9 Ways to Save for Retirement

February 2nd, 2011  |  Published in Retirement  |  1 Comment

The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.

We all know that if you want to retire, you’ll need something to live on in the bank. This article, 9 Ways to Save More Money for Retirement, listed their methods to boost retirement savings. Here is my take on their 9 steps:

1. Set a limit on your spending.

If you can’t control your spending, you will not know how much you will need for retirement. My husband and I record every single expense monthly and have a target amount for each category. If you know what you will need, you will be able to plan accordingly.

2. Pay yourself first.

This is the absolute best way to save. If you can’t see the money, it is harder to spend the money. That is why the IRS takes their piece before you even get your check. I’d suggest setting up automatic contributions.

3. Consolidate your accounts when appropriate.

Look into the benefits of account consolidation. If you are paying more fees in one place than another, you may want to consolidate those funds to take advantage of the lower fees. Some institutions actually will give bonuses for being able to hold onto more of your money. Always look at your options.

4. Make more money.

By either working hard for promotions or by starting a side job, you can increase your income. You can save that extra income for retirement. I personally love blogging since it’s fun and brings in more than $500 for me every month!

5. Eliminate a few little expenses.

Any habit that costs money will add up. Whether we are talking about lattes, cigarettes, daily donuts, or whatever, a daily expense adds up to big money overall. Accepting small fees from banks can add up too. This step seems to be all about keeping the small stuff in mind.

6. Consolidate your debt.

If you have high-interest debt, look into consolidating it into a lower fee account. A balance transfer from high-interest credit card to a 0% interest credit card is just one example of lightening the interest load on debt.

7. Be wary of depreciation.

Remember not to confuse a depreciating asset with an investment. Best of all, try to skip out on some depreciation on things like cars by buying used.

8. Take advantage of tax breaks.

A Roth IRA or a 401(k) account are great example of how to receive tax breaks in different ways. With a Roth IRA, you can make a ton of interest without being taxed on it. With a 401(k), you can decrease your taxable income right now. I like to balance the benefits of the two by contributing to both.

9. Look for low-cost alternatives.

This can apply to almost anything. Always be on the lookout on a way to decrease or eliminate costly habits or activities by replacing them with cheaper alternatives that you actually like better.

What other steps can you think of to save more for retirement?

5 Ways to Ruin Your Retirement

January 26th, 2011  |  Published in Retirement  |  3 Comments

The following is a post from staff writer Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.

When I saw this article, 5 Easy Ways to Ruin Your Retirement, I knew what I had to write about this week. I immediately wanted to know what we should concentrate on.

Here are the 5 ways the article mentioned that you can ruin your retirement and my personal thoughts on them:

1. Not Running the Numbers

They say that anyone over 40 should have a rough idea of what they will need in retirement, but why not run the numbers even earlier? My husband and I know that we’ll need at least today’s equivalent of $2 million by the time we want to retire in 25 years. Knowing that number motivates us to save as we should. Do you know how much you will need? Think about how much you spend now and what sources of income you will have when you retire.

2. Having Only One Plan

Even though my husband and I have a definite plan to retire by age 52, we also have a few backup plans as well. If we decide to have kids, we will probably push back retirement for at least 5 years. If our retirement accounts don’t return at least 6% for the next 25 years, we’ll also push back our target date. If we simply can’t work at some point, we’ll cut back on our expenses so we can live on less. What kind of plans do you have?

3. Passing Up Opportunities to Save

If you can save early, do save early. If that opportunity has already passed, remember to take advantage of every opportunity that pops up. Remember the contribution limits for your 401(k) and Roth IRA. Also diversify your investments so all of your retirement eggs aren’t in one basket.

4. Depending on Your Home Equity

Repeat after me, your home is not a retirement account. Unless your plan includes selling your house or taking out a reverse mortgage, home equity doesn’t matter for retirement purposes. You’ll need somewhere to live and your home equity will not help you in that respect usually.

5. Ignoring the Nonfinancial Stuff

I love this one the most. Too many people get so tied up in career advancement or money-making ventures that they forget to have other lives too. If they truly enjoy work, then retirement is probably the furthest thing from their minds. If their long-term goal is to retire comfortably, then they should remember to develop a non-work life now too. I enjoy my hobbies and friends so much that I cannot wait until I retire so I can develop my non-work life even more!

Can you think of any other things we should keep in mind to ensure a happy and solid retirement?

15 Ways to Ensure a Successful Retirement – Part 2

January 20th, 2011  |  Published in Retirement  |  8 Comments

The following is a post from staff writer Crystal from Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.

Yesterday I took a look at how my husband and I are doing according to the first two sections described in the article, 15 Ways to Never Run Out of Money – the Beginning Years and the Middle Years. Today I’ll be seeing if we have a plan for the Pre-Retirement Years and the Retirement Years as well.

The Pre-Retirement Years

6. Stay in the Game

We are only 27 and 28, but we do plan on continuing to save for retirement up until we finally can quit. We’ll also look at all other options before we even think about touching retirement contributions for anything other than actual retirement.

7. Catch Up

I’m hoping we won’t have to, but we will take full advantage of the post-50 retirement contribution rules if they are still around in 23 years.

8. Pay Off Debt

We only have 6 years or less left on our current mortgage. Even after we pay it off, we will continue paying ourselves that $900 payment every month in the hopes that any of our future houses can be bought with the proceeds of the previous home and cash.

9. Budget for Health-Care Costs

I already know our health care expenses will at least triple and will keep that in mind as we near age 52.

10. Time Your Payout

If social security is still around for us, we will wait until the proper time to get as big of a payout as possible.

Retirement Years

11. Tread Carefully With Annuities

If we get an annuity at all, we would only invest 25% or less of our total assets into it. Our main plan is to use our retirement accounts in conjunction with my husband’s pension and have more than enough simply since we should be able to live off of the pension and interest alone by then.

12. Follow the 4 Percent Rule

We’ll be following the 3% or less rule and only withdraw 3% or less each year from all of our accounts. Since we should have several million by then, we may be able to live on just the pension and interest. We’ll only dig into principal if we have to or when we hit 80 plus.

13. Fill Up a Big Bucket

I like this idea – one bucket for cash, one for short-term investments, and one for long-term investments. We’ll definitely have at least 2 years of expenses in cash and keep the rest of our money as safe as possible.

14. Hedge Against Inflation

This is also a great idea. We have considered having 10%-15% in stocks and another 10% in treasury bonds, so we should be covered.

15. Work Longer

We may get hobby jobs in retirement if we will enjoy them, but we are saving now so we can have that choice later. I don’t want to be forced to work longer than necessary simply because I was wasting too much in my 20’s.

Overall, I think my husband and I are on track for a great, early retirement! How are you doing on these 15 steps overall (you can see yesterday’s post here)? How about these last two sections specifically?

15 Ways to Ensure a Successful Retirement – Part 1

January 19th, 2011  |  Published in Retirement  |  5 Comments

The following is a post from staff writer Crystal from Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.

I was reading this article, 15 Ways to Never Run Out of Money, and was wondering how my husband and I are stacking up so far at age 27 and 28.

The article is broken up into 4 sections – the Beginning Years, the Middle Years, the Pre-Retirement Years, and the Retirement Years. Today I’ll be covering the first two parts and tomorrow I’ll cover the last two parts:

The Beginning Years

1. Live Modestly

We have fun money, but overall, I believe my husband and I have this covered. We basically live on his salary as a public school librarian and save my salary as an office worker.

2. Keep to a Budget

This gets a HUGE check. I enjoy budgeting since it shows us where our money is going.

3. Start Saving Early

We have this one covered too. I started contributing the minimum to get the maximum company match (6%) to my 401(k) as soon as I got my first “real” job at age 22. My husband has been building his pension ever since he started teaching at 23. We also have been fully contributing to a Roth IRA since that year too. Those retirement accounts plus our emergency fund and stock contributions should cover us and then some in retirement.

The Middle Years

4. Diversify Your Holdings

We’re already doing this as well just to cover our bases. Granted, we do have about 70% of all our savings in stocks or mutual funds, but they are diversified too. We’ll switch to less risky investments little by little until we only have about 10%-15% stocks in our late 40’s since we are planning to retire at 52.

5. Prioritize Retirement Over College

If we have kids, we will definitely only help them with college with money that we don’t need to save for retirement. I figure that my kids can get loans for college but it’s harder to find funding for retirement.

So far, we seem to be off to a great start! Remember to check back in tomorrow to see if we have a plan for the Pre-Retirement Years and Retirement Years too.

Do you have the first parts covered?

There is Life After Retirement

January 12th, 2011  |  Published in Retirement  |  6 Comments

The following is a staff writer post from Crystal at Budgeting in the Fun Stuff, where she covers spending, savings, and the fun stuff along the way.

According to these survey results from Trilogy by Shea Homes, retiring baby boomers are truly enjoying life after retirement. Past generations may have found it difficult to transition from work to time off, but the majority of the boomers surveyed had no such problem:

The majority of boomers say retirement is not an end phase, but rather, a new and exciting chapter of life. 51.37% say “it’s a time for re-invention and self-discovery”, followed by “different than it used to be” (15.14%), “playtime” (8.12%), “over-rated” (5.77%), “an opportunity to give-back” (5.77%), “over-due” (5.38%), “obsolete” (4.32%), and “a chance to work from home” (3.08%).
Boomers are out to make a difference. 23.93% say their church, synagogue or place of worship is their favorite cause, followed closely by environmental and animal causes with 23.59%.
When asked what they collect, they weren’t thinking of trinkets. 53.58% say it’s family memories, followed by recipes (38.68%), Facebook friends (37.39%) and pictures of their grandkids (33.73%).
Boomers look forward to traveling (58.82%), having a balanced lifestyle (50.89%), being more active (46.18%), and having more “me” time (45.94%) in retirement – in that order. Pursuing new interests and hobbies (42.82%), living near people with similar interests (35.94%), having lots of activities to choose from(35.08%), spending less time spent in rush hour(27.34%) ranked next.
When it comes to living a healthy lifestyle, maintaining a mind-body balance, engaging in healthy relationships and continually learning were ranked most important.

Although I personally do not find these results all that surprising, I do think that past generations did not transition as easily. I’ve heard too many stories of depressed retirees that either felt like they lost their purpose or simply couldn’t adjust to the new amount of free time in their daily lives.

I do not think I will have that difficulty. I see retirement as the ultimate goal so I can pursue my hobbies, volunteer even more, and enjoy more time with my friends and family.

Filling in the 50 hours a week that my job sucks away via work and commuting would not be a problem at all. If I was to hazard a guess, at least 5 of those hours would be spent sleeping in to at least 8am. I’d spend another 25 hours on blogging and blog-related activities. The last 15 hours would be given happily to volunteer work for either the Houston SPCA or Meals on Wheels.

Retirement was invented for people like me.

If you are retired, did you find it difficult to accept? If you haven’t retired yet, what category do you think you will fall into? How would you fill your time?

Retirement Article Roundup

June 1st, 2010  |  Published in Retirement  |  2 Comments

Since I have been too lazy to write my own posts for this blog lately I thought I would share with you a few retirement related posts from the past couple Carnival of Personal Finance and elsewhere.

  • “How to select the right IRA beneficiary” from Wealth Pilgrim.  He basically says the youngest beneficiary is the best beneficiary but read the post to see why.
  • “Ways to trick yourself into saving for retirement” from Pop Economics.  These are some simple behavioral adjustments that could help you save more for retirement.  Plus the site has cool art.
  • “Traditional and Roth IRA contributions and phaseouts” from Smart On Money.  This is something I have posted on before but this post sums up the subject nicely.
  • “Living to 100 and beyond: How will it affect your retirement plans?” from Invest it Wisely.  Living a really long time will definitely impact your retirement plans.

There are always plenty of interesting articles on retirement.  I will post a new article here later in the week.

5 Risks to Your Retirement

May 5th, 2010  |  Published in Retirement  |  3 Comments

There are many risks to your retirement savings. Here are five of the more common ones.

  1. Starting too late –  When you are young it seems like retirement is far way.  However, by starting to invest for your retirement while you are young it will be much easier to save enough for a comfortable retirement.

  2. Not saving enough –  Just saving enough to get your 401k match is better than doing nothing but it probably won’t add up to enough for you to be able to retire.  Even the conventional 10% figure probably isn’t enough.  Another bonus to saving more is the ability to retire early.

  3. Lack of diversification – It is possible to be over diversified but most people’s savings suffer from a lack of diversification.  Putting all your money into your company’s stock is a common example.   That didn’t work to well for Enron employees.  You should have your retirement savings in several investments.

  4. Taking too little risk –  People are naturally adverse to losing money.  The stock market slide in 2008 has made even more people risk adverse.  Saving your money in a money market paying 1% isn’t going to allow you to retire.  You need to take some risk.

  5. Taking too much risk –  Examples of this would be betting all your money on one stock or one sector.  This could have a huge return but it could also cripple your chances of retirement.  You also need to move more of your money out of stocks and other riskier investments and into fixed income investments as you get closer to retirement.

That is just a brief overview of potential risks to your retirement savings.  Now that you have an idea of what the risks are you can do further research and educate yourself to avoid or minimize these risks.

Don’t Cash Out Your 401(k)

February 20th, 2009  |  Published in 401K  |  Comments Off on Don’t Cash Out Your 401(k)

When I read the statistics from Vanguard, in their How America Saves 2008 report, I was astounded by the statistic that 60% of Americans who change jobs will cash out their 401(k). That’s right, for every ten people that switch jobs, six will take all the money they’ve diligently saved into their 401(k) accounts and withdraw it, minus the taxes they owe and the whopping 10% penalty the IRS demands. It is likely one of the biggest mistakes of their lives.

For some, there is no choice. If you are fired and facing mounting bills, you may have no choice but to cash out your 401(k) to meet your obligations. In that situation, it’s unfortunate but you have to do what you have to do. However, in 2008, 4 million people hadn’t lost their jobs. In 2008, the economy was weak but not in the state it’s in today. In 2008, 60% of people leaving their jobs cashed out their 401(k)s and they likely didn’t have to. They weren’t in dire straights, they were just making a mistake.

Your 401(k) is your nest egg, it’s supposed to be untouchable and safe and put in a safe place so it can grow. While it’s true that the market has been pounded, if you’re ten, twenty, or forty years away from retirement; the last thing you want to do is to arrest that growth by withdrawing the funds. To make matters worse, not only have you stopped its growth, you’ve paid a 10% penalty on top of that.

The best thing for you to do if you don’t feel like the 401(k) is right for you, which for many is erroneous, stop contributing or contribute the bare minimum.

Don’t Cash Out Your 401(k)

December 15th, 2008  |  Published in 401K  |  Comments Off on Don’t Cash Out Your 401(k)

A recent survey from Bank of America found that 18% of respondents admitted to withdrawing money from their retirement accounts early to help pay for credit card debt, mortgage payments, and job losses. It’s a difficult time for everyone but cashing out your 401(k) should be seen as a last resort because it is so very expensive. When you withdraw money from a 401(k), you not only pay income tax on the money but you also pay a 10% penalty on top of that. If you’re in the 25% tax bracket, you’d pay 35% on the money you withdraw… that can hurt a lot.

However, sometimes you have no choice. Sometimes you are forced to look for options and the last one left is your retirement. If you have to change your retirement plans, try to do it in this order:

  1. Cut expenses elsewhere: Cut all the non-essentials, which means anything that you don’t need to survive. That means cut the cell phone, end Netflix, shut off cable, everything. You need to get down to as lean as possible, then start searching for funds. If you need some ideas, here are a 100 money saving tips you might be able to take advantage of.
  2. Contribute less: If you don’t contribute it in the first place, you avoid the 10% penalty for withdrawing it early. You may be surrendering an employer match but you can’t afford to take it out on the backend, the 10% eats away any match you’d be getting.
  3. Withdraw from a Roth IRA: You can withdraw your principal from your Roth IRA without penalty, so that should be the first place you go to if you must raid an account. Check out the exact rules involved because sometimes there are penalties if you aren’t careful.
  4. Withdraw from a Traditional IRA or 401(k): If you’re down to this last option, you’re down to it and there’s not much that can be done.

Good luck, it’s a difficult economic time and the last thing you want to do is make it worse by jeopardizing your retirement.