20 years ago, if you were interested in planning your retirement you had to sit down with a financial professional. Back in the 90’s and early 2000’s, meeting with someone with such financial experience was commonplace and expected. Fast forward to today and now people planning for retirement have a plethora of options to choose from. You can sit at your desk and pick stocks, you can set up an online investment profile, you can open a retirement account in as little as five minutes! With the ease of picking a retirement plan simplified, you can also simplify the math through several apps and online calculators. This FIRECalc review will show you that you, the investor, now have access to almost all of the tools that were once reserved for professional money managers.
What is FIRECalc?
FIRECalc is a new type of retirement calculator that factors in historical volatility into one’s retirement projection. Many used to think of retirement projections as the following: I have a $1,000,000 portfolio which I draw 4% from on an annualized basis, therefore I have $40,000 I am withdrawing. Unfortunately, retirement projections like this don’t always pan out. Think of the most recent financial disaster where many portfolios were slashed in half. What FIRECalc does is allow you to see all of the possible outcomes of your portfolio, whether it’s a market rally or another collapse.
The Benefits of FIRECalc:
FIRECalc can let you see a projected path of possibilities for retirement. The picture below uses the following example: Bob has a portfolio balance of $1,000,000. He needs to withdraw $50,000 a year for 30 years in retirement. The lines below indicate the vast array of possibilities that his money will last through all 30 years. With the red line signifying “Zero” you can see that the majority of lines end above. This means that based on historical factors, Bob more than likely will have enough funds to cover his spending requirement in his retired years.
What Else Can FIRECalc Do?
The premise that FIRECalc was built on was in dealing with historical market averages. FIRECalc uses this basis and expands it to many other calculator offerings. Around a third of all Americans rely on social security as their main source of income in retirement. Will your social security payments be enough for your retirement? FIRECalc will let you know what your chances of success are. Other calculators they have include ones for people who are looking to set up a future retirement, various spending models, along with a portfolio allocation model.
I hope this FIRECalc review shows you the many benefits the site can offer. While it is not entirely user friendly (it looks very simple and plain), it does provide you with something all other retirement calculators lack. Most retirement calculators assume a specific return every year during the duration of your investment horizon. FIRECalc is different in that it presents you all of the possibilities. Markets can go up by 20% in a year, and they can also go down over 30%. There are many fluctuations to take into account and that is exactly what FIRECalc does.
Reduce your taxes and increase your savings. Sounds almost a little too good to be true right?
It’s possible, it’s easy, and I just did it and so can you.
Today is the final day for you to file your taxes for this year. Did you pay more in taxes than you would have liked? Do you want to lower your tax bill for next year? If so, then here is how to do it:
Increase your 401k contribution to your company’s plan. What percentage of your salary are you contributing to your 401k currently? Bump it up. By increasing your pre-tax 401k contribution to your plan you are in effect reducing the amount of income you take home, thus reducing your tax burden.
I recently increased my pre-tax contribution percentage by 8%, and found that I will save roughly $1700 this year on my taxes. It’s that simple. Increase your savings, reduce your tax burden. This offers 3 key benefits.
You lower the amount of taxes you will be paying for the year.
You increase the amount of savings you will have at retirement. The more you save now, the more you will have later.
Because you don’t see the additional money you put into your 401k plan on your paycheck, you won’t spend it, and most likely you won’t miss it.
There is a retirement crisis currently underway. Why is this? Because people don’t save during their working years to fund their golden years. The Economic Policy Institute recently released are startling report about American’s retirement savings.
The graph above shows the median account values of retirement savings for a given age group. The overall median among all age groups is a meager $5,000 while the median value for those closest to retirement, 56-61 age group, have only $17,000 saved up.
To put this in perspective, I am 26 years old, and have been employed full time for less than 4 years. In my retirement accounts, which include a company 401k, a rollover IRA and a Roth IRA, I have $47,589 saved.
Retirees are relying on Social Security by larger percentages these days. Nearly 2 out of every 3 retirees relies on Social Security for at least 90% of their retirement income. No matter your current age, there are ways to insure that you are setting yourself up for success in your later years. Here are the steps I followed to have my current retirement savings:
Fund a Company 401k and get full employer match. This should be a no brainer. Fund your company’s 401k plan at least to the amount that will maximize your employer’s match. It’s FREE MONEY.
Start an IRA. I prefer a Roth IRA because it is money you will never be taxed on again, and is a good complement to a 401k (which you will pay income tax on in the future). Go to Vanguard’s website and get one started in a matter of minutes.
Maximize out your 401k. If you are under 50, you can contribute up to $18,000 of your pre-tax pay to a 401k. If you are over 50, you can contribute an additional $6,000. See if you can contribute an additional 1 or 2 percent each year until you reach the maximum.
Planning for retirement is now more important than ever. Many don’t have pensions to rely on anymore, so the responsibility is now on YOU to determine your retirement destiny.
The other night I was pondering what actually classified as retirement. We all think of retirement as falling towards the end of one’s life. You work for a while, save up enough money, then use those savings to enjoy the latter part of your life.
But what if you don’t want to wait until you are 65 or older to retire? Say you want to save up money for 15 years, take 5 years off and then re-enter the workforce. Is this retirement?
I didn’t know the answer, so I did what everyone does now-a-days to find such an answer. I Googled it. Webster’s Dictionary defines retirement as the following:
The act of ending your working or professional career; the period after you have permanently stopped your job or profession.
So if you did decide to take 5 years off during the middle of your working career I guess it would be classified as a hiatus. Regardless of when you decide to retire, there are a few things I believe retirement truly is.
When one’s passive income is greater than one’s expenses.
Your investments, rental properties, royalties or whatever revenue generating sources you have other than trading your time for money are greater than your expenses.
Finding ways to spend your time with people you love and doing things you love.
You can have all the money in the world, but if you don’t have ways to enjoy it or enjoy your time then it has no purpose.
Creating your very own legacy.
Volunteering, raising money for a worthy cause, instilling wisdom in the minds of younger generations. Creating a legacy to be remembered by is the ultimate goal of success.
As you should know, we are all in the midst of debates among both Democrats and Republicans for the 2016 Presidential candidacy. While there are many social issues these candidates have discussed, there are also a few fiscal issues discussed as well.
The majority of the fiscal issues stem around America’s growing debt burden (which is now over $18 trillion). However, another topic that has taken somewhat of a backseat, but is still discussed in these debates is the topic of social security.
Some candidates want to push back the retirement age, others would like to cut the benefits paid out by the program. One suggests raising the cap on taxable income for social security. To view each candidates stance, CLICK HERE.
Americans who are retired or are planning on retiring in the future and relying on social security income to help fund that retirement should be assured that this topic has relevancy to these debates. Although we cannot predict who the next president will be, or what ultimately will happen to the social security program, we can do our best to make sure that we are well off no matter what is decided.
Having IRA’s, pensions, and 401k plans are ways to ensure a safe retirement. Maxing out contributions to these retirement vehicles where applicable can give one peace of mind in the future. What will happen with social security in the next 20, 30, or 50 years? Nobody knows. However, a broad retirement plan can help lessen the stress and worry about what might occur.
ONE MILLION DOLLARS. It has a nice ring to it. For some of us, we desire to be millionaires one day. But how? It can happen many ways. It all starts with saving. A 401k is a great way to build up $1,000,000 of net worth. How is this? Most of the time an employer will match your contribution up to a certain percentage. This is FREE money. Combine that with the fact that 35-40 years of employment and it is easy to see how the amount can add up. At the end of the day it is all math.
Experts suggest saving various amounts of your income depending on one’s age; however, money saved is money not spent. Save as much as you can while still enjoying life. The following video discusses how one’s 401k can lead to millionaire status.
If yes, listen up. There is a way to allow that 2, 3 or 4% your employer gives you to add enormous amounts of wealth to your pocket.
There is a thing called lifestyle inflation which ultimately means the more you make the more you spend. It is human nature for us to increase our standard of living as our income goes up. For instance, when I was in college, I rarely went out for a nice sit down meal. Now, I go a few times a month. Lifestyle inflation is bound to happen to a certain degree. You make more money, you start a family. You start a family, you need a bigger house. It isn’t a perfect cause and effect relationship but you get the gist.
So what are you doing with your annual raise this year? If you are like most employees then you get a tiny piece of satisfaction out of seeing a slight bump in your paycheck. Not like an extra $30, $50 or $70 a paycheck makes a huge difference, but it can if it is put in the right place.
Let’s say you are the recipient of a 3% annual raise from your employer. Instead of letting the raise go straight into your paycheck take 2% of that raise and increase your 401k contribution by 2%. Then let the 1% add a little more to your paycheck. Now on an individual with a $50,000 a year salary, increasing your 401k contribution by 2% is only $1000. However, if you let that money compound and you continue to put your raise into your 401k each year, then over time it can add up to thousands if not hundreds of thousands of dollars.
Nobody ever looks back and says “I saved too much money.” So give it a shot, and let the savings pile up.
I’m 26, and sometimes I find myself dreaming about retirement. It all sounds so nice. Doing whatever you want. Living wherever you want. The money, well it just rolls in. On paper it looks so nice; not having to work and the checks just rolling in. However, with Alzheimer’s on the rise and lifespans increasing, many are finding full time employment after 65 to be quite enjoyable.
THE MAIN BENEFIT:
Working during your retirement years means you can let your retirement funds continue to grow! Without tapping into your retirement accounts, you are insuring yourself more money for when you do decide to retire.
The following article has a few graphs and stats that shows how working past 65 can be something quite nice. I might just have to rethink my whole retirement age now.
In Part II of the video series, we will talk about just how one should start a Roth IRA. Roth IRA’s are an essential tool to have when it comes to retirement planning. The money you place into your Roth IRA and the earnings that accumulate over time are never taxed. When you reach your retirement years, 401k’s, pensions and social security are all taxed. This is why it is important to have a non-taxed account to supplement your retirement years. Ramit explains Roth IRA’s below and where you can begin funding your very own account.
The shifting retirement landscape has come to the point where companies rarely offer pensions for employees anymore. Instead, 401k plans are the preferred choice. Contributing to your employer-sponsored 401k plan to get the full company match is a given. If they contribute 50 cents on the dollar for the first 6% then you put in 6% of your paycheck and the employer contributes 3%. A total of 9%. Not too shabby.
Contrary to many news outlets, companies are handing out raises to employees. It could be in the form of an annual 3% raise. A promotion can often times carry a raise of 6% to 20%. No matter how big or small the raise is, you SHOULD consider raising your 401k contribution beyond the full company match.
It is the end of your company’s fiscal year and they award you a 3% raise (this is how employers make sure their employee salaries keep up with inflation). Let’s say you contribute 6% of your paycheck and the employer matches you 3%. You have a total of 9% of your paycheck being contributed to your 401k. If you make $5000 a month this equates to a monthly contribution of $450. If you were to take your 3% raise, increase your 401k contribution by 2%, a total of 8% that YOU are contributing, and add in your employer’s match of 3%, you now have a total of 11% of your paycheck going to your 401k. Now, instead of having $450 a month deposited into your retirement account, the amount leaps up to $550 a month.
Adding 2% of the 3% raise to your 401k contribution still leaves you a little, 1%, increase to your paycheck. You won’t miss the 2%. Why? Because you have already been conditioned to get by on the money you were currently earning.
Small raises to your 401k contribution can pay dividends later in your retirement life. The following link shows you just how much a small increase now can pay you much more in your retirement years.