Retirement

3 Things You Need to Know About Building a Budget for Retirement

July 28, 2017 Leave a Comment

As your working days begin to wind down, you may be feeling a mix of emotions about retirement. Along with the excitement you are experiencing, you are probably somewhat nervous about planning the day-to-day financial details of this new chapter in your life. It was recently reported that a proper income for retirement is approximately 70% of what you were earning in your working life. If you’re unsure of where you stand in relation to this figure, you may be left with questions. Have you properly prepared for being out of work? Will you face any unexpected expense? Will you need to take on a part-time job at some point? These are the kinds of questions that, if they are currently unanswered, can keep you awake at night pondering the answers.

Thankfully, you have the ability to quickly uncover the answer to questions like the ones above. If you are just starting to plan out your budget for retirement, learn more about the three things you need to consider as you establish your plans. [Read more…]

Working Past 70: Americans Can’t Seem to Retire

July 11, 2017 2 Comments

More and more Americans are spending their golden years on the job. Almost 19 percent of people 65 or older were working at least part-time in the second quarter of 2017, according to a recent U.S. jobs report. Bloomberg reported:

Certainly baby boomers are increasingly ignoring the traditional retirement age of 65. Last quarter, 32 percent of Americans 65 to 69 were employed. Even past age 70, a growing number of seniors are declining to, or unable to, retire. Last quarter, 19 percent of 70- to 74-year-olds were working, up from 11 percent in 1994.

Older Americans are working more even as those under 65 are working less, a trend that the Bureau of Labor Statistics expects to continue. By 2024, 36 percent of 65- to 69-year-olds will be active participants in the labor market, the BLS says. That’s up from just 22 percent in 1994.

A number of factors are keeping older Americans in the workforce. Many are healthier and living longer than previous generations. Some decide not to fully retire because they enjoy their jobs or just want to stay active and alert.

Others need the money. The longer you work, the easier it is to afford a comfortable retirement.

Healthy? You’ll Spend More on Health Care in Retirement

May 27, 2017 Leave a Comment

Ironically, it’s healthier people who need to save the most for health care in retirement, said Anne Tergesen at The Wall Street Journal. The counterintuitive finding from the research by the Empower Institute shows that a 65-year-old male smoker just needs $114,900 to have a 90 percent chance of having enough money to cover lifetime medical expenses. That’s compared with $143,800 for a 65-year-old in good health and $156,000 for a healthy woman of the same age. Healthier people simply live longer, and thus need more savings to last their lifetime.

Furthermore, more people are embracing technology in their daily lives. Technology really improves our health. That means we can all expect to live longer in retirement. It is wise to plan and save for your future health care needs.

The Median American Household of Retirement Age Has $12,000 in Savings

April 21, 2017 Leave a Comment

Do Americans have a saving problem for retirement? Many Americans do not have enough savings ever to be able to retire comfortably. The median family of retirement age has $12,000 in savings. Using the 4% safe withdrawal rate, that’s only $40 per month in retirement income. That is a terrifying figure to remind younger people to save for retirement.

About 70 percent of Americans have access to to retirement accounts through their employers, but just over 50% take advantage of the retirement saving plan. To this segment of population that has access to retirement accounts, the average American household has just about $100,000 in 401(k)’s and IRA’s.

The U.S. Census Bureau reported in September 2016 that real median annual household income was $55,775 in 2015. To be financially secure in retirement, retirees would need about six to eleven times annual earnings. Given that retirement saving is nothing other than giving up money during one’s working years to be able to spend more in retirement. So how will Americans with low savings survive in retirement?

The savings-poor households can still thrive in retirement. Many of them depends on Social Security and state pension for monthly incomes. Older retirees could also rely on other family members to avoid the retirement crisis.

How to Cash Out Pension Plan Early

March 11, 2017 9 Comments

The Pension Plan is a tax qualified retirement plan designed to provide you with additional income when you retire. Most of the time you don’t need to make any contributions and the money is funded solely by your employer. This cash-balance pension is kept in a safe interest bearing accounts. The interest credits on your pension balance might be based on the annual interest rate on 30-year U.S. Treasury bonds. Any distribution of benefit you receive from the Pension Plan is considered taxable income.

So can you cash out a pension early? Yes you can. The best way to avoid any penalty when you cash out your pension early is to roll your money into an IRA when you leave the company. But first, let’s talk about the penalty when you cash out your pension early.

Penalty for Cash Out Pension Plan Early

If you receive a lump sum distribution prior to reaching age 55, you may be required to pay an additional 10% Federal income tax. You can avoid paying the additional tax on a lump sum distribution by rolling over this distribution into an IRA, Roth IRA, or another eligible retirement plan, which is usually sponsored by another employer. [Read more…]

Strategy to Claim Social Security Benefits

March 7, 2017 Leave a Comment

The amount of your Social Security retirement benefit is based on your year of birth, your age when your benefits begin, and the earnings on which you paid Social Security payroll taxes—not on the amount of taxes you paid. I will claim my social security benefit at 70 years old while my wife, Mrs. PFN, will claim at 68 years old. Here is how I deride our plan to claim social security benefits.

Background of Social Security Benefits

Retirement income from Social Security has the extra benefit of an automatic cost-of-living adjustment (COLA) that increases your payments annually to keep pace with inflation. You should apply for benefits about three months before you want them to begin. You may apply for your benefits to begin between the ages of 62 and 70 if you have at least 10 years of coverage. Benefits are permanently reduced if they begin before full retirement age. A retired worker’s spouse can apply for benefits at age 62 or later.

A surviving spouse of a worker or retired worker can apply at age 60 or later. Since both Mrs. PFN and I were born after 1960, our full retirement age is 67. At first we plan to use the file-and-suspend strategy to maximize our benefits: I will file and suspend my benefit at the age of 67 while my wife claim the spousal benefits. However, Congress passed the new law that close the file-and-suspend strategy. May 1, 2016 is when the laws grace period ends, eliminating people’s ability to file-and-suspend in order to trigger benefits for a spouse. So we have to come up with a new plan. [Read more…]

FIRECalc, a Must-Use Tool for Retirement Planning

March 1, 2017 1 Comment

When you retire you want your money to last. FIRECalc help you to answer this important question by simulating your portfolio in different market scenarios to see whether your financial plan is robust enough or not. First you need to tell FIRECalc how much you have, and how much you’ll be taking out each year. Then FIRECalc will show you how such a combination would have fared for the duration of your retirement. FIRECalc lets you play with different scenario using Monte Carlo analysis that utilizes historical investment returns back to 1871 to calculate the probability behind your investment returns.

You can also input pension, social security, asset allocation and other relevant data to fine tune the calculation. FIRECalc also allows you to add different assumptions depending on your unique circumstances beyond the three key factors: retirement spending, retirement nest egg, and, spending horizon. Even if you are young, you can still use FIRECalc to get a ballpark figure to plan out your early retirement. Once your success rate is close to 100% then you have a much better picture in your retirement planning. As Jonathan Clements in The Wall Street Journal put it, FIRECalc “analyzes what would have happened if you retired in 1871, in 1872, in 1873 and so on. It then calculates how often your strategy would have panned out historically.”

FIRECalc uses historical, not random data. Even though the historical data is certain not to repeat, but serves as an useful proxy as part of a Monte Carlo calculation.

Donald Trump’s Five Points for Replacing Obamacare

February 28, 2017 Leave a Comment

President Donald Trump just delivered a nationally-televised speech to a joint session of Congress. Trump said the Affordable Care Act passed under President Obama “is collapsing –- and we must act decisively to protect all Americans.” He has presented five points for replacing Obamacare:

“First, we should ensure that Americans with pre-existing conditions have access to coverage, and that we have a stable transition for Americans currently enrolled in the healthcare exchanges.”
“Secondly, we should help Americans purchase their own coverage, through the use of tax credits and expanded Health Savings Accounts –- but it must be the plan they want, not the plan forced on them by the Government.”
“Thirdly, we should give our great State Governors the resources and flexibility they need with Medicaid to make sure no one is left out.”
“Fourth, we should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance – and work to bring down the artificially high price of drugs and bring them down immediately.”
“Finally, the time has come to give Americans the freedom to purchase health insurance across State lines –- creating a truly competitive national marketplace that will bring cost way down and provide far better care.”

The Best Retirement Account You Don’t Know About

February 21, 2017 Leave a Comment

A health savings account (HSA) is a triple-tax-advantaged account that allows individuals to save for current and future healthcare costs. The triple-tax advantages of HSA includes: (1) The contributions are tax-free, (2) the interest and dividends grow tax-free, (3) and the withdrawals are tax-free if spent on qualified medical expenses.

Your health savings account is a powerful tool to help you save and pay for qualified medical expenses today, tomorrow and in the future — even in retirement. Alicia Hudnett explained at CNN Money on why HSA is the best retirement account you don’t know about and why you should use it: “An HSA combines the best features of all the various tax-advantaged retirement accounts available. If used correctly, money goes in tax-free, grows tax-free, and comes out tax-free… An HSA account is similar to other retirement accounts in that the account is portable and moves with you, the funds roll over from year to year, and you can invest the money in the account for the long term. Even if you use some of the funds during the year and are able to save only a portion of your yearly contribution, you can invest the balance, making this another opportunity to save for your retirement years.”

Google Engineers on Self-Driving Car Project Quit Working After Reaching Financial Independence

February 13, 2017 Leave a Comment

Engineers on Google’s self-driving car project were paid so much that they quit. With so much money and bonus throwing at these engineers to help retain dedicated workers in the short run, it has resulted in many employees leaving the company in the long run after they reach financial independence. The Verge reports: “Google has spent a lot of money on its self-driving car project, now spun off into a new entity called Waymo. Much of that money has gone to engineers and other staff, according a new report from Bloomberg. In order to keep self-driving staffers happy — and, presumably, from leaving the company for other firms doing similar work — Google backed the proverbial Brinks truck up to the self-driving department and unloaded. Bloomberg says that early staffers “had an unusual compensation system” that multiplied staffers salaries and bonuses based on the performance of the self-driving project. The payments accumulated as milestones were reached, even though Waymo remains years away from generating revenue. One staffer eventually ‘had a multiplier of 16 applied to bonuses and equity amassed over four years.’ The huge amounts of compensation worked — for a while. But eventually, it gave many staffers such financial security that they were willing to leave the cuddly confines of Google.”

6 Greatest Sins of Insurance Agents

February 10, 2017 Leave a Comment

Insurance agents are not fiduciaries in most cases. They have no obligation to place your interests above their own or above those of the insurance companies they represent. The White Coat Investor describes 6 greatest sins of insurance agents trying to disguise selling as advising:

Underselling Term Life Insurance: “I see doctors who are sold a 5 year term policy at age 30. That’s dumb. Your term ought to be long enough to get you to your likely date of financial independence.”
Selling Whole Life Insurance: “Whole life insurance (and its cousins universal life, variable life, variable universal life, and index universal life) is one of the most oversold products in the entire financial services industry.”
Selling Insurance On Children: “There is simply little excuse to sell someone a life insurance policy on their children.”
Trying To Be A Financial Advisor: “In fact, in order to get sold, the WORST investments pay the HIGHEST commissions. I don’t care how good of a person you are, that’s a tough conflict of interest to fight against every day for your entire career.”
Selling Long Term Care Insurance to the Wrong Crowd: “Everybody doesn’t need long term care insurance. Stop trying to sell it to everyone.”
Not Being An Independent Agent: “Why would any one company be the best company for every type of insurance for every person? It doesn’t make any sense. Yet many agents are ‘captive’ and sell insurance from only one company.”

(whitecoatinvestor.com)

Universal Basic Income for All is Coming?

February 1, 2017 Leave a Comment

If robots and machine intelligence threaten to render many white-collar jobs obsolete, then what will people do for money? Enter the concept of a ‘universal basic income’, a flat sum paid to all regardless of your existing wealth or ability to work. It is one of the rare ideas that has support from both the libertarian right — which favours tearing up the welfare state — and the left wing. In France, Benoit Hamon has emerged as the surprise Socialist candidate for April’s presidential election first round, on a radical programme that includes such an income — to be funded in part by a new tax on industrial robots. National or local governments in other countries such as Finland, the Netherlands, Canada, Scotland and Brazil are already evaluating how such a revenue might work in practice. Finland is furthest down the road. On January 1 it started a two-year trial to give 2,000 unemployed Finns a monthly unconditional payment of $590. At the least, advocates argue, a basic income could replace the thicket of unemployment benefits currently on offer in many advanced economies. (yahoo.com)

4 Quick Ways to Jump-Start Your Retirement Savings

January 6, 2017 Leave a Comment

“Afraid you might be behind on saving for retirement? There’s one simple way to get ahead of pretty much everyone else.” said Katie Lobosco at CNN Money. Here are four things to ask yourself to make sure you’re on track in the new year:

How much did I spend last year?
Can I increase my future contributions?
Did I max out my IRA last Year? There’s still time.
Are my investments balanced?

About 80% of Americans surveyed by Voya Financial said they hadn’t taken the time to review or revise their retirement plan within the past year. So simply taking a look at how your 401(k) or IRA performed in 2016 will mean you’re already doing more than most Americans. (cnn.com)

The Richest Generation in U.S. History Just Keeps Getting Richer

July 12, 2016 Leave a Comment

“Even after they retire, affluent Americans are growing wealthier, thanks to the strong stock market,” wrote Ben Steverman on Bloomberg. Baby boomers started turning 65 in 2011, marking the unofficial beginning of their retirement years. The timing could not have been better for older boomers, who are already part of the wealthiest generation in U.S. history. Since then, the broad S&P 500-stock index is up 91 percent, including dividends. U.S. stocks hit a record high yesterday. Market performance in the early years of retirement is a crucial worry for anyone living off a nest egg. In the worst-case scenario, stocks crash just as retirees start spending their savings, leaving them in a hole they can no longer earn their way out of. Older boomers have experienced what is arguably the best-case scenario: The S&P 500 has returned 269 percent since its March 2009 low. As a recent study in the Journal of Financial Planning shows, wealthy retirees can be very cautious about spending down their savings. This instinct, along with the stock market’s new record, suggests that many boomers are likely to end up with far more money than they know what to do with. (bloomberg.com)

More Americans Are Working Longer

June 14, 2016 Leave a Comment

Almost 20 percent of Americans 65 and older are now working, according to the latest data from the U.S. Bureau of Labor Statistics. That’s the most older people with a job since the early 1960s, before the U.S. enacted Medicare. When asked to describe their plans for retirement, 27 percent of Americans said they will “keep working as long as possible,” a 2015 Federal Reserve study found. Another 12 percent said they don’t plan to retire at all. One of the reasons for working longer is that older Americans are short on savings. Today, 60 percent of U.S. households have no money in a 401(k) or similar retirement account. (bloomberg.com)