Tag Archives: retirement savings

How To Save For Retirement

Investment Strategy, Retire Early, Saving Money,

You should always be planning for your retirement. You need to make sure that you have enough money to live on in the years of your life when you cannot work. This might seem like a long way away, but the sooner you put a plan in place and start to work towards having money for retirement, then the easier it will be. Here is a quick guide on how to save for retirement.

How To Save For Retirement

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3 Basic Moves To Save For Retirement

Property

If you can outright own your house or home, then you will have a much easier retirement life. This is because once you have paid off the mortgage, you won’t have that large monthly outgoing to worry about. Instead, you will own the house and be able to live in it into your twilight years. This also means that if you need to move to somewhere smaller, you could sell the house and make a large amount of money from doing so. This money will help you live in your retirement years, and even if you spend some of it on another house, you should still have a large amount left over.

Aside from your home, if you can, you should consider investing in other properties. You can either flip them or rent them out for a monthly income. Renting is a popular choice as it will mean that you have a steady cash flow coming into your bank account long after you have stopped working. With that rental income you can live a more enjoyable retirement life. If you don’t have any property investments, then you should consider making some.

Pension Fund (aka Retirement Account)

This is the most basic way that you can save your retirement. Your pension fund, usually 401K and/or IRA, is yours alone, and the amount that you put in within their limitations it is entirely down to you. This means that it is great for retirement planning after a divorce. How you want any left behind pension funds handled when your retirement comes to its official end is up to you too. Remarried couples where children are involved can include within their retirement planning their specific estate distribution desires.

Your pension fund can take a flat rate or percentage of your earnings each year and gradually grow through your life. Not just grow with investment gains and interest earned, but also grow because of higher pension fund contribution amounts as your salary increases over time. The larger the percentage of your earnings you pay in each month, the more you will have access to when you retire. This means that if you can, you should try to live on a little less each month so that you can save more. This can be as little as a few percent extra of your yearly income each year, but it can make a massive difference when you retire.

Regular Savings

There are a number of other savings accounts and ways to save money that are available to you and if you treat one of those as your retirement account, then the more that you put in the better. You should be aware that interest rates change all the time and try to switch your account to a different provider for the best deals when possible. However, even if you don’t do that, you should try to save as much as possible and make the most of your yearly interest. Time and compounding interest are your best friends when it comes to saving for retirement.

My Early Retirement SEPP 72t IRA Ends: How It Worked Out

Funding Retirement, Investment Strategy, Retire Early

My last SEPP 72t IRA payment was just delivered. I now close the door on government control over my early retirement funding. For the last 7.75 years I had IRA penalty free withdrawals using what the IRS calls substantially equal periodic payments (SEPP). I thought I would share how the IRA did from its original funding to its last payment to me.

I think this could be of interest whether anyone is considering a SEPP 72t approach to early retirement funding or not. It gives a glimpse into the impacts of investment allocation, a bad investment, and what a rigid withdrawal rate has on an IRA over several years of retirement funding.

SEPP 72t IRA Basics

The SEPP 72t is an IRS rule that allows someone to make pre-age 59 ½ withdrawals from an IRA without having to pay the early withdrawal 10% penalty. Only your normal income taxes would apply.

The IRS 72t rule dictates the withdrawal amount. It is based on current bond interests rates, your age and your life expectancy at the time of beginning the 72t. The idea is that your IRA would survive long enough to fund your retirement for your lifetime.

There are 3 IRS approved withdrawal methods and you can make one withdrawal method change during the life of the SEPP 72t.

The 72t payments must run its course once it begins for the longer of 5 years or you reach age 59 ½. In my case the run-time was to age 59 ½, making my 72t in play for 7 years and 9 months to complete my 72t run-time rule obligation.

Run afoul of their rules and the IRS will assess the 10% IRA early withdrawal penalty back to the very first SEPP 72t payment you received plus applicable interest. That applies even if the IRA fails before meeting the obligated run-time length rules. Careful investment allocation is advised so that a market crash doesn’t send the 72t IRA into funding default.

(Update 1/13/19: I made a mistake regarding an account being depleted as the IRS States: What is the effect of an account being completely depleted? If you have no assets remaining in your individual account plan or IRA, you will not be subject to the Code §72(t) tax as a result of not receiving substantially equal periodic payments. In addition, the recapture tax will not apply. I mistook explanations and missed this. Thanks Brian for pointing this out)

It is for these reasons I used a CFP to set up and manage my 72t IRA. It is advisable to not lockup all of your retirement IRA funds in a SEPP 72t. Always hold some of your retirement portfolio separate from the 72t.

 

My SEPP 72t IRA Details

My SEPP 72t began February 2010. At that time the IRS allowed 72t interest rate was around 3.5% to use in the SEPP calculation.

Looking today online at the SEPP 72t allowable set interest rate to use, it seems the allowable interest rate to use is 2.4% for December 2017 and estimated to be 2.54% for January 2018. The approved interest rate changes as bond rates reset.

72t IRA Balance Details

My SEPP 72t began Feb 2010 and ran until Nov 2017 = Obligated run-time 7 years, 9 Months.

72t IRA Beginning balance – $665,000

72t IRA Ending balance – $586,528

The 72t IRA Amounts Paid Out During IRS Obligated SEPP Timeline

72t IRA Early Retirement Income Paid – $260K

72t IRA CFP Fees (estimated) – $39K

Total Amount 72t paid out = $299K

Figuring Out The 72t IRA Results

The first observation is that the 72t IRA is down $78,472  (11.8%) from my initial investment. That may seem odd given the run-up in the stock market since February 2010 to now. There are a couple of issues that I believe addresses this result.

One of my investments (highlighted below) took a 40% dump. This represented a large part of the SEPP 72t IRA $78,472 deficiency when only looking at the beginning and ending totals.

The SEPP 72t withdrawal calculation used a bond interest rate of 3.5% within its algorithm. Bond rates were higher at that time than they are now. This resulted with what was a 5% withdrawal rate of the total funding SEPP IRA. There were no yearly inflation adjustments but this is still far higher than the well discussed 4% safe retirement withdrawal rate. That 4% rate is now challenged as being too aggressive as a safe withdrawal rate. A 5% withdrawal rate clearly has an impact on the portfolio.

The SEPP IRA was conservatively invested and designed to chase yield. It did not benefit as much as it could have had there been more stock exposure. This was done purposely. The rest of my portfolio outside of the SEPP 72t IRA was invested heavier in stocks. The overall portfolio was considered for an appropriate investment allocation when looking at stock to bond and international to US investment ratios. This was also done to avoid 72t default in the event of a stock market downturn.

Even after the above considerations, the SEPP 72t IRA produced enough income and growth to pay out $220.5K overall ($299K paid out minus the $78.5K beginning to ending IRA balance deficiency).

How My SEPP 72t Was Invested

Please note that the 72t IRA had investment changes over it’s 7.75 year run and this is the current (11/24/17)snapshot/reported yield.

Cash = $34,066

Investment Mutual/UIT Funds = $552,462

Total SEPP IRA Value = $586,528

Invested Mutual/UIT Funds

ACETX – INVESCO EQUITY & INCOME $40,509.06 (7.33% of 72t)  Yield 1.76%

BIICX – BLACKROCK MULTI ASSET INCOME INSTL $29,362.14 (5.31% of 72t) Yield 4.5%

DIFIX – MFS DIVERSIFIED INCOME $29,881.61 (5.41% of 72t) Yield 3.2%

FGIYX – NUVEEN GLOBAL INFRA $35,119.09 (6.36% of 72t) Yield 2.76%

FRIRX – FIDELITY ADVISOR REAL ESTATE INCOME $37,563.30 (6.8% of 72t) Yield 4.08%

FSRIX – FIDELITY ADVISOR STRATEGIC INCOME $94,852.42 (17.17% of 72t) Yield 3.18%

MBDIX – MFS CORPORATE BOND $67,315.98 (12.18% of 72t) Yield 3.38%

MLPOX – OPPENHEIMER STEELPATH MLP ALPHA $19,307.78 (3.49% of 72t) Yield 8.1%

OIBYX – OPPENHEIMER INTL BOND $59,600.10 (10.79% of 72t) Yield 4.18%

OOSYX – OPPENHEIMER SENIOR FLOATING RATE $57,604.36 (10.42% of 72t) Yield 4.44%

PXHIX – PAX WORLD HIGH YIELD BOND INSTL $81,346.39 (14.72% of 72t) Yield 5.46%

 

In Closing

It’s easy to see that a higher IRA withdrawal rate, an investment loss, and a yield focused conservative investment allocation can result in a lower portfolio balance regardless of any prolonged market recovery.

As I move into Phase 2 of my early retirement funding plans I will be using what was learned from the first 7.75 years of my SEPP 72t. I happily look forward to being able to have more control over my retirement account withdrawals going forward.

After considering everything, I do believe this was an early retirement funding success. I have enjoyed this adventure called early retirement much more than I could have imagined.

Using the SEPP 72t IRA rules to allow early access to my retirement accounts without penalty was definitely a successful strategy for my situation.

Want to Retire Confidently? Set A Retirement Savings Target

Funding Retirement, Saving Money, , ,

It’s no wonder that many people fall short with retirement savings. They have no idea what they need. It would be impossible to know if you are on track without having a retirement savings target to shoot for. People tend to fall into three categories when it comes to retirement savings. The confident, the worried, and the clueless. One way or another, retirement will eventually happen to everyone alive. Wouldn’t you prefer to know you’re doing everything you can for a better retirement?

Cluelessly entering into retirement should be the last thing anyone wants. Moving from the clueless to the worried class of retirement preparedness is a necessary step in the right direction. A little fear can go a long way in lighting a fire under one’s keister to take positive action. For retirement confidence, the sooner you set your retirement savings target the better.

Sadly, Too Many Are Clueless About Their Retirement Savings Needs

Want to Retire Confidently? Set A Retirement Savings Target

The recent Merrill Lynch/Age Wave study results clearly shows that people don’t know how much money they need to save for their retirement. For people age 50 and older, only 27% felt prepared financially for funding their retirement for 10 years. Worst than that, 81% didn’t know how much they needed saved to fund their retirement.  

This isn’t just an American phenomenon. In Great Britain the Pensions and Lifetime Savings Association found similar findings in their studies. They found that 78% didn’t know whether their retirement savings were on track to meeting their retirement funding needs.

Setting A Retirement Savings Target

There are a lot of calculations and unknowns that come with retirement planning. Certainly seeking help from a trusted Certified Financial Planner should be considered. Below is a basic and simple approach to finding a base. This base should be considered only the lowest retirement savings target to shoot for.

Step 1- How Much You Will Need

The first order of business in setting your retirement savings target is knowing how much income you need to pay for your essential living costs. Think housing, utilities, grocery, transportation, and insurance. Get intimate with your budget. Figure out your minimum lifestyle needs. Based on that amount also add to it a proper percentage for taxes.

Step 2- Inventory Your Guaranteed Retirement Income

Next is listing all anticipated guaranteed retirement income like Social Security or other government pension scheme. That also includes any work related pensions you have or will earn. This will require requesting a current estimate of your future benefits and at what age you will be eligible for the benefit.

Step 3- Determine The Amount Your Retirement Savings Must Cover

Now subtract from your essential living costs the guaranteed retirement income amount you will receive. This result is what will be used to set your base retirement savings target. The target is the estimated amount you need your retirement savings to fund your lifestyle essentials.

Step 4- Calculating Your Base Retirement Savings Target

The final calculation is using the much discussed safe 4% retirement withdrawal rate. It isn’t as favored as once was. But it allows a simple equation for setting our minimum retirement savings target. Simply multiply your funding figure by 25. This result is the amount you should set as your minimum retirement savings target.

Example: Monthly base essential living cost $2500 – Social Security $1200 = $1300 X 12 months = $15,600 a year X 25 = Base Retirement Savings Target $390,000.

If you plan on retiring before you begin receiving any guaranteed retirement income then make sure the amount needed during your early retirement years is added in to your target amount.

This is an Estimated Base Retirement Savings Target and Not Gospel

Congratulations, you have just figured out your scrape-by retirement savings target. Understand that whatever you come up with in this calculation that you should save much more. It only used essential living costs. There are many unknowns that we will face in retirement. One-time large financial hits occur throughout our lives and will do so in retirement. Healthcare, inflation, and even our longevity are unknowns that must also be accounted for.

We should also include wanting to save for more than just living essentials and add some fun in our retirement. The above approach is only the closest savings target to hit. Other savings targets should be set beyond it to aim for. Get into the practice of running your numbers through a good retirement calculator as you go. It will help you to fine-tune your retirement savings target. Then it’s all about saving and investing as much as you can to meet it and beat it.

What To Do If Your Base Target Amount Will Be Missed

When your best savings efforts isn’t going to be enough then hard choices must be made, and the sooner the better. If savings targets will be missed under your current situation and future projection then consider doing anything you can to cut your essential living costs.

There’s frugal living, downsizing your home and lifestyle, debt elimination by any means, planning on relocating to a less expensive place in retirement, etc.

Anything that can be done long before retirement will mean freeing up more money to allocate toward retirement savings. It also reduces your target savings amount needed. Last but not least is delaying your retirement for as long as you can. IF YOU CAN.

Missing the target means figuring out how to live on only your Social Security and/or other pension scheme for what could be a 30 year or longer retirement..

It is Always Better To Be Informed

When it comes to retirement, keeping one’s head in the sand thinking ignorance is bliss is a huge mistake. So is the often “I plan to work until I die” retirement plan. Many people end up retiring earlier than they planned due to job loss, health reasons, or having to care for a family member.

The simple scrape-by retirement savings target calculation moves us from clueless to worried status. But taking positive steps forward based on knowledge, preparation, and action reduces fear. It gives us a chance to correctly save and track progress for our inevitable future. Once we can see that we are on our way to meeting even our base retirement savings target we can have the peace of mind that comes with any level of retirement confidence and hopefully long before we retire.

Cryptocurrency: Rocket Fuel for Your Retirement Fund?

Investment Strategy, Risk Tolerance,

The risks and the gains of Bitcoin are becoming increasingly well-known as this previously under-the-radar cryptocurrency hits the mainstream, with everywhere from specialized exchanges down to your local pizza place now trading in it. But if income tax is making a hole in your retirement funds, then this unregulated, untaxed market – even with all its attendant risks – may begin to look attractive.  Earning Bitcoin is becoming more of an option for growing your overall portfolio, not something to go all-in with. But what are the best ways to make it pay? Here are some of the easiest:

CryptoCurrency: Rocket Fuel for Your Retirement Fund?

Join a mining pool

 

Traditionally, the way to earn with Bitcoin was through ‘mining’ – solving sophisticated mathematical algorithms to create new ledger blocks. However, those days are probably over now. You will need to invest in a Bitcoin mining pool to get access these days, as the current algorithms are too complex to be processed on a home PC and require specialist hardware that harnesses the processing power of many computers. A Bitcoin mining calculator can help you work out how profitable this might be.

 

Create a faucet

 

Bitcoin ‘faucets’ are basically websites that give away micro amounts of the currency to their users, and earn revenue through hosting advertising. The business model is referral-based, generating high-volume traffic to create more ad clicks. This can be done ‘out of the box’ with no experience in coding needed, just a domain name and website creator, plus a micro wallet payment processor service like FaucetHub. Once built, monetize the site through a provider like Google Adwords or spend time building affiliate revenue streams, where you make a small percentage of commission on referrals.

 

Invest in funds

 

It’s now possible to invest in funds that themselves invest in bitcoin. Values are increasing and have been known to double in a matter of months. So although there are definite risks, there are also significant gains to be made by doing this. With a finite supply and tightly regulated production, in theory, Bitcoin should always gain in value over time. There are other cryptocurrencies backed by global conglomerates to invest in such as Ethereum  and you can even set up an ethereum IRA online.

 

Become a Bitcoin lender

 

Becoming a lender is another way to get a slice of the Bitcoin action. Buy up some currency from an exchange, and then lend to another party with interest.  Lend either with no collateral and higher returns or secured against something for a lower interest rate. However, this should be approached with caution due to the lack of market regulation. Cryptocurrency is not part of any insurance scheme or regulated by any official bodies.

 

Accept payments in Bitcoin

 

The other channel is to add Bitcoin to accepted payment methods for whatever goods or services you can sell. But obviously, this depends on being able to effectively market whatever you need to in order to create the wealth. Bitcoin has brought with it some new entrepreneurial opportunities as it removes a lot of the barriers to conducting global business by virtue of its totally digital format.

 

Although its newness makes it a fairly high-risk option, Bitcoin is becoming increasingly mainstream. For a savvy investor, meaning knowing when to get in and get out, there may be opportunities there to make swift gains.

Can cryptocurrency be rocket fuel for your retirement fund? I still have a lot of research to do before I can honestly answer that. But with knowledge comes opportunity and understanding whether something is too risky to invest in.

 

Disclaimer- Leisure Freak is in no way advising readers to invest in cryptocurrencies. Invest at your own risk. Crypto is a high risk investment scheme. This article is for information purposes only. 

Starve The Tax Monster 2: Retirement Tax Strategy Reloaded

Taxes,

My Early Retirement Tax Strategy has always been to manage my retirement income to pay the lowest possible tax rate and never get a tax refund. My Starve the Tax Monster-2 tax strategy manages restricted tax withholding. This year I will push the amount I’ll owe to just under the IRS penalty threshold. I’m starving the tax monster until it’s dinner time, the income tax deadline mid April.

Starve The Tax Monster 2: Retirement Tax Strategy Reloaded

My Retirement Tax Strategy, Reloaded to Withhold The Least Possible

I just can’t allow myself to ever overfeed the tax monster just to wait for it to regurgitate the excess to me once it gets around to it. I’ve always felt that using the federal government as an interest free savings account isn’t financially smart. But this year my motivation and strategy is amplified and more of a mini personal protest. Not only will I make sure I won’t overpay for a refund, I am pushing the amount I will owe to the limit. The plan is to write a last minute larger check to settle my taxes.

Last year I posted my 2016 Starve the Tax Monster early retirement income tax plan when I found that I over withheld federal taxes on my IRA distributions. I took advantage of my withholding mistake and painlessly increased my Roth holdings and made tax withholding changes for the next year.

This year it’s all about my disgust with the fraud, incompetence, and the waste running amok. I can’t change or control much in any of this nonsense that’s going on. But I can control how I pay my owed taxes for the year. I might as well earn some interest on my delayed tax payment money too.

They Finally Got My Goat

There a couple of things that pushed me toward this retirement tax strategy.

First the Equifax hack.

I established a credit freeze at all three credit reporting agencies to help stop fraudulent loans against us. But I can’t stop a fraudulent income tax filing against my and/or my wife’s Social Security numbers. The IRS says to file early for your refund before any fraudsters do. Any fraudulent tax returns against a Social Security number will result in the legit taxpayers experiencing huge delays in their refunds. Forget that. I will just send my check in by the filing deadline. If the IRS paid out a fraudulent refund in error to some jack-wad then they can work that out on their own time and money.

Second, I’m somewhat annoyed about all the White House travel spending waste.

From Cabinet members private and chartered plane issues to the VP Pence football game political stunt. Not to mention the cost of all the President’s weekends away from Washington spent golfing at his properties. They always do what they are going to do. But I don’t have to like it or go out of my way support it.  

Lastly, I think the proposed tax reform clearly favors the rich and corporations and frankly it stinks.

Even though it is far from law, it shows their intent and priorities. As far as I am concerned they are simply tossing peanuts to the middle class and the poor.

Legally Starving the Tax Monster

As I wrote in last year’s starve the tax monster post,

“I use the term monster because it will happily over eat without squabble but will hunt you down and destroy you if you don’t feed it what it thinks you owe. I have to pay the tax monster something to keep it off my back but not more than I have to pay. It’s better that I manage my money than trust the monster with it.”

Obviously not paying taxes will get you in big trouble with the tax monster. Fines and interest are added to your tax obligation as penalty. Go too far and prison is also a possibility. There are also interests and penalties for underpaying your taxes. My retirement tax strategy walks the line without crossing the underpayment penalty rules. The rules state you can avoid underpayment penalty if after completing your income taxes you:

  • Owe less than $1,000,

Or if you owe more than $1000, the lower of-

  • Paid at least 90% of the tax you owe for the current tax filing year through withholding or quarterly estimated payments.
  • Or your tax withholding/payments are equal to 100% of your previous year’s tax obligation.

Figuring Out The Year’s Tax Withheld vs. Estimated Obligation

It’s late enough in the year to make a good estimate of this year’s taxable income. I run that estimated 2017 amount through the 2016 tax software I used. This gives me my approximate 2017 tax obligation. By looking at what tax has been withheld and scheduled to be withheld I came up with my probable 2017 tax filing result. I simply had a lot of room to increase my underpayment amount before the year ends.

My 2017 Retirement Tax Strategy

My retirement tax strategy adjustment for this year is to stop my IRA federal withholding for November and December. I will come in owing just below the $1000 penalty threshold. Stopping the last 2 months of tax withholding will increase the amount they will have to wait for. I will file my taxes and send a check by the April 15th tax filing deadline.

Delaying payment of up to $999 to settle my taxes isn’t much, but it is about 30% of my yearly tax obligation. Frugal living and managing income for low taxes has it’s benefits.

I simply keep invested and save the money that I didn’t withhold as taxes. In the whole scheme of things financial, the amount doesn’t add up to much, but some interest/dividends is better than nothing. Mostly I just get satisfaction delaying the monster’s feasting and overeating my money right away.

My 2018 Retirement Tax Strategy

My SEPP 72t ends this year and I will be giving myself a raise for 2018, making my taxable retirement income higher next year. I also ran that increased amount through the tax software to estimate my 2018 tax obligation.

Based on my tax software test results I will restart a 10% federal tax withholding from my 2018 retirement income in July.

Note: I do this stop and start withholding because my IRA fund holder only allows for federal tax withholding of at least 10% from distributed funds. If they could do it I could easily set the withholding rate at 5% year-round. That would also accomplish the same starve the monster retirement tax strategy.

Next October I can run the numbers again to see if my 2018 income and tax calculations are still valid for owing either just under $1000 in taxes, or having withheld 100% of this year’s lower retirement income tax obligation. Based on the results I can make necessary tax withholding adjustments.

Words of Caution

The IRS expects that we pay as we go. You can’t pay your taxes on the last month or two for the year or they could penalize you for underpayment for the first 3 quarters of the year.

The way this retirement tax strategy works for me is I get a 1099R that says the amount of federal taxes withheld for the year. I don’t believe the IRS will go through the trouble to verify it was evenly paid throughout the year if I come in below the underpayment penalty thresholds.

If I was paying quarterly estimated taxes I would instead pay a reduced amount of estimated taxes each quarter. I’d calculate an amount to result in the same end of year underpayment below the penalty threshold.

This retirement tax strategy only delays what I am obligated to pay. It in no way reduces or eliminates my income tax. However, I do reduce my tax obligation by using a tax efficient retirement withdrawal strategy.

Lastly

Starving the tax monster is only a minor financial win if I save the money and it earns interest or dividends. But I am looking at what I call my mini-protest bonus: The huge personal satisfaction I get knowing I am starving the tax monster for as much and for as long as possible.

The big take away:
  • Don’t use the Federal Government as an interest free savings account- Never Purposely over withhold for tax refunds.
  • Know the income tax underpayment penalty thresholds and stay below them.
  • Have the discipline to save/invest your money and pay your tax obligation before the income tax filing deadline.

 

CYA Disclaimer:

I write this article for entertainment and informational use only. In no way should this article be considered professional tax or financial advice on how anyone should handle their income taxes. Do your own research and seek professional help before setting out on your own tax plan. If you freely decide to follow my retirement tax strategy then you do so at your own risk.  

Investment Options: The Best Plans for Your Retirement

Funding Retirement, Investment Strategy, Retire Early,

Unfortunately, there are many people who don’t plan for their retirement and find themselves having to survive on a much lower income than they’re used to. It’s important to plan financially for the future, no matter what stage of life you’re at. One of the best ways to ensure you’re provided for in your retirement is to invest money in plans that are likely to result in a substantial return. That way, the younger you start investing, the more money you’ll have in retirement. So, what are the best options for retirement investment?

 

Retirement Investment Options

Pension

Of course, the safest option for retirement is a pension. However, the state pension or Social Security you receive from the government may barely cover the essentials. If you can help it, you don’t want that to be the only pot you have to rely on. The money being put into pensions at the moment reflects the cost of living right now. By the time you’ve retired, the cost of living is expected to increase. Additionally, many corporate employers in the US are backing out of retirement schemes, leaving their employees to fend for themselves.

So, what do you do? Pay into your own pension. There are many ways you can set up your own pension pot and put a percentage of your monthly wage in. Once you’re used to that percentage being missing from your paycheck, you won’t notice it’s gone.

 

Defined Contribution Plans

You’ve probably already heard of a 401K, but are you making the most of it? The benefit of having a 401K is that you’re not responsible for putting money in. The amount you pay towards it is automatically deducted from your pay, so you never see it anyway. Your employer is likely to contribute too. Many employers match the amount you put in, so you’ve got a 100% increase with every contribution. It’s safe, and you’ll hardly think about it until the day you need it. The only downside is the tax fees whenever you make a withdrawal.

Retirement Investment Options

 

Property Investment

If you already have a full-time job, the thought of property investment may be something that puts you off. However, investing in property doesn’t mean you have to have a huge portfolio. In fact, investing in just one property per year could make you enough to have a decent nest egg by the time you retire. Purchasing fixer-uppers and using your spare time to upgrade the property could give you a great financial return. Similarly, investing in foreign real estate like resale HDB could mean you have access to cheap properties that you can rent for a profit, especially if they’re in the right location. Just make sure you understand the country’s property ownership rules and you qualify to purchase or invest there. You don’t have to take property investment on as a full-time job, but there is huge potential to make big money.

 

Stocks

Some stocks have the potential to earn you a significant amount. Whether you invest in a stock that stays steady and you make a small amount often, or you take a risk on a stock that could go either way and come out with a big payment, stocks have the potential to set you up for life. The problem is, you need to be willing to learn about the stock market, rather than just take a gamble. Investing in stocks through ETFs or other mutual funds may be the easier path into stocks. Just like any other kind of business, you need to do your research and continue to gather knowledge so the stock investment choices you make become more of a sure thing.

 

Business

If there’s a gap in the market, setting up your own business could be something that rewards you in retirement and continues to reward your family after you’re gone. Just one great idea is enough to get a business started. If you’re already working and want the business to be an extra income for you, consider investing in someone else’s business ideas. There are lots of small businesses looking for a cash injection to expand. You could buy shares in the business, be a silent partner or just agree to a percentage of the profits. Just make sure to get everything you agree on down in writing. You need to cover yourself if you’re going into business with someone else.

Retirement Investment Options

 

Savings Accounts

The majority of savings accounts aren’t worth looking at because the interest they gather is next to nothing. However, there are a few accounts that are worth opening if you’re planning your retirement early. For example, look for accounts that increase your interest level if you’re willing to keep your money in the same account for an extended period; usually more than five years. If you touch the money before the period ends, you’ll forfeit the interest, but if you keep the money in until retirement you can take it out in one large sum or have it in installments in addition to your pension. Obviously, the more you put in, the more you get out.

 

Cash Value Life Insurance

This is a great option for anyone who wants access to funds during retirement and a life insurance plan. You have to take out a policy, as you would with any other kind of insurance. But, as you pay towards the policy, you build up a cash value. Once the cash value is accumulated, you can use some of the cash during your retirement. For instance, if you were to accumulate $500,000 and use $250,000 during your retirement, your beneficiary would still receive the remaining $250,000 after your death. It’s ideal for stay at home parents or part-time workers with little cash flow per month.

 

Assets

If you’re not good at putting money away for your retirement, maybe you’ll be better at shopping for your retirement. There are many items you could buy that increase in value over the years. For example, antiques, classic cars, statement jewelry and more. If you’ve got a keen eye for valuable assets, it’s worth investing with a view to sell during your retirement. It’s a great way to get constant cash injections when you need them.

 

Retirement is a stage that should have a financial plan, no matter how far from it you are.

Managing Off Grid Energy in your Home

Saving Money

 

Managing Off Grid Energy in your Home

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According to Bloomberg, global power has never been so clean with renewables beating the investment power of fossil fuels two to one and clean energy installations breaking world records in 2016. Rising energy costs and climate change are two of the main reasons why more and more people in the US are turning to off grid energy sources to power their homes. However, learning how to do it and deciding how best to manage it in the area where you live requires a fair amount of investigation.

Energy costs can become particularly difficult for us to manage as we get older and for retirees they can be a source of permanent stress. Before retiring it’s a good idea to set up a new financial plan to save on costs; a plan that might cover anything from changes to grocery shopping bills, to health plans, to transport decisions. Off grid energy solutions are another viable way of saving on monthly expenditures that, as senior citizens, we would do well to consider.

1. Find ways of reducing your energy needs

As well as saving on costs, the choice to power your home using off grid energy means that you have the chance to assess how much energy you use and start reducing it. Many of us waste a fair amount of energy much of the time. With a better organized household, with positive limits in place, we can actually use off grid power sources to reduce both energy costs and energy consumption in one hit.

Smart control systems are used in off grid energy homes to reduce energy waste. You can use them to schedule when lights should come on and go off, thus improving your energy efficiency ratings without adding to your daily responsibilities. By strategically placing where your lights are positioned you can also save energy. You may find that by placing lamps in corners, the light reflects off of two walls and it reduces the need to have so many bulbs in the same room.

Good quality insulation is designed to make your house cooler in the summer and warmer in the winter, which can help reduce the need for heating and air-conditioning. You should also pay careful attention to your fridge. As the appliance that uses the greatest amount of energy in our homes, we want to make sure that we’re not unknowingly wasting energy that could ultimately be saved by making a few small changes.

2. Make sure your energy plan will cover your needs

Before you switch to off grid energy at home, take the time to assess how much energy you’ve been using over the past couple of years. This will help you to gauge how much energy you’re actually going to need. You should also probably overestimate slightly to avoid the undesirable consequences of running out of energy before the end of each month.

You could also choose to make your shift to off grid energy a transitional move. Keep the energy provider electrical meter available to use in an emergency, but aim to power your home entirely from off grid energy sources, for example. This is something you can try for a year or two until you are confident that you have your energy needs completely covered.

3. Choose the right kind of energy source

Off grid electrical energy can be powered using a number of natural sources. The three main ones are wind, hydro and solar.

Solar Energy

Solar energy is, without a doubt, the most common of renewable energies available to us today. It can power anything from a single appliance to an entire city just by harnessing the sun’s energy through the use of solar panels. Normally installed on a building’s roof, solar panels provide the power that homes need with very little maintenance involved, which makes them an attractive choice for homeowners wanting to get off the grid.

The difficulty is that solar panels can be expensive to install. So even though the long-term benefits are clear, the initial investment might make it difficult for everyone to access.

Wind Power

If you have a turbine or windmill linked up to your home, you have the resources necessary to capture the power of the wind and convert it into energy. Wind power is a natural energy that can also be stored and used at a later date, making it an excellent choice for homeowners who need more power during particular times of the year.

However, unlike solar panels, turbine maintenance is more time-consuming because they are constructed with many moving parts. What’s more, they only really work effectively in windy climates, which is why it’s important that you take your location into consideration before deciding whether or not to invest in wind power.

Hydroelectricity

Hydroelectricity is the term used for energy generated through water. It taps into the natural cycles of rain, rivers, streams and seas. A common way of harnessing the power in water is through the use of a water turbine, which means that up-keep of all machinery can again be an issue for some people. On a positive note, if you live close to a water source, you can be sure that you will always benefit from a constant energy supply as, unlike wind, water doesn’t come and go.

So, is it time you left the grid?

This Article is a Contribution to Leisure Freak from freelance writer Jackie Edwards.

Now working as a full-time freelance writer, Jackie Edwards is also a busy mum of two small children. In any free time she has (which isn’t much) she likes to volunteer and do charity work and take the family greyhound Bertie for long walks.

What To Do If Retiring With a Mortgage

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It’s hard enough to save for retirement let alone pay off the mortgage too. Most of us end up retiring with a mortgage. I sure did, our parents did, and frankly almost everyone I knew did. At the time of my first early retirement we had been in our home 14 years. The mortgage was paid down 40% from when we bought the home. Here is the strategy I used and considered to help us manage our housing costs in retirement.  

Four Strategies To Consider When Retiring With a Mortgage

#1- Refinance to Lower Your Monthly Payments

Obviously if someone is considering retiring with a mortgage the numbers have got to line up.  Simply running our budget numbers including the monthly mortgage payment through a retirement calculator like FIRECalc can provide some assurance.  I retired early and certainly made sure that I could afford to retire with my mortgage payment.

My strategy was to reduce my monthly mortgage payment to allow for more cushion in my retirement budget. I prefer 30 year mortgage loans with a lower monthly obligation and then making extra payments when I can.

We bought our home in 1995 with an 8% interest rate and a $1185 monthly payment. We did refinance a couple of times to take advantage of lower rates over the years. Each refinance was for the existing mortgage balance and pushing it out again for 30 years with the lower interest rate. This always resulted in a reduced monthly payment.

I used this same strategy the month before I retired to lower the payment again. With our last mortgage refinance our interest rate was 3.75% with a monthly payment of $744. This made retiring with a mortgage much easier on my retirement budget.

By refinancing your mortgage before retiring the refinancing process is smoother. The bank was able to easily perform my employment verification and verify my income. I did not mention my intention to soon retire, nor did they ask.

#2- Downsize to Reduce Housing Costs

Retiring With a MortgageOur plan was that we stay in our existing 2 story empty nest for several years and then later sell and downsize. Retiring with a mortgage doesn’t mean it has to be with us the rest of our lives. The plan was to later buy something with our equity for a mortgage free or almost mortgage free final home. A smaller home should also provide lower utility costs, taxes, insurance, etc., to give even more retirement budget cushion.

For some with a large mortgage payment, completing this move would be highly considered before retiring. In our case we still enjoyed where we lived and could manage the mortgage payment in retirement. That is why this is part of our delayed strategic moves and I am glad we waited.

We have recognized that our views on housing have changed. I believe they will change even more as time goes by with our aging. When I retired the only thing we considered was buying a smaller ranch home. Now we are opening up to RV, Condo, and even just renting. It is important to have a long term view and plan. But recognize that things may change over time. I keep our options open.

#3- Move to a Less Costly State, City, or Town

This strategic step is also part of our delayed retiring with a mortgage housing strategy. We will consider relocating somewhere less expensive if and when the time comes to sell our existing home. The town we live in is beautiful and with lots to do. Because of that it is sought after and has become a higher cost area.

Not knowing the future, we keep this as a strategic consideration. A lot will depend on the cost of living and our budget at the time. We keep an open mind to moving  to a State that has no or lower income tax, a different town, or even a different retiree welcoming country.

#4- Pay Off the Mortgage with Retirement Job Income

I had always planned on retiring early and often.  Meaning I would always remain open to opportunities that I had passion for or was interested in learning and doing in my retirement. My retiring with a mortgage allowed for my retirement funding to cover it in my budget. That means that any income I earn is extra. With this strategy I am able to divert all my retirement job income to the mortgage.

I did put this strategy into action after landing a sweet retirement gig. I paid off the mortgage within 18 months. Even if a retirement job didn’t pay enough to clear the mortgage, all money paid towards the mortgage would be like an investment. Where it enhances the benefits provided in our delayed retirement housing strategy moves of downsizing and/or relocation later on.

Last Words

Now that I am in my 2nd early retirement it is nice to be mortgage free. However, our strategies for downsizing and relocation are still fully in play.

The strategic goal is having a plan that manages our retirement housing by offering us financial flexibility. It’s all about looking for ways to stretch our retirement dollars in the best way possible in a place we WANT to call home.

A Happy Retirement: Making the Biggest Purchase of Your Life

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Is Your Motivation Challenged When It Comes To Saving for Retirement?

I think everyone deep down hopes to one day have a happy retirement. But it seems that people have a problem saving for it. After all, it is a consumer driven society with lots to spend money on. To get started saving and stay motivated it’s time to rethink how we look at our retirement. Think of it as our life’s biggest purchase and just like any other purchase it will be limited by our available cash.

The bummer when buying your retirement is that unlike other big lifetime purchases like our education, home, car, etc., a decent and happy retirement can’t be financed. We simply cannot wait to the last-minute and plop down a 10% to 20% down payment and borrow the rest to get what we need or want. It takes assets.

The other happy retirement equation that needs answered is knowing the retirement basics, features and options we REALLY want to have. Our retirement features and options has costs associated to them just like any other large purchase we make. We have to complete some product (retirement lifestyle) research and save as much as we can to buy the retirement we want. If we don’t it’s simply settling for the retirement we end up with.

A Decent and Happy Retirement is Years in the Making – So is a Bad One

Surprisingly, although 80% of Americans work for employers offering some kind of retirement program, only 32% of these employees are saving for retirement. 

What are they waiting for?

A Happy Retirement: Making the Biggest Purchase of Your Life
Nope! Retirement money won’t come from heaven

OK I get it. Life happens, wages are stagnant, there are student loans, too many cool things to buy and do, etc. There are just too many reasons to ignore saving for retirement and put it off for later. Retirement is too far into the future to think about now. WRONG!

When it comes to saving for retirement, procrastination is our worst enemy. Saving something, even if it starts out as a small amount will be better than not saving anything. Especially when done earlier instead of later when time is on our side. It is a personal win-win with no downside. On the other hand not saving anything guarantees a worse retirement outcome.

Saving For Retirement is Putting Aside Money For YOUR Life’s Biggest Purchase.

You Do Want to Buy Something Nicer?

Nobody intentionally goes out to buy a bad education, house, car, or you name it. Who in their right mind would roll up to the grocery store cashier with only $25 to their name and $200 of needed groceries in the shopping cart. But when our money is short we do end up settling for what we can afford.

We have all had to settle a time or two for something either less than wanted, less than needed, or on the crappy side of things. Try doing that every day for the rest of your life.

There should be Social Security to help us with our retirement purchase. But it was never meant to be our retirement’s only source of funding. It would be very challenging to have a nice happy retirement purchased by Social Security alone. So ask yourself. Do you want to buy a crappy retirement? Are you OK with settling for a low quality of life over what might be decades?

Retirement is YOUR life that inevitably awaits you. Ignore or delay planning and saving for retirement all you want. It only hurts and limits you when it becomes your time to buy it. We can put retirement off for only so long.

We must rethink of it as our life’s biggest purchase and prioritize it as such. At some point everyone alive will have to buy a retirement. Either on their terms or not.

The Goal Should Be a Happy Retirement

Buying A Retirement You Will Want

Setting Your Retirement Base

Don’t let the numbers get in your way. We all hear the financial industry claims that we need to have enough to provide 80% (give or take) of our final income for retirement. Taking that number to get a retirement savings estimate would intimidate and demotivate any positive action for most folks. The big objective is to start saving something. You don’t have to set a savings goal to start. But eventually it is necessary to understand where you are and how you are doing.

Here’s what I did.

When buying something big there is always the base price. Then the cost rises when features or options are added. The same goes with our retirement.

The happy retirement base price is having our basic lifestyle costs covered. That being food, shelter, utilities, insurance, taxes, etc. The way I look at it is that not being able to cover these basics lifestyle needs is certainly a bad and unhappy retirement.

That base price can vary depending on where we live and other basic retirement lifestyle choices. Just like a big automotive purchase. Choosing a base Ford or Chevy will have a base cost or price before adding any features or options to it. We have to make sound retirement choices.

Setting Base Happy Retirement Goals

Figure out what your monthly budget will be to cover your basic needs. Use your current monthly basic costs. Then look at it for areas you will probably see reductions or increases and make adjustments. For example:

  • Staying put or moving somewhere cheaper.
  • Health Insurance. This is hard to figure given today’s political climate but assume it will be higher until Medicare kicks in.
  • Taxes. Probably lower than paying while working.
  • Transportation costs. No more commute may reduce the amount you will pay for fuel, maintenance, and insurance. More vacation road trips may cause this amount to break even or add to it.
  • What we are retiring to. Must-have activities of passion and interests that have costs associated to them. For example, hobbies and travel.

Set a realistic base model retirement estimate. Then do the math. Hopefully it is much less than the 80% of current salary. This will help set your base retirement purchase price and be used to set your base happy retirement savings goals.

Keep in mind that at some point social security will also be there to help pay those happy retirement basics. Get your Social Security estimate and plug that into your equation to reduce savings needs. Also subtract out any expected pension coming your way. ( I had to mention it even though unlikely today)

Based on the 4% retirement withdrawal model  you can simply take the yearly amount you estimate your savings will have to cover and multiply it by 25 to reach a retirement savings goal to shoot for. Remember that even if you don’t make your goal you are far better off than if you did nothing. Beat it and you have options. The future price of our happy retirement that we save for may vary as time goes on just like anything else. Make necessary adjustments.

Happy Retirement Features and Options

I love features and options but some are worth a lot more than others to me. I separated these out from my retirement savings calculations because I really don’t have to have costly add ons. Especially those that don’t really add anything to my happiness value. I would enjoy having some but I don’t need them to meet my basic happy retirement requirements. They are my wish list items that I used to set my highly optioned happy retirement savings goals. For example:

  • Travel. World travel wasn’t part of my base retirement but would be a nice-to-have if finances allowed.
  • Hobbies. For instance I have an active automotive hobby and would love to increase my participation which would mean more travel costs than my base happy retirement allows for.  
  • Sports. I always wanted to learn how to play golf but it does have costs to play.

Everyone’s valued options and features list is different. Just do a self assessment of things you enjoy doing now and wish to do in retirement. Figure out what the cost is. Then add it to your base retirement to calculate your highly optioned happy retirement estimate.

Consider Living Your Retirement Lifestyle Now

We decided to live our retirement lifestyle years before we retired early. We didn’t waste money on anything that didn’t meet our happiness values. This allowed us to reduce our monthly costs, pay off all debt, left more money to save, and gave us time to create a sustainable and enjoyable lifestyle.

In my case, our base retirement purchase number was more like 30% of our last salary. A lower base retirement lifestyle cost means needing less assets to pay for it.

When it Comes Time To Purchase Your Retirement

When the time comes to buy your retirement you will definitely get what you can pay for. Some get to choose when retirement is. For others it comes when they least expect it, ready or not. Hopefully there is enough assets to buy a happy retirement that covers all the required basics.

Having a successful retirement savings outcome increases the possibility of buying a retirement with valued features and options. As long as the base retirement is covered then being able to add from the wish list becomes an option. Limited only by what you can afford. Just like any other big purchase.

If a little short then anything saved will allow you to possibly fill the gap through cutting lifestyle costs or landing a part-time gig. That beats being far short with no money and few alternatives.

In Closing

It’s a consumerist world and culture that we live in. Buy this, buy that. This article is all about ending the procrastination and seriously getting started with saving for your life’s biggest purchase – YOUR retirement.

  • Motivate yourself by looking at retirement as something you want to buy for yourself, not just settle for.
  • Figure out how much you can dedicate to retirement saving.
  • Increase your retirement savings rate over time as conditions allow.

Never stop saving for the biggest purchase of your life. Saving anything is better than nothing. When the consumerist world calls your name and tempts you to stray from your retirement savings, remember that nobody else is going to buy you a happy retirement. Having a happy retirement is all on us to figure out and pay for ourselves.

What You Need to Know About Your Finances before You Hit 60

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Know About Your Finances by age 60

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Retirement. What was once little more than a word, a concept that didn’t really matter much to us when we were young is now of vital importance. As we get older and as retirement age gets closer and closer, we begin to realize that every financial decision we have made in the past has brought us to this point in time.

For some of us, this will be a gratifying feeling because we know we’ve made most of the right decisions along the way, and for others, it will be terrifying because we haven’t taken this whole retirement business quite as seriously is we should have done. No matter which camp you fall into, if you’re under 60, you still have time to make some real changes that will make a difference to your quality of life during retirement.

Here are some important things you need to know right now if you want to make your retirement the best it can be:

How Much Longer You’re Expected to Work

If you want to know how much cash you’ll have to play with and what you’ll need to do between now and retirement to make things better for yourself and your family, you need to know when you’re expected to retire. On average, current Americans retirees quit work at the age of 65, but new retirees have been getting older and older in the past few years, with approximately 37 percent of all workers saying that they are likely to work past 65.

For many, working longer is a good option as it enables them to build up more savings for retirement, but if you work in a` very physically demanding job, or have health issues, it might just not be possible. Whatever your circumstances, you have to honestly appraise your ability to work and then take a close look at your finances to see what can be done.

When the Best Time to Trigger Social Security Is

Another thing that you need to know as you approach the age of 60 is when you should start claiming social security benefits. So many Americans trigger this benefit at the wrong time and end up with too little money to support them at the end of their lives. The best time to trigger Social Security is as far from now as possible. You see, the longer you delay claiming them between the ages of 62 and 70, the amount you’re due rises between 6 and 8 percent, which means you’ll be entitled to quite a bit more if you can hold out. I know this won’t be possible for everyone, and any future changes to the benefit might make things different, but right now, working longer or living off savings and private pensions until you hit 70 is the smart choice for most.

How Much of Your Income is Guaranteed

For many retirees, their Social Security will be the only guaranteed source of income they’ll get, but if you have any traditional company pensions, there is a good chance that you will be entitled to other sources of guaranteed lifetime income. You can find out if this is the case by talking to Human Resources and asking them to provide you with a statement for the benefits and pensions you’re due.

Once you know what you’re likely to be entitled to, you can start looking at your expenses to see if you’ll have enough to live on or if you’ll need to start saving more. You might also consider buying an annuity, which will give you a fixed income throughout your retirement. This is an increasingly popular option, which has helped countless retirees to better manage their money after leaving work.

What Your Safe Withdrawal Rate Is

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If you’re not lucky enough to have a guaranteed lifetime income, and you’re going to have to make the cash in your 401(k) last as long as possible throughout your retirement, now is the perfect time to sit down and work out how much money you can safely withdraw each year, so that you don’t completely drain your account. This isn’t always easy because you don’t exactly know how long you’ll live, but if you work on the basis that you’ll live another 30 years after retirement, that should give you a good place to start.

A common way of managing the 401(k) used by many retirees is to withdraw no more than 4 percent of the balance each year. This is the best way to increase your odds of not running out of cash in that 30-year period after retirement, but it’s not a guarantee, and many financial experts are now recommending that this figure is dropped to 3 percent annually.

When to Concentrate on Paying Off Debts

When you’re planning for expenses in advance, not only do you need to know how much money you’ll have coming in, but you also need to know how much debt you’re likely to have. More and more people are retiring while still in debt, and this really isn’t ideal because it drains so much of their precious retirement income needlessly.

If you don’t want to be like them, you need to work out when is the right time to work on paying off your debts. If you’re fast approaching 60, that time is probably now. Start by paying off your most important and expensive debts, like mortgages, overpaying if you can, and then work your way down to smaller debts, which won’t change or mess with your future security quite so much.

Whether You Can Afford to Stop Paying Life Insurance

Most young people with their own families take on term life insurance policies because they are more affordable and because they will normally expire when they are no longer needed. If you are approaching 60, it’s the perfect time to take a look at your life insurance policy and determine whether you need to extend it, switch it with another policy or let it lapse completely.

A lot of people don’t want to let their life insurance lapse because they’ve been paying for it for so many years, but the thing is, a life insurance policy isn’t like a savings account, and that money hasn’t been building up – you’ve just been paying for the right to get a large payout for your family should you pass away before your time. If your children are now living their own self-sufficient lives, your mortgage is paid off, and you don’t need to worry about money in your retirement, there is a good chance that you can let that life insurance policy go and save the monthly cost for your retirement. Just be sure to talk it through with your family first.

Your Possible Future Medical Bills

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In recent years, a lot of retirees have gotten into serious financial difficulties because they have not properly considered any future medical expenses they could be expected to pay. Retiree health benefits are just not as common as they once were and because we all seem to be living longer, medical problems are pretty much a given for most retirees, which means that it’s probably sensible to look at purchasing a good medical insurance policy to see you through your twilight years, and that means you need to account for the premiums in your retirement financial planning.

Are you approaching 60? Have you been thinking more about your retirement? What plans have you put into place?