Showing posts with label retirement financial planning. Show all posts
Showing posts with label retirement financial planning. Show all posts

Wednesday, March 29, 2017

How to Prepare Financially for Retirement

Whether you are 30, 40, 50 or 60, everyone needs to take steps to plan to retire someday.  Of course, the younger we are when we start, the better prepared we will be to retire when the time comes.  No matter what your age, what are some of the things we need to do in the years before we stop working?  How can we make sure we are financially prepared when the time comes?

Steps in Retirement Planning

Save Money in an IRA and/or a 401(k) - If you work for an employer with a 401(k) or 403(b) plan, take advantage of it.  Have your employer withhold some of your pretax income and put it towards your retirement.  Some corporations will even match the donations of their employees, which means you will be able to accumulate wealth twice as fast! 

The younger you are when you start saving, the better off you will be when you finally stop working.  However, even if you are in your 50s when you start, you may still be able to put aside 10 to 15 years worth of savings, which could make a huge difference in the quality of your retirement.

If you are self-employed or do not have a 401(k) or 403(b) plan where you work, save money in an IRA instead.  You can even have both, if you have enough excess income.  However, if you save too much money, not all of it may be tax free.  It is still beneficial to save as much as you can towards retirement.

Talk to a Financial Planner about How to Invest Your Savings - If you are in a 401(k) or 403(b), your employer may give you a menu of mutual funds, tell you to pick one or two, and that is where they will invest your contributions.  The same thing could happen with an IRA, if you decide to set up an automatic withdrawal and investment program.  Most of us could use a little help in choosing the best investment plan, however.  It will probably be worth your time and money to talk to a certified financial planner or investment advisor representative.  Get their recommendations on how to invest your savings for growth when you are young, and for income when you get ready to retire.  Be sure to diversify your investments so you do not have too much money in one type of fund or investment.

Pay off Your Debts As You Approach Retirement - Nearly everyone will have a more comfortable retirement if they keep their debts to a minimum after they retire.  The closer you are to retirement, the more important it is to have a plan to eliminate all your student loans and credit card debts.  If you can also pay off your home and car, you are going to have a lower cost-of-living once you are living on Social Security and your savings.

Get an Estimate of Your Future Social Security and Pension Income - Everyone should periodically get estimates of how much they can expect to receive in the future from Social Security benefits and any employer funded pensions.  Everyone needs to know how much income they can expect to have after retirement. You also need to understand how much you could increase your income by postponing your retirement by a few years.

Come Up With a Retirement Budget - Estimate how much it will cost you to live after you retire.  If you have a large gap between your current expenses and anticipated income, investigate the steps you can take to reduce your expenses by downsizing, for example, and how you can increase your income by taking steps such as postponing your retirement age.  If necessary, you may also consider getting a retirement job which will help increase your income.  It can be a fun job, as long as it produces enough income to make your feel more financially secure.

Talk to Your Financial Planner or Advisor about Turning Your 401(k) or IRA into Income - Once you are ready to retire, find out how much money you can withdraw from your IRA and still be assured you will have enough money to last the rest of your life.  Discuss the 3 percent withdrawal rate, dividend funds, annuities, bonds and other investment vehicles which will produce an income.  You may want to invest in a variety of income producing products to give you the most financial security.

If you plan carefully and realistically, you can feel confident you are financially well-prepared for retirement when the time comes.

Watch for my book, Retirement Awareness, due to be released by Griffin Publishing in 2018. It will go into more detail about how to prepare financially for retirement.

If you are interested in more information about financial planning, where to retire, Medicare, Social Security, medical problems and more, use the tabs or pull-down menu at the top of the page to find links to hundreds of additional articles.

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Sunday, September 16, 2012

Retirement Money and Federal Reserve Decisions

In 2012, Ben Bernanke, the chairman of the Federal Reserve, announced that the Fed was going to begin purchasing $40 billion a month in bonds "as long as necessary" in order to stimulate our sluggish economy.  This decision was referred to as QE3, or the third round of Quantitative Easing.  The effects of this decision on the financial markets were immediate, with stocks surging.

However, many retirees and Baby Boomers who plan to retire during the next few years are concerned about the effect QE3 will have on their retirement plans.  Will this help or hurt retirees?  The truth is that it could do either, depending on your personal circumstances.

The Wealth Effect of the Federal Reserve Decision

According to an article in The Washington Post, called "The Wealth Effect," the goal of the Federal Reserve is to give Americans the feeling of prosperity.  This is achieved when stock prices and home prices rise.  People perceive that they have more money, which makes them more willing to spend.  The more Americans spend, the more manufacturing and other businesses improve.  This creates more jobs, when everything goes as planned.

When interest rates go down, stock prices tend to go up.  This happens because many investors will reduce their investments in low-yield bonds and put more money into stocks.  Stocks are more risky, but they often provide greater returns.  In addition, low interest rates on loans make it possible for corporations to have greater profits, so they have more money to reinvest in their businesses.

Joseph Gagnon of the Peterson Institute for International Economics estimates that consumer spending increases by about 3 to 5 cents for every $1 increase in stock prices.  This, of course, has a stimulating effect on the economy, which provides jobs and opportunities even for those people who do not own stocks.

Another way low interest rates stimulate the economy is by making home loans more affordable.  The idea is that this stimulates home sales, causing home prices to rise.  Of course, if people have difficulty finding a mortgage, home prices do not rise as much as the Fed would like.  However, any rise in home prices can benefit homeowners.

In general, the Federal Reserve expects that people see their investments, including retirement savings, increase in value whenever they lower interest rates and pump money into the economy.  In addition, when homeowners see their home values increase, it makes it easier for them to sell their homes, take out a second mortgage or, in the case of retirees, get a reverse mortgage.  All of this makes it sound like the Fed decision is 100 percent beneficial.  However, the picture is not entirely rosy when the Fed stimulates the economy.

The Effect of the Fed Decision on Retirement Income

Millions of Americans who retired during the 1980's and 1990's planned to supplement their meager Social Security and pension benefits with additional income from their retirement savings.  However, while many of these retirees were initially able to put their money into safe bank CD's and bonds which paid six percent or more in interest or dividends, those same retirees are now lucky if they get a two percent return. 

When interest rates began to drop about in 2007, some of these retirees put their savings into the stock market. They were devastated when the markets crashed.  Often, they pulled what was left of their savings out of the stock market and returned it to the bank.  Of course, after five years of low interest rates, often combined with the loss of part of their principal, these retirees were left with much less income than they ever expected.

For retirees who are dependent on interest income to supplement their retirement income, the Fed's decision to keep interest rates extremely low has been a devastating blow.  This decision has made it much more difficult for retirees to manage their money so that it will last the remainder of their lives.

In addition, the Fed decision could eventually cause runaway inflation, if it is not reversed.  This would cause expenses to rise for retirees (and others), making it even more difficult for them to have sufficient income to meet their needs.

On the other hand, when the Fed succeeds in their goal of causing both the stock market and housing prices to rise, the increased wealth helps those retirees who own either stocks or a home.  As you can see, whether Fed decisions benefit you or not depends on your personal circumstances.

Either way, when you make your retirement plans it is important that you assume that interest rates will remain low for at least the next few years.  Even if the Fed slightly raises interest rates starting in 2015 or 2016, as planned, it could take years before the returns are adequate to help retirees live off the income.  New retirees should use only a minimal amount of their retirement savings during the early years after they stop working, in order to survive financially in later years.

If you are interested in additional ideas for financial planning, where to retire, medical issues and changing family relationships, use the tabs or pull down menu at the top of the page to find links to hundreds of other helpful articles.

You may also be interested in reading:

Do You Need a Millions Dollars to Retire?
Best Places to Retire in the United States on $100 a Day
Retirement Deferred by Parent Student Loans
Retirement Income from Annuities or Investment Income
Cheap Places to Retire

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Sunday, September 25, 2011

Women and Social Security

No matter what your age, women need to understand how Social Security works.  For most women, Social Security will play a major role in how much money they will have available once they reach their 60's.  Since you will have some important decisions to make when you begin to collect Social Security, it is very important that you have all the necessary information, so that you make the best possible decisions and maximize your income.  Below are some of the basic facts that you need to know. 

For more personal details about your specific situation, you may want to visit your nearest Social Security office, or read more online at

Facts about Social Security for Women

The first thing you should know is that you can collect your Social Security benefits any time between the ages of 62 and 70 (or even at a younger age, if you are a widow.)  However, the younger you are when you begin to collect, the less money you will receive for the rest of your life.  As a result, many women are smart to postpone collecting their Social Security benefits until they are at least 66.  However, the decision is completely up to you.  If you are ill, cannot work, or desperate for money, you may feel that your situation forces you to collect your benefits sooner.

If you did not earn very much income during your lifetime, you can still collect some Social Security benefits based on your husband's earnings.  This is true even if you are divorced, as long as the two of you were married at least 10 years and you have not remarried.  At your full retirement age (around the age of 66 or 67), you can receive 50% of what your husband receives at his full retirement age.  You will need to compare whether you are better off using your own benefits, based on your own past earnings or whether you would collect more money by receiving half of your husband's benefits.

On the other hand, if you earned more than your husband, then it is possible for him to receive benefits based on your earnings.  The helpful consultants at the Social Security office can help you decide how you can collect the maximum benefits.

You will also be eligible for Medicare once you turn 65, whether your Social Security and Medicare benefits are based on your own earnings or those of your husband.  Medicare will withdraw a premium of about $104 from your Social Security benefits in order to pay for your basic Medicare healthcare.  You may want this used to pay for a Medicare Advantage plans that has more benefits or you may wish to purchase a Medicare Supplement plan in addition to the basic Medicare plan.

If your husband dies, you can collect widow's Social Security benefits.  The amount varies depending on when you begin to collect.  If you wait until your full retirement age, you can collect as much as 100% of what your husband would have collected. 

There are many other factors concerning Social Security that could affect when you decide to collect.  Be sure to check with your local Social Security office as soon as you begin planning your retirement.

It is important for everyone to understand their Social Security benefits, but especially women, because so many American women spend the last few years of their lives in poverty.  You do not want this to happen to you, if you can avoid it.

If you are interested in more retirement information, use the tabs or pull down menu at the top of this article to find links to hundreds of additional articles about financial planning, including Social Security, where to retire, medical issues that could arise, family relationships and more.

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