Posts Tagged ‘retirement plan’

Expenses You Shouldn’t Face in Retirement

Posted on: May 10th, 2010 by

Financial Planner - Rockville, MDRetirement often signifies the end to certain forms of income; but it also signifies the cessation of certain types of expenses.  For example, the best thing about a mortgage is that it eventually gets paid off.  The removal of this expense is a huge weight lifted off of your shoulders, and can mean the difference between positive and negative cash flow in your retirement.  Of all debts, this is a big one; you should speak with a financial adviser about devising a realistic plan to have your mortgage paid off before you retire.

Houses aren’t the only thing that are eventually paid off.  If you aren’t one of those people who trades their car in every couple years or leases, this debt will also eventually be eliminated from your budget.  Upon entering retirement, you will have to determine if your savings and income will allow for you to continue to make car payments or lease payments throughout your retirement or if you must buy a car and hang onto it throughout.

During your working years you probably will either opt to put 15% of your earnings away in some sort of employee sponsored retirement plan, such as a 401(k), or allocate your money each month into a traditional or Roth IRA, whether it be through an investment manager or yourself.   All of these qualified plan contributions will cease upon retirement, although you can continue to contribute to an IRA to age 70 1/2 and beyond.  All of your income from retirement forward will be entirely yours and you will no longer be expected to take a portion of it out for saving.

Another key savings you will see in retirement is life insurance.  For those of you that have cash value policies, there is a very good chance that you will have it paid off by the time you retire.  For those of you with term policies, you may no longer need them and it may become too expensive to continue the coverage.  In either case, it means an end to monthly payments and/or annual premiums.  This can free up thousands of dollars, depending on the amount of coverage involved.

The biggest goal you and your financial adviser should have prior to retirement is to pay off any and all miscellaneous debts.  Student loans, credit cards, and other consumer debts constitute  a large portion of most household budgets.  The removal of credit card debt in particular allows retirees to get out from under obscene interest rates and direct their monthly payments toward other obligations.

So what’s the bottom line?  The elimination of some or all of the debts listed above can make a huge difference in the amount of income that is required to make ends meet.  Many retirees are able to live on Social Security plus their retirement savings with relative ease if their major debts are paid off.  Make sure you are one of these people and Happy Retirement!

Job Hopping and Retirement

Posted on: April 26th, 2010 by

Financial Planning - Rockville, MDFrequently changing employers can make it more difficult to save for retirement. The median job tenure of American workers was 5.1 years at the same job in 2008, according to a new study by the Employee Benefit Research Institute. Many pension formulas reward long-term and highly paid employees more than workers with a shorter job tenure. Some job hopping workers also move in and out of retirement plan coverage throughout their career and cash out small 401(k) balances when they change jobs, both of which lead to smaller retirement account balances.

Some 401(k) plans provide better investment options or charge lower fees than others. 401(k) match formulas also vary considerably among employers and short-term employees don’t always get to keep the 401(k) match. Only 37 percent of 401(k) plans offered immediate vesting in 2008, according to a Profit Sharing/401k Council of America survey of 908 plans, which means you get to keep your employer’s match as soon as it is deposited. Other plans require you to stay with the employer a certain number of years before you can keep the match. Some companies also have a graduated vesting schedule that allows you to keep a certain percentage of your employer’s 401(k) match based on the number of years you have worked for the company. If you leave the company before the match is fully vested you forfeit some or all of your employer’s 401(k) contributions.  You should speak to a financial planner to find out how this may effect your retirement.

The job tenure for males approaching retirement between the ages of 55 and 64 had declined steadily from a peak of 15 years in 1983 to 10 years in 2008, EBRI found. Among females the same ages median time on the job has gradually increased from 8 years in 1963 to 10 years in 2008. Public sector workers job hop considerably less often than private sector workers. The median private sector worker had been on the job just 4 years in 2008, compared to 7 years for those in the public sector. Only about 11 percent of all workers have been at their job 20 or more years in 2008.