19 September 2016
19 Moves That Will Help You Retire Early and in Style
By Yahoo
1. Spend less than you earn
The formula for retiring early starts with you actually saving money. Social Security alone isn’t enough to have you living the good life during your golden years, and as we’ll discuss later, you’ll want to put off taking that money as long as you can.
Some experts recommend you spend no more than 90 percent of the money you make and sock away the remaining 10 percent.
If you have zero savings right now, concentrate on building an emergency fund in a savings account first. Once your rainy-day fund is full, put that 10 percent you’re not spending into a dedicated retirement fund.
2. Start saving early
Thanks to the power of compounding interest, a little money saved now can go a long way at retirement time. But to get the most benefit, you’ll want to start saving as early as possible.
Even if you can’t hit that 10 percent goal, every bit helps. Let’s say you’re 20 years old and can manage to put away only $100 a month into your retirement fund. Assuming you average 8 percent returns (optimistic, but possible with good investments) you’ll be closing in on having half a million dollars — $463,806 to be precise — by age 65. Even better, over that 45-year period, you’ll only have invested $54,000 of your money to get all that cash in return.
If you wait until you’re 40 to start saving $100 a month, you’ll put in $30,000 of your money and — at that same rate of return — build a nest egg worth $87,727 by age 65. Not bad, but wouldn’t you rather have half a million?
3. Don’t leave money on the table
If someone tried to hand you $100, would you say no?
That’s exactly what you’re doing when you fail to take advantage of a 401(k) employer match. Your company is basically giving you money with the only string being that you need to pony up some of your own cash for the retirement fund too.
You won’t get rich by passing up golden opportunities like this for extra cash. If your employer offers a 401(k) match, make sure you are taking full advantage of it.
4. Minimize your taxes
The rich stay rich, in part, because they’re savvy enough not to let Uncle Sam take too much of their money.
When you’re investing your retirement money, be sure to use tax-sheltered accounts such as IRAs and 401(k)s whenever possible. In addition, be smart about which type of account you use.
Traditional retirement accounts let you invest money tax-free now and then pay the piper once you make withdrawals in retirement. Meanwhile, Roth IRAs and Roth 401(k)s tax you now and make the withdrawals tax-free.
You’ll probably want to discuss with a financial adviser the best option for your particular situation, but generally, Roth accounts are preferable for younger investors. In theory, you should be making more when you’re 65 than when you’re 25. As a result, your tax rate now may be lower than the rate you’d pay at retirement. However, if you’re within a few years of retirement, you may want to consider a traditional account to get the tax benefits now.
Check out: “Roth, Regular IRAs and 401(k)s Made Simple”
5. Take a little risk
You could put all your money in bonds and sleep well at night knowing you’ll probably never lose any of it. But with that approach, you’re not going to retire a millionaire either.
Stocks and real estate are where the money is to be made, but then there is always the risk of the real estate or stock market (or both) crashing. Take heart, though, in knowing that stocks and real estate have historically appreciated in the long run.
6. Stay informed about your investments
Don’t mistake taking a risk with being dumb.
A smart risk may be investing in an emerging market fund. A dumb move may be pouring your life savings into a speculative currency.
How do you know the difference? By researching available investments, weighing your options and selecting the amount of risk that works for your situation. For example, those nearing retirement age should minimize their level of risk, while recent college grads can be more daring because time is on their side.
For more help on investing, read about how to open a mutual fund and how to select a good investment adviser.
7. Break free from the herd
When the stock market plummeted a few years ago, too many people freaked out and sold their investments.
You know what? Those people took a bad situation and made it even worse. Many sold their investments right when the market was bottoming out, and then they missed the rebound.
The people who are going to retire rich are those who snatched up stocks at bargain-basement prices in 2009 and then saw their value climb by double digits in the following years. Same thing goes with the housing market. When the bubble burst, the smart people were the ones who were buying houses, not selling.
It’s easy to follow the herd, but if you want to be rich, you need to keep a cool head and make rational money decisions even in the midst of a crisis.
8. Put off Social Security
Wait as long as you can to file for Social Security. While you can file for Social Security benefits as early as age 62, you’ll get a lot more money if you can wait until you’re 70.
Once you hit your full retirement age (which depends on when you were born) you can get an 8 percent bump in your benefits for every year you wait to start receiving payments. However, you’ll want to file by age 70 because there is no benefit to waiting longer than that.
You may be worried you’ll have one foot in the grave at age 70, but don’t fret. According to Social Security actuarial data, at age 70, you should still have an average of 14 to 16 years left to spend it.
9. Maximize your income potential
If you want to retire early, you need to maximize your earnings. That means no more settling for a dead-end job that pays pennies.
Look for ways to increase your income, which can, in turn, increase the amount of money you are saving for retirement. Consider these options:
Does your current field offer some form of credentialing that could increase your chances of a raise or opportunities to transfer to a higher-paying position?
Is there someone in your workplace who could serve as a mentor and help advance your career?
Are you eligible for one of the government-funded workforce development training programs?
Did you start a college program and never finish it? Will those credits transfer?
Could you use an online degree program or vocational classes through a community college to earn a degree or upgrade your skills?
Can you relocate to an area with a lower cost of living while maintaining your existing wages?
Regardless of which option you choose, don’t fall into the student loan trap. If you do decide to go back to school, look for ways to make college affordable and try to pay as you go rather than going into debt.
10. Marry/partner with the right person
That special someone’s love gives you such a thrill, but, remember, love won’t pay the bills. Although it’s not unheard of for people to ask about credit scores on the first date, it might be considered a bit tacky.
However, talking about other goals and about money management can be fine fodder for ongoing getting-to-know-you chats.
As the relationship heats up, you need to talk frankly about finances. If the object of your affections is vague about future plans or careless about spending, ask yourself whether you want to do all the heavy lifting when it comes to cash.
After you’re married, stay that way: Divorce costs a lot.
11. Don’t have kids too early
An unplanned pregnancy can take a major toll on your finances, and also on your emotional well-being. That is especially true if it turns out that the person you thought was Mr. or Ms. Right is the wrong fit.
Even if you plan to wait to have children, remember that no birth control is 100 percent foolproof. That’s another reason you need to be on the same financial page with your beloved. The more organized your finances are, the more likely you will be able to cope with an unplanned pregnancy.
12. Consider a smaller family
“How many kids should we have?” is a good question to discuss before you get married. Some people opt for only one or two children due to the high cost of raising them. Others keep their families small because they feel fulfilled and happy with producing only a couple of outstanding new citizens.
Remember, it isn’t just a question of whether you can feed and clothe more than one or two children. Family size can also affect:
Your mortgage. A two-bedroom starter home won’t be large enough for your version of “The Brady Bunch.”
Your car payment. You cannot tote five kids in a compact car.
Your food and clothing bills. Hand-me-downs only take you so far. And of course there’s all the activities kids do, from sports clubs to music lessons.
13. Don’t keep up with the Joneses
Why should marketing experts determine how you live? Champagne tastes on a Kool-Aid budget will translate into debt that might keep you from ever retiring.
That’s especially true when it comes to cars. Maybe you want a sweet ride that leaves others in the dust — and makes them feel envious to boot. The higher cost of a luxury or sports car plus the higher cost of auto insurance will siphon tens of thousands of dollars from your wallet, and that’s money that could otherwise be growing in your retirement accounts.
14. Plan to base fixed expenses on Social Security benefits
Regardless of whether you file early or file late, once you start collecting Social Security, let your benefits dictate your lifestyle.
Hopefully, you have plenty of cash in your retirement fund. But there can be risk involved if that money is invested in stocks and mutual funds. Your returns can fluctuate and, heaven forbid, the market could crash, taking your fund balance with it, at least temporarily.
On the other hand, Social Security is the old reliable of retirement money. Yes, there are concerns about its long-term solvency, but it has a strong history of delivering benefit payments month after month, even during government shutdowns.
Since Social Security could be your most reliable source of income in retirement, we recommend you make sure all your fixed and essential expenses can be paid out of that monthly amount. That means your combined housing, transportation, utilities, food and insurance costs should be no more than your Social Security check.
If you have no debt, no mortgage and a paid-off car, paying all fixed expenses with Social Security should be doable.
To help you get there, we have plenty of tips on Money Talks News regarding how to get out of debt and reduce your monthly expenses.
15. Start planning now
One of the best ways to ensure you’ll have enough money in retirement is to start planning early. But, whether you’re 20 or 60, get on it!
Planning for retirement is about more than counting dollars; it’s also about visualizing the life you want to lead. To plan properly, you need to have a good idea where you’d like to live and what activities you want to do. You’ll also want to calculate your life expectancy and your expected Social Security benefits as part of the planning process.
Retirement planning can seem overwhelming, but don’t let that stop you from diving in. Start putting away a little money each month, even if you’re not sure it’s enough.
To make the process easier, we’ve got plenty of retirement articles here at Money Talks News, covering everything from common mistakes to retiree tax obligations.
16. Account for your medical insurance
Waiting for Medicare keeps many people working until at least age 65. You’re in luck if you have a retiree medical plan or insurance through your spouse.
Otherwise, take a look at the Affordable Care Act, also known as Obamacare. You might be able to pair a high-deductible plan from HealthCare.gov or your state insurance marketplace with a tax-free Health Savings Account. Or think about moving abroad for a while to take advantage of lower health care costs in some countries.
17. Be sure to have emergency savings to last for six months
Remember 2009, when the value of the stock market plunged? It wasn’t a time when retirees wanted to be withdrawing from retirement accounts. Those with sizable emergency savings had a buffer. Those who could wait out the recovery probably saw the value of their investments return and grow. Those who could not wait lost not only the principal but also the money they would have gained in the upswing.
Ideally, retirees should have enough cash in emergency savings to cover expenses for at least six months — and keep it super safe, in an FDIC-insured savings account or money-market account. Some financial advisers also recommend keeping two to three years’ worth of expenses in cash or short-term investments, for a downturn with legs.
18. Pay off your debt
In your grandparents’ era, entering retirement with no debt was the goal. Today, mortgages are bigger and life is more complicated, if not more expensive. It’s terrific to have all debt, mortgage included, erased when you retire.
All your income, in that case, is available to support you. You can live on less. Your expenses are predictable, which counts for a lot when you’re on a fixed income. The security you feel from being debt-free may be priceless.
But there are different schools of thought on this today. Certified Financial Planner Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, tells Huffington Post readers that the type of debt matters:
Debt that is low cost and potentially tax deductible, such as a mortgage or student loans, may actually work in your favor. But high-cost consumer debt — things like car loans and, especially, credit card balances — can really derail you if you’re not careful.
If you cannot retire debt-free, at least eliminate credit card balances, auto loans and other debt that represents consumption.
19. Have a backup plan
In this era of economic uncertainty, early retirees need a strong backup plan. You’ll have a longer time span to finance without working, increasing the risk of surprises. No doubt you’ve read stories of early retirees who faced unexpected expenses in retirement and had to return to work. You can’t plan for every eventuality, of course. But you should have a concrete idea of how you’ll survive if your plans fall through.
1. Spend less than you earn
The formula for retiring early starts with you actually saving money. Social Security alone isn’t enough to have you living the good life during your golden years, and as we’ll discuss later, you’ll want to put off taking that money as long as you can.
Some experts recommend you spend no more than 90 percent of the money you make and sock away the remaining 10 percent.
If you have zero savings right now, concentrate on building an emergency fund in a savings account first. Once your rainy-day fund is full, put that 10 percent you’re not spending into a dedicated retirement fund.
2. Start saving early
Thanks to the power of compounding interest, a little money saved now can go a long way at retirement time. But to get the most benefit, you’ll want to start saving as early as possible.
Even if you can’t hit that 10 percent goal, every bit helps. Let’s say you’re 20 years old and can manage to put away only $100 a month into your retirement fund. Assuming you average 8 percent returns (optimistic, but possible with good investments) you’ll be closing in on having half a million dollars — $463,806 to be precise — by age 65. Even better, over that 45-year period, you’ll only have invested $54,000 of your money to get all that cash in return.
If you wait until you’re 40 to start saving $100 a month, you’ll put in $30,000 of your money and — at that same rate of return — build a nest egg worth $87,727 by age 65. Not bad, but wouldn’t you rather have half a million?
3. Don’t leave money on the table
If someone tried to hand you $100, would you say no?
That’s exactly what you’re doing when you fail to take advantage of a 401(k) employer match. Your company is basically giving you money with the only string being that you need to pony up some of your own cash for the retirement fund too.
You won’t get rich by passing up golden opportunities like this for extra cash. If your employer offers a 401(k) match, make sure you are taking full advantage of it.
4. Minimize your taxes
The rich stay rich, in part, because they’re savvy enough not to let Uncle Sam take too much of their money.
When you’re investing your retirement money, be sure to use tax-sheltered accounts such as IRAs and 401(k)s whenever possible. In addition, be smart about which type of account you use.
Traditional retirement accounts let you invest money tax-free now and then pay the piper once you make withdrawals in retirement. Meanwhile, Roth IRAs and Roth 401(k)s tax you now and make the withdrawals tax-free.
You’ll probably want to discuss with a financial adviser the best option for your particular situation, but generally, Roth accounts are preferable for younger investors. In theory, you should be making more when you’re 65 than when you’re 25. As a result, your tax rate now may be lower than the rate you’d pay at retirement. However, if you’re within a few years of retirement, you may want to consider a traditional account to get the tax benefits now.
Check out: “Roth, Regular IRAs and 401(k)s Made Simple”
5. Take a little risk
You could put all your money in bonds and sleep well at night knowing you’ll probably never lose any of it. But with that approach, you’re not going to retire a millionaire either.
Stocks and real estate are where the money is to be made, but then there is always the risk of the real estate or stock market (or both) crashing. Take heart, though, in knowing that stocks and real estate have historically appreciated in the long run.
6. Stay informed about your investments
Don’t mistake taking a risk with being dumb.
A smart risk may be investing in an emerging market fund. A dumb move may be pouring your life savings into a speculative currency.
How do you know the difference? By researching available investments, weighing your options and selecting the amount of risk that works for your situation. For example, those nearing retirement age should minimize their level of risk, while recent college grads can be more daring because time is on their side.
For more help on investing, read about how to open a mutual fund and how to select a good investment adviser.
7. Break free from the herd
When the stock market plummeted a few years ago, too many people freaked out and sold their investments.
You know what? Those people took a bad situation and made it even worse. Many sold their investments right when the market was bottoming out, and then they missed the rebound.
The people who are going to retire rich are those who snatched up stocks at bargain-basement prices in 2009 and then saw their value climb by double digits in the following years. Same thing goes with the housing market. When the bubble burst, the smart people were the ones who were buying houses, not selling.
It’s easy to follow the herd, but if you want to be rich, you need to keep a cool head and make rational money decisions even in the midst of a crisis.
8. Put off Social Security
Wait as long as you can to file for Social Security. While you can file for Social Security benefits as early as age 62, you’ll get a lot more money if you can wait until you’re 70.
Once you hit your full retirement age (which depends on when you were born) you can get an 8 percent bump in your benefits for every year you wait to start receiving payments. However, you’ll want to file by age 70 because there is no benefit to waiting longer than that.
You may be worried you’ll have one foot in the grave at age 70, but don’t fret. According to Social Security actuarial data, at age 70, you should still have an average of 14 to 16 years left to spend it.
9. Maximize your income potential
If you want to retire early, you need to maximize your earnings. That means no more settling for a dead-end job that pays pennies.
Look for ways to increase your income, which can, in turn, increase the amount of money you are saving for retirement. Consider these options:
Does your current field offer some form of credentialing that could increase your chances of a raise or opportunities to transfer to a higher-paying position?
Is there someone in your workplace who could serve as a mentor and help advance your career?
Are you eligible for one of the government-funded workforce development training programs?
Did you start a college program and never finish it? Will those credits transfer?
Could you use an online degree program or vocational classes through a community college to earn a degree or upgrade your skills?
Can you relocate to an area with a lower cost of living while maintaining your existing wages?
Regardless of which option you choose, don’t fall into the student loan trap. If you do decide to go back to school, look for ways to make college affordable and try to pay as you go rather than going into debt.
10. Marry/partner with the right person
That special someone’s love gives you such a thrill, but, remember, love won’t pay the bills. Although it’s not unheard of for people to ask about credit scores on the first date, it might be considered a bit tacky.
However, talking about other goals and about money management can be fine fodder for ongoing getting-to-know-you chats.
As the relationship heats up, you need to talk frankly about finances. If the object of your affections is vague about future plans or careless about spending, ask yourself whether you want to do all the heavy lifting when it comes to cash.
After you’re married, stay that way: Divorce costs a lot.
11. Don’t have kids too early
An unplanned pregnancy can take a major toll on your finances, and also on your emotional well-being. That is especially true if it turns out that the person you thought was Mr. or Ms. Right is the wrong fit.
Even if you plan to wait to have children, remember that no birth control is 100 percent foolproof. That’s another reason you need to be on the same financial page with your beloved. The more organized your finances are, the more likely you will be able to cope with an unplanned pregnancy.
12. Consider a smaller family
“How many kids should we have?” is a good question to discuss before you get married. Some people opt for only one or two children due to the high cost of raising them. Others keep their families small because they feel fulfilled and happy with producing only a couple of outstanding new citizens.
Remember, it isn’t just a question of whether you can feed and clothe more than one or two children. Family size can also affect:
Your mortgage. A two-bedroom starter home won’t be large enough for your version of “The Brady Bunch.”
Your car payment. You cannot tote five kids in a compact car.
Your food and clothing bills. Hand-me-downs only take you so far. And of course there’s all the activities kids do, from sports clubs to music lessons.
13. Don’t keep up with the Joneses
Why should marketing experts determine how you live? Champagne tastes on a Kool-Aid budget will translate into debt that might keep you from ever retiring.
That’s especially true when it comes to cars. Maybe you want a sweet ride that leaves others in the dust — and makes them feel envious to boot. The higher cost of a luxury or sports car plus the higher cost of auto insurance will siphon tens of thousands of dollars from your wallet, and that’s money that could otherwise be growing in your retirement accounts.
14. Plan to base fixed expenses on Social Security benefits
Regardless of whether you file early or file late, once you start collecting Social Security, let your benefits dictate your lifestyle.
Hopefully, you have plenty of cash in your retirement fund. But there can be risk involved if that money is invested in stocks and mutual funds. Your returns can fluctuate and, heaven forbid, the market could crash, taking your fund balance with it, at least temporarily.
On the other hand, Social Security is the old reliable of retirement money. Yes, there are concerns about its long-term solvency, but it has a strong history of delivering benefit payments month after month, even during government shutdowns.
Since Social Security could be your most reliable source of income in retirement, we recommend you make sure all your fixed and essential expenses can be paid out of that monthly amount. That means your combined housing, transportation, utilities, food and insurance costs should be no more than your Social Security check.
If you have no debt, no mortgage and a paid-off car, paying all fixed expenses with Social Security should be doable.
To help you get there, we have plenty of tips on Money Talks News regarding how to get out of debt and reduce your monthly expenses.
15. Start planning now
One of the best ways to ensure you’ll have enough money in retirement is to start planning early. But, whether you’re 20 or 60, get on it!
Planning for retirement is about more than counting dollars; it’s also about visualizing the life you want to lead. To plan properly, you need to have a good idea where you’d like to live and what activities you want to do. You’ll also want to calculate your life expectancy and your expected Social Security benefits as part of the planning process.
Retirement planning can seem overwhelming, but don’t let that stop you from diving in. Start putting away a little money each month, even if you’re not sure it’s enough.
To make the process easier, we’ve got plenty of retirement articles here at Money Talks News, covering everything from common mistakes to retiree tax obligations.
16. Account for your medical insurance
Waiting for Medicare keeps many people working until at least age 65. You’re in luck if you have a retiree medical plan or insurance through your spouse.
Otherwise, take a look at the Affordable Care Act, also known as Obamacare. You might be able to pair a high-deductible plan from HealthCare.gov or your state insurance marketplace with a tax-free Health Savings Account. Or think about moving abroad for a while to take advantage of lower health care costs in some countries.
17. Be sure to have emergency savings to last for six months
Remember 2009, when the value of the stock market plunged? It wasn’t a time when retirees wanted to be withdrawing from retirement accounts. Those with sizable emergency savings had a buffer. Those who could wait out the recovery probably saw the value of their investments return and grow. Those who could not wait lost not only the principal but also the money they would have gained in the upswing.
Ideally, retirees should have enough cash in emergency savings to cover expenses for at least six months — and keep it super safe, in an FDIC-insured savings account or money-market account. Some financial advisers also recommend keeping two to three years’ worth of expenses in cash or short-term investments, for a downturn with legs.
18. Pay off your debt
In your grandparents’ era, entering retirement with no debt was the goal. Today, mortgages are bigger and life is more complicated, if not more expensive. It’s terrific to have all debt, mortgage included, erased when you retire.
All your income, in that case, is available to support you. You can live on less. Your expenses are predictable, which counts for a lot when you’re on a fixed income. The security you feel from being debt-free may be priceless.
But there are different schools of thought on this today. Certified Financial Planner Carrie Schwab-Pomerantz, president of the Charles Schwab Foundation, tells Huffington Post readers that the type of debt matters:
Debt that is low cost and potentially tax deductible, such as a mortgage or student loans, may actually work in your favor. But high-cost consumer debt — things like car loans and, especially, credit card balances — can really derail you if you’re not careful.
If you cannot retire debt-free, at least eliminate credit card balances, auto loans and other debt that represents consumption.
19. Have a backup plan
In this era of economic uncertainty, early retirees need a strong backup plan. You’ll have a longer time span to finance without working, increasing the risk of surprises. No doubt you’ve read stories of early retirees who faced unexpected expenses in retirement and had to return to work. You can’t plan for every eventuality, of course. But you should have a concrete idea of how you’ll survive if your plans fall through.
