You are in the Retirement home stretch – 3 tips to keep in mind.
70 IS your magic number!
Why delaying retirement until age 70 makes a difference to you.
Email:
Q: We have remaining student loans @ 3.9% – should we increase our payment to that so we can pay it off faster or should we put the extra savings toward our kids 529?
Sadly, I have had to help a number of clients through inheritance issues lately. Dealing with the emotional issues are hard enough; add on a sudden lump sum of money and some people become paralyzed. Where do you start and what do you need to do first?
Does the estate have any unpaid bills or owe Estate Tax? These are the first issues that need to be taken care of. After that, you now have to decide what to do with the money.
There are two schools of thought on the next move; do you splurge a little or not? I feel that if there is that one small item or vacation that you always wanted – go for it. Your loved one would be happy that they could provide a bit of happy during a sad time. The other school is save first, then splurge. Really, you can do both.
An emergency fund is a great place to start. Make sure you have enough liquid cash to get you through 6 months of expenses, and then plan the splurge. If you do not have a retirement plan, fund that too. Do you have kids that want to go to college? A 529 college savings plan can be funded with the inheritance.
Sudden wealth can be overwhelming, but don’t count your chickens before they hatch. Many people who inherit do not receive as much as they had thought they might get. Planning on an inheritance is not a retirement plan either. Be grateful for anything that you might receive and try to use it in a manner that would make the grantor of this gift proud.
Upcoming seminars
“Countdown to Retirement” with Roger Johnson Aug 4th at 11 AM
“Social Security: Maximize your benefits” with Nancy Hecht, Judi Sanborn, and Denise Kovach Sept 20th at 645 PM
Topics:
How to make the most out of your Social Security Survivor benefits.
What is all this recent talk about the LIBOR scandal and what does it mean to you?
What is the Fiscal Cliff and should you care?
What is the new investment tax that was passed as part of the healthcare law?
Reader question:
My wife and I just sold our home, we have netted about $175k. We are 2 years from retirement and would like to keep our principal safe. What would you recommend?
We all know that we need to save money for the big things like buying a house, college for our kids, our own retirement, etc., but what is your “phrase to save” that gets you there?
Every journey begins with a single step and saving is no different. Many people now are saying that due to the economy it is much harder to save, but it is not impossible. Let’s say that you have already accomplished the big things, you love your home, and you contribute regularly to your retirement plan. But it is the small items that have you worried. Let’s say there is a big family event coming up next year and you don’t know how you can afford the airfare and hotel.
For two weeks, keep a receipt for everything you spend from a pack of gum to dinner and a movie to your mortgage payment. You will be surprised at all of the small areas you can cut back and save for that family trip. If your “phrase to save” is for the airline tickets, look at items such as that daily premium cup of coffee or buy movie tickets for $10 each vs. renting a movie from Netflix for $3.00. Maybe you will take a sabbatical from eating out for two months and save those dollars specifically for the airline tickets. Small changes in your everyday spending can make huge differences in your savings account.
Whether the goal is big or small, think about and write down your own “phrase to save” and you will be on your way to savings success.
This year the United States will celebrate its 236th birthday. How are you planning to celebrate? If you’re like most people, you’ll probably do what you did when it turned 235, or 234. Fireworks, barbeque, patriotic music; this is how we celebrate being American. After all, why not? Why would this year be any different? Actually, this year is different. It’s an election year! In years like this, the words “being American” take on an entirely different meaning.
The average human life expectancy in the United States is 78 years. During many of those years, we don’t vote. So very often, saying “I’m American” is a lot like saying, “I have brown eyes,” or “I’m left-handed.” Being American simply means that you live in America. It says little more about you than the color of your hair.
But in years like this, that changes. No longer is being an American a passive thing. It’s a choice; a philosophy. Every few years, we make the decision to take part in one of the noblest experiments in the history of mankind: the experiment to determine if men and women can govern themselves. The experiment to choose for ourselves what we can and ought to be, and the experiment to rid ourselves of dictators, kings, and nobles. To settle once and for all that no man has to bow; that no gender, race, or religion should lord over our common humanity.
You see, every election year we choose the person who leads us. We choose who represents us, both at home and abroad. This process says much about who we are as a nation. Think back on your history lessons. Think how rare it is to live in a country that can have complete shifts in power, with a transition that occurs peacefully. This process is at the core of what makes us so unique. It’s an amazing thing that our leaders are willing to set aside their power—not because they don’t want it anymore, but because they understand the greater goal of upholding freedom and independence.
This singular phenomenon is the result of more than just laws. It goes beyond even the Constitution. Many governments have laid down similar limits on their chief executive’s power, to no avail. So what ensures that our leaders don’t abuse those rules? We do; us; you and I. When a massive population of people collectively exercises their rights, there is no power in the world that can stop it.
So what are these rights? Here are a few:
• Our freedom of religion. This is our American Heritage, our most cherished freedom. If we are not free in our conscience and our practice of religion, all other freedoms are fragile. If our obligations and duties to God are impeded, or even worse, contradicted by the government, then we can no longer claim to be a land of the free.
• Our freedom of speech. We exercise it every time we talk politics by the water cooler. Every time a comedian mocks the most powerful man in the most famous house in the world.
• Our freedom of the press. We all might grumble about the foibles and biases of the media, but remember what Thomas Jefferson said. “Were it left to me to decide whether we should have a government without newspapers or newspapers without a government, I should not hesitate a moment to prefer the latter.” At no point is our right to a free press more important than during an election year. It’s the only check we have against unscrupulous politicians, against false facts and half-truths. It’s our chief source of information, so that we can make informed choices. It’s our main provider of context, so that the information we acquire is properly weighed and judged. Whether it’s through newspapers, television, or internet blogs, we never pay more attention to the press than during an election. Thus, we will never exercise our right to a free press more than during a year like this one.
• Our right to assemble. Do we appreciate how rare it is for us to be able to gather and discuss the world we live in? This probably seems so normal today, but for centuries people have had to meet in dark alleyways to share, commiserate, or even conspire. Our ability to organize in support of—or in opposition to—any organization, group, or person is uniquely American.
We exercise this right every time we gather to support one candidate over another, or when we meet in town halls to question our elected representatives. Furthermore, implicit in the right to assembly is the right to association—to affiliate ourselves as we please. Joining political parties or other causes exercises our right to freedom of association.
Now you might be saying to yourself, “We always have these rights no matter what year it is.” And that’s true. They’re guaranteed by the Constitution; twenty-four hours a day, three-hundred and sixty-five days a year; in rain, or sleet, or snow; in good times and bad. But it’s during an election year that the majority of us truly exercise those rights. And it’s those rights that make America unique. It’s for those rights that we declared independence in the first place. And it’s when we exercise them that we’re truly being American.
When you think about being American this Independence Day, think about what we have because of what America’s truly about: the basic rights we guarantee ourselves; that we guarantee for each other. The rights that men and women have fought for, and died for. The rights that people have sacrificed their lives, fortunes, and reputations to secure. So when we truly exercise our right, that’s when the word “American” ceases to be a noun, but an adjective. “Being American” means “being someone who values and respects my fellow man.” “Being American” means standing up for the self-evident truths that break the bonds of slavery and free us from the shackles of ignorance.
With all of this in mind, I want to wish you a Happy Independence Day. To you and your family, Happy Fourth of July. Now go enjoy being American.
49% of people within three years of retirement believe that their spending will go down by half in retirement. Really? My experience has shown that is far from reality. Most people think they will spend less on travel, eating out, and see fewer doctors. My clients are living healthier and longer into retirement than past generations. They are not cutting back on travel or eating out. If anything, entertainment in all forms has increased for the retiree. So what is the solution?
You could retire at a later age. Many people I meet with today are still looking at age 62 or 65 for retirement. If that is pushed back to 66 or 70, the difference in their retirement can be significant. Those extra working years allows for more contributions to qualified retirement plan, a potentially larger social security benefit, reduced out of pocket expense from items such as health care because you will still be part of a corporate insurance plan, and lower monthly spending because you are working and do not have all of that free time.
Another option, though not the first choice, is to die before you run out of money. 60% of pre-retirees believe they only have a 25% chance of living beyond age 85. The reality: of married couples currently age 65, there is a 63% chance of at least one spouse living to age 90. So what can you do?
Plan and prepare at least three years before you pull the retirement trigger. We look at all of our client’s current expense plus taxes and inflation through age 90 when putting together a Retirement Analysis. We take a conservative approach to average annual total return throughout the years, and conduct regular reviews and updates. With this approach to Retirement Planning, we can try to stay ahead or on top of any surprises. Seek out a qualified Certified Financial Planner™ Professional and have a comprehensive Retirement Plan done before moving into your golden years.
Q: I have $10,000 sitting in a 401(K) that is not earning much and I owe $20,000 on a credit card with 9.5% interest. Should I take some out of the 401(k) to pay off this debt? I am under 59.5 years old.
A: Generally, this is not a good idea. Firs,t whatever you withdraw from the 401(k) will be added to your income and taxed. This could put you into a higher tax bracket. Next, you will have to pay an additional 10% early withdrawal penalty due to you age. These two taxes could reduce your withdrawal amount by 25% turning your $10,000 into a spendable amount of only $7,500.
This would leave you with the remaining credit card balance and no retirement fund. If we look at the loss of compounding tax deferred dollars, for every $1000 withdrawn, you will be losing $7,686 in future spending dollars.
Here is what I recommend: reduce the amount that you are contributing to your 401(k) and apply the difference to the credit card debt. Contact the credit card company to see if you can get the interest rate lowered. You do not know if this is possible if you do not ask. Put together a budget and track where your income goes. Look for areas where you can spend less to reduce the debt, and you will have more money for short and long term savings.
I recently ran across this title while doing some research. Yes, I do think budgets are sexy. They are also a lot of work and are the path to freedom.
Let’s look at your budget as your new exercise program. It is summer after all and you want to look good on the beach. Nothing makes you look better than confidence and being fit. Financial fitness is just as important as physical fitness. So you are ready to walk into the gym for this first time in a long time. This decision takes commitment and planning but you know that the end result will be worth it. This first step is just that. You will be on a long road to fitness and it will require maintenance.
Planning and sticking to your budget requires the same commitment and maintenance. You need to look at all of your regular monthly expenses such as mortgage, power, internet, food, and transportation costs. Next, you need to look at the periodic expenses such as insurance premiums for your home and life as well as items such as property taxes. Don’t forget your regular savings. We look at savings as an expense whether it is long term savings to a retirement plan or short term savings into an emergency fund. I think it is important to add charitable gifting into the budget. Giving to your community is a wonderful way to spend money.
So stretch your muscles, sharpen your pencils, and get your financial and physical sexy going.
Most people get into financial trouble when the unexpected happens. This may be health related, weather related, or job related. Whatever the reason, you need to plan for the unknown by filling your buckets.
Savings buckets can fall into two broad categories; regular expenses such as mortgage, utilities, food, or irregular such as car repairs, home repairs, taxes, or vacation. Online banking makes it very easy to fund your savings buckets. Most do not have large minimum balance requirements or monthly fees.
I feel that you should have 3 months accumulated in your regular expenses bucket. This amount will give you a decent cushion should something unexpected happen. As far as the irregular expenses go, you may want to set up a few smaller buckets, pails if you wish. One savings pail may be for vacations, one may be for property and federal income taxes. Since we are in the beginning of hurricane season, you may want yet another bucket just for weather related disasters. You might fund this bucket for such needs as insurance deductibles, a hotel stay if you have to leave your home, or boarding pets. Think about the last time there was an emergency and use those expenses as a base for how much to keep in these buckets.
If you have filled your buckets, then you will have the peace of mind to handle any unexpected emergency. You will be able to pay cash to handle things and not have to incur any credit card debt. So fill your savings buckets and cross that worry off your list.
I have a number of clients turning 65 this year and along with all the personal birthday greetings they will get, the Government has a few presents for them too.
When you turn 65 you get to apply for Medicare. If you have started taking Social Security benefits prior to age 65, you are already signed up for Medicare, otherwise, you have to sign up yourself. Three months before you turn 65 you can either go to www.medicare.gov or call 1-800-772-1213, but make sure you do it or you will have a lifetime of penalties.
The IRS has a present for you also. Upon turning 65, your standard deduction goes to $7100 from a current deduction of $5700. That is a potential tax savings of $616/year.
Many of my clients are still working at age 65, after all it is still young in my book, but retirement planning is important. Many people looked at age 65 as the marker for starting Social Security – it used to be the “full retirement” age. That may not be true for you. For most people, full retirement for Social Security is either age 66 or 66 + 4 months. You can go to www.ssa.gov to check your status.
So celebrate big for your 65th! Have cake and ice cream and accept your presents from wherever they may come.