Maybe you are aware of a lifestyle called FIRE - financial independence retire early. Their goal is to retire at 40.
I recently learned about this movement and have spent some time reading what it espouses. You might find FIRE worthy to explore as it will help you review your spending and ultimately give you more money to invest.
From the blog of Mr. Money Moustache:
FIRE is simply about making smart decisions with your spending so that you waste less money. This means that you have way more money available to work with.
Living with less may test your definition of happiness.
Happiness is your goal in life, and it comes from meeting certain core Human needs. The thing is, that there are many ways to meet each of these needs – some of them free and some of them shockingly expensive.
For example, improving your physical health is one proven way to be happier. But you can accomplish this with a $2500 per month personal trainer or a $100 set of barbells from Craigslist. Same happiness, vastly different cost.
And as it turns out, there is a similar hack for every single one of life’s major expenses. You can meet all your needs at little or zero cost – it just takes a bit of skill. At this level, you would be able to save almost all of your income.
Or, you can substitute a bit more money and a bit less skill to meet those needs in an (only slightly) more efficient lifestyle, like the one I try to lead. This might allow you to save half or two thirds of your income.
Or, you can spray money in every direction randomly, trying to meet an unfiltered list of wants and needs, and end up with a random but very expensive life, while remaining almost broke throughout the entire thing. This is what most people do, and it leads to saving almost none of your income.
Reading the blog could bring you insight and reinforce some of your financial goals. Leading a meaningful life, caring about yourself and others tends to bring satisfaction. I believe in balance in all things.
When a client asks "do I have enough money to retire?" I respond: "please tell me when you plan to die." Not knowing when you will die, how long your good health will last, puts us all on notice to live every moment; to be present.
Be $ Smart - Learn new skills as what FIRE offers. Toss old habits that haven't worked. Find fulfilling work through your job or as a volunteer. Follow the three S's - spend, share, save. Retirement will come, eventually.
Showing posts with label retirement. Show all posts
Showing posts with label retirement. Show all posts
Sunday, November 4, 2018
Sunday, July 8, 2018
The Magic Of Compound Interest
Here's a topic we've addressed before. It is a topic worth repeating. I took the simple explanation directly from the U.S. Department of Labor, Employee Benefits Security Administration.
Compounding investment earnings is what can make even small investments become large investments given enough time.
How It Works – The money you save (either in a savings account, a mutual funds or in individual stocks) earns interest. Then you earn interest on the money you originally save, plus on the interest you've accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.
Start Saving Early - For every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.
Starting at 20 - If you put $1,000 a year into an IRA every year from age 20 through age 30 (for 11 years) and stop - and the account earns seven percent annually - your savings will equal $168,514 at age 65.
Starting at age 30 - If you don't start until age 30, but save the same $1,000 amount annually but for 35 years straight at the same seven percent rate, you will have saved three times as much money but your account will grow to only $147,913 at age 65.
Where you might obtain a steady 7% return puzzles me, especially in this low interest rate environment but the point is clear even on a lesser scale:
- Start early!
- Save regularly or automatically!
The difference is significant if you wait. Even small amounts saved early have many more years to grow.
Be $ Smart - Start saving now! Any amount is better than none. Your future depends on it.
Compounding investment earnings is what can make even small investments become large investments given enough time.
How It Works – The money you save (either in a savings account, a mutual funds or in individual stocks) earns interest. Then you earn interest on the money you originally save, plus on the interest you've accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.
Start Saving Early - For every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.
Starting at 20 - If you put $1,000 a year into an IRA every year from age 20 through age 30 (for 11 years) and stop - and the account earns seven percent annually - your savings will equal $168,514 at age 65.
Starting at age 30 - If you don't start until age 30, but save the same $1,000 amount annually but for 35 years straight at the same seven percent rate, you will have saved three times as much money but your account will grow to only $147,913 at age 65.
Where you might obtain a steady 7% return puzzles me, especially in this low interest rate environment but the point is clear even on a lesser scale:
- Start early!
- Save regularly or automatically!
The difference is significant if you wait. Even small amounts saved early have many more years to grow.
Be $ Smart - Start saving now! Any amount is better than none. Your future depends on it.
Sunday, March 18, 2018
When Should We Seek the Help of a Financial Advisor?
Many folks think financial advice is for the wealthy. Not true! In my experience, it's the not-so-wealthy who need expert guidance to move to the next level. We have not been given the tools in our formal education. Most of us fly by the seat of our pants. Many have no plan at all so the end result is haphazard.
Reading financial magazines and books helps us become familiar with the lingo/jargon of the industry and prepares us to meet and comprehend an advisor.
When should we seek advice?
- at a young age after getting our first job. Here we'll learn the benefit of saving and using a 401k/403b. Maybe even get some direction about cash flow (aka budgeting). An advisor can help us get off to a strong start!
- getting married where an advisor may offer ways of combining assets and setting common goals. Also, he/she may offer guidance about protecting assets.
- mid career when we feel we're not meeting our financial goals. We need someone to point out our mis-steps and get us back on track.
Or if our career has catapulted us into higher income, how best to invest those extra dollars.
- birth of children for suggestions how we must stretch those dollars if one partner will stay at home or how to afford the high cost of child care. In addition, where to find the extra money to fund an education account.
- inheritance (or winning the lottery), when extra money appears and before we celebrate too aggressively! This one-time event can be a real blessing in reducing debt, buying a house or fulfilling other dreams.
- divorce, actually prior to meeting with a divorce attorney, to receive guidance on how to structure a settlement and protect yourself.
- death of a partner or spouse to help determine how to survive as a single and the financial implications of being alone.
- prior to 55 to plan for retirement. A good advisor can help us learn if we have "enough" to retire. We may have to work longer or change our life style. Also, we'll learn the best time to file for Social Security. Prior to 55 gives us time to double up on savings or reduce spending before leaving the workforce.
- in retirement to devise a plan for tapping into our nest egg in the most tax-efficient way. We'll determine our sources of income and learn where to find guaranteed streams of income and how large our cash reserve should be.
Financial advice is for those who want to become wealthy or to retain their wealth. The best advice may come from a fee-only advisor who has our best interests at heart.
Be $ Smart - seek financial advice throughout life to grow and protect our wealth.
Reading financial magazines and books helps us become familiar with the lingo/jargon of the industry and prepares us to meet and comprehend an advisor.
When should we seek advice?
- at a young age after getting our first job. Here we'll learn the benefit of saving and using a 401k/403b. Maybe even get some direction about cash flow (aka budgeting). An advisor can help us get off to a strong start!
- getting married where an advisor may offer ways of combining assets and setting common goals. Also, he/she may offer guidance about protecting assets.
- mid career when we feel we're not meeting our financial goals. We need someone to point out our mis-steps and get us back on track.
Or if our career has catapulted us into higher income, how best to invest those extra dollars.
- birth of children for suggestions how we must stretch those dollars if one partner will stay at home or how to afford the high cost of child care. In addition, where to find the extra money to fund an education account.
- inheritance (or winning the lottery), when extra money appears and before we celebrate too aggressively! This one-time event can be a real blessing in reducing debt, buying a house or fulfilling other dreams.
- divorce, actually prior to meeting with a divorce attorney, to receive guidance on how to structure a settlement and protect yourself.
- death of a partner or spouse to help determine how to survive as a single and the financial implications of being alone.
- prior to 55 to plan for retirement. A good advisor can help us learn if we have "enough" to retire. We may have to work longer or change our life style. Also, we'll learn the best time to file for Social Security. Prior to 55 gives us time to double up on savings or reduce spending before leaving the workforce.
- in retirement to devise a plan for tapping into our nest egg in the most tax-efficient way. We'll determine our sources of income and learn where to find guaranteed streams of income and how large our cash reserve should be.
Financial advice is for those who want to become wealthy or to retain their wealth. The best advice may come from a fee-only advisor who has our best interests at heart.
Be $ Smart - seek financial advice throughout life to grow and protect our wealth.
Thursday, August 11, 2016
Easing Money Anxiety
The word "money" carries many connotations:
power, freedom, evil, fear, uncertainty, anxiety, depending on one's relationship with it.
It would be a great advantage for money to bring more positive reactions like freedom, opportunity, excitement, brotherly love, kindness.
How can you make that happen? How can you change your relationship with money? Find a really good financial adviser.
Yes, I know you can read and attempt to do it yourself. I've learned the hard way that even using YouTube videos, I still need a plumber, electrician and car mechanic. My reading and learning helps me understand the situation better but I have no intention of making that my profession. Research and comprehension keep me from being ripped-off or led astray.
A true financial adviser plays a sacred role and exercises a societal obligation to help people cope with money anxiety as stated in a recent article of Investment News.
Your adviser should be able to extract fact from fiction:
- are your fears or concerns about money well founded?
- are your goals realistic?
- are your values reflected in your investments?
- are you clear about where you are today and where you want to be in 5 years, 10 years, retirement?
A Robo adviser cannot feel your emotions or understand the cycles of life to help you make good decisions over your lifetime.
A true adviser honors your values, respects your worries and concerns and helps you accomplish your goals. And, they bring expertise to the table; the expertise that many years of study, client interaction, fluctuating markets built their experience and wisdom.
Good financial advisers are out there; you just have to search for them.
Be $ Smart - take the time to find the financial adviser who's right for you to relieve your money anxiety!
power, freedom, evil, fear, uncertainty, anxiety, depending on one's relationship with it.
It would be a great advantage for money to bring more positive reactions like freedom, opportunity, excitement, brotherly love, kindness.
How can you make that happen? How can you change your relationship with money? Find a really good financial adviser.
Yes, I know you can read and attempt to do it yourself. I've learned the hard way that even using YouTube videos, I still need a plumber, electrician and car mechanic. My reading and learning helps me understand the situation better but I have no intention of making that my profession. Research and comprehension keep me from being ripped-off or led astray.
A true financial adviser plays a sacred role and exercises a societal obligation to help people cope with money anxiety as stated in a recent article of Investment News.
Your adviser should be able to extract fact from fiction:
- are your fears or concerns about money well founded?
- are your goals realistic?
- are your values reflected in your investments?
- are you clear about where you are today and where you want to be in 5 years, 10 years, retirement?
A Robo adviser cannot feel your emotions or understand the cycles of life to help you make good decisions over your lifetime.
A true adviser honors your values, respects your worries and concerns and helps you accomplish your goals. And, they bring expertise to the table; the expertise that many years of study, client interaction, fluctuating markets built their experience and wisdom.
Good financial advisers are out there; you just have to search for them.
Be $ Smart - take the time to find the financial adviser who's right for you to relieve your money anxiety!
Important Topics to Cover as You Approach Retirement
There are many topics to cover before and during retirement. Sometimes the tricky ones may be neglected or ignored by your financial adviser. Here are a few to bring to the table:
1. Social Security - Claiming social security at 62 might not be the best deal for you. There are several claiming strategies which may put many more thousands of dollars in your pocket over your lifetime. Ask your financial adviser how these strategies may benefit you.
2. Required Minimum Distribution - RMD starts when you turn 70 1/2 for your tax-qualified accounts. The first year can be tricky with the possibility of two payments in one year. Find out the rules so you don't pay more taxes than necessary or be penalized if you forget to take the distribution.
3. Smart tax-planning - Your financial adviser cannot give you tax information (unless he/she is licensed to do so) but they can tell you what type of accounts you hold and how distributions may be taxed. Ask your tax adviser for guidance on the best withdrawal methods in retirement to keep taxes as low as possible.
4. Pension replacement - Today many people do not have pensions. Your adviser can recommend ways to set up a lifetime stream of income along side your social security benefits. Most likely he/she will suggest an income annuity, fixed annuity or immediate annuity. Be wary and shop around as annuities come in many sizes and colors!
5. Professional Help - maybe you've taken a few courses and read some books about retirement planning. You may want to do it yourself to feel in control or to avoid fees. Just like everything else, know when to ask for help and seek a professional. There may be a few critical parts you missed or need tweaking. Find a fee-only adviser to give you a second, unbiased opinion. The advice may prove invaluable.
Be $ Smart - prepare for retirement with good planning and advice.
1. Social Security - Claiming social security at 62 might not be the best deal for you. There are several claiming strategies which may put many more thousands of dollars in your pocket over your lifetime. Ask your financial adviser how these strategies may benefit you.
2. Required Minimum Distribution - RMD starts when you turn 70 1/2 for your tax-qualified accounts. The first year can be tricky with the possibility of two payments in one year. Find out the rules so you don't pay more taxes than necessary or be penalized if you forget to take the distribution.
3. Smart tax-planning - Your financial adviser cannot give you tax information (unless he/she is licensed to do so) but they can tell you what type of accounts you hold and how distributions may be taxed. Ask your tax adviser for guidance on the best withdrawal methods in retirement to keep taxes as low as possible.
4. Pension replacement - Today many people do not have pensions. Your adviser can recommend ways to set up a lifetime stream of income along side your social security benefits. Most likely he/she will suggest an income annuity, fixed annuity or immediate annuity. Be wary and shop around as annuities come in many sizes and colors!
5. Professional Help - maybe you've taken a few courses and read some books about retirement planning. You may want to do it yourself to feel in control or to avoid fees. Just like everything else, know when to ask for help and seek a professional. There may be a few critical parts you missed or need tweaking. Find a fee-only adviser to give you a second, unbiased opinion. The advice may prove invaluable.
Be $ Smart - prepare for retirement with good planning and advice.
Saturday, July 9, 2016
The Family Contract - Managing Expectations
The cost of higher education has pushed many folks to work past normal retirement age to finance their children's education. Either through home equity line of credit or co-signing for loans parents mortgage their retirement for the sake of their children
After the 2008 financial crisis where many graduates could not find employment, they naturally moved home. Even when they found a job, the "rent free" lifestyle persisted. The additional cost of food, utilities, cell phone, car insurance thwarts retirement plans and savings. Young people do not realize the parental sacrifice unless someone enlightens them.
Sharing a home includes sharing responsibilities. Putting those responsibilities in writing clarifies the situation for everyone. Some parents might have the means to continue supporting their children but is it really fair? Earning, saving, spending are all financial realities of life. Denying children those lessons helps no one, hence The Family Contract.
List the expectations AND the consequences.
Put it in writing and have all parties sign.
For example:
Son/daughter may live at home until June, 2017. During that period he/she will:
1. occupy one bedroom and use one bathroom, keep them neat and clean them (scrub/dust/vacuum) once every two weeks.
2. grocery shop once every two weeks to purchase favorite foods, replace essentials (milk, coffee, eggs, laundry detergent) and pay for such items.
3. refill the gas tank when borrowing the family car.
4. pay their own car insurance (if applicable).
5. do their own laundry.
6. assist with house upkeep (e.g. mow lawn, take out trash, walk the dog, etc.)
7. pay $200 a week to cover utilities and other household expenses.
Parent(s) will:
1. pay utilities and mortgage/ rent.
2. provide heat, hot water and A/C.
3. provide simple meals
4. make car available for occasional use (could be specific days/times).
Consequences should also be specific such as:
1. loss of car privileges,
2. an increase in weekly "rent",
3. finding another place to live.
If you feel uncomfortable charging "rent" realize your child must allow for rent in their future budget. You are not helping him/her live independently by providing a cushion. If charging rent truly bothers you, put the weekly money in a savings account and give the money to them after they move out.
Yes, they are your children. Yes, you love them. Your goal is to raise healthy, social, independent, responsible human beings. A Family Contract facilitates respect and growth for all concerned.
Be $ Smart - Make your children welcome but not so comfortable to jeopardize their future or your retirement.
After the 2008 financial crisis where many graduates could not find employment, they naturally moved home. Even when they found a job, the "rent free" lifestyle persisted. The additional cost of food, utilities, cell phone, car insurance thwarts retirement plans and savings. Young people do not realize the parental sacrifice unless someone enlightens them.
Sharing a home includes sharing responsibilities. Putting those responsibilities in writing clarifies the situation for everyone. Some parents might have the means to continue supporting their children but is it really fair? Earning, saving, spending are all financial realities of life. Denying children those lessons helps no one, hence The Family Contract.
List the expectations AND the consequences.
Put it in writing and have all parties sign.
For example:
Son/daughter may live at home until June, 2017. During that period he/she will:
1. occupy one bedroom and use one bathroom, keep them neat and clean them (scrub/dust/vacuum) once every two weeks.
2. grocery shop once every two weeks to purchase favorite foods, replace essentials (milk, coffee, eggs, laundry detergent) and pay for such items.
3. refill the gas tank when borrowing the family car.
4. pay their own car insurance (if applicable).
5. do their own laundry.
6. assist with house upkeep (e.g. mow lawn, take out trash, walk the dog, etc.)
7. pay $200 a week to cover utilities and other household expenses.
Parent(s) will:
1. pay utilities and mortgage/ rent.
2. provide heat, hot water and A/C.
3. provide simple meals
4. make car available for occasional use (could be specific days/times).
Consequences should also be specific such as:
1. loss of car privileges,
2. an increase in weekly "rent",
3. finding another place to live.
If you feel uncomfortable charging "rent" realize your child must allow for rent in their future budget. You are not helping him/her live independently by providing a cushion. If charging rent truly bothers you, put the weekly money in a savings account and give the money to them after they move out.
Yes, they are your children. Yes, you love them. Your goal is to raise healthy, social, independent, responsible human beings. A Family Contract facilitates respect and growth for all concerned.
Be $ Smart - Make your children welcome but not so comfortable to jeopardize their future or your retirement.
Friday, February 26, 2016
Creating an Investment Strategy - Part 2
Last week we took the initial steps in developing an investment strategy. Did you write them down? Putting things in writing (goals, promises, commitments) adds a dimension, a connection to the universe that helps propel you forward.
As you build your strategy here are some steps to follow:
1. State your investment goals and objectives clearly.
(some goals might be retirement, new home, kids education, second home, world travel, build wealth.)
2. Determine your time horizon.
(next year, in five years, 10 years? Time helps gauge the amount of risk.)
For multiple goals you may have multiple time frames.
3. Describe your return expectations.
(low risk = low return, high risk brings higher potential for both gain/loss.)
4. Detail the level of risk you are willing to take.
(I call this the "sleep factor" - how much money must I keep absolutely safe in order to sleep at night. Set that money aside in safe investments: CD's, U.S. Treasuries, stable value funds, and invest the rest accordingly.)
5. Assess your liquidity needs.
(how much cash must you be able to get at any given time.)
This keeps you from selling investments at the wrong time.
6. Decide who will monitor your portfolio?
(you, a broker, a money manager?)
7. Include a schedule for rebalancing your asset allocation ( mixture of stocks, bonds, cash, alternatives) - quarterly, annually?
Each component will grow at a different rate; rebalancing brings them back to your original proportions.
Be $ Smart - follow the steps, write them down, create your strategy, build your wealth.
Next time we will view a sample investment strategy.
As you build your strategy here are some steps to follow:
1. State your investment goals and objectives clearly.
(some goals might be retirement, new home, kids education, second home, world travel, build wealth.)
2. Determine your time horizon.
(next year, in five years, 10 years? Time helps gauge the amount of risk.)
For multiple goals you may have multiple time frames.
3. Describe your return expectations.
(low risk = low return, high risk brings higher potential for both gain/loss.)
4. Detail the level of risk you are willing to take.
(I call this the "sleep factor" - how much money must I keep absolutely safe in order to sleep at night. Set that money aside in safe investments: CD's, U.S. Treasuries, stable value funds, and invest the rest accordingly.)
5. Assess your liquidity needs.
(how much cash must you be able to get at any given time.)
This keeps you from selling investments at the wrong time.
6. Decide who will monitor your portfolio?
(you, a broker, a money manager?)
7. Include a schedule for rebalancing your asset allocation ( mixture of stocks, bonds, cash, alternatives) - quarterly, annually?
Each component will grow at a different rate; rebalancing brings them back to your original proportions.
Be $ Smart - follow the steps, write them down, create your strategy, build your wealth.
Next time we will view a sample investment strategy.
Monday, January 25, 2016
Riding the Roller Coaster
I have never been a fan of roller coasters; I consider them torture. Yet my older son can spend an entire day riding them - the higher, twistier, upside-down/inside-out, the better! But even he is not enjoying the volatile ride the markets have been taking these past few weeks and months.
Some folks view roller coasters as frightening.
Some find them exhilarating. How do you react to market volatility?
I will assume you have some money invested in the stock/bond/commodity markets. Maybe you have a 401k through work, an IRA or a 529 plan that holds a variety of funds.
Hold on tight, close your eyes, go for the ride!
1. DO NOT, repeat Do Not watch the TV constantly monitoring the daily market moves. We all know TV sensationalizes events.
2. Do Not check your accounts hourly, daily or weekly. This breeds dread, confusion and despair. Reviewing quarterly reports will suffice.
3. Take advantage of the opportunity to buy low if this is part of your investment strategy to increase certain positions. Yes, stocks may go a bit lower but they are way down from frothy highs. Remember "buy low, sell high".
4. Reassess your risk tolerance. Have you been anxious, upset and losing sleep these past few weeks? Perhaps you thought you could handle more risk. Or maybe you are closer to retirement or buying a house and feel the need to be more protective of your money. Give yourself some time before reallocating.
5. Hopefully you have an investment strategy, If so, stick with it. If not, now is not the time to implement one.
A good investment strategy will help you ride out the peaks and valleys of the market and provide guidance in achieving your financial goals.
In times like these it is helpful to remember, in order to generate the type of long-term returns that create wealth, you must accept a certain amount of risk. With that risk comes volatility. The key is not to take steps to avoid the risk altogether, but to manage the risk where possible.
Be $ Smart - Imagine the market as a living, breathing organism. It cannot inhale or exhale indefinitely. Have a plan to take advantage of market moves.
Some folks view roller coasters as frightening.
Some find them exhilarating. How do you react to market volatility?
I will assume you have some money invested in the stock/bond/commodity markets. Maybe you have a 401k through work, an IRA or a 529 plan that holds a variety of funds.
Hold on tight, close your eyes, go for the ride!
1. DO NOT, repeat Do Not watch the TV constantly monitoring the daily market moves. We all know TV sensationalizes events.
2. Do Not check your accounts hourly, daily or weekly. This breeds dread, confusion and despair. Reviewing quarterly reports will suffice.
3. Take advantage of the opportunity to buy low if this is part of your investment strategy to increase certain positions. Yes, stocks may go a bit lower but they are way down from frothy highs. Remember "buy low, sell high".
4. Reassess your risk tolerance. Have you been anxious, upset and losing sleep these past few weeks? Perhaps you thought you could handle more risk. Or maybe you are closer to retirement or buying a house and feel the need to be more protective of your money. Give yourself some time before reallocating.
5. Hopefully you have an investment strategy, If so, stick with it. If not, now is not the time to implement one.
A good investment strategy will help you ride out the peaks and valleys of the market and provide guidance in achieving your financial goals.
In times like these it is helpful to remember, in order to generate the type of long-term returns that create wealth, you must accept a certain amount of risk. With that risk comes volatility. The key is not to take steps to avoid the risk altogether, but to manage the risk where possible.
Be $ Smart - Imagine the market as a living, breathing organism. It cannot inhale or exhale indefinitely. Have a plan to take advantage of market moves.
Sunday, October 25, 2015
Creative Housing
This topic presents itself to me many times as I meet with clients. Housing can be a huge chunk of our monthly expenses. "Rule of thumb" says housing costs should be about 30% of our income. For someone making $250,000 that's not usually a problem. Those making $35,000, it's a big problem especially if it means they must cut back on food, medicine or fun.
We tend to be a nation of independents - we drive solo instead of carpooling; we live alone rather than communally. With rent and housing costs rising, more and more people, especially single women, feel the financial strain. Also, if we believe what financial companies tell us, many folks have not saved enough for retirement. Where will these retirees live?
If housing cost concern you, here are a few ideas to consider:
- Try house sitting. Snow birds, avid travelers, professors on sabbatical all leave behind empty houses. These vacant homes beg for care, protection from burglaries and leaks.
- Become a live-in nanny. Many two income families could use help with the children after school and doing homework. You could live with the wealthy and get paid for it.
- Become an elderly companion. "Aging in place" is a concept that's taking hold nationwide. Often the elderly would prefer to live (and die) in their own home. You find one person living in large houses and multi-bedroom apartments. They would be happy to exchange a room for companionship and some care,
- Become a vagabond. If you can work from home and your only need is wifi, try wandering in an RV. Part time volunteer work can be found at National Parks, museums and fairs.
- House share. In many parts of the country, single women are buying houses together. They write a contract that covers costs, visitors, kitchen privileges, repairs, etc. Once all the components are put in writing, it's simple to follow the rules.
- Rent a room. Empty Nester's often have one or more bedrooms empty when their kids go off to college or get married. They may be eager to earn a few dollars to help pay for the mortgage or repairs. Such an arrangement might prove mutually beneficial.
Be $ Smart - review your housing costs and entertain ways to live creatively.
We tend to be a nation of independents - we drive solo instead of carpooling; we live alone rather than communally. With rent and housing costs rising, more and more people, especially single women, feel the financial strain. Also, if we believe what financial companies tell us, many folks have not saved enough for retirement. Where will these retirees live?
If housing cost concern you, here are a few ideas to consider:
- Try house sitting. Snow birds, avid travelers, professors on sabbatical all leave behind empty houses. These vacant homes beg for care, protection from burglaries and leaks.
- Become a live-in nanny. Many two income families could use help with the children after school and doing homework. You could live with the wealthy and get paid for it.
- Become an elderly companion. "Aging in place" is a concept that's taking hold nationwide. Often the elderly would prefer to live (and die) in their own home. You find one person living in large houses and multi-bedroom apartments. They would be happy to exchange a room for companionship and some care,
- Become a vagabond. If you can work from home and your only need is wifi, try wandering in an RV. Part time volunteer work can be found at National Parks, museums and fairs.
- House share. In many parts of the country, single women are buying houses together. They write a contract that covers costs, visitors, kitchen privileges, repairs, etc. Once all the components are put in writing, it's simple to follow the rules.
- Rent a room. Empty Nester's often have one or more bedrooms empty when their kids go off to college or get married. They may be eager to earn a few dollars to help pay for the mortgage or repairs. Such an arrangement might prove mutually beneficial.
Be $ Smart - review your housing costs and entertain ways to live creatively.
Monday, June 8, 2015
Another Type of Diversification
Over the past few weeks we have talked about diversification within your portfolio. We use diversification to reduce potential risk. Another kind, tax diversification, occurs with the types of accounts in which you hold your assets and how withdrawals are taxed.
No matter how you make your money, Uncle Sam is waiting to take his share. You can structure withdrawals to be tax efficient and lower your tax burden. This is especially effective during retirement. For you to have income choices you must build these accounts prior to retirement, while you are young and in the "accumulation" phase of your life.
A well diversified portfolio will hold a mixture of assets - stocks, bonds, cash, real estate, precious metals, etc. Creating a tax-diverse portfolio means you hold assets in taxable, tax-deferred and tax-free accounts.
A trained advisor will scrutinize a retirement plan for tax efficiency. You want to minimize taxes by taking income from specific accounts.
Remember, money held in tax-deferred accounts (traditional IRA, 401k,etc.) is fully taxed as ordinary income on withdrawal paying both state and federal taxes.
If all your assets are tax-deferred, every withdrawal will count as income and could push you into a higher tax bracket. For example, say you need $60,000 a year for income, you must withdraw $72,000 to cover the 20% withholding. Add that to Social Security or pension income, you could bet bumped into the next tax bracket. But, if you could take $40,000 ($48,000 less 20%) from the IRA, $10,000 from your taxable account(paying some capital gains tax) and $10,000 from your Roth (tax-free), you maintain a lower taxable income.
Be $ Smart - build your savings in different types of accounts for tax efficiency.
Be sure to consult your tax advisor for specifics.
No matter how you make your money, Uncle Sam is waiting to take his share. You can structure withdrawals to be tax efficient and lower your tax burden. This is especially effective during retirement. For you to have income choices you must build these accounts prior to retirement, while you are young and in the "accumulation" phase of your life.
A well diversified portfolio will hold a mixture of assets - stocks, bonds, cash, real estate, precious metals, etc. Creating a tax-diverse portfolio means you hold assets in taxable, tax-deferred and tax-free accounts.
A trained advisor will scrutinize a retirement plan for tax efficiency. You want to minimize taxes by taking income from specific accounts.
Remember, money held in tax-deferred accounts (traditional IRA, 401k,etc.) is fully taxed as ordinary income on withdrawal paying both state and federal taxes.
If all your assets are tax-deferred, every withdrawal will count as income and could push you into a higher tax bracket. For example, say you need $60,000 a year for income, you must withdraw $72,000 to cover the 20% withholding. Add that to Social Security or pension income, you could bet bumped into the next tax bracket. But, if you could take $40,000 ($48,000 less 20%) from the IRA, $10,000 from your taxable account(paying some capital gains tax) and $10,000 from your Roth (tax-free), you maintain a lower taxable income.
Be $ Smart - build your savings in different types of accounts for tax efficiency.
Be sure to consult your tax advisor for specifics.
Tuesday, February 10, 2015
Use Tax Season to Put Your Financial House in Order
My least favorite time of year has arrived - TAX season!
It takes days to gather all the 1099's, W-2's, etc. I take over the dining room table with papers spread over every inch. Fortunately, I also have a kitchen table where I eat my meals.
With everything out in the open, this presents a perfect opportunity to organize your finances.
Try to implement one of these suggestions:
1. Use a 3-ring binder to organize statements. Even if you receive statements online, it may be helpful to print the summary page for each financial institution. Use dividers to separate each. This helps you to compare monthly or quarterly values. Are you making money?
2. Create an annual Net Worth statement. List all the assets you own - house, condo, car, 401k, IRA, etc. and their current value. Add them up. List what you owe (liabilities) - car loan, student loan, mortgage, credit card balances, etc. Add them up. Subtract what you owe from what you own. That number is your Net Worth. Each year compare the bottom line. Are you growing your wealth?
3. Increase your savings amount. Pay yourself first.
Are you on track to buy that car or condo? Set up direct deposit from your checking account to your savings account.
For retirement, increase your contribution to your 401k/403b by 1%.
Be $ Smart - Use tax season to build your financial independence.
It takes days to gather all the 1099's, W-2's, etc. I take over the dining room table with papers spread over every inch. Fortunately, I also have a kitchen table where I eat my meals.
With everything out in the open, this presents a perfect opportunity to organize your finances.
Try to implement one of these suggestions:
1. Use a 3-ring binder to organize statements. Even if you receive statements online, it may be helpful to print the summary page for each financial institution. Use dividers to separate each. This helps you to compare monthly or quarterly values. Are you making money?
2. Create an annual Net Worth statement. List all the assets you own - house, condo, car, 401k, IRA, etc. and their current value. Add them up. List what you owe (liabilities) - car loan, student loan, mortgage, credit card balances, etc. Add them up. Subtract what you owe from what you own. That number is your Net Worth. Each year compare the bottom line. Are you growing your wealth?
3. Increase your savings amount. Pay yourself first.
Are you on track to buy that car or condo? Set up direct deposit from your checking account to your savings account.
For retirement, increase your contribution to your 401k/403b by 1%.
Be $ Smart - Use tax season to build your financial independence.
Friday, October 10, 2014
Social Security Estimate of Benefits - a valuable tool!
Many years ago, the Social Security administration did not mail benefit estimates. You had to visit one of their offices to learn what you might receive at retirement. Then in 1999 they began mailing them. With the advent of the Internet, they stopped mailing mid-2011 as a cost cutting measure. Now, by popular request, they will send the statements to those workers 25, 30, 35, etc. Every 5 years you will be mailed a statement until you are 60, then it will come every year.
What is so important about this statement?
It is a valuable financial planning tool that gives workers important information about their earnings, tax contributions and estimates for retirement, disability and survivor benefits!!
If your estimated benefits will pay you $1800 per month and you need $5000 a month to live, then you know you need to save enough to provide $3200 monthly.
It can be a real wake-up call to start saving! Every five years it can be a beneficial jolt to make you sit down and calculate if you are on track for retirement. The numbers may reveal that you must work longer than you planned.
You may view your benefits more frequently if you open a MySocialSecurity account online. Go to SSA.gov and input your SS number, mailing address and valid e-mail address. There will be security questions only you will know that match the information on file with SS.
With an online SS account you will receive an annual reminder to verify and update your information. It is critical to review your earnings as sometimes there may be errors. SS gives only a limited time to correct any earnings errors.
Be $ Smart - know your estimated SS benefits. Open a SS account online.
What is so important about this statement?
It is a valuable financial planning tool that gives workers important information about their earnings, tax contributions and estimates for retirement, disability and survivor benefits!!
If your estimated benefits will pay you $1800 per month and you need $5000 a month to live, then you know you need to save enough to provide $3200 monthly.
It can be a real wake-up call to start saving! Every five years it can be a beneficial jolt to make you sit down and calculate if you are on track for retirement. The numbers may reveal that you must work longer than you planned.
You may view your benefits more frequently if you open a MySocialSecurity account online. Go to SSA.gov and input your SS number, mailing address and valid e-mail address. There will be security questions only you will know that match the information on file with SS.
With an online SS account you will receive an annual reminder to verify and update your information. It is critical to review your earnings as sometimes there may be errors. SS gives only a limited time to correct any earnings errors.
Be $ Smart - know your estimated SS benefits. Open a SS account online.
Thursday, July 17, 2014
THE Important Conversation
Too many families are avoiding THE important conversation. No, not the one about the birds and the bees; the one about estate planning. Estate means what you own and planning means how it will be used in the future. You don’t have to own much to do some estate planning.
Maybe you are young and have not built your estate yet but chances are you have parents who have accumulated a few things. You need to know what they have done about estate planning. It then becomes tricky. You hesitate to ask your parents about their retirement or estate plans. You might not want to appear greedy or eager to see them pass on. Your parents are reluctant to share this information with you for fear of giving you hopes (or disappointment) about inheritance. So everyone is in the dark!
Not having “the important conversation” can lead to misconceptions. Who will care for your aging parents? You? Your sibling? Or are you hoping your parents will have the resources to move into an assisted living facility? Won’t you be surprised when they decide to move in with you! Or better yet, take your inheritance and buy a fancy home in St. Thomas.
Do your parents have sufficient income to stay in their own home? Will they need both physical and financial help from you along the way? Maybe they have sufficient assets to live a long and comfortable life. How will you know, as they age, if they have participated in some scam that could drastically reduce their assets unless you know what assets they have?
At first it might feel awkward. Start with a few simple questions like: how are you and dad doing? What are your plans for the future? How will you make that happen? It might take two or three tries but eventually they will open up and you’ll all feel better.
If you are the parent, make time to have THE conversation with your children or loved ones.
Be $ smart - give yourself and your parents peace of mind. Have THE conversation.
Maybe you are young and have not built your estate yet but chances are you have parents who have accumulated a few things. You need to know what they have done about estate planning. It then becomes tricky. You hesitate to ask your parents about their retirement or estate plans. You might not want to appear greedy or eager to see them pass on. Your parents are reluctant to share this information with you for fear of giving you hopes (or disappointment) about inheritance. So everyone is in the dark!
Not having “the important conversation” can lead to misconceptions. Who will care for your aging parents? You? Your sibling? Or are you hoping your parents will have the resources to move into an assisted living facility? Won’t you be surprised when they decide to move in with you! Or better yet, take your inheritance and buy a fancy home in St. Thomas.
Do your parents have sufficient income to stay in their own home? Will they need both physical and financial help from you along the way? Maybe they have sufficient assets to live a long and comfortable life. How will you know, as they age, if they have participated in some scam that could drastically reduce their assets unless you know what assets they have?
At first it might feel awkward. Start with a few simple questions like: how are you and dad doing? What are your plans for the future? How will you make that happen? It might take two or three tries but eventually they will open up and you’ll all feel better.
If you are the parent, make time to have THE conversation with your children or loved ones.
Be $ smart - give yourself and your parents peace of mind. Have THE conversation.
Wednesday, June 4, 2014
The Tortoise and the Hare - $ Version
So many folks postpone saving for retirement "until I get on my feet". That day can be very illusive! Below is an example of how starting early gives you a head start towards a winning goal. ($5000 a year breaks down to $416.66 per month or $96.15 per week.)
Angie, age 30, decides to begin saving for retirement this year. She invests $5,000 a year and earns a constant 6% return. After ten years, she stops making contributions but lets the money remain in the investment, earning 6% annually, for her retirement at age 65. Dave, also age 30, does not begin to save for retirement until ten years later when he is 40 years old. From age 40 until age 65, he contributes $5,000 annually, earning a constant 6 percent return.
By the time Angie and Dave reach age 65, Angie will have invested a total of $50,000, while Dave will have invested $125,000. Intuitively, one might assume that Dave will have accumulated more. However, in 35 years, Angie will have a total of almost $225,000; Dave will have accumulated just less than $195,000.
Accumulated Amounts
Angie—$5,000 annual contributions for 10 years;
$50,000 total contributions
Year 1 $5,300
Year 5 29,877
Year 10 69,858
Year 11 Contributions cease
Year 15 93,486
Year 20 125,005
Year 25 167,419
Year 30 $224,045
Dave—$5,000 annual contribution beginning in year 11 for 25 years;
$125,000 total contributions
Year 1 $0
Year 5 0
Year 10 0
Year 11 Contributions begin
Year 15 29,877
Year 20 69,858
Year 25 123,363
Year 30 $194,964
The numbers in this chart assume all contributions are made at once at the beginning of each year; 6 percent interest is calculated and applied at the end of each year. Source: WebCE
The secret is compound growth over time. Dave put aside $75,000 more than Angie but had fewer years of the money building on itself - compound growth.
Be $ smart, start saving early!
Angie, age 30, decides to begin saving for retirement this year. She invests $5,000 a year and earns a constant 6% return. After ten years, she stops making contributions but lets the money remain in the investment, earning 6% annually, for her retirement at age 65. Dave, also age 30, does not begin to save for retirement until ten years later when he is 40 years old. From age 40 until age 65, he contributes $5,000 annually, earning a constant 6 percent return.
By the time Angie and Dave reach age 65, Angie will have invested a total of $50,000, while Dave will have invested $125,000. Intuitively, one might assume that Dave will have accumulated more. However, in 35 years, Angie will have a total of almost $225,000; Dave will have accumulated just less than $195,000.
Accumulated Amounts
Angie—$5,000 annual contributions for 10 years;
$50,000 total contributions
Year 1 $5,300
Year 5 29,877
Year 10 69,858
Year 11 Contributions cease
Year 15 93,486
Year 20 125,005
Year 25 167,419
Year 30 $224,045
Dave—$5,000 annual contribution beginning in year 11 for 25 years;
$125,000 total contributions
Year 1 $0
Year 5 0
Year 10 0
Year 11 Contributions begin
Year 15 29,877
Year 20 69,858
Year 25 123,363
Year 30 $194,964
The numbers in this chart assume all contributions are made at once at the beginning of each year; 6 percent interest is calculated and applied at the end of each year. Source: WebCE
The secret is compound growth over time. Dave put aside $75,000 more than Angie but had fewer years of the money building on itself - compound growth.
Be $ smart, start saving early!
Taxable - Tax-exempt - Tax-deferred - Tax-free
Clients often ask me to explain the differences among their various accounts. Taxes play an important role in how you invest and how much money you will be able to keep after paying taxes.
The following are simple explanations. For expert tax guidance please speak with your accountant or tax attorney.
Taxable: an account that holds money on which you have already paid taxes - e.g. bank checking or savings accounts or brokerage accounts. These accounts may have stocks, bonds, CD's, etc. Every year you receive a 1099 of all reportable earnings, dividends and interest. You enter these numbers on your tax return and pay taxes accordingly.
Tax-exempt: refers to bonds (loans) issued by municipalities (states, cities, towns, counties). These bonds are exempt from federal taxes. As an incentive to its residents to buy these bonds, which finance local projects, you pay no state taxes on the interest. As a NY resident, if you purchase a NY State bond, it will be double tax exempt as you will pay no state or federal taxes on the interest. However, NY reserves the right to tax the interest earned on other states' bonds.
Tax-deferred: means you pay no taxes now but when you withdraw the money both state and federal taxes are due. IRA, SEP, 401k, 403b all grow tax-deferred. Your 401k or 403b plan from work will take money from your paycheck before deducting taxes, deposit the money into your plan where it will grow tax-deferred (you will not receive a 1099 each year). Taxes will be paid when you start withdrawing money from these accounts later in retirement. The money will be taxed, as your income is taxed, both by the state and the federal government. Hopefully, in retirement you will be in a lower tax bracket and, consequently, pay less in taxes.
Tax-free: refers to a Roth IRA where money grows without paying taxes each year and is distributed without being taxed. Actually, the money contributed to most Roth IRA's is money on which you have already paid taxes; it is the earnings (growth) that are tax-free.
Be $ smart. Know your tax rate. Learn about the impact of taxes on your investments.
The following are simple explanations. For expert tax guidance please speak with your accountant or tax attorney.
Taxable: an account that holds money on which you have already paid taxes - e.g. bank checking or savings accounts or brokerage accounts. These accounts may have stocks, bonds, CD's, etc. Every year you receive a 1099 of all reportable earnings, dividends and interest. You enter these numbers on your tax return and pay taxes accordingly.
Tax-exempt: refers to bonds (loans) issued by municipalities (states, cities, towns, counties). These bonds are exempt from federal taxes. As an incentive to its residents to buy these bonds, which finance local projects, you pay no state taxes on the interest. As a NY resident, if you purchase a NY State bond, it will be double tax exempt as you will pay no state or federal taxes on the interest. However, NY reserves the right to tax the interest earned on other states' bonds.
Tax-deferred: means you pay no taxes now but when you withdraw the money both state and federal taxes are due. IRA, SEP, 401k, 403b all grow tax-deferred. Your 401k or 403b plan from work will take money from your paycheck before deducting taxes, deposit the money into your plan where it will grow tax-deferred (you will not receive a 1099 each year). Taxes will be paid when you start withdrawing money from these accounts later in retirement. The money will be taxed, as your income is taxed, both by the state and the federal government. Hopefully, in retirement you will be in a lower tax bracket and, consequently, pay less in taxes.
Tax-free: refers to a Roth IRA where money grows without paying taxes each year and is distributed without being taxed. Actually, the money contributed to most Roth IRA's is money on which you have already paid taxes; it is the earnings (growth) that are tax-free.
Be $ smart. Know your tax rate. Learn about the impact of taxes on your investments.
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