October 2012


Here is October’s review of blog posts. We hope you find something you enjoy!

U.S. News Money 7 Reasons to Rollover Your 401(K) After Retirement – Keeping your retirement money in your 401(K) after retirement is not a good idea in many cases.

U.S. News Money16 Facts You Need to Know About Social Security—No Matter How Old You Are – Social Security can be very complex, so know these basic facts about it.

U.S. News MoneyThe Reality of Involuntary Retirement – Not everyone makes the choice to retire.

U.S. News Money6 Ways Social Security Will Change in 2013 – If you currently receive Social Security or will be filing to received benefits soon, know how Social Security will change for the coming year.

Please let us know if you have a favorite financial blog that you think we should be reading.

 

  •  Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

We’ve talked here before about participating in your employer retirement plan to maximize the employer match. This money is free to you, all you have to do is participate in the plan and make sure you contribute enough out of your paycheck to maximize the employer portion. If you don’t, your employer will not give you that money, a benefit of your job that you will be missing out on.

If you do have a job that an employer match is a benefit that you have access to, it’s a great way to pump up your retirement savings. However, not everyone has this option, or you may just need another way to increase your retirement savings and don’t know how you can afford to do so.

Last Friday, U.S. News – Money had a post, “How to Max out Your Retirement Plan Contributions” by Jeff Rose. He had some good information about how you might increase your retirement savings without feeling too much financial pain.

Rose also talks about maximizing any employer match you might receive, but he has a couple other ideas that might work for you as well:

“If you think that you can find $50 more a month to save for retirement, add that to your contributions. This should be a regular contribution that permanently raises the amount of your deposits. After a few months, when you are comfortable, look for another $50 or $100 a month that you can contribute to your retirement account. Step up your contributions regularly until you reach your goal of maxing out your retirement account each month.”

“If you end up with a raise, immediately appropriate a good portion of that raise to your retirement account contributions. Do this as quickly as possible in order to avoid the problems that can come with lifestyle inflation. Instead of getting used to spending more on things you don’t actually need, spend part of it on shoring up your retirement nest egg.”

Savings of any kind can be difficult to incorporate into your budget, and it’s difficult to stay consistent with it over a long period of time. But it is possible to do so without making any dramatic increases or stressing your budget too much. The extra dollars you are able to save for your retirement now can make a big difference to your future retirement income.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

We don’t talk much here about investments specifics. It’s a topic we feel is much too detailed and variable to give broad based advice. There are a lot of general, rules of thumb investment advice out there, but we feel there isn’t one right answer for everyone, there aren’t even a few right answers. So, since each specific situation requires its own specific answer, we tend not to talk about it. However, today, we’re going to talk briefly about a certain financial planning rule of thumb.

Last week, over at U.S. News – Money, there was a post by Roger Wolhner entitled “Using the ‘Four Percent Rule’ for Retirement Planning.” The four percent rule is a very well-known rule of thumb in the financial planning community. For those who don’t know what it means, the four percent rule says that in general, you can safely take up to 4% of your portfolio balance annually in withdrawals without running out of money in retirement (30 years or more).

Just like with any rule of thumb, the four percent rule is not set in stone, and it may not work for everyone. Wolhner gives some great example of situations where the four percent rule doesn’t necessarily pan out:

  • “What if you need more than 4 percent annually?
  • What do you do if you live to be 100 or 110?
  • What if you get really spectacular returns in your first few years of retirement so that by the time you’re 95, you find you have a much bigger surplus than you expected? You may realize that you could have afforded a more comfortable lifestyle during retirement.
  • What if, in the first few years of your retirement, the stock market drops by 45 percent?”

Have you ever considered how much you will need to draw down from your portfolio once in retirement? If you’re nearing retirement, take a look at what you think your income is going to need to be. After looking at what you might make through other sources of income (pensions, Social Security, etc.), how much more income will you need? If you pull that needed income from your portfolio, what percentage of the total balance will it account for?

We can’t tell you whether the four percent rule will work for your situation. However, we will say that if you think you will need to pull more than four percent, be very cautious about it. Over withdrawing from your portfolio can lead to balances dropping at a rapid pace when your returns can’t keep up. Be sure to know your situation well and understand that how much you withdrawal will have an effect on your future.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

In the past, I (Dawn) have talked here about buying a fixer-upper house. A great post yesterday by Lisa Aberle over at Get Rich Slowly, brought my own (continuing) experience with a fixer-upper home to mind again.

Lisa’s post “Should You Buy A Fixer-Upper?” is about her experiences with her own home. And much of her post mirrors my own experience. Buying a fixer-upper is certainly not for everyone, and even for those who can handle it, it’s incredibly easy to get bogged down by the project, physically, mentally, and financially.

Here are some of my favorite points that Lisa makes:

  •  “I believe even a carefully selected fixer-upper is really only a bargain if you can do the labor yourself. Even though we come from a long line of blue-collar workers, we have a lot to learn. Still, we have people to ask. Between our two families, we have two HVAC technicians, a plumber, an electrician, two ex-carpenters, a concrete worker, and two RNs (just in case the renovations don’t go smoothly).”

My Comment: This is incredibly important! The more you have to hire out to get the work done, the more expensive it’s going to be. If you aren’t handy, and none of your family or friends are handy, a fixer-upper is most likely not the best deal for you.

  •  “As much as possible, you need to know everything about the house. A home appraisal and a thorough home inspection should tell you what you need to know. What’s it worth? If it’s an old house (and most fixer uppers are), how is the foundation? How old is the plumbing and wiring? Is there evidence of mold or water damage? Does it need a new roof?”

My Comment: If the house isn’t structurally sound or needs major overhaul renovations, it’s probably not worth the cost of fixing it up. Even in great neighborhoods, chances are you’ll be spending too much through the cost of buying the house and fixing its major issues to ever get your money back on it. However, if you do feel it’s worth it, make sure you work the numbers on the cost of the renovation before committing to the house.

 And Lisa’s good rules of thumb for buying a fixer-upper

  • “Rule #1: Buy a fixer-upper at a cost (way) below the rest of the houses in a good neighborhood. By following this rule, your improvements will bring your house up to (or slightly exceed) the value of the surrounding properties. You won’t recoup your costs if your renovations result in “too much house” for the neighborhood.
  •  Rule #2. Find a fixer-upper with quality construction. That first house was cheap, costing less than our combined annual income at the time. But everything about it was cheap, including the materials used in its construction. And that led to a rodent infestation, among other things. (I think our record was catching 14 mice in a 24-hour period.)

 On the other hand, our second house has “good bones.” Maybe it needs lots of work, but at least the extra work will be built on a good foundation. Ah, but “lots of work” means mostly major, expensive projects.

  •  Rule #3. Pick a fixer-upper with cosmetic upgrades instead of major, expensive projects. Well, of course! We didn’t put lots of money into our first house. Instead of fixing the foundation or updating the kitchen, we did inexpensive things like painting, pulling out old, overgrown bushes, and replacing the carpet.”

Keeping Up Appearance

Another point I would make is that if you’re the type of person who likes to keep up appearances or impress people who visit, or even just drive by, a fixer-upper may not be a good choice. Unless you plan on hiring out the work and getting everything done all at once, you will be living in a state of flux while projects get worked on, especially if you are doing the work yourself in what free time you can string together. More than three years in, and my house is nowhere near being completely “fixed-up.”

And when we have anyone new over, I always feel compelled to say “We haven’t gotten around to the bathroom yet!” since our bathroom needs to be gutted, and with everything else that needed work, it’s just sat by the wayside. It’s functional, but looks truly awful. If you can’t bear the thought of a guest seeing your house like that, I would suggest looking elsewhere.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.