Retirement


Many people have plans to retire away from where they are currently living and working. Some people already have vacation homes that they plan on moving to full time after they retire. Some people know exactly where they want to go, maybe some place they love to visit or where their family lives.

Still others have intentions to move, but aren’t quite sure where to start. Moving over long distances at any point in your life can be a big decision, one that can have a major impact on your future. This is even truer for entering retirement where your resources will be more limited and you have to concern yourself more with lifestyle needs like health care and transportation.

A few weeks ago at U.S. News – Money, Emily Brandon posted “10 Tips for Picking a Place to Retire.” If you are considering a move in your retirement, these tips can point you in the right direction on where to start.

  • Seek lower costs” – There are plenty of areas around the U.S. that have lower costs of living. Obviously, depending on where you live now, the difference in cost could be very extreme. Picking an area that has lower cost of living overall (especially if you are looking to buy a home), can have a major impact on lowering your retirement expenses.
  • “Look for great amenities” – You should look for a place that will allow you to stay active and productive in your retirement. When looking for a new place to live, make sure to keep the available amenities in mind. Whether is it an all-inclusive community, or the availability of amenities within short walking or driving distance.
  • Health care options are essential” – Healthcare will become more important as you age. You don’t want to retire to an area where the closest medical center or hospital is too far away for convenience. Also, make sure the available options that are close at hand are quality, with good doctors and technology at hand.
  • Calculate the tax impact” – Taxes can have a big negative impact on your retirement income, and it’s unfortunate that many people do not take the time to consider this impact before entering retirement. If you are looking to move to a new state, keep in mind the impact of the state taxes before you move. There is a wide variety of tax rates to choose from state by state, so don’t lose sight of how it will affect you and your potential move.
  • Aim for proximity to family and friends” – We’ve heard plenty of unfortunate stories of people who move to a location far from family and friends only to be unhappy there. Maybe it was to a place they loved vacationing to or a place they always dreamed of living. But it can get very lonely, and this can be especially true if you have kids and grandkids. In the long run, it’s important to consider how living near family and friends can positively impact your life.
  • Consider the political, religious and social climate” – This may not even be something you would think about during a move. There are plenty of areas around the country that are more highly charged than others politically, religiously, or socially. If you have a particular leaning, you may want to consider what views others in the community have. Otherwise, it may become difficult to make new friends with like-minded views.
  • Job opportunities” – If you are looking to work for at least some of your retirement years, as more and more people today are planning, make sure you look for a place that provides you with job opportunities. Otherwise, your plans to go back to work may not come to fruition, straining your retirement income.
  • Transportation options” – While driving yourself around may not be an issue now or for years to come, there may come a point where you no longer can drive yourself. Consider looking into what public transportation options are available where you are looking to move for future use.
  • Better weather” – This is often the reason people will give for wanting to move, especially if they live somewhere with extreme temperatures. But you have to do your research! Temperature can vary wildly by state and by season, and some people may not consider the extremes. If you are moving from Wisconsin and bitterly cold winters, you’ll probably love Florida’s winter temperatures. You may not love the summer temperature though! While nowhere is going to have your perfect weather, you have to decide what is most important to you and what kind of extremes you can tolerate.
  • Test it out first” – We’ve discussed this here before. When making a big move, you never want to jump into buying a house right away. You should always look into renting for a time to make sure that you really love where you’ve chosen. That way, if you find out six months down the road you haven’t chosen the right location, you are in a much better position to fix the issue than if you are tied down into homeownership.

We hope you found some helpful tips here if you are looking at moving when you retire. We thought Brandon’s list has many good thoughts to get you started.

 

  • 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.
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Last week, over at U.S. News – Money, there was a post by David Ning that we’d like to talk about today: “Habits That Can Ruin Your Retirement.”

Everyone has bad habits. Often we know what our bad habits are, but sometimes we are unaware that we’re even doing them. Ning’s list may be some habits you have picked up without even being aware of it. Or if you’re aware, you may not realize your habit may have a negative effect on your retirement.

  • “Treating retirement as the destination rather than the beginning of another part of life.” For many people, retirement can last for decades. If you think of retirement as being the finish line, what about those thirty years that are going to come after? What do you consider that time of your life if retirement was the destination? If you don’t view your retirement as another stage of life to be planned and lived to the fullest, you more than likely are going to struggle greatly once you reach your so called finish line and realize there is much more to it.
  • “Believing retirement will solve all your problems.”If you have a job you hate, then it’s easy to think that if you could just retire, everything would be better. But this is most often not the case. While your job is an important part of your life, you also have many other aspects that will affect your retirement: your spouse, family, lifestyle, health, hobbies, etc. What’s going on with those aspects? How is your relationship with your spouse? Do you have hobbies you enjoy? Do you take time to take care of your health? Retiring from that despised job is not going to affect these other areas. If you have problems elsewhere, retirement won’t fix them, it actually might make them worse.
  • “Anchoring a spending number against your previous salary.” ­– Planning your retirement based on a percentage of your salary (often 70% – 80%) is a common practice. This number is often used as a benchmark for how much retirement income you will need (therefore how big your portfolio needs to be). It can be very useful in helping you decide how much you need to save while you are working to get to that income. But it will do no good for you to plan your income this way and ignore your expenses. Reviewing your expenses and building a retirement budget that will take into account your drop in income is imperative to a successful retirement. If you plan on living on 70% of your former salary, but wait until you retire to discover you were spending 80% of your former salary, you’re in for a major headache.
  • “Avoiding investment risks.” – We don’t often talk about investments here, and we won’t today, other than to say we’ve seen people approaching and entering retirement that are so averse to potentially losing money, they hoard their portfolio in cash. If you consider your money needs to stretch over decades, this is likely not the best way to handle your investments (just because your balance is not eroding through investment loss doesn’t mean your portfolio will be worth as much in 10 years as it is now).
  • “Stop being active.” Relaxation is one of the things many retirees probably look forward to. But be careful not to go too far. If you allow yourself to become too inactive, you’ll likely face a decrease in your health and enjoyment of your retirement years.

Retirement should be one of your main goals. It lasts too long and can cause too much stress if unplanned for.

 

  • 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.

When do people start worrying about their retirement? Often, people don’t start worrying about it until the reality of it is right around the corner. Sometimes it takes a scare at work: an early retirement buyout, pressure from the company, etc.

Obviously, needing to worry about your retirement is not ideal. It would be great if everyone was in a financial position to be able to retire without stressing over whether their money is going to run out. But often, regardless of how much money you have, you will still worry, many times because you have no idea how much you need. So when you receive that early retirement package to review, you have no idea what you should do. The only real way to avoid this is to stay on top of your retirement savings throughout your career. It’s unfortunate that more people do not do so.

What happens when you reach the conclusion that you can’t afford to retire. You’re in your 50s or 60s, and you know that you don’t have enough. It’s not an easy situation to be in. In a post at U.S. News – Money by Joe Udo, “How to Salvage Your Retirement,” Udo makes some recommendations on what to do if you find yourself in this situation:

  • Run the numbers now.” If you aren’t tracking your expenses, know your potential Social Security income, or don’t have a grasp on where your other retirement income may come from, run those numbers right now. You should gain a better understanding of where you really are financially.
  • Cut your expenses now.” – This will help in two ways. Cutting your expenses now will help you be able to save more now while you’re still working. Also, it will help once you reach retirement and are living on a reduced income.
  • Start saving more now.” – If you are still working, you need to utilize what time you have left to save for your fast approaching retirement. Cutting expenses should help you up your savings amount, so don’t delay any longer.
  • Make money doing something you like to do.” – Some people have no choice but to keep working as long as they are able. If you are in this situation, try to find something you enjoy doing. While not always an option, if you can make money doing something you like, getting up for work each day will not be such a chore.

Don’t wait until it’s too late to salvage your retirement. It’s much too important to neglect.

 

  • 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.

This week, David Ning had a great post over at U.S. News – Money, “Why to Pay Off Your Mortgage Before Your Retirement.” He gives some great reasons as to why entering retirement while still carrying a mortgage may not be a good idea for most. We’d like to review those reasons here.

  • “Focusing on paying off the mortgage greatly encourages us to spend less.” – If someone is paying extra money to pay off their mortgage early, that money cannot be spent on other (often unneeded) things. Since many people have trouble keeping spending under control, this can be an effective way to help cut spending while having a positive impact on their future. However, someone who has trouble controlling spending probably will not make the sacrifice of paying down the mortgage early.
  • “If you opt for the shorter fixed-rate mortgage, you’ll end up buying less home.” – If you are planning on taking on a mortgage in or nearing retirement, consider a shorter term mortgage. While a 30 year fixed-rate mortgage can be great for someone who has plenty of time to payoff that mortgage while still working, retirement is not the time to make that sort of long term commitment. And of course Ning’s point is that the shorter term mortgage will have higher payments, therefore will likely lead the retiree or near retiree to spend less on a house than a longer term mortgage might lead to.
  • “Not having a fixed expense can help you increase your retirement withdrawal rate.” – We like Ning’s reasoning here. One of the main reason entering retirement with a mortgage (or any debt) is usually a bad idea is that it can put a lot of strain on your retirement income. If you are like many other retirees, you will begin to draw down on your portfolios to cover your needed income that is not guaranteed (Social Security, pensions, annuities, etc.).

The safe withdrawal rate generally accepted in the financial world is 4.5% annually. This means that you can withdraw 4.5% of your portfolio value in one year “safely” without risk of running out of money over the long term. However, though this is a general rule of thumb, it’s not absolute. If you have a few down years in the market and your portfolio loses money, then throw 4.5% withdrawal on top of that, your chances of running out of money will greatly increase.

A great way to combat this risk is to be flexible with your withdrawal rate. Putting yourself in a position to be able to reduce or even eliminate your withdrawal rate during down years can be extremely beneficial to your portfolio over your retirement. And doing so can be very hard if you have a fixed monthly mortgage payment (that is likely one of your bigger expenses). If you are mortgage free, your withdrawal rate flexibility will be greatly increased.

  • “There’s one less thing to worry about.” and “You will sleep better at night without a mortgage.” – While Ning makes these two separate points, to us they are one in the same. Being debt free is not only a solid financial decision, but it can also be very positive in your personal and emotional life. Carrying debt, even a debt as common and acceptable as a mortgage, can be stressful, especially once you reach retirement and don’t have steady income from working any longer.

As Ning points out, paying off your mortgage early so that you can enter retirement mortgage free is not the best financial choice for everyone, nor is it always financially feasible. And while Ning concentrates mostly on paying off your mortgage early, that is not the only way to enter retirement mortgage free.

For example, someone who plans to downsize when he retires in a few years to a home that will cost $150,000, who currently has a $100,000 mortgage with a home value of $300,000 probably would not consider paying off his mortgage early. He could likely sell his current home, payoff his current mortgage, and buy his new, downsized home with cash to spare, all without spending extra dollars in the years leading up to retirement going toward early mortgage payoff. While a very simplified example, we just wanted to show that though we do believe entering retirement as close to mortgage free as possible doesn’t necessarily equate paying off your mortgage early.

 

  • 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.

This past week over at U.S. News – Money, there was a post by Philip Moeller: “Don’t Get ‘Framed’ When Claiming Social Security.” Essentially the article is about how many people who are eligible to start their Social Security Benefit make their decision based on how the benefits are “framed;” that is, how they are presented to the potential benefit earner.

There are several different ways the situation can be “framed” which Moeller goes into detail about. We won’t discuss them here, except to say that each way of framing could lead to the same person with the same benefits to make a different choice about when to take his benefit. One way of framing may lead him to take his benefit at the earliest age of 62; another way of framing may lead him to take his benefit at 70.

Moeller’s point is that you should be fully informed about the ins and outs of your individual benefit and your potential lifetime benefit before making a decision. If you are presented with a certain way to look at your benefit, don’t assume it is the best option for you.

This is especially important if you are married, which may introduce the spousal benefit. Your decision about when to begin receiving your Social Security Benefit may potentially have a big impact on your spouse’s benefit. Many people don’t consider this when taking their own benefit.

Not considering all the avenues you can take with your Social Security benefits can cost you a lot of money over your lifetime. In some cases, taking benefits too early may cost you into the tens or even hundreds of thousands of dollars over the course of your life (depending of course on your benefit amount and how long you live).

Again, when you are getting close to Social Security eligibility, get to know your benefits. Be prepared before you get “framed.”

 

  • 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.

This past week over at U.S. News – Money, there was a post by Philip Moeller: “6 Key Steps in Retirement Planning.” Each one of Moeller’s steps constitutes great advice, but we want to concentrate on one in particular: “Keep solid records.”

Keeping records is not only important for your retirement planning, but for your finances in general. Do you know where all your important financial documents are? Insurance policies, trust documents, house deed, car title, etc? It’s unfortunate that many people do not keep these records in order, and many may not even know if they have copies available to them.

Getting everything in order should be the first step for anyone trying to get their finances on track (as we discussed in our very first blog post!). But keeping solid records must go beyond just keeping everything in order; it also must include who else knows your financial details.

It may not seem important to you now, especially if you are younger, but if something were to happen and you were not capable of handling your finances (disability or death), would your spouse or children be able to step in and take over?

Of course the process would be difficult, often for emotional reasons, for your spouse or children (or whoever your beneficiary is) to step in with your finances. But you have the ability to make the situation much easier on them.

Here are some of our thoughts on how you can do so:

  • Keep your spouse/beneficiary up to date on your records – This is especially important if the person is not actively involved with your finances. Make sure your beneficiary know where you keep all of your important documents, and if you make any changes to that location, update them on the change.
  • Make sure your beneficiaries know who they are – This becomes more of an issue if you don’t have a spouse or child to fill this role. Maybe you select a sibling or niece or nephew. If your relationship with your chosen beneficiary is not as obvious as a spouse or child, you may want to have a talk with them to ensure that know they have been chosen to be your beneficiary.
  • Make sure to include records for online accounts – This has become a real problem today with the popularity of online accounts and paperless statements. If you do all of your financials online, please be sure to let your beneficiary know your login information for those sites, including any email accounts you may keep important information. Otherwise, there is no guarantee that your beneficiary will be able to find that information.
  • Be open about your finances with your spouse and children – We know many people hesitate with this, and that such openness is not an option for some families. But if you are open with the truth about your finances with your family, they will have a much easier time of it if they ever have to deal with taking over for you.

Having to deal with your disability or death will be difficult enough for your family without adding the additional pressure or having to clean up your financials and put everything in order. Please try and make that process easier by ensuring everything is organized now.

 

  • 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.

After a number of weeks of fairly heavy content, we wanted to keep it short and simple today.

Earlier this week, over at The Simple Dollar, Trent Hamm wrote a post called “Five Very Simple Truths About Saving For Retirement.” He had some great points, but there was one in particular we want to share here:

“You will survive just fine with a slightly smaller paycheck.
Many people are absolutely afraid of the idea of seeing their check get any smaller. They’re barely making ends meet as it is – how can they possibly live with a smaller check?

Here’s the truth: most of us spend just a little more freely if we have ample cash in our checking account. It’s a lot easier to buy a bottle of soda at the gas station if you have plenty in checking. It’s a lot easier just to roll through Starbucks when it’s not going to grind you down to nothing.

Yet, when we look at our account and see it’s about empty, we’ll skip those treats with no hard feelings. They’ll come around again.

For an awful lot of people, all retirement savings does is spread out those treats a little bit. If you put, say, 10% of your income into your 401(k), you’re usually only dropping your paycheck by 7% or so. Even if you just save 5%, you’re only actually cutting your paycheck by 3%. That’s $3 out of every $100. For most paychecks, that’s a stop at the coffee shop – and that’s about it.

You won’t even miss it. It seems like a big deal, but when it comes down to the reality of your paycheck, it really fades into the woodwork quite seamlessly.”

Not only does this idea apply to retirement savings, but any kind of savings, and also includes paying down debt. The excuse of “not being able to afford” to save for your future is dangerous thinking. If you compound not saving with not controlling your cash flow (which you are likely not doing if you truly can’t afford to save), your future is not going to be a very positive experience for you financially.

There is almost always a way to be able to put a little bit aside today. You just need is the dedication to do it.

 

  • 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.

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