Think Income Not Investments
Esteemed economists like Nobel Prize winner Robert Merton believe that it is more important to estimate and plan for your retirement income needs than worry about investments and how much you need for retirement. He recommends dividing your income needs into three categories:
- Minimum guaranteed retirement income This category is for how much income you need to maintain your life at the bare minimum. Your retirement assets should be allocated to guarantee this income for as long as you live. Social Security and lifetime annuities are two common guaranteed income sources.
- Flexible income This category is for how much income you would like to live at your desired lifestyle. Income for this category should come from conservatively invested assets.
- Nice to haves You can take some risks with investments in this category.
The best retirement plan insures that you have enough income to cover your expenses. The NewRetirement Planner can help you figure out how much income you need. Or, explore 18 retirement income strategies.
NewRetirement podcast on Fixing Retirement:
How To Manage Your 401k Without Lifting A Finger
A 401 is a great retirement savings account because it’s easy to invest in and because your employer may even help you save by matching some of your contributions. The one downside is that, unlike a pension, your 401 will give you enough to retire only if you manage it correctly.
Taking control over your 401 can be a challenge, especially if you aren’t interested in becoming an investment expert.
But the good news is, there’s a simple, effortless way to ensure that the money in this retirement account is invested wisely so you end up with the nest egg you need. Here’s what it is.
Keep It With Your Old Employer’s Plan
One of the simplest things you can do with your old 401 account is to just leave it right where it is this requires no further action on your end.
“Most companies allow you to do this so your money continues to grow in the investment option you selected ,” said Jessica MacDonald, the Vice President of Thought Leadership at Fidelity. And, you’ll still be able to make withdrawals penalty-free once you hit age 59 1/2.
Just keep in mind, though, that if you have an account balance of less than $5,000, the account may be rolled over into an IRA.
Another reason you may opt to keep your money in your old employer’s plan is if you just really liked the investment options it provided. Some employers may provide more access to certain types of 401 investments, like a wider range of mutual funds rather than just a target date fund.
However, there are a few potential downsides you should be aware of when deciding to go this route. For starters, you typically won’t be able to make additional contributions to this plan once you switch jobs. And, the plan administrator for your old employer may charge additional fees for bookkeeping, administrative charges and legal fees to continue managing the account.
And, you would be unable to take out a 401 loan on your balance.
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Paying Yourself First: How To Put Your Investing On Autopilot
- Why paying yourself first is the Golden rule of personal finance.
- How to save time & increase how much you save with easy, automatic deposits.
- Avoid temptation by setting up an automated investment plan.
Finding it difficult to save for the future?
You may be finding it tough to think about your future financial plans – let alone retirement, when now seems so much more important. Lets talk about the Golden Rule of personal finance: Paying yourself first. Well learn how this simple strategy can help get your goals back on track and get you on the way to a comfortable financial future.
In a recent Leger survey conducted by Questrade, over half of Canadians polled fear that they will not have enough money for retirement. But most Canadians say they have no plans to change their retirement strategy and investing plan, even with this fear of not retiring with enough, why is that?
Are you waiting to invest once something changes with your financial situation?
Theres always going to be a reason not to invest, and the longer you put things off, the harder it is to start and create healthy financial habits to achieve your dreams. But getting started doesnt have to be a gigantic task. Starting an automatic investment plan is much easier than you might think, and helps establish the foundation for your goals. Paying yourself first can help take the guesswork out of when and how much to save, especially during uncertain economic, and personal times.
Give Yourself Flexibility To Figure It Out
You might think that you want to spend your retirement painting, cooking, and reading, but then find out that all that time spent at home doesnt fulfill the lifestyle you dreamed about. After 30 years in the workplace, you finally have time to experiment with what you really want.
There are many different ways you can spend your time. And fortunately, theres no need to figure it all out right away. It will likely take a fair amount of experimenting to help you find just the right balance of how you want to spend your time. You can always increase social activities later or develop new hobbies if you want to stay busier.
The joy of retirement is that youll have plenty of opportunities to experiment. Its up to you to design the type of dayand kind of lifethat you want to live.
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Wait As Long As Possible To Start Social Security
The differences in lifetime value between starting Social Security at age 62 and delaying until 67 or later can be hundreds of thousands of dollars.
Social Security offers you guaranteed monthly income for as long as you live. If you can wait to start it, you will enjoy a higher standard of living.
Use a Social Security calculator to assess the best time to start or look at Social Security as a part of your overall retirement plan.
Come To Terms With Risk
Some people think investing is too risky, but the risk is actually in holding cash. Thats right: Youll lose money if you dont invest your retirement savings.
Lets say you have $10,000. Uninvested, it could be worth less than half that in 30 years, factoring in inflation. But invest 401 money at a 7% return, and youll have over $75,000 by the time you retire and thats with no further contributions. calculator to do the math.)
Clearly youre better off putting your cash to work. But how?
The answer is a careful asset allocation, the process of deciding where your money will be invested. Asset allocation spreads out risk. Stocks often called equities are the riskiest way to invest bonds and other fixed-income investments are the least risky. Just as you wouldnt park your life savings in cash, you wouldnt bet it all on a spectacular return from a startup IPO.
Instead, you want a road map that allows for the appropriate amount of risk and keeps you pointed in the right long-term direction.
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Know Your Options When You Rollover A 401k
Rolling over a 401k could allow you a better investment selection for your long-term savings, lower fees on those investments, and it also offers the added benefit of keeping your financial life a little more organized.
For example, if you currently have all your accounts with an investment company like TD Ameritrade, Fidelity, or Vanguard but you have two random 401ks from previous employers floating out there with some other custodian its easy to lose track of those old plans or fail to account for them in your planning.
But if you can rollover a 401k to the same place you already keep all your other investments, you can stay better organized and aware of all your money .
There are clear advantages to doing a rollover but where should you move the old plan?
Most people are often better off doing one of two things:
If you dont have a current 401k, rolling over your account into an IRA will probably be your best bet so you can continue to contribute to your retirement nest egg and enjoy the tax-deferred benefits.
Why Should I Hire An Advisor
More and more 401 plans offer an alternative to the traditional pre-selected list of investments. That alternative is called a self-directed brokerage account.
Some SDBAs allow you to hire your own third-party investment advisor a fiduciary who works for you, not the plan, guiding your investment strategy following your wishes. By going the self-directed route, investors gain access to a whole new universe of investment options including mutual funds, exchange traded funds and à la carte stocks and bonds.
Given that nearly 40% of 401 plans now offer an SDBA option, one might expect to see a big adoption of the self-directed option. Participation remains low, however, because many people are not even aware of this option or know that they may be able to hire a personal advisor.
Those who hire their own advisor can expect to pay an advisory fee. Some plans allow that fee to be taken directly out of the participant’s 401 account. Typically, an independent advisor will charge anywhere between 0.5% to 1% of the total funds under management per year.
Don’t let these advisor fees scare you, however. In many cases, that price range is commensurate with what investors already pay under a traditionally managed 401. A fee of 1% is the industry average. For smaller accounts, that fee can be as high as 2%.
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This New Phase Of Your Life Can Be A Little Difficult To Navigate At First
Carly Snyder, MD is a reproductive and perinatal psychiatrist who combines traditional psychiatry with integrative medicine-based treatments.
Youve likely thought a lot about how youll enjoy your golden years. But theres a good chance you never thought much about the psychological effect retirement might have on you. Retirement often means a loss of identity. Whether you identified as a banker, cook, or teacher, retirement can cause you to question who you are now that youre no longer working.
Other issues that accompany retirementsuch as more time and less moneycan also make for a difficult adjustment. Some retirees experience mental health issues, such as depression and anxiety, after they’ve stopped working.
If youre in the early stages of retirement and feeling somewhat lost, youre not alone. Many retirees find the transition can be difficult. Following these eight tips might help you adjust to retirement better so you can feel fulfilled and happy during this chapter of your life.
Why Managing Your Own Retirement Portfolio Is A Good Idea
In 1956 Alice B. Morgan published the book, Investors Road Map. The book grew out of a series of investing classes that Morgan gave over the years to people in Bristol, Rhode Island.
The classes Mrs. Morgan gave were free, and the book was a summation of her tips, a source of advice for those who couldnt get to the class. Whats especially interesting, however, isnt the advice itself. Mrs. Morgan was a plain-spoken Yankee of the old school and her rules were appropriate for the market as it ran in the 1950s. What was unique was the length to which she went to convince the women who made up a large part of her classes that they could actually do investing on their own.
One big reason for managing your own retirement portfolio is that nobody cares more about your money than you do. So why would you leave it in the selections you made when you funded your IRA in 1980? Or why would you pay someone else to decide where you invest it?
Theres less mystery surrounding investing on your own these days. With so much information at your fingertips, do-it-yourself investing is much easier than it was 70 years ago or even 10 years ago.
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Tips For A Healthy Wealthy And Happy Retirement
If you want to have a good retirement, you need to figure out what that means to you. Do some life planning for retirement, set goals, and use these retirement tips to create a plan that allows you to achieve exactly what you want. What do most of us want? It is usually pretty simple, we want a happy, wealthy, and happy retirement.
A happy retirement is no longer really about sitting with your feet up and watching the rest of the world whiz by. Many people now think that retirement is a time for embarking on one of lifes greatest adventures. This is the time to do what you want with the experience-laden good sense to appreciate it.
How to be happy in retirement? Here are 65 retirement tips that can help you have a really good retirement. Make this the best time of your life!
All The Rules You Need To Know For Self
The typical workplace 401 plan offers limited investment choices. If you’re an avid investor, you may prefer more flexibility in what you can invest in.
A self-directed 401 plan may be just what you need. It offers something known as a “brokerage window” through which your employer may allow you to invest part or all of your 401 plan as you see fit. Your employer decides whether to offer this feature, as well as the types of investments you can choose from.
Self-directed 401 plans follow the same rules and requirements as other 401 plans. If your employer allows self-directed 401 plans, make sure you know these Internal Revenue Service rules before you make account contributions.
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Be Wary Of Target Date Funds
Think hard before you simply invest your 401 in a target-date fund. The idea of these funds is that they’re geared to evolve as you move closer to retirement. If youre planning to retire in 2035, for example, you would invest in a target-date fund that matures in that year. The funds managers will continually re-balance the fund to maintain an appropriate allocation as the target date gets closer.
Here’s why this type of fund may not be the best choice. For starters, funds use different allocation strategies, which may or may not be a good match with your goals. As experts point out, a target date funds performance is largely based on the fund managers. Since you probably dont know the good managers from the bad, picking a fund is difficult.
Equally important, fees for these funds are often high, and novice investors dont understand the golden rule of target-date funds. If you invest in one, you shouldnt mix it with other investments. Most financial advisors agree that its close to an all-or-nothing investment. Investing your 401 in other funds as well throws off the allocation.
One-stop shopping is appealing, but just because these vehicles are a simple way to invest doesnt mean that they’re easy to understand or the right place to park your retirement funds.
Preparing For Life After Work
Start planning now for a new stage of life.
Retirement can be a time of mixed emotions.
Perhaps you can’t wait to retire. Sure, you love your job, but soon you’ll have the time to fulfill those lifelong dreams that you’ve nurtured for years.
Or, maybe the idea of not working anymore fills you with dread. Will you lose that feeling of purpose and sense of achievement that only a job well done can bring? And how about the drop in earnings?
Reaching retirement is a profound milestone in life, but too often it’s something many of us are unprepared for.
In this article, we’ll explore seven steps for managing your retirement, leaving a great legacy for your team, and easing you into life after work on your terms.
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Do Prioritize Having An Emergency Savings Fund
In times of economic upheaval, an emergency savings fund is an absolute essential. So before you make the balance in your retirement portfolio a top priority, ensure that you have a solid emergency savings fund with enough money to cover three to nine months worth of expenses. Your retirement fund should not double as your emergency fund instead, that fund should be a separate, liquid savings account.
While in an ideal world youd invest as much as possible during a down market to take advantage of inexpensive stock funds, its more important during a down market to make sure you have liquidity outside of your retirement plan, said David Shotwell, a certified financial planner in Lansing, Mich. Keep in mind that the economic difficulties that cause market upheavals can also cause job losses and other liquidity concerns, so consider your situation before you pile all your extra cash into your 401.
Dont Withdraw Your 401 Funds If You Dont Have To
While the Coronavirus Aid, Relief and Economic Security Act makes it easier for you to access your retirement funds which we discuss later in this article you should not raid your 401 if you do not have to. This might be easier said than done in fact, in a recent survey, we found that most people cant stomach even a 10% decline in the market.
However, if you withdraw your retirement funds out of panic when you see your portfolio balance plummeting, you are actually unraveling years of hard work, as you will be locking in your investment losses, instead of allowing them to rebound when the market eventually recovers. This just further underscores the importance of having an emergency savings fund outside of your retirement account.
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