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Couple Retires By Mid-30s

Couple Retires By Mid-30s

What’s your definition of “early” retirement? Sixty? Fifty-two?

A California couple recently retired in their mid-30s with $1 million in the bank, according to a story in Forbes magazine. 

That remarkable accomplishment would be difficult for most of us to replicate. I know I couldn’t do it — not with four kids!

The couple, Travis and Amanda, had no kids, were well-paid tech professionals, and already had $350,000 saved when they undertook this project. But their story reinforces several important lessons about building wealth for retirement.

Set a goal. When Travis lost his information systems job in 2012, he quickly realized he really didn’t like working. He preferred the freedom of not working. So, he and Amanda set a goal of amassing enough money to retire as soon as possible. They pegged that number at $1 million. The couple planned to live on 3 percent to 4 percent of their portfolio’s value every year and expected a 7 percent annual growth rate.

Get organized. You can’t map a journey unless you know the starting point. Travis and Amanda put all their financial information into the free budgeting site Mint.com and did a deep dive analysis of their assets and spending. They also combined several 401(k)s from former employers.

Your job is your biggest asset. Travis went back to work purely to make the couple’s retirement dream come true. He switched jobs three times in three years to obtain salary increases. Travis told Forbes he kept his eyes on the prize, which made a great employee. Amanda, a chemical engineer, stayed in her job and racked up seniority increases. At their earnings peak, the couple was making a combined $200,000.

Prioritize saving. The couple saved as much as 65 percent of their income during the three years it took to amass $1 million. They lived in a rent-controlled $2,200-a-month Oakland, Calif., house (crazy cheap for the Bay Area) and aggressively cut costs by doing things like riding bikes instead of driving, and hanging the laundry outside to save on running the dryer. The two credit their frugal parents for teaching them how to live modestly.

Watch out for fees, penalties and taxes. High fees can be a great return-killer. You should review and question every fee you pay, even on funds inside your 401(k). Amanda and Travis put much of their retirement money in low-cost ETFs and index funds. These paid off nicely, as the couple rode a more than 60 percent increase in the S&P 500 from 2012 until 2015.

The couple planned ahead and was able to avoid the 10 percent IRA early withdrawal penalty by using a Roth IRA conversion ladder. In this forward-looking strategy, they transferred a certain amount of money each year from their traditional IRA to a Roth IRA. Once five years had passed from the initial IRA to Roth conversion, they were able to tap the amount converted to their Roth in an annual laddered sequence and avoid the early withdraw penalty.

Simplify before retirement. As they approached their goal, Amanda and Travis sold much of the stuff in their two-story house.

Watch the outflow in retirement. While most conversations about retirement planning center in saving, you need to think carefully about your post-work spending if you want your nest egg to see you through 20 or more years.

Travis and Amanda are very disciplined about this. They stuck to their plan to spend no more than 4 percent of their portfolio’s current value per year. As a result, they sometimes had to cut back their monthly spending when the market dipped. They did so even while on their long-planned retirement adventure, a driving trip from San Francisco to Costa Rica. They made that journey in their frugal fashion, driving a used Toyota 4Runner that often doubled as their nighttime accommodations. When the couple arrived in Costa Rica, they leased a house for $1,000 a month — about $30 a night. They cooked most of their own meals and weren’t interested in expensive resorts or tourist activities.

Relocate and save. When Amanda and Travis returned to the U.S., they left the super-pricey Bay Area and bought a $270,000 house in Asheville, N.C. They chose the artsy mountain town because the cost of living is relatively low. They also believe it will be easy to rent the house during their coming summer travels.

Travis and Amanda insist they are done working. But they plan to have a family in the future. Their frugality is impressive, but the cost of kids is a game changer for any couple’s finances. So, we’ll see.

Again, this is an extreme example of achieving an early retirement. But if these two 30-somethings can accumulate about $650,000 in three years, surely you can achieve your savings goals in 20 or 30 years by adopting some of these same mindsets and tactics.

Hey, wait. We just learned a financial lesson from two millennials! Will wonders never cease?

Read the original AJC article here.


 

Money Matters with Wes Moss | March 20, 2016

Wes Moss covers important deadlines for major changes coming into law for social security and other updates on oil prices, minimum wage rates, and more.

March 20, 2016 Hour 1

March 20, 2016 Hour 2

Wes Moss, Chief Investment Strategist, at Capital Investment Advisors is the host of “Money Matters,” a weekly radio show offering financial advice to callers and listeners. The show’s producer, Ryan Ely, is a fellow investment advisor. Listen live on Sundays at 9am on or subscribe to our iTunes Money Matters podcast updated weekly.


 

A Retirement Chart Sure To Give You Anxiety

I love how easily two-step charts are able to relay information to us. You look left, look right and then find your corresponding data point that reveals your answer. If only we could answer all of life’s tricky questions through a quick two-step chart.

The other day I shared JP Morgan’s 2015 Guide to Retirement chart on my Facebook page, and judging by the traffic, it clearly struck a chord. This particular chart tells you how to calculate how much money you should have saved for retirement based on your age and income level.

Taking a quick look at the chart, you might say, “Okay, I’m 35 years old and making $100,000, so I need to multiply $100,000 by 1.4. That’s a total of $140,000 that I should have saved (already). Good thing I started saving early and often”

An alternative ending to this might be, “Wait, WHAT!?! How am I already so far behind!?!”

According to Vanguard’s study released in 2014, How America Saves, their median participant retirement account balance was $31,396. The median participant age was 46 with an income of $75,000. According to JP Morgan’s chart, those participants should be clocking in with over $165,000 in savings already. That’s a difference of over $100,000!

Clearly there’s a disconnect between where the financial planning community says people should be, versus where people actually are.

Back in the real world, we’re seeing that most people are still struggling to save for retirement. According to a study released by the National Institute on Retirement Security in March 2015, 62 percent of working households between the ages of 55 – 64 have retirement savings worth less than their annual income. According to JP Morgan’s calculations anyone making above $50,000 a year should have at least three times their annual income saved for retirement by the age of 55!

In fact, this same study says that the median retirement account balance for households nearing retirement is $14,500. That’s truly terrifying!

Now after looking at both sides of this spectrum of savings, I have good news. There is hope!

There are plenty of surveys and financial planning articles that say that you’re supposed to have $1 million or even $2.5 million put away for retirement. While having either of these amounts would likely set you up for a comfortable retirement, the reality is that there’s no set number that everyone needs to reach for retirement. Just hearing numbers like this can be disheartening.

The real issue with retirement savings in America is that people are constantly bombarded with large savings goals that they “have” to reach to retire comfortably, so instead they just don’t save anything.

When doing the research for my book, You Can Retire Sooner Than You Think, I found that it was important for “happy retirees” to reach a minimum threshold of $500,000 in retirement savings. With that said, though, ultimately the real deciding factor in how much you need to retire depends on how much you need for spending each year once you stop working.

JP Morgan’s chart says that if you are currently making $400,000 a year while working, by the time you retire at age 65 you should have $6,640,000 in your retirement accounts. That’s assuming that during retirement you’ll still need 80 – 90 percent of that $400,000 forever.

What the chart seems to miss, is that by the time you retire you’ll hopefully own most of your larger assets outright; like your home, car, boat, and whatever else that you’re planning to enjoy in retirement. If that’s the case, then it’s pretty unlikely that you would need such a high percentage of your peak income year after year to be comfortable in retirement. It also means you don’t need to have that $6.6 million saved before retiring.

While I wish planning for retirement was as simple as following a chart, it’s better to actually know how much you plan on spending on a yearly basis in retirement. From there you can create your own retirement salary. A quick and easy way to do this is to head over to yourwealth.com, and use one of my favorite retirement calculators.

Don’t panic when people throw out crazy numbers in regards to what your nest egg should look like. Your own personal situation will have its own uniqueness with its own twists and turns. That’s why they call this personal finance, and why it will never be as simple as looking at a chart.

Read the original article here.


 

Robo Advisor vs. Digital Advisor

The robo-advisor: not since John Bogle came up with the idea for Vanguard in 1975 has a new development in the investment industry caused so much controversy and turmoil.

I can appreciate Wealthfront CEO’s position on his new robo competition from Charles Schwab. There are already dozens of media stories that detail the debate. I don’t want to argue about the minutia involved with each robo product offering. After all, every financial services company has a right to offer new products and evolve how they deliver investment services. However, here’s what the entire Robo Industry is missing: advice.

What neither Schwab’s nor Wealthfront’s new robo programs offer is real life advice in the form of a dedicated advisor. Ultimately, I believe both of these companies miss the true value that leveraging technology offers to the investment industry… providing better service to people who are relying on professionals to manage their life savings and offering individualized advice when faced with difficult financial decisions.

Pure robo-firms have lowered the cost to invest, the same way ETFs did back in the early 2000’s. That’s a good thing for investors. They haven’t, however, provided a better solution to deliver personalized advice to an extremely under-served area of the investor marketplace… the mass affluent, or those who have less than $1 million in investable assets.

The real future of investment advice for this group lies somewhere between what the Wealthfront and Vanguards of the world are offering, and what the full service brokerage houses are doing at places like Merrill Lynch and Morgan Stanley.

Study after study have shown very clearly and explicitly that for most investors the extraordinary push and pull of emotions tied to investment decisions is the real cost (or drag) on earning strong annual compounded returns over time. This is the reason that an option must exist in the middle of the robo and the traditional. That’s why my partners and I developed Wela.

Wela leverages technology to deliver a low-cost investment solution while also providing access to personalized investment advice. We’re a company with real people, using technology to make our jobs easier, and more importantly, to make our clients’ experience better, simpler, and comprehensive.

On the yourwela.com platform, there is no fee charged to our users who simply want to aggregate and monitor their investment accounts, cash accounts, real estate values, mortgage balances, etc. We do, however, charge a fee when one of our users raises their hand and says, “Wela, I need help with this account. Can you help me manage this piece of my financial equation?” Our average Wela client pays between 0.75% – 1%, and we use no proprietary ETFs or mutual funds. We use only what our Investment Committee and technology deem to be the best, low-cost investment solution depending on your specific situation.

Clearly I have a vested interest in spreading the word about Wela, what we deem as a Digital Advisor, not a robo investment solution. There are $20 trillion of investable assets in the US right now, and with such a large pie, there is plenty of room for all types of investment strategies. A portion of that pie will always use the lowest cost provider. In the investment industry, this means the majority of clients will end up talking to a call center when they have questions, and have their portfolios managed by R2D2. On the other end of the spectrum are the investors who will always need a full service financial advisor to consistently consult on all financial matters.

It is my belief that, over time, the biggest slice of the investor pie will likely employ a thoughtful combination of R2D2 and Harrison Ford, embracing technology while also maintaining a human element as they consume financial advice. We believe a company that is able to leverage technology to more efficiently serve a broader group of people with more personalized service is ultimately going to stand the test of time.

Read the original article here


 

One Secret To Retiring Sooner

As people have really dug into my new book over the last few months, You Can Retire Sooner Than You Think: The Five Money Secrets of the Happiest Retirees, I’ve had a common question come back to me:

“Given the fact that people are already living longer, requiring a longer draw-down period from their nest egg, how do you reconcile people retiring even earlier?”

It reminds me of the quote, “No man on their deathbed says, I wish I had worked more.”

My answer to this may sound a little grim but it’s realistic. While as a whole people in the US are living longer, it doesn’t guarantee that we’ll all live to age 100.

I have known too many wonderful people who spent years planning their retirement, but when they finally reached their “golden years” they sadly passed away unexpectedly just a few short years into their perfectly planned retirement.

Of course none of us knows exactly how long we will be on this earth. If we did know, retirement planning would be much easier. This leaves people with the difficult decision of retiring with the fear of possibly running out of money, or potentially missing out on the ability to enjoy retirement altogether. That’s why I suggest that if you’re looking to retire early, you might want to consider phasing into retirement.

Rather than diving straight into the retirement pool, you can wade in by first moving to part-time work. By continuing to work you may be able to stop saving for the future while also not spending from your savings. Just working part-time will give you more of the free time you’re looking for in retirement, but delays when you have to start using your savings.

Traditional retirement planning is often seen as black and white. Meaning you go from full speed building your nest egg to full speed spending your nest egg. By instead moving to part-time work you’re able to have more freedom with your time while also extending the life of your nest egg.

Think of this phase as your retirement happy hour before the party really starts.

It’s helpful to start planning that move to part-time work a few years out, before actually enacting it. While for many careers it may simply be a matter of reallocating priorities and cutting back, there are careers that do not easily offer part-time work. If that is your position, use the few years beforehand to start thinking through and planning your part-time career move.

Ideally, your part-time work just needs to cover your monthly expenses, so you may be able to switch to a new field. You could even take up a hobby as a part-time gig. If you’re crafty, enjoy woodcarving or have other skills like this, consider opening an online Etsy store. If you love shopping you should consider applying to work at your favorite store. On top of a job you’ll likely get an employee discount. You should be realistic, though. It’s probably pretty tough to get paid to go fishing or to watch college football.

An important happiness pillar from my book’s research stems from retirees participating in many different “core pursuits” also known as hobbies on steroids. If you can find a way to get paid while enjoying your core pursuits, then all the better.

Everyone seems to know someone who died too young to enjoy the money they had diligently socked away for retirement. I’ve personally seen it too many times to ever recommend that anyone stay somewhere they don’t love when they could potentially move to the next phase. Rather than focusing on continuing to build your nest egg, just be sure you’ve reached some of the benchmarks I’ve outlined before, and then get creative with how you ease into retirement.

Remember, it’s five-o’clock somewhere.

Read the original article here.


 

Emotion Versus Fundamentals

Volatility is back in a major way. And it has investors wondering if there’s about to be a repeat of 2007 and 2008. Are we on the brink of another recession?

Our thought is that you shouldn’t jump to that conclusion so soon. The volatility is definitely there and we saw some major dips in the market throughout the past couple of months. However, just a few weeks ago we had the best stock market day of 2014. In fact, during mid-October, we saw the best week that the market experienced in nearly two years. Many of our clients will ask us how the market can be crashing one week with bad news globally, and then surge by 4 percent the next week? No one knows, on any given day, how or why the market will do what it does. But, as a long-term investor, it’s important to always remember the fundamentals. 

In short, you always want to remind yourself that there is an emotional toggle with investing. This toggle shifts between the emotions or sentiment that the collective marketplace is experiencing, versus, the fundamentals that fuel the market. The emotions could be anything from the fear of China slowing down to the European economy falling back into a recession. Another fear could be Ebola spreading and then causing a global economic impact. The fundamentals that fuel the market are things we think about when it comes to companies earning money or not earning money. It’s that simple. As a long-term investor, you want to pay attention to the balance of the fundamentals. 

Now, here we are in earning season where we get to hear about how companies are doing—a fundamental. After all, this is the lifeblood of the U.S. stock market. We’re about 40% through the earning season, and 70% of the companies that have reported so far have beaten expectations on the upside. Same thing with revenue, it’s coming in stronger than expected. These companies aren’t barely making it, they are actually selling more. 

So, before you worry about whether or not a recession is near, just remember the fundamentals and pay attention to emotion to determine if it’s necessary to can hone your strategy as a long-term investor.


 

3 Excellent ETFs to Explore

Each Sunday on Money Matters, our Chief Investment Strategist Wes Moss shares an ETF of the Week. The ETF of the week is an ETF (exchange traded fund) that Moss identifies as a top pick that investors may choose to consider as they are consulting with their advisors on investing options.

Let’s explore three ETFs that have been mentioned on Money Matters over the past few months:

Vanguard Dividend Appreciation ETF (VIG)

This fund is made up of heavy hitters in various industries (some companies in the portfolio include WalMart, P&G, IBM, McDonald’s) with a 2.1% dividend yield. This fund has been paying out dividends for 10 consecutive years. 

Read more at: https://personal.vanguard.com/us/funds/snapshot?FundId=0920&FundIntExt=INT

Europe, Australia and the Far East ETF (EFA)

This is an iShares international ETF. It’s almost at a 3% yield and the average company’s size is $35 billion. Overall, this ETF is considered to be very inexpensive and diversified.

Read more at: http://us.ishares.com/product_info/fund/overview/EFA.htm

PIMCO 0-5 Year High Yield Corporate Bond ETF (HYS)

This is a short-term bond with about 4.5% yield. Among the top 10 holdings are Spring, Dish, Chesapeake Energy, and others. Note that this is a “short-term” bond.

Read more at: http://www.pimcoetfs.com/Funds/Pages/HYS.aspx

 

Disclaimer: Nothing herein should be considered specific investment advice. You should consult your investment professional before making any investment decisions. The information provided contains a general guidance based upon hypothetical situations. You should not make investment decisions solely on this alone.  Information is based on past history and there is no guarantee of future results. 

 


 

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