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Effects of Saving an Extra $20 Each Week

Saving just a little bit extra each year can have a profound impact over the long term.  Investor’s Business Daily ran some pretty interesting numbers showing the impact on one’s retirement if an extra $20 is saved every week.  Here is some of the findings based on certain age ranges:

Recent College Grad: invest $20/wk earning 6% and by retirement, that pot of money will be about $330,000.

Someone in their mid-40s:  invest $20/wk earning 6% and by retirement, that pot of money will be about $40,000.

Someone in their mid-50s:  invest $20/wk earning 6% and by retirement, that pot of money will be about $14,000.

The results are pretty clear – consistently investing over many decades can have exponential benefits on your financial situation.  Even small amounts can add up to have a big impact when time is on your side.

 

 

The New Retirement Dream

About 15 years ago, the common retirement dream was to retire early.  It wasn’t uncommon for people in the their late 50s to pull the trigger and retire.  But that trend has been waning over the years.  More and more, we are seeing clients opt to work later in life.  Some find passion jobs that they truly enjoy, such as working for a non profit that supports a cause that they hold dear.  Others become successful entrepreneurs.  Still others, keep their existing job but retool it to better suite themselves, such as working part time or do job-sharing.

It turns out, that our own observations are reflective of several polls and surveys that have been released.  Here are some interesting findings:

  • 3 out of 4 Americans plan to work beyond traditional retirement age
  • 40% of respondents said they plan to retire after age 65
  • 44% of respondents said they would work part-time because they want to (up from 34% in 2013)

If you’re interested in reading more about this growing trend, this article is very interesting.

The Best Stocks To Invest In Right Now

How many times have you seen that headline? How many times did it spur you to read an article and even take action? Well respected publications are famous for putting together these kinds of lists. The odd part is that every month, week, or even day that list changes. This morning I saw headlines like these “ The Best Value Plays of 2017”, “These Stocks are Poised to Grow”, “These Stocks Will Surge With Trump”.

This is part of the Fake News problem we’re dealing with. Editors and journalists know that those headlines are going to generate the clicks and your attention. They want your attention long enough for you to see the ads and don’t care at all if those investment ideas are good.

Publications and the media are in the business of selling ad space. Any recommendations should be taken with a grain salt.

An Example of Using the New Reverse Mortgage

Imagine you have a retirement account valued at $1 million, where you take a monthly distribution of $3,000.  If the market (and your account) declined 30%, that monthly distribution will become a real strain on your account.  What was originally a 3.5% rate of withdrawal would increase to a risky 5.1% rate of withdrawal.

Now imagine the same situation, but that you had a reverse mortgage.  Instead of tapping your retirements account when it is down for the year, you took your monthly distribution out of the equity in your home, thus preserving the value in the 401(k).  Because the income received through the reverse mortgage is tax free, you could take out less than you would have from your retirement account (subject to any required minimum distributions).

In some of the research we are monitoring from the Journal of Financial Planning, we are seeing these coordinated withdrawal strategies as a significant tool to improve the probability of maintaining one’s current lifestyle through retirement. Research is showing that it can extend retirement spending out another 10 years or even more.

(Some readers may think about using a reverse mortgage to take equity out of their home to invest it in the stock market.  We strongly discourage that kind of thinking.)

Reverse Mortgages, like social security, annuities, life insurance, retirement accounts, and brokerage accounts, are all tools with good and bad features.  The ideas and research being done by the academics around reverse mortgages used in coordination with other tools are very promising.  In the next 5 years, I wouldn’t be surprised if the reverse mortgage concept became a common tool used in most retirement plans.

 

Five Creative Uses for a 529 Plan

What should you do if you have extra money in a 529 College Savings Plan? Perhaps it’s left over funds used to pay for a child’s education or perhaps the child has opted not to go to college.

The common options are to change the beneficiary (to a different child or relative). But that may not be practical. Below are a few interesting ideas I’ve stumbled across over the years:

Outward Bound (Website)– This outdoor educational institution teaches people of all ages about wilderness expeditions and training. Many of their courses accept payment from 529 plans. (Details)

Study Abroad – There are examples of some people taking an educational trip abroad through a university. If set up correctly, funds from 529 can be used. (Details)

The Culinary Institute of America (Website) – One of the most respected cooking institutes in the world allows most of their college course programs to be paid for using money from a 529 plan.

Pursue a hobby – An example in this article references an individual who started a small maple-syrup farm. He wanted to learn a lot more about the science behind what he was doing and ended up taking horticulture classes at his local community college. (Details)

Go to graduate school – Maybe the children are done with undergrad. In that case, maybe they will eventually go for a master’s degree. The 529 can be used for that too.