Archives for November 26, 2018

The ugly truth is that far too many people are behind on saving for retirement. A third of American adults have less than $5,000 stashed away, according to research from Northwestern Mutual.

As a result, many retirees are forced to rely on Social Security benefits for the bulk of their income once they leave the workforce. In fact, nearly half of married couples and two-thirds of single beneficiaries rely on their benefits for at least half their income, according to the Social Security Administration. Even more worrisome, though, is that for 21% of married couples and 44% of single beneficiaries, Social Security benefits make up at least 90% of their income.

While it’s not necessarily a bad thing to rely on Social Security in some capacity, it’s not a great idea to depend on it to pay the bills. The average beneficiary only receives around $1,300 per month, and that may not be enough to cover your basic living expenses. Furthermore, by 2034, Social Security recipients may see their benefits cut by up to 21% unless the government passes reforms that will mitigate or reverse the program’s deficit. If you were receiving $1,300 per month and your benefits were cut by 21%, that would leave you with just over $1,000 per month. For someone with no other source of income, that’s below the federal poverty level.

Beefing up your savings before retirement

The best way to avoid having to rely on Social Security benefits is to make sure your personal savings are strong enough to support you during retirement. If you’re struggling to save, though, and it’s already tough to scrape together anything to put toward retirement, there are a couple of relatively easy ways to boost your savings.

First, if your employer offers matching 401(k) contributions, take advantage of them. Increasing your contribution rate by even 1% of your annual income can have a greater impact when your employer is matching that money.

For example, say your employer will match 100% of your contributions up to 3% of your salary, and you’re earning $50,000 per year. That means that if you saved $1,500 each year, you’d get another $1,500 in free money from your employer on top of that, bringing your total contribution to $3,000 per year. Let’s also say that right now you have $10,000 in your retirement fund, and you’re only contributing 2% of your salary per year. That’s $1,000 per year, or $2,000 when you consider the employer match. Assuming you’re earning a 7% annual rate of return on your investments, here’s what your total savings would look like over time if you continue to contribute 2% of your salary, compared with if you increase your savings rate to 3% per year to earn the full employer match:

Years	Total Savings When Contributing 2% of Your Salary Per Year	Total Savings When Contributing 3% of Your Salary Per Year
0	$10,000	$10,000
10	$49,200	$64,000
20	$126,400	$170,300
30	$278,300	$379,300

In other words, an extra $500 per year on your part could amount to an extra $100,000 over a few decades.

Another way to increase your savings before you retire is to invest more aggressively. Many people prefer to play it safe with their investments (especially after the Great Recession), but more conservative investments also lead to more-conservative gains. And if you’re already behind on your savings, you can’t afford to play it too safe.

If your portfolio falls on the safer side, you’re probably investing less in stocks and more in Treasury securities, CDs, money market funds, and other types of low-risk investments. While that’s not necessarily a bad thing, those types of investments may only see rates of return of around 2% to 4% per year.

Stocks, on the other hand, tend to see higher returns. Index funds and mutual funds are great ways to limit your risk: They allow you to invest in dozens or hundreds of stocks at once, so if a few of them take a nosedive, your entire portfolio isn’t a goner. And although they can fluctuate in the short term, they tend to see an average long-term gain of around 7% to 10% per year.

So let’s say you’re 35 years old with $10,000 saved for retirement. If you’re contributing $1,500 per year (and you’re earning another $1,500 per year from your employer), here’s what your total savings would look like over time, earning a 3% annual return on your investments versus an 8% return.

Age	Total Savings With a 3% Annual Return	Total Savings With an 8% Annual Return
35	$10,000	$10,000
45	$48,900	$68,500
55	$101,000	$194,900
65	$171,300	$467,700

You don’t want to play it too risky and invest all your money in a single stock that you predict will skyrocket in value. But if you’re nearing retirement and have little to no savings of your own, you’ll need to get comfortable with risk if you want to see rewards that can last you through retirement.

What if you’re starting late?

What if you’re already in your late 50s or early 60s and don’t have decades left to save? First, it’s never too late to save, and it’s better to have at least a few thousand dollars saved than to do nothing.

But if you’ve already retired (or are very close to retirement) and you’ve found yourself relying on Social Security benefits to make ends meet, there are other ways to pick up extra income to strengthen your nest egg.

For example, you could pick up a side hustle. Whether you find a gig in the industry in which you spent your career or are branching out into an entirely new field, retirement is a great time to try new things. Nearly three-quarters of Americans say they plan to work past retirement age in some capacity. So if you plan to pick up a part-time job after you leave your full-time career, you’re in good company.

For another income boost, you can delay claiming Social Security benefits. You can start claiming benefits as early as age 62, but for every month you wait past that age up until 70, you’ll receive a boost in benefits.

Let’s say, for example, your full benefit amount (or the amount you’re theoretically entitled to if you claim at your full retirement age) is $1,300 per month. If your full retirement age is 67, your benefits will be cut by 30% if you claim at 62 — leaving you with just $910 per month. But if you wait until age 70 to claim, you will receive a 24% bonus on top of your full benefit amount. In that scenario, you’ll receive around $1,612 per month. And if you’re going to be relying on Social Security benefits during retirement, you might as well get as much as possible.

Social Security benefits can make a great cushion for your nest egg, but they shouldn’t make up all your retirement income. It’s better to save as much as you can before you retire, then supplement your income during retirement.

Many workers look forward to retirement and the opportunity to enjoy life without the restrictions of a full-time job. But making a full-fledged break from the workforce is easier said than done. Here are a few reasons why retirement is no longer the sure thing it might’ve been years ago — and what you can do about them.

1. Loss of pensions

It used to be that if you worked for the same company for an extended period of time, that employer would, in turn, provide you with a pension that paid you a certain percentage of your former income in retirement. But these days, most employers are forgoing pensions in favor of less expensive 401(k) plans. In fact, in 2017, only 16% of Fortune 500 companies offered employees a pension.

The result? The burden of socking away funds for retirement now falls on individual workers, many of whom have too many expenses to carve out a decent chunk of savings. Additionally, whereas employers are responsible for investing pension dollars to cover their eventual obligations to employees, individual workers who save in their companies’ 401(k)s bear all of the investment risk involved. Those who choose their investments poorly, or invest too conservatively, can easily wind up falling short in retirement.

On the other hand, if you have access to a 401(k), you can amass some substantial wealth by contributing to it steadily over time. Though the annual contribution limits are currently $18,500 for workers under 50 and $24,500 for those 50 and older, saving even $500 a month over a 40-year period will produce a roughly $1.2 million nest egg if that money is invested at an average annual 7% return. That 7%, however, is actually a few percentage points below the stock market’s average, which means loading up on stocks is a smart bet.

Now your plan might not allow you to invest in individual stocks, but if that’s the case, seek out stock-focused mutual funds, which offer built-in diversification. Better yet, load up on index funds, which offer that same benefit only with lower fees.

2. Larger levels of debt among older Americans

It’s no secret that Americans are all too willing to rack up debt, but it might surprise you to learn that almost 50% of seniors 75 and over have outstanding debt. The problem, of course, is that any level of debt can eat into one’s limited retirement income, thereby creating a situation where it’s a struggle to keep up with expenses.

If you find that you’re still in debt as retirement nears, paying it off before bringing your career to a close could spell the difference between a comfortable retirement and one ridden with stress. In that case, your best bet is to take a look at your existing debts and pay the costliest ones (generally your credit cards) first. From there, you can move on to tackle student debt (which a surprising number of seniors have) and mortgage debt (which 30% of seniors today don’t manage to shake before retiring).

In some cases, you might need to work longer to eliminate your debt prior to retirement. In others, you might choose to take on a second job during the latter part of your working years, both to drum up extra cash and give yourself a viable gig to carry with you into retirement. Either way, don’t make the mistake of ignoring your debt and regretting it once your golden years kick off.

3. Social Security’s uncertain future

Though Social Security was never designed to sustain retirees in the absence of additional income, those benefits do play a big role in helping seniors avoid poverty and cover some of their bills. Unfortunately, Social Security is facing a major revenue shortfall that, if left unaddressed, could result in a substantial reduction in benefits as early as 2034. For current and future retirees, the consequences could be downright catastrophic.

That’s why it’s crucial to save for retirement independently, and rely less heavily on Social Security. Though the program is by no means going broke, recent projections indicate that recipients might be looking at a 21% benefits cut in the future. For the average beneficiary, that’s a loss of roughly $3,700 of income each year. On the other hand, if you take steps to build your own nest egg, you won’t have to worry as much about Social Security, and can instead use your benefits as bonus cash, so to speak, rather than rely on them to cover your expenses.

It’s not easy to retire these days, what with pensions being a thing of the past, debt levels among seniors being as high as they are, and Social Security’s future looking unstable at best. But if you take steps to save for your golden years and get out of debt before entering them, there’s a good chance you’ll manage to pull off retirement after all.

More is not always better. Sitcoms, for example, have taught us that having two dates on the same night just creates chaos. It’s nice to have choices, but how we handle those choices can have long-lasting ramifications.

When people search for a job, most cast wide nets. The goal is to land as many interviews as possible in order to secure a good offer.

In this economy, however, many professions are job seekers’ markets, meaning it’s not unheard of for someone to receive multiple offers at the same time. That’s an enviable position, and it’s one that gives you the opportunity to negotiate.

That does not mean you’re home free. Handling two offers wrong can lead to no job. That’s a worst-case scenario, but it can happen if you don’t do a few simple things.

Multiple job offers are a reason to be excited. Image source: Getty Images.

Using your leverage

Having two offers allows you to negotiate, which makes sense if the two jobs are equal. If you want one more than the other, you can still use that leverage — but you don’t want to end up having to take the job you want less.

If the money, benefits, and other terms are pretty equal, it makes sense to ask for a little more — maybe the ability to work from home once a week, or a little more money. Don’t, however, pass on a better job because of something small.

When everything is equal

What happens when you like both jobs and the offers are roughly the same? That’s when it’s smart to tell the recruiter what the situation is. You can even be specific as to where the offers are coming from if both companies carry similar levels of prestige.

Be careful, though. You never want to appear to not want to work at either company. You also have to be wary of asking for something from both employers, and then having to say no to one even after getting it.

Never just disappear

It can be hard or uncomfortable to turn down a job, especially if the employer met your demands. You still have to do it.

Once you make your decision, you have two choices. You can decline one job before formally accepting the other by saying exactly why. “All things were equal, but they offered me an extra week of vacation and help paying for child care.”

That’s essentially one last request for a counteroffer. If one is offered, you can go back to the other employer — but again, you should be careful about pushing too far.

Once you make a final decision, tell the losing player. Say thank you and express a desire to work together in the future.

It’s about the future

You may have leverage now, but you don’t know what the future holds. It’s important to be respectful of the process and everyone involved. You want the person whose job you passed on to be interested in hiring you down the road. That may be for a hard-to-get promotion, or some as-yet-unrealized dream job.

Treat people as you would expect to be treated. Be honest and upfront. Try not to lead anyone on in a way that will have them feeling like you had accepted and then backed out.

That’s not always easy, and hurt feelings are possible even if you do everything right. Still, most people can tell when you’re trying to do the right thing, and that’s the smart play — you never know who you will meet again.

As the holiday shopping season intensifies, the Education Trust Board of New Mexico is reminding New Mexicans that gifts toward a child’s education can be deposited not into a Christmas stocking or under a mattress, but in a state savings plan where gifts may grow over time.

As the costs of post-secondary education mount, paying for college or vocational school requires students to assemble multiple resources including scholarships, financial aid, loans and personal savings. For the latter, New Mexico is offering some help.

The Education Plan is a college savings plan with state tax advantages, high contribution limits (but no minimum), and the benefit of a professional fund manager. An account can be opened by anyone, even if they are not related to the beneficiary.

The accounts are managed as investment funds, such as stocks and bonds, and returns on the investment are not guaranteed, although investors can select different levels of risk.

New Mexico residents can deduct their contributions from their state taxable income. The fund grows tax-free and withdrawals are also protected from taxes if they are spent on qualified education expenses.

Ted Miller, the trust board’s Executive Director, said the program, begun in 2002, manages $560 million with approximately 22,000 individual accounts.

“We have had a number of folks use this plan very successfully over the years,” Miller said. “We track our data very carefully and we know that tens of millions of dollars have come out of this program and have been used to pay for education expenses.”

Qualifying expenses

Those expenses may include tuition, room and board,and supplies such as books and computer equipment used for education. The institutions may include public or private universities, community colleges and vocational schools, graduate and professional programs.

Students with special needs can even use 529 withdrawals to pay for wheelchairs or other equipment necessary for their education, or for remedial tutoring.

Every state offers 529 plans, named for the corresponding section of the Internal Revenue Code, but the trust board says New Mexico is one of just four that offer an unlimited deduction for contributions.

“You can put any amount of money that you wish, up to the state’s 529 maximum account size limit of $500,000,” Miller said.

Although K-12 expenses can also be paid from 529 accounts, doing so may cancel the tax protection for the amount withdrawn.

What about Coverdell accounts?

Another well-known instrument for college savings are Coverdell Education Savings Accounts, formerly known as “the Education IRA.” Coverdells have a broader range of accepted expenses while offering similar tax advantages.

On the other hand, Miller pointed out that contributions are only accepted until the beneficiary turns 18, and the money must be distributed no later than age 30. If it isn’t spent on education, the money becomes taxable income for the beneficiary.

Mark Kantrowitz, a financial aid expert and publisher of SavingForCollege.com, has reported extensively on the comparative advantages of 529’s and Coverdells. He told the Sun-News that 529’s likely work best for most families.

“Few investors can consistently beat the S&P 500 or a total stock market fund for 17 years,” he said, noting that 529’s like New Mexico’s invest in a variety of stock and bond mutual funds with age-based levels of risk, gradually moving to more stable investments with lower returns as the beneficiary approaches college age.

Another problem is that Coverdells allow contributions of only $2,000 per year. That isn’t sufficient, said Kantrowitz. “If your goal is to save one-third of future college costs, you should be saving $250 a month from birth for an in-state public four-year college, $450 for an out-of-state public four-year college, and $550 for a private four-year college. $2,000 a year falls short.”

If in doubt, Kantrowitz suggests: “Go with the 529 plan. They have the best tax advantages and the best financial aid advantages.”