401(k)

Tuesday’s Tip: Take a Retirement Quiz – Part 2

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In Part 1, I posed the question “Are you ready for retirement?” If you’re like me, you answered “YES!” right away. But it’s really kind of a trick question. More of a 2-part math problem to solve. First, ‘do you have enough money’? Hopefully you’ve had a chance to visit the website I mentioned to find out the answer. Second, ‘do you know how to make it last’? A much tougher question, which I’ll address today.

Let’s begin by talking about how long retirement will last. No, we can’t predict it, but we have to start somewhere, so let’s say it’ll last 30 years. Based on that, many financial planners suggest following the “4 percent rule”. According to Gail MarksJarvis, it “refers to how much you can afford to remove from your savings each year . . . and avoid the risk of running out of money”. Here’s the basic idea: you take out (use) 4% of your savings the first year, then adjust the next year based on expenses, inflation, and general cost of living. For example, if you have $500,000 saved up, you’d use $20,000 that first year, then take a look at your finances and decide how to proceed. Do you need a bit more? Could you do with less?

Be careful about taking more, though, says Gail. Taking 5-6% per year could spell disaster later on, and yet 16% of the retired people who took that original quiz said they thought they’d be safe taking 6-8%. Chances are they’d run out of money. Not good.

There are steps you can take to help ease the uncertainty of making your money last. First, don’t put all your eggs in one basket. Bill Bengen, creator of the “4 percent rule”, says a more diverse portfolio is best. Invest in stocks and bonds, for example, instead of just one or the other. (And don’t just let it sit in the bank – the return is terrible!) Second, Gail MarksJarvis says that you need to consider how much things will cost. We don’t know exact numbers now, of course, but we can make an educated guess based on current prices. Third, keep in mind the effects of a spouse’s death because that could mean getting reduced Social Security and even the loss of their pension. That will most definitely affect what you can spend. Finally, MarksJarvis suggests waiting until you’re 70 years old before starting to collect Social Security. If you’re healthy and family genes point to a long life, you’ll be better off if you wait.

Of course, in my opinion, good money management is key to making sure you set aside enough throughout your working life to live on during retirement, but also to help you make it last. And I feel it’s never too late to start. Luckily, there’s a book for that.

Tuesday’s Tip: Take a Retirement Readiness Quiz – Part 1

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“Are you ready for retirement?” Gail MarksJarvis (a money expert) asked in a newspaper article. When I read that question, I immediately thought to myself, Heck yeah, I’m ready to retire! Not work anymore? Count me in! Then I read the next sentence, which explained that she didn’t mean ‘not work anymore’, but rather ‘do you have enough money to retire and do you know how to make it last?’ My shoulders instantly sagged like a failed soufflé. What really made me sad, though, was my next thought: WILL we have enough money to retire? And can we make it last?

Nowadays, with the economy being what it is, it’s hard to figure out just how much you’re going to need. And even if you do have money saved up, do you know how to make it last so that you’re not eating peanut butter and jelly or beans every day for the rest of your life?

So, let’s begin by focusing on the first question: Do you have enough money for retirement?

Obviously, the goal here is to have plenty, but how does that translate to yearly savings? How much should we set aside per year to make sure we reach that goal? Are we saving anything at all? Is it enough?

According to the March 2015 survey conducted by Bankrate.com, Chief Financial Analyst Greg McBride says that approximately 28% of the 1000 people surveyed are putting away 5% or less, while 16% are saving nothing at all. That’s a little scary. Almost half of the people surveyed have little to no savings. The good news is that 24% are stashing away 6-10% of their income per year, and about 24% are saving 11% or more per year. McBride adds that the middle class are doing the best job of saving. He says that’s because they’re taking matters into their own hands, knowing they’ll have to do it all themselves. “They don’t have the six-figure income to fall back on” to pay for everything later in life, and “nobody is going to do it for them”.

It’s not hopeless. But the questions still remain: Do I have enough? How much will I need when I retire? How much do I need to save every year until then?

Thankfully, there are many calculators available to help you in your quest to be able to eat and be comfortable once you retire. Try heading to http://www.bankrate.com, hover over the Retirement tab, then choose Calculators from the menu. They have everything from 401(k) and IRA calculators to Social Security and investment calculators. There’s even an Investment Goals calculator you can try. Then take a look at your current finances to decide if you’re saving enough to get you to your goal. Remember that all the numbers are approximate. We can’t possibly know exactly how much we’ll need, but we can make a well-educated guess and shoot for it.

Yes, you want to live your life now, but you also want to make sure you can live out the rest of your life with a little comfort, right? McBride says, “It doesn’t matter how much you make, it’s what you have left over” that’s important. The best thing you can do for yourself now is to make sure you’re living within your means. A good way to do that is through smart money management. Need some help with that? Click on the “Buy it” tab at the top of the screen. There’s a little book that can show you the way . . .

Tuesday’s Tip: Invest for Your Future

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As the last post regarding what to do with your tax refund, I’d like to suggest beginning to set aside some money for you. I’m assuming that you’d rather not work until you’re 96, so now is the time to stash away some cash for your retirement. Some of you may think ‘Oh, I’m too old to start saving for retirement’, or ‘I can barely get by on a daily basis, how the heck am I going to save for the future?’. Well, guess what? It’s never too late. And if  you’re in a pickle, financially, then it’s time to fix up the engine so you can get behind the wheel and go where you’d like to go.

If you participate in a retirement savings program through your company, like a 401(k), good for you. That’s fantastic. But to be honest, I wouldn’t necessarily count on that as your sole source of income after you retire. In this day and age, you need to cast your net a little wider to ensure you don’t have to eat peanut butter and jelly for the rest of your life.

There are several different coffee cans to toss your spare pennies into, like bonds, CDs, mutual funds, stocks, money market accounts, IRAs, and such. (I’m not going to give you any kind of advice about which ones are performing well or suggest that you buy into any one fund or stock. I’m merely pointing out that you have options.) These types of investment opportunities are separate from a company-sponsored 401(k), so it’s up to you to decide how much money you want to invest – and then you make the deposits. You can do that monthly, quarterly, yearly – whenever you have some extra cash to throw at it. That’s why I suggest using your tax refund money to get you started. If you don’t need it, why not put it to good use? But let me throw in a word of caution: if you’re going to make this one of your priorities, make sure that you keep up with it. There’s no sense in opening an account if you’re never going to contribute to it.

If this sounds like something you’d be interested in doing, then hop on the computer and do a little research. Visit the websites of different investment firms in your area, find out what they have to offer, and then make an appointment. A professional financial planner can answer any questions you may have and will give you advice about the best places to put your hard-earned cash.

And just so you know – he or she will probably ask you what your goals (a.k.a. priorities) are in life. Maybe now would be a good time to brainstorm . . .