retirement
The Financial Implications of Fluffy: Costs of Becoming a Pet Owner
Animals are just plain cute and can bring so much joy to your life, but like children, they are not cheap â especially if you care for your pet properly.
Whether you choose to adopt or buy a pet from a store or breeder, there are several costs to consider over the life of your pet. The first one being acquisition cost. You can adopt a dog for around $60 to over $200 depending on the shelter (this usually includes having them spayed/neutered and all their vaccines), but I have seen French bulldog puppies through breeders for $7,000. You would want to do your research on breeds and make sure you get a healthy pet.
I have been actively looking for a furry friend but after educating myself on the time commitments and costs involved, I must confess, I am thinking about revisiting this when I retire and have more time.
- SEE MORE The Ways Pets Improve Our Retirement Well-Being
There are so many advantages to having a pet. They can bring such unconditional love and companionship and of course all of the funny, cute things they do. The purpose of this article is not to turn you off from owning a pet but to guide you as to the resources you should have available for a long-term financial commitment.
A dog or cat can have a lifespan of over 15 years â this is almost like raising a child to college age. Many people adopt or buy animals and donât factor this into their planning. What if I have a baby? What if my job forces me to relocate? What if pet restrictions make buying a condo or renting an apartment a problem for me in the future? I have seen so many sad stories of new babies being allergic to pets or people losing their jobs and having to surrender pets they can no longer afford to care for.
Some costs to think about are:
Food and toys
Food can be quite expensive, especially if you have a larger animal. Dog owners should plan on budgeting $120-$550 per year for food per pet, according to Petfinder, and for cat owners the estimate is only a smidgeon lower at $120-$500. Â I have friends who cook chicken and âpeople foodâ for their dogs. This can be as expensive as feeding another human. Â
Your pet may need some toys, a bed and possibly a crate for training. If you have a cat you may need to purchase something they can scratch. A couple of toys can easily be $50, dog bed $35, cat scratching post $30 or more depending on how fancy you want to get. And donât forget the kitty litter, which could add up to $70-$150 per year, Petfinder reports.
Training costs and property destruction
Puppies like to chew and kittens like to scratch up furniture. This can be frustrating and costly, especially if the puppy ravages your expensive shoes. The average cost for dog training is about $50 per hour, but obedience training can run $200 to $600 per week. A private dog trainer can run up to $150 per hour.
Pet insurance
If your pet has known health issues based on their breed, it may make sense to either get pet insurance in advance or set aside cash for large vet bills. Pet insurance can range from as low as $10 per month to higher than $100 per month. Keep in mind many insurance companies will exclude âtypicalâ conditions associated with a breed.Â
General liability insurance
Some condo associations require you have liability insurance if you have a pet in the event it bites or destroys property. This can increase your insurance costs. About 4.5 million people are bitten by dogs each year. If you own your home, your homeowners insurance policy often will cover dog bites â but it pays to verify. Some companies exclude covering certain breeds. In those cases, and if you are a renter, you should look into personal liability coverage and/or umbrella insurance.
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A colleague informed me that her condo association requested an analysis of her dogâs poop, so that the culprit can be identified if the poop is not cleaned up!
Health care/vet bills
These costs can be a wild card depending on your pet. Keep in mind that if something serious comes up, a week in a veterinary hospital could mean a bill of $10,000 or more. With regular dental cleanings (easily $300 or more each time) and periodic vaccines, heartworm pills ($58-$159 per year) Â and flea and tick prevention ($150-$200 per year), even routine care adds up fast.
Grooming
This can cost up to $100 per visit depending on the size of the pet and your location.
Travel/pet sitting
 If you travel frequently or work outside your home you will need to factor in the costs of someone taking care of your pet when you are away. Having a dog walker come by during the day can easily cost $20 depending on where you live. Doggy day care can be $25 per day and $40 for overnight. If you travel frequently these costs can add up quickly. Â
Future planning
Many people have trusts for their pets. Since your pet is likely part of the family, what if something happens to you? Do you have plans in place for the pet and the financial resources to provide for the pet after you are gone?
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This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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Grow With These Green ETFs and Mutual Funds
Thematic green ETFs and mutual funds allow you to zero in on a specific area of the fight against climate change, from electric-vehicle batteries to solar power.
These funds deliver the benefit of diversification and can hold shares in burgeoning companies that you might feel uncomfortable buying on your own because they have no profits and short histories as publicly traded stocks.
- SEE MORE Kiplinger ESG 20: Our Favorite Picks for ESG Investors
Whatâs more, a lot of leading sustainable companies are based overseas â so you may not be able to buy shares in them, but these funds can.Â
KraneShares Electric Vehicle and Future Mobility ETF
Take KraneShares Electric Vehicle and Future Mobility ETF (KARS). The green exchange-traded fund tracks a global index that includes companies throughout the EV ecosystem â from auto and battery makers to autonomous driving technology (sensors), charging stations and raw materials.
KARS owns shares in several EV battery makers, including Contemporary Ameperex Technology Co., better known as CATL, the worldâs largest lithium battery maker; its shares trade only in China. Other holdings are new issues. Shares in EV maker Lucid (LCID), for instance, went public last July. The fund has had high volatility over the past three years, but its three-year annualized return of 33.9% tops all industrial-sector funds.Â
Global X Lithium & Battery Tech ETF
Battery manufacturing must increase dramatically (some estimates say by 80-fold) if electric vehicle sales are to progress as expected. Global X Lithium & Battery Tech ETF (LIT) tracks an index of lithium mining and â¨refining companies and battery makers around the world.
- SEE MORE 5 ‘Blue Economy’ Stocks and Funds
U.S. lithium firm Albemarle (ALB), as well as Tesla (TSLA) and TDK (TTDKY), a Japanese electronics company, are top holdings. Expect high volatility. However, the fund boasts an impressive three-year annualized return of 40.2%.Â
Invesco WilderHill Clean Energy ETF
Invesco WilderHill Clean Energy ETF (PBW) is a member of the Kiplinger ETF 20, the list of our favorite exchange-traded funds. It covers a range of renewable-energy sources â wind, solar, hydro, geothermal and biofuel â and clean-energy tech.
The fund has been clobbered recently; its one-year return is a whopping 57.5% loss. But â¨its three-year annualized return, 30.4%, still stands in good stead.Â
TrueShares ESG Active Opportunities ETF
For a broad portfolio, consider TrueShares ESG Active Opportunities ETF (ECOZ), an actively managed green ETF that invests in companies with low carbon footprints.
- SEE MORE 5 Great Green Stocks Making a Direct Impact
The managers favor a specific measure: greenhouse gas intensity. How many tons of GHG are emitted per $1 million of revenue? The GHG intensity of the fundâs holdings is 85% lower than that of the stocks in the S&P 500 on average, says TrueShares chief investment officer Jordan Waldrep.
ECOZ has returned 24.2% annualized since its inception in early 2020, which trails the 26.3% gain in the S&P 500.Â
iClima Global Decarbonization Transition Leaders ETF
iClima Global Decarbonization Transition Leaders ETF (CLMA) tracks a proprietary index of innovative companies that deliver products or services making an eco-friendly impact. The green ETF’s holdings include offshore wind energy company Orsted (DNNGY); the all-electric East Japan Railway; and Oatly (OTLY), a plant-based foods company.
Says iClimaâs Gabriela Herculano: “A lot of funds, think letâs invest in companies doing less harm. We want to focus on innovation. Weâre looking forward, looking to the solution.” The fund opened in July 2021.Â
Fidelity Climate Action
Fidelity Climate Action (FCAEX) is also intriguing. Asher Anolic runs this new, actively managed green mutual fund, which launched in June. It invests in global companies that work to address climate change (or its impacts) through corporate strategies or by providing technology, services or products.
Microsoft (MSFT), Alphabet (GOOGL) and Nvidia (NVDA) are among FCAEX’s top holdings.Â
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Annuity Payments Donât Make Your Retirement: They Make It Better
Why do annuity payments belong in a plan for retirement income?
There is a very simple answer: Retirees who have annuity payments feel more confident about their long-term finances in retirement.
It seems obvious to someone like me, who is an actuary by training and spent most of my later career in the retirement business. That confidence comes because an annuity payment is similar to Social Security or a pension in one important respect: They all provide a lifetime of guaranteed income.Â
- SEE MORE The 4 Phases of Retirement
Since annuity payments are guaranteed under contracts issued typically by highly rated insurance companies, in my view retirees or near-retirees with a reasonable life expectancy should at least consider them as an important source of retirement income. However, according to one survey, a relatively low percentage of retirees â fewer than 15% â make annuity payments part of their retirement income plans.
So, letâs discuss the objections and questions that consumers often have about annuity payments, the contracts that guarantee those payments, and the reasons annuity payments belong in a plan.
Where the confusion comes in with annuities
Today, the annuity landscape is quite competitive and often confusing to average investors. There are many types of annuities. They can be grouped in various ways:
- Accumulation or income.
- Fixed, variable or indexed.
- With or without downside protection.
- Current or future annuitized income.Â
I take some responsibility for changing the annuity landscape, having invented the first annuity that could be categorized as accumulation/variable/downside protection/future annuitized income.
Unfortunately, contracts providing guaranteed annuity payments often get lumped together with other annuities, and thatâs where the confusion creeps in. Itâs just like with insurance: Car insurance is not the same as life insurance, health insurance or dental insurance. So, you should look at each annuity based on its stated purpose and not whether it shares a name with another product. One type of annuity might be just right for you, while others might not be a good fit.
The rest of this article is about annuity contracts whose sole purpose is to provide lifetime annuity payments â starting now or at a date in the future you select. Letâs start with a few questions Iâve gotten from readers like you.
Q: Do annuity payments increase with inflation?
A: In some contracts, annuity payments increase over time, but most do not. Those contracts that do provide payments that grow with inflation tend to have a starting annuity payment that is 20% to 30% lower than a contract with fixed, level payments. Inflation protection is not cheap.
Of course, the question about purchasing power and inflation is timely with whatâs going on in the U.S. and elsewhere. The Labor Department announced in early February that inflation hit a 40-year high, with consumer prices jumping 7.5% compared with last year. If you relied on annuity payments for all your income, the value lost to inflation would be a major problem. But your retirement income plan shouldnât look like that.
First, you have Social Security and possibly a pension, which grow with inflation. Second, when the income from these sources is not sufficient to cover inflation, you will want income from your savings to increase over time, and you should plan accordingly.  In creating that plan, you should consider annuity payments that start immediately, and a second set of annuity payments that start when you reach a certain age (or ages) in the future. The first can provide a foundation of lifetime income, and the second can be deployed in a laddered purchase of annuity payments to achieve growing income. Â
Hereâs an illustration of a plan that provides increasing income over the years and that shows how annuity payments are deployed:
Courtesy of Jerry Golden
Q: Can I cash in my future annuity payments if I need liquid funds?                                                            Â
A: The answer is no for most contracts â due to the actuarial approach annuities are founded upon.
The reason for no liquidity is that when you receive annuity payments, a portion of the higher payment is enabled by a survivor credit, which represents the benefit of pooling your longevity risk. Unlike life insurance, where the benefit is paid at your passing, under these annuity contracts the benefit is paid at your surviving. If you could cash in annuity payments during your lifetime, youâd undermine the pooling concept â and the lifetime income advantage.
Our typical female retiree aged 70 who wants to increase the cash flow from her $500,000 in low-yielding savings could purchase annuity payments at an annual rate of around 6.75% today, or $33,750 per year. Thatâs the survivor credit benefit. Â If she wanted to ensure her beneficiary a return of the balance of the annuity premium at her passing, the annuity payout rate would be around 6.00%, or $30,000 per year.
 How do you overcome the liquidity issue? Here are a few short answers:
- Understand that in drawing down from liquid savings early in retirement, you may be reducing your future income.
- Invest only a portion of your savings in these annuity contracts, leaving the balance of your retirement savings in liquid, marketable securities.
- For late-in-retirement liquidity needs, say, for medical or long-term care, use the higher annuity payments to purchase long-term care insurance, or let them accumulate in more liquid, marketable securities.
Q: What are the advantages of including annuity payments in a plan?
A: These annuity contracts are similar to the pension your parents had. Just like a pension, they provide a lifetime of guaranteed income. When incorporated into a plan for retirement income, annuity payments address the most common fear of retirees: Will I outlive my savings?
- SEE MORE Factoring Inflation Into Your Retirement Plan
Recognizing the benefits of annuity payments, recent revisions to federal law governing qualified retirement plans, like 401(k)s and 403(b)s, made it easier for participants to convert part of their savings to these annuity contracts.
Set out below are some of the other benefits of annuity payments.
Annuity payments enable retirees to stay the course with their investments
Annuity payments allow you to adjust parts of your retirement income plan without giving up on your goal to live comfortably for the rest of your life. In fact, they can be one of several steps you can take to build a safer income plan.
You should not put all of your savings into purchasing annuity payments. A good portion should remain in your portfolio of stocks and bonds, with a concentration in income- and dividend-producing ETFs. In fact, retirees who are not receiving annuity payments will be very unlikely to invest a higher percentage of their equity portfolios in stocks that might generate more robust returns.
I write frequently about the value of staying the course during volatile economic times, which cause some people to abandon sound plans. In fact, statistics show that individual investors underperform the market by 1% to 3% per year on average because they jump out of the market during alarming plunges. This is even more likely for retirees who have no annuity payments. The protection of annuity payments increases your ability to work the market to your best advantage.
Recognizing that your plan is built on several pillars of guaranteed lifetime income allows you to âstay the courseâ during a turbulent market.
Annuity payments receive favorable tax treatment
Tax legislation and regulation encourage the use of these annuity contracts by offering favorable tax treatment. I believe this treatment granted by the IRS over the years is to encourage retirees to be more self-reliant in their retirement plans.
As I have explained before, the IRS makes you pay taxes only once on money you earn. Here is how that translates into favorable tax treatment for annuity payments.
- A Single Premium Immediate Annuity (SPIA) delivers a portion of its payments tax-free when you purchase the annuity payments from savings that have already been taxed. Going back to our typical 70-year-old female retiree mentioned above, if she purchased an immediate annuity, she would see less than 4% of her annuity payments being taxable for the first 15 years.
- Â A Deferred Income Annuity called a QLAC, when purchased with money from a rollover IRA or 401(k), reduces taxable required minimum distributions until QLAC annuity payments begin, usually at 80 or 85 years old. Â A retiree with $500,000 in a rollover IRA could defer distributions on $125,000. (For 2022, QLACs are capped at 25% of the IRA balance or $135,000, whichever is less.)
- Under IRS Section 1035 rules, you can make a tax-free exchange of an accumulation annuity with a gain to an annuity contract with annuity payments starting immediately or in the future. That means you could spread the tax on that gain over the lifetime of the annuity payments.
More planning benefits from annuity payments
As we discussed, one convenient benefit of annuity payments is that these guaranteed payments are deposited monthly into your savings or checking account while you are alive, and, if elected, while your spouse is alive. Your beneficiary can also receive a lump sum if you pass before the premium is paid out in annuity payments. Important secondary benefits of those monthly payments include the convenience of using that money to pay your recurring bills (independent of investment returns).
Also, while annuity payments provide income, the resulting higher income can enable a more generous legacy for your heirs, and peace of mind that comes from knowing you wonât outlive your income.
If you are ready to start building a Retirement Income Plan for your specific circumstances, visit Income Allocation Planning at Go2Income. We will ask a few easy questions so you can design a plan that meets your objectives. Whether I have fully convinced you about the value of annuity payments or not, why not research on your own. Click annuity info to compare your annuity payment and tax benefits with our investorâs results in the article.
- SEE MORE The Ultimate Retirement Savings Account? Surprise, Itâs an HSA!
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This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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