It amazes us how quickly our girls are growing up. Next month when school starts up again, weâll have a fourth-grader and a kindergartener.
Even though we have some time before they are ready to move out of the house, we want to spend time now prepare them for the big transition. As a parent, you probably feel the same way too.Â
One crucial piece of a financial foundation kids and in particular, teens, need to master is learning to budget (and sticking with it),
While theyâre home now, you have a fantastic opportunity to get them comfortable with handling their money.
If youâre not sure where to start, here are some tips from fellow parents and experts in the personal finance space to make teaching this life skill a bit easier less stressful for you and your teen!
Teach Your Teen to Budget for Real Life
Teens or not, whenever most people hear the word budget, they also hear the word ânoâ. To them, budgets feel like a strict diet. Just as fad diets fail, an unrealistic or extreme budget will more than likely discourage your teen and they will quit.
The first step before you even talk about the numbers is to discuss exactly what a successful and sustainable budget should be. When done right, a budget is something that helps you move your money towards your goals. Explain to them that at its root, budget is simply a plan about what theyâd like to do.
You want a budget that can cover:
Â Â Essential bills
Â Â Future goals
Â Â Discretionary expenses
When your teenâs budget covers those goals, theyâre not only putting their finances in a good spot, but theyâre moving closer to their specific long term dreams.
Creating a Doable Budget (Theyâll Actually Enjoy!)
Once your teen(s) understands how a budget works, itâs important for them to create a budget that they can use in the real world. You can honestly budget however you want, but an easy budget to get your teen started is the 50/20/30.
Quite simplify, the 50/20/30 budget puts money into those three main buckets:
Â Â 50%Â goes towards essentials
Â Â 20% towards savings (or investing)
Â Â 30% for fun and discretionary expenses
I appreciate how easy and flexible this budget can be. You can adjust the percentages for your teenâs needs, but it gives them some ballpark idea of how to portion their finances when they are out on their own.
How do you start them out on this budget?
With teens, you may have expenses like clothing or their cellphone bill count as essentials, or you may want to give your child the experience of being responsible for a small, shared family bill while they are still at home.
For older teens, you could even charge them a nominal ârentâ to offset their portion of the bills. In some cases, parents give that money back to their child as a gift to help with moving expenses (like for their security deposit) or use as additional savings.Â
However you decide, talk it over so your teen understands why youâre doing it this way.
Share Your Family Budget
Creating a budget isnât complicated, but it can difficult if your teen has no idea what to expect. Knowledge can be empowering.
While we may take it for granted since have to deal with the numbers, but your teen may not be aware of how much it takes to keep the lights on and roof over their heads. If you havenât already shared your own budget already, now is the time.
Not knowing also puts them at a disadvantage when they start searching for a place or are comparing prices on expenses. Being armed with the numbers makes your teenager a more informed consumer.
When Your Teen Breaks Their Budget
Will there be times where your teenager will mess up with their budget? Probably so. However, thatâs not necessarily a bad thing. As parents, we tend to want to protect our kids, but we also have to prepare them for the real world. As Ron Lieber, author of The Opposite of Spoiled, pointed out we should let our kids make financial mistakes.Â
Wouldnât it be better for your child to break the clothing budget while theyâre still at home allowing you to help guide them through rather than having break their monthly budget while they are on their own and have bills to pay?
Mistakes will happen, theyâre a part of life so giving your teen time to work those them and adjust their budget is a blessing for their future selves.
Essential Accounts for Your TeenÂ to Have
Since weâre talking about budgets, we should also mention some essential accounts youâd want your kid to have so they can practice managing their money.
Opening up student checking and savings accounts (usually free low on fees as well as not having minimum balance requirements) are good foundational accounts for your teen. They can deal with real-world situations pending charges, automatic transfers, and direct deposits.
As Family Balance Sheet founder Kristia Ludwick pointed out, teens should have the skill of balancing a checkbook even if they decide to go all-digital with their banking.
If they work, talk it over together and see if they can open up an IRA and start contributing. It doesnât have to be much. The idea is to get them familiar and comfortable with the basics of investing.
Even if they put in $25 a paycheck, having them practice setting aside money in their budget for both long and short term goals is an invaluable lesson. You can also encourage them to contribute by offering a match for what they put in.
How Teens Can Easily Stay on Top of Their Money
With several accounts to keep tabs on, your teen is going to need an easy system to track their budget and goals.
With Mint, they can link up their accounts in one secure spot. They can also add their budget along with any savings goals they want to hit and make sure they stick with them.
Hopefully, these ideas and tips will make it easier to help your teen transition into a self-sufficient adult.
The post How to Teach Your Teen to Budget Like a Pro appeared first on MintLife Blog.
We are in the midst of a major economic shift. While workers in the past could expect to keep a stable job with a traditional employer for decades, workers of today have found they must either cobble together a career from a variety of gigs, or supplement a lackluster salary from a traditional job by doing freelance work in their spare time.
Though you can make a living (and possibly even a good one) in the gig economy, this kind of work does leave gig workers vulnerable in one very important way: retirement planning.
Without the backing of an employer-sponsored retirement account, many gig workers are not saving enough for their golden years. According to a recent report by Betterment, seven out of 10 full-time gig workers say they are unprepared to maintain their current lifestyle during retirement, while three out of 10 say they don’t regularly set aside any money for retirement.
So what’s a gig worker to do if they don’t want to be driving for Uber and taking TaskRabbit jobs into their 70s and 80s? Here are five things you can do to save for retirement as a member of the gig economy. (See also: 15 Lucrative Side Hustles for City Dwellers)
1. Take stock of what you have
Many people don’t have a clear idea of how much money they have. And it’s impossible to plan your retirement if you don’t know where you are today. So any retirement savings should start with a look at what you already have in the accounts in your name.
Add up how much is in your checking and savings accounts, any neglected retirement accounts you may have picked up from previous traditional jobs, cash on hand if your gig work relies on cash tips, or any other financial accounts. The sum total could add up to more than you realize if you haven’t recently taken stock of where you are.
Even if you truly have nothing more than pocket lint and a couple quarters to your name, it’s better to know where you are than proceed without a clear picture of your financial reality. (See also: These 13 Numbers Are Crucial to Understanding Your Finances)
2. Open an IRA
If you don’t already have a retirement account that you can contribute to, then you need to set one up ASAP. You can’t save for retirement if you don’t have an account to put money in.
IRAs are specifically created for individual investors and you can easily get started with one online. If you have money from a 401(k) to roll over, you have more options available to you, as some IRAs have a minimum investment amount (typically $1,000). If you have less than that to open your account, you may want to choose a Roth IRA, since those often have no minimums.
The difference between the traditional IRA and the Roth IRA is how taxes are levied. With a traditional IRA, you can fund the account with pre-tax income. In other words, every dollar you put in an IRA is a dollar you do not have to claim as income. However, you will have to pay ordinary income tax on your IRA distributions once you reach retirement. Roth IRAs are funded with money that has already been taxed, so you can take distributions tax-free in retirement.
Many gig workers choose a Roth IRA because their current tax burden is low. If you anticipate earning more over the course of your career, using a Roth IRA for retirement investments can protect you from the taxman in retirement.
Whether you choose a Roth or a traditional IRA, the contribution limit per year, as of 2018, is $5,500 for workers under 50, and $6,500 for anyone who is 50+.
3. Avoid the bite of investment fees
While no investor wants to lose portfolio growth to fees, it’s especially important for gig workers to choose asset allocations that will minimize investment fees. That’s because gig workers are likely to have less money to invest, so every dollar needs to be working hard for them.
Investing in index funds is one good way to make sure investment fees don’t suck the life out of your retirement account. Index funds are mutual funds that are constructed to mimic a specific market index, like the S&P 500. Since there is no portfolio manager who is choosing investments, there is no management fee for index funds. (See also: How to Start Investing With Just $100)
4. Embrace automation
One of the toughest challenges of being a gig worker is the fact that your income is variable — which makes it very difficult to plan on contributing the same amount each month. This is where technology comes in.
To start, set up an automatic transfer of an amount of money you will not miss. Whether you can spare $50 per week or $5 per month, having a small amount of money quietly moving into your IRA gives you a little cushion that you don’t have to think about.
From there, consider using a savings app to handle retirement savings for you. For instance, Digit will analyze your checking account’s inflow and outflow, and will determine an amount that is safe to save without triggering an overdraft, and automatically move that amount into a savings account. You can then transfer your Digit savings into your retirement account.
5. Invest found money
An excellent way to make sure you’re maxing out your contributions each year is to change your view of "found money." For instance, if you receive a birthday check from your grandmother, only spend half of it and put the rest in your retirement account. Similarly, if you receive a tax refund (which is a little less likely if you’re a gig worker paying quarterly estimated taxes), send at least half of the refund toward your retirement.
Any gig workers who often receive cash can also make their own rules about the cash they receive. For instance, you could decide that every $5 bill you get has to go into retirement savings. That will help you change your view of the money and give you a way to boost your retirement savings.
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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:
How to Get a High Rating and Make More Money as an Uber Driver
Can You Really Make a Living in the Gig Economy?
How the Sandwich Generation Can Protect Their Retirement
What Kind of Auto Insurance Do Uber Drivers Need?
How You Can Earn $18 to $25 an Hour With Amazon Flex
If you’re thinking about how much is enough for retirement, you’re probably contemplating a retirement and need to know how to pay for it. If you are, that’s good because one of the challenges we face is how we’re going to fund our retirement.
Determining then how much retirement savings is enough depends on a number of factors, including your lifestyle and your current income. Either way, you want to make sure that you have plenty of money in your retirement savings so you don’t work too hard, or work at all, during your golden years.
If you’re already thinking about retirement and you’re not sure whether your savings is in good shape, it may make sense to speak with a financial advisor to help you set up a savings plan.
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How Much Is Enough For Retirement?
Your needs and expectations might be different in retirement than others. Because of that, there’s no magic number out there. In other words, how much is enough for retirement depends on a myriad of personal factors.
However, the conventional wisdom out there is that you should have $1 million to $1.5 million, or that your retirement savings should be 10 to 12 times your current income.
Even $1 million may not be enough to retire comfortably. According to a report from a major personal finance website, GoBankingRates, you could easily blow $1 million in as little as 12 years.
GoBankingRates concludes that a better way to figure out how long $1 million will last you largely depends on your state. For example, if you live in California, the report found, “$1 Million will last you 14 years, 3 months, 7 days.” Whereas if you live in Mississippi, “$1 Million will last you 23 years, 2 months, 2 days.” In other words, how much is enough for retirement largely depends on the state you reside.
For some, coming up with that much money to retire comfortably can be scary, especially if you haven’t saved any money for retirement, or, if your savings is not where it’s supposed to be.
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Your current lifestyle and expected lifestyle?
What is your current lifestyle? To determine how much you need to save for retirement, you should determine how much your expenses are currently now and whether you intend to keep the current lifestyle during retirement.
So, if you’re making $110,000 and live off of $90,000, then multiply $90,000 by 20 ($1,800,000). With that number in mind, start working toward a retirement saving goals. However, if you intend to eat and spend lavishly during retirement, then you’ll obviously have to save more. And the same is true if you intend to reduce your expenses during retirement: you can save less money now.
The best way to start saving for retirement is to contribute to a tax-advantaged retirement account. It can be a Roth IRA, a traditional IRA or a 401(k) account. A 401k account should be your best choice, because the amount you can contribute every year is much more than a Roth IRA and traditional IRA.
1. See if you can max out your 401k. If you’re lucky enough to have a 401k plan at your job, you should contribute to it or max it out if you’re able to. The contribution limit for a 401k plan if you’re under 50 years old is $19,000 in 2019. If you’re funding a Roth IRA or a traditional IRA, the limit is $6,000. For more information, see How to Become a 401(k) Millionaire.
2. Automate your retirement savings. If you’re contributing to an employer 401k plan, that money automatically gets deducted from your paycheck. But if you’re funding a Roth IRA or a traditional IRA, you have to do it yourself. So set up an automatic deposit for your retirement account from a savings account. If your employer offers direct deposit, you can have a portion of your paycheck deposited directly into that savings account.
Related: The Best 5 Places For Your Savings Account.
How long do you expect to live? Have your parents or grandparents lived through 80’s or 90’s or 100’s? If so, there is a chance you might live longer in retirement if you’re in good health. Therefore, you need to adjust your savings goal higher.
Consider seeking financial advice.
Saving money for retirement may not be your strong suit. Therefore, you may need to work with a financial advisor to boost your retirement income. For example, if you have a lot of money sitting in your retirement savings account, a financial advisor can help with investment options.
Figuring out how much is enough for retirement depends on how much retirement will cost you and what lifestyle you intend to have. Once you know the answer to these two questions, you can start working towards your savings goal.
How much money you will need in retirement? Use this retirement calculator below to determine whether you are on tract and determine how much you’ll need to save a month.
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Working With The Right Financial Advisor
You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAssetâs free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.
The post How Much Is Enough For Retirement? appeared first on GrowthRapidly.
If you have an irregular income, you know how great the good times feelâand how difficult the lean times can be. While you can’t always control when you get paid or the size of each paycheck if you’re a freelancer, contractor or work in the gig economy, you can take control of your money by creating a budget that will help you manage these financial extremes.
Antowoine Winters, a financial planner and principal at Next Steps Financial Planning, LLC, says creating a budget with a variable income can require big-picture thinking. You may need to spend time testing out different methods when you first start budgeting, but, âif done correctly, it can really empower you to control your life,” Winters says.
How do you budget on an irregular income? Consider these four strategies to help you budget with a variable income and gain financial confidence:
1. Determine your average income and expenses
If you want to start budgeting on a fluctuating income, you need to know how much money you have coming in and how much you’re spending.
Of course, that’s the basis for any budget. But it can be particularly important if you’re trying to budget on an irregular income because you may have especially high- or low-income periods. You want to start tracking as soon as possible to build up accurate data on your average income and expenses.
For example, once you have six months’ worth of income and expenses documented, you can divide the total by six to determine your average income and expenses by month.
Many financial apps and websites can help with the tracking, including ones that can connect to your online bank and credit card accounts and automatically pull in your transactions. You may even be able to pull in previous months’ or years’ worth of data, which you can use to calculate your averages.
If you’re budgeting on a fluctuating income and apps aren’t your thing, you can use a spreadsheet or even a pen and notebook to track your cash flow. However, without automated tracking, it can be difficult to consistently keep your information up to date.
2. Try a zero-sum budget
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget,” says Holly Johnson. As a full-time freelance writer, she’s been budgeting with a variable income for over seven years and is the coauthor of the book Zero Down Your Debt.
With a zero-sum budget, your income and expenses should even out so there’s nothing left over at the end of the month. The trick is to treat your savings goals as expenses. For example, your “expenses” may include saving for an emergency, vacation or homeownership.
“There are several strategies you can use to budget with an irregular income, but one of the easiest ones is the zero-sum budget.”
Johnson says if you’re budgeting on a fluctuating income, you can adopt the zero-sum budget by creating a “salary” for yourself. Consider your average monthly expenses (shameless plug for tip 1) and use that number as your baseline.
For example, if your monthly household bills, groceries, business expenses, savings goals and other necessities add up to $4,000, that’s your salary for the month. During months when you make over $4,000, put the extra money into a separate savings account. During months when you make less than $4,000, draw from that account to bring your salary up to $4,000.
“We call this fund the ‘boom and bust’ fund,” Johnson says. “By building up an adequate amount of savings, you will create a situation where you can pay yourself the salary you need each month.”
3. Separate your saving and spending money
Physically separating your savings from your everyday spending money may be especially important when you’re creating a budget on an irregular income. You may be tempted to pull funds from your savings goals during low-income months, and stashing your savings in a separate, high-yield savings account can force you to pause and think twice before dipping in.
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An easy way to put this tip into action when creating a budget with a variable income is to have all of your income deposited into one account, then disburse it into separate savings and spending accounts. “Transfer a set amount on the first of every month to a bill-paying account and a set amount to a spending account,” Winters, the financial planner, says.
“The bill pay account is used to pay for all of the regular expenses, like rent, insurance, car payments, student loans, etc.,” Winters says. These bills generally stay the same each month. The spending account can be used for your variable expenses, such as groceries and gas.
When considering your savings accounts, Winters also suggests funding a retirement account, such as an Individual Retirement Account (IRA).
If you’re budgeting on a fluctuating income as a contract worker or freelancer, you may also want to set money aside for taxes because the income and payroll taxes you’ll owe aren’t automatically taken out of your paychecks.
4. Build up your emergency fund
“The best way to weather low-income periods is to prepare with an adequate emergency fund,” freelancer Johnson says. An emergency fund is money you set aside for necessary expenses during an emergency, such as a medical issue or broken-down vehicle.
Generally, you’ll want to save up enough money to cover three to six months of your regular expenses. Once you build your fund, you can put extra savings toward other financial goals.
When you’re budgeting on a fluctuating income, having the emergency fund can help you feel more at ease knowing that you’ll be able to pay your necessary bills if the unexpected happens or when you’re stuck in a low-income period for longer than anticipated.
A budget can make living with a variable income easier
It can be challenging to budget on an irregular income, especially when you’re first starting. You might have to cut back on expenses for several months to start building up your savings and try multiple budgeting methods before finding the one that works best for you.
“Budgeting requires a mindset change regardless of which type of budget you try,” Johnson explains.
“The best way to weather low-income periods is to prepare with an adequate emergency fund.”
However, once in place, a budget on an irregular income can also help free you from worrying about the boom-and-bust cycle that many variable-income workers deal with throughout the year.
The goal is to get to the point where you can budget with a variable income and don’t have to worry about when you’ll get paid next because you set your budget based on your averages, planned ahead during the high times and have savings ready for your low times.
The post 4 Tricks for Budgeting on a Fluctuating Income appeared first on Discover Bank – Banking Topics Blog.
Choosing a 401(k) beneficiary ensures that any unused funds in your account are dispersed according to your wishes after you pass away. Whether youâre married, single, or in a domestic partnership, naming a beneficiary simplifies the estate process and makes it easier for your heirs to receive the money.
Thereâs room on 401(k) beneficiary forms for both a primary and contingent beneficiary. Before making any decisions on a beneficiary and a backup, it can help to familiarize yourself with 401(k) beneficiary rules and options.
Why Itâs Important to Name 401(k) Beneficiaries
If you die without a beneficiary listed on your 401(k) account, the distribution of the account may have to go through the probate process. While some plans with unnamed beneficiaries automatically default to a surviving spouse, others do not. If thatâs the caseâor if there is no surviving spouseâthe 401(k) account becomes part of the estate that goes through probate as part of the will review.
401(k) may house a substantial amount of your retirement savings. How you approach choosing a 401(k) beneficiary depends on your personal situation. For married individuals, itâs common to choose a spouse. Some people choose to name a domestic partner or your children as beneficiaries.
Another option is to choose multiple beneficiaries, like multiple children or siblings. In this scenario, you can either elect for all beneficiaries to receive equal portions of your remaining 401(k) account, or assign each individual different percentages.
For example, you could allocate 25% to each of four children, or you could choose to leave 50% to one child, 25% to another, and 12.5% to the other two.
In addition to choosing a primary beneficiary, you must also choose a contingent beneficiary. This individual only receives your 401(k) funds if the primary beneficiary passes away. If the primary beneficiary is still alive, the contingent beneficiary doesnât receive any funds.
401(k) Beneficiary Rules and Restrictions
Really, an individual can choose anyone they want to be a 401(k) beneficiary, with a few limitations. There are only a few restrictions and requirements on who may be named a beneficiary.
• Minor children cannot be direct beneficiaries. They must have a named guardian oversee the inherited funds on their behalf, which will be chosen by a court if not specifically named. Choosing a reliable guardian helps to ensure the childrenâs inheritance is managed well until they reach adulthood.
• A waiver may be required if someone other than a spouse is designated. Accounts that are ruled by the Employee Retirement Income Security Act (ERISA) have 401(k) spouse beneficiary rules. A spousal waiver is required if you designate less than 50% of your account to your spouse. Your plan administrator can tell you whether or not this rule applies to your specific 401(k).
How to Name Multiple 401(k) Beneficiaries
You are allowed to have multiple 401(k) beneficiaries, both for a single account and across multiple accounts. You must name them for each account, which gives you flexibility in how you want to pass on those funds.
When naming multiple beneficiaries, itâs common practice to divide the account by percentage, since the dollar amounts may vary based on what you use during your lifetime and investment performance.
However, also consider how the funds will be taxed for each individual . Spouse and non-spouse beneficiaries have different rules for an inherited 401(k). Spouses usually have more options available, but they differ depending on the spouseâs age and your age at the time of passing. In many cases, the spouse may roll over the funds into a specific spousal or inherited IRA.
Non-spouse beneficiaries may face higher tax consequences, but may be able to extend or stretch any required distributions over their life span to reduce their taxable income. They can also take out the money as a lump sum, which will be subject to income tax, but not the 10% early withdrawal penalty.
What to Do After Naming Beneficiaries
Once youâve selected one or more beneficiaries, take the following steps to notify your heirs and to continually review and update your decisions as you move through various life stages.
Inform Your Beneficiaries
Naming your beneficiaries on your 401(k) plan makes sure your wishes are legally upheld, but youâll make the inheritance process easier by telling your beneficiaries about your accounts. Theyâll need to know where and how to access the account funds, especially since 401(k) accounts can be distributed outside of probate, making the process much faster than other elements of your estate plan.
For all of your accounts, including a 401(k), itâs a good idea to keep a list of financial institutions and account numbers. This makes it easier for your beneficiaries to access the funds quickly after your death. Plus, there may be rules on the pace at which the funds must be dispersed after your deathâin some cases, your beneficiary may need to spread out withdrawals of the entire account over the 10 years following your death.
Revise After Major Life Changes
Managing your 401(k) beneficiaries isnât necessarily a one-time task. Itâs important to regularly review and update your decisions, especially as major life events occur. The most common events include marriage, divorce, birth, and death.
Common Life Stages
Before you get married, you may decide to list a parent or sibling as your beneficiary. But youâll likely want to update that to your spouse or domestic partner, should you have one. At a certain point, you may also wish to add your children, especially once they reach adulthood and can be named as direct beneficiaries.
Itâs particularly important to update your named beneficiaries if you go through a divorce. If you donât revise your 401(k) account, your ex-spouse could end up receiving those benefitsâeven if your will has been changed.
Death of a Beneficiary
Should your primary beneficiary die before you do, your contingent beneficiary will receive your 401(k) funds if you pass away. Any time a major death happens in your family, take the time to see how that impacts your own estate planning wishes. If your spouse passes away, for instance, you may wish to name your children as beneficiaries.
Second Marriages and Blended Families
Also note that the spouse rules apply for second marriages as well, whether following divorce or death of your first spouse. Your 401(k) automatically goes to your spouse if no other beneficiary is named. And if you assign them less than 50%, youâll need that spousal waiver. Financial planning for blended families takes thought and communication, especially if you remarry later in life and want some or all of your assets to go to your children.
Manage Your Account Well
borrow from your 401(k), this can cause issues if you pass away with an outstanding balance. The loan principal will likely be deducted from your estate, which can limit how much your heirs actually receive.
Also try to streamline multiple 401(k) accounts as you change jobs and open new employer-sponsored plans. There are several ways to rollover your 401(k), which makes it easier for you to track and update your beneficiaries. It also simplifies things for your heirs after you pass away, because they donât have to track down multiple accounts.
How to Update 401(k) Beneficiaries
Check with your 401(k) plan administrator to find out how to update your beneficiary information. Usually youâll need to just fill out a form or log into your online retirement account.
Typically, you need the following information for each beneficiary:
• Type of beneficiary
• Full name
• Birth date
• Potentially their Social Security number
Although your named beneficiaries on the account supersede anything written in your will, itâs still smart to update that document as well. This can help circumvent legal challenges for your heirs after you pass away.
A financial plan at any age should include how to distribute your assets should you pass away. The best way to manage your 401(k) is to formally name one or more beneficiaries on the account. This helps speed up the process by avoiding probate.
A named beneficiary trumps anything stated in your will. Thatâs why itâs so important to regularly review these designations to make sure the right people are identified to inherit your 401(k) assets.
Preparing for retirement? SoFi InvestÂ® offers both traditional and Roth IRAs to help you reach your goals.
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2020 has shaped all of us in some way or another financially. Whether it is being reminded of the importance of living within our means or saving for a rainy day, these positive financial habits and lessons are timeless and ones we can take into the new year.Â
While everyone is on a very unique financial journey, we can still learn from each other. As we wrap up this year, it’s important to reflect on some of these positive financial habits and lessons and take the ones we need into 2021. Here are some of the top financial lessons:
Living Within Your Means
Itâs been said for years, centuries even, that one should live within one’s means. Well, I think a lot of people were reminded of this financial principle given the year weâve had. Living within your means is another way of saying donât spend more than you earn. I would take it one step further to say, set up your financial budget so you pay yourself first. Then only spend what is leftover on all the fun or variable items.
Setting up your budget in the Mint app or updating your budget in Mint to reflect the changes in your income or expenses is a great activity to do before the year ends. Follow the 50/20/30Â rule of thumb and ask yourself these questions:
Are you spending more than you earn?
Are there fixed bills you can reduce so you can save more for your financial goals?Â
Can you reduce your variable spending and save that money instead?
The idea is to find a balance that allows you to pay for your fixed bills, save automatically every month and then only spend what is left over. If you donât have the money, then you cannot use debt to buy something. This is a great way to get back in touch with reality and also appreciate your money more.Â
Have a Cash Cushion
Having a cash cushion gives you peace of mind since you know that if anything unexpected comes up, which of course always happens in life, you have money that is easy to liquidate to pay for it versus paying it with debt or taking from long-term investments. Having an adequate cash cushion this year offered some people a huge sigh of relief when they lost their job or perhaps had reduced income for a few months. With a cash cushion or rainy day fund, they were still able to cover their bills with their savings.
Many people are making it their 2021 goal to build, replenish, or maintain their cash cushion.Â Typically, you want a cash cushion of about 3- 6 months of your core expenses. Your cash cushion is usually held in a high-yield saving account that you can access immediately if needed. However, you want to think of it almost as out of sight out of mind so it’s really there for bigger emergencies or opportunities that come up.
Having the right asset allocation and understanding your risk tolerance and timeframe of your investments is always important. With a lot of uncertainty and volatility in the stock market this year, more and more people are paying attention to their portfolio allocation and learning what that really means when it comes to risk and returns. Learning more about which investments you actually hold within your 401(k) or IRA is always important. I think the lesson this year reminded everybody that itâs your money and it’s up to you to know.
Even if you have an investment manager helping you, you still need to understand how your portfolio is allocated and what that means in terms of risk and what you can expect in portfolio volatility (ups and downs) versus the overall stock market. A lot of people watch the news and hear the stock market is going up or down, but fail to realize that may not be how your portfolio is actually performing. So get clear. Make sure that your portfolio matches your long term goal of retirement and risk tolerance and donât make any irrational short term decisions with your long-term money based on the stock market volatility or what the news and media are showcasing.
Right Insurance Coverage
We have all been reminded of the importance of health this year. Our own health and the health of our loved ones should be a top priority. It’s also an extremely important part of financial success over time. It is said, insurance is the glue that can hold everything together in your financial life if something catastrophic happens. Insurances such as health, auto, home, disability, life, long-term care, business, etc. are really important but having the right insurance policy and coverage in place for each is the most important part.
Take time and review all the insurance coverage you have and make sure it is up to date and still accurate given your life circumstances and wishes. Sometimes you may have a life insurance policy in place for years but fail to realize there is now a better product in the marketplace with more coverage or better terms. With any insurance, it is wise to never cancel a policy before you a full review and new policy to replace it already in place. The last thing you want is to be uninsured. Make sure you also have an adequate estate plan whether itâs a trust or will that showcases your wishes very clearly. This way, you can communicate that with your trust/will executorâs, beneficiaries, family members, etc. so they are clear on everything as well.Â
Financial lessons will always be there. Year after year, life throws us challenges and successes to remind us of what is most important. Take time, reflect, and get a game plan in place for 2021 that takes everything you have learned up until now into account. This will help you set the tone for an abundant and thriving new financial year.Â
The post Financial Lessons Learned During the Pandemic appeared first on MintLife Blog.
I love making things automatic. Whether it is bill-paying, direct deposit, prescription renewals, or investing, making things automatic makes life easier, and that is where our Betterment investing review comes in.
When it comes to retirement planning, an overwhelming number of online tools and websites promise to help you create a dynamic and profitable portfolio while minimizing fees.
This growing list of services includes robo-advisors, a class of financial websites that offer to manage your portfolio with minimal in-person interaction and a heavy reliance on the latest investing tools and software.
One of the most popular robo-advisors by far is Betterment. Conceptualized by its founders in 2008, Betterment has since grown to help its customers invest billions of dollars of their hard-earned dollars. This is an investment platform that puts your investing on cruise control, and even allows you to make money watching TV! You can open an account with no money at all, and get the benefit of professional, low-cost investment management that enables you to invest in thousands of securities with as little as a few hundred dollars.
It hasnât been easy. With other competitors like Wealthfront and Personal Capital always a few steps behind them, Betterment has struggled to find a way to stand out. Even with the competition, Betterment has emerged as one of the top online brokerage accounts and continues to grow its market share.
Open an account
0.25% to 0.40% annual management fee, depending on the plan
No trade, transfer or rebalancing fees
No minimum balance
Hands-off investing tailored to your goals and risk preference
Betterment is an online, automated investment manager that uses advanced algorithms and software to find the perfect investment strategy for your portfolio and individual needs.
The main difference between investing your money with a traditional financial advisor and Betterment is that there is minimal human interaction. Unless you email or call in, your communication with an individual advisor will be very minimal.
But, there is some good news to counteract the lack of individual service. Because of lower operating costs, Betterment is able to charge lower fees than traditional financial advisors. This can be huge for individuals who want to take a hands-off approach to their retirement accounts, yet donât want to pay top dollar for access to a top-tier financial advisor in their area.
Using complex investment software, Betterment allocates your investment portfolio based on your individual circumstances, investment time horizon, and thirst for risk.
In the meantime, they keep fees at a minimum by using ETFs (exchange-traded fund) that let you have a diversified portfolio, like mutual funds, but are tradeable much like stocks.
Since ETFs come with very low expense ratios, Betterment is able to pass those savings along to the consumer. Although the program already manages over $16 billion for their clients, they are still growing at a rapid pace.
Because the service is able and willing to deal with investors at all stages of wealth accumulation, it has become a go-to for both experienced and novice investors with various investing goals.
Further, Bettermentâs portfolio strategy isnât geared just for retirement savings; the service can also improve your returns on dollars you invest for short-term and medium-term goals like saving for college, taking an annual vacation, or building up a cash reserve.
How Betterment Works
Like post other robo-advisors, Betterment provides complete, automated investment management of your portfolio. When you sign up for the service, youâll complete a questionnaire that will determine your risk tolerance, investment goals, and time horizon. From that information, Betterment determines your portfolio will be designed as conservatives, aggressive, or some level in between.
Over time however, Betterment may adjust your portfolio to become gradually more conservative. For example, as you move closer to retirement, your asset allocation will be gradually shifted more heavily in favor of safe investments, like bonds.
Your portfolio will be constructed of exchange traded funds (ETFs), which are low-cost investment funds designed to track the performance of an underlying index. In this way, Betterment attempts to match the performance of the underlying indexes, rather than to outperform them. For this reason, investing with Betterment â and most other robo-advisors â is considered to be passive investing. (Active investing involves frequent trading of stocks and other securities in an attempt to outperform the market.)
Betterment also uses allocations based on broad investment categories. There are three in total:
Safety Net â These are funds allocated for near-term needs, such as an emergency fund.
Retirement â This will naturally be your long-term investment account and held in tax-sheltered IRAs.
General Investing â This allocation is dedicated to intermediate goals, maybe saving for the down payment on a house or even for your childrenâs education.
Given that each of the three broad goals has a different time horizon, the specific portfolio allocation in each will be a little bit different. For example, the Safety Net will be invested in cash type accounts for safety and liquidity.
Betterment Advantages And Disadvantages
Thereâs no minimum investment required.
The low annual fee of 0.25% on the Digital plan can allow you to have a $20,000 account managed for just $50 per year, or a $100,000 account for just $250.
Tax-loss harvesting is available at all taxable accounts.
Betterment Premium provides unlimited access to certified financial planners, providing a service similar to traditional investment advisors, but at a fraction of the cost.
The No-fee Checking and Cash Reserve give you cash management options to go with your investing activities.
Betterment offers several portfolio options, including Smart Beta, Socially Responsible Investing, and the BlackRock Targeted Income Portfolio.
The use of value funds also adds the potential for your investment accounts to outperform the general market, since value stocks tend to be underpriced relative to their competitors.
Flexible Portfolio will give you some control over your investment allocations, which is a feature absent from most robo-advisors.
Bettermentâs annual advisory fee is on the low end of the robo-advisor range. But there are some robo-advisors charging no fees at all.
Betterment doesnât offer alternative investments. These include natural resources and real estate, which are offered by some of their competitors.
External account syncing is available only with Betterment Premium.
The Betterment Investment Methodology
Like most other robo-advisors, Betterment manages your investment account using Modern Portfolio Theory, or MPT. The theory emphasizes proper allocations into various asset classes over individual security selection.
Your portfolio is divided between six stock asset allocations and eight bond asset allocations. Each allocation is represented by a single ETF thatâs tied to an index specific to that asset class. The single ETF will provide exposure to scores or even hundreds of securities in each asset class. That means collectively your investment will be spread across thousands of securities in the US and internationally.
The six stock asset allocations are as follows:
US Total Stock Market
US Value Stocks â Large Cap
US Value Stocks â Mid Cap
US Value Stocks â Small Cap
International Developed Market Stocks
International Emerging Markets Stocks
The eight bond asset allocations are as follows:
US High Quality Bonds
US Municipal Bonds (will be held in taxable investment accounts only)
US Inflation-Protected Bonds
US High-Yield Corporate Bonds
US Short-Term Treasury Bonds
US Short-Term Investment Grade Bonds
International Developed Market Bonds
International Emerging Markets Bonds
Since Betterment offers tax-loss harvesting with taxable investment accounts, most asset classes will have two or three very similar ETFs. This will enable Betterment to sell a losing position in one ETF to reduce capital gains in winning asset classes. Alternative ETFs are then purchased to replace the sold funds to maintain the target asset allocations in your account.
Tax-loss harvesting is becoming an increasingly popular investment strategy because it effectively defers capital gains taxes into future years. Itâs available only for taxable accounts, since tax-sheltered accounts have no immediate tax consequences.
How Betterment Compares
Here’s how Betterment compares to the previously mentioned companies, Wealthfront and Personal Capital.
Minimum Initial Investment
0.25% on Digital; 0.40% on Premium (account balance over $100k)
0.25% on all account balances
0.89% on most account balances; reduced fee on balances > $1 million
On Premium Plan only
Yes, on all taxable accounts
Yes, on all taxable accounts
Yes, on all taxable accounts
Yes, on Premium Plan only
Betterment Accounts and Options
For the first few years of Bettermentâs existence they offered a single investment account serving as a one-size-fits-all plan. But thatâs all changed. They still offer basic investment accounts, but they now give you a choice of multiple investment options.
This is Bettermentâs basic investment plan. There is no minimum initial investment required, nor is there a minimum ongoing balance requirement. Betterment charges a single fee of 0.25% on all account balances.
You can also add any other portfolio variations, except the Goldman Sachs Smart Beta portfolio, which has a $100,000 minimum account balance requirement.
Betterment Premium works similar to the Digital plan, but it delivers a higher level of service. The plan provides external account synching, giving Betterment a high altitude view of you your entire financial situation. External investment accounts can help in enabling Betterment to better coordinate your portfolio allocations with assets held in outside accounts. They can also make recommendations out to better manage those external accounts.
And perhaps the biggest advantage of the Premium plan is that it comes with unlimited access to Bettermentâs certified financial planners. In this way, Betterment is competing more directly with traditional investment advisors, but doing it with a robo-advisor component.
Youâll need a minimum of $100,000 to invest in the Premium plan, and the annual advisory fee is 0.40%. Thatâs just a fraction of the usual 1% to 2% typically charged by traditional investment advisory services.
Betterment Cash Reserve
The account pays a variable interest rate, currently set at 0.40% APY. Betterment doesnât actually hold these funds directly, but rather invest them through participating program banks.
Thereâs no fee for this account, and you can move money as often as you want. And for those with very high cash balances, the account is FDIC insured for up to $1 million through the program banks.
Betterment Socially Responsible Investing (SRI)
SRI portfolios are becoming increasingly popular in the robo-advisor space. It involves investing in companies that meet certain standards for social, environmental, and governance guidelines. Betterment indicates that the ETFs they use in their SRI portfolio have produced a 42% increase in their social responsibility scores.
SRI portfolios work with both the Digital and Premium plans, using a similar investment methodology. But they make certain modifications, holding ETFs based on SRI in place of the ETFs used in non-SRI portfolios.
SRI portfolios do not require a minimum balance and charge no additional fees. And like their Digital and Premium plans, taxable SRI investment accounts take advantage of tax-loss harvesting.
Betterment Flexible Portfolios
The key word in the name is âflexibleâ because the main feature is adding personal options to your portfolio allocations.
This is done by adjusting the individual asset class weights in your portfolio. For example, if you have a 7% allocation in emerging markets, you may choose to increase it to 10% if you believe that sector is likely to outperform others. But you can also decrease the allocation if it makes you feel uncomfortable.
Betterment Tax-Coordinated Portfolio
This is less of a formal portfolio and more of an investment strategy. It must be used in combination with a taxable investment account and a tax-sheltered retirement account. Betterment will then allocate investments based on their tax impact.
For example, income generating assets â that produce high dividend and interest income â are held in a tax-sheltered account. Investments likely to generate long-term capital gains are held in a taxable investment account, since you will be able to take advantage of lower long-term capital gains tax rates.
Goldman Sachs Smart Beta
This option is for more sophisticated investors, and requires a minimum account balance of $100,000. And since it is a high risk/high reward type of investing, it also requires a higher risk tolerance.
Betterment uses the same basic investment strategy as they do in other portfolios. But itâs an actively managed portfolio that will be adjusted in an attempt to outperform the general market. Securities will be bought and sold within the portfolio and can include either individual securities or Smart Beta ETFs.
The portfolio has many variations, including a wide range of allocations. Stocks are chosen based on four qualities: good value, strong momentum, high quality, and low volatility.
And like other portfolio variations Betterment offers, there is no additional fee for this option.
BlackRock Target Income Portfolio
Betterment recognizes that some investors are more interested in income than growth. This will particularly apply to retirees. The BlackRock Target Income Portfolio invests in portfolios based on your risk tolerance. This can mean low, moderate, high, or even aggressive.
Those categories may seem unusual for an income generating portfolio. But while the portfolio attempts to minimize risk of principal, it also recognizes that some investors are willing to add risk to their portfolio in exchange for higher returns.
A low-risk portfolio may have a higher allocation in US Treasury securities. An aggressive portfolio may center primarily on high-yield corporate bonds or even emerging-market bonds that have higher interest rates due to greater risk.
Betterment No-fee Checking
Provided by Betterment Financial LLC in partnership with NBKC Bank, this is a true no-fee checking account. Not only are there no monthly maintenance fees, but there are also no overdraft or other fees. Theyâll even reimburse all ATM fees and foreign transaction fees you incur. And thereâs not even a minimum balance requirement.
Youâll be provided with a Betterment Visa Debit Card with tap-to-pay technology, that you can use anywhere Visa is accepted. All account balances are FDIC insured for up to $250,000. And as you might expect from a company on the technological cutting edge, you can deposit checks into the account using your smartphone.
Check out our full Betterment checking review.
Betterment Key Features
Minimum initial investment: Betterment requires no funds to open an account. But you can begin funding your account with monthly deposits, like $100 per month. This method will make it easier to use dollar-cost averaging to gradually move into your portfolio positions.
Available account types: Joint and individual taxable investment accounts, as well as traditional, Roth, rollover and SEP IRAs. Betterment can also accommodate trusts and nonprofit accounts.
Portfolio rebalancing: Comes with all account types. Your portfolio will be rebalanced when your asset allocations significantly depart from their targets.
Automatic dividend reinvestment: Betterment will reinvest dividends received in your portfolio according to your target asset allocations.
Betterment Mobile App: You can access your Betterment account on your smartphone. The app is available for both iOS and Android devices.
Customer contact: Available by phone and email, Monday through Friday, from 9:00 am to 8:00 pm, Eastern time.
Account protection: All Betterment accounts are protected by SIPC insurance for up to $500,000 in cash and securities, including up to $250,000 in cash. SIPC covers losses due to broker failure, not those caused by market value declines.
Financial Advice packages: Betterment offers one-hour phone conferences with live financial advisors on various personal financial topics. Five topics are covered:
Getting Started package: This package gives new users the professional vote of confidence they need as a professional will assess their account setup. $199
Financial Checkup package: This package takes it a step further, providing the customer with a professional opinion on their portfolio and financial circumstances. $299
College Planning package: As its name implies, this package helps parents who are investing with the goal of paying for their childrenâs college education in the next 5-18 years. $299
Marriage Planning package: Merging finances can be tricky, so Betterment created this plan to help engaged couples and newlyweds to succeed as they unite their lives and assets. $299
Retirement Planning package: Your investment goals and strategies change as you near retirement. This particular package helps keep you on target to meet them. $299
Retirement Savings Calculator: Robo-advisors are popular choices for retirement accounts. For this reason, Betterment offers the Calculator to help you project your retirement needs. By entering basic information in the calculator (it will sync external accounts if you have a Premium account â including employer-sponsored retirement plans) it will let you know if you are on track to meet your goals or if you need to make adjustments.
How To Sign Up For A Betterment Account
The Betterment sign up process is one of the most user-friendly out there for any brokerage. It comes with easy-to-follow instructions and as streamlined registration process which users can navigate through in a matter of minutes.
First get the process started by clicking the button below.
Sign up for a Betterment Account
After the initial sign up process, users can expect a simple transaction as they transfer funds into the account, much like moving money from a checking to savings account.
When you begin the sign-up process, youâll be given a choice of four different investment goals:
I chose âInvest for retirementâ. It will ask your current age, your annual income, then give you a choice of accounts to use. That includes a traditional, Roth, or SEP IRA, or even an individual taxable account. I selected a traditional IRA.
Based on a 30-year-old with a $100,000 income, Betterment return the following recommendation:
You even have the option to have the specific asset allocations listed. After clicking âContinueâ, youâll be asked to provide your email address and create a password. Youâll then be taken to the application, which will ask for general information, including your name, address, phone number, and how you heard about Betterment.
Once your account has been set up, you can fund it immediately, by connecting your bank account, or by setting up recurring deposits.
You can also set up other accounts, such as âManage spending with Checkingâ or âInvest for a long-term goalâ.
Why You Should Open An Account With Betterment
While nearly anyone who invests could benefit from the online portfolio management and advising, this service is definitely geared to certain types of investors. In most cases, Betterment will work best for:
Hands-off investors who have some investing knowledge â Since it takes care of the heavy lifting for you, it works best for investors who want to take a hands-off approach to their investment portfolio. Passive investors can let Betterment handle the logistics while using online account management to keep a close eye on their accounts.
Novice investors who need help â Beginning investors who are just learning the ropes can turn to Betterment for online portfolio management with low fees. The many online tools and user-friendly interface make it easy for beginners to get a grasp on basic financial concepts and investing strategies.
Robo-advisors are growing in popularity and could easily replace in-person advisors in the near future. With lower fees and advanced software that can maximize results, online investing is certainly gaining an edge.
Whether Betterment is right for you depends on your individual needs and investing goals. If youâre a hands-off investor who wants to grow your retirement funds without paying a lot of fees, then Betterment might be ideal. Additionally, beginning investors can benefit handsomely from the online tools and investing education offered through the Betterment website.
If you think Betterment investing might be exactly what your portfolio needs, sign up for a new account today.
However, if you determine that you would be better served by a more hands-on approach, check out the other online brokerage account options. Being a certified financial planner, I have had a chance to work with several of these platforms and have done the following reviews:
Motif Investing Review
Lending Club Review
Ally Invest Review
The post Betterment Investing Review: Make Investing Automatic appeared first on Good Financial CentsÂ®.
The time has finally come: youâre ready to retire. For many, this means living off savings or social security, but in reality, now that youâre unemployed itâs time you started making real money. Investing after retirement is a great way to continue making income, cover expenses in lieu of a regular paycheck, and stay plugged into the booming American economy.
Social security is drying up
If you plan on retiring any time after the next 20 years, you shouldnât count on social security funds. A 2014 report estimates that social security will no longer be able to pay full benefits after 2033. This means that those that retire after this demarcation point should expect to supplement federal aid with individual income â such as investments.
Life expectancy is increasing
Clean living, improved healthcare resources, increased social awareness, and many other factors have all contributed to a steady increase in life expectancy over the years. Today, being young at heart means more than ever â retirees can expect to live an additional 15 – 20 years into their twilight years. The average life expectancy today is 80, which is almost a decade older than the to 71 year life expectancy of 1960.
Investing is fun
Many retirees will take up new hobbies to fill the time previously occupied by professional obligations. Why not make your daytime hobby making money? Day trading stocks is the perfect retiree activity because itâs just as complicated as you want it to be. You can trade casually, and pick up some minor gains here or there. Or, go in full bore and make it your new job. After all, investments provide extra money, so have some fun with it.
Delaying social security payments boosts your benefits
Letâs say your investments are performing exceptionally well, and maybe you donât necessarily need social security yet. Your social security payout increases by 8 percent for every year you delay payments. So if youâve held off on social security, and it has come time to cash out investments, your federal retirement benefits will be worth far more than usual.
Want to spend the next chapter of your life in Myrtle Beach? Naples, Florida? Now that youâre retired, youâre free to live anywhere you want â unfettered by professional constraints, the world is your oyster. But thereâs one problem: how will you afford it? Your savings account should be preserved for medical expenses, and you already checked the couch cushions for loose change. Well, investments with high yield interest rates or dividend payments are a good way to boost your income and gain a little extra cash.
You earned it
What has decades of penny pinching amounted to if you canât spend your savings during retirement? Part of the reason you budgeted so carefully in your professional years is to ensure security as you grow old. Well, here you are, and itâs time to tap that sacred savings account. As you assess your finances in old age, consider how much savings youâre willing to gamble on the market â what do you have to lose?
Thereâs no better time to invest than now
This is not to say that the market is particularly ripe for new investors right now â although 2017 saw record high economic numbers â but more so that anytime is a good time to invest. You can guarantee the market will fluctuate in your 15+ years of retirement, but thatâs not the point. As long as you build a portfolio that can bear a bear market, you will be in good shape to weather market slumps. As they say, âdonât play with scared money.â
Your kids are all grown up, but that doesnât mean youâre off the hook. As a retired grandparent, youâre in charge of vacations, dinners out, movie nights, and other fun activities with the grandkids. And, you guessed it, one of the best ways to bankroll fun money is through thriving investments. In fact, while it might not be the most exciting prospect for the kid, a safe, slow-maturing investment is a great grandkid birthday gift.
Jumpstart a startup
Are you passionate about the future of tech? Small philanthropies? Artisan dog treats? Whatever your calling may be, there is likely a startup that you can help get off the ground. One study found that 100 million startups try to get off the ground every year, and they need your help. Invest in a cause you care about, and in the process make someoneâs entrepreneurial dreams come true.
Broaden your horizons
Now that youâre retired itâs time to read those books you never got around to, learn a new skill, travel the world, and, most importantly, diversify your portfolio. Financial experts suggest that retirees pursue many different types of assets to help offsite potential market volatility.
For most, vacation tops the list of most anticipated retirement activities. Itâs easy to get swept up in fantasies of cold beer and catching rays on the beach, but you you need a way to pay for it. Investments are a good way to compound your savings, and make a little extra vacation money.
Studies show that retirees require upwards of $260,000 to cover medical expenses as they age. Maybe, thanks to years of frugality, you have this kind of money in savings, but it never hurts to stash away a little extra cash. The population nearing retirement needs to be able to expect the unexpected, so use the stock market as an opportunity to compound your emergency fund in case of expensive medical bills.
Just because youâre retired doesnât mean you can avoid the taxman â after all, according to Benjamin Franklin, alongside death, taxes are one of the two certainties in life. While you no longer have to pay payroll taxes, you will still pay taxes on social security benefits. Plus, you are required to pay taxes on IRA withdrawals. Tax season can feel extra overwhelming if you are without a reliable source of income, so avoid the April financial crunch and tap investment gains to pay taxes during retirement.
Support a company you care about
If youâre on the verge of retirement you probably had a long, prosperous career. Maybe you jumped around to different positions, or maybe you logged a couple decades at one company. Either way, chances are there is a company you want to be involved with that you never got a chance to work at. Investing in a company is a good way to gain a sense of belonging, and do your part to support a company dear to your heart â even if you never actually worked there.
Stay sharp on market trends
All of the financial benefits of investments aside, investing in the market gives you a reason to care. One of the scariest prospects of retirement is the threat of complacency, so fend off apathy by giving yourself a reason to stay up-to-date. You are far more likely to take a keen interest in economic trends when you have a little skin in the game.
If youâre concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.comâs free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter gradesâplus you get a free credit score updated every 14 days.
You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.
The post 15 Reasons to Invest After Retirement appeared first on Credit.com.
Iâm 51 years old and donât have a large nest egg. Iâm a single parent with three kids. Iâm a second career middle school teacher, so there is not a lot of money left over each month.Â
How much money should I be saving to be able to retire in my 70s? Where should I invest that money?
You still have 20 years to build your nest egg if all goes as planned. Sure, youâve missed out on the extra years of compounding youâd have gotten had you accumulated substantial savings in your 20s and 30s. But thatâs not uncommon. Iâve gotten plenty of letters from people in their 50s or 60s with nothing saved who are asking how they can retire next year.
I like that youâre already planning to work longer to make up for a late start. But hereâs my nagging concern: What if you canât work into your 70s?
The unfortunate reality is that a lot of workers are forced to retire early for a host of reasons. They lose their jobs, or they have to stop for health reasons or to care for a family member. So itâs essential to have a Plan B should you need to leave the workforce earlier than youâd hoped.
Retirement planning naturally comes with a ton of uncertainty. But since I donât know what you earn, whether you have debt or how much you have saved, Iâm going to have to respond to your question about how much to save with the vague and unsatisfying answer of: âAs much as you can.â
Perhaps I can be more helpful if we work backward here. Instead of talking about how much you need to save, letâs talk about how much you need to retire. You can set savings goals from there.
The standard advice is that you need to replace about 70% to 80% of your pre-retirement income. Of course, if you can retire without a mortgage or any other debt, you could err on the lower side â perhaps even less.
For the average worker, Social Security benefits will replace about 40% of income. If youâre able to work for another two decades and get your maximum benefit at age 70, you can probably count on your benefit replacing substantially more. Your benefit will be up to 76% higher if you can delay until youâre 70 instead of claiming as early as possible at 62. That can make an enormous difference when youâre lacking in savings.
But since a Plan B is essential here, letâs only assume that your Social Security benefits will provide 40%. So you need at least enough savings to cover 30%.
If you have a retirement plan through your job with an employer match, getting that full contribution is your No. 1 goal. Once youâve done that, try to max out your Roth IRA contribution. Since youâre over 50, you can contribute $7,000 in 2021, but for people younger than 50, the limit is $6,000.
If you maxed out your contributions under the current limits by investing $583 a month and earn 7% returns, youâd have $185,000 after 15 years. Do that for 20 years and youâd have a little more than $300,000. The benefit to saving in a Roth IRA is that the money will be tax-free when you retire.
The traditional rule of thumb is that you want to limit your retirement withdrawals to 4% each year to avoid outliving your savings. But that rule assumes youâll be retired for 30 years. Of course, the longer you work and avoid tapping into your savings, the more you can withdraw later on.
Choosing what to invest in doesnât need to be complicated. If you open an IRA through a major brokerage, they can use algorithms to automatically invest your money based on your age and when you want to retire.
By now youâre probably asking: How am I supposed to do all that as a single mom with a teacherâs salary? It pains me to say this, but yours may be a situation where even the most extreme budgeting isnât enough to make your paycheck stretch as far as it needs to go. You may need to look at ways to earn additional income. Could you use the summertime or at least one weekend day each week to make extra money? Some teachers earn extra money by doing online tutoring or teaching English as a second language virtually, for example.
I hate even suggesting that. Anyone who teaches middle school truly deserves their time off. But unfortunately, I canât change the fact that we underpay teachers. I want a solution for you that doesnât involve working forever. That may mean you have to work more now.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.
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