Archive for October 2017

How to Save for Retirement

It’s never too early to start putting away money for your future. If you’ve ever wondered how to save for retirement when you’re also dealing with day-to-day expenses, these easy tips can help.

1. Get a rough estimate of retirement expenses

It may seem difficult to know how much money you’ll need in retirement, especially if it’s several decades away. Experts say that to keep your same standard of living, you’ll probably need at least 70% of your pre-retirement income.

The reason you probably won’t need 100 percent is because some costs, such as commuting expenses or child care, probably won’t be necessary in retirement. If you already have a budget for your current expenses, then it’s probably easy to get a rough idea of what you may need when you retire.

2. Decide on a savings target

Say you’re 25 years old and your living expenses are about $50,000 a year. Take 70% of that, and it means you’d probably need about $35,000 to retire comfortably, assuming your income remains the same until retirement. So you’d want a nest egg that provides about $35,000 annually.

Many financial experts suggest that you withdraw only about 4% of your retirement savings each year to help ensure that it lasts. That means to get $35,000 in income, you’d need a savings target of about $875,000.

It’s a lot of money, but by using a retirement calculator, you could find that there’s a good chance you could reach your goal by age 61 if you start saving 10% of your income each year. This number assumes your savings earn 7% annually. If your income increases before retirement, you’d probably also need to increase your savings target.

If you can’t quite put away 10% or whatever your goal percentage is while also keeping up with your regular expenses, consider starting with a smaller amount and gradually increasing the percentage of income you save until you reach your goal.

You may also have other income sources in retirement, such as Social Security or a pension plan. Look at the Social Security calculator to get an idea of what your monthly benefits might be when you retire and add that to your retirement calculations.

Bear in mind that an income of $35,000 will probably have much less spending power in 40 years than it does today because of inflation, so it’s smart to consider cost-of-living increases in your savings target. It may be a good idea to make an appointment with a certified financial planner to help you weigh your options.

3. Contribute to a tax-advantaged retirement plan

In addition to knowing what percentage of income you should save each year, you’ll also want to decide where to put your money. If your employer offers a traditional or Roth 401(k), consider enrolling. This is especially important if your company offers an employer match, because a match is like adding free money to your retirement savings. You could also contribute to a traditional or Roth IRA.

With traditional retirement plans, you receive an upfront tax deduction for the money you contribute. You then let that savings grow and allow the interest to compound. You’d pay income tax on any money you withdraw, and you’d also have additional early withdrawal penalties if you take money out before age 59½.

With Roth plans, you pay tax on your contributions, but you don’t have to pay tax on your withdrawals if you retire after age 59 ½.

When you put your money in a retirement savings plan, you’ll have a number of different investment options to consider, including stocks, bonds and mutual funds.

4. Put your savings on autopilot

Once you’ve established your retirement plan, consider setting up automatic withdrawals from your paycheck or bank account. It would be much easier to meet your savings goals when your money has a chance to grow uninterrupted over a period of years.

Learning how to save for retirement is important, but it doesn’t have to be hard. By coming up with a savings goal and contributing regularly to a retirement account, you can help make sure you’ll be able to meet your financial goals for the long term.

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Is Fall the Best Time to Buy a House?

Sometimes it’s smarter to buy certain items according to the season, like sweaters near the end of winter and swimsuits in late summer. But what’s the best season for buying a house?

The answer: the fall. As temperatures cool and trees shed their leaves, enough factors break in the buyer’s favor to make it the No. 1 season for homebuying. Here’s why.

Less competition

Many homebuyers are families who want to minimize a move’s effect on their kids’ schooling. They want them to start at a new school on the first day, not midyear. And so if their spring and summer searching didn’t work out, they might well wait for the next go-round. This means fewer buyers bidding on the same houses you’re interested in and more negotiating power when you do. (A chart in this article shows how home sales drop starting in the fall.)

Of course, this works both ways: Sellers might not want to uproot their families in the middle of the school year either. But while this brings housing inventory down, you might just find it easier to focus and pinpoint exactly what you really want in a home.

Sellers are more motivated

Spring and summer are the high seasons for homebuying: Days are longer, the weather’s nice, and open houses are well-attended. And that means sellers can sit back and be a bit choosier with offers.

But as Labor Day recedes in the rearview mirror, sellers start to wriggle in their seats. The prospect of trying to sell during the holiday season or, more likely, waiting until the next year, is dispiriting. And so these sellers can become, in a sense, settlers – willing to reduce their prices and conditions. There is some variation by region, but overall in the U.S., prices have peaked by the end of August.

Buyers can use this increased motivation to their advantage, offering less and asking for more during negotiations.

Taxes and discounts

Buying a home costs a lot of money but comes with good tax breaks as well. The IRS allows deductions for the interest you pay on your mortgage, on the premiums you might pay for mortgage insurance, on property taxes and more, including some of these that went into your closing costs. Buying a home in the fall means seeing those tax breaks sooner, the following April.

Also, much like those motivated sellers, many homebuilders discount their inventories during this time of year to help them meet year-end sales goals.

The decision to buy requires serious consideration of where you are in life, what your goals are and how much you can afford. But if you are indeed ready, buying during the fall can be a good call. Just try to find time in between football games.

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