MONEY retirement planning

8 Things You Must Do Before You Retire

sébastien thibault

Getting ready to retire? The moves you make in the months before you call it quits can smooth the way to a secure future.

After working diligently for more than 30 years—so you could set yourself up financially for your golden years—the glow of retirement is finally on the horizon. Alas, it’s not time to relax just yet.

Each day more than 10,000 baby boomers enter retirement. Yet only around one-quarter of workers 55 and older say they’re doing a good job preparing for the next phase, according to the Employee Benefit Research Institute. The last 12 months before you call it a career is especially critical to putting your retirement on a prosperous path. It’s time to get your portfolio, health care, and other finances in order so you can enjoy your new life.

THE TURNING-POINT CHECKLIST

12 Months Out:

Dial back on stocks now. You still need the growth that equities provide, but even a 15% market slide in the year before you retire can erase four years’ worth of income. Cap stock exposure to around 50% in your sixties, advises Rande Spiegelman, vice president of financial planning at Schwab Center for Financial Research.

Raise cash. Your paychecks are about to stop. So as you downshift from stocks, move that money into a savings or money market account to fund at least one year of expenses, says Judith Ward, T. Rowe Price senior financial planner.

Set a realistic retirement budget. Use the worksheet on Fidelity’s free retirement-income planner to list all of your fixed and discretionary expenses. Then use T. Rowe Price’s free retirement-income calculator to see how safe that level of spending is likely to be, based on the size of your nest egg and age.

6 Months Out:

Play out Social Security scenarios. You can claim Social Security at 62, but if you can hold off until 70 your checks will be 76% bigger. Tool around FinancialEngines.com’s free Social Security Income Planner to find the best strategy for you.

Figure out how you’ll pay for health care. Check if your company offers retirees medical, long-term care, and other insurance coverage. If you won’t get health insurance and aren’t yet 65 (when you qualify for Medicare), then compare plans offered via the Affordable Care Act at eHealthInsurance.com. Or use COBRA, where you can stay on your employer plan up to 18 months after leaving.

3 MONTHS OUT:

Begin the rollover process. In a small 401(k) plan, average fund expenses can run north of 0.6% of assets. You can cut those fees at least in half by shifting into index funds at a low-cost IRA provider. See if your plan provides free access to investment advisers to help you decide.

Sign up for Medicare. Nearing 65? You can enroll for Medicare up to three months before turning that age. Also, figure in supplemental plans to cover expenses that Medicare does not, such as dental care and prescription drugs.

Get a running start. Put your post-career itinerary into action. Research volunteer groups that you want to join, reach out to contacts if you plan to keep a hand in work, start a new exercise routine, or begin planning that big trip.

MONEY

$539 Created This Reading Nook

A budget renovation transformed this odd space into a cozy retreat.

In a blank space, there’s a lot of room for improvement. Just ask Vel Baricuatro-Criste and her husband, Gerson Criste. After having a contractor add a windowed egress dormer in an over-the-garage room for their teenage son, they were left with an odd, unfinished nook. Vel saw it as an opportunity to create a quiet reading alcove as part of an overall update of the bedroom.

What They Did
She painted both spaces white with an accent rail of bold navy stripes to create a cohesive look. To keep things cozy underfoot, Gerson installed striped carpet tiles over the nook’s plywood subfloor. Then he built a storage bench from prepainted cabinets, using stock lumber to fill in gaps at the back and sides and painting the exposed sides white so that they blend in. Vel made a seat for the bench by stapling fabric-topped foam to sheet pine that her husband had cut to size. Gerson installed floating shelves to display some of their son’s books; the rest tuck neatly away in the storage bench. Sconces flank the window seat, and a flush-mount fixture hangs overhead, providing plenty of light for nighttime reading. Now the nook is her 13-year-old’s favorite place to unwind. “He has a whole room to hang out in, but whenever he has friends over, they’re always in that space,” says Vel. “They love it!”

The Project Tally
• Painted the room white with navy stripes $109

• Finished the floor with carpet tiles found at a big-box store $98

• Created a bench from laundry cabinets and stock lumber $110

 

For the full tally, see the original story at This Old House.

TIME Budget

Which President Accrued The Highest Budget Deficits?

Hint: It wasn't Barack Obama

When looking at the United States’ massive amount of national debt, many Americans focus blame directly on the president. In fact, CNN surveyed 1,010 adults nationwide earlier this year and found that 44% still believe that President Bush and the Republican party were “primarily responsible for the country’s current economic problems.”

But was it this former president who left the country in its worst shape at the end of his two terms? With data provided by the White House Office of Management and Budget and the Council of Economic Advisors, research engine FindTheBest ranked the 14 most recent presidents by the total deficit they accrued during their presidencies—so far, in the case of Barack Obama—as a percentage of the Gross Domestic Product of their time in office.

TIME Budget

This is How the U.S. Has Been Spending Its Money Since 1971

Federal spending on social programs has increased in the wake of the Great Recession

You’ve heard it too many times—griping and groaning about the United States’ debt, worrying about where tax dollars are going, outrage that the government is spending its money on all the wrong things—but in truth, too many Americans have no idea where the federal budget goes, which is a part of the reasons why they feel left in the dark.

Instead of pointing fingers, it’s always best to get a little perspective. Research engine FindTheBest complied federal budget data since 1971 to see how the government has been spending its money over time. The bars in the graph are divided by program.

Note that starting in 2008, around the time of the Great Recession, the government increased spending in Social Security, unemployment and labor, and it has steadily increased every year since. This was largely due to the fact that those without jobs realized that they could be eligible for Social Security disability benefits and Medicare, which would cover a big portion of their expenses.

Also, 2009 saw a significant increase in spending than the year before, especially in the “other” category—a mix of energy, agriculture, commerce and housing credit, community and regional development and other allowances. The spike was in commerce and housing credit, which increased from $27.8 billion in 2008 to $291 billion the next year as the government tried to fix the newly-burst housing bubble.

TIME Innovation

Five Best Ideas of the Day: September 5

1. Our nation’s racial divide starts early: America’s public schools are still highly segregated.

By Reed Jordan at the Urban Institute

2. The Pentagon is getting bad advice about responsibly managing its budget and our national defense.

By Nora Bensahel in Defense One

3. “We need to step up our game to make sure that Putin’s rules do not govern the 21st century.”

By Madeleine Albright in Foreign Policy

4. Over a lifetime, and despite the high cost of tuition, a college education is still a great deal.

By Jaison R. Abel and Richard Deitz at the Federal Reserve Bank of New York

5. Reality television – MTV’s “Teen Mom” and “16 and Pregnant” – triggered a plunge in the teen birthrate.

By Phil Schneider in the Aspen Journal of Ideas

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Innovation

Five Best Ideas of the Day: August 27

1. A reimagined NATO – with rapid response capability – could balance the Putin doctrine.

By David Francis in Foreign Policy

2. Hold the bucket: Focusing on a single disease isn’t a good use of philanthropy dollars.

By Felix Salmon in Slate

3. The Navy’s audacious plan for a new warfighting vessel was too good to be true. The result is a ship that meets none of our needs well. Cancel the Littoral Combat Ship.

By William D. Hartung and Jacob Marx at the Center for International Policy

4. The conventional wisdom is that social media stimulates debate, but self-censorship online actually leads to a ‘spiral of silence.’

By Keith Hampton, Lee Rainie, Weixu Lu, Maria Dwyer, Inyoung Shin and Kristen Purcell at the Pew Research Internet Project

5. Better living through design: Injectable, long-acting birth control will revolutionize family planning in the developing world.

By Heather Hansman in Pacific Standard

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME energy

Dropping Oil Prices Threaten Moscow’s Budget

Oil refinery in Ufa, Russia, seen in April 2014.
Oil refinery in Ufa, Russia, seen in April 2014. Andrey Rudakov—Bloomberg/Getty Images

Russia has seen its economy boom with the price of oil. But if the cost of crude falls, Moscow could struggle to make ends meet

This article originally appeared on OilPrice.com

Oil and gas are at the heart of the Russian economy and are largely responsible for keeping Moscow’s government budget in balance. But the recent decline in the price of oil from the North Sea and Texas has now spread to Urals crude, giving President Vladimir Putin one more economic headache.

The price of Urals crude fell just below $100 per barrel on Aug. 18, an 18-month low. On Aug. 19, it dropped to less than $97 per barrel. These declines coincided with similar drops in the price of Brent crude from the North Sea and U.S. oil.

The reasons are fairly easy to recognize. First, the United States has been on a drilling tear, extracting oil at record levels to increase its supply at a time when demand is waning. Second, though more tentative, is that conflicts in North Africa and the Middle East are so far not interfering with oil production in these regions.

This oil production boom raises problems for Moscow. Two-thirds of Russia’s exports are oil and gas, accounting for fully half of the central government’s revenues. That means that so far this year, every dollar drop in the price of Russian oil means a cut of about $1.4 billion in revenues.

This comes as Russia’s oil industry joins its defense and finance sectors as targets of sanctions by the European Union and the United States over Moscow’s unilateral annexation of the Crimean peninsula in Ukraine and its suspected role in the fighting between Ukrainian forces and pro-Russian separatists.

Some analysts say the effects of the lower oil prices may not be lasting unless the drop in oil prices fall further in coming years. Vladimir Kolychev, the chief economist at VTB Capital, a global investment firm with headquarters in Moscow, says brief dips have less of an impact on Russia’s budget than the average cost of oil over an entire year.

“The first thing to remember is that the oil price projected by the finance ministry is … $104 average for the year – that still looks conservative,” Kolychev told Reuters. “Even if the oil price falls to $90, we’ll still have $105 average.”

As an example, Kolychev calculates that Russia’s budget would balance if oil’s average price fell to $103 per barrel.

Even if Moscow can tame its budget, it seems clear that Russia’s oil sector will feel the pain from the one-two punch of Western sanctions and lower prices. Vedomosti, a Russian financial journal, reported Aug. 14 that government-owned Rosneft, Russia’s largest oil company, has asked Moscow for more than $40 billion in debt relief because of the sanctions.

That’s a sharp reversal from just a month ago. Western sanctions were imposed on July 15, and three days later, Rosneft officials shrugged them off, saying the company would continue to pursue its plans and reap profits. In fact, a week after that statement, Rosneft CEO Igor Sechin boasted that the company’s revenues were soaring.

 

TIME Saving & Spending

This 1 Mistake Could Cost You Hundreds of Dollars

istock

Read the fine print—or pay

Everybody hates bank fees, but what’s even more worse is not knowing when or why you’re getting dinged with those charges.

In a new study, the website WalletHub.com finds the average checking account has 30 different fees that can ding you, and banks aren’t always transparent about the details. “Some banks disclose their fees only after a customer has opened an account,” the site warns. “Others disclose their fees in inconspicuous sections of their websites.”

In particular, those $35 overdraft fees that can be triggered by buying something as small as a cup of coffee can really pack a wallop, yet many of us don’t bother paying attention to the fine print that spells out the details of how financial institutions process transactions. We should, though — a new interactive tool from the Pew Charitable Trusts shows how seemingly insignificant differences in transaction-processing practices can make the difference between having enough money in your account to tide you over until your next payday or getting socked with more than $100 in fees.

Pew looks at three different variables: Letting people overdraw their balances when they make purchases or ATM withdrawals versus declining these attempts, processing transactions in the order they happen versus in order of highest-to-lowest dollar amount and offering a $5 “grace period” threshold before an overdraft fee kicks in versus no threshold.

In a trio of scenarios, Pew follows three hypothetical customers in a scenario many Americans are all too familiar with: navigating the demands of daily expenses with less than $200 until the next paycheck comes. In each case, everything is identical for the variable under scrutiny.

The differences are huge. For instance, a customer whose bank processes transactions in the order they happen winds up getting hit with a single $35 fee — while her alter ego who banks with an institution that practices high-to-low transaction ordering gets nailed for FOUR $35 fees when conducting the exact same transactions.

The other two examples show a similar disparity. For many of us, the difference between ending the month 10 bucks in the black versus more than $80 in the red is huge, especially if our spending habits are such that this happens frequently.

Consumer advocates criticize banks for their overdraft practices, pointing out that the customers who pay the bulk of these charges tend to be younger, minority customers who are poorer to begin with and often don’t have the financial education to know a raw deal when they see one. Fewer than 10 percent of bank customers are responsible for three-quarters of overdraft charges, according to the Consumer Financial Protection Bureau. “[This] is especially pertinent as the CFPB continues to study overdraft and will release new rules based on these studies in 2015,” Pew says.

The CFPB says it’s still looking at how these fees impact bank customers. “We need to determine whether current overdraft practices are causing the kind of consumer harm that the federal consumer protection laws are designed to prevent,” CFPB director Richard Cordray said in a statement last month, saying the agency’s most recent research “compound[s] our concerns” about whether overdraft practices leave vulnerable customers at risk.

Until the CFPB acts, it’s buyer-beware out there, so don’t forget to read the fine print.

MONEY College

12 Things We Wish We’d Known When We Were 18

Girl moving off to college
Eric Raptosh Photography—Corbis

Suze Orman and other experts share their financial advice for the Class of 2018. Follow these tips to keep your college experience from becoming a major money mistake.

Prepping for freshman year at college typically includes activities like shopping for dorm essentials, reviewing orientation packets, and Googling your new roommate.

Most students don’t spend a lot of time thinking about how they’ll manage their money in this new phase of their lives.

And yet, what you do in those first few years of parental emancipation can affect you for years—or decades—to come. Students graduated last year with an average $35,200 in college-related debt, including federal, state and private loans, as well as debt owed to family and accumulated via credit cards, according to a Fidelity study. Half of those students said they were surprised by just how much debt they’d accumulated.

To make sure the class of 2018 gets off on the right foot, MONEY gathered sage advice from top financial experts about the lessons they wish they, their kids, or their friends had known before starting school.

1. Limit your loans. “Do not take out more in student loans than what you are projected to earn in your first year after college. If you only expect to make $40,000, you better not take out more than $40,000. The chances of you being able to pay it back is close to nil. If you need to take a private loan, you’re going to a college you can’t afford. Remember, going to an expensive school doesn’t guarantee success. The school never makes you, you make the school.” —Suze Orman, host of The Suze Orman Show and author of The Money Book for the Young, Fabulous & Broke

2. Finish in four. “Many kids are finishing school in five or six years. But every extra year is potentially an extra $30,000 to 40,000 in expenses. Map out your coursework and figure out exactly what you’ll need to do each semester. Be vigilant about sticking to your plan. Try to catch up on any credits by taking classes at a community college over the summer.” —Farnoosh Torabi, author of You’re So Money

3. Study money 101. “Sign up for an economics or personal finance course. This way, when you graduate, you’ll be better equipped to manage money for the rest of your life.” —Brittney Castro, CEO of Financially Wise Women

4. Leave the car at home. “Everyone feels like they need a car, but with the combination of sharing services like Uber, Lyft, Zipcar and public transport, that isn’t always the case. If you’re living in a major metropolitan center or on campus, consider leaving your car behind. It’s much cheaper to use one of these car services than it is to pay for insurance, gas, parking, car maintenance and car payments.” —Daniel Solin, author of The Smartest Money Book You’ll Ever Read

5. Lead rather than follow. “Especially in college, you’re going to be surrounded by people doing dumb things financially. You’ll see people financing their lifestyle with student loans or their parents’ money. Don’t feel bad if you can’t afford the same things as others. I knew a student who was financing his whole college experience with debt and he was always asking people to go shopping with him. If I’d tried to keep pace, I’d have ended up in the same debt-ridden place as him.”—Zac Bissonnette, author of Debt-Free U

6. Find free fun. “You can still do fun things at school, without spending a lot of money. You’re paying an activity fee in your tuition, so you ought to make sure you’re taking full advantage of whatever the school offers for free—be it concerts, trips, lectures. The school I went to provided grants to help students travel abroad and offered free plays and trips through different clubs.” —Farnoosh Torabi

7. Be purposeful with plastic. “The idea that you need to build credit in college is wildly overrated. It’s not a bad idea to build credit, but having built up a bad credit history will hurt you more than having no credit history. You don’t need to feel pressure to get a credit card. You can get by just fine with cash and a debit card; no one is expecting you to have a ton of borrowing history when you’re getting your first apartment anyway.” —Zac Bissonnette

8. Put your budget on autopilot. “Keep track of the money you’re getting in from loans and your parents, as well as your expenses. Use an app like Mint.com, which lets you link your debit and credit cards to your online account to track your spending and easily help you keep on budget.” —Daniel Solin

9. Enlist Mom and Dad. “Check in with your parents once a month and review your spending with them. Talking about this will help you to avoid what I call ‘budget creep,’ where all of a sudden you’re spending $30 a day on food and entertainment. All those little extras add up and you could be spending over a hundred a week… on what?”—Neale Godfrey, chairwoman of Children’s Financial Inc.

10. Protect your stuff. “College students may not think they have a lot of valuable possessions. But think about the value of electronic devices alone, not to mention textbooks, clothes, even that ratty futon. The good news is that renters insurance is typically inexpensive and can protect you from fires, theft and other incidents. The even better news is that students’ stuff may be covered by their parents’ homeowners insurance. Check the policy prior to hitting the books.”—Kara McGuire, author of The Teen Money Manual

11. Establish rules with roomies. “If you’re renting an apartment with friends, be sure everyone and their parents sign the lease. Try to have everyone’s name on the utilities bills as well. Kids will take advantage of other kids, and you don’t want to be the one who is stuck being responsible for everything. If you can’t attach everyone’s names to all the bills, have them prepay. Also, make sure everyone chips in for general expenses like cleaning supplies and toilet paper, so you don’t end up paying for all of that as well.” —Neale Godfrey

12. Share with discretion. “Social networks are a public record. Your future employers will look you up on your social sites and judge you based on what they see. So something that you thought was cute in college could keep you from getting the job. Know that every move you make on those sites could have a direct consequence on your ability to land a job.” —Suze Orman

 

MONEY Kids & Money

Why the $245,000 Cost of Raising a Child Shouldn’t Stop You From Having One

Baby drinking milk bottle filled with cash
Mike Kemp—Getty Images

A new USDA report will send shivers down the spine of any person of child-bearing age. But these five steps can help you make room in your budget for baby—and prevent financial freak out.

Even if you’ve got baby fever, new data out today from the U.S. Department of Agriculture could have you reaching for the prophylactics.

For a middle income family (before tax $61,530 to $106,540), a child adds an average $14,970 in annual expenses to the bottom line. And to raise that kiddo born in 2013 to age 18 will cost on average $245,340 in total—up 1.8% from last year.

Yikes.

But before you go telling your honey you have a headache, keep in mind that four million babies are born in the U.S. each year, and most of their parents adjust just fine to the new costs. And if you wait until you feel completely financially ready, you may never realize that bundle of joy.

“Having a child is an exciting but scary step, and money can be a big part of that worry,” says financial planner Matt Becker, father of two and founder of the blog Mom and Dad Money. “I wouldn’t dive in without considering the financial consequences, but I also wouldn’t let them scare you off.”

You’ll just need to make room for in your budget for baby. These five steps can help you feel secure enough to add to your family.

1. Assess your current expenses. First step, get a handle on how you are currently allocating your income. Mint.com can help you track your spending.

2. Estimate future income. Then consider how your income might change after the baby, says San Diego financial planner Andrew Russell, who’s also a dad of two. For example, will you or your partner stay home part time or full time? Will you take any unpaid parental leave?

3. Estimate future expenses. Once you know what your post-baby income will look like, get a rough estimate of the new expenses you will be footing, both one-time (like maternity clothes, hospital costs, car seat, crib) and ongoing (childcare, food and diapers). Becker recommends using Babycenter’s child cost calculator.

You’ll also want to factor in the cost of basic protections like life and disability insurance, which can help ensure your child will still be provided for if a parent dies prematurely or is seriously injured. “These will add to your monthly budget, but are well worth the cost for the financial security they provide,” says Becker.

4. Cut costs. You may find through this exercise that your future expenses with baby exceed your income. If so, look for any fat in your budget to cut out—particularly recurring expenses that require a one-time effort to change like switching to a cheaper cell phone plan, cutting cable, or moving to an area with less expensive rents. Keep in mind that while some of your costs will go up, your entertainment costs—like bar tabs and restaurant bills—will likely go down in the first few years.

And what if, like a lot of Millennials, you have some $20,000 in student loan debts standing in your way? See if you qualify for any loan forgiveness programs. If not, dial back to the minimums. “Obviously this is a big life goal with a certain time frame, and if there is not that much room to cut back on spending, then you need to minimize the amount you pay back on loans,” says Russell. “If the debt is too large for you to take a good chunk out of it in the next few years, you’re going to have to move forward with it.”

While the lower payment will add to your interest over time, the federal tax deduction on student loan interest—if you qualify—will offset some of the cost. Plus, every time you and/or your partner receive pay raises and bonuses, you can funnel that additional income toward the debt.

5. Practice your new budget. Once you’ve figured out your post-baby budget, start living on it—even before you get pregnant, Becker advises. And put the money you would be spending into a savings account.

Besides helping you see if you can handle the budget, “this helps you build up a savings cushion that will relieve a lot of the financial anxiety that can come with a growing family,” says Becker. You will need to plump that cushion before the baby’s arrival anyway: With the general rule being to have cash reserves equaling six months of living expenses, you’ll need to make sure your emergency fund now reflects all the new costs you’ll be covering.

In the end, you might be surprised at how easy it is to adjust your spending. especially when the prize is so sweet.

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