20 Tricks to Retiring Rich

2016-01-27-1453916964-4514469-20RetireRich.jpg
Provided by Huffington Post

When you envision your retirement, what do you see yourself doing: Traveling to faraway places? Indulging in hobbies you didn’t have time to enjoy while you were working? Or pinching pennies just to cover the bills?

The latter is probably not your ideal retirement, but it will likely be the reality for most people. More than half of Americans are at risk of being unable to cover essential living expenses, according to a survey by Fidelity Investments. That’s because they’re not saving enough now for their future.

Sure, it’s easy to put off saving for a retirement that’s years away. But if your nest egg isn’t big enough, you could spend 20 to 30 years struggling to make ends meet. “I’ve never heard anybody complain about having too much money in retirement,” said Kathleen Hastings, a certified financial planner and portfolio manager with FBB Capital Partners. “It sucks to be old. It’s really bad when you have no money.”

Even if your savings aren’t on track, you don’t have to resign yourself to a life of poverty in retirement. In fact, you can retire rich enough to have a comfortable lifestyle by following these strategies. Click through to find out what they are.

1. Eliminate Unnecessary Spending

You might have more room in your budget to save for retirement than you think. That’s because there might be expenses that could easily be eliminated.

“Look at your bank statement and credit card statement every month,” said Tom Corley, a certified financial planner and author of “Rich Habits: The Daily Success Habits of Wealthy Individuals.” “You’ll uncover certain expenses for things you are not even using, such as club memberships, subscriptions, automatic charges for services you’ve never used.”

Also, periodically re-shop your wireless service, cable TV, internet and other services to see if you can get a better rate. Then, boost your retirement contributions by the amount you save by getting better rates and cutting unnecessary expenses.

2. Start Saving Early

One of the best ways to retire rich is to start saving money as soon as you start earning it. Thanks to the power of compound interest, even small monthly contributions to a retirement account can grow over time to a sizable nest egg. The more time you have, the more your money will grow.

For example, if someone started saving $350 a month at age 25, increased that amount by 2.5 percent each year and earned 7 percent annually, he would have about $1.4 million at age 67. But if that person waited until 35 to start saving, he would have about $654,000 at age 67.

“You give up a lot of money down the road by not saving early,” Hastings said.

3. Don’t Let Saving Be a Choice

“Make sure your retirement savings is happening every week or month automatically, without thought or questions,” said Michael Hardy, a certified financial planner with Mollot & Hardy.

Make contributions to a workplace retirement account, such as a 401k withdrawn from your paycheck. Or, set up automatic deposits into an individual account such as an IRA or brokerage account from your checking account. “This eliminates the chance that you stop putting money into your retirement accounts and also helps to dollar cost average into your investments over time,” Hardy said.

4. Save at Least 10 Percent Annually

Americans who are saving for retirement are setting aside, on average, 8.5 percent of their income annually, according to Fidelity’s retirement preparedness study. But most retirement experts recommend setting aside at least 10 percent — ideally 15 percent — to live comfortably in retirement.

If you can’t set aside that much when you’re starting out, make sure you increase the amount you’re contributing as your income rises so you get to a 15 percent savings rate.

5. Take Advantage of the Employer Match

If your employer matches contributions you make to your workplace retirement plan, make sure you’re contributing enough to get the full match. Otherwise, you’re losing out on free money.

The most common type of match is 50 cents to every $1 contributed by an employee up to a certain percentage of pay — typically 6 percent, according to 401khelpcenter.com. For example, if you earn $40,000 a year and contribute just 3 percent of your salary but your employer offers a 50-cent match, you’re missing out on $600 in free money.

6. Save Your Raise — Don’t Spend It

A pay raise can give you more wiggle room in your budget. But if you’re already making ends meet on your current salary, put any extra you get from a raise into your retirement account rather than your bank account.

“Try not to expand your lifestyle if your salary grows,” said John Sweeney, executive vice president of retirement and investment strategies at Fidelity Investments. “Put all that away instead of deciding to buy a nicer car or bigger home.” Then, you won’t have to sacrifice your standard of living in retirement.

7. Make Catch-Up Contributions

Even if retirement isn’t too far off, you still have a chance of saving enough if you take advantage of catch-up contributions. In 2016, you can add an extra $6,000 to a 401k, 403(b) or 457 plan for a maximum contribution of $24,000 if you’re 50 and older.

And, you can boost IRA contributions by $1,000, bringing the total amount you can set aside in these individual retirement accounts to $6,500.

8. Be Willing to Take Some Risk

“For most people, the key to investment success comes down to three words: Save, save, save,” said Ken Weber, president of Weber Asset Management and author of “Dear Investor, What the Hell Are You Doing?” However, you can’t just stash your cash in a savings account. “You’ve got to take some risk for the reward later on,” he said.

Weber said that for each stage of life, you should be invested with as much risk as you can tolerate. Ideally, you should be putting most of your retirement savings into stock mutual funds when you’re in your 20s and 30s. As you get closer to retirement age, you can lower your risk by investing in fixed-income assets such as bond funds, in addition to stocks. Or, consider a target-date fund that will automatically adjust your allocation of stocks and bonds as your approach retirement.

9. Diversify Your Investments

You shouldn’t put all of your retirement nest egg into one basket, Hardy said. In other words, don’t invest all of your money into a single stock. If you do, you could lose your savings if that stock takes a nose dive. Diversify your portfolio with a mix of stocks and bonds — or, better yet, mutual funds that hold a variety of stocks or bonds or both.

10. Don’t Let Fees Eat Into Your Investment Returns

If you invest in mutual funds, make sure you pay attention to the fees and expenses charged by those funds because they can eat into your returns and reduce the amount of money you’ll have for retirement. For example, if fees and expenses on your account are 1.5 percent, your balance will be 28 percent smaller at retirement than if the fees had been just 0.50 percent, according to the U.S. Department of Labor.

The investments offered in your 401k might have varying fees, so consider switching to lower-fee investments — but only as long as they fit your investment objectives and risk tolerance.

11. Stay the Course

You might think you’re protecting your nest egg by pulling your money out of the stock market during downturns. But what you’re really doing is locking in losses by selling when stocks are down and missing out on opportunities for your investments to rebound.

“A well-constructed financial plan takes market gyrations into consideration,” Weber said. “If you have full faith in your plan, it becomes easy to ride through market choppiness.”

12. Get Tax-Free Retirement Income With a Roth

Contributing to a Roth IRA is a great way to create a pool of money you can tap in retirement tax-free. You have to pay taxes on withdrawals from other retirement accounts, such as a 401k or traditional IRA, leaving you with less money to spend. But all the money you withdraw from a Roth in retirement escapes taxes.

13. Invest in Income-Generating Real Estate

Another way to make sure you have money in retirement is to buy income-generating real estate. The key is to purchase and finance it carefully, said Todd Tresidder, a financial coach and founder of FinancialMentor.com.

For example, one former casino card dealer Tresidder knew worked the graveyard shift by night to pay the bills. But, he bought and improved homes by day to grow equity. He retired early in his 50s with five rental homes and more than $5,000 per month in passive income.

14. Get a Side Gig

You can boost your income — and funnel that extra cash into retirement savings — by getting a second job, doing freelance work or turning a hobby into a money-making venture.

If your side gig is considered self-employment, you might be able to make contributions to a solo 401k or a Simplified Employee Pension (SEP) plan. And, those contributions could be tax-deductible. You can set up either type of account through an investment firm with low fees, such as Fidelity or Charles Schwab.

15. Downsize Before Retirement

“A lot of people live in a myth that they should buy as much house as they can afford” and end up buying too much house, Tresidder said. With the big house often comes a big mortgage payment and high insurance, utility and maintenance costs. “All these things take away from your savings capability,” he said. “Often, it’s enough to fund a retirement. ”

If you have a bigger home than you need, don’t wait until retirement to downsize. Cut your costs now, and save the difference.

16. Relocate for a Lower Cost of Living

Living abroad or moving to a state with a low-cost of living is one way to keep down expenses in retirement. But if you do it while you’re still working, you can beef up your savings to have an even richer retirement. Tresidder said he has clients who have taken jobs with U.S. companies that relocated them to other countries where the cost of living is low. As a result, they’ve been able to sock away a lot for retirement.

17. Find an Employer With a Better Retirement Plan

An employer that offers a 401k match is good, but one that provides a pension that creates a lifetime stream of income in retirement is even better, Tresidder said. Although many employers have shifted away from these so-called defined benefit plans, about a quarter of Fortune 500 companies still offer them to new hires, according to a study by professional services company Tower Watson.

A job with a pension plan can actually beat one with a slightly higher salary, Tresidder said. “If you’re short on retirement, that’s a smart way to go,” he said.

18. Don’t Try to Keep Up With the Joneses

Your friends and neighbors might appear to be rich now with all that they have, and you might be thinking that you deserve those things as well. But spending to keep up with the Joneses will likely hurt your chances of being rich in retirement.

“Establish a lifestyle where you put savings first,” Sweeney said. And find a group of friends who also value saving so you don’t feel pressured to spend.

19. Get Professional Help

Hiring a financial advisor doesn’t guarantee that you’ll retire rich, but it might help increase your chances. The right professional can help you create a comprehensive financial plan and stick to it.

Look for professionals with designations such as certified financial planner (CFP), chartered financial analyst (CFA) and chartered financial consultant (ChFC), to name a few. These individuals must meet strict standards to receive these designations and must abide by ethical codes.

20. Play the Lottery

Actually, buying lottery tickets isn’t a trick to retire rich. In fact, you’re just tricking yourself if you think it is because the odds of winning enough money for a comfortable retirement are so slim.

But if you aren’t going to be responsible for your financial future, then you might as well take your chances on hitting it big, Hardy said. “Without a big win or a sufficient amount of savings, you are going to find yourself working the rest of your life,” he said.

Written by Cameron Huddleston of GoBankingRates

(Source: Huffington Post)

5 Tips for Better Spending Habits

Spending
Provided by US News & World Report

While 2016 is in full swing, if you haven’t thought about a resolution yet, don’t give up. Maybe it’s time to make one that has the potential to stick. If you’re often wondering how money slips out of your wallet, consider becoming the crash test dummy for better spending habits. Test drive some of these ideas below to develop better ones.

Be your own cheerleader.

Patting yourself on the back after following through on a behavior you want to increase goes a long way to help cement a behavior. Ginger Dean, psychotherapist and website owner of GirlsJustWannaHaveFunds.com explains the power of rewards: “When making smart money choices, celebrate them by rewarding yourself. Yes, make rewarding yourself a habit. For example, when you make it through a pay period and adhere to your spending plan, treat yourself to something nice that doesn’t break the bank.” She points out that this creates what we call positive reinforcement, which helps you connect good decisions with positive rewards.

According to research by Wendy Wood, a social psychologist and provost professor of psychology and business at the University of Southern California, a behavior only has to be rewarded initially to form a habit. So once the habit is established, you can relax and let momentum take over.

Cheat a little.

While it’s great to start the New Year off with a new idea, give yourself a lead and start with a familiar task. Repeat the task on a regular basis. Research shows you won’t have to train yourself to do the task, you just train yourself to do it repeatedly. For example, if you like drinking water when you eat at a restaurant, choose to do it more frequently. Set rules for yourself, like, “When I eat out, I will order water.” Before you know it, a small gesture will become a string of little actions that can have a big impact on how you spend. It can also do double duty for your bank account if you send the money you didn’t spend straight to savings. Once you establish one good habit, move on to another like trimming a little bit of your grocery budget every time you shop. Start with as little as five dollars and put that in savings, as well.

Keep using the Benjamins.

Let your dollars see the light of day and allow the real thing to get some exercise. Fans of carrying cash can do this more so in the New Year if it helps you control your spending. If you know you tend to do major dollar damage in just one swipe of a credit card, then this tip might work for you. Curtail the urge to go on a spending free-for-all when using a credit card as a short term loan and pay in cash whenever possible. Make using cash a habit if you find it keeps you on track. Choose a dollar amount to withdraw on a regular basis and challenge yourself to not to go beyond that amount.

Graduate from a spending spree.

Limit how much time you spend in a store. Research shows the slower you shop, the more you spend. Get what you need and go. Set a timer if you have to or have your eyes stay glued to your shopping list, then pay and skedaddle. This way you can avoid impulse buys and filling every nook and cranny of your shopping cart with items you didn’t plan to get. Side step a budget-busting aftermath and make it a habit to make short trips to stick with your spending plan.

Do a happy dance after checking out.

When you have carried out a small, smart money choice like spending less time in the store, celebrate it. As stated above, positive reinforcement can work wonders for habit formation. So if you accomplished all of your shopping in record time, celebrate your small win afterwards. So when you’re looking to applaud yourself for getting out of the store quickly, think of what Han Solo said in The Force Awakens when Finn and Rey reunited: “Escape now, hug later.”

If you originally couldn’t bear the thought of making a resolution, reconsider. Just know that people tend to stay with activities that are manageable. Consider following some of the ideas above to take a step in the right direction when it comes to spending this year. They can be beacons for long-term financial change and help you meet your goals. They can also help you shortcut your way to success by following research that gets results. Employ one of these tips to establish a money smart habit today.

Written by Karen Cordaway of U.S. News & World Report

(Source: U.S. News & World Report)

 

7 Things You Need to Know About the Crisis in Greece

Copyright Trine Juel/Flickr
Copyright Trine Juel/Flickr

With Greece nearly certain to default on a 1.6-billion-euro bond payment due June 30, the long-feared prospect of Hellenic financial chaos is just about here.

The nation’s banks closed this weekend, and the government imposed controls of the movement of capital in and out of the country. A Greek referendum is set for Sunday, in which voters will decide whether to accept more austerity or face the prospect of being booted from Europe’s currency union.

1. How bad is the problem? 

Greece owes foreign creditors about 280 billion euros, including $242.8 billion to public or quasi-public entities, such as the International Monetary Fund, the European Commission and European Central Bank. It doesn’t have the cash to make the interest payment due this week, and the failure to make a deal to restructure and refinance the obligation raises the prospect of an imminent default. The two sides are talking about an 18-billion-euro package to refinance some of that debt.

Greece’s private creditors took a write-down of about 75 percent on debt owed to them in 2012, but the public entities have resisted a similar move.

2. Why have talks broken down? 

The so-called Troika of the IMF, ECB and EC are looking for a combination of spending cuts (the most politically sensitive of which are to pensions that function as the Greek equivalent of Social Security) and tax increases. Greece’s top tax rate of 42 percent already applies to annual incomes as low as 42,000 euros. In addition, the nation has a value-added tax of as high as 23 percent, and Social Security taxes are also much higher than in the U.S. The country is already having huge problems collecting taxes it is owed. Greek Prime Minister Alexis Tsipras, pointing to the nation’s 25.6 percent unemployment rate, argues that Greece can’t handle more austerity.

3. What did the government do this weekend?

Greece’s anti-austerity Syriza party called for an election, hoping voters would back its push to get creditors to back down. It also imposed so-called capital controls to halt the flight of money out of the country and closed banks for a week.

While most domestic transactions are little affected, there is a daily cash-withdrawal limit of 60 euros, and international transactions are subject to approval. Greek banks had been reporting a sharp decrease in deposit balances since at least April, cutting into the banks’ ability to meet their own international obligations. Europe has also been helping Greek banks with a program called Emergency Liquidity Assistance, but Goldman Sachs economist Huw Pill said Sunday that the assistance could end early this week as the rest of Europe tries to cap its total exposure to Greece.

“Although the Greek government has repeatedly stressed that this is not a referendum on Greece’s euro membership, we believe that in practice it is,” IHS Global Insight economist Diego Iscaro wrote Monday. “In the event of a ‘no’ win, Greece’s euro zone membership will be seriously jeopardized. The creditors are unlikely to change their position markedly, and it would be impossible for the Greek government to accept the current proposal after being defeated by popular vote.”

4. How will the mess affect the markets in Europe and the U.S.?

European markets traded sharply lower on Monday, and the Dow Jones Industrial Average opened nearly 1 percent lower in New York. But the effect may be short-lived: S&P Capital IQ published a 70-year historical analysis of past market shocks that found events like this produce an average decline of 2.4 percent on the next trading day, which has been recovered in an average of 14 trading days.

“Greece represents less than 2 percent of the EU’s GDP,” S&P strategist Sam Stovall wrote. “By itself, its default or exit won’t upend the EU. … Yet if this drachma drama triggers a market decline in excess of 10 percent, not seen since October 2011, it may be a blessing in disguise. As history has shown, prior market shocks have usually proven to be better opportunities to buy than bail, primarily because the events did not dramatically alter the course of global economic growth.”

5. What happens if Greece leaves the euro or is forced to leave the euro?

Estimates of how little Greek drachmas may be worth are all over the place, from 340 to the U.S. dollar to as little as 1,000 drachmas to the dollar. Even before Greece is (or isn’t) forced to leave the currency union, there is talk of the government meeting its obligations in so-called “parallel currency,” whose value is highly uncertain.

6. Has the IMF’s austerity program worked so far?

No. Austerity has been the rule in Greece since the first debt-restructuring program was approved in 2010. But Greece’s unemployment rate has nearly tripled since, and annual gross domestic product has dropped 100 billion euros, or almost 30 percent. Greece’s slashed spending and tax hikes brought the nation’s “primary deficit,” or deficit before debt-service payments, into surplus territory in 2010. But the program was the equivalent of slamming on the economy’s brakes: Output dropped so rapidly that the primary deficit is now again 2 percent of Greek gross domestic product even with tough controls on spending. That’s not much different than the U.S., but the U.S deficit as a percentage of output is declining because the U.S. economy Is growing.

7. What does this mean for Greek tourism?

Uncertainty overshadows Greek tourism. And the stakes of not interrupting tourism are high indeed: Tourism accounts for 18 percent of the nation’s economy and employs a quarter of its workers, according to the Association of Greek Tourism Enterprises. Greece attracts as many as 17 million annual visitors, twice the nation’s population, and is virtually the only industry still growing in a nation where an estimated 59 businesses are closing each day.

But already, tourists are reporting difficulty getting cash, because automated teller machines are running out, and the threat of capital controls had some merchants unwilling to accept credit cards. Over time, leaving the euro and devaluing the drachma would lead to a period where Greek vacations should be very cheap for Western tourists.

How long that would last, and the impact it would have on hotels and other merchants, is hard to forecast. But resort owners are resisting creditor proposals to end or curtail their tax breaks for resorts on more remote islands and to raise the value-added tax on lodging.

Written by Tim Mullaney of CNBC

(Source: CNBC)