Nearing Retirement? Don’t Overlook These Expenses

retirementYou’re getting closer and closer to retirement, but are you prepared? Retirement planning is an imperative step to ensuring that you can live life without stress weighing on you. Unfortunately, many people do not effectively plan and thus leave out important details. Overlooking expenses and not having a quick solution for resolving the matter can alter your retirement experience and in some cases, cause you to have to go back to work.

Financial Backup

While you may have a pension, 401K, or IRA ready for retirement, having a backup plan is a must. In most cases, you’ll be living on a pretty small budget. Your income is not as significant as it was when you were working and you must adjust to live within those limits. So, when an unexpected expense occurs, how do you pay for it? Here are some considerations:

  • Borrow from loved ones
  • Apply for a short-term installment loan

  • Generate passive income for emergencies
  • Find financial assistance for seniors

Each of these avenues provides you with financial backup should you find yourself in a jam during retirement. Be that as it may, the idea is to create a soundproof plan that will minimize the chances of you getting into financial trouble. Below are some of the expenses you need to budget for.

  1. Medical Expenses – If you plan on relying on Medicare to cover your medical expenses, you should know that it won’t cover everything. You’re going to need to have funds for things like prescription meds, long-term care, dental visits, and eye care. Using one of the above financial backup solutions can ensure that you can get the treatment you need without being under financial duress.
  2. Inflation – The cost of living will continue to go up and if you haven’t properly budgeted for this inflation, it can begin to impact your finances. Be sure that during your planning you account for inflation and create a financial cushion or nest egg from which you can turn to in the event that you don’t have the upfront cash to pay for it.
     
  3. Taxes – No matter how old you get you’re going to be paying taxes. From property taxes to individual income taxes, you will be required to report your income for the year and may be required to pay the state or federal government.
     
  4. Entertainment – You’re going to be home all day long. Chances are you’re going to want to find new hobbies and activities to occupy your time. Whether you want to travel the world, take up golfing, or just have money to go to dinner and a movie, you’re going to need to make sure that you’ve properly budgeted for these costs.
     
  5. Home and Auto – If you own a home or a car, you need to make sure that you have budgeted for hidden expenses such as repair costs. The older your vehicle and home get, the more they will require repairs and servicing. From simple maintenance like a tune-up for your car or gutter cleaning for your roof to major repairs like a new transmission or a new hot water heater, the costs of hidden repairs can add up.

Retirement is meant to be enjoyed. You have worked hard all of your life and deserve the opportunity to be able to enjoy the fruits of your labor. Be that as it may, if you don’t properly plan for retirement, you’ll find yourself dealing with unnecessary financial stress. Having a financial backup plan, and saving for those unexpected expenses will allow you to live your retirement years in peace.

Why Are Millennials Struggling with Retirement Savings?

Most of the older generation is of the mindset that millennials don’t know how to save for retirement (or even care), but that’s not 100% true. Gen Y is actually thinking about retirement planning rather early in life:

  • For adults under the age of 30, the biggest retirement fear is that they will run out of money by the time they retire, and many plan to continue working.
  • More than 80% of millennials believe they cannot rely on Social Security to keep them comfortable in retirement.
  • Most believe their retirement will be self-funded, and over 70% started saving for it at an average age of 22.
  • Millennials are also using modern tools to their advantage, such as mobile apps that help them manage their retirement savings.

However, there’s a flip side as well. For instance, over 60% of millennials believe they need expert guidance, yet only one in three actually consult a professional financial advisor. Over 50% have not calculated how much they will need for retirement, relying on “guesswork” to reach an estimated figure.

Retirement Planning Obstacles for Millennials

 Here are some of the main obstacles that millennials face while planning for retirement:

  • No Savings in IRAs – Individual Retirement Accounts (especially Roth IRAs) offer some heavy-duty tax breaks, but most millennials haven’t started using these accounts to their advantage. 401(k) accounts allow millennials to gain from matching employer contributions, but they also need to park some savings in a Roth IRA for tax-free withdrawals in retirement.
  • Student Loans and Debt – The use of student loans is widespread, especially among the younger generation. When you’re making plans to pay off debt and save for retirement, the process can be rather challenging. For those still paying for their college education, it’s crucial to work with a financial advisor who can help formulate a repayment plan as well as build assets for the future.
  • Job and Income Instability – The recession left behind a host of problems, creating an unstable economy with a tough labor market. Unless they were lucky enough to graduate in a high-paying field, most students take whatever work they can get. With lack of stability and low earnings, retirement savings get pushed aside by simple survival and the struggle to meet basic expenses.
  • Higher Lifestyle Expenses – Students fresh out of college earn less than their older counterparts for at least the first 10-15 years, if they’re lucky enough to find employment at all. At the same time, inflation has been on the rise. This creates a vicious circle for millennials, since it’s hard to put aside funds for tomorrow while struggling to keep a roof over your head today!
  • Lack of Emergency Savings – Even millennials who understand and work toward retirement planning neglect to create an emergency fund. Wonder why “saving for a rainy day” matters when you’ve already saved in a retirement fund? It’s all about protecting those savings from early withdrawal penalties, and avoid running up debt for unexpected expenses.
  • Ineffective or No Budgeting – Millennials are accused of being too focused on the latest gadgets, gizmos and personal items, which is often true. It may seem like a good idea to splurge on something because “YOLO”, but it’s also critical to factor in the long-term impact of any expense on future financial security. A well-planned budget is the only answer.

Millennials and Retirement Planning: The Bottom Line

Most millennials are hoping to retire early (by age 65 or earlier), so they have more time and energy to enjoy the things they’d like to do when there’s no more work pressure. However, without a proper financial strategy, it’s going to be hard for young investors to meet their goals.

Contributing to a company 401(k) and an IRA is a good start, but it’s equally important to consult a financial advisor and work on a smart savings plan for retirement!

Author Bio:

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments.

Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as MoneyForLunch, Biggerpocket, SocialMediaToday, WealthManagement, SeekingAplha, and NuWireInvestor.

Round Up to Save For Retirement

save-for-retirementHow do you start saving for retirement on a limited budget? For some the concept of investing money to build a more financially secure future is second nature, a habit that seems to be built into their DNA. For many others it seems like a foreign language, or something that is reserved for those who might be found lounging pool side by their summer home three months out of the year. With a margarita. No, a dry martini. And a small dog. No wait, a wolf. Sorry. Anyway, saving for retirement, a college fund or the adventure of a lifetime is a habit anyone can learn and the Acorns app makes it easy and accessible for everyone.

Who or What is Acorns?

To put it simply, Acorns is investment for the people! A quick trip to the Acorns about us section gives some insight into who they are…

“Jeffrey Cruttenden co-founded Acorns to simplify investing and connect it to everyday life. In college, he noticed that most of his classmates that had an interest in investing couldn’t come up with a lump sum to meet minimum balance requirements.”

And…

“Walter Cruttenden is a financial markets innovator. He founded and served as CEO of Cruttenden Roth, now Roth Capital Partners. Walter also founded and served as CEO of E*Offering, the investment banking arm of ETrade. E*Offering became the number one provider of online IPO’s before its sale to Wit Capital and ultimately to Schwab. Walter co-founded Acorns and serves as its CEO.”

To learn more about their awesome team of designers, engineers, managers, and cool people who will be working to make your spare change work for you visit this page.

Oh and then there is that whole bit about the Nobel Laureate Dr. Harry Markowitz, a.k.a. “father of the modern portfolio theory” being on the board and the advisor “who helped create the five investment portfolio choices.” (Huffington Post).

Modern start up with a design based philosophy, a dream team, and a world renowned economist on board…check, check and check.

Acorns is a secure financial service that was designed to help people invest more easily with no account minimums or commissions.  They offer a personalized investment portfolio and fractional investing. The bottom line is that this is a service that will enable someone on a very limited budget to start investing and saving for retirement now. Have you started looking into investing only to have your curiosity and drive crushed by seeing minimum investment requirements that surpass what you could save in six months,a year, or longer? That reality is exactly the driving force behind the Acorns app.

What is the Acorns App?

The Acorns app is a free download for your smartphone and a web application is coming soon. The app is available through Itunes and Google Play. It is currently available for iOS 7 or 8 and will run with any Android device running 4.1 and higher.

  • Download the free app
  • Set up your account with your online banking login information, checking account and routing number (secure and Acorn does not store your bank login info on their servers)
  • They do not withdraw money from your bank account that you have not approved you are in control of your money
  • Begin investing with as little as 5$ wracked up in spare change round ups
  • Complete your account information to set up your individualized investment portfolio
  • You can withdraw your money from Acorns at any time without penalty and opt for a less aggressive portfolio than recommended
  • The app allows you to be proactive with your investing, any time, anywhere.

 

How much is using the Acorns app and financial services going to cost me?  This is my favorite part. There are no minimums on your account. And they will never charge the modest 1$ per month fee on 0$ balance. The 1$ per month fee is for accounts up to $5k and fees are only .25% per year for balances for accounts over $5k. You can go play with the slider to check out what the fees would look like up to a balance of a million here:

https://www.acorns.com/fees/

How secure is the Acorns app and service?

The app and site are secured with a 256-bit encryption. This is good. For those who want the full on tech-ish explanation this is a time when the wiki may help…

http://en.wikipedia.org/wiki/Advanced_Encryption_Standard

The accounts are SIPC Insured up to S500,000 for fraud. If you want to learn more about that check these out…

http://www.schwabmoneywise.com/public/moneywise/money_basics/account_types/fdic_insurance.html

http://www.sipc.org/

save-for-retirement-changeHow Does the Acorns App Use Your Spare Change to Invest?

There are three different options to use your Acorns app.

  • You can deposit or withdraw lump sums
  • Set up automatic deposits for scheduled investing (like you would for a vacation or Christmas club account at your bank)
  • Round ups (investing spare change by rounding up)

The round ups option is one of the coolest aspects of the service so let’s spend some time on that.

You can link your round ups to one account or multiple accounts (debit, credit, Paypal- your spending accounts). Your round up amounts are the spare change left over on a purchase. So say you buy lunch at the cost of $13.23 after taxes and you drop a $4 tip for a total of $17.23 on your debit card transaction. The amount to equal a round $18 (which is $0.77) could go towards your Acorns account to be put towards your investment portfolio. You can do this manually or have your settings set to automatic round ups for convenience.

Let’s face it. This is a fun and interesting way for everyone to invest and build a savings for retirement or any other savings goal that strikes a chord with you. You can choose to invest more or less at any time. Rather than paying cash, throwing money in a jar and cashing it in you are putting small amounts of money to work for you. This adds up over time and can help those who do not have enough investment capital to approach other options get there. Suddenly that moment when you are trying to stop that gas pump at exactly $25.00 and it rolls over to $25. 07 becomes more exciting doesn’t it?

To learn more about how Acorns optimizes diversified portfolios based on your own risk level visit Acorns’ Investments page.

What Are People Saying About Using Acorns App?

“Investing is complicated. Acorn is not.”Business Insider

This App Makes Investing As Easy As Swiping Your Debit Card

For a good article and visual overview of the kinds of questions and choices you will make when going through the process of setting up your account check out this review from Carrie Smith posted to investorjunkie.com:

Acorns App Review – Using Your Spare Change to Invest

“Young people may not have enough assets to meet the minimum requirements of big financial houses like Fidelity, Vanguard, and Schwab. With Acorns, there are no minimums.” –  Dan Kadlec, Time

This App May Let You Retire on Your Spare Change

For your further reading enjoyment...

Build an investment portfolio, one dime at a timeCNBC

Acorn App Gives You a Way to Finally Invest Your Spare ChangeMashable

Acorns Is A Micro-Investment App That Does All The Thinking For YouTechcrunch

The overall goal of the Acorns app project is to get people investing small amounts over long periods of time. It isn’t a get rich quick plan, but it is certainly a fresh approach that will allow more people to take the step towards financial growth. If you are currently using the app tell us your story.

Financing Your Bucket List

bucket-list-financingHow to Achieve Success in Financing Your Bucket List and Saving for Retirement

It is now possible to achieve a high level of success in both saving for retirement and bucket list planning, according to financial experts. It is a known fact that most of us could create a massive list of experiences and adventures that we would like to take part in before we “kick the bucket”, so to speak. The idea of creating a list of these experiences and adventures gained an immense amount of popularity with the release of the popular movie, “The Bucket List” in the year of 2007. In this comedy-drama, two men were able to successfully take part in the experiences and adventures that most “normal” people only ever dream of experiencing. This is because the character played by the ever-popular Jack Nicholson was financially rich enough to not only live through the experiences that he desired, but, was able to fund the wishes of the character that Morgan Freeman had, too. While these two movie characters engaged in numerous extravagant adventures and experiences, it has now been determined that such adventures do not have to cost a fortune. In fact, the average person has the ability to engage in both saving for retirement and funding the activities as part of their bucket list planning.

The True Meaning of Financial Life Planning

Money is an element that is not only essential, but, a highly obvious component, when it comes to financial planning. This is especially true when it comes to saving for retirement and bucket list planning. However, it is important to understand that money should not be the only component that you place your focus on; if you engage in this type of shallow focus, you will quickly discover that you stand the risk of living a life that is also shallow. Financial life planning involves integrating experiences and adventures into any financial-based plans that you have in life. It involves learning how to live the highest-quality and most enjoyable life possible, with the resources that you have available to you. This is the true meaning of financial life planning.

Saving for Retirement and Bucket List Planning

One of the biggest mistakes that individuals make when it comes to saving for retirement and bucket list planning is treating these two milestones as an “end point”, instead of a “starting point”. Retirement is not the “end”; it is simply a transition in life, from one point to another. First, you must get this concept into your mind. You are not nearing the end of life; instead, you are simply transitioning into your golden years. In order to make this transition smooth and enjoyable, you should ensure that you have the proper amount of money saved so that you can live comfortably and enjoy all of those experiences and adventures on your bucket list. To succeed in these endeavors, simply take the following steps:

  • The first step to saving for retirement and bucket list planning is to ensure that you have a vision that is realistic and achievable. In order to experience a truly successful retirement, you must ensure that you are retiring TO some other type of experience in life, not FROM something, like a job that you despise. You must have a vision of what you want to do and where you want to go when you enter into your golden years. You should understand that, when you retire, you may still engage in activities that you enjoy and pursue your passion. Yes, many of your activities will come with a monetary cost; however, many will not. In some instances, you may even find that your retirement activities MAKE you money. For example, perhaps, you will spend your golden years writing that book that you always wanted and will self-publish to discover that it is a success! Vision. It is imperative when it comes to saving for retirement and bucket list planning.
  • The next step to saving for retirement and bucket list planning is to properly balance your time account. That is, the 168 hours a week that we are each granted. Many individuals make the mistake of going from excessively working to excessively vacationing when it comes to retirement. You should strive for balance between your vocation time and your vacation time. It does not matter how much money is present in your bank account, if you fail to completely capitalize on the time that you have, you will not experience the happiness that you desire from the adventures and experiences on your bucket list for retirement. The 168 hours that you have available each week should be broken down into time with family and friends, time dedicated to your work, your health and fitness level, your personal growth, sleeping, and your down time – which includes watching television, engaging on social media websites, and bucket list adventures and experiences.
  • The next step to successfully saving for retirement and bucket list planning is to see your paycheck as a “playcheck”. While working to save money for transitions, adventures, and experiences in your life, it is imperative that you enjoy what it is that you are doing. If you are not enjoying your work, it may be time to change careers. Engage in pursuits that are meaningful and enjoyable. Pursue your passion. Transform a hobby into a business that will allow you to generate profits, or, use your knowledge to become a consultant in a field you are well-versed. Not only will you add more meaning to your life, you will add more money to your retirement account and your bucket list account. Work will no longer seem like work. Instead, it will become fun and enjoyable!

Conclusion

Saving for retirement and bucket list planning are two very exciting activities. By following the steps outlined in this financial life planning guide, you are sure to find that you have the money and the time to achieve a high level of success in both endeavors. Retirement is a transitional period, not an end of life milestone – as so many have seen it through the years. Retirement is not just an economic-based event. It is a personal event that is meant to be enjoyed. While financial preparation is part of preparing for this transition, it is not the only aspect of preparation. By creating a life balance, capitalizing your time, recognizing your passion, and understanding what you enjoy – as a person – you will discover how much money will be needed when saving for retirement and bucket list planning.

Saving for Retirement – 5 Steps to Success

Saving for Retirement – 5 Steps to Success

Retirement should be an important concept to each of us. As soon as possible, we should all be focusing our efforts on saving for retirement. According to the Department of Labor, most individuals spend at least two decades in the retirement phase of their lives. By focusing on a money saving tip here and there, you are sure to achieve success in putting back a little cash for what promises to be some of the best years of your life. Financial security during our retirement years is not something that naturally occurs on its own. You must have a plan and stay committed to the task at hand. In this guide, you will learn 5 simple steps that will make saving for retirement successful.

Start Saving as Early in Life as Possible

One of the best and most productive means of saving for retirement is to ensure that you start doing so as early in life as possible. This is, perhaps, the best money saving tip for individuals that have a desire for future financial security. Saving is a very rewarding habit. Simply start small in your younger years and increase the amount that you save as you grow older. This will allow your investments longer periods of time to grow. Your retirement investments should be a top priority. Simply come up with a plan, set goals, and be persistent in sticking to your plan and achieving your goals. There is power is passing time, especially when it comes to compounding interest!

Max Out That IRA

As of 2014, the maximum amount that you may contribute to an IRA account is $5,500.00, annually. If you are over the age of 50, this amount goes up to $6,500.00. To successfully max out an IRA account as an individual under the age of 50, you would need to place $458.00 a month in the account. If you are over the age of 50, you would need to contribute $542.00 a month into the account. These contributions may be made right up until it is time for you to file your taxes. In making contributions until this time period, you will find that you are able to save money right away on your taxes.

Opt for Your Employer’s Retirement Savings Plan

You should be certain to sign up for any type of retirement savings plan offered by your employer. An example of this type of plan is the ever-popular 401(k) plan. Once you have completed the sign up process, you should then immediately start making as many contributions as possible. You will find that the amount that your employer contributes increases and the amount that you pay in taxes are lowered. As time progresses, you will find that the tax deferrals that you receive and the compound interest associated with the contributions on the account will enhance the amount that you are able to save to put towards your retirement. This is a very popular money saving tip for people that are saving for retirement.

Appropriately Manage Your Risks

When planning for retirement and engaging in the task of saving for retirement, it is important to ensure that you appropriately manage any and all risks associated with the endeavor. You should ensure, as you age, that your exposure to certain types of risks decreases because recovery is harder as you get closer to retirement age. Common examples of risks that should be avoided as you save for retirement include, but are not at all limited to, longevity risk, inflation risk, excess withdrawal risk, health expense risk, long-term care risk, frailty risk, market risk, interest rate risk, liquidity risk, sequence of returns risk, and forced retirement risk.

Keep Your Portfolio Balanced

When planning for retirement and handling a wide array of investments that will assist in saving for retirement, it is important to ensure that you keep your portfolio balanced as your investments experience shifts. The ultimate goal is to ensure that you always have the money that you need for retirement on hand. If you find that your portfolio is not allowing this to occur, you should focus on making the necessary changes.

Conclusion

Retirement is a phase of life that is to be enjoyed and cherished. You have your entire life to prepare for this phase. There will come a time in your life when you choose or must withdraw from your career or your working life, in general. The goal is to create income sources that do not have to be earned through the process of working. It is a time of life when you are considered to be financially independent. By following the money saving tip list in this guide, you will find that you accumulate the savings, the investment income, and/or the necessary pension income that is required to cover your living expenses and enjoy yourself during your retirement. A few simple steps in saving for retirement today could bring many enjoyable tomorrows for you and your loved ones!

saving-for-retirement

Why One Should Think About Saving For Retirement Early

Saving for retirement is one of the wisest moves and especially for people who are in formal employment. This is because it allows one to continue having a constant and reliable cash flow even after they stop receiving their paycheck. The only reason so many people die early is because they do not think of saving for retirement. Old age and financial problems do not go very well together and especially since one may also start getting health problems. One should start thinking of their later years after retirement right after they get their first job. This is of course the ideal situation but then it’s never too late to start saving.

What You Should About Saving For Retirement?

Saving for retirement is a long term process and one should get enough information before embarking on it. This is because many people have lost their savings due to fraudulent pension schemes and this has resulted in them ending up homeless and poor.to avoid such a situation, one should do enough investigation into the company they intend to save their money with to ensure that it is not only legitimate but that it also has enough solvency. This will ensure one does not put their savings into a bank that will go under in several years.

Saving for retirement starts with responsible use of available income. This is why for some people it is very easy to amass a huge saving for their pensions. However, for other people it is a great struggle and especially if they take on huge loans that they cannot repay by the time they retire. This way they will have more debts that will eat into their pensions and some will even remain unpaid after they are long dead and gone. The only sure way to avoid huge debts is to have a comprehensive financial plan where one lives within their means and avoids unnecessary debt.

Retirement Early

While the idea of planning for kids in advance is not always very reliable because of natural causes, it comes in handy when saving for retirement.one should endeavor to bring up their kids at their youngest age so that they can be free to enjoy their later years without many stresses. Grown up children not only help out financially during retirement but they also give other kinds of support. One should try not to have schooling children by the time they retire if at all they want to avoid stress and financial constraints.

While saving for retirement, one should also consider the number of years they intend to be working. Of course for early retirement, one should consider having a business which will multiply their income and help them through the longer years after retiring. If one will retire at sixty however, they can just save from their salary and be able to make a good pension. As a wise man once said, do not put all your eggs into one basket. One can try saving with at least two companies to ensure their retired life is well thought of and planned. This way one will not have to lose everything if one company goes down.

Retirement Investments: The Available Options

Retirement is the stage where one stops being employed completely. One can semi-retire by working fewer hours in a day as compared to what they would. People retire when they are able to get public or pension benefits. Sometimes people are forced to take retirements when they experience physical problems that cannot allow them to work anymore. Many countries in the present day provide pensions based on retirements for people in old age. Some people choose to use their retirement benefits to make retirement investments.

Advantages of Retirement Investments;

Retirement investments plan are highly advised. They give one a good future despite not working. The income that is generated by these retirement investments also caters for the loved ones in a specific family and reduces the strain on the family members who are still working.
There are several ways in which one can maximize their retirement investments;

Seeking an income in other places

One can invest in stocks that pay dividends which pay twice more than the Treasuries. A higher yield could also be found in the corporate bonds, municipal bonds, emerging markets and high yield bonds.

Looking out for other alternatives

These alternatives could include exchange traded funds which invest in goods, energy, real estates and real estate. They can achieve more than average returns and also reduce the risks because they are not likely to move with bonds and stocks.

Making use of the life longevity

One can use the prediction of their life span to expand investments horizons past the retiring day. Longevity allows for riding out of market cycles and of course generating more income.

Rental Homes

One thing that will never be outgrown is the housing need. Investing in houses for rent is a sure way of getting money back. One can do investment retirements on housing because the population is constantly growing and people are constantly looking for places to live in. The cash flow, location and a backup plan should be put into consideration beforehand.

Retirement Investments

Caution

Since many people are looking for ways to get money, there are many fraudsters in the market today. Here are several ways to avoid retirement investments frauds and protect the finances invested.

It is advisable that one keeps up to date on matters that affect them. Whenever an investment plan is made, it is good to keep up with the news and discussions that revolve around it. This gives an idea of how the plan is going and if there are any necessary changes that need to be made. If a person is not sure about doing a research on a retirement investment plan, they can find a professional consultant who works with concurrently with a broker. These two will come up with resources for one to choose from and give their own ideas and suggestions. This gives a narrower selection to decide from.

A retirement investment plan is better when started early. This gives more time to increase the profits or change the plan in cases where losses are experienced. Registering in local associations for retired people and learning on day to day news and events in the state and community one is in is crucial for retirement investments.

Start a Pension Early to Prepare for Retirement

If you are in your 20s or 30s and grafting away at work, it might be quite difficult to imagine a point in time 30 or 40 years down the line where you are retired and you are a man or woman of leisure.

Many people simply concentrate on the here and now, but how are you intending to live once you hang up your employment boots? What sort of retirement do you envisage having?
If it is one which involves comfort and living out some of your dreams without the need for debt advice in your latter years, then sorting outretirement a pension early in life is a must.

Most people get a state pension but this is only ever going to provide for your basic needs, therefore you should take the time to look around at different pension schemes in order to top up your funds for retirement.

With people now living longer and longer thanks to medical breakthroughs and changes in lifestyle, you need to try and save more money. Couple that with the rising cost of living which is only going to grow as we get older  then it is advisable to
start putting away money for a rainy day as early as possible.

In simple terms, pensions work by you and sometimes your employer paying money into your pension on a regular basis  say the start of the month, with funds coming straight out of your wage.

This is then invested so that the fund can grow over time depending on a number of different variables. It is likely that you will be asked to choose a fund based on risk factors, with each carrying different rates of interest.

Eventually, when you retire the pot of money will be paid to you for you to live off for the rest of your life. This could be a lump sum or regular income depending on how your pension scheme is set up.

The amount of money you get in your pension completely depends on how much you have saved, and there are a number of different ways you can do this.

Employers offer workplace pensions, often through a single provider, which you are entitled to join. In fact, the government has now introduced a new law which requires all employers to enrol their workers in to a qualifying workplace scheme if their staff are not already in one.

This move came into effect on October 1st last year, with individual employers’ duties coming into force over the next five years based on their size.

Starting early really does make a difference with pensions. A demonstration from Standard Life shows that if you started saving $200 per month from the age of 25 then the taxman would contribute $24,000. This figure is halved if you start your pension age 45.

Therefore, when retiring at the age of 65 and following the above rules, your pension would be worth in the region of $167,000 if started at 25, compared to just $67,100 if  enrollment  took place 20 years later.

Not only does starting a pension earlier in life allow you to reap rewards when it comes to retiring, but it gets you in to good financial habits at an earlier age. Being aware of things like pensions, their implications and how they work will make you aware of how important it is to look after your economic  well being.

Picking up general practices of financial planning is a good thing, and it should ensure that you are more organised and clued up with other aspects of your income and outgoings.
The Citizens Advice Bureau also recommends starting a pension early in life, stating: “If you’re young, it’s tempting to think that pensions are for older people. But the earlier you start, the longer you’ll have to put money away. You may also have more options later on to retire early. People who leave saving till later in life can end up with smaller pensions or have to work longer to make up the money.”

If you are lucky, you should be looking forward to a long, healthy and happy retirement without the need for debt advice from a company like Debt Free Direct, but much will depend on planning ahead for when your working days are over.

photo by tax credits

Three Financial Decisions Newlyweds Need to Make

newlywed choicesGetting married involves dozens of big and small financial decisions, and if you successfully negotiate combining your finances, it’s easy to feel like  you’ve  done it all.

When my husband and I had been married for a year, I thought we’d done pretty well. Joint checking, joint savings, one credit card for each of us, and no debt. We were exactly where we needed to be.

Or so I thought, until I talked to a financial planner.

Turns out, savings and credit  weren’t  the only part of our finances that needed attention. There were other key decisions we needed to make that I  didn’t  want to think about until years down the road. But, as I found out, I needed to.

1. Life Insurance

No one wants to think about the worst possible scenario, but imagine if your spouse died, and you were suddenly left without his or her income. You could have medical bills, funeral arrangements, rent or mortgage payments still due, all while dealing with incredible loss and grief. Make sure you have at least minimal life insurance for each of spouse, especially if you are planning to have kids.

Many employers provide various forms of insurance, but if yours  doesn’t   you need to set a plan up for yourself. Buy it when you’re young and healthy, and not in immediate danger, and you won’t have to worry about jumping through difficult hoops further down the road.

2. Will

Most states will simply deed all your property to your spouse if you die without a will. Having one, though, makes your wishes clear and prevents your loved ones from having to make difficult decisions while they’re grieving. If you have children, it also protects their interests. A living will is also important, as it lays out how you want important medical decisions handled if you are unable to make them for yourself.

3. Retirement Accounts

If you invest $19 a month, earning 8% a year, starting when you’re 25 and not adding any more after you turn 35, you will have $169,000 by the time you are 65. If you start when you’re 35 and invest the same amount every year until you’re 65, you’ll only have $125,000. So while you may not want to have the money taken from your paycheck right now, even a small amount will make a huge difference.

If your employer offers any sort of retirement benefits, including a matching program, take advantage of it immediately.  If not, or if you’re self-employed or a student, you still need to start planning. Talk to your bank to see what kind of accounts they offer.

When you’re newly married, it’s hard to think beyond the present moment, or to consider the worst that could happen. But you and your spouse will both be better off if you think past your basic finances and plan for a secure future.

photo by comedynose

How Much Do You Need to Retire?

retirementMany times when planning for retirement people focus on maximizing contributions. It’s often assumed that by doing so everything about retirement will fall into place. That may be so, but how do you know if you’re succeeding until you’ve defined your target?

When it comes to retirement, the target❠is a credible income number, as in how much will you need to live the life you want to live, taking into account your expected living expenses, sources of income, and the effect inflation will have on it. You can do that by going through some steps.

Figure out how much income you’ll need in retirement

To keep the calculations simple, many financial planners advise using a simple method, such as 80% of pre-retirement income, but I think this can also be an oversimplification. The fact is, you don’t live on your gross income, but on your take home pay, so basing retirement needs off of gross income can easily be distorted.

When you retire you won’t have as many off the top expenses, such as contributions to pension schemes, retirement plan contributions, FICA taxes (which apply only to earned income) and cafeteria plan deductions. Instead calculate how much you spend in a typical month based on an analysis of your spending. You may need to review your checking accounts and credit card statements to get a complete picture.

Once you have an average spending number, it’s time to make adjustments. If you plan on having your mortgage and any other debts paid off by the time you retire you won’t need to factor these into your retirement income requirement. Obviously if you have children you can also subtract any expenses related to their care. And if you plan to be fully retired, or at least not working outside your home, you can also deduct work related expenses, such as gas, tolls and higher maintenance owing to more miles driven.

On the flip side there may be expenses that you anticipate being higher because of retirement. It may be hard to estimate, but if you plan to travel more than you do now you’ll have to do your best to calculate how much to add for it. Premiums for long term care insurance are also a possibility, as are a higher allowance for medical costs.

Factor in inflation

Once you have a have a baseline annual income requirement, you’ll have to make an adjustment for inflation. This is a completely necessary step since your retirement is probably decades away.

The idea is to be sure that the income you’re preparing for at retirement will be relevant for that time and not one that’s based on today’s price levels.

Estimating inflation is not an exact science; you have to make what you hope will be a reasonable estimate of what inflation will be in the future and that can be little better than a guess. Perhaps the most accurate way to do this is to take the number of years between now and when you expect to retire, and let’s say its 30 years, then use the inflation factor for the past 30 years to make the projection. You can get the inflation number for previous years by using an inflation calculator.

You might determine from this, for example, that the $36,000 income you need now might be something like $100,000 30 years from now. That’s the income you must prepare your investments to deliver by your retirement.

Consider your sources of retirement income

OK, when you calculate inflation into retirement plans the numbers can get scary. But it’s not really as bad as it looks. You will probably have other sources of retirement income beyond that which will be provided by your retirement investments alone. These sources include Social Security, employer pensions and any earned income you expect to have at that time.

You can actually deduct these from your income requirements before making inflation adjustments, but with questions surrounding the future of both Social Security and employer pension funding, it might be a safer bet to be at least a bit conservative as to how much you expect to receive from these sources.

Your investment retirement choices

Once you have a solid idea as to how much income your investments will need to provide in retirement, it’s time to consider what vehicles you’ll use to hold and grow that money. Fortunately, there’s a wide selection here, and you can work this to suit your anticipated future needs.

For most people, an employer 401k or 403b plan is the best way to build up large amounts of retirement savings. But even if you have these plans to invest in, don’t stop there. Traditional IRA’s often provide greater investment flexibility than employer plans and they can be an excellent supplement to a company plan, especially if you need to accelerate your retirement savings.

Still another choice is a Roth IRA. You have the same contribution limits as with a traditional IRA, but the Roth adds tax diversification to the mix. There is no deduction for Roth IRA contributions in the year they’re made, but you will have tax free withdrawals of both principal contributed and the earnings they accumulate if you hold the plan until retirement. This means that at least some of your retirement income can be taken tax free, which will also have the benefit of reducing the amount of income you’ll need for retirement.
If this all seems a bit complicated, that’s because it really is. That’s why it’s so important to know exactly how much income you’ll need, and to have a solid strategy for how you’ll accumulate the assets to provide it. But once you know what those numbers are, it’s just a matter of setting your plan and sticking to it. The payoff is the retirement of your dreams.

photo by kheelcenter

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