retirement planning http://www.wisebread.com/taxonomy/term/7381/all en-US 5 Online Tools to Manage Your Money in Under 10 Minutes a Week http://www.wisebread.com/5-online-tools-to-manage-your-money-in-under-10-minutes-a-week <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/5-online-tools-to-manage-your-money-in-under-10-minutes-a-week" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_working_computer_000075714973.jpg" alt="Woman managing her money in under 10 minutes a week" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Innovative personal finance tools are revolutionizing the way we manage and keep track of our money. Not only can they help teach us how to make smarter decisions, but they put us in charge of our money, making the arduous tasks of budgeting, saving, debt management, and investing a thing of the past. Best of all, most of us can manage our money in under 10 minutes a week using these tools.</p> <h2>1. Mint</h2> <p><img width="605" height="270" alt="" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-01-26%20at%209.32.27%20PM.png" /></p> <p><a href="https://www.mint.com/">Mint</a> was one of the first online financial management tools, laying the foundation for some of the other players we see today. The free tool offers a terrific snapshot of your overall finances. From a single dashboard, account holders can link their bank, loan, and brokerage accounts and monitor balances and track purchases in real time. With its financial planning tools, you can establish a monthly budget and monitor your spending patterns. It will alert you as you near your budget threshold, to make you cognizant of overspending.</p> <p>Mint lets you benchmark financial goals, gives an overview of open accounts and lines of credit, and now there's <a href="https://credit.mint.com/">Mint Credit Monitoring</a> to help you manage your credit score. It constantly tallies your outstanding debts versus assets to display your real net worth, which is something most people tend to forget about. (See also: <a href="http://www.wisebread.com/8-cool-mint-tools-for-manaing-your-money?ref=seealso">8 Cool Mint Tools for Managing Your Money</a>)</p> <h2>2. Investments and Retirement Planning Tools</h2> <p>By now, you've probably heard of robo-advisor sites such as <a rel="nofollow" href="http://track.flexlinks.com/a.ashx?foid=1029882.978749&amp;fot=1073&amp;foc=1&amp;foc2=941565" target="_blank">FutureAdvisor</a>, <a href="http://wealthfront.evyy.net/c/27771/172939/3104?ref=qchavaia-1646115">WealthFront</a>, and <a href="https://www.learnvest.com/">LearnVest</a>. They're computerized wealth management systems that cater to everyday investors for a fraction of the cost of human advisors. The companies generally target Millennials, a market segment still on the pathway to wealth with fewer assets than required at large private wealth management companies. But investors of any age or net worth can benefit from their free or low-cost portfolio management options, and the hands-off approach means you can keep track of your investments in just minutes.</p> <h2>3. Personal Capital</h2> <p><img width="605" height="282" alt="" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-01-26%20at%209.31.27%20PM.png" /></p> <p>Founded in 2009, by former Intuit CEO Bill Harris, <a target="_blank" rel="nofollow" href="http://track.flexlinks.com/a.ashx?foid=1029882.216060&amp;fot=9999&amp;foc=1&amp;foc2=582907">Personal Capital</a> lays claim to being the first digital wealth management platform. Like most robo-investing platforms, Personal Capital takes assessment of your financial situation and goals starting with a free consultation scheduled with a licensed advisor who recommends a customized investment plan. Those investors with at least $25,000 under management receive ongoing access to a team of financial advisors.</p> <h2>4. Betterment</h2> <p><img width="605" height="285" alt="" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-01-26%20at%209.31.15%20PM.png" /></p> <p>In 2010, <a target="_blank" rel="nofollow" href="http://track.flexlinks.com/a.ashx?foid=1029882.1538720&amp;fot=1073&amp;foc=1">Betterment</a> entered the game as another major robo-advisor option. Betterment's financial framework offers similar tools to help you reach your financial goals, plan for retirement, invest, and track your savings and investing goals. Once your account is funded ($100 minimum deposit and a fraction of a percent fee based on your balance), investment moves are made on your behalf. The platform keeps track of your progress and makes recommendations along the way. Their current investment management fees range from .35% for a portfolio of $0&ndash;$10,000, .25% for $10,000&ndash;$100,000, and .15% for portfolios of $100,000 or more.&nbsp;</p> <h2>5. QuickBooks Online</h2> <p><img width="605" height="368" alt="" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u5171/Screen%20Shot%202016-01-26%20at%209.31.01%20PM.png" /></p> <p>QuickBooks has taken its accounting software solutions online. With all of the same features and more as the computer installed version, <a href="http://www.anrdoezrs.net/click-2822544-10700722-1443052367000?sid=qchavaia-1646115" target="_top">QuickBooks Online</a> is an affordable solution for business owners and the self-employed. With QuickBooks Online you can manage your money on the go and access your account from multiple devices.</p> <p>Some of the features include the ability to grant access to multiple users, including creating an account for your accountant or CPA. It automatically tracks expenses, generates on-click reports, writes checks that you can print from anywhere, creates invoices, and most of all, it automatically downloads and aggregates data from bank and credit card accounts. It then categorizes that information and reconciles, which you should do once a month and have to do at tax time. For me, this has always been an excruciating week-long process &mdash; but that's a thing of the past now, thanks to QuickBooks Online.</p> <p><em>What online tools do you use to make money management easier?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/5-online-tools-to-manage-your-money-in-under-10-minutes-a-week">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-6"> <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-simple-financial-upgrades-you-can-make-during-breakfast">6 Simple Financial Upgrades You Can Make During Breakfast</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/financial-tricks-to-master-for-a-happier-life">Financial Tricks to Master for a Happier Life</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-financial-moves-you-can-make-during-your-commute">10 Financial Moves You Can Make During Your Commute</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-the-economic-crisis-challenges-our-financial-beliefs">How The Economic Crisis Challenges Our Financial Beliefs</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/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Organization investing money management retirement planning robo-advisors websites Fri, 29 Jan 2016 14:00:08 +0000 Qiana Chavaia 1646115 at http://www.wisebread.com Invest Your Time in These 13 Things While You're in Your 20s http://www.wisebread.com/invest-your-time-in-these-13-things-while-youre-in-your-20s <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/invest-your-time-in-these-13-things-while-youre-in-your-20s" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/asian_student_000017738107.jpg" alt="Asian student studying" title="" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Our 20s fly by before we know it, and we want to make sure we did the decade justice. Did we worry about the right things? Are we where we should be now? The best way to prepare for those questions and answer them to the best of our abilities, is to make sure we spend time on what really matters and what may help us in the future. We took a look at a <a href="http://www.quora.com/How-should-a-24-year-old-invest-time-1">Quora thread</a> that had great advice for people in their 20s who may be wondering what some of the important things to invest time in may be, and here is what we found.</p> <p>RELATED: <a href="http://www.popsugar.com/smart-living/Things-Happy-People-Do-34870691">15 Things Incredibly Happy People Do</a></p> <h2>1. Network</h2> <p>If you form a solid mainstay of people, you are exposed to more opportunities and potential for success in both your career and in your personal life. Build bridges, because you never know when you might be looking to cross them. As <a href="http://www.quora.com/Karan-Jaiswani">Karan Jaiswani</a> put it, &quot;the 20s are all about utilizing your today and structuring your future.&quot;</p> <h2>2. Read &mdash; A Lot</h2> <p>There is nothing more productive than taking the time to read. Read whatever you can get your hands on &mdash; current news, nonfiction, fiction, career advice, self-help books &mdash; anything! The more you know and understand about people around you, yourself and the world, the more easily and successfully you can navigate those very things.</p> <p>&quot;This will keep your mind stimulated and open to ideas. You will get a number of ideas for each author that you can implement in your life. You will also get opinions from across the globe,&quot; <a href="http://www.quora.com/Rizwan-Aseem">Rizwan Aseem</a> says.</p> <h2>3. Take Care of Your Body</h2> <p>Making time at night to wash your face, exercise, and remembering to apply (and reapply) sunscreen may not be on the top of your priority list, but it should be. General health care is something that, later in life, you will be glad you considered in your 20s. As <a href="http://www.quora.com/Rizwan-Aseem">Aseem</a> points out, &quot;No matter what you do in your life, you will do it in your body. You cannot replace it, get a new one, or trade it in. This is your body and you will live in it.&quot;</p> <h2>4. Use Your Time and Money on Education</h2> <p>Education is an invaluable resource that you are unlikely to ever regret having. Money is well spent when it is used to broaden your mind and pool of knowledge, especially when honing skills to be applied to your career path. <a href="http://www.quora.com/Anuj-Kumar-1">Anuj Kumar</a> advises you to &quot;try different things and find out where your passion lies&hellip; and then find ways to make a career doing that, adding that &quot;if you need further education, get it.&quot;</p> <h2>5. Pay Attention to Your Mental Health and Wellbeing</h2> <p>While your physical health is extremely important, investing time into taking care of your mind should not be forgotten. Stimulate it, challenge it, be conscious of what you're exposing it to daily, and take care of yourself. <a href="http://www.quora.com/Rizwan-Aseem">Aseem</a> makes the point that, &quot;The mind, like anything else, has the characteristics of a muscle. You use it, or lose it. And as long as you are using it, it will remain fit and healthy. The minutes you stop using it, it will decay and rust.&quot; So use it!</p> <h2>6. Learn New Skills (and Master Them)</h2> <p>While the advice to &quot;follow your passion&quot; can be good in the general sense, <a href="http://www.quora.com/John-J-Bowman-Jr">John. J. Bowman</a> urges those in their 20s to master and control a set of skills that can be used to benefit you within the field you are passionate about.</p> <h2>7. Create and Maintain Good Habits</h2> <p>The hardest part of creating good habits is getting started, but once you are able to master them, they will have an undeniably positive impact on your day-to-day as well as your future, because, as <a href="http://www.quora.com/Rizwan-Aseem">Rizwan</a> notes, &quot;once a habit is established it lasts for a life time.&quot;</p> <h2>8. Build Meaningful Relationships</h2> <p>Now is the time to drop the fair-weather friends and make time only for those who are really going to stick around and be positive forces in your life. As you mature, so should your relationships, so you don't have time to waste on people who will be harmful rather than helpful in your pursuit of your future goals.</p> <h2>9. Eat Well</h2> <p>Spend time planning meals, learning healthy recipes, and overall taking what you're eating into consideration regularly. Gone are the days when donuts, chips, and sodas can pass as a full day's meal. Even it if takes a little more time and effort, your future self will thank you when you find yourself maintaining your energy and healthy body as you age.</p> <h2>10. Establish a System for Handling Finances</h2> <p>Sit down and figure out how you are spending money, what you are spending it on, and what your ongoing expenses are. &quot;If you take care of your finances starting today they will take care of you when you most need them. When you are old, or sick, or sending your kids to school, or helping a parent through sickness. Your finances will help you,&quot; <a href="http://www.quora.com/Rizwan-Aseem">Aseem</a> says. Big pitfalls to avoid: bad business opportunities (if it seems to good to be true &mdash; it is), overuse of credit cards, and choosing not to save or put money aside for a rainy day.</p> <h2>11. Travel</h2> <p>In your 20s, you're full of enthusiasm and energy and usually have the mobility to indulge a bit of wanderlust. So indulge it. Experience new cultures, countries, and challenges. You will learn things that you can take with you and apply to your life back at home.</p> <h2>12. Communicate With Loved Ones</h2> <p>Make an effort to remember birthdays, holidays, and important events. Your family and close friends can act as your support system when you need it, but you should put the time in and return the favor. Small gestures that show you are thinking about the people who love you go a long way, so take the extra five minutes to write a nice card and stick it in the mail, or schedule that quick Skype call &mdash; you won't regret it.</p> <h2>13. Examine What You Really Want in Life</h2> <p>It's easy to get caught up in the everything going on throughout your 20s, and people often forget to actually sit down and contemplate what it is they really want. <a href="http://www.quora.com/Tonya-Turpin">Tonya Turpin</a>&nbsp;advised that you &quot;actively, and with intent, become aware of the world and everything it holds. Not just about the outside world, but also the one in your head. Spend time alone because it is the only true way to get to know yourself. Be curious and question everything.&quot; Make the time to figure out what you love, and map out a plan of how to get it.</p> <div class="field field-type-text field-field-blog-teaser"> <div class="field-items"> <div class="field-item odd"> When we&#039;re in our 20s we feel possibility ahead of us as nearly infinite. Grasp it by laying the foundation of your future when you&#039;re young, smart, and full of health. </div> </div> </div> <div class="field field-type-text field-field-guestpost-blurb"> <div class="field-label">Guest Post Blurb:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <p style="text-align:center;"><a style="border:none;" href="http://www.savvysugar.com"><img style="height:95px; width:300px" src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u921/POPSUGARrgb.jpg" alt="" /></a></p> <p><em>This is a guest contribution from our friends at </em><a href="http://www.savvysugar.com/"><em>POPSUGAR Smart Living</em></a><em>. Check out more useful articles from this partner:</em></p> <ul> <li><a href="http://www.popsugar.com/smart-living/Uses-Old-Books-23418154#photo-23418154">21 Uses For Old Books</a></li> <li><a href="http://www.popsugar.com/smart-living/Inspirational-Quotes-36634903#photo-36634903">46 Quotes From Reddit That Will Change Your Life For the Better</a></li> <li><a href="http://www.popsugar.com/smart-living/How-Shorten-Cleaning-Time-22498197">The Lazy Girl's Guide to a Clean Home</a></li> </ul> </div> </div> </div> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/popsugar-smart-living">POPSUGAR Smart Living</a> of <a href="http://www.wisebread.com/invest-your-time-in-these-13-things-while-youre-in-your-20s">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/16-ways-you-are-causing-road-rage">16 Ways You Are Causing Road Rage</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-reasons-alone-time-is-good-for-your-soul">9 Reasons Alone Time Is Good For Your Soul</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/financial-tricks-to-master-for-a-happier-life">Financial Tricks to Master for a Happier Life</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/will-that-thing-really-change-your-life">Will That Thing Really Change Your Life?</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/sensible-ways-to-raise-cash-for-a-wedding">Sensible Ways to Raise Cash for a Wedding</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> General Tips Lifestyle Personal Development 20s career retirement planning Fri, 27 Mar 2015 09:00:07 +0000 POPSUGAR Smart Living 1302679 at http://www.wisebread.com 4 Ways to Boost Your 401(k) Returns http://www.wisebread.com/4-ways-to-boost-your-401k-returns <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-ways-to-boost-your-401k-returns" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/businessmen-meeting-handshake-200402197-001-small.jpg" alt="businessmen meeting handshake" title="businessmen meeting handshake" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Employer-sponsored 401(k) plans are powerful retirement vehicles. Beyond empowering you to take the first (and perhaps most important) step toward retirement savings, 401(k) contributions are also made using pre-tax income, meaning they can reduce your current income tax obligation, too. (See also: <a href="http://www.wisebread.com/if-you-want-your-401k-to-grow-stop-doing-these-6-things?ref=seealso">If You Want Your 401(k) to Grow, Stop Doing These 6 Things</a>)</p> <p>But the benefits of 401(k) plans don't end there &mdash; consider these additional ways to power charge your plan for maximum returns.</p> <h2>1. Get a Full Company Match</h2> <p>The most attractive benefit of 401(k)s is that most corporations match some percentage of your contributions, up to 6% of your salary. Let's say you earn $50,000 per year, and your company matches 100% of your contributions, up to 6% of your salary. That's a $3,000 per year match &mdash; or in other words, it's $3,000 in free money. Of course, not all companies offer such generous matches, but consider contributing as much as your company will match in order to maximize this source of free retirement money.</p> <h2>2. Choose Low-Fee Funds</h2> <p>The fees you pay on your investments can seriously erode your earnings. The SEC notes that even a 1% annual fee paid on a $100,000 portfolio will cost you $28,000 over 20 years. Yikes! That's why keeping your fees low &mdash; by choosing passively managed index funds or ETFs, where possible &mdash; is so important. Not only do you get to keep more of your money, but you also get to enjoy the extra growth on that money, thanks to the effect of compounding. All 401(k) plan offerings are required to disclose their fees; aim to select offerings with fees below 1%.</p> <p>Actively managed mutual funds often have the highest fees, so check the fine print.</p> <h2>3. Diversify</h2> <p>401(k) plans offer hassle-free strategic investing, including the ability to diversify your investments in order to help reduce risk. Often, a major investment firm like TD Ameritrade, Vanguard, or T.Rowe Price manages the plan and has worked with your employer to offer a variety of options which enable you to diversify your investments. But it's up to you to make use of them.</p> <p>If you don't feel comfortable creating your own diversified set of selections, consider choosing a broad index fund or Target-Date Fund. The latter selects investments based on your expected retirement date, automatically adjusting for risk and return profiles over time. This enables you to capture many of the benefits of diversification, without actively selecting several funds.</p> <h2>4. Rollover 401(k) Plans When You Change Employers</h2> <p>Most of us change jobs (and even careers) throughout our lives, but frequent job-switching shouldn't prevent you from participating in a 401(k). And if and when you leave a job, you can rollover your plan's assets into your new company's 401(k). If you're moving to a role that doesn't offer a 401(k) (such as a small company, or self-employment), avoid paying huge early withdrawal fees by rolling over to an IRA within 60-days of cashing out.</p> <p>If you're considering job offers, take into account a company's benefits package. It is one of the most important things to consider next to compensation. Seek an employer that offers a 401(k), and preferably one that offers matched contributions. Without a strong retirement plan, you're likely just extending the number of years you'll need to work, so proceed accordingly.</p> <p><em>What are you doing to supercharge your 401(k)?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/qiana-chavaia">Qiana Chavaia</a> of <a href="http://www.wisebread.com/4-ways-to-boost-your-401k-returns">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/7-ways-to-keep-your-retirement-funds-from-disappearing">7 Ways to Keep Your Retirement Funds From Disappearing</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/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account: What&#039;s Available, and What’s Best for You?</a></span> </div> </li> <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-simple-ways-to-boost-an-underperforming-401k">5 Simple Ways to Boost an Underperforming 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-why-you-cant-postpone-planning-for-your-retirement-and-how-to-start">This Is Why You Can&#039;t Postpone Planning for Your Retirement (And How to Start)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) investing retirement planning Thu, 04 Dec 2014 15:00:21 +0000 Qiana Chavaia 1263266 at http://www.wisebread.com The Five Types of People Who Never Retire (Are You One of Them?) http://www.wisebread.com/the-five-types-of-people-who-never-retire-are-you-one-of-them <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-five-types-of-people-who-never-retire-are-you-one-of-them" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man-busy-office-166114539-small.jpg" alt="man busy office" title="man busy office" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p style="margin-left: 40px;">&quot;I actually think the whole concept of retirement is a bit stupid, so yes, I do want to do something else. There is this strange thing that just because chronologically on a Friday night you have reached a certain age&hellip; with all that experience, how can it be that on a Monday morning, you are useless?&quot; &mdash; Stuart Rose</p> <p>What springs to mind when you think about retirement? I wistfully think about sleeping in, and not using a time clock (which I despise). But for other people, the word &quot;retirement&quot; causes shudders. (See also: <a href="http://www.wisebread.com/will-you-ever-be-able-to-retire?ref=seealso">Will You Ever Be Able to Retire?</a>)</p> <p>Consider these five categories of people who will never retire. Are you among them?</p> <h2>1. The Broke Non-Retiree</h2> <p>Personally, I find this the most unsettling scenario. Whether due to poor financial planning or heavier-than-anticipated financial needs, more and more older workers continue to find themselves in the labor pool. According to the Center for Public Affairs Research, a 2013 survey revealed that a startling 47% now <a href="http://www.apnorc.org/PDFs/Working%20Longer/NORC-AP-NORC-Working-longer.pdf">plan to retire at a later age</a> than they expected when they were 40. The survey also found that 39% of workers age 50 and older report having $100,000 or less saved for retirement, not including pensions or homes; 24% have less than 10,000.</p> <p>Maybe it's time to take stock of your financial future by <a href="http://moneyover55.about.com/od/preretirementplanning/a/estimate_expenses_in_retirement.htm">estimating your retirement expenses</a>.</p> <h2>2. The Workaholic</h2> <p>There is a difference between the person who enjoys work, and does so with enthusiasm, and the person whose life is out of balance and cannot stop working. Perhaps you have run across some of these in your work, too. As the Wall Street Journal explains, workaholics have<a href="http://online.wsj.com/articles/for-some-retirement-brings-grief-1414886644?mod=e2tw"> difficulty transitioning from work to retirement life</a>, because so much of their identity, social network, and purpose is tied to their career. They can feel adrift in retirement without the structure work provides.</p> <p>When working is almost an addiction, it can be devastating to face retirement. One of my former co-workers springs to mind. Although qualified to retire for years, she fought it tooth and nail, taking work home and working weekends. Even when finally convinced by management that it was time for her to step down, she would find excuses to drop by the office, or call people to have lunch. If you recognize yourself in this description, there is help available. Consider support groups, such as <a href="http://www.workaholics-anonymous.org/page.php?page=home">Workaholics Anonymous</a>, which aim to help workaholics develop coping skills and the ability to relax during downtime.</p> <h2>3. The Successful Investor</h2> <p>You may know some people in this category. They bought rentals, years ago, and now are landlords. Or perhaps they bought silver or gold, or learned how to effectively invest in the stock market. There is a common thread here: They got moving, educated themselves, and by their 50s, were enjoying a leisurely lifestyle. But that doesn't mean they want to (or can) stop. Many keep at it, repairing their rentals, or checking their investments every day. They've made being a successful investor their life's work, and they have no need to &quot;retire&quot; from it.</p> <h2>4. The Life Re-Inventor</h2> <p>Starting a new career later in life can be an invigorating way to re-invent yourself. My friend Nancy, a former school art teacher, began working with the mentally ill, eventually started teaching classes, and is now co-authoring a book about art therapy. She finds it tremendously rewarding and has learned a lot of new things. Her husband, an engineer, always wanted to be a teacher, so he started volunteering at a school. He was so successful at tutoring, he was shortly offered a paying position.</p> <p>For my friends, the career switch was fairly easy. However, you certainly wouldn't want to quit your present job and jump into something new without doing some research and soul-searching. Will your new career help fulfill life ambitions? Will it offer a large enough paycheck to make the switch and time investment worthwhile? (See also: <a href="http://www.wisebread.com/6-ways-to-avoid-running-out-of-money-in-retirement?ref=seealso">6 Ways to Avoid Running Out of Money in Retirement</a>)</p> <h2>5. The Mega-Successful Lifers</h2> <p>Consider the lives of the truly, astoundingly successful. For a mega-successful CEO or famous actor, the demand for their talents are so high, that there's less incentive to quit working. According to a study by Merrill Lynch and Age Wave, the <a href="http://nbr.com/2014/07/22/millionaires-never-retire/">desire to keep working</a> until the last day is common to over 60% of the wealthy. But you don't have to be filthy rich or famous for this to be true of you, too. Evidence also suggests that many people who are successful in more realistic endeavors &mdash; such as artists, small business owners or physicians &mdash; also feel the incentive to continue using their talents until the very last day. Will you?</p> <p><em>What are your retirement plans? Do you see yourself in one of these categories? Please share in comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/marla-walters">Marla Walters</a> of <a href="http://www.wisebread.com/the-five-types-of-people-who-never-retire-are-you-one-of-them">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-to-keep-your-retirement-funds-from-disappearing">7 Ways to Keep Your Retirement Funds From Disappearing</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/dont-despair-over-small-retirement-savings">Don&#039;t Despair Over Small Retirement Savings</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement retire retirement planning Wed, 26 Nov 2014 16:30:17 +0000 Marla Walters 1260444 at http://www.wisebread.com 7 Ways to Keep Your Retirement Funds From Disappearing http://www.wisebread.com/7-ways-to-keep-your-retirement-funds-from-disappearing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-ways-to-keep-your-retirement-funds-from-disappearing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/mature-couple-finances-488124131-small.jpg" alt="mature couple finances" title="mature couple finances" class="imagecache imagecache-250w" width="250" height="124" /></a> </div> </div> </div> <p>More than one-third of Americans have <a href="http://www.cbsnews.com/news/shocking-number-of-americans-have-no-retirement-savings/">no retirement savings</a>.</p> <p>This shocking figure should provide a wake up call and set you on your course to better prepare for retirement. Even if you haven't started yet, it's never too late. (See also: <a href="http://www.wisebread.com/this-is-the-basic-intro-to-having-a-retirement-fund-that-everyone-needs-to-read?ref=seealso">This Is the Basic Intro to Having a Retirement Fund That Everyone Needs to Read</a>).</p> <p>No matter the size of your retirement account, here are seven effective strategies to help you keep your retirement account from disappearing.</p> <h2>1. Borrow as Little as Possible From a Retirement Fund</h2> <p>Sometimes finding good financing options can be difficult. That's when you may start eyeing your 401(k) for a loan. While you may think that it is easy to pay those funds back, statistics show that's not the case. Every year Americans default on about <a href="http://money.cnn.com/2012/07/17/retirement/401k-loan-defaults/">$37 billion in 401(k) loans</a>.</p> <p>If you are unable to pay back your 401(k) loan within five years, you're hit with a double whammy:</p> <ul> <li>The unpaid balance becomes an early withdrawal from your 401(k), receives a 10% early distribution tax penalty from the IRS, and becomes taxable income as well.<br /> &nbsp;</li> <li>You cannot make up for those contributions to your retirement account. Every year you have a contribution limit, and if you don't use it, you lose it!</li> </ul> <p>There are very, very few instances in which you should borrow from your retirement fund. One of those few instances is when you need a down payment for a home purchase. (See also: <a href="http://www.wisebread.com/this-is-when-you-should-borrow-from-your-retirement-account?ref=seealso">This Is When You Should Borrow From Your Retirement Account</a>)</p> <h2>2. Set Up an Emergency Fund</h2> <p>26% of Americans have <a href="http://blogs.wsj.com/numbers/one-in-four-americans-has-no-emergency-savings-1467/">no emergency savings</a>.</p> <p>This is a major reason retirement disappears. You need to plan ahead and have enough saved up to cover your income for at least six months. In 2014, only 40% of Americans are able to save enough to cover at least three months. Don't become part of that statistic and start saving today towards a rainy day.</p> <p>Having an emergency fund does away with the need to tap your retirement accounts. Your nest egg should be your very last resort for money before retirement. However, don't just stop with maintaining an emergency fund: Create a detailed plan of action for when disaster strikes. (See also: <a href="http://www.wisebread.com/emergency-plan-better-than-an-emergency-fund?ref=seealso">Emergency Plan: Better Than an Emergency Fund</a>)</p> <h2>3. Avoid Early Withdrawal Penalties</h2> <p>In 2010, penalized 401(k) withdrawals hit a <a href="http://business.time.com/2013/01/23/cash-leaking-out-of-401k-plans-at-alarming-rate/">record high of almost $60 billion</a>. Taking early withdrawals (also known as distributions) puts a heavy toll on your nest egg. Not only are you responsible for the applicable income taxes, but also you have to pay the 10% additional early distribution tax.</p> <p>Fortunately, the IRS does provide some <a href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics&mdash;-Tax-on-Early-Distributions">exceptions to the 10% additional tax on early distributions</a>. For example, you can withdraw early without penalty:</p> <ul> <li>From eligible IRA, SEP, Simple IRA, and SARSEP plans for qualifying higher education expenses for your spouse or immediate family members;<br /> &nbsp;</li> <li>From eligible retirement plans, including 401(k) plans, for unreimbursed medical expenses exceeding 10% of your income; and<br /> &nbsp;</li> <li>Up to $10,000 from eligible traditional IRA plans for <a href="http://money.usnews.com/money/blogs/my-money/2013/10/28/using-your-ira-for-a-downpayment">first-time home purchases or substantial home improvements</a>.</li> </ul> <p>While there exceptions to the 10% additional tax, there are no exceptions to applicable income taxes, including capital gains. Consult your financial advisor before attempting any early withdrawals from your retirement accounts.</p> <h2>4. Minimize Management Fees</h2> <p>Talking about retirement plan managers, you need to check how much you are paying in plan management fees. According to an <a href="http://assets.aarp.org/rgcenter/econ/401k-fees-awareness-11.pdf">AARP study on 401(k) participants</a>, about three in five Americans are unaware of how much they are paying in fees for their retirement accounts, and almost one in three is unsure of the impact of fees in their retirement savings.</p> <p>A good rule of thumb is that your total expense ratio should be no more than 1%. For example, if you have $30,000 in retirement savings, your total management expense should be no more than $300. If you're getting charged more than that, it is time to dump that plan and look for more reasonable alternatives.</p> <p>If you have several retirement accounts from previous employers, evaluate if it makes sense to roll over all those balances into your retirement account with the smallest management fees. Before initiating the rollover, review all applicable fees and eligibility rules.</p> <h2>5. Stop Playing the Market</h2> <p>When you hear about &quot;a hot stock tip,&quot; you should walk away. Like Benjamin Franklin said, the only sure things in life are death and taxes. Nearly half of 401(k) plan owners don't know what their <a href="http://money.msn.com/investing/why-workers-are-botching-their-401k-investments">best investment options</a> are.</p> <p>There are several problems with playing the market on your own.</p> <ul> <li>Most retirement plans charge fees for every transaction that you make. Remember that you want to <em>minimize </em>fees.<br /> &nbsp;</li> <li>Trying to juggle your day job and the stock market may cause a lot of unneeded stress.<br /> &nbsp;</li> <li>The average actively managed mutual fund returns <a href="http://www.fool.com/School/MutualFunds/Performance/Record.htm">approximately 2% less per year than the stock market</a>. And these are the pros that do it for a living!</li> </ul> <p>Keep in mind at all times that getting to your retirement goal isn't a sprint; it's a marathon.</p> <h2>6. Participate in Employer-Sponsored Plans</h2> <p>If you have the option of signing up for an employer-sponsored retirement program, do it. Nine in 10 Americans participating in <a href="http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&amp;content_id=5362">employer-sponsored retirement plans</a> actually save for retirement. Trying to save on your own is much harder and requires a lot of self-discipline. This is why only two in 10 Americans are able to have a nest egg without an employer-sponsored plan.</p> <p>There are two additional benefits to participating in employer-sponsored plans. First, some of them match your contributions. The <a href="http://www.americanbenefitscouncil.org/documents2013/401k_stats.pdf">average employer match is 4.5% of pay</a> to a retirement account. Don't leave free money on the table. Second, <a href="http://www.shrm.org/research/surveyfindings/articles/documents/13-0245%202013_empbenefits_fnl.pdf">more than half of companies offer some type of investment advice</a>. This is valuable and free information to make more informed decisions about your retirement strategy.</p> <h2>7. Consider Annuities</h2> <p>Why?</p> <ul> <li>Some types of annuities guarantee a steady stream of income.<br /> &nbsp;</li> <li>Like retirement plans, annuities allow you to defer taxes until retirement.<br /> &nbsp;</li> <li>Unlike retirement plans, annuities have no contribution limits.<br /> &nbsp;</li> <li>Some annuities offer upside income potential, while guaranteeing your original investment or a minimum return on your investment to your beneficiaries in case of your death.<br /> &nbsp;</li> <li>Annuities allow older individuals to make additional catchup contributions.</li> </ul> <p>There are different types of annuities, so make sure to review and understand the applicable rules, such as required initial investments and applicable fees. Talk with your financial advisor about whether or not annuities make sense with your retirement planning strategy. (See also: <a href="http://www.wisebread.com/dont-know-what-annuities-are-you-might-be-missing-out?ref=seealso">Don't Know What Annuities Are? You Might Be Missing Out</a>)</p> <p><em>What are other useful strategies to avoid a disappearing retirement? Please share in comments below!</em></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/7-ways-to-keep-your-retirement-funds-from-disappearing">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-ways-to-boost-your-401k-returns">4 Ways to Boost Your 401(k) Returns</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/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account: What&#039;s Available, and What’s Best for You?</a></span> </div> </li> <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-simple-ways-to-boost-an-underperforming-401k">5 Simple Ways to Boost an Underperforming 401(k)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-cash-rich-retirement">Book review: Cash-Rich Retirement</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-why-you-cant-postpone-planning-for-your-retirement-and-how-to-start">This Is Why You Can&#039;t Postpone Planning for Your Retirement (And How to Start)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) annuity investing retirement planning Mon, 20 Oct 2014 13:00:06 +0000 Damian Davila 1237800 at http://www.wisebread.com 6 Thoughts Everyone Has Their First Day of Retirement http://www.wisebread.com/6-thoughts-everyone-has-their-first-day-of-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/6-thoughts-everyone-has-their-first-day-of-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/retirement-thinking-177547670-small.jpg" alt="man thinking" title="man thinking" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>It's a major milestone in anyone's life: retirement. You spend so many hours dreaming about just what you'll do with the time, that when it happens, you often aren't prepared for the reality of it. Retirement isn't always the answer to the unfulfilled life that many expect it to be, however, and some even struggle with the new way of life. (See also: <a href="http://www.wisebread.com/12-things-you-didnt-know-about-retirement?ref=seealso">12 Things You Don't Know About Retirement</a>)</p> <p>Getting a handle on the new feelings can take time. Here are a few of the initial reactions to the new season, along with some tips for keeping everything in perspective.</p> <h2>1. What Will I Do With All the Time?</h2> <p>Going from a full-time career to no job at all can be a jarring experience, one that can even feel like a loss to some. In addition, &quot;Many new retirees are concerned about how they will fill up their new found free time after retiring,&quot; says Hank Coleman, publisher of the popular site, <a href="http://moneyqanda.com/">Money Q&amp;A</a>. &quot;It can be beneficial for new retirees to take retirement for a test drive. You may want to consider a mini-retirement for a few months before you take the plunge full-time. Maybe you have a hobby or a side business that you want to pursue. Use some of your vacation days before retiring to try out what you'll be doing when you finally cut the work cord for good.&quot;</p> <h2>2. How Can I Stay On Track With My Nest Egg?</h2> <p>Outliving your retirement savings is a legitimate concern for many, and it's one that shouldn't be overlooked. Even if you've done the math and are confident that you can make your savings last, it's best to continue using a budget and assess your progress at least every six months. Check in with your accounts at the end of each year, and see how tax changes, new Medicare laws, or other legislation could positively or negatively affect your monthly living expenses. Make adjustments as needed.</p> <h2>3. Should I Stay or Should I Go?</h2> <p>If your retirement plans included getting away, or possibly even moving, it may be tempting to do so right away. Like any expensive or life-changing decision, however, it's always good to go into it informed. And while plenty of websites are always stating their opinions on the top locations to retire, the logistics of uprooting your home in your retirement years can be stressful. Things to consider &mdash; in addition to cost of living or climate &mdash; should include proximity to the family that may care for you in your older years. (See also: <a href="http://www.wisebread.com/5-incredible-places-to-retire-abroad-that-anyone-can-afford?ref=seealso">5 Incredible Places to Retire Abroad That Anyone Can Afford</a>)</p> <h2>4. Who Am I Now?</h2> <p>If you took pride in your career, or simply identified with your occupation for so long that you don't have a world outside of it, it may be tempting to consider yourself as &quot;just a retiree.&quot; It's not necessary to consider yourself so closely tied to your profession &mdash; or lack of. Start to take inventory of your gifts, skills, and character traits outside of your 9-to-5; you may be surprised to find that you can have an identity built on the kind of person you are, despite having just considered yourself the sum of our working years.</p> <h2>5. How Will This Affect My Relationships?</h2> <p>&quot;When a man retires, his wife gets twice the husband but only half the income.&quot; &mdash; Chi Chi Rodriguez&quot;</p> <p>This vintage joke never gets old, and it couldn't be truer. One of the toughest adjustments to retirement happens when couples find they instantly have more hours in their day to spend together. For the entrepreneur or couple who works with their significant other already, it's not as dramatic as the office worker who now gets to see their partner for an additional 50 or 60 hours a week. Don't feel that you have to spend it all together, however; many couples find that having separate hobbies well into their retirement is the key to a happy rest of their lives together.</p> <h2>6. Is This It?</h2> <p>Retirement should be celebrated, but for many, it also gets them thinking about death. The final years of life &mdash; whether they be just a few, or more than 30 &mdash; can be met with anxiety and uncertainty. (See also: <a href="http://www.wisebread.com/dont-let-poor-health-kill-your-retirement-fund?ref=seealso">Don't Let Poor Health Kill Your Retirement Fund</a>)</p> <p>One way to combat the tensions and worry that some new retirees face is to made a proactive plan toward preventative health care and finding hobbies that can prolong life. Activities around exercise, healthy foods, or relieving stress can be enjoyable well into old age, and they are just the sort of things that can help make the later years vibrant, too. Look for other retirees to share these experiences with; signing up for a seniors cooking class, for example, can give life skills for meeting upcoming health challenges and can introduce you to new faces to spend those work-free days with.</p> <p><em>Are you retired? What did you think on your first days of retirement?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/linsey-knerl">Linsey Knerl</a> of <a href="http://www.wisebread.com/6-thoughts-everyone-has-their-first-day-of-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-15"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-should-you-have-saved-for-retirement-by-30-40-50">How Much Should You Have Saved for Retirement by 30? 40? 50?</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-things-people-who-retire-early-do">9 Things People Who Retire Early 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/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> <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-five-types-of-people-who-never-retire-are-you-one-of-them">The Five Types of People Who Never Retire (Are You One of Them?)</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/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement retirement planning retiring where to retire Wed, 08 Oct 2014 13:00:04 +0000 Linsey Knerl 1227988 at http://www.wisebread.com The Only 4 Things You Need to Do to Start Investing http://www.wisebread.com/the-only-4-things-you-need-to-do-to-start-investing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-only-4-things-you-need-to-do-to-start-investing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-466310089.jpg" alt="stacks of coins" title="stacks of coins" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Do you want to get rich through investing one day? Do you think it's even possible? Well, it is. And the best part about investing is that it's simple.</p> <p>It's not a get-rich-quick scheme, and it's also not rocket science.</p> <p>I'm going to show you four simple and actionable steps you can take. After reading this article, you'll be able to just follow the directions and start investing right away. Really, there are just four steps.</p> <p>Let's begin.</p> <h2>1. Choose an Investment Company</h2> <p>Before you can invest, you need to choose an investment company to invest with. There are tons of options out there, including Fidelity, Schwab, and T. Rowe Price. But I'm going to recommend the company that I think is the best. And that company is Vanguard.</p> <p>Why are they the best? Because the company is owned by its investors, which means that the company's interests are aligned with those of their clients.</p> <p>One specific way they show this alignment is by sharing their profits with their investors, using the profits to lower the fund fees for them (fund fees are expenses you pay no matter where you invest). So the benefit to you as a client is that you get to invest in funds that are some of the lowest cost in the industry. (See also: <a href="http://www.wisebread.com/a-guide-to-online-brokers-for-investing-newbies-and-beyond?ref=seealso">Online Brokers for Newbies</a>)</p> <h2>2. Open an Account</h2> <p>Now that you have a company to invest with, you need to <a href="https://personal.vanguard.com/us/openaccount?CompLocation=Home&amp;Component=OpenAccntLnk">open an account</a>. Here, you have a few options.</p> <p>If you meet the <a href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-for-2014">income requirements</a>, you can open a Roth IRA, which is a retirement account that comes with some unique tax benefits. You can also open a traditional IRA or general savings account.</p> <p>To open an account, all you need is to enter some basic personal information, and it only takes about 10 minutes. If you want to speak to someone and have them walk you through the process, the bigger brokerages such as Vanguard have efficient customer service departments.</p> <h2>3. Pick an Investment</h2> <p>After you've opened an account, the next step is to choose your investment. And just as there are many investment companies to choose from, there are many types of investments to choose from as well.</p> <p>But again, I'm going to recommend what I think is the best option for most beginning investors. And that is a <a href="https://investor.vanguard.com/mutual-funds/target-retirement/#/">Target Retirement Fund</a>.</p> <p>Why? Because they follow all the rules of effective investing. The details behind these rules are beyond the scope of this article, but they include:</p> <ul> <li> <p>choosing an asset allocation,</p> </li> <li> <p>diversification,</p> </li> <li> <p>regular rebalancing; and</p> </li> <li> <p>low cost.</p> </li> </ul> <p>All you need to do is choose the fund with the year closest to the time you expect to retire. For instance, if you're 32 years old and expect to retire in about 31 years, you'd choose the Target Retirement 2045 Fund.</p> <h2>4. Invest Regularly and Often</h2> <p>Lastly, after you've chosen your investment, you need to add money to it. And the sooner you start, the more you'll have later. (See also: <a href="http://www.wisebread.com/dollar-cost-averaging-my-path-to-becoming-a-not-so-nervous-investor?ref=seealso">Dollar-Cost Averaging Is One Path to Confident Investing</a>)</p> <p>For instance, let's say you start at age 35 and invest $5,000 every year for 30 years. If your investments grow 8% each year, by the time you're age 65 you'll have just under $612,000.</p> <p>That's not bad. But check this out.</p> <p>Let's say you start 10 years earlier &mdash; at age 25 &mdash; and invest $5,000 every year for just 20 years &ndash; 10 years less than our example above. And again, let's say your investments grow 8% each year. Even though you stopped adding money at age 45, by the time you're 65 you'll have over a million dollars.</p> <p>In other words, by starting just 10 years earlier, you can invest $50,000 less, and still end up with over $540,000 more than the person who started later.</p> <p>So the key to getting rich is investing as much as you can, as early as you can, and as often as you can. And to make this easy for you, you can set up your account to have money automatically invested from your checking account. That way, you make money regularly, without any effort on your part.</p> <p>Check out <a href="http://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx">this calculator</a>, where you can play with different numbers to see just how much money you can end up with.</p> <p>Now you know the simple steps to begin investing. Get started now, and you'll be making money in no time.</p> <p><em>Have you set up a basic investment account with one of the big brokerages like Vanguard? Share your experience in comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/darren-wu">Darren Wu</a> of <a href="http://www.wisebread.com/the-only-4-things-you-need-to-do-to-start-investing">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/help-your-teenager-earn-their-first-million">Help Your Teenager Earn Their First Million</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/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-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/6-ways-to-avoid-running-out-of-money-in-retirement">6 Ways to Avoid Running Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/knowing-when-to-walk-away-financial-planning-for-an-unknown-ending">Knowing When to Walk Away: Financial Planning for an Unknown Ending</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-essential-truths-for-a-successful-retirement">7 Essential Truths for a Successful Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> General Tips Investment investment accounts mutual fund investing retirement planning simple investing Tue, 06 May 2014 08:24:19 +0000 Darren Wu 1137943 at http://www.wisebread.com Just Saving Isn't Enough: How Cash Flow Allocation Helps You Retire http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash-417690-small.jpg" alt="cash" title="cash" class="imagecache imagecache-250w" width="250" height="144" /></a> </div> </div> </div> <p>You&#39;ve probably heard the term &quot;asset allocation&quot; in discussions about retirement accounts and investing strategies. It&#39;s an important concept to understand and apply to your own finances. But don&#39;t be intimidated by the term or the complex definitions &mdash; the principle is a fairly simple one. (See also: <a href="http://www.wisebread.com/the-basics-of-asset-allocation">The Basics of Asset Allocation</a>)</p> <p>At its heart, asset allocation is about reducing your risk by not putting all your eggs in one basket. And that&#39;s achieved by diversifying &mdash; or spreading out &mdash; the number and types of your investments.</p> <h2>Define &quot;Assets,&quot; Please</h2> <p>OK, but what assets are we talking about, and what&#39;s the &quot;cash flow&quot; connection?</p> <p>The assets typically associated with asset allocation are stocks, bonds, and cash equivalents such as money market funds. These are the ones commonly included in professionally managed mutual fund retirement accounts like a 401(k) or 403(b). So the thinking is, if you effectively diversify within and across each of these three asset categories, you will reduce your investment risk and achieve a balance that matches your risk tolerance.</p> <p>And you will&hellip;at least among those assets.</p> <p>But do these three assets alone make for a comprehensive retirement strategy? Nope.</p> <p>For one thing, there are many other types of assets besides stocks, bonds, and cash that can &mdash; and should &mdash; contribute to your retirement plan. Which ones? Here&#39;s where the cash flow connection comes in. (See also: <a href="http://www.wisebread.com/boost-your-retirement-savings-fast-with-this-6-step-plan">6-Step Plan to Boost Your Retirement Savings Fast</a>)</p> <h2>Will Your Assets Pay the Bills?</h2> <p>If you think about it, your mutual fund retirement account will generate only one income stream during your retirement. From a cash flow perspective this stock/bond/money market mix essentially represents only one egg. And as we now know, relying on only one source &mdash; in this case only one cash flow source &mdash; is a risky strategy. Better to allocate across multiple sources.</p> <p>To see this more clearly let&#39;s step back and look at the bigger picture. A good place to start is with a definition of your ultimate retirement goal. The goal for most is financial independence, and that&#39;s measured by monthly income or cash flow. You will need enough non-salary monthly cash flow to pay your living expenses in retirement. The more &mdash; and the more diverse &mdash; your sources of cash flow, the more secure will be your retirement. (See also: <a href="http://www.wisebread.com/7-essential-truths-for-a-successful-retirement">7 Truths for a Successful Retirement</a>)</p> <p>Your 401(k), 403(b), IRA, or mutual fund retirement account portfolio of stocks, bonds, and cash equivalents gives you a good start. After you stop working you can use these assets to generate monthly cash flow in a number of ways:</p> <ul> <li>You can convert it to an annuity that pays you monthly for life.<br /> &nbsp;</li> <li>You can convert it to a savings account or CD and draw down a certain percentage of the account balance on a regular basis until it&#39;s exhausted.<br /> &nbsp;</li> <li>Or, if your cash flow needs are mostly met by other assets, you can keep the principal intact and just draw from the stock dividends and bond interest income.</li> </ul> <h2>Other Cash Flow Generating Assets</h2> <p>What other assets generate cash flow?</p> <p><strong>Company Pension</strong></p> <p>This usually takes the form of a monthly payment for life, but in some cases companies offer the option of a single lump sum payout. Your &quot;lump sum to cash&quot; conversion options are similar to those listed above for a traditional retirement account.</p> <p><strong>Rental Income From Real Estate</strong></p> <p>Unlike a company pension, you own this asset and can sell it at any time for a lump sum amount. But if it provides a steady stream of positive cash flow, you might want to keep it &mdash; for it&#39;s that rare asset that appreciates in value AND whose monthly income (from rents) can also grow to keep pace with inflation. (See also: <a href="http://www.wisebread.com/should-you-become-a-landlord-instead-of-selling-your-home">Should You Become a Landlord?</a>)</p> <p><strong>Business Income</strong></p> <p>Owning a rental property is essentially like owning a business. So owning all or part of a business provides similar options: sell your stake for a lump sum or retain an ownership interest that can provide a regular income stream (plus the added bonus of possible tax advantages).</p> <p><strong>Social Security</strong></p> <p>Like a company pension, you don&#39;t own this asset; your only choice is a guaranteed lifetime stream of monthly cash flow.</p> <h2>Plan Ahead to Create Multiple Cash Flow Streams</h2> <p>Some of these cash flow sources might not be available to you. Traditional company pensions, for example, are becoming a thing of the past. But all of the others are under your control, and it&#39;s not too late to include some in your retirement plans.</p> <p><strong>Seven Streams Into Our House</strong></p> <p>Our household&#39;s retirement goal, for example, is to include seven cash flow sources. My wife and I were fortunate enough to work for employers who offered traditional defined benefit pension programs. They will represent those sources of monthly income. We also have a 401(k) and IRA retirement account portfolio (#3), positive cash flow from a rental property (#4), two future Social Security payments (#s 5 and 6), and a business (#7). &nbsp;</p> <p>Looking ahead, I&#39;d also like to buy or share in the ownership of another rental property, which would raise our number to eight. So our goal, like yours, should be flexible and open to change. The important part is to set a goal &mdash; set your cash flow number &mdash; so you can start making plans to achieve it.</p> <p>And remember &mdash; as you move ahead with your plans that having multiple cash flow-generating assets is preferable to relying on only one or two, because it diversifies or lessens your risk. You can more easily absorb the loss of one out of seven sources of retirement income than the loss of one out of two. So seek opportunities to earn or acquire multiple sources of positive cash flow.</p> <p>Yes, practice asset allocation; but also practice cash flow allocation.</p> <p><em>Have you considered cash flow allocation in your retirement planning? Will you?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/keith-whelan">Keith Whelan</a> of <a href="http://www.wisebread.com/just-saving-isnt-enough-how-cash-flow-allocation-helps-you-retire">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-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-incredible-places-to-retire-abroad-that-anyone-can-afford">5 Incredible Places to Retire Abroad That Anyone Can Afford</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-to-keep-your-retirement-funds-from-disappearing">7 Ways to Keep Your Retirement Funds From Disappearing</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-occasions-when-you-should-definitely-hire-a-financial-advisor">7 Occasions When You Should Definitely Hire a Financial Advisor</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-one-third-of-americans-havent-saved-for-retirement">Why One-Third of Americans Haven&#039;t Saved for Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement asset allocation cash flow retirement retirement planning Tue, 22 Oct 2013 09:36:03 +0000 Keith Whelan 1028389 at http://www.wisebread.com Canada and U.S. Retirement Showdown: Which Offers More for Retirees? http://www.wisebread.com/canada-and-us-retirement-showdown-which-offers-more-for-retirees <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/canada-and-us-retirement-showdown-which-offers-more-for-retirees" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/4397782529_2a9bafc1fb_z.jpg" alt="painted faces" title="painted faces" class="imagecache imagecache-250w" width="250" height="141" /></a> </div> </div> </div> <p>Let&rsquo;s just say this &mdash; in all-out ground war between Canada and the U.S., Canada just can&rsquo;t compete. After all, Canada&rsquo;s defended by a few notoriously out-of-date military aircraft, and for some time, the country&rsquo;s largest fleet of submarines was making a tour around a pirate ship in a shopping mall.</p> <p>Of course, aside from a hard-fought game between the Boston Bruins and the Vancouver Canucks, there isn&rsquo;t much animosity between the two countries. After all, we have a lot in common. We share an official language, we have access to the same media and, in many cases, we share a lot of the same values. And here&rsquo;s another thing we have in common &mdash; in January 2012, LIMRA, an association of insurance companies, released <a href="http://insurancenewsnet.com/article.aspx?id=370016&amp;type=exclusiveinn#.UTe5nhyc5FY" target="_blank">a survey of pre-retirees in both countries</a> and found that about half in each said they weren&rsquo;t confident they could maintain their desired lifestyle during retirement. It&rsquo;s an interesting statistic because planning for retirement is quite different in the U.S. as compared to Canada.</p> <p>So, in the spirit of friendly cross border competition, I decided to put Canada and the U.S. head-to-head. Which country is best for retirees? Let&rsquo;s take a look at a few key factors. (See also:&nbsp;<a href="http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account:&nbsp;What's Available, and What's Best for You?</a>)</p> <h2>Retirement Plans</h2> <p>Let's start with the biggie. Which nation offers its residents the better retirement planning options?</p> <p><strong>The U.S.</strong></p> <p>In the U.S., people can opt to save for retirement using a number of different vehicles, including the Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, a qualified plan (including the 401(k) and profit-sharing plans), the 403(b) or some combination of these plans (<em>whew!</em>).</p> <p>Of course, not all of these programs are available to everyone &mdash; and many aren&rsquo;t suitable for everyone:</p> <ul> <li>With a Traditional IRA, you get a tax deduction for your contributions but are taxed when you withdraw the funds in retirement.</li> <li>With a <a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">Roth IRA</a> there&rsquo;s no tax deduction, but qualified withdrawals are tax-free.</li> <li>Employer-sponsored plans like 401(k)s and 403(b)s offer all sorts of other options.</li> </ul> <p>In a word, finding the right retirement plan &mdash; and following the rules &mdash; is notoriously complicated in the U.S. On the other hand, the number of choices available makes it easier for people to find just the right fit for their financial situation.</p> <p><strong>Canada</strong></p> <p>Besides the few remaining employer sponsored retirement plans, Canadians rely on the one, the only retirement saving tool available to them &mdash; the Registered Retirement Savings Plan (RRSP).</p> <p>In a nutshell, this plan allows working Canadians to contribute 18% of their earned income up to a maximum of $23,820 in 2013, and to deduct that contribution from their taxable income. The money isn&rsquo;t taxed until it is withdrawn during retirement. And compared to U.S. plans, RRSPs are subject to few rules and restrictions. It&rsquo;s basically a type of investment account, so people can invest in whatever they like and park that money in whatever bank they choose. As long as they stay within the contribution limits and avoid making early withdrawals, they won&rsquo;t run into any fees or red tape.</p> <p><strong>The Verdict: </strong>The U.S. is known as the land of opportunity and when it comes to retirement plans, it&rsquo;s got just about every option anyone could need. The problem is that with all the different plans and all their various rules about contributions, withdrawals and &quot;qualified distributions,&quot; things can get more than a little confusing. And all of this can serve to deter people from doing what really matters &mdash; saving their money.</p> <p>The RRSP is simple and the tax deduction encourages Canadians to save. I&rsquo;m going to give Canada the point on this one.</p> <h2>Government Sponsored Retirement Programs</h2> <p>In both nations, private retirement accounts are back-stopped by government support. Which is tops?</p> <p><strong>The U.S.</strong></p> <p>There are two government sponsored retirement programs in the U.S.: Supplemental Security Income (SSI) and Federal Old Age, Survivor and Disability Insurance (OASDI). The former provides benefit payments for very low income or disabled individuals. The latter, known as Social Security, has people contribute when they're employed and then provides retirement benefits later in life. In 2012, the maximum OASDI benefit is $2,513 per month at full retirement age, which is 67 as of 2012. During their careers, employees contribute 6.2% of their earnings to Social Security, a number that&rsquo;s matched by employers.</p> <p><strong>Canada</strong></p> <p>In Canada, the government sponsored retirement model has three pillars:</p> <ul> <li>Old Age Security (OAS), which provides a flat benefit to all qualifying Canadians but includes a clawback formula depending on retirement income.</li> <li>The Guaranteed Income Supplement (GIS), which provides additional benefits for low income retirees.</li> <li>The Canada Pension Plan (CPP) (or QPP in Quebec), which, like Social Security, provides benefits to Canadians based on their employment contributions.</li> </ul> <p>The big difference is the maximum benefit. For Canadians, CPP tops out at $987 per month at full retirement age, which is 65 years. OAS adds up to another $540 per month. In other words, most Canadians stand to get <em>a lot</em> less from the government when they retire. To be fair, Canadians also contribute less &mdash; 4.9% of earned income, which is also matched by their employer.</p> <p><strong>The Verdict:</strong> It&rsquo;s hard to argue that getting more money from the government is a sweet deal, but that money has to come from somewhere. That&rsquo;s part of the reason why Social Security may be unsustainable by 2033, <a href="http://www.cbo.gov/publication/43649" target="_blank">according to the Congressional Budget Office</a>, while (at least so far) <a href="http://www.cbc.ca/news/business/taxseason/story/2012/12/21/f-rrsp-2013-cpp-portfolio.html" target="_blank">CPP is well-funded</a> and sound enough to be around for future generations of Canadians.</p> <p>Who wins out on this one? It&rsquo;s a toss-up. Government-sponsored income is what keeps many people afloat, but although many people in Canada complain that the CPP doesn&rsquo;t go far enough, a higher payout comes at a cost. Plus, although in theory the low CPP payout should encourage Canadians to max out their RRSPs, many don&rsquo;t.</p> <h2>Health Care</h2> <p>Canada, with its government-funded health care system, would seem to be the clear winner here. Is it?</p> <p><strong>The U.S.</strong></p> <p>If there&rsquo;s one huge difference between retiring in Canada compared to retiring in the U.S.,and it&rsquo;s health care, says Dale Walters, a Certified Financial Planner and author of &quot;<a href="http://www.self-counsel.com/default/taxation-of-canadians-in-america.html" target="_blank">Taxation of Canadians in America</a>.&quot;</p> <p>&quot;Medicare, as a government-subsidized plan, is similar to the provincial health care in Canada, but there&rsquo;s a large portion that comes out of the retirees&rsquo; own pockets. So Americans have those ever-increasing health care costs to deal with,&quot; Walters said.</p> <p>A 2012 <a href="http://www.eurekalert.org/pub_releases/2012-09/ssm-hch090412.php">report</a> by the &quot;Journal of General Internal Medicine&quot; found that 75% of Americans who were eligible for Medicare paid at least $10,000 per year out of pocket for health care expenses, and that health care costs put seniors under major strain.</p> <p><strong>Canada</strong></p> <p>In Canada, basic health care is mostly funded by the federal government and the provinces. So, for the most part, visiting the doctor and being treating in hospital comes free of charge. And while additional costs such as prescription drugs and other medical supplies and products may have to be purchased by retirees or are only covered on a limited basis, you&rsquo;d be hard pressed to run up a five-figure health care bill in Canada, no matter how sick you got.</p> <p><strong>The Verdict:</strong> Whether the cost of health care is a real issue for a retiree in the U.S. depends on personal circumstances, but it&rsquo;s hard to deny that these costs can be dangerously high for some American seniors. That puts Canada on top here. But there&rsquo;s one big exception. If you need a hip replacement, an MRI or even just a trip to the emergency room, in Canada, <a href="http://www.nber.org/bah/fall07/w13429.html">you&rsquo;ll probably be in for a wait</a> &mdash; often a long one.</p> <h2>Taxes</h2> <p>Because retirees in both countries are earning less than in their working years, tax burden is relatively low. Where is it lower?</p> <p><strong>The U.S.</strong></p> <p>At a glance, the tax rates for Canada and the U.S. appear to be similar, but Walters says the marginal tax rate in the U.S. puts a smaller burden on those in the <a href="http://www.wisebread.com/tax-brackets-explained">highest income brackets</a> and provides more opportunity for tax breaks. The result? Significantly lower taxes.</p> <p>&quot;In the U.S., there is a big difference between gross income and taxable income. In Canada, those are pretty close together. That can mean paying about 30% less tax in the U.S. compared to Canada,&quot; Walters said.</p> <p><strong>Canada</strong></p> <p>Canadians hit the highest tax bracket (29%) at just over $130,000 in income, compared to nearly $400,000 to hit the maximum 35% tax rate in the U.S. For Canadians, that means higher taxes during their working years and, because of the relative lack of deductions, possibly in retirement as well. According to a 2012 <a href="http://www.cbsnews.com/8301-505144_162-57474364/canadas-favorite-tax-haven-the-u.s.a/">report</a> by CBS, Canada also tends to have higher sales tax. That&rsquo;s why the U.S. is increasingly being touted as a tax haven for Canadian retirees!</p> <p><strong>The Verdict:</strong> Canadians pay more taxes, which can make it harder to save for retirement and pay for what they need once they get there. In a straight comparison, the U.S. comes out on top here. I&rsquo;ll leave it to others to argue about who gets more for their money.</p> <h2>Cost of Living</h2> <p>It won't matter how much you've socked away for retirement if the stuff you need to buy costs too much.</p> <p>A bigger market means lower prices. So, thanks to a population that&rsquo;s nearly 10 times that of its neighbor to the north, the U.S. enjoys lower prices on just about everything. According to <a href="http://www.numbeo.com/cost-of-living/compare_countries_result.jsp?country1=Canada&amp;country2=United+States" target="_blank">Numbeo.com</a>, consumer prices are more than 16% lower in the United States than in Canada. And, of course, as a result of the recent crash in the real estate market, buying a home in a retirement-friendly Southern state is cheaper than ever.</p> <p><strong>The Verdict:</strong> The cost of living in the U.S. is considerably lower than it is in Canada. For American retirees, (and Canadian snowbirds) this is a good thing. The U.S. definitely scores a point over Canada here.</p> <h2>Climate</h2> <p>If there&rsquo;s one last thing that matters to a lot of retirees, it&rsquo;s climate. Unless you&rsquo;re one of the hardy few who love the icy winter wind that seems to be inescapable in most Canadian cities, the U.S. has Canada beat hands down on this one. According to Herschel Gavsie, an immigration attorney at Greenspoon Marder in Miami, this has lead to an increase in the number of &quot;endvestors,&quot; a term used to describe the growing ranks of real estate investors who&rsquo;ve been snapping up properties in the U.S., especially in warm, coastal states like Florida.</p> <p><strong>The Verdict: </strong>Many people envision living out their final days on a warm, sunny beach; just try finding one of those in Canada. Point for the U.S.</p> <p><strong>And the Winner Is...</strong></p> <p>This is hardly a scientific analysis, but I&rsquo;m going to give the win to Canada for one simple reason. According to Walters, Canadians tend to have more retirement savings and better financial knowledge than their aging American peers. Why is that a win? Because whether you&rsquo;re retiring in the United States or the Great White North, both systems have the resources to help you <a href="http://www.wisebread.com/6-ways-to-avoid-running-out-of-money-in-retirement">pave the way for a comfortable retirement</a>. The key is to learn about the programs and benefits available where you live and work to use them to your advantage.</p> <p>Oh, and if you feel like you&rsquo;re getting the short end of the stick, you can always take a hike to the closest border crossing. But be forewarned. You know what they say about the color of the grass on the other side of the fence.</p> <p><em>What do you think? Is the U.S. or Canada a better place for retirees? Share your insight and experience in comments!</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tara-struyk">Tara Struyk</a> of <a href="http://www.wisebread.com/canada-and-us-retirement-showdown-which-offers-more-for-retirees">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-6"> <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/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">Choosing a Retirement Account: What&#039;s Available, and What’s Best for You?</a></span> </div> </li> <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/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <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> <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-ways-to-keep-your-retirement-funds-from-disappearing">7 Ways to Keep Your Retirement Funds From Disappearing</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/retirement-planning-if-you-re-under-30">Retirement Planning If You’re Under 30</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement Canada health care IRAs retirement planning Fri, 15 Mar 2013 11:24:37 +0000 Tara Struyk 969768 at http://www.wisebread.com Choosing a Retirement Account: What's Available, and What’s Best for You? http://www.wisebread.com/choosing-a-retirement-account-whats-available-and-what-s-best-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/choosing-a-retirement-account-whats-available-and-what-s-best-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/6669056165_6b372449b9_z.jpg" alt="A pair of unoccopied green Adirondack chairs on the beach." title="lounge chairs at beach" class="imagecache imagecache-250w" width="250" height="159" /></a> </div> </div> </div> <p>You know you need to save for retirement, no matter how many years away retirement is for you. But understanding your choices and picking the right account may seem daunting.</p> <p>The most popular and talked about retirement accounts are the 401(k) and the Roth IRA. Both of these have well-deserved, mostly positive reputations. Many financial advisors recommend that you participate in your employer's 401(k) plan so you can:</p> <ul> <li>Receive matching contributions from your employer, boosting your retirement savings with no extra effort on your part<br /> &nbsp;</li> <li>Reduce your taxable income by the amount of your plan contributions (also known as &quot;elective deferrals&quot;), which lowers your tax liability<br /> &nbsp;</li> <li>Enroll in automatic payroll deductions to fund your account, making the entire process after the set-up mindless</li> </ul> <p>The Roth IRA is touted for different reasons. By contributing to this account, you can:</p> <ul> <li>Receive tax-free distributions in retirement (you'll pay ordinary income taxes on distributions from traditional accounts)<br /> &nbsp;</li> <li>Access funds with fewer restrictions and tax consequences compared to other retirement plans (see article on <a href="http://cashmoneylife.com/roth-ira-withdrawal-rules/" target="_blank">Roth IRA withdrawals</a> and <a href="http://www.irs.gov/publications/p590/ch02.html#en_US_2011_publink1000231061" target="_blank">IRS rules</a>)</li> </ul> <p>The downsides to these choices are that you have limited investment options and potentially high fees with the 401(k) plan while you don't get a tax deduction right now with the Roth IRA.</p> <p>But wait, there are even more nuances to consider.</p> <p>For example, your employer may not offer matching contributions or even have a 401(k) plan, or you may earn too much for a Roth IRA. So, you should figure out what types of accounts are available to you, sort through their features, and then pick the one (or ones) that are best for you. Let's get started! (See also:&nbsp;<a href="http://www.wisebread.com/6-ways-to-avoid-running-out-of-money-in-retirement">6 Ways to&nbsp;Avoid Running Out of Money in&nbsp;Retirement</a>)</p> <h2>Retirement Accounts and Their Features</h2> <p>There are various ways of categorizing the universe of retirement account options. An account may be employer sponsored or independent of your workplace.&nbsp;Contributions may be tax deductible when you fund the account (traditional) or distributions may be tax free in retirement (Roth).&nbsp;Your account may be characterized by defined contributions (such as an IRA with rules about the amount you can put in the account during your working years) or defined benefits (such as a pension plan with a specified payment stream in retirement).</p> <p>Features that you should evaluate before choosing an account include:</p> <ul> <li><strong>Contributions</strong>: Do you contribute to the account, does your employer, or both? Are there income or other eligibility restrictions to participate and make contributions?<br /> &nbsp;</li> <li><strong>Tax Benefits</strong>: What are the tax benefits of the account? Are these benefits restricted based on income or other requirements?<br /> &nbsp;</li> <li><strong>Investment Choices</strong>: Are you responsible for making investment decisions, and what are your investment choices?<br /> &nbsp;</li> <li><strong>Fees</strong>: What are the fees associated with the account?<br /> &nbsp;</li> <li><strong>Ownership and Access</strong>: Do you have full rights to the assets in the account immediately, and, if not, what is the <a href="http://retireplan.about.com/lw/Business-Finance/Personal-finance/What-Are-Vesting-Schedules-.htm" target="_blank">vesting schedule</a>? Can you access funds through a participant loan or withdrawal before retirement?</li> </ul> <p>To get the complete story on your account options, you'll need to read documents associated with plans sponsored by your employer, look at the types of accounts and investment selections offered by your financial institution, and consult with a financial and/or tax advisor.</p> <p>But, in general, the following retirement accounts have common characteristics.</p> <p><strong>Traditional 401(k) Plan</strong></p> <p>Many employers offer a traditional <a href="http://www.irs.gov/Retirement-Plans/401(k)-Plans" target="_blank">401(k) plan</a> that allows employees to save money for retirement. Funds are deducted from your paycheck and deposited in a <a href="http://retireplan.about.com/lw/Business-Finance/Personal-finance/Retirement-Plan-Custodians.htm" target="_blank">retirement account held in your name</a>.</p> <ul> <li><strong>Contributions</strong>: As an employee, you can contribute up to $17,500 per year. Your employer may also make a matching contribution. Combined annual contributions are capped at $51,000 or 100% of the employee's compensation. Catch-up contributions of up to $5,500 for those 50 or older can also be made. (Note that IRS restrictions may change based on cost-of-living adjustments.)<br /> &nbsp;</li> <li><strong>Tax Benefits</strong>: Your contributions reduce your taxable income when you fund the account. Earnings are tax deferred.<br /> &nbsp;</li> <li><strong>Investment Choices</strong>: You choose from a list of investment selections offered by your employer, the plan sponsor. Typically, these choices include mutual funds.<br /> &nbsp;</li> <li><strong>Fees</strong>: Expenses include 1) plan administrative fees; 2) investment fees, which may include sales commissions for mutual funds; and 3) fees incurred on specific transactions, such as borrowing from the account.<br /> &nbsp;</li> <li><strong>Ownership and Access</strong>: You own the funds you contributed to the account, but your employer&rsquo;s contributions may not be 100% available until you are fully vested. Borrowing is generally permitted but loan provisions are dictated by the plan's design. Distributions may be taken prior to retirement if you qualify for a <a href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/401(k)-Resource-Guide---Plan-Participants---General-Distribution-Rules">financial hardship</a>.</li> </ul> <p><em>Retirement Accounts Similar to the Traditional 401(k) Plan:</em></p> <ul> <li>The <a href="http://www.irs.gov/Retirement-Plans/IRC-457(b)-Deferred-Compensation-Plans" target="_blank">457(b) Plan</a> may be offered to employees and independent contractors of state and local governments and non-profit organizations.<br /> &nbsp;</li> <li>The <a href="https://www.tsp.gov/index.shtml" target="_blank">Thrift Savings Plan</a> is offered to federal government employees and members of uniformed services. Qualifying employees may receive <a href="https://www.tsp.gov/planparticipation/benefits/benefitsSummary.shtml" target="_blank">matching contributions</a> from their agencies.<br /> &nbsp;</li> <li>The <a href="http://www.irs.gov/publications/p571/ch01.html" target="_blank">403(b) Plan</a> may be available to employees of public schools, certain non-profit organizations, and others. However, <a href="http://www.403bwise.com/faqs/" target="_blank">investment options may consist of annuities</a> in addition to mutual funds.<br /> &nbsp;</li> <li>The <a href="http://www.retirementplans.irs.gov/choose-a-plan/401k-and-profit-sharing-plans/safe-harbor-401k/" target="_blank">Safe Harbor 401(k) Plan</a> is nearly identical to the 401(k) plan from an employee&rsquo;s perspective. However, funds contributed by employers are always fully vested.<br /> &nbsp;</li> <li>The Individual or <a href="http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans" target="_blank">One-Participant 401(k)</a> is available to the self-employed. You can contribute the lesser of 25% of your income or $51,000 annually.<br /> &nbsp;</li> <li><a href="http://www.irs.gov/Retirement-Plans/Designated-Roth-Accounts" target="_blank">Roth 401(k)s are designated Roth accounts held inside of a 401(k)</a>. However, contributions are not tax deductible. <a href="http://www.smartmoney.com/retirement/planning/understanding-the-roth-401k-17679/" target="_blank">Qualified distributions are excluded from income in retirement</a>.</li> </ul> <p><strong>Traditional IRA</strong></p> <p>An Individual Retirement Arrangement (IRA) gives you a vehicle to save money for retirement in a way that is not tied to an employer or specific job.</p> <ul> <li><strong>Contributions</strong>: All contributions are made by you and <a href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits" target="_blank">are limited to $5,500 per year (or $6,500 per year for those who are 50 and older)</a>.<br /> &nbsp;</li> <li><strong>Tax Benefits</strong>: You may be able to take a tax deduction for contributions, and earnings are tax deferred. Deductions are limited or eliminated for higher earners depending on your income, tax filing status, and availability of a retirement plan at work. (See tables to determine eligibility for those <a href="http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work" target="_blank">covered</a> and <a href="http://www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-NOT-Covered-by-a-Retirement-Plan-at-Work" target="_blank">not covered by a retirement plan at work</a>.)<br /> &nbsp;</li> <li><strong>Investment Choices</strong>: You can choose from investment options offered by your bank, brokerage firm, or other financial institution. These might include mutual funds, ETFs, individual stocks, and CDs. <a href="http://online.wsj.com/article/SB118947843631423511.html" target="_blank">Real estate can also be held in an IRA</a>.<br /> &nbsp;</li> <li><strong>Fees</strong>: You may incur account opening or maintenance fees, although <a href="http://www.wisebread.com/a-guide-to-online-brokers-for-investing-newbies-and-beyond" target="_blank">many online brokers have no-fee IRAs</a>. Investment costs may include stock trading fees as well as costs to purchase and redeem mutual funds.<br /> &nbsp;</li> <li><strong>Ownership and Access</strong>: You own the account, and all the money is yours. Participant loans are not permitted. Withdrawals prior to retirement can be made but are subject to a 10% penalty in addition to ordinary taxes associated with the distribution. There are <a href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Tax-on-Early-Distributions" target="_blank">exceptions</a> that allow you to avoid the penalty.</li> </ul> <p><em>Retirement accounts similar to the Traditional IRA:</em></p> <ul> <li>The <a href="http://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:--Payroll-Deduction-IRA" target="_blank">Payroll Deduction IRA</a> is a regular IRA but involves setting up a payroll deduction with your employer to fund the account.<br /> &nbsp;</li> <li>The <a href="http://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-SEP" target="_blank">SEP-IRA</a> is available to those who have self-employment income or work for a small business that offers the SEP as its retirement plan. Annual contributions can be made by the business owner only, generally up to $51,000 or 25% of your annual income, whichever is less.<br /> &nbsp;</li> <li>A <a href="http://www.irs.gov/Retirement-Plans/Plan-Sponsor/SIMPLE-IRA-Plan" target="_blank">SIMPLE IRA</a> allows both you and your employer to contribute to your IRA. You can contribute up to $12,000 each year plus $2,500 for catch-up contributions for those 50 and older. Employer contributions are typically 3% but may vary by plan.<br /> &nbsp;</li> <li><a href="http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Rollovers-of-Retirement-Plan-Distributions" target="_blank">Rollover IRAs</a> are accounts that have been created by transferring funds from 401(k) or similar plans to an IRA. (See also: <a href="http://www.wisebread.com/step-by-step-guide-to-rolling-over-your-old-401k" target="_blank">Step-by-Step Guide to Rolling Over Your Old 401(k)</a>)<br /> &nbsp;</li> <li>The <a href="http://www.irs.gov/Retirement-Plans/Roth-IRAs" target="_blank">Roth IRA</a> has many of the traditional IRA features. However, contributions are not tax deductible and qualified distributions are not subject to taxation. Also, you may not be able to contribute if your income is too high. (See table to <a href="http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013" target="_blank">determine the amount of Roth IRA contributions you can make</a>.)</li> </ul> <p><strong>Pension Plan</strong></p> <p>A pension plan is a commonly recognized <a href="http://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-Defined-Benefit-Plan" target="_blank">defined benefit plan</a>, which specifies the benefit you receive in retirement. Benefits are determined by a formula usually based on years of service and earnings while employed.</p> <ul> <li><strong>Contributions</strong>: The employer typically makes contributions on behalf of employee participants. Contributions from employees may be required or voluntary. Plan administrators make sure that contributions support the benefit that is promised to employees upon their retirement.<br /> &nbsp;</li> <li><strong>Tax Benefits</strong>: There are no special tax benefits for employees.<br /> &nbsp;</li> <li><strong>Investment Choices</strong>: The employer chooses the investments. Investment risk is largely borne by the employer, which must ensure that funds are available to provide employees with a specific amount of money.<br /> &nbsp;</li> <li><strong>Fees</strong>: Expenses are paid by the employer.<br /> &nbsp;</li> <li><strong>Ownership and Access</strong>: Your rights are dictated by the plan's design. Typically, you must work for the sponsoring employer for a certain number of years before becoming fully eligible to receive benefits in retirement. Participant loans may be permitted; in-service withdrawals are not allowed.</li> </ul> <p><em>Retirement Accounts Similar to the Pension Plan:</em></p> <ul> <li>A <a href="http://www.dol.gov/ebsa/FAQs/faq_consumer_cashbalanceplans.html" target="_blank">Cash Balance Plan</a> offers a defined benefit. However, this benefit is reported in terms of account balances (rather than a monthly payment) for each employee. Upon retirement, the employee can typically opt for an annuity or a lump-sum payment.</li> </ul> <h2>More Employer-Sponsored Plans</h2> <p>There are many more types of retirement plans that you may encounter during your career.</p> <ul> <li>A <a href="http://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-Money-Purchase-Plan" target="_blank">Money Purchase Plan</a> requires that your employer contribute a set percentage of your annual income each year to the retirement account. This contribution cannot exceed 25% of your income or $51,000. As an employee, you may be able to make non-deductible contributions to the plan. Participant loans are permitted but in-service withdrawals are not allowed.<br /> &nbsp;</li> <li>The <a href="http://www.irs.gov/Retirement-Plans/Choosing-a-Retirement-Plan:-Profit-Sharing-Plan" target="_blank">Profit-Sharing Plan</a> is similar to the Money Purchase Plan but does not have mandated contributions and employees cannot make contributions. The annual contribution amount may vary but must follow a formula so that profits are equitably distributed to all employees. In-service withdrawals are permitted.<br /> &nbsp;</li> <li>The <a href="http://www.esopassociation.org/explore/how-esops-work" target="_blank">Employee Stock Ownership Plan or ESOP</a> allows employers to contribute company stock to a retirement plan on behalf of its employees. Over time, employees become vested in the plan; that is, you take full ownership of the stock given to you.</li> </ul> <h2>Choosing a Retirement Account</h2> <p>Figuring out where to stash your money could start with a review of the retirement accounts offered by your employer. Look at the benefits, if any, offered without your contribution such as a pension plan or ESOP. Research the quality of your 401(k) or 403(b) by looking at plan reports and using online evaluation tools such as <a href="http://www.brightscope.com/">Bright Scope</a>; note the employer match in particular.</p> <p>Additional factors in your decision may include:</p> <ul> <li>Comfort in choosing investments and managing your own portfolio<br /> &nbsp;</li> <li>Uncertainty about future employment, particularly if you want to change jobs, return to school, <a href="http://www.wisebread.com/how-to-make-money-while-traveling-the-world" target="_blank">travel</a>, or stay at home with children<br /> &nbsp;</li> <li>Sources and amounts of annual income</li> </ul> <p>For general guidance, look at your current situation, state of mind, and plans for the future.</p> <p>If you are&hellip;</p> <ul> <li><strong>Really Busy</strong>: Use payroll deduction to participate in your employer's 401(k) or similar plan, particularly if you receive a match. Open an IRA when you have more time.<br /> &nbsp;</li> <li><strong>Controlling</strong>: Sock away money in an IRA so that you can invest at your discretion. A Roth IRA will give you better-than-average control over funds if you need access later, plus allow you to take distributions at your discretion and avoid taxes in retirement. <br /> &nbsp;</li> <li><strong>Eager</strong>: Open, fund, and manage as many accounts as you can, recognizing that contribution limits are combined for various types of 401(k) and similar plans as well as IRAs.<br /> &nbsp;</li> <li><strong>Transient</strong>: If you know that you will be changing jobs soon, invest in an IRA so that you can avoid the hassle of doing a Rollover IRA. Plus, you may have to forgo some or part of the company matches anyway if you leave before becoming fully vested.<br /> &nbsp;</li> <li><strong>Uncertain</strong>: Put enough in the 401(k) or similar plan to get a company match, and designate half of your money to a Roth within the plan if possible. Split your IRA contribution into Traditional and Roth accounts.<br /> &nbsp;</li> <li><strong>Self-Employed</strong>: Start a One-Participant 401(k) plan or SEP-IRA to save self-employment and/or business earnings. </li> <li><strong>High Earning</strong>: Set aside money in a designated Roth account within a 401(k), especially if you are a high earner who would otherwise not qualify for a Roth IRA. You can afford to pay taxes now in order to avoid them later. </li> </ul> <p>The best place to put your retirement dollars may vary from year to year and change as your retirement portfolio and other assets grow. By understanding the features of various retirement accounts, you can decide what works for you.</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/choosing-a-retirement-account-whats-available-and-what-s-best-for-you">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-7"> <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-ways-to-keep-your-retirement-funds-from-disappearing">7 Ways to Keep Your Retirement Funds From Disappearing</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/retirement-planning-if-you-re-under-30">Retirement Planning If You’re Under 30</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/why-roth-iras-are-ideal-for-young-professionals">Why Roth IRAs Are Ideal for Young Professionals</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-start-saving-for-retirement-at-40">How to Start Saving for Retirement at 40+</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-enjoy-retirement-if-you-havent-saved-enough">How to Enjoy Retirement If You Haven&#039;t Saved Enough</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement 401(k) IRAs retirement accounts retirement planning Roth IRAs Fri, 15 Feb 2013 10:48:56 +0000 Julie Rains 967563 at http://www.wisebread.com How to Create a Financial 5 Year Plan http://www.wisebread.com/how-to-create-a-financial-5-year-plan <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-create-a-financial-5-year-plan" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/7678960512_5f04ffd410_z.jpg" alt="planning" title="planning" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>&quot;Most people don't plan to fail; they fail to plan.&quot; &mdash; John L. Beckley</p> <p>Where do you want to be five years from today, financially?</p> <p>My guess is that your answer probably sounds something like this &mdash; &quot;I want to be in a better position than I am now.&quot;</p> <p>We all have dreams we want to pursue and goals we want to achieve. We want to make progress in our lives.</p> <p>But do you have a clear idea of what you want financially? Have you given it some serious thought?</p> <p>If you haven&rsquo;t, then the days, months, and years will still pass by. But at the end of that time, you&rsquo;ll likely comment that not much has changed. Or that you&rsquo;ve been stuck in a rut.</p> <p>Instead of vaguely wishing for a better financial future, create an actual game plan. It&rsquo;ll serve as your roadmap to get you where you want to go. (See also:&nbsp;<a href="http://www.wisebread.com/financial-iq-test-how-healthy-is-your-financial-plan">Financial IQ Test:&nbsp;How Healthy Is Your Financial Plan?</a>)</p> <h2>Questions to Ask Yourself</h2> <p>First, let's ask some key questions about four financial fundamentals to find out where you are and where you want to go. Get out a piece of paper, and start writing!</p> <p><strong>Debt</strong></p> <p>Do you have debt? If so, how much?</p> <p>Dumping your debt is an obvious way to move into a better financial position. You can&rsquo;t build wealth until you dig yourself out of debt.</p> <p>How soon do you want to be debt free? One year? Two years? Three years?</p> <p><strong>Income</strong></p> <p>Your income is your greatest wealth-building tool. How much money do you make now?</p> <p>More importantly, how much money do you want to be making in five years?</p> <p><strong>Emergency Savings</strong></p> <p>No job is 100% secure. If you were to lose your job, how long can you stay afloat and keep your bills paid? The size of your emergency fund will answer that question.</p> <p>How big of an emergency fund do you want in five years?</p> <p><strong>Retirement</strong></p> <p>Many people doubt that Social Security will provide anything of substance in the future, and pensions are fading away. As such, we&rsquo;re all responsible for making sure we have a comfortable retirement nowadays.</p> <p>How much do you want to have saved up for retirement in five years?</p> <h2>Create Your Plan</h2> <p>Now that you&rsquo;ve answered these questions and have them written on paper, it&rsquo;s time to create a plan. Write a statement for each area that describes how you&rsquo;ll achieve your goals.</p> <p><strong>Debt</strong></p> <p>How are you going to pay off your debts faster?</p> <p>Example statement:</p> <blockquote><p>I will be out of debt in two years. To make this happen, I will <a href="http://www.wisebread.com/30-great-side-jobs">find a part-time job</a> working evenings and weekends, an extra 10 hours a week. And for the time being, I will cut all expenses that aren&rsquo;t absolute needs. These are temporary sacrifices that I will make until I&rsquo;m debt-free.</p> <p>As far as steps are concerned, I will utilize the <a target="_blank" href="http://www.daveramsey.com/article/get-out-of-debt-with-the-debt-snowball-plan/">snowball method</a> popularized by Dave Ramsey. I will pay off the debt with the smallest balance first in order to get a quick win and build momentum.</p> </blockquote> <p><strong>Income</strong></p> <p>What kind of job do you want? How much do you want to be making? How are you going to qualify for that type of work?</p> <p>Example statement:</p> <blockquote><p>I now make $60,000 per year as a project analyst. I will be making $85,000 per year as a project manager by January 1st, 2018.</p> <p>To qualify for this position, I will take advantage of my employer&rsquo;s tuition reimbursement program and take project management courses on the weekend to expand my skill set. I will demonstrate my skills by asking for opportunities to lead projects. And I will stay up-to-date on advancement opportunities by checking job postings monthly.</p> </blockquote> <p><strong>Emergency Savings</strong></p> <p>How big of an emergency fund do you want?</p> <p>Example statement:</p> <blockquote><p>Within five years, I will have an emergency fund that&rsquo;s big enough to protect me for 12 months. I will follow this <a target="_blank" href="http://www.wisebread.com/a-step-by-step-guide-to-creating-your-emergency-fund">step-by-step emergency fund guide</a> to help me achieve this.</p> </blockquote> <p><strong>Retirement</strong></p> <p>How much do you want to have saved up for retirement in five years? In 2013, you can save $17,500 in your 401(k). You can also save $5,500 in your <a href="http://www.wisebread.com/7-surprising-facts-about-roth-iras">Roth IRA</a>. Let&rsquo;s say you contributed the maximum amount to both accounts. That&rsquo;s a total of $23,000 each year. How can you do this?</p> <p>Example statement:<strong> </strong></p> <blockquote><p>I will save $211 each pay period and have it sent automatically to my Roth IRA using direct deposit. By the end of the year, I will have contributed the maximum amount of $5,500.</p> <p>I will also save $673 each pay period and have it sent automatically to my 401(k) using direct deposit. By the end of the year, I will have contributed the maximum amount of $17,500.</p> <p>With both my 401k and Roth IRA, I will have saved up $115,000 in five years.</p> </blockquote> <p>Think of this as your financial mission statement. Customize your answers to fit your personal situation, and then follow through on your commitments. Read your plan daily to stay motivated. You'll be amazed at what you've accomplished five years from now.</p> <p><em>Have you created a five year financial plan? How have you kept yourself on track?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/darren-wu">Darren Wu</a> of <a href="http://www.wisebread.com/how-to-create-a-financial-5-year-plan">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/you-are-what-you-do-16-ways-to-improve-your-body-language">You Are What You Do: 16 Ways to Improve Your Body Language</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-jobs-proven-to-make-you-live-longer">5 Jobs Proven to Make You Live Longer</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/heres-how-spending-3-on-you-will-advance-your-career">Here&#039;s How Spending 3% On You Will Advance Your Career</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/when-to-use-savings-to-pay-off-debt">When to Use Savings to Pay Off Debt</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/knowing-when-to-walk-away-financial-planning-for-an-unknown-ending">Knowing When to Walk Away: Financial Planning for an Unknown Ending</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Career and Income Debt Management Personal Development 5 year financial model financial plan reducing debt retirement planning Mon, 11 Feb 2013 10:48:32 +0000 Darren Wu 967631 at http://www.wisebread.com Boost Your Retirement Savings: Avoid 401(k) Fees http://www.wisebread.com/boost-your-retirement-savings-avoid-401k-fees <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/boost-your-retirement-savings-avoid-401k-fees" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/guy_with_paperwork2.jpg" alt="Guy with paperwork" title="Guy with paperwork" class="imagecache imagecache-250w" width="250" height="157" /></a> </div> </div> </div> <p>You might not have noticed if your 401(k) plan has been charging exorbitant fees for accounting, record keeping, legal work, management, or for any number of dubious reasons. In fact, 7 out of 10 participants don't know they pay fees to their 401(k) plan provider, according to an <a target="_blank" href="http://www.aarp.org/work/retirement-planning/info-02-2011/401k-fees-awareness-11.html">AARP survey</a>. When told of the fees, 6 in 10 didn't know how much they pay, and almost a third said they do not feel knowledgeable about the impact fees have on their retirement savings. (See also: <a href="http://www.wisebread.com/how-to-make-the-most-of-your-401K">How to Make the Most of Your 401(k)</a>)</p> <p>A single fee may not be much, but they certainly add up over time and cut into your hard-earned retirement savings. Fees for a median-income two-earner family can reach almost $155,000 and consume nearly a third of the workers' investment returns over a lifetime, warns Demos, a progressive think tank. <a target="_blank" href="http://www.demos.org/publication/retirement-savings-drain-hidden-excessive-costs-401ks">According to its calculations</a>, a family with each partner earning the median income for their gender will pay an average of $154,794 in 401(k) fees over its lifetime.</p> <p>Plan administrators have gotten away with excessive fees because many people don't know about them. Even if you thought to ask, you might have found the information difficult to understand.</p> <p>That is hopefully changing with new rules from the <a target="_blank" href="http://www.dol.gov/ebsa/publications/understandingretirementfees.html#.UMfOtIPBGSo">Department of Labor</a>. Regulations rolled out this year require 401(k) administrators to clearly spell out any fees and expenses for administrative services, such as legal, accounting, or record keeping.</p> <p>Plan administrators must provide total annual operating expenses as both a percentage of assets and a dollar amount for each $1,000 invested. They also have to provide historical investment returns over the past 1, 5, and 10 years along with returns of similar market indexes for comparisons.</p> <p>Regardless of the new reporting requirements, you can avoid paying high account fees by following a few simple steps.</p> <h2>Go for Low-Fee Options</h2> <p>Unless there's a good reason to pay a higher fee, pick investment options with lower fees. Aggressive stock funds may do well one year but rarely consistently do better than the overall stock market. Plus, their high fees eat into returns.</p> <h2>Use Index Funds</h2> <p>Index funds, which are based on market indexes, have substantially lower management fees than actively managed funds that have administrators picking their stocks or bonds &mdash; usually less than 0.5% compared to 1% or more. And more expensive funds don't return more money than index funds over the long run.</p> <h2>Consider IRAs</h2> <p><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">IRAs offer greater investment choices</a> and often lower costs, although you probably should stick with a 401(k) if your employer matches contributions.</p> <h2>Ask for Options</h2> <p>Ask your human resources department or boss for more low-fee options like index funds.</p> <h2>Beware Special Fees</h2> <p>Watch out for fees for any special features, trading costs, and fees associated with insurance products like variable annuities.</p> <h2>Don't Borrow From Your 401(k)</h2> <p>This may entail a service fee. <a href="http://www.wisebread.com/tax-penalties-for-early-retirement-withdrawals">Borrowing from your retirement fund</a> is generally bad idea anyway and should only be a last resort.</p> <h2>Use Online Tools</h2> <p>Online tools, such as <a target="_blank" href="http://www.aarp.org/money/investing/compare_investment_fees_calculator.html">AARP's 401(k) fee calculator</a>, can help you compare costs to other 401(k) providers. If costs seem exorbitant, point that out to your HR department or consider an IRA.</p> <p>Unfortunately, new rules don't require plan providers to show how costs impact your savings over the years or require them to compare their fees to other plan administrators. The hope is that greater knowledge and increased transparency will increase competition and drive down costs.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/michael-kling">Michael Kling</a> of <a href="http://www.wisebread.com/boost-your-retirement-savings-avoid-401k-fees">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-8"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</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/retirement-not-just-for-people">Retirement: Not Just for People?</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/401k-or-ira-you-need-both">401K or IRA? You Need Both</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/should-you-choose-a-roth-401k-or-a-regular-401k">Should You Choose a Roth 401k or a Regular 401k?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-ways-to-avoid-running-out-of-money-in-retirement">6 Ways to Avoid Running Out of Money in Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News Investment Retirement 401k account fees retirement planning Thu, 20 Dec 2012 10:48:37 +0000 Michael Kling 959728 at http://www.wisebread.com 7 Essential Truths for a Successful Retirement http://www.wisebread.com/7-essential-truths-for-a-successful-retirement <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-essential-truths-for-a-successful-retirement" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/3321572860_8f85dcb00d_z.jpg" alt="man with a camera" title="man with a camera" class="imagecache imagecache-250w" width="250" height="143" /></a> </div> </div> </div> <p>Whether you are in your 20s, 50s, or somewhere before, beyond, or in between, you may find yourself concentrating on the complexities of financial planning. While that effort may be valuable in weighing the advantages of a Roth IRA vs. Traditional IRA, mutual funds vs. ETFs, and more, too much analysis can thwart the task of seeing the forest as you focus on the proverbial trees.</p> <p>As a result, you may unintentionally ignore the basics. Consider these seven essential truths that are the foundation of a successful retirement. (See also: <a href="http://www.wisebread.com/7-tips-for-stress-free-retirement-investing">7 Tips for Stress-Free Retirement Investing</a>)</p> <h3>1. Consistent Frugality Trumps (Attempts at) Great Investing</h3> <p>This truth comes from <a target="_blank" href="http://www.jonathanclements.com/">Jonathan Clements</a>, former personal finance columnist for The Wall Street Journal who now works as the director of financial education for a large financial institution. In his years of interacting with readers and customers, he tells me that those who practice simple frugality routinely enjoy more prosperous retirements than those who pursue greater investment returns.</p> <p>Obviously, great investing &mdash; getting a higher return rather than a lower one &mdash; is desirable. An earlier start and higher levels of savings, though, can trump higher returns. For example, if you set aside $5,000 per year and earn 5% per year as a 25-year-old, you will have more than $600,000 at the retirement age of 65 years; however, if you get investment returns of 8% per year but save just $3,000 annually and get a later start at 35, then you will have less than $350,000 upon retirement.</p> <p>Clements&rsquo;s stance is based on real-life observations, not just theoretical financial projections like mine. In his experience, putting energy and effort into diligent saving (even as an average investor) is more beneficial to a successful retirement than being a great investor.</p> <h3>2. Automation Is Your Retirement Friend</h3> <p>Automation helps you to avoid agonizing about investment decisions on a regular basis. This approach also helps you to avoid inaction and overspending.</p> <p>You do have to set up the accounts, determine monthly contribution dollars, and select investments. But automation means that money will be diverted from your paycheck and checking account to investment accounts without further analysis and anguish.</p> <p>Then, after paying bills, you are free to spend what is left in your checking account. You will have a solid mental picture of your discretionary income and won&rsquo;t fool yourself into thinking that you&rsquo;ll set aside retirement savings next month after you buy a few items on your wish list this month.</p> <p>Over a working lifetime, you can <a target="_blank" href="http://www.gobankingrates.com/personal-finance-olympics/mindless-ways-save-million-julie-rains/">amass wealth by automating contributions</a> to several types of accounts.</p> <ul> <li>401(k)<br /> &nbsp;</li> <li>Roth IRA<br /> &nbsp;</li> <li>SEP-IRA (if you have self-employment income)<br /> &nbsp;</li> <li>Traditional IRA<br /> &nbsp;</li> <li>Regular savings account (for shorter term needs, which helps to avoid borrowing from your 401(k) or taking money out of your Roth IRA)<br /> &nbsp;</li> <li>Health Savings Account (if you have a high-deductible health plan that is HSA-eligible; savings not needed for health needs can be taken as income in retirement)</li> </ul> <p>For guidance on the mechanics of automating your finances, <a href="http://www.iwillteachyoutoberich.com/blog/automating-your-accounts-video/">check out these tips from Ramit Sethi</a>, author of New York Times bestselling book &quot;<a href="http://www.amazon.com/Will-Teach-You-Be-Rich/dp/0761147489">I Will Teach You To Be Rich</a>.&quot;</p> <h3>3. Be Disciplined or Pay Someone to Keep You Disciplined</h3> <p>According to Clements, most people have the knowledge to save money and invest sensibly or can easily acquire the basic tools to prepare for retirement. However, they often lack the discipline to make rational decisions with their money.</p> <p>You may understand the&nbsp;<a target="_blank" href="http://theweek.com/article/index/212397/sell-low-buy-high-are-investors-being-stupid-again">investment concept of buying low and selling high</a>, or similarly, know how to shop for a bargain rather than paying full price for a designer outfit or digital gadget. Still, you might become overly excited and purchase an investment when its price is soaring or panic and sell off investments during a stock market decline. Such emotional reactions can be counterproductive to creating wealth.</p> <p>A good financial advisor can not only design a portfolio of investments, but also keep you from buying high and selling low, calm your fears about risk, and encourage diligent saving.</p> <p>In his novel &quot;<a target="_blank" href="http://www.amazon.com/48-and-Counting-ebook/dp/B00946TWMI">48 and Counting: A Story of Money, Love and Cycling</a>,&quot; Clements provides a glimpse into the life of fictional financial advisor Max Whitfield, who manages $70 million of his clients&rsquo; money. He views his role in this way:</p> <blockquote><p>Max didn&rsquo;t just manage a portfolio&rsquo;s risk, costs and taxes. He also managed clients. In fact, that was how he spent most of his time&hellip;Keep clients invested when they were unnerved by plunging markets. Make sure they saved enough, didn&rsquo;t go overboard on debt, bought the right insurance and had an estate plan.</p> </blockquote> <p>So, if you find yourself routinely making bad financial decisions, even though you have the knowledge to make sound ones, consider engaging a <a href="http://www.wisebread.com/6-mistakes-to-avoid-with-a-financial-adviser">financial advisor</a>. And remember that the right person won&rsquo;t advise you to chase a high-flying investment but will encourage you to take the necessary actions to build wealth over a lifetime.</p> <h3>4. Multiple Income Sources Can Prevent Disaster</h3> <p>We have heard many times,&nbsp;<a target="_blank" href="http://wiki.answers.com/Q/What_is_the_meaning_of_'Don't_put_all_your_eggs_in_one_basket'">&ldquo;don&rsquo;t put all of your eggs in one basket.&rdquo;</a>&nbsp;And it&rsquo;s true that diversifying investments is valuable to long-term financial planning. The idea is that a downturn in one area (say, the local real estate market) won't ruin you financially because you have other ways of making money (such as dividends from stocks).&nbsp;</p> <p>In his book &quot;<a target="_blank" href="http://www.amazon.com/How-Much-Money-Need-Retire/dp/0982289197/ref=la_B008JI5IP2_1_1?s=books&amp;ie=UTF8&amp;qid=1352820919&amp;sr=1-1">How Much Money Do I Need to Retire?</a><i>&quot;</i>, <a target="_blank" href="http://financialmentor.com/about-us/todd-r-tresidder">Todd R. Tresidder, financial coach and former hedge fund manager</a>, argues for diversification not only in terms of a <a href="http://www.sec.gov/investor/pubs/assetallocation.htm">diversified stock portfolio</a>&nbsp;but among all assets that generate income. He states that:</p> <blockquote><p>...passive income must come from multiple, non-correlated sources. A reasonable mixture of TIPS, dividend paying stocks, income producing real estate, inflation-adjusting fixed annuities, and alternative investment strategies would satisfy that requirement. It&rsquo;s also possible to mix in some passive business income, royalty income, Social Security income, pension income, and other sources...Never leave yourself exposed to a single default that can wipe out your financial security.</p> </blockquote> <h3>5. The Future Is Unpredictable</h3> <p>Most of us (including me) plan for the future based on how things have worked in the past. This approach can be useful if you consider that you will probably experience market downturns as well as upticks, have to deal with rising prices because of inflation or other causes, and pay taxes based on perpetually changing tax laws. So, planning based on uncertainty and unpredictability makes sense.</p> <p>Making assumptions that the future will look precisely like the immediate past, though, is dangerous. As Clements explores in his book,</p> <blockquote><p>They [clients] couldn't accept that the future was unknowable and the past was a rotten guide to what lay ahead. They were betting their financial future. Chaos might be the reality, but it was emotionally unacceptable. So they assumed the future could be divined and that [financial advisor] Max had the inside scoop.</p> </blockquote> <p>Several years ago, a financial advisor-sales consultant oversimplified the planning process and pretended that he could predict the future. He recommended that my husband and I invest a lump sum distribution in a certain set of mutual funds. He illustrated the future growth of our money based on the previous five years of fund performance. We didn't take his advice, but if we had assumed that the next five years would work <em>exactly</em> like the past five ones, then we would have lost a lot of money.</p> <p>More sophisticated projections with longer timelines using average returns can also be misleading. Even though the <a target="_blank" href="http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/schwab_portfolios">average return of a 41-year-old portfolio</a> may be 8%, you won't get a steady staircase of returns over this time frame but instead experience something akin to a switchback trail in which you move forward and backward as you make progress toward a goal.&nbsp;</p> <p><strong>Average Returns vs. Compound Returns</strong></p> <p>I found Tresidder's discussion about average returns vs. compound returns in his book enlightening. He explains that compound returns portray the reality of portfolio changes because they integrate market ups and downs. Note that compound returns are &quot;always less than average returns because of the way money compounds. If you lose 20% one year and gain 20% the following year, your average return is zero but your account will actually lose money through compounding. In this example, your $100 account drops to $80 in the first year ((100 - (100 x .20)) = 80) and then rises to only $96 in the subsequent year ((80 + (80 x .20)) = 96).&quot;</p> <p>Understanding that returns (and the future) are uneven and unpredictable is essential to retirement planning.&nbsp;</p> <h3>6. Debt Can Weigh You Down</h3> <p>Debt in retirement could be manageable, but ideally, you should have no debt &mdash; not even a mortgage payment &mdash; when you retire. Sure, if your investments grow at a higher return than your loan interest rate, then the math may favor low-interest mortgage debt.</p> <p>But the real problem with debt is that monthly payments increase your personal cost of living and may require you to spend down assets. You can't skip a mortgage payment in the same way that you might decide to forgo luxury seats at an NFL game to watch the game at a sports bar or skip dining at a fancy restaurant in favor of cooking at home. For example, you may need to:</p> <ul> <li>Take greater distributions from retirement accounts earlier, slowing growth in account balances.<br /> &nbsp;</li> <li>Accept Social Security payments or a pension earlier rather than later, possibly reducing the benefit amount.<br /> &nbsp;</li> <li>Tap sources of income during a downturn, which may deplete your retirement balances.<br /> &nbsp;</li> <li>Pay higher income taxes because you are generating more income from retirement distributions or other sources to cover your living expenses.</li> </ul> <p>So, getting rid of debt prior to retirement can benefit wealth building and financial flexibility.&nbsp;</p> <h3>7. You Need a Plan for Meaningful Pursuits</h3> <p>Clements tells me that many people think of retirement purely as a time in which they will relax and enjoy time away from work. But absent <a href="http://www.wisebread.com/deciding-what-you-want-out-of-retirement">goals and purpose</a>, pure leisure becomes tiresome after a few weeks.</p> <p>His book follows Max as he loses his wealth management firm in the aftermath of a midlife crisis, obsession with cycling, and extramarital affair. However, at 48, he becomes energized at the prospect of rebuilding a similar company.</p> <p>Now that Clements brings up this topic, I can think of many people in their late 60s and 70s who have continued to work beyond the standard retirement age. Most, however, are not spending 40 hours each week at a traditional workplace. They are running a small business or doing some form of freelance work, such as selling artwork, coaching a high school sports team, organizing bus trips, or growing plants for sale.</p> <p><a target="_blank" href="http://www.psychologytoday.com/blog/hidden-motives/201111/the-new-look-retirement">Ken Eisold, Ph.D., elaborates on this idea of purpose</a>&nbsp;beyond financial concerns. He says that, &ldquo;on a personal level, those who keep working also often feel more useful and relevant. Unless retirees find stimulating and socially valuable activities, they undergo a kind of marginalization that makes it more difficult to maintain&nbsp;self-esteem&nbsp;and overcome&nbsp;depression.&rdquo; So, when you are planning retirement, consider what challenges you&rsquo;d like to tackle and not just the vacation home you want to have.</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/7-essential-truths-for-a-successful-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-9"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/book-review-retire-on-less-than-you-think">Book review: Retire on Less Than You Think</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/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-ways-to-avoid-running-out-of-money-in-retirement">6 Ways to Avoid Running Out of Money in Retirement</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-steps-for-a-womans-financial-self-defense">6 Steps for a Woman&#039;s Financial Self-Defense</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/what-is-keeping-you-from-a-life-of-financial-independence">What is keeping you from a life of financial independence?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Frugal Living Investment Retirement automatic savings diversification retirement planning Mon, 03 Dec 2012 11:00:39 +0000 Julie Rains 955729 at http://www.wisebread.com 6 Ways to Avoid Running Out of Money in Retirement http://www.wisebread.com/6-ways-to-avoid-running-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="/6-ways-to-avoid-running-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/ladies_on_bench.jpg" alt="Women on a park bench" title="Women on a park bench" class="imagecache imagecache-250w" width="250" height="127" /></a> </div> </div> </div> <p>Here's a checklist of the key strategies to maintain your spending power for as long as you live. (See also: <a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend">How Much Do I Need to Retire, How Much Can I Spend?</a>)</p> <p>Item #1 is only for people who are not yet retired, but the rest apply to everyone.</p> <h3>1. Save More Before You Retire</h3> <p>This is where most people fall down. It seems like every week there's a new report about how people aren't saving enough. If you're going to have money to spend beyond what you get from Social Security (and maybe a pension &mdash; if you're one of the lucky few who can still expect one), that money will have to come from your savings.</p> <p>The two obvious ways to do this are to either spend less before you retire (thereby freeing up money to save) or work longer before you retire. I recommend the former; anyone can spend less, but a plan to work longer can go awry in many different ways (your job could go away, you could get too sick to do it well, etc.).</p> <p>Useful as it is, though, &quot;<a href="http://www.wisebread.com/just-saving-more-is-not-the-answer">just save more</a>&quot; is by no means a complete retirement plan. A complete plan lets you <a href="http://www.wisebread.com/dont-despair-over-small-retirement-savings">start from where you are</a> and make do with what you've got. Read on.</p> <h3>2. Spend Less After You Retire</h3> <p>Spending less before you retire may be even more important, but that was covered in point #1.</p> <p>Even though it's not as important, <a href="http://www.wisebread.com/getting-by-on-a-lot-less-money-3-ways-its-easier-than-you-think">spending less after retirement</a> has the advantage of being very easy &mdash; your taxes are lower (because you're earning less), and you're able to be more efficient about your spending (because you're not spending a third of your time at work).</p> <h3>3. Find a Way to Earn Money in Retirement</h3> <p>When you think about it, retirement is a funny idea. It used to be that everyone worked as long as they could. When they couldn't hold up to a full day of heavy labor, they worked shorter hours and switched to lighter tasks.</p> <p>With the way work is organized (at least in the United States), it's pretty hard to scale back moderately. You rarely have the choice to work half as many hours for half the money. But you probably don't need to earn anywhere near that much money. Just earning a few thousand dollars a year will stretch your retirement savings much further than you might expect.</p> <p>You can do that a lot of different ways, even something as small as finding a way to <a href="http://www.wisebread.com/make-your-hobby-pay-its-way">make your hobbies pay their way</a>. Wise Bread is full of ideas for <a href="http://www.wisebread.com/getting-by-without-a-job-part-2-boost-income">earning a little more</a>.</p> <h3>4. Invest for Income</h3> <p>Early in your career, you probably want to <a href="http://www.wisebread.com/the-false-goal-of-maximizing-investment-returns">invest for maximum growth</a>. But well before you actually plan to retire, you should start shifting some of your investments toward income &mdash; because income can be spent without depleting your capital.</p> <p>That isn't the fashion these days. The modern wisdom of retirement planning is to figure that you can spend some of your capital every year, on the theory that <a href="http://www.wisebread.com/the-end-of-the-4-rule">your money only has to last the rest of your life</a>, and you're not going to live forever.</p> <p>But investing for income, and then holding the line on spending beyond that, is much safer.</p> <h3>5. Monitor Your Assets in Retirement</h3> <p>Since you can't know the future, there's no way to be sure that your portfolio will achieve any particular investment return, nor that it will support any particular spending level. But you can know the recent past.</p> <p>Your portfolio will decline if the assets you've invested in go down. It will also decline if you're spending capital faster than it's growing.</p> <p>If you've got a diversified portfolio with a strong income component, you don't need to worry about day-to-day portfolio fluctuations. But year-to-year <a href="http://www.wisebread.com/pay-attention">portfolio fluctuations need to have your attention</a>.</p> <h3>6. Respond to Changes</h3> <p>When you see a decline in your assets (either because your spending is outstripping your income or because the markets have moved against you), find additional ways to economize.</p> <p>This is really the key action for avoiding running out of money in retirement &mdash; if your capital is declining at an unsustainable rate, spend less.</p> <p>There are a lot of ways to spend less, both on an <a href="http://www.wisebread.com/emergency-belt-tightening">emergency basis</a> and over the <a href="http://www.wisebread.com/living-cheaply-for-the-long-term">longer term</a>.</p> <p><em>This post was prompted by a headline I saw for an article that offered four ways to avoid running out of money in retirement. &quot;Four?&quot; I thought. &quot;I can beat that! I'll write an article about <strong>five</strong> ways to avoid running out of money in retirement.&quot; Then, once I started writing it, I found there were six.</em></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/6-ways-to-avoid-running-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-10"> <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/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</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/7-essential-truths-for-a-successful-retirement">7 Essential Truths for a Successful 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/5-important-things-to-know-about-your-401k-and-ira-in-2016">5 Important Things to Know About Your 401K and IRA in 2016</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-tell-if-your-401k-is-a-good-or-a-bad-one">How to Tell if Your 401K Is a Good or a Bad One</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">4 Reasons Why a Roth IRA May be Better Than Your 401(k)</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment Retirement part-time job retirement planning ways to spend less Thu, 20 Sep 2012 10:24:42 +0000 Philip Brewer 954554 at http://www.wisebread.com How to Retire During a Recession http://www.wisebread.com/how-to-retire-during-a-recession <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-retire-during-a-recession" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/grandparents_palm_trees.jpg" alt="Grandparents" title="Grandparents" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>If there&rsquo;s any group more worried about the long-term effects of the recession than new grads, it&rsquo;s the soon-to-retire. The economy is forcing nearly everyone to reevaluate their financial plans and goals and (for better or for worse) is making most of us settle in for a few more years of work before we can retire.</p> <p>As I listen to all the talking heads discuss new strategies for working longer and later in life, it seems that the old three-legged stool model of retirement is all but obsolete. The three legs of retirement &mdash; Social Security, an employer-sponsored retirement plan, and personal savings &mdash; are shaky at best. Economic forces have reduced both personal savings rates and retirement plan balances. And just keeping the bills paid has cut into the new money we can contribute.</p> <p>So is there a way to retire in the middle of a recession? Maybe. By reconsidering the three-legged stool model and taking a bit more aggressive and holistic approach to retirement planning, jumping off the work treadmill might still be possible. Here are the five steps that can help you prepare for retirement during a recession. (See also: <a href="http://www.wisebread.com/deciding-what-you-want-out-of-retirement">Deciding What You Want Out of Retirement</a>)</p> <h2>1. Pay Off Your Mortgage</h2> <p>Paying off our largest fixed expenses well before retirement is an obvious, but seldom discussed part of a real retirement strategy. Saving more for retirement depends on knocking out the big bills and devoting more money and energy to personal savings and other asset-building activities. Don&rsquo;t discount the valuable peace-of-mind that mortgage-free living can give you as you settle into retirement.</p> <h2>2. Downsize and Downshift</h2> <p>Many financial advisers base their retirement calculations on replacing enough income through savings to support pre-retirement lifestyles. But is this realistic? What exactly do we sacrifice in putting off retirement until we have enough in savings to support our current standard of living? Maybe enjoying our golden years is enough of a reward to sacrifice a few of life&rsquo;s luxuries. A more modest home, a smaller budget, a used car, and fewer vacations all seem like worthy trades for time and a bit of freedom.</p> <h2>3. Save More</h2> <p>Of course, savings is always an essential component of a retirement plan, and saving more is usually a winning strategy. Many financial experts see the writing on the wall with pre-tax 401(k) contributions and are now advising their clients to redirect a larger share of money to <a href="http://www.wisebread.com/4-reasons-why-a-roth-ira-may-be-better-than-your-401k">Roth IRAs</a>. Personal tax rates are bound to increase and the old advice of socking away pretax money while we&rsquo;re young and enjoying a lower tax rate upon withdrawal at age 59&frac12; may not hold true much longer. Whatever vehicle or approach you choose, having more choices later in life typically means crunching the numbers and saving till it hurts.</p> <h2>4. Get Creative</h2> <p>Getting creative with expenses and income may be the unspoken fourth leg of the new retirement stool. Solutions like trading a large home for a small duplex can reduce expenses and provide rental income. Phasing out of our careers slowly, going part-time, or switching to contractor or consultant status is another way to test to the waters of retirement while still keeping the money coming in.</p> <h2>5. Supplement</h2> <p>Even post-retirement, some folks are choosing to go back to work part-time in their previous fields or explore new, lower-stress jobs. The days of all-or-nothing retirement may be over, but that doesn&rsquo;t mean that it&rsquo;s not possible to thoroughly enjoy the retirement part of semi-retirement. <a href="http://www.wisebread.com/making-extra-cash">Extra income</a> during these years can supplement personal savings and help retirees feel engaged and plugged in to their local communities.</p> <p>For those of us who believed that retirement would be as simple as that old three-legged model, the rules seem to have been suddenly and unfairly changed. Still, retirement is possible &mdash; maybe just not in the form we anticipated or as quickly as we had expected. The new retirement stool is made of up of many legs, and we&rsquo;re responsible for the stability of most of them. The time to start planning is now.</p> <p>How have your retirement plans changed in the last three or four years? Do you expect to enjoy the kind of the retirement your parents have? What advice would you give middle-aged readers who are rethinking their retirement strategies?</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/kentin-waits">Kentin Waits</a> of <a href="http://www.wisebread.com/how-to-retire-during-a-recession">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-6"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend">How much do I need to retire? How much can I spend?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/6-thoughts-everyone-has-their-first-day-of-retirement">6 Thoughts Everyone Has Their First Day of 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/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> <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-five-types-of-people-who-never-retire-are-you-one-of-them">The Five Types of People Who Never Retire (Are You One of Them?)</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/boost-your-retirement-savings-avoid-401k-fees">Boost Your Retirement Savings: Avoid 401(k) Fees</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Retirement pensions recession retirement planning retirement savings Mon, 26 Dec 2011 10:48:14 +0000 Kentin Waits 838006 at http://www.wisebread.com