Saving Money

Will They Be Ready For Retirement?

January 7, 2018 By Twila Van Leer

Even though it appears that young workers today can look forward to less benefits from government programs and pensions when they retire, they don’t seem to be bothered enough to start saving.

Forty-eight percent of those aged 18 to 30 have zilch in their savings accounts, according to a GenForward poll conducted by the Black Youth Project at the University of Chicago. Associated Press-NORC Center for Public Affairs Research collaborated.

While some of those in the research sample would still be in school, those at the other end of the spectrum are doing no better. In the age group 25 to 30, the great majority had nothing set aside for retirement. All this is occurring at the same time that traditional pensions offered by employers are disappearing, leaving future retirees dependent on their own resources.

Contributing to the problem are new Social Security rules that keep increasing the age limits for participants. It used to be possible to apply for full SS benefits at age 66. Now it is 67. The rising generations have less faith in the federal retirement program than did their parents. Only 5 percent say they have confidence in the program and 28 percent are “somewhat confident.” That leaves well more than half who are not counting on Uncle Sam to underwrite their retirement.

Still, the young people look at the situation through rose-colored glasses, expressing confidence that they will be able to maneuver through retirement okay.

Many are relying on company-sponsored savings plans such as 401(k)s to see them through. One young man who took a finance course in college, was alerted to begin saving at age 20 to secure his retirement. He didn’t begin until several years later, but at least has the concept in mind. He and his wife both have 401(k)s. Some of the younger set reported taking second jobs to give them a savings boost.

There is no simple formula for deciding how much you need to squirrel away for retirement. Depends on when, where and the lifestyle you anticipate. Fidelity suggests as a rule of thumb that you dedicate 15 percent of your current income to that future need. Some young workers have looked at their personal situations and expect to be working beyond usual retirement age — until they are 70 or more.

Some of the confidence these younger generations exhibit is founded in the knowledge that they are just getting started in their careers. They expect to increase their earnings as time passes and to have more leeway for saving. But based on well-founded common wisdom, about half of them are already behind the curve and they may wake up to find themselves retired — and broke.

Get A Handle On Retirement

December 20, 2017 By Twila Van Leer

The future is a murky place. No crystal ball has yet been invented that will tell you exactly what financial realities you will face in retirement. Today’s Millennials, GenX-ers and Baby Boomers are all approaching the zero hour with lots of questions. So many variables! Marriage, babies, divorce, bills, bonuses, job changes and the country’s shifting economy all play into the equation.

Without offering a rigid, one-size-fits-all solution, here are some ideas that you might consider as you contemplate the end of your working years:

Those in their 20s and 30s are at the entry end of careers, often straddled with student debt, credit card debt and high living expenses. Nevertheless, now is the time to start thinking about retirement savings. It comes faster than you’d suppose.

Consider saving 15 percent of your pre-tax income. Sounds like a lot. But that is the figure experts in the field say is necessary to have a health retirement.
Take advantage of ”free money” such as employer-sponsored 401k programs, which often offer a matching contribution to expand the benefit. If that seems too high a goal now, put whatever you can into a work-sponsored savings option or into personal savings. Look into profit sharing options if your employer takes this approach to helping employees to a healthy retirement. If you have to start small, plan to add a percentage to your savings each year until you reach the 15 percent goal.

Plan and budget conscientiously, not haphazardly. Keep your must-have expenses at a level not more than 50 percent of your take-home pay. Some items, such as housing, food, health care, transportation, child care and debt, can’t be avoided, but they may be flexible. Study your own circumstances and determine if there are places to cut, even if it means a little temporary sacrifice to make it work. Turn down the thermostat in winter, up in the summer, to save on heating and cooling. Buy groceries and clothing when they are on sale and brown -bag it to work. Minimize eating out.

Try to have three to six months of essential expenses in a savings account in case of an extended emergency. Think of a contribution to this fund as a monthly expense, not separate from other “musts.” After you have this three-to-six-month cushion, save for short-term expenses that pop up unexpectedly. Consider having these savings taken from your paycheck and deposited in separate accounts automatically.

Especially if retirement is some decades in the future, it gives you time to ride out the inevitable rises and falls in the stock market. Stocks have traditionally produced higher long-term returns than bonds and cash, despite the volatility.

Keeping a balance between accounts where retirement withdrawals are taxable and those where withdrawals in retirement are taxable and those where withdrawals are tax free can help manages taxes when you are living on that retirement income.

An annuity is one way to create a simple and dependable income stream that is guaranteed for as long as you or your spouse lives.

Since Social Security may be a significant factor in your retirement, make the most of the government’s program. The longer you wait to take out Social Security, the higher your monthly benefit will be. For instance, in a very simple example, a person retiring at 62 may receive $1,200 per month, while one who waits until age 66 to retire will receive $1,600. If you wait until age 70 in this scenario, the monthly benefit will be $2,112 per month. The average life expectancy for a woman now is 89 years.

Married couples should look at a number of options that would maximize their retirement income through Social Security. Divorced persons also may be able to claim a former partner’s benefit, if it is larger than their own.

Although there are many variables in trying to determine how much you need to have to live on after retirement, there is a general sense that between 55 percent and 80 percent of the amount that you earned is necessary. While some expenses you have routinely paid while working, such as savings, taxes and insurance, you may find that out-balanced by new expenses such as health care, travel and new insurances.

If you are coming close to retirement, make a detailed budget to see how your money will need to be re-directed. Check your expected expenses against all potential sources of income. Personal finance experts advise that you plan to withdraw not more than 4 percent to 5 percent of your retirement assets per year, adjusted for inflation.

It is essential to have an estate plan with clear directions about who is to inherit your estate when you die. Planning goes beyond a will. You may need expert advice to help you plan distribution in a way that will help your heirs to pay less in taxes, fees and potential legal expenses.

When retirement is a considerable way down the road, it is easy to minimize the importance of budgeting and saving and chafing to have to part with money you could spend making life better in the here and now. But thousands of elderly Americans who are now scratching their way through retirement will tell you that it is worth it.

Save Or Spend? Why Not Both?

December 18, 2017 By Twila Van Leer

Spend or Save — A successful balance between spending now and saving for the future depends on having a thorough understanding of your earning and spending habits.

No one who is committed to financial well-being would deny that savings is part of the plan. But do you deny yourself adequate spending on the here and now to meet those future goals? People who advise young couples, in particular, spend time in discussing the issue.

Striking a successful balance between spending now and saving for the future depends to a large degree on having a thorough understanding of your earning and spending habits.

If you want more money either to spend now or to put toward the years ahead, it has to come from the resources you have. You must understand your current spending habits and practices if you want to make an adjustment in either category. Check your weekly spending. That’s easier than making a monthly check and makes it easier to implement changes if need be. See if there are areas you can trim spending in favor of savings, but without sacrificing essentials.

Analyze your wants and needs and decide where your priorities lie. The more clear you are about what you want to accomplish with your money, in both long and short terms, the easier it will be to say “no” to temptations to overspend. For instance, if what you really hope to do in the long haul is travel as a couple, it will be less difficult to bypass eating out. Rewarding yourselves with an actual trip after a period of economizing will make it worth the sacrifice.

To whatever extent possible, limit monthly bills. Things such as rent, utilities, student loan or other loan payments fall into the “must pay” category. Adding to this list by such things as buying a new car you want but don’t really need is limiting your ability to put money elsewhere, including savings. Committing money to new “wants” diminishes your ability to choose.

Automate your savings to meet current and future goals. Having savings automatically withdrawn from your paychecks reduces the temptation to spend the money. Direct deposit also gives you the option of setting up separate savings accounts for different purposes. You can more easily see the progress you are making toward certain goals. Over time, as your pay increases, you can put a portion of each additional amount into savings. That should satisfy your appetite both to spend and to save. Ditto cash gifts. Bequests and other unexpected windfalls you might receive.

Allow for a little spontaneity. Build it into the budget if necessary, so that if you decide on a little splurge, it won’t make a difference to your long-term goals. A soul-satisfying spree now and again makes careful budgeting more satisfying.

Do A Year-end Financial Checkup

December 16, 2017 By Twila Van Leer

As 2017 fades into history, it’s time to take stock of your financial health. Visit your financial advisor if you have one. If not, ask these questions to gauge how well you are doing and prepare to make adjustments if necessary.

Income: Is your income likely to increase or decrease in 2018? Will you be making a job change or starting a new business in the upcoming year? Be certain you are aware how this might affect the status quo.

Retirement savings: Are your personal, 401(k) or IRA savings enough to reach your retirement goals? Be sure you are taking full advantage of your employer’s retirement options.

Housing: Are you house-broke? Considering a new home or a refinance? Look carefully before you leap. Maybe it’s time to think of a reverse mortgage.

Savings: If your income is likely to see an uptick, consider putting more into savings and an emergency fund.

Estate planning: Have you looked at all the tax provisions that will help your heirs retain more of your estate?

Insurance: Reassess your life insurance. Does it provide sufficient coverage at an affordable rate? There are dozens of options. Look for the one that fits your needs.

Health care: Are you covered for all possible health needs? Is it possible to start or beef up a health savings account? The field is very volatile at present, so adequate coverage is essential.

Medicare: You are a year closer to being able to enroll in the national health program if not already there. Have you looked at a supplemental plan to cover what the plan does not?

If you opt to meet with your financial advisor to do the year-end analysis, be sure to take mortgage statements, details about investments, your latest retirement prognosis and any other relevant documents. Discuss long-term and short-term goals, lifestyle changes, savings strategies and any other relevant issues.

Head into 2018 confidant that you have a finger on your financial pulse and are moving in a positive direction.

Ready for Retirement?

November 10, 2017 By Twila Van Leer

Saving for retirement is getting harder. Not many Americans are accumulating the amount of money the experts say they will need to tide them over the remainder of their lives, and the U.S. Congress is taking steps that complicate the process further.

The idea is circulating in D.C. that the tax breaks associated with 401(k) savings should be curtailed. As our representatives look for ways to adjust taxes, that idea is still on the table.

Most Americans facing retirement become painfully aware that they will need a substantial amount of savings as well as Social Security payments to get by. The cost of health care is a bug-a-boo for too many as they age and general inflation takes a swath out anything that is set aside for the future. Here are some things to consider:

About half of Americans have a retirement account such as a 401(k) provided by an employer or and Individual Retirement Account (IRA), according to the Federal Reserve.

Not all jobs offer the 402(k) option. Only 35 percent of low-income working households have the job savings plan or anything similar that automatically sets money aside for retirement. For high-income households, the figure is about 80 percent, according to a study by the U.S. Government Accountability Office.

The average savings of most households that have a savings account is $60,000, but there is a wide range on both sides of the average. The typical household headed by someone under 35 had savings of only $12,300 last year, if they had savings at all. The savings cushion ranges from $403,000 at the top to a median of $25,000.

Millennials have more tucked away than their parents did at the same age, Compared with 1989, when a family headed by someone under 35 had just $7,500, today’s family in the same age group has $12,300, after accounting for inflation.

The age at which individuals can qualify for Social Security is rising. Sixty-six is now the threshold for receiving full retirement benefits. The figure is slated to go up slowly until it hits age 67 for those born in 1955.

The average life span is increasing. A woman at 65 can expect, on average, to live another 20.6 years. For men, the figure is 18 years. Retirement income has to last longer for most Americans.

Projections for health care costs are scary. A 65-year-old couple will need some $275,000 to cover medical needs through retirement, according to Fidelity. That doesn’t take into account nursing home or long-term care if necessary.

Fewer companies are offering formal retirement plans for employees. Only 13 percent of private-sector workers were enrolled in such a plan in 2014, says the Employee Benefit Research Institute. In 1979, the figure was about triple that number at 38 percent.

All of these factors suggest a more careful analysis of your prospective retirement income, with adjustments if necessary.