pensions

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.

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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:

Why Playing It Safe With Your Money Is Actually Risky

Tim Lemke — Fri, 22 Dec 2017 10:00:06 +0000

The stock market has had a good run lately, but all good things come to an end eventually. And many of us remember a time not too long ago when a big crash wiped out billions of dollars in investment gains.

Fear of a downturn, however, should not be an excuse to get too conservative in your investment approach. While it may be tempting to avoid stocks and keep all your money in cash and bonds, there is a real risk that you may find yourself without enough saved for retirement.

While many of us may view stocks as “risky” investments, the more risky move is to play it too safe. Here’s why.

1. You may live a long time

It was once common for someone to work into their 60s and pass away in their 70s. It wasn’t necessary to prepare for a retirement of more than 15 years or so. But now, there are many cases of people living into their 90s and beyond. In fact, it’s not unheard of to have a retirement that lasts longer than your work life. Are you on track to save enough to last 30 or 40 years?

Accumulating enough for this length of time requires the investor to expand their risk tolerance and invest largely in stocks, especially earlier in life. It’s OK to shift to some cash and bonds later, but going too conservative will leave your nest egg short of what you need. (See also: 7 Reasons to Invest in Stocks Past Age 50)

2. Interest rates are low

You may be tempted to put money in a savings account or in certificates of deposit due to their safety. But bank interest rates and bond yields are still very low by historical standards. Consider that you’ll be lucky to get a 1.5 percent annual yield from a savings account, while bond yields are between 1 and 3 percent. With rates this low, your money may barely grow faster than the rate of inflation if you don’t invest in something more aggressive. It’s fine to keep a sizable fund in cash in the event of an emergency, but keeping the bulk of your retirement fund in low-interest accounts is not the ticket to a comfortable retirement.

3. There’s no pension to help you

We’ve all heard stories of our parents and grandparents walking into retirement with a hefty pension that took care of them for however long they had left on Earth. Those days are gone. While many employers still contribute to retirement through 401(k) plans, their overall contribution is less than in the past, or at least partially dependent on you setting aside some of your own money. It’s now up to the individual to set aside enough money for a comfortable retirement, and this may require taking some risk and investing in stocks with a potential for growth. Play it too safe, and you may find yourself short on cash later in life. (See also: If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do)

4. You may end up helping your kids

You may envision your retirement as a time spent traveling with your spouse, lounging on beaches, and doing crossword puzzles. In truth, it may be all that, plus a hefty dose of financial and child care support for your kids. A survey from TD Ameritrade revealed that millennial parents receive an average $11,000 annually from their own parents in the form of financial assistance or free child care. While these older citizens are eager to help their kids, 47 percent of them do admit that they have to make sacrifices in their own life to offer this assistance.

In planning for your retirement, are you taking into account the possible expense of helping out your own kids? This assistance can add tens of thousands of dollars to your retirement costs, so it’s important to have an investment strategy that is aggressive enough to take these costs into account. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

5. Future benefits aren’t guaranteed

You may be banking on Social Security and other government programs to help support you when you get older. We all hope they’ll be in place when we retire, but the stability and future of those benefits is subject to the whims of our lawmakers. Social Security and Medicare both are facing long-term budget shortfalls, and many lawmakers have advocated for adjustments to benefits in order to ensure these programs remain solvent.

It’s impossible to predict what government benefits will exist for retirees decades into the future, but no one should assume they will remain as-is forever. Moreover, these benefits were never designed to support a robust, active retirement. By taking a more aggressive approach with your own saving and investing, you can accumulate enough to enjoy a good retirement regardless of what government benefits look like in the future. (See also: 5 Sobering Facts About Social Security You Shouldn't Panic Over)

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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:

6 Money Problems Our Grandparents Never Had

Sarah Winfrey — Mon, 21 Aug 2017 08:31:10 +0000

Life has changed quite a bit over the past 75 years. Sometimes, it's hard for us to think about what life was like for our grandparents and great-grandparents all those years ago. This can be especially true when it comes to money.

Financial problems are not immune to changing times. As the times have changed, so have the issues and challenges we've had to deal with. While our grandparents and great-grandparents surely had their share of financial problems, there are some they simply never had to face.

1. Online identity theft

Identity theft has been around as long as there have been identities to steal. But, since our grandparents didn't have the internet (at least until they were much older), identity theft was not as big of a concern as it is today. Since information wasn't digital, no one could hack into a database to steal credit card numbers, Social Security data, and other personal identification details. Our grandparents didn't have to peruse their credit reports for cards, loans, and other lines of credit that had been fraudulently taken out in their names.

Today, we have to be proactive about protecting ourselves from fraud. According to a recent study by Javelin Strategy & Research, 6.5 percent of consumers experienced identity fraud in 2016, a number that continues to rise every year. The same report from the previous year found the average incident cost was $1,585.

Though our financial institutions are looking out for us, we have to be wary about where we use our credit cards online, and we have to pull those yearly credit reports, just in case. Every year, we have to deal with the potential for tax fraud, and we must constantly weigh whether it's worthwhile to share our information online in return for whatever goods and services we are getting in exchange. (See also: 18 Surprising Ways Your Identity Can Be Stolen)

2. Credit cards

Our grandparents and great-grandparents simply didn't have or use credit cards in anywhere near the same capacity as we do today. For the most part, their mentality was this: Either they had the money to buy what they needed, or they didn't. If they didn't, they simply went without. This straightforward approach to money meant they were probably better at budgeting than many of us are today.

Now, according to the Federal Reserve, 70 percent of Americans have at least one credit card, with the average being 2.6 cards according to Gallup. In houses that carry credit card debt, a NerdWallet study found the average amount to be a whopping $16,425 as of 2017. As a nation, that's a grand total of $764 billion that we owe on our cards. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

Our grandparents didn't have to deal with credit card debt, but they also missed out on many of the benefits of credit cards, like points, miles, and cash back programs. (See also: 14 Awesome Credit Card Perks You Didn't Know About)

3. Student loans

The first federal student loans in the United States were offered in 1958, under the National Defense Act. The institution of student loans simply missed most of our grandparents' generation. Now, according to Student Loan Hero, 44.2 million Americans are dealing with student loan debt, and repayment is so difficult that it is a crisis for many people.

In homes that carry student loan debt, NerdWallet found the average amount owed is over $50,000. Since 1985, inflation has seen the cost of college fees and tuition rise by nearly 500 percent. It's no wonder we have to take out loans to pay for school.

While our grandparents didn't have to deal with these enormous student loans, there was a trade-off: They also found it much harder to go to college. Loans today make it easier for people to get the education they want or need to pursue their dreams, so we have more educational opportunities than our grandparents did. But, that opportunity comes at a steep price. (See also: 7 Unique Ways Millennials Are Dealing With Student Loan Debt)

4. High health care costs

Getting quality medical care didn't always cost as much as it does now. In 1958, the average person spent $134 per year on health care costs (and many of our grandparents were born before that, when costs were even lower). Even if you adjust for inflation, that's only around $830 by today's standards. In 2016, the average person spent $10,345 dollars on health care. That's a massive leap.

It shouldn't be a surprise that health insurance is a huge debate in our country, because most people can't afford this much out of pocket. Health care costs have gone up for many reasons, including the advancement (and expense!) of technology, the high cost of becoming a doctor, and the drain of long hospital stays and drawn out illnesses. Our grandparents and great-grandparents may not have had such high health care costs, but again, there was a trade-off: They also didn't have access to the advanced technology and treatments that we have today. (See also: The One Question You Need to Answer to Choose the Best Plan on the Health Care Marketplace)

5. Saving for retirement

In our grandparents' day, many jobs came with pensions. You worked a certain number of years, or until you reached a certain age, and the company let you retire with plenty of money to live out the rest of your life. It wasn't up to you to figure out a 401(k), the various types of IRAs, and more. Instead, you invested in a company, and that company took care of you when you left the working world. (See also: If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do)

Now, we have to invest for ourselves, because pensions are disappearing. According to the Bureau of Labor Statistics, in 1990, 42 percent of private industry employees who worked full-time had a pension. By 2012, that number was down to 22 percent. And it's still falling. Companies aren't looking out for our retirement anymore, so we have to do it ourselves.

While pensions had many perks, they didn't give workers the flexibility that we have today in planning for retirement. Now, we can choose how to invest our retirement savings, and exactly how much we put into those accounts. Although funding our retirement takes a lot more work these days, we at least have the benefit of more control and flexibility with our savings. (See also: 4 Retirement "Rules of Thumb" That Actually Work)

6. Rising food costs

Things cost more now than they did in our grandparents' day. While we also make more money than they did, it's not enough to keep up with the rising cost of everyday life. Since 2003, food and drink costs have risen by 36 percent. Our earnings, on the other hand, have only gone up 28 percent.

A dozen eggs only cost $0.60 in 1950. By 2010, that cost was $1.79 per dozen, and it's only getting higher. Sure, that's one small item. However, when you multiply that by all of your groceries, that's a significant change between the prices our grandparents paid and the ones we pay now.

The silver lining to those rising food costs is that we now have many more options in where and how we purchase groceries, which gives us a chance to find the best deals. Apart from the grocery store, you can do a cost comparison with your local farmers market or wholesale retailer, like Costco. Recent years have also seen a boom in community-supported agriculture (CSA) shares, in which you receive farm-fresh, seasonal produce (and sometimes dairy!) for a fraction of what you'd pay at the store. Today, you can even save money by having your groceries delivered right to your doorstep. (See also: 10 Affordable Alternatives to the Grocery Store)

We also have more ways to find savings on those rising food costs. Apart from good, old-fashioned coupon clipping, there are numerous apps and websites (such as Ibotta, SavingStar, and Checkout 51) that offer stellar deals and cash back on grocery purchases. (See also: The 8 Shopping Apps That'll Actually Save You Money)

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

How to Make Sure You Don't Run Out of Money in Retirement

Philip Brewer — Fri, 26 May 2017 08:30:09 +0000

An annuity is a stream of fixed payments that's guaranteed, often for as long as you live. Having an annuity can make retirement more secure, but it's hard to recommend them as investment vehicles, because almost every annuity on the market is a terrible investment. They tend to be sold by salesmen, so they're often loaded with fees. And, because being upfront about the fees would make them hard to sell, these fees are obscure (often outright hidden) and are typically different for every product, making it especially hard to comparison shop. (See also: Should You Get an Annuity?)

But my experience these past few years — helping older relatives with their finances, and starting to take the little pension I earned as a software engineer — has given me a new perspective on annuities. Having an annuity is more than just nice: It's wonderful! It's just buying them that's usually terrible.

Fortunately, there are a few that are worth buying. You don't hear about them often, because they don't siphon off a big chunk of your investment to pay a salesman, so salesmen don't push them.

Why annuities are great

It used to be that anyone with a good job retired with an annuity in the form of a pension. This is how I've gotten my recent experience with just how great it is to have an annuity: All my older relatives are now receiving pensions.

You never outlive your income

The main thing that's great about an annuity is that having one means you're never going to be broke. Even if you overspend and run down your savings, even if the stock market crashes or you make terrible investment decisions and your investment portfolio takes huge losses, you'll still get that monthly check for as long as you live.

You don't need to have an annuity to arrange that — you can live off capital in a way that makes it last the rest of your life — but an annuity makes it much easier.

They can raise your income

The other thing that's great about an annuity is that it can, at least potentially, be more money to live on. See, the only safe way to live off capital is to just spend the income from your investments. But that's not much money (especially these days).

If you knew how long you were going to live, you could spend down your capital so that you'd die with just enough money to pay off your last month's bills. But since you don't know how long you're going to live, you have to make a conservative estimate, holding back enough capital so that you won't go broke even if you live to 100. (Of course even that might not be enough. What if you live to 114?)

The company that provides your annuity has a much easier job. They don't need to know whether you'll live to 97 or kick the bucket at 67. They count on the fact that the average person will live an average life span. They can arrange the terms of the annuities so that the payouts don't exhaust the total pool until the last person dies. The fact that some people die the month after their pension starts means that there's enough money to pay for the people who go on to live for decades.

Offset against that is the fact that the company that's providing your annuity needs to make a profit, and it also needs to hold back a reserve against the possibility that it'll get unlucky and a bunch of their customers will live longer than average — but both of those factors are relatively small.

Annuitize, but how much?

If you accept the idea that you probably ought to have an annuity of some size, the next question is: How big should the annuity be?

At one extreme, you could just annuitize all your money — take all your savings and investments (except your checking account and your emergency fund) and buy an annuity. Then you'd know what your income would be for the rest of your life and you could budget for it.

I recommend against that. There are many reasons why it's worth having some capital. Your capital earns an investment return and it also provides a measure of safety as a backup to your emergency fund. It makes it possible to fund expenses beyond your bare-bones budget. Perhaps most important, having some capital saves you money in all kinds of different ways — because you have funds on hand, you can take advantage of deals, you can avoid high-interest borrowing, and you have money to put down a large security deposit in cases where that will save you money.

At the other extreme, you could annuitize none of your money and just live off your capital. I've just explained the downsides to that.

You want to be somewhere in the middle. With a modest annuity, you're protected from running your income down to zero, and yet you can preserve some amount of capital.

My advice is this: You should annuitize enough to cover your rock-bottom expenses, the lowest amount you could live on indefinitely. That way, you're putting yourself in a position where you can be sure you can get by no matter what happens to your investments, while preserving enough of an investment portfolio to fund your other life goals — travel, making a major purchase, leaving an estate to your heirs, etc.

Before you start shopping for annuities, be sure to take into account any annuities you already have. But unless you're old, and even then only if you had a pretty good job at a pretty big company for many years, you probably aren't going to have a great pension. (If you're only kind of old, and worked at a pretty big company for a few years before they all phased out their traditional pensions in the early 2000s, maybe there's a small pension waiting for you. If so, that's great. Even if it's not enough to live on, it's a very positive contribution to your retirement income.)

However, most people reading this probably won't get a good pension.

Fortunately, there is an annuity you very likely do have.

The annuity you already have

You almost certainly already have an annuity in the form of a national pension scheme, such as Social Security. The amount of Social Security you will get depends on your own employment history. For most people, it will provide a large fraction of the "rock-bottom expenses" I recommend you cover with an annuity, but you can generally expect there to be some gap.

If you have an employer-sponsored pension, even a small one, it may well cover the gap. If you don't, I recommend that you cover it with an annuity that you buy.

How to buy an annuity

As I said at the beginning, most of the annuities you can buy are terrible investments, but there are good ones. It is possible to buy an individual annuity and get an OK deal. It's just hard because the companies that sell them make it virtually impossible to compare one annuity to another.

This is especially true for the sorts of annuities that are most like a pension: The ones set up so you make a payment every month starting in your 30s or 40s, then get a check every month starting when you're 65.

Those are called deferred annuities (because you defer getting your money until age 65), and they're always terrible. They always have what are called "back-end" fees — money that the salesman gets to keep when you figure out that you've made a terrible deal and want to get (some of) your money back. The rules on back-end fees are always different.

To make it even harder, these sorts of annuities are usually bundled with some sort of life insurance (supposedly so that if you die before you retire your estate won't "lose" all the money paid into the annuity) — and of course the details of those insurance policies are always different as well.

Comparison shopping

It is possible to buy an annuity in a way that does allow you to compare them. Don't buy one with monthly payments. Instead, save and invest the money in the stock market yourself during your working years. Then, when you're ready to retire, buy what's called a "single premium immediate annuity" — you put up a big chunk of money today, and then start receiving monthly payments immediately that last for the rest of your life. (The monthly payments, of course, should equal the gap you identified between your Social Security and your rock-bottom budget.)

That is something that's easy to compare: How much do you have to pay today for a stream of income that starts next month and lasts the rest of your life? You can get a few quotes and pick the best deal.

These sorts of annuities usually don't have the life insurance policy that supposedly protects against your dying before you start taking payments, because the payments start immediately. That's good. Bundling in life insurance just makes it harder to compare prices. If you need life insurance, buy a life insurance policy separately.

Be very careful of letting them include any sort of survivor benefit, because that can also make the annuities harder to compare (although as long as the rules are exactly the same, it is at least possible). One alternative, if you need a survivor benefit, is to buy a life insurance policy that will pay off enough for your spouse to buy his or her own annuity.

As an aside, let me mention that the annuity salesmen among you are going to jump in and point out that you're giving up an important tax advantage if you only consider an immediate annuity. This is technically true, but in fact is pretty unimportant. Let me just say this: If you are maxing out your 401(k), and your IRA, and your Roth IRA, there is an opportunity to tax shelter a bit more money through an annuity contract. In practice, I'm willing to bet that the tax advantage will never equal the fees you're going to end up paying.

If you do save your money in a 401(k) or IRA, there are tax rules for using that money to buy your annuity. Follow the rules and you won't owe any taxes when the money is used to buy the annuity. You will, however, pay taxes on the annuity payments when you receive them (just like you would if you'd taken distributions from the tax-deferred plan directly).

Where to buy

Pretty much any life insurance company will sell you an annuity, but I only know of two places to get a good one: Vanguard and TIAA-CREF. (There used to be a third, but Berkshire Hathaway got out of the business a few years ago.)

The main problem with buying directly from an insurance company is just that their annuity sales operations are organized around their annuity salesmen, who will immediately start trying to sell you something that's more profitable (to them) than a single premium immediate annuity — that's the step you avoid by going through Vanguard or TIAA-CREF. (They also have enough buying power to get especially good rates, because they bring in large numbers of customers.)

If you're sure you can bear up under the sales pressure, there's no reason not to get quotes directly from the insurance companies. (Just because I don't know of any other good places to buy one doesn't mean there aren't any.) Insurance companies that sell annuities will be very easy to find — just do an internet search for information about annuities and you'll get a dozen ads for them and for online tools to compare their offerings.

You're handing over a large fraction of your wealth and counting on the insurance company to be around for the rest of your life, so you want to have considerable confidence in the financial soundness of the company you pick. I would not consider any company rated less than A by the insurance grading firm A.M. Best, and I'd be happier with one rated A+.

Buy when rates are high

To buy an annuity, you have to put up a pretty sizable chunk of cash. (Vanguard quotes the cost today to a 65-year-old male buying a single premium immediate annuity of $1,000 a month for the rest of his life as being $180,052.)

Unless you're rich, the cost of an annuity that covers your rock-bottom expenses is going to be a large fraction of your entire retirement savings — which is OK, because it's going to be a large chunk of your entire retirement income.

The insurance company that sells you your annuity is going to invest that sizable chunk of cash in a portfolio of stocks and (mostly) bonds, and then use the dividends from those stocks and (mostly) the interest payments from those bonds to pay your annuity. Because of this, an annuity is much cheaper when interest rates are high.

If you bought an annuity right before the financial crisis, you made out very well. If you wanted to buy one in the past eight or nine years, you probably found that they were incredibly expensive. But in the current era of rising interest rates, annuities are becoming more affordable again.

Still, if you're approaching retirement age, understand that there is no rush. Figure out your rock-bottom expenses — and then live with that budget as an experiment. Maybe you'll find that you'll need more than that in retirement. Maybe you'll actually need less. Do some comparison shopping. Take your time. Then, when you've got a pretty good handle on the expense of your retirement lifestyle, at a time when interest rates are up a bit and you're ready to quit working, go ahead and buy that annuity.

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

Don't Let Outdated Money Advice Endanger Your Money

Tim Lemke — Fri, 19 May 2017 09:00:09 +0000

We've all received unsolicited financial advice, often from well-meaning relatives and friends. In many cases, this advice is useful. But a lot of "classic" personal finance advice simply hasn't aged well, and is now viewed as flawed. It's just not applicable anymore in today's world.

Before you blindly accept any money advice you receive, be sure to do some additional research to find out if the advice is outdated. Here are nine examples of financial tips that may no longer apply.

"Find a good employer and stay forever"

Many of us know an older relative that began working at a company as a teenager and then retired from that same firm four decades later. Often, they walked away with a sizable pension and even health benefits for life. (See also: If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do)

This doesn't happen much anymore. Job security is not what it once was. A decline in labor unions means that guaranteed annual pay increases are a thing of the past. And a pension? Forget it.

There's a lot of evidence now that switching jobs periodically will result in higher pay increases. And with the introduction of 401(k) plans, retirement savings are portable when your employer changes.

"Pay off all of your debt as soon as you can"

This is not so much "bad" advice, it's just less than ideal. Yes, it's a fine goal to remain as close to debt-free as possible, but in the current environment, carrying some kinds of low-interest debt may be more beneficial for you in the long run.

Let's say you have a 30-year fixed-rate mortgage and were fortunate enough to lock in a low 3.5 percent interest rate. Let's also say stock market returns are averaging 7 percent per year. Over time, you're going to be better off using any extra money you have to invest in stocks rather than pay off your loan early. Generally speaking, if your investment returns outpace current interest rates, there's not much incentive to pay off debt early.

"Technology is a fad"

There was a time when some of the most savvy investors dismissed many tech stocks because they didn't understand them. The bubble collapse of advertising-dependent dot-com companies in the late 1990s didn't help the image of this sector. But there's no denying the fact that investing in technology companies with solid business models has been a clear path to wealth in recent years.

All you need to do is look at the incredible returns for companies like Amazon, Apple, Netflix, Facebook, and others. A full 15 percent of companies in the S&P 500 are technology companies, and they comprise most of the companies traded on the NASDAQ.

Tech stocks are still notoriously volatile, but if you ignore the sector completely, you're ignoring some big potential returns.

"Max out your 401(k)"

While there's still little question that you should take advantage of your employer's 401(k) plan, people aren't quite as eager anymore to recommend that you contribute the maximum amount allowed. That's because over time, we've learned that the investment options and fees in many plans are rather lousy.

Now, the best advice is to contribute to your 401(k) up to the amount that is matched by your employer. After that, begin contributing as much as you can into a Roth IRA, which offers tax-free growth and a wide array of investment choices.

"Education debt is good debt"

Attending college isn't a bad thing, but don't be cavalier about the impact that student loan debt will have on your financial wellbeing. College costs are increasing, along with stories of students and new grads being weighed down by tens or even hundreds of thousands of dollars of debt. (See also: 15 Ways to Pay Back Student Loans Faster)

Carrying this debt can create a ripple effect that impacts your ability to save, purchase a home, or invest. And student loan debt can't be discharged in bankruptcy. Nowadays, any thought of borrowing for school should not be taken lightly.

"Diversify your portfolio with a mix of stocks and bonds"

Financial advisers have always emphasized diversification, but over time there's evidence that younger investors don't need to devote as much of their portfolio to fixed-income investments. Investing in bonds is useful for people who are nearing retirement age. But if you've got a long way to go before you stop working, you'll be best off with mostly stocks, which will offer much better returns and greater potential to meet your retirement goals.

There is more risk and volatility associated with buying stocks, but a long time horizon will give you plenty of time to recoup any losses and then some (especially since people are living longer than ever). If you're not sure what stocks to invest in, pick a simple, low-cost index fund that mirrors the performance of the overall stock market.

"Try to become a millionaire"

There is an enormous amount of mystique surrounding the $1 million mark, and there's no question that saving that amount is something to be proud of. But a million dollars won't carry you as far as it once did. (See also: 5 Reasons Being a Millionaire Is Overrated)

If you plan to retire at age 60, keep in mind that you need your nest egg to last for 30 years or more. Will $1 million allow you to maintain your lifestyle and pay for things like long-term care? It's certainly possible to retire with $1 million, but you may still have to live conservatively to make the money last.

"Always buy instead of rent"

Homeownership is a powerful thing. It allows you to build equity and get some possible tax breaks while also offering you a place to live. But we've learned in recent years that it's not for everyone.

Home prices are sky high in many areas of the country, and having a mortgage payment that's too expensive can make it hard to save for the future or even live comfortably. Remember that just because you qualify for a loan of a certain size doesn't mean that's a sensible loan size for you.

The best advice now is to purchase a home if you believe you can make a large down payment and then comfortably make monthly payments while still saving for other future needs. If you're not quite there yet, don't fret. Renting is OK as long as you're still saving, investing, and building your net worth in other ways.

"Buy Coca-Cola stock"

For decades, you'd often hear investors gloat about the consistent, predictably great returns from Coke. Heck, the great Warren Buffett owns a ton of shares and drinks several Cokes a day.

It's still a good company, but anyone who bought Coca-Cola shares in recent years will have seen below-average market returns. Shares have risen just 18 percent in the last five years compared to nearly 70 percent for the S&P 500. Quite simply, the company has had to work very hard to maintain profits in an age when people are increasingly concerned about the health impact of sugary drinks and snacks.

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:

If You're Lucky Enough to Receive a Pension, Here Are 6 Things You Need to Do

Mikey Rox — Tue, 21 Feb 2017 11:00:11 +0000

Pensions are becoming a thing of the past — so if you're still entitled to one, consider yourself lucky. Once you have a pension, however, what will you do with it? How will you manage it? Here are a few suggestions on how to handle your well-earned windfall.

1. Request an Updated Pension Statement Annually

Call me crazy, but I check my bank account every morning when I wake up. It's all still there each day, but I don't like to take any chances. You need to keep an eye on your pension, too. Granted, you don't need to check in every day, but you should request an update once a year.

"Like your Social Security benefits, your pension benefit amounts can change," explains Brannon T. Lambert, owner of the investment firm Canvasback Wealth Management. "Not only that, but pensions can have several options for payouts, survivor benefits, or cash out options. You want to know every option available to you especially if you are married or have dependents."

2. Weigh Your Payout Options Carefully

Before the IRS passed a law in 1978 to make self-funded 401Ks possible, many companies provided employees pensions — a fund that accrued in value over time to ensure that their employees were at least modestly supported through their retirement. That's all but reversed nowadays. In 1979, 28% of all workers were enrolled with pension plans, whereas only 2% of today's workforce is enrolled. Conversely, between 95% and 98% of employers offer 401K plans. Go figure.

When it's time to receive your pension, the first decision you'll need to make is how you want to receive the money— which, in turn, raises many important questions. Morgan Christen, CFA at Spinnaker Investment Group in Southern California, explains your options.

"Pension planning involves many decisions that are irrevocable; anyone that will receive a pension should learn about all of the payout options," he says. "Do you want to receive income for your life? Do you want to make sure a spouse is covered should you pass away? If you want to cover a spouse, how much of your benefit do you want that person to receive — 100%, 75%, or 50%?"

These are all things to think about when it comes time to take your pension. Keep in mind that if you want to cover a spouse, you will be taking a reduced amount on a monthly basis — and if your spouse predeceases you, you may not be able to change course.

3. Investigate the Social Security Offset Provisions

You may expect a certain dispersed dollar amount each month when your pension begins, but you could be caught off guard if it changes down the road. Your Social Security payments may be the culprit.

"Some pensions come with Social Security offset provisions," Lambert explains. "This means that your pension benefit amount could be one dollar figure initially, but once Social Security benefits begin, your pension will be reduced somewhat depending how much they offset. It could possibly be dollar-for-dollar up to a preset limit. This can come as a big surprise if you are not aware of it."

4. Research Your Investment Opportunities

If you want to roll the dice with your pension, that's your prerogative — but you need to go into any investment situation well-informed of what you're getting into. This is money that needs to last the rest of your life, and you don't want to squander it because of poor decision-making. Do you research and get level with expectations so you're not blindsided by bad news.

"When it comes to pensions, many people assume that the managers of the funds will do the investment on behalf of the participants, which is rarely true," says Justin Kumar, senior portfolio manager at investment firm Arlington Capital Management in Arlington Heights, Ill. "Participants must elect their investment options from the lineup of available funds, but if they do not, they will often be invested in the default option. The problem is that the default is usually some type of cash or money market equivalent funds. Although these funds may be a safer option, they will not participate in market uptrends, leaving participants confused at the end about why they may not have more money."

Furthermore, for those participants with limited investment options, there may be language in the pension plan documents that specifies an age — such as 55 or 59 1/2 years old — in which pension funds can be rolled over by a participant into an IRA, thus allowing access to a greater universe of investment possibilities. Participants should consult with their pension consultants and perhaps with an outside adviser to determine the best course of action when making these investment decisions.

5. Avoid Greedy Financial Advisers

How do you know if a financial adviser has your best interest at heart? Mark Zoril, founder of the retirement-planning firm PlanVision, reveals how to spot the con artist.

"As someone evaluates and reviews their options, it is important to understand the pros and cons of taking the pension or transferring it to an IRA," he says. "Unfortunately, far too many advisers' compensation is directly impacted by what someone does with their pension. Therefore, they are strongly incentivized to convince people of the benefits of cashing out their pension. In fact, a transfer from a pension can be a very strong payday for an adviser."

This applies to so-called "fiduciary" advisers as well.

"Many of these advisers promote how they are 'fee only' and offer objective guidance," Zoril adds. "However, if they charge their clients based upon assets under management — the most common model of advisers — they have a huge conflict of interest in providing guidance on this particular topic."

It's important that you seek the guidance of a professional — perhaps someone you know well in that field, and not someone who's blinded by your potential investment — regarding your pension plan to fully understand whether or not the advice you're seeking will be influenced by their adviser's compensation. This presents a real risk to your evaluation process.

6. Plan for the Taxes You're Required to Pay

Your pension is not tax-free. It will be taxed as regular income. You need to plan and save for that bill so you stay in good standing with the IRS. You don't want to spend your golden years in the slammer, do ya?

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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:

The Inventor of the 401K Has Second Thoughts About Your Retirement Plan — Now What?

Tim Lemke — Mon, 13 Feb 2017 10:30:33 +0000

In the early 1980s, the 401K plan was introduced as a potential supplement to the pension plans offered by employers. Now, they are a staple of retirement planning, while pensions are available to fewer workers than ever before.

A 401K allows workers to set aside a certain amount of their salary and invest into a variety of mutual funds. Often, companies will match contributions up to a certain amount. These plans can be powerful vehicles for amassing great wealth in retirement, but the founders of these plans recently voiced concerns that the plans are inadequate for many people, and that they were never meant to replace pensions altogether.

For sure, 401K plans place more of the savings burden and risk onto the individual than pensions do. And many plans are lousy, with high fees and poor investment choices. So, what to do? Here's how to build that big retirement fund even when you're at the mercy of the 401K.

1. Save Up to the Match, Regardless

You may be annoyed that a 401K is all your employer has to offer, but if the company is offering to match contributions, you'd be a fool not to participate. Even if the plan has lousy mutual funds with high fees, free money is still free money. Most good companies offer at least 50 cents for every dollar you contribute up to a certain amount, and that can add up to a lot of dough over time.

2. Get an IRA

A 401K is not the only vehicle for saving for retirement. Individual retirement accounts, or IRAs, offer some good tax advantages and better flexibility than a 401K. There's no company match for an IRA, but you have the ability to invest in just about anything. That's why many investors will put money in a 401K up to the company match, then put any additional savings in IRAs. Most people can contribute $5,500 annually into an IRA. With a traditional IRA, any money you contribute is deducted from your taxable income. With a Roth IRA, your money is taxed right away but you don't have to pay tax on any gains when you withdraw the money at retirement.

3. Start Early and Have a Long Time Horizon

Despite the flaws of a 401K, it's still very possible to amass a large sum for retirement if you begin investing when you are young and keep it up for a long time. If you enter the workforce when you're 18 and keep saving and investing until retirement age, that means you'll have 45 years to allow your nest egg to grow. In fact, under this scenario, it's possible to retire a millionaire by putting aside less than a few hundred dollars per month.

4. Find the Low-Cost Funds

Even if your 401K plan isn't perfect, you owe it to yourself not to make matters worse by investing in bad funds. Many 401K plans offer mutual funds with high management fees and other expenses, but most also offer low-cost options, including basic S&P 500 Index funds. Find those funds with the lowest fees, so you get to keep more of your money. Look for funds with expense ratios below 0.5%, if possible.

5. Embrace the Power

When an employer offers a pension, it almost always contributes to a pension fund and then hopes that investment returns are enough to meet the obligations they have to employees. So in reality, the only significant difference between a pension and a 401K plan is who is in control. With a 401K plan, you have more control over how you invest. For some people, this is scary. But for others, it's just as scary to leave their financial future in the hands of others.

6. Make a Good 401K Part of Your Job Search

Think about the last time you searched for a job. When you applied and interviewed for positions, did you take the quality of the company's 401K plan into account? Chances are, this was far down the list of concerns, below salary, health benefits, and even vacation time. But imagine if more people turned down job offers because of a lousy 401K plan or a low company match. If more prospective employees voiced concerns about the quality of retirement plans during the hiring process, companies might be more likely to improve their plans.

7. Talk to Your Lawmakers

It's unlikely that the President or Congress can force companies to bring back pensions, but they are the ones who could change 401K plans to make them more attractive. Lawmakers could pass legislation that improves the tax benefits of plans or increases the amount investors are allowed to contribute. They could pressure companies to boost their matching contributions, and require more companies to offer plans to more employees. Lawmakers could also propose new kinds of savings plans managed by the government. At the very least, voicing your concerns about the quality of the 401K as a retirement option could start a conversation on Capitol Hill.

8. Join a Union, If You Can

Much of the erosion of defined benefit plans has coincided with the drop in influence of labor unions in America. According to the AFL-CIO, about 75% of union workers participate in defined benefit plans, compared to about 20% for nonunion workers. But far fewer people are part of unions these days.

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:

9 Threats to a Secure Retirement

Tim Lemke — Fri, 07 Oct 2016 09:00:06 +0000

Saving and investing for retirement isn't easy. There's a lot that can happen to take you off track, potentially leaving you less money than you hoped for.

From poor financial planning to unexpected events and even nationwide economic woes, here are some of the things that could pose a threat to your secure retirement.

1. Not Investing Enough

It's never easy to figure out how much to invest. After all, you want to make sure you have enough money to deal with your current needs. It's common for people to invest too little, and this can hurt them in the long run.

When saving for retirement, it's smart to contribute as close to the maximum each year into 401K and IRA plans. (That's $18,000 for the 401K and $5,500 for the IRA.) If you can't contribute quite that much, at least put enough in to get the company match on your 401K plan.

Even a few extra dollars per month into retirement accounts can make a big difference. For example, let's say you have $50,000 in an account and contribute $500 per month for 25 years. Assuming a 7% return, your portfolio would amount to about $677,000. But what if you contributed $1,000 monthly? Then it would hit nearly $1.1 million.

2. Starting Too Late

When investing, time is your biggest friend. The more time you have to invest, the bigger your nest egg can grow. Thus, one of the biggest threats to a secure retirement is failing to contribute to your fund early in life. If you're past 40 years old, you may have only a couple of decades to invest before you wish to stop working, and that may not be long enough to amass the kind of wealth you'll need for a long and comfortable retirement.

Let's say you invest $25,000 today and add $1,000 per month until you are 65. If you're currently 45 and get a 7% annual return, you'll have about $625,000 upon retirement. Not bad, but if you had started when you were 25, you'd have nearly $3 million.

3. Raiding Retirement Funds

Retirement accounts such as a 401K or IRA are designed to have money grow more or less untouched until you reach retirement age. You can withdraw money from them, but there's a cost.

When you raid these retirement funds, you'll lose the money in penalties, but you'll also lose the potential earnings of the money you take out. Over time, this can cost an investor thousands of dollars.

4. Economic Growth

For decades following World War II, the annual growth rate of the American economy averaged more than 3%, with some years seeing double that. But in recent years, that annual rate has shrunk to barely 2%. In short, the American economy is not growing as fast as it once was, and that has implications for household income, corporate growth, and employment.

5. Possible Entitlement Cuts

Many lawmakers on Capitol Hill have been warning Americans of a looming crisis in entitlement funding. Observers of the federal budget note that unless there is serious reform, Social Security Trust Funds could be depleted within 20 years. This means that for the younger generation, there may not be as much left from the government upon retirement.

It's important to note, however, that workers who want to live comfortably after they are done working should not be counting on Social Security to carry them through the end of their life. Someone who saves aggressively and invests wisely should be able to amass enough in a retirement fund to get by even if Social Security benefits are adjusted downward or even eliminated.

6. Declining Pensions

If you currently work for a company that offers a defined benefit plan, you are a rare breed. In recent years, companies have shifted from offering pensions to instead offering 401K plans, in which workers invest on their own. In most cases, they will also get a contribution from their employer, but that's not guaranteed. This doesn't necessarily mean you'll be destitute at retirement, but it does require employees to be much more engaged in their retirement planning.

7. Placing All Your Eggs in One Basket

Even if you are saving aggressively and investing every penny you can, it's possible to end up with less money than you need in retirement. It can happen when your portfolio is too heavily balanced toward a single investment. It's unwise to invest a high percentage of your savings in one company or even one industry or asset class, because one bad day could wipe out a large chunk of your savings. (Consider the plight of Enron employees who lost nearly everything had most of their savings in company stock.)

To protect your retirement money, invest in a diverse mixture of stocks in various sizes and asset classes. Buy mutual funds instead of individual stocks, if at all possible.

8. Funding College Instead of Retirement

It's never a bad idea to save money to contribute to your children's education. There are several vehicles including 529 plans that allow you to invest money tax-free toward college. But many investors become so focused on saving for college that they fail to contribute enough to their own retirement fund.

Remember that it's possible to borrow money for college, but you can't borrow money to fund your retirement if you find you're lacking in funds when you're done working. Ideally, you'll be able to amass enough money to fund college and your retirement comfortably. But if you have to make a choice, pay your future self first, then contribute to the college fund.

9. Being Poorly Insured

You may feel like nothing bad will ever happen to you. You are young and healthy. You're a safe driver and you live in a nice neighborhood. So you skimp on things like health, auto, and homeowner's insurance. You may think you're saving money, but you're at serious risk for big financial loss if you get seriously ill or have a serious accident.

Being uninsured or underinsured can leave you struggling to make ends meet, placing retirement savings on the back burner. You may even have to raid your retirement accounts to pay the bills. It's wise to perform an insurance assessment to determine if you have the proper level of insurance to protect yourself financially.

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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:

Stop Making These 10 Bogus Retirement Savings Excuses

Tim Lemke — Mon, 08 Feb 2016 18:00:05 +0000

Saving for retirement can often feel like a drag, and many of us come up with excuses for avoiding it. After all, who wants to think about finances at age 70 when you're decades away and enjoying life now?

But no matter what excuse you come up with, there's no denying that putting as much money aside as you can — as early as you can — will help you maintain your lifestyle even after you stop working.

Here are some of the top excuses people use to avoid saving for retirement, and why they're way off-base. (See also: 8 Steps to Starting a Retirement Plan in Your 30s)

1. "I Have a Pension"

If your company is one of the few remaining organizations that offers a defined benefit plan, that's great. But it should not be a reason to refrain from saving additional money for retirement. Having additional savings on top of your pension can make retirement that much sweeter. And pensions have been under assault in recent years, with companies and governments backing off of promises to retirees due to financial troubles. Protect against this uncertainty by opening an individual retirement account (otherwise known as an IRA).

2."I'm Self-Employed" or "My Company Doesn't Offer a Retirement Plan"

You may not have access to an employer-sponsored retirement plan, but that does not mean you can't save a lot for retirement. Any individual can open a traditional IRA or Roth IRA and contribute up to $5,500 annually. With a traditional IRA, contributions are made from your pre-tax income. With a Roth IRA, you pay taxes up-front, so that you won't have to pay them when you withdraw the money at retirement age. In addition, the federal government now offers a "myIRA" plan, which works like a Roth IRA and allows anyone to invest in treasury securities with no startup costs or fees.

3. "I Won't Be at This Company for Very Long"

One of the key advantages to 401K plans offered by employers is that they are portable. This means that any money you contribute to a plan will follow you wherever you go. In some cases, contributions from your company need to "vest" for a certain amount of time before you get to keep the them, but usually only for a year or so. There's no real downside to contributing to a company retirement plan, even if you don't plan to be there for very long.

4. "The Expenses Are High"

It's very true that many investment products, including mutual funds, have high costs tied to them. It's annoying to buy funds and notice an expense ratio of more than 1%, thus reducing your potential profits. But fees are not a good enough reason to avoid investing, altogether. Over the long haul, your investments will easily rise in value and more than offset any costs. And if you direct your investments to low-cost mutual funds and ETFs, you'll likely find the fees aren't so objectionable. Look for mutual funds with expense ratios of less than 0.1%, and for those that trade without a commission.

5. "I Need to Fund My Kids' College Education"

Putting money aside to pay for college is a wonderful idea, but it should not be done at the expense of your own retirement. Your kids can always work to pay for college or even take out loans, if necessary. But you can't borrow for your own retirement, and you don't want to find yourself working into old age because you didn't save for yourself. In an ideal world, you can save for both college and your own retirement, but you should always think of your own retirement first.

6. "My 401K Plan Isn't Very Good" or "My Company Doesn't Match Contributions"

I'll occasionally hear someone say that they won't contribute to their retirement plan because it's a bad one. No employer match, bad investment options, or high fees can kill any motivation to save. But contributing to even a bad 401K is better than not saving at all. And if you're not thrilled with the offered 401K plan, you can take a look at traditional or Roth IRAs, or even stocks and mutual funds in taxable accounts. There are many bad retirement plans out there, but they are almost all better than nothing.

6. "I Don't Understand Investing"

There's no question that investing can be a very intimidating thing. It takes a while to grasp even the basics of how to invest, and the number of investment products can be bewildering. Don't let fear hold you back from achieving your dreams in retirement. These days, there's a lot of great free information about investing that can help you get started. And many discount brokerages, such as Fidelity, offer free advice if you have an account. Certified Financial Planners are also plentiful — and often reasonably priced — and can help you establish a plan to save for retirement and keep you on track.

7. "I Don't Earn Enough"

It's definitely hard to think about retirement when you're having trouble making ends meet now. But it's important to recognize setting aside even a modest amount of money each month can help you achieve financial freedom. Consider that even $25 a month into an index fund can grow to tens of thousands of dollars after 30 years.

8. "I'm Young — I Have Plenty of Time"

If you're not saving for retirement when you're young, you are costing your future self a lot of money. Thanks to the magic of compound interest and earnings, someone who begins saving in their early 20s can really see big gains over time. If you have $10,000 at age 20 and begin setting aside $200 a month until age 65, you'll have nearly a million dollars, based on an average market return. But if you wait until age 35, you'll end up with barely one-third of that.

9. "It's Too Late for Me"

It's true that the earlier you start investing, the more money you'll likely end up with. But hope is not entirely lost for those who are approaching retirement age but have not saved. Even five to 10 years of aggressive saving and the right investments can result in a nice nest egg. Older people can take advantage of higher limits on contributions to retirement plans including IRAs and 401Ks.

10. "I'll Get Social Security"

You've been contributing to Social Security all your life, but that doesn't mean it guarantees a comfortable retirement. A typical Social Security benefit these days is about $1,300 a month. That's enough to keep you from starving, but you won't be able to do much else. Moreover, concerns over federal budget deficits suggest there is no guarantee of Social Security funds being available when you retire. For certain, there is constant talk by lawmakers of entitlement reform, which could mean to lower benefits or other changes.

What's your excuse for not saving for retirement?

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:

6 Ways to Guarantee Income in Retirement

Qiana Chavaia — Tue, 27 Oct 2015 13:16:59 +0000

There's nothing like having the peace of mind and security that comes from knowing you'll have steady income throughout retirement. Unless you're expecting a guaranteed pension, or know that your social security insurance (SSI) payments will be sufficient, there's little way of knowing you won't outlive your savings. Whether you're retirement age and have not saved enough or simply exploring your options, here are six ways that you can guarantee income in retirement.

1. Pensions

If you or someone you know works for the federal government, you're probably familiar with pension plans. Pensions are similar to 401K plans in that employers match up to 25% of your contributions in some cases, but pensions also offer guaranteed income after retirement. The two most common types of plans are defined benefit (DB) and defined contribution (DC) plans. DB plans pay out a fixed benefit while payouts from DC plans are determined based on the investment's performance. Both plans will require that your tenure is extended in the period before retiring.

2. Social Security Insurance

As long as you've worked for at least 10 years and earn 40 credits, you'll qualify for SSI benefits once you reach retirement age (age 66 for most). In 2015, the IRS says that for every $1,250 you earn, you accumulate one credit and can earn a maximum of four a year. Credits never disappear even if you take an extended leave of absence and return to work or change jobs. Per credit earnings will rise with wage increases. Estimated by today's calculations, you would need to have earned at least $5,000 per year for 10 years, or $50,000 in wages to qualify for SSI.

3. Retirement and Investment Accounts

Even if the assets within your retirement portfolio (stocks, bonds, CDs, ETFs, etc.) have accumulated enough wealth that your annual withdrawals will meet your income needs, you should still make certain that your yearly returns can outpace inflation (averaging 3% annually). If not, you could suddenly find yourself having to live drastically below your means. For example, if at age 65 you have a nest egg of $1,000,000 and start taking annual withdrawals of 5% (or $50,000), you'd need an annual return of over 8% in order to replenish your coffers.

4. Annuity

If you need the type of guaranteed income assurance that retirement accounts and investment portfolios cannot provide, then you need an annuity. Annuities guarantee a monthly or annual payout for as long as you're alive. There are two types of annuities: fixed income and variable income. With fixed annuities, the money you invest today is guaranteed a predefined payout. Variable annuity payouts are based on the performance of your investment (if gains are realized, payouts will be higher). Payouts can begin at whatever age you choose, and continue for the rest of your life, or for a predetermined term.

5. Reverse Mortgage

A reverse mortgage is a type of home equity loan which pays out an annuity-like cash stream based on your home's accumulated equity. Typically, reverse mortgages are reserved for borrowers age 62 or older. The money borrowed can be paid out as one lump sum payment, or issued in installments for the life of the loan. But reverse mortgages are known for their high fees and aren't always a good deal, especially if you wish to retain or pass-on ownership of your home.

6. Longevity Insurance

Longevity insurance is an insurance contract that guarantees the money invested today will generate payments in retirement. As with other forms of guaranteed income, the longer you wait to start taking payments, the higher annual payouts will be. These products allow investors to make a lump sum initial investment (or smaller amounts over time) in order to receive guaranteed payments later. For example, if a woman aged 45 invested $50,000 today, she could start taking payments at 65 and receive roughly $7,650 in annual income for the rest of her life.

Of course, the best approach to retirement income is generally asset diversification. The more income streams you can draw on, the less likely you'll be to ever run out.

What steps are you taking to guarantee retirement income?

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

6 Retirement Rules You Should Be Breaking

Mikey Rox — Wed, 17 Jun 2015 11:00:11 +0000

Are there right and wrong ways to retire? While that's a relative question, there are retirement rules that are in your best interest to follow — and those you might want to break. Consider these six retirement rules you might be better off ignoring.

1. Depending on a Pension or Social Security

Counting on a pension or Social Security to help you ride out your retirement years? That's probably not the best strategy to have, considering that very few companies still offer pensions (though you'd know if yours does) and Social Security is still in crisis (so much so that it might be bankrupt and not even exist by the time you retire). That's not to mention that inflation is likely to outpace your per-month payouts in the off chance that you do receive these income sources.

You may need to think of other ways to fund your retirement — and it's in your best interest to start planning for it now (or better yet, yesterday).

Brent Cumberford, founder of the personal-finance blog VOSA, offers a few suggestions.

"Start your own retirement accounts; invest in business to generate a second — and third and fourth — stream of income; and hustle to make some extra money on the side to kick start your retirement savings," he says.

Putting in the extra time and effort early on to pad your retirement account for later means you might actually be able to enjoy those golden years.

2. Withdrawing From Your Retirement Fund or Social Security Right Away

Even if you have plenty of money in your retirement fund (or think you do, as is the likelier scenario), that doesn't mean you should start withdrawing from it the day after your retirement party. Proceed with caution in this case and remember that you still have a long life ahead of you.

"One retirement rule that no longer makes sense is the one that suggests a 4% annual withdrawal rate on your retirement portfolio," observes personal finance expert David Bakke of MoneyCrashers. "Americans are living longer these days, and if you go by that rule you might outlive your money. Your best bet is to withdraw as little as possible in the beginning and adjust your strategy as you see how things are progressing as you get acclimated to living off of your retirement money."

Bakke says that waiting to withdrawal money from Social Security has its benefits too, as you may receive a larger annual Social Security benefit when you wait.

3. Going Full Retirement Because You Think You Have To

Just because the government says you can retire at age 65 doesn't mean that you have to resign the rest of your life to whiling away the hours. Instead — if you're still willing and able — consider semi-retirement. It's the best of both worlds really: You can still contribute to society as a part-time member of the workforce, and you can enjoy more leisure time as a result of your shorter work schedule.

More and more older Americans are opting for semi-retirement, in fact. Some are even opting for a new career path altogether. Continuing to work at least part-time past retirement age will not only help you feel like you still have something to offer the world, but it also helps you to continue to actively build your retirement fund — or at least maintain it at its current level.

Elle Kaplan, CEO and founder of an asset management firm, touches a bit more on the financial benefits of semi-retirement.

"How would a semi-retirement change your financial reality?" she asks. "Take two months and track the money coming in and going out. Keep track of what you spend and all your bills. This will give you a clear sense of where you stand. Next, figure out what your Social Security payment is going to be each month in retirement. The Social Security Administration will provide this information and tell you how much you'll get based on what age you retire. Working even a few more years can have a huge impact."

4. Waiting Until You're 65 to Retire

Retirement age is typically specified at 65 years old in the United States. But to heck with that! Wouldn't you like to retire earlier?

Of course, you'll probably need to strike it rich — or live very meagerly — in order to hang up your work boots in advance of the government-issued go-ahead. But maybe not. Have you ever thought about short-term mini-retirements? Ever even heard of the concept?

"Obviously it would be awesome if everyone could earn a fortune, retire young, and travel the world, but it's not going to happen for everyone," Cumberford says. "What can happen for almost everyone is short-term mini-retirements, a concept spoken about in greater detail by Tim Ferriss in The 4-Hour Workweek. Saving money specifically for a short sabbatical, or even just an extended vacation while keeping your current employment can typically be negotiated. Think five weeks in Southeast Asia, or a summer backpacking across Europe. With the virtually endless amount of airline and hotel points that can be earned through travel hacking, even far away places can be very affordable."

As someone who has hosted lots of Australian guests who are allotted at least six weeks vacation every year, I'm not only envious, but also in favor of the idea of short-term mini-retirements. While they're working to live, we Americans are living to work (well into our golden years), and that's an outlook that could use some rethinking. Shouldn't we enjoy a high-quality lifestyle throughout our lifetime instead of when we're darn near dead?

5. Clinging to the Family Home

For many of us, our homes hold a lot of memories that make it hard to part with the house — even after the kids are grown and gone. But as you enter retirement, it's not a great idea to hang on to a large space with high utilities or even a mortgage that will become more and more difficult to manage as you age. The alternative is to downsize, of course, such as a smaller house or apartment, or even alternative-living situations that may suit you even more — like an RV, for instance.

Janet Groene, author of Living Aboard Your RV, 4th Edition, lived in an RV for 10 years before settling in Florida, and she's a staunch advocate for the nomad lifestyle.

"By selling out and moving into an RV, retirees fulfill their dreams of travel and at the same time live comfortably in a fully equipped home on wheels while scouting for the right place to settle down in retirement," she encourages.

6. Heading South for the Winter

Snowbirding — the practice of northerners spending the winter in warmer climates and summers at home — is common among retirees. But isn't that just a little too passé for today's generation of leisure seekers? Mark Koep, founder of CampgroundViews.com, thinks so. Like Groene, he wants retirees to think about their living options and arrangements more in depth so they don't automatically relegate themselves to a lifestyle that isn't necessarily fulfilling.

"The old idea of snowbirding ignores the freedom and adventure that modern retirees seek," he says. "Instead retirees should consider boondocking — camping in Bureau of Land Management and Forest Service lands for free — and discount membership clubs to travel and explore more destinations."

Do you have other retirement rules we should be breaking? Let us know in the comments below.

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:

5 Ways to Boost Your Odds of Retiring Early

Brittany Lyte — Tue, 14 Apr 2015 09:00:42 +0000

The average age of retirement stands today at 62 for women and 64 for men. But if you're like many Americans, you'd probably much prefer to have your feet in the sand and a piña colada in hand well before you reach your 60s. No matter your age, it'll be pretty hard to pay for that oceanfront real estate and tiki bar tab if you haven't set aside enough savings.

Fortunately, your dreams of a comfortable, early retirement can still come true — so long as you're willing to do some heavy duty planning, smart saving, and savvy investing. Read on for our roundup of the best tips and tricks for retiring early — without winning the lottery.

1. Set a Savings Goal

First thing's first: You need to calculate how much money you'll need to stockpile before you can quit your day job. Be forewarned — it'll likely be a number that will make your jaw drop. But even if it seems totally unattainable, rest assured that it's not. Let's say you'd like to retire at 48 — a plum 15 years earlier than the average American. Take your pre-retirement income and multiply it by the number of expected years of life you'll have in retirement; in this case, we'll say it's 48 x 31 (this assumes you're going to live to be 79, the average life expectancy for an American).

For example, if you're living off a $70,000 salary now, you'll need to save $2.2 million before you can ditch your nine-to-five. On average, retirees spend between 65% and 95% of their pre-retirement income, so this calculation shoots a little high. But since you very well may live a decade or two longer than the average Joe, it's better to have a bigger cushion than no cushion at all.

2. Live Frugally

If you want to achieve a comfortable, early retirement, one way of getting there is by living frugally. That means forgoing name brand clothing, coupon-less meals at restaurants, salon visits, and airplane travel. Buying used cars only — or giving up cars, altogether and instead riding a bike or public transit. (See also: The Two Biggest Mistakes People Make When Starting to Live Frugally).

If this sort of lifestyle sounds foreign to you, you may want to begin by crafting a carefully detailed budget that will set you up to achieve your long-term retirement savings goal. If all of this sounds exactly like the way you don't want to live out your younger years, frugal living as a road to early retirement quite simply may not be for you.

3. Start a Business — Then Let Someone Else Run It for You

If you've got an entrepreneurial bone in your body, you might want to explore launching your own business as a means of achieving early retirement. Whether it's a food truck or a marketing and consulting firm, the idea is to launch the business and work it until it's profitable enough that you can hire someone else to run the day-to-day operations while you kick back in that beach chair and watch the money pour in. Alternatively, the sale of your business could fund your retirement. Nearly 40% of small business owners say they are poised to retire earlier than they had anticipated. (See also: Starting Your Dream Business Is Easier Than You Think — Here's How)

4. Get Yourself a Pension

The beauty of the pension plan: It's sort of like earning a salary, only without having to put in the work. And although many industries are phasing out these plans, about one in four large employers still offer some sort of pension to new hires, according to a recent study. At the top of the list are companies in the insurance, utilities, energy, transportation, and food and beverage industries. Government is another sector where pensions are alive and well. Many municipalities still offer firefighters, police officers, and public works employees pensions that include overtime and saved vacation in the final calculation. The result is that some workers can retire with a pension that's higher than their former salary. Imagine that.

Alternatively, Apple, Google, Microsoft, and other big-name employers in the information industry offer workers an average retirement benefit contribution of $2.76 per hour worked. That's huge. Also, these tend to be pretty high-paying jobs, which means employees have more flexibility to make larger contributions to their own retirement savings, in addition to what the company chips in.

5. Make Smart Investments

The best time to start investing is now. Case in point: If you start maxing out your IRA contributions at age 25, you will have saved $1.6 million by the time you're 70. But if you were to start at 35, you'd save about half that sum. Clearly, a few years can make a huge difference. Now, if you're not investment savvy, there are tons of tools available to help you figure out where to put your money.

One of the best and easiest is an automated investment advisor, such as FutureAdvisor, that specializes in retirement planning. With FutureAdvisor, you can get your 401(k), IRA, and other accounts analyzed, plus receive recommendations on how to improve your existing investments — absolutely free of charge. Then, if you're impressed with the results and want to hire FutureAdvisor as your investment manager, there's a monthly fee of either $9 or $19, depending on the value of your assets. Rest assured, all of FutureAdvisor's investment recommendations are made with the goal of setting you up for the most comfortable retirement years possible.

What other steps are you taking to ensure an early retirement?

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

Are YOU on This List of Cushiest Retirement Jobs?

Joe Epstein — Fri, 09 May 2014 09:12:26 +0000

There are so many factors that go into evaluating whether your career is really right for you. But one, undeniably, is the age at which you can stop doing the career that's right for you.

So take a look at this list of jobs and industries with early retirement or other great retirement benefits, and consider how yours stack up. There may still be time to become an air traffic controller yet.

Air Traffic Controllers

Want to retire at 50? Then work your way up into a flight tower, where you're cleared to take off work at any age after 25 years of service, or at 50 with 20 years of service.

Pilots

...And the guys on the other end of the airplane radio don't have it bad either: the average flyboy in United Airlines' retirement plans makes $23,476 annually.

Aircraft Manufacturers

Not to be left out, the people making those radios also have it pretty good too, receiving an average retirement contribution from their employers of $2.87 per hour worked.

Police Officers

No one deserves it more than the men and women wearing badges, who can generally retire after just 20 years of service with a pension equal to half their salary.

Utilities Workers

Thanks to strong unions, employees working in electricity, water, sewage, or nuclear power sectors receive as much as $6.56 per hour worked toward their retirement.

Information Technology Employees

While a major step down from $6.56, US News & World Report found that information technology workers came in a distant second to utilities workers, with the sector averaging an employer contribution of $2.76 per hour worked. Microsoft is particularly generous, matching 50% up to 6% of an employee's salary.

Consultants

While retirement plans can vary widely throughout the consulting sector, industry giant Deloitte topped a recent Wall Street Journal ranking of private companies' annual retirement contributions with an average of $30,806.

Surgeons and Oral Surgeons

Of course, there's no retirement plan that can match the freedom granted by making boatloads of money in your working years, meaning these two top-paying positions (according to the Bureau of Labor Statistics) may be able to retire earlier and more comfortably than almost everyone else.

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

How to Retire During a Recession

Kentin Waits — Mon, 26 Dec 2011 10:48:14 +0000

If there’s any group more worried about the long-term effects of the recession than new grads, it’s the soon-to-retire. The economy is forcing nearly everyone to reevaluate their financial plans and goals and (for better or for worse) is making most of us settle in for a few more years of work before we can retire.

As I listen to all the talking heads discuss new strategies for working longer and later in life, it seems that the old three-legged stool model of retirement is all but obsolete. The three legs of retirement — Social Security, an employer-sponsored retirement plan, and personal savings — are shaky at best. Economic forces have reduced both personal savings rates and retirement plan balances. And just keeping the bills paid has cut into the new money we can contribute.

So is there a way to retire in the middle of a recession? Maybe. By reconsidering the three-legged stool model and taking a bit more aggressive and holistic approach to retirement planning, jumping off the work treadmill might still be possible. Here are the five steps that can help you prepare for retirement during a recession. (See also: Deciding What You Want Out of Retirement)

1. Pay Off Your Mortgage

Paying off our largest fixed expenses well before retirement is an obvious, but seldom discussed part of a real retirement strategy. Saving more for retirement depends on knocking out the big bills and devoting more money and energy to personal savings and other asset-building activities. Don’t discount the valuable peace-of-mind that mortgage-free living can give you as you settle into retirement.

2. Downsize and Downshift

Many financial advisers base their retirement calculations on replacing enough income through savings to support pre-retirement lifestyles. But is this realistic? What exactly do we sacrifice in putting off retirement until we have enough in savings to support our current standard of living? Maybe enjoying our golden years is enough of a reward to sacrifice a few of life’s luxuries. A more modest home, a smaller budget, a used car, and fewer vacations all seem like worthy trades for time and a bit of freedom.

3. Save More

Of course, savings is always an essential component of a retirement plan, and saving more is usually a winning strategy. Many financial experts see the writing on the wall with pre-tax 401(k) contributions and are now advising their clients to redirect a larger share of money to Roth IRAs. Personal tax rates are bound to increase and the old advice of socking away pretax money while we’re young and enjoying a lower tax rate upon withdrawal at age 59½ may not hold true much longer. Whatever vehicle or approach you choose, having more choices later in life typically means crunching the numbers and saving till it hurts.

4. Get Creative

Getting creative with expenses and income may be the unspoken fourth leg of the new retirement stool. Solutions like trading a large home for a small duplex can reduce expenses and provide rental income. Phasing out of our careers slowly, going part-time, or switching to contractor or consultant status is another way to test to the waters of retirement while still keeping the money coming in.

5. Supplement

Even post-retirement, some folks are choosing to go back to work part-time in their previous fields or explore new, lower-stress jobs. The days of all-or-nothing retirement may be over, but that doesn’t mean that it’s not possible to thoroughly enjoy the retirement part of semi-retirement. Extra income during these years can supplement personal savings and help retirees feel engaged and plugged in to their local communities.

For those of us who believed that retirement would be as simple as that old three-legged model, the rules seem to have been suddenly and unfairly changed. Still, retirement is possible — maybe just not in the form we anticipated or as quickly as we had expected. The new retirement stool is made of up of many legs, and we’re responsible for the stability of most of them. The time to start planning is now.

How have your retirement plans changed in the last three or four years? Do you expect to enjoy the kind of the retirement your parents have? What advice would you give middle-aged readers who are rethinking their retirement strategies?

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

How to Assemble Better 401(k) Plan Options

Margie Fishman — Sat, 19 Nov 2011 21:03:37 +0000

Link:

http://www.openforum.com/articles/how-to-assemble-better-401k-plan-options

Say sayonara to the carefree days of your parents’ pension plans, when employers assumed the risk of a tanking stock market. In this sputtering economy, employees are on the hook for making wise investment decisions, but it’s the employer’s job to exercise fiduciary responsibility and common sense. That means encouraging employees to sock away as much money as possible, and offering them the tools to select the proper asset allocation and manage a diversified portfolio that will post solid long-term returns without incurring significant risk.

The average 401(k) balance fell by nearly 30 percent in 2008, according to some studies. That is particularly frightening for many employees whose 401(k) accounts represent their single largest asset outside of their homes, and potentially their only source of retirement income.

Even in this volatile climate, many employer-sponsored plans choose funds based on recent performance while dismissing risk, provide limited investment options that overlook many asset classes, and agree to excessive fees that are often hidden from the employee.

“A 401(k) plan is a means to an end for the employer,” says Robert Auditore, founding principal of Bay Colony Partners, an independent retirement planning firm that manages more than a half-billion dollars in individual and corporate assets. “To recruit and retain talented employees, you need a top-notch retirement plan.”

In ranking the top 30 401(k) plans of 2010, financial information firm BrightScope considered such factors as generous company contributions, immediate plan enrollment, company match eligibility and vesting schedules, low fees, high employee participation rates and high salary deferrals. The top five companies were: the Saudi Arabian Oil Company, Kaiser Permanente, Southwest Airlines, Amgen, and United Airlines.

Smaller employers may not be able to afford an independent investment advisor, who can charge $5,000 or more a year. Instead, they tend to choose a bundled plan structure, where a single company handles all the investment, recordkeeping, administration, and education services.

Often, a T. Rowe Price or Fidelity will have a relationship with a third-party vendor, such as Morningstar. For an added fee, the vendor will help an employer assemble a defensive-minded investment lineup. Ask about these services when selecting an investment house.

Follow these other tips to help your employees achieve their retirement goals.

Offer Enough Asset Classes

Experts recommend offering from 17 to 20 different investment choices, covering the major asset classes that are needed to construct a diversified portfolio. Core asset classes include stocks, bonds, and cash equivalents such as money markets. Further breakdowns within classes include growth stocks, value stocks, small, mid and large cap stocks, emerging market stocks, government bonds, and short-term and long-term bonds. To hedge against inflation, more plan managers are including Treasury Inflation Protected Securities (TIPS). Offer index fund alternatives to more expensive actively managed funds.

Screen Effectively

To whittle down the list, Auditore of Bay Colony may rely on three to six different screening mechanisms, including upside/downside capture ratios, which evaluate a fund’s historical performance during rallies and down markets.

Fund performance can be reviewed over a one-, three-, five- and ten-year time horizon. Along with studying quantitative measures, do some qualitative sniffing around by interviewing the portfolio management team, inquiring about extra services (on-site visits typically cost $1,000 each), and determining if the investment house caters mainly to smaller or larger employers. Experts also recommend steering clear of funds with over 1 percent expense ratios. Ongoing monitoring of the fund lineup is essential, either on a quarterly, semi-annual or annual basis.

Recently, personal finance columnist John Waggoner suggested assembling a “cowardly portfolio,” comprised of 50 percent equity income stock funds, 30 percent bond funds and 20 percent money market, to post minimal gains rather than suffer huge losses. Auditore disputes that one-size-fits-all model, explaining that other factors such as an individual’s current salary, outside assets, and cost of living should play a role in any investment strategy.

Choose Defaults Carefully

Default 401(k) plan options are designed to simplify investing, and studies show that individuals with limited financial background tend to choose them 20 percent of the time. Popular options are balanced funds and target-date funds, also known as lifecycle funds, which automatically adjust the weightings of asset classes within a portfolio to become more conservative over time. Yet employees need to understand that these funds are not risk-free. Many experienced steep losses during the 2007-2008 market decline.

Educate Employees

Studies show that one out of four eligible workers fails to sign up for a 401(k). To counteract this trend, consider implementing automatic enrollment and auto-escalation, which automatically increases 401(k) contributions with salary increases unless an employee opts out. Auditore recommends that HR professionals provide frequent communication emphasizing the value of the company’s 401(k) plan, particularly when the market is tumbling. Don’t assume that employees have an extensive investment background. Consider offering financial engines that automatically rebalance a portfolio’s asset allocation to reduce risk.

One bright spot is that plan participants can expect to receive a steady stream of information under new disclosure rules set forth by the U.S. Department of Labor, effective May 2012. Under the new regulations, 401(k) plans must outline all associated fees and expenses each quarter. Additionally, they will provide charts to employees comparing the investment options’ fees, past performance, benchmark comparisons and risk levels.

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