Financial Planning, Retirement Issues


How do I know if I have enough Money to Retire

January 21st, 2017 ernie Posted in Financial Planning No Comments »

how do i know if i have enough money to retireHow do i know if i have enough money to retire? This is the big question that many people ask themselves as they near retirement. Should I work a few more years? Or can I retire now? What quality of life will I have in retirement with the money I have? There are so many questions that we all have and it all comes down to money for many people. But there is much more to it than just money. Sure you need to have sufficient savings to allow you to live comfortably. You also need to have friends, family and things to do. Your activities will need to be interesting, perhaps challenging and give you something to look forward to every day. But let’s get back to the main question, how do I know if I have enough money to retire?

How do I know if I have enough Money to Retire

Start with developing a budget. You will need to know how much savings you will have when you retire and how much income that it will generate from interest, dividend and mutual fund payments. Next you need to calculate your income from private company pensions and government pensions. When will you receive these pensions?

Your expenses are next. Add up all of your regular monthly and annual expenses for everything that you have. Utilities, food, rent, taxes, clothing entertainment etc. Compare your annual income with your annual expenses to get the first indication whether you will have enough in retirement.

You may need to make some adjustments. This could include working longer to save more money. It could also include reducing your expenses. Perhaps you will need to eat out less. Maybe reduce your utilities or downsize to a smaller less expensive home. You also may need to make adjustments to accommodate the objectives you have with regards to travel, etc.

Work with an expert to gain help with this process to answer the question and plan your future retirement.

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Your 5 Point Mid Year Financial Checklist

October 21st, 2016 ernie Posted in Financial Planning No Comments »

Your 5 Point Mid Year Financial ChecklistMany consumers are pretty much focused on their current life challenges. Thinking ahead about retirement, emergencies etc are just not on their radar. Until, of course, something happens to make them realize that retirement is near or there is some kind of emergency. The most important step you can take is to develop a savings plan or strategy. That gets you to where you should be from a financial perspective by a specified age. If you can do that and implement this strategy you will be better off than most consumers. Once you have this strategy invest your savings accordingly. It is now time to complete your 5 point mid year financial checklist which we out line below.

Your 5 Point Mid Year Financial Checklist

Check your Budget – If you do not have a budget, develop one and review it. Make adjustments as needed to balance your budget. If you need to cut back to avoid building further debt, then do it.

Review your Retirement Contributions – What is the status of your contributions, are you meeting them and are the investments performing?

Review your Retirement Targets – consider how much you have saved, the number of years left to work and your retirement targets. Does something need to be adjusted? Review these changes with your family to make sure they are on board.

Adjust your Investment Strategy – review the returns, the level of diversity and your long-term goals. If you are over weighted in one area should you make adjustments? Take into account the cost of balancing your stocks and fees that you may need to incur.

Review your Investments – Diversity, long-term growth, investment income etc need to be reviewed and how each of your investments meets these goals.

 

 

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Will Your Emergency Fund Meet Your Needs

May 7th, 2016 ernie Posted in Financial Planning No Comments »

Will your emergency fund meet your needs? What is an emergency? Do you have enough saved? Can you access it when you need it? How do you determine How much you will need to set aside to feel that your financial needs will be met if an emergency comes along? First we can discuss what an emergency fund actually is!

Will Your Emergency Fund Meet Your Needs?

Definition of an emergency fund: Money sitting in a savings account at a bank or credit union in accounts that are insulated from the ups and downs of the stock and bond markets, and easily accessible online. Interest rates are pitiful on these accounts, but the emphasis is on safety over returns. In other words you can count on the money being there when you need it. It is there to help you during your emergency!

Most experts suggest you should have the equivalent of 6 months salary. If you cut back on expenses to the bare minimum, and you have 6 months salary saved, it will actually last you more than 6 months. This type of emergency fund is for a job loss and will help you survive while looking for another job.

Our experts also suggest you look into the details a little more before finalizing the amount. For example how long will it realistically take you to find a job? If it is longer than 6 months then you better save more!

Are their major repairs or some other kind of emergency you need to plan for. Does your car need repair? What about the house? How about health issues? These are all things that an emergency fund might be able to help you with.

Take a look at your life and see what emergencies you should plan for! Don’t forget to top up your fund if you need to draw on it . You want it to have sufficient funds for the next time!

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How Long Will Your Retirement Savings Last

April 7th, 2016 ernie Posted in Financial Planning No Comments »

How Long Will Your Retirement Savings LastConsumers about to retire and even those who have already retired are asking the question, How Long Will Your Retirement Savings Last? Some people have already realized that they do not have enough and will need to work far longer than they ever thought they would have. If you did not save enough by the time you are 55, chances are that you will need to keep working for many more years. But the real question is how do you even calculate if you have enough to retire? We happen to think that you really need to answer the question, How long do you expect to live during retirement. Then you can look at whether you will have enough to retire on.

How Long Will Your Retirement Savings Last

We suggest that you start by looking at how long your parents and uncles / aunts lived, add 5 years to that life span to be conservative. We are all living longer now due to better health and better food. If your parents lived until they were 80, you should expect to live until at least 85 barring other ailments, accidents etc. If you retire at 55, then you will need to have enough savings to last 30 years in retirement.

That is a lot of years to cover from a financial perspective. The next calculation can be really complex with interest rates, growth rates and return on investments while taking into account withdrawal rates. You might even need help from an investment adviser to determine this detailed answer. There are also calculators available online that can also help to some degree.

If you are looking for a quick answer, take your current income level, subtract any pension income you expect to receive and multiply that number by the number of years you will be in retirement to calculate how much you will need. This is probably the maximum number since it does not take into account the income you will receive on your investments. If this number scares you, then you will either have to work longer to decrease the number of years in retirement or take an income cut while in retirement. The decision is yours. make the right one.

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Blowing Your Inheritance

October 7th, 2015 ernie Posted in Financial Planning No Comments »

Blowing Your InheritanceWho would have thought that blowing your inheritance would be a major issue for baby boomers, millennials and any other group that stands to inherit a large sum of money from their parents and family? Turns out that this is a major problem for over 33% or one in three consumers across the continent. They receive money from an inheritance and then spend it in various ways and sometimes have little to show for it other than a good time or a few extra material things such as cars and toys. With many consumers not saving sufficiently for retirement we wonder why more do not invest these funds and at least live off the income?

Blowing Your Inheritance

Trillions of dollars will change hands as baby boomers exit the world and transfer their wealth to their families over the next 20 years. We happen to believe that a significant amount of this money should be placed in investments to help fund retirements in the future. Most advisers would suggest that even one million in savings is not enough to ensure a comfortable retirement these days. When you have a chance to save your money towards retirement, especially if you do not have any savings or very little savings, why not take it. This is not winning the lottery.

The experts agree that one of the best ways to deal with an inheritance is to place it in a secure savings account, perhaps a GIC. Let it sit there until you have emotionally dealt with the emotions surrounding the inheritance. You need time to get over the death of your family member. You need time to get over the idea of having all of this money. Time is required to formulate a plan regarding what you will do with the money.

Spend some of it to pay off debt that you may have, buy yourself a small reward of some kind. But invest the majority of the funds into an investment that will work towards making your retirement more secure. It would be a real shame to squander the money and then end up living in less than ideal conditions during your retirement years!

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Is your retirement fully funded?

March 30th, 2015 ernie Posted in Financial Planning No Comments »

Is your retirement fully fundedThere are many complicated ways to calculate Is your retirement fully funded or not! It really comes down to what life style do you want to live while you are retired and whether you have enough monthly income to lead the life style that you want? This includes all of the usual expenses such as a home to live in, food, clothing, entertainment and perhaps some amount of travel.

But most retirees eyes glaze over when you begin looking at the various cash flows that you will need in retirement. Let alone the amount of money that you will need to have saved to generate the income you need. They must also take into account any pension income that they might be entitled to,. This will include government pensions in addition to drawing from their savings plans. They have to assume inflation rates, and investment income rates. As well as many other expenses associated with trying to assess if they have sufficient income.

Is Your Retirement Fully Funded

The cash flow method may be the simplest for the near-term for most people. How much income do you have now. What are your expenses and are you saving some money towards reducing debt as well as for retirement. This is a start and a way to get control of what you are spending and what you are actually saving.

How much income will you actually have at retirement? Take a look at the pension income from your company. When you will receive it, what options there are to consider such as early retirement. Next do the same thing for government pensions and assess how much and when you will receive your pension.

What are your expenses discretionary and required expenses now , and after your retire. Do you need to downsize? Do you need to reduce spending to get control of spending and match spending to income levels.  Once you have this data consumers can quickly tell whether they will have shortfalls or not. They cantell how much they need to save to replace the income they may need in retirement.

Can you project your schedule of income and expenses  a few years into the future during retirement? If you can also add inflation and anticipated increase in income to this picture you will then have a more accurate estimate of how well you will fare during retirement.

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Five Guidelines for Financial Health

January 7th, 2015 ernie Posted in Financial Planning No Comments »

Guidelines for Financial HealthThese were Five Guidelines for Financial Health that were developed by a survey company regarding Guidelines for Financial Health. A score of 5 means that you probably will end up financially well off, while a poor score means you will probably end up without the income or savings you need in retirement. The correct answers are shown in bold, if you want to obtain a score of five. We also decided to expand on each of these items to help readers understand the meaning of each of these areas and how they can affect your finances over the long term. Let us know if you find this useful! This post regarding Guidelines for Financial Health could be one of the most important posts on blog that you have ever read! Do you need a million to be able to retire comfortably? Probably not, but check out this post if you want to learn more.

Five  Guidelines for Financial Health

  • Did you save any money last year? Yes
  • Did you miss any payments on any obligations in the past year? No
  • Did you have a balance on your credit card after the last payment was due? No
  • Including all of your assets, was more than 10% of the value in liquid assets? Yes
  • Is your total debt service (principal and interest) less than 40% of your income? Yes

More Details about the Five  Guidelines for Financial Health

Did you save any money last year? Yes – This is an absolute must if you are going to have money for retirement and emergencies. Set aside at least 10% of your gross income, invest diversely and do not touch it unless there is an extreme emergency or you retire.

Did you miss any payments on any obligations in the past year? No – Not only will you maintain your credit rating, you will avoid lots of penalty fees as well as interest charges.  Following this rule can also save you money on loans in terms of lower interest rates.

Did you have a balance on your credit card after the last payment was due? No – You never want to carry a balance over or past the due date. At the lowest level the interest rate is approximately 20% for most credit cards on unpaid balances and as high as 30% on store credit cards.

Including all of your assets, was more than 10% of the value in liquid assets? Yes – Important for emergencies, liquid assets are investments that can quickly be turned into cash to deal with an emergency. You get to avoid penalties, high interest charges, peace of mind  etc by using liquid assets to look after the financial emergency

Is your total debt service (principal and interest) less than 40% of your income? Yes – This is a key measure that most lenders use to help them decide to lend money to a customer as well as what rate to charge. If you are over 40%, chances are you will not get approved for a loan. In fact many lenders look for 30% or less before they will consider lending money at the best rates.

Think about these Guidelines for Financial Health as they pertain to your own situation and then take the appropriate action that is needed to improve your situation.

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You do not Need a Million to Retire

September 7th, 2014 ernie Posted in Financial Planning 1 Comment »

You do not Need a Million to RetireMost people think they need a huge stash of cash that is well invested to ensure that they have sufficient funds to retire on. The fact of the matter is that you do not need a million to retire even though this is counter to what most investment advisers would suggest. They do the simple calculation of looking at the income you feel you need, and use the prevailing expected interest rate income to calculate how much is needed. For example if you want $75,000 income during retirement each year, with $35,000 coming from pensions, then $40,000 must come from your investments. If you use the approach that the advisers suggest at today’s interest rates of say 3%, then you would need to have – $1.4 million saved for retirement and your portfolio would need to be fully invested earning 3% on average. If you began early enough you might have saved this much, but most people start late and do not save nearly enough. How will you get by in retirement.

You do not Need a Million to Retire – need less Money?

If your income is $75,000 today, do you really need the same amount in retirement? Chances are you will not, since you are not commuting to work every day and you have more time to do some of things that you might hire someone to do for you. Everything from dry cleaning to down sizing to one car costs less. Lets assume that you only need $65,000 to live on instead of $75,000. Now using the same assumptions as before regarding pension income you only need $30,000 extra income and save -$1.0 million. Still high!

You do not Need a Million to Retire – Interest Rates

Interest rates have been low for the past 5 years and they are anticipated to stay low for another year or so. However if you are laddering your investments, you will be able to invest your maturing funds at higher interest rates in a year or so. Let’s assume you can increase your average interest income by half a percent to 3.5%. The impact is to reduce the money you need to save down to $860,000.  Interest rates can have a major impact on your income and it is important to pay attention to this number.

You do not Need a Million to Retire – Fees and Charges

Another area to pay attention to is the fees and charges you pay for having your investments managed for you. Keep these to a minimum. these dollars are better in your pocket than your advisers.  Mutual funds charge half a percent or as much as 2% if you live in Canada. Get out of mutual funds and increase your income.

There are numerous ways to live on less than a million in savings, provided that you pay attention to the details. Make this your new job and you can expect to have more money to live on than you thought.

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Your estate and family money

March 7th, 2014 ernie Posted in Financial Planning No Comments »

Your estate and family moneyPrepare your family for what’s coming

The first time that your family finds out how much money they’re getting should not really be at the time that your will is read. It Should not be a surprise, you should be able to plan for this transition so that taxes are minimized and expenses associated with your state are well managed and maintained during the transition.

Give them some practice managing money

You may want to give them a little bit of practice managing money, if they have not already had this kind of situation to deal with. All children should have already savings set up for retirement and your estate will just add to the retirement. In the event that they are not very good at managing money, you may want to give them a chance by providing them with say $10,000 to give them a feel for what it’s like to have some money. Some will blow it spending the money on frivolous things, and then wonder what you’re going to do.

It can be a good lesson to find out what it’s like to have received some money, spend it and then realize that it’s gone. When you provide practice money for them you may want to also include some guidelines for how they should manage this money. Another approach is to help your children out when they most need it. For example if they need help paying off a loan, paying down the mortgage, or paying for a car this might be a good time to provide them with these funds. You will get some of the benefit but seeing how much they appreciate the money that you’re helping them with.

Your estate and family money

Put your trust in a trustee

If you have a large estate, or feel that you need someone independently managing your estate, you may want to employ a trustee. Yes it will cost you some money which the estate will pay for but you will have the satisfaction and confidence of knowing that your estate is well-managed along the guidelines that you provided.

Attach some guidelines with your estate

By all means provide some guidelines with your estate, which either your children must follow or your trustees must implement. If your children are under 21 you may require an estate trustee to manage the estate and provide the appropriate guidelines of how you want your estate managed. On the other hand if you want to wait until your children are older and more mature, let’s say 35 years, you can place your money in a trust and have it managed by a trustee again according to the guidelines that you provide.

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Top 5 Concerns Consumers have about their Finances

June 7th, 2012 ernie Posted in Financial Planning 1 Comment »

Concerns Consumers have about their FinancesJust read an article about the top five concerns that people have about their finances and it is not surprising that most people are thinking about – Debt, Savings, Education, Retirement and Health costs. This chart on the left shows where people expect their income may come from as well as the concerns that they have.

Concerns Consumers have about their Finances

Debt

is something that everyone worries about sometime in their lives. Usually when they over extend themselves and also as they are nearing retirement or are about to lose their jobs.  This were a contingency plan comes in. Plan for losing a job, plan for retirement and try to make sure that you never over extend yourself.

Savings

can tie in with having a contingency plan, but savings also means saving for retirement. If you are going to do it right it means you have several different savings accounts – contingency, vacation, something you want to purchase, major repairs to your home and retirement. Sounds like a lot but it is pretty basic and if you fail on any of them you will pay the price at some  point with some hardship that you did not count on.

Education

is important for the kids. Depending on how many kids you have, your plans for them in terms of education etc you will want to set aside a savings plan early that is specifically for the kids to get the schooling they need.

Retirement planning

is so important. If you are lucky enough to have a plan at work your among a minority these days.  Set aside a minimum of 10% and never touch it. Invest wisely and do not use it until you are getting close to retirement. Then evaluate whether you have enough or not with the help of a financial planner.

Health costs

are a big unknown. One day you are healthy and the next day you have major medical bills. Not everyone can afford to have health insurance, so it is a bit of a gamble. People have been known to be wiped out over night due to unforeseen health costs.

Develop a Plan and decrease your Worries

Many financial advisers suggest various methods of dealing with these concerns, however the main thing to do is to have a plan that addresses each of your concerns. No plan, no solution, you are going to be in trouble financially at some point. Put simply the rules are:

  • Pay yourself first – a simple but very effective lifelong approach.
  • Have a plan – and write/type it out, discuss it with people that you respect
  • Learn about tax-saving options
  • Make regular contributions to the tax-savings options.
  • Pay down your most  expensive debts as much and as quickly as you can.

Pay yourself first – a simple but very effective lifelong approach. Figure out a budget and decide how much you can afford. Then pay yourself so that you can enjoy a little bit of life. Just ensure that it is reasonable in relation to the rest of your income.

Have a plan – and write/type it out, discuss it with people that you respect and review it on a regular basis. Some people suggest once per year while others once per quarter. Decide what works for you. If you finances are volatile, then you will want to review your plan more often.

Learn about tax-saving options that are available in your state or province. Decide how to maximize your savings and decrease the amount of tax you pay at the same time.

Make regular contributions to the tax-savings options – Set up a regular deposit to the plan. Your financial institution can help you with this so that it is done automatically and you have a forced savings plan to your tax advantaged plan

Reduce your most expensive debts as much and as quickly as you can. This in turn will control and decrease the amount of interest you are paying and when the debt is paid off, you will get a major raise in terms of more cash to use on other things.

If you share these financial concerns or have others that we did not mention, why not leave a comment for readers. All well written helpful comments will be accepted even with links. All others will be deleted.

 

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