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How much do I need in retirement?

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Conventional advice tells you that, for retirement, you need $1 million to $1.5 million saved, or that you need 10 to 12 times your current annual salary.

For example, if you make $100,000 per year, you’ll need $1 million to $1.2 million saved for retirement.

Are these numbers and calculations good enough? Is there a better, more accurate way to figure out what you’ll need to save for retirement?

In this post, we’ll look into that and more.

Check out retirement calculators

There’s a huge number of them out there. I recommend trying a few different ones, that way you can compare and average out the numbers. They’ll ask you things like age, current savings, current income, future contributions, etc.

Here are a few of the better ones.

Using some or all of these calculators, you can probably get a good idea of where you’re at currently, how to improve, and where you’ll need to be at the end.

What are the factors?

There are a variety of different factors at play. You’ll have different expenses and different income levels, and some of those numbers won’t stay steady throughout retirement.

For example, a couple’s health care costs in retirement are said to be $275,000 (Source). However, not all of that will hit you in the first few years of retirement.

More than likely, you’ll have minimal costs in the beginning, and they’ll slowly increase as you age.

Where will you live?

This can be a huge variable in retirement. Its widely known that different areas of the country have a higher cost of living. San Francisco is more expensive than Lincoln, Nebraska.

Another important factor regarding your living situation is if you have a mortgage or not. No mortgage means fewer expenses, which is less going out of your pocket, and more that can be saved for the future.

Not having a mortgage can also give you some leverage. If you decide that your current home is too big and would like to downsize, you can use the proceeds from the sale of your previous home to, hopefully, buy your new one outright.

Living Expenses

We’ve talked briefly about health care expenses during retirement and we talked about housing. Without a doubt, these are the two largest expenses during retirement. There are a few more to consider, however.

  • Transportation – did you relocate? Or do you have family in other parts of the country? Transportation and lodging need to be taken into account when figuring out your expenses for retirement, especially if you’ll be traveling regularly.
  • Entertainment – you might be looking for something to fill your time. It could be filled with expensive hobbies or other activities. If you are looking for something to do, or are looking to start a hobby, be sure your budget will allow for it.
  • Remaining expenses – the leftover expenses are ones you deal with right now (food, clothes, utilities, bills, insurance, etc.)

A budget is just as important in retirement as it is now, if not more so. Keeping track of your expenses and your income is very essential to your finances during retirement.

You often hear people in retirement say they are on a fixed income. What that means is they have lost their ability to earn more money. What they have is it. If you are spending more than your savings and your income allows, you are setting yourself up for failure.

Income

Your income from retirement could come from a variety of places.

  • Social security – provided by the government. The normal advice regarding social security is that it shouldn’t replace more than 40% of your income. Meaning 60% should come from another place. Your monthly payout from Social Security does increase the longer you delay taking it, and the reverse is true if you take it early.
  • Pension – these are becoming less and less popular as time goes on. They were huge back in the day when workers would stay with one company until they retired, but because people switch jobs so often nowadays, employers don’t want to take the chance. If you have one, consider yourself lucky.
  • Retirement savings – more than likely, this is where the other significant portion of your income will come from. This is where having a financial advisor is beneficial because you have to use enough of your savings to afford your retirement, but not too much so you don’t run out of money. Tricky.
  • Other areas – there can be other sources of income during retirement. You could have some dividend or interest income from your investments, you could work part-time to stay active and earn a little extra, or you could possibly have a rental property or several.

If you want to learn more about where your income could come from in retirement, click here.

Wherever your income comes from, it’s important to coordinate effectively so you maximize your current income without jeopardizing your savings.

What will you do in retirement?

How you spend your time will also have a huge effect on your expenses.

If you plan on spending most of your time with your grandkids, retirement could be more affordable than if you planning on golfing a few times per week. Although it could quite possibly be much more expensive than golf, we all know how grandparents are with their grandchildren.

If money is tight and you are looking for things to fill your day, there are many free or low-cost activities available to you.

  • Volunteer – not only is this a free activity. You’ll feel useful, you’ll get to use your brain, and you’ll have a sense of community, all are shown to increase longevity.
  • Go to the park – take a walk, bring a book, or just interact with nature and the community.
  • Community center – not all municipalities have one, but go to your local community center or go to your municipality’s website. There you will find local events, most of which are free.
  • Discounts – most places offer senior discounts. If you aren’t offered one, make sure you ask for it. This really could save you a lot of money on activities, food, etc.

How long will you live

The most depressing point in this post, but one of the most important. Unfortunately (or fortunately, depending on how you look at it), no one knows how long we are going to live for.

One way to get a little indication, but not really, is your family history. If your grandparents or parents lived into their 80s, 90s, or 100s, the chances of you living a long life are a little higher.

On the flip side, if most of your relatives passed away in their 60s or 70s, your odds of living into your 80s and 90s are lower.

However, this really is no indication on how long you’ll live for. One of the most important things you can do for yourself is to live a healthy lifestyle. Take a walk once or twice per day, do something daily that will engage your mind, interact with friends and people in your community, and eat better.

The 4% Rule

You’ve probably heard this before too. Here’s what it is. Once you retire, you withdraw 4% of your retirement savings every year. This is considered a safe withdrawal rate, as the withdrawals would consist mostly of interest, dividends, and unrealized gains from your investments.

Let’s say you have $1 million saved for retirement. The 4% rule would allow you to withdraw $40,000 per year. All else staying the same, you have 25 years worth of withdrawals using this method. Be advised that no growth was factored into this calculation.

Conclusion

I suppose you’d like an answer to the question we proposed in the beginning. Here it is. It depends. It depends on your current and future expenses, it depends on where you’re income will come from, it depends on how much income you expect (outside of retirement savings), and it depends on how you live your life during retirement.

Most importantly, you need to work with a financial professional, ideally someone that specializes in retirement planning.

To learn more about retirement planning and for our disclosures, visit www.crgfinancialservices.com.

How does Investment Strategy Change with Age?

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As we all know, as we age and our lives change. Our financial responsibilities and investment strategies change along with it.

In most cases, there are two truths to abide by. You have saved as much as you can and invest according to your risk tolerance, time horizon, and goals.

But what else is there? How do my financial life and my investment strategy change with time?

Starting career

Either you are just out of school or have been in the workforce for a few years. Regardless of which path you came from, there are two things on your list. Get rid of debt, or at least get it under control, and save for retirement.

There are several ways to plan for debt repayment.

  • Debt Snowball
  • Debt Avalanche
  • Balance transfers (credit cards)
  • Personal Loan (loan consolidation)
  • Refinance (student loans)

Check out this post on paying off your debt, here.

Step two is saving for retirement. If the company you work for offers a retirement plan, sign up for it. Max out your contributions if you can, but at the very least, contribute enough to get the employer match (if it’s offered).

Also, open a Roth IRA. If you have a little extra, contribute some to a Roth IRA in addition to your workplace plan.

Your investments. Time is your best friend at this point. Most of your investment allocation should be focused towards growth. Don’t put all of your eggs in one basket, diversify among stocks and bonds.

Again, the majority (at least 70%) of your portfolio should be in stocks, in some form or another.

Starting family

If you’re like the average American, your family starts to form around your 30th birthday. Hopefully, you’ve got a good head start on paying down your debt and saving for your retirement. Continue on that path.

With a family, comes saving for your kid’s college education, as well as other expenses (house, car, etc.). Contribute a little every month to a 529 College Savings Plan. The funds within this account can be invested aggressively, similar to your allocation in your twenties.

Your retirement savings is still in a good spot. Similar to your twenties, regarding the stock and bond allocation.

One last thing, get some disability and life insurance. If you have people that count on you, you need to protect them.

High earning years

More than likely, this will be your forties and fifties. At this point in your life, the average American is in their peak earning years, so take advantage of that and increase your retirement savings.

This will also be the time that your kids either go off to college or enter the workforce. Congratulations (kind of) you are empty nesters. You no longer have a college education to save for. More can go towards your retirement.

More than likely, though, you will have miscellaneous expenses from your kids that you will continue to pay for.

Your investment strategy will change slightly. You are getting closer to retirement so it’s time to start protecting what you’ve saved. A little less in stocks and a little more in bonds. Think 60/40 or 50/50.

Near retirement

You are in the home stretch! At this point, your debts (including your house, hopefully) should be paid off. All assets and your retirement savings should be looking healthy.

Your investment allocation will be similar to the last section. Definitely 50/50 if not 40/60, stocks to bonds.

Retirement

Congratulations, you’ve made it to your retirement. This can be liberating for some, but for others, this is an emotional challenge.

You’ve spent the last 40 or so years saving for retirement and now you are expected to start spending it. This is very tough for a lot of people.

From my experience and in my opinion, you should retain some sort of activity. Something that gets you out of the house, something that forces you to socialize, and something that makes you use your brain.

Staying social and sharp mentally could add some extra time to your life.

Your investments should be conservative. At least 40/60, but the more conservative the better. And it’s usually not a bad idea to keep some of your savings in cash, for emergencies such as health expenses (which will certainly go up at this point).

You don’t have many or any, more chances to earn more money, so it’s very important that you protect what you’ve saved.

Conclusion

The above information can be very useful to the average person. Paying off your debt and making your retirement savings a priority is very important.

Unfortunately, there is a retirement savings crisis in America. People aren’t saving nearly enough for retirement. They are counting on other sources, like Social Security or pensions to fund their retirement.

This isn’t enough. You won’t receive enough from Social Security to support yourself and pensions are few and far between, nowadays. We all need to do a better job of saving.

This article was created for informational purposes only. The above items are not to be taken for personal financial advice. Please consult with a professional about your personal situation.

To learn more about retirement savings and investing, and for our disclosures, visit our website: www.crgfinancialservices.com.

 

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Will My 401(k) Last for the Rest Of My Life?

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If you’re starting to think about retirement, and your career has largely been in the private sector, your 401(k) balance could be the most important factor in determining whether you’re on track to retire or not.

Whether your 401(k) will cover your spending needs until the end of your life will depend on a lot of factors. It’s important to not just pin your hopes on a certain target for an account balance–a million dollars, two million dollars, whatever–and instead look at the whole picture. So let’s start with a few other questions that are just as important.

Are You Saving as Much as You Can in Your 401(k)?

There’s almost no way around it: You have to save money to make money. There is often a bit of a free lunch–call it a free appetizer–when it comes to 401(k)s, though: The amount your employer matches your own contributions. It could be a dollar-for-dollar match up to point, or some percentage of what you contribute yourself that increases over time. Either way, you definitely want to contribute at least this amount, or you’re leaving that free appetizer on the plate.

But that should really only be the beginning of any 401(k) savings plan. Fidelity advises saving 15% of pretax income.  If you’re 30 or 40 years old and haven’t given the issue much thought until now, that number should serve as the minimum you should save.

Get into the habit of increasing your contribution percentage each year. Psychologically speaking, if you never see it hit your paycheck (because it’s going straight to your retirement account), you won’t miss it. Set an annual calendar reminder to increase that contribution, even by a half a percentage point. Between the contribution increases and salary increases, you should be able to put your contributions on a sharp upward trajectory.

What Else have You Got?

Once you have your plan for annually boosting 401(k) savings in place, consider what other sources of income you are counting on at retirement. Social Security is an obvious one. If you’re lucky you might have a pension of some sort. Brokerage accounts, rental property, or the planned sale of some asset like a business should all be taken into account as well–and will almost certainly affect how long you can expect your 401(k) will last.

Will you run out of 401(k) money in retirement?

Another reason not to simply come up with an arbitrary hit-your-number mark: Spending matters. At the risk of stating the obvious, your 401(k) and other investment assets will generally last longer if you plan to sip rather than gulp.

You’ll want to have a very solid grip on your plan’s MPG–that is, your projected spending in retirement–to get an accurate reading.

Will your 401(k) plan last long enough?

What Is It Costing You?

Even if you are diligent about saving to your 401(k), you probably haven’t considered what the plans might be costing you.

And why would you? The plan administrator’s fees–in addition to the fees paid to the fund companies themselves–are largely out of your control.

But it’s important–especially the further you are from retirement. Fees can really chip away at account balances over time. Consider a 401(k) returning about 7% annually. Here’s what happens if we modify the fees by half a percentage point and assume contributions of $18,000 per year.

Will Your 401(k) Plan Last Long Enough

Your main recourse here is to talk to your HR department and start asking questions. What are the fees of running the plan? How do they compare with fees offered by other plan administrators for companies of your size? Making sure the HR team has done their due diligence on this could mean tens of thousands of dollars to you.

You can also look at the fees charged by the funds themselves. Funds have expense ratios; actively managed funds generally have higher expense ratios than passively managed funds. To keep things really simple, consider a target-date retirement fund, which shifts its asset classes toward less risk the closer you get to retirement. (And if your plan does not offer a target date retirement fund, it should.)

Your 401(k) Is One Piece of a Larger Puzzle

A large 401(k) balance could have a big effect on when you can retire and your living standard when you do. But looking at it in the context of everything else we’ve talked about here is more important than an absolute dollar figure. Total savings, where you plan to invest your assets, the cost of those investments, and your spending habits are all complementary forces that will factor into a successful retirement plan.

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Saving To Boost Your 401k

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Saving for retirement is one of the most important things you can do when you are working and it is vital that you start early. You need to make a budget and learn how to eliminate the things that you don’t need and focus on saving as much money as possible. And when you cut unnecessary expenses out of your budget, you can pour that money right into your 401k. For options on retirement savings, check out 401k.com as they have a plethora of options to meet any retirement savers needs.

When you first enter the working world, you may not be able to handle your first few paychecks. Having all that money at once can cause you to think that you have way more capital than you actually have. Being a conservative in the fiscal sense is a very valuable outlook to have in life. Always consider what it might be like to have a rainy day and you will be able to sock away enough money to survive a stormy season in your life. And funding that 401k along the way will make sure that your retirement will be smooth sailing.

One of the best ways to start saving money is to learn how to cook. And not just learn all of Julia Child’s recipes or plow your way through Martha Stewart’s cookbooks. You want to be able to squeeze every last dollar out of the food that you buy. Learn how to avoid food waste. Always be on the lookout for inexpensive proteins. Be able to be satisfied with rice and beans for dinner when your friends are going out for steak.

Taking expensive restaurants out of your budget is a great way to put extra money into your 401k. The more you spend on tacos and tapas, the less you have in your retirement account to grow for your golden years. While all your friends are out drinking and sampling the nightlife around your city, learn how to score great deals at the grocery store and how to stretch a dollar at the butcher counter.

Meat can be expensive, so learning how to treat it right and get as many meals as you can out of it is important. Take the roast chicken for example. It can provide you with many great meals, if you spend $8-$10 on it at the hot foods counter at the grocery store, but if you learn how to cook your own and how to break it down, you can save money and have a sense of accomplishment. You can have the chicken for dinner one night, leftover chicken tacos the next night and chicken salad for lunch at work. Don’t forget to save those bones. When you learn how easy it is to make stock, you will never buy it again. Homemade chicken soup is always good for what ails you.

Buy your rice in bulk and your beans dried. Learn how to make rice and beans for dinner and you have the base for tasty meals for a whole week and you can keep your grocery budget super low. The best part of leftover rice? Fried rice. It is simple to throw together leftover rice, frozen veggies, eggs, oil, soy sauce and salt and pepper for a dish that will rival any takeout joint on your block. And? No MSG.

Saving money for your 401k doesn’t have to be boring. You can be a real smart shopper and a savvy cook with your ingredients. And you will cook yourself up a really nice nest egg to sustain you as hit your golden years.

Planning and Investing for Retirement

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Getting an early start with your retirement planning is important because it generally takes quite a few years to gather the funds that will be necessary for you to have a comfortable living when you get to retirement age. If you start investing early in your career, your investments have the time they need to grow throughout the decades while you work so that your retirement years can be comfortable.

Today’s life expectancy has grown with the advance of science and medicine. This means that there will be more years in between retiring and death. Because of this, you will need even more money so that it will last you that much longer.

You can’t expect to retire on Social Security alone either. Today’s average benefits for Social Security are just about $1,180 per month, which just isn’t enough to live on. Also, the age for collecting complete Social Security benefits is going up. If you were born after 1942, you won’t be eligible for full benefits until you are 66 or older.

This is just one of the reasons you need to start investing for your retirement now. You also need to think about medical issues that you might have to deal with in your dotage. Why don’t we take a look at some of the investment options that are available and a tip or two for saving and investing money?

Bitcoin and Ethereum

Bitcoin and Ethereum are two types of cryptocurrency. Cryptocurrencies are a relatively new type of virtual money that is digital. It isn’t controlled by any sort of central financial institution, but every transaction is recorded digitally in what is known as the blockchain. Cryptocurrencies have value because there is only a finite number that will be produced. Also, more and more businesses are using and accepting them. You might have even noticed that when HBO was hacked earlier this year, the hackers demanded a ransom in Bitcoin.

If you are interested in investing in a cryptocurrency such as these, you can buy them outright if you want to go the easy route. Then, you can hang on to what you get and sell it for a profit at a later date. Alternatively, you can invest some time and money into mining for it by using a company like Genesis Mining.

Junk Bonds

Most of the time, when people think about bonds, they think of those low return for low risk type of investments. That being said, this theory is based on an assumption that whoever is actually issuing the bond has a credit rating that is outstanding. Companies with great credit ratings don’t have to pay interest rates that are high in order to attract their investors. Junk bonds however, are actually bonds that are issued by companies that have credit ratings that are very low. This means that they have to offer higher rates of interest, but it also means that they can default on the bond altogether. This is a risky investment strategy, but it does offer a higher return on your investment if it pays out.

Saving for Investing

If you want a helpful money saving tip or 3, you have come to the right place. One tip that everyone should know is to not spend more than you make.

Another thing you can do to save a bit of money is to change your bank so that you can take advantage of different perks and possibly earn more interest. You might be paying a monthly fee right now for your savings and checking accounts. If so, you might want to check on some of the offers other banks have. Some banks will even offer bonuses to people who open new accounts and set up their direct deposit. Others offer interest rates that make switching worth it.

One last tip is the 30-day rule. If you see something that you want to buy – be it big or small, and it isn’t an absolute necessity, wait for 30 days before you buy it. Often, once that period of time has passed, you will no longer have the urge to buy whatever it is and you will have saved all of the money that you would have spent on it.

By saving and investing, you will have the best chance possible to retire comfortably.

Manage Your Finances in Retirement

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When we retire, our finances change. Income that we do receive comes in on a different schedule than perhaps if we worked a traditional job. Some of us may choose to work a part of the time, either out of necessity or for the joy of going somewhere on a regular basis. Whatever the situation, it’s important that we handle our finances carefully!

Track Your Income

It’s very important to sit down and map out on a calendar the dates when you receive your retirement income. Social security benefits often come once a month on a day that is pre-set by the government for you. Some retirement accounts function in a comparable way. We have heard rumors that a few investors will send out payments on a quarterly basis! You should also keep a running tab on your savings and allot yourself so much per month to use on bills. This way you are still earning interest and not overspending money that must last you your retirement. Aside from a calendar, tracking your income on a spreadsheet will be helpful for you when it comes to making sure you aren’t overspending.

Tally Your Fixed Expenses

Fixed expenses are those things that don’t change from month to month. This can be either a fixed dollar amount you have allowed yourself or it’s a bill that simply doesn’t fluctuate. Those bills include:

·  Mortgage or rent

·  Car payment

·  Insurances

·  Phone bill

·  Cable/Internet bill

·  Gym memberships

·  Magazine subscriptions

·  Health insurance

·  Property taxes

·  Auto registration

It’s a good idea to also put on the calendar when the bill for your fixed expenses are due. Then put it on your spreadsheet for tallying against income.

Average Out the Rest of Your Expenses

There are still other expenses that you have that are not fixed. Unless you have allotted yourself a specific amount to spend, and don’t exceed that budget, you will include them here. Those examples are:

·  Groceries

·  Clothing

·  Toiletries and beauty supplies

·  Auto repairs

·  Household repairs

·  Gift giving

·  Vacations/Travel

·  Auto Fuel

·  Credit Cards

·  Hobbies

Some of these you may think you can make a fixed expense, like auto fuel or groceries. However, the reason they are on this list is that the price can change significantly, quite often, and without notice. This can upset your entire budget on a weekly basis. This is where you allot a flat amount and then watch as prices change and adjust accordingly.

Adjust the Budget

Once you have all your expenses and income down, you may panic a little. Don’t worry! Everyone has to make adjustments to their budgets after the initial recording. The fortunate thing is that it’s a great time to really think about the big picture and make your budget work for you.

Adjusting your budget is going to base on how much you are overspending. If it’s $100 or less per month, you can adjust things like your vacations/travel and gift giving. If it’s more than $100, it is time to make bigger changes. Look at the bigger things first. Do you need the cable? Internet yes, but there are plenty of television viewing options that can free you from your cable bill. Look at things like a Roku or Chromecast and see if a subscription service will save you money. You can easily save $100 on your cable bill by dropping everything but the internet.

What about your house? If it’s paid for, good for you! If you are still paying a mortgage, would you save by renting a smaller place and selling the home? Do you have family that could move in and help pay the mortgage? The same goes for your car. If you are paying on a car loan, can you downgrade to something less expensive? Making those kinds of big adjustments can help you save tons!

Budgeting for retirement is a big deal. If you overspend, you could find yourself in a huge predicament. Worse than if you were working. Take care of your expenses and you will be just fine!

Five 401K Alternatives You Need to Know About

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A 401K is a savings plan for retirement that is sponsored by your employer. Employees can save a piece of their paycheck before taxes are taken out, and put it toward their retirement.

Talking about far-off retirement plans can be overwhelming and boring. After all, it’s way easier to think about the here-and-now. We budget, save for vacation and pay the bills. That seems like enough… right?

On the contrary, planning for retirement is incredibly vital and cannot be forgotten or overlooked.

The 401K may be a good fit for your lifestyle, but there can also be cons. Your employer may not be matching the money that you contribute, and also could require tenure before allowing you to withdraw. If you aren’t sure about the 401K, there are many different options out there to consider.

Here are some alternatives to the typical 401K that may compliment your lifestyle and finances better.

  1. Index Funds- These are funds invested on an index of stocks. (You may have heard of S&P 500 or the Dow.) By investing in an index fund, you basically are investing in all the companies that make up that particular index (instead of investing in certain stocks). You are at the same risk as those who buy stock individually, but since the market typically increases over time, index funds could be used as an investing option for retirement.
  1. Roth IRAs and Traditional IRAs- IRA stands for Individual Retirement Account. Roth and Traditional IRAs differ from the 401K by bypassing the employer altogether. You save completely on your own for retirement. The biggest difference between the Roth and Traditional lies with when you pay your income taxes. Check out the two and see if one of these may be a better retirement plan for you.
  1. Simplified Employee Pension IRAs- SEP IRAs are a great option for any of you independent contractors, free-lance workers, or business owners out there. It is very similar to the Traditional IRA and could be very beneficial with your taxes. It doesn’t matter how small your business is, so definitely check it out!
  1. Variable Annuities- These are contracts between you, the investor, and an insurance company. The investor purchases a variable annuity upfront or over a period of time, and the insurance company makes periodic payments to you after retirement. However, there can be high fees and tax penalties, so do your research and insure that the contract is safe and beneficial for you.
  1. Bonds- Bonds may be great to dabble in addition to the 401K or any of the other retirement options listed above. Bonds essentially are saving accounts that pay interest rates. You set these rates at the time of purchase, and it’s an incredibly safe and stable investment. Because of its safety, they typically return less money than other higher risk investments. However, your money will be safe and making interest for retirement.

Do some research on what your employer offers and which option may be the best fit for you. Regardless of what you choose to use, saving for retirement should be a priority in your life.

The Failure of Retirement Plans in the USA

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face-774839_640It is difficult to believe but some surveys recently have suggested that the average couple has just $5,000 in a retirement savings account. The Economic Policy Institute has analyzed Federal Reserve data and has stated that the top 10% have at least $275,000 which in itself is not fantastic bearing in mind that life expectancy is increasing and many people can expect to live well beyond 80.

There was a dramatic change in retirement saving in the 1980s. Previously companies guaranteed pensions to their employees. The introduction of the 401(k) changed the emphasis. Workers were given control of their retirement rather than having to rely on their employers’ generosity or the Social Security System. Instead companies made contributions up to a certain level into their employees’ individual plans but has no responsibility for their success or failure. Hindsight is a wonderful thing but it has been little short of a disaster with the vast majority well short of what they will need to fund a comfortable retirement.

The figures are so poor because it appears that nearly have of couples of working age have no savings at all and almost 40% of those within 10 years of retirement are in the same position. The problem is compounded by the fact that the Social Security System is fragile at best. Without a significant injection of funds existing benefits will fall by as much as 25% early in the 2030s. That significant injection can only come from taxation and that is a very unpopular topic, especially among Republicans.

Even now the average benefit is little over $1,000 a month which can hardly provide any real source of comfort.

401(k) Policy Hasn’t Worked

The theory that the introduction of the 401(k) would ensure that everyone would have the retirements they wanted has been thoroughly misguided. Their reliance on Social Security has risen dramatically rather than fallen. Those in the low tax bracket have little financial benefit in saving and this is the band of people who are in the greatest need. Tax breaks are therefore fairly irrelevant for the majority. Tax breaks are great for higher earners but they are not in as great need. All those with that $275,000 mentioned above come in the middle to top wage bracket. They would have probably saved anyway without the need for a tax incentive policy.

The Impact of the Recession

The question is whether the plans are wrong or whether people have simply found themselves unable to make proper provisions for themselves? The recession certainly caused widespread misery especially for those tempted to take on too much credit. The real estate market had been buoyant and everyone had expected to make money from investing before the Collateralized Debt Obligation crisis hit their plans. Plenty of people took out multiple credit cards and spent money they simply did not have. Their logic, if they had any, was that there were other cards offering 0% balance transfers where they could move their debt to avoid paying interest. Those deals were temporary and the escape routes soon closed.

“The mistakes made in pension strategy decades ago have been compounded by people’s reluctance or inability to save anyway. Everyone needs to look at their finances and take whatever action needed to improve their future.”

Defaults, unemployment and utter misery followed. Many were unable to meet their liabilities and although debt has been written off and the economy has recovered it seems that personal finances in the Country have barely improved. The figures of what retirement savings the average working family have are proof enough. If you add the average credit card debt in the USA exceeding $5.000, dividing the debt by the number of cards in circulation, the picture gets worse. When you take away the number of cards whose owners pay in full at the end of each statement period, the debt goes up to over $15,000.

It is what it is. Every family will know how they stand or at least they should. There is no point in ignoring financial problems because they will not disappear as if by magic. Everyone should take time to write down their income and regular expenditure as well as their debts and assets. If the figures are to be believed there is only a small minority that can feel satisfied with what they see.

Courses of Action

The rest will need to take one or more of the following courses of action:

  • Credit Card Debt. If you have significant debt and you cannot afford to pay off your balances you will be paying a high rate of interest as well as having core debt. You should look at taking out a consolidation loan to pay those balances off in full. The rate of interest you will be paying on the nation 21 cash loans are much lower than credit card companies charge.
  • A budget. You must start to discipline yourself when it comes to spending. There is no point in paying off those balances simply to build them up again.
  • Look at whether you can make savings on some of your regular bills. They can include utilities and insurance for example. There are comparative websites that will do much of the initial research for you.
  • After you have created a surplus don’t suddenly think you can begin to spend. This surplus should be put towards retirement or an emergency fund. Both are important and ideally you will create an emergency fund worth about 3 months of your regular expenditure.

If your financial situation is poor you have to act. Retirement can be a cold and lonely place if you have not got the money to make it comfortable.

Become a Financial Expert Step-by-Step

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answers word on register or hanging folder showing solution concept

Americans are overconfident about their finances, feeling more secure than their actions warrant, according to the latest Financial Literacy Survey conducted by Harris Poll for the National Foundation for Credit Counseling and NerdWallet. While more than nine out of 10 people feel “very” or “somewhat” confident about their most recent financial decision and two out of three give themselves an A or B in financial knowledge, six out of 10 are spending money each month without a budget, an equal amount aren’t able to save or buy a car because of student loans, and more than four in 10 aren’t saving for retirement. Ouch.

Becoming a genuine financial expert means taking a step back and arming yourself with the knowledge to build a solid foundation for investment confidence.

Savings Basics

Knowing how much to save is the most fundamental question in personal finance. While many financial advisers recommend following a rule of thumb such as saving 10 to 20 percent of your budget per month, Forbes recommends developing a customized savings plan based on how much you will need to invest to fund your annual living expenses.

The first step in the Forbes strategy is to estimate how much you’ll need to save up to fund the lifestyle you want given your projected annual expenses, whether your goal is to retire at a traditional age or to achieve financial freedom early. Once you’ve set this goal, calculate how long it would take you to reach it assuming your current savings rate and annual rate of return, and then make any necessary adjustments you need to achieve your goal within your desired time frame. Forbes suggests setting a goal based on the assumption that you’ll be spending 4 percent of your savings per year in retirement, and they provide spreadsheet and calculator tools to help you do the math.

Building Credit

While building your nest egg, it’s also important to build your credit so you can achieve your major purchasing goals. FICO’s consumer myFICO site explains the variables that go into credit scoring, which include your history of repaying debs, amount owed in relation to your income, mix of credit cards and loans, and frequency of submitting credit applications. For a more advanced understanding of credit, consider specialized educational resources. For example, Moody’s Analytics offers a Corporate Credit Ratings Analysis seminar.

Investment Foundations

For most people working in a traditional job, a 401(k) plan should be the foundation of your investment strategy. Daily Finance provides a good overview of 401(k) basics, explaining how you can roll over your money into a new 401(k) or an IRA if you leave your job. For those seeking 401(k) alternatives, NetCredit outlines other fundamental options such as traditional, Roth, and SEP IRAs, annuities, and index funds.

Retirement Planning

Your 401(k) plan or equivalent normally forms one component of a complete investment plan designed to achieve your major financial goals, chief of which should be saving for retirement. A complete retirement income plan should include a diversified mix of withdrawals from an investment portfolio, fixed-income annuities and variable annuities. A financial adviser can help you select a specific investment mix appropriate to your goals, income and risk preference.

If you’re looking for more assistance and want a financial advisor check out these articles to help pick the right one for you

What is the Role of a Financial Advisor?
Afraid To Meet With a Financial Advisor? Here’s How the First Meeting Goes
Hiring a Financial Advisor: Clues from the Receptionist

5 Tips to Prepare for Retirement

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You may be young, but it’s never too early to prepare for retirement. According to a study via the National Retirement Risk Index (NRRI) and the Retirement readiness Rating, 43% to 52% of Americans are not going to live their retirement years in the standard they’d hoped, according to their current living standards?

So what’s the best way to be prepared for the life you want to lead when you retire?  Start planning now. Check out the following five tips to do so.

1.      Contribute to an IRA or Your Employers 401(k)

So you’ve started working for an employer who has a 401(k). You may feel you don’t have the money to spare to contribute, but you’re losing out on more by not contributing. For one, it’s an excellent tax deduction, reducing your taxable income. Also, most employers offering this plan offer some matching contribution. Don’t leave behind that free money on the table. These savings plans handcuff you from quickly accessing this money, so saving it up is a breeze.

2.      Save Up Automatically

Here is another way to start saving towards retirement. You can use this in combination with putting money into your IRA. Start saving money into a savings account by having it pulled automatically from your paycheck each pay period. Talk to your human resource or payroll department about taking a specific dollar amount or percentage, and deposit it into this designated account. This is a guaranteed way to get it in monthly.

3.      Live Healthy to Save More

It’s said living healthy is costly, especially if you eat organic foods. However, organic products aren’t the only road to good health. There are other things you can do such as regular exercise, cut down on your fat intake, and stop smoking. The results: you reduce the chances of developing cardiovascular or lung diseases and live longer. This helps you save by eliminating excess doctors’ visits, hospital stays, prescriptions, and as a bonus you’ll also save on not purchasing excess, unhealthy items.

4.      Start Eliminating Debt

Getting rid of debt now will help you prepare drastically when you retire. Not having to worry about a mortgage, car note, or credit card bills help you have money for future lifestyle and vacation plans. The sooner you pay these off, the faster you can start saving for an emergency fund to use instead of your retirement savings for emergencies.

5.      Start a Side Business

In a study called Work in Retirement: Myths and Motivations, they studied 7,727 adults regarding their position on returning to work after retirement, 30% said they would go back to work. Instead of working for someone else, prepare now to work for yourself. This will help you enjoy your retirement years as you want, when you want.

Don’t feel it’s too late to prepare for retirement. Implement the above five tips now and keep on target for future goals.