Archives for January 14, 2019

Less than four months ago, a research report released by the Washington, D.C.-based National Institute on Retirement Security (NIRS), using an analysis of U.S. Census data, found that even with the nation’s economic recovery, savings levels of working age Americans are inadequate for America’s retirees to rely on.

The NIRS report provides analyzes the U.S. Census Bureau’s Survey of Income and Program Participation data released in 2016 and 2017. Researchers took a look at workplace retirement plan coverage, retirement account ownership, and retirement savings as a percentage of income, and estimates the share of workers that meet financial industry recommended benchmarks for retirement savings.

 “The facts and data are clear. Retirement is in peril for most working-class Americans,” says Diane Oakley, the report author, and NIRS executive director in a statement. “When all working individuals are considered — not just the minority with retirement accounts — the typical working American has zero, zilch, nothing saved for retirement,” she says.

Oakley added, “What this report means is that the American dream of a modest retirement after a lifetime of work now is a middle-class nightmare. Even among workers who have accumulated savings in retirement accounts, the typical worker had a low account balance of $40,000. This is far off-track from the savings levels Americans need if they hope to sustain their standard of living in retirement.”

American’s Not Prepared for Financially Surviving Retirement Years

Findings in NIRS’s 32-page research report, “Retirement in America: Out of Reach for Most Americans?,” released on September 18, finds that more than 100 million working-age individuals (57 percent) do not own any retirement account assets, whether in an employer-sponsored 401(k)-type plan or an IRA nor are they covered by defined benefit plans. Researchers say the data indicated that “those who do own retirement accounts have, on average, more than  three times the annual income of individuals who do not own retirement accounts.”

According to the research findings, the typical working-age American has no retirement savings.  When including all working individuals —not just individuals with retirement accounts—the median retirement account balance is $0 among all working individuals. For the typical workers who have retirement savings accounts, this individual only had a modest account balance of $40,000. “Furthermore, some 68 percent of individuals age 55 to 64 have retirement savings equal to less than one times their annual income, which is far below what they will need to maintain their standard of living over their expected years in retirement,” said the NIRS’s research report.

The research study findings indicate that 77 percent of Americans cannot meet conservative retirement savings goals for their age and income-levels based on working until age 67 even after counting an individuals’ entire net worth. “Due to a long-term trend toward income and wealth inequality that only worsened during the recent economic recovery, a large majority of the bottom half of Americans cannot meet even a substantially reduced savings target,” says the NIRS report.

The researchers say that federal and state policies can assist American’s in accumulating retirement income by strengthening the nation’s Social Security program, by states expanding access to low-cost, high-quality retirement plans, and helping low-income workers save. “States across the nation are taking key steps to expand access to workplace retirement savings, with enrollment in state-based programs this year starting in Oregon, Washington, and Illinois. Other proposals to expand coverage are on the national agenda but universal retirement plan coverage has not become a national priority. Finally, expanding the Saver’s Credit and making it refundable could help boost the retirement savings of lower-income families,” notes the NIRS report.

Assisting Rhode Islanders to Save for Retirement

In 2016, AARP Rhode Island released a survey of 459 Rhode Island small business owners (with up to 100 employees) to determine their thoughts about employee retirement benefits. Overwhelming, these business owners see a need for lawmakers to create a program to help working Rhode Islanders to save for their retirement years.

According to the AARP telephone poll findings of the small businesses, 76 percent say Rhode Islanders need a lot, some more encouragement to save for retirement.  A whopping 82 percent agree that state lawmakers should support small business owners to offer employees a way to save.

Seventy-six percent of the respondents agree to being able to offer a voluntary, portable, retirement plans will provide them with a competitive edge to attract or retain employees, notes the poll’s findings.

Most small business owner respondents called on the Rhode Island General Assembly to support state legislation to create a basic, ready-to-go, privately-managed retirement plan for employees.  The majority of small business owners who participated in the AARP Rhode Island survey agree that state lawmakers should support a plan to make it easier for small business owners to offer their employees a way to save for retirement.

In 2016, the Rhode Island General Assembly considered AARP Rhode Island’s so-called Work & Save legislation to assist working Rhode Islanders save for their retirement years by establishing a Private Employer IRA Program.  But, with spiraling state deficits and the administrative costs of the program, the legislation was held for “further study” immediately killing the legislation.

With America’s aging population, with many not having adequate retirement savings, Congress must move to strengthen the Social Security program.  But, the Rhode Island General Assembly must look for ways to expand access to workplace retirement savings through a state-based program. Not doing so may ultimately increase the state’s role in providing assistance to an increasing percentage of low-income older Rhode Island.   

The cost of living is getting higher, and this can be especially painful if you’re a university student living on a tight budget.

The escalating costs of food, transport and school fees can set you back by hundreds of dollars. However, by keeping certain things in mind and planning ahead, you can save yourself plenty of money in other areas of your life.

Here are some nifty hacks to help you reduce your expenses and supercharge your savings for a rainy day.

Choose a denomination to save

Here’s a fun game – every time you encounter a denomination of your choice, say US$1, put it aside to keep in your savings.

It may not seem like much at first (which is the point), but your bank account will be much healthier by the end of the year.

To make it more fun, get a friend to join the challenge or make it into a competition. That way, you’ll be more compelled to continue the challenge to rack up those dollars.

Meal prep

Planning your meals is one of the most effective ways to save money.

While it requires time and effort – and, for novice cooks, practice – the results are well worth it. Once you start cooking, you’ll quickly realise how much cheaper it is to prepare your meals.

After all, why pay several dollars for one muffin when you can bake and freeze some for a fraction of the cost?

Auto-deduct money from one account to another

You may have heard of the term “pay yourself first”. This essentially means saving before you spend your money on anything else.

We know this can be hard to do, which is why you can opt to set up an automatic transfer to move money from one account to another, preferably one that has a higher interest rate than the former.

This way, you’ll be forced to save before you can be tempted to spend your money unnecessarily. However, be sure to have budgeted accordingly so you have enough put aside for basic expenses, such as food and transportation.

Carry a bottle of water

Buying bottled water may be convenient and cheap, but in the US, it’s estimated that the average American spends over US$100 per year on it.

Carrying water with you is a good habit as you may find yourself paying extra for water when eating out, and depending on where you are, the price of bottled water can be marked up (think sporting games).

Carrying your water bottle is better for the environment anyway, with reports noting that some one million plastic bottles are bought every minute.

Cut down on your vices

Are you addicted to cigarettes?

You could either cut down or take steps towards quitting to save yourself some money. Sure, it’s easier said than done, but think of the long-term benefits – you’ll save plenty of money without jeopardising your health or the health of others.

Quick Tip: The NHS and Smokefree.gov have a nifty website to help you estimate how much you spend on cigarettes.

As for coffee, we know that trip to Starbucks or a gourmet café can be tempting, especially if you have a long commute to campus, but consider cutting down the amount you spend on coffee each week.

Alternatively, you could buy a flask and make your own coffee. A cute flask may encourage you to use it more often, which can ultimately save you plenty in the long run.

Try the 52-week saving challenge

Depending on your financial circumstances, you could try the 52-week saving challenge, where you increase the amount of savings you make each week.

For example, in your first week, you save $1, the second week $2, the third week $3, and so on. By the time you reach the 52nd week of the year, you save $52. By the end of the year, you will amass $1,378.

If this seems like an unrealistic amount to save, you can do the mini version of the challenge which entails saving $0.50 in your first week, $1 in your second week, $1.50 in your third week, and so on.

Delete shopping apps on your phone

If you’re someone who enjoys online shopping, especially on your mobile phone, deleting apps will mean you no longer receive notifications on flash sales or ‘must-have’ new items.

The temptation to spend is worse when your credit or debit card details have been conveniently saved online – the danger lies when you can purchase an item in a matter of seconds.

While you may be able to score some good buys during flash sales, the trouble comes when you can’t muster the will against purchasing items you do’t need. If that’s the case, its best to go cold turkey and uninstall those apps.

While you’re at it, don’t forget to unsubscribe to their newsletters too.

Buy generic items

Branded goods do not necessarily entail quality.

Shop around and give generic goods, such as detergents and cereals, a try. You may be surprised to find that they may be as good, or even better, than branded products, and are a fraction of the price.

Save your spare change

Anytime you encounter some spare change, put it aside in a jar – consider it your adult piggy bank. This is one of the easiest ways to encourage yourself to save.

At the end of the year, tally the amount and keep it in your savings account. It may not seem like much at first, but when coupled with the savings tips above, you might be heartened to see your savings grow and be motivated to continue the momentum.

Have a no-spend challenge each week

Choose one day of the week for a no-spend challenge. This could mean not spending at all, or not spending money apart on the essentials such as transport or food.

To make the effect more striking, pick a day of the week you tend to spend the most for this challenge, such as on a weekend.

Many workers save for retirement with employer-sponsored 401(k) plans. But if you don’t have access to a 401(k), you can still save for retirement in an IRA, and there are plenty of advantages to doing so. IRAs typically offer a wider range of investment choices than 401(k)s, making it easier for you to grow your money without losing a fortune to fees.

That said, the more vigilant you are about managing your IRA, the better that account will serve you. Here are three smart moves you can make with your IRA — both today and in the future.

1. Max out every year

Because IRAs have much lower annual contribution limits than 401(k)s, maxing them out is a lot more doable. Currently, workers under 50 can sock away up to $6,000 in an IRA each year, while those 50 and older get a $1,000 catch-up that brings their annual limit up to $7,000. Meanwhile, the annual limits for 401(k)s are $19,000 for younger workers, and $25,000 for those 50 and over.

Of course, any contributions you make to your IRA will come in handy during retirement. But if you push yourself to max out on a yearly basis, you’ll have a very comfortable existence to look forward to.

Let’s assume you’re 25 years old with a goal of retiring at 65. If you max out your IRA over the next 40 years at today’s limits, keeping in mind that they can rise over time, and if your investments generate an average annual 7% return during that time, then you’ll be sitting on over $1.2 million in time for retirement.

2. Diversify your investments

The more wisely you invest your IRA, the more you stand to grow your wealth. As mentioned earlier, the good thing about IRAs is that they offer an array of investment choices, from individual stocks to mutual funds and index funds. But you’ll want to diversify your investments to avoid taking on unnecessary risk.

The great thing about both mutual and index funds is that they offer instant diversification, since you’re not buying individual stocks but rather are buying a bucket of stocks (or bonds). And since index funds are considerably cheaper than mutual funds — because when you buy them, you’re not paying for the input of an active fund manager — they’re a good choice if you’re looking to keep your fees low. It also pays to load up on individual stocks as well, but be sure to spread those investments out over different segments of the market so that if one sector takes a hit, others might compensate. Finally, remember that while it’s smart to go heavy on stocks when you’re younger, there’s a place for bonds in your portfolio, too.

3. Watch out for RMDs

Unless you have a Roth IRA, you can’t leave your retirement savings to sit and grow forever. Once you turn 70 1/2, you’ll need to start worrying about required minimum distributions, or RMDs. Your RMDs will be based on your account balance coupled with your life expectancy, and if you fail to take yours, you’ll face a 50% penalty on whatever amount you neglect to remove from your account.

If you’re turning 70 1/2 at any point this year, your first RMD will be due by April 1, 2020. All subsequent RMDs will then be due by the end of each calendar year. Keep in mind that RMDs trigger taxes, as do all withdrawals taken from a traditional IRA, so plan for those accordingly.

Your IRA will serve you well in retirement if you’re smart about how you fund, invest, and manage it. Make these key moves, and you’ll be thankful for it when you’re in a better place financially.

Many workers look forward to retirement, and understandably so. After all, your golden years are a great time to kick back and enjoy the fruits of your lifelong labor.

But retirement can also be a precarious financial period of life. Going from a steady paycheck to a fixed income can be a stressful prospect, and if you’re not smart about the way you manage your money and expenses, you could really end up struggling financially. With that in mind, here are three retirement mistakes that could end up making your senior years miserable.

1. Filing for Social Security too soon

Your Social Security benefits are calculated based on your highest 35 years of earnings. The age at which you file for those benefits, however, could cause them to change, and not necessarily for the better. If you wait until you reach full retirement age, or FRA, to claim benefits, you’ll get the full monthly payments your earnings record entitles you to. That age is either 66, 67, or somewhere in between, depending on the year you were born.

That said, you’re allowed to file for benefits starting at age 62. Doing so gives you early access to that money, but it also means you’ll reduce your benefits by a certain percentage depending on how far ahead of FRA you file. What this means is that if you retire before reaching FRA, it might pay to wait on Social Security until you’ve reached FRA or beyond, as you can delay benefits up until age 70 and grow them by 8% a year in the process. This way, you won’t slash what could ultimately end up being a major income source for you in retirement.

Imagine you retire at 65 and have some savings to live on, at least on a short-term basis. If your FRA is 67, at which point you’re entitled to $1,500 a month from Social Security, and you can get by without benefits, waiting those two years could save you a nice chunk of money — specifically, $2,400 a year. Therefore, don’t rush to claim Social Security if you retire before your FRA, because you could end up cutting your benefits for life.

2. Not signing up for Medicare on time

Medicare eligibility begins at age 65, and signing up on time can help you not only secure the coverage you need but also help you avoid expensive penalties that make your health benefits more expensive. Your initial Medicare enrollment period begins three months before the month in which you turn 65 and ends three months after the month in which you turn 65. If you don’t sign up for Medicare during that period, you can sign up during the general enrollment period of Jan. 1 through March 31 of each year. But you might end up paying more for Medicare if you hold off too long.

Most Medicare enrollees don’t pay a premium for Part A, which covers hospital visits. They do, however, pay a premium for Part B, which covers preventative care and diagnostics. If you don’t sign up for Medicare during your initial enrollment period, you’ll face a 10% increase in your Part B premiums for every 12-month period you were eligible for coverage but didn’t enroll. And when you’re on a fixed income, that added cost could really hurt you.

3. Not going in with a savings withdrawal strategy

Ideally, you’ll enter retirement with a substantial nest egg. But if you don’t establish a withdrawal strategy, you’ll risk depleting your savings prematurely and running out of money later in life.

For years, financial experts have been promoting the 4% rule, which states that if you begin by withdrawing 4% of your nest egg’s value during your first year of retirement, and then adjust subsequent withdrawals for inflation, your savings should, in theory, last 30 years. Though it’s not a perfect rule, it’s certainly a decent starting point to work with. That said, if you’re retiring earlier than the average American (say, in your 50s), it’s best to adopt a more conservative withdrawal strategy — say, 2% or 3% a year — since your savings will need to last longer. And on the flipside, you might get away with taking higher withdrawals, percentage-wise, if you don’t retire until your 70s.

Along these lines, plan to be flexible during years when the market takes a downturn and your portfolio value drops. If you cut back on expenses when your investments are worth less and therefore withdraw less, your nest egg will take less of a hit. But if you take withdrawals blindly without adopting a strategy or understanding the consequences involved, it could cause you to lose money unnecessarily and, as previously mentioned, deplete your nest egg at a time when you’re still very much alive and kicking.

Retirement can be a financially stressful period of life, but it doesn’t have to be. Avoid these mistakes, and you’ll be more likely to enjoy your golden years without the financial worries so many seniors face.