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What Is the Minimum Wage in Illinois?

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minimum wage in Illinois

When most people take their first steps into the workforce, they do it in a minimum wage job. These positions are often entry-level.  Meaning, they require few if any professional skills to begin in the field.

They are particularly prevalent in specific sectors, including retail and food service, though they may also make their way into other industries. Understanding the minimum wage is crucial. It allows you to plan your career and manage your finances more effectively. As well as, determine if the compensation for a role feels fair. If you want to find out about the minimum wage in Illinois, as well as how the minimum wage works. Here’s what you need to know.

What Is a Minimum Wage?

Before we dig into the minimum wage in Illinois, it’s important to get a grip on what a minimum wage is and how it impacts the workforce. In the absolute simplest sense, a minimum wage is a dollar amount that aligns with the lowest pay rate a company can provide to a covered nonexempt employee for a single hour of work.

The vast majority of jobs you find in the United States are nonexempt. However, there are some notable exceptions.

For example, during their first 90 days of employment with a business, young workers do not have to earn minimum wage. Along the same lines, full-time students employed by particular types of organizations, as well as student learners, can legally be paid less than minimum wage.

Under certain circumstances, disabled workers with specific kinds of work contracts may be classified as exempt from the minimum wage. Additionally, any worker in what’s deemed a “tipped” job may be covered by modified minimum wage rules.

Pay Rate Standard

Overall, the minimum wage acts as a pay rate standard, marking the lowest amount most employees can earn. The last update to the minimum wage occurred in July 2009. At that time, it was increased to $7.25 per hour for nonexempt employees. However, for tipped workers, it was set at $2.13 an hour, suggesting that they secured enough in tips to make up the difference, bringing them up to at least the equivalent of $7.25 an hour.

Recently, there has been interest at the federal level in raising the minimum wage. Certain legislators believe that $15 per hour should be the target. However, there isn’t any legislation that has been approved to increase the minimum wage, so it will stay at $7.25 per hour until a new law is passed.

How the Federal Minimum Wage Impacts States

In most cases, the federal minimum wage can be considered a baseline for states. While a state does have the ability to require local employers to pay more per hour, they don’t have the right to make the minimum wage lower than it is at the federal level.

For example, there are laws on the books in both Georgia and Wyoming that list the minimum wage as $5.15 per hour within their state. However, due to the Fair Labor Standards Act (FLSA), those laws cannot apply. Instead, the states are required to meet the federal minimum, causing them to default to $7.25 per hour.

It is important to note that cities and municipalities may be able to enact their own minimum wage laws. Like states, the minimum has to meet or exceed the federal baseline. If the city or municipalities are above the federal threshold, employees in their area have to pay the higher amount. For example, in Seattle, WA, the minimum wage is $16.69 per hour.

What Is the Minimum Wage in Illinois?

Currently, the Illinois minimum wage is higher than the federal one. As of January 1, 2021, it was increased to $11.00 per hour, with the minimum for tipped workers coming in at $6.60 per hour.

Additionally, the minimum wage will keep rising by $1 each year for non-tipped workers, and $0.60 per year for tipped workers, until 2025. As of January 2025, the minimum wage for non-tipped and tipped employees will be $15.00 and $9.00, respectively.

Do Any Illinois Cities Have Higher Minimum Wages?

Yes, there are some cities in Illinois with higher minimum wages. For example, in Chicago, the minimum wage in 2021 is either $13.50 or $14.00 per hour for non-tipped workers, depending on the number of employees the company has on its payroll. For tipped workers, the minimum is either $8.10 or $8.40 per hour.

Cook County, Illinois, also has a separate minimum wage law. There, the minimum in 2021 is $13.00 per hour for many non-tipped workers and $5.30 an hour for many tipped employees.

Is the Illinois Minimum Wage a Living Wage?

Generally speaking, a living wage is a particular income level that is usually considered required to support a household. Most living wage estimates are based on the employee working full-time, which is classically considered to be 40 hours of work every week, or a total of 2080 hours each year.

What it takes to support a household typically involves covering specific expenses that are viewed as necessities. Rent or a mortgage, groceries, transportation, and healthcare usually fall into that category. However, debt repayment, entertainment, dining out, and setting money aside in savings – including for retirement, education, emergencies, or any other purpose – does not, as those aren’t considered fundamental for living.

Living Wage

In Illinois, the living wage for one adult living without children is listed as $15.37 per hour, suggesting they have a full-time job. For a family of four with two adults, the living wage if one adult is working is $32.53 per hour. If both adults work, each would need a full-time job that pays $21.34 per hour.

With the current Illinois minimum wage, it falls below the mark. Even once it hits $15.00 per hour, it would still be a bit short for a single adult without children and would be far below a living wage for any household size above that. That means many minimum wage earners in Illinois would likely struggle to make ends meet.

Do you think that the minimum wage in Illinois is reasonable? If not, do you think a higher or lower number would be better? If so, why do you think it’s in the right spot? Share your thoughts in the comments below.

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The Financial Costs of Allowing Adult Children To Move Back Home

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Financial Cost of Adult Children Moving Back Home

Young adults at the beginning of their careers have been hit especially hard by the pandemic. Due to the economic effects of COVID-19, 68% of entry-level job openings were eliminated. 

This left many new grads without a job or a way to support themselves. As a result, 32 million adult children have moved back into their grandparents’ or parents’ homes since April 2020. 

A recent survey showed that most parents are happy to have their kids return to the nest after college. But there is a financial cost to welcoming your kids home. Before you let your kids live in their childhood bedrooms rent-free, consider whether or not you can afford it.

Can You Afford To Let Your Kids Move Back Home?

You probably think that it doesn’t cost that much money to let your adult children move in with you. After all, you have the space and wouldn’t need to move into a bigger home to accommodate them. 

But according to a study by Porch, allowing just one of your kids to come back home will cost you $459 per month. Adding another person to your household increases your gas, grocery, and utility costs. 

Those expenses can add up and put a big drain on your finances, especially if you would’ve invested the money instead. Putting $459 per month into your retirement account for a decade could give you an extra $79,791 in retirement if it earns an average return of 8%.  

If you’re on track for retirement, you may be able to make that sacrifice. But if you’re one of the 40 million American households that doesn’t have a nest egg, you might not be able to afford to take your children in unless you charge them rent. 

Charging Your Kids Rent Is a Good Financial Compromise

If you have consumer debt or an underfunded retirement account, you may not be able to afford to house your adult children rent-free. But luckily there are ways to help them out without sacrificing your own financial future. 

Many parents in this situation ask their kids to help out with bills or charge them rent. Covering the utility bill or paying below-market rent will cost your kids far less than living on their own. They’ll still be able to pay off their student loans or build up savings without putting financial strain on you. 

If They’re Unemployed, Ask Them To Contribute in Other Ways

But what if your child’s income source dried up due to the pandemic, leaving them without a lot of spare cash? They can still chip in by doing chores and maintenance around the house. Ask your child to mow the lawn so you can stop using a landscaping service and save money. If you order takeout because you don’t have time to cook, your child can help you out by making dinner. 

Encourage them to keep applying for jobs aggressively so they can get on their feet. Even if they can only find something part-time or outside of their degree field, emphasize that it’s better to have some money coming in than none. Although you may love having your kids at home and getting to spend extra time with them, it’s important for them to understand that it’s not a permanent solution.

They still have to contribute to the household and make strides towards becoming independent adults. You won’t be around to support them forever, and you have your own financial future to worry about. So don’t be afraid to set some boundaries and give them a timeline for when you’d like them to move out.

Read More

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Why More Young Adults Get Help from Mom and Dad

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You Can FIRE at 35 if You Do This

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You Can FIRE at 35 If You Do This

If you want to live as independently as possible, then you’re probably aiming for FIRE. In other words, you want Financial Independence, including to Retire Early. Obviously, you simply don’t want to get chained down to a 9-5 job for decades upon decades. Instead, you want to be free of that burden as early as possible. But how early in your life is it truly possible to FIRE? You can FIRE at 35 if you do these things:

Start Investing in Your Early Twenties

In fact, in today’s world, even teenagers have the opportunity to learn about investing. Smart parents can help their children plan to FIRE at 35 by teaching them about investments at a very young age. In any case, if you want to FIRE then you need to begin investing as early as possible. If you start investing and aggressively accumulating wealth in your early twenties then you’ll have more potential to FIRE at 35.

Investing tips for early retirement include:

  • Max out your retirement contributions. Get a job that matches a high percentage for you.
  • Invest in a variety of high-risk and low-risk opportunities,
  • For example, invest in stocks and low-index funds as well as cryptocurrency.
  • Constantly continue to educate yourself about smart investing. Don’t relax in this area.
  • Check this app to start investing

Develop Passive Income Streams As Early as Possible

This is one that teenagers and even younger kids can start doing thanks to today’s modern world. Kids can blog, vlog, and even earn money as social media influencers. There are children publishing books and online courses. As early as possible, begin to develop these types of passive income streams. After all, the blog you start at 15 might develop into something that can earn you passive income by the time that you’re twenty. This allows you to turn your attention and energy to other means of earning money while still generating income from that initial source. The more passive income streams that you have, the easier it is to FIRE at 35.

Enter a High-Income Job Industry

Your passive income and side hustles are important. However, before you FIRE, so is your main job. Therefore, you need to focus on earning as much income as possible from that job. You want to grow your salary year upon year. Work smarter, not harder to make as much money as you can. Tips for doing so include:

  • Get in on the cutting-edge of high-earning industries. For example, right now cryptocurrency is hot.
  • Go above and beyond to educate yourself. Become an expert in a niche field.
  • Make yourself indispensable. Do the job better than anyone else no matter what job you’re doing.
  • Consistently negotiate your salary up. Don’t hesitate to ask for more if you’ve earned it.

Start Your Own Business, Too

First, develop passive income streams. Continue to grow those throughout your lifetime. Then, get that high-paying main job. However, don’t ever forget that ultimately you want to be your own boss. As soon as possible into your career, start your own business. This is the business that you want to continue doing on your own once you officially retire.

After all, FIRE doesn’t necessarily mean that you never work again. It means that you retire from the 9-5, from working for someone else, from working because you have to pay the bills. FIRE means that you might run your own business part-time or full-time, remotely or however you see fit at any given time in your future. The earlier you can start that business,  the better off you’re likely to be. If you are open to transitioning from your regular job to full-time self-employment/entrepreneurship, then you can FIRE at 35.

Live a Super Frugal Lifestyle

Earning money, particularly through investing and other passive income streams, is the main portion of young financial independence. However, you also want to save as much money as possible. Learning to live a very frugal lifestyle from a young age can go a long way towards this savings. Things you might consider:

  • Forego an expensive college education. Hack your education instead of using the free resources that are out there. Or, at the very least, begin with community college.
  • Live car-free with roommates in an affordable city. The younger you are, the easier it is to adapt to this type of lifestyle because you’re not used to anything else, yet.
  • Stay out of debt. Do whatever it takes in your life to avoid getting into debt. You don’t want to pay money in interest. In contrast, you want to earn interest on your money.
  • Live well within your means. Remember, the stricter that you budget your money now, the more aggressively you can save for the future. This is what will allow you to FIRE early. Moreover, it will help you in your early retirement years if you need to live lean.

Figure Out the FIRE Life You Want to Live

Speaking of living lean, there are different types of FIRE lifestyles. You might plan for Fat Fire, Lean FIRE, or somewhere in between. It’s crucial that you decide early on what kind of FIRE lifestyle you’re aiming for. After all, that’s how you’ll set your goals. In order to FIRE at 35, you must get really clear on what your financial goals are. You have to set them, then power straight ahead to achieve them. So, learn as much as you can about the types of FIRE lifestyles people live. Constantly educate yourself about early retirement options through podcasts, blogs, books, and talking directly with others who live the FIRE dream. And make sure that you have realistic expectations of how much wealth you need in order to FIRE at 35.

Get a FIRE Mentor

If you want to live independently, then you might think that you need to do it all on your own. However, that’s false. The more support and guidance that you have, the more likely that you’ll succeed. Get financial experts involved in your life – both as professionals (such as a money manager) and as personal friends. Find yourself a FIRE mentor or two and lean on them for support as you go through your financial journey.

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Control and Tax Benefits of ETFs

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Control and Tax Benefits of ETFs

More investors are seeking control and tax benefits of ETFs. And the rising tide of money pouring into ETFs may soon become a tsunami. As a result, you may want to catch the wave.

ETFs have been a popular way to invest since their inception in the early 1990s. Today, there are over 7,600 ETFs bulging with trillions of investment dollars.

What Is an ETF

An ETF (Exchange-Traded Fund) is a security that tracks an index, commodity, bonds, a sector, or other assets. It owns the underlying assets and divides ownership of those assets into shares which investors buy.

A major difference between ETFs and mutual funds is that ETFs are traded on an exchange such as stocks. As a result, an ETF’s price may fluctuate throughout the trading day. Mutual funds, on the other hand, are traded once daily after markets are closed.

Low operating costs, resulting in no or low fees, have made ETFs popular. In addition, they offer diversification, because many ETFs invest in an index such as the S&P 500. However, some ETFs focus on a single industry, which limits diversification.

Flow Goes to ETFs

According to Morningstar, an investment research and management firm, in eight of the last 10 years, more investor money has gone into ETFs than mutual funds. In fact, over $900 billion has left mutual funds and $1.8 billion has gone into ETFs in that time.

ETFs function much like mutual funds in that they have investment portfolios. On the other hand, ETFs are more liquid and more easily traded than mutual funds.

The Tax Appeal

The popularity of ETFs is expected to mushroom in the years to come. That is due, at least in part, to wealthy investors seeking the control and tax benefits of ETFs. 

President Joe Biden has proposed raising the top income tax rate for people making over $400,000 a year from 37 percent to 39.6 percent. In addition, he wants to tax long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on income above $1 million.

The prospect of higher taxes has sent wealth investors looking for ways to earn high returns with low or no tax consequences. They have found ETFs.

Tax Benefits of ETFs

The way ETF shares are sold has the interest of wealthy investors. Here’s how it works.

If you own shares in a mutual fund and want out, the fund manager has to sell your shares on the open market. As a result, you may have to pay taxes on any profits.

With an ETF, you sell your shares directly to another investor. That way, neither you nor the fund has made a taxable transaction. 

No Commissions

Well, you say, aren’t we happy for Richie Rich and his friends. But I’m not in the top tax bracket. Why would I be interested in ETFs?

Good question. You might like ETFs because most trade commission-free, have lower operating costs, and are more flexible. That’s the control part of the ‘control and tax benefits of ETFs’.

Mutual Funds Converting to ETFs

ETFs are becoming so popular, you may already be investing in one without taking any action. That’s because some mutual funds have converted to ETFs.

History was made in late March when two Guinness Atkinson Asset Management mutual funds were converted to ETFs. In addition, Dimensional Fund Advisors has announced six tax-managed funds will convert to ETFs. That will begin June 11, when four funds will make the transformation. More conversions are expected, according to Ben Johnson, Morningstar’s director of global ETF research.

“Many of the advantages of converting a mutual fund to an ETF are synonymous with the advantages of the ETF wrapper. It’s all about where these funds will ultimately land, the packaging, the form that they’ll ultimately take. And I would argue that chief amongst those is the relative tax efficiency of the ETF packaging versus a mutual fund packaging”, said Johnson in a recent Morningstar podcast. “They avoid unlocking capital gains distributions, which have become very frequent, and in some cases, very large in magnitude within the realm of open-ended mutual funds in recent years. That’s a big benefit that would arise from a mutual fund to ETF conversion.”

Tax Impact of Mutual Fund Conversion

Cashing out your mutual fund can trigger a tax bill. However, that is not the case in a mutual fund conversion says, Johnson.

“The conversation of a mutual fund to an ETF will not be a taxable event for mutual fund shareholders”, said Johnson. “Their basis will remain intact. What, ultimately, investors will enjoy is effectively a form of tax deferral that they wouldn’t otherwise benefit from if that fund were to remain a mutual fund, seen continued in some cases in persistent outflows, which in recent years have resulted in these large and regular capital gains distributions.”

Everybody in the Pool?

You might think all mutual funds would convert to ETFs considering the lower costs and tax benefits. However, some mutual funds just can’t do that.

Many mutual funds have several share classes distributed among multiple platforms. Those elements make conversion difficult. Still, other funds are in pension and other retirement programs. They can not convert to ETFs. 

Bottom Line

So, are the heydays of mutual funds over? The heydays, yes, but they will not disappear. Retirement accounts such as 401(k)s and other retirement accounts will probably continue using mutual funds. After all, they are already tax-advantaged. In addition, recordkeeping is easier for managers.

However, for individual investors, the future points toward ETFs.

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Weekly Financial Wrap: The Allure of Munis, Crypto Mining and the Open Road

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Weekly Financial Wrap

Surge in Municipal Bonds

Municipal Bonds have never been sexy unless you like steady tax-free income. Interest from munis is free from federal and state taxes if you are a resident of the state where the bonds are issued.

President Biden’s planned tax hikes have been credited with sending more money into munis. That has resulted in higher returns. In fact, municipal bonds have outperformed treasury bonds for seven straight months.

More To Come

With more cash pouring into municipal bond mutual funds, most analysts see strength in the market.

In a March report, Bank of America (BofA) concluded: “The American Rescue Plan, along with President Biden’s forthcoming infrastructure plan, forms the basis of the golden decade that we expect for muni market issuers through 2030.”

Positive Impact of Federal Aid

State and local governments are receiving $350 billion in aid from the $1.9 trillion stimulus plan signed into law on March 11 by President Joe Biden. As a result, S&P Global Ratings and Moody’s Investors Service upgraded their credit outlook for state and local governments from negative to stable.

Impact of Interest Rates

Earlier this year, treasuries fell on interest rate fears. However, municipal bonds rose. Certainly, municipals tend to do well when interest rates increase.

Are Munis For You?

Tax-free interest is appealing to high-income earners. But what about us average types?

Even if you’re not in the top tax bracket, municipal bonds may help with tax-free income. If your bond(s) are in your state, the interest they pay may be free of state and local states. If you live in a high-tax state, such as California or New York, that could be significant.

In addition to tax advantages, munis are safe, especially if you stick to high-rated bonds. For that reason, many retirees use municipal bonds to supplement their incomes.

Bottom Line

If you are looking for a reliable source of investment income with tax benefits, munis are a good option to explore. However, if you have a lot of time for growth, munis are not a good choice.

Travel Expectations

With the increase in vaccinations, more Americans are eyeing a vacation, according to Booking.com, a travel planning and reservation site. However, some travel options are limited.

Just over 71 percent of those surveyed by Booking.com say the roll-out of vaccines has made them more optimistic about traveling in 2021. In addition, 60 percent say they now view travel and vacations as more important than they did before the pandemic.

The result is that more Americans are planning to travel this summer than last year.

Taking Flight

Air travel began to pick up over the end of the year holidays and continued over spring break. The Transportation Safety Administration (TSA) has recorded over one million travelers a day since March 11.

Over 67 percent of Americans plan to travel this summer, according to Tripadvisor, an online travel site. That’s an increase of 17 percent.

Cruising

Cruise lines are cautiously setting sale again. However, bookings are being limited to comply with Center for Disease Control (CDC) restrictions. In addition, Spring cruises have been for rivers and coastlines in the United States. Caribbean cruises are scheduled for mid-summer.

On the Road Again 

While airline business is picking up, many Americans are planning to travel by car, according to a TripIt survey. 

“According to our survey data, 83 percent of respondents said they’d be ready for a road trip with a personal car by June,” stated the TripIt Survey. “60 percent of respondents said they’d be ready to take a road trip with a rented car or RV by June. That’s more than twice as many travelers expressing readiness to take a road trip with their own car versus boarding a domestic flight.” 

Control and Tax Benefits of ETFs

There is a monumental shift from mutual funds to ETFs. Many high-income investors like the tax benefits of Exchange Traded Funds, but there are more reasons investors like them. 

SA will explore this trend in Sunday’s edition.

Better Than Bitcoin?

Undoubtedly, you have watched or participated in the Bitcoin bull market. The cryptocurrency has jumped 525 percent over the last 12 months. However, there is another cryptocurrency investment that has far outperformed Bitcoin.

Riot Blockchain has gained 8,000 percent over last year. What is Riot Blockchain? It is a bitcoin mining company. Likewise, other crypto mining companies, such as Hive Blockchain and Marathon Digital Holdings have also posted substantial gains. 

Crypto Mining

Crypto mining companies, sometimes called farms, use high-powered computers to solve complex math problems. Subsequently, bitcoins are produced and placed in circulation.

“Bitcoin miners form the core backbone of Bitcoin’s blockchain,” according to market research firm Fundstrat. “In order to secure the Bitcoin ledger of transactions, miners burn electricity to computer-generated guesses aiming to solve cryptographic puzzles. The first miner to solve the puzzle receives the right to mine the next block and collect the associated block reward (6.25 Bitcoin subsidy and transaction fees) every ten minutes.”

With bitcoin topping $57,000, most of this week many retail investors find the cost of investing in the cryptocurrency prohibitive.

How To Invest

Another option for investing in bitcoin is by buying shares in a mining company. In addition, shares in mining companies are relatively cheap. Most are trading below $50 a share.

There is upside potential for mining stocks during the current cryptocurrency bull market. However, just as the currencies they mine can rise and fall dramatically, so can mining companies.

One way to limit risk is through a diversified mutual fund or ETF. However, until recently, there were no funds with mining interests. That changed last month when several ETFs began offering crypto mining as part of their portfolios.

A Word of Caution

These new mining stocks may rise high. However, they can also drop quickly. This is not where you put your retirement funds or money needed for other long-term goals.

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The 4% Withdrawal Rate Is a Lie, Use This Instead

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4% safe withdrawal rate

For many years people relied on the concept of the 4% withdrawal rate to plan for retirement. However, many experts now say that this method is outdated. If you’re planning on using it for your own future, think again. There are better options for a safe withdrawal rate that you need to consider instead.

What Is the 4% Withdrawal Rate?

The 4% withdrawal rate is a percentage that many people use in retirement planning. The idea is that you should plan to withdraw approximately 4% of your retirement account each year once you retire. Obviously, the intention is to allow you to have a steady amount of income to meet your needs in retirement. At 4%, you are supposed to have what you need and yet not max out your retirement savings during your lifetime. While it’s a popular retirement planning method, many experts now agree that this is not a safe withdrawal rate.

The History of the 4% Withdrawal Rate

Kitces has a great interview with Bill Bengen, the so-called father of the 4% withdrawal rate. Bengen was a financial planner who was trying to solve problems in retirement planning in the 1990’s. He used historical data on finances over several decades to determine a safe withdrawal rate for retirees. His plan became the standard rule of thumb for other financial planners and their clients.

However, even in the 1990s, he didn’t actually use the 4% withdrawal rate. He recommended a 4.5% withdrawal rate for his clients instead. And in the Kitces interview, he says that in today’s world, a 5% withdrawal rate is probably a safe withdrawal rate due to low inflation.

There Are a Lot of Factors To Determine a Safe Withdrawal Rate

The 4% withdrawal rate relied on data from the earlier part of the 20th century. People simply aren’t in the same place now as they are then when it comes to money. Moreover, the world’s economy is different. When trying to assess a safe withdrawal rate, you need to take into account a wide variety of individual and economic factors.

As Bergen suggests over on Kitces, low inflation allows for a higher withdrawal rate. Money Sense notes that low interest rates are one factor. Increasing investment rates, and long life expectancies pose additional considerations. Think about it: are you planning to retire at 65 and likely to live to 95? That may greatly affect your retirement planning in comparison with someone who wants to retire earlier or later or who has a family history likely to end in a premature death.

And you have to consider your own feelings about retirement and the risks you’re willing to take with your money. Whereas Bergen says that 5% is now a safe withdrawal rate, Money Sense errs on the side of caution and uses a 3% withdrawal rate to plan for a long period of retirement. And Financial Samurai is even more conservative, suggesting 1% or less withdrawal at least in the early years of retirement.

Financial Samurai’s Alternative Safe Withdrawal Rate

Financial Samurai suggests this equation for your retirement planning: A safe withdrawal rate is a 10-year bond yield x 80. The article explains in-depth how this would mean that a $1 million retirement investment today would result in $17,000 of pre-tax income at the current bond yield of 1.7%.

The reason that they suggest this method is:

  • You don’t have to touch your principal. Living off your interest in retirement is ideal to give you a cushion in case you need it.
  • It’s a conservative option that allows you to plan not only for your future but for the generations beyond yours. In contrast, the 4% withdrawal rate uses up all of the money you have.

Financial Samurai has also provided a Safe Withdrawal Rate chart that ranges from 0.08% to 5.6% depending on the ten year bond yield.

An Alternative Retirement Plan

Financial Samurai also suggest another calculation. That option is to try to amass 20x your gross income before retirement. This allows you to gather what you need in order to survive well in retirement. Plus, it’s an easy calculation. However, it’s a bit simplistic.

Again, whenever you do retirement planning, you really need to think about a range of different factors. Life expectancy is a big one as is the quality of life you want to have when you retire. Moreover, you have to ask yourself if you want to spend out your retirement in your lifetime or leave something for the next generation. None of these are easy decisions.

Moreover, as Financial Samurai points out, you want to think about what retirement income might look like. Have you invested in risky, but potentially high-yielding investments? Are you able to use passive income or part-time work to supplement retirement income? Again, these are all important factors that might change the decisions you make about a safe withdrawal rate for you unique situation.

Working With a Financial Planner for Retirement Planning

Because there are so many different factors to take into consideration, you might want to consider working with a financial planner to figure out your financial retirement plan. After all the “father of the 4% withdrawal rate” was a financial planner. He used what he knew to help his clients. Like him, your financial planner will use the current rules of thumb as a starting point to assist you in figuring out what some good safe withdrawal rates might be. However, they will then take into consideration all of those other personal factors that might change this rate for you in either direction.

You don’t want to follow “rules” blindly when it comes to finances. As we’ve seen since the time that the 4% withdrawal rate was the norm, things change. Even if you stay up to date with the current recommended rates, your own personal situation might change. Developing a rapport with a financial planner who truly understands your needs and wants can be a good way to implement the right rules while circumventing those that simply don’t make sense for you.

What is your retirement plan? What questions do you have about planning for retirement?

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