Wouldn’t it be amazing if millennials could save for retirement while simultaneously paying off their student debt? A new bill introduced to Senate could make this possible, thus brightening the financial outlook for millions of cash-strapped millennials.
Why was the bill introduced?
The bill was introduced just two days after an announcement stated student loan debt in American is now in excess of $1.465 trillion. While it may seem a large number, it becomes even more so when you realize it is more than double the amount it was when the last recession ended.
What does the bill say it will do?
The bill has been titled the “Retirement Parity for Student Loans Act.” It was proposed by Ron Wyden, who is the Senate Finance Committee Ranking Member. The goal of the bill is to give the average working American flexibility to save for their future (i.e. retirement) while still being able to make their repayments on student loans.
How will it work?
If the bill were to be passed in Senate, then those employees who are unable to afford both retirement savings and student loan debt payments would be eligible to receive help from their employer.
The help would work like this:
The employee would make a contribution to their student loan debt directly from their salary, in much the way they would contribute to a 401(k). In turn, their employer would match that contribution and place it towards a worker’s retirement fund.
Let us say, for example, an employer offered a 5% contribution match on a 401(k) plan. The employee makes $500 a week but is unable to make payments on their student loans while making a 5% contribution on their retirement savings. The employee would be able to make $25 payments towards their student loans, while their employer still contributed $25 to their retirement savings.
Based on the numbers above, this bill could help employees to reduce their student debt by $1,300 in a single year while simultaneously contributing the same to their retirement funds.
Alone, of course, this is not enough to pay off all of a person’s student debts, but it is a big step in the right direction. Even with the bill, employees are encouraged to make additional weekly or monthly payments towards their debt if they want to see it paid off.
Who will the bill apply to?
The bill would implement a voluntary benefit from employers, not a mandatory one. Some of the best employers, however, would almost certainly implement the plan were it to be passed. It would be applied to SIMPLE, 401(k), and 403(b) retirement plans that have employer matching for contributions.
When should we expect to see changes?
If the bill were to be passed in Senate, then the changes to these employer-matched retirement plans would officially take effect in 2020. The bill is currently in preparation for next year, when it will officially be introduced to Senate for more in-depth conversation on what it might mean for the future state of America.Continue reading
When it comes to saving towards retirement, nothing is considered better than a 401(k) – especially if your employer offers contribution matching. Even a one percent employee match could end up contributing thousands of dollars towards your retirement by the time you hit 67. But what about when a 401(k) isn’t an option?
If you don’t have a 401(k) but still want to save towards your retirement, there are plenty of ways you can do so. Here we’ll look at some of the best ways you can get started.
A traditional IRA is sometimes considered an eligible tax deduction, which means you won’t owe as much at the end of the year. The downside? You can’t touch your money until you are at least 59.5 years old. If you do, you’ll get hit with stiff penalties that can severely decrease your overall retirement funds.
Currently, you can save up to $5,500 a year in a Traditional IRA if you are 49 or younger. People aged 50 or older can save up to $6,500 yearly.
Unlike a traditional IRA, Roth IRAs are not tax deductible. The upside is that you can withdraw the money at any point during your retirement without paying taxes on it. You can also pull from your initial investment without penalty if you need the funds early – although you can’t touch any interest you’ve built.
Like a Traditional IRA, a Roth IRA will allow you to save up to $5,500 a year until the age of 50. Once you turn 50, you can begin to save an additional thousand annually.
A brokerage account is the best way to save some extra money. There are no limits to how much you can save, and you can access it at any time if an emergency arises. The money is not tax deductible, however. Most experts recommend using a brokerage account with either a Traditional or Roth IRA, to save additional funds.
An individual 401(k) is open to anyone who is self-employed. This includes business owners, as well as freelance individuals. It is only open to business owners without employees, however – such as those who operate Esty shops, e-commerce sites, etc. on their own.
The contributions made by self-employed individuals are tax deductible, and there are remarkably high limits as to how much can be saved annually. You can save as much as $18,500 per year plus up to a quarter of your income, so long as your total yearly contributions do not exceed $55,000. If you over the age of 50, the income limits are even higher.
A final option is to open up a SEP IRA, which is only available to individuals who are self-employed. Your contributions are tax deductible, but the limits are much stricter than an individual 401(k) plan. Freelancers are allowed to contribute up to 20% of their total income, while business owners are allowed to contribute up to a quarter of theirs.Continue reading
You’ve stashed money away for your retirement for decades. You carefully planned out how much you’d save and stuck to your plan. Now that you’ve finally reached the retirement you worked so hard for, all your careful planning is done. Right? Wrong.
People are now living longer than ever, and with an extended lifespan comes a longer time that your nest egg will have to last you. This means you’ll want to take steps towards making your nest egg last decades longer than you originally thought it would. How can you do that? Check out these five great ways below to get started.
Downsizing your life isn’t only practical for financial reasons, but it can alleviate a lot of stress, too. That four-bedroom home you raised your family in was perfect, but now it’s probably much too large. You can either sell that home and use the funds to purchase a smaller home – stashing the excess away, of course. Or, you could choose to rent out your spare bedrooms or the whole house while purchasing a smaller place.
2: Pay Off Large Debts ASAP
Ideally, any large debts will have been paid off before you retire. This includes your mortgage and (if applicable) car loans. If they weren’t already paid off, however, aim to do that as quickly as possible – even if it means nixing any extra activities for the first year or two of retirement. Once those debts are paid off, you’ll have hundreds – or even thousands – of extra dollars each year.
3: Create a Residual Income
Creating a residual income means having an income that comes in each month, without you having to actually work. One of the most popular ways to do this is through real estate, which we discussed above. You could also consider something like selling stock photos online, which would be particularly great if you enjoyed photography.
4: Consider Freelancing
People who draw on their social security can create a certain amount of supplemental income each month. Just make sure you check what the limits are, so you don’t go over. Then, freelance from home a few hours each week to bring in a little extra spending cash. There are plenty of jobs you can do from home, including telemarketing, digital marketing, writing, or even tutoring.
5: Plan Your Withdrawals Carefully
If you want your nest egg to last at all, you need to be smart with your money. Don’t just withdraw funds from your savings accounts whenever you feel like it. Instead, plan out how much you will need each month and stick to that. You can plan ahead for things like Christmas, when you may need to spend a little extra. The point is to stick to your plan, no matter what.
If you implement a few of the above tips, you can help your nest egg last decades longer than you originally planned. Not only that, but you can still have the comfortable retirement you deserve.Continue reading
Creating a comfortable retirement is more than just saving money. It is also about being smart with that money once you reach retirement – and one of the best ways to make your money last is to downsize your life. By downsizing, you are decreasing your overall monthly spending and thus, increasing the amount of time your nest egg will last you.
Ready to find out how you can downsize your life in retirement or the year leading up to it? Continue reading below to learn about four great ways you can get started.
1: Smaller Home
The most obvious way to downsize is to trade the large home you raised your family in for something smaller. Most retired couples can live comfortably in a one-bedroom apartment or home. Some may prefer a two-bedroom, so they have an extra room for when guests come to visit.
If you rent, this step is as easy as getting rid of some of the extra furniture and finding a smaller place. If you own your home, you will want to put your home up for sale. This may be more difficult than if you were renting but comes with an exceptionally large bonus. When you sell your home, you can purchase a smaller (and cheaper) one. The extra money you have can be stashed away to further increase your nest egg.
2: Ditch the Debt
If you have any large debt, now is the time to get rid of it. It is ideal that mortgages and car payments are fully paid off before you retire. If you have a few years left on either, however, consider freelancing part-time in your retirement and applying those extra funds towards a quicker payoff. Once those debts are done, your monthly cost of living will be significantly lower.
3: Couples Consider One Vehicle
If both partners are retired, consider downsizing from two vehicles to one. Many couples find that they go almost everywhere together after they retire, and the second vehicle is no longer necessary. Not only can you turn a quick profit from the sale of your vehicle, but it amounts to lower car insurance and less upkeep costs, too.
4: No Unnecessary Bills
Look at your monthly bills and see what can go or be downsized. Many people who have a cable subscription, for example, may want to consider a streaming service instead. If you have more than one streaming service, consider choosing only one. Any monthly boxed subscriptions can also be let go.
With extra time on your hands, you may also consider couponing for your groceries. This could help you lower your food costs by as much as half each month. If your lost on how to coupon, you can find a lot of useful information online.
If you use one or more of the ways listed above to downsize your life, you can ensure you have a comfortable retirement. Remember that the initial effort of downsizing your life is well worth it in the long run.Continue reading