The seven deadly mistakes most home sellers make

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seven deadly mistakes most homesellers makeThe seven deadly mistakes most home sellers make. Our daughter and son-in-law are in the process of selling their home. We thought it would be interesting to look at what the right things are to do to sell a home. What the wrong things are about selling a home. We came across this list of mistakes that many people make when they decide to sell. They may be useful and it would be interesting to examine them in some detail. If you are planning to sell a home in the near future it may be worth a read. Avoiding these issues may help you sell your home more quickly. It may even help you sell for a higher price which is always interesting to many people.

Seven Deadly Mistakes Most Home Sellers Make

Here are the seven deadly mistakes most home sellers make. We will discuss each in more detail.

  • Failing to analyze why they are selling.
  • Not preparing their home for the buyer’s eye.
  • Pricing their homes incorrectly.
  • Selling too hard during showings.
  • Signing a long-term listing agreement without the written performance guarantee.
  • Making it difficult for buyers to get information on their homes.
  • Failing to obtain a pre-approved mortgage for one’s next home.

Seven deadly mistakes most home  sellers make

Failing to analyze why they are selling

Knowing why you are selling will lead to making many right decisions vs. wrong decisions during the sale process. It will also help to avoid self-sabotage of the sale process. For example, someone who is transferred is a pretty clear-cut reason for moving. While moving to find a larger home in a better location can be a little fuzzier especially if one partner is not fully committed to the move.

Not preparing their home for the buyer’s eye

Clutter and too much personalization distract the potential buyer from visualizing what their furniture and knickknacks would look like in your home. If they begin visualizing there is a definite interest that may lead to an offer. In addition, most people do want a home that is move-in ready and does not need a lot of renovations or maintenance before they move in or major repairs. Get your home ready before you put it up for sale.

Pricing their homes incorrectly

Pricing a home is always tricky. Too low means it will sell fast, but you may leave money on the table. Priced too high and it may not sell at all. Motivated sellers who have been transferred are sometimes urged by their real estate agents to sell quickly by lowering the price. Beware of agents who will guarantee the sale by buying it from you if it does not sell within a specified time frame. You can be sure that the price they will pay you is below market value.

Selling too hard during showings

Potential buyers need time to explore your home and visualize what their furniture etc will look like in your home. They also will visualize what it would be like living in that home, the neighborhood, etc. Pushing too hard will distract them, however, knowing when to push a little bit and knowing when to back off is something that many agents learn over time and people who are more observant or are in sales.

Signing a long-term listing agreement without the written performance guarantee

Avoid this like the plague. Agents need to be motivated to perform just like everyone else and if there is a chance that they will lose the listing to another agent, they will work much harder to show your home and to sell it through advertising, etc. Keep your listing arrangement to a maximum of three months and avoid automatic renewals.

Making it difficult for buyers to get information on their homes

This is a large purchase for most buyers, for some, it is the largest purchase they will ever make. They will want to know all kinds of details and the motivated seller will have all of this information readily available. This could include all of the basics about the home as well as dates when the roof was replaced, the furnace, the hot water heater, the air conditioning, Â the square footage, the taxes, the cost to heat and cool the place, etc. make it easy for the buyer to get interested in your home.

The Last  of the seven deadly mistakes most home sellers make

Failing to obtain a pre-approved mortgage for ones next home

Obtaining approval takes time and if you are in a hurry you may want to take this step of being pre-approved for a mortgage. Also if you are moving and planning to move into a larger home, you may get a nasty surprise if your mortgage approval gets bogged down because you cannot get approval for the size of mortgage you need due to credit issues, etc.

We hope this list helps both buyers and sellers alike and let us know your comments and any additional suggestions that might make sense to be included in this list of seven mistakes that home sellers make.

Retirement Plan Options

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Retirement Plan OptionsWith so many people retiring these days we thought we should do a series of posts about retirement planning and retirement planning options. More people will be retiring than ever before and it is all due to the baby boom group reaching the magic age of retirement. Some will retire at 50, while others will work well into their late 60’s or even into their seventies depending on their financial situation as well as their personal objectives.

If there is one message that you should take out of this post, it is “plan for your retirement!” This can take many different aspects so that is why it is important to begin early, develop several retirement plan options and be prepared to adjust them over time, to select one over the other, and even change them completely based on whatever life throws at you. The important thing is to have a plan, develop the things you need to do to make that plan happen, and then take the action to achieve your plan.

Complete a Financial Plan

Either do this yourself or have a financial adviser do it for you. The data you will need includes:

  • Planned retirement date
  • Current savings
  • Current debt
  • Present living costs
  • Living costs first year of retirement
  • Living cost in subsequent years of retirement
  • Special costs and expenses that you know about
  • Planned trips, expenses, etc that must be considered

From this plan, you will quickly know how much more money you need to save to achieve the level of income you will need to live in the style that you would prefer while retired. You may also have some idea of the quality of life you will experience and the things you will like to do wild retired. You cannot sit in front of the TV all day or your health will decline and you will become extremely bored. Planning for retirement and developing retirement plan options is includes financial as well as the lifestyle that you will need.

Test Drive Your Retirement Plan Options

This is an interesting challenge for many people. If you know how much you will have to live on each year during retirement and have worked this out with your investment planner, why not test drive your plan. Take six months or a year, and attempt to live on whatever income you feel that you will have during your first year of retirement.

This can be an interesting exercise for many people who have no idea of how much they need during retirement. If you are going to be short of money, you will quickly understand and the reality check will help to confirm what you need to do to avoid getting into the situation of retiring without enough money to live on or at least live to the level that you prefer. Test each of your options this way to really make sure that your plans will be realistic.

Retirement Plan Options to Consider

There are many options and they will differ for many people based on their savings, their income, and their preferred lifestyle. The following are a few issues to consider as you develop options and try to make up your mind on what the best course of options is correct for you:

  • Be conservative in all of your assumptions, you will be pleasantly surprised
  • Diversify your investments
  • Invest in high-quality investments and avoid chasing high-risk yield
  • Hire an investment advisor
  • Never relinquish control
  • Assess your plan every year to recheck and adjust as needed
  • Work longer if needed to ensure that you have benefits or income or both
  • Cut down on expenses where ever you can
  • Develop the main plan which is the preferred plan and at least two others that include
  • A plan that is much more aggressive in term of income i.e. +20%
  • A plan that is much more aggressive in terms of expense I.e. +20%

Develop your retirement plan options using these types of guidelines, recheck every year, and adjust as needed. Be prepared for change and be prepared to keep on working or go back to work to help your plan out if the economy for example does not cooperate e.g. interest rates are low and will remain low, limiting your income as a result.

Main Financial Risks in Retirement

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Financial Risks in RetirementFinancial Risks in Retirement – Everyone should have a retirement plan in place to ensure that they have explicitly considered, and have strategies in place to address any or all of the issues listed below. When you review the list, you may feel that some of these may not be ever an issue for you. That’s fine, set those aside, and focus on those that you are concerned about. If you have time and/or the inclination come back to the others and address them. At least you will have a plan to deal with those issues that concern you the most.

The main Financial Risks in Retirement which may occur during retirement:

Outlive your money: Many people are living longer than their ancestors and their parents these days and as a result, must plan for a longer life. Running out of money can make retirement very uncomfortable and even miserable. Take stock of your assets and plan withdrawals from your savings in such a manner that they will last beyond your anticipated demise.

  • Ensure a reasonable plan is in place: expense level, income sources, asset draw
  • Develop a plan at least five years before retirement, and review it annually

A temporary loss in value of investment assets, resulting in less income: the stock market, the housing market, etc appears to take corrections every decade. When this occurs will this impact your living standard and will you be able to sustain your living standard? What plans can you put in place that will sustain your income and allow you to sleep at night without worrying about whether your assets will be available or not?

  • Is this a major proportion of retirement income?
  • Are the investments balanced for regular income, versus growth?
  • Structure portfolio to ensure no income is available for at least a five-year horizon
  • Are guarantees needed to lock in a portion of this income?

Other Risks that Consumers do not Like to Consider

Death of a spouse, and resulting reduction, up to 50%, pension income: we have seen it over and over again. One spouse will die and the company pension plan is halved or eliminated as a result leaving the other spouse without the funds to live comfortably in their remaining years. Decide before you retire if a survivor option should be added to your retirement plan?

  • Is this a major proportion of retirement income?
  • Is life insurance required?

The need for long-term care, resulting in the depletion of assets:

What is the probability that you will need long-term care? Long-term care is extremely expensive and all of your assets can and will be consumed if you spend any significant time in long-term care. Can your spouse look after you? Will your spouse look after you?

  • Disability for one, or both, spouses. Others close wishes to retain or live in the home
  • Other assets that can be sold to provide additional funds?
  • Do a long-term insurance analysis.

Continuing elderly parent or disabled child support: who will look after your disabled child when you are gone? How will you work and look after your elderly parents and your disabled child?

  • Is this a large proportion of the expenses?
  • Are RRSPs, and Henson trust in the will.

Inability to handle your financial affairs: this can happen slowly over several years providing you with time to prepare wills etc., or you can be suddenly smitten with a stroke or heart attack leaving you unable to look after your own affairs. What do you do in a situation like this? What does your spouse or family do in situations like this?

  • Ensure that wills and POA’s are in place in advance.
  • Create a complete estate plan: beneficiaries, testamentary trusts, funeral costs.
    Is joint insurance required to cover: estate capital gains and RRIF taxes?
  • Large legacies or charitable gifts?
  • Special circumstances or considerations e.g. business owner?

Summary

We may not have covered all of the situations that we all must deal with in retirement and as we age. However, these appear to be the main issues and if nothing else we hope that it will get you thinking about your personal situation and making some plans with regards to those issues. Doing nothing is really not an option although many people do just that and then have to live with the consequences.

Don’t be one of those people. Take control of your life and make sure that you can live the life you want for yourself and do not become a burden for your family. In the end, no one wants to be a burden. We all want to be independent as much as we possibly can even if we are incapacitated.

For more information about retirement risk, click here.

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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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