A look at where stocks were in 2009 and how they have performed since.
 
Where were you on March 9, 2009? Do you remember the headwinds hitting Wall Street then? When the closing bell rang at the New York Stock Exchange that Monday afternoon, it marked the end of another down day for equities. Just hours earlier, the Wall Street Journal had asked: “How Low Can Stocks Go?”
 
The Standard & Poor’s 500 stock index answered that question by sinking to 676.53, even with mergers and acquisitions making headlines. The index was under 700 for the first time since 1996. The Dow Jones Industrial Average tumbled to a closing low of 6,547.05.2
 
To quote Dickens, “It was the best of times, it was the worst of times.” It was the bottom of the bear market – and it was also the best time, in a generation, to buy stocks.
  
The next day, a rally began. Buoyed by news of one major bank announcing a return to profitability and another stating it would refrain from further government bailouts, the Dow rose 597 points for the week ending on March 16, 2009. On March 26, the Dow settled at 7,924.56, more than 20% above its March 9 settlement. The bull market was back.
   
This bull market would make all kinds of history. In fact, it would become the longest bull market in history – at least by one measure.
 
While the last 10-plus years have seen some big ups and downs for the benchmark S&P 500, the index has never closed more than 20% below a recent peak in that span, meaning the current bull market is more than 10 years old.
  
Ten years later (at the close on Friday, March 8, 2019), the S&P 500 had risen 305.5% from that low. The Dow had gained 288.7%.
 
How about the Nasdaq Composite? 483.94%. (As you look at these impressive numbers, remember that past performance may not be indicative of future results.)
        
Those gains did not come without turbulence, and stocks in no way turned into a “sure thing.” The risk inherent in the market is still substantial along with the potential for loss. The lesson this long bull market has taught is simply that the bad times in the stock market are worth enduring. Good times may replace those bad times more swiftly than anyone can anticipate. 

An emergency fund may help alleviate the stress associated with a financial crisis.
 
Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, giving yourself your best, “You can make it!” pep talk, you see smoke seeping out from under your hood.
 
Bad things happen to the best of us, and instead of conveniently spacing themselves out, they almost always come in waves. The important thing is to have a financial life preserver, in the form of an emergency cash fund, at the ready.
 
Although many people agree that an emergency fund is an important resource, they’re not sure how much to save or where to keep the money. Others wonder how they can find any extra cash to sock away. One recent survey found that 29% of Americans lack any emergency savings whatsoever.

How Much Money? When starting an emergency fund, you’ll want to set a target amount. But how much is enough? Unfortunately, there is no “one-size-fits-all” answer. The ideal amount for your emergency fund may depend on your financial situation and lifestyle. For example, if you own your home or provide for a number of dependents, you may be more likely to face financial emergencies. And if the crisis you face is a job loss or injury that affects your income, you may need to depend on your emergency fund for an extended period of time.
 
Coming Up with Cash. If saving several months of income seems an unreasonable goal, don’t despair. Start with a more modest target, such as saving $1,000. Build your savings at regular intervals, a bit at a time. It may help to treat the transaction like a bill you pay each month. Consider setting up an automatic monthly transfer to make self-discipline a matter of course. You may want to consider paying off any credit card debt before you begin saving.
 
Once you see your savings begin to build, you may be tempted to use the account for something other than an emergency. Try to budget and prepare separately for bigger expenses you know are coming. Keep your emergency money separate from your checking account so that it’s harder to dip into.
 
Where Do I Put It? An emergency fund should be easily accessible, which is why many people choose traditional bank savings accounts. Savings accounts typically offer modest rates of return. Certificates of Deposit may provide slightly higher returns than savings accounts, but your money will be locked away until the CD matures, which could be several months to several years.
 
The Federal Deposit Insurance Corporation insures bank accounts and certificates of deposit (CDs) up to $250,000 per depositor, per institution in principal and interest. CDs are time deposits offered by banks, thrift institutions, and credit unions. CDs offer a slightly higher return than a traditional bank savings account, but they also may require a higher amount of deposit. If you sell before the CD reaches maturity, you may be subject to penalties.
 
Some individuals turn to money market accounts for their emergency savings. Money market funds are considered low-risk securities, but they’re not backed by the federal government like CDs, so it is possible to lose money. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.
 
Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus.
 
Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
 
The only thing you can know about unexpected expenses is that they’re coming – for everyone. But having an emergency fund may help alleviate the stress and worry associated with a financial crisis. If your emergency savings are not where they should be, consider taking steps today to create a cushion for the future. 

If you are between 40 & 60, beware of these financial blunders & assumptions.
 
Mistakes happen, even for people who have some life experience under their belt. That said, your retirement strategy is one area of life where you want to avoid having some fundamental misconceptions. These errors and suppositions are worth examining, as you do not want to succumb to them. See if you notice any of these behaviors or assumptions creeping into your financial life.
   
Do you think you need to invest with more risk? If you are behind on retirement saving, you may find yourself wishing for a “silver bullet” investment or wishing you could allocate more of your portfolio to today’s hottest sectors or asset classes, so you can “catch up.” This impulse could backfire. The closer you get to retirement age, the fewer years you have to recoup investment losses. As you age, the argument for diversification and dialing down risk in your portfolio gets stronger and stronger. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.
 
Have you made saving for retirement a secondary priority? It should be a top priority, even if it becomes secondary for a while, due to fate or bad luck. Some families put saving for college first, saving for mom and dad’s retirement second. Remember that college students can apply for financial aid, but retirees cannot. Building college savings ahead of your own retirement savings may leave your young adult children well-funded for the near future, but you ill-prepared for your own. 
 
Has paying off your home loan taken priority over paying off other debts? Owning your home free and clear is a great goal, but if that is what being debt free means to you, you may end up saddled with crippling consumer debt on the way toward that long-term objective. In late 2018, the average American household carried more than $6,900 in credit card debt alone. It is usually better to attack credit card debt first, thereby freeing up money you can use to invest, save for retirement, build a rainy day fund – and yes, pay the mortgage.
 
Have you taken a loan from your workplace retirement plan? If you’ve taken this step, consider the following. One, you are drawing down your retirement savings – invested assets, which would otherwise have the capability to grow and compound. Two, you will probably repay the loan via deductions from your paycheck, cutting into your take-home pay. Three, you will probably have to repay the full amount within five years – a term that may not be long as you would like. Four, if you are fired or quit, the entire loan amount will likely have to be paid back by a deadline specified in your plan. Five, if you cannot pay the entire amount back and you are younger than 59½, the I.R.S. will characterize the unsettled portion of the loan as a premature distribution from a qualified retirement plan – fully taxable income subject to early withdrawal penalties.
 
Do you assume that your peak earning years are straight ahead? Conventional wisdom says that your yearly earnings reach a peak sometime during your mid- to late-fifties, but this is not always the case. Those who work in physically rigorous occupations may see their earnings plateau after age 50 – or even, age 40.
    
Is your emergency fund now too small? It should be growing gradually to suit your household, and nowadays your household may need much greater cash reserves in a crisis than it once did. If you have no real emergency fund, do what you can now to build one, so you don’t have to resort to a predatory lender for expensive money.
 
Watch out for these midlife money errors & assumptions. Some are all too casually made. A review of your investment and retirement savings efforts may help you recognize and steer clear of them.

What should you focus on as the transition approaches?
 
You can prepare for your retirement transition years before it occurs. In doing so, you can do your best to avoid the kind of financial surprises that tend to upset an unsuspecting new retiree.  
       
How much monthly income will you need? Look at your monthly expenses and add them up. (Consider also the trips, adventures and pursuits you have in mind in the near term.) You may end up living on less; that may be acceptable, as your monthly expenses may decline. If your retirement income strategy was conceived a few years ago, revisit it to see if it needs adjusting. As a test, you can even try living on your projected monthly income for 2-3 months prior to retiring.
  
Should you downsize or relocate? Moving into a smaller home may reduce your monthly expenses. If you will still be paying off your home loan in retirement, realize that your monthly income might be lower as you do so.
   
How should your portfolio be constructed? In planning for retirement, the top priority is to build investments; within retirement, the top priority is generating consistent, sufficient income. With that in mind, portfolio assets may be adjusted or reallocated with respect to time, risk tolerance, and goals: it may be wise to have some risk-averse investments that can provide income in the next few years as well as growth investments geared to income or savings objectives on the long-term horizon.
   
How will you live? There are people who wrap up their careers without much idea of what their day-to-day life will be like once they retire. Some picture an endless Saturday. Others wonder if they will lose their sense of purpose (and self) away from work. Remember that retirement is a beginning. Ask yourself what you would like to begin doing. Think about how to structure your days to do it, and how your day-to-day life could change for the better with the gift of more free time.
 
How will you take care of yourself? What kind of health insurance do you have right now? If you retire prior to age 65, Medicare will not be there for you. Check and see if your group health plan will extend certain benefits to you when you retire; it may or may not. If you can stay enrolled in it, great; if not, you may have to find new coverage at presumably higher premiums.
 
Even if you retire at 65 or later, Medicare is no panacea. Your out-of-pocket health care expenses could still be substantial with Medicare in place. Extended care is another consideration – if you think you (or your spouse) will need it, should it be funded through existing assets or some form of LTC insurance?
 
Give your retirement strategy a second look as the transition approaches. Review it in the company of the financial professional who helped you create and refine it. An adjustment or two before retirement may be necessary due to life or financial events.

It may seem like a tall order, but it can be accomplished.
  
Put yourself steps ahead of your peers. If you have a young, growing family, no doubt your to-do list is pretty long on any given day. Beyond today, you are probably working on another kind of to-do list for the long term. Where does “saving and investing” rank on that list?
 
For some families, it never quite ranks high enough – and it never becomes the priority it should become. Assorted financial pressures, sudden shifts in household needs, bad luck – they can all move “saving and investing” down the list. Even so, young families have strategized to build wealth in the face of such stresses. You can follow their example.
    
First step: put it into numbers. How much money will you need to save by 65 to promote enough retirement income and to live comfortably? Are you on pace to build a retirement nest egg that large? How much risk do you feel comfortable tolerating as you invest?
 
A financial professional can help you arrive at answers to these questions and others. They can help you define long-range retirement savings goals and project the amount of savings and income you may need to sustain your lifestyle as retirees. At that point, “the future” will seem more tangible, and your wealth-building effort, even more purposeful.   
  
Second step: start today & never stop. If you have already started, congratulations! In getting an early start, you have taken advantage of a young investor’s greatest financial asset: time.
 
If you haven’t started saving and investing, you can do so now. It doesn’t take a huge lump sum to begin. Even if you defer $100 worth of salary into a retirement account per month, you are putting a foot forward. See if you can allocate much more. If you begin when you are young and keep at it, you may witness the awesome power of compounding as you build your retirement savings and net worth through the years. 
 
Of course, this may not be enough, and you may find that you need to devote more than $100 per month to your effort. If you strategize and escalate your savings over time, you may very well generate enough money for a very comfortable retirement.
 
Merely socking away money may not be enough, either. There are a wide variety of choices you can make – perhaps alongside a trusted financial professional – that may help position you and your household for a comfortable future, provided you keep good financial habits along the way. 
  
How do you find the balance? This is worth addressing – how do you balance saving and investing with attending to your family’s immediate financial needs?
  
Bottom line, you should consider finding money to save and invest for your family’s near-term and long-term goals. Are you spending a lot of money on goods and services you want rather than need? Cut back on that kind of spending. Is credit card debt siphoning away dollars you should assign to saving and investing? Fix that financial leak and avoid paying with plastic whenever you can.
  
Vow to keep “paying yourself first” – maintain the consistency of your saving and investing effort. What is more important: saving for your child’s college education or buying those season tickets? Who comes first in your life: your family or your luxuries? You know the answer. 
   
It has been done; it should be done. There are people who came to this country with little more than the clothes on their backs who have found prosperity. It all starts with belief – the belief that you can do it. Complement that belief with a strategy and regular saving and investing, and you may find yourself much better off much sooner than you think.  

Key lessons for retirement savers.
 
You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others, you glean along the way.
   
First and foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and on the weekends), and economic indicators change weekly or monthly. The longer you invest, the more you learn that breaking news can create market volatility. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor has a long-term perspective and understands that the market can have periods of volatility.
 
You learn how much volatility you can stomach. Market sentiment can quickly shift and so can index performance. Across 2008-18, the S&P 500 had a cumulative total return (dividends included) of almost 140%, compared to just 8% for the MSCI Emerging Markets Index. During 2003-07, though, the Emerging Markets index returned 391%, while the S&P returned 83%.
    
Here are the recent yearly total returns of the S&P: 2013, +30.71%; 2014, +13.57%; 2015, +1.30%; 2016, +11.94%; 2017, +21.83%; 2018, -4.38%. Do you see any kind of “norm” or pattern there? That is the kind of year-to-year volatility that leads people to find an asset allocation that is comfortable for them.
  
You learn why liquidity matters. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. Should you misgauge your need for liquidity, you could find yourself under sudden financial pressure.
    
You learn the merits of rebalancing your portfolio. To the neophyte investor, rebalancing when the bulls are stampeding may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.
 
Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks.
 
The closer you get to retirement, the less tolerant of risk you may become. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position. Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked, while saying hello to others that might be poised to rise.
 
You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 9% of their portfolio invested in just two Dow components? Maybe the investor just likes what those firms stand for or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on overall portfolio performance.
  
Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so they get heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride. Correspondingly, that investor may have less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.
 
You learn to be patient. Time teaches you the importance of investing based on your time horizon, risk tolerance, and goals. The pursuit of your long-term financial objectives should not falter. Your financial future and your quality of life may depend on realizing them.

​It’s common practice for the president or CEO of a company to include a letter to shareholders in the annual report. Berkshire Hathaway’s chairman and CEO, Warren Buffett, doesn’t buck the trend.
 
Buffett's recently release annual letter captures plenty of attention, and this year was no exception. The focus is on the investments and operating performance of Berkshire Hathaway, but the Oracle of Omaha also includes many sound principles for wealth creation as well as his general thoughts about the U.S. economy.
 
Buffett’s record
 
From 1965-2018, the market value of Berkshire Hathaway has posted a compounded annual gain of 20.5%, more than double the S&P 500’s advance, which averaged 9.5%, including reinvested dividends.
 
There are two things that pop out here. First, Buffett's enviable record and his ability to create long-term wealth using time-tested principles. Second, the S&P 500’s record illustrates that a well-diversified stock portfolio has been a critical component of a long-term financial plan.
 
In case you’re wondering, Berkshire Hathaway’s overall gain has been 2,472,627% versus the S&P 500’s still-impressive 15,019%.
 
One more data point – Buffet continues to perform well, topping the S&P 500 Index in eight of the last 11 years.
 
Focus on the forest–not the trees
 
Your financial plan is comprised of many parts. This would equate to what Buffett calls the “economic trees.” In other words, let’s not get to caught up on any one investment.
 
“A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty,” Buffett writes.
 
He won’t get every investment right. Neither will we. Berkshire holds a substantial position in Kraft Heinz (KHC), whose shares recently tumbled after the company delivered poor results and slashed its dividend.
 
But, if we review the portfolio as we’d view the forest, we find a diversity of trees, wildlife, and plants. It’s a work of beauty. This is why we build our client's portfolios from the bottom up. Like the forest, we diversify our client's investments and create a portfolio that's a good fit for them with their financial goals in mind.
 
As Buffett opines (and we agree), “I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities.”
 
That said, you may recall the market decline just a few short months ago, where we experienced a 19.8% drop in the S&P 500 Index (September peak to Dec 24th trough).
 
How did that decline sit with you? We do our best to gauge our client's tolerance for risk and build their portfolios accordingly because we know how important behavior is in the investing process. The best portfolio we can create for a client is the one they're going to stick with.
 
If you found yourself fretting over the volatility a few months ago and we haven't spoken, don't hesitate to call us to see if we need to make any adjustments to your portfolio. If on the other hand, you slept soundly, it would suggest your investment mix in relation to your tolerance for risk is on target.
 
“At Berkshire, the whole is greater–considerably greater–than the sum of the parts.”
 
We feel the same way about your financial plan.
 
The American tailwind
 
Warren Buffett is bullish on America.
 
In 1942, he invested $114.75 in three shares of Cities Service preferred stock. At the time, the country was mobilizing for what would be a massive war effort.
 
If Buffett had invested his $114.75 into a no-fee S&P 500 index fund, and all dividends had been reinvested, his stake would have grown to $606,811 (pre-taxes) on January 31, 2019 (the latest data available before the printing of his letter).
 
The U.S. was victorious in WWII, but challenges never cease.
 
We’ve endured the cold war, the divisiveness of the 1960s, OPEC’s oil embargo, double-digit inflation, soaring interest rates, a rising federal deficit, the tragedy of 9-11, the war on terrorism, the financial panic of 2008, the ensuing Great Recession, falling home prices, and more.
 
Let’s say that you had had the foresight to see the oncoming explosion in the federal deficit, one that is up 40,000% over the last 77 years.
 
“To ‘protect’ yourself,” Buffett said, “You might have eschewed stocks and opted instead to buy three ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200.” Compare that to the performance of the S&P 500!
 
What is this nation’s secret sauce? The answer is complex and difficult; yet, the overarching theme lies in front of us.
 
The experiment called the United States has birthed and attracted the best and the brightest. Freedom and opportunity are its calling cards. Today, we are the wealthiest nation on Earth, and we continue to ride the wave of innovation and enjoy the benefits.
 
But, is that wave about to crash on the shore?
 
A recent piece by Morgan Stanley entitled, Millennials, Gen Z and the Coming ‘Youth Boom’ Economy, complements Buffett’s optimistic viewpoint. The population of the Millennials will overtake the Baby Boomers this year, and “Gen Z, born between 1997 and 2012, will overtake the Millennials as the country's largest cohort by 2034,” it said. For the U.S. economy, “The demographic tailwinds created by these high-population cohorts could be significant, delivering the kind of ‘youth jolt’ that the Baby Boomers were famous for.”
 
Sure, we can’t know when the next recession will ensue or some of the challenges we’ll face as a nation in the coming years. Yet, as Buffett sums up his annual letter, “Over the next 77 years, the major source of our gains will almost certainly be provided by The American Tailwind. We are lucky–gloriously lucky–to have that force at our back.”
 
2019 – A bright start to the New Year
 
First, let’s go back to December. A headline in the Street.com summed it up well: "Dow Gains on Last Day of Worst December Since the Depression." Even a 7% bounce in the final week of the year didn’t prevent a performance that was compared to the early 1930s.
 
When the S&P 500 Index touched its bottom on Christmas Eve, the broad-based index of 500 large U.S. companies had shed 19.8% from its September 20 peak. We were barely 0.2 percentage points from officially entering a bear market.
 
Market turmoil in the fall and December’s action were especially ugly. Steep market corrections are not something we look forward to; they are impossible to consistently predict, but they come with the territory.
 
As we've repeatedly said, your investment plan must incorporate unexpected detours. The disciplined investor, who divorces the emotional component from the investment plan, chooses the best path to meet his or her long-term financial goals.
 
That said, 2019 has been much better:

• A flexible Federal Reserve has taken its finger off the rate-hike button,
• The economy continues to expand, albeit the pace has slowed, and
• We’ve been treated to headlines saying the U.S. and China are making progress toward a trade agreement.

​There are no guarantees a deal will be inked, but a March 4 headline in the Wall Street Journal summed up recent sentiment:
 
"U.S., China Close In on Trade Deal"
Both countries could lift some tariffs imposed last year, and Beijing would agree to ease restrictions on American products
 
A trade deal that pries open Chinese markets to U.S. products and services, protects U.S. intellectual property rights, and ends forced technology transfers (and one with strong enforcement provisions) would not only benefit the U.S. economy, but a deal between the world’s largest economies would sweep away one cloud of uncertainty that has plagued investors over the last year.
 
10 years gone
 
On March 9, 2009, the Dow Jones Industrial Average closed at 6,547. It marked the bottom of the last bear market. On February 28, 2019, the Dow finished the day at 25,916, less than 1,000 points from its prior peak.
 
The bull market turns ten years old this month. How much life is left in the bull? We are in the latter stages of the cycle, but much will depend on the economic fundamentals going forward. With the Fed on hold, inflation contained, and the economy moving forward, the fundamentals are currently sound.
 
But never discount volatility. Stocks seem to take the stairs up and the elevator down.
 
In the spirit of celebrating the last ten years, let’s look at a partial list of the worries that temporarily sidelined the bull market (and caused short bouts of volatility), but didn’t sideline those with a long-term view:
 
The European debt crisis…Greece... global growth worries…U.S. growth is slowing...China is slowing...the dollar is too strong...Japan earthquake/tsunami/nuclear disaster...U.S. debt downgrade...fiscal cliff...Obama will be re-elected...Trump will get elected...Hillary will get elected...the Fed will end bond buys...Fed will start hiking interest rates...falling oil prices...Ebola scare...Russia invades Ukraine...North Korea...ISIS...Syria...Brexit...trade tensions...acrimony in D.C....and stocks have risen too quickly.
 
Shorter-term risks never completely abate. But Warren Buffett’s message has been consistent. Don’t bet against America.
 
We agree. 

​Start your “second act” with inadequate assets, and your vision of the future may be revised.
    
How much have you saved for retirement? Are you on pace to amass a retirement fund of $1 million by age 65? More than a few retirement counselors urge pre-retirees to strive for that goal. If you have $1 million in invested assets when you retire, you can withdraw 4% a year from your retirement funds and receive $40,000 in annual income to go along with Social Security benefits (in ballpark terms, about $30,000 per year for someone retiring from a long career). If your investment portfolio is properly diversified, you may be able to do this for 25-30 years without delving into assets elsewhere.
  
Perhaps you are 20-25 years away from retiring. Factoring in inflation and medical costs, maybe you would prefer $80,000 in annual income plus Social Security at the time you retire. Strictly adhering to the 4% rule, you will need to save $2 million in retirement funds to satisfy that preference.
 
There are many variables in retirement planning, but there are also two realities that are hard to dismiss. One, retiring with $1 million in invested assets may suffice in 2018, but not in the 2030s or 2040s, given how even moderate inflation whittles away purchasing power over time. Two, most Americans are saving too little for retirement: about 5% of their pay, according to research from the Federal Reserve Bank of St. Louis. Fifteen percent is a better goal.
 
Fifteen percent? Really? Yes. Imagine a 30-year-old earning $40,000 annually who starts saving for retirement. She gets 3.8% raises each year until age 67; her investment portfolio earns 6% a year during that time frame. At a 5% savings rate, she would have close to $424,000 in her retirement account 37 years later; at a 15% savings rate, she would have about $1.3 million by age 67. From boosting her savings rate 10%, she ends up with three times as much in retirement assets.
   
Now, what if you save too little for retirement? That implies some degree of compromise to your lifestyle, your dreams, or both. You may have seen your parents, grandparents, or neighbors make such compromises.
        
There is the 75-year-old who takes any job he can, no matter how unsatisfying or awkward, because he realizes he is within a few years of outliving his money. There is the small business owner entering her sixties with little or no savings (and no exit strategy) who doggedly resolves to work until she dies.
        
Perhaps you have seen the widow in her seventies who moves in with her son and his spouse out of financial desperation, exhibiting early signs of dementia and receiving only minimal Social Security benefits. Or the healthy and active couple in their sixties who retire years before their savings really allow, and who are chagrined to learn that their only solid hope of funding their retirement comes down to selling the home they have always loved and moving to a cheaper and less cosmopolitan area or a tiny condominium.
        
When you think of retirement, you probably do not think of “just getting by.” That is no one’s retirement dream. Sadly, that risks becoming reality for those who save too little for the future. Talk to a financial professional about what you have in mind for retirement: what you want your life to look like, what your living expenses could be like. From that conversation, you might get a glimpse of just how much you should be saving today for tomorrow.

Are you aware of them?
 
The federal government offers some major tax breaks for older Americans. Some of these perks deserve more publicity than they receive.
       
If you are 65 or older, your standard deduction is $1,300 larger. Make that $1,600 if you are unmarried. Thanks to the passage of the Tax Cuts & Jobs Act, the 2018 standard deduction for an individual taxpayer at least 65 years of age is a whopping $13,600, more than double what it was in 2017. (If you are someone else’s dependent, your standard deduction is much less.)
    
You may be able to write off some medical costs. This year, the Internal Revenue Service will let you deduct qualifying medical expenses once they exceed 7.5% of your adjusted gross income. In 2019, the threshold will return to 10% of AGI, unless Congress acts to preserve the 7.5% baseline. The I.R.S. list of eligible expenses is long. Beyond out-of-pocket costs paid to doctors and other health care professionals, it also includes things like long-term care insurance premiums, travel costs linked to medical appointments, and payments for durable medical equipment, such as dentures and hearing aids.
 
Are you thinking about selling your home? Many retirees consider this. If you have lived in your current residence for at least two of the five years preceding a sale, you can exclude as much as $250,000 in gains from federal taxation (a married couple can shield up to $500,000). These limits, established in 1997, have never been indexed to inflation. The Department of the Treasury has been studying whether it has the power to adjust them. If modified for inflation, they would approach $400,000 for singles and $800,000 for married couples. 
 
Low-income seniors may qualify for the Credit for the Elderly or Disabled. This incentive, intended for people 65 and older (and younger people who have retired due to permanent and total disability), can be as large as $7,500 based on your filing status. You must have very low AGI and nontaxable income to claim it, though. It is basically designed for those living wholly or mostly on Social Security benefits.
 
Affluent IRA owners may want to make a charitable IRA gift. If you are well off and have a large traditional IRA, you may not need your yearly Required Minimum Distribution (RMD) for living expenses. If you are 70½ or older, you have an option: you can make a Qualified Charitable Distribution (QCD) with IRA assets. You can donate up to $100,000 of IRA assets to a qualified charity in a single year this way, and the amount donated counts toward your annual RMD. (A married couple gets to donate up to $200,000 per year.) Even more importantly, the amount of the QCD is excluded from your taxable income for the year of the donation.
   
Some states also give seniors tax breaks. For example, the following 11 states do not tax federal, state, or local pension income: Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, New York, and Pennsylvania. Twenty-eight states (and the District of Columbia) refrain from taxing Social Security income.
   
Unfortunately, your Social Security benefits could be partly or fully taxable. They could be taxed at both the federal and state level, depending on how much you earn and where you happen to live. Whether you feel this is reasonable or not, you may have the potential to claim some of the tax breaks mentioned above as you pursue the goal of tax efficiency.

Breaking down the basics & what each part covers.
 
Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover and where they come from.
     
Parts A & B: Original Medicare. There are two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long and only under certain parameters.
 
Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $170.50 daily coinsurance payment may be required of you.
   
Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (hospital beds, wheelchairs), and other medical services, such as lab tests and a variety of health screenings.
 
Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level. The standard monthly premium amount is $135.50 this year. The current yearly deductible is $185. (Some people automatically receive Part B coverage, but others must sign up for it.)
 
Part C: Medicare Advantage plans. Insurance companies offer these Medicare-approved plans. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums. To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (October 15 - December 7), seniors can choose to switch out of Original Medicare to a Medicare Advantage plan or vice versa; although, any such move is much wiser with a Medigap policy already in place.
  
How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. You pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage.
    
Part D: prescription drug plans. While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going.
  
Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you.