pensions http://www.wisebread.com/taxonomy/term/1446/all en-US Stop Making These 10 Bogus Retirement Savings Excuses http://www.wisebread.com/stop-making-these-10-bogus-retirement-savings-excuses <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/stop-making-these-10-bogus-retirement-savings-excuses" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/000018814419.jpg" alt="Realizing it&#039;s time to stop making bogus retirement savings excuses" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Saving for retirement can often feel like a drag, and many of us come up with excuses for avoiding it. After all, who wants to think about finances at age 70 when you're decades away and enjoying life <em>now</em>?</p> <p>But no matter what excuse you come up with, there's no denying that putting as much money aside as you can &mdash; as early as you can &mdash; will help you maintain your lifestyle even after you stop working.</p> <p>Here are some of the top excuses people use to avoid saving for retirement, and why they're way off-base. (See also: <a href="http://www.wisebread.com/8-steps-to-starting-a-retirement-plan-in-your-30s">8 Steps to Starting a Retirement Plan in Your 30s</a>)</p> <h2>1. &quot;I Have a Pension&quot;</h2> <p>If your company is one of the few remaining organizations that offers a defined benefit plan, that's great. But it should not be a reason to refrain from saving additional money for retirement. Having additional savings on top of your pension can make retirement that much sweeter. And pensions have been under assault in recent years, with companies and governments backing off of promises to retirees due to financial troubles. Protect against this uncertainty by opening an individual retirement account (otherwise known as an IRA).</p> <h2>2.&quot;I'm Self-Employed&quot; or &quot;My Company Doesn't Offer a Retirement Plan&quot;</h2> <p>You may not have access to an employer-sponsored retirement plan, but that does not mean you can't save a lot for retirement. Any individual can open a traditional IRA or Roth IRA and contribute up to $5,500 annually. With a traditional IRA, contributions are made from your pre-tax income. With a Roth IRA, you pay taxes up-front, so that you won't have to pay them when you withdraw the money at retirement age. In addition, the federal government now offers a &quot;<a href="https://myra.gov/">myIRA</a>&quot; plan, which works like a Roth IRA and allows anyone to invest in treasury securities with no startup costs or fees.</p> <h2>3. &quot;I Won't Be at This Company for Very Long&quot;</h2> <p>One of the key advantages to 401K plans offered by employers is that they are portable. This means that any money you contribute to a plan will follow you wherever you go. In some cases, contributions from your company need to &quot;vest&quot; for a certain amount of time before you get to keep the them, but usually only for a year or so. There's no real downside to contributing to a company retirement plan, even if you don't plan to be there for very long.</p> <h2>4. &quot;The Expenses Are High&quot;</h2> <p>It's very true that many investment products, including mutual funds, have high costs tied to them. It's annoying to buy funds and notice an expense ratio of more than 1%, thus reducing your potential profits. But fees are not a good enough reason to avoid investing, altogether. Over the long haul, your investments will easily rise in value and more than offset any costs. And if you direct your investments to low-cost mutual funds and ETFs, you'll likely find the fees aren't so objectionable. Look for mutual funds with expense ratios of less than 0.1%, and for those that trade without a commission.</p> <h2>5. &quot;I Need to Fund My Kids' College Education&quot;</h2> <p>Putting money aside to pay for college is a wonderful idea, but it should not be done at the expense of your own retirement. Your kids can always work to pay for college or even take out loans, if necessary. But you can't borrow for your own retirement, and you don't want to find yourself working into old age because you didn't save for yourself. In an ideal world, you can save for both college and your own retirement, but you should always think of your own retirement first.</p> <h2>6. &quot;My 401K Plan Isn't Very Good&quot; or &quot;My Company Doesn't Match Contributions&quot;</h2> <p>I'll occasionally hear someone say that they won't contribute to their retirement plan because it's a bad one. No employer match, bad investment options, or high fees can kill any motivation to save. But contributing to even a bad 401K is better than not saving at all. And if you're not thrilled with the offered 401K plan, you can take a look at traditional or Roth IRAs, or even stocks and mutual funds in taxable accounts. There are many bad retirement plans out there, but they are almost all better than nothing.</p> <h2>6. &quot;I Don't Understand Investing&quot;</h2> <p>There's no question that investing can be a very intimidating thing. It takes a while to grasp even the basics of how to invest, and the number of investment products can be bewildering. Don't let fear hold you back from achieving your dreams in retirement. These days, there's a lot of great free information about investing that can help you get started. And many discount brokerages, such as Fidelity, offer free advice if you have an account. Certified Financial Planners are also plentiful &mdash; and often reasonably priced &mdash; and can help you establish a plan to save for retirement and keep you on track.</p> <h2>7. &quot;I Don't Earn Enough&quot;</h2> <p>It's definitely hard to think about retirement when you're having trouble making ends meet now. But it's important to recognize setting aside even a modest amount of money each month can help you achieve financial freedom. Consider that even $25 a month into an index fund can grow to tens of thousands of dollars after 30 years.</p> <h2>8. &quot;I'm Young &mdash; I Have Plenty of Time&quot;</h2> <p>If you're not saving for retirement when you're young, you are costing your future self a lot of money. Thanks to the magic of compound interest and earnings, someone who begins saving in their early 20s can really see big gains over time. If you have $10,000 at age 20 and begin setting aside $200 a month until age 65, you'll have nearly a million dollars, based on an average market return. But if you wait until age 35, you'll end up with barely one-third of that.</p> <h2>9. &quot;It's Too Late for Me&quot;</h2> <p>It's true that the earlier you start investing, the more money you'll likely end up with. But hope is not entirely lost for those who are approaching retirement age but have not saved. Even five to 10 years of aggressive saving and the right investments can result in a nice nest egg. Older people can take advantage of higher limits on contributions to retirement plans including IRAs and 401Ks.</p> <h2>10. &quot;I'll Get Social Security&quot;</h2> <p>You've been contributing to Social Security all your life, but that doesn't mean it guarantees a comfortable retirement. A typical Social Security benefit these days is about $1,300 a month. That's enough to keep you from starving, but you won't be able to do much else. Moreover, concerns over federal budget deficits suggest there is no guarantee of Social Security funds being available when you retire. For certain, there is constant talk by lawmakers of entitlement reform, which could mean to lower benefits or other changes.</p> <p><em>What's your excuse for not saving for retirement?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/stop-making-these-10-bogus-retirement-savings-excuses">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/8-steps-to-starting-a-retirement-plan-in-your-30s">8 Steps to Starting a Retirement Plan in Your 30s</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/5-ways-to-strengthen-your-finances-before-retirement">5 Ways to Strengthen Your Finances Before Retirement</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/6-ways-to-guarantee-income-in-retirement">6 Ways to Guarantee Income in 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/10-signs-you-arent-saving-enough-for-retirement">10 Signs You Aren&#039;t Saving Enough for Retirement</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/how-to-plan-for-retirement-when-you-re-ready-to-retire">How to Plan for Retirement When You’re Ready to Retire</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k compound interest excuses IRA pensions savings social security Mon, 08 Feb 2016 18:00:05 +0000 Tim Lemke 1649873 at http://www.wisebread.com 6 Ways to Guarantee Income in Retirement http://www.wisebread.com/6-ways-to-guarantee-income-in-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-ways-to-guarantee-income-in-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/roth_ira_401k_000008885505.jpg" alt="Learning how to guarantee income in retirement" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There's nothing like having the peace of mind and security that comes from knowing you'll have steady income throughout retirement. Unless you're expecting a guaranteed pension, or know that your social security insurance (SSI) payments will be sufficient, there's little way of knowing you won't outlive your savings. Whether you're retirement age and have <a href="http://www.wisebread.com/how-to-enjoy-retirement-if-you-havent-saved-enough">not saved enough</a> or simply exploring your options, here are six ways that you can guarantee income in retirement.</p> <h2>1. Pensions</h2> <p>If you or someone you know works for the federal government, you're probably familiar with pension plans. Pensions are similar to <a href="http://www.wisebread.com/4-ways-to-boost-your-401k-returns">401K plans</a> in that employers match up to 25% of your contributions in some cases, but pensions also offer <em>guaranteed</em> income after retirement. The two most common types of plans are defined benefit (DB) and defined contribution (DC) plans. DB plans pay out a fixed benefit while payouts from DC plans are determined based on the investment's performance. Both plans will require that your tenure is extended in the period before retiring.</p> <h2>2. Social Security Insurance</h2> <p>As long as you've worked for at least 10 years and earn 40 credits, you'll qualify for SSI benefits once you reach retirement age (age 66 for most). In 2015, the IRS says that for every $1,250 you earn, you <a href="http://www.ssa.gov/pubs/EN-05-10072.pdf">accumulate one credit</a> and can earn a maximum of four a year. Credits never disappear even if you take an extended leave of absence and return to work or change jobs. Per credit earnings will rise with wage increases. Estimated by today's calculations, you would need to have earned at least $5,000 per year for 10 years, or $50,000 in wages to qualify for SSI.</p> <h2>3. Retirement and Investment Accounts</h2> <p>Even if the assets within your retirement portfolio (stocks, bonds, CDs, ETFs, etc.) have accumulated enough wealth that your annual withdrawals will meet your income needs, you should still make certain that your yearly returns can outpace inflation (averaging 3% annually). If not, you could suddenly find yourself having to live drastically below your means. For example, if at age 65 you have a nest egg of $1,000,000 and start taking annual withdrawals of 5% (or $50,000), you'd need an annual return of over 8% in order to replenish your coffers.</p> <h2>4. Annuity</h2> <p>If you need the type of guaranteed income assurance that retirement accounts and investment portfolios cannot provide, then you need an annuity. Annuities guarantee a monthly or annual payout for as long as you're alive. There are two types of annuities: fixed income and variable income. With fixed annuities, the money you invest today is guaranteed a predefined payout. Variable annuity payouts are based on the performance of your investment (if gains are realized, payouts will be higher). Payouts can begin at whatever age you choose, and continue for the rest of your life, or for a predetermined term.</p> <h2>5. Reverse Mortgage</h2> <p>A reverse mortgage is a type of home equity loan which pays out an annuity-like cash stream based on your home's accumulated equity. Typically, reverse mortgages are reserved for borrowers age 62 or older. The money borrowed can be paid out as one lump sum payment, or issued in installments for the life of the loan. But reverse mortgages are known for their high fees and aren't always a good deal, especially if you wish to retain or pass-on ownership of your home.</p> <h2>6. Longevity Insurance</h2> <p>Longevity insurance is an insurance contract that guarantees the money invested today will generate payments in retirement. As with other forms of guaranteed income, the longer you wait to start taking payments, the higher annual payouts will be. These products allow investors to make a lump sum initial investment (or smaller amounts over time) in order to receive guaranteed payments later. For example, if a woman aged 45 invested $50,000 today, she could start taking payments at 65 and receive roughly $7,650 in annual income for the rest of her life.</p> <p>Of course, the best approach to retirement income is generally asset diversification. The more income streams you can draw on, the less likely you'll be to ever run out.</p> <p><em>What steps are you taking to guarantee retirement income?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/6-ways-to-guarantee-income-in-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/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</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/how-to-plan-for-retirement-when-you-re-ready-to-retire">How to Plan for Retirement When You’re Ready to Retire</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/6-retirement-rules-you-should-be-breaking">6 Retirement Rules You Should Be Breaking</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-much-do-i-need-to-retire-how-much-can-i-spend">How much do I need to retire? How much can I spend?</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/5-financial-moves-you-should-make-five-years-before-retirement">5 Financial Moves You Should Make Five Years Before Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401k annuties longevity insurance pensions reverse mortgage social security Tue, 27 Oct 2015 13:16:59 +0000 Qiana Chavaia 1599240 at http://www.wisebread.com 6 Retirement Rules You Should Be Breaking http://www.wisebread.com/6-retirement-rules-you-should-be-breaking <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-retirement-rules-you-should-be-breaking" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_gardening_000022104123.jpg" alt="Woman breaking common retirement rules" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Are there right and wrong ways to retire? While that's a relative question, there are retirement rules that are in your best interest to follow &mdash; and those you might want to break. Consider these six <a href="http://www.wisebread.com/8-reasons-why-your-retirement-cost-calculations-may-be-wrong">retirement rules</a> you might be better off ignoring.</p> <h2>1. Depending on a Pension or Social Security</h2> <p>Counting on a pension or Social Security to help you ride out your retirement years? That's probably not the best strategy to have, considering that very few companies still offer pensions (though you'd know if yours does) and Social Security is still in crisis (so much so that it might be bankrupt and not even exist by the time you retire). That's not to mention that inflation is likely to outpace your per-month payouts in the off chance that you do receive these income sources.</p> <p>You may need to think of other ways to fund your retirement &mdash; and it's in your best interest to start planning for it now (or better yet, <em>yesterday</em>).</p> <p>Brent Cumberford, founder of the personal-finance blog&nbsp;<a href="http://www.vosa.com">VOSA</a>, offers a few suggestions.</p> <p>&quot;Start your own retirement accounts; invest in business to generate a second &mdash; and third and fourth &mdash; stream of income; and hustle to make some extra money on the side to kick start your retirement savings,&quot; he says.</p> <p>Putting in the extra time and effort early on to pad your retirement account for later means you might actually be able to enjoy those golden years.</p> <h2>2. Withdrawing From Your Retirement Fund or Social Security Right Away</h2> <p>Even if you have plenty of money in your retirement fund (or think you do, as is the likelier scenario), that doesn't mean you should start withdrawing from it the day after your retirement party. Proceed with caution in this case and remember that you still have a long life ahead of you.</p> <p>&quot;One retirement rule that no longer makes sense is the one that suggests a 4% annual withdrawal rate on your retirement portfolio,&quot; observes personal finance expert David Bakke of MoneyCrashers. &quot;Americans are living longer these days, and if you go by that rule you might outlive your money. Your best bet is to withdraw as little as possible in the beginning and adjust your strategy as you see how things are progressing as you get acclimated to living off of your retirement money.&quot;</p> <p>Bakke says that waiting to withdrawal money from Social Security has its benefits too, as you may receive a larger annual Social Security benefit when you wait.</p> <h2>3. Going Full Retirement Because You Think You Have To</h2> <p>Just because the government says you can retire at age 65 doesn't mean that you have to resign the rest of your life to whiling away the hours. Instead &mdash; if you're still willing and able &mdash; consider semi-retirement. It's the best of both worlds really: You can still contribute to society as a part-time member of the workforce, and you can enjoy more leisure time as a result of your shorter work schedule.</p> <p>More and more older Americans are opting for semi-retirement, in fact. Some are even opting for a new career path altogether. Continuing to work at least part-time past retirement age will not only help you feel like you still have something to offer the world, but it also helps you to continue to actively build your retirement fund &mdash; or at least maintain it at its current level.</p> <p>Elle Kaplan, CEO and founder of an asset management firm, touches a bit more on the financial benefits of semi-retirement.</p> <p>&quot;How would a semi-retirement change your financial reality?&quot; she asks. &quot;Take two months and track the money coming in and going out. Keep track of what you spend and all your bills. This will give you a clear sense of where you stand. Next, figure out what your Social Security payment is going to be each month in retirement. The Social Security Administration will provide this information and tell you how much you'll get based on what age you retire. Working even a few more years can have a huge impact.&quot;</p> <h2>4. Waiting Until You're 65 to Retire</h2> <p>Retirement age is typically specified at 65 years old in the United States. But to heck with that! Wouldn't you like to retire earlier?</p> <p>Of course, you'll probably need to strike it rich &mdash; or live <em>very</em> meagerly &mdash; in order to hang up your work boots in advance of the government-issued go-ahead. But maybe not. Have you ever thought about short-term mini-retirements? Ever even heard of the concept?</p> <p>&quot;Obviously it would be awesome if everyone could earn a fortune, retire young, and travel the world, but it's not going to happen for everyone,&quot; Cumberford says. &quot;What can happen for almost everyone is short-term mini-retirements, a concept spoken about in greater detail by Tim Ferriss in&nbsp;<a href="http://www.amazon.com/gp/product/0307465357/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=0307465357&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=YIR4QCCLJFO4ATW3">The 4-Hour Workweek</a>. Saving money specifically for a short sabbatical, or even just an extended vacation while keeping your current employment can typically be negotiated. Think five weeks in Southeast Asia, or a summer backpacking across Europe. With the virtually endless amount of airline and hotel points that can be earned through travel hacking, even far away places can be very affordable.&quot;</p> <p>As someone who has hosted lots of Australian guests who are allotted at least six weeks vacation every year, I'm not only envious, but also in favor of the idea of short-term mini-retirements. While they're working to live, we Americans are living to work (well into our golden years), and that's an outlook that could use some rethinking. Shouldn't we enjoy a high-quality lifestyle throughout our lifetime instead of when we're darn near dead?</p> <h2>5. Clinging to the Family Home</h2> <p>For many of us, our homes hold a lot of memories that make it hard to part with the house &mdash; even after the kids are grown and gone. But as you enter retirement, it's not a great idea to hang on to a large space with high utilities or even a mortgage that will become more and more difficult to manage as you age. The alternative is to downsize, of course, such as a smaller house or apartment, or even alternative-living situations that may suit you even more &mdash; like an RV, for instance.</p> <p>Janet Groene, author of&nbsp;<a href="http://www.amazon.com/gp/product/007178473X/ref=as_li_tl?ie=UTF8&amp;camp=1789&amp;creative=390957&amp;creativeASIN=007178473X&amp;linkCode=as2&amp;tag=wisbre03-20&amp;linkId=P2WLK6WDV5V7MKUB">Living Aboard Your RV, 4th Edition</a>, lived in an RV for 10 years before settling in Florida, and she's a staunch advocate for the nomad lifestyle.</p> <p>&quot;By selling out and moving into an RV, retirees fulfill their dreams of travel and at the same time live comfortably in a fully equipped home on wheels while scouting for the right place to settle down in retirement,&quot; she encourages.</p> <h2>6. Heading South for the Winter</h2> <p>Snowbirding &mdash; the practice of northerners spending the winter in warmer climates and summers at home &mdash; is common among retirees. But isn't that just a little too passé for today's generation of leisure seekers? Mark Koep, founder of CampgroundViews.com, thinks so. Like Groene, he wants retirees to think about their living options and arrangements more in depth so they don't automatically relegate themselves to a lifestyle that isn't necessarily fulfilling.</p> <p>&quot;The old idea of snowbirding ignores the freedom and adventure that modern retirees seek,&quot; he says. &quot;Instead retirees should consider boondocking &mdash; camping in Bureau of Land Management and Forest Service lands for free &mdash; and discount membership clubs to travel and explore more destinations.&quot;</p> <p><em>Do you have other retirement rules we should be breaking? Let us know in the comments below.</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/mikey-rox">Mikey Rox</a> of <a href="http://www.wisebread.com/6-retirement-rules-you-should-be-breaking">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-4"> <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/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</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/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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-reasons-why-your-retirement-cost-calculations-may-be-wrong">8 Reasons Why Your Retirement Cost Calculations May Be Wrong</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/7-states-with-the-lowest-taxes-for-retirees">7 States With the Lowest Taxes for Retirees</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/dont-despair-over-small-retirement-savings">Don&#039;t Despair Over Small Retirement Savings</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) pensions rules savings social security Wed, 17 Jun 2015 11:00:11 +0000 Mikey Rox 1454606 at http://www.wisebread.com 5 Ways to Boost Your Odds of Retiring Early http://www.wisebread.com/5-ways-to-boost-your-odds-of-retiring-early <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-ways-to-boost-your-odds-of-retiring-early" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/guy_computer_000025658945.jpg" alt="Man trying to boost his odds of retiring early" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The <a href="http://crr.bc.edu/briefs/the-average-retirement-age-an-update/">average age of retirement</a> stands today at 62 for women and 64 for men. But if you're like many Americans, you'd probably much prefer to have your feet in the sand and a piña colada in hand well before you reach your 60s. No matter your age, it'll be pretty hard to pay for that oceanfront real estate and tiki bar tab if you haven't set aside enough savings.</p> <p>Fortunately, your dreams of a comfortable, early retirement can still come true &mdash; so long as you're willing to do some heavy duty planning, smart saving, and savvy investing. Read on for our roundup of the best tips and tricks for retiring early &mdash; without winning the lottery.</p> <h2>1. Set a Savings Goal</h2> <p>First thing's first: You need to calculate how much money you'll need to stockpile before you can quit your day job. Be forewarned &mdash; it'll likely be a number that will make your jaw drop. But even if it seems totally unattainable, rest assured that it's not. Let's say you'd like to retire at 48 &mdash; a plum 15 years earlier than the average American. Take your pre-retirement income and multiply it by the number of expected years of life you'll have in retirement; in this case, we'll say it's 48 x 31 (this assumes you're going to live to be 79, the average life expectancy for an American).</p> <p>For example, if you're living off a $70,000 salary now, you'll need to save $2.2 million before you can ditch your nine-to-five. On average, retirees spend between 65% and 95% of their<a href="http://www.forbes.com/sites/fidelity/2015/03/23/are-you-on-track-for-the-retirement-you-want-infographic/?sr_source=lift_polar"> pre-retirement income</a>, so this calculation shoots a little high. But since you very well may live a decade or two longer than the average Joe, it's better to have a bigger cushion than no cushion at all.</p> <h2>2. Live Frugally</h2> <p>If you want to achieve a comfortable, early retirement, one way of getting there is by living frugally. That means forgoing name brand clothing, coupon-less meals at restaurants, salon visits, and airplane travel. Buying used cars only &mdash; or giving up cars, altogether and instead riding a bike or public transit. (See also: <a href="http://www.wisebread.com/the-two-biggest-mistakes-people-make-when-starting-to-live-frugally?ref=seealso">The Two Biggest Mistakes People Make When Starting to Live Frugally</a>).</p> <p>If this sort of lifestyle sounds foreign to you, you may want to begin by crafting a carefully detailed budget that will set you up to achieve your long-term retirement savings goal. If all of this sounds exactly like the way you don't want to live out your younger years, frugal living as a road to early retirement quite simply may not be for you.</p> <h2>3. Start a Business &mdash; Then Let Someone Else Run It for You</h2> <p>If you've got an entrepreneurial bone in your body, you might want to explore launching your own business as a means of achieving early retirement. Whether it's a food truck or a marketing and consulting firm, the idea is to launch the business and work it until it's profitable enough that you can hire someone else to run the day-to-day operations while you kick back in that beach chair and watch the money pour in. Alternatively, the sale of your business could fund your retirement. Nearly 40% of small business owners say they are <a href="http://www.guardianlife.com/glife11pp/groups/camp_internet/@stellent_camp_websites/documents/document/sbo-retirement-readiness.pdf">poised to retire earlier</a> than they had anticipated. (See also: <a href="http://www.wisebread.com/starting-your-dream-business-is-easier-than-you-think-heres-how?ref=seealso">Starting Your Dream Business Is Easier Than You Think &mdash; Here's How</a>)</p> <h2>4. Get Yourself a Pension</h2> <p>The beauty of the pension plan: It's sort of like earning a salary, only without having to put in the work. And although many industries are phasing out these plans, about one in four large employers still offer some sort of <a href="http://www.towerswatson.com/en/Insights/Newsletters/Americas/Insider/2014/retirement-in-transition-for-the-fortune-500-1998-to-2013">pension to new hires</a>, according to a recent study. At the top of the list are companies in the insurance, utilities, energy, transportation, and food and beverage industries. Government is another sector where pensions are alive and well. Many municipalities still offer firefighters, police officers, and public works employees pensions that include overtime and saved vacation in the final calculation. The result is that some workers can retire with a pension that's <a href="http://www.ctpost.com/local/article/Crushed-by-town-pensions-1413396.php">higher than their former salary</a>. Imagine that.</p> <p>Alternatively, Apple, Google, Microsoft, and other big-name employers in the <a href="http://money.usnews.com/money/retirement/slideshows/10-industries-with-the-best-retirement-benefits/10">information industry</a> offer workers an average retirement benefit contribution of $2.76 per hour worked. That's huge. Also, these tend to be pretty high-paying jobs, which means employees have more flexibility to make larger contributions to their own retirement savings, in addition to what the company chips in.</p> <h2>5. Make Smart Investments</h2> <p>The best time to start investing is now. Case in point: If you start maxing out your IRA contributions at age 25, you will have saved $1.6 million by the time you're 70. But if you were to start at 35, you'd save about half that sum. Clearly, a few years can make a huge difference. Now, if you're not investment savvy, there are tons of tools available to help you figure out where to put your money.</p> <p>One of the best and easiest is an automated investment advisor, such as FutureAdvisor, that specializes in retirement planning. With <a href="http://track.flexlinks.com/a.ashx?foid=1029882.978749&amp;fot=9999&amp;foc=1&amp;foc2=941565">FutureAdvisor</a>, you can get your 401(k), IRA, and other accounts analyzed, plus receive recommendations on how to improve your existing investments &mdash; absolutely free of charge. Then, if you're impressed with the results and want to hire FutureAdvisor as your investment manager, there's a monthly fee of either $9 or $19, depending on the value of your assets. Rest assured, all of FutureAdvisor's investment recommendations are made with the goal of setting you up for the most comfortable retirement years possible.</p> <p><em>What other steps are you taking to ensure an early retirement?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/brittany-lyte">Brittany Lyte</a> of <a href="http://www.wisebread.com/5-ways-to-boost-your-odds-of-retiring-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/6-retirement-rules-you-should-be-breaking">6 Retirement Rules You Should Be Breaking</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/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</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-sep-ira-is-how-the-self-employed-do-retirement-like-a-boss">The SEP-IRA Is How the Self-Employed Do Retirement Like a BOSS</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/this-is-why-you-cant-postpone-planning-for-your-retirement-and-how-to-start">This Is Why You Can&#039;t Postpone Planning for Your Retirement (And How to Start)</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/5-facts-millennials-should-know-about-retirement-planning">5 Facts Millennials Should Know About Retirement Planning</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Entrepreneurship Investment Retirement 401(k) pensions savings Tue, 14 Apr 2015 09:00:42 +0000 Brittany Lyte 1379696 at http://www.wisebread.com Are YOU on This List of Cushiest Retirement Jobs? http://www.wisebread.com/are-you-on-this-list-of-cushiest-retirement-jobs <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-you-on-this-list-of-cushiest-retirement-jobs" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/police-177717941.jpg" alt="police officer" title="police officer" class="imagecache imagecache-250w" width="250" height="165" /></a> </div> </div> </div> <p>There are so many factors that go into evaluating whether your career is really right for you. But one, undeniably, is the age at which you can stop doing the career that's right for you.</p> <p>So take a look at this list of jobs and industries with early retirement or other great retirement benefits, and consider how yours stack up. There may still be time to become an air traffic controller yet.</p> <h2>Air Traffic Controllers</h2> <p>Want to retire at 50? Then work your way up into a flight tower, where you're cleared to take off work at <a href="http://www.faa.gov/air_traffic/publications/controller_staffing/media/cwp_2012.pdf">any age after 25 years of service</a>, or at 50 with 20 years of service.</p> <h2>Pilots</h2> <p>...And the guys on the other end of the airplane radio don't have it bad either: the average flyboy in United Airlines' retirement plans makes $23,476 annually.</p> <h2>Aircraft Manufacturers</h2> <p>Not to be left out, the people <em>making </em>those radios also have it pretty good too, receiving <a href="http://www.deseretnews.com/top/1723/11/Aircraft-Manufacturing-The-best-industries-for-a-secure-retirement.html">an average retirement contribution</a> from their employers of $2.87 per hour worked.</p> <h2>Police Officers</h2> <p>No one deserves it more than the men and women wearing badges, who can generally retire after just 20 years of service with a pension equal to half their salary.</p> <h2>Utilities Workers</h2> <p>Thanks to strong unions, employees working in electricity, water, sewage, or nuclear power sectors receive as much as $6.56 per hour worked toward their retirement.</p> <h2>Information Technology Employees</h2> <p>While a major step down from $6.56, <a href="http://money.usnews.com/money/retirement/slideshows/10-industries-with-the-best-retirement-benefits/10">US News &amp; World Report</a> found that information technology workers came in a distant second to utilities workers, with the sector averaging an employer contribution of $2.76 per hour worked. <a href="http://www.cnbc.com/id/39286748/page/6">Microsoft is particularly generous</a>, matching 50% up to 6% of an employee's salary.</p> <h2>Consultants</h2> <p>While retirement plans can vary widely throughout the consulting sector, industry giant Deloitte topped <a href="http://online.wsj.com/news/articles/SB10001424052702304795804579097660343224256">a recent Wall Street Journal ranking</a> of private companies' annual retirement contributions with an average of $30,806.</p> <h2>Surgeons and Oral Surgeons</h2> <p>Of course, there's no retirement plan that can match the freedom granted by making boatloads of money in your working years, meaning these two top-paying positions (<a href="http://www.bls.gov/ooh/highest-paying.htm">according to the Bureau of Labor Statistics</a>) may be able to retire earlier and more comfortably than almost everyone else.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/joe-epstein">Joe Epstein</a> of <a href="http://www.wisebread.com/are-you-on-this-list-of-cushiest-retirement-jobs">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-2"> <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/x-exciting-world-cities-you-can-afford-to-retire-in">4 Exciting World Cities You Can Afford to Retire In</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/5-incredible-places-to-retire-abroad-that-anyone-can-afford">5 Incredible Places to Retire Abroad That Anyone Can Afford</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/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</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/6-ways-to-guarantee-income-in-retirement">6 Ways to Guarantee Income in Retirement</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/this-is-the-basic-intro-to-having-a-retirement-fund-that-everyone-needs-to-read">This Is the Basic Intro to Having a Retirement Fund That Everyone Needs to Read</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Career and Income Retirement career choices pensions retirement Fri, 09 May 2014 09:12:26 +0000 Joe Epstein 1137949 at http://www.wisebread.com How to Retire During a Recession http://www.wisebread.com/how-to-retire-during-a-recession <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-retire-during-a-recession" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/grandparents_palm_trees.jpg" alt="Grandparents" title="Grandparents" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>If there&rsquo;s any group more worried about the long-term effects of the recession than new grads, it&rsquo;s the soon-to-retire. The economy is forcing nearly everyone to reevaluate their financial plans and goals and (for better or for worse) is making most of us settle in for a few more years of work before we can retire.</p> <p>As I listen to all the talking heads discuss new strategies for working longer and later in life, it seems that the old three-legged stool model of retirement is all but obsolete. The three legs of retirement &mdash; Social Security, an employer-sponsored retirement plan, and personal savings &mdash; are shaky at best. Economic forces have reduced both personal savings rates and retirement plan balances. And just keeping the bills paid has cut into the new money we can contribute.</p> <p>So is there a way to retire in the middle of a recession? Maybe. By reconsidering the three-legged stool model and taking a bit more aggressive and holistic approach to retirement planning, jumping off the work treadmill might still be possible. Here are the five steps that can help you prepare for retirement during a recession. (See also: <a href="http://www.wisebread.com/deciding-what-you-want-out-of-retirement">Deciding What You Want Out of Retirement</a>)</p> <h2>1. Pay Off Your Mortgage</h2> <p>Paying off our largest fixed expenses well before retirement is an obvious, but seldom discussed part of a real retirement strategy. Saving more for retirement depends on knocking out the big bills and devoting more money and energy to personal savings and other asset-building activities. Don&rsquo;t discount the valuable peace-of-mind that mortgage-free living can give you as you settle into retirement.</p> <h2>2. Downsize and Downshift</h2> <p>Many financial advisers base their retirement calculations on replacing enough income through savings to support pre-retirement lifestyles. But is this realistic? What exactly do we sacrifice in putting off retirement until we have enough in savings to support our current standard of living? Maybe enjoying our golden years is enough of a reward to sacrifice a few of life&rsquo;s luxuries. A more modest home, a smaller budget, a used car, and fewer vacations all seem like worthy trades for time and a bit of freedom.</p> <h2>3. Save More</h2> <p>Of course, savings is always an essential component of a retirement plan, and saving more is usually a winning strategy. Many financial experts see the writing on the wall with pre-tax 401(k) contributions and are now advising their clients to redirect a larger share of money to <a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">Roth IRAs</a>. Personal tax rates are bound to increase and the old advice of socking away pretax money while we&rsquo;re young and enjoying a lower tax rate upon withdrawal at age 59&frac12; may not hold true much longer. Whatever vehicle or approach you choose, having more choices later in life typically means crunching the numbers and saving till it hurts.</p> <h2>4. Get Creative</h2> <p>Getting creative with expenses and income may be the unspoken fourth leg of the new retirement stool. Solutions like trading a large home for a small duplex can reduce expenses and provide rental income. Phasing out of our careers slowly, going part-time, or switching to contractor or consultant status is another way to test to the waters of retirement while still keeping the money coming in.</p> <h2>5. Supplement</h2> <p>Even post-retirement, some folks are choosing to go back to work part-time in their previous fields or explore new, lower-stress jobs. The days of all-or-nothing retirement may be over, but that doesn&rsquo;t mean that it&rsquo;s not possible to thoroughly enjoy the retirement part of semi-retirement. <a href="http://www.wisebread.com/making-extra-cash">Extra income</a> during these years can supplement personal savings and help retirees feel engaged and plugged in to their local communities.</p> <p>For those of us who believed that retirement would be as simple as that old three-legged model, the rules seem to have been suddenly and unfairly changed. Still, retirement is possible &mdash; maybe just not in the form we anticipated or as quickly as we had expected. The new retirement stool is made of up of many legs, and we&rsquo;re responsible for the stability of most of them. The time to start planning is now.</p> <p>How have your retirement plans changed in the last three or four years? Do you expect to enjoy the kind of the retirement your parents have? What advice would you give middle-aged readers who are rethinking their retirement strategies?</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/kentin-waits">Kentin Waits</a> of <a href="http://www.wisebread.com/how-to-retire-during-a-recession">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-3"> <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/how-much-do-i-need-to-retire-how-much-can-i-spend">How much do I need to retire? How much can I spend?</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/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</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/6-ways-to-guarantee-income-in-retirement">6 Ways to Guarantee Income in 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/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</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/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account: What&#039;s Available, and What’s Best for You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement pensions recession retirement planning retirement savings Mon, 26 Dec 2011 10:48:14 +0000 Kentin Waits 838006 at http://www.wisebread.com How to Assemble Better 401(k) Plan Options http://www.wisebread.com/small-business/how-to-assemble-better-401k-plan-options <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/articles/how-to-assemble-better-401k-plan-options" target="_blank">http://www.openforum.com/articles/how-to-assemble-better-401k-plan-options</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/how-to-assemble-better-401k-plan-options" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000013602890Small.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>Say sayonara to the carefree days of your parents&rsquo; pension plans, when employers assumed the risk of a tanking stock market. In this sputtering economy, employees are on the hook for making wise investment decisions, but it&rsquo;s the employer&rsquo;s job to exercise fiduciary responsibility and common sense. That means encouraging employees to sock away as much money as possible, and offering them the tools to select the proper asset allocation and manage a diversified portfolio that will post solid long-term returns without incurring significant risk.</p> <p>The average 401(k) balance fell by nearly 30 percent in 2008, according to some studies. That is particularly frightening for many employees whose 401(k) accounts represent their single largest asset outside of their homes, and potentially their only source of retirement income.</p> <p>Even in this volatile climate, many employer-sponsored plans choose funds based on recent performance while dismissing risk, provide limited investment options that overlook many asset classes, and agree to excessive fees that are often hidden from the employee.</p> <p>&ldquo;A 401(k) plan is a means to an end for the employer,&rdquo; says Robert Auditore, founding principal of <a href="http://www.baycolonypartners.com/" target="_blank">Bay Colony Partners</a>, an independent retirement planning firm that manages more than a half-billion dollars in individual and corporate assets. &ldquo;<a href="http://www.openforum.com/idea-hub/topics/money/article/counting-the-cost-of-401k-plans-1" target="_blank">To recruit and retain talented employees</a>, you need a top-notch retirement plan.&rdquo;</p> <p>In ranking the <a href="http://www.brightscope.com/blog/2010/12/14/brightscope-2010-top-30-401k-plans/" target="_blank">top 30 401(k) plans of 2010</a>, financial information firm BrightScope considered such factors as generous company contributions, immediate plan enrollment, company match eligibility and vesting schedules, low fees, high employee participation rates and high salary deferrals. The top five companies were: the Saudi Arabian Oil Company, Kaiser Permanente, Southwest Airlines, Amgen, and United Airlines.</p> <p>Smaller employers may not be able to afford an independent investment advisor, who can charge $5,000 or more a year. Instead, they tend to choose a bundled plan structure, where a single company handles all the investment, recordkeeping, administration, and education services.</p> <p>Often, a T. Rowe Price or Fidelity will have a relationship with a third-party vendor, such as Morningstar. For an added fee, the vendor will help an employer assemble a defensive-minded investment lineup. Ask about these services when selecting an investment house.</p> <p>Follow these other tips to help your employees achieve their retirement goals.</p> <p><strong>Offer Enough Asset Classes</strong></p> <p>Experts recommend offering from 17 to 20 different investment choices, covering the major asset classes that are needed to construct a diversified portfolio. Core asset classes include stocks, bonds, and cash equivalents such as money markets. Further breakdowns within classes include growth stocks, value stocks, small, mid and large cap stocks, emerging market stocks, government bonds, and short-term and long-term bonds. To hedge against inflation, more plan managers are including Treasury Inflation Protected Securities (TIPS). Offer index fund alternatives to more expensive actively managed funds.</p> <p><strong>Screen Effectively</strong></p> <p>To whittle down the list, Auditore of Bay Colony may rely on three to six different screening mechanisms, including upside/downside capture ratios, which evaluate a fund&rsquo;s historical performance during rallies and down markets.</p> <p>Fund performance can be reviewed over a one-, three-, five- and ten-year time horizon. Along with studying quantitative measures, do some qualitative sniffing around by interviewing the portfolio management team, inquiring about extra services (on-site visits typically cost $1,000 each), and determining if the investment house caters mainly to smaller or larger employers. Experts also recommend steering clear of funds with over 1 percent expense ratios. Ongoing monitoring of the fund lineup is essential, either on a quarterly, semi-annual or annual basis.</p> <p>Recently, personal finance columnist John Waggoner suggested assembling a &ldquo;cowardly portfolio,&rdquo; comprised of 50 percent equity income stock funds, 30 percent bond funds and 20 percent money market, to post minimal gains rather than suffer huge losses. Auditore disputes that one-size-fits-all model, explaining that other factors such as an individual&rsquo;s current salary, outside assets, and cost of living should play a role in any investment strategy.</p> <p><strong>Choose Defaults Carefully</strong></p> <p>Default 401(k) plan options are designed to simplify investing, and studies show that individuals with limited financial background tend to choose them 20 percent of the time. Popular options are balanced funds and target-date funds, also known as lifecycle funds, which automatically adjust the weightings of asset classes within a portfolio to become more conservative over time. Yet employees need to understand that these funds are not risk-free. Many experienced steep losses during the 2007-2008 market decline.</p> <p><strong>Educate Employees</strong></p> <p>Studies show that one out of four eligible workers fails to sign up for a 401(k). To counteract this trend, consider implementing automatic enrollment and auto-escalation, which automatically increases 401(k) contributions with salary increases unless an employee opts out. Auditore recommends that HR professionals provide frequent communication emphasizing the value of the company&rsquo;s 401(k) plan, particularly when the market is tumbling. Don&rsquo;t assume that employees have an extensive investment background. Consider offering financial engines that automatically rebalance a portfolio&rsquo;s asset allocation to reduce risk.</p> <p>One bright spot is that plan participants can expect to receive a steady stream of information under new disclosure rules set forth by the U.S. Department of Labor, effective May 2012. Under the new regulations, 401(k) plans must outline all associated fees and expenses each quarter. Additionally, they will provide charts to employees comparing the investment options&rsquo; fees, past performance, benchmark comparisons and risk levels.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/margie-fishman">Margie Fishman</a> of <a href="http://www.wisebread.com/small-business/how-to-assemble-better-401k-plan-options">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-4"> <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/250-tips-for-small-business-owners">250+ Tips for Small Business Owners</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/are-you-on-this-list-of-cushiest-retirement-jobs">Are YOU on This List of Cushiest Retirement Jobs?</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/5-american-cities-where-you-can-retire-on-just-social-security">5 American Cities Where You Can Retire On Just Social Security</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-5-best-credit-cards-for-small-businesses">The 5 Best Credit Cards for Small Businesses</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/7-reasons-you-shouldnt-invest-like-warren-buffett">7 Reasons You Shouldn&#039;t Invest Like Warren Buffett</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Small Business Resource Center 401(k) adminstration 401(k) plans benefits pensions retirement small business Sat, 19 Nov 2011 21:03:37 +0000 Margie Fishman 789070 at http://www.wisebread.com How much do I need to retire? How much can I spend? http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-much-do-i-need-to-retire-how-much-can-i-spend" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/sailboat-cabo_0.jpg" alt="Colorful sailboat off Cabo San Lucas " title="Sailboat off Cabo San Lucas" class="imagecache imagecache-250w" width="250" height="181" /></a> </div> </div> </div> <p>Especially for people hoping to retire early, but also those just hoping they can retire at all, there&#39;s the question, &quot;How much money do I need?&quot; People who are already retired want to know &quot;How much can I can spend, without running out of money?&quot; Some people refer to the answer to the first question as &quot;The Number.&quot; Really, though, these are both the same question.</p> <p>There are a lot of ways to calculate your number. They all suffer from the same fundamental problem: nobody knows the future. To come up with the correct number you&#39;d need to know (at a minimum) how long you&#39;d live and what interest and inflation rates will be between now and then. Even if you knew those things, though, reality could come back and bite you.</p> <p>Still, even without knowing the future, it&#39;s possible to take a useful stab at calculating your number. Here are a few of the classic methods.</p> <h2>Living on income</h2> <p>If there were no inflation, and you weren&#39;t desperate to retire early, this would be the number one choice: Save and invest until your interest and dividends reach the point that they cover your expenses. Once that happens, you&#39;re done and you can retire.</p> <p>Of course, there <strong>is</strong> inflation. To deal with that, you need to reinvest enough of your income to replenish your starting capital each year.</p> <p>For example, if your number were $1,000,000 and inflation turned out to be 2%, then you&#39;d need to reinvest enough of your income that your capital was boosted to $1,020,000 by the end of the first year. As a practical matter, what you need to do is estimate future inflation and make sure that your income covers not only your expenses, but does so with enough left over to make those reinvestments.</p> <p>If the government&#39;s inflation data could be trusted, this wouldn&#39;t be too hard. In fact, there&#39;d an easy way to do it: invest in <a href="/TIPS-and-i-bonds">TIPS (Treasury Inflation-Protected Securities)</a>. They automatically do exactly what I&#39;ve described--the face value of the bond adjusts so as to keep the inflation-adjusted value of the principle constant.</p> <p>Unfortunately, the government&#39;s reported inflation numbers have been seriously understating the actual rise in the cost of living just lately. I don&#39;t tend to assign malice to this. (I&#39;ve read some of the papers written by the economists at the Bureau of Labor Statistics, and they sound to me like sincere people trying very hard to produce honest numbers.) In the final analysis, though <strong>it doesn&#39;t matter</strong> what the overall inflation rate is. What matters is <a href="/roll-your-own-cost-of-living-index">your own cost of living</a>. You need to adjust your capital by however much your cost of living is going up, or else you&#39;re going to gradually fall behind.</p> <p>Having some of your money invested in stocks can cushion this--there&#39;s a good chance dividends will rise, and there&#39;s a good chance the values of the stocks will rise. There&#39;s no guarantee that it&#39;ll match inflation (or even that it will happen at all), but it has generally happened for decades now.</p> <p>Two other gotchas to beware of:</p> <ul> <li>Be sure that you know what your expenses actually are--any unexpected ones (taxes? a new car, new roof, new furnace? health insurance?) eat into your standard of living (or worse).</li> <li>Be sure your income is secure--it can be very tempting to take a little extra risk, to boost your standard of living, but that can bite you badly.</li> </ul> <p>Now, all the fiddly detail work of adjusting for inflation aside, the real downside of living on income is that it takes too much money. Let&#39;s say you can live on $50,000 a year. The amount of money that you&#39;d need to invest in TIPS to earn that $50,000 (guaranteed by the government and adjusted for inflation) would be something like $2.8 million. Now, if you&#39;ve got $2.8 million (and you can live on $50,000), then you&#39;re pretty much all set. I wouldn&#39;t invest it all in TIPS--diversify into stocks as well--but a very straightforward investment plan will do the trick for you, and I think you can safely retire right now.</p> <p>Most people, though, would like to retire without having to save up quite that much capital relative to how much money they&#39;re going to need to live on. Happily, that&#39;s almost certainly possible, if you make the (rather likely) assumption that you&#39;re not going to live forever.</p> <h2>Spending down capital</h2> <p>If you invest $2.8 million in TIPS and just spend the income, you&#39;ll eventually die with a nest egg worth (an inflation-adjusted) $2.8 million. That&#39;s great for your heirs, but doesn&#39;t otherwise do you a lot of good.</p> <p>If you knew how long you were going to live, you could calculate how much of your capital you could safely spend each year, and die with any particular sum you wanted. </p> <p>If you have a financial calculator, here&#39;s how to do the calculation. (If you don&#39;t, there are plenty of <a href="http://www.arachnoid.com/lutusp/finance.html">financial calculators</a> on the web.)</p> <p>Suppose you knew you were going to live for 34 years in retirement and wanted to die broke. You could plug in a Future Value of zero (dying broke), a payment of $50,000 (or whatever you need to live on), an interest rate of 1.85% (the current rate on 20-year TIPS) and solve for Present Value (the amount you need to invest today to get those 34 payments of $50,000 (adjusted for inflation because you&#39;re buying TIPS). It&#39;ll tell you that you need about $1.25 million--a big improvement over the $2.8 million income-only solution, assuming that you want to retire early.</p> <p>If you knew you were going to die younger--for example, that you&#39;d only live in retirement for 12 years--you wouldn&#39;t need nearly as much. In fact, just a bit over $500,000 would do the trick.</p> <p>That&#39;s still pretty conservative, mainly because we&#39;re using the very low interest rate that TIPS are currently paying (just 1.85% over inflation). If you invest in a diversified portfolio of stocks and bonds, you can probably earn more than that. The average return in the stock market runs in the 10% to 12% range. Deduct 3% or 4% for inflation, and there&#39;s a good chance the stock market portion of your portfolio can return 6% or even 7% after inflation. Use that rate in place of the 1.85% you could get on TIPS, and you&#39;ll find that you can retire on a very modest amount of capital, as long as you&#39;re sure that you&#39;ll die on schedule.</p> <p>People have long looked for a sweet spot somewhere in between assuming that you&#39;ll live forever (income-only spending) and assuming that you&#39;ll die on schedule (spending down capital). They&#39;ve come up with a couple rules of thumb.</p> <h2>The 4% and 5% rules</h2> <p>Among people who invest for large institutions, there&#39;s a rule of thumb that you can spend 5% of your endowment each year, and then expect to have a bit more to spend next year than you spent this year.</p> <p>Of course, they can&#39;t expect that 5% to be more every single year. Some years the investment portfolio does poorly--and after one of those years, the 5% that&#39;s available for spending will be less than the previous year. Maybe much less.</p> <p>That may be okay for institutions, but it doesn&#39;t work so well for households. Most people, especially most retired people, don&#39;t have the flexibility in their budgets to easily accept, let&#39;s say, a 20% budget cut--an amount that&#39;s not only possible but entirely to be expected, if a good bit of your investment portfolio is invested in stocks.</p> <p>For households, therefore, the rule of thumb is 4%. If you have a well-diversified portfolio of stocks and bonds, you can spend 4% the first year, and then increase the amount by the inflation rate each year, and you will very likely die before you run out of money. (In fact, you will very likely die with quite a large portfolio indeed, because you probably could have started out spending 5%.) But if you have enough capital that 4% will support you at an acceptable standard of living, then you&#39;re in a position to ride out a good bit more in the way of bad luck. (Such as, for example, a 20% drop in the market the very first year after you retire.)</p> <h2>Social Security, pensions, and other annuities</h2> <p>An annuity is a stream of money that gets paid to you until you die. You can buy one from an insurance company. Annuity payers are in a position to (roughly) follow the 5% rule, because they can play the averages. Some people will buy their annuity just before the market takes a 20% dive, but most people won&#39;t. Some people will live a very long time, but most people will live an ordinary length of time and a few will die young. If you die young, they keep the rest of the money, and that puts them in a position to pay out more than you could safely spend yourself.</p> <p>It&#39;s worth having some sort of an annuity, as a fall-back in case you both face poor investment returns and live a long time. As I said, you can buy one from an insurance company, but you may not need to, if you have a pension.</p> <p>Pensions are a special case of annuity. In the old days, many people earned some sort of pension, if they worked for a largish company for many years. These days, they&#39;re pretty rare, but lots of older folks are still owed a pension from jobs that they worked back when they were more common.</p> <p>If you have a pension, even a pretty small one, you may not need to annuitize any more of your capital. But, if you don&#39;t have any pension at all, an annuity is worth considering.</p> <p>Besides the now-rare pension, almost every worker in the US is promised a Social Security pension (and people in other wealthy countries have similar promises from their governments). I don&#39;t know about the situation in other countries, but in the US a lot of people are dubious about that promise being paid in full--and with good reason. My own take on the situation, though, is that most people will actually get a large fraction of what they&#39;ve been promised. In fact, it would be pretty easy to adjust things to pay people nearly all of what they&#39;d been promised, if they did the adjusting sooner rather than later.</p> <p>At any rate, the way to deal with any sort of annuity, Social Security or otherwise, is to discount it by however much you think is appropriate (against the risk that you won&#39;t get the whole thing), and then deduct what&#39;s left from the amount that you want to spend each year. Your investment portfolio needs to cover the remainder.</p> <h2>The answer</h2> <p>So, that&#39;s your answer for the questions we started with.</p> <p>How much do you need to retire? Take what you want to spend, subtract the amount you confidently expect to receive from Social Security and any other pensions or annuities you&#39;ve got coming to you, and then divide by 0.04.</p> <p>How much can you spend? Multiply your investment portfolio by 0.04 and then add whatever you&#39;re getting from Social Security and other pensions (suitably adjusted, if you&#39;re not confident you&#39;ll keep getting them).</p> <p>There are too many variables for it to be safe to put any of these things entirely on autopilot. When you figure the inflation adjustment for next year&#39;s spending, cross check to see if you&#39;re spending more than 4% of your capital. (If the market hasn&#39;t kept up with inflation, you probably will be.) If that&#39;s true, you&#39;d be well advised to cut your spending a bit--a few bad years, especially early in retirement, can put a portfolio into a hopeless downward spiral if you go on spending without regard to how much money is really there.</p> <p>If you can earn some money in retirement, even a pretty modest amount, that can take a big weight off the investment portfolio. Well worth trying, even if just for a few years early on.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend">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-8"> <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/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</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/how-to-retire-during-a-recession">How to Retire During a Recession</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/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</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/dont-despair-over-small-retirement-savings">Don&#039;t Despair Over Small Retirement Savings</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/stop-making-these-10-bogus-retirement-savings-excuses">Stop Making These 10 Bogus Retirement Savings Excuses</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Retirement annuities capital dividends early retirement pensions retirement planning social security tips Wed, 09 Jan 2008 15:23:03 +0000 Philip Brewer 1606 at http://www.wisebread.com