As part of my annual financial checkup, I have updated my “Money Design” for financial freedom. This is my plan to one day automate my income rather than rely solely on employment income. My plan can be summarized by the flow chart below: … [Read more...] about My “Money Design” – 2012 Update
Retirement
Retire Early Using a 72(t)
If you’re doing a good job of saving up for retirement and looking at the possibility of meeting your goals sooner than later, one of the next biggest hurdles you’ll have to overcome is how to physically get your money out of your retirement accounts. For most personal accounts such as a 401(k), 403(b), or IRA, you have to wait until age 59-1/2 or get slapped with a hefty 10% penalty fee. There are special exceptions to the 401(k) and 403(b) that may allow you to access your money without penalty by age 55. But even still, what if you are able to retire even sooner than that? Fortunately, this is where a 72(t) comes in. A 72(t) is a little-known tax code within the IRS laws that allows an individual under the age of 59-1/2 to take … [Read more...] about Retire Early Using a 72(t)
Retirement Income Planning and How Your Needs Will Change
Do you think it’s possible to save too much for retirement? That was the headline in an article from Yahoo Finance that seemed to think that you might. In it, the author was pointing the finger at the popular “80% rule” that suggests that retirement income planning is as simple as just estimating 80% of your gross (pre-tax) income. Their criticism was that some academics think this commonly accepted retirement income planning tool may inadvertently cause some people to save for far more than they need. Consequently, this would cause those people to short-change themselves in the present. … [Read more...] about Retirement Income Planning and How Your Needs Will Change
Will You Have to Work Until Age 80?
How long do you plan to work? In a very depressing recent article on CNN Money entitled “Delaying Retirement: 80 is the New 65”, it was reported that at least a quarter (1 in 4) of middle class Americans are failing to prepare for their retirements and will likely work until the age of 80. Keep in mind that the average life expectancy of a person is only 78. Here are some more sad facts that were quoted: • The respondents (ages 20 to 80) had a median savings of $25,000. However, their median retirement savings goal was $350,000. • 30% of people in their 60’s had saved less than $25,000 for retirement. • Three-fourths of middle-class Americans expect to work throughout retirement (Remember: If you work through retirement because you … [Read more...] about Will You Have to Work Until Age 80?
Will Your Retirement Cost $2 Million?
How much money will you need to save in retirement? Think you’ll need $2 million? You may be surprised, but according to a recent article on MSN, experts believe that $2M should be the new goal for most Gen Y’ers. In fact, they also suggest that Gen X’ers strive for a $2M nest egg as well. Although I appreciate articles of this nature and understand that their intended purpose is to reach a broad general interest audience, there were a few things that raised a red flag: 1) $2M may be way more than some people will ever need. 2) The $2M goal is based on working until you reach age 70. Who wants to do that? What if your timeline is compressed so that you can retire earlier? Using conventional wisdom, a $2M portfolio with a 4% withdrawal … [Read more...] about Will Your Retirement Cost $2 Million?
Which is Better – Paying Off Your Mortgage or Investing the Money? – Part 2
In Part 1, we introduced the question of whether it is better to payoff your mortgage or simply invest the money. We also walked through an example that demonstrates how your mortgage is really the same thing as an investment where you earn the same rate of return as your mortgage interest rate. Back to the Question: So after the previous example, you’d probably think that that was the answer and we’re all done. Unfortunately, it’s not that simple. There are two main variables that change the circumstances: … [Read more...] about Which is Better – Paying Off Your Mortgage or Investing the Money? – Part 2
Which is Better – Paying Off Your Mortgage or Investing the Money? – Part 1
It’s one of the most widely asked, light-hearted questions among people: • “If you won the lottery, what would you do with the money?” There’s the usual responses like buying a fancy new car, going on a shopping-spree, taking an exotic vacation, that thing you always wanted, etc. But after all you filter out all the fun responses, most people come to two very sensible responses: • “I’d use the money to payoff my house” • “I’d invest the money” Although not all of us will be winning the lottery anytime soon, we make much smaller-scale decisions along these lines all the time. For example: • Every paycheck when your money goes into a 401(k), have you ever considered if putting it towards your house was the better option? • Have you … [Read more...] about Which is Better – Paying Off Your Mortgage or Investing the Money? – Part 1
Retirement Contribution Limits Increased in 2012
On Friday, the Internal Revenue Service (IRS) announced there will be an increase to the contribution levels for 401(k)’s, 403(b)’s, and the other similar government sponsored retirement plans. The changes will be as follows: • You can now contribute up to $17,000 (up from $16,500 this year) to eligible plans starting in 2012 • Catch-up contribution limits for the same eligible plans will still remain $5,500 for anyone age 50 and over • No change to the IRA (Traditional, Roth) contribution limits - $5,000 annually and $6,000 for anyone age 50 and older. • Roth IRA income limits will be increased by $3,000 to between $110,000 and $125,000 for singles / heads of household and by $4,000 for $173,000 to $183,000 for married couples filing … [Read more...] about Retirement Contribution Limits Increased in 2012
