Archive for Retirement

HOW MUCH 20-SOMETHINGS SHOULD SAVE

How much 20-somethings should save!

Your 20s may seem like an odd time to think of saving for retirement, but it’s actually the perfect moment to start planning for your later years. That’s because the earlier you start saving, the more time your money has to grow.

Savers who begin setting aside 10% of their earnings at 25, for example, could amass significantly more by retirement age than those who wait just five more years to start saving. You can use a retirement calculator to see how much you should start saving now to reach your retirement goal.

Building a nest egg on a starter salary and a shoestring budget can seem daunting, though. Focusing on the incremental savings, rather than the goal, can help your savings objectives feel more manageable.

HOW MUCH TO SAVE FOR RETIREMENT

For those earning around $25,000 a year, the median income for 20 to 24 year olds in 2015, saving the recommended sum of 10% amounts to a little more than $200 a month.

It may seem like a reach, but consider this: If you start saving $100 a month at age 25 and invest it to return 7.7% a year — the average total return of the Standard & Poor’s 500 Index of U.S. stocks over the past decade — you’ll have more than $378,000 available at retirement age. And it could be tax-free.

If you wait until you’re 30  to start and save the same monthly amount at the same rate of return, you’ll wind up with less than $253,000.

Several vehicles can help you build a retirement fund. A 401(k) plan, typically offered by your employer, is often the most convenient and easily accessible of these. Contributions you make usually aren’t taxed, which helps reduce your income tax liability.

Pre-tax 401(k) accounts make up around 80% of retirement plans offered by employers, according to the American Benefits Council. Roth 401(k) accounts are another option, though these are less widely available, and money contributed to a Roth 401(k) account goes in after it’s taxed. Money withdrawn from this type of account — including earnings — is usually tax-free.

Companies that offer a 401(k) plan often match employee contributions, up to a certain percentage. This is essentially free money toward your retirement.

If your employer will match your contributions, try to take full advantage and commit a large enough percentage to get the full benefit.

Beyond a 401(k), individual retirement accounts, commonly referred to as IRAs, offer another solid option. There are two types: traditional and Roth.

Money put into a traditional account is tax-deferred, similar to funds put in a traditional 401(k) plan. That means those funds aren’t taxed until they’re taken out. But typically any earnings you make with the money are also subject to income taxes on withdrawal.

Money put into a Roth IRA has already been taxed when you earn it, so there’s no immediate tax benefit. When it’s time to withdraw the cash, however, you usually don’t pay taxes on it. And anything the money earns also can be taken out tax-free.

Contributions to both types of IRAs are currently capped at $5,500 a year for those under age 50, and $6,500 for older workers.

HOW MUCH TO SAVE FOR EMERGENCIES

In addition to retirement, it’s also wise to save for a rainy day. Ideally, your emergency fund should be enough to cover three to six months of living expenses.

Some experts suggest setting aside even more for savings and investments: 20%. That’s roughly $415 a month on an annual income of $25,000.

That’s not always feasible, especially if a big chunk of your monthly income goes to student loan and credit card payments. Consider saving what you can, even if it’s just $10 a month.

Making a habit of saving now could serve you well down the road. And, as your income increases, the percentage you save can as well.

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Don’t Bet Your Retirement On An 8% Return

Planning for Retirement

Planning for retirement can seem overwhelming. Here are Section 705’s suggestions for a successful future! In investing, time in the market is crucial. If past growth rates continue, the time you leave your savings alone actually matters more than the amount you save. Retirement Planning: IRA, 401K, and Stock Market

The problem with that, though, is that past growth rates probably won’t continue. Over the last 30 years, the stock market has averaged 7.8% growth, a rate that is the foundation of many retirement plans. If you’ve invested your whole 401(k) in total market index funds hoping for that growth, you may be unpleasantly surprised.

The 7.8% growth is a historical anomaly driven by demographic factors. Because of slowing industrial growth, decreasing population growth, and competitive overseas markets, that rate is projected to slow to 2% in the next year, and possibly past that.

This drop has significant ramifications. For 25-year-olds saving for retirement, a two-point drop over the next decade could necessitate saving twice as much before they retire.

Dealing with macroeconomic trends can be overwhelming. These steps can prepare your portfolio for struggling gains.

1.) Max out employer match

About 31% of American workers with access to a 401(k) don’t use it. Beyond the missed savings, employees are losing out on matching funds programs.

Matching funds programs are essentially interest payments. Your company will pay 100% interest on your 401(k) deposits. Increasing your 401(k) contributions to the maximum match level will minimize the impact of slow growth within your portfolio.

2.) Watch the fees

Ask your HR representative for a breakdown of your company’s investment management fees.

Review your fees and gauge if they’re reasonable. Most large companies have fees of 0.5%, with the numbers increasing for smaller companies to about 1.4% If you’re paying more, consider switching the funds you’re using.

3.) Revisit the Roth question

With the assumption that taxes usually increase over time, a Roth 401(k) generally makes sense for young people. However, with returns expected to drop and savings amounts likely to be a larger determinant of total wealth accumulation, it’s time to rethink this conventional wisdom.

If a tax deduction now in the form of a traditional 401(k) contribution would enable you to save more, it might be worthwhile. Growing your nest egg is essential; you can find ways to manage taxes once you’ve got enough saved for retirement.

4.) Look for predictable returns

As interest rates rise, growth slows as a result of decreased credit availability. That same force makes savings through other instruments more valuable.

An Individual Retirement Account (IRA) can hold savings certificate funds, like those available at Section 705 Federal Credit Union. These offer a predictable rate of return that isn’t dependent on macroeconomic forces, thus minimizing risk.

The principles of smart retirement planning don’t change. Spend less than you earn. Avoid debt. Invest as much as you can, as often, and as cheaply as possible. With a bit of planning, you’ll enjoy a prosperous retirement.

SOURCES:

How Boomers Can Retire The Way Millennials Work

Retire Smarter, Not Harder!beach

You may have noticed a surge in the number of ponytails and slightly exposed tattoos around the workplace water cooler. Or perhaps you find you now need to get to the office earlier if you plan to land a space for locking up your bike. Maybe you’ve had to make peace with the fact that the kid in your meetings who doesn’t look old enough to ride solo on a roller coaster is not an intern, but an actual employee!  Face it, millennials are a force in the American labor force. In fact, by 2020, they’ll represent more than half of all workers in the country.  In spite of what you’ve read, those pesky youths can actually teach us experienced folks some important lessons about money, some of which might make you rethink part of your retirement planning.  Here are some of the things they’ve figured out that the rest of us might want to consider:

1.)  Don’t be afraid to move.  USA Today recently reported that one-third of all employees in America are freelance, by-the-job workers.  In many cases, these jobs are being handled by young people, many of whom commute over Wi-Fi from home or a coffee shop, instead of 45 minutes of bumper-to-bumper on I-10.  In fact, many of those young people would need an airplane ticket to come into the office.  An increasing number of young people live a “digital nomad” lifestyle, living in the cheapest cities and working wherever they feel most inclined.  It’s easier to make ends meet living in San Antonio, where the median home price is $150,000, than it is in San Francisco, with a median home price six times as high.

The same logic works for retirement.  There’s no reason to keep living in a pricey neighborhood just because it’s a convenient drive to the office you’re not visiting any longer.  In fact, many retirees are following the digital nomads abroad, retiring to Asia and Central America, where the cost of living is pennies on the dollar.  In Belize, for example, a couple can retire with a budget of around $13,000 per year.  That’s below the poverty line in the United States!  How many flights could you buy for the grand-kids with that kind of savings?  Would they love to visit you on the beach?  You bet they would!

If you think you might want to move, check out our mortgage here, because even a fraction of your home value here could buy you property abroad.

2.) Know what to rent … know what to buy.   It used to be that every young person’s living room looked the same:  futon from the curb, coffee table from Ikea and an enormous corner bookshelf filled to the brim with DVDs.  Before that, the DVDs were LPs, the coffee table was a spool table and that futon was probably the same futon from the same curb, just 20 years earlier.  But if you ask millennials how many DVDs or albums they own, they’ll respond with a confused look.  Why would anyone own movies or music?  Paying $20 for one movie or album doesn’t make sense when you can get all of Netflix for $8 per month or Spotify for free.

The same is true for a lot of the things you might want in retirement.  Is it time to replace that car?  Why not lease it?  Do you want to own that house forever?  Why not create a leaseback arrangement?  Do you own a timeshare?  Sell it and put the proceeds into a high-yield money market account.  It’ll go a long way toward paying for your vacations, wherever you choose to go.

Check our vehicle lease rates. Or drop us a line, and let us walk you through your budget to see what you may consider selling or renting, instead of owning for the sake of ownership.

3.)  Get connected.  Young people can do just about everything through social media, even when they’re otherwise not technologically inclined.  I recently had a millennial ask me what use anyone could possibly have for Excel, which was stunning by itself, but then she proceeded to arrange a meeting over Instagram on her phone at the drop of a hat and on a Saturday afternoon, which was even more shocking.

Make your social media work for you.  Go through the social media apps on your phone, see what you use them for and why you have so many.  Then ask young people why they have apps you don’t.  Do those apps sound useful?  If so, get them.  If not, try them out anyway.  While you’re at it, follow the businesses you use most often, so you can find news and deals.  It’s better than email, faster and easier to interact.

Most importantly, if you’re not following us on Twitter and Facebook, now’s the time.  We put out a lot of great info to help you with your finances, and you can shoot us a question. With just a couple of clicks, you can see the questions other people have.  You might even learn the answer to a question you didn’t even know you needed to ask!

Sources:

http://www.forbes.com/sites/kenrapoza/2013/02/18/one-in-five-americans-work-from-home-numbers-seen-rising-over-60/
http://money.cnn.com/2015/08/13/retirement/retirement-income-plan/index.html
http://money.cnn.com/2015/09/03/pf/gig-economy-free-agents/index.html
http://www.usatoday.com/story/money/personalfinance/2015/09/04/credit-dotcom-financial-checklist/32349553/
http://www.bestplaces.net/city/texas/san_antonio
http://money.usnews.com/money/blogs/on-retirement/2014/04/16/the-worlds-9-most-affordable-places-to-retire