Thursday, April 24, 2014

How to Maintain Your Nest Egg in Retirement

Nest egg made up of $100 bills with three eggs in the middle

Being retired doesn't mean you don't need to continue managing your nest egg intelligently.

It would be easy to assume that, once you enter retirement, your work as a retirement investor is done. But the truth is you can never really stop working to maintain your nest egg. The easiest way to manage your post-retirement funds is to create a plan ahead of time that addresses the potential pitfalls known to affect retirees. After all, it’s harder to fix errors once you’re retired – mainly because you’re no longer making consistent contributions and can’t make as many financial adjustments to compensate for mistakes.
The best-case scenario would be to start planning at least five years before you retire. If that timeline has passed you by, don’t fret. It’s never too late to utilize an effective approach.
Here are four considerations to keep in mind as you develop your strategy:
1. Carefully plan your annual distribution amount. Stick with the withdrawal rate you planned, even when the market is up. Resist the urge to take larger withdrawals when you see a spike in your account balance. There will be down times as well, and the dips will hurt far worse if you don't take advantage of the upticks.
Your distribution strategy should take into account all of your income streams, including Social Security benefits. In addition to your withdrawal rate, pay special attention to your tax liability. Since your income level determines your tax bracket and your ability to take certain deductions and write-offs, it’s worthwhile to work with an investment advisor to ensure you’re taking distributions at an optimal rate.
Your distribution plan should actually look similar to your contribution plan – but in reverse, of course. Regimented and steady distributions will have an effect similar to regimented and steady contributions. Each represents a form of dollar-cost averaging, and both will help your investments withstand long-term market fluctuations.
2. Know when to take correct required minimum distributions at the correct time. Traditional individual retirement account and 401 (k) account holders must begin RMDs the year he or she reaches age 701/2.
Failing to take an RMD results in a 50 percent tax on the amount not withdrawn. In addition, the distribution is still subject to ordinary income taxes if it was contributed on a pretax basis.
The timing for RMDs, as well as how to calculate the amount of the RMD, is a little complicated. A retirement advisor or tax advisor should be able to help you determine the amount of your RMD for each of the accounts you hold.
Read more: How to Maintain Your Nest Egg in Retirement

Could Not Paying a Debt Land You in Jail?

Could Not Paying a Debt Land You in Jail?
After allegedly cashing the same checks more than once (by phone and in person), four Georgia football players were recently charged with theft by deception. It’s a crime that can result in fines or even jail time, depending on state law and the severity of the offense.
Some debt collectors are using the threat of being charged with this crime to scare consumers into paying debts they may not owe. As our reader CWhit123 shared on our blog recently:
I have received a call from (a collector). He has been very polite but I have never taken out a payday loan online. He has all of my personal information though…They are charging me supposedly with theft by deception and something else.
The fact that this consumer didn’t take out a payday loan either means the collector either has the wrong person or is being targeted by a scammer. But what if he had taken the loan out and failed to pay it back? Could he be charged with this crime like the football players were?
“Theft by deception requires that a person intentionally obtains or withholds the property of another by deception,” says Philadelphia criminal attorney Michael Fienman.
While a consumer who takes out a loan might be unable to pay it back, that’s generally not a crime.
Read more: Could Not Paying a Debt Land You in Jail?

Wednesday, April 23, 2014

How to Rear Money-Smart Kids

Elegant Kid 1
The Consumer Financial Protection Bureau estimated, in 2013, that outstanding student loans have swelled to over $1.2 trillion. Seven in ten college seniors who graduated in 2012 had student loan debt, at an average of $29,400. Scary! It is extremely important for kids to have a good handle on personal finance before they enter college. Personal finance is now becoming a part of the K-12 curriculum in many school districts, but the best education can only come from parents and habits developed at home. So how can we raise money smart kids?
How do you teach your kids about money?
  • Educate yourself: You can’t teach something you don’t know yourself. If you are not great with money, it is time you change for the sake of your kids. Learn as much as possible about budgeting, getting out of debt, saving and investing. Once you have a good grip of your own finances, you can be an example.
  • Teach them by example and be honest: What you say doesn’t matter, kids learn by observing what we do. You have to practice what you preach. Lead by example. Be open about your financial decisions. Do not make them feel they have access to unlimited amounts of money. If you do not have money to get something they want, have an honest conversation. Kids understand more than we give them credit for.
  • Teach them the principles, not just the techniques: It is easy to get bogged down by the minutiae of personal finance. Cultivate good spending habits: Teach them to set up goals, prioritize and encourage them to share. Techniques to implement things will always change but good principles will stay with them for life.
  • Teach them to take responsibility: Personal responsibility has the highest impact on one’s finances. Instead of feeling entitled and blaming others, we need to accept the fact that no one cares more about our money than we do. This will automatically lead us to find ways to get out of debt and save for our future.
  • Teach them to give: This is something I want to teach my kids, but don’t yet have any good ways to teach them. Right now my idea is to take them volunteering with me to help them see what a difference a small act of kindness can make in someone else’s life. If you have any ideas on how to encourage kids to give, I would love to hear from you.
Read more: How to Rear Money-Smart Kids

How to Turn Your Daily Errands into Financial Lessons

How to Turn Your Daily Errands into Financial Lessons
According to a recent national survey of more than 1,500 parents released by Citi Community Development in support of the Teach Children to Save campaign, 70 percent of parents see themselves as the primary source of financial education for their kids. That’s why Citi celebrates Teach Children to Save Day, a national campaign promoting the importance of financial literacy and saving for the future. By using everyday opportunities like your daily errands, you can impart financial skills in real-life settings that make a big impression.
The Grocery Store
Going to the grocery store with young kids can be a recipe for disaster—or a great way to teach them about budgeting, if you have a little extra time.
  • Start with a meal plan and a shopping list: Task your kids with helping to choose a week’s worth of meals; then create a grocery list together that fits within your spending range. In addition to budgeting, this teaches kids to plan ahead by looking for what’s on sale, clipping coupons, etc.
  • Guess when the price is right: According to the Citi Community Development survey, 49 percent of parents use comparison shopping as a way to teach their kids about money. Challenge them to identify the best deal based on weight or number of servings. (Bonus: This also helps them improve their math skills!)
  • Make smart choices: Allow kids to help decide between several options, such as brand name versus store brand. Savings can add up fast, but the store brand is only a good value if you like it enough to consume it.
  • Match coupons and/or store sales with items: This scavenger hunt is worth it for your bottom line—and your kids’ future bargain-hunting skills.
  • Give kids a snack budget: Let them spend on their own treats within a certain price limit. This allows them some freedom without blowing the budget.
Read more: How to Turn Your Daily Errands into Financial Lessons

Tuesday, April 22, 2014

6 Signs You Are Not Ready to Retire

6 Signs You Are Not Ready to Retire
Turning age 65 does not necessarily mean you are ready to retire. Hitting a certain age neither guarantees nor necessitates retirement. Your retirement should begin when you determine you are ready and able to do so, regardless of how long you have lived. Here's how to tell if you are not quite ready to retire:
You cannot financially swing it. If you have done an analysis of your expected inflow and outflow of retirement funds and are running in the red, retiring now is not a good idea. In a 2014 Employee Benefit Research Institute survey, only 18 percent of workers say they are very confident they have enough money saved for a comfortable retirement. Unfortunately, there is no easy fix. If you work full time it is hard to find much time or energy at the end of the day to dedicate to improving your financial situation. Taking on a weekend gig means your family and mental down time must be sacrificed. Some people build their own business in hopes it will generate additional income. But many people will find themselves forced to remain on the job longer than they had hoped as they struggle to save enough for a comfortable retirement. If you are employed and have medical coverage along with a steady income to help pay the bills, do you want to assume those responsibilities before you have to?
You don't have enough interests and activities. Although many people plan for retirement from a financial perspective, too few look at the rest of the picture. You will also need to entertain yourself, find a new purpose and avoid becoming bored. If you wait until you are retired to begin figuring out what to do with your time, you are making it unnecessarily difficult on yourself. A better course is to try different things and test the waters ahead of time. Revisit the activities that you were once interested in and might choose to continue in retirement. Imagine there is nothing on your calendar for the coming week. How would you occupy yourself? Now multiply that by about 20 years to understand what you have in store. That's how much time you need to fill.
You enjoy your job. A reader of my blog recently commented, "I could probably retire now, but continuing to work seems the easiest path to follow. I am in the curious position of enjoying what I do and getting paid for it." If you are fortunate enough to actually like what you do for a living, leaving just because you reach a certain age may not be such a good idea. As long as you remain on the job, you are able to maintain the relationships with co-workers that some people find hard to replace in retirement. Spending time with friends at work can make up for some of the less-than-desirable aspects of the job. And if you really enjoy what you are doing, what are you retiring from? If you like working, you should feel no rush to call it quits before you are ready to do so.
Read more: 6 Signs You Are Not Ready to Retire

20 Habits of Financially Successful People

20 Habits of Financially Successful People
iStock

The secret to finding financial success has been something that has eluded many of us for our entire lives. Yet there are multitudes of individuals who enjoy a comfortable life due to their financial success. As it turns out, many of these financially successful people all have certain habits in common with each other. Here is a list of the top 20 key habits that financially successful people employ.
1. They establish and follow a budget.
Being able to plan ahead for your financial needs and setting limits on certain spending types will almost always result in better results in the long run. Anyone can make a budget, but staying disciplined enough to follow it is more difficult.
2. They keep their recurring, monthly expenses to a minimum.
Along with making and keeping that budget, they also evaluate their monthly costs and reduce them when possible. By avoiding this unnecessary spending they allow a larger portion of their income to go towards saving.
3. They have a healthy financial education.
Financially successful people are well aware of the current economic trends and are constantly increasing their knowledge so that they are able to make the right decisions when it comes to managing their money.
4. They focus on the long-term.
People who enjoy financial success today didn’t start planning for it yesterday. Being able to think about long-term financial goals while dealing with today’s fiscal circumstances is a key habit to practice if you want to achieve financial success.
5. They have a great deal of respect for money and realize its value.
Since today’s modern world revolves around the almighty dollar, it’s the people who recognize and understand the value of money that end up with more of it.
6. They make savings a priority.
Simple math will tell you that if you manage to save money throughout your career, you will end up with a much more financially secure future. Many of the most successful people today share the same habit of always putting some of their funds aside in savings. Having a small portion of your paycheck directly deposited into a savings account every payday is a great way to achieve this goal, and you will most likely never even notice the slight adjustment to your income.
7. They do not compare themselves to others.
Simply put, financially successful people are not interested in keeping up with the Joneses. They do not waste time or money by looking at what others have and trying to have that too. They keep focused on their own goals and their own financial abilities.
8. They eliminate and avoid debt.
Financial success can be easily achieved when there is no debt to stand in your way. While it is not always practical or possible for many of us to avoid incurring debt, it should be a top priority to try to eliminate as much of it as possible.
9. They control impulse spending.
We all have moments where we have that sudden impulse to buy something we want, but may not necessarily need. The difference between most people and those whom enjoy the financially secure lifestyle is the ability to control this impulse.
10. They invest in their future.
Making decisions to invest in your retirement early will only put you that much further down the road of financial security in your later life. Contributing to a 401(k) plan or investing in other secure investments will secure a more comfortable monetary situation for your future.
Read more: 20 Habits of Financially Successful People

Monday, April 21, 2014

Do You Really “Need” That? Or Do You Just “Want” It?

Do You Really “Need” That? Or Do You Just “Want” It?
The difference between defining something as a need or a want can mean the difference between a blown budget or a healthy savings account.
These terms seem so simple and easy to understand, but all too often, we blur the lines. When you say you “need” something, it should mean that you literally can’t continue to function without it. Unless we’re talking about the need to eat, be clothed, stay healthy, and have a bed to sleep on, most of the “needs” in life actually fall under the category of “want.”
It’s funny how we reason with ourselves until we’re convinced that something we want is actually something we need. I need a new purse for summer. I need a manicure. I need new shoes.
In this case, our definition of need becomes anything we want desperately enough that our personal happiness will be hindered without it.
This is a cultural trait; we feel the need to measure up to those around us, to keep up with the current trends, to have the coolest car, the nicest house, or the most elaborate wedding. Although there’s nothing wrong with gratifying some of our wants as our circumstances and finances allow, it’s dangerous to categorize every new thing we want as a need.
Before we know it, our budgets grow, then blow; our credit cards are maxed; and we can’t afford our lifestyle.
Learning to distinguish between wants and needs is a complex skill that takes continuous reinforcement, especially when immersed in our materialistic society. With that in mind, here are three questions you should ask yourself when deciding whether something is a want or a need:

1. “First of all, do I need it?”

There’s a category in my budget for “miscellaneous needs.” This category is purposely vague to account for needs that arise, but don’t fall under any other budget category.
It would be easy to start using this as just another excuse to blow money — but the distinguishing factor when determining whether to use this category or “fun money” is whether the item is an actual need. If the answer is yes, move on to the next question. If it’s no, skip ahead to the third question.
Read more: Do You Really “Need” That? Or Do You Just “Want” It?
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