Tag Archive for Retirement

Do You Know When You’re Going to Die?

retirement

How long will your savings last?

 

What an uplifting question!

 

But in retirement planning, it is probably the MOST IMPORTANT question and the most impossible to answer.  If we all knew how long our savings would need to last, it would be so easy to determine how much we could afford to spend during retirement, what age to retire, how much risk to take for growth, and on and on.

 

Just for fun (I know, an odd idea of fun), I went onto a website I’d heard about for years.  It’s called The Death Clock (www.deathclock.com) and by filling out just a few fields, I got my exact date of death.  I’m reluctant to tell you in a public forum because then thieves will know when my funeral will be and take the opportunity to rob my house.

 

Oh, what the heck! I’m not using that stuff anymore so let them have it.  My estimated date of death is September 30, 2073.  Wow.  Those would have to be some old thieves, too, so I guess my house is safe.

Here are a few areas of perspective this gave me:

 

  • That is age 101. I hope I don’t look a day over 80.
  • At today’s standard retirement age of 65, I’ll need my savings to support me for 36 years. Sounds like a reason to work until at least 70.
  • If my sons have kids by age 30 and their kids have kids by age 30, I’ll live to see my first great-grandchild enter his pre-teen years.
  • If my husband lives as long as I do (and he has 3 living grandparents, so why wouldn’t he) we will be married for 77 years.

 

And the last item of perspective I will share is this:  If I make on average 2 major decisions per week (where to send my kid to middle school, how to invest my savings) and 50 small ones (what to wear to a meeting, what to cook for dinner, People Magazine or Us Weekly), I will make over 154,000 decisions between now and my appointment with Mr. Reaper.  Some will be good, some not so great, but since I have until 2073 to see the ultimate results, I think I’ll try to chill out a little.

Kristi’s Quotes: Will a New Year’s Resolution Help Your Retirement?

Financial Planner

Striving to improve our lives is part of being human. We all have things, personal and professional, we want to accomplish, goals we want to achieve, things we want to change about ourselves. That’s why we have the New Year’s resolution.

Wavering in our resolve is also part of being human, which is why New Year’s resolutions can be so difficult to keep. But add the prospect of financial gain into the equation and suddenly a resolution seems far more attainable.

A little psychological gamesmanship can help in that regard. “The word ‘resolution’ has a negative feeling to it,” says Kristi C. Sullivan, a Certified Financial Planner™ (CFP®) in Denver, Colo. “People dread New Year’s resolutions because they usually involve other negative words like ‘diet,’ ‘budget,’ and ‘gym.’” To overcome that negativity, she suggests….

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Kristi’s Quotes: CNBC.com Asks Kristi about Retirement Planning

Financial Planner

CNBC.com says: When people reach their 50s, a common realization is how close retirement is getting — and how far they are from having enough money to enjoy life after work.

While they know more of their money should end up in their 401(k) plans or individual retirement accounts, the path to get it there is often unclear. Given that the average retirement age is 64 for men and 62 for women, 50-somethings who are falling short need to get serious about fattening up their nest egg.

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Kristi’s Quotes: Money Management and Aging Parents

Financial Planner

Your first instinct as a child may be to drop everything and handle all your parents’ needs yourself. But if it comes at the cost of your own career, think about the ripple effects – on your retirement savings, on the needs of your own kids, even on your own sanity.

Denver financial planner Kristi Sullivan recommends hiring a case manager to do the heavy lifting. ”For an hourly fee, these people can handle tasks quickly that it might take you hours to do….” (Click here for more.)

Budgeting Method #1 – The Envelope System

William Shatner Saving Money

Budget Method #1:  Envelope System

Maybe you’ve heard your grandparents talk about how they managed money in their younger years.  They got paid, cashed their paychecks, and divided cash into envelopes labeled for each monthly bill:  Rent, utilities, groceries, gas, clothes, and entertainment.   When the cash in each envelope ran out, you were done spending in that category for until the next paycheck came.

Thanks to Dave Ramsey and other financial media darlings, this method is coming back into vogue.  It’s not realistic these days to live your life in an all cash method.  Mortgage companies and most landlords require the ability to automatically deduct payment from your checking account.  It’s hard to pay your utility bill in cash, let alone your cellphone bill and other monthly recurring costs.

There are, however, lots of expenditures that can be paid for in cash.  These purchases often fall in the discretionary spending category and might benefit from the Envelope System.  For example:

  • Happy Hours
  • Clothes/Shoes/Accessories
  • Lunches/Dinners out
  • Babysitting (while you are at happy hour, for example)
  • Coffee

One benefit of using the Envelope System and paying for non-essential stuff in cash is the CASH part. Studies show that it is harder to part with green cash than it is to hand over a credit or debit card for payment. Also, when you see your dwindling pile of cash, you are more likely to think twice about that purchase.

The whole point here is to get a handle on your spending so that you are able to save money each month for longer term goals.

Retirement Divorce

Retirement, college, and home repairs all come faster than we think. The only way to be ready for these big ticket future items is to not spend every penny we make today.

“But, what about all those frequent flyer miles I earn using my credit cards?” you say in a horrified voice. Well, if you are saving enough for long term goals and still able to pay your credit cards off monthly, you might be a candidate for Budgeting Method #2 – the Save First System. Stay tuned for the next blog to learn more!

 

Top 3 Reasons to Use a Roth IRA – Part 1 Tax-Free Withdrawals

Einstein Tax quote

That’s right, folks.  Albert Einstein thought the tax code was too complex to understand.  Where does that leave us mere mortal non-physicists?   Hopefully, reading the Sullivan Financial Planning blog!

When anyone is talking to you about investment ideas, the question you need to be asking is simple:  What’s in it for me?

 In the case of deciding what kind of IRA to use, you want to know what benefits are there for using a Roth vs. the old Traditional.  This week, we discuss the first of the top 2 reasons people choose a Roth IRA:  Tax-free withdrawals in retirement. 

 Brainy advisers will try to tell you to figure how much your tax rate is now vs. how much you think your tax rate will be in retirement.  If you think the now tax rate is higher than the retirement tax rate, you should NOT use a Roth IRA – so goes the conventional wisdom.

 I say differently.  In retirement, taxes become a bill that you have to pay along with food, utilities and medicine.  Every time a you take money from a Traditional IRA, 401(k), 403(b), SEP IRA, or other tax-deferred account, you generate a tax bill.  Ugh!

Maybe-you-shouldnt-have-done-your-own-taxes-considering-your

Having a Roth IRA means there is one glorious account from which a retiree can take money and not have a tax bill on the withdrawal.   As that retiree, you are not going to be doing the math of whether or not you paid more taxes in your working years to get that pool of money.  You’ll just be glad to have it.

I tell people that having a Roth IRA in retirement is like having life insurance at your spouse’s death.  No one ever said there was too much life insurance money and regretted the premiums when it came time to collect.  And I’ve never seen a retiree regret his Roth IRA pool of money.

 Next week, we talk about reason #2 to use Roth IRAs – passing along income tax-free assets to your heirs.

Welcome to the SFP Blog! We’ll Start With a Fun IRA Tutorial. Really.

Tequila Happiness Quote

Welcome to the Sullivan Financial Planning inaugural blog.  People in the know tell me that blogs should be short, entertaining, and informative.  Easier said than done when talking about personal finance.  At least the entertaining part.

As far as informative goes, I’m starting with a series about using Traditional IRAs or Roth IRAs.  This first blog is going to explain the difference between the two.  Then, I’ll spend the next few weeks describing reasons why people choose to use one over the other.

In the beginning, there was darkness…and pensions and Social Security for retirement.  Then, in the early 1970s, Congress got the bright idea to encourage people to save for their own retirement.  Thus was born the Individual Retirement Account, or IRA.

At first, people were able to put up to $2,000/year into an IRA and take a tax deduction for that amount.  Then, the growth was allowed to stay in the IRA with no taxes on the dividends, interest, or capital gains until you withdrew the money at retirement (starting at age 59 ½).

Here’s a fun fact:  When IRAs first started, a person working outside the home could put in up to $2,000/year in their retirement account.  How much could the stay-at-home spouse put in?  A whopping $250.  How’s that for your government discounting your efforts at home?  Now, though, a non-working spouse can contribute as much as a working spouse.

Housekeeping tipBut, pretty soon, the IRS came knocking on Congress’s door saying, “Helloooo?  We miss our tax revenue!”  So, the ability to take that nice tax deduction on your IRA contribution started to be whittled away. 

First, the rules were changed to disallow tax deductions for your IRA contributions if you made over a certain income (and it wasn’t real high).  Then, when 401(k) plans came along in the early 1980s, we were told that if we had the option to participate in a 401(k), we couldn’t take a deduction for our $2,000 IRA contribution.

Now, as Americans, we are nothing if not motivated by immediate gratification.  So, if the tax deduction for IRA contributions is lost to most of us, will we continue to put money into the IRAs?  No!  We’ll by consumer electronics instead!

So, in 1997, to kick start retirement savings again, a Senator from Delaware named William Roth included the Roth IRA provision in the Taxpayer Relief Act of 1997.  Modest of him to name the account after himself, wasn’t it?

The Roth IRA rules said that you can put in up to $2,000 to your Roth Individual Retirement Account and NO ONE qualifies for a tax deduction on the initial contribution.  But the growth on the account is NEVER taxed as long as you have the account for 5 years or until you are 59 ½ (whichever is longer).  By the way, the new IRA limits are higher, but more on those details in a later blog.

Because to most retirees, taxes are just another unwanted bill, the idea of having a pool of tax-free money to withdraw is pretty nice.  And so, a new era of choice (and confusion) in retirement savings began.

Next blog, I’ll go over some of the reasons people use Roth vs. Traditional IRAs and some more specific rules for both accounts.

See you next week!

Kristi