Posts Tagged ‘Retirement’

Five Changes Coming to the Retirement World in 2016

Monday, January 11th, 2016

2016 changes

It’s still early in 2016, but big changes are coming in the retirement world, as it’s always changing. As you plan for retirement, it’s important to stay on top of specific changes that can affect your self-directed IRA retirement accounts, regular retirement accounts, Social Security and investment vehicles. These changes could impact your saving strategy:

The new myRA is now available

The myRA is a Roth individual retirement account (IRA) that has no fees, and the government guarantees that it will never lose its value. We talked about myRA’s back in September, and weighed the pros and cons. This is pegged as an ideal option for those who are just getting started on their retirement savings because it’s easy to set up contributions.

The saver’s credit threshold increases

People who make slightly more money might have a better chance qualifying for the saver’s credit in 2016. The limit for adjusted gross income (AGI) increased $250 to $30,750 for single filers, and for married couples filing jointly, the AGI limit rose $500 to $61,500.

Obama’s 2016 budget focuses on retirement

President Obama’s budget proposals include eliminating the special tax break for net unrealized appreciation on retirement accounts, limiting Roth conversions to pretax dollars, putting a cap on retirement savings and more.

While some or all of Obama’s proposals might not happen, these changes could impact what you can do with your retirement accounts.

No more ‘restricted applications’

The “restricted-application” option is being eliminated. Before this new law, couples would file a “restricted application” after reaching full retirement age to receive only spousal Social Security benefits while their own benefit earned delayed credits until age 70. But now, only those who were 62 years old at the end of 2015 qualify.

Rebooting ‘file and suspend’ strategy

Spouses have been using the “file and suspend” strategy to increase their Social Security benefits. Changes are coming by May. As CNBC reports, in order for your spouse to receive a benefit based on your earnings record, you need to actually be receiving benefits as well. Some extensions are possible for those 62 and over.

How Millennials Are Outpacing Everyone in Retirement Savings

Thursday, January 7th, 2016

outpacing in retirement

Most Americans still aren’t on track for a comfortable retirement, though.

Remember all the times your parents harped on you to save more for your nest egg, and to spend less on a night out in college, Millennials? You can tell Mom and Dad you’re finally listening to them.

Millennials have shown the greatest increase in their savings rate compared with any other generation, according to new data from Fidelity. The typical 20-something is now stashing away 7.5% of income vs. just 5.8% in 2013. Generation X and boomers are still saving larger percentages of salary but have not stepped up their contributions by nearly as much.

Overall, Americans significantly improved their “retirement preparedness” score—a measure of how well people will be able to afford at least their essential expenses in retirement—since the benchmark was last assessed in 2013 by Fidelity.

That year, Fidelity found that 38% of Americans were prepared for retirement. In 2015 that number jumped to 45% as a result of better saving and investment allocation, the analysis shows.

It looks like Millennials are making good on their pledge to save more, even though they’re three times more likely than older generations to justify spending on experiences.

Younger workers still need to step up their savings game, however. Millennials’ retirement preparedness score is 12 points below baby boomers, who are nearing retirement or already there. But Millennials have nearly caught up to Gen X, whose score is only three points higher.

Gen X has saved at a lower rate over the last two years compared with the cohorts just ahead and just behind them. But that’s understandable when you consider that their own savings potential is crushed under the weight of caring for aging parents (see: boomers) and children (see: Millennials).

And despite the progress across the generational board, the majority of Americans—55%—still are not “on track” for retirement.

If you find that you’ve got catching up to do, power up your savings by freeing up cash and taking advantage of windfalls. Don’t get caught up in misconceptions about risky investments paying bigger rewards. And Millennials, congrats on the good work—now take it to the next level.

Financial Resolutions You Need to Start Today

Monday, January 4th, 2016

reso finance

Use tech to save

At the end of last November, we wrote a blog about phone apps that work for you financially. These apps all have different functions, from investing, to creating a savings account, and honestly, we can’t live without them. The great thing about these types of apps is their functionality, and ease of use.
Here are more apps that weren’t mentioned in that blog post:


Paribus keeps track of what you purchase online through your email, whether it’s from Amazon or Macy’s, and if that travel pillow you bought last week is now $10 cheaper on Amazon today, Paribus automatically files price adjustment claims on your behalf. Money back in your pocket.

Debt Tracker Pro

For those working their way out of debt, DebtTracker Pro can serve as a payoff plan and can help you keep track of your road to financial recovery. Users are able to choose their strategy for overcoming debt and the app not only recommends payment strategies but sends reminders when payments are due.

Finally investing in retirement

It’s never too early to start planning for retirement, and these days it’s hard to count on anyone but yourself to do it, since you never know what’s going to happen with the economy, or with Social Security. Setting aside money for the future, your future, whether in a self-directed IRA, 401k, 403b, or even just a savings or checking account can start you on the path to a financially secure retirement.

Kick that debt to the curb

If you’re one of the 80% of Americans who have debt, now is the time to kick it for good. Let’s be real, this is the big one for a lot of us – freeing yourselves from debt. Whether or not this is a realistic and attainable goal for us all is more dependant upon each individual’s financial situation, and debt amount. Factors like how heavily you are in debt, what type of debt you hold (like credit, car loan, mortgage, etc.), your income level, and the interest rates pertaining to your debt can all play into how quickly or how successful you are in becoming debt free. But remember that it’s not impossible.

Make an emergency fund imperative

If you don’t have one already, starting an emergency fund can be a good New Year’s resolution. You never know what tomorrow might hold when it comes to your finances, but with an emergency fund, you can face the unknown with a bit more confidence. While some financial gurus call for you to have $500 in the bank, you may want to stash a bit more than that. $500 won’t get you far these days, especially if you lose your job. Even one or two months of your average income can go fast, so build up a fund you’re comfortable with. Bear in mind that if you have outstanding credit card debt, you might want to deal with that first to eliminate those costly interest payments.

The Simple Math: How Much Does Someone Really Need to Retire?

Monday, December 28th, 2015

Simple math

Ok, honestly? Saving for retirement is sometimes tough to get excited about. It’s so very far away, and it feels like a slow uphill climb. And it seems that no one can ever seem to tell you how much you actually need to save.

But the fact is, we NEED to plan for it, we know it’s imperative that we get it right.

How much do I need to save for retirement?

This is an age old question that has long been debated, and will be debated until the end of time. Luckily, there is a great study that was done for us to put some simple math behind the answer to this question. The Trinity Study was a paper written by 3 professors of Trinity University in 1998 (and was updated in 2009), and the conclusion showed that retirees could live on 4% of their total retirement portfolio annually for up to 30 years without running out of money. They reviewed payout periods from 15-30 years against stock market data from 1925 – 1995, accounting for cost of living increases as well. The Trinity Study deemed 4% the “safe withdrawal rate” for a 30-year retirement.
To break that down, here’s how it would look:

  • You have $750,000 saved for retirement
  • 4% of $750,000 is $30,000
  • You can withdraw $30,000 per year for 30 years “safely” in retirement

If you want to adjust the variables, there’s a great calculator out there called FIRECalc that can show you the details of how long your portfolio can last using the Trinity Study data. This also does NOT take into account other forms of income such as Social Security or the increasingly rare pension. Bottom line, you need to figure out what your retirement budget looks like (e.g. Living on $40,000 per year), and then multiply that by 25 (25x 4% = 100%) to get to your retirement number (e.g. $1,000,000).

How to stay motivated

When I’m faced with a long-term goal, the easiest way for me to stay motivated is to break it down into bite-sized chunks. When I want to buy a car, I price it out (say, $5,000), and then figure out WHEN I want to buy it. If I want the car in 1 year, I divide the cost by 12 months and figure out how much I need to save per month to get there ($416 per month).

For retirement, we can run the same math equation. If you can only live on 4% of your total portfolio per year, then you need to save 25x your annual spending. But I like to break it down even further.

You need to save 300x your monthly spending to retire.

Now, that may seem like a daunting number, but the real magic here is you can easily impact the number by reducing what is required in your monthly budget. Here is the rule to live by when looking at any recurring expenses in your monthly budget:

For every dollar I spend, I need to save $300 for retirement.

I hope that sentence gives you some pause as you think about the mindless things you can waste your money on each month. Heck, your $9 per month Netflix account requires another $2,700 saved to keep in retirement.

But on the flipside, for every dollar you CUT from your monthly spending, that’s $300 LESS you need to save!

How to get to retirement faster

So now that you know how your monthly budget will affect your retirement goals, you can strategically reduce your expenses. Let’s look at how a few quick savings tips can impact the amount you need to save for retirement:

  1. Cancel Cable. This one is a no-brainer these days. With Netflix, Hulu, Amazon Prime, Crackle and, there’s no reason to hang on to that expensive $80-per-month cable bill. I recommend picking two paid services, and watch the rest free. At most, you’re still saving $50 per month.

    $50 x 300 = $15,000 less needed for retirement

  2. Reduce Phone Bill. There are many services out there that are MUCH cheaper than the big cell companies. Services like Republic Wireless and Ting allow you to get all the talk and text you want, with reasonable data rates, possibly cutting your bill in HALF! If you take two phones on a major carrier and move them over, you can save $80 per month with the same plan!

    $80 x 300 = $24,000 less needed for retirement

  3. Lower Monthly Food Bill. Simple meal planning can drastically reduce the amount spent on food per month. Sit down at the beginning of the week and come up with dinner plans ahead of time. Planning around what’s on sale and what you have in stock can keep you from buying things you don’t need. If that’s too much work, services like eMeals will do it for you for a mere $5 per month. Savings is AT LEAST $100 per month, and usually more.

    $100 x 300 = $30,000.00 less needed for retirement

As you can see, the three simple changes above resulted in almost $60,000 less needed to save for retirement! For most average Americans, that would allow them to retire over 1 year earlier! Imagine what you could do if you really started to dig into your spending and see where money is leaking out. I bet you could easily shave over $100,000 off the amount needed to save for retirement, OR MORE!

So the next time you add an item to your budget, or think about signing up for a service that you probably DON’T need, remember this rule:

For every dollar I spend, I need to save $300 for retirement.

Four Priceless Pieces of Advice from Mr. Money Mustache

Thursday, December 24th, 2015

mr money - not wide

If you’re unfamiliar with Mr. Money Mustache, he’s the man taking the internet by storm as a financial guru who successfully retired in 2005 at age 30. His name is Pete, and he describes himself as “a thirtysomething retiree who now writes about how we can all live a frugal yet Badass life of leisure.”
Several people I personally know have now subscribed to MMM’s (Mr. Money Mustache’s) way of living (or are at least trying to), and say that his philosophies and teachings have changed their financial views forever. How can it not? After reading several articles on his website, you might start to question your own financial decisions and direction that your life is going in. However, there’s never any reason to feel despair, his teachings are for people of all ages and payscales. Here are four priceless pieces of advice that I’ve found to be most advantageous.

Ridiculousness is Ubiquitous

This post, I imagine, was written to address critics of the MMM lifestyle. It goes over hypotheticals of two extreme views of wearers of red, and wearers of blue as a metaphor for those who live in extreme extravagance, and those who live in frugality, and how ridiculous they look to each other: “In one area, the Sheeple wear red costumes and fiercely criticize those who wear blue. But just on the next continent, blue-wearers are in the majority and they are beheading those who dare to wear red. Great books and ornate traditions are built to describe how wearing Red robes is The Way, which are cited authoritatively to discredit those who believe in Blue, and vice versa.”
This article was one that I didn’t think would apply to me, as I most definitely do not consider myself to be one that lives in extravagance, or frugal. What it did for me, however, is open my eyes to see that there are definitely attributes of the extravagant that I found myself subscribing to, and that we all subscribe to, even if we cannot afford the Ridiculousness, or it just didn’t make sense for us. The frivolity of it all that dawned on me is was struck me the most.

Renting vs. Buying

The subheading for this article is “If you have to ask, you should probably rent” and that sentence has been bouncing around my head since I read it a few weeks ago. Partly because I myself have been toying with the idea of getting out of the rent race, and settle down in a nice 2 bedroom townhome, hopefully within the next year. So I read this article thinking that it would sway me the direction that I wanted to go, but again, I realized I was being Ridiculous again. With a capital R.
Pete, who is Canadian, goes over the numbers in this article, and breaks down just how much home-ownership in the busy city of Toronto actually will cost you.
In the end, Pete says, “If you live in an area where houses cost more than $300,000, take a close look at the rent prices around the areas you currently drive. Budget your driving costs at at least a dollar per mile (80 cents/km in Canada to account for higher costs) because you absolutely must put a high value on your spare time to get ahead in life. Doing the math on life decisions like this was by far the biggest factor in my own early financial independence.”

Teach Your Children Well

In this article, Pete says, “As parents we are really in the business of producing the happiest and most capable adults we can, given the constraints of the real world. If my boy eventually ends up as happy with his lot in life as his parents are, we will be more than satisfied.” Which I think we can all agree that that’s the goal of all parents, but what most don’t know is how to help their children reach that point, and become successful adults. A huge part of it, as Pete says, is teaching your children about money the way that you wish you were taught.
Living by example, talking about higher education, making money, and where money goes are all lessons that he goes over in this article. Read it, and pass it on.

There are Investments with Instant Gratification

This article surprised me, because I really was expecting advice on investing. I should have known better, but hey, I’m kind of new to this. What’s talked about instead is mainly family, frugality, fanciness, and living a great life. Pete writes, “How can fanciness and frugality both exist at the same time?

It’s really simple, and best summed up with just a few more key F-words:

Focus, Festivity and Flow

It’s important to remember that life is about being happy and doing what you love, and taking it day-to-day. “Nowadays, I make a point of putting some good stuff on the stereo at appropriate times (the festive times) throughout the day. It’s easy to forget, but it is definitely worth remembering.”

Be happy, be frugal, be wise, and be kind.