Should I Go for a Pension Purchase Option or Invest the Money? – A Reader Question

Pension Purchase Option

A few weeks ago I receive a really great question from a friend of mine (we’ll call him LJ) regarding whether or not he should take a pension purchase option that his employer is offering him.  Here’s the email he sent me: I'm thinking about buying 5 years of generic pension service time. Seems like a no brainer, right? Not quite. I've had the actuarial done and it will cost me $37,800. A good chunk. I have the money in a 457 account and can roll it over to my pension administrator. I plan to retire in 22 years at 60 when I am eligible to draw the pension. I have 13.5 years of service currently. This would make it 18.5 years. The reason that I'm considering this is that my pension multiplier is going to be reduced on Jan 1st from 2 to … [Read more...]

2015 Maximum 401k Contribution Increases to $18,000 – How You Can Get There

2015 Maximum 401k Contribution

If you’re one of those people who are really good at saving their money diligently for retirement, then the IRS has some good news for you next year:  The 2015 maximum 401k contribution has just been increased to $18,000 (up $500 from 2014). For those people 50 and older, the $5,500 catch-up limit was also bumped up to $6,000. I’ve personally been saving up to the 401k maximum for a while now and am looking forward to bumping up my contributions.  By saving so much I know that I’m not only helping my family to get closer to reaching financial freedom, but we’re also taking advantage of a few other extremely important benefits. Here are what they are and what you can do to help yourself get that point too.   Why Max Out or … [Read more...]

How Much Should I Put in My 401k Plan? My Surprising Answer

save money for retirement

It’s one of the most commonly asked questions of employees when they start saving for retirement: How much should I put in my 401k?  5%?  10%?  15%? Especially when you’re young (in your 20’s and 30’s) and just starting out, retirement can feel like such a long ways away.  You know that you should be contributing, but at the same time you want to enjoy your earnings and save towards other goals like a house and family needs too. To simply answer this question with “save as much as you can afford” feels too much like an easy-out.  I’ve recommended that advice to friends in the past only to find out that they end up saving only a measly 2 or 4% of their paychecks.  Since I’m friends with them, I KNOW they can do much better than … [Read more...]

Should I Do a 401k to IRA Rollover?  The Benefits and Drawbacks

401k to ira rollover

Recently during a discussion with my money coach client there was a very important question that came up:  “I have an old 401k with a former employer that is still sitting right where I left it.  I’m wondering if I should make a 401k to IRA rollover or simply leave the money right where it is?” That’s a really good question. I’m sure for a lot of people (myself included) that the money you have in your 401k account is probably the largest percentage of your wealth you have saved up – anywhere!  Even if you’ve got nothing more than the average 401k balance of $81,000 as reported by Fidelity, that’s still a very serious amount of retirement savings that you want to be putting to work as hard as possible. Unfortunately, however, … [Read more...]

What is the Minimum Retirement Savings You Could Comfortably Live On?

minimum retirement savings

One of the hallmarks of a solid early retirement plan is thinning out your expenses as much as possible. To a lot of people they will probably interpret this to mean shaving a few hundred bucks off by not eating out every night or scaling back on their trips to the mall.  Those kinds of things are good, but we’re talking about going a whole lot further.  For someone who wants to retire early really, really badly, part of what they’ll do is clip back their expenses to the point of virtual non-existence. Why would they do this?  Simple.  The fewer expenses you have means you’ll only need the minimum retirement savings possible.  Take for example everyone’s favorite super-frugal early retiree Mr Money Mustache.  I remember reading that … [Read more...]

Some Unconventional Thoughts on Investing for Your Retirement

Investing for Your Retirement

When I first started in financial planning, this would be back in the 1980’s, investing for your retirement was simple.  When you were young, the theory went, you dutifully started putting away a little bit of your salary each month.  The amount was as high a percentage of your income as you could manage.  It was supposed to be a sacrifice.  Give up something now to have something later. You invested in the stock market, of course.  Equity returns were the way to go and you had plenty of time to ride out cyclical fluctuations.  Your risk return profile indicated a higher acceptance of risk. You also bought a home.  This was more a place to live than a retirement investment.  Still, it increased your net worth. As you got older you … [Read more...]

What To Do When You Retire Early – Here Are My Plans

beach and laptop

Answer me honestly: If you never went to work again, what would you do with the rest of your life? It’s a simple question.  But one where the answer is probably more complex than you realize. You see recently I’ve been giving the matter of what to do when you retire early some serious thought. I don’t there’s anyone out there who hasn’t fantasized about the day when they finally have enough money to call it “quits” at work and do whatever it is they want from that point forward. Designing your financial freedom.  It’s what this blog is all about. But recently I’ve been asking myself what happens AFTER you get there?  What is it that is truly so wonderful and waiting for me on the other side of the early retirement gates?  Can … [Read more...]

The Ultimate Guide to How to Have a Tax Free Retirement

protect money

How incredible would it be to have a completely tax free retirement? I’m serious.  You would owe no taxes. No, you won’t have to live in poverty.  In fact if you’ve got enough savings you could withdraw over $100,000 and still not owe the government any money. Is that even possible?  Of course it is.  Lots of wealthy Americans take advantage of tax loop holes every day to pay a lower tax rate than their peers.  There’s even a famous statement from Warren Buffett where he says that he is paying a lower tax rate than his secretary. Fortunately for you, we’re going to do a little better than that in this post.  We’re going to see if we can’t find a way to pay NO taxes at all! All we’ll need is to be creative with how we plan to … [Read more...]