Retirement Archives - Page 2 of 8

Would Seeing Your Future Self Encourage You to Save More?

One of the tools I played around with recently was the Face Retirement tool from Merrill Edge. The application lets you take a picture of yourself, and then it ages you. You see your potential look at age 47, and every decade after that until you are 107. The idea is that seeing the face of the future, you will be encouraged to save more (and use Merrill Edge to help you).

It was an interesting tool, and I had fun watching the horror that was my potential aging process. (Hint: Don't take the picture when you're sick, and you haven't changed out of your pajamas. It'll just depress you.) However, I'm not sure that just looking at the faces would encourage me to invest more in my retirement years.

Cost of Living Inflation Calculations

aging-face One of the more useful aspects of the tool is a look at inflation. Off to the side, you can see how much the cost of living is likely to rise by the time you reach a certain age (and begin to look like death warmed over). According to Face Retirement, by the time I hit the age 67 in 2047, the cost of living will rise by 222%. The tool also includes a look at what common consumer items will cost in different years. A loaf of bread is supposed to cost more than $7 in 2047, if the current trends hold.

Some of the other items listed, though, seem designed to scare the crap out of you:

Gallon of gas in 2087: $47.14
Wedding in 2067: $169,953
Plan ticket in 2057: $1,935
New car in 2037: $69,000

If nothing else, the tool can be used to give you the worst-case scenario involving the vagaries of inflation over the course of time. And, of course, you will realize that if you aren't careful, there's no way that you'll have enough to retire on and live comfortably. Unless you take your retirement planning up a notch right now.

Planning Ahead for Retirement

I think that the tool might have been even more effective if it was a little more interactive. Answer questions about what you are doing right now, and how it will affect your future. And then make changes to your face based on your possible habits in the future. The reality is that someone who lives comfortably, and has enough saved for retirement, is going to look better than someone who lives in poverty. Health habits, as well as the environment you live in, contribute to your future looks. If you could see how you could expect to look in 40 years with what you're setting aside now, as opposed to what you could look like if you put another $200 a month into your retirement account, that would be far more effective, I think.

What I learned from using Merrill's tool is that I probably need to do a little bit more. I should diversify my income a little more, and I could probably stand to add a little more to the retirement account each month. At the very least, the Face Retirement tool gets you thinking about the future, and reminds you that now is the time to start planning for what's next. If you don't boost your retirement now, you want have to avert your fate later.

What Can You Put In Your IRA?

By Miranda Marquit Leave a Comment

One of the great things about an IRA is that you can hold a number of different investments in the account. While you can hold bonds, stocks, and cash in your IRA, it's also possible to add even more asset classes to your IRA.

When you open a self-directed IRA, you have more options (since you aren't limited by the offerings of a brokerage). You can add real estate to the IRA, as well as certain (not all types of coins can be held in your IRA) gold and silver coins minted by the U.S. Treasury, limited partnerships, mortgages, notes, and even oil and gas royalties. You can also hold your stock options in an IRA.

Right now, there is a lot of interest in diversity, as well as finding ways to shield income from taxes. Putting assets in an IRA is one way to do that while saving up for retirement.

What CAN'T You Put In Your IRA?

Of course, even though many people see IRAs as flexible when it comes to retirement investing, the truth is that you can't just put anything into an IRA — even if you have a self-directed IRA. Some of the assets that can't be held in an IRA include:

Some derivative positions, such as naked call writing
Life insurance
Collectibles

However, even with the items that you can put in your IRA, there are often rules. For example, most coins are considered collectibles, and ineligible for an IRA. However, coins that can also be used as currency can be included in your IRA. You can hold American Eagle (gold and silver) and American Gold Buffalo coins in your IRA. It's also possible to hold Canadian Maple Leaf and Austrian Gold Philharmonics coins in your IRA.

And, even though you can hold real estate in your IRA, there are quite a few rules involved, including one that says that you can't hold property that you actively manage in your retirement account.

Should You Put Alternative Assets In Your IRA?

As always, just because you can do something doesn't mean that you should. It can get pretty tricky to make sure that you are doing everything right with these types of assets. Opening a self-directed IRA can help. Additionally, it's also possible to help keep things separate by opening different IRAs for your alternative investments, such as opening a self-directed IRA devoted just to your real estate holdings.

Remember, too, that some alternative investments come with hefty premiums. You might lose some advantage due to the high prices involved with some investments. That means that you could very well end up with real losses (or gains that aren't as great as expected), even though you feel better about your diversity. Carefully consider the regulations, as well as the costs, before you start adding unusual investments to your IRA. In some cases, you might be better off gaining diversity with the help of trusts, funds, and other more standard investments that are not gray areas for the IRS.

Keeping Sight Of Your Retirement Goals

By Miranda Marquit Leave a Comment

As humans, we often see things in the now. Sometimes, it can be hard to look beyond what is happening right now and see the big picture of the future. It can be easy to forget long-term benefits as we look at short-term possibilities.

However, if you want to reach your goal of a successful retirement, you need to remember the long-term, and spend some time focusing on the big picture things.

keeping sight retirement goals

Don't Let Current Worry Push You into Poor Financial Decisions

One of the worst things you can do is let short-term worries push you into making poor financial decisions. It's easy to panic when the stock market drops. Everyone else is freaking out and selling. Before you join the herd, though, think about the long-term. Over time, the stock market tends to gain. So, if you have well-chosen investments in your account — investments with solid fundamentals, or index funds that track the market — you are more likely to weather the downturns.

Instead of panicking and selling, consider whether or not you should stay the course. Chances are, especially if retirement is still 15 to 20 years away, that your portfolio will recover in the long run. If you panic and sell, you could easily end up missing out on some of the opportunities that come with buying more at a discount, and reaping the benefits later.

Be Wary of Using Your Retirement Account as an Emergency Fund

When times are tough, it can be tempting to ease the current situation with the help of a little extra infusion from the retirement account. It is possible to borrow money from your 401k, and even use your Roth IRA as an emergency fund, without incurring tax penalties. However, while this might be a short-term solution to your current worries, you might not benefit in the long run.

Having that money taken out of your account results in an opportunity cost. You are no longer earning interest on the money, and there is no getting that time back. With the 401k loan, you will probably pay it back (with interest) in order to avoid the tax penalty. However, when you withdraw contributions from your Roth IRA, it's difficult to find the will to repay the money, since there are no penalties for withdrawing your contributions.

Remind Yourself of the End Result

Make it a point to remind yourself of your end result. Sometimes, when we are in the moment, and concerned about what's next, we make snap judgments that put the future at risk. Instead, take a step back, breathe deep, and consider your alternatives. While you might have to turn to your retirement funds at some point in order to stave off a true financial emergency, consider other options first. Can you make more money? Are there ways to cut your expenses?

Really think about how your current actions can affect your future. Realize that there is a very real chance that you end up with serious problems related to your retirement finances if you allow what's happening now to throw you off your long-term goals. Remember the big picture, and take steps to ensure that what you do now will keep you on track.

Best Ways For Young Workers To Save For Retirement

By Contributor 4 Comments

As a young adult, there will be many financial decisions that you will make over a lifetime. These decisions will determine your financial picture that will carry you through life. One of the wisest decisions you can make is to start investing while you are young. There are several ways to do this. By making the right financial choices, you can make sure you are prepared for money challenges in life.

Current retirees depend heavily on the Social Security program that subsidizes retirement income. The Social Security program is weakening every year, as there are not enough workers to contribute tax funds to support the ever-growing retiree population. It is predicted that there will no longer be funds available by the time today's young workers are ready to retire. Young workers are well-advised to make their own provisions for income after retirement.

Retirement Accounts

One of the best investment strategies is to open an IRA. An IRA or an individual retirement account allows you to save and invest during your working years and enjoy your earnings after you retire. Most young workers save with an IRA through their employer. There are, however, options available for the self-employed and young business owners.

If you own your own business or are self-employed, many banks offer the SEP-IRA (simplified employee pension) account that is great for freelancers and small businesses that hire employees.

The Power of Compound Interest

Albert Einstein once described the principle of compound interest as one of the most powerful forces in the world. While he may have been exaggerating, there is some truth to that statement. Compound interest, to put it simply, is the interest that your interest earns, month after month, year after year. If you put your money into an interest-bearing account, the money you earn in interest will also earn interest. This causes your money to snowball at a staggering rate.

One of the strongest advantages that you have is your age. A person who starts to save and invest at 20 has a distinct advantage over someone who starts at 30. The thirty-year-old would have to save almost double the amount of money of the twenty-year-old to earn the same returns at age 65. By starting when you are young, you can save less money and earn more in interest over time.

Saving now for your retirement is the best way to ensure that you will have enough money to live comfortably after your working days.

3 Things To Consider When Investing During Retirement

By Miranda Marquit 2 Comments

Too often, we plan our investments to get us to retirement; we forget that it's a good idea to plan to continue investing through retirement. With life expectancy rising, most of us can expect to be living in retirement for 25, 30, or even 40 years. This means that you can't just put your retirement on automatic, trusting that your portfolio will carry you through without changes. Between inflation, continued fees, and market volatility, it doesn't make sense to assume that the portfolio you have at retirement is the end.

Instead, you need to keep up with your investment planning. While you don't need to become a day trader, there are some things to think about when investing during retirement to make sure that your portfolio survives throughout your golden years:

investing in retirement

1. Reconsider the 60/40 Stock/Bond Allocation

You don't have to keep sticking with the same old thing, especially since we saw how it can be a real problem with an asset allocation that focuses exclusively on stocks and bonds. Instead, think of how you can add something a little different to your portfolio. The longevity that many of us can expect in retirement means that if you are 55, you can use a 20 or 25 year horizon for part of your portfolio. There are some alternative investments (you can tap into commodities with the help of ETFs), as well as a number of options that, if appropriate to your risk tolerance, can be added to your portfolio.

Don't think that you have to shift everything to bonds as you head toward retirement. While you want to include those types of investments, your retirement is likely to be a long one, and you'll want to keep building assets with a portion of your portfolio during retirement.

2. Diversify Your Income

Retirement is a great time to look for income in diverse places. You can start a side hustle, or turn your hobby into a money maker. Working a little in retirement, if you are doing something you love and that brings in another income stream, can be a great way to invest in your future.

You can also consider a little wider view of “income investing.” Many retirees think of income investments strictly in terms of bonds. However, there are other opportunities. Dividend stocks can provide you with better returns than Treasuries — especially in a low-rate environment. Think about your options, and your risk tolerance. It might be that you can handle the addition of dividend aristocrats in your retirement portfolio as you move forward.

3. Watch Out for Cash

Many retirees like cash because it's safe. After all, you can't lose when your cash is housed in FDIC or FOMC insured financial institutions, right? Unfortunately, this isn't true. Inflation is a big deal, and it's highly unlikely that you will be able to beat inflation with the meager returns you get on cash — especially if your retirement lasts more than 20 years. While having some cash isn't the end of the world, don't switch everything to cash as you retire. Instead, look for other options, and consider that you will need to adjust your asset allocation, and look for new opportunities, throughout your golden years.

Before You Retire: Are You Building Your Assets?

By Miranda Marquit 5 Comments

One of the life's great milestones is retirement. Many of us are saving up for retirement, doing our best to build up a nest egg that can get us through retirement, and provide the lifestyle we want.

If you want to be truly ready for retirement, one of the best things you can do is make sure you have built up plenty of assets. And you want to reduce your liabilities as well.

building assets for retirement

Build Financial Assets

If you are interested in financial freedom, you need to make it a priority to build up your financial assets. This means that you focus on the activities traditionally associated with improving your nest egg. For many people, this means investing. You can use your tax-advantaged retirement plan to maximize your ability to build assets and save for retirement. You can also include other investments, making use of dividend stocks, and the DRIPs that go with them.

Don't forget that passive income can also be a great financial asset. Creating passive income streams can help you so that you aren't so dependent on your investment portfolio performance. The right income streams can be a huge help during retirement, and provide you with assets. Many people also consider their homes assets. If you can add value to your home or other property, that becomes an asset you can tap during retirement.

Build Personal Assets

A successful retirement requires more than just adequate financial assets. You also need to build your personal assets. What will you do while you are retired? You need a purpose to help you get going in the morning, as well as add value to your life. A part-time job, or a hobby, can really help fill the hours and give you a sense of accomplishment. On top of that, you can enhance your retired life with friends and relatives. Develop relationships now that can be carried on in retirement. You'll enjoy social interaction, and find yourself glad to be retired.

Your health is another important personal asset. Take care of yourself now, and you will be glad for it later. Make sure to eat properly, and engage in physical activities. Better health also usually means that you spend less on health care during retirement. If you make a point to develop healthy habits, you will most likely be in better condition to enjoy your retirement years.

Reduce Your Liabilities

While you are building your assets, don't forget to reduce your liabilities. These obligations can drain your wealth, and reduce your ability to retire in comfort. Make efforts to reduce your debt, and to limit your recurring expenses. That way, when you retire, there will be fewer demands on your income, and you will be less worried.

It also helps to reduce your personal liabilities. Distance yourself from negative people who drag you down. Work on eradicating personal habits that are holding you back. Replace bad habits with good habits, and you will feel better about yourself and your situation. When you have fewer financial obligations, and you surround yourself with people and things that uplift you, your retirement is much more likely to be the success you want it to be.

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