Archive for category Retirement Planning
What will retirement cost?
Posted by WoB in Retirement Planning, Uncategorized on June 16, 2009
There is a dollar amount that your retirement will cost you. You could never truly know what that number will be, but you can get a good estimation by entering some information into a web calculator. If you are interested, take a look at this retirement calculator.
Once you have that number, see if you are on the right track with this calculator. Obviously these are never exact as to your level of returns but they do give you a clue as to how prepared you really are. If you’ve never used one of these before, you may be surprised to find out that you are either over prepared, or underprepared. Hopefully not the latter, but if you are, maybe it’ll motivate you to get a move on.
As far as retirements go there are two categories, you either have to penny pinch your way through, or you have planned, saved, and lucked you way into having enough of a nest egg. A lot of hard work and planning goes into not having to work during your golden years. You will definitely want to be able to visit your grandchildren, or buy that golf cart, or sip margaritas on the beach. Get started early and these things could be a reality, if you get started late, you may have to put away 50% of your take home pay to just get close.
Hopefully for your sake, you’ve read something like this when you were 20 and used the information wisely, or you are 20 right now and you can make an early start. If you haven’t started yet, there will never be a better time. Check this out on what type of accounts to open.
Good luck to all of you. Hope to see you on that beach..
Inflation is your retirement’s enemy
Posted by WoB in Introduction to finance, Retirement Planning on June 10, 2009
It is the central banks goal to keep inflation between a 2% and 3% increase per year. If this is an average, then you are losing about 2.5% of your purchasing power per year. The only way to counteract this is to make sure your savings is earning around that amount or more. If, in 1980, you had a million dollars sitting somewhere earning just inflation, you’d have over $2.5 million in 2008. With this same example, in 1980 you could have bought the same goods that are worth a million dollars today with only about $350 thousand.
This is a frightening thought. If you are in your 20s or 30s your parents probably thought that having a million dollars would be enough to retire comfortably and they might be right. Now you are probably going to need to have at least 2, and depending on where you live, maybe more like 4 or 5. Keep in mind that as inflation goes up, generally so do wages.
If you are living comfortably on $4000 a month, in just over 25 years, this number will double. This means no change in lifestyle, just purchasing the same goods you were back then. Keep in mind that inflation is basically measured by a “market basket” of goods. It includes any items that normal people purchase in a given period. If you retire at 65 and live until 90, it would be safe to say that your cost of living will probably double.
So for those of you with money saved up in your mattress, this is your call to action. Stop that money from losing value and get it into an account that pays interest. I recommend INGDirect.com because of its ease of use and that it doesn’t charge fees for almost anything.
This should also get you thinking about the last 2.5% annual raise you got last year. The last 12 months have been abnormal because inflation has actually been going down, but we are due for a spike sooner or later.
This post is not meant to scare you, it is just a wake up call to get you thinking forward.
Retirement planning for 20 something’s
Posted by WoB in Introduction to finance, Retirement Planning on June 3, 2009
So, you’ve landed your first job and gotten your first few paychecks. This is a great time to get started on the right foot. There are many things that you should know. This is just a quick jump start for you to use when you begin retirement planning.
The first step is to find out what your company offers. If they offer a Roth 401k, this is ideal. It allows you to put away money after taxes, but earn interest tax free. When you retire, you can make withdrawals from this account without getting charged income tax. This is a great account.
If they offer a regular 401k, many companies offer matching funds. Something like, 100% of the first 3% and 50% of the next 2%. If this is the case, you MUST invest at least 5%. This will maximize your companies match and earn you an immediate 80% return (in this case).
Once you have invested that 5% or if your company doesn’t match, I would max out a Roth IRA. You can get these at most of the brokerage firms, Fidelity or Vanguard are a few of the good ones. The limits change every once in a while but it is something like $5000 for each working adult. After that is maxed out start back in on your 401k. If your company doesn’t offer a 401k then get a regular IRA at Fidelity of Vanguard. So my order of Preference is:
Roth 401k or 401k with match
Roth IRA
401K
IRA
It is always a good idea to have some money in a Roth. When you retire, you will have to draw down on your accounts. It will be nice to be able to choose not to break into a higher tax bracket by taking some money from each type of account.