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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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One thing you can do to … your retirement savings

Re-posted from MSN Money

Being able to contribute consistently enough to your retirement savings accounts is the most important aspect of any retirement plan, but it’s also by far the most challenging. So finding a way to make regular, adequate contributions easier is really the key to a successful retirement. And the best way to accomplish this is by having a written financial plan.

Why does a written plan help?

Self-help gurus uniformly urge their clients to write down their goals, plans, and dreams for a reason. Writing something down has a significant psychological impact on the writer: It makes that written declaration more “real” to us and gives us accountability. Once it’s in writing, we feel more compelled to follow through on it. For a task like saving for retirement, that feeling of accountability can make all the difference in sticking to a contribution plan versus having a plan but only contributing “when it’s convenient.” A written plan also motivates us by reminding us what we stand to gain tomorrow by sacrificing today.

The power of written financial plans

A recent study by Charles Schwab highlighted the impact that written financial plans have on retirement savings. The study compared various financial attributes of Americans with a written financial plan to those who did not have one. For many important financial tasks, the difference between the two groups was startlingly high.

For example, 27% of savers with written financial plans maxed out their contributions to their retirement savings accounts, compared to 11% of savers without plans. Thirty-four percent of savers with written financial plans had investments in addition to their retirement investments, versus only 16% of those without written plans. And 49% of savers with written financial plans felt very confident in their ability to reach their financial goals, as opposed to just 13% of those without written plans.

Starting your financial plan

Financial plans come in many forms — debt payment plans, down payment savings plans, investing plans, and so on. And while the idea of creating a financial plan may sound daunting, in reality such a plan can be extremely simple, as you’ll see shortly. We’ll focus on a retirement savings plan, but the principles are similar for creating any type of financial plan.

First, your plan needs a goal. For a retirement savings plan, the goal will typically be to save enough during your working years so that when you reach your planned retirement date, you will have enough money to live comfortably for the rest of your life. Because different savers have very different ideas of what “living comfortably” entails during retirement, the exact number you end up with as a savings goal will depend largely on your own preferences and situation.

In order to know how much money you’ll need to save for retirement, you first need to figure out how much you’ll be spending during that time. Ideally, you’ll write up a list of the expenses that you expect to carry during retirement and add them up. If that sounds like too much work, you can get a pretty fair estimate based on your current income.

If you anticipate a fairly sedate retirement without a lot of fancy, expensive activities, you can assume for planning purposes that 80% to 90% of your current income will suffice as annual income during retirement. Aim for the low end of this range if you’re sure you’ll be debt free by the time you retire (that includes owning a home that’s completely paid off). Otherwise, aim for at least 90% of your current income. On the other hand, if you dream of an adventurous retirement touring the capitals of the world, aim for at least 100% of your current income (or possibly even more, if you have really expensive plans).

Making it official

Once you have a goal for your retirement income, you can plug that number into a retirement calculator to find out how much you need to save in order to hit your target by your planned retirement date. Let’s say that your goal is to save $1 million by age 65 and the retirement calculator tells you that in order to reach your goal, you need to save $1,000 per month. Write this down in a form that will inspire you to follow through. For example, you might write “Millionaire by age 65: $1,000 every month into the 401(k).” Then post a copy of this document somewhere you’ll see it on a regular basis, such as next to your bathroom mirror, on the front of the refrigerator, or attached to the side of your computermonitor.

Just having the plan in writing, staring you in the face on a regular basis, can work wonders to improve your follow-through.

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6 Money Saving Tips You Can’t Afford To Miss

Re-posted from AICPA.ORG

6 Money-Saving Tips You Can’t Afford to Miss

Those fun, light-hearted GEICO commercials that ask if you are tired of paying too much for car insurance hone in on the idea of wasting your money –– paying too much for something or not getting enough.

As a CPA who is passionate about making my hard-earned money work for me, it’s important to take time to critically analyze what my cash is doing. Busy lives often lend themselves to costly complacency in one’s personal finances. Basically, we want bill paying done and our retirement planning intact with as minimal effort as possible.

At least once per year, I do a serious deep-cleaning scrub on my family’s finances. I look at what we’re paying and why, and I see where we need to do better. This “scrub” saves us thousands of dollars and I suggest each of you take a few hours each year to review your finances critically. Don’t let your money run itself; it needs you to keep it on track.

Here are six tips to make your money work for you (consider sharing these with your clients):

  1. Carefully review your credit/debit card auto-drafts.

Did you join Consumer Reports to get insight on what car to buy and forget to cancel it after your purchase? Or sign up for other subscription services that you haven’t used in months? Review your statements for these $10-20 no-value bills. Though small, they add up quickly.

On the flip side, auto-draft anything you can to your credit card. You’ll consolidate bill paying, and get paid to pay your bills. Often, electricity, water, cable, etc., can be auto-drafted. One can easily earn hundreds of dollars each year (in points and rewards) by effectively using a credit card. But, don’t forget to pay off the balance each month! Interest on credit cards is extremely costly. I suggest setting up another auto-draft to pay your credit card bill directly from your bank account.

  1. Bundle your insurance (home, automobiles, etc.), and scrutinize rate increases.

These bills can significantly fluctuate each year as your insurance carrier offers new incentives or changes its rates (sometimes arbitrarily). This year, I noticed our home and auto insurance went up by about $1,500. After calling my agent, I learned that there was an explanation for some of it (insurance regulation hiked up the price), but there was no excuse for the bulk of it. After asking my agent to price shop, I decreased my bill and increased my coverage. My agent wasn’t going to do this price shopping without my nagging, but a five-minute phone call saved me over a thousand dollars.

  1. Review your investments.

Make sure you are deferring appropriately to your 401(k), taking advantage of company matches and profit sharing plans. Also, ensure you’re planning for retirement with other investment vehicles (IRAs, etc.). Review your portfolio, making sure it’s well-balanced. Consider contacting your 401(k) or brokerage adviser to confirm your investments (as a whole) keep your plans on track. Consider making serious adjustments the older you get; the closer you are to retirement, the less risk you may want to take.

  1. Know the market rates for cell phone plans, cable, internet, etc., and don’t be afraid to negotiate.

Cell phone rates have actually gone down recently as more competition enters the market. If you bundle plans with family members, you may be able to save even more. Plus, many employers offer their employees discounts for certain carriers.

Cable/internet, for example, is a bill that I need to renegotiate each year. Otherwise, they go up significantly. Call your cable/internet company and ask about promotions, and let them know you’re not happy that your bill went up. Talk to someone in their customer retention group. They usually have more flexibility to keep your rates lower (or offer you freebies like premium channels) to keep you from switching to a competitor. If it doesn’t go well the first call (and you have time and patience), call back. A different representative may give you a better deal.

  1. Review your debt financing and interest rates.

Prioritize what to pay off quickest based on which item has the highest interest rate. Explore where you may be able to decrease interest rates by re-financing or consolidating debt. Make an extra payment that goes directly to principal. You can save significant money by paying off your debt sooner.

  1. Know what you’re worth (net equity).

Annually, prepare a financial statement. Add up your assets (cash, investments, property, etc.) and subtract your liabilities (loans, etc.) to yield your net worth. Are you too heavily in debt, or saving enough for retirement? These are important questions to know your true financial health.

I use Mint.com (a free application) to track our family’s progress, but a simple spreadsheet or other system works. The point is: don’t let your finances be a surprise to you.

The AICPA is committed to helping us achieve financial security. Visit feedthepig.org for additional tips and resources to help you budget, invest and reduce debt.

Susan C. Allen, CPA, CITP, CGMA, Senior Manager, Tax Practice and Ethics-Public Accounting, Association of Certified Professional Accountants