A recent articl,e Is $1 Million Enough to Retire On?, got me thinking. According to the article, the average American thinks that retiring on $1 million is more than enough.
However, living on a $1 million isn’t what it was a few decades ago. It will only generate between $40,000 and $50,000 a year in income. Assuming that your house is paid off and your kids are independent, that sounds like a decent amount to live on.
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If you’re one of those people who likes to live the high life, you probably don’t realize how much your spending will end up costing you in the long run. Unless of course you have a trust fund and don’t need to worry about money, there’s a good chance you’re spending more money than you ought to, and thus not saving enough for retirement.
While its difficult to curb your spending, you can still make a difference. What you try to do is cut down on certain expenses without making a signficant lifestyle change. You don’t drop the expense, you modify it so it costs less. Maybe use a cheaper brand or a less expensive service. And you invest the difference.
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- Starting saving early. If it doesn’t hurt you’re not saving enough!
- Never spend more than you earn.
- Max out all your retirement plans every year.
- Get and stay married to a sensible person.
- Buy your home.
- Plan far ahead for your retirement, and then stick to the program.
- Make a plan with a reliable financial adviser. Don’t be afraid to ask for advice.
- Make savings and financial stability more important than looking cool.
- Adopt a straightforward investment philosophy that takes advantage of the historical benefits of investing in common stocks but balances it with bonds in a judicious mix.
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Posted in Retirement on Mar 10th, 2007 No Comments »
You have a few different choices when it comes to naming your IRA’s beneficiary. The worst thing is not to name anyone. In that case, the IRA is divided according your your will. If you don’t have one, then each state has its own rules for distributing your assets and I’m pretty sure you won’t like any of them. Least of all, paying the high probate attorney fees and court costs!
If you don’t name a beneficiary, the proceeds of your IRA must be distributed within 5 years. However, by naming a beneficiary you can extend that over the life span of the beneficiary.
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Posted in Retirement on Mar 6th, 2007 3 Comments »
There are many companies in the US that offer a matching contribution to employee 401(k) plans. Usually its a 50% match up to about 3% of the employees salary. Sometimes its a lot more generous. Some educational institutions offer a 200% match with no limits! Some companies offer a more complex graduated matching plan.
Lets look at an example. If you earn $50,000/year and your company offers a 50% match upto 6% of your salary, then for the first $3,000 you contribute, your company will put in $1,500. Thats a 50% return in your first year! Considering that the company also has to pay just over 15% payroll tax on all contributions, its pretty generous.
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Posted in Retirement on Mar 6th, 2007 1 Comment »
One of the most common methods that people use to save for retirement is their company 401(k) plan. A certain amount is automatically deducted from your paycheck every pay period and deposited in this special account called a 401(k) account. You can invest in a set number of specific mutual funds and sometimes in your company stock too.
The government offers an incentive to people to encourage them to save by making contributions to a 401(k) plan tax deductible. Not only do you not pay income tax on the contributions, but you don’t have to pay payroll tax either (currently at ~15.5%). Of course your employer pays the payroll tax, but it saves you the 7.75% that you normally pay.
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