Growing Money and Making It Last Through Retirement

A perfect storm has hit people planning for retirement. More people are living longer, expenses are higher, and there are fewer safe ways to invest for retirement. It is estimated that Boomers today have a $4.6 billion shortfall in money needed to live comfortably in retirement. Only 11% of Americans have pensions, Social Security probably won't make it through the baby boomer generation, and most 401(k) plans have been decimated the past decade due to the unpredictable stock market. But in addition to problems saving for retirement, how do you keep the money that you do save through retirement?

The following are some 'conventional wisdom' ideas on how to save and live through retirement:

* Savings Accounts. Some people still have a Depression-era mentality when it comes to saving money and like to have the safety and security of a bank account. The downside to how banks really work is the low interest rates they pay for this service. Banks are currently able to borrow money from the Fed almost interest free, therefore, they don't need to pay consumers a high interest rate for their deposits. As such, most interest rates for savings accounts and even Certificates of Deposit are below the level of inflation. And what little interest they do pay they are taking out in fees and charges. If you still want to put your money in banks, be thoughtful of FDIC Insurance and the maximums they pay out.

* Treasury Bills. The safest way to invest is through TBills as your investment is backed by the Federal Government. Unfortunately, with safe investments come very low returns. For example, as of the summer of 2010, a 10 year T Bill pays 2.61% interest. Using the rule of 72, your money would double in (72/2.61%=)27.5 years. Assuming an inflation rate of just 3% over the next 10 years, you're actually losing money on the investments. Finally, you'll be taxed on that 2.61%, so it really is a lose-lose situation.

* Stock Market. The stock market has been a roller coaster the past 10 years, with many people's 401(k)s on the bottom. While there is an unlimited potential for profit and the stock market does outperform mutual funds, their unpredictability and high fees associated with the market make it a very risky investment. Also, very few people know anything about most companies or their stocks, making investment decisions complicated. To combat this risk, many people feel that diversification is important. However, diversification in the market is still investing in the market, and if the market crashes, your portfolio crashes. It's like being on the Titanic; it didn't matter if you were in first class or cargo, when the ship went down, it took everyone with it.

* Annuities. With an annuity, you put money in an insurance contract that pays a fixed or variable rate of return and start receiving guaranteed payments. Many people like the guaranteed payments and the safety associated with earning a guaranteed interest rate. But the reality is that the fees associated with these plans and the fact that you lose your principal when the policy 'annuitizes' and you begin receiving payments make this a horrible solution. The Insurance Companies put together 170+ pages of information for consumers knowing that they will never read anything about all the fees and charges. As such, it becomes too complicated to understand. Plus, once you start receiving payments, you lose your principal. For example, my father contributed to an annuity for most of his life and had paid over $70,000 into this fund. When he began receiving his guaranteed $300 per month for the rest of his life, he no longer had any rights to the lump sum principal of $70,000. My father passed 3 months later and had essentially paid $70,000 for a $900 return. While safety and guaranteed interest rates are good, you will want to put your money someplace simple, watch the fees associated with these programs, and will want to find a vehicle that will allow you to keep your principal and receive interest payments.

Based on the conclusion above, common sense tells us that Americans want safe investments that are simple to understand and pay a guaranteed interest rate. When you have a guaranteed interest rate, you can accurately forecast the future value of your money and how much you will receive in payments without affecting your principal. Simple, accurate, and guaranteed growth of your money. This is how retirement investing should work.

Things to Consider in Early Retirement Planning

Retirement is something we need to consider while we still have the capability of working for it. It is something we need to invest into since this will be the one to carry us after we have given all the efforts we can during pre-retirement. Retirement is also something we need to plan as early as now.

Essentials of Early Retirement Planning

Planning for early retirement will not be that easy, this will need a budgeting skill since that will not be the only thing that comes to everybody's mind when money is on hand, the fact is, it barely comes into everyone else's mind. In order for us to save for our retirement we need to have a plan since plain saving will not help us go through it. Cutting a portion of each pay all by ourselves will surely end up to cheating, or skipping from one pay period to another. Plans will help us require ourselves to deduct a part of our earning but will first require us an early retirement planning.

How Much Do I Need to Retire?

In early retirement planning, the first thing we should ask ourselves is, "how much do I need to retire?" Projecting what life could offer in twenty-five to thirty years from now takes into the picture. Some suggestions include, investing on a business, a house or a car.

Good thing here comes retirement planning services that helps us get through the hardship of saving for an early retirement. These services offer different kind of plans, which we can choose in any way convenient to us. Upon knowing the different courses they offer in applying, financial planning for retirement comes in. We should take into consideration the different expenses between pre-retirement and retirement period. We all know that upon retirement, demands will be much lower but we need to choose a program that surely sustains the cost of living we used to have.

Also, another thing to consider is the monetary amount we are willing to sacrifice just for the sake early retirement planning. Remember that it is very important that you will have to be realistic in your estimated on the kind of expenses that you will have in your retirement. Your estimated are valued when you have figured out how much money you will need to save in order for you to afford happily on your retirement.

After taking into considerations all the above mentioned factors, that is the time to choose the perfect plan for you. A plan that you are able to acquire and will provide for you on the first day of your retirement up to the end.

Good Investment Options For Retirement: Dollar Cost Averaging

You've probably heard of dollar cost averaging (DCA) in the past. If not, it's an investment strategy taking the form of investing equal monetary amounts regularly and periodically over specific time periods (such as $100 monthly) in a particular investment. The main benefit: more shares are purchased when prices are low and fewer shares are purchased when prices are high.

We've put this strategy to the test. 1929 and 2008 were the worst years in the last century for equity markets so we thought it might be interesting to test DCA during these periods. How did DCA trough the worst two periods of the last century for equity markets? Our little study showed it produced impressive results. The following examples are for illustrative purpose and do not take into account dividends.

1929

Let's simulate the worst financial meltdown of the last century occurring at the end of the 1920's. The Dow Jones Industrial Average was at the time (and still is) the most followed stock index. Its descent started after it reached a high of 380 in August 1929. The downward spiral lasted 3 years until it touched bottom at 41.22 on July 1932, a whopping 89.2% lower. Most investors were decimated at the time and the Great Depression coincided with the collapse.

How would a monthly DCA invested in the Dow have done during the same time span? In mid 1934, almost 5 years after the top of 1929, the Dow was still at the very low level of 103 or -72.89% from the summit. However, at that specific time, a monthly DCA strategy started at the top of the market would have already recovered all the losses. That's right; while buy and hold investors would be left with a little more than a quarter of their initial investment, the DCA investor would already be breaking even after the worst financial meltdown of the century. Furthermore, it took the Dow Jones 25 years - in November 1954 - to reach once again its all time high of 380 of 1929.

Bottom line: DCA not only reduces the risk of equity investment, it also provides a boost in returns when markets turn on the upside after a decline.

2008

1929 is ancient history and most of us were not there to witness it. However, we do remember 2008 when a similar event took place. However, the 2008 meltdown compared to the one of 1929 wasn't as dramatic. But as you probably know, it did harm a lot of pension funds and retirement accounts. Also, almost all equity investors took a beating during this period.

Here is a quick recap of the events. In October 2007, the Dow Jones reached an all time high of 14164. When Lehman Brothers collapsed one year later, markets went down pretty fast in the following weeks. From the Dow level the day before Lehman's chapter 11 to the bottom of 6547 reached in early March 2009 - 5 months later - the Dow had lost 40% of its value. At this level, the Dow stood at a -53.5% from its all time high of October 2007. How would have done a monthly DCA strategy in such a context? While the Dow Jones stands today (November 2010) at 11193, it's still 20% lower from the all time high of October 2007. However, the monthly DCA investor, who started investing at the top of the market in October 2007, would already be up 9% on its invested capital. Furthermore, one year ago - October 2009 - our DCA investor recovered entirely its investment, the buy and hold approach would still be 25% under.

Bottom line: the 2008 meltdown was short lived for the DCA investor. Buy and hold investors however, still have important losses on their books and nobody know when the markets will reach their all time highs again.

Investing in Fixed Indexed Funds Can Restrict Your Capital Growth

Annuity investing is grabbing the headlines a lot these days as it seems to be an uncomplicated, systematic and lucrative investment opportunity, but only until the facts disguised are made public. So, here's a detailed guide for those who want to know what are the negatives of investing in a fixed indexed annuity before they buy into the words of their investment advisors and salespersons and gear-up to invest their money in a proposition beset with pitfalls and downsides. At the time of signing the final application for a fixed indexed annuity investment, often investors do not pay heed to the terms and conditions column, and pencil in their unique signatures, in turn, finalizing the contract. However, there are several negatives which are intentionally or unintentionally kept secret during the entire process. Let us take glimpse at the most important ones.

Unfolding Untold Story of Capped Returns

A fixed indexed annuity locks your principal amount for a long term, say 15 to 20 years. To top that, the returns earned are capped by the insurance companies; holding you back from having complete access to your own money. Certainly, the investment plan has been designed to fetch returns the way indexed markets do, however, some limitations have been imposed, cutting down the investors' profits. Moreover, a fixed indexed annuity is designed with emphasis on fund management, no matter how far capital growth is neglected.

Don't Ignore Taxation Trouble

Returns from a fixed indexed annuity are subject to income tax, unlike other indexed instruments that enjoy the benefit of paying much lower capital gains tax. This doesn't just confirm a higher rate of taxpaying; it also makes the nominee/survivor of the applicant liable to pay a part of the return from this scheme as income tax. However, this instrument enjoys deferred tax treatment; still the taxation policy takes it far away from being an ideal annuity instrument. Procedural Fees may Rob your Returns The procedural fee, operational cost and the fees of the fund manager collectively come out to be 1-3%, depending on the internal and some external factors. This further drops down the return for the investor and most of the time, the return underperforms indices.

Ouch! Does That Withdrawal Fee Hurt?

With a fixed index annuity, the investor is liable to bear a 5-10% early withdrawal fee for the amount beyond the set threshold or the maximum penalty-free annual amount. Once you know your withdrawal limit, and know how to stay within the brackets, things go smooth, but if the annual withdrawal amount crosses the limit, things might turn topsy-turvy. You might not be looking for a fixed indexed annuity, but chances are that it's been sold to you! If this is the case, someone who understands your present and future financial needs and can well plan out a scheme for you and your heirs can probably act as a shoe-horn in this situation, guiding you to mold your annuity and get at least something beneficial out of it.

The Veterans Aid and Attendance Pension

The inevitable realities of aging require advance planning, and to gain true peace of mind you need to cover all of your bases and prepare for any eventuality. Senior citizens during the current era are faced with some unprecedented circumstances because people are living longer, and medical science can now do some amazing things. People over the age of 85 are the fastest growing portion of American society, so when you are planning your estate you have to take the implications of this ever-increasing longevity into consideration.

As you are planning for the inevitabilities of aging you do need to take stock of the assets that you have accrued, but at the same time, it is important to do your research and gain an understanding of any government benefits that may be available to you. Many of our senior citizens have honorably served their country, and there is a veterans' benefit that is very relevant to those who are engaged in advance planning called the Veterans Aid and Assistance Pension. This benefit provides a monthly payment to qualified veterans who need daily assistance addressing their basic needs, like dressing, eating, cooking, bathing, etc.

The Veterans A & A Pension is not to be confused with the military retirement pension that veterans receive after 20 years or more of continuous service. This benefit is available to veterans who served on active duty for a minimum of one day during wartime, along with a total of at least 90 days of active duty overall. These figures are subject to change by the VA, but as of this writing single qualified veterans can receive as much as $1,632 per month and couples may be eligible for up to $1,949 per month. To apply for the Veterans Aid and Attendance Pension, contact the United States Veterans Benefits Administration.

Investing in Real Estate for Retirement

Why would one want to invest in real estate? All realtors will tell you: appreciation, cash flow and depreciation. Undoubtedly, over time, real properties will again rise in value. Even with the pounding that prices have taken, over the past 10 years (as August 2010), residential properties, on average (Case Shiller/SP 10 City data), outperformed the S&P 500 +47.3% for real estate, -30.9% for stocks! If you are saving for retirement, doesn't it make sense to diversify using investment properties?

If you have though of "downsizing" at or prior to retirement, consider the purchase of your retirement home now. After a professional adviser "crunches" the numbers, you might be amazed to see that buying a second home that can be rented can very well fit into your budget. In addition to rental income that you could receive, rental real estate also benefits from depreciation. This is a phantom expense that can turn a situation that is profitable from a cash flow perspective into a loss for tax purposes.

If you file jointly and your Adjusted Gross Income (AGI) is $100,000 or less, you may be able to write off up to $25,000 of your real estate losses against your income. That's a $6,250 reduction in taxes for those in the 25% tax bracket.

When you are ready to downsize, there could be great news for you. Unless current tax laws change, you may be able to sell your current residence and receive a tax exemption on up to $500,000 on the capital gains you realize. With that money, you can probably have enough to pay off the existing mortgage on the rental and move in to it. You might even have enough extra to provide you with extra income for the rest of your life.

One of the keys to success in the real estate market is understanding how the tax laws work in your favor. With proper planning, your cash flows can be managed and taxes reduced, making your purchases affordable.

Always be sure to check with your professional tax adviser before entering into complex investment transactions and tax laws are continually changing.

Gary Lewis' ideas incorporate more than 30 years working with investments including 20 years experience in the derivatives industry and 10 years as a fee-only comprehensive financial planner. He specializes in designing portfolios that meet the client's required rate of return with a minimum level of volatility. You can read his writings on financial markets at Asset Design Center.

Financing Your Investment Properties

An investment property is a property (land, house, flat, apartment, building etc.) that you buy with the purpose of producing monetary returns. Financing your investment property can be a great way to earn some steady income. Many people buy homes with the aim of renting them and thereby bringing in a considerable amount of monthly income. Similarly, several real estate investors are there who pay for multiple properties, get them renovated and then sell them for a higher profit.

To start on the road to successful journey, there are three best ways to finance your investment on property. While you use them correctly, they can help you get a substantial amount of money from your property investments:

1. Self Financing:

It is much viable to make use of your own resources to buy the property. You will have to meet all the expenses yourself. Similarly, you will be liable for all profits and losses. Self finance is the easiest and reliable source of investing because this way you lower your accountability. This prevents you from going through lots of paperwork, adhering to the strict rules of financing companies and having to discuss your every move with your partner. You can do things liberally but it will be risky if you do not stay careful. However, by seeking advice from qualified experts, it is possible to use your resources properly and maximize the benefits.

2. Loan and Mortgages:

Normally banks, building societies and credit unions offer bank loans or mortgages as a way to finance your investment on property. Such institutions offer loan for a percentage of the purchase-price whereby keeping the property secured as guarantee for the loan. Depending on the interest rates fixed by the finance ministry or central bank, the loans or mortgages are held with either fixed interest rates or variable interest rates.

This way to finance a property investment really is the most established, safe and well-known. Not only you can make down payments but also meet other capital requirements. In addition, you can repay the bank from the amount you earn from rent or sales of properties.

3. Partnership:

Partnership with other investor is a great way to finance your investment on property.It is a win-win relationship for both parties whereby you divide the cost and share with other partners. Utilizing the assets of your helping hand will make your credit rating sky-rocket. Although you get restricted in decision-making process but there is less risk factor if you have the good business chemistry with your partner. Being able to master the art of partnership gives you the ability to finance as many property investments as you want.

Remember, a safe and reliable financing strategy affects your investment venture in the long run. Carefully consider all your options before you decide how to finance your property investments. Choose the right option that keeps your risks low, ensures a high rate of profit and works best for your interest.