How Baby Boomers are Reinventing Retirement

Not only have baby boomers reinvented each stage of life as they passed through it, but they will also reinvent retirement standards as well, changing the retirement landscape for generations to come.  Over 77 million baby boomers will by turning the ripe age of 65 this year, primetime candidates for retirement.  But wait, most boomers will never see themselves in the same crop of retirement ads that their parents were in.  A large percentage of baby boomers are pushing back their retirement and continuing to work.  As boomers age so does the rise in inflation, causing things that were once considered luxuries to be considered more as basic needs.  So, what will boomers actually have to combat differently than their parents?  We’ve put together some of the top ways baby boomers are reinventing retirement:

• Longer life expectancies.  Some seniors will spend more years in retirement than they did in the workforce.  And more years in retirement lead to more years that need to be financed.  More and more employers are ridding themselves of pension and replacing it with 401(k)s instead.  Furthermore, raising the retirement age resulted in lower social security benefits.
• Investment management.  The complex equation of life expectancy plus your savings or retirement plan has shifted from the employer and government to the individual.  Retirees need to decide on their own or with the assistance of a financial adviser how to adjust their portfolio allocations as they progress through their retirement years and how much of their nest egg to spend each year.
• Tax allocation and required minimum distribution.  Taxes will take a big toll on retirees.  If boomers’ retirement money is in tax-deferred accounts, the government will take a large share because all withdrawals are taxed as regular income.  Required minimum distributions are calculated by dividing the balance of your retirement accounts by your life expectancy as determined by the IRS.  Seniors who fail to withdraw the correct amount will be required to pay a 50% penalty and income tax on the amount that should have been withdrawn.  Ouch!
• Part-time employment.  Many Americans will continue to work during the traditional retirement years, and not only because they need the income, but also because they enjoy the mental stimulation and social opportunities a job can provide.  With that said, baby boomers don’t see retirement as a withdrawal from activity but as a new adventure.  Many seniors will travel, volunteer, and remain quite active.
• Squeeze generation.  Most baby boomers will be facing a combination of caring for aging parents, helping their adult children, and tending to their own retirement needs.  This has lead to an increasing number of Americans entering their retirement years with debt.  Carrying debt into retirement means cutting back on discretionary expenses.

And don’t think baby boomers are flocking to seniors-only retirement communities.  Those days are long gone.  Welcome to the age of retirees working part time jobs, staying active and engaged in their community.  One of the biggest recommendations to baby boomers approaching retirement is to contact a retirement or financial planner to aid you in your decisions.  Even if you have a good grip on your retirement, it never hurts to have an educated second pair of eyes contribute to your financial security and protection.

Gregory Ricks & Associates is a registered investment adviser.

Photo courtesy of http://www.infoniac.com

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Critical Retirement Mistakes to Avoid

Life happens so fast these days.  As a teenager in high school, you are consumed with homework and friends.  In college, you choose your area of studies in hopes of getting the career of your dreams.  After you graduate, your dream is sometimes delayed with the harsh reality of entry-level jobs, lower pay than originally expected, and a few unforeseen bumps along the way.  Years later, you finally earn that dream job, you meet and marry the man/woman of your dreams, you start your beautiful family that you always wanted, you buy that bigger house on the hill, you plan spectacular yearly vacations for your family, and you invest in your brilliant child’s Ivy League education.  Wow… your life speeds by before you know it.  So, what do you do now with your retirement years on the horizon?  Don’t become so blinded by planning for your career, success, and family early in life that you forget to plan for yourself later in life too.

When planning for your retirement, avoid making these classic errors that could potentially threaten your retirement savings, happiness, and financial security.

Mistake #1: You start saving for your retirement in your later years.   Solution: You need to start saving when you are young.  Don’t be caught behind the eight ball and trying to make up for lost time,  and consequentially,  lost savings. Liz Weston, author of The Ten Commandments of Money: Survive and Thrive in the New Economy, suggests that an individual needs to start saving for retirement by age 35.  Otherwise, he/she will have an impossible uphill battle trying to catch up.

Mistake #2: You ignore your debt.  Solution:  Before you retire, focus on tackling your mortgage and credit card debt.  It sounds obvious and  somewhat self-explanatory;  however, some studies now indicate that older Americans are taking on more mortgage and credit card debt at an alarmingly increased rate. Don’t add to this increasing number of older Americans who enter into retirement deep in debt.  Pay off your credit card debt and mortgage debt as soon as possible. Make your climb out of debt your number one priority so you are not making these payments with your retirement savings.

Mistake #3: You expect a large amount of retirement support from Social Security.  Solution: Base your expectations on reality and not what you hope it will be.  Don’t place so much of your retirement stability on your expectations of Social Security.  Just think, if you underestimate the boost provided by your social security, you will only be pleasantly surprised in the long run.  This way of thinking is much better than the alternative method of being caught off guard.

Mistake #4: Your investment decisions resemble the same investing risks that you took in your twenties.  Solution: Diversify your retirement investments so you don’t place all of your eggs in one basket.  What happens if the basket breaks? What do you have to fall back on? You don’t want to lose all of the hard work accomplished with your own blood, sweat, and tears. The vitality of your retirement savings and investments is not worth that kind of risk even if a high-risk investment looks like it will have enormous growth potential.  The key word here is “looks”.  You do not want to place your future welfare in “looks”; you want to place the future of your retirement stability in “diversification”.  That’s right, the term “diversification” is not just a fad term coined for stock portfolios anymore.

Photo Courtesy of: askthemoneycoach.com

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Mastering Your Plastic

Purchasing methods are constantly evolving and becoming increasingly convenient over time.  Consumers went from having to walk a herd of cattle to the market for trade, to lugging around a wallet of cash, to now holding all their wealth in a sliver of plastic.  Credit cards have made the world of transactions simpler and easier to navigate for consumers around the world.  Large purchases can be made without the cash up front.  Many card companies offer various reward, cash back, or points promotions for use.  Online shopping has become a breeze.

Credit cards have the ability to make any old consumer a powerful individual investor.  But, with great power comes great responsibility.  The number of people struggling with credit card debt in America is astronomical.  The invincible feeling that people get from swiping that card can often leave them devastated.  That devastation is ubiquitous in their lives, affecting their credit scores, their ability to access loans, and their financial history in general.  Credit cards are necessary and advantageous tools for most people, and, if used properly, can be a huge asset to your spending habits, but it’s important to know the facts about your card.

That shiny piece of plastic poking out of your wallet can be death trap, if you don’t know how to navigate the terrain.  There are a few things that you need to be aware of before you start swiping through the checkout lines.

1)   Interest rates are limitless- When you sign up for a credit card, you agree to a certain interest rate, hopefully a low one.  The scary fact is that in most cases that rate can be raised to whatever the credit card company likes.  There oftentimes are state laws in place limiting how high those rates can be set, but many of the largest, and most popular, credit cards are issued from federally chartered banks that don’t have to follow those state laws.  The CARD Act (the Credit Card Accountability, Responsibility and Disclosure Act) guarantees that rate for the first year of the contract, but after that, the rate is free game for any increase they like.  On the upside, the card company must notify you 45 days in advance of the increase, and the new rate only applies to charges after that change date, and not your current balance.

2)   Only domestically reliable-  Anyone taking a trip out of the country might think that carrying a credit card, as opposed to a fanny pack full of Euros, may seem like a great idea, but many card users could soon find themselves searching for the German translation of the word “denied.”  The magnetic strip found in most credit cards in the U.S. isn’t often used overseas.  EMV cards, on the other hand, are much more functional.  Those EMV cards, which are named after their developers, Europay, Mastercard and Visa, contain a microchip attached to an account instead.  You can ask your provider for an EMV version of your card for your trip that should serve you much better.

3)   Fixed rates aren’t always fixed-  Fixed rates always sound good in theory.  You know what you’re signing up for is something you can depend on continuing.  Well, the fixed rate that is here today could easily be gone tomorrow.  Credit card companies are able to change your interest rate and the calculations that go into determining that rate.  Your fixed rate could easily become variable if the credit companies so desire.  If the rate does becomes variable, the company must again give you 45 days notice before an increase, but if it becomes variable, and the rate stays the same or goes down, they don’t always have to notify you.  And, if they want to decrease your credit limit or close your card entirely they don’t have to tell you until after the deed is done.  If this does happen, the company is required to send you a copy of the credit score that caused the change.

4)   Tardiness is penalized-  This is one of the most obvious but most troublesome aspects of using credit cards.  The due date on your statement is the date that your payment must be received, and if you pass this date, you could be slammed with a fee.  But there are a few rules that protect consumers if they find themselves a little behind schedule.  Your issuing company cannot report your delinquency to the credit bureaus until your bill is late by an entire month.  This means, unless you are 30 days late, your credit score won’t be hindered.  Also, your rate can’t be raised unless you are an entire 60 days past due.  So being a few days late will cost you some money, but not your record or your rate.

Credit cards are the best thing since sliced bread for many consumers, but if you don’t know your way around the rules, you could easily find yourself swiping your life away, almost literally.  Manage your spending habits, read the fine print, and swipe within your means and you should find yourself ruling the plastic world in no time.

Photo Courtesy of: mybudget360.com

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How To Dig Yourself Out From Debt

Debt: the deep hole that seems so effortless to dig but impossible to climb out from.  With every new credit plan comes a barrage of danger for consumers already drowning in bills.  It’s a problem that millions of Americans struggle through every day and for many it seems that there is no end in sight.  The pile of debt can get so high that it’s hard to find a place to start, which is often times the most difficult step.  It’s similar to the people on those “Hoarders” shows, when every room is piled high with junk the task can seem too daunting to even begin.  Hours and hours of work hardly make a dent and progress is difficult to achieve.  But for those looking at an uphill climb out of debt, there are ways to make those first few steps easier, and more productive.

The first main process on the road to recovery is to recognize and break your bad habits.  There is no point in doing the work to get out of debt if you will simply bury yourself back into it in a year.  You need to take the time to recognize the spending behaviors that have caused the problem in the first place and work to break them.  Take a look at your budget for each month, and make more of an effort to live within it. One way to do this: stop using credit cards.  Consumers find it increasingly easy to mindlessly swipe their plastic through every register they see.  By limiting yourself to cash or debit accounts you will be more aware of your spending and unable to add to your debt problem in the process.  Once you have curbed the problem you are ready to begin your journey.

Step 1:  Map it out.  It’s important to lay out your debt in front of you so you know what you are working with.  The options for these are your choice.  Use a spreadsheet or a chart or a series of pictograms or whatever works best for you to understand your debt.  Separate each account by balance, rate, minimum payment and the number of payments you have left.  This organization allows you to plan out the rest of your steps in order to meet your goals.

Step 2: Budget a payment plan.  Once you have all of your debt in front of you, determine how much you can put toward paying off your debt each month.  The goal for this amount should be more than all of the minimum payments on your accounts combined.  This may require some stricter budgeting throughout the month.  Limit your spending wherever you can.  Pack a lunch for work instead of eating out, avoid frivolous or impulse purchases, or turn down your heat at home by a few degrees.  Small changes can give you the boost you need to start to dig yourself free.

Step 3: Focus on a few accounts at a time. The first two steps have given you a plan on how to become debt free, but step three is where the work begins. Pick two or three debts and pay off as much as you can above the minimum on those each month.  This will allow you to begin your ascent.  The selection of these few targeted debt accounts shouldn’t be random.  There is an easy order to follow when attacking these balances.  Pay the one with the lowest balance first.  This decision is wise both financially and emotionally as crossing accounts off of your list can simplify your journey and feel super satisfying at the same time.  Second, go after the debts with the highest interest rates.  Paying these down early will help you nip the problem in the bud and keep your debt balance from rising.  Your last goal is to aim for your secured debt that has just a few payments remaining.  If you pay above the minimum you can cut out the final payment or last few payments altogether, giving you a lot more freedom in your monthly budget.

The final step is simple: once you have dug yourself out, don’t fall back in.  Often times, the freedom associated with people becoming debt free leads to the same habits and behaviors that caused the debt in the first place.  If you feel the need to reward yourself, do it with a deposit into a savings account or a contribution into your retirement plan.  Keeping yourself debt free and financially stable will be the greatest gift you can grant yourself.

Photo Courtesy of: pcbs.org

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