Are You In Danger of Running Out of Money in Retirement?

Are You In Danger of Running Out of Money in Retirement?

It happens so often, you may not even notice it anymore—that flutter of anxiety you feel in the pit of your stomach whenever someone mentions retirement. You’ve grown numb to the sensation because you can’t watch television, go online or even check your email without hearing or reading about how unprepared Americans are for life after work. But when you do take the time to think about your future, you have only questions—no answers—about how much you need to save or how much you should have saved by now for any hope of a secure retirement. Because of the thousands of reports out there that claim you’re not taking the proper steps to retire comfortably, precious few offer any advice to help you make better choices. The Formula for a Successful Retirement Recently, however, the Employee Benefits Research Institute did attempt to predict a person’s chances of making it through retirement without running out of money based on their age, their income and how much they’re saving for retirement. Here are some of their findings:  A 25-year-old male who makes $40,000 and invests 15% of his income has a better than 90% chance of making it through retirement with money in the bank. Unfortunately, those of us who are saving for retirement are only saving about 7% of our income—less than half of what we need to save to avoid running out of money. At that rate, our 25-year-old investor will have a little better than 75% chance of supporting himself through retirement. So, this study confirms the age-old investing wisdom: The sooner you begin investing and the more...
What’s the Ideal Way to Plan Your Retirement?

What’s the Ideal Way to Plan Your Retirement?

Blog post from DaveRamsey.com You don’t have to try too hard to come up with lots of reasons to handle your retirement investments on your own. For example, a do-it-yourself approach could save you money on advisor fees. Or, you could act on your investing decisions immediately without consulting anyone. After all, you’d be calling all the shots—and there’s no one else you can trust more than yourself, right? While it’s true no one cares more about your retirement than you do, that doesn’t mean it’s a wise decision to tackle that responsibility on your own. That’s because more than half of investors who try DIY investing end up neglecting their plan. At the other end of the spectrum are investors who are only too happy to turn over their money and their future to an advisor—no questions asked. While working with an advisor is a smart first step, it’s a bad idea to relinquish responsibility for your own retirement. Let’s see why these two approaches can add up to a disappointing retirement and how you can find a balance between the two. Approach #1: All By Myself During the Great Recession, bank failures and financial fraud were in the headlines every day. People stopped trusting financial institutions and their investing advisors—even trustworthy professionals became guilty by association. That perception has eased some, especially for advisors who proved their value to their clients during that time. But now online investing services, sometimes called robo advisors, are gaining popularity among investors who want to take charge of their retirement investments. Studies show that nearly two-thirds of investors manage their own...
Keep the 401(k) or Pay Off the Mortgage?

Keep the 401(k) or Pay Off the Mortgage?

Original Post from DaveRamsey.com Around here, we’re all about getting out of debt. We love hearing stories about folks who are gazelle intense about paying off their debt—sweating, selling and sacrificing to become debt-free. But, you may be surprised to learn there are limits to gazelle intensity. Some sacrifices are simply not worth the payoff, even when it means you’re finally debt-free. One example of gazelle-intensity-gone-wild is using your 401(k) to pay off debt. Listeners call into Dave Ramsey’s radio show all the time to ask if they should cash out their 401(k)s to pay off their credit cards or even their homes. His answer: No way! Dave Ramsey would only consider it to avoid bankruptcy or foreclosure. Otherwise, your 401(k) is for retirement only! To see why cashing out a 401(k) isn’t worth it, let’s take a look at how it could play out in a real-life scenario. Good Intentions Gone Wrong Let’s say you have 15 years left on your mortgage, and the balance stands at just about $115,000. You’re on fire to get out of debt, so you’re thinking of cashing in an old 401(k) that has a balance of $175,000 to pay off your home and finally be debt-free. Your Taxes and Fees You might initially think your 401(k) will easily pay the balance and leave you $60,000 to restart your retirement. But, thanks to taxes and fees, it will take all of your retirement savings as well as some cash out of your pocket to pay off your home. After your 25% income tax bill plus the 10% early withdrawal penalty, you’ll have less than $114,000...
Only Have a 401(k)? Your Retirement May be in Trouble

Only Have a 401(k)? Your Retirement May be in Trouble

Original Post from DaveRamsey.com Your workplace retirement plan—a 401(k) for most of us—is the foundation of a solid retirement plan. The employer match alone means you get an instant 100% return on at least part of the money you put into your 401(k). That’s why Dave Ramsey recommends you start your retirement investing with your 401(k) by investing enough to receive the full employer match. But that’s not all. Your 401(k) also has some tax benefits: Your pretax 401(k) contributions lower your taxable income, making it easier to invest more. The growth of your 401(k) is also tax-deferred, which means your money grows faster. All that is great, but it won’t be enough for most people. Once you’re getting the full employer match on your 401(k), your next step is to invest in a Roth IRA, which has several positive points of its own. Tax-Free Withdrawals Help Your Roth Live Longer Your 401(k)’s tax-deferral works in your favor while you’re investing, but when you retire, you’ll have to pay taxes on the money you withdraw. However, you’ll fund your Roth IRA with after-tax money, and it also grows tax-free. That means you won’t have to pay taxes on the money you withdraw from your Roth IRA in retirement. Here’s an example of how taxes can limit the life-span of your retirement account. Say your 401(k) and your Roth IRA both have $200,000 balances. You withdraw $25,000 from each for a $50,000 annual income in retirement. We’ll assume your income puts you in the 25% tax bracket, and for ease of calculation, we’ll also assume no additional growth after you retire....
How Long Will It Take You to Build a $1 Million Retirement?

How Long Will It Take You to Build a $1 Million Retirement?

Original Blog Post From DaveRamsey.com Successful retirement investing is a long-term business. You can’t time the market, so you must spend time in the market to save a sizeable nest egg. But even with the proper long-term perspective, it’s not unusual for investors to end up disappointed—even concerned that their retirement plans are failing them—when after several years of investing, they’ve barely saved enough to replace one year’s income! Slow and Steady Really Means Slow and Steady For example, an investor with an annual salary of $50,000 invests 15% of his income, $7,500, each year for retirement. At a 10% growth rate, it will take our investor five years for his retirement savings to reach the $50,000 mark. But things soon pick up steam. Just five years later, his savings has more than doubled and now exceeds $130,000. That’s just the beginning of what compound interest will do for our investor. The amount of money his money earns will continue to grow, and finally, 22 years after he first began investing for retirement, he’ll reach his tipping point. That’s the year his investments earn more than $53,000—more money than our investor earns for a whole year of work! Coasting to the Finish Line That’s the moment you know you’ve done this retirement investing thing right. That you’re going to be able to retire with dignity and even leave a legacy for your family. Dave Ramsey compares it to that feeling you got as a kid when, on a hot summer day, you rode your bike to the top of a hill, sweating and swerving with every last bit of energy...
5 Mistakes Millennials Are Making With Retirement

5 Mistakes Millennials Are Making With Retirement

from daveramsey.com on 12 Jun 2012 When you’re 25, the last thing on your mind is retirement. Who knows what life will be like when you’re 65, right? But no matter what happens when you reach your 60s, I can promise you this: you’re going to need a big nest egg for retirement. You absolutely need a fund that you’re regularly investing in. Even when millennials get it, they don’t seem to get it right. They might understand how important retirement investing is, and they might even be actively saving, but a lot of them are still making some mistakes. 1. They save in low-interest accounts. You need to have a 401(k) or a Roth IRA set up for retirement. There’s a growing trend among millennials to simply stash money away in a basic savings account or simple CD. While it’s awesome they realize the need to save, they’re totally missing out on the benefits of compound interest and the stock market growth over the last several years. They’re probably concerned over seeing their parents’ savings dwindle during the Great Recession, and I can understand that. But the stock market is pretty resilient. A basic savings account won’t even keep up with inflation! For short-term stuff, savings accounts are great. But when it comes to retirement, put your money in a retirement account. 2. They’re crippled by student loan debt. We’re right in the middle of a student loan crisis, and millennials are feeling it more than anyone. When you’ve got $30,000 in student loan debt, it’s hard to even imagine being out of debt, much less putting away...