Budgeting for Your Retirement Dreams
Most people dream at least a little about retirement. Their retirement dreams are remarkably similar in some ways too. You know, living on the beach somewhere, travelling all over the country or world, sleeping in every morning – leisurely pursuits for sure. But how do you know if you’ll be able to afford those dreams when retirement comes knocking?
For instance, some of us have been saving regularly, even diligently for years. We’ve been trying to build that nest egg so that when the time came, we could pull the plug on the 9-to-5 job and kick back once and for all. We know how much we’ve saved so far and we have a rough idea of how much we’ll have down the road but how will we know for sure that it will be enough?
The thing to do is to build yourself a budget, a retirement budget. It will resemble greatly your normal monthly budget but with some differences. For instance your income will be from much different sources and your expense section will have some new lines in it and will be missing some of the old ones as well.
Gone will be the regular income line; it will be replaced by pension, annuity, and/or Social Security lines. Perhaps your housing mortgage line will be gone because you’re planning to have your house completely paid off by that time. And maybe you’ll have eliminated your credit cards (along with their interest) and replaced them with reloadable prepaid debit cards for your out-of-pocket expenses. In any case, once you have a realistic monthly budget built you’ll have a concrete idea of how much money you’ll need to make it through any given month. Then you turn to your retirement savings and do a little math.
A good rule-of-thumb is that you will only be able to withdraw approximately 4 or 5 percent of your retirement portfolio every year. If you withdraw more, you’ll probably run out of money because your nest egg won’t be able to generate enough interest income to replace it. Divide that 4 or 5 percent by the 12 months in a year and you’ll see just how much of your retirement you’ll truly be able to afford. When I did this exercise a few years ago, I found that I had exactly enough money to retire for one week out of every month. It was pretty eye-opening.
As a result, I adjusted my retirement savings plan and adjusted my thinking to stay in the work force a few years longer than I originally thought I’d have to. I also began planning (in the back of my mind) to start some kind of part-time business to supplement my income during my golden years. I even stopped using my credit cards, started paying them off, and switched over to reloadable debit cards to save a little faster.
Mentally, these weren’t easy adjustments to make but I’m comfortable with them now. I feel like I’m in control and moving down a real path to retirement. My retirement dreams are within my reach; I just have to execute my plan.
Filed under Uncategorized | Comment (0)Why Is It Important To Rollover Your 401k
If you start a new job with a new company you are now faced with the task of what to do with your current retirement funds. You have a few options such as leaving the investments with your previous employer, cashing out or rolling over to a new 401k or IRA. While you should take the time to get 401k rollover info and weigh your options, today were going to talk about leaving your money where it is.
There are some benefits to leaving your current 401k savings where it is. One reason to leave it with your previous employer is perhaps you like your previous companies investment options. You may have looked over your new employers options and not find them up to par with what you currently have. You can leave your investments in tack until you find a better solution.
Maybe you are just unsure of what your next move will be. Rather than cashing out your 401k, which is certainly the last option you should choose, leaving your money with your current employer while you figure out your next investment options is a wise choice. This way you avoid any penalties from cashing out and you do not face the 60 day window of reinvesting the money into a new account.
However, here are a few reasons as to why it is important to eventually rollover your retirement funds to a new account. First off, depending on how many positions you have held over the years you do not want multiple 401k accounts all over the place. This makes it very hard to keep track of. Secondly, you are no longer able to mak contributions to your old plan and you will not be able to take any loans against your 401k either. You may also be responsible for paying any account maintenance fees.
While leaving your money with your previous employer is a good temporary solution, you should not make it a permanent one.
Filed under Uncategorized | Comment (0)Buy Annuity or Mutual Fund
Buy Annuity or Mutual Funds
A popular form of annuity is the life annuity. This annuity is purchased by making routine monthly payments until a given date and then the annuity will pay you back monthly until you die. Obviously the numbers are worked using standard life expectancy, risk, earnings from the money put in, etc to come up with a number for you to be paid. There are two significant problems with this strategy. The insurance company has to make a profit, so it’s going to reduce the amount it pays you back whether you buy structured settlements online or through a broker. The really bad factor is if you die early, you don’t get any more money or do your descendants.
The Case for Mutual Funds
Most people will never invest enough into their retirement accounts to max out their potential. For most people this is around $20,000 a year, or $1666 a month. I know I’m not maxed out yet either. Because of this almost all the tax advantages possible with annuities can be had with mutual funds within your retirement accounts. Once you hit the point in life where you would of wanted your annuities to start paying you back you simply start withdrawing 5% of your total account balance. Now you payments that will last you as long as you live with one kicker. The money exists when you die to give to whomever you want. Also, while growing you’ll be earning a much higher rate of return that the annuity will pay you. You can verify this by checking the guaranteed rate of a variable rate annuity. If you hold a variable rate annuity for 5 – 7 years they’ll guarantee a 5 – 8 % rate of return. That’s because they know they’ll earn that much with mutual funds as opposed to when you buy structured settlements.
The Difference is Discipline
Why many feel they do better with an annuity is because they are told what they have to pay every month to get where they want. A mutual fund or retirement account allows you to get sloppy. No one is going to call and demand their payment from you. If you really want to have the great life in your retirement years you have to be disciplined. You are able to do it with your kids, work, and hobbies you love; you certainly can control your money. Play with some online financial calculators, find out how much money you need to pay yourself (which probably won’t be too different than the annuity payment) and start doing it.
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