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Buying A Second Home? 8 Things To Consider

Buying a second home is a major expense. You might have several reasons for wanting to buy a second house. Perhaps, you’re buying a second home for vacations or weekend getaways. Or, it might be that you want to use it as a rental property for rental income. However, there are things to consider before buying a second home.

The benefits of buying a second home

If you’re buying a second home for rental income, you’ll benefit from many perks, especially tax advantages.

For example, you will be able to deduct interest, property taxes, homeowners insurance and other expenses against the property’s income.

Even if the value of the property declines, you will still be able to deduct depreciation from your taxes.

While these benefits are great, the mortgage requirements for a second home are much stricter than for a mortgage on your primary residence. So, make sure you can afford it.

8 Things To Consider When Buying A Second Home

1. Financing options: When you bought your first home, you had available to you what’s called an FHA loan – a government loan program.

FHA loans are an appealing and favorite choice among first time home buyers due to their relatively low down payment requirement.

FHA loans require a 3.5% down payment and a relatively low credit score of 580. However, FHA loans are not available to second home buyers.

That is because FHA requires the home to be the borrower’s primary residence. So, if you’re thinking of buying a second home, you will need to either use a conventional loan or financing it with your own cash.

2. A larger down payment: If you’re using a conventional loan for your second home, you will need to come up with a larger down payment.

Lenders for a conventional loan usually requires a 20% down payment of the home purchase price.

But for a second home which will be used as a rental property or vacation home, expect lenders to ask for 30% or even 35%.

3. A higher credit score. For an FHA loan, you only need a credit score of 580 to qualify. But for a conventional loan on a second home, you will need much higher credit score — usually 750 or higher.

4. Expect a Higher Interest Rate: Lenders will likely charge you a higher interest rate on your second home than your primary residence.

The reason is because they see a second home — be it a vacation home or a rental property — as riskier. They feel that you are more likely to default on a mortgage on your second home than on your primary residence.

5. Do your research: Just as you did your homework when you bought your place to live in, buying a second home is no different.

In fact, you’ll need to spend more time researching rental property. That means researching the neighborhood you will want to invest in, knowing the zoning laws for a particular area, the sales price for the homes in the area.

You will need to know if the area has adequate public transportation, schools, grocery shopping, etc,– things that potential tenants will need.

6. Be prepared to be a landlord: if you’re buying a second home to rent, be prepared to be a landlord.

And be prepared to deal with all of the headaches that come with being a landlord. Do you have sufficient time? Can you deal with problems?

Owning a rental property and being a landlord is time consuming. It is also hard hard work and you have to do your due diligence.

You can hire a property manager to run the property for you. But if that is not feasible, you’ll have to do it yourself.

That means, screening new tenants, collecting rent, dealing with delinquent tenants, fixing problems in the property, such as a broken pipe.

So before buying a second home, make sure you have sufficient time and make sure you can deal with the day-to-day headaches that come with being a landlord.

7. Do you have a stable income? Dealing with a second mortgage on your second home is doable.

While you may be able to afford upfront costs, if you don’t have a stable income, you may have to think twice about whether it is a good idea.

Plus, you still have to consider the additional expenses of owning a second home such as insurance, property taxes, maintenance, repairs, property management fees, etc.

8. Are you out of credit card debt? If you have paid off outstanding and high interest credit card debts, then purchasing a second home may make sense.

But if you’re still struggling to pay your debt, you may need to put buying a second home on hold. 

The bottom line

If you’re thinking about buying a second home, whether it is for investment or vacation, be prepared to save some money, budget for expenses, and come up with a bigger down payment.

More importantly, spend as much time, if not more, researching for the home just as you did when your purchased your primary home.

Speak with the Right Financial Advisor

  • If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc).
  • Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

Source: growthrapidly.com

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8 Safe Investments for People Who Hate Risking Their Money

Think back to what the stock market looked like to you in March 2020, aka, the apocalypse. Did it look like:

A.) The biggest bargain sale you’ve ever seen in your lifetime? 

or

B.) A burning pit of money that was about to incinerate your life’s savings?

If you answered “B,” you probably have a low risk tolerance. You worry more about losing money than missing out on the opportunity to make more of it.

Being cautious about how you invest your money is a good thing. But if you’re so risk-averse that you avoid investing altogether, you’re putting your money at greater risk than you think.

Do Safe Investments Actually Exist?

When you think about the risks of investing, you probably think about losing principal, i.e., the original amount you invested. If you keep your money in a bank account, there’s virtually no chance of that happening because deposits of up to $250,000 are FDIC insured. 

But consider that the average savings account pays just 0.05% APY, while in 2019, inflation was about 2.3%.

So while you’re not at risk of losing principal, you still face purchasing power risk, which is the risk that your money loses value. Your money needs to earn enough to keep up with inflation to avoid losing purchasing power. If inflation continues at 2.3%, buying $100 worth of groceries will cost you $102.30 a year from now. If you’re saving over decades toward retirement, you’ll be able to buy a whole lot less groceries in your golden years.

There’s also the risk of missed opportunity. By playing it too safe, you’re unlikely to earn the returns you need to grow into a sufficient nest egg.

Though there’s no such thing as a risk-free investment, there are plenty of safe ways to invest your money.

8 Low-Risk Investments for People Who Hate Losing Money

Here are eight options that are good for conservative investors. (Spoiler: Gold, bitcoin and penny stocks did not make our list.

1. CDs

If you have cash you won’t need for a while, investing in a CD, or certificate of deposit, is a good way to earn more interest than you’d get with a regular bank account.

You get a fixed interest rate as long as you don’t withdraw your money before the maturity date. Typically, the longer the duration, the higher the interest rate. 

Since they’re FDIC insured, CDs are among the safest investments in existence. But low risk translates to low rewards. Those low interest rates for borrowers translate to lower APYs for money we save at a bank. Even for five-year CDs, the best APYs are just over 1%.

You also risk losing your interest and even some principal if you need to withdraw money early.

2. Money Market Funds

Not to be confused with money market accounts, money market funds are actually mutual funds that invest in low-risk, short-term debts, such as CDs and U.S. Treasurys. (More on those shortly.)

The returns are often on par with CD interest rates. One advantage: It’s a liquid investment, which means you can cash out at any time. But because they aren’t FDIC insured, they can technically lose principal, though they’re considered extraordinarily safe.

3. Treasury Inflation Protected Securities (TIPS)

The U.S. government finances its debt by issuing Treasurys. When you buy Treasurys, you’re investing in bonds backed by the “full faith and credit of the U.S. government.” Unless the federal government defaults on its debt for the first time in history, investors get paid.

The price of that safety: pathetically low yields that often don’t keep up with inflation.

TIPS offer built-in inflation protection — as the name “Treasury Inflation Protected Securities” implies. Available in five-, 10- and 30-year increments, their principal is adjusted based on changes to the Consumer Price Index. The twice-a-year interest payments are adjusted accordingly, as well.

If your principal is $1,000 and the CPI showed inflation of 3%, your new principal is $1,030, and your interest payment is based on the adjusted amount. 

On the flip side, if there’s deflation, your principal is adjusted downward.

4. Municipal Bonds

Municipal bonds, or “munis,” are bonds issued by a state or local government. They’re popular with retirees because the income they generate is tax-free at the federal level. Sometimes when you buy muni bonds in your state, the state doesn’t tax them either.

There are two basic types of munis: General obligation bonds, which are issued for general public works projects, and revenue bonds, which are backed by specific projects, like a hospital or toll road.

General obligation bonds have the lowest risk because the issuing government pledges to raise taxes if necessary to make sure bondholders get paid. With revenue bonds, bondholders get paid from the income generated by the project, so there’s a higher risk of default.

5. Investment-Grade Bonds

Bonds issued by corporations are inherently riskier than bonds issued by governments, because even a stable corporation is at higher risk of defaulting on its debt. But you can mitigate the risks by choosing investment-grade bonds, which are issued by corporations with good to excellent credit ratings.

Because investment-grade bonds are low risk, the yields are low compared to higher-risk “junk bonds.” That’s because corporations with low credit ratings have to pay investors more to compensate them for the extra risk.

6. Target-Date Funds

When you compare bonds vs. stocks, bonds are generally safer, while stocks offer more growth. That’s why as a general rule, your retirement portfolio starts out mostly invested in stocks and then gradually allocates more to bonds.

Target-date funds make that reallocation automatic. They’re commonly found in 401(k)s, IRAs and 529 plans. You choose the date that’s closest to the year you plan to retire or send your child to college. Then the fund gradually shifts more toward safer investments, like bonds and money market funds as that date gets nearer.

7. Total Market ETFs

While having a small percentage of your money in super low-risk investments like CDs,

money market funds and Treasurys is OK, there really is no avoiding the stock market if

you want your money to grow.

If you’re playing day trader, the stock market is a risky place. But when you’re committed to investing in stocks for the long haul, you’re way less exposed to risk. While downturns can cause you to lose money in the short term, the stock market historically ticks upward over time.

A total stock market exchange-traded fund will invest you in hundreds or thousands of companies. Usually, they reflect the makeup of a major stock index, like the Wilshire 5000. If the stock market is up 5%, you’d expect your investment to be up by roughly the same amount. Same goes for if the market drops 5%.

By investing in a huge range of companies, you get an instantly diversified portfolio, which is far less risky than picking your own stocks.

8. Dividend Stocks

If you opt to invest in individual companies, sticking with dividend-paying stock is a smart move. When a company’s board of directors votes to approve a dividend, they’re redistributing part of the profit back to investors.

Dividends are commonly offered by companies that are stable and have a track record of earning a profit. Younger companies are less likely to offer a dividend because they need to reinvest their profits. They have more growth potential, but they’re also a higher risk because they’re less-established.

The best part: Many companies allow shareholders to automatically reinvest their dividends, which means even more compound returns.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]

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Source: thepennyhoarder.com

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Why Refinance Rates Are Higher Than Purchase Loan Rates

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8 Surprising Things No One Tells You About Retirement

Surprised retiree
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Most of us spend decades working and dreaming of a day when we can retire. But when we finally arrive at our post-work destination, it’s not unusual to find ourselves in a world of surprises.

Knowing what to expect in advance can help you prepare for — and adjust to — life in your golden years. The following are some key things no one tells you about before you retire.

Housing will remain your biggest expense

Senior couple at home
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Many retirees dream of paying off their mortgage so they will be free to spend money on travel and other activities. But the reality is that housing likely will remain the biggest expense in your budget for as long as you live.

U.S. households led by someone age 65 or older spent an average of $17,472 on housing in 2019, as we detail in “Here’s How Much Retiree Households Spend in a Year.” That is easily more than these households spent in any other expense category.

Work will not end — it will simply change

older worker
michaeljung / Shutterstock.com

You will probably work in retirement — and not just because you have to. More than 70% of people say they want to work during retirement, according to the findings of “Work in Retirement: Myths and Motivations,” a joint study by Merrill Lynch and Age Wave.

As you age, chances are good that the nature of work will change, though. The study found that 3 in 5 retirees plan to launch a new line of work that differs from what they have done in the past. Working retirees also are three times more likely than pre-retirees to own their own business.

If you’ve never volunteered before, you won’t start in retirement

Senior volunteer
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About 90% of Americans say they would like to do volunteer service for someone or some cause that needs their help, but just 25% actually do so, according to the Stanford Center on Longevity.

When asked why they don’t follow through on the wish to help, Americans most commonly cite a lack of free time. Yet, retirees — with plenty of time on their hands — do not volunteer at rates that are any higher than those of workers.

And among people who did not volunteer during their working years, just one-third finally begin volunteering during retirement.

Retirement can be especially lonely for single men

Sad senior man
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In some ways, retirement is more challenging for women. Because they live longer than men, they will have to stretch the funds from their nest eggs over a longer period. To make matters worse, women generally start with less in retirement savings than men do.

But women who are single have one big advantage over their male counterparts: They are less likely to be lonely.

Just 48% of retired men who live alone say they are very satisfied with the number of friends they have, according to an analysis of Pew Research Center survey findings.

However, a robust 71% of women who live alone are satisfied with the number of friends they have.

Health issues likely will catch you by surprise

Lisa F. Young / Shutterstock.com

Slightly more than one-third of retirees say health problems have put a damper on their retirement years, according to a survey from the Nationwide Retirement Institute. And 75% of those folks say their health problems emerged sooner in life than they expected.

To make matters worse, about one-quarter say health-related expenses keep them from living the retirement of their dreams. Such sobering numbers underscore why many people planning for retirement would benefit from opening a health savings account and stashing as much cash as possible into that HSA.

As you grow older, you will feel younger

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Everyone has heard the cliche: “You’re only as old as you feel.”

If that is true, here is some good news for retirees: Paradoxically, the older people get, the younger they are likely to feel, according to “Growing Old in America: Expectations vs. Reality,” a paper from the Pew Research Center.

For example, among people ages 18-29, about half say they feel their age, one-quarter feel older than their age and another one-quarter feel younger.

However, among those 65 and older, 60% say they feel younger than their age and 32% say they feel exactly their age. Just a scant 3% say they feel older than their age.

Your early golden years might not gleam as you had hoped

Unhappy senior woman
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Nearly one-third of recent retirees — 28% — say life is worse in retirement than it was during their working years, according to the Nationwide Retirement Institute survey.

What is the source of this gloom and doom? Money — or lack thereof.

Among those who lament post-work life, 78% cite a lack of income and 76% cite a high cost of living as the top factors in giving them the blues during their golden years.

The message to future retirees is obvious: Save early, save often and keep saving. For more tips, check out “9 Ways to Rescue Your Retirement in 2020.”

Initial disappointment will give way to later satisfaction

Happy senior couple
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If you are among those disappointed with retirement, take heart: As with so many things, retirement is what you make it. You can take steps to boost your overall satisfaction with life during your golden years.

For example, researchers at the University of Exeter in the United Kingdom found that people who volunteer are less likely to be depressed and more likely to be satisfied with life. There is even evidence that volunteers live longer.

So, if retirement has got you down, stop gazing at your navel and start looking outward at ways to help others.

A lot of other research has found that a happy marriage and spending time with close family and friends can greatly boost retirement satisfaction.

Even if you don’t take steps to make yourself happy, you might just end up feeling joyous anyway. The Pew Research Center found that 45% of adults 75 and older believe life has turned out better than they expected.

Just 5% say it has turned out worse.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

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Simple, Achievable New Year’s Resolutions That Will Make You Richer

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Losing weight, exercising more, spending less, paying down debt: all common New Year’s resolutions many make, but few stick to.

Changing the habits of a lifetime isn’t easy. But using a few simple tools makes it a lot more likely.

In this week’s “Money!” podcast, we’re going to explore some wealth-creating New Year’s resolutions, and more importantly, we’re going to talk about some ways to get on track and stay there. Who knows? This could be the year you finally build that emergency fund, plan for a successful retirement, destroy that debt or otherwise make yourself wealthier. And just maybe you’ll find that by doing it right, you’ll gain without pain!

As usual, my co-host will be financial journalist Miranda Marquit.

Sit back, relax and listen to this week’s “Money!” podcast:

Not familiar with podcasts?

A podcast is basically a radio show you can listen to anytime, either by downloading it to your smartphone or other device, or by listening online.

They’re totally free. They can be any length (ours are typically about a half-hour), feature any number of people and cover any topic you can possibly think of. You can listen at home, in the car, while jogging or, if you’re like me, when riding your bike.

You can listen to our latest podcasts here or download them to your phone from any number of places, including Apple, Spotify, RadioPublic, Stitcher and RSS.

If you haven’t listened to a podcast yet, give it a try, then subscribe to ours. You’ll be glad you did!

Show notes

Want more information? Check out these resources:

About me

I founded Money Talks News in 1991. I’m a CPA, and I have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

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What’s the Difference Between 401(k) and 403(b) Retirement Plans?

Investing in your retirement early is the best way to ensure financial stability as you age, especially when it comes to understanding various retirement options. Getting started may feel overwhelming — luckily we’re here to help. We help break down the difference between 401(k) and 403(b) accounts, and how they can impact your financial life.

You may already know the value in adjusting your budget to make saving for a rainy day a priority. But are you also prioritizing your retirement savings? If you’re just getting started in the workforce and looking for ways to invest in yourself, 401(k) and 403(b) plans are great options to know about. And, the main difference between a 401(k) and a 403(b) is the company who’s offering them.

401(k) accounts are offered by for-profit companies and 403(b) accounts are offered by nonprofit, scientific, religious, research, or university companies. To understand the similarities and differences between plans in depth, skip to the sections below or keep reading for an in-depth explanation.

How a 401(k) Works
How a 403(b) Works
The Difference Between 401(k) and 403(b)
The Similarities Between 401(k) and 403(b)
5 Ways to Grow Your Retirement Savings
What is a 401(k) and 403(b)

How a 401(k) Works

A 401(k) is a retirement account set up by for-profit employers for employees to contribute before-tax earnings. Employer-sponsored 401(k) accounts give employees the opportunity to build retirement savings in different forms — including company stocks, before-tax earnings, and exchange-traded funds (ETFs).

Each company’s retirement plans may vary on benefits like employee matching, stock options, and more. In addition, you’re able to choose how much you’d like to contribute on a monthly basis. Keep in mind, both 401(k) and 403(b) plans have a yearly limit of $19,500 with your employer matches. Plus, most retirement funds have required minimum distributions (RMDs) by the time you turn 70. This essentially means you have to take a minimum amount of money out each month whether you want to or not.

In most cases, employers will offer 401(k) matching to encourage consistent contributions. For example, your employer match may be 50 cents of every dollar you contribute up to six percent of your salary. For example, with this employer match on a $40,000 salary, you would contribute $200 and your employer would contribute an additional $100 each month. This pattern would continue until your annual contributions hit $2,400 and your employer contributes $1,200.

Employee matching is essentially free money. You’re monetarily rewarded for your retirement payments. Be sure to pay attention to vesting periods when setting up your employer match. Vesting periods are an agreed amount of time you need to work at a company before you receive your 401(k) benefits. For example, some companies may require you to work for their team for a year before earning retirement benefits. Other employers may offer retirement benefits starting the day you start working with them.

How a 403(b) Works

A 403(b) is a retirement account made by employers for tax-exempt, charitable nonprofit, scientific, religious, research, or university employees. Organizations that qualify for 403(b) accounts include school boards, public schools, churches, hospitals, and more. This type of account is also known as a tax-sheltered annuity plan — they allow pre-tax income to be invested until taken out.

Employers that offer 403(b) retirement plans may offer a pool of provider options that undergo nondiscrimination testing. This allows employers that qualify for this account to shop around for plans that offer the best benefits and don’t discriminate in favor of highly compensated employees (HCEs). For instance, some 403(b) accounts may charge more administrative fees than others.

Employers are able to offer employee matching on 403(b) accounts if they decide to. To cut costs for nonprofit companies, 403(b) retirement plans generally cost less than 401(k) accounts. Costs associated with starting up these accounts may not affect you, but it may affect your employer.

Account Type 401(k) 403(b)
Yearly Contribution Limit $19,500 $19,500
Employer-Issued Packages For-profit employers:
Corporations, private establishments, etc. and sole proprietors
Non-profit, scientific, religious, research, or university employers:
School boards, public schools, hospitals, etc.
Minimum Withdrawal Age 59.5 years old 59.5 years old
Early Withdrawal Fees 10% penalty, tax, and additional fees may vary 10% penalty, tax, and additional fees may vary
Source: IRS.org

The Differences Between 401(k) and 403(b)

Both a 401(k) and 403(b) are similar in the way they operate, but they do have a few differences. Here are the biggest contrasts to be aware of:

  • Eligibility: 401(k) retirement plans are issued by for-profit employers and the self employed, 403(b) retirement plans are for tax-exempt, non-profit, scientific, religious, research, or university employees. As well as Hospitals and Charities.
  • Investment options: 401(k)s offer more investment opportunities than 403(b)s. 401(k) accounts may include mutual funds, annuities, stocks, and bonds, while 403(b) accounts only offer annuities and mutual funds. Each employer varies in retirement benefits — reach out to a trusted financial advisor if you have questions about your account.
  • Employer expenses: 401(k) accounts are generally more expensive than 403(b) accounts. For-profit 401(k) accounts may pay sales charges, management fees, recordkeeping, and other additional expenses. 403(b) plans may have lower administrative costs to avoid adding a burden for non-profit establishments. These costs vary depending on the employer.
  • Nondiscrimination testing: This form of testing ensures that 403(b) retirement plans are not offered in favor of highly compensated employees (HCEs). However, 401(k) plans do not require this test.

The Similarities Between 401(k) and 403(b)

Aside from their differences, both accounts are set up to aid employees in retirement savings. Here’s how:

  • Contribution limits: Both accounts cap your annual contributions at $19,500. In the event you contribute over this limit, your earnings will be distributed back to you by April 15th. If you’re under your retirement contributions by the time you’re 50 years old, you’re allowed to make catch-up contributions. This means that, if you’re eligible, you can contribute $6,500 more than the yearly contribution limit.
  • Withdrawal eligibility: You must be at least 59.5 years old before withdrawing your retirement savings. In the case of an emergency, you may be eligible for early withdrawal. However, you may be charged penalties, taxes, and fees for doing so.
  • Employer matching: Both retirement account options allow employers to match your contributions, but are not required to. When starting your retirement fund, ask your HR representative about potential benefits and employer matching.
  • Early withdrawal penalties: If you choose to withdraw your retirement savings early, you may be penalized. In most cases, you need a valid reason to withdraw your funds early. Eligible reasons may include outstanding debt, bankruptcy, foreclosure, or medical bills. In addition, you may be charged a 10 percent penalty fee, taxes, and other fees. During a downturned economy, as we’ve seen with the COVID-19 pandemic, fees may be waived.

5 Ways to Grow Your Retirement Savings

5 Ways to Grow Your Retirement Savings

Contributing to a 401(k) or 403(b) can help grow your investments at a reduced risk. You’re able to grow your non-taxed income to put towards your future goals. The more you contribute, the more you may have by the time you retire. Here are a few tips to get ahead of the game and invest in your financial future.

1. Create a Retirement Account Early

It’s never too late to start a retirement account. If you’re currently employed, but haven’t set up your retirement account, reach out to your HR representative. Ask about retirement plan options and their benefits. When employers offer retirement matches, consider contributing as much as you can to meet their match.

2. Set up Monthly Automatic Contributions

Save time and energy by setting up automatic contributions. You may feel less interested in contributing to your retirement as your payday approaches. Taking time to set up a retirement fund and budgeting for this change may be holding you back. To meet your retirement goals, consider setting up automatic payments through your employer. After a while, you may not even notice the slight budget adjustment.

3. Leverage Employer Matching

Employer matching is essentially free money. Employers may put money towards your future for nothing but your own contribution. This encourages employees to consistently put money towards their retirement savings. Not only are you able to earn extra money each month, but this “free money” will grow with interest over time. If you can, match your employer’s contribution percentage, if not more.

4. Avoid Early Withdrawal

Credit card balances, student loans, and mortgages can be stressful. Instead of withdrawing early from your retirement fund to pay for these, consider other debt payoff methods. If you’re eligible to withdraw from your retirement early, you may face penalty fees, taxes, and administrative expenses. This may hinder your savings potential or push back your desired retirement date.

5. Contribute Your Future Raises and Bonuses

If you’re saving less than $19,500 to your retirement fund this year, consider contributing more. If you earn a bonus or a raise, stick to your current budget and consider increasing your contributions. Ask your employer to increase your retirement payments right before you receive a bonus or raise. The more you contribute, the more interest you’ll accrue over time.

Whether your retirement funds are established through a 401(k) or a 403(b), these accounts offer you the chance to build your financial portfolio. Consistently funding your retirement account may better your financial plan and set you at ease. As your contributions age, so do your interest earnings. You’ll be able to make money on your pre-taxed income and set your future self up for success. Get started by checking in on your budget and carving out a specific amount to put towards your retirement each month.

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Source: mint.intuit.com

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How Much Is Enough For Retirement?

April 20, 2019 Posted By: growth-rapidly Tag: Financial Advisor

If you’re thinking about how much is enough for retirement, you’re probably contemplating a retirement and need to know how to pay for it. If you are, that’s good because one of the challenges we face is how we’re going to fund our retirement.

Determining then how much retirement savings is enough depends on a number of factors, including your lifestyle and your current income. Either way, you want to make sure that you have plenty of money in your retirement savings so you don’t work too hard, or work at all, during your golden years.

If you’re already thinking about retirement and you’re not sure whether your savings is in good shape, it may make sense to speak with a financial advisor to help you set up a savings plan.

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How Much Is Enough For Retirement?

Your needs and expectations might be different in retirement than others. Because of that, there’s no magic number out there. In other words, how much is enough for retirement depends on a myriad of personal factors.

However, the conventional wisdom out there is that you should have $1 million to $1.5 million, or that your retirement savings should be 10 to 12 times your current income.

Even $1 million may not be enough to retire comfortably. According to a report from a major personal finance website, GoBankingRates, you could easily blow $1 million in as little as 12 years.

GoBankingRates concludes that a better way to figure out how long $1 million will last you largely depends on your state. For example, if you live in California, the report found, “$1 Million will last you 14 years, 3 months, 7 days.” Whereas if you live in Mississippi, “$1 Million will last you 23 years, 2 months, 2 days.” In other words, how much is enough for retirement largely depends on the state you reside.

For some, coming up with that much money to retire comfortably can be scary, especially if you haven’t saved any money for retirement, or, if your savings is not where it’s supposed to be.

Related topics:

How to Become a 401(k) Millionaire

Early Retirement: 7 Steps to Retire Early

5 Reasons Why You Will Retire Broke

Your current lifestyle and expected lifestyle?

What is your current lifestyle? To determine how much you need to save for retirement, you should determine how much your expenses are currently now and whether you intend to keep the current lifestyle during retirement.

So, if you’re making $110,000 and live off of $90,000, then multiply $90,000 by 20 ($1,800,000). With that number in mind, start working toward a retirement saving goals. However, if you intend to eat and spend lavishly during retirement, then you’ll obviously have to save more. And the same is true if you intend to reduce your expenses during retirement: you can save less money now.

The best way to start saving for retirement is to contribute to a tax-advantaged retirement account. It can be a Roth IRA, a traditional IRA or a 401(k) account. A 401k account should be your best choice, because the amount you can contribute every year is much more than a Roth IRA and traditional IRA.

1. See if you can max out your 401k. If you’re lucky enough to have a 401k plan at your job, you should contribute to it or max it out if you’re able to. The contribution limit for a 401k plan if you’re under 50 years old is $19,000 in 2019. If you’re funding a Roth IRA or a traditional IRA, the limit is $6,000. For more information, see How to Become a 401(k) Millionaire.

2. Automate your retirement savings. If you’re contributing to an employer 401k plan, that money automatically gets deducted from your paycheck. But if you’re funding a Roth IRA or a traditional IRA, you have to do it yourself. So set up an automatic deposit for your retirement account from a savings account. If your employer offers direct deposit, you can have a portion of your paycheck deposited directly into that savings account.

Related: The Best 5 Places For Your Savings Account.

Life expectancy

How long do you expect to live? Have your parents or grandparents lived through 80’s or 90’s or 100’s? If so, there is a chance you might live longer in retirement if you’re in good health. Therefore, you need to adjust your savings goal higher.

Consider seeking financial advice.

Saving money for retirement may not be your strong suit. Therefore, you may need to work with a financial advisor to boost your retirement income. For example, if you have a lot of money sitting in your retirement savings account, a financial advisor can help with investment options.

Bottom Line:

Figuring out how much is enough for retirement depends on how much retirement will cost you and what lifestyle you intend to have. Once you know the answer to these two questions, you can start working towards your savings goal.

How much money you will need in retirement? Use this retirement calculator below to determine whether you are on tract and determine how much you’ll need to save a month.

More on retirement:

Working With The Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals (whether it is paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

Source: growthrapidly.com

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