Investing & Retiring


ModestMoney.com Top Finance Blogs

Archives

hands-691499_640

We all dream of becoming millionaires one day and enjoying all of our wealth. Some of us might read books and articles on tips for how to become a millionaire while others of us try the get rich quick approach in hopes of turning our $100 into $100 million overnight. Unfortunately, this option takes us further from our goal rather than helping us achieve it. The real way to become a millionaire and retire early is part hard work and part habit. In this post, I will show you 3 habits that you need to embrace so that becoming a millionaire and retiring early becomes a reality for you.

3 Habits For Growing Your Wealth And Retiring Early

#1. Use Time To Your Advantage

This is probably the most critical habit for us to embrace, using time to our advantage. You need to make sure you don’t waste time. How do we waste time? A few examples include getting lost on Facebook, Twitter, watching TV, etc. I’m not saying you can’t use any of this technology any more, but what I am saying is to make sure you limit it. This is what the most successful people do and you should too.

Spend your time doing something useful. Read, take a class, enjoy a hobby, start a side business, hang out with your family. Any of these options help you grow and become a better person. They also help you to realize what is really important in life.

When you realize this, your priorities shift. You stop overspending on things that aren’t important to you and focus more on the things and experiences that matter. This is the first step in getting your spending and focus under control so you can grow your wealth and retire early.

(more…)

boards-2040575_640

No matter what your age, day by day and minute by minute you are moving closer and closer to retirement.

For some people, the idea of retirement seems so far off in the future they tend to dismiss it. For others, it’s just around the corner.

But if you have been thinking about your retirement lately and it scares you even a little, here’s how you can avoid the fear of retirement.

Hire a Financial Planner

One way to help ease the fear of retirement, no matter how close or far from it you are, would be to hire a financial planner. Make sure it is someone you are comfortable with and then get started formulating a plan for your retirement that works for you and any family you may have. When you meet you will likely evaluate your current finances, make goals for your retirement, and formulate a plan for how to get there.

(more…)

The Labor Department recently announced new rules for retirement planning advice that could save investors a lot of money. Put simply, the new rules require brokers and advisers to put their clients’ interests first when offering retirement planning advice. While it seems as if this is something that the brokers and investment advisers should already be doing, these rules are designed to make sure that all advisers are in compliance. Financial firms would have until January 2018 to get into compliance.

New Standards Under The Rules

The new rules create a new standard for brokers and advisers that is stricter than current regulations. Currently, brokers are categorized as registered representatives and are only required to recommend “suitable” investments based on an investor’s personal situation. After the implementation of the new rules, a broker that is handling retirement investments must act exclusively in your best interest, even if it would cost the broker some potential income. Investment advisers, who generally must register with the Securities and Exchange Commission or a state securities regulator, are already charged with putting their customers’ interests first under a fiduciary standard, regardless of what accounts they work with.

The rules from the Labor Department are intended to guard retirement investors from poor or conflicted investment advice. According to an estimate from the White House Council of Economic Advisers, conflicted investment advice costs these savers roughly $17 billion a year. The implementation of the rule should reduce the number of retirement savers being steered into complicated and pricey investments, leaving them with more money in their accounts.

The rules are also supposed to improve disclosures about conflicts of interest. In many cases, a firm is paid by a mutual fund company or other third party for recommending a particular investment. While the new rule won’t ban commissions, brokers may have to explain why they are recommending a particular product when a less expensive option is available. Some firms may decide to move investors from commission-based accounts to fee-based accounts, where what brokers and advisers are paid would not depend on the type of investment product they sell.

What Industry Insiders Say About The New Rules

Critics have voiced concerns that the new rules would not go far enough to properly protect investors. The final rules clarifies that there is no bias against selling proprietary products. It also has no specific language regarding the need to disclose the amount of fees and other charges being paid. These issues have been responsible for many of the problems and abuses seen in litigation and arbitration against brokerage firms over the years.

However, many proponents of the rule change said they believe the final rule is balanced on the whole, including the Financial Planning Coalition and the Consumer Federal of America. Regulators are requiring firms that only sell proprietary products to fully disclose that they are offering a restricted menu of products and they must offer a best-interests contract to customers. All new money being invested must be in the best interest of the client and any new retirement planning advice for money already invested must be as well. If advisers do not adhere to the standards, retirement investors would have greater recourse to recover their money.

Saving for retirement is a very important part of financial planning. Having a goal for your retirement savings can keep you on the right track, but meeting those goals can be difficult. A recent survey conducted by Capital One Bank found that only a third of respondents accomplished their financial goals last year. This year, you can improve your performance by following these simple retirement savings tips that boost your retirement account balances.

Automate Your Retirement Account Deposits

One of the best ways to boost your retirement savings is to automate your deposits into you retirement accounts. This allows you to save continuously without exerting any effort, making it more likely that you will reach your savings goals. Your employer does this for you with 401k accounts and other workplace based retirement plans by taking the deposits directly out of your paycheck. With IRAs and other retirement accounts, you can set up a direct transfer from your bank account through your bank’s online features.

Take Advantage Of Free Money

If your employer offers matching contributions for a 401k account or other workplace-based retirement plan, take advantage of the free money to boost your retirement savings. The matching funds are desposited directly into your retirement account where it can grow until it is needed. Many employers offer a percentage of wages as matching funds, so be sure to contribute enough to get the entire match amount.

Aim For The Maximum Contribution

The IRS has instituted maximum contribution amounts for retirement accounts to prevent abuse of the system. The maximum contribution amounts for 2016 are $18,000 for 401(k), 403(b), and most 457 plans for account holders age 49 and under. Those age 50 and over can contribute an additional $6,000 for the calendar year. For traditional and ROTH IRAs, the contribution limit for 2016 is $5,500. Those age 50 and older can contribute an additional $1,000.

Don’t Tap Your Retirement Savings

If you want your retirement account balances to grow into the amount you need for a secure retirement, you must refrain from tapping into the funds. Some people treat their retirement accounts like emergency accounts and withdraw money when they have a big unfunded expense. Taking out the money prevents you from taking advantage of the compound interest vital to growing a retirement account balance quickly. Set up a separate emergency account with at least $3,000 to use in the event of an unexpected expense.

A majority of Americans are afraid that they won’t have enough money saved for retirement to live comfortably. According to a recent report from the Transamerica Center for Retirement Studies, nearly half of current retirees say they waited too long to begin saving for retirement and 61 percent of respondents expect Social Security to be their primary source of retirement income. Fortunately, it is never too late to boost retirement savings. Here are some tips that can help you reach your retirement savings goals.

Start Saving More Now

The sooner you start saving more for retirement, the bigger the benefits will be. If you have not yet started saving for retirement, start with $100 and go from there. Every dollar that you are able to sock away will grow through interest until the money is withdrawn in retirement. Thanks to the power of compound interest, small contributions can grow to big balances over the years. Start saving whatever you can today.

Take Advantage Of 401(k) Benefits

A traditional employer-based 401(k) plan allows you to contribute pre-tax money to boost retirement savings, which can be a significant advantage. These plans let you can invest more of your income without feeling it as much in your monthly budget since that money comes out of your paycheck before taxes are assessed. Many employers also offer matching contributions for the accounts, essentially giving you free money to save for retirement. Make sure you contribute enough to get the full employer match.

Boost Retirement Savings Further With An IRA

Saving money in an individual retirement account (IRA) is another good way to build your nest egg. Contributions to traditional IRAs may be tax-deductible and the investment earnings have the opportunity to grow tax-deferred until you make withdrawals during retirement. There are several different types of IRA available, so do some research to determine which one is right for you before you open an account.

Automate Your Retirement Savings

Automating your retirement savings lets you save for retirement without having to think about it. Workplace based retirement plans makes this easy for you by deducting your retirement plan contributions from your paycheck each pay period. Banks and brokerages that hold retirement accounts often have ways for you to automate your contributions and investment selections through their websites. A set-it-and-forget-it plan is one of the best ways to ensure that you continue saving for retirement.

If you are over the age of 70 ½ and you have not yet taken your required retirement plan distributions for this year, there is no time to spare. These distributions from your retirement accounts must be taken before December 31 or you will face a hefty tax penalty. Most retired individuals are required to withdraw a minimum distribution amount each tax year. Here are some things you should know about required retirement plan distributions.

Who Is Affected?

All taxpayers born before July 1, 1945 with money in a workplace retirement plan, like a 401k plan, 457b plans, or a 403b plan, or an traditional individual retirement plan (IRA), Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) must take required retirement plan distributions of a minimum amount before the end of the calendar year.

Taxpayers born after June 30, 1944 and before July 1, 1945 are eligible for a special rule that allows them to wait until as late as April 1, 2016 to take their first required retirement plan distributions. Payments made to these taxpayers in early 2016 can count toward their 2015 required distribution, but are still taxable in 2016. For all subsequent years, the required distribution must be made by December 31.

For certain retirement plans, employees who are still working can postpone taking these distributions until April 1 of the year after they retire. The required distribution rules do not apply to owners of Roth IRAs while the original owner is alive.

How Much Money Must Be Withdrawn?

The amount of the required retirement plan distributions that must be taken is based on a calculation that includes the taxpayer’s life expectancy on December 31, 2015 and their account balance on December 31, 2014. In most cases, the amount of the required withdrawal will be reported by the IRA trustee on Form 5498 in Box 12b.

For example, based on Table III (Uniform Lifetime Table) in IRS Publication 590-B, a taxpayer who turned 72 in 2015 would have a life expectancy of 25.6 years. There is a different table for taxpayers who name a spouse more than 10 years younger than them as their only beneficiary.

The typical taxpayer turning 70 ½ this year has a 3.6 percent required distribution amount, meaning they must withdraw that percentage of the total value of their retirement accounts. If all of the taxpayer’s eligible retirement accounts added up to $100,000, they would take a $3,600 distribution and pay $900 in taxes, assuming that they fell within a 25 percent tax bracket.

What Is The Penalty?

The penalty for failing to take this payment by the end of the year is 50 percent of what should have been withdrawn. For the average taxpayer, this could amount to thousands of dollars.

Other Things To Know

Required retirement plan distributions from multiple IRAs or workplace retirement plan accounts can be taken from each account or the amounts can be combined with like accounts and taken from just one account. For example, if you have two eligible IRAs, the withdrawal amounts for both accounts can be taken from a single account. However, the withdrawal amount for an IRA cannot be taken from a 401k account and vice versa.

A recent study released by the Government Accountability Office reported that the average amount that those within 10 years of retirement have in retirement savings is just over $100,000 and those over 65, almost $150,000. This highlights a problem; the former only represents a figure of $310, the latter $650 as a monthly payment, protected against inflation. There is no way that these figures, even supported by Social Security benefits, can provide anything like a comfortable retirement.

These figures are depressing enough. Up to 30% of people over 55 have no retirement savings at all. They will only have Social Security to help them when they retire. Even then the System is under pressure. With people living longer and fewer paying in by the mid-2030s the present level of benefits are unsustainable without the input of significant additional funds. That means taxation and there is not a majority in Congress at present prepared to sanction that. Present estimates suggests benefits would have to fall by around 25% and they are already insufficient to provide that comfortable retirement.

Personal Provisions

There are several ways to provide for retirement and it is never too early to start to save.  One of the best ways is through a 401K in which employers will match individual contributions up to a certain level. Those beginning a 401K in their 20s are probably making their best ever financial decision. There are individual retirement accounts and defined benefit plans. There are various tax benefits to consider when thinking about what to do and professional advice can be invaluable.

More people should look at these things as a matter of urgency because Social Security remains the major income coming into a household in the USA where the occupants have retired.

Start Early

It is only possible to build up an adequate fund if you start early. If you seek professional advice you are likely to be told that you should aim to have a fund equivalent to eight times your annual salary when you retire. To do that you must start young so that you have twice your annual salary at 40, and four times at 50.

Take Action

Ordinary people will only be able to build such a fund if they have their finances in good order. That means not carrying debt which incurs a high level of interest. Balances on credit and store cards are typical of this and should be paid off as a matter of urgency; a consolidation personal loan is a good way to do this. If you look online you should be able to find a good installment credit provider that will approve a realistic application if you provide details of your regular income.

There are some other things you can do to create a surplus. They include looking to see whether you are getting competitive utilities, as well as checking on your telephone network and insurance costs. It does not mean great sacrifice, just a little time, to see whether you are spending too much. Of course if you can also make economies you will have a little more to put aside each month.

The whole thing is about discipline. If you have a properly prepared budget and live by it you can build up savings over time; the main thing is to give yourself time. Even if you have a student loan to pay off when you start your first job you should still be able to put something aside. You need to resist temptation of course because suddenly you will have a regular income that will justify a credit card and a line of credit. If you cannot afford something you should think very seriously before you buy it and effectively spread its cost over a number of months before you have paid for it in full. Any existing balance has high interest added each month.

As people get older they deserve a comfortable retirement. If their health begins to fail there is not a great deal they can do other than get some treatment. If their retirement is uncomfortable because of lack of resources that is self-inflicted if during their working lives they could have saved more. Be warned!

The importance of saving for retirement cannot be overstated. Taking advantage of tax deferred retirement accounts is one of the best ways to build wealth and ensures your financial security in the future.

The government has instituted maximum contribution levels for these retirement accounts to keep the accounts from being abused by the wealthy as tax havens. The maximum contribution amounts for 401(k) plan accounts and IRAs, the two most popular ways of saving for retirement, are $18,000 and $5,500 respectively. These limits rise to $24,000 and $6,500 if you are over the age of 50.

Roughly 43 percent of IRA holders contributed the maximum possible amount in 2013. The rest are giving up a considerable tax break by failing to max out retirement accounts. Here are some of the benefits you would be missing out on.

Lower Your Current Taxable Income

Contributions to tax deferred retirement accounts like 401(k) plan accounts are deducted from your paycheck on a pre-tax basis. This lowers your taxable income each paycheck and lowers your overall tax bill for the year. You may even qualify for additional tax deductions if your taxable income drops below a particular threshold.

Lower Tax Bills In Retirement

Saving money in a retirement account allows you to put away tax-deferred funds during your prime earning years when you are in a high tax bracket and withdraw it in your retirement years when you are likely to be in a lower tax bracket. Progressive tax rates also ensure that not every dollar will be taxed at the maximum allowable rate for your income. Using this strategy can save you tens of thousands of dollars in taxes over your lifetime.

Account Earnings Are Not Taxed For Decades

Account earnings for the retirement accounts are not subjected to taxes until they are withdrawn from the account. This allows the earnings to grow tax-free for decades and your account balance to grow faster. The power of compounding earnings is how a person that puts away a few thousand dollars a year in their twenties can have retirement accounts worth more than a million dollars when they reach their retirement years.

Increasing The Chances You Won’t Outlive Your Savings

One of the biggest fears for people contemplating retirement is that they will outlive their savings and spend their last years in poverty. If you max out retirement accounts while you are still in your prime earning years, the chances that you will outlive your savings decreases substantially. You may even have money left over to leave to the next generation, increasing their financial stability as well.