While many people dream of retiring early, younger generations are taking a more cynical view these days. Although it has become more difficult to save with rising inflation and cost of living, it is still attainable. If this is one of your financial goals, here’s what you need to know to determine the required funds for early retirement.
How Do You Determine the Required Funds for Early Retirement?
There are many reasons why people want to retire early. Whether you want more time with loved ones, opportunities to travel, or the chance to pursue your passion projects, you need to be financially independent to make it happen.
When planning for retirement, the general guideline is the rule of 25 – save 25 times your planned annual budget. But the earlier your retire, the more you need to save.
However, the actual dollar amount is largely dependent on your lifestyle. Most advisors recommend a 75% replacement rate for your retirement income. Once you calculate your current budget, you can determine your annual expenses. Then, consider that this will be your minimum budget for the next 30-40 years if you retire early.
Keep in mind that you will also have to account for taxes, inflation, and healthcare. Therefore, we choose to pad the estimate to leave a little more cushion in our budget.
Can the FIRE Movement Help You Retire Sooner?
The goal of early retirement has caught a lot of momentum in recent years thanks to the FIRE movement. Many who want “Financial Independence, Retire Early” are saving more aggressively to realize their goal. In some cases, people are living on a bare-bones budget and investing up to 70% of their income for retirement.
While this will help you save more to help you retire sooner, you don’t have to go to these extremes to earn the required funds for early retirement. You can still adopt this strategy but finds more moderate ways to minimize your expenses. For example, you can keep your spending in check, increase your retirement contributions, and invest in new assets that will increase your net worth and generate more income.
Important Things to Consider for Early Retirement
With strategic planning and smart investing, it is possible to retire early. However, there are a few key considerations you need to factor in since they will affect your portfolio.
You are also ineligible for Medicare before age 65.
Although you can access your funds, there is a 10% penalty for early withdrawals from IRAs and other retirement accounts. However, the rule of 55 may allow you to withdraw from employer-sponsored retirement accounts without penalty if you leave your position by age 55.
Although many accounts offer specific advantages when you retire, you must also invest for long-term growth. Therefore, it’s best to talk with your financial advisor and research the different types of financial vehicles available to you. Not only will this help you reach your financial goals sooner, but also ensure you have enough savings to last through your retirement years.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
Most people dream of having the chance to travel. I caught the bug early and was lucky enough to spend more than 10 years living and working overseas. Even though I’m currently back in the US, I still have big travel plans for my future. My husband and I have even talked about retiring abroad. However, there are many things about international living you have to consider. If you have similar plans, here’s what you need to know about traveling in retirement.
7 Things You’ll Need to Know About Traveling in Retirement
1. You have to account for it in your retirement planning and monthly budget.
Unfortunately, traveling requires money. And if you are looking at luxury or international travel, it will get even more expensive. Even if you are a budget traveler and hunt for discounts, it won’t offset the costs of traveling in retirement. Therefore, you will need to estimate and account for these expenses in your budget.
Affording travel on a fixed income may be difficult, but it isn’t impossible. If you research the costs, plan well in advance, and are realistic with your budget, you can make it happen. However, if you feel like it is too much of a strain, you can also consider partial retirement or consulting jobs to finance your lifestyle.
2. You can overlook your health and physical limitations.
The chance to explore new cultures and remote places has deepened my desire to travel. But the sad reality is that it will be harder to access rugged hiking trails or handle steep staircases at 65 than it was at 25.
As you get older, you have to factor in your health and physical capabilities when you choose travel destinations. International standards for accessibility also vary. So, you want to make sure you go somewhere that allows you to fully enjoy the sights. If you have specific needs that can’t be accommodated, it’s probably a good idea to adjust your itinerary.
Even now, I leave room for flexibility in our schedule for downtime, especially if we plan strenuous excursions. Having time to relax and recover can reduce the risks of injury and illness. While these will become more common the older we get, you can take precautions so it won’t interfere with your travel plans.
3. Your health insurance may not offer coverage in other countries.
Since we’re on the subject of health, it’s also important that you understand the limits of your healthcare coverage. Private insurance usually has allowances for international coverage, but may still require you to pay upfront and send in receipts for reimbursement.
However, basic Medicare plans won’t be much help if you are traveling internationally. You will need to purchase gap coverage or travel insurance if you will be spending significant time outside the country. And, you will have to make room in the budget for it as well.
4. Travel insurance isn’t a waste of money.
To reiterate an important point, you need more flexibility with your travel plans as you get older. Reservations changes, health issues arise, and emergencies come up at the last minute. And the more you travel, the more likely it will happen to you.
Therefore, it’s smart to purchase travel insurance so you aren’t at the mercy of service providers. Many people think it’s a waste of money. But, they probably haven’t gotten stuck somewhere due to weather conditions, service failures, theft, poor health, or simply bad luck. I would much rather pay a little extra for more financial protection and greater peace of mind.
5. Other people have the same retirement plans.
If you plan on traveling in retirement, remember that there are many like-minded people out there who want to visit the same places you do. If you stick to popular destinations, you will have to contend with bigger crowds, limited space, and higher prices.
The solution is to book early and plan ahead to secure your reservations. Or, you could also look at vacation destinations that are off the beaten track. Not only will this allow you to get away from the crowds, but also gives you more solitude to enjoy your surroundings.
6. You can find cheaper ways to travel.
While it should be common sense, the easiest way to book isn’t always the cheapest. We’ve had several packages through third-party websites only to find cheaper deals later on. Sure, they conveniently bundle what you need in a single reservation. But, that doesn’t guarantee the best rates.
Instead, I go directly through the service provider and start looking a few months before our travel dates. I compare prices, set alerts, and scan for daily discounts and flash sales. This has gotten me some killer deals over the years. But even if they aren’t advertising any discounts, they may still offer special rates for senior citizens or members of AARP, AAA, and Costco.
Here are a few other ways to cut corners in your travel budget to help you save:
travel in the off-season
be flexible with your dates
use reward miles and points
look at other types of accommodations
use public transportation
plan your trip around free attractions and activities
It’s also wise to pay attention to the exchange rate if you are traveling internationally. When you are deciding on your destination, look at countries where the U.S. dollar is strong. This can reduce the budget for daily expenses and help your money go even further.
7. Have your paperwork in order before you leave.
Perhaps the most important thing to remember when traveling in retirement is to always get your paperwork in order before you leave. I’ve known several people who have shown up at the airport only to cancel their travel plans because they didn’t have the proper documents.
That’s why I created this checklist to take some of the stress out of the preparations.
Confirm your reservations. I always call ahead, check online, and save copies of everything on my phone. Then, I know I’ll always have what I need.
Check your IDs. This has been the main reason I’ve seen last-minute cancellations. Before you book, make sure your IDs are valid. If they are close to expiration, apply for a new one as soon as possible or renew your passport online.
Apply for your visas. The American passport grants you many landing visas. However, sometimes you will have to apply for a visa. It can be a hassle when they don’t offer it online. But, you can still fill out the application and have it ready when you land.
Notify your credit card companies. This is one lesson I learned the hard way. If you have fraud protection, your credit card may lock your account if they see international charges. You will want to call ahead to notify them of your travel plans so it doesn’t happen to you.
Make a list of your medications. Many people don’t think of this, but it’s good to have a list of your medications if customs officers ask questions. It is also helpful to your traveling partners and healthcare professionals if you have a medical emergency.
Final Thoughts
Traveling has been one of the most rewarding experiences of my life. But, you can’t predict what will happen or plan for every possible outcome. However, knowing what to expect can make traveling in retirement more affordable and less stressful. Even on a fixed budget, anything is possible with some creative planning.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
Like many people out there, I didn’t spend much time in my early adult years thinking about retirement planning. Instead, I was more concerned with paying down my debt and making ends meet. There were times I even joked that I would never be able to afford to retire, so there was no point in starting. However, once I became established in my career and later got married, we started to look at things more seriously. As I took my first steps in planning for the future, I discovered many facts about retirement that were very surprising.
7 Facts About Retirement Planning That May Surprise You
1. Many Americans are getting a late start on investing.
I was surprised to learn that I wasn’t alone in my procrastination to invest. After reading a recent Gallup poll from 2021, the survey revealed that 21% of Americans haven’t begun saving for retirement. To break down this figure even further, 42% of adults between the ages of 18 and 29 reported that they had no retirement savings while 26% of people between 30 and 44 said the same.
Although these facts about retirement planning are concerning, I was more shocked to learn how little people are saving. Even those who have started retirement accounts are not contributing as much as they have in the past. The average retirement account balance for people 35-44 years old was only $37,000 while those 45-55 years old averaged $82,600. The numbers are far behind what financial planners recommend for their clients.
2. Debt was a major factor in the delay to save for retirement.
This next fact isn’t as surprising as it is depressing. Many of us have struggled with debt which is precisely why I waited to invest as well.
Among the participants in the survey, 28% of people said they didn’t make enough to start investing. An additional 24% responded that healthcare costs kept them from saving while 23% said that credit card debt was a major roadblock in their savings goals. However, only 17% attributed the delay to the repayment of student loans.
Personally, I thought this last group would be higher. But any way you look at it, these statistics show that debt is a serious problem in our country and a major reason why people are struggling to reach financial independence.
3. The pandemic has significantly impacted people’s retirement accounts.
Although many people probably already know this, the pandemic has taken a serious toll on people’s finances. Between layoffs, reduced hours, the decreased ability to work, and other economic concerns, Covid-19 has made difficult situations even harder to manage.
Considering how many people already live paycheck to paycheck, the increased job insecurity has stretched many budgets to their limits. And when you are struggling to survive, it is no longer feasible to save a portion of your monthly salary.
Since 2020, nearly 27% of Americans said they either decreased the amount or stopped contributing to their retirement savings altogether. Another 21% said they had to dip into their retirement accounts as well. While there are regional differences in these trends, it demonstrates how much the global economy and individual finances have been impacted during the pandemic, setting many people back several years from their savings goals.
4. The cost of long-term care is increasing every year.
It’s no secret that healthcare is getting more expensive for Americans. But, we saw the highest year-over-year increase in these expenses between 2020 and 2021.
Health experts estimate that 7 out of 10 people from the baby boomer generation will need long-term care. As this group reaches retirement age, the demand for assisted living and nursing homes continues to grow. However, many prefer to use caregivers and remain in their own homes.
This has led to a 10.64% increase in the cost of homemaker services and a 12.5% in health aid services. These figures are further supported by the fact that the average wages increased by more than 5% for those who provide these services. Furthermore, the national average rate for assisted living also went up by 4.65%.
While some of these increases are attributed to inflation, the hard truth is that people are living longer. And the older people get, the more health complications they develop. But another fact that people overlook is that we have an aging population and younger generations are reproducing enough to replenish the workforce. This means expenses will only continue to increase, and we will likely have to rely more on foreign labor to fill this need in the years to come.
5. Approximately 35% of Americans don’t have access to company-sponsored retirement plans.
In years past, pension plans were a standard company offering. However, benefits packages have been severely watered down. Some may offer contribution matching or employer-sponsored 401(k)s. But, 35% of Americans said they have never participated in these plans while an additional 41% said they didn’t currently have access to them.
One reason is that many companies restrict these plans to full-time employees. This has left many part-time and self-employed workers at a disadvantage. Therefore, they have to be resourceful and use other investment vehicles like a Simple IRA to fill this void in their portfolios.
6. The retirement age is steadily increasing.
Another one of the eye-opening facts about retirement that the Gallup poll reported is that the current median age for retirement is 62. This is the highest it has been in 20 years. However, what’s more worrying is that this number increased to 64 when they surveyed non-retirees.
This indicates that people expect to work longer. This is partially due to people living longer, which also means they have to make their savings last longer. But, the survey also revealed that 57% of respondents plan to work during retirement to mitigate these expenses. Among those who plan to work past the age of 65, 20% will stay on as full-time workers. However, 37% plan to at least keep part-time hours because they expect that their retirement benefits won’t be enough to support them.
7. An astounding 42% worry that they will outlive their retirement savings.
This last fact is probably the most terrifying to me. Although no one can predict the future, 42% of Americans fear that they will outlive their retirement savings. An additional 73% believe that Social Security benefits won’t even be an option for them when they retire.
Some formulas can help you estimate how much you will need to save to sustain your current lifestyle after you retire. But if inflation rates continue to spike for years to come, this could undermine savings plans and leave you vulnerable later in life.
Preparing to Retire
When I first started thinking about retirement planning and doing the math, I had a panic attack realizing how many years I had lost. And reading these facts about retirement planning didn’t help much. But the best piece of advice I received is that it’s never too late to start. Once I enlisted the help of a financial advisor, he helped me set my savings goals, get back on track, and keep pace with my long-term retirement goals.
Fortunately, I already had the good sense to pay off my debts before 30, so now I’m focusing my energy on investment strategy. For me, this includes creating a diverse portfolio with different types of accounts that offer various tax advantages at different stages in life. If you are struggling like I was, have an honest discussion with your financial advisor about your concerns. They can help you determine the best course of action for your retirement planning goals and financial situation.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
Most people plan to retire in their early to mid-60s. However, that won’t be an option for everyone, especially if you think that your Social Security benefits will not be enough to support you. Financial planning must begin early in your adult life. Most advisors agree that you will need about 70-80% of your current income to sustain your lifestyle. So, are you on track to reach your goals and retire by 65? If you recognize any of these red flags, then your answer is probably a “no.” For those who see any of these 7 signs that you aren’t saving enough for retirement, then it’s time to make some changes.
7 Signs That You Aren’t Saving Enough for Retirement
1. You don’t live below your means.
The first rule of budgeting that every adult must learn is how to live below your means. Simple math will show you that it isn’t sustainable to consistently spend more than you earn. If you want to remain financially independent, you have to know how to make a budget, but also have enough discipline to stick to it.
If you frequently overspend, then you are undercutting your long-term goals and future stability. Retirement planning requires careful money management and regular contributions to your dedicated accounts. When you outspend your budget every month, it becomes incredibly challenging to save anything. In the worst-case scenario, you won’t have anything saved, which means you won’t be able to afford to retire. That’s why it is so important to learn this lesson early and ensure that you have enough to live well in retirement.
2. You continue to accrue debt.
Although this goes hand in hand with the first point, it is so detrimental that it deserves its own recognition as one of the worst signs that you aren’t saving enough for retirement.
At some point in our lives, nearly everyone will carry some amount of debt. But retirement planning also requires you to eliminate it before you are living on a fixed income. If you are already struggling to cover your expenses while you are earning a salary, imagine how much more difficult it will be when you have to rely on your benefits and retirement accounts.
Sadly, many people who continue to accrue debt after they retire quickly burn through their retirement savings. If you still have debt in your later years, retiring may not be an option for you.
3. You don’t have a retirement account.
This one should seem obvious, but you should have dedicated retirement accounts to help you with your financial planning. There are several different types of accounts that provide different contribution thresholds and tax benefits for you.
Most people have a combination of IRAs, 401(k)s, life insurance, and other investment vehicles in their portfolio. But your ultimate goals will dictate how much you should save and which ones are right for you. You will need to discuss it with your financial advisor to determine which type of accounts are best suited to your long-term goals.
4. You aren’t maxing out your contributions.
One piece of advice I got as a young investor was to max out the accounts with contribution limits. This is because they offer the greatest tax advantages and return on your investment. Therefore, maximizing your contributions is a good habit to get into.
While it may not be possible every year, hitting these thresholds will optimize your savings plan. And, it will help you get the most from your hard-earned money. For 2022, you can contribute a maximum of $6,000 to your Roth IRA and a total of $20,500 between your 401(k)s. This amount increases to $6,500 and $27,000 for those over 50 who are eligible for “catch-up” contributions. But, these limits will increase in 2023 to help compensate for the increased inflation rates to help you save even more.
5. You don’t take advantage of employer retirement benefits.
You will rarely find employers who offer pension plans as part of their retirement package anymore. Instead, they opt for 401(k)s and contribution matching plans. If your employer offers this and you aren’t taking advantage of it, then you are leaving free money on the table. Those who are lucky enough to have this option need to take advantage of it.
And the best part is that you don’t need a ton of money to get started. Even small, consistent contributions can grow into a large sum if your employer is matching a percentage. And with compounding interest, it can grow into a substantial sum over time.
6. You aren’t investing at all.
One of the most significant signs that you aren’t saving enough for retirement is that you are not investing. It can be a difficult decision to place retirement planning before your immediate financial needs. But, you have to start at some point. It is impossible to save enough of your salary to fund your retirement.
The longer you put it off, the harder it will be to reach your retirement savings goals. As previously mentioned, you don’t need a huge sum of money to get started. However, the sooner you begin investing, the better off you will be when you finally decide to retire.
7. You don’t evaluate or adjust your money management strategies.
Change is a natural part of life. As we grow, we change as people, and our financial situations change right along with us. So, it’s important to revisit your money management strategies after reaching important milestones or experiencing major life changes.
You have to adapt and adjust to your new circumstances. But, it can be overwhelming when faced with these monumental decisions. Remember that you don’t have to do it alone. Find a financial advisor you can trust to guide you through these important decisions and help you build a solid foundation for your future.
What do you think are the most significant warning signs that you aren’t saving enough for retirement? Share your thoughts in the comments below!
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
Everyone dreams of retiring early. However, it usually stops there. If you are serious about early retirement, you need to consider what steps to take to make it happen. So, if you plan to stop working in the next decade, here are 10 steps to take to retire in the next 10 years.
10 Steps to Take to Retire in 10 Years
1. Assess your budget.
The first step is to evaluate your budget. You can figure out your current budget by calculating your monthly take-home and expenses. Once you know where you stand, then you can take measures to ensure you are living below your means. Find ways to trim your budget and increase the amount you save every month to retire early. The more you save, the more money you can contribute toward your retirement goals.
2. Determine your retirement budget.
After you know your current budget, the next step is to determine your monthly budget after retirement. You’ll need this figure to help you set a goal for how much you will need to last you through your golden years. Once you calculate what you expect your retirement budget to be, you can plan accordingly.
3. Calculate your cost of living.
To help you figure out what your retirement budget should be, you need to decide where you want to live and what kind of lifestyle you want to lead.
Do you want to stay in your own home, or would you prefer to move somewhere smaller? Would a retirement community offer more benefits? Or, could you afford a better quality of life somewhere else? Once you answer this question, you can easily estimate the fixed expenses for housing, property taxes, utilities, and inflation.
However, don’t forget to account for variable expenses like food, transportation, health care, repairs, and entertainment. These will also be important factors that affect your cost of living and quality of life.
If you aren’t on track to retire in 10 years, you may need to consider ways to cut your cost of living. This could mean finding ways to downsize, moving to a tax-friendly state, or even moving to another country to maximize your retirement income. And don’t forget, the earlier you retire, the more you will need to save.
4. Review your income streams.
Even though you are retired, you will need to have money coming in to pay your bills. Therefore, you should review your income streams during retirement and adjust your budget accordingly.
To do this, you can start by tallying up all your sources of income. This should include your Social Security benefits and all your savings from retirement accounts and pension plans. Don’t forget to include any additional cash flow you will receive when you sell off valuable assets like your home. And, you will need to include any passive income streams as well.
5. Figure out your Social Security income.
Although it won’t be enough to fund your entire retirement, your Social Security benefits will be an important source of income. The amount you receive largely depends on how much you contributed over the years and when you start taking your benefits. If you don’t know how much you have contributed or expect to receive, you can calculate your estimated benefits here
While you are eligible to start taking them at 62, you will receive more if you put it off. However, the benefits max out at 70. And keep in mind that spouses can take their benefits at different ages as well.
6. Optimize your retirement contributions.
Before you retire, squirrel away as much as you to give your savings plan a boost. Be sure to max out your retirement contributions, especially if your employer offers matching contributions. And those over 50 can contribute even more with “catch up” contributions. Optimizing these investment vehicles will afford you a more comfortable lifestyle post-retirement.
7. Adjust your investing strategy.
Not everyone wants to pay someone to manage their portfolio. But if you take a more hands-on approach to investing, you need to regularly check your portfolio’s performance and make adjustments when necessary.
One of the most critical times to do this is when you are preparing to retire. Many people become more risk averse as they near retirement. It makes sense though since you have less time to recover your money if you experience losses. So, they often adopt a more conservative strategy to preserve the nest egg. Sometimes, investors choose to sell off high-risk investments. Others decide to buy into funds that offer more diversification and distribute the potential risk. Both methods help mitigate the risk and protect your funds.
8. Pay off your debts.
Getting out of debt is hard enough when you have a salary. However, it becomes even more difficult if you are living on a fixed income. If your retirement expenses exceed your income, you could wind up outliving your savings. Therefore, don’t take on any new loans and work to pay off existing debt before you retire. It will be much easier to manage your finances if don’t have these liabilities.
9. Plan for long-term medical expenses.
For many workers, retirement benefits and pensions are becoming a thing of the past. Many jobs only offer water-downed health insurance, especially after you retire. So, it may be a good idea to look into long-term care insurance to assist with medical expenses.
This will be especially important for those with chronic illnesses and conditions that require regular treatment. Long-term care insurance will help cover assisted living and in-home care, if necessary. You could also use an HSA to help offset your healthcare expenses. Planning now could save you and your loved ones from medical debt.
10. Set clear goals.
No matter what you are trying to achieve in life, you need to have clear goals. They will help you focus on what matters most and motivate you to continue working toward it.
The same is true when you are planning for retirement. Start small and make saving money a habit with regular contributions to your savings, retirement, or brokerage accounts. The sooner you take action, the more time you have on your side.
It’s possible to retire in the next 10 years if you start saving now, but it will take a lot of effort and discipline. Talk to your financial planner to determine your most promising path forward.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
As someone who is self-employed, my retirement plan looks a little different than most. Employee-sponsored 401(k)s and pensions plans are not in the cards for me, and there are a few more tax considerations as well. So, I need something easy to implement, that will offer substantial tax breaks, and allow me to maximize my contributions. Now that I’m looking for a new retirement vehicle to add to my portfolio, a SIMPLE IRA may be the answer to my problem.
What Is a SIMPLE IRA?
A SIMPLE IRA, or Savings Incentive Match Plan for Employees, is an Individual Retirement Account that is specifically designed for sole proprietors and small business owners. It works well for smaller employers who want to offer retirement benefits since it is easy to set up and maintain. Like other retirement plans, both the employer and employee can make contributions and receive tax benefits.
What are the Benefits of a SIMPLE IRA?
This type of retirement plan offers many benefits to both the employer and the employee.
1. It is to set up and maintain.
The first benefit is the convenience and easy process to set it up. There are fewer reporting requirements with a SIMPLE IRA than with other types of retirement accounts such as a 401(k). So, there is less paperwork involved to set up and maintain it.
2. There are fewer fees.
In that same line of thought, there are also fewer administrative fees to set them up. In general, the overall costs are lower when compared to the other alternatives. This makes it easier for small businesses to offer retirement benefits and attract more skilled employees.
3. It offers significant tax breaks.
Although you can’t claim your contributions as a deduction, you can defer part of your salary into these accounts. Since they would qualify as pre-tax income, any contributions you make to a SIMPLE IRA will lower your overall taxable income. And, your balance will continue growing, tax-deferred. The compounding interest will help you to maximize your earnings.
Additionally, it allows you to avoid the capital gains tax when you buy and sell within the account. The account is tax-deferred, so you won’t have to worry about this until you start receiving distributions.
And if your gross income is below a certain threshold, you may also qualify for the saver’s credit if you made contributions to your employer-sponsored retirement plan.
Employers also receive tax benefits as well. They can claim a 50% tax credit for up to $500 to offset the start-up costs for the first three years. The incentives make it more enticing for small business owners to set up these plans as well.
4. It has instant vesting.
With some employee-sponsored plans, sometimes there is a vesting period. This requires the employee to stay with the company for a set number of years to receive the matching contributions. However, with a SIMPLE IRA, any money deposited into the account is immediately yours, no waiting.
5. It increases the amount I can contribute.
As a sole proprietor, I can maximize my contributions as both employer and employee. In theory, it allows me to contribute double the amount that is allowed with a traditional IRA. As an employer, the contribution threshold for 2022 is $14,000. However, the maximum total is $20,500. If I can max out my contributions, it allows me a greater capacity to save for my retirement.
Are There Restrictions on a SIMPLE IRA?
No retirement plan is perfect. So, it is important to be aware of the restrictions and requirements that are associated with a SIMPLE IRA.
Eligibility Requirements
As an employer, you must have 100 employees or less. And, you must make annual contributions to the account. You can do this in two ways: by electing to match their contributions with a limit of 3% or with a non-elective contribution of 2%. You can switch between matching or non-elective with notice.
To be eligible as an employee, you must have received at least $5,000 in compensation for the calendar year. Furthermore, you must have received at least the same minimum during two previous years as well.
Limitations
First off, a SIMPLE IRA is not available as a Roth account. It also has different thresholds for maximum yearly contributions. For 2022, you can make a maximum contribution of $14,000, or $17,000 for those over 50. The total contribution is $20,500, or $27,000 for 50 and older. You also can’t max out this account if you have already reached the limit on another employer-sponsored retirement account.
The other feature of this tax-advantaged account is that you won’t pay any taxes until you start taking withdrawals. At that point, it will be taxed like normal income. There is also a 10% penalty if you withdraw before age 59 1/2 and a 25% penalty if you withdraw within 2 years of the first contribution. However, there are some qualified exemptions for early withdrawal.
Account Setup
If you choose a SIMPLE IRA, it is fairly simple to get started. You can partner with a financial institution to offer employers an individual account. Or, you can create the infrastructure and allow employees to set up their own accounts with their chosen institution. Employees who choose to participate will fill out the SIMPLE IRA adoption agreement, and then they can open the account with the designated custodian.
Is a SIMPLE IRA Right for You?
Any time an employer offers a retirement plan, it’s a good idea to participate. Otherwise, you are leaving free money on the table. It is also a great benefit for small businesses if they want to offer retirement benefits because it’s easy to set up and manage.
However, each situation is different. For me, a SIMPLE IRA gives me another investment vehicle and increases the amount I can contribute as both employer and employee. Therefore, it’s a no-brainer when compared to a 401(k) or traditional IRA. But what works for me may not be the best solution for everyone. So, you should review your options with your financial advisor to determine which is most beneficial for your specific circumstances.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
No one likes to think about their own death. It is the one topic we are biologically engineered to push back against. Which is why so many people do absolutely no estate planning until it is urgent. When they are terminally ill or in an accident, suddenly they can see that they should have done their estate planning long before.
The one universal truth is that everyone dies, yet it is tough to internalize that. When you sit down to write a will or do any other kind of estate planning, you are acknowledging that fact. It is way more difficult than just signing a piece of paper.
Still, without estate planning, your estate will go into probate when you die. Your loved ones will struggle to make sense of your financial situation while dealing with their grief. For their sake, and for your own peace of mind, estate planning as soon as possible is ideal.
But how do you start estate planning? To help you out, here is a checklist of the basics you need to get done.
1.List everything you own
In order to do proper estate planning, you need to know what you have and what you owe. You may be able to get your account balance easily enough, but that does not include all your physical possessions or even your non-physical assets. Start your estate planning by creating a spreadsheet.
One page of your spreadsheet should be dedicated to all of the material possessions you own. Go through your home and put everything you come across into the spreadsheet.
Another page should be dedicated to your non-physical assets. These include things like retirement plans and life insurance policies. You should include all your other insurance policies as well.
2.List everything you owe
Just about everyone owes money in some form, whether as credit card debt or a long-term mortgage. Add a page to your spreadsheet and list everything you owe to anyone, whether they are an individual or company. Include any credit cards on which you have a zero balance but are still open.
3.List any memberships
Any associations you are part of may have benefits that your loved ones can collect when you die. List your memberships, including organisations like AARP, veterans associations, and professional accreditation associations.
4.List your charitable contributions
You can use the same page as the one with your memberships list to include any charities you support. This will help your loved ones if they want to continue donating on your behalf.
5.Assess your retirement accounts
Most people do not think about their 401(k) or other IRA very often. Once they have started working and have a retirement plan in place, they simply leave it be. However, your financial needs change over the years, and the kind of account and contributions that suited you at the start of your career may no longer be suitable. Assess your retirement accounts to decide whether they need an update.
6.Assess your life insurance
Do the same with your life insurance policy. What once seemed perfect for your loved ones may no longer be enough, especially if you have had children or started looking after an elderly parent.
7.Transfer on death designations
Most assets and policies go through probate when you die and are distributed by court instruction. This may make life hard on your family immediately after your death. By assigning transfer on death designations on accounts like bank accounts and investment accounts, you can ensure they get funds as soon as possible without waiting for them to go through probate.
8.Choose an estate administrator
Choosing someone to administer your estate is tough but important. Without choosing an estate administrator, your loved ones may get into conflict over who will take care of it. Your instinct may be to choose your spouse if you are married, but consider that they will be going through a lot, and will also struggle to remain impartial. Try and find the balance by choosing someone without stakes and who will be best-suited to get things done.
9.Write a will
Wills are easy to get done. You can use an online will maker if you don’t want to splash out on an attorney. Everyone should have a will, as it gives all the instructions for what to do when you die. It will save your family a lot of confusion and grief.
10.Print and sign your lists
Print and sign at least 3 copies of your lists. One should go to your partner or another loved one and be placed in a safe deposit box. Another should go to your estate administrator. The last one you should keep for yourself. It is also worthwhile to send your lists via email to your estate administrator.
11.Update your lists
You should update your lists at least once every two years, as your assets and debts can change a lot in that time. Some people have the capability to update their lists as their circumstances change, but most people prefer not to think about their estate except when absolutely necessary.
12.Set up power of attorney
Finally, power of attorney is a related document you should complete. You will write one for financial purposes and one for health purposes. They assign who you want to take care of your decisions if you are incapacitated.
The above should get your estate planning started. Go through the checklist and remember to update your lists regularly.
One of the things that keep me up some nights is worrying about what comes next. Beyond the metaphysical question of it all, I also worry about those I’m leaving behind. Having witnessed it firsthand, it can be a huge financial burden on your loved ones. While death and funerals aren’t favorite topics of conversation, there is no avoiding it. Death is the great equalizer and comes for us all in the end. Therefore, I’m trying to arrange things ahead of time and prepare for future funeral expenses, leaving no questions or obligations behind.
Why You Should Prepare for Future Funeral Expenses
Coming from a large family, death is a fairly common thing. I attended my first funeral when I was about 5, and we have laid many grandparents, aunts, and uncles to rest over the years. We view it as a celebration of life, sharing stories and comforting each other through the loss. Unfortunately, complications with finances can taint the services and make the grieving process so much worse.
Although some relatives planned better than others for funeral expenses and burial costs, they all had one thing in common: they were expensive. Today, the average funeral cost is about $8,000. This figure continues to rise as you add to the services or if the deceased has specific requirements for the funeral.
The burden of carrying out your wishes will fall to the person you name as executor of your will. This can be a heavy burden and a huge financial burden if you haven’t taken any steps to prepare for it. Even if you allocate funds from your accounts or estate, it could take months or even years to access the funds.
So, making arrangements to prepare for future funeral costs is a final gift I’m going to leave them. I’ll rest at peace knowing they won’t have the added stress of worrying about how to pay for it all.
5 Ways You Can Prepare for Future Funeral Costs
1. Pay for your own funeral arrangement.
Ideally, I’d like to lift the burden from their shoulders completely by planning the funeral myself. My goal is to have everything paid in full.
Although some think it is macabre, it ensures that not only can I save for it now, but I can include all the details I’d like for my arrangements. From the casket and service to the outfit and music, you can plan every detail. And, your loved ones won’t have to guess about what you would have wanted since you can tell them. I know I’ll rest easier knowing that I’m not leaving a financial mess behind.
2. Prepay for funeral services.
Prepaid funeral plans are a popular option for those who still want to make arrangements ahead of time, but have trouble with the details. You can choose a local mortuary to work with, and they will step in to help your family attend to things when you pass.
And when you prepay, you can lock in the current rates. This protects you against rising costs of inflation and land shortages which will drive the price up. However, they don’t usually offer refunds if you change your plans or move out of state. And if they go out of business, there’s no recourse to get your money back.
If you are considering this route, compare plans to determine what’s best for you. Be clear on the terms and fine print, and ask about refunds and cancellation policy. When you spend this much, make sure you know exactly where your money is going.
3. Purchase funeral insurance.
Although life insurance in intended to support your family after death, you can purchase funeral insurance to prepare for your future burial and funeral costs. Funeral insurance functions like many other plans, but with one key difference: you need to estimate your final expenses to determine which policy to purchase.
The funeral expenses will be the largest cost. But, there are other bills to consider such as healthcare, legal fees, and any outstanding debts. The most common plans include burial insurance, funeral insurance, and final expense insurance which can range from $25k to $40k, depending on your plan. If you think that these insurance policies could benefit you when it comes time to think about your funeral, be sure to research “what is final expense insurance” to understand just how advantageous this can be to you and your family during what will be the toughest time of your life.
4. Set up a dedicated funeral fund.
If you know that it will be difficult to pay for your final expenses, you can set up an account and start funding it now. There are traditional savings accounts, or a Totten trust which offers better interest rates and pay the designated beneficiary who the trust will pay on death (POD). Rather than having to wait to access your accounts once your affairs are settled, the beneficiary can receive the funds by presenting your death certificate.
This is a good option for low-income earners or people who have no other way to prepare for future funeral costs. Even if you don’t save enough to cover all your final expenses, everything helps. And, if you start planning while you’re still here, you can use the compounding interest to your advantage. The sooner you open the account, the more interest it will earn.
5. See if you qualify for burial benefits.
Finally, I would check membership benefits to see which accounts or affiliations may offer assistance with burial costs. For example, my credit union offers $1,000 towards my final expenses just for being a member.
Veterans are also entitled to certain arrangements as well. They can be buried in the national cemetery with no cost for the site or marker. However, you’ll need to find out if they are eligible since space is limited. But, the VA offers other benefits as well to lessen the financial impact.
When the Final Bell Tolls
The bills never seem to stop, even in death. However, before your final bell is rung, you can ease the pain for your loved ones and prepare for future funeral expenses. Death and debt are heavy enough burdens on their own. So, I plan to do what I can now to ensure it brings us all some peace in the end.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
Like so many other people, I was not concerned about saving for retirement in my 20s. I was already struggling to pay bills and avoid crushing student loans. Planning for retirement was the least of my concerns. Now that I am in my 30s and settling into my career, I am kicking myself for not starting sooner. However, it is never too late to begin. If you are late to the game, here are some of the best retirement accounts to help you start saving for the future.
The 5 Best Retirement Accounts for Beginners
If you don’t know where or how to begin saving for the future, it is always wise to seek professional advice. When I sat down with my financial advisor, he clearly explained the different investment vehicles available to me. After reviewing loads of information, these five types of retirement accounts seemed to be the best place to get started!
1. Employer Matching 401(k)
The easiest place to begin saving for retirement is through your current employer. Many companies offer employer matching 401(k) retirement plans for their employees. These are retirement savings plan to which your employer also makes annual contributions.
How much you earn depends on the amount you contribute and your employer’s matching program. Some companies match a percentage of your contribution, up to a set portion of your salary. The best plans match up to 100%. However, employers typically choose partial matching scheme. In other instances, the employer’s contribution is based on a pre-determined dollar amount, regardless of the employee’s earning.
While the level of benefits varies, you should always take advantage of employer matching 401(k)s. If you don’t utilize these accounts, then you are missing out on free money.
2. Solo 401(k)
Also referred to as one-participant-k, a Solo 401(k) is great for people who own their own business. Since self-employed individuals do not have access to employer sponsored retirement plans, it provides a great alternative savings vehicle.
To qualify for this type of retirement account, you have to be self-employed and the only employee. The rules state you can’t contribute to these accounts if you maintain any other full-time employees.
However, since you are both the employee and employer, a greater amount of your savings is tax-deferred. Furthermore, you can contribute more to a Solo 401(k) than other types of accounts such as SEPs and Simple IRAs. When options are limited, this is one of the best retirement accounts to get you closer to your retirement goals.
3. Traditional IRA
Traditional IRAs are retirement accounts that offer several tax advantages. Since you put in pre-tax dollars, your contributions are not considered taxable income. Any money you park in these accounts also continues to grow tax-free until you begin taking withdrawals.
These accounts give you incredible flexibility in how much and what kind of investments you can purchase. However, it does require you to manage your own retirement accounts and determine how you invest your money.
4. Roth IRA
When I asked which accounts best suited for my personal goals, my financial advised that I begin by setting up a Roth IRA. It is another retirement account that provides significant tax benefits and more flexibility in your retirement planning.
Since contributions come from after-tax dollars, you pay no taxes on your contributions or earnings once you begin taking withdrawals after retirement. Even if you take money before you are 59 1/2, there are no penalties or taxes if you take money from your original contributions. Unfortunately, you can only contribute $6,000 annually to these accounts.
While there are strict limits, Roth IRAs are a solid foundation to begin building your retirement savings on. Not only does this give you greater adaptability, but also more control over your money.
5. Life Insurance Plans with Cash Value
There are many types of life insurance available to you. In fact, your employer may offer life insurance benefits that have cash value. Investing in these accounts protects you against several kinds of potential risks as well.
Not only do Cash Value Life Insurance plans provide death benefits, but they also allow you to build its cash value that could help supplement your retirement accounts. Initially, your withdrawals first come from the premiums you paid, so they are not taxed. However, be careful not to let policies lapse because you could end owing a ton in taxes.
Life insurance plans are a good option for people who have already maxed out there annual contributions on other retirement accounts. It offers another way to build your nest egg and diversify your portfolio.
Why Should You Start Retirement Accounts
Although you will likely receive Social Security benefits after retirement, most financial advisors tell you not to rely on it as your sole source of income. Some analysts doubt there will even be any money left when millennials reach retirement age. However, one thing is certain. There are no guarantees that your benefits will cover all your expenses after retirement. So, it is important to start planning now and building your savings to fund your retirement.
There is no single correct approach to retirement planning. Your specific strategy will likely be determined why which types of accounts are available to you. As someone who is self-employed, I have fewer options and require more direct involvement. However, it is best to discuss your specific circumstances with a professional to determine the best course of action. Once you choose the best retirement accounts for your situation, max them out every year. Regular contributions can help you catch up and get you closer to your retirement goals.
While I will always regret not starting my retirement planning from an early age, it is never too late. The most important thing is to recognize that you can start saving now. The more time your money has to accrue compound interest, the more tax-advantaged funds you have to last you through your golden years.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
Although we all look forward to relaxing after retirement, many retirees are choosing to return to work during their golden years. In fact, 55 percent of Americans plan on working after retirement according to a recent study. Whether it is to earn extra cash to supplement your income, preserve your retirement funds, stay active, or simply because you miss social interactions, there are many fun jobs available to you after retirement. Here are a few low-stress jobs that cater to a wide variety of interests.
Solo Pursuits
Repair Work (Computer, Car, Home)
If you have honed technical repair skills, there is a high demand for your expertise. In particular, there is currently a huge market for cheap computer repair skills. Since there will also continue to be a need in the years to come, these jobs are also a fairly reliable source of income. Service and simple repair jobs are also a good outlet for those who like to work with their hands. The luxury of repair work is that you can scale back or increase your workload based on what you feel you can handle.
Freelance Writing
If you have a knack for composition, freelance writing is a great way to earn extra income after retirement. Not only can you work from anywhere, but it also allows you to apply your knowledge in a new way. You can browse through the different contracts online to see if your skill set matches their needs. If you find something that piques your interests, put in a bid and see if writing jobs are right for you.
Landscaping and Gardening
For those who enjoy the outdoors, landscaping and gardening are a great way to stay active and enjoy nature. You could check with local companies for openings or start a garden if you have a green thumb. There are plenty of opportunities to sell your home-grown produce at the farmers market or set up a roadside stand. Of course, you should check local regulations, but it is a good source of fresh vegetables and cash.
Arts and Crafts
If you are the creative type, you can try selling your works of art as a side job. It lets you turn your hobbies into fun jobs after retirement. Online marketplaces like Etsy allow you work from home and reach a wider customer base through their websites. You can also attend local or seasonal craft shows to help you sell what you make. When it comes to selling arts and crafts, your revenue potential is only limited by your own imagination.
Social Jobs for Retirees
Teaching
If you have an advanced degree, teaching jobs could be a employment option after retirement. Many educational institutions seek out instructors who have a wealth of real-life experience. Reach out to schools or local learning institutions that you would be interested to work with. There are also ways to earn income by developing and selling course content based on your career expertise. Sites like Udemy.com help you earn more passive income after retirement.
Driving
One job will always have great security, because there will always be a need for drivers. With ride share and delivery apps like Lyft , Uber, and DoorDash, there are more options to earn money from side jobs than ever before. All you need is a car, a valid driver’s license, and the time to do it. The best part is that you determine how often and when you want to work. For the social butterflies, it is also a great way to meet new people from all walks of life.
Caretaking
Caretaking is a great option for both temporary and long term income revenue. You can look for part-time jobs that offer flexible hours or more permanent positions with steady income. Search for babysitting jobs if you enjoy spending time with children. There also find positions to assist with elder care to ensure they receive the attention they need. Animal lovers can offer services to pet owners who want to avoid expensive kennel fees. Caretaking jobs are a great way to meet both your social and financial needs.
Retail
If you want to work in retail, there are many fun jobs for you after retirement. Check for part-time or seasonal positions at your favorite stores. Retail jobs can help keep you sharp and meet new people. Although they are physically taxing at times, they also have many social benefits. The bonus of working in sales is that stores usually offer an employee discount as well.
Fun Jobs for Travelers
House Sitting
Since you have plenty of free time to travel after retirement, you have flexible hours that are perfect for housesitting. There are several websites posting positions to watch people’s homes while they are away. Some are temporary positions for only a week or two, like annual vacations. Others are seeking more long-term employees for vacation homes and rental properties. You can also search out these jobs in vacation destinations and help cover your travel expenses.
Tour Guide
Tour guides have fun jobs after retirement. It is the ideal job for those who live in places that attract many tourists every year. It does require a combination of skills, but these types of jobs allow you to teach, socialize, and get outdoors. You also get to do something you enjoy while getting plenty of physical exercise. Working as a tour guide could also be an interesting way to learn more about where you live.
Consultancy Jobs after Retirement
The best paying job for retirees are usually consultancy positions. For those who are highly trained or have years of professional experience, you can contract out your special skills. You could use your knowledge to find business solutions or develop structured frameworks for businesses to follow. Since these jobs are largely dependent on your networking and technical skills, there is more variation in how much they bring in. However, you have more marketability if you are familiar with software applications. The greatest draw to consulting work is that you can choose which clients to work with and determine your own schedules and fees.
If you are seeking new job opportunities after retirement, there are many opportunities available to you. Depending on your interests, needs, and skills, there are many fun jobs after retirement that could provide extra financial and social benefits during your golden years.
Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.
