How Much Do You Need To Have In The Bank To Retire?

strategic retirement THE STRATEGIC RETIREMENT – ARE YOU PLANNING AHEAD?

It’s madness – utter madness. What’s so maddening? Those that understand what they need to do for something to happen the way that they very much want it to, but who are putting very little effort into finding out how they need to go about making it happen.

Unfortunately, this is where Americans are at with some estimates concluding that over half of the American population hasn’t even given a second thought to how much they’ll need at retirement. Sure, a great many of them have some kind of retirement plan – by “plan”, I mean they’ve set up something where funds are going into an account – but they haven’t planned for how much they’ll need, when they want to have amount by, so on and so forth.

Of course, this is maddening! Your retirement is your business – if you were running your own business, would you not at least have a 10-year fiscal plan and a budget? That’s bare bones for a business and your retirement plan should be structuralized in a similar fashion. To find out more about your superannuation fund, visit Suncorp & chat with one of their staff members.

In America’s Defense – Recovery is Still at Work

Putting the madness aside, there is a certain amount of understanding that should be extended. For a substantial amount of time – in recent years, and presently – plenty of Americans were concerned more about making it to the end of the month, than they were about making it to retirement. Priorities shifted and it became more about surviving here in the now, as opposed to preparing for a comfy future.

However, at this point, it’s time to get back into the swing of planning for the future. It’s true that we had a disappointing 4th quarter, especially after such a strong showing in the 3rd, but the economy is growing, people are spending, investments are popping, and the economic electricity is crackling back to life.

In 2013, 62% of Americans surveyed who made significant financial resolutions for this year were able to achieve their goals and then some — a record-breaking 46% of Americans have already established new financial resolutions for 2014. Yes, yes, yes!

Find the Retirement Calculation that Works for You

This aspect of retirement planning is the sticky one – everyone is different. What you need to have in the bank at retirement may vary substantially from what your neighbor needs to have in the bank – perhaps your neighbor was more diligent at depositing into his savings account than you were and therefore doesn’t have to work so hard to get that retirement fund populated.

There’s a number of varying factors that will ultimately change how many multiples of your salary you should be stowing away for retirement, but the general rule of thumb is – you always need more than you think you do.

In order to get you thinking about what these numbers and calculations might be, you should use the internet to your advantage and stake out a couple good online calculators – there are everywhere! These are largely just to get you thinking, however – what you really need is a financial advisor.

Don’t go it alone – there’s too much, it’s too complicated, and you won’t know which methods, theories, and calculations are best suited to you unless you shop around. A financial advisor can simply help cut the time you spend doing that in half – they know the industry, they have the connections, and they can get you set up in a hurry.

No matter how you choose to tackle this, make sure you take the following into consideration:

  • What are Your Medical Costs? – Are they substantial? Then, plan BIG. Some estimates predict that in 2019, a 65-year-old couple – with no employer-provided health benefits – will need to have $450,000 in the bank at retirement just to have a 50% chance of fully funding health care expenses that aren’t already being handled by Medicare.
  • How Much Do Your Save? – If you’re saving around 15% of your total income, every year, then you’ve put yourself in a great position. By the time retirement comes around your savings alone will be able to replace 85% of your yearly salary for the next 30-years of retirement.
  • Have You Considered Your Life Expectancy? – Don’t assume that you might not live long and plan according to that. Always plan to live a long life, because chances are good that you will. Estimates from The Society of Actuaries state that for a 65-year-old couple, there’s a 45% chance one of you will reach the age of 90 and a 20% chance one will reach the age of 95.
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Rolling Over

If you’re like me and have made several career moves already, you probably have a lot of money sitting around in different places. In my earlier years of investing, I never thought anything of if. The more brokerage accounts I have the more diversified I am, right? Aside from the ease in having all of your money in one place (receiving one statement, the ease that comes with filing taxes, etc) there are several disadvantages to having several accounts:

The most dreaded word when it comes to investing:

FEES

Most brokerage accounts charge a custodial fee which is the cost of “maintaining” your IRA account. In the long-run these can really add up if you’re paying them on multiple accounts. It is usually better to bite the bullet and pay the termination fee that often comes with transferring your funds and reap the reward of fewer fees down the road.

HIGH COST

It is true that many employer-sponsored retirement plans are high-cost options for investors. Like most insurance plans, and other employer sponsored programs, they are looking out for themselves; what costs the least for the company.

There are some benefits that come with owning multiple IRA’s that pertain to assigning beneficiaries and withdrawing. Additionally, there is some legal protection that comes with owning multiple accounts in the event that you find yourself in court. Each type of plan is protected differently in various types of legal situations, so there may be some advantages in not having all of your eggs in one basket if you find yourself face to face with the law.

But if you’re young like me these factors are (hopefully) negligible as I have a long life ahead of me and will probably switch jobs and accumulate a few more accounts before it’s time to withdrawal.  There are obviously a lot of “what-ifs” at play here. Such as “What if my previous employer is one of the few with a great selection of low-cost funds?” Hopefully  your employer sponsored plan has plenty of information available to you to sort out these kinds of questions and find out what works best for YOU. The rest is up to your particular place in life and your risk tolerance.

In my case, I am already too diversified. I can hardly keep track of all of my accounts. Rolling over two of my high-cost accounts into low costs options such as Vanguard will save me in the long-run without giving up certain legal protections and advantages(if I even need them). If I’m wrong, I have 20+ years to adjust and figure out what works best for me. Ah the beauty of being young.

How To Start Preparing For Retirement In Your Twenties

preparing for retirementWith the recent introduction of new government guidelines on pensions, there’s never been a better time to start looking at how to fund later life. The reform includes a new flat-rate state pension worth an estimated £144 per week in today’s money, to provide the UK’s elderly with ‘the minimum’ they will need.

If you’re in your 20s, you may feel too young to be thinking about retirement, particularly with the government’s plans to bring the state pension age to 66 by 2020 and 67 by 2028.

However, the reform has been established to put more responsibility on the individual to make adequate preparations for later life by making only basic funds available on the state pension. Therefore, it’s a good idea to start thinking about what savings to make as early on as possible…

Key points for your 20s:

  • Clear your debts
  • Check out your company pension plan
  • Open an ISA

Clear Debts

You’ve probably got yourself your first proper job in your twenties, having possibly been to university or traveling since college. So, first thing’s first: you need to get straight.

Depending on if and when you went to University, you can probably expect to have a student loan, and the reality for many is that there is some unpaid debt on credit cards and loans.

It’s easy just to keep paying off the minimum every month, when you do this, you’re just covering interest and the monthly payments are doing nothing to reduce your debt.

Formulate a plan to pay off expensive, unsecured debt as a priority. A good way to do this is set up a direct debit to take a certain amount from your account on payday, so you don’t see it and have no opportunity to spend it!

Company Pension Plan

As of October 2012, the vast majority of the UK’s employers are now legally obligated to enroll all of their employees (aged 22 and over) into a pension scheme.

This has to be the easiest and more lucrative way of accruing resources for retirement – it essentially acts as a pay rise. When you contribute to your company pension, your employer will also make contributions on your behalf based on the percentage of your salary that you commit each month.

It’s never too early to start, and because it’s taken out of your wage before you get a chance to see it, you won’t have a chance to miss it!

ISA

If you feel like you do have some disposable income to squirrel away, then one of the best places for young people to grow their savings is a tax-free ISA.

Choose an ISA where you are still building financial resources for the future, but maintain flexibility in terms of accessing money just in case you find yourself in need of it, for example, when you invest in property.

Retirement may seem like a long way off, but the earlier you start building a nest-egg, the easier you will make saving during your thirties, forties, fifties and even sixties.

This article was contributed by Laura Moulden on behalf of Cheselden; specialists in continuing healthcare funding.

 Photo by frizzychick

Nuts and Bolts of the Junior ISA

Saving for your children’s future has never been more important. With the increase in tuition fees hitting this year’s freshers, the cost of University in the future is starting to become clear. And with so many young people struggling to get on the property ladder, it’s never been clearer the need to put some kind of savings plan in place for your kids. For those children born after 2nd January 2011, a junior ISA seems like the ideal option.

But, with so many junior ISA providers on the market, all offering different products; which do you choose? Here’s a quick guide to choosing the right junior ISA.

What is a junior ISA?

A junior ISA as provided by Sippdeal, is an individual savings account, specifically for children, offering various tax advantages. They can be opened on behalf of children born after the above date, who fall into one of the following categories:

  • They are under 18
  • They live in the UK; and
  • They don’t have a Child Trust Fund account already in their name

As is the case with adult ISAs, there is a yearly ISA allowance, able to be paid in each year. For junior ISAs this is £3,600 each year, which can’t be carried over into the next year.

The ISA is opened on behalf of your child, but it is in their name and able to be drawn by them once they reach 18. Anyone is able to pay into the ISA making it an ideal savings vehicle if friends and family members want to make a contribution for the future.

What are the different types of junior ISAs?

There are two types of junior ISAs; cash and investment. Both have their pros and cons, so the decision is really up to you.

Here’s a quick rundown of the factors that should form the basis of your decision.

Safety

If you’re looking for safety, then a cash ISA is the best way to go. As long as your funds are placed with a reputable financial institution like Sippdeal, you’ll know the balance of the future nest egg isn’t going to fall. Interest rates aren’t always high, but you’ll know that whatever you put in will be there when they turn 18; plus whatever you make in interest.

However, the downside of this is that if the rate of inflation increases at a faster pace than the interest rate you could actually end up losing out; despite the increase in the savings.

The chance to really make their future

The second option; an investment ISA enables you to gain a significant return on your investment. By using the tax efficient savings wrapper of an ISA to invest in stocks and shares wisely you can build a large nest egg for your child’s future. However, as is always the case with any kind of investment there is a risk. Not only could you potentially lose out on any benefits of the investment, you could lose the original investment too. Choosing an investment junior ISA requires a little financial knowledge and advice; if you do it properly however, it could well be the right decision.

 Photo by Tony Tran

Why Life Insurance Matters

Preparing yourself for what happens later in life is important. You can’t be too sure about what’s around the corner, so having something for you and your loved ones to fall back on in extreme circumstances. Building up savings in your bank account could help with that, but a better way to guard your loved ones against future financial instability is to take out a life insurance policy. As a visit to lifeinsurance.org.uk will prove, life insurance is important, but why should you have it?

  • It helps to pay for funeral costs – when someone dies, one of the first things their family does is to arrange burial or cremation and a ceremony to help celebrate their life. While arranging a funeral is very important, it can also be expensive, with a number of family members and close friends of the deceased chipping in. Most life insurance policies pay out a lump sum, some of which can be used to fully cover funeral costs.
  • Paying off mortgages – mortgage life insurance policies are available for mortgage holders who worry about being able to pay it off in full before they die. Providing that you’ve paid part of the mortgage off over time, when you pass, the remainder will be paid off because you’ve taken mortgage life insurance out.
  • Life insurance helps your family’s finances after you’ve gone – a sudden death in the family could really harm their ability to pay the bills, especially with a funeral to pay for. However, if a life insurance policy pays out, the money received could help to ease the pain a little and make paying for the essentials less of a challenge.
Photo by: NCinDC