working

How One More Year of Work Can Transform Your Retirement

Matt Bell — Mon, 02 Jul 2018 08:30:17 +0000

As you glance into the future, do you see a life of endless work stretching out in front of you? If so, you're not alone. An increasing number of people are wondering how they'll ever be able to retire.

But maybe things aren't as bad as they seem. In fact, a recent study found that delaying retirement by just a few months could have a major impact on your ability to retire and your standard of living in retirement.

A National Bureau of Economic Research (NBER) study concluded that "working three to six months longer boosts retirement income by as much as increasing retirement contributions by one percentage point over 30 years of employment."

More specifically, the study found that instead of retiring at age 66, working until age 67 can boost retirement income by 7.75 percent. By contrast, increasing the amount of earnings saved in a retirement account by one percentage point starting at age 36 and keeping it at that level for the next 30 years would raise retirement income by just over 2 percent.

The NBER findings held true for singles as well the primary earner of married couple households across a wide range of incomes.

That isn't to say that increasing your savings rate is a bad idea. It's just that of the two main options available to workers who are behind on their retirement planning — saving more or working longer — working even a little longer will likely pay higher dividends than saving more.

The value of waiting

The researchers noted four benefits from delaying retirement. First, each additional month of work provides an opportunity to save more in a retirement account. Second, it gives that account balance more time to grow. Third, if you plan to buy an annuity, each month that you hold off will increase the benefit amount for the same cost or lower the cost of the same benefit amount.

Fourth, and by far most importantly, each month you delay retirement will boost your Social Security benefits. The earliest you can claim benefits is age 62; the latest is age 70. Between those two points, each month that you wait will increase your monthly benefit.

You can review your estimated Social Security benefits by creating an account on the SSA website. You'll see how dramatically different your estimated monthly benefits will be at age 62, at your "full retirement age" (67 for those born in 1960 or later), and at age 70. For example, my benefit will increase more than 50 percent if I claim at age 67 instead of 62. And if I wait until age 70, my benefit will be nearly twice as high as my age 62 benefit.

Once you know your full retirement age benefit, you can also estimate the month-by-month or year-by-year differences in your benefits by using the SSA's calculator. For example, if I were to claim benefits beginning at age 67 instead of age 66, waiting that extra year would give me a 6.5 percent raise — $2,750 per month vs. $2,582, a difference of $168 per month or $2,016 per year.

To understand how that compares to saving more, let's start with "the 4 percent rule," a common recommendation to withdraw no more than 4 percent of your nest egg each year in order to make sure your retirement savings last throughout retirement. Following that guideline, it would take $50,400 of additional retirement savings in order to provide a $2,016 boost of yearly retirement "income."

To accumulate that much more money in her retirement account, a 56-year-old making $80,000 per year would have to contribute an additional 4.3 percent of salary each month ($289.50) to her workplace retirement plan, generate an average annual return of 7 percent, and do that for 10 years. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

There may be other benefits to delaying retirement as well.

Continued employer matches on retirement savings

If your employer matches a portion of the money you contribute to your workplace retirement plan, that's an incredible benefit. The longer you keep taking advantage of it, the larger your nest egg will grow. (See also: 7 Things You Should Know About Your 401(k) Match)

Extended group health insurance

Medicare eligibility begins at age 65, so if you retire before then, you'll need to find coverage elsewhere, which can be expensive. By the same token, if you continue to work past age 65, you may be able to hang onto your group health insurance, which may be more comprehensive than Medicare.

If that's your situation, be sure to contact your benefits department to see how your current health insurance works with Medicare. It may be that you'll have to sign up for Medicare even if you keep your current insurance. The number of people employed at your company will dictate how payment of claims will be coordinated between the two insurance plans. (See also: 4 Common Mistakes to Avoid When You Enroll in Medicare)

More employer-provided education opportunities

Employer-sponsored training is another valuable benefit, whether it comes in the form of tuition reimbursement for college classes or in-house workshops. If you're among the growing number of people who plan to do some type of work for pay after leaving the full-time workforce, new skills you pick up on your current employer's dime could be well worthwhile.

If you're behind on your retirement planning, hopefully this has shown you that you probably won't have to work forever in order to cover your later life expenses. Even relatively small delays in your retirement can make a meaningful difference. And when you factor in the other benefits of working a bit longer, you may be in far better shape than you thought. (See also: 6 Great Retirement Jobs)

Like this article? Pin it!

This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Startling Facts That Will Make You Want to Invest

Tim Lemke — Wed, 14 Mar 2018 09:01:08 +0000

Sometimes you need to be startled into action when it comes to investing. It's easy to come up with excuses not to begin placing money in the markets and saving for retirement. Armed with the right information, however, most people would likely choose to invest rather than stay on the sidelines.

Perhaps it's time to digest these eye-opening facts and realize that waiting to invest could be a big mistake.

1. The average retirement savings is measly

According to a 2016 survey from the Transamerica Center for Retirement Studies, baby boomers have an average retirement savings of $147,000. Those from Generation X have an average $69,000, while millennials have $31,000 saved. Those figures have probably risen slightly in the last two years, but are still well shy of the totals necessary for a comfortable retirement.

Older people approaching retirement age may have held off investing in their earlier years and are now playing catch up. Younger people have more time to invest and get to where they need to be — but the longer they wait, the harder it gets. (See also: 7 Retirement Planning Steps Late Starters Must Make)

2. You may be retired longer than you worked

Imagine starting work at 21 and retiring at 60. That's 39 years in the workforce. If you live to 100, that's an additional 40 years — longer than the time you spent working! People are living longer these days, so it's not uncommon to see retirees still kicking it well into their 90s and beyond. In some cases, retirements are stretching past 40 years. Are you doing all you can to allow your money to last that long? Smart investing may be the only way to accumulate enough cash to support a retirement of that length. (See also: 5 Ways Longevity Is Changing Retirement Planning (And What to Do About It))

3. Very few people get a pension these days

Defined benefit plans, in which a company guarantees workers a specific amount of money each year in their retirement, have been going away fast. Today, only 13 percent of nonunion private sector workers have access to a defined benefit plan, according to the Bureau of Labor Statistics.

Instead, most companies now only offer defined contribution plans, such as a 401(k). With these plans, workers must invest their own money, and companies may offer to match a certain percentage of contributions (some don't). If you're in the workforce, it's likely incumbent upon you to take charge of your own retirement savings. (See also: If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do)

4. Half of workers say they'll probably work during retirement

Isn't the entire idea of retirement to stop working? For many people, ceasing to work entirely just isn't in the cards. The Transamerica survey revealed that about half of all workers — including baby boomers, Gen Xers, and millennials — expect to work at least part-time during retirement. Working is fine if you want to, but if you dread the idea of punching a clock in your old age, invest now.

5. About 20 percent of seniors rely on Social Security for nearly everything

Social Security is certainly better than nothing if you're retired, but it's not a lot of money. The maximum Social Security benefit for 2018 is $2,788 per month, or about $33,500 a year, if you retire at age 66. You could get up to $3,698 monthly if you are willing to wait until age 70 begin accepting payments.

You won't starve, but you're not going to be cruising the Mediterranean, either. And yet, roughly one in five Americans over 65 rely on Social Security for 90 percent or more of their income, according to a 2015 study from AARP. There are some states where this figure rises to more than one in three older residents. This is a startling figure when you consider that Social Security is currently running a deficit. Invest now, so that Social Security can be like icing on your retirement cake. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

6. The market rarely has bad years

Everyone remembers when the market crashed about a decade ago during the financial crisis. And there have been some high-profile bad years in the past. But consider this: Since the end of World War II, the S&P 500 has recorded a negative annual return just 15 times. That's 15 bad years out of 72. The New York Yankees have won 17 World Series titles during the same period! Only once since World War II — from 2000 to 2002 — has the market had three bad years in a row, and there's only one other instance of back-to-back negative annual returns. So even if you had no idea what year it was and still chose not to invest, you'd likely be missing out on positive returns. (See also: How the Risk Averse Can Get Into the Stock Market)

7. Almost as many people own dogs as stocks

About 54 percent of Americans own stocks, according to research from Gallup. Meanwhile, the American Pet Products Association reports that 48 percent of Americans own dogs. Dogs are nice. Dogs can be enjoyable. Dogs are good to have in retirement as companions, but they won't appreciate in value or help pay the bills as you get older.

Invest now, and you can have a comfortable retirement, complete with as many canine friends as you want.

8. If you invested $100 in Amazon 20 years ago, you'd have $50,000

When Amazon went public in 1997, its shares were trading at about $18. As of this writing, the company is now trading at more than $1,300 per share. A simple $100 investment 20 years ago would be worth tens of thousands today. Of course, Amazon's stock returns aren't typical. But it goes to show how even a modest investment over time can prove to be enormously lucrative.

Like this article? Pin it!

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What You Need to Know About Working While Collecting Social Security

Emily Guy Birken — Thu, 22 Feb 2018 09:30:09 +0000

For many older workers, the opportunity to collect Social Security before you fully retire, while still bringing in a paycheck seems like a boon. You get to supplement your work income with a monthly check from Uncle Sam — who doesn't want that?

Unfortunately, working while collecting a Social Security benefit before you reach your full retirement age can take a pretty hefty bite out of your Social Security checks. Here's what you need to know about how working affects your benefits. (See also: 5 Questions to Ask Before You Start Claiming Your Social Security Benefits)

Understanding the earnings test

Your full retirement age is the point at which you receive your full Social Security benefits. Taking benefits before full retirement age means receiving a reduced benefit, and waiting to take benefits until after your full retirement age means getting 8 percent more per year in your benefits, until you reach age 70. Your specific full retirement age depends on what year you were born, but it will be between ages 66 and 67.

Before you reach your full retirement age, your earned income (meaning money you earn through working, rather than money from investments) negatively affects your Social Security benefits. The amount of impact is determined through what is known as "the earnings test."

Specifically, the earnings test stipulates that if you are working and you start drawing your Social Security benefits before you have reached your full retirement age (FRA), you will see $1 deducted from your benefits for every $2 you earn over $17,040 (for 2018).

Beneficiaries who begin drawing their Social Security benefits during the same year that they will attain their full retirement age, but before actually hitting their FRA birthday, are still subject to an earnings test. But the income limit is much higher — $45,360 as of 2018 — and the benefit reduction is lower — $1 reduction for every $3 earned over the limit.

For instance, Frederica is 62 and earns $23,500 per year at her job. If she starts taking her Social Security benefits in 2018, her income will be $6,460 over the earnings limit ($23,500 - $17,040 = $6,460). That means she would have $3,230 total withheld from her Social Security benefits — which equals $1 for every $2 Frederica earns over the threshold, or half of $6,460.

Frederica's sister Serena is a little older, and will reach her full retirement age of 66 later in 2018. Serena earns $52,000 per year, making her income $6,640 above the earnings test threshold for those within a year of reaching their FRA ($52,000 - $45,360 = $6,640). If Serena were to take her Social Security benefits before reaching her full retirement age, she would have $1 withheld for every $3 she earns over the limit, meaning $2,213 (or ⅓ of $6,640) would be withheld.

Once Frederica and Serena reach their full retirement ages, however, they can earn as much as they like from work and it will have no effect on their Social Security benefits.

The Social Security Administration doesn't prorate deductions

What makes the earnings test particularly tough for beneficiaries who need their benefits in order to make ends meet is the fact that the Social Security Administration does not prorate the deductions to your benefits. If you make more than the income limit in earnings, the Social Security Administration will withhold your entire benefit until the full benefit reduction amount has been satisfied. This means that beneficiaries who are working and are required to have benefits withheld will go several months without receiving Social Security benefits at the beginning of each year.

In Frederica's case, let's say she's eligible for a Social Security benefit of $733 per month. If she has $3,230 withheld from her Social Security benefits, she will not receive her $733 monthly benefit for January, February, March, or April in order to make up for the amount she owes Social Security. But rather than give Frederica a partial check in May, Social Security will simply withhold her entire $733 benefit check for that month, which means she will have had $3,665 total withheld from her benefits ($733 x 5 = $3,665). She will not see the leftover $435 she is owed by the Social Security Administration until January of the following year.

The same will be true for Serena, should she decide to take her benefits before reaching her FRA in 2018. Let's say her benefit is $1,500 per month. She will have $2,213 withheld from her benefits because of the earnings test. That means she will not receive any Social Security benefits for two months, and Social Security will withhold $3,000 total. Serena will receive the $787 she is owed the following January.

The good news for Serena is that as soon as she reaches the month of her full retirement age, she can keep every single penny of her benefits, no matter how much she earns elsewhere. All Social Security beneficiaries are immune to the earnings test as soon as they have hit their full retirement age.

Your withheld benefits aren't gone forever

There is a small cherry on top of this sundae of bad news: The Social Security Administration does give you some credit for the months your benefit was withheld. At that point, Social Security basically treats you as if you waited to file your benefits for the number of months your benefits were withheld.

At age 62, Frederica is entitled to a benefit equal to 73.33 percent of the benefit she would have received at her full retirement age. Her full benefit would have been $1,000 at her FRA, which is why she receives a benefit of $733 per month as of age 62.

Each year before her FRA of 66, Frederica does not receive benefits for five months because of the earnings test. As of the month that Frederica reaches her FRA (i.e., the month of her 66th birthday), Social Security will treat her benefits as if she had waited 20 months (five months of withheld benefits for the four years between age 62 and 66) to file for her benefits.

This means that as of her FRA, she'll see her benefit amount increase by 9.06 percent, because not receiving benefits for 20 months is worth a 9.06 percent increase, according to the calculations we've made using the Social Security Administration's website. In other words, she will receive 82.39 percent (73.33 percent + 9.06 percent = 82.39 percent) of the $1,000 she would have earned if she'd waited until age 66 to start taking Social Security. Because of that, Frederica will begin receiving monthly benefits totaling $823.90 (82.39 percent of $1,000) as of her full retirement age.

In addition, if the time she spends working plus getting Social Security benefits turn out to be her highest earnings years, or if she did not have 35 full years of job earnings before she started taking benefits, the Social Security Administration will recalculate her monthly benefit based on these earnings from work each year.

Avoiding the earnings test

The best way to avoid the earnings test altogether is to wait for full retirement age to collect your Social Security benefits. (As we mentioned earlier, this age differs depending on the year you were born.) Not only will that keep you from having to figure out how to manage without your benefits when they are withheld, but it will ultimately increase the amount you receive each month from Social Security.

However, if you can't avoid taking benefits before reaching your full retirement age and while you're still working, it's important for you to understand what to expect and plan ahead for it.

Like this article? Pin it!

This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Signs It's Time to Retire

Tim Lemke — Thu, 14 Sep 2017 08:00:06 +0000

There will come a time when you consider making the shift from worker bee to retiree. But knowing the best moment to stop working is not always easy to determine. How do you know whether your money will last once you stop earning a salary? Is there a "magic age," when retiring makes sense, or do you just go with a gut feeling?

There's no science to knowing when to retire, but there may be some signs to follow. If most or all of these apply to you, maybe it's time to submit that resignation and begin the next chapter of your life.

1. You have enough money for the retirement you want

It's impossible to know precisely how much you'll need in retirement, but there are some basic calculations you can make to see how long your money will last if you stop working.

You must first calculate what your annual living expenses will be. Research shows that people tend to spend less as they get older, but be sure to factor in the potential costs of new activities like travel, eating out, and caring for grandchildren. Then, examine how much money you have saved, and what the return on that money might be as you age. Match those numbers up with your expected life span. There are other things to consider, such as whether you plan to draw equity from your home. There are many online calculators that can help you with these figures.

Generally speaking, if you take the annual expenses you expect and multiply them by 25, you'll be in the ballpark of what you need to retire comfortably. Once you are approaching this number, it may be a sign that you can stop working. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

2. You must collect distributions from your retirement plan

If you have a 401(k) or IRA, there comes a point at which you are required to take distributions. For most people, this age is 70-½. You can delay taking 401(k) distributions until after you stop working, but not for the money in a traditional IRA. If you are being forced to take distributions, there's not much incentive to continue working.

3. You can collect the maximum in Social Security

The government incentivizes people to retire later by offering them more money from Social Security if they wait longer to collect it. You can begin collecting benefits as early as age 62, but those benefits will be higher if you wait longer. Those approaching retirement age can get full benefits if they wait until age 67, and may get additional credits if they wait until age 70. If you're already getting the maximum benefit from the government, perhaps it's a sign that you're ready to retire for good. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

4. Your expenses are the lowest they've been in years

Your house is completely paid off. The kids are out of the house and college is paid for. You're not yet at the point where you have high medical expenses. Your cost of living hasn't been this low in decades. Sure, you may have big ticket things you want to pay for (travel, for example), but your day-to-day existence no longer requires a bi-weekly paycheck. It's still important to assess whether you have enough saved to last, but if you've downsized your lifestyle to a super-low level, it may no longer be necessary to keep working.

5. You no longer get any pleasure from work

We've all heard stories about older people who continue working simply because it makes them happy. Often, working gives them purpose and a sense of satisfaction that can't be replaced in retirement. But what if you're not one of these people? What if the work itself isn't rewarding, and you find yourself drained rather than energized by it? Then it may be time to consider retiring, assuming that your financial ducks are lined up well. Life is too short to work at an unsatisfying job if you don't have to.

6. Your health is starting to decline

In a perfect world, you will be healthy and spry enough to take advantage of all that retirement can offer. You will be perfectly able to handle that long bike tour through the south of France, and those backpacking trips on the Pacific Crest Trail. You'll have energy to spend time and keep up with your grandkids. But, if you are starting to see your health fade, perhaps it's time to stop working before you're unable to enjoy retirement the way you wish.

7. Your spouse wants you to

If your significant other is done working and has an urge to begin the next chapter of their life, perhaps it's that time for you as well. Many of the happiest retired couples are those that retire at the same time, and make post-work plans together. How fun is your spouse's retirement going to be if you're still schlepping into the office every day? (See also: 5 Money Conversations Couples Should Have Before Retirement)

8. You are confident in your post-work plans

Many people continue working because they honestly don't know what they'd do otherwise. But if you have mapped out your retirement life, have a good sense of how you'll fill your days, and feel excited about what you want to do, that's a sign you may be ready to retire. If work is actually preventing you from moving forward on your plans, maybe it's time to think seriously about stopping work, assuming you are also ready financially.

Like this article? Pin it!

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Keys to Quitting a Job Like a Professional

Paul Michael — Mon, 11 Sep 2017 08:30:08 +0000

This is it: You're ready to quit. You've been dreaming of this moment for months (or years) and you are all set to let the company know you're moving on. Well, before you throw down your resignation letter and waltz out of the door, take some time to make sure you do this the right way.

1. First and foremost — Are you sure you're ready to quit?

Like, really sure? Because once you hand in your notice, you've put yourself on a path that leads directly out of that company. So, make sure you're leaving for the right reasons.

Some people act irrationally after a major upheaval or event at work, and hand in their notice while they're still in a cloud of anger and frustration. If you have been feeling this, and have decided "I've had enough," then take at least a few days to cool off and think it over. Talk to people you trust, and explain the situation. They may agree with you, and say that you're working in a toxic environment that is hurting your health. But, they may say that you have a good job with good coworkers, and that you're blowing things out of proportion.

2. You might not be required to give two weeks' notice

Most states in the U.S. have something called "at-will employment." This means your employer can terminate you at any time, without any reason at all, and without any kind of warning. Conversely, you have the exact same rights with regard to leaving. You can quit at any time, for whatever reason (even if you don't have one), and walk out of the door without giving notice.

Some employers like to have it both ways. They will be more than happy to let you go at the drop of a hat, but the company handbook states that you are required to provide a minimum of two weeks' notice. This is just something the company wants, but cannot enforce. If you live in an at-will employment state, two weeks' notice is not required. But, if you don't provide it, and leave the company in the lurch, you are potentially burning a valuable bridge. You always want to leave on good terms if you can, so unless the situation requires an immediate exit, give your employer the two weeks they expect.

3. Write an excellent resignation letter

Now is the time to start working on a resignation letter. If you have been at the company less than a year, you don't have to go overboard. Be polite, explain briefly that you are moving on to a new stage in your career, and thank the company for the opportunity they gave you. If you have a lot of years under your belt with the company, you may also want to add in some of the significant achievements and successes you had at the company, and call out people who genuinely made a difference to you, and helped you grow.

You may be tempted to throw people under the bus in this letter, or point out everything that is wrong with the company. Don't do it. This is a permanent record, signed by you, and that can come back to bite you.

4. Hand in your notice on a Friday

There are all sorts of reasons to wait until Friday to hand in your notice. Midweek is just an odd time, and on a Monday or Tuesday, you are catching people as they are about to dive into a full week of work. Doing it on a Friday is best. It gives you and your employer the rest of the day, and the weekend, to think about it and come to terms with the decision. If you are a key member of the team, your boss will likely need to come up with a game plan on how to replace you. He or she may also want to make you a counteroffer, asking you to sit on your resignation and think it over. For this reason, Friday is the most strategic day to hand in your notice.

5. Be positive and productive in your final weeks

You've handed in your two weeks' notice, and now you can just coast for the next 14 days, right? Well, not so fast. It can be tempting to slack off, take long lunch breaks, arrive late, leave early, and have a general disregard for the rules you used to obey. But that is not going to sit well with a company that is still paying your salary.

You can have the "What are they gonna do, fire me?" attitude, but it's not professional. You have history with this company, it has paid your salary and probably provided health benefits, and you owe it to the company, and yourself, to act as professionally as you did before you resigned. In some cases, if you don't have another job to go to, the company may well ask you to stay on as a contractor, at a higher rate of pay, until they find your replacement. They will not offer this if you are just treating the job as a joke.

6. Help the company through the transition

After you resign, you should offer your services in finding your replacement. You should also be willing to speak to the departments you work with on a regular basis, and ask them what you can do in your final two weeks to make sure everything runs smoothly once you are gone. Do they need certain files or contact names? Do they need you to show them how certain processes are managed, from inception through completion? Take this time to ensure that when you leave, the ship is not sinking without you.

7. Don't use the exit interview as a complaining session

A lot of people who resign have some sharp words for the human resources department, or the owner of the company. And while it is OK to point out areas of improvement, you should do it in the most constructive way you can.

This should not be the time to do corporate assassinations on people who've crossed you over the years. If you have genuine concerns about some of the people you are leaving behind due to a toxic work environment, then by all means bring those up. But be delicate about it. Talk about the need for improved communication, or more flexible working hours and telecommuting. Give them a checklist that makes them think you really want the company to flourish after you depart.

8. Stay in touch

Seriously, don't burn a bridge. You don't know what could happen in the future, and a company that you have a history with can be a powerful ally when you need help. If you ever need to pick up contract work or come back in a different role, you will want to have people to reach out to.

So, use LinkedIn and social media to stay in touch. Send the occasional email to people you know there, asking how they're doing. Be a friend to them. It can really pay dividends should your departure become a mistake.

Like this article? Pin it!

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Reasons You Shouldn't "Vacation Shame" Your Coworkers

Paul Michael — Wed, 05 Jul 2017 08:00:11 +0000

In 2015, Americans left 658 million vacation days unused. It's a problem that has continued to ingrain itself in the American way of life, and it's only going to get worse. It even has a name — "work martyrdom" — and one of the most troubling reasons for it is feeling guilty about taking paid time off.

Have you ever felt guilty about taking vacation, or made your coworkers feel guilty for taking time off? Well, you shouldn't. It's dangerous, and bad for both you and your company. (See also: 7 Ways to Actually Take All Your Vacation Days This Year)

1. Vacation is vital for good health

You wouldn't want to make your coworkers physically ill, but by guilting them out of their vacation time, you could be contributing to some very serious health risks. The Framingham Heart Study, the world's longest running study of heart disease, has some frightening statistics on vacation and health. The biggest — that men who failed to take a vacation for two years or more were 30 percent more likely to experience a heart attack than peers who took regular time off.

A Marshfield Clinic study showed that women who took at least two vacations per year were less likely to suffer from depression than those who don't take time off. Other research has shown that not taking vacation can also lead to higher blood pressure, stress, poor family relationships, and if you're extremely overworked, even suicide. So, it's vital to actually encourage coworkers to take time off, especially if they look worn out. (See also: Science Says We NEED to Take a Vacation)

2. Vacation refreshes the mind and body

Research has proved it; when you take a vacation, you are improving your mind and your overall health. And if you work with people who need to be great at their jobs in order to make you and the company thrive, then you should encourage vacation time.

A vacation is to a person what a reboot is to a computer that is slow, glitchy, and taking forever to do tasks that used to be done quickly. Mental breaks recharge the mind, and improve memory, productivity, and creativity — all vital in almost every job out there. You will find that although you may miss them when they're gone, your coworkers are upgraded versions of themselves when they return. And, they will be eager to dive in and get things done.

3. Vacation is just as much of a right as a bathroom or lunch break

Would you shame a coworker for daring to leave their desk for an hour to eat a meal? Would you point out that they could be doing valuable work when they are heading to the bathroom? Well, of course not. These are needs, and vacation is just as important as either of those.

Vacation time may not be granted by U.S. law, but most employers offer paid leave as part of the benefits package. It's right there with health care and sick time (which, by the way, people also feel guilty about taking).

The bottom line — every employee who takes paid time off has earned it, and they are simply using a benefit that comes with the position. In the case of people who don't get paid time off, which stands at around 25 percent, you have even less reason to shame them. They are losing money by taking this time, and that is a difficult financial decision for anyone to make.

4. Vacation keeps good employees at the company

An unhappy employee is one that is looking for another job. A 2015 Talent Trends survey found that one out of every three employees is actively looking for a new job. That's almost a third of the people at your company, right now, that wants out.

It is a fact that it costs a company a lot more money to replace employees than it does to retain them. For entry level employees, it's between 30 percent and 50 percent of average annual salary. That figure increases to 150 percent for midlevel employees, and a whopping 400 percent for high-level or specialized talent. And guess what? One of the big reasons people move on is the lack of a good work-life balance. (See also: 9 Signs Your Work-Life Balance Is Off)

It is in the best interests of your company to keep people around, because it will not be spending excessive amounts of money retraining staff. Want a raise? More travel? A promotion? It's more likely to happen if people aren't quitting due to lack of time off.

5. Vacation broadens the mind

Well, to be more accurate, travel broadens the mind. But it's a little hard to travel if you don't take a vacation.

In some careers, especially ones that require creative or lateral thinking, this can be a great asset to the company. A well-furnished mind is one that can draw from many life experiences. This can translate to new, innovative ideas and suggestions, and lead to positive changes at the company. This, in turn, can boost productivity and profits, and even lead to expansion.

Someone who is staring at the same four walls day after day, month after month, is not going to be as valuable to the company as someone who has gone out into the world and done something new. Your company needs people who are well-traveled, not overworked.

6. Vacation boosts organizational morale

Who wants to work in a company filled with miserable, exhausted, irritable employees? That's what you get if you work in an environment that vacation-shames people.

When you have very little to look forward to, coupled with a hectic work schedule and poor work-life balance, you're not going to be much fun to be around. Compare that to someone who is planning to go on vacation. They are recognizably happier and more enthusiastic, because they're looking forward to doing something fun. For those weeks, or months, they bring a sunny disposition with them to work. Then, they go on vacation and come back rested, refreshed, and ready to help.

This is all good for the company, and good for you. You will get a lift from their energy, instead of being dragged down by morale that's in the gutter.

7. Vacation leads to better performance reviews and higher salaries

Put this in the "strange but true" category if you like, but a 2006 study by Ernst & Young found that each additional 10 hours of vacation an employee took led to performance reviews that were 8 percent higher the following year. And, of course, higher performance reviews lead to increased salary bumps, promotions, and greater opportunities within the company.

Why would this be? Well, look back at all the reasons given in this article for taking a vacation, and the answer becomes obvious. Employees that take vacation are sharper, happier, healthier, and more productive than coworkers who do not take time off. Naturally, this translates to better performance at work, a better attitude, and a better review.

So, even if you're not vacation-shaming anyone (and hopefully that's the case), you should look at your own vacation plan and increase your days off. It will positively impact your career.

Like this article? Pin it!

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Absolute Worst Ways to Ask for a Raise

Paul Michael — Fri, 02 Jun 2017 09:00:10 +0000

Asking for a raise is not easy. You don't want to come across as greedy, or antagonize your employer. But at the same time, you've done your research, know what you deserve, and believe you are an asset that should be compensated accordingly.

Before you talk to your boss, make sure you avoid the following traps. They could sink any chance of a bump in pay. (See also: 5 Times You Should Demand a Raise)

1. Saying you're having trouble making ends meet

There are a few truths that you must accept, and one of them is this — your personal money problems are your problems. You took the job, and you accepted the salary. Scraping by or falling behind on your bills is a reason to ask for a raise, but it's not the reason your employer ever needs to hear.

You need to justify your raise for reasons that a boss can comfortably take to the payroll department, and the people he or she reports to. Saying "Well, Jane's rent was just raised and she also owes on her taxes" won't cut it. Instead, present your case in a well-researched and thought-out manner, explaining why you deserve a pay bump based on merit and hard work.

2. Criticizing any of your coworkers

There is a time and a place for pointing out problems with the team, and it is not when you want to get more money. If your boss is any good, he or she will already know the big problems with underperforming staff. Other issues can be brought up during your usual one-on-one sessions, or team meetings. If you use your coworkers' poor performance as a reason to get more money, you will come across as mercenary.

Sure, you may have been picking up the slack for lazy coworkers, or correcting mistakes, but there is a way to mention this without throwing anyone under the bus. By all means, say that you have been taking on more responsibility, working longer hours, and saving the company money by catching errors. But do it without saying, "John sucks at his job, he's always late, and I have to do everything!"

3. Asking when the boss, and everyone else, is insanely busy

Timing is everything, and perhaps the worst time to bring this up is when everyone is scrambling to meet a deadline and deliver the goods. Whether it's behind the counter of a fast-food restaurant, or during a huge pitch for new business, asking for more money at this time will hurt you in several ways.

First, it makes you look selfish; everyone is rushing around, and you want the boss to stop and focus on you. Second, it makes you look inconsiderate; now is not the time, can you not see how busy everyone is? Third, it makes you look like you're trying to take advantage of the situation. The boss is not going to appreciate you trying to hurriedly negotiate a raise during a crisis. So, back off, and bide your time. Things will calm down, and then you can strike.

4. Catching the boss off-guard

When you are initiating the subject of a raise and/or promotion, you are making a request that has consequences. Your boss has to examine the numbers, look at performance and salary averages, and consider the budget for the department. And the boss usually has to get the approval from other people in the company. This is all very official.

So, casually having a one-on-one in the elevator, out of nowhere, is a huge mistake. Your boss will be taken by surprise, and may even feel threatened or trapped. They won't be able to give you an answer anyway. Schedule a time for a meeting, at least 30 minutes, and warn the boss in advance that you want to talk about your future at the company. You don't have to outright say "I want to talk about a raise" — if the boss is intuitive he or she will know just what this meeting is about.

5. Beating around the bush

A little friendly banter before you bring up the subject of your raise is OK. In fact, it's courteous and expected, and sets a friendly tone. However, if you meander off for 15 minutes on topics that are completely unrelated, you're only going to frustrate your boss. He or she has a pretty good idea of why you're in the room, and wants to start the conversation.

Most likely, after five minutes of talk about the weather, the ballgame, the family, and plans for the weekend, you'll be asked to spit it out. But by that time, you've already shown yourself to be less than efficient, and that puts you in a position of weakness.

6. Storming in with ultimatums

"If I don't get a raise, I'm quitting. Simple as that." How many times have people told you they are going to say that to the boss? How many times have you thought it yourself? Sure, it's human nature to want fair compensation, and we all hope to be so valued that people will do anything not to lose us. Sadly, life isn't like that.

Ultimatums are not the answer, because one of three things will happen. First, you will get your raise, but you will be tarnished as difficult, selfish, and egotistic. Second, you will be told no, and realize you can't quit after all. Your bluff will have been called, and now they know you aren't going to quit if you don't get what you want. Third, you are told no, and have to quit to save face. Are you ready for that?

One way to get around the ultimatum is to come to the boss with a higher paying job offer from another firm. Then, it's a business negotiation. You can say that you would much rather stay, but this offer gives you more money, and you may have to take it. In this case, most employers, if they value you, will match the offer. They see you as in demand, and that puts you in a positive light.

7. Getting way too emotional

Anger. Tears. Jealousy. Disbelief. The emotions can run high when you believe you are getting the short end of the stick. However, it's unprofessional to unload your emotional state onto your employer. You may feel you are not being recognized for all you've done for the company. Or you may be behind on your bills, with new expenses coming up in the future.

It can be hard to mask these emotions when you are stressed. But it's important to get these under control before you ask for a raise. Get the emotions out first before coming to work. If you need to cry, do it. If you are angry, find a way to release the tension. You need to have a calm, clear head before you can talk money.

8. Acting entitled

Arms crossed. Eyebrows furrowed. Breathing hard through your nose. You're in the boss's office because enough is enough, and you should have had that raise months ago! From the moment you open your mouth, you are incredulous that you even had to call this meeting.

Acting this way does you no favors. You'll come across as a spoiled brat, and unless you can back all of your claims up, you'll also look foolish. Don't go into the room feeling angry and cheated. Instead, calm down, and prepare. Write down all of the quantifiable reasons you deserve a raise, and give the boss the ammunition he or she needs to get that extra money for you. Be polite. Be yourself. And don't expect anything.

9. Making demands when the company is in trouble

There's an argument to be made that it's OK to ask for a raise if your company is facing some light financial difficulties (maybe they've laid a few people off), or if you know your specific department is still doing well. But that's about where you'll need to draw the line.

If the business has fallen on really hard financial times, it's another story. Maybe executives have had to make significant cutbacks, or it's even possible that the company could be filing for bankruptcy. If you decide that this is the best time to ask for a raise, you are only showing upper management that you are utterly tone deaf. If you survived the cuts, you should probably be thankful you're still on the payroll at all.

A company can encounter nonfinancial trouble, too — and you should also back away from any kind of salary negotiation until these stormy waters have calmed. A public relations scandal, for example, will have the company in a panic. No one will give your salary concerns a second thought when there are much bigger fish to fry. Or, maybe several key workers have left to form another company, or work for a rival. Again, the only thing management will be concerned about is keeping the ship afloat.

You know when the company is not doing well. Do what you can to help, and do it with vigor. Then, when it's all worked out, you'll have more ammo for your salary discussion.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Live a Retired Life Before Retirement

Nick Wharton — Fri, 02 Jun 2017 08:30:07 +0000

Many of us dream about being able give up the day job and settle into a life of freedom, flexibility, and financial security in retirement. But unfortunately for many Americans, this dream is getting further and further out of reach. The reality is that the average age at which U.S. citizens are able to retire is on the increase.

Being financially prepared is rightly a large concern, particularly because people tend to make big plans for when they do finally retire. It also means that some people put off following their dreams with hopes that they will be better able to afford them later in life.

But if you're sensible with your savings and clever with your planning, it's possible to find a balance between securing a comfortable retirement and still living life to its fullest.

Take more time off

Taking vacation is something that shoots fear into the hearts of millions of people. Reasons for this vary from being worried about the amount of work that we'll face when returning to the job, to fears of losing our job altogether as a result of taking too much time off. It's a sad fact that the majority of Americans don't take their full vacation allowance each year, with 55 percent reporting leaving days unused, according to Project: Time Off.

If you're among the large number of Americans who don't use their vacation days, then the first step to getting more holidays is simply to take them. Booking your vacations far in advance will allow your employer to plan effectively for the time that you're not there. It also gives you time to help ensure that whoever is covering you knows what they are doing and is properly prepared.

If you're already using your allotted time off, consider asking for more. Requesting extra vacation is understandably daunting for many people, but as the old saying goes, if you don't ask, you don't get. It helps if you can provide justification for your extra holiday time, like a dream trip to Europe, and it's even better if you can demonstrate it will have a positive effect on your productivity. In fact, a study by the Harvard Business Review directly linked having more vacation days to an ability to get work done quicker.

Another option that many don't even consider is to take unpaid time off. Though this may seem counterproductive, it's basically like buying extra vacation days. If you value your time off then it can work out to be very cost effective.

Ask your employer about "banking time," which basically allows you to work overtime shifts for regular pay (instead of the regular time-and-a-half), and then use those banked days to extend your holidays or take a few extra days off throughout the year when you need a break from the grind.

Focus on discounted, cheap, and free experiences

A great way to enjoy the quality of life that you crave without breaking the bank is to take advantage of discounted and cheap experiences. You might have a list of things that you want to do, see, or accomplish in your lifetime that you're putting off because you think it's too expensive. Instead, try looking out for when it's possible to do these things on the cheap.

Always wanted to visit a certain country? Research when high season is and make a plan that allows you to go in low season instead. This will save you money on flights, accommodations, and many activities to do while you're there.

Create a bucket list with a twist. Rather than containing activities that cost money, focus on experiences which cost little but provide you with a high sense of personal achievement. Physical activities are good for this, like hiking a certain mountain route or running a marathon, as well as things that will tax your brain like writing a book or learning an instrument.

Move somewhere cheaper

Lots of people envision moving away to a rural area or a tropical place when they retire, but why put it off until then? Moving to a cheaper city, state, or even country could allow you to live out your dreams, save more, and work less all at the same time. If you're not tied to your home by your job, then it doesn't necessarily even have to be a permanent move. You could spend half your time in the cheaper place having fun while still saving money.

Numbeo ranks the U.S. as one of the most expensive places to live in the world. This means there's a lot of choice if you are looking for somewhere cheaper to settle down abroad. With 8.7 million Americans living overseas, you won't be alone. There are many attractive, cheap locations that could be the perfect place to call your new home.

If you don't know where to start, write a list of what's important to you in your everyday life and research which places can accommodate those aspects of your life. Lots of countries in South America, Asia, and Europe are significantly less expensive than the U.S. but still offer a great standard of living.

Moving to a new country isn't a decision to be taken lightly, and definitely not one that should be made based purely on cost. You need to be sure that the move is right for you and is one that will have a positive impact on your life. But there's no need to hold off until you're 65 to move to an amazing location.

Work from home

If your career is getting in the way of living the life you want right now, then perhaps it's time to start thinking about changing to something that will allow you to do this. The office environment is rapidly transforming, and working from home is no longer a rare and prized entitlement for the lucky few. If you don't have to spend time commuting or dressing for an office environment, you can free up time to do more of what you want to do.

Lots of employers are becoming more flexible when it comes to this idea and there is a wide range of opportunities that are well suited for remote work. Advancements in technology have made remote working progressively easier, with a Gallup survey showing that 43 percent of employed Americans spend some portion of time working from home.

Some industries that have embraced remote working include finance, insurance, and information technology, so it's a bonus if you already have a background in one of these fields. But even if you don't, the trend of working from home is growing, and may hit your industry soon.

Don't confuse working from home with doing less. It's not a way to ease into the retired life in that sense. What it does bring is flexibility around when you work, as well as potentially huge savings in the time wasted getting to and from the office. It's also common for it to lead to increased productivity thanks to having fewer distractions at home than in a typical office environment.

This article is from Nick Wharton of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Signs Your Work-Life Balance Is Off

Paul Michael — Tue, 16 May 2017 08:00:09 +0000

For many Americans, the daily 9-to-5 is just a dream. The U.S. is renowned for having the longest work hours in the industrialized world, and our hours are only getting longer. Family, friends, personal pursuits, and general relaxation are all sacrificed.

Too often, it's by choice. While extra toil may seem like the best way to advance your career, numerous studies — summarized in the Harvard Business Review — have shown that overworking can backfire by damaging your health and reducing your productivity at work. One study in particular by HBR and the Boston Consulting Group found that forcing consultants to take time off at predictable periods (such as nights and weekends) improved their efficiency and effectiveness.

Are you part of the growing, and disturbing, trend of self-sabotage through overwork? Read on, and see how many of these red flags you check off. It's possible your work-life balance is completely out of alignment.

1. You're working way too many hours

Let's start with the simplest red flag. The typical workweek is 40 hours. Some days you may work a little more, some a little less — but it should even out to around 40 hours overall. You may not have a time sheet to fill out, but you should still have a general idea of how many hours you're putting in.

If it's consistently more than 50 per week, you are working too much. Any more than 60–70 hours a week, and you pretty much have no life outside of the office. This kind of stress can affect your health in many negative ways, including increasing your risk of heart problems, type 2 diabetes, and substance abuse.

Even if you work from home, you need to delineate your time. If you have a home office, make it off limits after certain hours. If it's a laptop or computer in the corner of a room, shut it down. If you are working overtime for extra money, only do it for short periods of time.

2. Falling asleep (or barely staying awake) at work

If you're routinely having trouble staying awake on the job, you are probably putting in too many hours. It's not unusual for some professions to demand an excess of 40 hours per week. In advertising, for example, it's considered the norm to work 60 or 70 hours, which burns many people out. This burnout is not only dangerous — it's deadly. You risk having a stroke, severe anxiety, depression, and if you work more than 80 hours per week, your risk of major heart disease increases by 94 percent!

If you're sleeping at your desk, getting in early, staying late, and drinking eight cups of coffee to get through the day, you are working way too much. Slow down. (See also: 13 Hacks to Avoid Burnout at Work)

3. You have no social life

Think back over the last few months. How many times did you cancel plans because your job took priority? How often did you turn down invitations to parties or get-togethers because "something came up at work?" Did you have to sell your tickets to a concert, or back out of a weekend trip, because the boss needed you to come in?

These are all signs that your work-life balance is completely messed up. It's OK to work late once in awhile. Sometimes, it's unavoidable. But if your social life always takes a back seat to your career, you will suffer. And so will your work. You need down time. Take it.

4. Work is always on your mind

You muse about it at the dinner table. You think about it in bed. You lose track of the conversation because you're worried about the project you're working on. When the only thing on your mind is work, you have a serious problem.

At work, it's great to be this focused. At home, your focus should be your family, your friends, your hobbies, and other nonwork pursuits. Thinking about the job all the time will take its toll on your mental health, and you'll eventually burn out.

If you find yourself unable to switch off, it may be time to seek help from an occupational therapist. They will teach you coping skills that allow you to turn off the "work brain" and come back to reality.

5. You are constantly checking work emails

These days, we carry smartphones that put the office in our pockets. You can open emails in the checkout line at the grocery store, at the ballgame, or even on a date. And if you're doing any of those on a regular occasion, your job is taking over your life.

You need to put hard restraints on your private time. You should not be expected to check emails all hours of the day and night. Some people even get woken up in the middle of the night by emails from an overzealous boss or coworker. Set limits. Refuse to answer emails after a certain time. It's as simple as that.

6. You never take a vacation or sick day

Americans aren't using their vacation days. As of 2015, workers only took an average of 16.2 days of vacation per year — almost a week less than the average between 1978 and 2000 — and 55 percent left days unused. That's a lot of wasted opportunities for a healthier work-life balance.

Vacation days are important. Sick days are important. Refusing to use either of them is going to have serious repercussions on your wellbeing. Even if you think you're completely fine, but haven't taken a vacation in years, you may be ready to burn out. Sadly, by the time it happens, it can take months to put right. Sick days are vital for when you are genuinely sick. Not only will showing up to work prolong your illness, but you'll also spread it to other people in the office.

Your work suffers when you're sick, too. This is why companies want you to use your sick days when you are ill. Dedication is one thing, but letting your health suffer isn't helping you or your employer.

7. You crack under the slightest pressure

You find yourself having far less patience these days. You shout and become frazzled at the smallest provocation. You apologize often for outbursts that never should have happened. You are almost certainly showing signs of a work-life balance that is very unhealthy.

When we have our work-life balance right, we can more easily handle problems that arise. We don't crack, and we don't fly off the handle. But the more we work, and the less time we have to relax, the quicker our patience reserves go into the red. If you're breaking easily, you need to re-evaluate the time you're spending at work.

8. You constantly think about quitting

They say that if you do something you love, you'll never work a day in your life. Most people don't have that luxury. It's a job, it pays the bills, it provides health insurance, and it serves its purpose.

But if the job starts consuming your life, and all you can think about is quitting, then your work-life balance is way off. Yes, it may also be because the job itself is not pleasant, but when the bad job becomes the bane of your existence, it tips the scales. (See also: 8 Signs You Should Quit Your Job)

9. Your personal space is a mess

No time to clean. No time to organize. No time to do anything other than work — and boy, does it show. It usually starts with your desk at the office, and then it spreads. Before you know it, your home is just the place you sleep and shower. Your space is an utter mess, and you ignore it all.

Why? Because you're never there long enough to care. And when you are home, you're exhausted. Take a look around you, right now — has your personal space gotten out of hand? Is everything a mess? Then it's time to take a much-needed break.

This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Reasons It's Never Too Late for a Career Change

Mikey Rox — Thu, 27 Apr 2017 20:00:10 +0000

Life's too short to spend your workday being unhappy. If you're dreading going into the office, it's time to grab your career by the horns and switch things up. It's never too late — and here's why. (See also: 8 Signs You Should Quit Your Job)

1. You shouldn't wake up every morning dreading the workday

I've been my own boss for the past nine years, ditching the nine-to-five grind shortly after moving to Manhattan in 2008. I didn't like working a thankless job every day while I made somebody else better off than myself. I chose a harder road — it's not easy paying your bills on time when you're responsible for your own income — but it's provided me a freedom that has facilitated an overall happiness in my life.

2. Your skills may be transferable (or you can learn new ones)

Many people are afraid they're not qualified for a career change, but unless you have a very specific job with specific qualifications, chances are your skills are transferable. But even if what you want to do requires a particular skill that you're lacking, you still may be able to find educational resources to help you learn. (See also: How to Make a Major Career Switch Without Going Back to School)

3. You're never too old to start something new

I might sound like one of those motivational posters here, but you're only limited to what you limit yourself to. Perhaps you're hesitant to apply for a certain job because you think you're too old. But it's important to ask yourself first — too old for what, for whom?

You'll never know what the outcome of a situation will be unless you throw yourself into it. You have to apply to a job to know whether or not you're qualified. Every individual brings his or her unique perspective — and yours may be the one the company is looking for. Either way, it's worth a shot, and certainly better than sitting at home feeling sorry for yourself.

4. It doesn't matter how many years you've invested in your current company

I hate to break this to you, but, in all likelihood, your company will drop you like a bad habit when it no longer has any use for you. As such, you shouldn't feel obligated to stay with an organization just because you've been there forever and they've been good to you. That's great, and you should probably thank them for it, but that doesn't mean you owe them a lifetime of service (especially if you don't have a pension). If you feel like it's time to move on, it's time to move on. Eat the farewell cake, say your goodbyes, and press ahead.

5. You can probably accommodate a change of income

Most of us are looking for upward financial mobility when changing careers, but it's not the end of the world if the job that will make you happy pays a bit less. I'm not encouraging you to send yourself or your family into debt because of it, but if you have the option to downsize your life and reduce your monthly budget to accommodate your new, lower-paying career, by all means do it. Money isn't everything. If you can live just fine with less of it and still wake up with a smile on your face, you're doing something right.

6. Many companies also want to switch things up

The traditional workplace is undergoing massive changes to accommodate modern appetites for flexible hours, less commuting, working from home, and so on. Top candidates take roles at one company for a few years before being offered something more interesting and moving on. Companies no longer expect lifelong service in the way they used to, and these changing attitudes have paved the way for businesses in general to be more flexible in the way they attract talent.

All of this means that now, more than ever, it's easier to take the plunge and try a new career.

This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

These 5 Expenses Will Probably Cost You a Lot Less in Retirement

Matt Bell — Wed, 14 Dec 2016 11:00:08 +0000

There are a lot of scary headlines out there about how poorly prepared people are for retirement. And it's hard to deny the research: Many people simply are not saving enough.

One silver lining in the retirement funding equation, though, is that you'll probably spend less in your later years. Let's take a look at some of the most common costs that decline after exiting the workforce, along with some that may go up. (See also: 7 Retirement Planning Steps Late Starters Must Make)

1. Housing Costs

Ideally, you'll retire your mortgage by the time you retire. Of course, you'll still be on the hook for property taxes and insurance, but entering retirement mortgage-free is one of the best ways to reduce the cost of living in your later years.

You may also decide to downsize, which could cut the cost of home maintenance, repairs, and insurance, too.

2. Work Costs

If you're no longer working, you no longer have to worry about the cost of commuting, work-related clothing, or all those restaurant lunches. Plus, you'll no longer have to contribute to Social Security or Medicare as you probably had been doing via withholdings from your paycheck.

3. Car Costs

If you've been a two-car household during your career, it's possible that you could make it just fine as a one-car household in retirement, which would reduce the cost of vehicle maintenance, repairs, insurance, and gasoline. (See also: You Can't Make It as a One-Car Family: Now What?)

4. Saving "Costs"

It's hard to call adding money to a 401K or IRA a cost, but the reality is that once you're done working you'll probably stop contributing to your retirement accounts and start withdrawing from them.

By the same token, if you had been stocking a 529-plan account or two with college money for your kids, hopefully they'll be done with school by the time you retire, so those "costs" should disappear as well.

5. Kid Costs

Speaking of kids, even though people are marrying and starting families later in life, by retirement, the kids should be on their own. Just think of all the money you've been spending on their clothing, food, activities, medical care, insurance, and more.

Caution: Your Retirement Spending May Change

While many costs may come down when you leave the workforce, keep in mind that retirement is not a homogeneous season of life. You'll probably be healthiest and most active when you're newly retired. That means some of your costs could actually go up right after retirement. You may spend more on travel and recreation, for example.

Then, as you age, you'll probably become less mobile, which means eventually you'll spend less on recreational activities than before you retired.

The Big Unknown

The largest question mark looming on the retirement horizon is health care. Your monthly insurance premiums may decline once you go on Medicare. However, what about your potential need for nursing home care?

While that's not the happiest topic to think about, it's far better to deal with it now than when you actually may need the care. To manage that risk, you may want to look into the cost of long-term care insurance. And keep in mind, your choice is not just between paying the high cost of as much coverage as possible or none at all. You could opt for a more affordable policy that would help with some of the costs, while leaving you responsible for some, as well.

The Bottom Line

The very real possibility that your living expenses will be less in retirement than they are now is not an excuse to shortchange your retirement accounts. The best approach is to run some numbers, creating pre- and post-retirement budgets based on your unique circumstances and retirement goals.

Like this article? Pin it!

This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How I Saved Enough for a Down Payment While Working in China

Camilla Cheung — Thu, 25 Aug 2016 10:00:15 +0000

When I was first considering teaching abroad after graduating from college, I had many friends and family who were concerned that I'd be setting myself back financially. With the best of intentions, these loved ones told me that I would be making a mistake by moving to Asia and accepting a lower paycheck. How would I ever afford a car or a house if I didn't find a high-paying job in Canada or the U.S. and start saving right away?

Ten years later, I look back and realize that teaching abroad was one of the best financial decisions of my life. During our four years teaching in China, my husband and I saved enough between us for a down payment on our house in Southern California.

Not every job abroad will be a an ideal situation for saving, so if you're considering teaching or working abroad, and want to prioritize saving, here are a few tips for how to save as much as you can.

1. Find Free or Subsidized Housing

Many schools and companies abroad realize that it's hard for foreign employees to pick up and leave their home countries without having a living situation set up in the new country. Therefore, many employment contracts abroad include either a housing allowance, or a free or subsidized apartment that belongs to the company. In our case, the school we worked for owned an apartment block which provided heavily subsidized living quarters for teachers and employees.

Living rent-free or on subsidized rent saves a huge chunk of your income that you can put entirely toward savings. It also saves a tremendous amount of time and stress when your overseas employer helps arrange your living quarters.

It also helps greatly if the living quarters provided by the employer come furnished, which will cut down on the initial costs of moving. Having to purchase furniture and appliances can make it harder for you to start saving right away.

2. Take Advantage of the Lower Cost of Living

Another huge factor that enabled us to save was the lower cost of living in our host country. By choosing to eat at local restaurants and shop at local grocery stores, we saved hundreds of dollars every month on food in a city where the local cost of living was quite a bit lower than at home in the U.S. Of course, it would have been easy to blow our paychecks eating at expat-oriented bars and restaurants (Starbucks was pretty much everywhere in our city), but we saved the pricier international food for weekends and special occasions. A nice side effect of our frugal mentality is that we discovered a whole new world of delicious local dishes that we would never have tried otherwise.

Not all countries will have a lower cost of living than your home country, of course, so it's worth looking into what it typically costs for food, clothing, rent (if you are renting a place yourself), health care, and other necessities before going.

3. Use Public Transportation

We saved the cost of having to maintain a car because our apartment was walking distance to the school where we worked. On weekends, a cheap and efficient subway system was our transportation of choice whenever we wanted to leave the school campus. When looking for a job overseas, be sure to ask questions about how you will get to and from work, and what transportation options exist to take you to the fun part of town. Some jobs (generally not teaching jobs, though) will even provide a company car and driver to make things easier for you.

4. Live Simply

Curbing excess spending is a good financial strategy no matter where you live, but I think it's easier to live simply when you anticipate moving in a year or a few. Because we didn't plan on staying more than a few years, I was less motivated to buy unnecessary stuff, with the mentality that everything needed to fit in a couple suitcases for the trip home. While we did spend money on leisure activities such as traveling during our holidays, for the most part, we just enjoyed meeting new friends and exploring our city, activities that didn't cost much.

We did end up shipping a few souvenirs back home, but because we had to pay to ship them, we were more mindful about purchasing only what we loved.

5. Research Your Tax Exemptions

Although U.S. citizens and residents are required to pay taxes on foreign-earned income, a large chunk of that income (or even all of it depending on how much you make) could be exempt from income taxes. When filing your yearly taxes, be sure to file your foreign-earned income correctly. Of course, you may be taxed in your country of employment, but in our experience the local tax was very low. You will want to research the tax rate in the country you're thinking of working in before you accept a job.

Before accepting a job overseas, be sure also to ask about health benefits and support in case you run into a medical emergency. If your employer does not provide adequate health benefits, you may have to purchase it privately, which you should factor into your savings plan. It also goes without saying that you should do research into typical salaries for the job you will be doing, as they can vary widely depending on the employer.

If you play your cards right, you can certainly turn a few years of adventure working overseas into an opportunity to save and to meet your financial goals.

Have you considered working overseas? What's holding you back?

Like this post? Pin it!

This article is from Camilla Cheung of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Day Job or Freelance: Which Is Right for You?

Claire Millard — Tue, 28 Jun 2016 09:30:28 +0000

According to the Bureau of Labor Statistics, one in three American workers earn their keep through a model of work that is not a traditional 9-to-5 job. Many of these are freelance and contract workers, earning their income from one or more different jobs, and known alternatively as "portfolio careerists" or the slightly less glam "slashers" (as in writer/coach/unicycle performer).

For some people, a portfolio career is proof that necessity is the mother of invention. When the economy tanked and jobs were scarce, this was a great way to make ends meet. But it's a very different work environment than a typical full-time job.

While it is unsurprising that the number of people taking multiple part-time jobs might rise during a recession, the trends seem to show that these numbers are continuing to grow — a sign that the days of the traditional model of work are numbered. By 2020, it is anticipated that 40% of the American workforce will work as a freelancer, with a mix of part-time, contingent roles. But which is really better? Here are some pros and cons of each lifestyle.

In Favor of Full Time

For now, at least, full time work is still the norm. So what's so attractive about the traditional approach to careers?

1. High Rollers Are Seldom Part-Time

If what you want out of your working career is to rise through the ranks and achieve the status and salary that comes with that, then a full-time, permanent job is definitely the right option for you. While people in portfolio careers certainly can achieve wealth and status in their respective fields, this is much harder to do. If you want a healthy 401K, benefits package, and paid vacation, then stick to the full-time gigs.

2. Society Is Still Structured to Suit Full-Time Employees

Bringing in a steady full-time income, from a company that is established and understood, has a number of benefits above and beyond the cash. Organizing your taxes, planning your retirement, keeping a healthy credit record, and getting a mortgage are all easier with a full-time job than a portfolio. The variety you get with working several part-time or freelance jobs has to be offset by the increased burden of admin. and organization, particularly in a financial sector which has not adjusted to the needs of this population.

3. It Leads to Better Work Relationships

For many people, the reason you get up to go to work is not so much about the work itself, but rather about the people around you. With bonds built over years of employment, your colleagues can often be the closest people to you — an experience that few freelancers get to share. Consider your social needs carefully before you think too hard about a portfolio career!

The Pros of Freelancing

It's growing at a rapid pace, but will it last? Why is portfolio living attractive to people who could choose a nice, safe 9-to-5?

1. Freelancers Have Multiple Sources of Income

Ironically, a portfolio career might mean better job security than a full-time job. Having multiple income streams means that if one dries up, others can fill its place more easily. Since the economic downturn, more people than ever have found themselves being laid off from their regular jobs. As a portfolio careerist, this can be less of a terrifying option, and more a redirection of your time.

2. You Build a Diverse Set of Skills

One of the reasons that a portfolio career can snowball into a very lucrative choice, is that you naturally develop sets of varied but complementary skills, which can be sold at a premium. Take a freelance writer, who can also take (and sell) a decent photograph, teach writing, or build a personal blog that draws in advertising revenue. Each individual effort links to the next, growing valuable skills all the time.

3. Variety Is a Given

If you're even vaguely thinking about a portfolio lifestyle, then you're probably a fan of new experiences. Since the "same job for life" concept disappeared a generation ago, people have increasingly questioned why staying in one career field is necessary. If you can't climb a traditional career ladder anyway, then why not seek new and varied working experiences. Welcome to the world of portfolio careers.

How to Make Freelancing Actually Work

We are still learning what it looks like to be a successful freelancer. There's probably no single correct way to nail this lifestyle. However, some useful advice has certainly emerged.

If you're thinking of taking this route, then remember:

Keep one or two reliable income sources. Consider an anchor-orbiter model, in which you have one or two steady roles (the anchor), with other work which is more flexible, orbiting around this main income source. This works especially well for people who want to keep some form of a steady job on a part-time basis and build a freelance income on the side.
Build up an emergency fund. And learn to budget as a freelancer. With no fixed income, budgeting becomes more complex, even before you start to worry about paying taxes and keeping up insurance and other necessary payments.
Nothing is forever. If you try the portfolio life and it is not for you, there is no reason why you can't take your newly acquired skills and experiences back into a traditional role. In fact, the broadened horizons of having worked independently might even mean you can find a better role than ever.

What's your best advice for others looking to follow in your footsteps? Tell us in the comments!

Like this article? Pin it!

This article is from Claire Millard of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Money Lessons I Learned Selling Office Supplies

Tim Lemke — Wed, 08 Jun 2016 09:30:23 +0000

My first real job came when I was 16 years old and landed a position at one of those large office supply stores.

As jobs for high schoolers go, it was not a bad one. I earned some money to get through the summer, kept myself busy, learned a lot about varieties of printer ink, and made some friends in the process. I also took away some solid money lessons that have proven helpful over the years.

So as we enter summer, let me offer these financial bits that I learned from my first job.

1. Work Isn't So Bad

Everyone fantasizes about not having to work. But by having a job at the office supply store, I realized that being employed isn't a bad thing. A job gives you income, which is a pretty important thing to have if you want do stuff. And working at a job allows you to learn and enhance key skills like communication, reliability, and even mathematics. A job, to put it simply, can give you a foundation for life.

2. Investing Is Better Than Spending

I can tell you for sure that the cash from my first paychecks did not go into a Roth IRA, or even a savings account with a decent interest rate. No, it went to movies, trips to Burger King, Stone Temple Pilot CDs, and baseball tickets. If I had enough money leftover for gas in my car, I was happy.

I had fun as a teenager, but if I had saved more of my earnings and invested them, the total stash would have grown tremendously, and I'd have a lot more money in the bank now. Even just $1,000 invested in an index fund in 1996 would be worth about $4,000 now. If I had somehow managed to save $5,000, I'd have about $20,000 today.

3. The Government Get Its Cut

My first job meant my very first paycheck, which meant I got a glance at the amount of money Uncle Sam takes away. And it certainly seemed like a lot! By looking at my first check, I came to understand that you can only plan your spending based on take-home pay, not your gross wages. Later on in my work life, this understanding of the tax man led me to learn about 401K, Roth IRA plans, and other tax-advantaged ways to invest.

4. You Can Always Haggle

Everything for sale has a price, but that doesn't necessarily mean that's what you have to pay. There's very little downside to asking if you can pay less for an item if you believe it's overpriced. Often, stores will have price-match guarantees that aren't advertised. And you can always ask a manager to adjust a price if you think you have a good reason. When I worked at the office supply store, we had a small refrigerator for sale that had a damaged handle. It otherwise worked fine, but the manager agreed to cut the price in half simply because the customer asked.

5. Never Stop Learning

When I worked at the office supply store, we had many high-schoolers and college students on staff, but also a number of middle-aged and older employees who had been there a long time. Seeing these older workers made me realize that I did not want to find myself employed as a stockboy at an office supply store for the rest of my life. It was important for me to continue with school and develop a wide range of skills that would give me career options and the chance to earn more money over time.

6. Salespeople Want You to Part With Your Money

Though my primary job at the office supply store was to help with customer service, I also helped with sales of office furniture. I was encouraged to convince customers to buy our brand of chairs, desks, and shelves.

Keep in mind, my job was not to ensure people ended up with the best product. It was to get them to believe our product was the best, whether that was true or not. I became a master in the art of spewing baloney, and it somehow worked a lot of the time. I earned a bonus each time a customer bought a product I helped sell.

Remember this: A salesperson does not work for you and does not have your best interests in mind.

7. Everything Goes on Sale at Some Point

I worked long enough at the store to know that just about every product was discounted at one point or another. It wasn't always easy to predict when items would go on sale, but I learned that if you waited long enough, a lower price would come around. And certain items went on sale at certain times a year. There were usually deep discounts, for example, on many items at back-to-school time. And the holidays usually meant big Black Friday sales and other promotions.

I learned that the most patient shoppers were the ones most often rewarded with bargains.

8. Americans Love Their Credit Cards

As a teenager, I didn't have a credit card. And my parents were rather frugal people who used cash whenever possible. So it came as a surprise to me when, as a cashier, I would see most customers using credit cards, even for small purchases.

It's possible that many of these customers were only using cards to collect reward points or cash back, but I can't help but think they were racking up considerable amounts of debt.

We're up to about $1 trillion in credit card debt as a nation, and I can't help but think a portion of that is the result of people using cards for small purchases when they could have used cash.

What was your first job? What did it teach you about money?

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

You Don't Need a Retirement Plan — You Need a Financial Independence Plan

Claire Millard — Mon, 25 Apr 2016 09:30:29 +0000

In the golden age of a "job for life," and when defined benefit pensions were the standard, all you had to do was tough it out to hit the jackpot. A mere 40 years of employment, and you struck lucky in your golden years.

Whether the idea of working in the same place for a lifetime fills you with nostalgia or horror, the reality is that those days are long gone.

Without a steady employer doing the hard work for us, traditional notions of retirement planning do not work. The alternative, it seems, is the ostrich approach, with 48% of working age Americans saying they have never even tried to calculate the amount of savings they might need for a comfortable retirement. Ignorance might be bliss in the moment, but it's no genius long term plan. So what's the better option?

What Went Wrong With Retirement?

The Employee Benefit Research Institute (EBRI) found, in their 2016 survey measuring retirement confidence, that nearly one in five American workers (19%) were not at all confident in their ability to finance a comfortable retirement. For these workers, options are limited — spend less now, work for longer, and be prepared to compromise more on the lifestyle they expect in later years. Not a happy picture.

To add insult to injury, working longer is not actually a viable option for many of us. The EBRI reported a large gap between expectations and outcome, with a massive 37% of people saying they expect to work past the age of 65, compared to the more modest reality of only 15% of retirees in 2016 who were older than 65. This is often because options to continue working later in life become limited, with layoffs and declining physical health ending working lives without regard to the size of one's pension pot.

So with working until you drop off the agenda, what can we do to improve the prospects of having a happy, and financially secure retirement?

Start Thinking Personal Financial Independence

Ironically, part of the solution might actually be to stop thinking about retirement, and replace that thought with one of "personal financial independence."

Retirement today has changed as much as working life has, meaning there is no longer a cookie cutter approach to retirement planning that can be relied upon. The answer instead is to get educated about your household finances, with a focus on achieving personal financial independence — for life, not just for your later years. Getting clued up about your money is the only way to do that.

Start Creating It

Pull your head out of the sand, and get a realistic grip on what savings you have — and what you will need to finance your retirement.

Do the Math

Work out what you will want to spend in retirement. Tools are out there to help, like this retirement calculator, which helps you calculate what you might need to save to achieve a desired financial return in future. If you don't have an idea of your goal, then planning is a whole lot more difficult.

Optimize What You Have

If you have money in 401K plans, then you're in a strong position already. But don't just assume that it's being managed in your best interests. Check out the fees, which vary wildly and through a compounding effect can whittle away your savings at an alarming speed. Once you can safely withdraw from your 401K without incurring penalties, you will be able to choose to take a lump sum if you wish, to help you achieve the magic 4% number described below.

Understand the 4% Rule

A common premise of modern retirement planning calculations is the "4% rule" which assumes that you can live happily on the growth of a savings pot, without significantly denting the principle, so long as you withdraw no more than 4% per year. This principle, put forward by Bill Bengen in 1994, has come under some scrutiny due to our current turbulent times — but as a starting point is still considered a sound measure.

Here's how it works.

Start with the amount of money you think you will need to finance your retirement lifestyle. Multiply this by 25 to get the amount of savings you need to have to make that number a reality if the 4% rule is applied.

Then sit down, because in all likelihood that number is going to be scary.

If you calculated that you would like a household income of $40,000, then the sums say you need a pot of a cool million. How hard this really is to achieve depends on your current position. If you're just setting out and don't plan to retire for 40 years, you will need to save something like $640 a month (shared out among the earning members of the household — so half that if you're in a couple), assuming a modest 5% return on your investment. If you plan to retire a lot sooner, or do not not have existing savings or 401K plans, this number might be more daunting.

If the savings you need to achieve financial independence feel unrealistic, then it's time to start thinking of the levers you have to close the gap. Earn and save more, or plan to spend less, perhaps through lifestyle adjustments or by taking advantage of geographic differences in things like cost and quality of living. Or, plan to manage your retirement as a gradual wind down, continuing to be economically active after your usual retirement age, but in a flexible role. Considering these options now, rather than being pushed into them at the point you wish to quit working, is far more likely to have a happy ending.

The new world of planning for later life brings with it more choices, but also more questions to mull over and decisions to make. Instead of facing these questions, too many of us are ignoring the issue. Experience shows that working longer (or windfalls, or a fairy godmother) is unlikely to be the answer. Getting clued up about your money now is the only way to give yourself a shot at the golden years you deserve.

What do you think? What is the optimum way to plan for your retirement now?

This article is from Claire Millard of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: