement investment strategy, we’d like to provide some perspective that may ease your mind a bit.

A 20 percent decline in the stock market doesn’t automatically mean a 20 percent decline in your portfolio.

If we’re managing your retirement account, your investment portfolio has a diversified mix of bonds, as well as U.S. and international stocks. The news headlines tend to focus on just the Dow or the S&P 500 indexes, which only tell you how large-cap U.S. stocks have performed. Those indexes don’t give a complete picture of how the entire U.S. stock market has performed, and they don’t reflect foreign investment performance at all. While the S&P 500 has declined by 21 percent this year (as of March 27, 2020), bond investments have been flat or slightly positive. As of March 27, 2020, the Barclays Aggregate Bond Index is actually up 2.7 percent.

Let’s look at a couple of simplified examples that show how the recent market performance could translate into the performance of a retirement investment portfolio.

If you have 10 years until retirement, a typical recommended investment mix would be 30 percent bonds and 70 percent stocks. Let’s assume this allocation consists of the Barclays index (bonds) and the S&P 500 index (stocks). This portfolio would have fallen by 14 percent so far in 2020. Certainly not ideal, but not nearly as bad as the decline in the stock market you see in the headlines.

If you’re close to retirement, our typical recommended investment mix would be even less risky — more like 45 percent bonds and 55 percent stocks. Again, assuming the Barclays and S&P 500 indexes as the investments, this portfolio would have seen a loss of about 10 percent so far in 2020.

A 10-14 percent temporary drop in your retirement account balance doesn’t automatically translate into a 10-14 percent drop in your projected retirement income.

Your projected retirement income will come from several sources:

  • Current retirement account balances.
  • Growth of current balances.
  • Future retirement account contributions.
  • Growth of future contributions.
  • Social Security and pensions.

Only the first two are affected by what’s happened in the market. Your balance may have fallen 10-14 percent, and any potential growth will start compounding from this lower balance. But your future savings contributions should stay the same. Our projected future returns on those contributions are basically unchanged because they are based on expected long-term market performance. Of course, the value of your Social Security benefits and any pensions you may be entitled to aren’t affected by the stock market.

How much those first two components affect your retirement income depends on your situation. They’ll account for more of your retirement income — about 60 percent — if you are within 10 years of retirement, have a large retirement account balance or higher earned income, or if you are making lower retirement plan contributions. They’ll be a smaller portion — about 40 percent — if you are many years away from retirement, have lower income or savings balances, or are saving more.

Putting it all together

The takeaway here is that the effect of stock market declines on your retirement savings strategy can be lessened by having a diversified portfolio along with your other sources of retirement income.

Going back to the 10-years-from-retirement example above that saw a 14 percent drop in the retirement portfolio value (the portfolio is responsible for 60 percent of future retirement income), the actual reduction in projected retirement income is just 8 percent (14% x 60% = 8%). That’s not happy news, but it’s hardly catastrophic for someone who still has 10 years to make adjustments.

We’re just showing you how a retirement account — and future retirement income — does not necessarily run in lockstep with overall market performance. Your individual results may be different. We encourage you to visit our site or call an advisor representative to learn how recent market performance may affect your retirement strategy.

An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.
Investing strategies, such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Funds and ETFs are subject to risk, including loss of principal. All investments have inherent risks. There can be no assurance that the investment strategy proposed will obtain its goal. Past performance does not guarantee future results.
© 2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See for patent information.
Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ 85016

Warning – How to Avoid Coronavirus Scams

As we all face the coronavirus together, there are so many stories about how friends, neighbors, and perfect strangers have been reaching out to help others to weather this storm. Sadly, there are those who are trying to take advantage of the situation.

Criminal scammers exploit times like these to take advantage of confusion, fear, greed and our honest desire to help. Here are some tips from the Federal Trade Commission (FTC) to help you keep the scammers at bay:

  • Don’t click on links from sources you don’t know. They could download viruses onto your computer or device.
  • Watch for emails claiming to be from the Centers for Disease Control and Prevention (CDC) or experts saying they have information about the virus. For the most up-to-date information about the Coronavirus, visit the websites for the CDC or World Health Organization (WHO) directly.
  • Ignore online offers for vaccinations. There currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products available to treat or cure Coronavirus disease 2019 (COVID-19) — online or in stores.

The FTC has also identified some of the common scams that have been reported.

  • Undelivered goods: Online sellers claim they have in-demand products, like cleaning, household, and health and medical supplies. You place an order, but you never get your shipment. Anyone can set up shop online under almost any name — including scammers. The FTC recommends that you check out the seller by searching online for the person or company’s name, phone number and email address, plus words like “review,” “complaint” or “scam.” If everything checks out, pay by credit card and keep a record of your transaction.
  • Fake emails, texts and phishing: Scammers use fake emails or texts to get you to share valuable personal information — like account numbers, Social Security numbers, or your login IDs and passwords. To do so, scammers often use familiar company names or pretend to be someone you know. Other scammers have used real information to infect computers with malware. The FTC recommends you protect your computer by keeping your software up to date and by using security software. Your cell phone should also be set to make security updates automatically, and you should use multi-factor authentication for your important accounts.
  • Robocalls: Scammers are using illegal robocalls to pitch everything from scam Coronavirus treatments to work-at-home schemes. The best advice here is to just hang up. Don’t press any numbers. The recording might say that pressing a number will let you speak to a live operator or remove you from their call list, but it might lead to more robocalls, instead.
  • Misinformation and rumors: Scammers, and sometimes well-meaning people, share information that hasn’t been verified. Before you pass on any messages, and certainly before you pay someone or share your personal information, do some fact checking by contacting trusted sources

You should also be aware of the following scammer tactics.

  • Imposter Scams: Bad actors attempt to solicit donations, steal personal information, or distribute malware by impersonating government agencies (e.g., Centers for Disease Control and Prevention), international organizations (e.g., World Health Organization (WHO), or healthcare organizations.
  • Product Scams: The U.S. Federal Trade Commission (FTC) and U.S. Food and Drug Administration (FDA) have issued public statements and warning letters to companies selling unapproved or misbranded products that make false health claims pertaining to COVID-19. Additionally, The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has received reports regarding fraudulent marketing of COVID-19-related supplies, such as certain facemasks.
  • Investment Scams: The U.S. Securities and Exchange Commission (SEC) has urged investors to be wary of COVID-19-related investment scams, such as promotions that falsely claim that the products or services of publicly traded companies can prevent, detect, or cure coronavirus. FinCEN has received reports regarding suspected COVID-19-related insider trading. This often involves a pump and dump scheme, where scammers attempt to con investors into driving up the price of a stock, so that they can then sell their own stock at a profit.

Most of us are doing all we can to get through these difficult times. We hope that you and your loved ones are following the instructions of your local health authorities in order to keep yourself and your community safe. And sadly, there are those who are trying to illegally profit from this crisis. We ask you to please be on the lookout for scams, and only rely on trusted sources such as the CDC, WHO and FTC, to keep you informed.

This material was prepared for informational and/or educational purposes only. AM 1129073,/h6>

Watch Out for Coronavirus Charity Scams

We all want to lend a helping hand, and many folks across the country are pitching in to help their communities get through the challenges brought on by the coronavirus. But at times like these, it is more important than ever to make sure any charitable donations you make are going to the right organizations.

Scammers are pouncing on the opportunity to take advantage of the pandemic and are reported to have already registered addresses that include covid19, or coronavirus in their name. It is important that all of us remain vigilant against these fraudulent schemes. You should never give money through a link that someone emails you or provides via social media, no matter how much you may trust that person. He or she could have been scammed too. Also be wary of email attachments that claim to be links to charitable organizations. They could contain malware that can infect your computer.

Here are some more tips on avoiding charity scams:

  • Do your homework when it comes to donations, whether through charities or crowdfunding sites.
  • Avoid organizations using names that closely resemble better-known, reputable groups — for example,, rather than
  • Be wary of groups that won’t provide proof that a contribution is tax-deductible.
  • Watch out for those who thank you for a pledge you don’t remember making.
  • Avoid those who pressure you to donate immediately without giving you time to think about it or do any research.
  • Never give to anyone who asks for donations in cash or asks you to wire money.

Other charities, including local ones, may also be reputable but simply not well-known. To learn about them, check with organizations that vet charities. But remember, a charity recommended by one organization might fall short by another’s standards. Therefore, check with at least two rating groups before you make a gift.

Here are four vetting sites that can help: — a site run by the American Institute of Philanthropy — has a good record of discovering charity scams and weaknesses, and it has letter grades for many charities. uses a star rating system to vet numerous charities. has a list of expert-recommended charities involved in relief efforts. is the Better Business Bureau’s charity-checking site, allowing you to verify which ones meet its accreditation standards.

If you encounter a charity you suspect is fraudulent, notify the Department of Justice at, which tracks and attempts to shut down scams. And thank you for supporting those charities that truly are working to make life easier for those who need our help.

This material was prepared for informational and/or educational purposes only. AM 1129073

The Top Five Bear Market Questions (and Answers)

By Wei Hu, VP Financial Research, Financial Engines and
Bill Tracy, Portfolio Manager, Financial Engines

We’ve been getting a lot of questions about the market volatility associated with COVID-19. Here are answers to five of the most common bear market questions clients are asking.

Q: What is a “bear market?”

A: A bear market is a period where stocks (often represented by the S&P 500 Index, a collection of large U.S. companies) fall 20% or more from their most recent peak. Going back to the mid-1950s, a bear market in U.S. stocks has occurred about every five to five-and-a-half years.

Q: How long can I expect it to last?

A: When it comes to the time required for the market to get back to its pre-bear market peak, the range is quite wide, and the characteristics of each bear market environment don’t tell us much about how long it will take. On average, it took the S&P 500 Index 773 calendar days to move back to break even following past bear markets. But that’s on average. In one instance, the snap back happened in just 83 days. For one bear market in the 1970s, it was a 2,114-day journey. Investors often need patience to ride out a bear market.

Source: Bloomberg, S&P Dow Jones Indices, Edelman Financial Engines.


Q: Is a big market drop a fantastic buying opportunity for stocks?

A: Not necessarily. If you look at the 5-year returns of the S&P 500 after it bottomed out in each of the bear markets, there’s no relationship between the size of the drop and future returns. Investing in stocks should be a long-term, forward-looking decision, not based on what has happened in the past. Also keep in mind that no one knows until afterwards when the bottom of the market was reached.

Note: 5-year return calculated beginning the month after the market bottom.
Source: Bloomberg, S&P Dow Jones Indices, Edelman Financial Engines.


Q: What should I do during a bear market?

A: History shows us that we can’t predict when the market will bottom out. And we can’t predict how long the recovery will take. Instead, focus on what you can control. Continue contributing to your retirement accounts, particularly if you are getting a company match.

Also, stay invested in a diversified portfolio that supports your overall retirement goals. If you’re young or mid-career, what happens today will likely have a minor impact on your long-term retirement success.

Q: What if I’m planning to retire soon?

A: The data show that market downturns can last for more than a couple of years. But it’s important to understand that some exposure to stocks is still a good idea as you head into retirement. You want your assets and income to keep growing to help offset any effects inflation may have on your purchasing power. Even if you are hoping to retire within a year, your retirement income may need to last 30 years or longer. So you should maintain a long-term outlook when making investing decisions.

Another action that can affect your retirement income is deciding when to start taking Social Security benefits. If you take Social Security early, your lifetime monthly benefit will be lower than it would be if you waited until your full retirement age to claim your benefits. Your benefits will go up about 8% a year for each year you delay beyond your full retirement age, until age 70. Deciding when to take benefits can get complicated for married couples. Use our free Social Security optimization tool to see if you can boost your overall retirement income.

An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.
Investing strategies, such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Funds and ETFs are subject to risk, including loss of principal. All investments have inherent risks. There can be no assurance that the investment strategy proposed will obtain its goal. Past performance does not guarantee future results.

©2020 Edelman Financial Engines, LLC. Financial Engines® is a registered trademark of Edelman Financial Engines, LLC. All advisory services provided by Financial Engines Advisors L.L.C., a federally registered investment advisor. Results are not guaranteed. See for patent information.

Financial Engines Advisors L.L.C.; Attn: Investor Services; 4742 N. 24th Street, Suite 270; Phoenix, AZ

When Should You Take Social Security?

You Can’t Rely Solely on the Math.

It’s an important question: “When should I start claiming Social Security benefits?”

Years ago, the answer was simple. All it would take was a quick calculation. But Social Security rules have changed over the years, making the issue quite complicated.

The youngest age at which you can begin to receive Social Security retirement benefits based on your own work record is 62—but you’ll get only 75% as much as if you waited until Full Retirement Age. And even your FRA amount isn’t the highest benefit you can receive. Indeed, wait until you’re 70 and you’ll get 132% of your FRA amount.

So the question is: Should you take a smaller check at 62 or wait for a larger check at FRA or delay even further to age 70?

The answer: It depends!

You’ll need to consider the following questions:

  • How long will you live? (Good luck answering that one)
  • How long will you work?
  • Is yours a dual-income family?
  • Do you have a blended family?
  • Do you have multiple sources of income?

Personal factors can outweigh the math—your age, your spouse’s age, work history, life expectancy, survivor needs, taxes, give-backs and projected income returns. It’s just too simplistic to decide to wait a year before you start collecting your benefit just because you’ll get more money by waiting. What if you die in the meantime? What if you really need the income now?

There are other considerations as well—spousal benefits, survivor benefits, child benefits, and even divorced spouse benefits. Given all these complex factors, you might consider working with an independent fee-based financial planner to determine what is best choice for you.


Q&A: Take Social Security Now or Later?

The question has gotten harder to answer in the last few years.

Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.

Question: I’ll turn 66 years old in a few months. I could sign up for Social Security now and would receive only $13 per month less than if I waited until I’m 66 and can earn as much as I want without affecting my benefits. I’m earning about $70,000 a year, and I’ve been frugal my whole life. I’d like to start my benefits now so I could have a little more to spend. Should I?

Ric: Your question used to be much easier to answer. In my book The Truth About Money I tell you to take the money as soon as you’re eligible — as young as 62, even though you get only 80% of the benefit at that age. The argument for this: You don’t know how long you’re going to live. You could wait until you’re 70 and get more than 100% of your stated benefit, but you might not live that long — or you might need the money now. So even though you could receive more money later, that doesn’t do you any good if you have bills to pay today.

Today, however, the answer is far more complicated because of nuanced rules within the Social Security system. The goal, of course, is to maximize the income you will receive from Social Security — but that depends on your age, current income, marital status, spouse’s income, and the age disparity between you and your spouse.

Therefore, there is no one-size-fits-all, rule-of-thumb answer that I can give you. Besides the aforementioned factors, the best answer for you has to do with how much steady income you need, how much other income you have and the sources of that income. It depends on whether your pension or retirement plan incomes are placed where they are maximally taxed. It depends on your Medicare and Medicaid eligibility. It affects the taxes you’ll pay on investment income — all this can get absurdly complicated.

Offhand I’d say sure, take the money now. You’ve been working your whole life, delaying your gratification. You’ve been a frugal, responsible and mature adult. Who cares if taking the money now isn’t the optimal approach?

In other words, if taking the money now enables you to enjoy yourself a little bit more and a bit sooner, if you can afford it and doing so doesn’t adversely impact you or your spouse over the rest of your lifetimes, then sure, go ahead! But I’d much rather you reached this answer after a full review by an independent financial planner.


Q&A: Should I Treat Pension Income and Bond Income the Same?

There is a key difference between the two – liquidity.

Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.

Question: I recently retired and am fortunate enough to have a pension. It, along with Social Security, is enough to meet all my needs. The pension is not guaranteed, but it comes from one of the largest health care corporations in America, so I believe it’s safe. We own our house and have virtually no debt. What role should the pension play in determining the allocation of stocks and bonds I choose for my portfolio?

Ric: None. What you’re really asking is whether the pension will allow you to accept more risk in your investments because you have a safe pension to rely on.

We’ve never felt that was a good idea. To suggest that pension income is the equivalent of bond income doesn’t make sense. First of all, a bond is liquid. You can sell it whenever you want for its current market value if you need the cash. You can’t cash in a pension; all you can get is this month’s check — then you must wait a month for your next check.

If you pretend that your pension check is the equivalent of getting bond interest and therefore the equivalent of owning bonds, you’ll conclude that you don’t need to actually own any bonds — and the result will be that you’ll allocate too much money to stocks. That can drastically increase your investment risks.

Do not adjust your asset allocation based on the presence of Social Security or pension income.


Q&A: How Much Money Is Needed to Retire With the Lifestyle You Want?

By reverse engineering this question we can give you a good approximation.

Ric Edelman is a co-founder of Edelman Financial Engines. The following is taken from his weekly radio call-in show.

Question: I’m almost 55 years old, and I want to retire in 10 years. How much money will I need to invest now in order to generate a net yearly income of about $60,000 in that much time?

Ric: Congratulations for asking the one question that matters: How much money do you need to have in a piggy bank to retire with the lifestyle you want?

You’ve identified the amount of income you need — $60,000 — and the amount of time you have to achieve that goal — 10 years. That’s exactly the way to approach it.

With that key information, we as financial advisors can use the financial planning process to back you into that number. I need more information than you’ve given me — for example, I need to know how much you’ve already saved — but I’ll tell you basically how it works.

We’d start with how much you’ll get from pensions and Social Security. Let’s assume they total $20,000; now you must come up with another $40,000. How much do you need in savings and investments to produce that? If you’ve saved nothing at all, add a zero to your annual desired income and then double it.

In other words, to produce $40,000, add a zero — that’s $400,000 — and then double that, resulting in $800,000. That is roughly the amount you’d need in total investable assets when you retire. This money can be in a combination of 401(k) accounts, IRAs, brokerage accounts, mutual fund accounts, etc.

How will you generate $800,000? If you’ve saved nothing so far and earn 4% per year, you’d need to save about $5,500 a month. But if you have already saved, say, $150,000, and we can increase your return to 7%, you need to save only $2,900 per month. And if you’re willing to delay retirement by just two years, you’d need to save only $2,000 a month.1

So, we need to talk further about how much you’ve saved, how much more you can put away each month, whether you are willing to alter your goal and where best to invest to help you achieve that goal. And let’s not forget taxes. Most likely you will need more than $800,000 so you can end up with $60,000 net of taxes.

1Assumes a hypothetical 4% and 7% annual return. There is no assurance that such returns will be earned. This is a hypothetical illustration meant to demonstrate the principle of compound interest and is not representative of past or future returns of any specific investment vehicle. AM1101559