Went into Wawa (local gas /grocery place) the other day to treat myself to a cup of chai tea (gift card!). There was an older gentleman there cleaning up the coffee area, refilling straws and cups, etc. Then I went to Wal-Mart to pick up a storage item—basket for remotes (gift card!). Again, there was an older person greeting us—the classic Wal-Mart greeter. Both of these individuals (they both happened to be men) appeared to be well into their “retirement” years.

Now there is nothing wrong with what they were doing, but is what they were doing what you want to be doing when you retire? Not me! I still want to work part-time when I “retire” but I want the freedom to choose when and where I work.

So to make that happen I am saving. Are you doing what it takes so that you can retire the way you want? Everyone’s retirement dreams are different, which means are plans and saving need to be different. But if you haven’t started thinking about it, now is the time to get started. Actually, yesterday is the day we should have started, but the next best day is today. So let’s get started and start planning and saving! Wal-mart positions could get pretty competitive in a few years!

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. How is Your Retirement Future? is a post from: A Penny Saved, the best darn personal finance blog around.

With the cost of living rising and the economy seeming more unstable, many Americans are wondering if they will ever be able to retire. A recent poll conducted by the Employee Benefit Institute found that only 13 percent of Americans believed they would be able to retire comfortably. However, the slumping economy doesnít have to prohibit you from retiring early. In fact, most individuals who retire at 50 have been able to do so by adhering to the following tips:

Make Your Money Work for You

If at 25, you started putting $250 away a month in a mutual fund, you could retire by the time you were 50. Not 25? Start putting money away anyway. “The quicker you start saving, the quicker you can begin to make your money work for you, and thanks to compounding interest, a couple hundred dollars each month can quickly turn into thousands of dollars in a couple of years,” says Charles Bulger from Currencies.com.

Choose Assets Not Liabilities

If you want to retire at a young age, it is highly advised that you stop caring about what your neighbors or friends think of you. Keeping up with the Joneses comes at a high price, as constantly purchasing the latest ìtoysî or making upgrades in housing can keep you in debt. Many people make the mistakes of purchasing liabilities (i.e. cars) over potential assets (i.e. real estate). Although those wishing to retire by 50 should never purchase McMansions or other types of real estate which will result in them overextending their finances each month, they should consider purchasing a home which could be used as an investment property. Buying a home in a growing area or one that needs to be renovated, can allow a homebuyer to purchase a home at a lower price and then sell it for more ñ leaving more money for retirement.

Make Your Kids Financially Responsible

The bottom line is that having children is expensive. But having kids doesnít mean you wonít be able to retire early. Many couples who do retire early have kids. However, instead of purchasing their kids brand new cars when they turn 16 or covering college tuition, these parents tend to teach their children to be financially responsible for their own lives ñ and it pays off. Kids who learn to work early for a car or buckle down to find scholarships to afford school are more likely to live debt free lives themselves, and wonít be a drain on their parentsí retirement fund.

Rid Yourself of All Debt

Never makes purchases that you will not be able to pay off quickly, and this includes any home or auto purchases. When you are in debt, it makes it harder to pay greater amounts into retirement, and the longer you stay in debt the more interest you pay. Interest paid to a credit card or mortgage firm could be additional money put into savings. Having no debt will also make it easier to get by on much less when you do choose to retire.

Plan for Emergencies

Just because you have enough money to retire and live comfortably at 50 doesnít mean that you have the additional money to cover any emergency expenses. Unfortunately, as we age our health tends to decline which can lead to costly medical bills. To avoid having to come out of retirement, make sure that you have enough to cover emergency medical bills or other emergency expenses. Doing so will ensure that you are able to continue living comfortably throughout your retirement in spite of the unpredictable.

 

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This weeks lesson, number ten, was on college saving and retirement. There was nothing really new for me on these topics. Basically, for college, do not feel guilty if you do not save or do not save enough (which I don’t). Work (for the student) is always an acceptable way to pay for college. The big idea was that you want to use tax sheltered ways to save for college if you are able, and to not go into debt yourself, nor let your student go into debt. Pay as you go!

For retirement, Dave believes you should complete steps 1 through 3 before starting to save for retirement (step 4). That means (1) Having $1000 in your emergency Fund (2) Paying off all your debts except mortgage (3) Having a fully funded emergency fund of 3 to 6 months. The exception to this is if your company or work place does a retirement match, then you should put the minimum in to get the match (the free money!).

Not a bad session. I still don’t agree with his making 12% per year on stocks, and I disagree with his investment advice of only investing in stocks. Again, I think your portfolio should be more diversified, and that the diversification should change over time to become more conservative as you approach retirement. Different investment mixes for different periods in your life – more aggressive younger and more conservative older generally speaking.

The big idea that we both agree on – take the company match at the least. And begin saving for retirement as soon as you can. Not bad advice at all!

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During our last blizzard this weekend I spent time catching up on some paperwork and budgeting things that needed to get done. One of those items was reviewing and re-balancing my retirement portfolio. I usually try to do this once or twice a year, depending on how far out of balance my asset mix becomes. It was definitely overdue!

While reviewing everything, I decided to redo my retirement accounts that are in my 403 (b) account (similar to a 401-k but for nonprofits). Along with several other funds, I had been invested in a Target Retirement fund account, but I was not happy with the percentages of stocks, bonds, etc. So I decided to pull my monies out of that and redistribute them.

Also, my balance was out of whack between stocks and bonds and I needed to get that re-balanced (getting back to the right mix and percentage of stocks and bonds). So after reviewing funds, pulling monies, re-balancing, etc. my retirement portfolio now looks like this:

• Domestic Bonds are 20% of my portfolio
• Large Capitalization Stocks are 35% of my portfolio
• Small Capitalization Stocks are 20% of my portfolio
• International Stocks are 20% of my portfolio
• REIT (Real Estate Investment Trust) is 5% of my portfolio

The basic breakdown is 75% stocks (further broken down by small, large, and international stocks), 20% bonds, 5% real estate. For my age and my goals this seems to be a pretty good mix – we will see how it works out!

I am a buy and hold, index type of investor. I am still in index funds, I just changed some of the funds to better reflect my personal goals and needs. I invest a fixed amount monthly (with a company match) regardless of whether the market is up or down. This strategy (continuous automatic investing) in my opinion gives me the best opportunity for good returns.

I will now let things go for awhile, probably checking closely every three months to see how things are going. I tend to not re-balance my portfolio unless it gets close to 3-4% over or under my target percentages. Again, unless something really wild happens, I tend to only re-balance once or twice a year.

Have you recently (or ever?) re-balanced your accounts? This might be a good time to take a look and make sure you asset mix is in line with your investing goals.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Rebalancing my Retirement Accounts is a post from: A Penny Saved, the best darn personal finance blog around.

Yesterday we celebrated my Mother-in-law’s 85th birthday! In a little over a week we will be celebrating my Grandmother’s 95th birthday! As our family celebrates these two milestones, it got me to reflecting and thinking. So in no particular order:

• Do I have enough in retirement? Even if I wait to retire at age 70, I could still need 25 years worth of savings!
• Is my investment mix correct? Even when I approach retirement, I will still need a healthy investment in stocks – 25 years is a long time horizon.
• Will the things I think are important now still be important to me when I am 85 or 95? As I watch these two wonderful ladies, what they treasure most are family and family memories. Cars, houses, “things” are of low importance.

What should I be doing now to make my life better, or my families life better in the future? A lot to think about…

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I scored a B+ according to their test! Over at CNN Money they have a “How Healthy are Your Finances?” quiz that you can take. It focuses on 7 financial areas – this is how I scored in each area:

• House Payments – Good
• Debt Load – Good
• Stock Diversification – Good
• Life Insurance – Good
• Company Stock – Good
• Retirement Saving – Low
• Emergency Savings – Low

It’s a pretty simple test – you either get a good or a low. Each one has a little explanation for how you scored. For instance on retirement saving, they thought I needed more based on my age and income. For emergency savings, if you don’t have 3 months worth of income saved you get marked low.

I disagree with the emergency savings – it’s not how much you save that matters but what your expenses are, plus there are other factors that come into play for me:

• I’ve been laid off before so I have some experience of what my needs would truly be. It’s definetely not 3 months worth.
• I know how to work hard at getting a job, plus I have skill sets that are useful for temporary agencies, etc.
• My wife is not working now, but she could in an emergency.

But a B+ is not bad. Anyway, it’s not a bad tool if you just want a quick review. Just know that there are many factors that go into financial decisions and just because you have a different mindset, it doesn’t mean you are wrong!

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Making the Financial Grade is a post from: A Penny Saved, the best darn personal finance blog around.

It must be mistake week in the news. Last night U.S. News & World Report had an article by Kerry Hannon about “5 Mistakes that will Sink your Retirement”. Below are his five points and some personal commentary:

1. Cutting back on Contributions.

According to the article, 1/4 of American workers do not contribute to their 401(K) and many who do contribute do not give enough to get the full company match. That’s tossing away free money. Also, there is a tendency when times get tough to try to free up some cash by cutting back on retirement saving. That’s short term gain for long term pain. Unless it is a dire emergency, don’t cut back.

2. Using Retirement Savings as a Bank

Too many people borrow from their 401(K). Sure, you need to pay it back, but you are losing ground. And once you tap into, there is the temptation to go back and tap it again, and again. You end up “sacrificing compounding investment earnings.” This is a fools game. Leave it alone!

3. Avoiding losses by reinvesting in safer places.

None of us likes to see our account balances fall, but we need to hold our ground. Taking money out of equities and putting them into money market funds or bank CD’s will cost you more in the long run. Stocks, no matter how poorly they do in the short run, give you the best shot for long term growth. If you stay out of the market, it will cost you more over the long run than some temporary setbacks. Decide on your portfolio mix – stocks, bonds, etc., then stick with it, rebalancing as necessary.

4. Cashing out your 401(K) Balance

When leaving one job for another, or even for early retirement, it makes sense to cah out your balance – as long as you roll it over to an IRA or another tax deferred plan. And you only have 60 days to do so or the IRS will come knocking on your door (and maybe with a 10% penalty added!). Make sure you cross your T’s and dot your i’s with the correct paperwork.

5. Not having a post-retirement plan.

Some of us are so focused on saving for retirement that we forget retirement itself! We need a financial plan for the “golden years.” What will be your sources of income? How will you tap into your savings? What portfolio mix should you have during the retirment years? What about healthcare?

Not a bad article. Again most of it is common sense – but then sense always isn’t so common is it?

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In a previous Post (Social Security Statement – 11/4/07), I mentioned that I was considered self-employed for Social Security purposes because I was a pastor. One of our astute readers asked a very good question. Here is her comment/question:

You fail to mention that as a pastor you had the opportunity to opt out of the social in-security system altogether, something the rest of us don’t have as an option. I would jump at the option and yet not one clergy member I have ever known has opted out…is there some explanation for volunteering to participate in a system that most everyone else wants out of??

Good question! Let me try to explain. Before 1968, a pastor was not eligible to be part of Social Security unless they chose to file a Form 2031 – Waiver Certificate to Elect Social Security Coverage. So pastors were not covered at all (or taxed!) unless they chose to waive their right from exemption. After 1968, the government reversed the process: pastors were automatically part of the system and considered self-employed unless they opted out. To opt out, a pastor must file form 4361 – Application for exemption from Self-employment Tax.

On the form, a pastor must sign the following:

“I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for medical care.”

Most pastors that I know (including me), cannot sign this waiver. We may hate social security for financial reasons, but not because of conscience or religious principles. And the waiver is not just opposition to Social Security, but to any public assistance/insurance. And I think that is what the government is banking on. Also, if you are part of a denomination, and all the other pastors cannot sign off, and you do, the IRS will look into it. I know I really struggled with this at the time. And you only have a small window of opportunity to opt out – the second year of service.

So because of conscience and religious principles, I cannot sign the form that would liberate me from tyranny and taxation. O well. One more sacrifice of being a pastor. Of course the benefits after death are pretty good!

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I just received my annual Social Security Statement in the mail. How depressing. Since pastors are considered self-employed for social security purposes, I get the privilege of paying 12.4% in SS taxes and 2.9 % in Medicare taxes. If I work until full retirement age (67 years for me), I may receive about $1,500 a month. What a lousy return on investment. Right on the cover of this publication from the Social Security Administration is this:

Social Security is a compact between generations. For decades, America has kept the promise of security for its workers and their families. Now, however, the Social Security system is facing serious financial problems, and action is needed soon to make sure the system will be sound when today’s younger workers are ready for retirement.

In 2017 we will being paying more in benefits than we collect in taxes. Without changes, by 2041 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 75 cents for each dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.

If you will allow me just a few sarcastic comments:

• A compact between generations? Does AARP know this?
• The promise of security? Who are they kidding? $1500 a month doesn’t make me feel secure, which is why I am saving like mad for retirement.
• Who is this “we” they keep referring to? They are spending more than they are taking in, not me.
• Again, “we” need to resolve these issues? How about the legislative branch? Do they even read the stuff that’s being printed by the Social Security Administration?
• Foundation of protection? It goes from the promise of security, to foundation of protection, and probably next year it will read “a token of appreciation” for all that we taxed you on.

Okay. That is my rant for today. Feel free to add your own comments. Keep it clean though!

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Any financial adviser worth anything will keep repeating this mantra over and over – contribute as much as you possibly can to your retirement accounts, starting right now.  If you have a financial adviser and this advice doesn’t sound familiar, fire him immediately – he’s not looking out for your best interests.  The power of compound interest is impressive, and even a few extra years can make a world of difference when it’s time to leave the working world and go fishing all day.  Just take a look at a couple numbers I ran through a calculator, concerning Roth IRA’s.  Please note that none of these numbers are adjusted for inflation, which can have a significant impact.  They are also assuming a 9% rate of return. However, since the money comes from a Roth IRA, there are no additional taxes due at the time of withdrawal.

Investor 1 drops $4,000 into his Roth IRA at age 25, and leaves it be until retirement.  At that time he’ll have a cool $144,439.60 balance.  Compare that to Investor two who drops the same $4,000 into a Roth, but does so at age 45.  His account balance will read just $24,036.6 at age 65 – a difference of over one hundred and twenty thousand dollars.  The same initial investment in both cases, but 20 years apart – the difference is tremendous.

Here’s another scenario.  Investor one contributes $100 per month to his Roth IRA, starting at age 25.  His total contribution is $48000, and his account will reach a whopping $468132.02 at age 65.  Investor 2 contributes $333 per month ( the max is $4,000 per year ) to his Roth, for a total contribution of $79,920 – almost twice what the first investor put in.  However, #2′s account will read $222406.32 – less than half of investor one.  Invest half as much and end up with twice as much – that’s how powerful compounding interest is.

There’s a lot of details to learn about investing, and inflation is one that you can’t forget – but that’s a topic for another post.  The bottom line, and something you need to take to heart is this – Begin investing for your retirement right now, today, this minute.  If you have a Roth IRA, put some money into it.  If you don’t have a 401(k) , OPEN ONE.  Whatever your retirement investment of choice is, start right now.

Hi there - could you help spread the word about A Penny Saved? We rely on word of mouth to get new readers. If you would send someone a link, email, or even mention it to your friends, I would truly appreciate it. Start saving for your retirement Right Now is a post from: A Penny Saved, the best darn personal finance blog around.