Tag Archives: Retirement Savings

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Having Realistic Retirement Expectations

Have you given much thought to what will happen once you’re no longer working? What pastimes or activities would you want to engage in? Will you enjoy finally being free of having to go to work every day or are you going to miss having the sense of purpose associated with full-time employment? 

Your overall happiness, wellbeing, and financial status are key points to think about at a time like this, and the tips below will go a long way in helping you set realistic expectations for this time of your life. 

  1. Don’t Assume that you’ll be Happy to Stop Working

Although everyone looks forward to the day they’ll be able to retire to some degree, not everyone is fully prepared for when they’ll wake up every day and not have to go to the office anymore. Several individuals work for many years, and suddenly having to give that up can leave them feeling empty or unfulfilled.

If you don’t stop to think about how you’ll deal with these feelings as they arise, you could find retirement to not be as enjoyable as you thought it would be. To deal with this, allow some time to think about these negative feelings and find ways to address them. For instance, if you were an accountant, consider providing your services to one or two of your existing clients each month. Over time, this will benefit you and your employer. 

  1. Know what you want from your Retirement

You need to spend a bit of time thinking about how you want your life to be after you stop working. Do you just want to relax at home or would you prefer to travel the country – or even visit other countries for part of the year? 

Knowing how you intend to spend your time is a crucial step in the retirement process, and being realistic about your financial situation, overall health and other mitigating factors will help you decide how much needs to be saved and invested beforehand to make your dreams come true. 

Keep in mind that it’s also quite normal for your retirement goals to change over time and as such, your savings and investment plans may need to be adjusted accordingly from time to time. 

  1. Get Started with Saving Now

Younger people seldom take the time to think about the amount of money they’ll need to retire, and when they do, they often make the mistake of thinking about the current cost of living – and forget to take inflation into account. When looking at how things have changed over the past decade or two, it’s safe to say that the level of inflation being experienced at the moment looks set to continue for quite a while longer. 

When planning your retirement savings, ensure that inflation is being accounted for; otherwise, you could find yourself struggling financially once you’re no longer working. Setting realistic expectations about your retirement right from the beginning will make this time of your life a lot easier to deal with. If you’d like to learn more about saving towards retirement, contact us today. 

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Stretching your Social Security and Pension Funds to make them Last

A large number of retirees are extremely concerned because they feel that their pension funds won’t be sufficient to last them for the rest of their lives – especially if current inflation trends are taken into consideration. However, there are a few steps you can take to ensure that your retirement funds will be able to last for as long as possible. 

  1. Consider Taking on Part-time Employment

If you’re still physically active and healthy, it might be worth considering taking a part-time job when you reach retirement age – instead of stopping work completely. This will not only help to reduce the amount of money that needs to be withdrawn from your retirement funds; it will allow you to keep busy for at least a few days a week as well – several older folk often find themselves becoming bored quickly when they stop working altogether. 

  1. Check Withdrawal Rates at Least Annually

Your withdrawal rates should be checked at least once a year to determine if you’re living off the interest from your retirement accounts or whether you’re dipping into the capital itself. If it’s discovered that you’re dipping into the capital, it’s a good idea to sit down with a financial advisor and see what can be done to preserve your fund. In most cases, it’s recommended that withdrawal rates don’t exceed 4% of the account’s balance over a 12-month period.

  1. Examine your Budget

Unfortunately, not everyone will be able to continue working after reaching retirement age. If you will be one of the individuals who have to stop working, it’s crucial that you start examining your monthly budget and reducing expenses wherever reasonably possible. 

Some of the quickest ways to reduce spending can include downsizing to one vehicle, moving into a smaller home or a property that’s in a more affordable part of town and even asking for senior discounts whenever making purchases – it never hurts to ask. 

  1. Avoid Taking on Debt

If you still have to pay for vehicle financing or cover the cost of credit card installments each month after retiring, your Social Security and pension benefits will not last nearly as long as they should – especially when taking the high interest rates that are charged on these payments into consideration as well. 

Before you can even think about retiring, it’s crucial to ensure that all outstanding debts are repaid in full. This will allow you to free up funds to cover your essential expenses such as taxes, utilities, potential medical expenses, groceries and hopefully a few fun purchases along the way. 

Preserving as much of your pension fund and Social Security benefit as possible by being reasonably frugal will allow you to rest assured that there will be enough money for you to live on once you’ve stopped working. If you would like to obtain a little guidance with regards to stretching your retirement funds as effectively as possible, get in touch with our professional advisors today. 

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Why a Budget is Essential for Financial Success

While virtually everyone wants to accumulate as much wealth as possible, few are actually doing anything to achieve their goals and dreams in this regard. However, the fact remains that the only way to become truly successful with your finances is to compile a realistic budget and stick to it as religiously as possible.

 

Enjoy a More Fulfilled Retirement

While you may already be a responsible spender who follows a strict budget, this may not be enough on its own to ensure a retirement that you’ll be able to enjoy. Saving a portion of everything you earn is a crucial step for ensuring a decent retirement. 

Compiling a budget can help you see how much money you have left over after monthly expenses such as rent or mortgage, groceries, transport and other essentials have been paid for. If you’re overspending, you’ll either have to cut back somewhere or find a better paying position so that you can start contributing to various retirement accounts. Having enough funds saved for retirement will make all the difference between being able to enjoy your golden years or having to work one or more jobs just to pay the rent and put food on the table.

 

It Prepare for the Unexpected

No one ever knows when or if any type of emergency situation will occur, such as a vehicle breakdown, a burst water heater or a damaged sewer line that floods your property. In most cases, instances like these will happen at the worst possible time – which is why it’s crucial that you prepare for them as much as possible beforehand.

Your budget should include an emergency fund that amounts to between three and six months’ living expenses. This will help ensure that you don’t incur any debt if a financial crisis occurs. The easiest way to build your emergency fund is to set aside an amount from each paycheck you receive in a dedicated account. 

 

It can Reveal Bad Spending Patterns

Compiling a budget will not only enable you to see where your money goes; it will help reveal whether you’re overspending on any item in particular. For example, are you spending a few hundred dollars a month on takeout? Do you ever watch all 150 channels that are aired by your cable provider?

Seeing everything on paper will help you re-evaluate where you could be overspending. Once financial drains have been identified and stopped, those funds can then be allocated towards retirement saving or towards building a decently sized emergency fund. 

While many individuals prefer to use a good old-fashioned pen and paper for compiling their budgets, various apps and budgeting software programs are now available than can assist with this process as well. If you would like to start managing your finances in a more responsible manner but you’re unsure of how or where to get started, speak to one of our team members today. We look forward to assisting you in any way possible. 

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Can you Save for Retirement and Pay for your Kids’ College Simultaneously?

While there’s nothing wrong with parents who focus on their kids’ goals with regards to college, research has indicated that more and more parents are now doing this at the detriment of their own retirement. Although it’s OK to provide support to your kids while they’re in college, it can be extremely difficult to balance that along with your own plans to retire in a decade or two. 

Firstly, it’s crucial to determine how much you will be able to comfortably set aside for your own retirement as well as your kid’s college costs. All of these expenses must be considered in conjunction with each other so that you can see where changes might need to be made to one or both of them. 

Here are some questions that require honest and direct answers because they will help you determine what your financial limitations are:

 

Covering College Expenses

  • Are you going to pay for all or part of your child’s college journey?
  • How many years are left before your child starts college?
  • Will they attend public or private college?
  • Do you think your kids will qualify for any form of financial aid?
  • Will grandparents or any other family members be contributing towards college costs or not?
  • If your kids have specific academic, artistic or athletic abilities, id there a chance that they would be able to qualify for any scholarships?

 

Covering Retirement Savings

  • How do you want to live after you’ve retired? Do you want to simplify your life or would you like to travel more?
  • Does your current employer offer any form of retirement or pension plan where matching contributions are provided?
  • How many more working years do you have left before reaching retirement?
  • Will you or your spouse still work part-time after officially retiring or not?
  • Have you already got a Roth IRA or other form of IRA in place?
  • Are you going to need Social Security benefits to assist with your retirement? If so, it’s essential that you check online to see the amount you’ll qualify to receive
  • What sort of income are you expecting form your existing retirement account balance?

 

What you can do if it’s not Possible to Pay for College and Retirement

In cases where it’s just not possible to pay for college and secure your retirement financially, you might need to ask:

  • Will you be content with delaying retirement by a few years in an effort to boost savings balances?
  • Are you willing to cut back on living expenses now or after retirement? You may be able to reduce expenses right away in order to have enough money later on or you can think about reducing spending once you’ve retired
  • Are you willing to keep working into your retirement years?
  • Will you be willing to make investments that are more aggressive? (This might not always be a good idea)
  • Will you be willing to have your kids attend more affordable colleges or contribute towards their college costs?

It’s essential that you not wait until your kids have finished college before you start saving for retirement because it will be almost impossible to save enough money to live on. If you require more information about being able to retire comfortably and still contribute towards your kids’ college education, get in touch with us today. 

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Essential Facts about Retirement Saving

Although most individuals will reach retirement age, not nearly enough of them will get to enjoy much of this time of their lives due to financial constraints. Consequently, it’s essential for everyone to implement a practical savings plan so that they will not have to stress about how they are going to meet their financial needs during this time of their lives. The facts below will provide you with a clearer understanding of how to plan for – and achieve – this.

 

Traditional Pension Plans are Disappearing

In years gone by, employers routinely provided corporate pension and retirement plans. However, data compiled by USA Today that was provided by the Employee Benefit Research Institute has revealed that fewer companies and employers are now providing these than ever before. In fact, only just over 10% of private sector employees are currently contributing to dedicated company pension plans – a sharp decrease from almost 40% during the late 70s. 

Economists have noted that very few employees have any access to a company-sponsored 401(k) or other similar pension or retirement account. It has also been revealed that only 30% of lower-income households have access to funds like these in comparison to more than 80% of higher income households.

 

Age Is a Crucial Consideration

Most women who are able to retire at age 65 will need enough retirement funds to last for approximately 21 years, whereas men will generally require sufficient funds to see them through for around 18 years after stopping work. 

Owing to the fact that full retirement age will be increased to 67 for anyone who was born in 1960 or later, most of the millennial generation may not have to stretch their retirement savings as much. However, this doesn’t mean that they should delay starting to save towards this time of their lives.

Retirees will also need to account for additional healthcare expenses, regardless of when they start withdrawing funds or how healthy they may currently be. Research has revealed that the average retired couple should count on spending almost $300,000 on age-related healthcare – and this does not even take the cost of any type of nursing home or long-term care facility into consideration. 

 

Maintaining More than One Source of Income

More retirees than ever before are no longer relying entirely on an income from Social Security. In fact, more than a third of them either remains formally employed or own businesses that they are still actively managing. A further 20% of them are drawing down from their savings or dedicated pension plans, while a further 10% are in possession of assets from income. 

Many financial experts advise their clients to replace up to 45% of their pretax income with funds from their savings plans. If done in conjunction with obtaining a Social Security benefit, it should be enough for anyone who earns between the $50,000 and $300,000 threshold to live on each year. For retirees to maintain the lifestyle they had while employed, it’s usually only necessary to replace between 55% and 85% of the income they received while they were still employed. 

If you haven’t yet done so, now is the best time to start planning financially for your golden years. Contact us today to find out how to ensure that you will be able to retire without having to worry about finances. Our team looks forward to working with you.

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Want to Retire by 50? Here’s how Much you’ll Need to Save

Many individuals find the idea of retiring from the workforce at age 65 so overwhelming that they haven’t even given a second thought to the possibility of being able to retire when reaching the age of 50. However, this does not mean that it will be impossible to retire at this age – especially if you plan accordingly. If you would like to retire a decade and a half sooner than anticipated, the advice below can help you achieve this goal in a practical manner.

 

Aim to Save Approximately $1,000,000 

The average employee will require approximately $1,000,000 in savings if they intend retiring by the time they reach 50. This means that the earlier you compile a practical savings plan and put it into action, the sooner you can achieve this financial milestone. While it’s strongly recommended that you start saving for your golden years in your 20s, you can still make a plan if you’re older. Financial experts recommend that your savings be invested in such a way that they will be able to provide you with a return rate of at least 6%.

If you follow this advice, you’ll need to save approximately 35% of your earnings if you make $40,000 annually. However, I you’re earning $60,000 a year, you will need to set aside a little less than 25% of your paycheck. If you’re fortunate enough to earn six figures, you will only need to save a little less than 15% of your earnings.

 

Practical Ways to Save

Just the thought of having to try and save $1,000,000 in a 25 to 30 year timeframe can seem like an impossible undertaking, but it is quite possible to achieve this goal. Some individuals have even been able to achieve this savings figure before they reached 40. Below are some ways that early retirees were able to reach their savings goals:

  • Automating savings. When a specific amount of money is deducted and placed into savings each week or month, the chance of you saving regularly is increased substantially. In most cases, savings in this way will also mean that you won’t miss those funds
  • Wait as long as possible before moving out of your starter home into a larger property, and pay as much extra into your mortgage as possible during this time
  • Eat at home more than you visit restaurants or drive-through lines. This will benefit your wallet and your waistline over time
  • Reduce transport expenses wherever you can. If your car is paid off, keep it as long as it’s safe to do so. Walking, cycling or even using public transport wherever possible can help cut your gas and maintenance bill substantially over time. Combining as many errands as possible into a single trip will not only save money, you will save a lot of time as well
  • Eliminate, or at best, drastically reduce junk food consumption and trips to the mall as a form of entertainment. Your wallet and retirement fund will thank you

Keeping track of everything you spend your money on will help you determine where it’s possible to make budget cutbacks. The best way to do this is to keep a dedicated spending journal, where even the smallest expense is noted. Taking action by implementing the advice above will help get you on your way towards saving for a comfortable retirement.

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Why Many Retirees Are Still Working

The word “retirement” literally refers to a period after the working years, when senior citizens of a certain age can live off a combination of Social Security Income and any retirement savings accounts they have. The idea of continuing to work during retirement might sound counterintuitive, yet more retirees than ever before are still working.

 

SSI Doesn’t Cover Everything

There is a widely held misconception that SSI checks will cover all or most of a person’s expenses in retirement, but this is far from the truth. SSI alone is not enough to sustain a comfortable, livable income, and many find that their monthly checks do not even cover all of their most basic living expenses. 

Supplemental Income

Retirees aren’t still working fulltime, but they are deciding to supplement their income with part-time work or self employment. This is allowed while collecting Social Security Income, although it is always a good idea to check current limitations before deciding to obtain a new income stream.

By working one or two days a week, or spending a few hours freelancing, retirees are able to add $100 to $200 per week to their household income. For retired couples, this might amount to $200 to $400. While it may not seem like much, this small amount of money can make a huge difference in the type of life retirees are able to live.

Working also has the added bonus of giving retirees a sense of purpose, allowing them to socialize with others regularly, and maintains a loose schedule each week. These additional benefits help to fight the depression and isolation common in the senior population.

Extending Retirement Savings

Having a supplemental income allows retirees to extend the life of their retirement savings accounts. With additional income coming into the household regularly, retirees do not have to pull as much money from their hard-earned nest eggs. 

If, for example, an additional $800 per month is necessary to uphold a retiree’s lifestyle in additional to monies received via SSI, then earning an additional $100 per week will decrease the necessary withdrawal amount by $400. If retirees work only the first five years of retirement, they have potentially allowed $24,000 to remain in their retirement savings. With people living longer than years past, this additional money is more useful than ever. 

There is a secondary benefit to allowing money to sit in a person’s retirement account, and that is a continued accumulation of interest. Considering the example above where a person only works for the first five years of retirement, the additional $24,000 left in savings will continue to grow at the interest rate set by a person’s bank. 

Conclusion

Many retirees are continuing to work part-time during their retirement, for at least the first few years. There are numerous benefits associated with doing so, most of which are financial. Besides being a financially sound decision, working can also help to decrease the risks of depression associated with boredom and isolation in the golden years. 

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How Millennials Can Save for Retirement Without a 401(k)

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.

 

Traditional IRA

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.

 

Roth IRA

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.

 

Brokerage Account

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.

 

Individual 401(k)

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.

 

SEP IRA

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.  

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3 Reasons to Start Saving for Retirement in Your 20’s

Not many millennials have even begun thinking about retirement, nonetheless started planning or saving for it. Yet the best time to begin saving for your retirement is well before it occurs – such as in your 20’s.

Ready to find out why to start saving for retirement in your 20’s? Here we discuss just three good reasons.

 

1: Small Payments over A Long Period of Time

When you begin saving for retirement in your 20’s, you have the luxury of saving smaller payments over a longer period versus large payments over a short period of time. If, for example, you start saving at the age of 25, even $5 a week can end up being a substantial amount.

At $5 a week for 40 years, you will have an initial investment (without interest) of $10,400. For $20 a week over 40 years – which is about the amount spent on lunch in two work days – you could end up with an initial investment of $41,600.

If you don’t begin saving until the age of 45, however, the outcome is very different. With only two decades to save, your initial investment is only half as much.  

 

2: Builds Substantially More Interest

The best savings accounts currently are those which build approximately 7 percent compound interest per year. This are typically created specifically for retirement savings. This is, essentially, a lot of free money for just leaving your retirement money in a savings account.

In the first year alone, with a deposit of $5 per week, you’d earn $18.20 in interest. Assuming your savings account doesn’t offer compound interest (in which case the number would be greater), you could have about $3,600 – around $1,000 of which would be in interest – in just ten years. Now, imagine that over the course of four decades – or if you were able to place more than $5 a week into savings.

 

3: Prepared for the Unexpected

Ideally, the perfect retirement age would be between 65 and 70. This would give you plenty of time to save your money until you’d be able to withdraw the full social security amount each month. But sometimes this just isn’t possible. People suffer from health complications that make working impossible, while others are forced into early retirement by their companies.

If this were to happen between the ages of 55 and 65, starting to save early could help you postpone an early withdraw from your social security benefits. Each year that you are able to wait to begin claiming those benefits, the total monthly amount becomes greater.

As you can see, there are many good reasons to begin saving for retirement in your 20’s. With smaller payments over a long period of time you will not stress yourself as much financially during your working years. You will also build substantially more interest over the four or more decades your savings sits, and you can be prepared for the unexpected.

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How Budgeting in Your Early Years Can Affect your Retirement Savings

 

Habits are a powerful thing. So powerful, in fact, that you often forget why you began doing things that way to begin with. This can be the case for those who have reached the age of 50 with no retirement savings when that time is twenty (or less) years away.

The budget you set up in your early twenties or thirties may still be the one you use today. An example might look like this:

  • 40% housing (mortgage or rent)
  • 20% utilities
  • 15% transportation
  • 15% groceries
  • 10% other (outings, projects, etc.)

But that doesn’t make sense anymore because that budget only allows you to live week to week. There isn’t any shame in having done this, of course. Many families with children live week by week, or paycheck to paycheck. Now, however, you need to adjust things to compensate for a looming retirement date.

 

A New Budget When Starting at 50

The very first thing you need to do when creating a new budget for saving is to decrease other spending areas. If possible, start by downsizing your home by 5-10% of your budget. Either move into a smaller residence or rent out your spare bedrooms to increase your income. This should naturally decrease your utilities by about 5% also.

Now you’ve created (at the high end) 15% of your income that can be saved. What’s next? Try reducing grocery costs to 10% by using coupons, purchasing cheaper brands, or cutting unnecessary items from your budget. Finally, learn to do without. Cut “other” spending to 5% and go out less often.

You now have 25% of your budget free to save towards retirement over the next 15 to 20 years. If your monthly income is, say, $2K, that is $500 a month you can now save. By retirement you’ll have (before interest) $90K to $120K.

But that isn’t enough. Consider other ways to increase your savings. Two prime examples include placing all of your overtime earnings into savings and any income tax refunds you receive. Even 75% of the later could prove significant.

The following numbers are just ballparks, of course, and might not reflect your situation. But let’s say you earned about $500 in overtime earnings over those 15 to 20 years and received $1,000 back on  your income tax refund each year, of which you saved 75% ($750). Those two things, over time, equal an additional $18,750 to $25,000 for retirement.

A Better Budget For Your Early Years

If you’re lucky enough to be reading this pre-50, then the best thing you can do is begin saving for retirement NOW. Don’t get wrapped up in how much. Even those young families who are living paycheck to paycheck can squeeze a small something out.

Let’s say you only manage $5 a week between the ages of 20 and 50. That ends up being $7,800 before interest. If dual-income couples each save $5? That’s $15,600. It may not seem significant, but when you reach 50 it is better to have something saved versus starting entirely from scratch.

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