By JONATHAN CLEMENTS of wsj.com
1 "I still have plenty of time."
2 "My house is worth a bundle."
3 "My investments are doing great."
4 "I'll receive a fat inheritance."
5 "I have a pension."
6 "I'll work in retirement."
Showing posts with label Retirement. Show all posts
Showing posts with label Retirement. Show all posts
Sunday, September 9, 2007
Tuesday, July 31, 2007
Saving for retirement: Who's falling short
The Center for Retirement Research (CRR) estimates that
36 percent of high-income households - those with a median income of $117,000 - won't be able to live as well in retirement as they do today.
Among middle-income households, 40 percent are at risk of having to downsize.
While 53 percent of low-income households are likely to fall short.
36 percent of high-income households - those with a median income of $117,000 - won't be able to live as well in retirement as they do today.
Among middle-income households, 40 percent are at risk of having to downsize.
While 53 percent of low-income households are likely to fall short.
Monday, July 30, 2007
Are you on track for retirement?
Two questions from Money.com will tell you if you're on track for retirement or not.
1) Are you doing the right things?
Yes, if you
- contribute 401(k)
- know where you're and where you should be
- claim as many tax breaks as possible
- build safety net
2) Do you have the right investments?
Yes, if you
- asset allocation
- avoid high fees
- avoid hot stocks
- rebalance regularly
1) Are you doing the right things?
Yes, if you
- contribute 401(k)
- know where you're and where you should be
- claim as many tax breaks as possible
- build safety net
2) Do you have the right investments?
Yes, if you
- asset allocation
- avoid high fees
- avoid hot stocks
- rebalance regularly
Friday, July 27, 2007
Can you afford a healthy retirement?
Source: Chicago Tribune personal finance columnist Gail MarksJarvis with Renee Montagne of NPR
My comment
Medicare only covers part of retiree health needs.
MarksJarvis claims that you need extra $400,000 in savings to buy extra health insurance to cover what Medicare doesn't.
As they approach retirement age, many people have no idea how much money they will need to support themselves - and they frequently underestimate the cost of health insurance that they'll need to supplement Medicare.
Gail MarksJarvis notes that the average senior gets $1,011 in Social Security a month.
Most households on the verge of retirement (within 10 years away from retirement) have saved no more than $88,000. That amount translates into about $653 a month for living expenses.
Medicare will cover only part of their health bill, and health insurance alone will cost a retired couple an average $330 per month.
Below are some of MarksJarvis' tips for avoiding financial troubles in retirement:
- Avoid wishful thinking and calculate what you will need to save for retirement.
- A rule of thumb: Go into retirement with savings that equal about 12 times your last annual pay and take out no more than 4 to 5 percent of your nest egg annually.
- Prepare when you are young by saving small amounts early and investing in a mixture of stock and bond mutual funds in 401(k) plans and IRAs. If you invest $20 a week on your first job, you'll reach $1 million by retirement age. Wait until 35, and you will need to save $100 a week for the same sum. And don't give up. A person saving $5,000 a year in middle age can still accumulate about $500,000.
- Consider health care costs as you look ahead. Be realistic. If you are retired for 20 years, you will need about $200,000 in savings to buy extra health insurance to cover what Medicare doesn't. If you live to 90, the cost will be close to $400,000. Medicare only covers part of retiree health needs.
- Check your employment benefits so you don't have unrealistic expectations. Most employers DON'T help their former employees with health insurance in retirement, but many people assume they WILL get this help. Even employers promising health benefits to retirees may back out of the agreement.
- Avoid retiring early unless you have calculated the impact of spending $1,000 a month to buy health insurance until Medicare benefits kick in.
- If you retire early and need to buy health insurance, you can cut your costs by using high deductibles and buying insurance through business or trade groups. Consider starting a small business so you have access to one of these groups, or work part-time for an employer who provides insurance.
- Pay off your home and credit cards before retiring so that you have manageable costs.
My comment
Medicare only covers part of retiree health needs.
MarksJarvis claims that you need extra $400,000 in savings to buy extra health insurance to cover what Medicare doesn't.
As they approach retirement age, many people have no idea how much money they will need to support themselves - and they frequently underestimate the cost of health insurance that they'll need to supplement Medicare.
Gail MarksJarvis notes that the average senior gets $1,011 in Social Security a month.
Most households on the verge of retirement (within 10 years away from retirement) have saved no more than $88,000. That amount translates into about $653 a month for living expenses.
Medicare will cover only part of their health bill, and health insurance alone will cost a retired couple an average $330 per month.
Below are some of MarksJarvis' tips for avoiding financial troubles in retirement:
- Avoid wishful thinking and calculate what you will need to save for retirement.
- A rule of thumb: Go into retirement with savings that equal about 12 times your last annual pay and take out no more than 4 to 5 percent of your nest egg annually.
- Prepare when you are young by saving small amounts early and investing in a mixture of stock and bond mutual funds in 401(k) plans and IRAs. If you invest $20 a week on your first job, you'll reach $1 million by retirement age. Wait until 35, and you will need to save $100 a week for the same sum. And don't give up. A person saving $5,000 a year in middle age can still accumulate about $500,000.
- Consider health care costs as you look ahead. Be realistic. If you are retired for 20 years, you will need about $200,000 in savings to buy extra health insurance to cover what Medicare doesn't. If you live to 90, the cost will be close to $400,000. Medicare only covers part of retiree health needs.
- Check your employment benefits so you don't have unrealistic expectations. Most employers DON'T help their former employees with health insurance in retirement, but many people assume they WILL get this help. Even employers promising health benefits to retirees may back out of the agreement.
- Avoid retiring early unless you have calculated the impact of spending $1,000 a month to buy health insurance until Medicare benefits kick in.
- If you retire early and need to buy health insurance, you can cut your costs by using high deductibles and buying insurance through business or trade groups. Consider starting a small business so you have access to one of these groups, or work part-time for an employer who provides insurance.
- Pay off your home and credit cards before retiring so that you have manageable costs.
Thursday, July 26, 2007
Calculating your retirement nest egg
Source: CRANKY CONSUMER By ANDREA COOMBES of Wsj.com
There are many online retirement calculators will tell you how much you need to save for retirement.
However, these calculators almost always over-estimate the amount that you need to save now. If you follow the suggestions, the savings for retirement may impact your current quality of living.
The parameters require for retirement calculators:
1) Rate of inflation - 3% is popular
2) Rate of return - 6% is popular too
3) Years in retirement - 25 years to 35 years
4) Living expenses in retirement - 70% to 80% of pre-retirement expenses
5) When will you retire? - 65
Most calculators are over-estimated the rate of inflation, but under-estimated the rate of return on your retirement nest egg.
Remember, if the rate of inflation is 2.5% instead of 3.0%, the error is 20%!
If the average rate of return is 8% instead of 6%, that is 25% for the error!
There are many online retirement calculators will tell you how much you need to save for retirement.
However, these calculators almost always over-estimate the amount that you need to save now. If you follow the suggestions, the savings for retirement may impact your current quality of living.
The parameters require for retirement calculators:
1) Rate of inflation - 3% is popular
2) Rate of return - 6% is popular too
3) Years in retirement - 25 years to 35 years
4) Living expenses in retirement - 70% to 80% of pre-retirement expenses
5) When will you retire? - 65
Most calculators are over-estimated the rate of inflation, but under-estimated the rate of return on your retirement nest egg.
Remember, if the rate of inflation is 2.5% instead of 3.0%, the error is 20%!
If the average rate of return is 8% instead of 6%, that is 25% for the error!
Sunday, July 15, 2007
Investment strategy with lifecycle funds
Source: JONATHAN CLEMENTS of wsj.com
Lifecycle funds were designed to be the ultimate buy-and-forget investment.
You purchase a lifecycle fund that targets your expected retirement date, and then sit back and let your money ride all the way to retirement and beyond.
But it turns out that lifecycle-fund investors have other ideas -- some good, some not so good.
Adding on
One sensible strategy: Stick maybe 80% of your retirement money in a lifecycle fund and then tack on smaller stakes in intriguing sectors such as emerging-market stocks, foreign small-company shares and high-yield junk bonds.
You might even buy more than one lifecycle fund. Suppose you plan to retire in 2017. You might purchase a mix of, say, Schwab Target 2010 and Schwab Target 2020.
Aiming elsewhere
Lifecycle funds were designed for retirement investors, who might draw down their nest egg over 20 or 30 years. But some shareholders are using the funds to amass money for a home purchase, where they will need their savings on a single day, or college, where costs should be over in just four years.
The problem: When lifecycle funds reach their target date, they typically have 50% to 60% of their money in stocks. You run that horrific risk of having too much equity exposure when you get that tuition bill.
A solution: there are lifecycle funds designed for college expenses.
Laddering funds
Some investors are laddering lifecycle funds in the same way folks ladder individual bonds. It could help you manage your retirement spending.
Suppose you plan to retire in 2015, when you turn age 65. You might buy a 2015 fund to cover the first 10 years of retirement, a 2025 fund to pay for the years from ages 75 to 85, and a 2035 fund for your final years.
Lifecycle funds were designed to be the ultimate buy-and-forget investment.
You purchase a lifecycle fund that targets your expected retirement date, and then sit back and let your money ride all the way to retirement and beyond.
But it turns out that lifecycle-fund investors have other ideas -- some good, some not so good.
Adding on
One sensible strategy: Stick maybe 80% of your retirement money in a lifecycle fund and then tack on smaller stakes in intriguing sectors such as emerging-market stocks, foreign small-company shares and high-yield junk bonds.
You might even buy more than one lifecycle fund. Suppose you plan to retire in 2017. You might purchase a mix of, say, Schwab Target 2010 and Schwab Target 2020.
Aiming elsewhere
Lifecycle funds were designed for retirement investors, who might draw down their nest egg over 20 or 30 years. But some shareholders are using the funds to amass money for a home purchase, where they will need their savings on a single day, or college, where costs should be over in just four years.
The problem: When lifecycle funds reach their target date, they typically have 50% to 60% of their money in stocks. You run that horrific risk of having too much equity exposure when you get that tuition bill.
A solution: there are lifecycle funds designed for college expenses.
Laddering funds
Some investors are laddering lifecycle funds in the same way folks ladder individual bonds. It could help you manage your retirement spending.
Suppose you plan to retire in 2015, when you turn age 65. You might buy a 2015 fund to cover the first 10 years of retirement, a 2025 fund to pay for the years from ages 75 to 85, and a 2035 fund for your final years.
Some bad financial advice
Source: Jonathan Clements of wsj.com
If your adviser who is disparaging lifecycle funds and telling you to throttle back on your 401(k) contributions.
It's time to find a new adviser.
My advisor suggested otherwise - investment in lifecycle funds would provide some balance to my portfolio that was setup by him.
1. "Lifecycle funds are a lousy investment."
Lifecycle funds were developed primarily to help 401(k) plan investors, who often struggle to build sensible portfolios. These funds offer one-stop shopping by combining a slew of investments - mainly stocks and bonds - in a single portfolio.
A talented adviser may be able to build you a better portfolio. But it may not be a whole lot better - and maybe not enough to justify the adviser's fee.
2. "Don't fully fund your 401(k)."
Some advisers have argued that people should contribute 401(k) only enough to get the full company match.
They claim that when you fund a 401(k), you are setting yourself up for huge tax bills later and thus it isn't worth maxing out on these plans. Any withdrawal (contributions and gains) will be tax at ordinary income rates, and may also incurs the extra 10% penalty.
Instead, these advisers argue that this money should be invested through a regular taxable accounts - only the gains are tax at the preferential long-term capital-gain rates.
The reality is, 401(k) plans are a great deal, even if you aren't getting a company match. The contributions and the gains are tax deferred; and thus, your 401(k) portfolio is compounding to the fullest.
If your adviser who is disparaging lifecycle funds and telling you to throttle back on your 401(k) contributions.
It's time to find a new adviser.
My advisor suggested otherwise - investment in lifecycle funds would provide some balance to my portfolio that was setup by him.
1. "Lifecycle funds are a lousy investment."
Lifecycle funds were developed primarily to help 401(k) plan investors, who often struggle to build sensible portfolios. These funds offer one-stop shopping by combining a slew of investments - mainly stocks and bonds - in a single portfolio.
A talented adviser may be able to build you a better portfolio. But it may not be a whole lot better - and maybe not enough to justify the adviser's fee.
2. "Don't fully fund your 401(k)."
Some advisers have argued that people should contribute 401(k) only enough to get the full company match.
They claim that when you fund a 401(k), you are setting yourself up for huge tax bills later and thus it isn't worth maxing out on these plans. Any withdrawal (contributions and gains) will be tax at ordinary income rates, and may also incurs the extra 10% penalty.
Instead, these advisers argue that this money should be invested through a regular taxable accounts - only the gains are tax at the preferential long-term capital-gain rates.
The reality is, 401(k) plans are a great deal, even if you aren't getting a company match. The contributions and the gains are tax deferred; and thus, your 401(k) portfolio is compounding to the fullest.
Sunday, May 20, 2007
A $1 Million retirement fund
Source: A $1 Million Retirement Fund - How to Get There From Here By JONATHAN CLEMENTS
Goal
Let's say, in addition to Social Security, you've determined that you will need $45,000 annually from your retirement fund when you retired.
To generate that $45,000 annually, you will need a $1 million portfolio in your retirement fund (let's use a 4.5% annual portfolio-withdrawal rate).
You may wonder how you will ever accumulate enough money to retire?
First few steps
1) Always save 10$ to 15% of your pretax income every year.
2) Ensure your diversified portfolio earn the annual return of 6% - 8% (2 x rate of inflation) or more.
3) Aim to accumulate savings that equal to two times your annual income as soon as possible.
The milestone of 2 x income is when the biggest driver of your portfolio's growth is investment earnings, not the actual dollars that you're saving.
Once you hit that milestone, the financial wind will be on your back; and reaching your $1 million savings goal should be a breeze!
It may take people 12 to 15 years. But if you're close to the milestone of 2 x pay by your early 40s, you're in pretty good shape.
Goal
Let's say, in addition to Social Security, you've determined that you will need $45,000 annually from your retirement fund when you retired.
To generate that $45,000 annually, you will need a $1 million portfolio in your retirement fund (let's use a 4.5% annual portfolio-withdrawal rate).
You may wonder how you will ever accumulate enough money to retire?
First few steps
1) Always save 10$ to 15% of your pretax income every year.
2) Ensure your diversified portfolio earn the annual return of 6% - 8% (2 x rate of inflation) or more.
3) Aim to accumulate savings that equal to two times your annual income as soon as possible.
The milestone of 2 x income is when the biggest driver of your portfolio's growth is investment earnings, not the actual dollars that you're saving.
Once you hit that milestone, the financial wind will be on your back; and reaching your $1 million savings goal should be a breeze!
It may take people 12 to 15 years. But if you're close to the milestone of 2 x pay by your early 40s, you're in pretty good shape.
Wednesday, May 16, 2007
Planning your retirement - DIY or hire a pro?
From Money.com
Whether to hire a financial adviser to oversee your investments really comes down to a realistic assessment of whether you could manage your money on your own or not.
If you don't feel comfortable doing it on your own - whether because you don't have the time, the confidence or you're just uneasy about going solo - then hiring an adviser makes sense.
It's certainly a better way to go than just picking investments on a whim or relying on the latest recommendations of some magazines or TV pundits.
Finding a financial adviser
1) The first thing you'd want to discuss with the adviser is when you expect to retire and what sort of risks you're comfortable taking.
2) After the discussion, the adviser should be able to recommend a portfolio of stocks and bonds that makes sense for your situation - and ideally should show you how the mix has performed historically in different types of markets.
3) I'd also want to be sure is the amount you'll paying in fees. Generally, a fee of 1 percent to 2 percent is a reasonable range to pay the adviser for his or her time and expertise.
4) What services other than investing your money can you expect for that fee?
5) Will you receive monthly or quarterly reports on your portfolio's progress? What will those reports tell you? (Ask for a sample.)
6) Will you have access to the adviser for periodic updates on your accounts? If so, how often will those updates occur, and will they be face-to-face or by phone? And will you talk to the adviser or another staffer?
Explore other options
1) The first thing you'd do is to see if your 401(k) offers some sort of investing and planning advice. The kind of advice can range from meetings with advisers to manage account programs that invest your 401(k) funds to online programs that can help you build a portfolio. In some cases, the advice can also consider money held in outside accounts like IRAs.
2) Another alternative you might consider is to see if your 401(k) offers target-retirement funds. A target-retirement fund will give you a coherent investment strategy for your retirement savings. Essentially, you choose a target fund with a date that roughly corresponds to the date you intend to retire - say, 2025 - and you get a completely diversified portfolio of stocks and bonds. The fund becomes more conservative as you approach retirement age by gradually shifting its asset mix more toward bonds.
Whether to hire a financial adviser to oversee your investments really comes down to a realistic assessment of whether you could manage your money on your own or not.
If you don't feel comfortable doing it on your own - whether because you don't have the time, the confidence or you're just uneasy about going solo - then hiring an adviser makes sense.
It's certainly a better way to go than just picking investments on a whim or relying on the latest recommendations of some magazines or TV pundits.
Finding a financial adviser
1) The first thing you'd want to discuss with the adviser is when you expect to retire and what sort of risks you're comfortable taking.
2) After the discussion, the adviser should be able to recommend a portfolio of stocks and bonds that makes sense for your situation - and ideally should show you how the mix has performed historically in different types of markets.
3) I'd also want to be sure is the amount you'll paying in fees. Generally, a fee of 1 percent to 2 percent is a reasonable range to pay the adviser for his or her time and expertise.
4) What services other than investing your money can you expect for that fee?
5) Will you receive monthly or quarterly reports on your portfolio's progress? What will those reports tell you? (Ask for a sample.)
6) Will you have access to the adviser for periodic updates on your accounts? If so, how often will those updates occur, and will they be face-to-face or by phone? And will you talk to the adviser or another staffer?
Explore other options
1) The first thing you'd do is to see if your 401(k) offers some sort of investing and planning advice. The kind of advice can range from meetings with advisers to manage account programs that invest your 401(k) funds to online programs that can help you build a portfolio. In some cases, the advice can also consider money held in outside accounts like IRAs.
2) Another alternative you might consider is to see if your 401(k) offers target-retirement funds. A target-retirement fund will give you a coherent investment strategy for your retirement savings. Essentially, you choose a target fund with a date that roughly corresponds to the date you intend to retire - say, 2025 - and you get a completely diversified portfolio of stocks and bonds. The fund becomes more conservative as you approach retirement age by gradually shifting its asset mix more toward bonds.
Wednesday, April 11, 2007
EBRI on retirement
From CNNMoney.com "Have less than $25K in savings? Get in line"
Employee Benefit Research Institute (EBRI) estimated that all, but the lowest earning men, should have saving at least 12X their income when they retire. That's $1,200,000 for a man earning $100,000. A woman, because of higher life expectancies, should have 14X.
Your nest egg, combine with your Social Security benefits (and pension benefits if you have them) should be large enough to generate at least 70% to 80% of your pre-retirement income.
Employee Benefit Research Institute (EBRI) estimated that all, but the lowest earning men, should have saving at least 12X their income when they retire. That's $1,200,000 for a man earning $100,000. A woman, because of higher life expectancies, should have 14X.
Your nest egg, combine with your Social Security benefits (and pension benefits if you have them) should be large enough to generate at least 70% to 80% of your pre-retirement income.
Subscribe to:
Posts (Atom)