Are You Confident You'll Be Able To Retire Comfortably?

For many, that is the question that you will constantly ask yourself over your working life. The bad news is that the vast majority of people do not feel that they will be able to retire comfortably. The Employee Benefit Research Institute recently released the results of a retirement survey that stated that only 13% of Americans feel "very confident" that they will have a comfortable retirement.  Even more sobering is that 28% of Americans feel "not at all confident" in a comfortable retirement and 21% are "not too confident." So what do need to do if you are in the 49% that have little to no confidence in your retirement?

Find Out How Much You Need To Retire

If you're saving and planning for your retirement, it's important to find out how much you need to retire. It's hard to know when you're going to hit the finish line when you don't even know where it is at. You could spend all day crunching numbers to determine how much you need because everyone is different. However, here are some general tools to help you get started:

      • Find a retirement calculator, like this one on FINRA's website (Financial Industry Regulatory Authority). It will take some tweaking to feel comfortable with the numbers you are putting in there, but playing around with it will give you a good start.
      • Another tool, from Fidelity, shows how much you should currently have saved based on your current income. For example, if you are 30 years old, they recommend that you already have .5 times your salary invested for retirement. If you're 35, they recommend you have 1 times your salary invested. To see where you stack up, look at the diagram below. As mentioned, all calculations are simply a set of assumptions, so check out the article on Marketwatch to find out how they calculated this and what their assumptions are. If the assumptions don't fit you, you'll have to keep the analysis going.
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      • If you are not a numbers person or thinking about all of these financial calculators will make your head explode, a decent general guide is that you will need 75-85% of your current income (each year) to retire. A different approach is to try to calculate what your yearly expenses will be in a given year when you retire, and multiply that number by 25. Yes, these are very rough numbers but they get you started in the right general direction.

      If You Haven't Started Saving, START NOW

      There are many reasons not to save. Bills need to be paid, debt continues to pile up. We can all come up with a million excuses. However, there are so many people that I talk with that wish they had saved up more money when they were younger. For those of you that are younger, particularly in your 20's and 30's, you have the best thing going for you - TIME.

      If you can't find a way to free up some money to save, the real answer is that you can't afford not to. I recently read a great article called, Trick Yourself Into Saving More. Here are some tips that they recommend to give your savings a boost:

      • Start by saving $50-100/month. Have it automatically deducted from your account so that you don't even see the money. Increase that by $10-25 a month or quarter to slowly grow to save more each month
      • Have your savings boost coincide with a raise at work. Try to have 50-75% of your raise go to additional savings, especially if you're already comfortable with your current lifestyle
      • If you refinance your house and free up some cash, turn that right around a put that savings to pay over and above your mortgage - or in this case we can use that same application and use it to put toward your retirement account. (Side note: We personally refinanced a few months back and did that. We haven't even noticed the difference, but the big beneficiary of that decision is our retirement account. It's been a nice extra boost.)

      Remove Other Hurdles In Your Way (i.e. DEBT)

      It's tough to feel good about saving for retirement when you're staring at mortgage payments, credit card payment, car payments, perhaps a Target or Old Navy card, or other debts that you have to pay off each month. See what you can do to eliminate a couple of those. Once some debt starts to get paid off, you'll have the confidence you need to put more money into your retirement, thereby increasing your confidence in your retirement savings. We can't just close our eyes and open them at retirement and hope we have enough saved. Get that debt out of the way and boost your savings.

      My vision at Financially Relevant is that we can experience JOY and FREEDOM when we put practices in place to live a life that is financially-wise. Hopefully with that will come CONFIDENCE in our retirement planning as well. We can't predict what the future will hold, but through planning and diligence, we can start with small "wins" and build that up over time so that the wins keep getting bigger and bigger.

      Simple Investing: Warren Buffett Style

      I know that there is a lot of information out there about investing. Over time, we'll get much more specific about tips, strategies, and more. However, one of the most easy to follow tips out there is to look to someone who has done a fantastic job investing over his lifetime - the "Oracle of Omaha," Warren Buffett.

      Yes, investing is extremely complex and you could spend every waking hour pouring over information and details (as many people do), or if it fits your investment strategy, you could hitch your wagon and follow someone who is currently the world's 4th most wealthy person and let him do the work for you.

      For those that may not be familiar, Buffett's company, Berkshire Hathaway is a conglomerate holding company for many large companies including Dairy Queen, GEICO, Fruit of the Loom, and others. By investing in his company, you are investing in his wealth of knowledge, experience, and feel for the market. He'll do the thinking for you. Now, I will always preach diversity and following an investment strategy, so this may not be a fit for everyone, but for some this could add a great piece to your portfolio. From 2000-2009, the S&P 500 had a return of -24.% yet Berkshire came away with a return of 76% for the same period.

      So how would you go about investing in his company? As I mentioned in my post on Beginners Guide To Investing, you can open up an online trading account and purchase shares of BRK-A (the stock symbol for Berkshire). Now, in most cases you may not be able to afford a share of this stock, because as of today's trading it is currently going for $154,630 PER SHARE, making it the most expensive stock on the New York Stock Exchange. This is because they have never done a stock split in their history (if you don't know what that means, don't worry about it. We'll get to that some other time). However, for normal folks like you and me, you can get a smaller slice and invest in BRK-B, (a "B" share of their stock) for the much more affordable price of $103.16 per share as of today's trading.

      As I mentioned, always diversify your holdings. However, if you feel overwhelmed and don't know where to start, looking at a stock like BRK-B might be a place to get your feet wet. A few years ago, I had a little extra money at one point and didn't necessarily know where I wanted to invest it. I turned to BRK-B and thought it was a good place to put some of it (note: diversify). I have been happy with the results. Buffett is known for thinking long term, so this is something to hold onto for awhile, not turn a big profit in a short period of time. If you would like more information about investing like Warren Buffett, click here for a great page to check out and learn more. I'm sure in the future I will come back to some more specifics on Buffett (and could probably write a years-worth of posts on him and his companies) but we'll start slow and easy :)

      Happy Investing!

      Beginner's Guide To Investing

      I know that people reading this website come from all over the map and have all different backgrounds in regards to personal finance. My goal for this article is to provide some basic nuts and bolts to investing to hopefully lay some ground work for someone who hasn’t invested ever in their life or is just looking to start. I will get much more in depth on this topic down there road, but wanted to start with the basics. So with that, away we go!

      1) Should I Begin Investing?

      Before we get into investing, this should be the first question. The answer really depends on your current financial situation. If you don’t have any sort of emergency fund to fall back on if something bad were to happen, then you probably shouldn’t start with investing just yet. It’s putting the cart before the horse. Typically, a good recommended amount for your emergency fund is 3-6 months of living expenses. Get that first before you think about investing.

      You may say, “yeah, but I have a line of credit I could take out if something bad happens” or “I can just put it on my credit card.” The reality is that when you go into a tough financial situation, you don’t know how long it will last. Having 3-6 months of living expenses will help shield that fall, and if you still were in financial crisis after that 3-6 month period, then you would have to resort to something else. At least in that case, you haven’t accumulated 3-6 months of extra debt that you’re paying interest on in the mean time. For those of you that may like some extra resources on this, reading Dave Ramsey’s book The Total Money Makeover will help lay out an order of recommendations before getting to investing.

      2) What is my risk tolerance?

      Investing differs from saving because it carries a certain element of risk. In most cases, savings (like in a savings account or CD) takes place in an FDIC (Federal Deposit Insurance Corporation) insured financial institution that clearly spells out the interest rate  you will make, and guarantees that you can get that same amount back whenever you want it. With investments, there is a possibility that you could lose money (however there are steps you can take to spread out that risk which we’ll talk about later). That is how I differentiate between saving and investing. Saving doesn’t carry the risk that investments do, but in many cases it also may not have as great of a reward. So your plan for investing should align with your risk tolerance. It may be a good idea to take a quiz, similar to this investment risk tolerance quiz from Rutgers, to see where you line up.

      3) What are my investment goals? When do I plan to use this money?

      You’ve assessed your risk tolerance and you’re ready to dip a toe in the water, but first it is helpful to come up with a plan. First, decide what the end game is. When are you planning on cashing out and using the money? If you’re looking to invest some money for a vacation you are planning to take six months from now, what happens if your investment lost money over that time? Would you want to scale back your vacation? Probably not, so it’s probably best not to invest your money for that. If you are looking for something farther out in the future, and you understand (and are ok with) the risk of losing money, then you can afford to invest it instead of putting it in a savings account.

      I regularly invest in a 401k plan. However there have been times that perhaps I’ve saved up a little bit of money and we don’t have a specific plan for it, or possibly you came in to some money (perhaps from an inheritance or a large gift from someone) and you want to build that wealth for the future. Those circumstances would be a great time to invest. If you don’t have a current use for it, it’s ok to take on a little bit more risk with it, and you don’t need it in the short term, it may be a good time to invest the money.

      4) What should I invest in?

      There are many different investment vehicles. 3 main vehicles are stocks, bonds, and mutual funds. I know there is more out there, but we’ll start with that. In purchasing stocks, you are essentially becoming part-owner of a company (granted in most cases, a very very small part-owner) As a Minnesota Vikings fan, I should say to my friends just east of me in Wisconsin that while buying stock and becoming part owner of the Green Bay Packers may be cool, it doesn’t build any personal wealth as you won’t be able to sell your shares to fund your retirement. But, buying stock on a stock exchange allows you to become part-owner so to speak and hopefully grow your seed money over time. There are many great stocks to invest in out there. Finding ones that you like does take some time and research.

      The second type of investment vehicle is bonds. Think of it like giving that person an IOU. A particular company, city, or even professional sports teams trying to fund a stadium building project will issue bonds to the public. You are giving them money now, and they will repay you later. It is more risky than a savings account because it’s possible that this person may not be able to pay you back (just like you may have lent money to someone who promised to pay you back but never did). However, although it is more risky, it also oftentimes pays a higher reward or interest rate than a savings account. Bonds are rated different letters, which dictate how risky an investment is.

      The third type of investment vehicle is mutual funds. Mutual funds are essentially a collection of assets that someone can buy shares of, and the person in charge of the mutual fund will take that money and invest it based on the goals of that particular fund. In this case you would not own a particular stock, but you would own multiple stocks, and a mutual fund could also contain bonds and other investments. Stocks and mutual funds are similar in the fact that they could gain and also lose money. However, if you owned stock in a company and that company went under, you could lose most, if not all of your investment. For you to lose most, if not all, of your investment in a mutual fund, EVERY SINGLE COMPANY would have to go under – which is something that would be highly unlikely to happen (and lets be honest, if that did happen you probably have much worse economic problems out there than your mutual fund performance). So in that regard, mutual funds are deemed as being safer than owning a single stock as the risk is spread out over the whole fund as opposed to an individual company.

      5) Who Can I Use To Invest My Money?

      If you aren’t well versed on investments, it is very wise to talk with someone who is licensed who can help you navigate what you should do. They would help you get everything set up and walk you through the process. However, if you’re comfortable, there are a lot of companies out there where you can sign up and pay only a few dollars per trade for you to invest your money on your own. A few companies out there that do this are Scottrade ($7/trade), E*Trade ($9.99/trade), Sharebuilder ($4/trade), or Charles Schwab ($8.95/trade)

      6) Diversify!

      One of the most important rules to learn in investing is to diversify. As I’ve mentioned, investing comes with risk. While it may be enticing to pick one horse and ride it all the way to the end, it’s not wise investing. Spread out your risk. I was reading an article on personal finance a month or two ago (imagine that) and a person was commenting on an article and bragging how in 2-3 years they went from having no money saved up to having something like $60,000 in Wal-Mart stock. Now it’s great that he was able to save up so much in a short period of time, and I’m not saying that owning Wal-Mart stock is a bad thing by any means, but to own your entire nest egg in one company isn’t the most wise thing to do. This particular person got ripped to shreds by other people commenting on it saying how he should spread things out. That’s the message here – spread things out.

      I promise that I will cover A LOT more about investing in the future, but I hope that this beginners guide got you familiar with some things and hopefully you picked up on something you may not have know before. Before I close, I would like to recommend a book that can give some additional information. It is Investing for Dummies. I’m a big fan of many books in the “For Dummies” category because they provide a ton of information all in one book. They keep things simple and it’s a pretty easy read if you’re interested in that particular subject. There are a lot of great books on investing which I’ll talk about at a later date, but wanted to throw that one out there to get you started. Happy reading!