One of the reasons that retirement funding is a mystery to most folks is the uncertainty that comes with trying to determine how much is enough – enough savings set aside so that we don’t run out of money during retirement. The answer to this question begins with an understanding of your day-to-day living expenses, and how those expenses may change in retirement. This is a simple enough process, although it does take some effort. The difficult part is to determine what the funding requirement is in order to provide the income you’ll need to cover your living expenses – for as much as forty years or more! There is a rule of thumb (more on this later) that you can use to come up with a rough guess – but without using sophisticated computer modeling and analysis, your level of assuredness is limited. According to a recent survey by […]
retirement savings
Mandatory Retirement Plans
A few weeks ago I finished a paper arguing for mandatory retirement contributions from both employers and employees. Though arguably the paper will not come close to changing public policy on retirement plans, it did raise some arguments in favor of the United States adopting a mandatory savings plan. In the paper I explained that research has shown that individuals risk not having enough saved for retirement. This could be due to employees not having a retirement plan through work or because employees face an abundance of mutual fund options in the plan that they don’t know where to begin. Some of these employees choose the default option or simply go with what a colleague recommends. Another problem the paper addresses is the declination of defined benefit pensions. Such pensions are employer sponsored and funded, thus removing funding an investment risk from the employee. At retirement the employee receives a […]
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Analyze your assets to avoid missing the mark
When we talk about financial fitness, one of the measures that is most important to the conversation is the value of our assets. There are really five different kinds of assets that we should consider: Personal Assets. Clothing, furnishings, and jewelry fit into this category. Most of this “stuff” decreases in value to less than half what we paid for it before we even get it home. Household Assets. This includes real estate, cars, and appliances. Most of these items either appreciate in value over time or provide a fair value over their life (in relation to renting the service). The total value of these assets must be reduced by any loans that we have against them – such as mortgages and auto loans. This will produce a net value of Household Assets. Employment Assets. Some employers still provide for a pension for their employees’ retirement. This pension has a […]
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Should You Delay Retirement?
The question of delaying retirement may arise as you get closer to your “goal year” of when you want to retire. For some individuals’ fortunate enough to be covered under a company or state pension, it can be tempting to retire as soon as possible and collect the pension benefit. The same may be true for folks wanting to start taking Social Security at age 62. Before making the decision to retire or retire early an individual should consider the effects on delaying retirement and continuing to work. This is assuming that they can accrue extra pension benefits for the extra years of service. For Social Security, this would be delaying past an individual’s normal retirement age as long as to age 70. For example, let’s say an individual has the opportunity to be eligible to retire at age 55 and receive a pension of $5,500 per month. However, if […]
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The Most Important Factor in Retirement Saving
We’ve all been there: making decisions about the ol’ retirement savings account. It doesn’t matter if it is a Roth IRA, a traditional IRA, a 401(k), or a deferred comp plan, there are many different decisions that you need to make. It can be overwhelming, until you step back and realize that there are actually only three primary decisions to make about retirement savings: How much to contribute How to allocate between asset classes (stocks and bonds; as well as within the sub-classes like large-cap, mid-cap & small-cap stocks; corporate bonds, government bonds, etc.) Which funds/investments to choose
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Are YOU ready for retirement?
In this time of disappearing pensions, corporate downsizing, and high unemployment it becomes a great concern that many folks are still not saving enough for retirement. This may be due to a failure to realistically assess future costs or because we’re spending too much without saving – which is a hallmark of the baby-boom generation. Granted, there are plenty of good reasons why spending is out of control – with healthcare costs increasing all the time, for example. But I suspect that much more of the blame for our low savings balances is due to poor savings habits in the first place.
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Wants and Needs
Sometimes when we need more money for a specific goal in the future such as retirement, college, a down payment on a home or an emergency fund we may feel that before these things can happen we need to make more money. We may feel that once our incomes are up to a certain level that we’ll be able to afford to save for those goals. It may not be necessary to earn more in order to achieve the above goals. For many folks the solution is simply to prioritize between wants and needs. In other words, learning to distinguish between the wants and the needs in your life and then reallocating your money to fund retirement or college goals without having to ask for a raise or get a second job.
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Book Review – Pension Finance
M. Barton Waring does an excellent job in his book Pension Finance. The book essentially covers what’s wrong with the way conventional accountants and actuaries think using conventional math and accounting practices to justify the payments (or lack thereof) funding corporate and municipal pensions. A concept talked about at length in the book is the idea of long-term average returns and how many pension actuaries rely on them to determine funding. Mr. Waring would argue that there is too much reliance on the long term average returns thus allowing pension actuaries to fund their pensions with less money due to assuming higher rates of return. Instead, one of the areas that may help the crippling pension system in the US is to get realistic about long term returns and use a combination of a smaller returns, and bigger contributions (among others). The book is heavy on the analytic side (great […]
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Be Careful of Average Returns
When saving and investing for retirement many folks as well as advisors helping those folks plan save and invest for retirement generally will have the conversation that includes how much they can save per month or year, how much they need at retirement and how long they have to save until retirement. Essentially, all of the ingredients in the previous paragraph boil down to a phrase mentioned many times in financial planning classes as well as courses in finance, investing and business: the time value of money. The time value of money helps individuals and businesses figure out how much they need to save, earn, and spend in order to achieve certain financial goals. What it boils down to is what is a dollar worth, if not spent today, and instead invested and allowed to grow for tomorrow (the future).
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Are Target Date Funds Off Target?
It seems that an easy fix for saving for retirement for many folks is to simply choose a target date fund. Generally how target date funds work is a fund company will have a set of different funds for an investor to pick from depending on a best guess estimate of when the investor wants to retire. For example, an investor who’s 30 years old and wants to retire at age 65 may choose a 2045 fund or a 2050 fund. In this example since the investor is age 30 in the year 2014, 30 more years gets him to 2044. Most target date funds are dated in 5 year increments. If the investor was age 60 and wanting to retire at age 65, then he may choose a 2020 fund to correspond to his timeline. Generally, the goal of target date funds is to follow a glide path […]
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Mechanics of 401(k) Plans – Saving/Contributing
Many folks have a 401(k) plan or other similar Qualified Retirement Plan (QRP) available from their employer. These plans have many names, including 403(b), 457, and other plans, but for clarity’s sake we’ll refer to them all as 401(k) plans in this article. This sort of retirement savings plan can be very confusing if you’re unfamiliar, but it’s a relatively straightforward savings vehicle. This is the first in a series of articles about the mechanics of your 401(k) plan – Saving/Contributing. Saving/Contributing You are allowed to make contributions to the 401(k) plan, primarily in the form of pre-tax salary deferrals. You fill out a form (online most of the time these days) to designate a particular portion of your salary to be deferred into the 401(k) plan. Then, each payday you’ll see a deduction from your paycheck showing the 401(k) plan contribution. The deduction is before income tax withholding is […]
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Why Watching the Stock Market Can Make You Sick
I recently read a fascinating article on the correlation between market declines and admission rates to hospitals. The authors point out that almost instantaneously; the effects of a market decline affect mental health such as anxiety. In a nutshell, the authors describe that expectations about the future play a role in investor’s utility (happiness) today. The research in this article can be beneficial on two fronts. One the one hand, the information can be beneficial to advisors in educating their clients that once proper assets allocation for a particular client is achieved there is little to be gained by logging into an account and watching the daily and even hourly fluctuations of the market. And every asset class will fluctuate – which is why we diversify and allocate assets accordingly such as real estate, large cap stock, small cap stocks, commodities, bonds, etc. It’s important to note that at any […]
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New Year’s Resolutions You Can Keep
This time of year it’s cliché to make resolutions for the coming year. Whether it’s to lose weight, stop a bad habit, or begin saving for retirement, many of us set these goals at the beginning of the new year. And then three weeks into the new year, we’ve left that goal astern – having changed nothing at all. The problem is in how we set goals for ourselves. For example, we might make the bold statement that we want to lose weight. Often, that’s all there is to our resolution – but there’s much more to setting a goal than making a statement about it. There has to be a plan, and some specifics around the goal. If the resolution is to lose weight, first of all you need to put some specifics around that goal: I want to lose fifteen pounds in 2014. Now, how are you going […]
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Save 1% More This year – Your Future Self Will Thank You!
Like so many other things, practicing financial awareness has few payoffs in the early stages. Think about exercising, eating right, putting in the extra effort at work, or taking a class to improve your skills. All of these things have a future payoff for the extra effort that you put into it today. Small steps matter in all of these areas, and before you know it you’ll look back and thank your earlier self for putting in the work to get where you are today. Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be. Thanks to everyone who has participated so far – and watch for more articles in the weeks to come! How Much is 1% by Sterling Raskie, @SterlingRaskie Retire Rich With Only […]
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You won’t regret it, I promise!
I often have opportunity to speak to young folks who are just starting out with their retirement accounts – this usually happens when we’re looking at ways to reduce taxes, primarily, so we start looking at IRAs and diverting income via 401(k) accounts. One of the things I point out is that this is an activity that you aren’t likely to look back on in 20 years and say “Gee, I sure wish I hadn’t saved all that money!” We may have many things we look back on in our lives and wish we hadn’t done them, but I think you’ll agree that saving is rarely in that category. So take the encouragement of my fellow blogging brethren and sistren (you betcha sistren’s a word, regardless of WP’s spell-checker!) and put aside at least 1% more of your income into your savings, starting right now. You won’t regret it, I […]
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Add 1% More to Your Savings
Savings rates in America are really not what they should be. Studies have shown that, in order to achieve the goal of replacing 80% of your average pre-retirement income you should be saving at a rate around 17.5%. This doesn’t necessarily mean that 17.5% is the right number for everyone, because pensions and Social Security can help out in replacing some of your income in retirement. But the average savings rate for all Americans is something just south of 5% – so we can definitely do a better job. So make the effort to apply at least 1% more to your savings rate this November. It certainly can’t hurt! Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be. Thanks to everyone who has participated so far – […]
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Bloggers Are Encouraging Adding 1% More to Your Savings Rate
In November we financially-oriented bloggers have banded together to encourage folks to increase their retirement savings rate by at least 1% more than the current rate. It’s a small step, but it will pay off for you in the long run. Given the poor level of savings rate (less than 5%) these days, even this small step will be a big boost for many people’s savings. Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be. Thanks to everyone who has participated so far – and watch for more articles in the weeks to come! The Journey of $1 Million Dollars Begins with 1% by Richard Feight, @RFeight Give Yourself A Raise by Ben Rugg, @BRRCPA The 1 Percent Solution by John Davis, @MentorCapitalMg Friday Financial Tidbit-What increasing your […]
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C’mon America! Increase your savings rate by 1% more!
This November we’re encouraging folks to increase their retirement savings rate by at least 1% more than the current rate. It’s a small step, but it will pay off for you in the long run. Below is the list of my fellow bloggers who have written articles showing ways that you can start to increase your savings rate, as well as showing what the benefits can be. Thanks to everyone who has participated so far – and watch for more articles in the weeks to come! THE 1% MORE BLOGGING PROJECT by Robert Flach, @rdftaxpro A Simple Strategy to Maximize Open Enrollment by Jacob Kuebler, @Jakekuebler Take a Small Step: Increase Your Savings by 1% by Jim Blankenship, @BlankenshipFP
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Take a Small Step: Increase Your Savings by 1%
As savers, we Americans are not doing a good job. We’re improving (according to recent data), but still way behind what we should be saving. But it doesn’t have to be that way – you can take small steps to increase your savings right away, and it doesn’t have to hurt. The Bureau of Economic Analysis recently reported that we are saving at a rate of around 4.6% of disposable personal income, an increase of 0.1% over the prior month. On a per-person basis, that works out to about $1,831 saved per month, or just short of $22,000 per year. Since we know that very, very few people are exactly average (by definition most people are going to be something above or below the average), what concerns me is that even those who are a bit above the average are still not saving enough. And woe to those who are […]
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Avoid the Trap
Eating and dining out all the time can drain our money and potential retirement savings without us even being aware of it. We get asked from friends to go to lunch, coffee or we find ourselves skipping breakfast and getting in the line at the coffee shop for a scone and latte. Before we know it, we’re left asking, “Where did the money go?” Or worse, “I can’t afford to save for retirement.” What’s happened is we’ve fallen into the trap – a habit really, but it can be broken and we can relearn. Here’s how: The first thing you can do is to pass on that latte or scone all together. Instead, make yourself breakfast at home. Invest in a coffee maker if you don’t have one, and make your own coffee. Then make a nice meal of scrambled eggs and whole wheat toast, a cup of cottage cheese with […]
Sterling Raskie, MSFS, CFP®, ChFC®
The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.