Author Archives: ernie

How long do I need life insurance?

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life insuranceMost people have life insurance of some kind to cover their debts when the pass away and to also provide for their families when they can no longer support them. No one want to see their family suffer after they are gone, especially if they are the bread winner.

Life insurance can be the safety net if someone suddenly dies leaving debts and dependents. But what should you do once the kids are grown up and out working, raising their own families etc? Of course you still want to have enough money for your debts and to cover your spouse, but how much should you have and when should you stop paying for life insurance. This is a question the writer is struggling with and trying to make a decision on. There is a business decision side to this and there is a emotional side of the decision. So far the emotional side is winning, since I feel that I really do not need to have life insurance at this time in my life. I am just afraid to give it up.

Stop Payments on Life Insurance When I retire?

Some people feel that retirement age can be the trigger to end your life insurance payments. If your income from pensions etc is sufficient to cover all of your expenses and this income will continue after you are gone, then you may want to consider stopping the insurance. However if your spouse will suffer a huge drop in income once you are gone due t a pension or pensions stopping, then you may want to reconsider your insurance coverage and keep it a bit longer.

Does it Depend On Your Personal Situation?

The answer is that it really does depend on personal situations. What your pension income is; how much will be left after you pass; what your savings level is and how much income can be derived from your savings. You may want to keep a small policy to cover your debts and not much more if you feel that there is enough to go around and pay for everything that needs to be paid.

Timing is Important

The longer you wait to make a decision the higher the chance is that you may have a health event. Once this occurs it will be more difficult to not only obtain life insurance. It will also be much more expensive to purchase life insurance. The payout may also be reduced as well.

If you are age 50 or older and have not yet had a health related event, you may want to give your health insurance vs. your life insurance some serious thought.

Long term care insurance is another factor that begins to creep into the picture the older we get. Some experts believe that while you might be dropping life insurance, you may also want to pick up insurance for long term care to cover the situation were you end up needing care of this kind.

Cannot Forecast the Future

None of us can predict what will happen. If we could we would only buy insurance when we thought we would need it. Life insurance deals more with average probabilities and also our personal family history. We can take a look at how our families survived. How long they lived to help us decide when we need to have insurance vs. long term care insurance. But there are no guarantees on life so bottom  line is:

  • Have enough life insurance to cover your debts
  • Have enough life insurance to make sure your dependents will live comfortably
  • Consider long term care coverage before it is too late
  • Evaluate your savings etc. Consider whether you want to be able to leave something as a bonus for loved ones.

Once you have made those decisions, the decision about life insurance and how much you should have will become easier to make. That is my take on it, however many people have a variety of opinions on this topic. Leave us your comments and ideas if you agree or disagree.

Retirement income: What’s wrong with the 4% rule

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Retirement incomeYou may have just retired, your pension payments are being deposited into your bank account and you have your savings which is part of your plan for retirement. You know your Retirement income needs to last for the rest of your life. However, what you do not know is how much to take out each year. Some experts believe in preserving capital and just utilize the income. While others use a more general rule of 4% of your principal. Four % could mean that you dig into your capital in years that the incomes are lower than 4%. In the past few years, yields have been very low. If you are conservatively invested in GIC’s for example you are probably making less than the 4% rule. So what is a retired person suppose to do in a situation like this?

Retirement income – 4% Rule

The 4% rule fixes your income for as long as your savings last, however, there is no guarantee that your savings will last long enough even with the 4% rule, particularly if there is a bad year in the markets and the value of your portfolio declines substantially. One alternative is to take out only the income that your investments actually generate each year. For example, you could have all dividends, mutual fund income, and bond income deposited as cash into your account and you only draw on this amount from your savings. This way you will never touch the principle and your savings will virtually last forever. If this provides sufficient income then you are indeed well off, but what if this is not enough?

Re-assess the 4% Rule Each year

Some experts feel that you should adjust the 4 % rule based on your needs as well as your portfolio performance. If the markets do decline, and your portfolio is not doing well, can you forgo a payment that year? Can you live off the income that you have from your pensions and the income from your investments? The point is that you may want to re-evaluate the 4% rule each year and make the appropriate decision, with 4% being the upper limit of what you would withdraw in any given year.

Studies have actually shown that a constant withdrawal rate has not performed well for investors in terms of their savings lasting as long as they need it to. Their standard of living begins to fall over time.

How Long Will You Live

Mortality experts believe that the average life span is 74 years of age. However, if you make it to 65 years of age, you actually have a better chance of living until you are in your 80;s simply because you made it to 65 and apparently are taking care of yourself.

When you are evaluating how much money to take out of your savings one of the decisions that need to be made is how long you will live. Someone who lives to 74 can spend more freely than someone who likely will live until age 85. Every year a reassessment of this factor will help you decide how long you will continue to live and your corresponding withdrawal rate from your savings. Someone who is expected to live 10 years might take out 10%, while someone who is expecting to live 20 years might take out 5% i.e. 1/20th.

Can You Live on the Retirement Income Only

Your investment strategy also plays a large part in how much money you will have during retirement. Investing in conservative dividend stocks that grow their dividends over time and have a good record of always paying their dividends will have a much different profile than someone who invests in growth stocks.

Can you live on the income from your portfolio only? If you can this will preserve your capital and allow you to have much more control over your capital as well as maintain your standard of life. Dividend-paying stocks that increase their dividends each year will give you inflationary protection over the retirement years.

There are a lot of strategies to consider. We also suggest that you meet with a financial adviser and discuss some of these strategies. Never follow advice blindly. If it keeps you up at night or you do not understand the advice, continue to gather information before making a decision. Always invest diversely and stay away from high-risk stocks that could decimate your portfolio in a market downturn.

$800,000 saved; can I afford to retire early?

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can I afford to retire earlyCan I afford to retire early when I have $800,000 saved towards retirement and when I retire, I will also collect a pension along with various government pensions? Our home is paid for and we have no debt to be concerned about. We have been doing a lot of research on this topic to understand what the correct answer is for someone in this position, who by the way is in a very enviable position. Most people nearing retirement are not anywhere close to this situation, however, that is a topic for another article.

Can I afford to retire early – Factors to Consider

The quick answer to this question of early retirement under this situation is that it really depends on a number of factors, such as:

  • How long this couple will live during retirement, some people will spend 40 years in retirement
  • Exactly when will they begin to collect their pensions, some companies have restrictions that make people wait until they are 60 or 65.
  • What kind of lifestyle do they want to lead? The 70% rule is very broad and really does not apply if you plan to do a lot of travel around the country or the world.
  • What will your expenses be over this time period and where will you live? Will you downsize, buy a vacation home, or stay where you are and travel on shirt trips to various places.
  • When you retire will you have medical coverage or is this something you need to purchase separately?

We suggest that any person who is thinking about retirement take a look at each of these questions and try to address them for themselves and any family members, especially if you have dependents. Preparing a budget on a spreadsheet or with the help of a good adviser will help to clarify this question.

Assess Your Income

Start by determining all of your income streams. Also, the year when you can begin to collect them and how much they will be. You can also factor in growth if these income streams are indexed. The $800,000 is a little more difficult. Some people will decide that they do not want to touch the investments or the income they generate, While others will draw the income off and retain the investment principle. In some cases, you may also want to draw down the original investment in addition to your income that is generated by this investment. You can try different scenarios. Which will reflect these we just mentioned plus volatility in the stock market and the income stream associated with your investments, whatever they might be.

Assess Your Regular Expenses

Develop a budget for your day to day expenses. This would include utilities, food and clothing, taxes and medical coverage, entertainment, and gifts. All of the things that are part of your normal lifestyle. Once you have this expense identified, add in an inflation factor of 3% for each year of your budget. Compare your income to your expenses. Hopefully, there will be still some money left over. Which can be applied to the next area of your budget. Your income may not be sufficient at this point to cover all of your expenses. Some difficult decisions will need to be made. Somehow your expenses will need to be reduced to match your income. Or you will find yourself in a difficult debt situation at some point in the future.

Assess Your Lifestyle

The 70% rule that many people talk about during retirement applies to what we have discussed in the preceding paragraphs. Now you have all of this free time which needs to be filled. Some will go back to work, Some will volunteer and some people will become involved in activities that they never had time for while working. Travel is usually a big factor for many people, which takes a lot of money.

The basic question is what will your lifestyle be like. What will it cost to achieve this lifestyle over and above your basic budget for regular expenses? Readers are urged to give this part a lot of thought. Discuss this planned lifestyle with the family to make sure that everyone is on board. Develop a budget for this part of your retired life. Compare to your income and regular expenses etc.

Can I afford to retire early?

Only after making this assessment,  will you be able to determine if the savings that you have set aside will be sufficient to provide the quality of life you expect in your retirement over the next 30 to 40 years.

 

Retirement Costs Confuse Soon-to-be Retirees

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Retirement Costs Confuse Soon-to-be RetireesRetirement Costs Confuse recent retirees are confused about what the costs are going to be when they retire according to recent surveys. Those people who are about to retire and those who suddenly find themselves push out of jobs before they were ready are often worried about whether they will have enough money to last them through retirement and what kind of quality of life they will have while retired. Most of us want to maintain our present lifestyle as a minimum and since we now have more time on our hands we want to be able to the things we never had time for. But the big question everyone wonders is, will they have sufficient income to live that life that they may be dreaming about.

Retirement Costs Confuse – What Are Consumers Concerned About

There are lots of things on the minds of people who are retiring these days that will affect how well they will live during retirement. We will list a few of these:

  •         Property taxes seem to keep going up
  •         Price of food is going up
  •         The fluctuation of their investments
  •         Cost of utilities continues to rise
  •         What medical costs will they have
  •         Have they set aside enough savings
  •         Are these savings well invested

These are just a few of the items people worry about and there are a lot more. There are options that can be considered, such as working longer and spending less. These may not be the preferred options, however, if there is not enough to go around, then some tough decisions sometimes need to be taken.

Impact of Inflation

The longer you are retired, the more inflation will creep into the picture and impact your purchasing power. Most people do not even think about inflation and are suddenly shocked when their indexed pensions if they are lucky enough to have them do not keep up with the rate of inflation. They have no choice but to cut back in other areas. Inflation will play a large impact even more since people are living longer than our parents ever did.

Start Saving for Retirement Now

If you are young and expecting social security in the US to pay for your retirement or CPP and OAS in Canada, think again. While this income certainly helps, it does not keep up with inflation and the amounts provided are not enough to live comfortably on. Retirees need to have either pension income or savings income to help them top up their annual income to live on. If you are young and reading this start saving now if you are close to retirement evaluate your situation and make a decision to keep working or live on what you have. Avoid surprises if you can.

Get Help with Your Retirement Planning

Not everyone has the knowledge or the skills to plan their retirement. They may lack information about investments, yields, savings rates, payout strategies and investment strategies designed for the long term. They may not understand the impact of inflation or the various tax rates that apply in their situation.

Retirement Costs Confuse Soon-to-be Retirees – Tools

There are lots of tools available online that can assist some readers with their decisions. However, there are really only two choices that you can make if you want to plan for retirement. The first is to find a retirement investment adviser that you trust. Then begin discussing your retirement objectives and goals, the assets you have. Focus on the assets you will need to achieve the kind of retirement that you want to have. Some people will just go on blind faith and let the adviser make all of the decisions. We do not encourage this at all. Be informed and learn as much as you can, which leads us to the second option.

The second option is to teach yourself. Read everything you can about retirement planning and investing. Attend seminars, read books, talk to advisers. Learn to use the tools that can be purchased to help with investment planning and retirement planning. It may take effort, but it will be interesting and challenging which is something that we can all use while retired.

Personally I like a combination of the two. I have spent a lot of time investigating and learning about retirement strategies as well as investing. I make all of my own decisions. But before I act on them, I always run them past my adviser first. He may have some great ideas and counsel. Then, I finalize my decision.

This is by far the best approach for me. I get a lot of satisfaction out of the effort, especially when these decisions pay off. Sometimes they do not but that is part of the risk in life.

Compound interest – Why It Does Not Pay to Wait

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compound interestThis graph emphasizes why compounding interest works and why it does not pay to wait to begin saving. Compound Interest strategies can really make a difference in your retirement lifestyle. A person who begins saving at age 21 and saves a total of $24,000 by age 41 and assuming an 8% return on the investment which is reinvested will yield a total savings of $471, 358 by the age of 67. That is a lot of money and only based on savings of $24,000 by age 41. In reality, this person will probably continue saving all his or her life and accumulate much more than this already large amount.  However the point of this post is really about what someone who begins later in life and how much money they will actually have at age 67.

The graph above assumes someone begins saving much later in life at age 47, which unfortunately is when many people begin saving. This is the time when they suddenly realize that retirement is not far away and they do not have enough money saved for retirement. If this person began saving at age 47 and saves the same $24,000 by age 67. Including the average 8% annual return, this person will only have %59, 295 saved. Not very much for retirement and they are already 67. They are looking at many more years of working unless they have a pension to make up the income they need.

Starting to Save for Retirement Late is Scary – Compound Interest

For those of you who are reading this post and fit into the latter category, it will be a scary thought to wonder how you are going to survive on so little savings. It is going to be tough unless you can continue to work for many more years. Let’s face it, most of us do not want to work that long unless we really love our jobs.

In both cases, both parties saved $24,000 over a period of 20 years. However, the younger person began saving much earlier and so compounding continued for many more years and created much more wealth!

This is the main reason why we are so strong in suggesting that people begin early to save. There will be many market fluctuations along the way and some investments might not do so well, however, when you combine the growth of value for your investments combined with the income they generate, you will be much further ahead and closer to your retirement goals. The income should always be reinvested to earn additional income.

How difficult is it to Save $24,000 over Twenty Years?

Just doing the simple math i.e. dividing $24,000 by 20 to get the amount you need to save per year and then dividing by 52 to obtain the amount you need to save each week brings us to the huge sum of $23 a week. This is not a huge amount. Most people will spend much more than this amount on whatever vice they have.  Whether it is cigarettes, fancy coffees, drinks at the local bar, or whatever happens to be your particular interest, you can easily set aside $23 a week to save this kind of money by the time you are 67.

Imagine< $451 thousand by the time you are 67 and all you had to do was save $23 a week for twenty years beginning at age 21. chances are you will be able to save much more than that by saving a great deal more as your jobs pay more and your income grows. If you save 10% a year, or 10% a paycheck you will quickly be able to achieve these large numbers. You should be able to retire much younger than perhaps you have planned.

But I am too young to even Think About Saving for Retirement!

This is what most people say. They have too many other bills to pay. They are having too much fun. Also, they can worry about retirement later if they make it that far. Many people do make it that far. They also find that they have to work much longer than they planned just to live.

It is so simple. Just start saving now. Figure how much you need or want. How many years you have left before you want to retire? Use a number like 8% return on average to calculate how much money you need to save for retirement each week. If you do not know how to make this sort of calculation, sit down with a financial adviser. Ask him or her to do the calculation for you. You might be surprised how little you need to get started and save every week.

Once you start, it will quickly become a habit. You will not even miss the money and your future will be assured! And compounding interest will help you achieve your goals! Just aim for compound interest solutions!

Planning Your Retirement Now

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Planning Your Retirement NowIn this post about Planning Your Retirement Now we decided to examine all of the elements that many people should consider as part of their retirement planning. You are never too young or too old to put together your retirement plan. You can modify it as life throws various curve balls at you. We believe that consumers should put together an initial plan. Implement the things that need to be done now and then forget about it for a year.

When you revisit your plan, be prepared to make adjustments based on current more up to date information. Don’t forget your own updated plans about your retirement. Revisit your plan at least once per year. Update it with any changes that make sense e.g. family changes, income changes etc.

We put together a list of the things that we believe consumers should be thinking about while they put together their retirement plans.  Not all of them apply at all ages and situations. Consumers will need to  review these and make sense of them in relation to their own situations. The bottom line is start saving now. At least 10% of your pay check each pay. Also set aside money for an emergency that hopefully will never come. We will cover each of these in more detail.

Planning Your Retirement Now – Elements

What are the Elements of Retirement Planning

  • Saving Enough Money
  • How Long Will You Work
  • Where Will You Live
  • At what Stages do Decisions Need to be Made
  • Emergency Plan
  • Early Retirement
  • Health Issues
  • Help From Advisers
  • Diversification
  • Education
  • Get Involved and Make Your Own Decisions

Saving Enough Money

Most people think of a retirement plan as being able to save enough money to live comfortably after they stop working. While this is a very important element, there are many other factors that need to be considered. However the first thing is to figure out approximately how much money you will need to save to generate sufficient income to live the way you would prefer. A good rule of thumb is to use your current income, add inflation factors to arrive at the amount of income that will be needed.

Your income will change over time, however if you establish this initial level and begin saving now when you are young you will be well on the way to achieving your dreams. Ask your accountant, bank manager or financial adviser to calculate how much money you will need to set aside each week to achieve the level of savings that you will need. Use conservative assumptions in terms of interest rate and earnings from your savings. You may be surprised that if you begin saving in your twenties for retirement you will not need to actually save that much each week from your pay check.

Younger consumers should assume they will not receive a pension from any company and save enough money to ensure a comfortable retirement. If a pension plan is available from a company, this can be factored in later on. There are no guarantees regarding pensions these days until you actually start receiving a pension.

Now that you have figured out how much money you think you will need to have when you retire, we will take a look at some other factors that will influence this amount over time.

How Long Will You Work

This is a big question for a lot of people. Some will want to retire as soon as possible, while others may decide they want to work until they are 65 or even older. This is a very personal decision in terms of what you want out of life and also what may be needed financially.

We suggest that you pick 55 as an objective in terms of saving enough money for retirement and not having any income from work related activities after that. If you do end up working past 55 for any reason, then this will be gravy money for you if you have met the rest of your plan.

Health issues may cause you to retire early, while your company may decide to downsize. In case you are a government worker, please do not assume you have a job for life. Just look at what is happening in Greece with government workers losing jobs and being forced to take serious pay check cuts and benefit cuts. If you have to work for another 30 years a lot can happen in those 30 years. I would rather have a plan that is independent of any pension and then be pleasantly surprised.

Where Will You Live

No decision is needed at this time, but forming some sort of idea about where you will live will help to guide you regarding your retirement plan and the money you will need. Some people just want to stay where they are in their current home and have no plans and never want to move from their current home. Other consumers will move to a new city to be closer to their families, have a vacation home and travel while retired.

Your idea of what you will want to do will change over time as well. While you are young, you may have visions of travelling the world when you retire. As you get near to retirement age, these plans may be adjusted based on personal needs, health issues and of course the amount of money that you have available.

This is one of the reasons why we suggest that every consumer re-evaluate their retirement plan every year. As your plans for vacation homes, travel and family change over time, your retirement plan needs will also change.

Downsizing is another issue that many people wrestle with. They have raised their families and now they do not need all of the space that they may have in their homes and they do not want to be tied down to the maintenance and the repairs that will be needed to keep their home looking pristine. On the other hand moving is expensive with real estate fees, legal fees and even moving fees.  Assess the cost of moving and make your decision based on your personal likes, needs and capabilities.

At what Stages do Decisions Need to be Made

If you are young, in your twenties all you need to do is to develop a broad based plan at this time. The main thing to focus on is how much money will you need when you retire and how much money you need to set aside for your savings to achieve this number.

In your forties, your plan needs to get a little more specific. A tentative retirement age should be set, but not cast in stone. A detailed assessment of your financial situation should be done. How much will you have saved and how much income will your savings generate for you. If pension plans are part of your future, you can include these amounts in your calculations, however as we have mentioned before nothing is cast in concrete until the time you actually collect them. Now is the time to focus on paying down debt so that you will be debt free at retirement.

Vacation Homes

Picking up a vacation home might be also considered if this is part of your plan. Finally an assessment of what you need to achieve before you can consider retiring. For example, paying off the house, getting the kids through school and married, paying off the car and any other items that are personal to your situation should be assessed and plan put in place to deal with these items.

As you near your retirement goal, the age when you plan to retire it is time to take a full and complete inventory of your situation. Determine if you are actually ready to retire financially, mentally and emotionally along with the whether your plans have been fulfilled. For various reasons you may decide to retire later even though your plan has been achieved and financially you are ready.

Wouldn’t it be nice to be in this position! You have the freedom to make your own decisions regarding work and retirement and not be forced into a situation of working because you have to. Some people love work and will keep working because they love the challenge and the social aspects that go along with it. Some people want to retire from their career, but keep on working at something that interests and challenges them. Many consultants just want to do a job and not be involved in the office politics at all. There is something for almost everyone and having the financial confidence to be able to turn down jobs that do not fit your plans is wonderful.

Emergency Plan

Life throws all kinds of curve balls at us. Some people seem to lead a charmed life and never have financial or health problems to deal with. Consumers can lead a charmed life. Then suddenly their life is turned upside down with a health issue or perhaps a lay off. Suddenly you are scrambling to find another job or deal with a health issue that may prevent you from working.

This is the time to have an emergency plan. In particular a financial savings plan that is set up specifically to deal with this sort of thing. Experts suggest that consumers should have a minimum of 6 months salary set aside to deal with these sorts of things particularly a job loss. It may take you this long to find another job and get reestablished.  We actually think that something closer to 12 months is better to ensure that there is adequate money for longer layoffs and longer health issues.

Focus on dealing with the problem at hand. If it is a job loss, then focus on finding another. If it is a health issue, do what you need to do to recover. At the same time reevaluate your emergency plan to see if there are other steps you need to take. Focus on preventing falling into a bankruptcy situation or losing your home.

Early Retirement

Over the past 5 years, from 2008 to 2013, many people suddenly found themselves being laid off. Also they had a very hard time finding a new job. Many people who were near retirement were the first to go. As bad as it is, these people had a tough time finding jobs to begin with and jobs that came close to what they were previously earning. Suddenly their retirement plans were in jeopardy. Their living standard was in jeopardy.

Those people who had savings for retirement found themselves retiring early or living on less. Their emergency funds got drained pretty quickly because they did not adjust their standard of living or take jobs that while beneath them would see them through the tough times.

Save Early for Retirement

This is one of the main reasons that we encourage consumers to begin saving for retirement early. If you do start early then there is that cushion to see you through tough times and gives you the flexibility to decide when you want to retire. Most people think that it will never happen to them. Most people think that their company, even the government jobs are for life.

Well the average working life is 30 to 35 years and most people these days will work for a minimum of 3 to 4 companies in their life time. In addition, even governments lay people off as do large companies. Some companies that you might never expect to fail do so. Just look at GM who went bankrupt in the last couple of years and various governments around the world are laying off people and cutting benefits. This is why you must make your own arrangements for retirement. Anything that you gain from employment is a major bonus!

Health Issues

Health is a really big issue, particularly as we get older. We can look at our own families to get some idea of what lies ahead of us. If there is asthma in your family, chances are that you may also have asthma. There are many things that can happen to us over our lives. Many of these health related issues cannot be avoided. This is one of the main reasons why we believe everyone needs to have an emergency fund set aside for:

  • Layoffs
  • Health issues that prevent us from working
  • Health issues that cause us to lose our jobs.

Help From Advisers

If you are not familiar with financing, with retirement planning, investing etc, finding a good investment adviser. He or she can make a world of difference. Follow the golden rules of investing. Never put all of your money into one investment. Always diversify. If it does not make sense or you do not understand what your adviser is telling you, seek a second opinion. Talk to another adviser or even a family member. If it sounds too good to be true, then it probably is. You cannot be too careful with your hard earned cash.

Diversification

We talked about diversification of your investments. Always place your investments into a variety of bonds, stocks and mutual funds across various industries. Choose blue chip companies that pay well in terms of dividends. If you are investing in speculative stock or investments, be prepared to lose the money even though great profits are promised.

Education

Take the time to educate yourself about investing. What are some kinds of stocks or companies better than others? Why are some strategies better than others? In the end it is a gamble, but the more information you have, the better chance  you have of earning an income and protecting your core investments for retirement. Attend seminars, read the news, read investment books etc and discuss options and strategies with your fellow investors.

Get Involved and Make Your Own Decisions

Some people just hand over their money and blindly trust their investment advisor. For many it works out find, but for many they lose their shirt. At least if you are involved in all of the decisions, you will understand why the decisions were made. Also what the risks are associated with the investment that is being made.

Summary

We have covered many tips and issues as well as suggestions for planning your retirement. If even one of these ideas has helped you then we have done our job. Which is to help guide consumers and get them thinking about planning for their retirement.

For more retirement ideas and areas to consider, click here.

Young People Should Save for Retirement

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Young People Should Save for RetirementApparently people  aged 18 to 34 who have retirement savings has dropped to 39 per cent – the lowest level in almost a decade – and fully 45 per cent have not started saving for retirement yet, according to a recent survey conducted in the past few months. Regardless of the age it seems that saving for retirement is either not a priority or consumers are struggling to meet their living expenses. Young people should save for retirement.

The graph above demonstrates how powerful early savings are and how much you can save if you begin early. We will talk about this subject even more in the next post,  Compound it – Why It Does Not Pay to Wait.

In fact retirement savings ranked seventh as a financial priority among younger people (26 per cent). The survey found that this age group is more focused on other financial goals such as reducing or eliminating debt (56 per cent), saving for a rainy day (45 per cent) and homeownership (44 per cent).

For most young people retirement is so far away and they feel that they are invincible, that saving for retirement really takes a low priority. The fact is that it takes a lot of money to be financially independent at retirement. You also do not know what life will throw at you over the years. Early retirement, forced retirement due to layoffs and all sorts of things could leave you without the funds in your retirement years. Young People Should Save for Retirement

What is the Solution to Saving for Retirement?

There is lots of advertising by all of the banks and financial institutions. However the bottom line is that individuals have to take responsibility for their own lives retirement. The best way is to form a habit of saving for retirement. Begin early when you have lots of time and the income can help you contribute to your retirement.

For example, if you took 10% of of your income and placed it into a tax free account to save for retirement.

Benefits

There are multiple benefits to this approach, which we will list as follows:

  • 10% is a relatively small amount and many people can afford to place 10% of their income in an account which they will not touch until retirement
  • Use a tax free account that allows you to deduct the contribution against your income, such as a 401k in the US or an RRSP in Canada. If you are in a 25% tax bracket, the actual cost is only going to be 7.5% approximately after taxes.
  • Form the habit of savings. Once you get used to saving and doing without this money, not only will you get used to not having it , many people do not even miss it.
  • Income is tax free within the tax free account and over 30 or 40 years this income can add quite substantially to your total savings if you begin early enough.
  • Health emergencies can occur and while consumers are urged not to touch their retirement savings for this purpose, in desperate situations the money is there to help with this expense.
  • Early retirement and layoff’s will also affect how much you can save for retirement. Starting early increases the odds of saving adequately for retirement.

There are lots of benefits when you think about saving for retirement. One significant benefit is just plain peace of mind. Knowing that you will not be broke when you retire or have to work into your seventies reduces a lot of stress. It provides many people with  comfort and reduced stress that also contributes to a healthy life.

Young People Should Save for Retirement Early

Starting early to save for retirement is painless. The savings will add up over the years and really amaze you. Place your saving in something that will grow and that is relatively conservative. This is your retirement. Although you have to time to recover from big losses, it is always better to invest in blue chip companies. Be diverse in your investments and monitor your investment at all times. Ensure that your retirement savings will be there when they are needed.

You Might Even Want to Retire Early

Another advantage of starting to save early for retirement is that you might even be able to retire earlier. In fact more and more people with sufficient savings and pensions are retiring early.  They can travel, volunteer, help with the grand kids and do whatever they feel is important to them.

Not only do you have peace of mind. You also have a lot more flexibility to make decisions about your life style.

Retire at 49 to pursue another career. Work on a new business. Or just going to the golf course can be a great motivator to save early for retirement. Set your goals now. Develop a plan regarding how you are going to achieve those goals for retirement. Click here for more ideas about saving for retirement.

 

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Give Up the Office Desk

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Give Up the Office DeskMore and more people are transitioning from the office to move from their cubicle at work to working out of their home or even at a coffee shop. Some people leave the office just so they can concentrate on a project or task. They need to get away from the constant interruptions that may occur at the office from colleague’s etc stopping by their office. Being able to focus 100% on writing a report means you have can get so much more done in less time. Some business people have made that transition out of the office all together. They no longer maintain an office. How do they give up the office desk and where do they work? We will examine this in some more detail.

Give Up the Office Desk – Working at Home

Working at home has many advantages for the employee as well as the company you work for. No more commutes to the office, no office space to maintain and a more relaxed atmosphere at home can reduce overall stress for everyone. Working at home takes dedication and commitment to doing one’s job without slacking off out of sight of the boss. It also means being available all of the time with set hours and having the tools to do your job.

This usually means a separate phone line, a high speed data connection, printers, copiers, fax machine and a smartphone to be able to monitor messages all of the time and to respond to calls while out of the home office. The advantage is that you save that commute time which for many people can be two hours a day or more assuming a one hour one way trip to the company office. This is a huge improvement to quality of life for many people.

Working at the Coffee Shop

We often see people working on their computers at coffee shops and even in some restaurants. The key appears to be having access to the internet, although some will be working offline on reports or assignments if they are a student. If you are the type that can concentrate with all of the distractions around you in a coffee shop, you have it made. Otherwise coffee shops may be a bit difficult to work in. Especially if they are noisy and you are also taking calls from people at work or customers. Personally I have worked at my computer in a coffee shop, but it is not my favorite place.

Give Up the Office Desk -Cheaper for Business

The jury is out regarding whether it is cheaper for business or not. Sure there are savings in terms of corporate office space that is not needed in a office building. You still have the communication costs that go along with having an employee, the benefits etc. The question is whether these savings are countered by people goofing off at home or elsewhere whey they are supposed to be working.

Most people will actually work more than they would at the office and get more done as well. Some will not and this is the group that manages need to pay attention to. In reality, every job should have a set of expectations and deliverables that can be measured in some way. If these are well defined, then an employee and the employer both know what the expectations are and can be measured accordingly.

More Flexibility

There certainly is more flexibility for employees when they work at home. Taking the kids to school, looking after sick kids and dealing with other personal issues is much easier. Flexible working hours make this all possible and employees typically will make up these hours and much more. They actually put in more hours that they might otherwise if they were at the office. How many times have you been to meetings in the office, when someone gets up, apologizes that they have to leave the meeting. They have to catch the train home or their ride home. When they work at home, there is no train or ride to worry about. They can stay on the conference call until the meeting is concluded.

Always Available – Mobile Phones. PDA’s etc

With the tools available today, such as smartphones and PDA’s, everyone can stay in touch with the office. They can keep up with email and other productivity requirements almost anywhere. Get equipped with the latest gadgets and you will have the freedom to work almost anywhere.

Will You Have a Choice Regarding When to Retire

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Will You Have a Choice Regarding When to RetireDo you know when you will retire? Will you have a choice regarding when to retire? Most people think that they have the freedom to choose when to retire and that they will retire when their finances are in shape to provide them with the level of income to give them the quality of life they would like to enjoy. For many people this is true, however for many others retirement is quite different from what they planned or expected. The reasons for this change can be many, however it is usually things that occur in a person’s life that are outside their control.

For some people they are let go earlier than they thought they would be from a company and must find other work. Sometimes it is at less money and this means they have to work longer than expected, past the retirement age they anticipated. For others, health gets in the way, either for themselves or for someone who is close to them that they need to look after. We never know what curve balls life will throw at us and that is just one of the reasons why early sound financial planning is important and can make a huge difference in their quality of life.

Will You Have  a Choice Regarding When to Retire

The following are some of the items to consider about this particular issue of Will You Have  a Choice Regarding When to Retire:

What are Some of the Reasons People are Forced to Retire Earlier Than Planned

The reasons can be many, however we have tried to summarize them in the following list:

  • Company downsizing
  • Company bankruptcy
  • Disability
  • Poor health
  • Health related issues of a family member
  • Other events in your life

We all know people who have said they will work until they are 65 and then retire. Suddenly life throws a curve ball at them in their early 50’s and they are no longer working for any of the reasons above. Their plans are in disarray and if they did not have a plan in place for the finances, they could be in significant financial difficulty. Surveys have shown that the majority feel they are in control of when they will retire, when in actual fact only a small percentage actually make their own decision about retirement.

Another interesting fact of this survey is that they only have less than a month’s time in terms of warning that they are going to retire. This is usually a downsizing situation or an incentive plan that is offered. In many cases as well companies simply decide they are going bankrupt and / or closing plants. One month’s time is not a lot of time to adjust to the fact that you are no longer going into work and earning a paycheck.

Financial Retirement Plans Make the Transition Much Easier

With strong financial plan that has been growing for some time, will ease the transition to retirement life. Your life can be much easier from a financial perspective. Wondering where your money is coming from in retirement worries many people. Whether you have enough income to live the quality of life you are looking is another concern.  Many people retiring today are going to live 20 or 30 years in retirement and it takes a large sum of money to generate the level of income that is needed to support the life style you need. If you have sufficient funds, you can focus on the other aspects of retirement, which can be equally important.

Retiring healthy and having the money needed to enjoy your retirement are among the top priorities for most people. Without your health, retirement can be difficult and money really becomes a secondary issue. Good health and maintaining your health is the top priority for most people.

Planning For Retirement Early

There are a number of steps that many people can take to prepare themselves financially and health wise for retirement. Will You Have  a Choice Regarding When to Retire. By planning for retirement you will have a much better chance of having enough money to enjoy retirement. We have listed them in the following list in no particular order:

  • Implement your financial plan
  • Start saving early
  • Maintain your health through exercise, diet etc
  • Have an early retirement goal in mind for your retirement, with the option to work longer if desired
  • Avoid debt as much as possible to reduce interest cost
  • Take control of your financial life

These are just a few broad steps that consumers can consider. It will help them to prepare for retirement that comes earlier than expected. A financial plan will help you  deal with any issue that comes your way in  early retirement. Plan now and have peace of mind.

We have many other posts on this site dealing with financial planning and retirement. Take the time to review Will You Have  a Choice Regarding When to Retire.

Kick Start Your Finances

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Kick Start Your FinancesNew Years’ is just around the corner and most people begin thinking about their new year’s resolutions. Kick Start Your Finances or we are going to try to lose some weight, quit smoking, or perhaps drink less or go on a vacation. These are all great things to consider, however, maybe we can add something more to this list. Maybe we can add getting our finances in order, perhaps saving for emergencies, that new car we have been thinking about, the kid’s college fund, and oh yes retirement which is many years away for some.

Kick Start Your Finances – Realistic Goals

Like all New Year’s resolutions, if they are not realistic, they probably will not happen. It is important to set realistic goals to help make sure that we can achieve them. Setting those goals should be based on our current financial situation and not some fictional wish list. The first step to setting these goals for the coming year should be based on a financial plan that summarizes your current assets, debts, cash flow, and income streams. Once you have that information, you can begin deciding what your priorities are and what goals you want to set for the coming year.

Pay Yourself First – Savings vs. Debt

Many banks and financial institutions talk about paying yourself first. What they really mean by that is to put money into a savings plan with them. Whether it is an RRSP in Canada or a 401k in the US, the banks want you to invest with them. You can also pay yourself first by paying off your debt so that you are paying less interest expense and ultimately when the debt is fully paid off, you have more cash to pay other things and save for the future.

Think Long Term – Retirement, College Funds, Mortgage

While you want to pay your debt off as quickly as possible, it is also smart to start thinking about the long term regardless of what age you may be. If you are young, setting a small amount aside for retirement every week can add up in a hurry and make you financially independent at retirement age. The same applies if you have young children. We want them to go to college and it takes a lot of money these days to put a child through college. Saving when they are young makes this also a lot easier as well.

Spending Less to Achieve Your Goals

You may find that initially at least you will have to spend less to achieve your goals in terms of saving money for college funds, debts, and retirement. But taking this step has huge benefits as you get older and close to retirement. It also means that you live within your income level and avoids debt increasing. This is important at any age even if you are retired today. Once you pay down your debt you will have more money at your disposal to pay for other things including your financial goals and other things that are part of your financial plan such as upgrading the house.

Peace of Mind

Are you one of those people who lie awake at night thinking about their finances? Once you have a plan there is nothing to think about. Focusing on implementing the plan provides a great deal of peace of mind and can eliminate those sleepless nights. A friend of mine who was retiring from a well-paid government job with a large pension did not know if he was going to have enough money in retirement. He worried a lot about this because he did not have a financial plan. He did not have a budget. They lived from paycheck to paycheck and often did not know how he was going to meet all of his obligations. The answer is pretty simple:

  • Develop a budget
  • Develop a financial plan
  • Pay down your debt as quickly as possible
  • Set aside money for retirement
  • Set aside money for emergencies
  • Save for special projects such as new cars and home renovations
  • Live within your means

New years is coming quickly. Have you made your new year’s resolutions? Even if you read this after New Year’s has long passed, now is the time to put this plan into action and obtain that peace of mind that everyone wants to have.