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A Retirement Chart Sure To Give You Anxiety

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, 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.


10 Steps To Protect Your Finances At Year-End

It’s the end of the year, and as the mistletoe hangs over our heads so does our financial to-do list. Don’t be intimidated by your list this year, though. I’ve gone through and broken down 10 simple steps you can take to protect your finances and put you in a good place for your 2014 taxes.


 Step 1: Get Organized

Getting organized might sound silly, but by getting all of your financial documents into one location and in an order that allows you to easily find everything, it’ll make every step after this take half as long.

Items to pull together:

-All relevant receipts

-Cancelled checks

-Income information

-Contribution acknowledgement letters

-Investment income forms

-Settlement statements from the sale or purchase of your home

-Any other financial documents from 2014 that you’ll need for taxes or to keep as a record


Step 2: Think Through Your Healthcare Costs

The Affordable Care Act is in full force now, and most Americans are now required to have health insurance. If you weren’t covered in 2014 you will owe an “individual responsibility payment” of the greater of 1% of household income above the income tax filing threshold ($10,150) for an individual) or a flat amount of $95 for an adult and $47.50 per child under the age of 18. These costs are up to a maximum of $285.

This payment is due with your 2014 tax return. If you were uninsured for only part of the year, just 1/12 of the year’s penalty applies to each month you did not have insurance. Also, if you were uninsured for less than three months you will not have to make a payment. If you don’t have health insurance going into 2015, now is a great time to get signed up as well.


Step 3: Give To Others

‘Tis the season, so if you’re planning on giving the gift of cash for the holidays be sure to watch how much you’re giving. Before December 31st you can give up to $14,000 to as many people as you would like without having to file a gift-tax return. If you’re married, you and your spouse can give up to $28,000 to others without having to file a gift-tax return.


Step 4: Give To Charitable Organizations

One strategy for tax-reduction is to contribute to charitable causes before the end of the year. If you’re planning on doing this, just be sure to keep your receipts and file them away for all the contributions you made in 2014, and not just those over $250. You can also donate stocks or mutual funds that you’ve held for more than a year. This is great if you have stocks or mutual funds that no longer fit your investment goals. Another option would be to set up a donor-advised fund if the charity you’d like to gift the appreciated stocks or mutual funds cannot accept them in their original form.


Step 5: Itemize Your Deductions

Itemizing your deductions gives you more room to figure out if you need to spend more or less by the end of the year. You can accelerate or delay certain payments so that a larger amount falls within 2014 or 2015. Consider adjusting the timing of your payments with medical expenses, property taxes and charitable contributions. Remember, though, that medical expenses for 2014 are only deductible to the extent that they exceed 10% of your adjusted gross income, or 7.5% if you are age 65 or older. For charitable contributions, just be sure your credit card is charged or you mail your checks by December 31st to make the donation deductible for 2014.


Step 6: Defer Your Income or Bonuses If Necessary

You may want to consider deferring any additional income or bonuses to January if you are in the top of your tax bracket. By asking your employer to hold the bonus you may prevent the need to pay more in taxes. Another option would be to wait to sell off assets that will produce a large capital gain until at least January. Before deferring, though, you should consult with a tax professional to review your tax situation and future anticipated earnings.


Step 7: Set Up Your Retirement Account

If you are self-employed, you actually have the same opportunities for a tax-deferred retirement savings plan as employees who participate in company plans. You have a variety of plans to choose from including SEPT IRAs, solo 401(k) plans, or Keoghs. All of which you can invest tax-deferred self-employment earnings.


Step 8: Contribute The Maximum Amount Possible To Your 401(k)

It doesn’t necessarily have to be a 401(k). No matter if you have a 403(b), 457(b) or employer-sponsored plan, you should invest as much as $17,500 into this account by December 31st. By contributing the maximum amount, your taxable income for the current year will be reduced while your tax-deferred savings will grow. You know I love compounding.


Step 9: Take Your Required Minimum Distribution (if 70 or older)

This step is really just for those reading who are 70 and older. A Required Minimum Distribution (RMD) is the amount of money that you must withdraw from your retirement accounts each year after age 70, or be penalized. By law, you cannot keep retirement funds in your account indefinitely. The required amount is different for everyone, so be sure to investigate all the details regarding RMDs in order to find ways to make tax-free distributions.


Step 10: Make The Most Of Your Losses

Did you know that if you’ve had losses this year due to the stock market, mutual funds, or other investments, that it’s possible to offset your capital gains? Look through your taxable investment accounts and consult with a professional to determine your options. Just remember the “wash sale rule” which prohibits taxpayers from recognizing losses on sales of securities that are repurchased within 30 days.


Once you’ve gotten through this list, go pour yourself a tall glass of Eggnog and kick your feet back. It’s time to enjoy the holidays stress free!


Read the original article here.


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