saving for retirement http://www.wisebread.com/taxonomy/term/11284/all en-US Trading Work for Never-Ending Weekends: How to Retire Early http://www.wisebread.com/trading-work-for-never-ending-weekends-how-to-retire-early <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/trading-work-for-never-ending-weekends-how-to-retire-early" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/4747349294_5cf24ecd73_z.jpg" alt="man on hammock" title="man on hammock" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>I&rsquo;m a long way from retirement, but I&rsquo;ve definitely had those days. You know the ones I mean &mdash; when you&rsquo;re tired and irritable, when it&rsquo;s cold and gray and windy, when everything feels like more of the same old thing, when you haven&rsquo;t had time to do your laundry let alone spend time with your friends, and, on top of it all, the thought of grinding out a few more decades at the office seems utterly insurmountable.</p> <p>If you hear the word &ldquo;retirement&rdquo; on a day like that, it probably sounds a lot more like &ldquo;emancipation&rdquo; (I know it does for me). After all, if you didn&rsquo;t have to work, you could spend more time with your family and your friends, catch up on your golf game, take up new hobbies, travel the world...</p> <p>Hold on a minute. If you&rsquo;re slipping away into sweet reverie, you might need a reality check. Here it goes. Retiring early is no dream &mdash; it&rsquo;s a goal, and an ambitious one at that. That isn&rsquo;t to say you can&rsquo;t or shouldn&rsquo;t go for it. But unless you strike it rich in the lottery, succeeding at retiring early will mean careful planning, hard work, and near-superhuman self discipline. Here&rsquo;s what you&rsquo;ll have to do to make it happen. (See also: <a href="http://www.wisebread.com/deciding-what-you-want-out-of-retirement">Deciding What You&nbsp;Want Out of Retirement</a>)</p> <h2>Save &mdash; a Lot</h2> <p>You probably already know that experts recommend that you save a lot for retirement. Exactly how much is a matter of debate. It&rsquo;s also highly personal, as it depends on your lifestyle, what you want to do during retirement, and (everyone&rsquo;s least-favorite calculation) how long you think you&rsquo;ll live. This is where things get tricky in terms of retiring early. In essence, working for a shorter period of time puts you at a disadvantage on both ends of the saving equation: you&rsquo;ll have fewer earning years, and more years during which you&rsquo;ll have to rely on your savings.</p> <p>So how much might you need to save? Rather than start with someone who makes six figures, let&rsquo;s look at averages. The medium income in the U.S. is $50,000. Average life expectancy is almost 78 years. If you are 35 and would like to retire at 60 with 80% of your pre-retirement income, you will need to save about $1 million &mdash; and that&rsquo;s assuming you get the estimated Social Security payment. You can check out the <a href="http://cgi.money.cnn.com/tools/retirementneed/retirementneed_plain.html">retirement calculator</a> I used to figure this out, but no matter how you fiddle with the numbers, retiring early will add up to a big one.</p> <h2>Live Cheap</h2> <p>Saving enough to retire early will mean living on less than you make, and you&rsquo;d better get used to it; your Spartan lifestyle will become even more crucial when you stop working. When you&rsquo;re working eight (or more) hours a day, a wide-open schedule can seem like a dream come true. But there&rsquo;s another financial benefit to working that you may not have thought of &mdash; being stuck at work all day leaves you with much less time to spend money.</p> <p>So what about when you&rsquo;re retired and have nothing but time? Can you keep yourself occupied and keep your spending in check? This can be a real challenge, especially when expensive hobbies and travel are part of your plans. This is why having a lot of savings and using careful planning are so important. A good financial planner can help you with this, but when you don&rsquo;t have earning power, you need a good cushion to ensure your money lasts. After all, the last thing you need is to run up against the end of your savings when you&rsquo;re too old to go back to work.</p> <h2>Stick to the Plan</h2> <p>Because retiring early is a challenge, it&rsquo;s important to have a clear plan for how you&rsquo;re going to get there. Exactly how early do want to retire? How much will you need to save to make that possible? These are questions you need to answer to ensure you&rsquo;re on the right track to making your goal a reality. A <a href="http://www.wisebread.com/9-signs-you-need-to-fire-your-financial-planner">financial planner</a> can help you run the numbers. Then it&rsquo;s up to you to keep that plan on track. The numbers make it sound easier than it really is, at least for most of us. Living on less can be tough &mdash; especially when everyone around you is spending like there&rsquo;s no tomorrow.</p> <h2>Find a Source of Passive Income</h2> <p>If you&rsquo;re not familiar with the term passive income, you&rsquo;re missing out on one of the sweetest deals in the investing world. In essence, passive income is income that&rsquo;s generated without your labor. In other words, you don&rsquo;t have to work for it &mdash; or at least not as hard as you have to work for most of the other income you&rsquo;ll earn in your life. Investments such as dividend stocks and real estate, or royalties generated from something you&rsquo;ve created such as a website or book, are considered passive income. Once a source of passive income is up and running, all that&rsquo;s left for you to do is accept the check in the mail.</p> <h2>Rethink &ldquo;Retired&rdquo;</h2> <p>A member of my family retired in his 60s, but was soon back to working part-time. Why had he chosen to go back to the grind?</p> <p>&ldquo;You can only play so much golf,&rdquo; he told me. As an energetic, healthy, and active guy, he just wasn&rsquo;t happy without some real <i>work</i> to do. He has flexible, part-time work that he enjoys, and he&rsquo;s still home in time to have lunch with his wife.</p> <p>Retiring at 65 used to mean a handful of years of retirement. Now, it can mean 20 or more. So, while you may relish a lazy Sunday now, those long, uneventful days may not have the same appeal when they become an everyday reality. If you&rsquo;re hoping to retire early, consider including work in the picture. It&rsquo;ll make it easier to afford the things you enjoy. Plus, the time you spend working might even make that extra leisure time more enjoyable.</p> <h2>Understand the Risks</h2> <p>Retiring early isn&rsquo;t easy. It does have its rewards, but it isn&rsquo;t without risk. Medical or other unexpected expenses can dry up your savings too soon; you may not enjoy a life of leisure as much as you&rsquo;d hoped, and, not least of all, the financial and personal sacrifices you have to make to retire early can have a cost, too. If it&rsquo;s really a different kind of life you want, you might want to ask yourself whether you can start living it now, perhaps by pursuing more of the things you love, or <a href="http://www.wisebread.com/25-awesome-websites-to-help-you-get-a-job">finding a job</a> that you can be happy going to for a few more years. No matter what you choose, just be sure to avoid jumping at a dream. Those coveted post-work years can be sweet, but don&rsquo;t kid yourself &mdash; it&rsquo;ll take a lot of hard work to get there.</p> <p><em>Are you working toward punching out early? Or have you successfully made the leap to early retirement? I'd love to hear about how you made it happen!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tara-struyk">Tara Struyk</a> of <a href="http://www.wisebread.com/trading-work-for-never-ending-weekends-how-to-retire-early">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dream-job-or-day-job">Dream Job or Day Job?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-early-retirement-might-be-financially-risky">4 Reasons Early Retirement Might Be Financially Risky</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-you-shouldnt-plan-to-retire-at-age-65">Why You Shouldn&#039;t Plan to Retire at Age 65</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-end-of-the-4-rule">The End of the 4% Rule?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/14-ways-to-retire-early">14 Ways to Retire Early</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement early retirement passive income saving for retirement Tue, 20 Mar 2012 10:00:20 +0000 Tara Struyk 912724 at http://www.wisebread.com How to Tell if You're on Track for Retirement http://www.wisebread.com/how-to-tell-if-youre-on-track-for-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-tell-if-youre-on-track-for-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/nest-eggs.jpg" alt="retirement savings" title="retirement savings" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>It may be a little bit early to think about retirement all too seriously if you still have several decades left before you face it. But don't look now -- time flies and before you know it, there won't be much time to prepare for retirement. On this subject, the big question I have in mind is this: <strong>how do we know if we've saved enough for our retirement years?</strong>&nbsp; </p> <p>In order to maintain the lifestyle that we are used to, the conventional wisdom tells us that we need to be <strong>subsisting on an income equivalent to 75% to 90% of what we currently make prior to retirement.</strong> This is a natural assumption because we don't expect to have the same amount of expenses in our older age as we do when we are growing our families. Of course, it would be another story altogether if you expect to live it up in a big way once you've retired.&nbsp; </p> <p>While retirement is a long time goal, it would still serve us well to plan for it while we're still young and healthy. I've been <a href="http://www.wisebread.com/saving-for-retirement-and-other-long-term-goals-on-a-variable-income">saving for retirement</a> ever since I started earning an income because I realize that <strong>with long term investing, time is of the essence.</strong> As the saying goes <em>&quot;Timing the market is not what's important. It's time IN the market.&quot;</em>&nbsp; Simply put, investing early and as regularly as you can makes a huge difference in how large your nest egg will be in your old age. </p> <p>So let's answer the question: <a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend">how much savings do we need to retire?</a> Here are a couple of ways to calculate the answer:</p> <h3>Solution 1: Use online retirement planners and calculators.</h3> <p>You'll find these free tools available in a variety of sites, such as standalone investment sites, mutual fund sites such as T.Rowe Price and Vanguard, or even at discount brokers (the likes of which I've reviewed: you can check out my reviews of Scottrade and TradeKing).&nbsp;&nbsp; They offer great ways to help you plan for retirement which are based on several assumptions such as:&nbsp;</p> <ul> <li>Your current age</li> <li>The age you intend to retire</li> <li>How long you expect to live</li> <li>Your current income</li> <li>Your cash flow during retirement</li> <li>The size of your retirement savings</li> <li>How much you expect to contribute to savings</li> <li>Expenditures during retirement</li> <li>Risk level of your investment portfolio</li> <li>Historical return rates of your portfolio</li> </ul> <p>I would suggest trying out these calculators to give yourself some idea of where you stand with regards to your retirement savings. For my retirement planning, I've visited Scottrade to try out their tools. These tools can help us figure out the <a href="http://research.scottrade.com/public/calculators/costofwaiting/costofwaiting.asp">cost of waiting</a> (which tells us what happens to our accumulated savings based on when we start investing), <a href="http://research.scottrade.com/public/calculators/retirement/retirement.asp">how much to save</a> and how long our retirement savings can last, and <a href="http://research.scottrade.com/public/calculators/ira/ira.asp">how to choose</a> between a traditional IRA and a Roth IRA. Knowing these facts is a great way to start developing your retirement plan -- and as you can see, it's easy enough to do on your own.</p> <h3>Solution 2: Try a quick and easy retirement savings formula.</h3> <p>I would also suggest using the following simple formula for determining exactly how much it is you should have saved by the time you retire. Just crank out your numbers manually as follows:</p> <p>1. <strong>Know how much income you'd like to have during retirement.</strong></p> <p>2. <strong>Peg down an annual withdrawal rate</strong> that you're comfortable with. How much of your retirement savings do you plan to withdraw each year? In order to keep your nest egg intact, the recommendation is for you to withdraw between 4% to 6% of your savings on an annual basis.</p> <p>3. <strong>Make these calculations.</strong></p> <p>To find out how much savings you need to support yourself during your retirement, try this formula:</p> <blockquote><p><strong>Your annual income during retirement divided by the annual withdrawal rate should equal your desired savings.</strong></p> </blockquote> <p>As an example, let's say you are making $80,000 a year right now. If you expect to live on 80% of your current income during your retirement, then designate this to be $64,000. If you determine your withdrawal rate to be 4%, then your nest egg by the time you retire should be:</p> <blockquote><p><strong>$64,000 / .04 = $1,600,00</strong></p> </blockquote> <p>Take note that the result here is but a rough estimate. Of course, if you plan to work through retirement, then such a savings amount should be adjusted accordingly. The formula is simplistic but it helps give you a basic idea of what you need to do.</p> <p>One of the best ways to save up for your later years is to <strong>maximize your contributions to tax-advantaged retirement accounts.</strong> Better yet, contribute the maximum to your retirement plans and take advantage of employer contributions to your program as well. All this is pretty well known advice that seems simple enough to do, but surprisingly, a lot of people tend to procrastinate on this matter. Remember that the better prepared you are, the more likely you'll be able to enjoy your golden years without financial worry.</p> <p>&nbsp;</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/silicon-valley-blogger">Silicon Valley Blogger</a> of <a href="http://www.wisebread.com/how-to-tell-if-youre-on-track-for-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-boost-your-odds-of-retiring-early">5 Ways to Boost Your Odds of Retiring Early</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-investing-lessons-you-must-teach-your-kids">10 Investing Lessons You Must Teach Your Kids</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-10-step-staircase-to-a-comfortable-retirement">The 10-Step Staircase to a Comfortable Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-the-most-of-your-401K">How to Make the Most of Your 401K</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-you-must-open-a-roth-ira-before-april-15">4 Reasons Why You Must Open a Roth IRA Before April 15</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement investment saving for retirement savings Fri, 04 Sep 2009 18:00:02 +0000 Silicon Valley Blogger 3571 at http://www.wisebread.com