FIRECalc Review

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.

Conclusion:

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.

One Easy Way to Slash Taxes

Image result for lower taxes

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.

Benefit 1:

You lower the amount of taxes you will be paying for the year.

Benefit 2:

You increase the amount of savings you will have at retirement.  The more you save now, the more you will have later.

Benefit 3:

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.

 

Budget Smart, Invest Wise

 

The Retirement Crisis and How to Avoid 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 Retirement Revolution That Failed: Why the 401(k) Isn’t Working

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:

  1. 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.
  2. 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.
  3. 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.

Budget Smart, Invest Wise

What Is Retirement?

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.

Image result for retirement

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.

 

Budget Smart, Invest Wise

 

 

Social Security and the 2016 Presidential Campaign

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.

Social Security Proposals Show Shifting Ground in Debate

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.

Budget Smart, Invest Wise

What Age Will You Retire?

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.

http://finance.yahoo.com/news/nine-five-65-120000346.html

Budget Smart, Invest Wise

Thinking Outside the Retirement Box

Having a company 401k is a beautiful thing.  A company match is the biggest way to get a free return on your retirement savings.  But don’t let a company sponsored retirement plan be the end all be all to your future savings.  When it comes to your financial future, I’m a big believer in having multiple sources.  IRA’s, taxable brokerage accounts, real estate.  There are many ways you can put your money to work.

Working at a company for 40 years and having a retirement plan coupled with social security might lead to a decent retirement future.  Decent is not what I’m seeking and neither should you.  You need your company retirement savings plan, but you also need an IRA, and other investments to fund an excellent life during your golden years.

The following article presents additional ways to save for those future years.  It is possible to save too little, but you can never save too much.  Check out ways to expand your retirement portfolio and ensure you make the choices now for a great financial future.

http://finance.yahoo.com/news/ve-maxed-401-k-where-205207623.html

Budget Smart, Invest Wise

 

 

Why 1% Should Matter to You

It is 2015, and pensions are out, 401k’s are in.

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.

http://finance.yahoo.com/news/how-a-1–savings-boost-could-sweeten-your-retirement-155040943.html

Budget Smart, Invest Wise

The Pieces of the Financial Puzzle

puzzle pic

Achieving true financial wealth is no easy task.  Firstly, you have to generate an income.  Secondly, you have to have expenses that are less than the income you generated.  Finally, you have to take the difference remaining and invest it wisely.  These three things are what I consider to be the pieces to the financial puzzle.  I will illustrate how all three pieces are essential to creating a financial future you will be proud of.

Piece 1: Income

For the majority of us, this is generated from our job.  We trade our hours for money.  The best part about this piece is that there is no limit to how high your income can be.  Additionally there are many ways to generate income.  Getting an extra job part time on the weekends is an option.  Unfortunately, there are only so many hours one can trade for money.  This is where you must get creative.  Making more money each hour is one way to generate more income.  There is also residual income and ways to generate passive income one can do to expand upon this number.  Get creative and don’t limit yourself.

Piece 2: Expenses

Keeping expenses low is similar to a good defense.  Limiting expenses in various categories not only holds you accountable for your money, but it also can allow you to achieve certain financial goals faster.  Budgeting is the easiest way to monitor your expenses.  See what categories are holding you back, look at ways to reduce or eliminate them.  Gym membership you’re not using but still paying for?  Have you renegotiated your cable bill recently?  Much like the income piece of the puzzle, a little creativity in your expense category can go a long way.

Piece 3: Investing Wisely

You make money, you spend money.  Hopefully, the difference between these numbers isn’t negative.  If it is, you’re digging yourself into debt.  If the amount is positive then saving the remainder is often advised, but how you save that money is more important than the actual act of saving.  Placing savings into a low interest savings or checking account is a good way to devalue your money quite fast.  The U.S. economy has an inflation rate that is around 3% per year.  This means you need to invest the difference wisely, and that means in an investment vehicle that yields returns greater than 3% per year.  Vanguard can make this investment strategy easy.  Simply open a fund, pick an asset mix suitable to your risk tolerance and let the money compound over many years.  Of course, it is always advisable to have an emergency fund on hand where you won’t need to dip into retirement or other investments.

When reviewing your financial past, your financial present, and your financial future, all three of these pieces are essential.  Generate income, have expenses that are less than that income, and invest the difference wisely.

Budget Smart, Invest Wise

The Potential Retirement Cap

In his plan for the 2016 budget, the president and his administration are seeking to disrupt the current retirement process.  A number of retirement topics were mentioned such as Social Security, the elimination of a “back door” Roth, and a cap on the amount eligible in a person’s retirement accounts.

For the subject of this post, I will discuss the president’s plan to limit the amount held in retirement accounts for an individual.  Presently, an individual can have an unlimited amount in retirement accounts.  This includes employer-sponsored 401k’s, traditional IRA’s, and Roth IRA’s.  The only limitations currently imposed on retirement accounts are the amount you can contribute.  This includes$5500 ($6500 for people over 50) for IRA’s and $18,000 ($24,000 for people over 50) for 401k plans.  These limitations are currently set so that individuals don’t stash all of their retirement savings in tax-free or tax-deferred retirement accounts.  The government has to make its money somewhere.

The 2016 budget proposal would now not only put a limit on the amount of contributions you can put into a retirement account, but also on the amount held in your various retirement accounts.  The proposed limit: $3,400,000.  For a younger person saving for future retirement, this amount might seem astronomical.  However, I am here to tell you that it is not.  Granted a lot has to happen for this limit to take effect.  It has to be voted on and passed, and then I would assume the government would adjust this number to reflect inflation, roughly 3% a year.  If, and again this is a big if, this law were to be put into place it would impact roughly 10% of 401k plan participants according to Forbes.

Example:

Take the proposed limit on retirement accounts: $3,400,000 and adjust it for inflation of 3%.  In 40 years this inflation adjustment amount would be approximately $11,000,000.

Mike is a 25 year old with $20,000 in retirement assets.  This includes an employer-sponsored 401k plan along with a Roth IRA.  Mike will contribute $18,000 a year to his 401k and get an employer match of $3,000.  He puts in $21,000 a year into his 401k.  Additionally, he contributes the maximum $5,500 into his Roth IRA every year.  Mike spreads this amount out evenly over the 12-month year.  When Mike turns 50, he contributes the new limit, $24,000 in an employer-sponsored 401k with a $3,000 match and $6500 in a Roth IRA.  Assuming Mike’s portfolio returns 10% a year, Mike will have over $15,000,000 in his retirement accounts, more than what would be allowed.  He would then have to divert some of those funds to a taxable brokerage account, or be forced to spend it.

Sure, the example of Mike listed above is an outlier.  Many of us can only dream of having so much set aside for retirement.  The fact is that some people DO!  We can agree this would be a good problem to have, but nonetheless a problem.  Are you aggressive enough with your retirement planning that you have to worry about this law possibly being passed?  I am!  And for that reason, my vote is against it.

Budget Smart, Invest Wise