Personal Finance Planning and Management in your Fifty's and Retirement

           I have been writing about the consumer debt and the use and misuse of the credit card. I have also mentioned , repeatedly, not to use the credit card for purchase of costly consumer goods like car, costly furniture etc, which are known as Bad Debt. You may think that I’m always against using credit card. No, it is not so. Credit Card can be useful if you pay your credit- card bill In Full and On time each month, your credit card gives you free use of money you owe until it’s time to pay the bill, whereas, Debit cards take the money out of your checking account almost immediately.

 Ways To Cut Your Spending On Credit- Cards : –  

1 Reduce Your Credit Limit : – Keep a lid on your credit card’s credit limit. Contact your credit card agency and lower your credit limit to a level you’re comfortable with.

2 Replace Your Credit Card With A Charge Card : – A Charge card requires you to pay your balances IN Full each billing period. You have no credit line or interest charges.

3 Never Buy Anything On Credit That Depreciates In Value : – Meals out, cars, clothing etc. all depreciates in value. Don’t buy these things on credit, unless you pay the bill, in full, each month.

4 Think In-Terms Of Total Cost : – Everything sounds cheaper in terms of monthly payments. Take the total cost including interest charges, sticker price in consideration.

5 Limit What You Can Spend : – Go shopping with a small amount of cash and no plastic or checks. That way, you can spend only what little cash you have.

       Credit Score And Reports : –

 You may not know it, but you have a personal Credit report and a credit Score. Lenders examine your credit report and score before granting you a loan or credit advances.

    Credit Reports : –   Credit Reports contain information about your bill payment history, loans, current debt, and other financial information. They show where you work, and live and whether you’ve been sued, arrested or filed for bankruptcy

     Credit Reports help lenders decide whether or not to extend you credit or approve a loan, and determine what interest rate they will charge you. Prospective employers, insurers and rental property owners may also look at your credit report. It is important to check your credit report regularly to ensure that your personal information and financial accounts are being reported accurately; that no fraudulent accounts have been opened in your name. If you find Error on Your Credit Report, take steps to have them corrected.    

       Credit Score : –  Your Credit Score, which is not the same as your Credit Report, is a three digit score based on the report. A Credit Score is a number that rates your Credit Risk at one point in time. It can help creditors determine whether to give you credit, decide the terms you are offered, or the rate you will pay for the loan. Having high score can benefit you in many ways, including making it easier for you to obtain a loan, rent an apartment and lower your insurance rate.

        FICO, developed by Fair Isaac and Company, is the leading credit score in the industry. FICO scores range from a low of 300 to a high of 850. Most scores fall in the 600s and 700s. Equifax, Experian and TransUnion– have developed their own scoring system, but many lenders still use FICO, the most. You generally qualify for the best lending rates if your credit score is in the mid-700s or higher.

        It is important to make sure your report is accurate, because it can affect the accuracy of a credit score. Your free annual credit report does not include your credit score, but it’s available ,often for a Fee.

      Obtaining Your Credit Reports And Score : –

      The Federal law entitles you to receive a free copy of your Credit Report annually from each of three credit bureaus (Equifax, Experian and TransUnion). If you visit www.annualcreditreport.com, you can view and print copies of your credit report information from each of three credit agencies ,on line.

      When you receive your reports, the first step is to examine them for possible mistakes. But your credit reports do not include your credit score. You can request your Credit Score from Fair Isaac, but you’ll get charged $19.95 for every request.

    Improving Your Credit Reports and Score : –

   Working to boost your Credit Rating is especially worthwhile, if you know that your credit report contains wrong or incorrect information. The following actions can be taken in this regard :-

   1 Get All Three of your Credit Reports, and be sure each is accurate.

   2 Ask to have any late or missed payments that are more than seven years old REMOVED.

   3 Pay All your bills On Time.

   4 Be loyal if it does not cost you. Closing old accounts and opening new ones generally lowers your credit score.

   5 Limit your debt and debt accounts.

   6 Work to pay down consumer revolving Debt(such as credit-card debt)

        Credit Freeze : – Placing a Credit Freeze allows to restrict access to your credit report. This is important after a data or identity theft when someone could use your personal information to apply for new credit accounts. You have the right to place or lift a credit freeze for Free

    Fixing Errors In Your Credit Report : –

  Under the Fair credit Reporting Act(FCRA), you have the right to request a free report within 60 days if the company denies you credit based on the report. In case of inaccuracies in the report_

  — Contact both the Credit Reporting agency(CRA) and the company that provided information to the CRA.

  — Tell the CRA, in writing, what information you believe is inaccurate. Keep a copy of all correspondence

      Rewards Credit Cards ; –

    Rewards Credit Cards are great for people who don’t carry a monthly Credit Card balance. These cards offer benefits for each dollar you spend, typically in the form of redeemable points. These could quickly help you get things like that flat-screen TV or trip to LA. But these cards generally require a good to excellent credit rating for approval and often come with a higher interest rate. Some of the Most popular rewards credit cards are :-

  1 American Express Cash Magnet Card

  2 Chase Sapphire Preferred Card

  3 Capital One Venture Rewards Credit Card

  4 Capital One Saver One Cash Rewards Credit Card

  5 Wells Fargo Cash Wise Visa Card

 

       

 

    

 

     

 

 Most of us get worried at the thought of Retirement , or the D-day . The reason being that most of the Americans have very less in their savings; about 49% are having next to nothing in their Savings’ Account. Maintaining an income stream that will last for the rest of life after retirement will be more difficult as.there will no longer be any healthy income stream that should last the rest of your life, which is now much longer (may be 25 to 30 years) compared to the past when average life after retirement was about 10 to 12 years.

     But, if you follow some of the Key Tips to manage your finances, even at this advanced age of 50 years or so, some of these financial problems can be mitigated to a large extent

          Keys To Personal Financial Success : –

1 Take Charge Of Your Finances : –  You are already late in planning your finances to meet your goals, long-term and short-term. Procrastinating any further will be detrimental to your long- term financial health. Don’t wait for a crisis or major life event to get your act together.

2. 2. Don’t Buy Consumer Items (cars, clothing, vacations and so on), That Lose Value Over Time – On CREDIT: –  As discussed in the earlier posts, use debt only to make investments in things that gain value, such as real estate, a business, or education (only as a last resort).

3. 3. Use Credit Cards Only For Convenience, Not For Carrying Debt : –

   If you have a tendency to run up credit-card debt, then get rid of your cards and use only cash, checks and debit cards.

4. 4. Live Within Your Means and don’t try to keep up with your co-workers, neighbors, peers. Otherwise, you will engage in borrowing. This would seriously affect your financial planning of future.

5. 5. Save And Invest  At least 10 to 20 percent of your Income : – If you start early in life, from young age, the saving can be 5 to 10 percent. But at this advanced age , it has to be much bigger, say 20 percent of your income as the time available is less.

6. 6. Understand and Use Your Employee Benefits : – If you’re self- employed, find the best investment and insurance options available to you and use them .

7. 7. Research Before You Buy : – never purchase a financial product or service on the basis of an advertisement or salesperson’s solicitation.

8. 8. Avoid Financial Products That Carry High Commissions and Expenses : – Companies that sell their products through aggressive sales techniques generally have the worst financial products and the highest fees and commissions.

9. 9. Don’t Purchase Any Financial Product That You don’t Understand :Ask questions and compare what you’re being offered to what you can get from the best sources. Try to gather maximum information.

10. 10. Invest The Majority Of Your Long-Term money In Ownership Vehicles : – that have appreciation potential, such as stocks, real estate and your own business. But you have to measure your investment horizon to your long-term and short-term goals and your other financial commitments

11. 11. Avoid Making Emotionally Based Financial Decisions : – For example, investors who panic and sell their stock holdings after a major market correction miss a buying opportunity. Be careful in making important financial decisions after a major life change, such as a divorce, job loss or any other such change.

12. 12. Make Investing Decisions Based Upon Your Needs : – Your investment should be based on the long-term fundamentals of what you’re buying and your needs. Don’t make knee-jerk decisions based on news headlines 

13.  13. Own Your Home: – In the long-run, owning is more cost- effective than renting, unless you have a terrific rent- control deal. But don’t buy until you can stay there for a number of years..

14. 14. Purchase Broad Insurance Coverage : – The insurance coverage should be enough to protect you and your family against financial emergencies. Eliminate insurance for small potential losses.

15. 15. Discuss Goals, Issues and Concerns With Your Family : – If you’re married, it is better to discuss joint goals and related financial issues with your spouse and grown- up children. Learn to compromise and manage as a team

16. 16. Prepare For Life Changes : – The better you are at living within your means and anticipating life changes, the better off you will be financially and emotionally.

17, Prioritize Your Financial Goals : – and start working toward them. Be patient. Focus on your accomplishments and learn from mistakes.

18. 18. Hire Yourself First : – You are the best financial person that you can hire. If you need help making a major decision, hire conflict- free advisers who charge a fee for their time. Work in partnership with advisers.

19. 19. Invest In Yourself And Others : – Invest in your education, your health and your relationships with family and friends. Having a lot of money isn’t worth much iof you don’t have your health and people with whom to share your life. Give your Time and Money to causes that better our society and world.

       Your Relationship With Money : –

  As we have relationships with the people in our life, we also have a relationship with money- how we earn it, lose it, waste it, and save it. It is important to take a good, hard look at how we use it and misuse money. In this regard, the personal habits of the individual, their liking and disliking as well as the pattern of their living style plays a very important role. Although, it may be difficult to change your style much at the age of fifty or so, but sometimes you may have to take very hard decisions so that you are able to meet your financial commitments as well as save for your comfortable retired life. In this regard, one must remember a quote of Mr. Warren Buffett, the second most richest man of U.S.A. and an investment wizard-”If You Buy Things You Don’t Need Soon, You Will Have To Sell The Things, You Need”. It is always better to have a close and honest look on your credit and Debit position.

.

            

      Retirement is supposed to be a period of joy and relaxation for the senior citizens where they are able to travel, reflect and do whatever they like to do. But are they able to enjoy? Unfortunately for many Americans it is not, as more than a third of all working adults fail to save anything toward their retirement. And living without a steady income is tough and millions of retirees know the feeling. Social Security doesn’t come close to meeting all your financial needs. But some of the burden can be reduced by taking advantage of some of the discounts & perks for everyday saving. They’ll provide a little more freedom during your golden years.

1. Groceries : – The average retired couple spends $283 a month on food at home, which isn’t much, but there are still ways to cut back these expenses. In addition to clipping coupons, you can also save by shopping on scheduled senior discount days. For example, Fred Meyer provides 10% off for shoppers over age 55 on the first Tuesday of every month. Other chains also provide similar deals.

    2 Dining Out  : – There are hundreds of restaurants that welcome   seniors with daily deals, which can help you cut back on your spending. Check out the list of senior discounts in restaurants and take advantage of that.

3. 3. Entertainment : –  Thanks to AARP. members get access to discounted rates at places like Regal Entertainment Group movie theaters, premium RV sites and even Las Vegas show. Ask about senior rates to avail them.

       4 Cars : –  AARP’s auto-dealer network provides real-time online quotes and discounts on new and used cars. It also offers deductible and repair reimbursements. It’s good idea to review the Kelley Blue Book Value and negotiate the price aggressively. Buying a car on a retirement budget could be easier than you think.

         5 Auto Registration : –  You can further reduce your annual auto budget by cashing in on registration discounts and waivers. For example, in Pennsylvania, retirees who receive social security or other retirement benefits need pay only a $10 processing fee for vehicle registration. To learn the rules in your state, check out the National Conference of State Legislature’s full list of vehicle- registration fees and senior discounts.

6. 6. Public Transit : –  Retired city-dwellers have the benefit of access to public transportation, and the prices usually get better with age. For instance, the Chicago Transit Authority, which includes train and bus lines in the city and suburbs, provides free rides of illinois residents who are over 65 of age.

7. 7. Travel : –  Retirees spend more on travel than any other age group, to the tune of $11,077 a year. Although, the majority of senior citizens prefer familiar locations, but some of them travel abroad also. You don’t need to drain your bank account to make it happen. An AARP membership can secure you a week long trip from Seattle to Rome for $1,237 per person, including airfare and accommodations at a four-star hotel. You can contact hotels and airlines to ask about senior discounts and other details

8. 8. Cell phone Service : –  Staying connected is important. For customers age 65 and over, AT&T offers a monthly plan for %29.99 that includes 200 “anytime” minutes and 500 night and weekend minutes. Similarly, T-Mobile US offers customers age 55 and over , a no-contract plan for $50 a month.

9. 9. Internet : –   A research survey found that only 47% of seniors over age 65 had internet access. If this is due to high charges, sign up for FreedomPop.com’s free internet service and hot- spot router. For a one-time  activation fees of $19.99, the company provides 500 MB of free data a month, which will get you about 21 hours of web- browsing time. It also offers service plans for as low as $9.99 a month for 1 GB of data.

10. 10. Medication: –  AARP’s discount program help you “save an average of 61% on FDA- approved generic, brand name, or specialty drugs, not covered by your current prescription insurance or Medicare Part D plan” to its members. Similarly, Rite Aid offers customers 15% or more off, and Costco members receive 2% to 40% off on medication expenses not covered by insurance.

11. 11. Education : –  State Universities and community colleges regularly provide tuition waivers to senior citizens to attend classes, and even to earn degrees. For instance, Indiana waives 50% of tuition costs for retired residents age 60 and over, up to 9 credit hours per semester. Choose a public college or university and talk to the office about state benefits for seniors.

12. 12. Clothing : –  If you check the details, you’ll find deals at hundreds of stores, including 10% off at Banana republic (age 62+), and 15% off at Kohl’s (Wednesday, age 60 and up). Similar discounts are available at many other stores also.

13. 13. Home- Repairs : –  Major home-repairs can badly dent your retirement budget, but you may be eligible for state and federal assistance. For instance, California, retirees over the age of 62 can receive free home weatherization and $3,000 in earthquake retrofitting protection. On the federal level, the U.S. Department of Agriculture(USDA) provides home-repair loans up to $20,000 and home- repair grants up to $7,500 for low income seniors in the same age brackets.

14. 14. Taxes : –  The Internal Revenue Service provides special rules and tax credits for seniors and retirees, including additional deductions for medical expenses, and tax credits for the elderly and disabled. Your senior status could also exempt you from paying taxes on property, social security benefits and retirement account income.

15. Insurance : –  Protecting yourself is easier with senior insurance discounts. AARP partners with insurance companies to offer discounted rates on life, health, home and auto coverage.

         CONCLUSION : –

    Living on a retirement budget can be challenging, but there are ways to ease the burden. The above perks and discounts can be very helpful in reducing your expenses to some extent. Take advantage of these savings as they come..

    Pension in the United States consist of the Social Security System.as well as various private Pension Plans offered by employers, insurance companies and trade unions. Private Pension plans are governed by various federal statutes and regulations, labor laws regarding the establishment(primarily ERISA). Pension law also incorporates judicial decisions with respect to those federal statutes and regulations. Pension Plans and benefits may also be subject to state laws.

      What Is A Pension : –

           A pension is a fund into which a sum of money is added during the employee’s employment years, and from which payments are drawn to support the person’s retirement from work in the form of periodic payments. A pension may be a “Defined Benefit Plan” where a fixed sum is paid regularly to a person, or a “Defined Contribution Plan” under which a fixed sum is invested and then becomes available at retirement age. Pensions should not be confused with “Severance Pay”, the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.

        Types Of Pensions : –

         The Pensions can be : –

  (i)  Employment- based Pensions

  (ii)  Social And State Pension

  (iii)  Disability Pensions

(i) Employment- based Pensions : –

         A Retirement Plan is an arrangement to provide people with an income during retirement, when they are no longer earning a steady income from employment. Often Retirement Plans require both the employer and employee to contribute money to a fund during their employment. It is a tax- deferred savings vehicle that draws for the tax- free accumulation of a fund for later use as a retirement income. Pension plans are, therefore, a form of “deferred Compensation”.

         Pension may extend past the death of the employee himself/ herself continuing to be paid to the widow/ spouse.

       (ii) Social And State Pensions : –

      A basic state pension is a :Contribution Based” benefit. And depends on the individual’s contribution history. For example Social Security in the United States of America. Typically this fund requires payments throughout the citizen’s working life in order to qualify for benefits later on.Most Social plans, though, are means tested, such as Supplemental Security income in the United States.

       (iii) Disability Pensions : –

      Some Pension plans will provide for members in the event they suffer a Disability. This may take the form of early entry into a Retirement plan for a disabled member below the normal retirement age.

        Classification Of Retirement Plans : –

       Retirement Plans may be classified as : –

      (i) Defined Benefit Plan : – It is a plan in which the benefit on retirement is determined by a set formula, rather than depending on investment returns. Government pensions such as Social Security in the United States is a type of Defined Benefit Plan.

        The Benefit in this plan is determined by a formula that can incorporate the employee’s salary at retirement, years of employment, age at retirement , multiplied by a factor known as accrual rate.

         Many Defined Benefit Plans include early retirement provisions to encourage employee to retire early, before the attainment of normaal retirement age(usually 65 years). Companies would rather hire younger employees at lower wages.

        (ii) Defined Contribution Plan : –

       In a Defined Contribution Plan, contributions are paid into individual account for each member. The contributions are invested , for example in the stock market and the returns on investment(ROI) , which may be [positive or negative, are credited to the individual’s account. On retirement, the member’s account is used to provide retirement benefits.

       Defined Contribution Plans have become widespread all over the world in recent years, and are now the dominant form of plan in the private sector in many countries. The number of Defined Benefit Plans in the U.S. are steadily declining, as more and more employers see Pension contributions as a large expense avoidable by disbanding the Defined Benefit plan and instead offering a Defined Contribution Plan.

      (iii) Hybrid And Cash Balance Plans : –

     Hybrid Plan designs combine the features of Defined Benefit and Defined Contribution plan designs.

    A Cash Balance Plan is a defined benefit Plan made to appear as if it were a Defined Contribution Plan. As with the Defined Benefit plans, investment risk in a Hybrid Plan s largely borne by the plan sponsor. As with the Defined Contribution designs, plan benefits are expressed in the terms of a notional account balance, and are usually paid as Cash Balances upon termination of employment. These features make them more portable than traditional Defined Benefit Plans and perhaps more attractive to a more highly mobile workforce.

       SIMPLE IRA : –

   A SIMPLE IRA is a type of Individual Retirement Account (IRA) that is provided by an employer . It is similar to a 401(K) but offers simplee and less costly administration rules. Like in 401(K), SIMPLE IRA is funded by a pre- tax salary reduction. However, contribution limits for SIMPLE IRA plans are lower than for most other types of employer provided retirement plans.

         SEP  IRA : –

    A Simplified Employee Pension Individual Retirement Account or SEP IRA, is a variation of the IRA. SEP IRAs are adopted by business owners to provide retirement benefits for the business owners and their employees. Because SEP accounts are treated as IRAs, funds can be invested the same way as is the case for any other IRA.

          Tax Advantages : –

        Most Retirement Plans offer significant tax advantages. Most commonly the money contributed to the account is not taxed at the time of the contribution. The other significant advantage is that the assets in the plan are allowed to grow through investing without the taxpayer being taxed on the annual growth year by year. Once the money is withdrawn, it is taxed fully as income for the year of the withdrawl. But there are many restrictions on contributions, especia;llyt with 401(K) and Defined Benefit Plans.

         Currently two types of plans, the Roth IRA and the Roth 401(K) offer tax advantages that are essentially reversed from most Retirement Plans. Contributions to Roth IRA and Roth 401(K) must be made with money that has been taxed as income. Withdrawals from the account, thereafter, are received by the the taxpayer tax-free.

     Social Security is a Government Safety net that can provide you with some income if you’re retired or disabled. The program is based on the idea that government is responsible for the social welfare of its citizens. Social Security is one of the sacred cow political programs. But Social Security generally is not enough to live on comfortably. Social Security is intended to provide you with a subsistence level of retirement income for the basic necessities: food, shelter and clothing, but social Security is not intended to be your sole source of income, whereas, some of the elderly are quite dependent upon Social Security.

        Social Security – Background : –

    When the Social Security system was created in the 1930s, its designers underestimated how long people would live in retirement. But due to improved medical care, life expectancies have risen substantially since that time and many recent retirees get back far more than they paid into the system. (you may know that part of your paycheck goes to Social Security).

       The amount of social Security benefit you receive in retirement depends on your average earnings during your working years. The Social Security benefits calculations increase your older earnings to account for the lower cost of living and wages in the prior years.

            Social Security – Eligibility : –

       To be eligible to collect Social Security benefits, you need to have worked a minimum number of calendar quarters. If you were born after 1928, you need 40 quarters of work credits to qualify for Social Security retirement benefits. You get credits based on the income you earn during the year. You get the full four quarters credited to your account if you earn $4,880 or more ($1,220 per credit) in a year. To get 40 quarters of coverage, you basically need to work ten years. To get credits, your income must be reported and you must pay taxes on it (including Social Security Tax). If you don’t pay taxes, you may be cheating yourself out of valuable benefits.

      The age at which you can start collecting full benefits has increased, and it may increase again. In the “good old days”, you could collect full Social Security payments at age 65, assuming you were eligible. This is still applicable if you were born before 1938. But if you were born after 1959, you have to wait until age 67 for full benefits. For the people born between 1938 and 1959, full benefits are payable to you at age 66.

         How Much You Get From Social Security : –

   The average monthly benefit Social Security pays out to retirees is about $1,328. The higher your employment earnings have been on average, the more you can expect to receive. Working spouses are eligible for either individual benefits or half of their spouse’s benefits- whichever amount is greater. To get the complete details of Social Security benefits, visit the Social Security Administration (SSA) website at www.ssa.gov or call the SSA office on phone. It is advised that you better check your earnings record, because occasional errors do arise and they usually aren’t in your favor.

        It may be mentioned that Social Security is the only source of income for 21 percent of elderly, and about two out of three Social Security recipients derive atleast half of their total retirement income from their Social Security retirement check. Few working people can maintain their current lifestyles into retirement without supplementing Social Security with their personal savings & company retirement plans.

      Social Security Disability Plan : –

   A portion of your Social Security taxes also help fund Disability insurance for you, Survivor income insurance for your financial dependents and Medicare(the health insurance program for retirees).

       Social Security pays long- term benefits only if you’re not able to perform any substantial , gainful activity for more than a year or if your disability is expected to result in death. Furthermore, Social Security Disability payments are quite low because they’re intended to provide only for basic, subsistence-level living expenses.

          Social Security – Survivor’s Benefits : –

    Social Security, if you are covered, can provide Survivor’s benefits to your spouse and children. However, if your surviving spouse is working and earning even a modest amount of money, he or she is going to get few, if any, Survivor’s benefits. Prior to reaching Social security “full retirement age”, your Survivor’s benefits get reduced by $1 for every $2 you earn above $14,640.

       If either you or your spouse anticipates earning a low enough income to qualify for Survivor’s benefits, you may want to factor your Social Security Survivor’s benefits into how much life insurance to buy. For this purpose either visit its website www.ssa.gov or contact by phone, to estimate your benefits. For example, suppose your annual after- tax income is $25,000 and Social Security provides a Survivor’s benefits of $10,000 annually, then you should determine the amount of life insurance needed to replace $15,000 annually ($25,000- $10,000) and not $25,000.

      Social Security – Your Savings/ Investment Strategy

  If you’ve been working steadily , you may already have a good foundation. Money you’re saving toward retirement, may be in the Bank Saving account or Individual Retirement Account(IRA) or 401(K) or similar plan. You must invest your savings appropriately, s the amount of Social security may not be enough to give you a comfortable retired life, as you plan. In addition, make the most of the pension Plans. Pension plans are a benefit offered by some employers- mostly larger organisations and government agencies. These are known as defined- benefits plans. Pension benefits can be quite valuable in your retired life. So, try to understand these plans to take full advantage of these plans.

             CONCLUSION : =

    According to polls, about half of American adults under the age of 35, and more than a third of those between the ages of 35 and 49, think that Social Security benefits will not be available by the time they retire. But they may not be correct . Social security should be available when you retire, because it is a commitment of the politicians of all the political parties. Congress may make some reductions in benefits, probably for the higher income earners, at some point due to federal debt problems. So, if you think that you can never retire because you don’t hve any money saved, then also you are probably wrong and it is Self- deception. So you must save money towards your retirement and also contribute to the various retirement plans.

         Poor saving habits and bad Investment decisions can derail your retirement planning. This is obvious from the following examples ; –

   Selecting Wrong Investment Vehicles : –

       Mr Gabriel, 45 years, started saving early, saved regularly and never dipped into his retirement kitty. Yet, when he took stock of his retirement savings later on, the corpus was far smaller than what he had expected. “ I focussed entirely on risk-free investment options such as Bank Certificate of Deposit(C.D.) and Bonds”, says the self-employed professional.

   His Mistake : – Started saving for retirement quite early, but played too safe. After almost 15 years of investing in Bank C.Ds. and Bonds etc., he realized he will not reach the goal.

     How He Fixed It : – Two years ago, he started shifting his savings from fixed deposits (C.Ds.) to equity funds. He currently has 60 percent allocated to equities.

      Investing In Stocks Without Thorough Study : –

          In Pennsylvania, Mr. Thomas, a working individual is ruing the day he took a friend’s advice and gave his retirement portfolio a dash of equities. Though experts recommend this, Mr. Thomas made a fundamental mistake when he went shopping directly for the equities. A newbie, he invested in stocks directly, and that too, when retirement was just a few years away(He was about 60 years of age). Though the overall market was booming in 2014, but he lost around 12 percent of his investment in one month.

          Mr. Gabriel and Mr. Thomas represent the two extremes of the risk spectrum. One took too little risk with his retirement savings and lost the opportunity to build a large corpus. The other took too much risk and saw his wealth erode.

          Experts warn that equity investments should not be done with a short- term horizon. “ It is harakiri to invest in stocks directly to make up for the shortfall in retirement corpus”. At the same time, relying too much on fixed income options for the long-term can also be risky. In the long-term, investments in the fixed income products are just as risky as equity investment are in the short-term”.

            Common Investment Mistakes People Make : –

          Most of us, make some common investing mistakes that can ruin the retirement plans of an individual. The reasons can be many like lack of knowledge; too much dependence on others advice ;selection of improper financial goals or not considering the effect of Inflation while calculating the amount required for retirement life.

           Some of these mistakes , as mentioned above, can be fixed like Mr Gabriel’s over-dependence on fixed income products. He realised his mistake in time and was able to effect a course correction. However, some mistakes , like Mr Thomas ill- advised foray into equities a few years before retirement, cannot be undone”. It was a terrible mistake. I will just have to live with the consequences”, said Mr. Thomas.

    His Mistake : – Invested $16,000 in stocks for high returns a few years before retirement and lost a handsome amount within a month.

    Can he Fix It : – Small investors with no knowledge of stocks should avoid direct investments. The Mutual Fund route is a safer and better option.

         Don’t Commit Harakiri : –

              Stocks are inherently volatile but some experts contend that they are necessary if you are investing for  long-term goals. “ Long-term investments must be kept in equity backed investments , if you do not want to expose yourself to old-age poverty”. Investors can also insulate themselves against big losses by taking the mutual fund route. Given the Diversification followed by mutual funds , the chances of loss reduce further. Studies show that the probability of loss in equity-based investments decreases as the investment tenure increases. Chances of loss is highest if you hold an equity fund for one year, but come down dramatically if the holding period is longer than five years. If held for 10 or more years, the probability is almost Nil.

           Some experts suggest investment through systematic investment plan, say monthly or quarterly instalment plans, in equity oriented funds. However, expectations should be set straight. “ The investor would be disappointed if he expects unrealistic returns over a 3 to 4 years investment period”.

             The Risk In Insurance Plans For Investment : –

           Many investors consider various insurance policies/ plans, an ideal way to save for retirement because of the multiple benefits they offer. These policies enforce a saving discipline, offer tax deduction on the premiums, cover the life of the individual and maturity proceeds are tax-free. But these policies are not very helpful for money growth as the returns are very less even if you go for a long-term plan.

             Going Wrong With Estimates : –

          Saving regularly and in the right instruments will not safeguard your retirement if you do not estimate correctly how much you will need in your sunset years. Many of us fail to factor in the adverse effect of Inflation while calculating their retirement kitty. Inflation has the power of compounding . If you have not taken inflation into account, be ready to live a life that will be substantially poorer than how you live now. Keep in mind the impact of lifestyle inflation on your retirement needs, as the standard of living improves over time.

           Another misconception is that the expenses will reduce in retirement years, which is not a fact. Although you may not have to spend on children’s education and all your loans may be paid for, but your travel and healthcare expenses usually increase after retirement.

             Putting Retirement Corpus In 1-2 Income Products: –

          Even if you saved enough, you can still sabotage your retirement by putting all your eggs in one basket. Experts say your retirement tool kit should be a mix of various products. For instance, it is not a good idea to put a large sum into an annuity plan. Though annuities assure life-long pension and are an insurance against the threat of outliving your money, they also offer low returns that won’t be able to beat inflation in the long-run. Further, Annuity has poor liquidity too. Experts suggest a diversified income portfolio to optimally meet your retirement needs.

        CONCLUSION : –

    Saving for your RETIREMENT is possibly one of the most important financial goals. You need to invest in a good mix of financial products to make sure that you accumulate enough to live a comfortable life after you retire. Your job of investing should not end once you retire, you need to have a good mix of investment products even while living-in retirement. While selecting the right products for investment, consider the effect of taxation on your returns.

Each one of aspires a peaceful, confident and respectful , stress-free life post retirement after years of slogging and hard work. For a financially accomplished and stress-free retirement, you might require a regular flow of income, without tension, everyday.

     Gone are the days when workers ad other working people could count on the pension plan and social security to cover their costs during their golden years. Today, pension are a rarity and social security isn’t sufficient for your comfortable retired life. For thi purpose, you have to plan your investments and retirement contributions thoughtfully during your working days. It is essential to create a regular source of income and, hence, the need to choose your retirement investment thoughtfully.

  Various Types Of Retirement Accounts : –

 Keeping the above in view, the government expects You to save for retirement and is offering tax-breaks on retirement plans. These retirement accounts offers numerous benefits. In most cases, your contributions to retirement accounts are tax- deductible and your contribution compounds without taxation until you withdraw it. Some accounts even allow for tax-free withdrawal of investment earnings such as the Roth IRA. There are various types of retirement Accounts available to employees : –

1 Employer- Sponsored Plans ; – These are workplace retirement plans. These include 401(K); 403(b);plans; 457 plans, defined benefit plans etc.

2 Individual Retirement Accounts : – These include IRA like Traditional IRAs; ROTH IRA; Spousal IRA, Rollover IRA.

3 Self- employed Plans : – These are the plans available to the owner of a small business or self- employed people like SEP IRA; SOLO 401(K) [Roth and Traditional}; Simple IRA and Profit Sharing.

4 Annuities- An Odd Investment : – These are the plans that are backed by an insurance company.

     Details Of Various Plans : –

1. Employer- Sponsored Plans : – The employer sets up this type of retirement plan and usually provides a limited number of investment options. The main advantages of these plans are :-

–They’re easy to set up and maintain..

— Your employer might match a portion of your contribution.(This is free money)

— Employee contributions reduce your taxable income for the year.

— You decide how much of your contribution to direct into each investment among the various options within the plan.

  2 Individual Retirement Plans ( IRAs ) : –

        An individual can set up an IRA at a financial institution, such as a bank, or brokerage firm, to hold investments- stocks, Mutual funds, bonds and cash- earmarked for retirement. The salient features of these plans are    

        — You choose the bank or brokerage and make all the investment decisions.

        — IRAs provide a much wider range of investment choices than workplace retirement plans do.

        — If you qualify for both a Roth and a Traditional IRA in the same year, you can contribute to both.

 3.  Self- employed Plans : –  According to U.S. Department of labour report, 34% of workers don’t have access to a workplace retirement plans. If you work at or run a small company or are self- employed, you might have a different set of plans, which are mostly profit- sharing plans. The key points of these plans are: –

    — These plans often offer more investment choices than employer- sponsored plans, such as 401(K).

    — You might be able to set up your account at a financial institution you already use.

    — If you’re self- employed, you can give yourself a generous profit- sharing contribution

4.  Annuities : –  Annuities are peculiar investment products. They’re contracts that are backed by an insurance company. If you, the annuity holder dies during the accumulation phase, your designated beneficiary is guaranteed to receive the amount of your contribution.

  Which Retirement Accounts Are Best For You : –

 — If you have a 401(K) or other workplace plan- then first contribute enough to get any free money offered.by your employer via the company match.

 — If you have maxed out your 401(K) or you don’t have a retirement plan at work – consider an IRA, which type of IRA is best for you- you decide.

 — If you’re Self-employed, or the owner of a small business- ther are retirement accounts designed specifically for you – like SEP IRA; Soli 401(K); SIMPLE IRA and Profit- sharing.

     Allocating Your Money In Retirement Plans : –

 Most working people need to make their money work hard in order for it to grow fast enough to provide you security. When you are young and time is on your side, you can take risk and go for aggressive investment plans. But at the age of 50 -55 year, you are to be little conservative. Think of your retirement accounts as part of your overall plan to generate retirement income. Allocate different types of investment between your tax-deferred retirement accounts and other taxable investment accounts to get the maximum benefit of tax- deferral. An example of how people may choose to allocate their 401(K) investments among the plan’s options is given below :-

                                        Allocating 401(K) Investments

                                  25 yrs old 50 yrs old             60 yrs old

                               Aggressive risk Moderate Risk       Moderate Risk

                                   Investor Investor                Investor

Bond Fund                      0% 35%                      50%

Balanced Fund                10% 0%                        0%

(50%-stock, 50% bonds)

Blue- chip stock Funds     30- 40% 20-25%                   25%

Smaller co. stock Funds  25-35% 15-20%                  10%

International Stock Funds   25-35% 20-25%                  15%

CONCLUSION : –

With good reason, people are concerned about placing their retirement account money in investments that can decline in value. You may feel that you’re gambling with dollars intended for the security of your golden years. So, better understand the various retirement plans available to you for investment and, if required, you may discuss with a financial advisor or professional before deciding the plans where you want to invest your money.

      It is a common myth that financial planning is only for people in a certain age group or income bracket. BUT it is not true. Financial planning is helpful for people at all stages of their lives. And more so for the individuals in the age group of 50-55 years when, hardly any time is left for procrastinating it any further. The goals, already set, needs to be revisited and fresh and hard look needs to be given to your savings and investments.

   How To Set Financial Goals : –

  It is assumed that by this age, most of the people must have set their Financial Goals. However, the following are few of the steps for setting financial Goals so that you reach your destination : –

     Step 1 – Figure Out What Matters To You : – It is important to think about your short- term goals as well as long- term, big ticket items like college expenses for your children, purchase of house, retirement savings and even buying a car. Write down your goals on a piece of paper. But make sure your goals are SMART.

    Step 2 – Prioritize : –  Goals need to be prioritized and quantified. Achieving of all goals may not be possible right away. Thus, the need for prioritization. Start with three key measures of basic financial health – Retirement Funding, Emergency fund savings and Debt Repayment. Prioritize as per your savings and availability of funds.

    Step 3 –  Create A Realistic Budget : –  Your Budget should be realistic and based on your expenses in the last 3/6 months. Don’t ignore even petty expenses. Follow 50/20/30 rule for budgeting i.e. 50 percent should go to essential living expenses; 20 percent to your savings and no more than 30 percent should go toward your lifestyle like entertainment, clothing, fitness etc.

     Step 4 – AUTOMATE : –  Ensure, that your savings and retirement plan(investments for retirement) are automatically deducted into a separate account. Setting up weekly/ fortnightly or monthly payments will take off the mental burden and keep you on track.

     Step 5 – Check On Your Progress : –  Financial planning is iterative. It needs to be reviewed and updated periodically. Better schedule annual review of your plans vis-a-vis your goals and your budget and make necessary adjustments.

      Basic Steps to Help You Achieving Financial Goals : –

       Use these Basic Steps to help you get smart about your money which will go a long way in achieving your Financial Goals : –

    1 What’s Behind Your Financial Decision : -Before you create a budget or, make spending cuts, take a close look on your lifestyle & values to determine what you value most, as these are different for different people.

    2 Get Organised : –  This requires managing your Financial documents, and also your time. Some of the documents that you should keep in an easily accessible fireproof box at your home can be:

• Bank Statements
• Credit Card information
• Investment information
• Insurance policies
• Tax returns

Some other important papers which you must keep in safe deposit box in a bank are ;

• Birth Certificate
• Death Certificate
• Marriage License
• Divorce papers
• Copies of Wills etc.

3. Know Where Your Money Goes : –  Start by jotting down everything you think you spent money on last month. Include rent, car insurance, groceries, small purchases and other miscellaneous expenses. Then plug spending leaks.

 4  Shop Smarter : –  Make smarter spending decisions to “Find” money without actually making more. For this, the following steps can be taken;

• Avoid impulse purchases
• Take only cash on shopping trips.
• Buy generic store brands at markets, when possible
• Compare prices and consider using coupons.

  5 Review And Reduce Your DEBT : –  Suggest that your total consumer debt should be less than 20 percent of your net income. Then create a Plan to reduce debt, especially costly Bad Debt like car loans, Credit-card balances. Also try to shift higher interest loans to a single lower- interest loan.

   6 Build A Strong Credit Report : –  Maintaining a strong credit Report can help you in a number of ways, like more favorable terms on loans and mortgages. You may also get better rate on car insurance. For this purpose, use only one or two credit- cards and pay credit -card bills as soon as they arrive to avoid late payment fees.

   7 SAVE For Your Future : –  Understand the Time Value of Money. The earlier you start saving and retirement income planning, the better. Even , if, you are 50 years of age and not started saving enough, start it NOW. And you’ll be much further ahead of tomorrow. For this, every time you receive a paycheck, save a certain percentage of your income before spending money on anything else.

    8 Set Financial Goals : –  Be smart about your Goals. Write down your financial goals and divide them into three categories- short-term, medium- term and long- term Try to set SMART goals(SMART word has been explained in earlier posts)

    9 Create A Spending Plan : –  Use a spending plan to ensure your daily spending habits don’t overwhelm your goals. A spending plan is not meant to be strict budget. Instead, it’s a guide that will help you take control of your financial future and, ultimately, reach your goals.

    10 INVEST Money To Reach Your Goals : –  Once you have identified your financial goals and established a spending plan, you know what you’re saving for and how much you’ll need to get there(your goals). For longer- term objectives, investing is one of the best ways to watch your money grow. Some of the investment choices can be :-

• Tax- Advantaged Retirement Accounts
•       Individual Retirement Accounts(IRAs)
•       Roth IRAs
•       401(K) and 403(b) plans
• Mutual Funds
• Treasury Securities
• Stocks and Bonds
• Real Estate Investments

(Various Investment vehicles have been discussed in earlier posts)

         CONCLUSION : –

        Financial Planning gives you a road map for where you want to go, in this case your Financial Goals. Proper and timely steps in this regard would go a long way to achieve your goals, short- term and long- term and also make your retirement life comfortable and tension- free. Try to develop a relationship with your  money.

     Many of the people , I speak say, that they do want to retire “the sooner, the better”, but they have not prepared themselves for that D-day. They wonder what planning or preparation is required for retirement? They feel and hope that they would be able to sustain a comfortable life ,even after retirement,without any per-planning. Even some think ,they would never retire and the life will always be like this. BUT this is not going to happen. That D-day is going to come, sooner or later, whether you like or not. Especially at the age of 50 or 55 years, one should not close eyes to the reality of life and can’t brush aside this fact. One has to plan and prepare for impending Retirement life.

         Retirement, which seems to imply idleness or the end of usefulness to society, may not be a proper term for many, who wish to remain active. So, the correct term, in my view ,should be Superannuation, i.e. having financial flexibility and independence, and not having to work for a job.

       Why To Prepare For Retirement?

     If you hope to someday reduce the time you spend working or cease working altogether, you’ll need sufficient savings to support yourself. Many people underestimate the amount of money needed to retire. You can live with this absurd thinking at your young age of 30- 35 years, but at your advanced age of 50- 55 years, you have to figure out  how much you should save per month to achieve your retirement goals. This period in your career when you are hardly a decade away from your retirement, is a critical period in which you should have a realistic assessment of how financially prepared you are for retirement. There are so many variables to consider when planning retirement that if you forget a major piece like- healthcare costs, nursing home care, loss of good- paying job etc., your retirement plans could drastically be affected.

         Don’t Neglect Non-financial Preparations For Retirement : –

      Investing your money/ savings is just one aspect of preparing for your retirement. In order to enjoy the lifestyles, even after retirement, you needs to invest energy into other areas of your life as well.

  —– Physical Health : –  Few things are more important than your health. Unfortunately, many people aren’t motivated to care about their health until they discover problems. By then, it may be too late. Exercising regularly, eating a balanced, and nutritious diet, driving safely go a long way in this regard. Regular medical exams. Are also important in detecting problems early.

 —  Psychological Health : – In addition to your physical health, be sure to invest in your psychological health. Have a circle of family and friends around for support. Unfortunately, many people become more isolated and lose regular contact with business associates, friends and family members as they grow older. But to have a happier and healthier life, try to stay active, getting involved in volunteer and new social circles.

  — Stay Active –: – treat retirement life like a bubbly, charming period. To avoid boredom and depression, you need to have a sense of purpose and a sense of routine. Establishing hobbies, volunteer work or a sideline business can be a terrific way to ease into retirement.

         Financial Planning For Your Retirement : –

  To maintain your standard of living in retirement, you may need about : –

   — 65 percent of your Pre- retirement income, if you :

        — Save a larger amount(15 percent or more)of your annual earnings.

        — Are a high income earner.

        — Will own your home free of debt by the time you retire.

        — Do not anticipate leading a lifestyle in retirement that reflects your               

                current high income.

        —– 75 percent of your Pre-retirement income, if you : –

            — Save a reasonable amount(10 to 14 %) of your annual earning.

            — Will still have some mortgage debt or a modest rent to pay.

            — Anticipate having a standard of living in retirement that’s

               Comparable to what you have today.

        — 85 percent of your Pre-retirement income, if you :

             — save little or none of your annual earnings(less than 5 percent)

             — Will have relatively significant mortgage payment to pay in

                 retirement.

             — Anticipate to maintain your current lifestyle through retirement.

         Some Basic Steps To Help You Through Retirement : –

1. Plan Both Financially And Personally : – Planning your activities is even more important than planning financially. Plan your interests, friends, and ability to know how to spend money when you retire
2. Take Stock Of Your Resources : – Ignorance about your assets may cause you misunderstand how little or how much you really have for retirement when compared to what you need..(In this regard, the above data of financial planning may help)  
3. Reevaluate Your Insurance Needs : – When you have sufficient assets to retire, you don’t need to retain insurance to protect your employment income any longer. Similarly. You can reassess your Life insurance and other Insurance coverage,
4. Evaluate Health care/ Living Options : – Medical expenses in your retirement years can be extremely high. Early preparation , in this regard ,increases your options; if you wait until you have major health problems. It may be too late to choose specific paths
5. Decide What To Do With Your Retirement Plan Money : – If you have money in a retirement savings plan, you have option of leaving the money in the plan. Further, you have many more (perhaps better) investment choices to consider. Evaluate your options properly.
6. Pick A Pension Option : – Selecting a pension option is similar to choosing a good investment- each pension option carries different risks, benefits, and tax consequences. Check to see whether the amount of your monthly pension stops increasing past a certain age. Then don’t delay access to your pension benefits past that age.   
7. Get Your Estate In Order : – When you’re considering retirement or you’re already retired, getting your estate in order makes all the more sense. Plan your estate/ ill properly. You may also want to consider giving monetary gifts now, if, you have more than you need.

   CONCLUSION : –

  Retiring can be a challanging transition. Most Americans have an idealized vision of how wonderful retirement would be- no pressure of work, deadlines, irritating bosses, unlimited time to travel. Play and lead a good life. Sounds goods, but the reality for most Americans is different, especially for those who don’t plan ahead(financially or otherwise)

   BUT before it is too late, as it may already be at the age of 50- 55 years, assess your financial readiness to determine whether you have sufficient resources to met your retirement goals and objectives. To help you in this regard, it is best to seek professional help from those who specialize in retirement planning.

    It has been observed by the experts, based on various studies that many ,may be most of the activities which we normally perform daily don’t add any value to our lives/ careers. Some experts have even claimed that 90 percent of our activities are Non- Value adding activities. This claim may appear to be laughable to most individuals, BUT, if we write down all the activities which we perform on a normal day, we would observe that most of them do not improve or add any value to our life. The same is true about our money spending habits. If we jot-down our daily expenses, the fact will be revealing. And if we add all such non value adding expenses over a month or a year, it may run into hundreds of dollars. This is true not about the actual impoverished people living on the street, or barely- able-to-put-food-on-the-table people, but a lot of people with middle level income group, who also waste a lot of money.

Where Your Money Goes : –

At any income level, people who have small incomes, people who have six- figure or seven figure incomes, fall into one of the following Three categories

  — People who spend more than what they earn ( accumulating debt)

  — People who spend all what they earn (saving nothing)

  — People who save 2,5,10 or even 20 percent(or more)

 The spending habits don’t depend on the educational level of the individual. If one has a better education, he would be better with money – this is really not true. Lots of people, who are wasting money- may be on expensive mobiles, branded clothes or shoes, newest iphones or other expensive habits have a college degree , some even have a Master’s. While some of these people do spend money in Wise ways, whereas others spend in ways that seem Unwise. Wise means “in a way that will increase your wealth” and Unwise means “ in ways that will decrease wealth or that can be dangerous”. Some of the things people waste their money on,are like:-

• Cigarettes
• Lottery Tickets
• Expensive clothes/ shoes/ sneakers
• Manicures/ pedicures/ expensive hairdos
• The latest entertainment technology
• The highest price cable TV packages
• Casinos
• Eating out frequently, or other similar expenses.

These are some of the habits which really is a waste of money and Makes you Poor and you start living on debt/ loan and financial stress.

Examining Overspending : –

 Many individuals earn just enough to make ends meet; some simply spend more than they make. The result of such spending habits, as mentioned above, is of course, an accumulation of debt. In the American market, you are referred as “ Consumer” and not as a person, a citizen or a human being. Some of these overspending habits may be due to the following reasons : –

  –-Having Access To Credit : Thanks to the innovations like ATMs, credit cards, PayPal and so on, your money is always available, 24/7. Credit is most perilous when you make consumption purchases, you can’t afford in the first place. Consumer debt is nothing but the misfortune of getting in over your head, racking up high interest charges and thus delaying your progress towards your financial and personal goals.

  — Misusing Credit Cards : – If you pay your bill in Full every month, credit cards offer a convenient way to buy things, but if you carry your debt over from month to month at high interest rates, credit cards encourage you to live beyond your means.

  — Taking Out Car Loans : – Purchasing a car on loan may appear very tempting, but you are driving/ pushing yourself into a debt trap. Auto loans are easy for just anyone to get, but very difficult to repay. The dealerwants you to think in terms of monthly payments, which may sound cheap, but you’re going to repay it forever- and you just bought a car that cost a huge chunk of your monthly take-home income.

  –– Spending To Feel GOOD : – Just as people can become addicted to alcohol, tobacco, television and the internet, some people also become addicted to Overspending like going to a fancy restaurant, just to feel Good. And the more you spend on such outings, the less you save and the longer you’ll be stuck working under stress, obligations and demands.

  — Bending To Outside Influences : – Living for today has its virtues. Tomorrow may not come. But odds are good that it will. Some people just want to see the latest movie, even at an exorbitant price; wear the latest designer clothes, get newest smartphone, as they don’t want to feel left out or behind the times- although they may not be in a position to purchase them in cash or comfortably.

  Financial Literacy : –

In recent years, various studies have indicated that Americans are by and large financially illiterate. Many individuals do indeed have significant gaps in their personal financial knowledge. Unfortunately, most Americans don’t know how to manage their personal finances because they were never taught how to do so. Now as a senior citizen or professional who are in the advanced age or who have already retired, have a responsibility to discuss money with their younger ones. Make them financial literate as most high schools and colleges lack courses that teach this vital, life-long needed skill. As parents, we must inform them important finance concepts, otherwise, they may learn the hard way – by making lots of costly mistakes. In addition,to the enormous financial costs, increased stress and anxiety go hand in hand with not mastering your money

 CONCLUSION : –

This topic is very pertinent for the individuals who are nearing retirement or who have already retired. They have to inculcate good financial habits in their children, in their family members so that they understand the importance of financial planning and budgeting. They should spend their money wisely and set an example to their children. The spending habits should be driven by YOUR desires and plans and not those of others. If you have not set any goals yet, you may not know how much you should be saving. It is a fact that despite relatively high income compared with the rest of the world, some Americans have a hard time saving a good amount of their income, because they spend too much- sometimes far more than necessary..