I’ve Paid For This Twice Already…

Frugal living and debt reduction tips for a better financial future. This is one family’s story.

Archive for the ‘retirement’ Category

4 Good Reasons Why You Should Open and Invest Actively in an IRA

Wednesday, September 25th, 2013

An individual retirement account, or IRA, is one of many possible savings avenues that you can build toward your retirement. IRAs put the investment decisions on the account holder, you, so you’ll need to educate yourself on some investment basics before you start. If you’re under 50, you can contribute up to $5,500 of your income to an IRA tax-deferred each year. Check out Sunwest Trust, Inc., for more information on updated IRA contribution limits. If neither you nor your spouse can take advantage of a retirement plan through your workplace, then any contributions you make are deductible from your tax returns.

You can also contribute to an IRA whether you have a retirement plan through your workplace or not assuming that you have an earned source of include. In general, if you want to help build extra savings for the future, then IRAs are one of the most flexible individual savings plans that you should consider.

1. Liquidity

Most workplaces offer some form of retirement or pension saving plans to go along with other benefits of your employment. If you’ve been employed for most of your life, then your savings might be locked up in a pension account that may have additional restrictive rules limiting when you can pull out your funds for such things as a down payment on a second home or on a new car. Worse yet, you may be locked into a low rate of return and further limited as to where and when you can invest those funds.

2. Self Managed IRA Arrangements

While attempting to grow your nest egg, a self managed IRA arrangement provides you a host of additional non-standard investment options to invest in, so it’s possible to benefit in more ways than one. Since you are not restricted to public offerings, you should research private ventures to see if there are any companies that you like and could be profitable. It’s just like a venture capitalist looking to get in on the ground floor of a brand new business idea, your IRA can help a promising business grow by pumping cash into it early during its lifecycle. If your investment is successful over time and depending on your contractual arrangement and the profitability of the venture, then you may stand to gain a nice return on your investment.

3. Individual Investment Real Estate, Not REITs

Buying an investment property with an IRA may be one of the investments that you would like to do with your retirement funds. It can be a long-term investment that you can sell whenever you’re ready, and you can put money into it to increase its value. With self directed control of your retirement plan, it places you in charge of the direction of the investment activities and opens up the real estate market to you as a possible investment opportunity. You can use the funds not only to buy an investment property, but also you can draw on funds within the account to improve the property. When you’re ready if you have purchased the investment property right, you have done your homework and know the market, then you can hopefully sell your asset for a decent return.

Single-family investment property isn’t the only potential market up for grabs. Assuming you are savvy enough, investing in an apartment complex can give you long term income as you age. Although, you will need to devote IRA resources toward maintenance and repair, you can use the property for rental income to build your retirement savings account.

4. More Diverse Investment Options, Including Franchises

Your IRA can also help you get involved in other alternative investments that are outside the standard model of owning the traditional stocks, bonds, mutual funds and REITs. Investing your funds in a franchise may give you the chance to own an established business in a highly trafficked area, and it can be great for building your retirement savings, so at or after the age of retirement you can build up enough cash to replace your job income. One thing that should be pointed out before investing in a franchise, is that most franchises is that although they are proven, they also can take three to five years for you to see returns, so you must be willing to wait sometime to see a return on the investment. However, if you are patient and are willing to take a risk, then you could wind up as a big winner.

Save Now for the Future

For the forward-looking person, an IRA represents a temporary tax haven during your working years to divert a portion of your personal income into savings on a tax-deferred basis. An IRA gives you lots of options for controlling your money and building for your retirement and hopefully it inspired you to learn more. Can you think of any more reasons to open an IRA? I’d love to hear about them in the comment area.

How to Avoid Making these Early Retirement Mistakes

Wednesday, May 1st, 2013

For many people retiring early is a dream that they regularly dream of. Early retirement gives you the opportunity to travel to new places when you’re still young, meet new people, experience new cultures etc. Retiring by 40 is something that everyone wants, but only a few achieve this goal.

The reasons for failure in this area are many. But if you really want to retire early then you need to avoid making a few mistakes that we will be discussing in the following article. Not only the mistakes, but we’ll also talk about how you can avoid these pitfalls…

Mistake #1: Depending on Factors that You Don’t Control

In case your retirement plan only gives results or works if your investments earn you 8 percent a year, inflation stays under 4 percent, your health insurance costs don’t rise, and your home keeps on appreciating in value, then chances are that you may get into trouble. This is exactly why you should never rely on factors that are not in your control.

Avoiding this Mistake – Depend on your ability to adapt. Be more than willing to go that extra mile when it comes to adjusting your spending and tweaking your lifestyle in case the outside factors don’t work in your favor. Have some extra savings set aside instead of having the bare minimum. And yes, don’t forget to review your plan plus your income projections on annual basis so that you’re sure of the adjustments that you need to make.

Mistake #2: Spending More than Planned

It’s a common mistake that many early retirees make: spending too much money too soon and having no choice but to go back to work. However, you need to understand that spending more than planned is something like taking an “advance” on your salary. If not now, it will definitely catch up later.

Avoiding the Mistake – Go ahead and create a detailed budget plan before you hit early retirement. See to it that you don’t miss out on any of the “one time” expenses that happen to occur each and every year – things like medical expenses and auto repairs. It’s a good idea to create a sort of a retirement fund where you set aside a part of your monthly income into a different savings account that you can use for an unexpected expenses that may show up.

Mistake #3: Spending Carelessly

Having a ton of free time on hand is something we all want, which is why people aim for early retirement in the first place. But having extra time can definitely backfire because more time means chances are high that you end up spending money carelessly on things like traveling, shopping and home decorating.

Avoiding the Mistake: Plan out and be sure of what you would like to do when you retire. Make a list of things that you want to do, learn, see or simply experience. Writing all of these down will help you get things on paper. When the time comes, you could dedicated a few months or a year after you retire to each of these things you write down. The idea here is to find things that you are passionate about.

One of the most important things that you can do to make your early retirement dream come true is to focus on improving yourself now. For instance, if the organization that you work in right now conducts regular surveys using the 360 degree feedback system then you should already be getting a ton of feedback from the people you work with. Use this feedback to improve in areas where you lack so that it helps you with your early retirement goal.

The Roth 401K Enters Our Arena

Monday, March 23rd, 2009

Last week, my spouse’s work rolled out a new option for retirement investing – the Roth 401K.  We’ve been given a lot of information about it, and my spouse and I are in a bit of disagreement on whether or not we should utilize it.  Since this was a new (to me) investment vehicle, I wanted to explain what it is, how it works, the options we’re given through my spouse’s work in utilizing it, and then what we’re deciding on so far (although we have a little while to make a decision, and then we can change our mind every quarter if we’d like, so we’re not locking into anything permanent).

The Roth 401K is basically a retirement savings option quite similar to the traditional 401K.  The big difference is that with a traditional 401K, taxes are deferred until you retire and start taking money out of the plan, but with a Roth 401K, you pay taxes now on your contributions, and not when you retire and start taking money out.  You also do not pay taxes on any earnings from the Roth 401K contributions (you do in a traditional plan).  This is because when you put the money into a Roth 401K, you pay taxes on it immediately.  In a traditional plan, you pay taxes on your withdrawals, which include the earnings on the money.

For our particular offerings, we can choose to have a traditional plan, a Roth plan, or a combination of both.  My spouse’s employer pays a 20% match on the first 6% of salary in contributions (so 20 cents per dollar up to the first 6% of their salary they are investing), and will pay that to match either plan.  The one difference is that no matter which you contribute to, the employer match will go into a traditional 401K since you did not pay taxes on their match.  We also cannot move money we previously invested in the traditional 401K into the Roth 401K, just new contributions can go there.  the total allowable contributions to both plans combined is still the maximum allowable to a 401K, you can’t contribute the maximum to each plan to double your retirement savings each year.

For us, right now we are sticking with the traditional 401K we are already investing in.  This is my spouse’s decision, and I am fine with his choice.  We’ve discussed it at length, and although I would personally change over to the Roth 401K plan myself, he thinks that the tax benefits serve us better now than they will in the future when we retire.  This is, however, an ongoing discussion and we may change it at some point.  I’m not surprised, for I am the one with the Roth IRA and he has a traditional IRA.  Since we have to pay a big tax bill this year as it is, I suspect that is factoring into his current decision.  But in the future we may adjust or change completely over, we’ll see.

Do you have multiple 401K offerings through your workplace?  What’s factored into your current investment decisions?

My Personal Finance Confession: Retirement Funds

Monday, June 23rd, 2008

BeThisWay at Are You Going To Be This Way The Rest Of The Time I Know You (whew!) started her personal finance confession project to get something off her chest – she has no idea what the interest rates on her credit cards are.  Since she pays them off every month, it hasn’t mattered, but you never know if it might become important and she wants to know she has one with a decent rate just in case the unthinkable happens.    She tagged a number of other people to do the same and confess something, including me.  And so here it is, my personal finance confession:

Although we do save for retirement, we don’t save enough (not the confession part) and I still have almost zero idea how much we have saved, and what we actually need to save to be able to retire (there’s the pesky confession).

This is something I keep meaning to do and get never get around to.  I know how much (approximately) is in my IRA, but I really have no idea what is in my spouse’s 401K, and also, although we’ve increased the contributions to it, I don’t really know how close we are to contributing enough for a comfortable retirement.  The idea of it still intimidates me so I keep putting it off and putting it off until I just don’t get to it at all.

I don’t really think that is a surprise to my regular readers, but when you discuss every aspect of your finances every day online there isn’t much you haven’t covered.   I’m hoping this kicks me in the butt to get calculating and figuring and actually start making a plan and some progress.  I work best with a plan.

So, what about you?  What’s your personal finance confession?  I’m going to tag five bloggers but if you aren’t tagged, feel free to share in the comments or on your own blog and when I am back from my colonoscopy, I’ll put a link to you at the end of the post.  :)

I am tagging:

What’s your financial confession?

Do You Want Retirement To Exceed Your Present?

Thursday, June 12th, 2008

Being forced to stay in a reclined position for a few days after my wisdom teeth surgery, I had the opportunity to observe some TV. I don’t have a laptop computer and the pain medicine made concentrating on reading almost impossible, so TV occupied my brain when I was awake. Mostly, I slept, but I did see snippets of television here and there when I was conscious. And I noticed a lot of commercials about retirement. Most of what I remember are beaches, golf, traveling to fun locations, and a whole lot of relaxing. It made me consider what I envision retirement for my spouse and I to be like, and I realized, I honestly don’t have a clue.

Our retirement plans – what we save, how much we save, and what we want to accomplish – are fuzzy, to say the least. We, of course, want to be able to retire, and we don’t want to be a burden to our children when we do. Self sufficiency is our goal, but beyond that, we’re decidedly unsure. We’ve been slowly increasing the amount my spouse saves in his 401K from 3% when I started this blog almost a year ago, to 6% today (the extent of his company match). That won’t be the end of what we save, but for now it is our start. But the question is – what are we saving for? A house on the beach where we sip cocktails and laze under an umbrella all day? Travel? It probably won’t be golf, since my spouse doesn’t play and I declared my distaste for the game at the tender age of 6 when I threw my clubs into a water hazard.

And I realized, that one of the problems we have with saving for retirement is that we don’t have a vision or something that we’re aiming for. And that is fundamentally tied into the fact that until a short time ago, I couldn’t picture being able to save money for retirement. We were saving, a bit, but we were not doing it with any real focus or purpose or direction because the idea of saving enough while still surviving our present seemed rather impossible. But now that I do feel that saving money for the future, and enough to make a difference, is a real possibility, I’m starting to try and envision that future. And I realize – I don’t expect retirement to be any different than my present, because I haven’t learned how to see beyond the present and into the future.

What does your retirement look like to you? Can you see beyond the present to what you’d like to happen in the future? Are you already retired and living out your dreams? Are they what you expected when you were still planning for it? As I evaluate my goals, hopes, dreams, and reality, I need to learn to see past the present so that I know what I’m aiming for. Without a vision, motivation is hard to maintain.

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