Category Archives: Retirement Income

4 Questions to Ask Yourself Before Retiring

4 questions to ask yourself before retiringWith so many people retiring over the next 20 years, many are wondering if they will have enough money to last through their Retirement. Should they keep working? Should they retire now and enjoy life? What are the questions we should ask ourselves to make sure we are ready for Retirement? We have assembled four questions to ask yourself before retiring, which many people will find challenging. It is definitely worth it to address these areas to ensure that you will achieve your objectives in Retirement. Another key recommendation is to discuss your retirement plans and the answers to these questions with your partner or spouse. They need to be on board and satisfied with the lifestyle that you both will have in Retirement. Here is a list of 4 questions that all consumers approaching Retirement should consider.

What are the 4 Questions to Ask Yourself Before Retiring

It should be pointed out that these 4 questions are all inter related. The decisions you make in one area will impact the decisions that you make in another. Consider them carefully and review the answers every 6 months to ensure you are om course to achieve your objectives.

  • Will You Have Enough Money
  • Where will you Live
  • What will I do With My Time
  • How Will Retirement Impact My Financial Life

Will You Have Enough Money – Add up all the income you will receive in Retirement from pensions, savings, and even part-time jobs. How does this income compare with what you make now? Do you need to save more or work longer to meet your objective?

Where will you Live? Will you downsize or stay in your current home? Can you afford the expenses associated with your current house, such as the taxes, upkeep, regular utilities, etc.? Do you need to move to control your costs and align them with your retirement income?

What will I do with my time? Suddenly, you will have 40-plus hours a week to fill. Once you complete all of the projects around the home, golf as much as you want, travel, and get all of this out of your system, what will you do? How will your plans affect your expenses? Do you have sufficient money to do everything you want?

How will Retirement impact My Financial Life – There will be lots of changes to your lifestyle, your expenses associated with work that you no longer have etc. Take a few minutes to determine what the impacts will be on the positive and minus sides. With more time on your hands you could end up spending more money than you planned.

Revisit these questions and the answers you gave every 6 months. There will be changes and adjustments you need to make that reflect your plans and the reality of your life.

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Why is Compounding Important to Retirement

why is compounding important to retirementThe question, why is compounding important to retirement is one that everyone should understand the answer to. Take advantage of compound interest, compound dividends, and income. Your retirement savings are going to be significantly higher. Your quality of life is going to be much better in retirement. This is where you let your savings work for you and help you. Many people would say that interest rates are so low right now that it does not really matter. You are not going to earn much anyway. Yes, interest rates are low, but even 3% income is better than no income and over 30 years it can still add up to a significant amount. A few examples will help to illustrate.

Why is Compounding Important to Retirement

If you start saving $100 per month at age 25 for retirement and continue until you are 55 assuming that you do not generate any kind of interest or dividend income, your savings will be 30 years times 12 months times $100 = $36,000. Not very much and not enough to live on in retirement.

If you averaged 3% over those same 30 years,  your savings would jump to over $58,000. In fact, your compound income is almost equal to what you contributed. Interest rates and dividend rates are low at this time, however, over 30 years they probably will average close to 6% making your $100 investment over 30 years grow to over $100,000!

Consumers who can save more for retirement or who work longer will find that their money grows even further. Many people will work until they are 65 or 40 years in our example. Their money would grow to almost $200,000 at 6% or almost double over that extra 10 years.

If you can save more early on, your compound interest income is going to grow even faster. Focus on high-quality dividend-paying stocks that have a history of increasing dividends every year and you will do very well indeed over your working career.

Will You Work While Retired

Will You Work While RetiredWill you work while retired? That is the question many retirees ask themselves. Particularly if they are short of cash for some of the things they would like to do in retirement. A study published last month by Bankers Life Center for a Secure Retirement – “New Expectations, New Rewards: Work in Retirement for Middle-Income Boomers” — found that 72% of retired baby boomers currently aren’t working for pay in retirement. However, almost half of those retirees (48%) said they would like to work — but can’t. Of those, 35% said their health won’t allow them to work. Eight percent said they were unable to find a job. Five percent said they have to care for a loved one. This is the reality for many baby boomers and retirees.

Will You Work While Retired – What is Your Plan

This article is really aimed at the folks who are about to retire. Whether it is a planned retirement date or you are being forced to retire or you need to retire due to health reasons. Now is the time to give some thought about what you will do once retired.

Some people will be able to walk into another job pretty quickly. While many will struggle for a variety of reasons as mentioned in the survey results. If you do not have a plan before you retire, there is a high probability you will not be working in retirement.

Develop a plan now. Will you volunteer which leads to networking opportunities and potential employment? Will you start your own business? Do you have a business plan? Can you prepare for your business now? If you have sufficient income, there may not be as much pressure to work. Boredom will motivate you into looking for work.

If income is an issue once you enter retirement, then a plan is definitely needed. The plan needs to take into account how much money you need per year. What kind of job you can find and how many hours a week you need to work at the appropriate income level. Lower incomes mean you work longer etc.

Part-time work is also good for many people. You may have the best of both worlds. Part-time work ensures that you still have time to enjoy the family and hobbies. You also have the extra income you need from part-time work. And you also have the social side of work which is a big plus for many people once they leave the workforce.

Make that plan now!

Retirement Withdrawal Strategies

Retirement Withdrawal StrategiesRetirement withdrawal strategies are all over the map, and it really depends on who you talk to or what you read. As someone who is thinking about retirement and wondering how much money I will have to spend every year, I have been following the retirement withdrawal strategies put forth by many financial planners. The bottom line with all of these guys is that they are trying to sell me something, so I need to figure out for myself what the best approach is for my personal situation. There are three main strategies with many combinations of them all, so I thought it would be a good idea to review these for readers. You will have to figure out for yourself, based on your personal situation, which one or what combination is best for you.

Retirement Withdrawal Strategies

Follow the 4% rule – the simplest one is to take 4% of your balance of savings calculated at the end of the previous year. Since your portfolio will vary yearly, your income will also vary yearly. If your portfolio is generating less than 4% in terms of dividends and interest, then your portfolio is going to decline each year, and so is your income. Something to think about!

The income-only rule – is a good one in that you never touch your principle, but your income will also vary with this approach as well since dividends change, interest rates change, and distributions from mutual funds change every year. If you can live on the income only, you will have a better chance of your savings lasting well into your retirement with some left over for the kids.

Variable Amount rule – this approach is based on taking out a fixed amount each year based on how well your portfolio is doing. In good years, you get to take more out, while in bad years, when the market is down, your income will be down as well.

Can you live with these variables, or are you the type that needs to have a fixed amount coming in each month, year over year? The answer to this question will help determine which approach or combination of approaches you decide on!

Retirement Withdrawal Strategies – How long will you live?

The other big unknown is how long you will live. This will determine just how long your money will last and how much you will be able to spend each year. Be realistic; take your health and your genes into account when making this assumption. Good luck with your retirement plan!


Avoid Penny Pinching in Retirement

Avoid Penny Pinching in RetirementThis is not rocket science although some financial advisers will try to make you think that it is. If you want to avoid penny pinching in retirement, there are some basic rules that need to be followed throughout life and they are pretty simple. Keep working, save for retirement and save for emergencies. Finally don’t touch either of these savings areas until you actually retire or have a real emergency. Sure there are some calculations that need to be done to avoid drawing too much money out too quickly, but for the most part you need to set sufficient money aside for retirement.

Steps to Take to Avoid Penny Pinching in Retirement

  • Work longer
  • Reverse mortgage
  • Reduce spending
  • Save more
  • Start saving early

Work longer – while you may have wanted to retire early, if you do not have the money to do some of the things you want to in retirement, you may have to work a little longer than you planned. Every extra year you work adds to your savings and provides income to live on.

Reverse mortgage – we are not fans of a reverse mortgage, however if you have equity in your home and do not want to move, then a reverse mortgage is one way to get at some of the money locked up in your home. Of course at some point you will need to sell your home to pay off the mortgage that has accumulated through a reverse mortgage.

Reduce spending – examine all of your expenses. Decide which ones are must haves and those that are nice to have. Reduce your spending wherever you can without entering the penny pinching mode.

Save more – more cash towards your retirement. Set aside at least 10% of your gross income every week or every pay check. Start early when you begin working and do not touch it until it is time to retire!

Start saving early – start on your first job and invest 10% of your income. Once you get use to doing this and living on 90%, you will not miss it. Your retirement will be secure providing that you work a normal life and do not touch your savings until you actually retire.

Plan to Retire: Start a New Career

Plan to Retire: Start a New CareerMany baby boomers retiring now and in the next 20 years. They are wondering what they are going to do with their time once they no longer have to go to work. For some it is a planned retirement others are pushed out due to downsizing or a reorganizing. Regardless of the reason it is time to take stock of their skills and their interests to plan the next stage of their lives. For some it will be finding another job or possibly starting a new career. This post is aimed at those people who plan to retire: start a new career.

Plan to Retire: Start a New Career

A friend of our family was forced to leave his company after a very productive and rewarding career prior to the time that he was planning to retire. His first few weeks were fine. He had lots of social engagements and projects to work on around the home. My friend had a mindset that he was really just on vacation. After the first couple of weeks this sense of vacation began to wear off. His wife who was also retired had her life established with lots of volunteer work and of course the grandchildren. This was not enough for him to keep him occupied and challenged. He really needed something more and began to cast around for ideas about what he could do next.

Challenging Activity

My friend needed to be challenged, he needed a purpose. He also wanted to be with people or talk to interesting people during the day. In effect he wanted a job that fit those conditions. He is not the type to take a part-time job working for Home Depot or something like that. My friend would like something that would really challenge him. Something that he could talk about to his friends. He settled on getting involved with a start-up company taking it from the ground up. It is consuming him at the moment. He is probably working just as hard as he did before retirement.

He is not being paid. His expenses are being covered and he will get stock options for his efforts. But deep down I don’t think he cares about being paid. He just needs something to do during the day and this has fit his requirements.

While starting a new career may not be for everyone, it is one option for those of us who are retiring and looking around for something to do in our spare time.

For lots more information about retirement planning, click here.


Retirement Income Strategies

Retirement Income StrategiesDeveloping your own personal retirement income strategies can be a little daunting for many people. This can be a large complex problem if it is not broken down into individual small steps. But if you can break it down and use the assistance of a financial planner to help with some of the steps, consumers can end up with a well thought out plan that will help them meet realistic goals and objectives for their retirement. The wheel in the picture demonstrates how to get started. Not that this is a circular wheel with no end point. That is because after you have developed your first view or your retirement income strategies, each consumer will  at regular intervals update the plan following the same systematic approach. We will discuss each of these steps in a little more detail.

Retirement Income Strategies – Self Assessment

The first step is to gather all of your financial data that you have currently. This includes your current savings as well as your current debt. It also includes loans, mortgages and retirement plans that you may be eligible for when you retire from your company or personal plans. This is a snap shot of your financial situation at the present time.

Goal Setting

The next step is to set some realistic goals. These include when you anticipate retiring, when you will have your home paid off and how much debt you may carry into retirement. What are your plans for retirement? Will you travel a great deal or do you plan to continue working. What large expenses will you have in retirement. How do you see your life in financial terms when you retire. This leads to understanding the level of income you will need to generate to maintain the lifestyle that you desire in your retirement years.

Information Gathering

Gathering all of the information you will need to develop your plan is the next step. Investment plans, investment advisers, interest rates, dividend rates, payout rates from mutual funds, retirement plans, current expenses and costs for everything from heating your home to budgets for groceries etc should be considered. Use several simplifying assumptions to make it easier. Use a program or work with an adviser to completed your retirement plan strategy.

Retirement Income Strategies – Taking Action

Once you have a plan, most likely you will find that you need to make some changes. They could include focusing on paying off your home faster. Or saving more money for retirement that you planned, reducing your expenses etc. The important thing is to begin taking action now. Focus to ensure that your retirement strategy, goals and objectives can be met.

Reviewing and Updating

Are you done once you have completed all of these steps? Some people will feel that they are done and can afford to sit back and relax until they retire. This is not true. Our lives change, we retire earlier or later than planned. We have more expenses than planned, inflation is higher, our goals may change and on and on. At the very least review your retirement strategy once per year. Then update everything. You may find that your goals, savings plan etc may need to be adjusted slightly. You will want to ensure that you can enjoy the life you planned for in retirement.


How much income will you need in retirement?

How much income will you need in retirementMany consumers want to know the answer to the question, “how much income will you need in retirement”? The common guideline for the amount of money or income that you will need during retirement has been an average of 70%. Most advisers will aim for that number. This is based on the fact that most people will not need as much money to live on during retirement. After all they do not have the expenses of going to work. Their mortgage should be paid off. All of their debt including car loans should also be reduced to zero. They also have less expenses for getting to and from work, less clothes etc.

How much income will you need in retirement – Spending More ?

They may have objectives of going on a vacation, visiting grandchildren, perhaps a once in a time life vacation. For many consumers this number of 70% is probably quite realistic. However it may not work for everyone. It is important to understand what your situation is and how much money you will need once you retire.

For example the couple that is spending to the level of their paycheck each month just before retirement may have difficulty surviving on 30% less than they currently make. Unless they reduce their expenses they will quickly go into the hole. They may run up debt that they probably will not be able to pay for. They may be required to take another job, sell their home to cover expenses etc. This is not something that you want to find yourself needing to do.

Plan for Retirement

If you are nearing retirement now is the time to complete an assessment of how much income you will actually have during your retirement taking into account employment pensions, government pensions and income from savings. At the same time evaluate all of your expenses to understand which ones will continue during retirement and those that will be reduced.

Once you have these two numbers you will be able to quickly understand weather 70% of your income is realistic or not. Don’t forget to include one of a time expenses such as vacation, supporting children, and health issues that may increase the 70% requirement of your income. There is also an age factor to take into account as well. When you initially retire and have your health, there are more opportunities to spend your money on the fun things you like to do. As you age, you may have to gove some things up and switch to others that actually cost less. The big unknown is what will your health care cost and how much will you need to pay for the level of care that you need?

For more information about retirement income and how much you will need in retirement, click here.


Retire early: a second paycheck comes in handy

second paycheckMany people dream of retiring early and enjoying the good life. The reality is though that there are a number of reasons why people cannot retire early. For example, they may not have sufficient savings. They may still have children going to university and college. Or they may not want to retire. In fact, many would prefer to continue working to maintain their social life or perhaps a second paycheck.

The second paycheck comes in really handy and augments the family income. This same income can be used to enhance your savings. The family can prepare for the quality of life that they would like to have during retirement. It also keeps your hand in the business and keep you current with what is going on in your career area. Many people will move from a regular career oriented job, into a new consultant type job for a number of years after they retire.

The question that many people ask themselves is what kind of job should they consider after they retire? There are several schools of thought about these jobs. For example, many would like to continue in the same career. There are many consulting type jobs that may be available within your industry.

Other people would prefer to try something brand-new. They only want to work for several days or maybe 20 to 30 hours a week. This will give them time to pursue some of the other things they like to do. They did not have the time before they were retired. Either way, they have income coming in.

What Second Paycheck or Job do You Want

While some of these jobs may not be as challenging and as interesting as the job they had during their career, it still gives them an opportunity to get out of the house and an opportunity to meet people as well. If you try something outside your career experience it is also a learning activity for you.

Many colleagues of ours have very specific requirements about getting a second job after they retire. Yes you want the money, but also there are some specific issues that they have concerns about.

For example, many people want to get away from office politics. They just want to do the job and leave when the job is finished. They don’t want to become an employee, preferring to work as a consultant with a specific start date to the contract and specific end date to the contract.

Many other people would prefer to work in retail where they have specific hours that they work every day and then are finished with no issues or politics to be concerned about at the job. When they leave the store their finish for the day and don’t think about it again until they come back the next day or whenever the next shift is scheduled.

If you’re looking for a second paycheck we urge you to think about and plan the kinds of jobs that you would like to pursue to make sure that your objectives are being met, whether it’s additional income, a social life, something interesting and challenging to do or something just to fill the time that you now have available.

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

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.