Archives for December 2, 2019

If you want to risk starting some arguments around the dinner table this holiday season, be sure to bring up religion and politics.

No, wait — make that sex and personal finance.

Sex and personal finance/money ranked first and second among five “taboo” topics for discussion in a TD Ameritrade survey this year. They beat out the other three taboo topics that were evaluated— religion, politics and health issues.

Financial subjects might warrant some discussion if you hope to help relatives or friends, especially young adults, deal with debts, low savings rates, missed investment opportunities or the other money ailments that plague tens of millions of Americans.

“It’s amazing the number of people who don’t have the discussions they need,” said Jeff Young, an investment adviser at First Financial Equity Corp. in Scottsdale.

If you’re in a position to offer guidance and share suggestions, there are ways to broach these topics without opening floodgates of guilt, embarrassment, resentment or regret.

Recognize misgivings over debts

In the TD Ameritrade survey of roughly 1,000 adults released in July, personal student loan debts ranked as the most taboo topic, cited by 36% of respondents. Other top taboos included child-care expenses, living paycheck to paycheck, credit-card debts and a lack of emergency funds.

By contrast, retirement planning and income were the two least-cited taboo topics. Taken together, respondents seemed less comfortable discussing the debt/expense side of the equation compared with their assets/income.

That notion was supported by another survey question that asked respondents why they are reluctant to discuss personal-finance issues. The majority said they consider such topics to be “impolite” or they don’t want to be viewed as braggarts. But about three respondents in 10 said they didn’t want to be seen as failures or acknowledged that they’re not faring as well financially as they’d like or as other people expect.

“I’d steer clear of judgmental topics, and that includes saying things about a spouse that implies a lack of financial responsibility,” said Jim Dew, a certified financial planner at Dew Wealth Management in Scottsdale. “That can create all sorts of problems later.”

Talk concepts, not dollars

People who are uneasy disclosing their money problems might be more receptive if you provide strategies and suggestions in general terms without delving into dollar figures or personal details. Several broad themes apply to much of the American population and, most likely, to some of your friends or relatives: Debts are high, emergency savings low and retirement preparations behind schedule, to cite some common examples.

When talking to people of a different generation, keep in mind that those individuals might evaluate financial mistakes and priorities differently. In the TD Ameritrade survey, baby boomers ranked their top mistake as not having a 401(k) retirement plan, followed by not contributing enough to receive full employer matching funds and not opening Individual Retirement Accounts.

But millennials cited the lack of emergency savings as the top perceived mistake, followed by low credit scores and keeping financial secrets from a spouse or partner.

If you’re being given financial advice, keep one caveat in mind: The person most boastful or opinionated about providing such advice might not be especially well qualified to give it. “I’d consider the source,” Dew said.

Respondents in the TD Ameritrade survey said they were most comfortable discussing finances with spouses/significant partners. Financial advisers were next, followed by parents, children, close friends, other relatives and then co-workers. If family members can’t discuss these issues frankly, it might be time to hire an impartial financial adviser.

Focus on positive, long-term practices

Perhaps the best advice you can give others is to help them develop sound practices and habits for managing money. “Focus on prudent, smart things to do correctly over time” rather than make predictions about the stock market, the election, the direction of the economy and so on, Dew said.

He recommends three financial rules of thumb for just about anyone.

One is to automate your finances by making sure car, mortgage and other bills are paid routinely and by regularly diverting a portion of your paycheck into a workplace 401(k) retirement plan, if available. If saving money has been tough, earmark perhaps $50 per paycheck into a dedicated savings account that’s separate from your checking account.

“If the money comes out automatically, you won’t miss it,” Dew said.

A second suggestion is to save half of every raise you get on the job. “Spend half and save half,” he said. “In five or 10 years, you will have saved a lot.”

Dew’s third suggestion is to get basic legal documents in place, which should include a will as well as a financial power of attorney and health-care power of attorney. A will appoints someone to make decisions such as how to transfer your assets at death, while the two powers of attorney name someone to act on your behalf if you’re alive but incapable of doing so.

(For Arizona residents, some key documents are available for free download under the “seniors” section of azag.gov, the website of the state attorney general’s office.)

These recommendations are especially important for single people without a spouse to make decisions for them. Trusts or other more advanced estate-planning documents also might be warranted, but at least get the basics down first, Dew suggests.

Organize the information

With younger family members, discussions often should focus on helping them develop sound financial practices, but with aging relatives, it’s often more a case of finding out what they need and where they keep wills and other key documents — without seeming like you’re trying to take control.

For a checklist of financial accounts, utility providers, key contacts and more, this eight-page summary from Merrill Lynch and Bank of America, titled “Organizing your Financial Life,” can be very handy. It can help parents or other family members stay on top of their financial documents as well as online accounts.

Brokerage and other financial accounts as well as real estate often transfer relatively easily at death compared with personal property such as jewelry, antiques, furnishings and even photos, Young said. Yet these items can result in family disputes later.

“In my experience, personal property often causes the most problems,” he said. “I’ve seen families torn asunder over this.”

Hence, it can be a good idea to help parents or other elderly residents start the discussion about whom should get which personal items.

Also, take the time to help elderly relatives reduce the odds of becoming fraud victims by inquiring who has been trying to contact them over the phone. Even in a high-tech age, scams targeting seniors frequently are initiated by cold calls.

“We all get (unsolicited calls) and many are from scammers,” wrote Lisa Weintraub Schifferle, an attorney with the Federal Trade Commission in a blog this month on holiday scams. “Remind people to just hang up.”

Kristy Shen and Bryce Leung have been traveling around the world since they retired in 2015.

The millennial couple, from Toronto, initially wanted to take just one year to travel, but it’s been four years and they haven’t stopped yet.

“After a year ended, we realized that traveling around the world costs about the same as living in one place in an expensive city like New York,” Leung told FOX Business.

Shen, 36, and Leung, 37, are followers of the F.I.R.E. Movement, which stands for Financial Independence, Retire Early. Followers of the movement spend years saving and investing their money in order to quit their jobs before a more traditional retirement age.

The couple also runs the blog Millennial Revolution and they recently published a book called “Quit Like a Millionaire.”

Before they started following the F.I.R.E. movement, though, Shen said her goal was to do “the thing that everybody else does” — as in, “buy the house, work until you’re 65, retire with a pension.”

However, houses in Toronto were over $1 million and at the same time, Shen noticed that her job as a computer engineer was getting less stable as positions were being outsourced to places like India.

“Unaffordable housing and … the lack of job security made me realize, you know what? I’m not going to get into over a million dollars in debt and then get laid off,” Shen said. “It doesn’t make sense.”

“And I think this is the thing that our generation, as millennials, struggle with,” she added. “Because our parents keep telling us, okay, you have to buy a house, and then if you’re loyal to a company, then they’ll take care of you once you retire at 65 with a pension … I don’t know the last time you tried to find a job, but that is no longer the case. Every five years, we have to look for a job.”

Leung said he started looking into what else they could do with their money — which by that point was about half a million dollars. He found that by investing the money in low-cost index funds, financial independence would be achievable.

“When I ran the math, I realized that, even just assuming pretty conservative rates of return in the stock market, the choice that I presented to her was, we could either buy a house — exchange our half a million dollars for more than half a million dollars of debt and then spend the next 25 years trying to pay that off — or if we start doing this other thing, we might be able to retire in three,” Leung said.

It was around 2012 when Shen and Leung started focusing on saving and investing their money. As Leung had predicted, it took them three years to retire from their jobs — on top of the previous six years they had been working, without focusing on F.I.R.E.

Once they finally did retire, they traveled around the world for a year, thinking they would move back to North America and live in an inexpensive city. But it turned out that they could just keep traveling.

“What we realized is that when we combined this F.I. stuff with global travel, the two synergize incredibly well,” Leung said. “[Travel] allows you to, at the same time, go see amazing places and eat amazing food … but also lets you control your budget very, very powerfully because when you can just live anywhere, the cost of living can vary dramatically.”

One example, he said, is that when they lived in Canada, they were living off about $40,000 a year, but if they moved to Thailand their cost of living dropped significantly.

“We realized that when you put those two parts of the puzzle together, it becomes sexy and glamorous and safer somehow to actually just be able to pack up and travel wherever you go,” Leung said. “If the stock markets were to crash tomorrow, we’d be taking a flight to Thailand and our cost of living would drop by half. And that’s how we would survive one of those things.”

Aside from constantly being able to travel, Leung and Shen have found that retirement has made their life healthier and more fulfilling.

“I think now we get a chance to actually help people,” Leung said. “Teaching people how to do this and how to put their life together in this amazing way, that’s what’s been most fulfilling about it.”

On their blog, Shen and Leung run an investment workshop that’s free so that anyone can have access to it, regardless of how much money they have.

“It really is about leading by example, rather than telling people or judging them for not doing the right thing or telling them they’re a stupid millennial and they’re just not doing what they’re supposed to be doing,” Shen said. “And I think that has been really fulfilling. I think it’s probably one of the most fulfilling things we’ve ever done.”

Even though they’re still traveling the world, their strategy has changed since they started in 2015.

“It has morphed from the frantic days of like, okay, let’s switch cities every two days and now it’s kind of more like we’ll spend a month in a city and spend a month in another city,” Leung said.

Shen added: “The world has become one city and we’re kind of visiting different communities, like the expat community or F.I.R.E. communities around the world. I don’t really see it so much as travel, it’s really more like nomadic lifestyle. It’s more like a slow-travel nomadic lifestyle now.”

That lifestyle is something Shen and Leung don’t think they’ll ever want to stop.

“I do think that once you start traveling, your brain kind of changes,” Shen said. “It kind of feels like you’ve lived multiple lifetimes. So then when you actually go back to once place and kind of go back to … what your life used to be, it can’t quite fit into that. It’s like putting a round peg into a square hole. You don’t quite fit into that mold anymore.”

“It’s like, once you’ve gone out of the matrix, you can’t really go back in,” she added.

Saving for retirement can’t be done at the last minute; it takes decades of consistent effort to save hundreds of thousands of dollars. When you start early, you still have compound interest on your side. But the longer you wait to begin stashing money in your retirement account, the more you’ll need to save each month.

If you’ve reached your 40s with nothing in your retirement fund, it will be more challenging to retire comfortably. But it can be done if you follow these three steps.

1. Set a savings goal

The first step is figuring out how much you need to save and exactly how you’ll get there. 

When determining your goal, first think about your retirement expectations. At what age do you plan to retire? How many years do you think you’ll spend in retirement? How much do you expect to spend each year once you retire?

Really think about the answers, because they will significantly affect how much you’ll need to save; if your estimates are off, you risk running out of money. For instance, if you assume you’ll spend 15 years in retirement but you live for another 10 years on top of that, you may end up running out of savings roughly halfway into retirement. 

You can’t predict exactly how long you’ll live or how much you’ll spend each year. But instead of winging it and hoping for the best, try to be as educated and accurate as possible when coming up with an estimate.

Next, think about any other sources of income you will have in retirement — like Social Security benefits or a pension. You can get an estimate of how much you can expect to receive from Social Security by creating a mySocialSecurity account to give you an idea of what your future benefit amount will look like based on your real earnings. That will help you figure out how much you’ll need to save on your own. For example, if you estimate you’ll spend $50,000 per year in retirement and expect to receive $20,000 per year in benefits, that means the other $30,000 per year will need to come from your savings.

Finally, run your numbers through a retirement calculator to see how much you’ll need to save by retirement age and what to save each month to reach that goal. Create a savings plan, and if you have access to a 401(k) that offers matching employer contributions, factor that into your plan so you know how much must come from you. Then, start socking money away.

2. Adjust your budget to save more

When you know how much you should be contributing to your retirement fund each month, you may need some budget adjustments to find the extra cash to save. Depending on just how much you must save each month, this step could be easy or nearly impossible.

If you need to be saving several hundred dollars per month (or more), it can be tempting to throw in the towel and assume you’ll never be able to. But it’s easier than you may think to find extra cash in your budget.

First, start tracking your expenses; it can be easy to overspend when you’re not watching where all your money is going. The average U.S. household spends close to $500 per month on unnecessary expenses, according to a survey from Charles Schwab, even though approximately 60% of those survey participants said they’re living paycheck to paycheck. Once all your expenditures are laid out in front of you, it’s easier to see where you’re spending too much.

Making small cuts across several categories in your budget can potentially help save hundreds of dollars per month, but if that’s not enough to reach your goal, you’ll need more-drastic changes — like downsizing your home or selling your car. These are big decisions, but they could help you save a lot more for retirement.

3. Consider tweaking your retirement plans

If you can’t save enough to reach your goals, you might need to readjust your retirement expectations. That may involve working a few years longer than you anticipated so you have more time to save, or scaling back your retirement expenses.

Another option is to delay claiming Social Security benefits to earn bigger checks. You’ll receive your full benefit amount at your full retirement age (FRA), which is either 66, 66 plus a few months, or 67. If you wait until after your FRA to begin claiming, you’ll receive extra money each month — up to 32% more on top of your full amount if you have a FRA of 66 and you wait to claim until age 70.

Delaying Social Security or working longer may not be ideal, but you’ll need to make sacrifices at some point. If you’re not willing to adjust your retirement expectations, you’ll need to make more sacrifices now so you can boost your savings. So think about your options and consider your priorities. Would you rather live a more comfortable lifestyle now and make cuts in retirement? Or would you prefer to save more now and enjoy a more financially stable retirement?

Saving for retirement is never easy, and can be particularly difficult if you’re in your 40s with little to nothing saved. But that doesn’t mean it’s impossible. If you’re willing to make some financial sacrifices, you can still enjoy a comfortable retirement even if you’re off to a late start at saving.

Saving for retirement is crucial. Without independent savings, you risk struggling financially during your golden years. And when you think about the expenses you’ll face when you’re older, it’s easy to see why.

Even if you manage to pay off your mortgage in time for retirement, you’ll still need to cover other homeownership costs like property taxes, insurance, and upkeep. And while you won’t have to pay to commute to a job, you’ll still need transportation, which could mean grappling with car payments, insurance, and maintenance. Throw in the fact that your healthcare costs are likely to rise, and it’s clear that saving independently is a must — especially since Social Security is in no way designed to sustain seniors by itself.

But new data from GOBankingRates reveals a disturbing gap between men and women on the retirement savings front. Male workers contribute $2,633 per year, on average, to their retirement accounts. Women, however, contribute just $1,331 per year on average. That means women are looking at potentially retiring with half the savings as their male counterparts, and given that they tend to live longer, that doesn’t paint a very promising picture.

Women need to ramp up

The reason women lag behind men with regard to retirement savings could boil down to the gender wage gap. The Ascent reports that in 2018, women’s median earnings were 81% of men’s. And with less income to work with, women are apt to have a harder time setting funds aside for retirement.

Still, female workers need to do better. Contributing $1,331 to a retirement savings plan annually over 40 years results in an ending balance of just $266,000, even if we assume a somewhat aggressive average annual 7% return on investment — which, for the record, is feasible with a stock-heavy portfolio.

But $266,000 isn’t a ton of money in the grand scheme of retirement. Financial experts often advise withdrawing from retirement savings at an annual rate of 4%. With a savings balance of $266,000, that translate to $10,640 of annual income. Even when we factor in Social Security, that’s only $17,748 a year for today’s average recipient. And since women tend to earn less than men, they stand to collect lower benefits, since Social Security payments are calculated based on lifetime earnings.

Furthermore, that $266,000 figure assumes a 40-year savings window. If you don’t start saving for retirement till your mid- to late 30s, you may be looking at just a 30-year savings window, which would bring your ending balance down to $126,000, assuming that same 7% return.

That’s why it’s critical to ramp up on the savings front if you’ve only been setting aside somewhere in the ballpark of $1,331 a year for retirement. How do you do that? Well, you can start by making adjustments to your current spending. Living more frugally — say, by downgrading your cable plan, dining out less frequently, and canceling your gym membership — could free up another $100 or so per month, thereby doubling your retirement plan contributions. Larger changes, like downsizing your home, will have an even greater impact.

The same holds true for securing a second job, since your earnings from it can go right into your retirement account. At the same time, you should also fight for fair wages at your main job. Research salary data for your industry, and if your income is below the average for workers with your job title, bring that information to your employer and ask for a wage adjustment. Boosting your salary could make it feasible to double or triple your current retirement plan contributions.

In fact, imagine that instead of saving $1,331 a year for retirement, you’re able to set aside $3,000 annually instead. Over a 40-year window, that’ll give you $599,000 in retirement savings, assuming a 7% average annual return. And that’s a far more reasonable, and comfortable, sum to live on.

While women may have a natural disadvantage as wage earners, you can’t afford to let that hurt your chances of a secure retirement. Do your best to boost your savings rate — you’ll be thankful you did later in life.