MONEY IRAs

This Innovative Idea Could Improve Your Retirement

State governments are starting to step in to help workers save. Here's why that's a good thing.

A rare innovation in retirement saving is taking shape right now in, of all places, Illinois. In January the state became the first to okay an automatic IRA for workers at certain small businesses that don’t offer retirement plans. Those companies will be required to funnel 3% of their employees’ paychecks into a state-run Roth IRA, though workers can opt out.

It may seem surprising that Illinois is breaking ground in this area—after all, the state’s pension plans are among the worst funded in the nation. But Illinois is actually part of a broad movement. Some 30 states, including California and Connecticut, are developing similar savings programs. Says Sarah Mysiewicz Gill, senior legislative representative at AARP: “We’re reaching a critical mass of states.”

A Local Approach

Why are states taking on retirement planning? Half of private-sector employees don’t have an employer plan—a crucial tool for building a nest egg. In fact, just having access to a retirement plan through work makes a huge difference in whether you save. While 90% of those with a workplace plan have put aside money for retirement, only 20% of those without one have, according to the Employee Benefit Research Institute.

So states will face a huge drain on their budgets as workers with no savings reach retirement and need services such as Medicaid and food assistance. “If Washington were moving faster on this, the states wouldn’t have to,” says Illinois state senator Daniel Biss, who sponsored the new IRA.

No question, Congress has long dodged addressing the looming retirement crisis; it has failed to fix Social Security or create a federal automatic IRA, which President Obama proposed again in his most recent State of the Union address. Obama did introduce the myRA last year, which will allow savers without employer plans to put away as much as $15,000 in Treasury securities. But without auto-enrollment, the myRA’s effectiveness will be limited.

The Illinois program may prove to be an appealing prototype. (First it will need approval by the Department of Labor and IRS.) Still, each state is crafting its own version. In Connecticut, the automatic IRA may be paid out as a lifetime annuity or in a lump sum. Indiana is looking at setting up a voluntary plan with a tax credit. “States are a great laboratory for experimentation,” says Kathleen Kennedy Townsend, founder of Georgetown University’s Center for Retirement Initiatives.

Reason to Hope

Of course, it’s far from certain that state savings plans will make much headway: at 3%, Illinois’s minimum contribution is far below the 10% to 15% of pay that retirement experts generally recommend. And a hodgepodge of state IRAs would be less efficient and more costly than a national plan.

That said, states can sometimes get it right. State-run 529 college savings plans have helped countless families with tuition bills. The Massachusetts health care plan was a model for the national plan that has meant coverage for millions. Perhaps the states’ efforts will push retirement savings higher up the federal government’s priority list. If Illinois can lead the way on retirement, anything’s possible.

 

TIME celebrities

Here’s What Jon Stewart Wants From the Next Host of The Daily Show

"Rosewater" New York Premiere
Desiree Navarro—WireImage/Getty Images Director/writer/producer Jon Stewart attends "Rosewater" New York Premiere at AMC Lincoln Square Theater on November 12, 2014 in New York City.

He still didn't say who he thinks that host should be, though

After hosting The Daily Show for a decade and a half until recently announcing that he will step down at the end of the current season, comedian Jon Stewart wants his successor — whoever that may be — to take the show’s concept to the next level.

Stewart, speaking at Catie Lazarus’s show “Employee of the Month” at a New York pub, wouldn’t name a desired successor but explained what he would like to see from the show after he leaves, the Hollywood Reporter reported.

“What I want to see there is the next iteration of this idea,” Stewart said, adding that he used every possible permutation of the show’s concept. “I feel like the tributaries of my brain combined with the rigidity of the format.”

He used The Daily Show alum and Last Week Tonight host John Oliver (who will definitely not be succeeding Stewart) as an example of the possibilities. “John Oliver was able to apply our process to a more considered thing, and it’s exciting to watch it evolve and see it mutate and change and fill different gaps and different ideas,” he said. “That’s the part that I’m looking forward to seeing.”

As for his own plans, Stewart reiterated that he has a lot of “ideas” of his own, and that spending more time with his family is a big part of his decision to step down.

MONEY Lifestyle

The Most Surprising Thing That Will Make You Happy in Retirement

FIFTY SHADES OF GREY, l-r: Dakota Johnson, Jamie Dornan, 2015.
Chuck Zlotnick—Focus Features/courtesy Everett Collection

While financial security is important, a little sex goes a long way toward increasing happiness in retirement.

Most retirees probably aren’t as “frisky,” shall we say, as Christian Grey in the new film Fifty Shades of Grey. But new research shows that many people well into their 70s and 80s still have active sex lives, some engaging in sex at least twice a month. Tame perhaps, by Mr. Christian’s standards. But more than enough to make for a happier retirement.

We all know that diligent financial planning can lead to a more satisfying post-career life. But while money is important to retirees—especially guaranteed income they know they won’t outlive—financial security alone doesn’t assure well-being in retirement. A number of non-financial factors may also be able to increase your chances of having a more meaningful and joyful retirement, including having more sex.

A paper published last year in the Journals of Gerontology found that older married couples who had sex more frequently had higher levels of marital happiness than couples who had sex less often or had no sex at all. Which wasn’t exactly a revelation, since an earlier study (“Sex and Older Americans: Exploring the Relationship Between Frequency of Sexual Activity and Happiness”) that focused on people 65 and older, both single and married, also showed a relationship between happiness and frequency of sex, even after adjusting for health and finances.

To get this boost in happiness, the sex didn’t have to be the push-the-envelope variety portrayed in the Fifty Shades movie. Indeed, both studies set the parameters of sexual activity pretty broadly, with the Journals of Gerontology research defining sex as any activity with a partner that was sexually arousing.

But frequency does matter. In the Sex and Older Americans study, for example, only 32% of those who said they’d experienced no sexual activity during the prior 12 months felt very happy with life overall. By contrast, almost 38% who had sex at least once or twice over the previous 12 months reported that they were very happy, while more than half who had engaged in sex more than once a month reported being very happy.

I’m not suggesting that anyone should base their sex habits on these or any other studies. For one thing, it’s possible that frequency of sex isn’t what’s driving happiness. It could be the other way around. Happier people may just have more sex. Besides, how often one has sex or whether one chooses to have it at all is a highly personal matter, and thus a decision each person has to make based on his or her particular circumstances.

That said, intimacy and sex are an integral part of life. So it only makes sense for retirees to consider whether their current sex habits are contributing to a more meaningful and fulfilling life—and if not, whether this is an issue that deserves more attention.

Of course, there are plenty of other lifestyle moves that also have the potential to increase your sense of well-being in retirement. Research shows that people who cultivate a circle of friends they can rely on for companionship and support tend to be happier than those who have fewer ties with friends or family members. Similarly, staying active through occasional work or volunteering can make for a more satisfying retirement, as long as you don’t go too far and effectively turn an avocation into a job. And people who attend religious services also tend to be happier than those who don’t.

So as you’re mapping out your post-career life, by all means give financial issues all the attention they deserve. Make sure you’re saving enough, that you’re investing wisely and have a coherent retirement income plan. But do some retirement lifestyle planning as well, and make your sex life a part of it. As to how big a part, well, that’s entirely up to you.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

More From RealDealRetirement.com

Your 3 Biggest Social Security Questions Answered

Can You Afford To Retire Early?

Should You Pull Your Money Out of Stocks Or Let It Ride?

MONEY Saving & Budgeting

4 Ways to Hit Your Money Goals

150218_FIT_MOTIVATION
Gregory Reid

It's one thing to know that you need to save more money, find a better job, or pay down debt. It's another thing to actually do it. Employ these strategies to stay on track.

Welcome to Day 2 of MONEY’s 10-day Financial Fitness program. Yesterday, you did a self-assessment to see what kind of financial shape you’re in. Today, we help you find the motivation to take your finances to the next level.

Okay, you’ve checked your vitals, and you’re probably feeling pretty good about your starting point. According to Gallup’s annual Personal Financial Situation survey, 56% of people in households earning $75,000 or more say they are better off financially now than they were a year ago, up from 44% who felt that way in January 2014.

But just as even the most devoted gym-goer can get complacent, your financial confidence could stop you from reaching the next level. “In good economic times people save less and spend more,” says Dan Geller, a behavioral finance expert and the author of Money Anxiety. Keep the eye of the tiger even when you’re doing great. Here’s how.

1. Make a Specific Goal

When you show up at the gym without a plan, there’s a good chance you’ll shuffle on the treadmill for a half-hour and call it a day. Your financial life is no different. To boost your performance, start by zeroing in on a goal. A study by Gail Matthews, a psychology professor at Dominican University, found that you’re 42% more likely to achieve your aims just by writing them down. Indeed, people with a written financial plan save more than twice as much as those without a plan, says a Wells Fargo survey. The more specific the goal, the easier it is to tackle. Rather than plan to “cut costs,” focus on, say, paying off your mortgage five years early.

2. Buddy Up

Much as a workout partner provides motivation to get to the gym, recruiting a family member or friend to hold you accountable is a good way to stay on track. In another study by Matthews, some participants shared their goals with a friend via weekly updates—achieving their aims 33% more often than those who did not.

3. Get a Nudge

Sometimes you just need a reminder. A study by the Center for Retirement Research found that bank account holders who got reminders about their savings goals put away more cash than people who didn’t. It’s easy to set recurring calendar reminders on your PC or phone, or try a service like FollowUpThen.com, which lets you schedule emails to your future self.

4. Stickk It

Need something with more teeth? The website Stickk.com allows you to pledge a sum of money toward a goal, sign a commitment contract, and pick a friend to monitor your progress. Achieve your aim, and you get the money back. Miss it, and you lose the money, which is donated to charity or a friend.

Previous:

Next:

MONEY retirement planning

What Women Can Do to Increase their Retirement Confidence

150212_FF_WOMENDONTTALK
Izabela Habur—Getty Images

Knowing how much to save and how to invest can help women feel more secure. Here's a cheat sheet.

Half of women report feeling worried about having enough money to last through retirement, according to a new survey from Fidelity Investments of 1,542 women with retirement plans.

Those anxieties aren’t necessarily misplaced either.

Women have longer projected lifespans than men and even if married, are likely to spend at least a portion of their older years alone due to widowhood.

“So they need larger pots of money to ensure they won’t outlive their savings,” says Kathy Murphy, president of personal investing at Fidelity.

Earlier research by the company found that while women save more on average for retirement (socking away an average 8.3% of their salary in 401(k)s vs. 7.9% for men) they typically earn two-thirds of what men do and thus have smaller retirement account balances ($63,700 versus $95,800 for men).

Also, while women are more disciplined long term investors who are less likely than men to time the market, women are also more reluctant to take risk with their portfolios, says Murphy.

“And if you invest too conservatively for your age and your time horizon, that money isn’t working hard enough for you,” she adds.

How Women Can Increase their Confidence

Financial education can help women reduce the confidence gap, and get to the finish line better prepared, says Murphy.

According to the Fidelity survey, some 92% of women say they want to learn more about financial planning. And there’s a lot you can do for free to educate yourself, notes Murphy. As an example, she notes that many employers now offer investing webinars and workshops for 401(k) participants.

You might also start by reading Money’s Ultimate Guide to Retirement for the least you need to know about retirement planning, in digestible chunks of plain English. In particular, you might check out the piece on figuring out the right mix of stocks and bonds, to help you determine if you’re being too risk averse.

Also, simply calculating how much you need to save for the retirement you want—using tools like T. Rowe Price’s Retirement Income Planner—can help you make plans and feel more secure.

The 10-minute exercise can have a powerful payoff: The Employee Benefit Research Institute regularly finds in its annual Retirement Confidence Index that people who even do a quick estimate have a much better handle on how much they need to save and are more confident about their money situation. Also, according to research by Georgetown University econ professor Annamaria Lusardi, who is also academic director of the university’s Global Financial Literacy Excellence Center, people who plan for retirement end up with three times the amount of wealth as non-planners.

Says Murphy, “We need to let women in on the secret that investing isn’t that hard.”

More from Money.com’s Ultimate Guide to Retirement:

MONEY Financial Planning

10 Days to Total Financial Fitness

Bench press with gold painted weights
Gregory Reid

Presenting MONEY's 10-day program designed to pump up your finances for 2015. 

When you think about what kind of shape your finances are in nowadays, you may be feeling downright buff. Retirement plan balances are at record highs, home prices are back to pre-recession levels in most parts of the U.S., and the job market is the strongest it’s been since 2006.

No wonder Americans are more optimistic about their finances.

Given that, it’s understandable that some bad habits may be creeping back into your routine. Americans, overall, are slipping into a few: Household debt is at a record high, fueled by an uptick in borrowing for cars and college and more credit card spending. Vanguard reports that investors are taking risks last seen in the pre-crash years of 1999 and 2007.

What’s more, the financial regimen that’s been working well for you of late may not cut it anymore. In this slow-growth, low-interest-rate environment, both stock and bond returns are expected to be below average for several years to come.

To pump up your finances in 2015, you need to shake up your routine. The plan that follows can help you do just that. Every day for the next two weeks, we’ll target-train you for a different financial strength. This program includes seven quick workouts, inspired by the popular exercise plan that takes just seven minutes a day, that will push you to raise your game in no time at all. What are you waiting for?

See What Shape You’re In

Even if you’re a dedicated exerciser, you could be ignoring whole muscle groups, leaving yourself susceptible to injury. For example, 39% of people earning more than $75,000 a year wouldn’t be able to cover a $1,000 unexpected expense from savings, according to a 2014 Bankrate survey. So the first step is to establish your baseline by asking yourself these questions.

How are my vital signs? Tick off the basics: Check your credit, tally up your emergency fund (aim for six months of living expenses), look at how much you are contributing to your retirement plans, and get a handle on how you’re splitting up your savings between stocks and bonds.

Less than half of workers have tried to calculate how much money they’ll need for retirement, EBRI’s 2014 Retirement Confidence Survey found. Take five minutes to use an online tool that will show you if you’re on track, such as the T. Rowe Price Retirement Income Calculator.

What’s my day-to-day routine? The very first thing Rochester, N.Y., CPA David Young does with his clients is go over their spending. Budgeting apps, he notes, “make the invisible credit card charges visible.” As important as the “how much” is the “on what,” says Fred Taylor, president of Northstar Investment Advisors in Denver. Divide your expenses into the essential costs of living, investments in your future (savings, education, a home), and the discretionary spending you have the flexibility to cut.

Am I juicing my finances too much? In other words, how toxic is your borrowing? Your total debt matters. But the kinds of debts you have and the implications for your future are crucial too, says Charles Farrell, author of Your Money Ratios and CEO of Northstar. As a young saver, you shouldn’t be worried about high debts due to a house and education, Farrell says, as long as you can handle the payment, will be debt-free by your sixties, and are using debt only to fund investments in a low-cost or high-earning future, such as a low-maintenance home or new job skills. Farrell suggests in your twenties and thirties you should limit total mortgage debt to less than twice your family income. In your fifties, you should have a mortgage no higher than what you make. At any age, total education debt should not exceed 75% of your pay.

What’s my biggest weak spot? You need to guard against familiar risks, like insufficient insurance. But David Blanchett, head of retirement research for Morning-star, says you should also think about less obvious threats. Will new technology put your livelihood at risk? Are you counting on a pension from a financially shaky firm? Do you live in an area, such as Northern California, where home values hinge on the success of one industry?

Once you know how much progress you’ve made so far and what areas need the most work, you’re ready to get going on your financial fitness plan.

Next:

MONEY Aging

Pop Goes the Age Discrimination Bubble

senior man blowing bubble out of gum
Getty Images

Age discrimination charges have returned to pre-recession levels—another sign we're getting back to normal

The popular narrative holds that age discrimination is off the charts and employers can’t shed workers past 50 quickly enough. Yet age-related complaints filed with the federal government fell for the sixth consecutive year in 2014, and the percentage of cases found to be reasonable have been trending lower for two decades.

Certainly, there remains cause for concern. The 20,588 charges filed under the Age Discrimination in Employment Act are higher than in any year before the recession. But the number is down from 21,396 in 2013 and from a peak of 24,582 in 2008, according to new data from the Equal Employment Opportunity Commission.

Meanwhile, the EEOC found reasonable cause in only 2.7% of the cases filed. That is up from 2.4% in 2013 but otherwise the lowest rate since at least 1997. Monetary awards hit a five-year low of $78 million.

Just about everyone past 50 knows someone who believes they were discriminated against in the workplace because of their age. In a 2012 survey, AARP found that 77% of Americans between 45 and 54 said employees face age discrimination. Clearly, in many cases older workers command higher wages. Organizations can cut costs and make room for younger workers by moving older workers out—even though doing so on the basis of age is against the law.

This helps explain the rise in age discrimination charges during and since the recession, when companies undertook vast reorganizations and laid off millions of workers to cut costs and adjust to the slow economy. Older workers who lost their job have had a difficult time finding employment, further driving them to seek relief wherever possible.

Now age-related charges in the workplace are roughly at pre-recession levels. Charges ranged between 16,008 and 19,124 from 2000 through 2007. Returning to near this level is the latest sign—along with more jobs and rising wages—that the economy is getting back to normal.

Age discrimination is a serious issue. It is more difficult to prove than discrimination based on race, sex, religion, or disability. It also takes a heavier toll than other forms of discrimination on the health of victims, research shows. Boomers who want to stay at work typically need the income or the health insurance that comes with full-time employment. Turning them away places a greater burden on public resources.

Meanwhile, older workers have a lot to offer, including institutional knowledge, experience, and reliability. Some forward-thinking organizations including the National Institutes of Health, Stanley Consultants, and Michelin North America, among many others, embrace a seasoned workforce and have programs designed to attract and keep workers past 50.

None of this is to say age discrimination is no longer a problem. One alarming aspect of the EEOC state data is that warm climates popular with older people have a high rate of age-discrimination complaints. No state had a higher percentage of EEOC age-related complaints last year than Texas (9.2%). Florida had 8.5% of all cases and Arizona had 3%.

Federal officials note that the government shutdown last year contributed to a falloff in cases filed. So official complaints may be understated last year. And an overwhelming number of age-related sleights at the office never get reported. Still, the bubble in recession-related age discrimination cases appears to have been popped. That’s a start.

MONEY Social Security

Why a Better Job Market Can Mean a Social Security Bonus

Getting back to work for even a few years before you retire can make a big difference to your income.

More Americans over 55 are finally getting back to work after the long recession. The strong national employment report for January released last week confirmed that. The unemployment rate for those over 55 was just 4.1% in January, down from 4.5% a year ago and well below the national jobless rate. The 55-plus labor force participation rate inched up to 40% from 39.9%.

That is good news for patching up household balance sheets damaged by years of lost employment and savings, and also for boosting future Social Security benefits.

Social Security is a benefit you earn through work and payroll tax contributions. One widely known way to boost your monthly benefit amount is to work longer and delay your claiming date. But simply getting back into the job market can help.

Your Social Security benefit is calculated using a little-understood formula called the primary insurance amount (PIA). The PIA is determined by averaging together the 35 highest-earning years of your career. Those lifetime earnings are then wage-indexed to make them comparable with what workers are earning in the year you turn 60, using a formula called average indexed monthly earnings (AIME); finally, a progressivity formula is applied that returns greater amounts to lower-income workers (called “bend points”).

But what if you are getting close to retirement age and have less than 35 years of earnings due to joblessness during the recession?

The Social Security Administration still calculates your best 35 years. It just means that five of those years will be zeros, reducing the average wage used to calculate your PIA.

By going back to work in any capacity, you start to replace those zeros with years of earnings. That helps bring your average wage figure up a bit, even if you are earning less than in your last job, or working part time.

“Any earnings you have in a given year have the opportunity to go into your high 35,” notes Stephen C. Goss, Social Security’s chief actuary.

I ran the numbers for a an average worker (2014 income: $49,000) born in 1953, comparing PIA levels following 40 years of full employment with the benefit level assuming a layoff in 2009. The fully employed worker enters retirement at age 66 (the full retirement age) with an annual PIA of $20,148; the laid-off worker’s PIA is reduced by $924 (4.6%). Getting back into the labor force in 2014, and working through 2015, would restore $720 of that loss.

That might not sound like much, but it would total nearly $25,000 in lifetime Social Security benefits for a female worker who lives to age 88, assuming a 3% annual rate of inflation. And for higher income workers, the differences would be greater.

You also can continue “backfilling” your earnings if you work past 60, Goss notes. “You get credit all the way along the way. If you happen to work up to age 70 or even beyond, we recalculate your benefit if you have had more earnings.”

The timing of your filing also is critical. You’re eligible to file for a retirement benefit as early as age 62, but that would reduce your PIA 25 percent, a cut that would persist for the rest of your life. Waiting until after full retirement age allows you to earn delayed filing credits, which works out to 8% for each 12-month period you delay. Waiting one extra year beyond normal retirement age would get you 108% of your PIA; delaying a second year would get you 116%, and so on. You can earn those credits up until the year when you turn 70, and you also will receive any cost-of-living adjustment awarded during the intervening years when you finally file.

Getting back to work will be a tonic for many older Americans, but what they might not realize is that it is also a great path to filling their retirement gap with more robust Social Security checks.

MONEY Careers

The Stock Market Is No Place for Millennials

150212_INV_MILLENSTOCKMRKT
Roberto Westbrook—Getty Images

Investing in yourself, not the S&P 500, often makes more sense for young adults.

When most people think of investing, they think of the stock market. But that is rarely the best place for young professionals to invest their hard-earned money. Instead, they need to be investing in themselves.

You’ve undoubtedly heard that it’s important to start investing early for retirement. Whoever tells you that will most likely mention the concept of compound returns, as well.

Compound returns are great. Heck, it’s widely repeated that compound interest is the eighth wonder of the world. But I’m not sold on the stock market strategy for twentysomethings with limited cash flow.

Most recent graduates come out of school filled with theoretical knowledge about their major. Although this knowledge can be useful at times, it is often a challenge to apply it to real-world situations. It’s kind of like dudes with “beach muscles”: They hit the gym hard every day so they can look great on the beach. If they ever get into an altercation and actually have to use their strength, though, they fail miserably. That’s because they have no practical experience.

The same goes for theoretical knowledge in the real world.

We never learn about life in college. We don’t learn how to make or manage our money. We are not taught how to communicate effectively or be a leader. And we certainly do not get trained on how to create happiness and love in our lives. These are the valuable things we need to learn, yet we get thrown out into the world to fend for ourselves. So we have to take it upon ourselves to learn and grow organically after college.

The good news is there are plenty of programs, courses, and seminars that actually teach this stuff. But they cost money.

It’s this type of education that I am referring to when I say that young professionals need to invest in themselves. The notion that the stock market will set you free (in retirement) is only half right. It does not take into account myriad possibilities, one of which is that investing in yourself early in your career may be a better choice.

Let’s assume that you start out making $50,000 a year and indeed have a choice. Here are two simplified scenarios:

Option 1: You invest in a taxable investment account every year from the age of 25 to 50, starting with $5,000, or 10% of your first-year salary. Both your salary and your yearly retirement contribution grow 3% annually throughout your career. In year five, you’ll be making nearly $58,000 annually, and you’ll be putting $5,800 away toward your retirement. And assuming the investment vehicle has a 7% compound annual growth rate, you’ll have $350,836, after taxes, in 25 years.

Option 2: You take that initial $5,000 and invest in yourself every year for five years. You choose to attend various training programs covering the areas of leadership, communication, and other practical skills that you can put to use immediately. You gain life knowledge, allowing you to perform better and maybe even connect with a career about which you are passionate. As such, your income increases by 50% over five years — to $75,000 — rather than simply inching up by 3% per year to $58,000. Then, in year five, you start contributing about $17,000 per year to your retirement ($5,800 plus all the extra money you’re earning, after taxes). Projecting forward 20 years using the same rates for contribution growth and investment returns as in Option 1, you’d end up with $829,635 after tax.

After playing out both scenarios above, we can see that Option 2 leaves you with $479,000 more than Option 1 does.

Certainly, I have made a few assumptions — one of which is that you invest all your extra earnings in Option 2 rather than raise your standard of living. And there is no guarantee that by investing in ourselves, we will increase our income. However, this same argument can be made for investing in the stock market. The difference is that by investing in ourselves, we maintain control over that investment. It’s up to us to learn necessary life skills to excel at whatever we choose as a career or life mission.

On the other hand, when we hand over our money to the stock market, we give away that control, basing all results on historical averages. I’m a big proponent on focusing on what we can control. And, as young professionals, our biggest asset is our human capital, or our ability to earn income. Why not focus here first, and save the investing for tomorrow, when our cash flow is at a much healthier level?

———-

Eric Roberge, CFP, is the founder of Beyond Your Hammock, where he works virtually with professionals in their 20s and 30s, helping them use money as a tool to live a life they love. Through personalized coaching, Eric helps clients organize their finances, set goals, and invest for the future.

MONEY

25 Ways to Get Smarter About Money Right Now

150212_RET_SMARTER_LEDE
John Lund—Getty Images

Small steps that can make a big difference.

Retirement planning is serious business that requires diligence and patience. But a quick tip, or even an irreverent one, can sometimes be helpful, too. Here are 25 observations from my 30 years of writing about retirement and investing that may spur you to plan more effectively (or to start planning if you’ve been putting it off).

1. If you’re not sure whether you’re saving enough for retirement, you probably aren’t. You can find out for sure pretty easily, though, by going to this Am I Saving Enough? tool.

2. There’s an easy way not to outlive your money: die early. But I think most people would agree that coming up with a realistic and flexible retirement income plan is a more reasonable way to go.

3. If your primary rationale for doing a Roth 401(k) or Roth IRA instead of a traditional version is that “tax free is always better than tax-deferred,” you need to read this story before doing anything.

4. Some people put more thought into whether to have fries with their Big Mac than deciding when to claim Social Security benefits. Unfortunately, giving short shrift to that decision may put those same people at greater risk of having to work behind a fast-food counter late in life to maintain their standard of living.

5. Yes, stocks are risky. But if they weren’t, they wouldn’t be able to generate the high long-term returns that can help you build a sizeable nest egg without devoting a third or more of your income to saving.

6. Just because the mere thought of an immediate annuity makes your eyes glaze over doesn’t mean you shouldn’t consider one for your post-career portfolio. When it comes to retirement income, boring can be beautiful.

7. What do rebalancing your retirement portfolio and flossing have in common? We know we ought to make both part of our normal routine, but many people don’t get around to either as regularly as they should.

8. Lots of people (especially in the media) complain that we’d all be better off if companies would just go back to giving workers check-a-month retirement pensions instead of 401(k) plans. But that’s not gonna happen. So focus your efforts on how to maximize your 401(k) or other savings plan.

9. Target-date funds’ stock-bond allocations can’t match your risk tolerance exactly. But guess what? You don’t need an exact match to invest successfully for retirement. And for most people an inexact target-date portfolio is a lot better than anything they’d build on their own.

10. A really smart fund manager can beat an index fund. Problem is, there’s no way to tell in advance whether a manager is one of the handful who’s truly smart or one of the many who look smart but are just lucky or having a few good years. That’s why you’re better off going with index funds in your retirement portfolio.

11. Your employer’s 401(k) match isn’t really “free.” It’s part of your compensation. Which makes it all the more puzzling why anyone wouldn’t contribute at least enough to his 401(k) to get the full company match.

12. Investing in a fund with high fees is like betting on a racehorse being ridden by a fat jockey. Sure, the horse could still be good enough to win. But do you want to put money on it? A low-cost fund effectively allows you to boost your savings rate and gives you a better shot at building an adequate nest egg and making it last throughout retirement.

13. Every time you move to a new house or apartment do you leave all your furniture and other possessions behind? Then why do so many people fail to consolidate their old 401ks into their current plan or a rollover IRA? (Okay, if the old plan’s investing options are unmatchable, that’s a reason. But seriously, how often is that the case?)

14. A reverse mortgage can be a good option to supplement retirement income if your other resources are coming up short. But be sure to consider a trade-down as well. In fact, you may be able to trade down and then do a reverse mortgage in the future.

15. No rule of thumb can be a substitute for detailed retirement planning. But some rules of thumb are better than no planning at all. And going with a rule of thumb may at least help you get on track toward a secure retirement until you decide to get more serious about your planning.

16. Many people are skittish about investing in bonds these days because they’re worried they’ll get clobbered when interest rates rise. But you know what? Pundits have been predicting bond Armageddon for years and it hasn’t happened. Besides, as this research shows, even at today’s low yields bonds remain an effective way to hedge equity risks and diversify your portfolio.

17. People peddling high-cost variable annuities know that retirement investors love the word “guaranteed.” Which is why as soon as you hear that alluring word, you should ask what, exactly, is being guaranteed and who is doing the guaranteeing? Then ask how much you’re paying for that guarantee and what you’re giving up for it. The answers may surprise and enlighten you.

18. No retirement calculator can truly tell you whether you’re on track for a secure retirement because no tool can fully reflect the uncertainty and complexity of real life. Of course, the same goes for the most sophisticated software and human advisers, too. The reason to fire up a good retirement calculator isn’t to come away with a projection that’s 100% accurate. It’s to get a sense of whether you’re on the right course and see how different moves might improve your prospects.

19. You don’t have to be a financial wiz to invest successfully for retirement. But understanding a few basic principles can improve your investing results. Try this investing quiz to see how much you know.

20. Getting fleeced by an unscrupulous adviser or ravaged by a severe bear market can certainly wreak havoc on your retirement plans. But for most people it’s basic lapses in investing and planning that diminish their retirement prospects the most.

21. Many experts say the 4% rule is broken, that it no longer works in today’s low-return world. Fact is, the 4% rule was never all it was cracked up to be. To avoid running out of money in retirement, plug your spending, income, and investing info into a retirement income calculator capable of assessing the probability that your money will last—then repeat the process every year or so to see if you need to adjust your spending.

22. Diversifying your portfolio can lower risk and boost returns. But if you try to get too fancy and stuff your portfolio with investments from every obscure corner of the market and all manner of arcane ETFs, you may end up di-worse-ifying rather than diversifying.

23. Many retirees pour their savings into “income investments” like dividend stocks and high-yield bonds when they want to turn their savings into reliable income. But such a focus can be dangerous. A better way to go: create a low-cost diversified portfolio that generates both income and growth, and then get the income you need from interest, dividends, and periodic sales of fund or ETF shares.

24. The next time wild swings in the market give you the jitters, don’t look to bail out of stocks and huddle in bonds or cash. Market timing doesn’t work. Instead, do this 15-minute Portfolio Check-Up, and then take these 3 Simple Steps to Crash-Proof Your Portfolio.

25. Financial security is definitely important, but retirement satisfaction isn’t just a question of money. Lifestyle matters, too. Among the lifestyle factors that make for a happier post-career life: maintaining your health, staying active and engaged through occasional work or volunteering, cultivating a circle of friends…and, yes, regular sex.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

More from RealDealRetirement.com:

Social Security: Your 3 Most Pressing Questions Answered

5 Questions To Ask Before Hiring A Financial Adviser

How To Tell If You Can Afford To Retire Early

 

 

 

Your browser is out of date. Please update your browser at http://update.microsoft.com