"Rather go to bed supperless than rise in debt." - Benjamin Franklin

SavingAdvice.com Blog

Bridging the gap between saving money and investing

Retirement

How Does Early Retirement Extreme Work?

By Leave a Comment

early retirement extreme

Many people believe that they need to work 30, 40, or 50 years before they are able to retire. However, Jacob Lund Fisker, the mind behind the book, Early Retirement Extreme, doesn’t necessarily agree. In fact, he thinks that retiring in as little as five years is possible. But, to make that happen, using the right approach is a necessity. If you are wondering how Early Retirement Extreme works, here’s what you need to know.

Slash Spending Substantially

One of the key tenets of the Early Retirement Extreme approach is to get away from consumerism. So, it should come as no surprise that slashing spending is a crucial part of the program.

In many cases, those who participate in the program reduce their outgoing expenditures to legitimate essentials. Along with keeping housing costs down, they avoid dining out, entertainment spending, and more. They scour grocery ads for loss leaders, allowing them to dramatically save on food.

Embracing the DIY approach is also popular, including having a home garden for fresh produce. Additionally, free resources are a big part of the plan. For example, instead of buying books, they rely on libraries.

The lower your costs, the less money you need each month. As a result, your savings or passive income will go farther, potentially allowing you to retire faster.

Prioritize Saving

With Early Retirement Extreme, saving as much as possible is another must. The more you set aside, the faster you’ll be able to retire.

Think of it this way; if you save 10 percent of your income every year, it takes approximately nine years to set aside enough to cover one year of expenses. But, if you stash 90 percent instead, you’ll fund nine years for every one that you work.

Along with putting money aside, placing it in the right accounts is necessary. For liquid savings, opting for a high-yield online savings account is usually best, ensuring you generate as much in interest as possible. In many cases, finding an option with a 1 to 2 percent interest rate isn’t overly challenging, including accounts that are fee-free.

Investing-A Wiser Approach

For the remainder, investing may be the wiser approach, as it gives you access to stronger returns. For example, the average annual return for the S&P 500 came in at nearly 10 percent (before the coronavirus pandemic). By investing in an S&P 500 index fund, you may be able to secure a return far above a traditional or high-yield savings account, allowing your money to grow faster.

While you don’t have to put 90 percent of your income in savings, the core principle is to set aside as much as possible. Additionally, you want to make sure you put the cash in the right places, enabling the money to work for you instead of sitting idly by the wayside. That way, you’ll be able to leave your profession sooner rather than later.

Generate Passive Income

With many early retirement approaches, passive income generation is a crucial part of the equation. It ensures you continue to have money coming in, even when you aren’t actively working for it.

Investing is a primary option for generating passive income sources. As mentioned above, with smart investing, you can achieve strong returns. Then, your money grows over time, even if you don’t touch it again.

However, investing isn’t the only choice. For example, if you become a rental property owner, that could serve as a fairly passive source of income. While you may have to manage the costs of maintaining the property or pay an agency to handle that aspect for you, anything above can function as income.

Technically, e-books, photographs, and a range of digital assets can generate passive income as well. Once you create them and list them for sale, the same properties can keep earning you money, suggesting people continue to buy them.

Ultimately, the principles behind Early Retirement Extreme aren’t odd. What sets the method apart is the aggressiveness of the saving approach. For some, it may be worthwhile, suggesting they are comfortable with the lifestyle extreme saving requires. However, it isn’t right for everyone. So, before you jump in, make sure you are comfortable with the concept. That way, you won’t be miserable while you work toward a very early retirement.

Have you considered giving Early Retirement Extreme a try? If you’re just now hearing about it, do you find it appealing? Why or why not? Share your thoughts in the comments below.

Read More:

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How To Use A Retirement Withdrawal Calculator To Retire Sooner

By Leave a Comment

retirement withdrawal calculator

When you plan your retirement, there’s a lot of math involved. As a result, many people turn to retirement withdrawal calculators to estimate what they will have available when the time comes based on their actions today. However, by using a slightly different approach, you can actually figure out how to retire sooner by using a retirement withdrawal calculator. If you want to see how that works, here’s what you need to know.

Choose a Robust Retirement Withdrawal Calculator

Not all retirement withdrawal calculators are created equal. Some have more options and features, allowing you to tweak various inputs, adjust certain assumptions, and make other changes. That will enable you to experiment by altering your scenario, making it easier to visualize how specific adjustments to your investment strategy could pay off.

Different calculators offer different benefits, so you may want to explore a few along the way. Here are some great starting options that are worth exploring:

If your goal is to potentially retire before you are eligible to make withdrawals from your retirement account without a penalty, then you may want to explore the Wells Fargo Early Distribution Costs Calculator. It helps you assess the tax implication and fees if you take distributions from a 401(k), 403(b), 457(b), or similar plan before reaching full eligibility age.

Define What Early Retirement Looks Like

For many, early retirement doesn’t involve fully stepping away from the workforce. Instead, it’s a transition into a different kind of professional life. For example, it may include leaving a full-time, high-stress job and shifting into a less demanding part-time role. Alternatively, you may want to freelance occasionally, only picking up projects that feel like a great fit.

Before you do any additional calculations, define what early retirement would look like for you. Determine whether you could have a source of income aside from your retirement savings. That way, you can factor that into your math, allowing you to get a better idea of when walking away from your current professional paradigm is viable.

Assess Every Figure Carefully

When you use a retirement withdrawal calculator, you have to make some assumptions. For example, you have to estimate how much you’ll need each month and what you’ll pay in taxes. The issue is, many people get these figures wrong, at least to a degree.

For instance, when it comes to monthly income requirements, are you factoring in the cost of your mortgage? If yes, is that going to be an expense you’ll shoulder indefinitely? In many cases, your mortgage may disappear before or not long after you retire. That eliminates a major cost that you’ve incidentally assumed you are covering until death, dropping your monthly income needs dramatically for at least a portion of your retirement.

Similarly, using your current tax rate in the calculation might be a mistake as well. You need to see if your income needs will decline during retirement. If so, then you might fall into a different bracket.

Many people also forget to factor in Social Security benefits. As a result, they mistakenly believe they’ll need to pull out more from their retirement account than is necessary to provide their target monthly income.

It’s important to factor in Social Security when you plan for retirement. You can head to the mySocialSecurity portal to see a personalized estimate of what you’ll receive once you are eligible, making it easier to account for this income source while you’re planning.

Ultimately, you want to take a hard look at every figure the calculator requests. Make sure what you are inputting is an accurate reflection of how things will proceed. While being perfectly spot-on isn’t possible, as there are situations that are challenging to predict, you want to be reasonably close. That way, you can see how far your money will actually go.

Decide How to Make Early Retirement Possible

After going through the steps above, you may discover that you can already plan on retiring early. For some, no changes will be necessary to make that happen.

However, if it looks like you are falling short, you can make choices based on the data you’ve collected. You might determine that saving more in your retirement account, opening and funding a secondary account, or saving and investing separately is the best move. Securing a higher income could also be an approach, giving you more money to set aside. At times, finding ways to cut your expenses can be the simpler road, reducing your monthly income needs so that your account can support an early retirement.

In the end, multiple paths could be viable possibilities. And, with the retirement withdrawal calculator, you can estimate the impact of every decision. That way, you can select an approach that bests meets your needs, ensuring your retirement dreams can come true.

Can you think of any other ways people can use retirement withdrawal calculators to retire sooner? Share your thoughts in the comments below.

Read More:

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How Much Is Too Much Money In Your Savings Account?

By Leave a Comment

Too much money in your savings account

We have hammered into your brain at this point that you need to be saving. It is far too important to overstate that you have to have some sort of rainy day fund to ensure that you can stay afloat in hard times. For those who develop the skill and discipline it takes to save much more than they will need for an emergency, the location of that money becomes the main point of progress. Once you begin to see your savings go from 3-4 months-worth of expenses to a beginner retirement fund, that money needs to start growing outside of a traditional savings account. Roth IRAs, 401(k)s, mutual funds, and index funds are all places that will see more gains than your bank will give you, and the sooner you start one, the better. So, how much is too much money in your savings account?

Quantity

“Too much savings” is definitely not a problem. The issue comes when  you have so much in your regular bank account that you are leaving gains on the table that could be found elsewhere. The point at which this becomes a noteworthy issue is different for everyone. A good rule of thumb is that if you can survive six months on your savings account balance, you have enough. Three-to-four months will serve just as well as justification for putting some cash elsewhere; six months is where I would say things are bordering on excessive. Once you can do that, it is time to start getting some tax-free gains elsewhere. This will ensure that you keep a cushy level of liquidity, but still maximize your wealth accumulation. This is vital in ensuring that you have a comfy retirement.

Quality

The question now is, “where should I put my money now?” Well, here is something you should’ve already been doing: Contributing the maximum amount to a 401(k) or Roth IRA that your employer will match. If you haven’t been doing this, you have literally been foregoing free money. Not to fret, just start doing it now. Not only does your money get matched by your employer, but it also gets withheld tax-free. This lowers your taxable income for the year (yay, lower taxes!). These are 2 separate ways you are already gaining money before the actual retirement account even starts doing its thing; that thing, by the way, is growing. With few exceptions, retirement accounts like these bring great, reliable gains to your money over time. This makes sure that your retirement is as comfortable as possible. Other options for those who want more manual control of their money (after you have maxed out employer match) are index funds, mutual funds, and individual stocks. My recommendation on those is pretty much told in the order they are presented.

What is the Average Retirement Savings For Those Over 60?

By Leave a Comment

average retirement savings

Saving for retirement is one of the greatest gifts you can give to yourself, but sometime the number in the account can seem discouraging. It is important to keep expectations realistic, and to do so requires some points of reference. While it is not always wise or healthy to compare, it is good to at least know where people your age are. Now, there are many different ways to measure retirement savings, and many different data sets to pull from. Take our numbers with a grain of salt due to these possible variances. We will be looking at the Center for Retirement Research numbers regarding the median retirement balance in different age groups. So, here is the average retirement savings for those over 60.

The Numbers

In people aged 55-64, the Center for Retirement Research found that the median retirement account balance is $104,000. Now, there are a few pieces of context to work out here. First, these numbers are from 2017. Obviously there will be some variance, especially after the recent coronavirus crisis causing many to tap into savings they probably meant to leave untouched. Additionally, this does not mean $104k is optimal. Ideally you will have much more than this, as the idea is it is the only money you will have or need in retirement. This brings us to the last point, that these numbers aren’t indicative of the entirety of these subject’s retirement savings. This only counts 401(k)/IRA balance, so it doesn’t include any assets outside of these. So, if you hold property, cash savings, personal brokerage accounts, or anything else that isn’t included here, you want to factor that in.

What If I’m Not Over 60?

The numbers for people who are a little younger break down as follows:

  • Ages 35-44 have an average account balance of $37,000
  • Ages 45-54 have an average account balance of $80,000

What do these numbers mean? Firstly, it shows that retirement savings clearly see an uptick later in life. This is for a few reasons, one of which being awareness. You can get ahead of the pack just by thinking about it earlier and life and setting aside as much as you possibly can. The other, though, is that income tends to grow as you age, and that can’t always be helped. Again, these are great numbers to use when comparing just your IRA/401(k) balance. This should not be how you decide what your total retirement savings should look, as it isn’t a wholesome look. As long as you take these in the right context, they can help you stay educated and motivated.

Using Crowdfunding To Pay For Your Retirement

By Leave a Comment

crowdfunding your retirement

Crowdfunding has been around for quite some time. Initially, people used it to launch their creative dreams. If they needed money for a project, they could reach out to the community for financial support. However, as time passed, more crowdfunding sites sprang up, and the option to focus on different goals became more common. This has led some to consider whether they could crowdfund their retirement. If you’re thinking about going that route, here’s what you need to know.

Is Crowdfunding to Pay for Retirement Allowed?

While what you could crowdfund was once a bit limited, today, nearly anything goes. Many of the associated sites have a stunning number of categories that they support, so it’s possible to launch a campaign for just about any purpose. Once, a man attracted over $55,000 in donations for the creation of a potato salad, after all.

If you want to create a crowdfunding campaign to boost your retirement, you can. This could include raising funds for a general purpose, like handling living expenses, to something more specific. For example, maybe you want help maximizing your 401(k) or IRA contributions in your final years, so your goal is to crowdfund a portion of those payments.

However, you do have to make sure you choose the right platform. Not all crowdfunding sites support the same kinds of campaigns. For example, Kickstarter focuses on creation. “Every project needs a plan for creating something and sharing it with the world,” is a rule on the platform. That means you can’t fund your retirement, in a general sense, here.

In comparison, GoFundMe is more flexible. They don’t mind if people raise money for themselves or a loved one, including requesting money to assist with expenses or empower them to reach specific goals.

Ultimately, you have to use a platform that supports your kind of crowdfunding. Otherwise, your campaign will likely be shut down without much ceremony.

Financial Considerations of Crowdfunding Retirement

If you are going to try to crowdfund all or a part of your retirement, it’s important to understand the financial implications of your decision. First, some platforms charge the fees for hosting a campaign. This can eat into earnings, so it’s essential to examine what fees apply, if any.

When it comes to taxes, you probably don’t have to worry. The money is typically considered a gift, so it doesn’t get calculated as income.

It’s also important to understand that the majority of what you receive will likely come from friends and family. Money can alter the nature of relationships, so it’s wise to take that into consideration before you launch a campaign. Otherwise, reunions and gatherings may end up oddly awkward if someone who gave questions your spending habits after the campaign launches.

Reaching Retirement Crowdfunding Success

It’s important to note that there are no guarantees when it comes to crowdfunding. Plenty of campaigns languish without a single contribution. According to one report, between 69 and 89 percent of the projects, depending on the crowdfunding platform, didn’t reach their goal. A separate report saw that, if a person asked for $20,000 to help pay for cancer treatments, they typically only raised about $5,000.

Often, what dictates whether a campaign succeeds or not is its overall reach. Additionally, whether the story is compelling, garners empathy, or otherwise connects with an audience matters.

If you have access to a large following on social media and that network is generally supportive, there’s a better chance you’ll stir up at least some interest. Similarly, if your story resonates with people and you can put in a significant amount of time promoting it, you’ll see better results.

At times, it may be better to have someone else manage the campaign. The emotional response may be stronger if a younger family member, caregiver, or friend who is providing some care reach out on your behalf. That could lead to higher participation rates, as it makes the campaign seem less selfish.

However, your odds of going viral and amassing a significant amount of cash are incredibly limited. That relies heavily on timing as well as luck. In a way, your campaign has to catch the right person’s eye at the proper moment. Otherwise, it may only circulate through your network, garnering mediocre results.

Is Using Crowdfunding to Pay for Your Retirement Wise?

Ultimately, crowdfunding could help you cover some retirement shortfalls. But the likelihood that it would be enough to cover all of your needs is incredibly small. In most cases, a campaign can provide supplemental money, at best.

However, it also doesn’t hurt to try, especially if you are struggling. Just keep your expectations in check, be appreciative of what you do receive, and seek out other income sources that could help you make ends meet. That way, you can bring several approaches together, increasing the odds that you can retire comfortably.

 

Would you consider trying to crowdfund your retirement? Would you contribute to someone else’s crowdfunded retirement campaign? Share your thoughts in the comments below.

 

Read More:

 

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Where You Should Borrow Money From Instead of Your Retirement Accounts

By 1 Comment

Where you should borrow money

The CARES Act was passed in response to the coronavirus pandemic. To help the American people deal with the economic impact, there are several forms of financial assistance in the stimulus package. This included increasing the amount people are able to withdraw from their retirement accounts (penalty-free). Taking money from those accounts isn’t the best move though. Here’s why and where you should borrow money from instead…

Why You Should Avoiding Borrowing From Retirement

There are plenty of reasons why you should think twice before you dip into your retirement accounts. The COVID-19 pandemic won’t last forever and eventually, you’ll still want to retire.

Not to mention, it isn’t yet clear as to whether or not you’ll be subject to interest or have to pay the amount your borrow back in the future. This may differ between financial institutions and the type of account (401K vs IRA, for instance).

Additionally, there are many other sources of financial assistance available at this time. Instead of taking money from your future, consider using the resources available now and see how far they get you. Then look at your other options. But first, think about where you should borrow money instead of your retirement.

3 Places Where You Should Borrow Money Instead

There are a number of places you can get money if you really need it, but you certainly want to avoid title loan shops, payday loan places, or any other kind of predatory lending. If at all possible, you also want to avoid pawning items that are valuable to you or similar action. Instead, you should borrow money from these sources instead…

1. Your Emergency Savings

Whatever emergency fund you have, now is the time to use it! You have that money set aside for times like these. Once your finances stabilize again, you’ll be able to refund your EF and continue working on your other financial goals. Most of all, you’ll be thanking yourself later when you have that money set back for your retirement still.

2. Look For a 0% APR Credit Card

If you have good credit, now is a good time to leverage it to your advantage. Search for some 0% APR credit cards or personal loans to help you through your rough spot. Of course, it is still important not to borrow more than you can pay back (once you’re back to work).

3. Consider a Home Equity Line of Credit

Individuals who own their own may have some equity in it. When it comes down to it, this is a second mortgage. So, you will be making an extra payment every month. However, because interest rates are so low right now, a home equity line of credit would be fairly inexpensive where interest is concerned.

In the end, it is important for you to do what you need to for yourself and your finances. If withdrawing money from your retirement account is what you need to do to get by right now, by all means, you should. Before you do, think about some of these other ways you might be able to borrow.

Read More