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Are You Saving Enough For Retirement?

By Posted on In Finding Confidence, Investment Behavior, Retirement, Rule of Thumb, Uncategorized

Last week, a chart was circulating the internet helping to illustrate how much you should have saved for retirement based on your age (See Below).

Like many rules of thumb, it can serve as a guide but it lacks several key assumptions. It doesn’t factor in pensions, annuities or real estate. The biggest flaw deals with a term called replacement income, this chart assumes that you will be able to live off of about 80% of your pre-retirement income. You would only know that if you dug into the research that is mentioned in the footnotes.

And in our experience, how much income a retiree needs to live on each year varies greatly.

This chart is probably most helpful for younger savers (50 years and less) and who do not expect much in the way of a pension and have no idea what their retirement income needs will be.

1327726898370_GTR_2015-15

A Guide to Building a Better Budget

By Posted on In Saving, Uncategorized

Building a budget and having a good handle on your expenses is the first step to preparing for retirement.  When meeting a prospective client, it is one of the first questions we ask but very rarely does anyone have a good sense of where their income goes each month.

If you’ve been meaning to get started with a budget, read this article: These seven steps will set you on the right course.

How Can Millennials Save a Lot: Look to The Eating Habits of Baby Boomers

By Posted on In Finding Confidence, Saving, Uncategorized

Recent reports show that the average baby boomer spends less eating out than millennials. On average baby boomers spend $2,386 per year eating out, while the average millennial spends $2,639.  For baby boomers, 37% of  every dollar spent on food is spent outside their home, while the figure for millennials is closer to 43%.

This got me thinking…

If millennials, reduced their out-of-home food expenditure to what baby boomers spent eating out ($253) and instead invested that money in the market at 9% per year, they would have close to $35,000 when they retired.

This simple step of saving less than $5 a week can really add up over time.

 

eat like a boomer

Case Study: Tapping into Retirement During an Emergency

By Posted on In Rule of Thumb, Saving, Uncategorized

Recently we worked with a client who needed about $50,000 for an emergency expense. He was in a bind and didn’t have much in his checking or savings accounts. His only option, he thought, was to tap his IRA.

As we explained to the client, there are a lot of drawbacks to using IRA funds before retirement:

  1. If taken out early, the client would be subject to income tax (maybe 20%) plus a 10% IRS penalty. A $50,000 withdrawal would trigger $15,000 in taxes and penalties. The client would end up with only $35,000 after taxes.
  2. There are very few hardship distributions allowed in an IRA.
  3. There is almost no way to put the money back into the IRA after it has been taken out.

As a solution, we advised the client to look to their 401(k) with their employer. Specifically we advised the client to borrow money from their 401(k). With this arrangement it does not trigger income taxes and there’s no penalty, but it has to be repaid in 5 years and the client has to pay interest, in addition to many other restrictions.

We almost always advise against taking retirement money in any way (including borrowing from a 401(k)). But in this case, the client was in a real tough bind and this became the only sensible option.

 

How to Become a Millionaire: Take Advantage of the 401(k) Match

By Posted on In Saving, Uncategorized

Taking full advantage of your employer’s 401(k) match can be one of the best strategies to save for retirement. In a study of 401(k) millionaires in Fidelity Administered plans, most took advantage of the employer match. In fact, 28% of the balances came from their employer. That includes the employees contributions and the growth of those contributions.

Check with your HR department to make sure you are getting that match – it’s free money! And then continue to check every year to make sure your are still maximizing the match offered by your employer.

Nine Connections You Didn’t Know Between Happiness and Retirement

By Posted on In Retirement, Uncategorized

Money Magazine recently wrote a great article about happiness and retirement.  Here are a few key take-aways:

  1. People rate happiness highest in their teens and twenties.  Then it drops down between their 30’s and 60’s. But it rises again in retirement.
  2. The age at which folks are happiest, according to a study by Wes Moss, is 85!
  3. According to the Moss study, retirees can buy happiness.  The more money in savings/investments the happier the retiree. But anything over the $550,000 level isn’t as effective at increasing happiness. There is a leveling off effect that occurs.
  4. Retirees have more enjoyment in spending money that comes from a pension or social security rather than spending money from investments in their 401(k)/IRA or savings.
  5. The Moss survey suggested that retirees with 4 hobbies are happier than those with 1 or 2.
  6. Retirees who find a part time job tend to have fewer major diseases.  In many cases, they can find jobs that are fun or connected to a hobby.
  7. Retirees who rent tend to be happier than those who own their own homes
  8. Retirees who live within 10 miles of their children tend to be less happy than those who live farther away. The reason why remains a mystery.
  9. The satisfaction someone receives from spending time with friends and family is highest among those aged 65+.

 

Do You Have an Out-of-Whack Portfolio?

By Posted on In Asset Allocation, Investment Strategies, Retirement, Rule of Thumb, Uncategorized

Research out of Investment Company Institute found that 11% of investors have not rebalanced their investments in the last five years.  As the US stock market continues its bull run, the value of US stocks represent a larger and larger portion of the portfolio.

All of a sudden, a portfolio that was balanced five years ago could be taking on more risk than you originally planned. Money Magazine states that a portfolio in 2009 invested 60% in stocks and 40% in bonds may have a current mix of 75% stocks and 25% bonds.  If you’ve not looked at your portfolio over the last few years. Now is a great time to get started.  Here is a summary of steps to take:

1)      Gather all of your statements – Investments accounts with us, accounts held elsewhere, 401(k) statements, etc. Tally up your overall asset allocation.

2)      Find what looks out of line – Does one mutual fund represent more than 25% of the portfolio? Does one stock represent more than 10% of the portfolio? Is one asset class accounting for a large portion of the portfolio?

3)      Look to rebalance – identify the appropriate asset allocation (primer found here).  You may also want to spend some time developing an asset location strategy, if we haven’t guided you already.

The Team

H.L. Rives III, CPA
Cliff Jarvis
Michael Lecours, CFP®
Ronald G. Lecours, CFP®

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