Hard-Hitters: Four Tough Retirement Questions Answered

adjustedretirementdate-thumb-510x349Whether you recently graduated college, or you’re just joining AARP, we all have those questions that are always at the back of our minds about retirement. No one can evade the inevitable, so why not face it square on? Retirement doesn’t have to be daunting, it’s supposed to be enjoyable, and a reward for all your hard work.
Our aim is to ease the stress you might be feeling through the power of education. These are just 4 questions that get asked the most, so let’s jump right in.

What Will The Economy Look Like When I Retire, and How Does that Affect My 401k?

The reality is that it’s nearly impossible not to stress out about the economy almost on a day-to-day basis. Regardless of the Dow Jones Industrial Average and the S&P 500 Index breaking record highs earlier this year, everyday life for Americans hasn’t appeared to reflect those high numbers.
What’s important to keep in mind is that 401k’s are long-term investments, so the economy’s health can have a multitude of effects. Since 401k accounts aren’t just made up of stocks, with the help of asset diversification, the value fluctuates, but it’s designed to stabilize your investments if the stock market takes a sudden turn for the worse.
As far as the economic forecast, and what it will look like when you hit retirement age, that’s a little more difficult to predict. But, one thing we can tell you is that according to Forbes personal finance columnist Cheryl Lock, in the next 30 years, things are looking particularly sunny for the U.S economy in that jobs are coming back to the U.S, they’re moving inland, and we’re going to be top producers in oil and agriculture once again.

How Much is Ideal, and What are the Milestones I Should be Hitting?

It’s pretty standard advice to have 10-15% of your yearly income saved every year before you retire, but what does that mean exactly? Let’s get down to the brass tax.
First of all, if you’re using an online calculator and your eyes just melted out of your head at the amount of money that you’ll need, don’t panic. One thing that that little calculator doesn’t take into account is that your income might increase as you progress in your career, or you might have opportunities down the road that allow you to boost your saving rate, like a bonus or inheritance.
There are goals that everyone, ideally those 22+ should be hitting.
Really breaking it down, some financial economists say another rule of thumb to follow is to have 1x your annual salary saved away in your 401k by the time you’re 35, including company contributions. By age 45, you should have 3x your salary saved. So say you make $100,000/yr, by 35, you should have $100,000 saved up. So by 45, that’s $300,000.

What am I Looking at for my Return on Investments?

Congruent with the previous paragraph, it’s now time to go over your rate of return on investments. Bare bones, if someone is contributing a good average of 14% of their annual income to their 401k, the average annual return is 5%, and the same rules apply for a self-directed 401k. And of course, the percentage of employer contribution ranges from 3-5% annually.
Another point we’d like to make is that not to cash out when changing jobs, because there are clearly stated penalties for early withdrawal, so you may be subject to a 10% Federal tax penalty. What should always be done is a transfer to your new company’s 401k program.

Where Should I Settle Down?

This is a big question. One obvious, and a little cliche choice is definitely Florida. Why, you ask? No state income tax, inheritance or estate tax combined with the warm weather and the low cost of living, it’s understandable that Florida has always been a favorite. While we won’t argue that Florida is an attractive option, there are also arguments to be made for places even more south-of-the-border.
According to InternationalLiving.com, places like Ecuador and Columbia are number 1 and number 2 in 2015. International Living says that even though real estate prices have risen some in Ecuador in the last few years, you’ll still get the most bang for your buck than almost anywhere else. Ecuador’s government, in a smart attempt to become more appealing to retirees, has rolled out a very generous array of benefits including 50% off entry to sporting events and movies, discounts on public transport, and discount flights originating in Ecuador.

By this point, all of your hard-hitting questions should be answered, so now, all you have to do is figure out what kind of cake will be served at your retirement party.