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6 Signs You’re Ready to Retire Early

Re-posted from 6 Signs You’re Ready to Retire Early

They’re questions nearly all young and middle-aged workers have asked themselves: Should I leave my job and retire early? What would I need? How do I know I’m ready?

If you’re considering retiring early, you’ll forego not only the headaches of working, but also the additional money earned that could have made your retirement even more comfortable. To help you decide, here are six signs you may be able to retire early instead of continuing to work.

1. Your Debts Are Paid Off

If your mortgage is paid off and you don’t have any loans, credit lines, large credit card balances or other debt, you won’t have to worry about making large payments during retirement. This leaves your savings and retirement income available to enjoy life after work, and free to use in the event of an emergency, rather than having it tied up in paying off large bills.

2. Your Savings Exceed Your Retirement Goals

You planned, set a goal for retirement savings and now your investments meet or exceed the amount you were hoping to save. This is another good sign you could take early retirement. However, keep in mind that if you do leave work several years before you planned to, your savings must be enough to cover these additional retirement years. If you didn’t set up your retirement savings plan for an early retirement, you will need to recalculate the length of your savings, including these additional years. Also, depending on your age, you may not yet be eligible for Social Security or Medicare. Your savings will need to cover your expenses until you reach the eligible age.

“Think ‘Rule 25.’ Prepare to have 25 times the value of your annual expenses,” says Max Osbon, partner at Osbon Capital Management in Boston, Mass. “Why 25? It’s the inverse of 4%. At that point, you only need to achieve a 4% return per year to cover your annual expenses in perpetuity.”

3. Your Retirement Plans Don’t Have an Early Withdrawal Penalty

No one likes to pay unnecessary penalties, and early retirees going to a fixed income are no different. If your retirement savings include a 457 plan, which doesn’t have an early withdrawal penalty, retiring early and withdrawing from the plan won’t cost you extra in penalties; but take note – you’ll still pay income tax on your withdrawals.

There’s also good news for wannabe early retirees with 401(k)s. If you continue working for your employer until the year that you turn 55 (or after), the IRS allows you to withdraw from only that employer’s 401(k) without penalty when you retire or leave, as long as you leave it at that company and don’t roll it into an IRA. However, if your 59th birthday was at least six months ago, you’re eligible to take penalty-free withdrawals from any of your 401(k) plans. These policies generally apply to other qualified retirement plans besides a 401(k), but check with the IRS to be sure yours is included.

“There is a caution, however: If an employee retires before age 55 [except as noted above], the early retirement provision is lost, and the 10% penalty will be incurred for withdrawals before age 59-1/2,” says James B. Twining, CFP, founder and CEO of Financial Plan, Inc., in Bellingham, Wash.

A third option for penalty-free retirement plan withdrawals is to set up a series of substantially equal withdrawals over at least five years, or until you turn 59-1/2, whichever is longer. Like withdrawals from a 457 plan, you’ll still have to pay the taxes on your withdrawals.

If your retirement plans include any of the above penalty-free withdrawal options, it’s another point in favor of leaving work early.

4. Your Healthcare Is Covered

Healthcare can be incredibly costly, and early retirees should have a plan in place to cover health costs during the years after retiring and before becoming eligible for Medicare at age 65. If you have coverage through your spouse’s plan, or if you can continue to get coverage through your former employer, this is another sign that early retirement could be a possibility for you. Take a look at the cost of an ambulance ride, blood test or monthly, non-generic prescription to get an idea of how quickly your health costs can skyrocket.

Another option for early retirees is to purchase private health insurance. If you have a Health Savings Account (HSA), you can use tax-free distributions to pay for your out-of-pocket qualified medical expenses no matter what age you are (though if you leave your job, you won’t be able to continue making contributions to the HSA). It is too early to say how health insurance and its costs will change and how affordable private healthcare will soon be, given President Trump’s and the Republican Congress’s goal of repealing the Affordable Care Act. Keep in mind that COBRA may extend your healthcare coverage after leaving your job, though without your former employer’s contributions to your insurance coverage, your costs with COBRA may be higher than other options. To learn more, see What You Need to Know About COBRA Health Insurance.

5. You Can Currently Live on Your Retirement Budget

Retirees living on fixed incomes including pensions and/or retirement plan withdrawals usually have lower monthly incomes than they did when they were working. If you have already practiced sticking to your retirement income budget for at least several months, then you may be one step closer to an early retirement. If you haven’t tried this yet, you may be in for a shock. Test out your reduced retirement budget to get an immediate sense of how difficult living on a fixed income can be.

“Humans do not like change, and it is hard to break old habits once we have become accustomed to them. By ‘road-testing’ your retirement budget, you are essentially teaching yourself to develop daily habits around what you can afford in retirement,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

6. You Have a New Plan or Project for Retirement

Leaving work early to spend long days with nothing to do will lead to an unhappy early retirement, and can also lead to increased spending (shopping and dining out are sometimes used to fill the time). Having a defined travel, hobby or part-time employment plan or even the outline of a daily routine can help you ease into early retirement. Perhaps you’ll replace sales meetings with a weekly golf outing or volunteering, and add daily walks or trips to the gym. Plan a long-overdue trip, or take classes to learn a new activity.

If you can easily think of realistic, non-work-related ways to enjoyably pass your days, early retirement could be for you. In the same way that you test-drive your retirement budget, try taking a week or more off work to spend your days as you would in retirement. If you become bored with long walks, daytime TV and hobbies within a week, you’ll certainly get antsy in retirement.

The Bottom Line

When it comes to deciding if you should retire early, there are several signs to watch for. Being debt-free, with a healthy retirement account that will support your extra years not working is critical. In addition, if you can withdraw from retirement accounts without penalty, get access to affordable healthcare coverage until Medicare kicks in and have a plan to enjoy your time not working while living on a retirement budget, you just may be ready to retire early. The best way to be sure you can successfully make the transition is speaking with your financial professional.

Read more: 6 Signs You’re Ready to Retire Early | Investopedia http://www.investopedia.com/articles/personal-finance/063014/6-signs-youre-ready-retire-early.asp#ixzz4xNvzjQxi
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10 Financial Decisions You Will Regret in Retirement

Re-posted from Kiplinger.com

As more and more baby boomers start eyeing the coastline of retirement, thoughts turn from the daily worry over the Monday-through-Friday commute to concerns about how to fund the golden years.

How prepared are you? Do you know the ins and outs of your pension (if you’re lucky enough to have one)? How about your 401(k), IRA and other retirement accounts that make up your nest egg? Do you have a good handle on when to claim Social Security benefits? These are some of the questions you will have to contemplate as the work days wind down. But long before you punch out, make sure you are making the right choices.

To help you out, we’ve compiled a list of retirement decisions some of you may regret forever. Take a look to see if any sound familiar.

Planning to work indefinitely

Dentist

Many baby boomers like me have every intention of staying on the job until 70, either because we want to, we have to, or we desire tomaximize our Social Security checks. But that plan could backfire. You could be forced to retire early for any number of reasons.

Consider this: One in four U.S. workers expects to work beyond age 70 to make ends meet, according to a recent Willis Towers Watson survey. Yet, you can’t count on being able to bring in a paycheck if you need it. While 51% of workers expect to continue working some in retirement, found a separate 2015 survey from the Transamerica Center for Retirement Studies, only 6% of actual retirees report working in retirement as a source of income.

Whether you work is not always up to you. Three out of five retirees left the workforce earlier than planned, according to Transamerica. Of those, 66% did so because of employment-related issues, including organizational changes at their companies, losing their jobs and taking buyouts. Health-related issues—either their own ill health or that of a loved one—was cited by 37%.

The actionable advice: Assume the worst, and save early and often.

Putting off saving for retirement

Change Jar

The single biggest financial regret of Americans surveyed by Bankrate was waiting too long to start saving for retirement. Not surprisingly, respondents 50 and older expressed this regret at a much higher rate than younger respondents.

“Many people do not start to aggressively save for retirement until they reach their 40s or 50s,’’ says Ajay Kaisth, a certified financial planner with KAI Advisors in Princeton Junction, N.J. “The good news for these investors is that they may still have enough time to change their savings behavior and achieve their goals, but they will need to take action quickly and be extremely disciplined about their savings.”

Morningstar calculated how much you need to sock away monthly to reach the magic number of $1 million saved by age 65. Assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.

Uncle Sam offers incentives to procrastinators. Once you turn 50, you can start making catch-up contributions to your retirement accounts. In 2016, that means older savers can contribute an extra $6,000 to a 401(k) on top of the standard $18,000. The catch-up amount for IRAs is $1,000 on top of the standard $5,500.

Claiming Social Security early

Social Security

You’re entitled to start taking retirement benefits at 62, but you probably shouldn’t. Most financial planners recommend waiting at least until your full retirement age – currently 66 and gradually rising to 67 for those born after 1959 – before tapping Social Security. Waiting until 70 can be even better.

Let’s say your full retirement age, the point at which you would receive 100% of your benefit amount, is 66. If you claim at 62, your monthly check will be reduced by 25% for the rest of your life. But hold off until age 70 and you’ll get a 32% boost in benefits – 8% a year for four years – thanks to delayed retirement credits. (Claiming strategies can differ for couples, widows and divorced spouses.)

“If you can live off your portfolio for a few years to delay claiming, do so,” says Natalie Colley, a financial analyst at Francis Financial in New York City. “Where else will you get guaranteed returns of 8% from the market?” Alternatively, stay on the job longer, if feasible, or start a side gig to help bridge the financial gap. There are plenty of interesting ways to earn extra cash these days.

Borrowing from your 401(K)

Glasses on Retirement Summary

Taking a loan from your 401(k) retirement-savings account can be tempting. After all, it’s your money. As long as your plan sponsor permits borrowing, you’ll usually have five years to pay it back with interest.

But short of an emergency, tapping your 401(k) is a bad idea for many reasons. According to John Sweeney, executive vice president for retirement and investment strategies at Fidelity Investments, you’re likely to reduce or suspend new contributions during the period you’re repaying the loan. That means you’re short-changing your retirement account for months or even years and sacrificing employer matches. You’re also missing out on the investment growth from the missed contributions and the cash that was borrowed.

Keep in mind, too, that you’ll be paying the interest on that 401(k) loan with after-tax dollars — then paying taxes on those funds again when retirement rolls around. And if you leave your job, the loan usually must be paid back within 60 days. Otherwise, it’s considered a distribution and taxed as income.

Before borrowing from a 401(k), explore other loan options. College tuition, for instance, can be covered with student loans and PLUS loans for parents. Major home repairs can be financed with a home-equity line of credit.

Decluttering to the extreme

Couple happy with money

My parents are in their mid-80s and have been living in the same house for decades. Over the past couple of years they have started getting rid of all the bric-a-brac they’ve accumulated. Their goal is either to sell and move into a retirement community or, at the least, make it easier for my brother and I down the road when we inherit the home.

There hasn’t been much junk among the items they’ve parted with save for the wall clock they gave me and swore it worked (it doesn’t). But there were also items my father wisely ran past his lawyer before dumping: Bookkeeping records from the business he owned for years. He was cleared.

Still, that’s fair warning: Be careful about what you throw out in haste. Sentimental value aside, certain professionals including doctors, dentists, lawyers and accountants can be required by state law to retain records for years after retirement. As for tax records, the IRS generally has three years to initiate an audit, but you might want to hold on to certain records including your actual returns indefinitely. Same goes for records related to the purchase and capital improvement of your home; purchases of stocks and funds in taxable investment accounts; and contributions to retirement accounts (in particular nondeductible IRA contributions reported on IRS Form 8606). All can be used to determine the correct tax basis on assets to avoid paying more in taxes than you owe.

Putting your kids first

Mother with Familyure, you want your children to have the best — best education, best wedding, best everything. And if you can afford it, by all means open your wallet. But footing the bill for private tuition and lavish nuptials at the expense of your own retirement savings could come back to haunt all of you.

“You cannot borrow for your retirement living,’’ says Joe Ready, executive vice president of Wells Fargo Institutional Retirement and Trust. “[But] you may have other avenues beyond [borrowing from] your 401(k) plan to help fund a child’s education.” Instead, Ready says parents and their kids should explore scholarships, grants, student loans and less expensive in-state schools in lieu of raiding the retirement nest egg. Another money-saving recommendation: community college for two years followed by a transfer to a four-year college. (There are many smart ways to save on weddings, too.)

No one plans to go broke in retirement, but it can happen for many reasons. One of the biggest reasons, of course, is not saving enough to begin with. If you’re not prudent now, you might end up being the one moving into your kid’s basement later.

Avoiding the stock market

Man at Laptop

Shying away from stocks because they seem too risky is one of the biggest mistakes investors make when saving for retirement. True, the market has plenty of ups and downs, but since 1926 stocks have returned an average of about 10% a year. Bonds, CDs, bank accounts and mattresses don’t come close.

“Conventional wisdom may indicate the stock market is ‘risky’ and therefore should be avoided if your goal is to keep your money safe,” says Elizabeth Muldowney Samuelson, a financial adviser with Savant Capital Management in Rockford, Ill. “However, this comes at the expense of low returns and, in fact, you have not eliminated your risk by avoiding the stock market, but rather shifted your risk to the possibility of your money not keeping up with inflation.”

While there are no guarantees when it comes to stocks, you can lessen the likelihood of taking a big hit. Diversification is the key. Keep your money in a mix of large, small, domestic and foreign stocks. We favor low-cost mutual funds and exchange-traded funds because they offer an affordable way to own a piece of hundreds or even thousands of companies without having to buy individual stocks. If you aren’t comfortable picking your own funds, hire a financial adviser to help.

And don’t even think about retiring your stock portfolio once you reach retirement age, says Sweeney, of Fidelity Investments. Nest eggs need to keep growing to finance a retirement that might last 30 years. You do, however, need to ratchet down risk as you age by gradually reducing your exposure to stocks.

 

Buying into a time-share

Carl Richards at table with couple

It’s easy to see the appeal of a time-share during retirement. Now that you’re free from the 9-to-5 grind, you can visit a favorite vacation spot more frequently. And if you get bored, simply swap for slots at other destinations within the time-share network. Great deal, right? Not always.

Buyers who don’t grasp the full financial implications of a time-share can quickly come to regret the purchase. In addition to thousands paid upfront, maintenance fees average upward of $660 a year, and special assessments can be levied for major renovations. There are also travel costs, which run high to vacation hotspots such as Hawaii, Mexico or the Bahamas.

And good luck if you develop buyer’s remorse. The real estate market is flush with used time-shares, which means you probably won’t get the price you want for yours – if you can sell it at all, says Ron Kelemen, a Salem, Ore.-based financial planner. Even if you do find a potential buyer, beware: The time-share market is rife with scammers.

Experts advise owners first to contact their time-share management company about resale options. If that leads nowhere, list your time-share for sale or rent on established websites such as www.redweek.com and www.tug2.net. Alternatively, hire a reputable broker. The Licensed Timeshare Resale Brokers Association has an online directory of its members. If all else fails look into donating your time-share to charity for the tax write-off.

Falling for too-good-to-be-true offers

Risk

Hard work, careful planning and decades’ worth of wealth-building are the foundations for achieving financial security in retirement. There are no short cuts. Yet, in 2015 Americans lost $765 million to get-rich-quick and other scams, according to the FTC. Of the more than 3 million complaints received last year, 37% were filed by victims ages 60 and over.

The South Carolina Attorney General’s office and the FTC offer tips for spotting too-good-to-be-true offers. Tell-tale signs include guarantees of spectacular profits in a short time frame without risk; requests to wire money or pay a fee before you can receive a prize; or unnecessary demands to provide bank account and credit card numbers, Social Security numbers or other sensitive financial information. Also be wary of – in fact, run away from – anyone pressuring you to make an immediate decision or discouraging you from getting advice from an impartial third party.

What do you do if you suspect a scam? The FTC advises running the company or product name, along with “review,” “complaint” or “scam,” through Google or another search engine. You can also check with your local consumer protection office or your state attorney general to see if they’ve fielded any complaints. If they have, add yours to the list. Be sure to file a complaint with the FTC, too.

Relocating on a whim

Girl Hiking

The lure of warmer climates has long been the siren call of many who are approaching retirement. So you’re cooking up a plan to head south to Florida or one of the many other great places to retire if you hate the cold. Our best advice: Test the waters before you make a permanent move.

Too many folks have trudged off willy-nilly to what they thought was a dream destination only to find that it’s more akin to a nightmare. The pace of life is too slow, everyone is a stranger, and endless rounds of golf and walks on the beach grow tiresome. Well before your retirement date, spend extended vacation time in your anointed destination to get a feel for the people and lifestyle. This is especially true if you’re thinking aboutretiring overseas, where new languages, laws and customs can overwhelm even the hardiest retirees.

Once you do make the plunge, consider renting before buying. A couple I know retired and circled Savannah, Ga., for their retirement nest. But wisely, as it turned out, they decided to lease an apartment downtown for a year before building or buying a new home in the suburbs. Turns out the Deep South didn’t suit their Northern Virginia get-it-done-now temperament. They are instead thinking of joining the ranks of “halfback retirees” – people who head south, find they don’t like it, and move halfway back toward their former home up north.