Retirement http://www.wisebread.com/taxonomy/term/417/all en-US Here's Why a Late Retirement May Be a Bad Idea http://www.wisebread.com/heres-why-a-late-retirement-may-be-a-bad-idea <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/heres-why-a-late-retirement-may-be-a-bad-idea" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/gold_and_golden_nest_egg_with_time_clock_on_background.jpg" alt="Gold and Golden Nest Egg with time clock on background" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When it comes to managing finances, many people struggle to keep up with expenses like rent, utilities, credit cards, and student loans. With so many obligations, saving for retirement becomes less of a priority. In fact, according to a 2016 GoBankingRates survey, one in three Americans have no retirement savings at all. (See also: <a href="http://www.wisebread.com/7-retirement-planning-steps-late-starters-must-make?ref=seealso" target="_blank">7 Retirement Planning Steps Late Starters Must Make</a>)</p> <p>If you haven't started saving yet, or your retirement account isn't enough to provide for you, you may be thinking of an alternative strategy. Many people plan on working well into their 60s or 70s rather than depending on their retirement accounts for income.</p> <p>However, while many people expect to work at least part-time through their retirement, it doesn't always go according to plan.</p> <h2>Health issues</h2> <p>While you may expect to be strong and healthy well into your 70s, the reality can be quite different. Your health may deteriorate suddenly, requiring medical attention and rest. Or, you may experience an accident which limits your mobility. You may be physically unable to work, even on a part-time basis. If you relied on working into your retirement to fund your lifestyle, a health emergency can leave you destitute.</p> <p>When it comes to retirement, you should save with the idea that you may not be able to work at all later in life. If you are healthy in your golden years and <em>are</em> able to work, that can be an added bonus which can help you pursue your passions. But it shouldn't be the focal point of your retirement strategy.</p> <h2>Difficulty finding work</h2> <p>Even if you're capable of working, finding a job when you're older isn't always easy. Unemployed workers over the age of 55 can have a difficult time finding a new job.</p> <p>In addition, the modern workforce is changing dramatically and rapidly. There's new technology, and some roles are becoming outdated. Work that you may have done for years may no longer be needed, and you may be untrained to handle new ways of doing business.</p> <p>You may have to go back to school or take on new training, which can be an added expense. And you might be competing against people half your age with the same skills, which can make for a challenging job search.</p> <h2>You become a caregiver</h2> <p>Even if you're healthy and your skills are in demand, you still may not be able to work. If your partner or loved one becomes ill, you may have to dedicate yourself full-time to becoming a caregiver. Your relative's needs may prevent you from going to work.</p> <p>That means both of you may be unable to work, which will be a huge drain on your finances. If you did not save appropriately for the worst case scenario, you both could be in a dire situation.</p> <h2>Your interests may change</h2> <p>When you're in the early stages of your career, you may not be able to fathom the idea of not working. You may think you'd be bored. However, that can change after 30 or 40 years in the workforce. When you reach retirement age, you may realize that you just want to enjoy your golden years without the stress of going into the office. If you do not have your finances in order, that can make your retirement very difficult.</p> <p>While planning to work later can be beneficial for your savings, it's not a reliable retirement strategy. Many things can change before you retire, so it's important to prioritize saving <em>now </em>and prepare for the different possibilities.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/kat-tretina">Kat Tretina</a> of <a href="http://www.wisebread.com/heres-why-a-late-retirement-may-be-a-bad-idea">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/8-questions-financial-advisers-hear-most-often">8 Questions Financial Advisers Hear Most Often</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/6-ways-travel-in-retirement-keeps-you-young">6 Ways Travel in Retirement Keeps You Young</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/how-an-hsa-could-help-your-retirement">How an HSA Could Help Your 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/7-things-financial-advisers-wish-you-knew-about-retirement">7 Things Financial Advisers Wish You Knew About 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/canada-and-us-retirement-showdown-which-offers-more-for-retirees">Canada and U.S. Retirement Showdown: Which Offers More for Retirees?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement health care interests job hunting late retirement long term care saving money working late Thu, 22 Jun 2017 08:00:10 +0000 Kat Tretina 1966195 at http://www.wisebread.com How an HSA Could Help Your Retirement http://www.wisebread.com/how-an-hsa-could-help-your-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-an-hsa-could-help-your-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/hsa_theme_with_stethoscope_and_a_piggy_bank.jpg" alt="HSA theme with stethoscope and a piggy bank" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're worried about medical expenses during your retirement, you're not alone. According to the latest Retirement Confidence Survey from the Employee Benefit Research Institute, 45 percent of American workers don't feel confident that they will have enough money to take care of their medical expenses when they retire.</p> <p>The good news is that you may be able to do something on top of socking away money into your 401(k) or IRA to plan ahead for your medical bills during retirement. Let's review what a health savings account (HSA) is and how it can help your retirement planning. (See also: <a href="http://www.wisebread.com/how-an-hsa-saves-you-money?ref=seealso" target="_blank">How an HSA Saves You Money</a>)</p> <h2>What is an HSA?</h2> <p>An HSA is a tax-advantaged medical savings account available only to people who are enrolled in high-deductible health plans (HDHPs). An HDHP is health insurance that has a lower monthly premium, but a high deductible. A deductible is the amount you must pay out of pocket for medical expenses before your health insurance kicks in.</p> <p>An HSA helps you pay for qualified medical expenses such as doctors' visits and prescriptions that are not reimbursed by your HDHP. The beauty of an HSA is that you can contribute to it with pretax dollars by setting aside a portion of every paycheck, allowing you to reduce your taxable income. Depending on where you set up your HSA, you may be able to invest the money in mutual funds or other investments to help the funds grow faster. Whatever money you don't use during the year rolls over into the following year, meaning you could have a nice amount built up by the time you retire.</p> <p>For your insurance plan to qualify as an HDHP &mdash; one that allows you to use an HSA &mdash; the HDHP must have a deductible of at least $1,300 for self-coverage or $2,600 for family coverage (as of May 2017). You can only use the money in the account for qualified medical expenses, and if you withdraw money from your HSA to use for other purposes before you reach age 65, you'll have to pay a 20 percent tax penalty.</p> <p>To qualify for an employer-sponsored HSA, you can't be listed as a dependent on somebody else's tax return or enrolled in Medicare.</p> <h2>How an HSA can help your retirement</h2> <p>Here's how an HSA can give your nest egg a boost during your retirement years.</p> <h3>1. Avoid taxes on approved medical expenses</h3> <p>Without an HSA, if you took out $1,000 from your 401(k) to cover a medical bill during retirement, you'd pay applicable income taxes on the money you withdrew. And if you were to retire before age 59 &frac12;, you would pay an additional 10 percent penalty tax for that 401(k) withdrawal. With an HSA, however, you never pay taxes when using funds for approved medical expenses.</p> <h3>2. Avoid some taxes on nonmedical distributions after age 65</h3> <p>The longer you hold an HSA, the more flexibility you'll gain to use your funds. Once you reach age 65, you can withdraw money from the account for <em>nonmedical</em> expenses without triggering that 20 percent tax penalty. However, while the contribution portion of your nonmedical distributions won't be subject to regular incomes taxes, the portion made of earnings and interest is subject to applicable income taxes.</p> <h3>3. Gain access to more investment options</h3> <p>If your employer-sponsored retirement account gives you access to only a few investment options, an HSA may be a way to broaden your options for retirement investments. While some HSA providers limit investment options to an FDIC-insured savings account, many others offer the option to put money in a separate HSA investment account with several fund options, including mutual funds and low-cost index funds. (See also: <a href="http://www.wisebread.com/why-warren-buffett-says-you-should-invest-in-index-funds?ref=seealso" target="_blank">Why Warren Buffett Says You Should Invest in Index Funds</a>)</p> <h3>4. Increase annual contribution limits for your retirement savings</h3> <p>In 2017, a single tax filer can save up to $18,000 in a 401(k) and up to $5,500 in a Roth IRA (with catch-up contributions for those 50 and older of $6,000 and $1,000, respectively). With an HSA, that same tax filer can save up to an additional $3,400 to cover medical expenses during retirement, with a $1,000 per year catch-up contribution allowed for those aged 55 and over.</p> <h2>Take a look at HSAs</h2> <p>If you don't have a good employer-sponsored health plan, you could give your retirement plan a much-needed boost with an HSA, assuming you're eligible for one. The premiums on an HDHP can be higher than those of other health plans, so it's important to take a look at all of your alternatives. Since there are many considerations to keep track of, including taxes, medical expenses, and investment decisions, consider seeking the advice of a professional. (See also: <a href="http://www.wisebread.com/who-to-hire-a-financial-planner-or-a-financial-adviser?ref=seealso" target="_blank">Who to Hire: A Financial Planner or a Financial Adviser?</a>)</p> <p>The health insurance decisions you make now could help you have a more comfortable retirement.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/how-an-hsa-could-help-your-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/4-ways-couples-are-shortchanging-their-retirement-savings">4 Ways Couples Are Shortchanging Their Retirement Savings</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-an-hsa-saves-you-money">How an HSA Saves You Money</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/11-surprising-things-your-hsa-will-cover">11 Surprising Things Your HSA Will Cover</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-almost-anyone-can-afford-to-retire-in-mexico">How Almost Anyone Can Afford to Retire in Mexico</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-let-these-expenses-spoil-your-retirement-abroad">Don&#039;t Let These Expenses Spoil Your Retirement Abroad</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement distributions expenses health care health savings account HSA investments medical costs pretax dollars Wed, 21 Jun 2017 09:01:05 +0000 Damian Davila 1969193 at http://www.wisebread.com 5 Biggest Ways Millennials Risk Their Retirements http://www.wisebread.com/5-biggest-ways-millennials-risk-their-retirements <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-biggest-ways-millennials-risk-their-retirements" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/sad_man_has_spent_all_his_money.jpg" alt="Sad man has spent all his money" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>If you're stressing out about whether or not you're saving enough for retirement, you're not alone. Millennials are among those struggling the most with this dilemma. According to a 2016 study, 64 percent of working millennials believe they'll never save a $1 million nest egg.</p> <p>Why are millennials so worried? Sadly, this age group is prone to making less-than-ideal money moves that could hurt them later in life. Let's review the five biggest ways in which millennials are risking their retirement. (See also: <a href="http://www.wisebread.com/4-things-millennials-should-do-today-to-prepare-for-retirement?ref=seealso" target="_blank">4 Things Millennials Should Do Today to Prepare for Retirement</a>)</p> <h2>1. Delaying the start of retirement savings</h2> <p>Nearly four in 10 millennials haven't started saving for retirement. The same 2016 survey found that 61 percent of females and 50 percent of males belonging to the millennial generation have their finances stretched &quot;too thin&quot; to save for retirement. Even worse, 54 percent of women and 43 percent of men of this generation are living paycheck to paycheck.</p> <p>However, delaying retirement contributions has a serious impact. If a worker were to deposit just $50 per month into a 401(k) with an 8 percent annual rate of return for 10 years, they would end up with around $9,200 at the end of the 10-year period. The IRS sets a cap on how much you can contribute to a retirement account per year, which for 2017, is $18,000 to a 401(k) and $5,500 to an IRA. If you keep delaying your contributions to your retirement accounts, you'll never be able to fully make up that gap.</p> <h2>2. Taking out high student loans</h2> <p>Student Loan Hero estimated the average student loan balance for a member of the Class of 2016 at $37,172, up 6 percent from the year before. With so many Americans still believing in the importance of postsecondary education, it's easy to see how the average student loan continues to climb. Studies have shown that higher education still leads to better earnings potential, after all.</p> <p>Still, loans are rising too fast. Back in 1993, only 45 percent of college graduates had a student loan and their average balance was $15,000 in inflation-adjusted dollars. By having to pay down a high student loan, millennials are foregoing sizable contributions to their retirement accounts.</p> <p>Assuming a $30,000 balance on a federal direct loan with a 4 percent interest rate, you would pay about $304 per month. That's $3,648 in missed retirement contributions every year. By the time that a millennial pays back that standard loan (10 years), they would have missed out on $54,259 in retirement savings, assuming an 8 percent annual return.</p> <h2>3. Putting their kids' college fund before their own retirement fund</h2> <p>Given the tough time that they're having paying back their own student loans, 19 percent of millennial parents say education for their children is their top financial priority, according to TD Ameritrade. Those millennial parents are socking away an average $310 every month for their children's college fund.</p> <p>Every month, these millennial parents are hit with the double whammy of paying down their own student loans and then putting money away for their children's education. No wonder millennial parents ranked saving for retirement third on their list of financial priorities. (See also: <a href="http://www.wisebread.com/why-saving-too-much-money-for-a-college-fund-is-a-bad-idea?ref=seealso" target="_blank">Why Saving Too Much Money for a College Fund Is a Bad Idea</a>)</p> <h2>4. Not setting a retirement savings goal</h2> <p>If you don't know where you're going, you'll never know when you get there. According to the Employment Benefit Research Institute, across all generations, workers age 25&ndash;34 are the smallest percentage of individuals who have tried to calculate how much money they'll need to live comfortably in retirement.</p> <p>By not setting a retirement savings goal, millennials may be misjudging how much to contribute from every paycheck toward their retirement accounts. This explains the low average contribution levels per paycheck from millennial men and women &mdash; 7.3 and 5.7 percent, respectively. In 2016, 75 percent of workers age 25&ndash;34 said their total savings and investments were under $25,000.</p> <h2>5. Accepting a first-job salary offer without negotiation</h2> <p>Faced with a countdown to start paying back student loans, many millennials are so eager to start generating income they skip salary negotiations. According to a survey from NerdWallet and Looksharp, of 8,000 recent grads that entered the job market between 2012 and 2015, only 38 percent negotiated their salary offer from a new employer. The same survey revealed that 74.4 percent of employers had room for a 5 to 10 percent salary bump, 8.6 percent of them had room for a 11 to 20 percent salary bump, and 1.3 percent of them were willing or able to go above 20 percent.</p> <p>Do millennials skip negotiations over fear of having their job offer retracted? Not really: Close to nine out of 10 employers in the survey had never done such a thing.</p> <p>Failing to negotiate a starting salary is one of the biggest ways in which millennials are shortchanging their retirement. Let's crunch some numbers to see why. In 2016, The Collegiate Employment Research Institute found that the average starting salary for holders of a bachelor's degree was $41,880. Negotiating a 5 to 10 percent raise on your first-job salary offer would have yielded a starting salary ranging from $43,974 to $46,068. That would have been an extra $2,094 to $4,188 per year, enough to cover six to 13 $304 monthly payments on a $30,000 federal direct loan with a 4 percent interest rate.</p> <p>Saving for retirement may seem like a big hairy monster, but it doesn't need to be that way. By understanding what's keeping you from starting or saving enough for your retirement, you'll have a better chance of meeting your retirement saving goals. (See also: <a href="http://www.wisebread.com/how-to-face-4-ugly-truths-about-retirement-planning?ref=seealso" target="_blank">How to Face 4 Ugly Truths About Retirement Planning</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/5-biggest-ways-millennials-risk-their-retirements">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/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-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-reasons-every-millennial-needs-a-roth-ira">6 Reasons Every Millennial Needs a Roth IRA</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/left-a-job-do-a-rollover">Left a job? Do a rollover.</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/half-of-americans-are-wrong-about-their-retirement-savings">Half of Americans Are Wrong About Their 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/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) college funds IRA millennials not saving enough paycheck to paycheck salary negotiation savings goals student loans young adults Tue, 20 Jun 2017 08:00:11 +0000 Damian Davila 1961116 at http://www.wisebread.com How to Live a Retired Life Before Retirement http://www.wisebread.com/how-to-live-a-retired-life-before-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-live-a-retired-life-before-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/falling_in_love_is_so_much_fun.jpg" alt="Falling in love is so much fun" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Many of us dream about being able give up the day job and settle into a life of freedom, flexibility, and financial security in retirement. But unfortunately for many Americans, this dream is getting further and further out of reach. The reality is that the average age at which U.S. citizens are able to retire is on the increase.</p> <p>Being financially prepared is rightly a large concern, particularly because people tend to make big plans for when they do finally retire. It also means that some people put off following their dreams with hopes that they will be better able to afford them later in life.</p> <p>But if you're sensible with your savings and clever with your planning, it's possible to find a balance between securing a comfortable retirement and still living life to its fullest.</p> <h2>Take more time off</h2> <p>Taking vacation is something that shoots fear into the hearts of millions of people. Reasons for this vary from being worried about the amount of work that we'll face when returning to the job, to fears of losing our job altogether as a result of taking too much time off. It's a sad fact that the majority of Americans don't take their full vacation allowance each year, with 55 percent reporting leaving days unused, according to Project: Time Off.</p> <p>If you're among the large number of Americans who don't use their vacation days, then the first step to getting more holidays is simply to take them. Booking your vacations far in advance will allow your employer to plan effectively for the time that you're not there. It also gives you time to help ensure that whoever is covering you knows what they are doing and is properly prepared.</p> <p>If you're already using your allotted time off, consider asking for more. Requesting extra vacation is understandably daunting for many people, but as the old saying goes, if you don't ask, you don't get. It helps if you can provide justification for your extra holiday time, like a dream trip to Europe, and it's even better if you can demonstrate it will have a positive effect on your productivity. In fact, a study by the Harvard Business Review directly linked having more vacation days to an ability to get work done quicker.</p> <p>Another option that many don't even consider is to take unpaid time off. Though this may seem counterproductive, it's basically like buying extra vacation days. If you value your time off then it can work out to be very cost effective.</p> <p>Ask your employer about &quot;banking time,&quot; which basically allows you to work overtime shifts for regular pay (instead of the regular time-and-a-half), and then use those banked days to extend your holidays or take a few extra days off throughout the year when you need a break from the grind.</p> <h2>Focus on discounted, cheap, and free experiences</h2> <p>A great way to enjoy the quality of life that you crave without breaking the bank is to take advantage of discounted and cheap experiences. You might have a list of things that you want to do, see, or accomplish in your lifetime that you're putting off because you think it's too expensive. Instead, try looking out for when it's possible to do these things on the cheap.</p> <p>Always wanted to visit a certain country? Research when high season is and make a plan that allows you to go in low season instead. This will save you money on flights, accommodations, and many activities to do while you're there.</p> <p>Create a bucket list with a twist. Rather than containing activities that cost money, focus on experiences which cost little but provide you with a high sense of personal achievement. Physical activities are good for this, like hiking a certain mountain route or running a marathon, as well as things that will tax your brain like writing a book or learning an instrument.</p> <h2>Move somewhere cheaper</h2> <p>Lots of people envision moving away to a rural area or a tropical place when they retire, but why put it off until then? Moving to a cheaper city, state, or even country could allow you to live out your dreams, save more, and work less all at the same time. If you're not tied to your home by your job, then it doesn't necessarily even have to be a permanent move. You could spend half your time in the cheaper place having fun while still saving money.</p> <p>Numbeo ranks the U.S. as one of the most expensive places to live in the world. This means there's a lot of choice if you are looking for somewhere cheaper to settle down abroad. With 8.7 million Americans living overseas, you won't be alone. There are many <a href="http://www.wisebread.com/x-exciting-world-cities-you-can-afford-to-retire-in" target="_blank">attractive, cheap locations</a> that could be the perfect place to call your new home.</p> <p>If you don't know where to start, write a list of what's important to you in your everyday life and research which places can accommodate those aspects of your life. Lots of countries in South America, Asia, and Europe are <a href="http://www.wisebread.com/retire-for-half-the-cost-in-these-5-countries" target="_blank">significantly less expensive</a> than the U.S. but still offer a great standard of living.</p> <p>Moving to a new country isn't a decision to be taken lightly, and definitely not one that should be made based purely on cost. You need to be sure that the move is right for you and is one that will have a positive impact on your life. But there's no need to hold off until you're 65 to move to an amazing location.</p> <h2>Work from home</h2> <p>If your career is getting in the way of living the life you want right now, then perhaps it's time to start thinking about changing to something that will allow you to do this. The office environment is rapidly transforming, and working from home is no longer a rare and prized entitlement for the lucky few. If you don't have to spend time commuting or dressing for an office environment, you can free up time to do more of what you want to do.</p> <p>Lots of employers are becoming more flexible when it comes to this idea and there is a wide range of opportunities that are well suited for remote work. Advancements in technology have made remote working progressively easier, with a Gallup survey showing that 43 percent of employed Americans spend some portion of time working from home.</p> <p>Some industries that have embraced remote working include finance, insurance, and information technology, so it's a bonus if you already have a background in one of these fields. But even if you don't, the trend of working from home is growing, and may hit your industry soon.</p> <p>Don't confuse working from home with doing less. It's not a way to ease into the retired life in that sense. What it does bring is flexibility around when you work, as well as potentially huge savings in the time wasted getting to and from the office. It's also common for it to lead to increased productivity thanks to having fewer distractions at home than in a typical office environment.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/nick-wharton">Nick Wharton</a> of <a href="http://www.wisebread.com/how-to-live-a-retired-life-before-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-questions-couples-must-ask-before-retirement">5 Questions Couples Must Ask Before 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/the-10-worst-states-for-retirees">The 10 Worst States for Retirees</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/i-am-doing-well-financially-now-what">I Am Doing Well Financially. Now What?</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-ways-to-get-free-or-almost-free-airline-tickets">10 Ways to Get Free (or Almost Free) Airline Tickets</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/8-things-you-can-do-in-denver-that-you-cant-do-anywhere-else">8 Things You Can Do in Denver That You Can&#039;t Do Anywhere Else</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Lifestyle Retirement discounts experiences moving relocating remote retired life telecommuting time off travel vacation time work from home working Fri, 02 Jun 2017 08:30:07 +0000 Nick Wharton 1958436 at http://www.wisebread.com 8 Questions Financial Advisers Hear Most Often http://www.wisebread.com/8-questions-financial-advisers-hear-most-often <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-questions-financial-advisers-hear-most-often" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/business_communication_connection_people_concept.jpg" alt="Business Communication Connection People Concept" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>No one goes to a financial adviser if they already know everything there is to know about retirement planning and investing. So most people will, logically, come armed with a variety of questions when they meet with an adviser, especially if it is for the first time.</p> <p>Financial advisers say they hear many of the same questions repeatedly from clients looking to build their retirement savings or live large in retirement. Most of the questions center around the ability of clients to retire, or the information needed to build wealth in the hopes of retiring comfortably.</p> <p>This list of common questions for financial advisers was compiled with the help of Greg Hammer of Hammer Financial Group in Northwest Indiana, and Willie Schuette, financial coach with JL Smith Group in Ohio.</p> <h2>1. &quot;Can I retire?&quot;</h2> <p>This is really the ultimate question posed to most financial advisers. Clients want to know if they can afford to stop working. And if not now, when?</p> <p>A financial adviser will help you determine how much money you have and how much more you'll need, based on your life expectancy and retirement plans. Both Hammer and Schuette said they often have to break the news to clients that they need to keep working, but that's better than telling them after they&rsquo;ve retired that their money is likely to run out.</p> <h2>2. &quot;Can you help me avoid paying taxes?&quot;</h2> <p>The Internal Revenue Service can take a chunk out of your earnings, and often leave you with less cash than you originally planned. Financial advisers say they get a lot of questions about how to avoid a big tax hit, especially from retirees looking to preserve every dollar they have.</p> <p>Advisers field many questions about Roth IRAs, which allow investors to invest money and withdraw it tax-free upon retirement. Many investors turn to financial advisers for advice on the tax implications of converting traditional IRAs into Roth IRAs. There are also a multitude of other tax questions relating to municipal bonds, inheritance taxes, and tax deductions.</p> <h2>3. &quot;How can I preserve my money?&quot;</h2> <p>Financial advisers say clients are generally aware that they need to invest more conservatively as they get older to protect against market downturns, but aren't quite sure how. What's the right investment mix based on their age, their money saved, and retirement date? What's the best way to go about shifting away from stocks to cash and bonds?</p> <p>Hammer and Schuette say they get questions like this all the time, and are happy to walk clients through the best approach to keeping their retirement nest eggs secure.</p> <h2>4. &quot;When should I collect Social Security?&quot;</h2> <p>Retirees can begin collecting Social Security benefits as early as age 62, but will get larger monthly payments the longer they wait. Financial advisers will usually work with retirees to develop income sources that will allow them to delay collecting Social Security. But both Hammer and Schuette said their recommendations depend on the individual client's circumstances and financial needs. (See also: <a href="http://www.wisebread.com/5-sobering-facts-about-social-security-you-shouldnt-panic-over?ref=seealso" target="_blank">5 Sobering Facts About Social Security You Shouldn't Panic Over</a>)</p> <h2>5. &quot;What's the deal with health care?&quot;</h2> <p>With Congress working to repeal and replace the Affordable Care Act, many clients are wondering how their health care may be affected. Financial advisers have received this question from retirees who are not old enough to collect Medicare, as well as younger clients who don't get insurance through an employer. Advisers say they will walk clients through the cost of health care and the proper plans, as well as assist with setting up things like <a href="http://www.wisebread.com/how-an-hsa-saves-you-money" target="_blank">health savings accounts</a> and emergency funds.</p> <h2>6. &quot;I know I need life insurance, but what kind? And how much?&quot;</h2> <p>Financial advisers say clients usually know they need some sort of life insurance to protect their families, but are often bewildered by the offerings. There's whole and term life insurance, and policies with varying sizes, lengths, and premiums. An adviser can help find the right kind of insurance for each person and their unique situation. (See also: <a href="http://www.wisebread.com/why-your-group-life-insurance-is-not-enough?ref=seealso" target="_blank">Why Your Group Life Insurance Is Not Enough</a>)</p> <h2>7. &quot;My spouse just died. What do I do?&quot;</h2> <p>Many people feel confident in their financial planning, until something changes in their life that throws things out of whack. A loss of a spouse or other major change cannot only be challenging emotionally, but it can drastically change a person's financial needs. There may be a sudden loss of income when a spouse dies, and there are endless concerns about taxes, life insurance, and even real estate.</p> <h2>8. &quot;How do I take care of my heirs?&quot;</h2> <p>For most people, the main financial goal is amassing enough wealth to last their full retirement, and there's not much consideration for the next generation. After all, saving for your own several decades of life after retirement is hard enough.</p> <p>But Hammer and Schuette say there is a segment of clients seeking the best approach to passing wealth onto to their children and other relatives. Financial advisers say that in these cases, the conversation centers not only on amassing wealth, but taking into account things like inheritance taxes, and performing full, in-depth estate planning.</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/8-questions-financial-advisers-hear-most-often">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-things-your-financial-planner-isnt-telling-you-about-retirement">5 Things Your Financial Planner Isn&#039;t Telling You About 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/if-youre-lucky-enough-to-receive-a-pension-here-are-6-things-you-need-to-do">If You&#039;re Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do</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/9-costly-mistakes-diy-investors-make">9 Costly Mistakes DIY Investors Make</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-critical-money-mistakes-people-make-in-their-40s">7 Critical Money Mistakes People Make in Their 40s</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-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement estate planning financial advisers financial planning health care life insurance questions saving money social security taxes Fri, 02 Jun 2017 08:00:10 +0000 Tim Lemke 1957430 at http://www.wisebread.com 6 Reasons Every Millennial Needs a Roth IRA http://www.wisebread.com/6-reasons-every-millennial-needs-a-roth-ira <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-reasons-every-millennial-needs-a-roth-ira" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/her_company_and_savings_are_growing.jpg" alt="Her company and savings are growing" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You're young. You're earning a bit of money. You know you need to start saving for retirement. So what's the easiest way to get started?</p> <p>One of the best vehicles for retirement savings for millennials is a Roth IRA, which is a type of account that offers a great selection of investment options and tax advantages. You contribute to a Roth with money that's <em>already </em>been subject to income tax, but when you withdraw it in retirement, everything you've earned in the fund is tax-free. In comparison, you don't pay tax on 401(k) or traditional IRA contributions until you take out the money in your later years. Both have benefits, but there are reasons you might particularly want to consider a Roth while you're young.</p> <p>It's easy to open a Roth IRA through most popular online brokerage firms, and you don't need a lot of money to get started. (See also: <a href="http://www.wisebread.com/5-retirement-accounts-you-dont-need-a-ton-of-money-to-open?ref=seealso" target="_blank">5 Retirement Accounts You Don't Need a Ton of Money to Open</a>)</p> <p>Here are some reasons why a Roth IRA is an essential part of any millennial's investment plan.</p> <h2>1. You may not have a 401(k)</h2> <p>If you work for a company, you may be offered a 401(k) plan, which allows you to invest in a variety of mutual funds and deduct any contributions from your taxable income. In many cases, your company will match a portion of any contributions you make.</p> <p>But these days, an increasing number of millennials are performing a variety of contract or &quot;gig&quot; jobs, rather than working full-time with a single company. A Roth IRA is not tied to an employer, so anyone can invest as long as they have earned income. If you are earning income but don't have access to a 401(k) plan, a Roth IRA may be your next best option.</p> <h2>2. You have a 401(k), but it's lousy</h2> <p>If you have a 401(k), it's wise to take advantage of it, especially if your company offers a match. But be aware that your 401(k) plan may not offer a wide range of things to invest in, and there may be high fees. This is why many financial planners suggest contributing to a 401(k) up to the company match, and then placing any additional savings in a Roth IRA, which may offer lower costs and more investment choices.</p> <h2>3. There are some tax advantages over a 401(k)</h2> <p>The key feature of a Roth IRA is that any investment gains can be withdrawn tax-free anytime after age 59&frac12;. If you are a millennial, this is a big deal &mdash; because unless you're making big bucks already, there's a good chance you will be in a higher tax bracket when you are older. This tax advantage is in contrast to a traditional IRA or a 401(k) plan, in which the tax advantages come upfront.</p> <h2>4. You can use it to pay for education</h2> <p>Typically, if you withdraw from an IRA before age 59 &frac12;, you must pay a 10 percent penalty on the withdrawal, plus any income tax. But the one big exception involves qualified higher education expenses.</p> <p>If you use a Roth IRA to pay for education, and limit your withdrawal to your contributions but not your earnings, there are no penalties or taxes. If you do decide to include Roth earnings in your withdrawal, those funds will be subject to income tax. This is a helpful feature for millennials, who may consider going back to school. Parents can also use a Roth IRA to pay for educational expenses for their children. Keep in mind that money from a Roth IRA could impact financial aid calculations. And of course, any money taken out for college means less money in the account for retirement.</p> <h2>5. You can get cash quickly in an emergency</h2> <p>It's not the best idea to withdraw money from a retirement account, because you'll lose out on the potential investment gains from the cash you take out. But, you are permitted to take out <em>your contributions</em> from a Roth IRA without penalty at any time. This makes them potentially useful as emergency savings accounts.</p> <p>Just remember it's only the money you put into the account, not the gains, that can be taken out penalty-free. When you're young and not earning much, it helps to have funds that you can tap whenever a crisis arises. Just don't get in the habit of using a Roth IRA this way too often; the account is meant for long-term investment gains and will benefit you the most if you leave your money alone to grow. (See also: <a href="http://www.wisebread.com/using-your-roth-ira-as-an-emergency-fund-ever-a-good-idea?ref=seealso" target="_blank">Using Your Roth IRA as an Emergency Fund &mdash; Ever a Good Idea?</a>)</p> <h2>6. You can keep contributing for as long as you want</h2> <p>If you are a millennial, it's impossible to know when you will retire. You may choose to retire at age 60, or keep working until you're 100. Thus, it makes sense to have an investment account that will let you contribute for as long as you want.</p> <p>One of the nice things about a Roth IRA is that you will not be forced to make withdrawals at any time. This is in contrast to traditional IRAs, which require you to begin pulling out money by age 70&frac12;. (This assumes, of course, that rules don't change between now and then.)</p> <p><em>(Editor's note: An eagle-eyed reader pointed out that any Roth earnings used to pay for education would be subject to income taxes. We've corrected the text to reflect that.)</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/6-reasons-every-millennial-needs-a-roth-ira">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/using-your-roth-ira-as-an-emergency-fund-ever-a-good-idea">Using Your Roth IRA as an Emergency Fund — Ever a Good Idea?</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/8-signs-your-retirement-is-on-track">8 Signs Your Retirement Is on Track</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/this-one-thing-will-get-you-to-1-million-tax-free">This One Thing Will Get You to $1 Million (Tax-Free!)</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/5-biggest-ways-millennials-risk-their-retirements">5 Biggest Ways Millennials Risk Their Retirements</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-traps-to-avoid-with-your-401k">7 Traps to Avoid With Your 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) contributions emergency funds investing millennials Roth IRA self employed tax advantaged withdrawals Thu, 01 Jun 2017 09:00:11 +0000 Tim Lemke 1957901 at http://www.wisebread.com How to Make Sure You Don't Run Out of Money in Retirement http://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-make-sure-you-dont-run-out-of-money-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/nest_made_of_american_currency_horizontal.jpg" alt="Nest Made of American Currency Horizontal" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>An annuity is a stream of fixed payments that's guaranteed, often for as long as you live. Having an annuity can make retirement more secure, but it's hard to recommend them as investment vehicles, because almost every annuity on the market is a terrible investment. They tend to be sold by salesmen, so they're often loaded with fees. And, because being upfront about the fees would make them hard to sell, these fees are obscure (often outright hidden) and are typically different for every product, making it especially hard to comparison shop. (See also: <a href="http://www.wisebread.com/dont-know-what-annuities-are-you-might-be-missing-out?ref=seealso" target="_blank">Should You Get an Annuity?</a>)</p> <p>But my experience these past few years &mdash; helping older relatives with their finances, and starting to take the little pension I earned as a software engineer &mdash; has given me a new perspective on annuities. Having an annuity is more than just nice: It's wonderful! It's just <em>buying</em> them that's usually terrible.</p> <p>Fortunately, there are a few that are worth buying. You don't hear about them often, because they don't siphon off a big chunk of your investment to pay a salesman, so salesmen don't push them.</p> <h2>Why annuities are great</h2> <p>It used to be that anyone with a good job retired with an annuity in the form of a pension. This is how I've gotten my recent experience with just how great it is to have an annuity: All my older relatives are now receiving pensions.</p> <h3>You never outlive your income</h3> <p>The main thing that's great about an annuity is that having one means you're never going to be broke. Even if you overspend and run down your savings, even if the stock market crashes or you make terrible investment decisions and your investment portfolio takes huge losses, you'll still get that monthly check for as long as you live.</p> <p>You don't <em>need</em> to have an annuity to arrange that &mdash; you can live off capital in a way that makes it last the rest of your life &mdash; but an annuity makes it much easier.</p> <h3>They can raise your income</h3> <p>The other thing that's great about an annuity is that it can, at least potentially, be more money to live on. See, the only safe way to live off capital is to just spend the income from your investments. But that's not much money (especially these days).</p> <p>If you knew how long you were going to live, you could spend down your capital so that you'd die with just enough money to pay off your last month's bills. But since you don't know how long you're going to live, you have to make a conservative estimate, holding back enough capital so that you won't go broke even if you live to 100. (Of course even that might not be enough. What if you live to 114?)</p> <p>The company that provides your annuity has a much easier job. They don't need to know whether you'll live to 97 or kick the bucket at 67. They count on the fact that the average person will live an average life span. They can arrange the terms of the annuities so that the payouts don't exhaust the total pool until the last person dies. The fact that some people die the month after their pension starts means that there's enough money to pay for the people who go on to live for decades.</p> <p>Offset against that is the fact that the company that's providing your annuity needs to make a profit, and it also needs to hold back a reserve against the possibility that it'll get unlucky and a bunch of their customers will live longer than average &mdash; but both of those factors are relatively small.</p> <h2>Annuitize, but how much?</h2> <p>If you accept the idea that you probably ought to have an annuity of some size, the next question is: How big should the annuity be?</p> <p>At one extreme, you could just annuitize all your money &mdash; take all your savings and investments (except your checking account and your emergency fund) and buy an annuity. Then you'd know what your income would be for the rest of your life and you could budget for it.</p> <p>I recommend against that. There are many reasons why it's <a href="http://www.wisebread.com/on-the-importance-of-having-capital" target="_blank">worth having some capital</a>. Your capital earns an investment return and it also provides a measure of safety as a backup to your emergency fund. It makes it possible to fund expenses beyond your bare-bones budget. Perhaps most important, having some capital saves you money in all kinds of different ways &mdash; because you have funds on hand, you can take advantage of deals, you can avoid high-interest borrowing, and you have money to put down a large security deposit in cases where that will save you money.</p> <p>At the other extreme, you could annuitize none of your money and just live off your capital. I've just explained the downsides to that.</p> <p>You want to be somewhere in the middle. With a modest annuity, you're protected from running your income down to zero, and yet you can preserve some amount of capital.</p> <p>My advice is this: You should annuitize <em>enough to cover your rock-bottom expenses</em>, the lowest amount you could live on indefinitely. That way, you're putting yourself in a position where you can be sure you can get by no matter what happens to your investments, while preserving enough of an investment portfolio to fund your other life goals &mdash; travel, making a major purchase, leaving an estate to your heirs, etc.</p> <p>Before you start shopping for annuities, be sure to take into account any annuities you already have. But unless you're old, and even then only if you had a pretty good job at a pretty big company for many years, you probably aren't going to have a great pension. (If you're only kind of old, and worked at a pretty big company for a few years before they all phased out their traditional pensions in the early 2000s, maybe there's a small pension waiting for you. If so, that's great. Even if it's not enough to live on, it's a very positive contribution to your retirement income.)</p> <p>However, most people reading this probably won't get a good pension.</p> <p>Fortunately, there is an annuity you very likely do have.</p> <h2>The annuity you already have</h2> <p>You almost certainly already have an annuity in the form of a national pension scheme, such as Social Security. The amount of Social Security you will get depends on your own employment history. For most people, it will provide a large fraction of the &quot;rock-bottom expenses&quot; I recommend you cover with an annuity, but you can generally expect there to be some gap.</p> <p>If you have an employer-sponsored pension, even a small one, it may well cover the gap. If you don't, I recommend that you cover it with an annuity that you buy.</p> <h2>How to buy an annuity</h2> <p>As I said at the beginning, most of the annuities you can buy are terrible investments, but there are good ones. It is possible to buy an individual annuity and get an OK deal. It's just hard because the companies that sell them make it virtually impossible to compare one annuity to another.</p> <p>This is especially true for the sorts of annuities that are most like a pension: The ones set up so you make a payment every month starting in your 30s or 40s, then get a check every month starting when you're 65.</p> <p>Those are called deferred annuities (because you defer getting your money until age 65), and they're always terrible. They always have what are called &quot;back-end&quot; fees &mdash; money that the salesman gets to keep when you figure out that you've made a terrible deal and want to get (some of) your money back. The rules on back-end fees are always different.</p> <p>To make it even harder, these sorts of annuities are usually bundled with some sort of life insurance (supposedly so that if you die before you retire your estate won't &quot;lose&quot; all the money paid into the annuity) &mdash; and of course the details of those insurance policies are always different as well.</p> <h3>Comparison shopping</h3> <p>It is possible to buy an annuity in a way that does allow you to compare them. Don't buy one with monthly payments. Instead, save and invest the money in the stock market yourself during your working years. Then, when you're ready to retire, buy what's called a &quot;single premium immediate annuity&quot; &mdash; you put up a big chunk of money today, and then start receiving monthly payments immediately that last for the rest of your life. (The monthly payments, of course, should equal the gap you identified between your Social Security and your rock-bottom budget.)</p> <p>That is something that's easy to compare: How much do you have to pay today for a stream of income that starts next month and lasts the rest of your life? You can get a few quotes and pick the best deal.</p> <p>These sorts of annuities usually don't have the life insurance policy that supposedly protects against your dying before you start taking payments, because the payments start immediately. That's good. Bundling in life insurance just makes it harder to compare prices. If you need life insurance, buy a life insurance policy separately.</p> <p>Be very careful of letting them include any sort of survivor benefit, because that can also make the annuities harder to compare (although as long as the rules are exactly the same, it is at least possible). One alternative, if you need a survivor benefit, is to buy a life insurance policy that will pay off enough for your spouse to buy his or her own annuity.</p> <p>As an aside, let me mention that the annuity salesmen among you are going to jump in and point out that you're giving up an important tax advantage if you only consider an immediate annuity. This is technically true, but in fact is pretty unimportant. Let me just say this: If you are maxing out your 401(k), <em>and</em> your IRA, <em>and</em> your Roth IRA, there is an opportunity to tax shelter a bit more money through an annuity contract. In practice, I'm willing to bet that the tax advantage will never equal the fees you're going to end up paying.</p> <p>If you do save your money in a 401(k) or IRA, there are tax rules for using that money to buy your annuity. Follow the rules and you won't owe any taxes when the money is used to buy the annuity. You will, however, pay taxes on the annuity payments when you receive them (just like you would if you'd taken distributions from the tax-deferred plan directly).</p> <h3>Where to buy</h3> <p>Pretty much any life insurance company will sell you an annuity, but I only know of two places to get a good one: Vanguard and TIAA-CREF. (There used to be a third, but Berkshire Hathaway got out of the business a few years ago.)</p> <p>The main problem with buying directly from an insurance company is just that their annuity sales operations are organized around their annuity salesmen, who will immediately start trying to sell you something that's more profitable (to them) than a single premium immediate annuity &mdash; that's the step you avoid by going through Vanguard or TIAA-CREF. (They also have enough buying power to get especially good rates, because they bring in large numbers of customers.)</p> <p>If you're sure you can bear up under the sales pressure, there's no reason not to get quotes directly from the insurance companies. (Just because I don't know of any other good places to buy one doesn't mean there aren't any.) Insurance companies that sell annuities will be very easy to find &mdash; just do an internet search for information about annuities and you'll get a dozen ads for them and for online tools to compare their offerings.</p> <p>You're handing over a large fraction of your wealth and counting on the insurance company to be around for the rest of your life, so you want to have considerable confidence in the financial soundness of the company you pick. I would not consider any company rated less than A by the insurance grading firm A.M. Best, and I'd be happier with one rated A+.</p> <h3>Buy when rates are high</h3> <p>To buy an annuity, you have to put up a pretty sizable chunk of cash. (Vanguard quotes the cost today to a 65-year-old male buying a single premium immediate annuity of $1,000 a month for the rest of his life as being $180,052.)</p> <p>Unless you're rich, the cost of an annuity that covers your rock-bottom expenses is going to be a large fraction of your entire retirement savings &mdash; which is OK, because it's going to be a large chunk of your entire retirement income.</p> <p>The insurance company that sells you your annuity is going to invest that sizable chunk of cash in a portfolio of stocks and (mostly) bonds, and then use the dividends from those stocks and (mostly) the interest payments from those bonds to pay your annuity. Because of this, an annuity is much cheaper when interest rates are high.</p> <p>If you bought an annuity right before the financial crisis, you made out very well. If you wanted to buy one in the past eight or nine years, you probably found that they were incredibly expensive. But in the current era of rising interest rates, annuities are becoming more affordable again.</p> <p>Still, if you're approaching retirement age, understand that there is no rush. Figure out your rock-bottom expenses &mdash; and then live with that budget as an experiment. Maybe you'll find that you'll need more than that in retirement. Maybe you'll actually need less. Do some comparison shopping. Take your time. Then, when you've got a pretty good handle on the expense of your retirement lifestyle, at a time when interest rates are up a bit and you're ready to quit working, go ahead and buy that annuity.</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-to-make-sure-you-dont-run-out-of-money-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/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for 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/9-safe-investments-that-arent-bonds">9 Safe Investments That Aren&#039;t Bonds</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/10-stocks-and-bonds-that-will-profit-from-the-fed-rate-hike">10 Stocks and Bonds That Will Profit From the Fed Rate Hike</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/8-questions-financial-advisers-hear-most-often">8 Questions Financial Advisers Hear Most Often</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-sneaky-investment-fees-to-watch-for">4 Sneaky Investment Fees to Watch For</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement annuities benefits bonds fees interest rates investment vehicles life insurance pensions stocks Fri, 26 May 2017 08:30:09 +0000 Philip Brewer 1953940 at http://www.wisebread.com We Do the Math: Save for Retirement or Pay Off Credit Card Debt? http://www.wisebread.com/we-do-the-math-save-for-retirement-or-pay-off-credit-card-debt <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/we-do-the-math-save-for-retirement-or-pay-off-credit-card-debt" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-514332608.jpg" alt="Couple wondering if they should save for retirement or pay off debt" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Should you save for retirement or pay off credit card debt? If you're carrying a card balance, you may be wrestling with whether to put all your resources into attacking the debt, or start building your retirement nest egg while you slowly pay off debt.</p> <p>Which one will give you a better net worth? There's no simple answer. For some people the situation may warrant clearing credit card debt first; for others, it's better to start investing right away. To figure out which scenario is better in a given situation, we'll need to do some math. Don't worry, we'll show you how to do it in a few easy steps.</p> <h2>Step 1: Gather important numbers about your debt and your retirement plan</h2> <p>First, look through your credit card statements and accompanying information to pull up the following numbers:</p> <ul> <li>Credit card debt. You'll find this on the front of your credit card statement.<br /> &nbsp;</li> <li>Credit card interest rate, or APR (Annual Percentage Rate). You'll find this further down on your statement, in a section labeled &quot;Interest Charged&quot; or something similar.<br /> &nbsp;</li> <li>Minimum payment. You'll find this in your card's terms and conditions, under a discussion about how minimum payments are calculated. It will probably be a percentage, but there may also be a flat sum.</li> </ul> <p>Next, consider any retirement plan you are enrolled in or have available. What is the average annual return? You can identify past returns by reviewing your retirement account statements. For example, your 401(k) plan account may list your annual return. Note that past returns don't guarantee or predict future returns, but we'll use the average annual return as a proxy for future returns in this case, knowing that if our portfolio takes a long-term downward turn, our calculations will change.</p> <p>Finally, how much extra do you have in your monthly budget that you could put toward credit card payments, retirement investments, or both?</p> <p>Follow along as we consider a hypothetical debt situation and retirement opportunity. Let's say there's $500 in our monthly budget, which equals $6,000 annually ($500 x 12 months = $6,000) to put toward debt or retirement.</p> <p>Currently, the balance on our credit card is $5,000. Our APR is 22%. Our minimum monthly payment is 3% of our outstanding balance or $25, whichever is greater.</p> <p>Our employer offers a 401(k) plan. For the sake of keeping this illustration simple, we'll say our employer doesn't match employee contributions and we choose to make taxable contributions with a Roth designated account within the 401(k).</p> <p>In reality, you might choose instead to make tax-deductible contributions to a&nbsp;<a href="http://www.wisebread.com/how-to-set-up-an-ira-to-build-wealth?ref=internal" target="_blank">traditional retirement account</a>. With a Roth 401(k) there are no immediate tax benefits, which makes our calculations simpler and therefore better suited for this purpose.</p> <p>We'll say the default investment in our 401(k) is a&nbsp;<a href="http://www.wisebread.com/the-4-best-investments-for-lazy-investors?ref=internal" target="_blank">target-date mutual fund</a> with an average annual return of 6.3% since its inception. We know that future performance is unpredictable. But to run the numbers for the retirement vs. debt decision, we'll apply an annual return of 6% to our retirement account.</p> <p>We'll look at the retirement account and credit card balance after five years to compare the two choices: 1) making minimum payments on our card balance so we can start investing right away, or 2) putting all our extra money toward our credit card debt before we consider retirement investing.</p> <p>In both scenarios, we'll assume that we won't make additional charges on our credit card. In addition, we'll contribute to our retirement account when we have money available to invest.</p> <h2>Step 2: Calculate net worth if you prioritize retirement savings over paying off credit card debt quickly</h2> <p>In this scenario, we'll see what happens if we only make minimum payments on our credit card so that we can get started investing for retirement right away. Your credit card statement should state very clearly how long it will take to pay off your balance if you make minimum payments.</p> <p>You can also find an&nbsp;<a href="http://www.calcxml.com/calculators/how-long-will-it-take-to-pay-off-my-credit-card" target="_blank">online calculator</a> to help you with these calculations. Here's the information we'll enter for our example (you can put in your own numbers from your real-life situation):</p> <ul> <li>Current credit card balance: $5,000<br /> &nbsp;</li> <li>Annual percentage rate: 22%<br /> &nbsp;</li> <li>Proposed additional monthly payment: $0<br /> &nbsp;</li> <li>Minimum payment percentage: 3%<br /> &nbsp;</li> <li>Minimum payment amount: $25<br /> &nbsp;</li> <li>Skip December payment when offered? No</li> </ul> <p>Results indicate that we'll carry this debt for more than 17 years (205 months) and pay more than $7,000 in interest during this time. Click the button that says &quot;Detailed Results&quot; to see a breakdown of the payments. Make sure that under the Assumptions tab, you've asked for a monthly table display.</p> <p>In the first month, our payment is $150 and this amount slowly diminishes until we're paying the minimum amount of $25 for the last several years.</p> <p>Since we're making minimum payments on the credit card, we'll be able to put $350 of our total available $500 toward retirement in the first month ($500 - $150 = $350). The second month and subsequent months, we'll be able to increase the amount we invest, as our credit card balance dwindles. Every month we also earn some interest (6%/12 months), so our retirement account balance grows in that way, too.</p> <p>After five years (60 months), our credit card balance will be trimmed to less than $2,500.</p> <p>At the end of five years, our retirement account grows to just over $27,300. Considering our debt and retirement balances, our net worth is $24,800 ($27,300 in assets and $2,500 in liabilities). Note that investment returns are not guaranteed; the 6% rate is for illustration purposes only.</p> <p>You can&nbsp;<a href="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/Rains_We Do The Math Spreadsheet - Sheet1.pdf" target="_blank">download the spreadsheet</a> with these calculations.</p> <h2>Step 3: Calculate net worth if you pay off credit card debt completely before investing for retirement</h2> <p>In this scenario, we'll apply all of our extra income to credit card debt first. When the debt is paid in full, we'll begin to contribute to the retirement account.</p> <p>We enter this information to learn how quickly we'll pay off the debt with $500 per month (again, enter your own information to get personalized results):</p> <ul> <li>Current credit card balance: $5,000<br /> &nbsp;</li> <li>Annual percentage rate: 22%<br /> &nbsp;</li> <li>Minimum payment percentage: 0%<br /> &nbsp;</li> <li>Minimum payment amount: $0<br /> &nbsp;</li> <li>Proposed additional monthly payment: $500<br /> &nbsp;</li> <li>Skip December payment when offered? No</li> </ul> <p>To keep the credit card payment at $500 per month (and pay off credit card debt first), we'll enter the minimum payment percentage as 0% and the minimum payment amount as $0 &mdash; even though the actual terms of the credit card agreement will most likely specify a percentage of 2% or more and a minimum payment of $10 or more. When we view the results, we find that the payoff happens in 12 months. We'll make 11 payments of $500 and one payment of $74.</p> <p>After we finish paying off the credit card debt, we can begin investing. We'll invest $426 in the twelfth month ($500&ndash;$74) and $500 in subsequent months. Consider using a&nbsp;<a href="http://www.calculator.net/future-value-calculator.html" target="_blank">Future Value calculator</a>, to determine how much your retirement account will be worth at the end of five years.</p> <p>Here's the information we entered into the Future Value calculator:</p> <ul> <li>Number of periods: 48. (We'll invest for four years, or 48 months.)<br /> &nbsp;</li> <li>Start amount: $426. (We'll start with the first month's contribution as the balance in our account.)<br /> &nbsp;</li> <li>Interest rate: 0.5% (6% annual rate divided by 12 months).<br /> &nbsp;</li> <li>Periodic deposit: $500.<br /> &nbsp;</li> <li>Deposit made at the beginning or end of the period: End.</li> </ul> <p>If we earn 6% annually on our investments, our retirement account grows to $27,590 in five years. In addition, our credit card debt is paid off. Our net worth is $27,590 &mdash; that's $2,790 <em>more </em>than if we had prioritized retirement savings first and stuck with only paying the minimum on our credit card debt each month.</p> <h2>What else to consider</h2> <p>These calculations are a starting place. Your situation may be similar to this scenario, but it might not be. For instance, if your APR is considerably lower and your retirement returns higher than in the scenarios above, you may very well find that you're better off investing in the market while reducing your credit card debt slowly. Changes in one or several of these factors could alter results:</p> <ul> <li>Larger or smaller credit card balances;<br /> &nbsp;</li> <li>Higher or lower credit card APRs;<br /> &nbsp;</li> <li>Better or worse investment performance;<br /> &nbsp;</li> <li>Availability of a company match on your 401(k);<br /> &nbsp;</li> <li>Administrative fees associated with your 401(k);<br /> &nbsp;</li> <li>Choosing to invest in a traditional 401(k).</li> </ul> <p>If you opt for a traditional 401(k), your contributions come out of your pretax income, thereby reducing your taxable income, which could result in a lower tax liability and a higher tax refund. A tax refund could be applied to your credit card balance, allowing you to more easily pay off debt while also saving for retirement.</p> <p>To calculate the immediate tax benefit of saving within a traditional 401(k) account, multiply the contribution amount by your marginal tax rate. In addition, you could be eligible for a&nbsp;<a href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit" target="_blank">saver's credit</a>, which further increases the benefit of retirement savings.</p> <h2>How to get started with either scenario</h2> <p>Whatever path you choose, you may need help taking first steps. Consider these ways to get started:</p> <h3>Debt payoff</h3> <ul> <li>Consider transferring or consolidating your balances on a&nbsp;<a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=internal" target="_blank">0% balance transfer card</a>.<br /> &nbsp;</li> <li>Consider a&nbsp;<a href="http://www.wisebread.com/how-to-do-a-one-month-spending-freeze?ref=internal" target="_blank">no-spend week or month</a> in which you don't spend on anything except essentials.<br /> &nbsp;</li> <li>Apply cash gifts from family to credit card balances.<br /> &nbsp;</li> <li>Work a part-time job to pay down balances.<br /> &nbsp;</li> <li>Find ways to spend less on everyday expenditures and apply savings to debt payoff.</li> </ul> <h3>Retirement saving</h3> <ul> <li>Consider enrolling in your employer's retirement plan, if offered. You may have the opportunity to contribute to a&nbsp;<a href="http://www.wisebread.com/403b-vs-401k-how-are-they-different?ref=internal" target="_blank">401(k) or 403(b) account</a>, for example.<br /> &nbsp;</li> <li>Set up an&nbsp;<a href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you?ref=internal" target="_blank">IRA</a> with a brokerage account or&nbsp;<a href="http://www.wisebread.com/should-you-trust-your-money-with-these-4-popular-financial-robo-advisers?ref=internal" target="_blank">robo-adviser</a>.<br /> &nbsp;</li> <li>Start an&nbsp;<a href="http://www.wisebread.com/the-sep-ira-is-how-the-self-employed-do-retirement-like-a-boss?ref=internal" target="_blank">SEP-IRA</a> if you have self-employment income.</li> </ul> <p>When considering your choices, keep in mind that credit card interest rates are relatively fixed, whereas investment returns tend to be much more variable. The main instances in which credit card rates fluctuate these days are when the Federal Reserve raises the federal funds rate, or when you make late payments and are charged a penalty interest rate.</p> <p>The point is, if your card's APR is 22%, you could be certain to save at least 22% of your balance by paying off credit card interest early. In contrast, the precise benefit of early investing is less certain.</p> <p>Should you save for retirement or pay off credit card debt? Doing the math can help you make a decision.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> of <a href="http://www.wisebread.com/we-do-the-math-save-for-retirement-or-pay-off-credit-card-debt">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/the-dirty-secrets-of-credit-cards">The Dirty Secrets of Credit Cards</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-face-4-ugly-truths-about-retirement-planning">How to Face 4 Ugly Truths About Retirement Planning</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/half-of-americans-are-wrong-about-their-retirement-savings">Half of Americans Are Wrong About Their Retirement Savings</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/all-the-ways-minimum-payments-are-evil">All the Ways Minimum Payments Are Evil</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-early-retirement-might-be-financially-risky">4 Reasons Early Retirement Might Be Financially Risky</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management Retirement 401(k) APR bills calculating comparisons interest rates nest egg Paying Off Debt Thu, 18 May 2017 08:30:15 +0000 Julie Rains 1949201 at http://www.wisebread.com Start Planning Now for When Your Target-Date Fund Ends http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/start-planning-now-for-when-your-target-date-fund-ends" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-174631043.jpg" alt="Start planning now for when your target date fund ends" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>There's a reason why so many people invest their retirement savings in target-date mutual funds offered within their 401(k). These funds are designed to be simple: Your money is automatically invested in a mix of stocks, bonds, and other asset types based on your age and the year you plan to retire.</p> <p>As you get closer to your target date (the year you expect to hit retirement), the managers of your target-date fund gradually ramp down your risk &mdash; moving more of your dollars away from high-risk, growth-oriented investments like stocks, and focusing instead on safer, more conservative investments like bonds or cash. This &quot;set it and forget it&quot; approach allows you to easily stash money away for retirement without constantly rebalancing the fund yourself.</p> <p>The goal is to have the right asset mix when your target-date fund hits its target. But this leads to the big question: What do you do when your target-date fund finally does reach this endpoint?</p> <h2>Reaching the target date</h2> <p>According to the Investment Company Institute, the target date isn't a date when investors should automatically cash out their entire target-date fund. It's simply an estimate of when investors will retire, and therefore stop making new investments in the fund. Most target-date funds can be kept open beyond the target date.</p> <p>What happens when the fund reaches that target date depends on whether the fund is guided by one of two basic investing approaches.</p> <p>If a target-date fund has what is known as a &quot;to&quot; glide path, the fund manager will stop adjusting the fund's asset mix once it hits the target date. In this scenario, your investment mix will remain in place until you cash out the fund.</p> <p>There's also the &quot;through&quot; glide path. In this approach, the fund manager will continue to adjust the fund's mix of investments even as the target date comes and goes.</p> <p>It's important to remember that target-date funds offer no guarantees. Your fund manager will rework your asset mix as your target date approaches to minimize your investment risk. But no manager can guarantee any set amount of dollars by this date.</p> <h2>What can you do when your target date arrives?</h2> <p>When your target-date fund hits its target date, you have three basic choices of what to do with your money.</p> <h3>1. Do nothing</h3> <p>First, you can essentially choose to do nothing. You can instead leave your money in your target-date fund after you retire. You won't be able to make new contributions to the fund, of course, but as with all 401(k) investments, your target-date fund will continue to grow on a tax-deferred basis. This will remain the case until you begin making withdrawals from the fund. You are required to begin taking your minimum withdrawals from your 401(k) by age 70 &frac12; at the latest.</p> <h3>2. Roll over funds into an IRA</h3> <p>If you want to be more hands-on with your investments, you can instead roll over the target-date fund, and any other investments in your 401(k), into an IRA. If you roll the money into a traditional IRA, you can continue to make contributions until you hit the year in which you turn 70 &frac12;. If you roll your 401(k) funds into a Roth IRA, you can continue making contributions as long as you are earning income. If you are not working, though, and not earning income, you can't contribute to a Roth no matter your age.</p> <h3>3. Cash out your fund</h3> <p>Finally, you can cash out your 401(k) (and the target-date fund within it) once you stop working for the employer who offered it to you. If you rollover your 401(k) into an IRA, you won't have to pay taxes. But if you cash out, you will owe income tax on the amount you withdraw from the plan. If you cash out before you turn 59 &frac12;, you'll have to pay income taxes and a 10 percent penalty.</p> <p>The best option of the three depends on how much time you want to spend focusing on your investments. If you prefer to let others manage your investment, the &quot;do-nothing&quot; approach might be your best move. If you'd rather have more control, on the other hand, rolling over your target-date fund into an IRA is probably the better choice.</p> <p>If you need liquid cash immediately, cashing out your fund might be necessary &mdash; but the tax hit you'll take often makes this the least attractive option.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/start-planning-now-for-when-your-target-date-fund-ends">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/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement">What You Need to Know About the Easiest Way to Save for 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-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in 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/the-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</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-most-important-thing-youre-probably-not-doing-with-your-portfolio">The Most Important Thing You&#039;re Probably Not Doing With Your Portfolio</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/the-best-ways-to-invest-50-500-or-5000">The Best Ways to Invest $50, $500, or $5000</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement assets bonds investments mutual funds rebalancing rollover stocks target date funds Fri, 12 May 2017 08:30:12 +0000 Dan Rafter 1942910 at http://www.wisebread.com 9 Expensive Mistakes of the Newly Retired http://www.wisebread.com/9-expensive-mistakes-of-the-newly-retired <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/9-expensive-mistakes-of-the-newly-retired" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-172208749.jpg" alt="Finding expensive mistakes of the newly retired" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Transitioning to retired life on a fixed income will undoubtedly have a few bumps in the road. This is a brand-new chapter of life for you, and it's reasonable to expect some challenges ahead. The last thing you want to do, however, is compromise your nest egg with costly, easily avoidable mistakes. After all, you need that money to get you through the rest of your life.</p> <p>As such, consider these costly mistakes of the newly retired so you don't follow suit.</p> <h2>1. Not balancing your portfolio</h2> <p>Retiring doesn't mean you have to stop investing. You can still dabble in the stock market, but perhaps not as aggressively as you once did. Risky bets could cost you your life savings, which means that you'll either have to go back to work past age 65, or put your hat out on a street corner. Neither of those options sound great in the golden years of life, so it's important to ensure your retirement portfolio is balanced.</p> <p>&quot;Annuitizing a significant portion of one's retirement income can complement a portfolio of stocks and bonds,&quot; says Jim Poolman, executive director of the Indexed Annuity Leadership Council. &quot;Fixed indexed annuities (FIAs) can serve as part of a balanced financial plan because they do not directly participate in any stock or equity investments and [they] protect your principal from fluctuations in the market.&quot;</p> <h2>2. Not changing your lifestyle after retirement</h2> <p>Your spending habits as a retiree will need to change if you're going to make it for the long haul. This is especially true if you're not receiving any kind of monthly payments, like Social Security or disability, to help with bills. You can live off what you have in the bank (hopefully; otherwise you shouldn't be retiring yet), but you may have to downsize and rethink your spending strategy.</p> <p>This means you need to start learning how to save money on everyday expenses, and re-evaluate your budget to find places for cuts. Don't expect yourself to suddenly drop 30 percent or more of your spending. Work your way to it by making small cuts at a time before you retire.</p> <h2>3. Not evaluating risk</h2> <p>When you start saving for retirement, you may have a certain monetary goal in mind &mdash; either based on what financial sources have told you, or what you've calculated you'll need based on your lifestyle. But you may not be accounting for the ups and downs of Wall Street and inevitable inflation.</p> <p>&quot;Revisit your retirement plan to make sure your savings reflect your new needs, and adjust for market conditions,&quot; Poolman advises.</p> <h2>4. Spending too much money too soon</h2> <p>When you retire, what you have is what you have. Unless you still have income coming in somehow, you have to mind your money and avoid the temptation to spend it on splurges, especially if you find yourself bored in the first year of your forever vacation.</p> <p>&quot;Before finalizing your retirement, you must take into consideration that you will only be living on a fixed amount of money,&quot; Andrew Fiebert, co-founder of Listen Money Matters, says. &quot;Oftentimes the amount of retirement savings looks pretty large, but retirees must keep in mind that money will have to last a very long time &mdash; hopefully a very, very long time.&quot;</p> <p>The enticement to spend your money can be almost irresistible, but discipline is vital. Depleting your money beyond the interest that it earns will hurt the principal and leave you with nothing after just a few years.</p> <h2>5. Loaning money to adult children</h2> <p>I get it &mdash; you love your kids. But at what cost?</p> <p>According to a 2015 Pew Research Center poll, a whopping 61 percent of parents in the U.S. admitted to <a href="http://www.pewsocialtrends.org/2015/05/21/5-helping-adult-children/" target="_blank">helping their adult children financially</a>. That may be well and good if you have that kind of disposable income lying around (though it only fortifies your children's reliance on you; learn to say NO!). However, if you already need to cut back because you didn't save enough to live an easy, breezy retirement &mdash; which applies to most Americans &mdash; providing handouts, the payback of which you may never see, could put you in a financial pickle.</p> <p>Don't be afraid to cut your grown children off. If you don't have the extra money, neither do they.</p> <h2>6. Taking Social Security benefits too early</h2> <p>The overriding argument against claiming Social Security benefits too early is that you won't receive your full benefit potential. That could come back to bite you later in life.</p> <p>If you decide to claim Social Security benefits before you reach your full retirement age, you'll receive a smaller monthly payout &mdash; up to 30 percent less. If you absolutely need that money before your benefits fully mature, then by all means do what you have to do to survive. You'll be better off, however, the longer you wait.</p> <h2>7. Not taking required minimum distributions after age 70-&frac12;</h2> <p>Starting at age 70-&frac12;, you must take required minimum distributions (RMDs) from your traditional, SEP, or SIMPLE IRA each year to satisfy rules set forth by the IRS. If you don't, you'll pay penalties.</p> <p>You can calculate your required RMD by dividing your IRA account balance as of Dec. 31 of the prior year by the applicable distribution or life expectancy. Qualified charitable distributions can satisfy your RMD, by the way, which you would report on Form 1099-R on the calendar year in which the distribution is made. Do good and save yourself the penalties while you're at it.</p> <h2>8. Falling victim to money scams</h2> <p>Scammers love retirees and the elderly. Why? Because they've usually got money to burn, and they're much easier to fool than the average working-age person. Sad, but true.</p> <p>There are plenty of scams out there, too, and they're getting more intricate all the time &mdash; like one where the scammer poses as the victim's grandchild and begs the grandparent to send money. To prevent yourself from being scammed, remember these two major rules: Never provide personal information over the phone or via email, and never wire any money unless you've spoken directly to your family member or friend who is requesting the transfer. (See also: <a href="http://www.wisebread.com/what-to-do-when-you-suspect-a-scam?ref=seealso" target="_blank">What to Do When You Suspect a Scam</a>)</p> <h2>9. Failing to account for the unexpected</h2> <p>The reality of retirement is that while you'll certainly have more time to kick back and relax, life isn't necessarily going to get easier &mdash; and you have to prepare for that. Everyone will die eventually, and it's smart to plan ahead not only for end-of-life accommodations, but also long-term medical care.</p> <p>You may live a long and healthy life, but eventually you'll need someone to care for you &mdash; whether that's in a family member's home or a professional facility &mdash; and that will cost money. Hedge your bets by looking ahead and putting those funds aside now. (See also: <a href="http://www.wisebread.com/is-long-term-care-insurance-worth-it?ref=seealso" target="_blank">Is Long Term Care Insurance Worth It?</a>)</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/9-expensive-mistakes-of-the-newly-retired">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/7-things-financial-advisers-wish-you-knew-about-retirement">7 Things Financial Advisers Wish You Knew About 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/5-financial-moves-now-that-youll-regret-when-you-retire">5 Financial Moves Now That You&#039;ll Regret When You 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/social-security-is-not-a-ponzi-scheme">Social Security Is Not a Ponzi Scheme</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/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-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-can-you-afford-to-spend-in-retirement">How Much Can You Afford to Spend in Retirement?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement expenses investing loaning money long term care Mistakes newly retired required minimum distributions scams social security Wed, 10 May 2017 09:00:07 +0000 Mikey Rox 1940416 at http://www.wisebread.com 4 Retirement "Rules of Thumb" That Actually Work http://www.wisebread.com/4-retirement-rules-of-thumb-that-actually-work <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-retirement-rules-of-thumb-that-actually-work" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-451590917.jpg" alt="Learning retirement rules of thumb that actually work" title="" class="imagecache imagecache-250w" width="250" height="142" /></a> </div> </div> </div> <p>Planning for retirement can sometimes feel daunting, but there are ways to temper these worries. Over the years, financial experts have come up with several useful rules of thumb that can help you get your finances organized. To be sure, there is no one-size-fits-all approach to retirement savings, but these strategies are a great place to start.</p> <h2>1. The 50/30/20 rule</h2> <p>You may know Senator Elizabeth Warren for her fiery speeches on and off the floor of the U.S. Senate, but she is also a serial author with 12 books under her belt. Teaming up with her daughter, Amelia Warren Tyagi, Warren provides practical budgeting advice in <a href="http://amzn.to/2pq1gQQ" target="_blank">All Your Worth: The Ultimate Lifetime Money Plan</a>.</p> <p>The golden nugget from Warren's book is the 50/30/20 rule, which suggests that you split your budget into three buckets:</p> <ul> <li>50 percent to pay for must-haves, including rent or mortgage payments, groceries, and minimum debt payments;</li> <li>30 percent to cover non-essentials, such as going to the movies or on vacation; and</li> <li>20 percent to save for retirement, build an emergency fund, and make additional debt payments.</li> </ul> <p>The 50/30/20 rule has become very popular because it strikes a balance between wants and needs, and provides a simple approach to setting your monthly budget. Assuming a monthly paycheck of $2,800 after taxes, you would allocate $1,400 ($2,800 x 50 percent) to needs, $840 ($2,800 x 30 percent) to wants, and $560 ($2,800 x 20 percent) to debt and/or your retirement fund.</p> <h2>2. At least 10 percent of your income to retirement savings</h2> <p>There's another rule of thumb for how much of your income should go specifically toward retirement. According to many financial advisers, you should contribute <em>at least</em> 10 percent of your paycheck to your 401(k), IRA, or workplace savings plan.</p> <p>Why is 10 percent a rule of thumb? One possible explanation is the ease of calculation: Just take out a zero. With a gross monthly paycheck of $3,500, you know that you have to contribute $350 to your retirement account. Easy!</p> <p>A caveat here is that you should be doing this for as long as you are working, starting as soon as possible. Young retirement savers will benefit the most because of compounding interest. The more that you contribute to your retirement account in your early working years, the more time the funds will have to grow.</p> <h2>3. The 90/10 rule from Warren Buffett</h2> <p>In 2013, legendary investor Warren Buffett revealed that he ordered the trustee of his estate to allocate 90 percent of his cash to a very low-cost S&amp;P 500 index fund, and the remaining 10 percent to short-term government bonds. &quot;I believe the trust's long-term results from this policy will be superior to those attained by most investors &mdash; whether pension funds, institutions, or individuals &mdash; who employ high-fee managers,&quot; he concluded. (See also: <a href="http://www.wisebread.com/why-warren-buffett-says-you-should-invest-in-index-funds?ref=seealso" target="_blank">Why Warren Buffett Says You Should Invest in Index Funds</a>)</p> <p>This advice didn't go unnoticed by investors. Between 2011 and 2016, investors took $5.6 billion out of actively managed funds, which attempt to beat the market, and dumped $1.7 trillion into passively managed funds, such as index funds. As the name implies, index funds simply aim to generate a return equal to the index they're tracking, such as the S&amp;P 500, after fees.</p> <p>Putting 90 percent of your retirement savings in a low-cost index fund greatly minimizes your investment costs, since the expense ratios (the annual fees charged to shareholders) are much less than for actively managed funds. This means more money is left in your account to grow, and therefore you increase your chance of hitting your savings target. Some equity index funds have annual expense ratios as low as 0.05 percent, and those tracking the S&amp;P 500 had an average annual return of 8.65 percent over the 2007&ndash;2016 period.</p> <p>As you get closer to retirement age, you may want to consult with a financial professional on how to adjust your portfolio allocation according to your changing needs.</p> <h2>4. The 4 percent rule</h2> <p>After testing a variety of retirement withdrawal rates using historical rates of return, financial planner William Bengen determined that four percent was the highest rate that held up over a period of at least 30 years.</p> <p>Here's how it works: Assuming a $600,000 nest egg, you would withdraw $24,000 in your first year of retirement. In the second year, you would withdraw the same amount plus extra to cover inflation. Assuming an annual rate of inflation of 2.5 percent, your second and third withdrawals would be $24,600 and $25,215, respectively.</p> <p>While the four percent rule is not without critics, nor is it the perfect calculation for everyone, it continues to help retirees plan ahead the size of their withdrawals during their retirement years. Just make sure that once you reach age 70 &frac12;, you meet your required minimum distributions (RMDs) set by the IRS. Some years you may have to withdraw a bit extra beyond your planned four percent to avoid the hefty 50 percent tax penalty for failing to take your scheduled RMD.</p> <h2>The bottom line</h2> <p>These four rules of thumb can give you a leg up on your retirement strategy. However, think of them more as guidelines and not so much as commandments. Every financial situation is different, so make the most of the available information and resources through your employer-sponsored retirement plan. Consult a financial adviser whenever necessary. (See also: <a href="http://www.wisebread.com/who-to-hire-a-financial-planner-or-a-financial-adviser?ref=seealso" target="_blank">Who to Hire: A Financial Planner or a Financial Adviser?</a>)</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/4-retirement-rules-of-thumb-that-actually-work">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/15-retirement-terms-every-new-investor-needs-to-know">15 Retirement Terms Every New Investor Needs to Know</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/are-you-wasting-68000-on-gas">Are You Wasting $68,000 on Gas?</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/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-5 views-row-odd views-row-last"> <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> </ul> </div> </div> </div> </div><br/></br> Retirement 4% rule 50/30/20 rule compound interest drawdown elizabeth warren index funds passively managed funds rules of thumb savings warren buffet Tue, 09 May 2017 09:00:10 +0000 Damian Davila 1941241 at http://www.wisebread.com What You Need to Know About the Easiest Way to Save for Retirement http://www.wisebread.com/what-you-need-to-know-about-the-easiest-way-to-save-for-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-you-need-to-know-about-the-easiest-way-to-save-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/iStock-649699796.jpg" alt="Learning about the easiest way to save for retirement" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>If you have a 401(k), chances are you've been given the option to invest in a &quot;target-date&quot; fund. This is a balanced mutual fund that gradually changes its investment mix depending on how close you are to retirement. It's designed to hold a higher percentage of riskier, growth-oriented investments like stocks when you're young, and increase the proportion of more conservative investments, such as cash and bonds, as you age.</p> <p>Many brokerage firms offer target-date funds, which come with names like Fidelity Freedom 2050 or Lifepath Index 2045. The idea is to pick one associated with the year you expect to retire.</p> <p>There are advantages to these funds, especially for those who don't want to spend a lot of time managing their investments. But there are some drawbacks, too.</p> <h2>Pros</h2> <p>Let's start with the upsides.</p> <h3>1. They automatically rebalance</h3> <p>Target-date funds are designed to build wealth while you're working, and protect it as you approach retirement. They accomplish this by gradually and automatically changing the investment mix over time, which is referred to as rebalancing. Because it's not particularly easy for the average investor to make these kinds of changes on their own, a target-date fund offers the convenience of &quot;set it and forget it,&quot; saving you time and extra work.</p> <h3>2. They are easy to select</h3> <p>Picking which mutual fund is right for you is tricky, because there are often so many choices. There are funds for specific industries, funds for growth, and others for income &mdash; it can be overwhelming. When choosing which target-date fund is right for you, though, all you need to do is pick one that lines up best with the year you expect to retire. So if you are now 30 years old and plan to retire at age 63, you would pick a fund labeled with the year 2050.</p> <h3>3. They offer diversification</h3> <p>Most target-date funds are essentially &quot;funds of funds.&quot; In other words, they are comprised of a mix of mutual funds, which are already made up of a blend of stocks and bonds. Thus, investors are hardly at risk of placing too much of their money in any single investment.</p> <h2>Cons</h2> <p>All that convenience comes at a price.</p> <h3>4. They have high fees</h3> <p>If you invest in target-date funds, you can expect that fund managers and brokerage firms will take a bigger chunk of your money than they would for basic index funds. The Wall Street Journal reported last year that the average expense ratio on more than 2,200 target-date funds was more than 0.9 percent. Meanwhile, there are many basic index funds that have ratios of less than 0.1 percent.</p> <p>An expense ratio measures what it costs an investment company to run a mutual fund, and is calculated by the fund's annual operating expenses divided by the average dollar value of its assets under management. Those operating expenses are taken out of the fund's assets and lower the return for investors. Over time, a higher expense ratio could impact your overall investment balance by thousands of dollars.</p> <h3>5. They aren't one-size fits all</h3> <p>Not everyone generates the same amount of income during their lifetime, and expenses in retirement can vary wildly. Thus, the right mix of bonds, stocks, and other investments will differ depending on the investor. Target-date funds don't take this into account. One investor may be able to retire comfortably with a portfolio of bonds and cash, while another might need more growth stocks to meet their retirement goals.</p> <h3>6. Funds with similar names may actually be quite different</h3> <p>There are thousands of target-date funds out there. Many of them have very similar names and similar goals, but differ in their investment mix. For example, the Fidelity Freedom 2035 fund is currently comprised of 64 percent U.S. stocks, 31 percent international stocks, and 5 percent bonds. The Vanguard Target Retirement 2035 fund, however, is 48 percent U.S. stocks, 32 percent international stocks, and about 20 percent bonds. Thus, the performance and risk of these funds may vary even if their names and goals are very similar.</p> <h3>7. They may not be aggressive enough for some older people</h3> <p>On one hand, you probably don't want to be investing in all stocks when you are approaching retirement age. But if you become too conservative, you might miss out on big returns. There are some financial advisers who argue that it's OK to stay aggressive in retirement as long as you have enough saved to endure a possible downturn. In fact, one 2013 study argued in favor of a <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324930" target="_blank">counterintuitive approach to retirement saving</a> &mdash; more conservative investing when you're young, and more aggressive investing as you get closer to retirement.</p> <p>If you think you want a more aggressive fund than the target date that corresponds with your projected retirement age, you can always choose one with a later target date. For instance, if you're planning on retiring in 15 years, but want a fund that's more aggressive now, you might choose a 2040 or 2050 target date fund.</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/what-you-need-to-know-about-the-easiest-way-to-save-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/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in 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/start-planning-now-for-when-your-target-date-fund-ends">Start Planning Now for When Your Target-Date Fund Ends</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/your-401-k-is-not-an-investment">Your 401(k) is not an investment</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-3-rules-every-mediocre-investor-must-know">The 3 Rules Every Mediocre Investor Must Know</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/8-ways-to-prepare-for-a-stock-market-dive">8 Ways to Prepare for a Stock Market Dive</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement 401(k) aggressive bonds conservative risks stocks target date funds Tue, 09 May 2017 08:30:14 +0000 Tim Lemke 1940329 at http://www.wisebread.com 5 Questions to Ask Before You Start Claiming Your Social Security Benefits http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-511524588 (1).jpg" alt="Couple asking questions before claiming social security benefits" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>According to a 2016 poll conducted by Gallup, 59 percent of retirees rely on Social Security payments as a major source of income. Odds are that you, too, will need Social Security benefits to cover at least <em>some </em>of your living expenses after you retire. Because of this, you'll want these benefits to be as large as possible when retirement actually arrives.</p> <p>Here are five key questions to ask before you start taking your Social Security benefits.</p> <h2>1. Are you willing to take a smaller monthly benefit for the rest of your life?</h2> <p>Taking Social Security benefits before your full retirement age will cost you in the form of a lower monthly payout. This payout will remain at this lower level for the rest of your life.</p> <p>You can determine how much of a hit you'll take claiming benefits early by visiting the Social Security Administration's <a href="https://www.ssa.gov/planners/retire/retirechart.html" target="_blank">retirement planner site</a>. As the site shows, if you start taking your Social Security payments before you hit your full retirement age, your monthly benefit will be lower.</p> <p>How much lower? If your full retirement age is 67 and you start taking your benefits at 62, your monthly Social Security payment will be reduced by about 30 percent. If you start taking them at 64, they'll be lower by about 20 percent. Even if you start taking them one year earlier at 66, they'll still be lower &mdash; by about 6.7 percent a month. And remember, this is for the rest of your life.</p> <p>As you can see, claiming benefits early can significantly reduce the amount of money you receive each month. Let's say you are slated to receive $1,000 a month in Social Security benefits and your full retirement age is 67. If you started taking your benefits at age 62 &mdash; the earliest you can take them &mdash; your monthly benefit would fall to $700.</p> <h2>2. Can you continue working?</h2> <p>While retiring early reduces your monthly Social Security benefits, working past your full retirement age actually increases them.</p> <p>The Social Security Administration says that if you delay receiving your Social Security benefits until you hit 70, your monthly payment will be 32 percent higher than if you had retired at full retirement age.</p> <p>Say your full retirement age is 66, and you'd receive $1,000 from Social Security every month starting at that age. If you wait to start claiming your benefits until you turn 70, your monthly payment would rise significantly to $1,320. You'd just have to determine whether you could hold off on receiving those payments until your 70th birthday.</p> <h2>3. How much have you saved for retirement?</h2> <p>Most people can't survive on Social Security benefits alone during their retirement years. Instead, they rely on a mix of savings from different sources &mdash; everything from 401(k) plans, to IRAs, to annuities.</p> <p>How much you've saved for retirement will play a key role in how early you should take your Social Security benefits. If you've saved a significant amount of money for retirement, you might not need as large a monthly Social Security payment to meet your retirement goals. But if you haven't saved much, you might need that larger benefit payment. At the same time, working for a few extra years might help you boost your retirement nest egg, at least by a bit.</p> <h2>4. How healthy are you?</h2> <p>While there are financial upsides to waiting to claim your Social Security benefits, there are also times when this doesn't make sense. Often, this depends on your health.</p> <p>If you're not healthy, you might need to retire early for your physical wellbeing. And while it's impossible to predict how long you'll live after retiring, if you're suffering from health problems, your post-retirement life might not last as long. Retiring as early as possible, and claiming those Social Security benefits earlier, might then be the best choice. (See also: <a href="http://www.wisebread.com/3-reasons-to-claim-social-security-before-your-retirement-age?ref=seealso" target="_blank">3 Reasons to Claim Social Security Before Your Retirement Age</a>)</p> <h2>5. What kind of retirement do you want?</h2> <p>How do you plan to spend your retirement years? Are you looking forward to quiet days spent with your grandchildren, reading books, and pursuing a hobby? Or do you want to travel the world?</p> <p>If you're looking for a lower-key, less-costly retirement, taking your benefits early &mdash; and receiving smaller Social Security payments &mdash; might make sense. But if you want a busier, more extravagant retirement, holding off until full retirement age, or later, might be the smarter choice.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/5-questions-to-ask-before-you-start-claiming-your-social-security-benefits">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/3-reasons-to-claim-social-security-before-your-retirement-age">3 Reasons to Claim Social Security Before Your Retirement Age</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-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-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement">6 Smart Ways to Boost Your Social Security Payout Before 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/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</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/13-crucial-social-security-terms-everyone-needs-to-know">13 Crucial Social Security Terms Everyone Needs to Know</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement benefits early retirement full retirement age health Teaser: income social security Mon, 08 May 2017 09:00:08 +0000 Dan Rafter 1940328 at http://www.wisebread.com 5 Sobering Facts About Social Security You Shouldn't Panic Over http://www.wisebread.com/5-sobering-facts-about-social-security-you-shouldnt-panic-over <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-sobering-facts-about-social-security-you-shouldnt-panic-over" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock-639428420.jpg" alt="Learning social security facts you shouldn&#039;t panic over" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Most people tend not to think about Social Security until they are in a position to collect benefits. Unfortunately, letting Social Security be something you worry about &quot;later&quot; can cause costly problems &mdash; both for you as a beneficiary, and for the program as a whole.</p> <p>Here are five sobering facts about Social Security that you should know now so that you will be prepared for potential issues in the future. (See also: <a href="http://www.wisebread.com/6-smart-ways-to-boost-your-social-security-payout-before-retirement?ref=seealso" target="_blank">6 Smart Ways to Boost Your Social Security Payout Before Retirement</a>)</p> <h2>1. The Social Security Trust Fund may be entirely depleted by 2034</h2> <p>Social Security is set up as a direct transfer of funds from current workers to current beneficiaries. However, when the taxes coming in to pay for Social Security exceed the expenses for the program, the surplus is placed in the Social Security Trust Fund, where it earns interest. As of 2010, Social Security expenses have exceeded the tax revenue, and the Social Security Administration has had to dip into the Trust Fund in order to pay out all promised benefits. As of 2013, the Trust Fund began losing value, and it is projected to be <a href="https://www.ssa.gov/oact/trsum/" target="_blank">entirely depleted by the year 2034</a>.</p> <p>When the Trust Fund runs out of money, the projected tax revenue will cover only 79 percent of promised benefits. This means anyone who is entitled to a $1,500 monthly benefit will only receive $1,185.</p> <h3>Why you shouldn't panic</h3> <p>While the coming depletion of the Social Security Trust Fund is troubling, the problem is neither new nor imminent. It's also important to note that the United States is the only country in the world that attempts to predict the 75-year longevity of its social insurance funds, which means we are in a position to do something about the anticipated shortfall. Over the next couple of decades, it is likely that our government will make relatively small changes to the Social Security program in order to make up the 21 percent anticipated shortfall that will occur once the Trust Fund has run dry.</p> <p>However, it is smart for current workers to recognize that Social Security should not be heavily relied upon for a financially secure retirement.</p> <h2>2. The average Social Security retirement benefit is $1,360 per month</h2> <p>As of January, 2017, the average benefit for a retired beneficiary is <a href="https://www.ssa.gov/news/press/factsheets/colafacts2017.pdf" target="_blank">$1,360 per month</a>, which doesn't go very far if that is your only source of income. In addition, beneficiaries who are signed up for Medicare Part B (which is the Medicare medical insurance) will see $134 deducted from their Social Security benefit check for the Part B premium.</p> <p>While very few retirees live solely on their Social Security benefits, these benefits do constitute at least half the income of 71 percent of single seniors and 48 percent of couples. And for a whopping 43 percent of singles and 21 percent of married couples, Social Security benefits represent 90 percent or more of total income.</p> <h3>Why you shouldn't panic</h3> <p>What you need to remember is that you have a great deal of control over how much of your budget your Social Security benefit will represent. If you diligently save for retirement, then receiving an &quot;average&quot; benefit of $1,360 will provide a nice financial cushion on top of your retirement portfolio. While $1,360 is tough to live on by itself, having it available on top of your necessary expenditures would be a wonderful supplement.</p> <h2>3. Cuts to Social Security benefits may be coming</h2> <p>President Trump promised during his campaign that there would be no cuts to current payments for Social Security or Medicare beneficiaries. However, although the White House has made it clear that current beneficiaries' payments are safe, it will not rule out the possibility of making cuts that will affect future beneficiaries. Some of the changes that have been proposed include:</p> <ul> <li>Raise the full retirement age for workers who reach age 62 in 2023, gradually increasing it from the current age of 66 to age 69.<br /> &nbsp;</li> <li>Change the formula for calculating benefits for retirees becoming newly eligible in 2023 in phases over 10 years. The changes would slightly increase benefits for below-average earners and slightly decrease benefits for above-average earners.<br /> &nbsp;</li> <li>Beginning December 2018, change the calculation of the cost-of-living adjustment (COLA) to a chained consumer price index (CPI) calculation, which will reduce the amount of money beneficiaries receive in their annual COLA. The current formula for determining the COLA uses something called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W is a useful index for tracking the inflation of all goods, but it does not take into account the fact that many consumers make substitutions when prices go up. (For instance, if the price of beef rises, many consumers will buy chicken or pork instead.) A chained CPI calculation takes these sorts of substitutions into account, so its inflation rate is calculated at approximately 0.3 percentage points lower than the CPI-W rate.<br /> &nbsp;</li> <li>Eliminate the earnings test beginning in January 2019. This test reduces benefits for beneficiaries who are younger than Social Security's full retirement age (currently age 66), are currently receiving Social Security benefit payments, and have income from wages or self-employment that exceed $16,920 per year in 2017.<br /> &nbsp;</li> <li>Eliminate federal income taxation of Social Security retirement benefits as of 2054 and later, phased in from 2045 to 2053.</li> </ul> <h3>Why you shouldn't panic</h3> <p>Although making cuts to future beneficiaries' payments is hardly something to cheer about, we do need to recognize that it is much more important to protect the benefits of current beneficiaries. Since current beneficiaries generally cannot go back to work or cut expenses, they are much more vulnerable to cuts in payments than current workers are. In fact, the proposed switch to a chained CPI calculation for COLA may be burdensome to current beneficiaries, since it has been proposed for December 2018, thereby affecting those who have already retired.</p> <p>What current workers need to do is plan for their Social Security to be an addition to their retirement savings. Then, if these changes and cuts do come to pass, you will not be worried about losing important income.</p> <h2>4. High earners don't pay as much into Social Security</h2> <p>Social Security is paid for through a payroll tax of 6.2 percent for workers and 6.2 percent for their employers, making the total tax contribution 12.4 percent of gross income. However, workers and their employers do not pay Social Security taxes on earnings above $127,200.</p> <p>While $127,200 is a pretty significant chunk of change, it does mean that very high earners get a break once they are earning that amount. The reasoning behind this earnings cap is to maintain the connection between contributions paid in and benefits received. Since Social Security benefits are paid progressively, lower-income beneficiaries receive a higher percentage of their pre-retirement income in benefits than do high-income beneficiaries. The more money that high-income earners pay into Social Security, the less of a return they see on their contributions.</p> <p>The progressive nature of Social Security benefits is the reason why it is unlikely that there will ever be a complete elimination of this earnings cap, even though the program could certainly use the funds that such a cap elimination would represent. However, even if we were to increase the earnings cap to $229,500 &mdash; which would return taxation to the same level it was in the early 1980s &mdash; we could make a major dent in the coming benefits shortfall.</p> <h3>Why you shouldn't panic</h3> <p>Although raising taxes is never popular, there is some indication that our government is working to bring the earnings cap closer to early 1980s levels. In 2016, the earnings cap was set at $118,500, which was the same as the 2015 earnings cap. Raising it to $127,200 represents a 7 percent increase.</p> <h2>5. 10,000 baby boomers are retiring every day</h2> <p>Social Security works pretty well when the ratio of workers to retirees is balanced. Unfortunately, the extra-big generation known as the baby boomers is putting the program out of whack. The 76 million members of that generation began reaching age 62 (the earliest you may take Social Security benefits) as of 2008, and they are just going to keep retiring &mdash; at a rate of <a href="https://www.washingtonpost.com/news/fact-checker/wp/2014/07/24/do-10000-baby-boomers-retire-every-day/?utm_term=.56b6dff4374c" target="_blank">10,000 per day</a>.</p> <p>This huge retirement boom could potentially put an enormous burden on our Social Security program, especially considering the increased life expectancy of this generation as compared to their parents and grandparents.</p> <h3>Why you shouldn't panic</h3> <p>While it's true that approximately 10,000 baby boomers are going to be retiring every day until 2034 (when the last of the boomers will reach age 70, which is the latest you would want to start taking Social Security benefits), there is more to this story than just their retirement.</p> <p>First, it's important to remember that we've known the boomers would be retiring en masse for quite some time. Policymakers began to plan as early as 1983, when Congress raised the full retirement age.</p> <p>Second, the boomers are the workers who built up the Social Security Trust Fund, so they will be beneficiaries of the money they themselves contributed through taxes.</p> <p>Finally, as of 2015, <a href="http://www.pewresearch.org/fact-tank/2016/04/25/millennials-overtake-baby-boomers/" target="_blank">millennials had overtaken the boomers</a> as the largest living generation in the U.S. With such a large group of young workers in the workforce, we should be able to handle the financial cost of 10,000 boomers retiring each day.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/emily-guy-birken">Emily Guy Birken</a> of <a href="http://www.wisebread.com/5-sobering-facts-about-social-security-you-shouldnt-panic-over">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-smart-ways-to-boost-your-social-security-payout-before-retirement">6 Smart Ways to Boost Your Social Security Payout Before 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/stop-falling-for-these-6-social-security-myths">Stop Falling for These 6 Social Security Myths</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-questions-to-ask-before-you-start-claiming-your-social-security-benefits">5 Questions to Ask Before You Start Claiming Your Social Security Benefits</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/3-reasons-to-claim-social-security-before-your-retirement-age">3 Reasons to Claim Social Security Before Your Retirement Age</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/why-tax-day-is-april-15-and-other-weird-financial-deadlines">Why Tax Day Is April 15 and Other Weird Financial Deadlines</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement beneficiaries benefits facts full retirement age government social security ssa supplemental income taxes trust fund Thu, 04 May 2017 08:00:08 +0000 Emily Guy Birken 1938308 at http://www.wisebread.com Best Money Tips: Dangers That Could Derail Your Retirement http://www.wisebread.com/best-money-tips-dangers-that-could-derail-your-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/best-money-tips-dangers-that-could-derail-your-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/couple_stressed_money_531414656.jpg" alt="Couple learning dangers that could derail their retirement" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Welcome to Wise Bread's <a href="http://www.wisebread.com/topic/best-money-tips">Best Money Tips</a> Roundup! Today we found articles on dangers that could derail your retirement, pros and cons of container gardening, and tips to improve your home&rsquo;s layout.</p> <h2>Top 5 Articles</h2> <p><a href="http://www.kiplinger.com/article/retirement/T064-C032-S014-7-dangers-that-could-derail-your-retirement.html">7 Dangers that Could Derail Your Retirement (and What to Do About Them)</a> &mdash; Carrying too much debt in retirement can be disastrous, especially if you aren't getting paychecks anymore. [Kiplinger]</p> <p><a href="http://www.everybodylovesyourmoney.com/2017/05/01/pros-and-cons-of-container-gardening.html">Pros and Cons of Container Gardening: Does It Actually Save Money?</a> &mdash; There may be significant upfront costs to container gardening, but the expense drops considerably as you repeat the process. [Everybody Loves Your Money]</p> <p><a href="https://www.pennymacusa.com/blog/home-staging-secrets-for-everyday-living">Staging Secrets: Improve Your Home&rsquo;s Layout with Advice from a Home Stager</a> &mdash; Create height in a room by taking window treatments as high to the ceiling as possible. [PennyMac]</p> <p><a href="http://www.csmonitor.com/Business/2017/0419/Netflix-nears-100-million-subscribers-Why-that-doesn-t-mean-the-end-of-cable-TV">Netflix nears 100 million subscribers: Why that doesn't mean the end of cable TV</a>&nbsp; &mdash; Netflix's partnerships with certain cable and cellphone carriers give these more traditional companies a leg up over the competition. [The Christian Science Monitor]</p> <p><a href="https://www.popsugar.com/smart-living/Fun-Activities-Introverts-38912181">22 Hobbies For People Who Really Love to Be Alone</a> &mdash; Work out your brain and challenge yourself with some puzzles. There are lots of different kinds you can try, like jigsaw puzzles, Sudoku, crosswords, and a Rubik's cube. [PopSugar Smart Living]</p> <h2>Other Essential reading</h2> <p><a href="http://wellkeptwallet.com/how-to-make-700-fast/">How to Make $700 Super Fast</a> &mdash; Check Craigslist for gigs in your city. The &quot;Gigs&quot; section offers a wide variety of jobs, so odds are good that you'll find some that fit your skill sets. [Well Kept Wallet]</p> <p><a href="https://www.pickthebrain.com/blog/5-ways-to-craft-your-own-happiness-at-work/">5 Ways to Craft Your Own Happiness at Work</a> &mdash; Don't try too hard to be happy at work. The extra pressure will actually make you feel worse. [Pick The Brain]</p> <p><a href="http://lifeguider.com/become-better-listener-active-listening/">How To Become A Better Listener: Active Listening</a> &mdash; Pay attention to body language. Your posture and facial expression can show the speaker whether or not you're interested in the message. [Life Guider]</p> <p><a href="http://www.lifeoptimizer.org/2017/04/28/the-power-of-consistent-routine/">The Power of Having a Consistent Routine</a> &mdash; A consistent routine allows you to structure your day so that you have time to relax. [Life Optimizer]</p> <p><a href="http://parentingsquad.com/5-things-to-consider-before-giving-your-child-an-allowance">5 Things to Consider Before Giving Your Child an Allowance</a> &mdash; Make sure your child understands that he'll need to earn the allowance. [Parenting Squad]</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/amy-lu">Amy Lu</a> of <a href="http://www.wisebread.com/best-money-tips-dangers-that-could-derail-your-retirement">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. 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