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Why 50 Is The Most Important Age For Retirees

When it comes to preparing for retirement, 50 can be a pivotal age. At that age, most people are just 10 to 15 years away from leaving the workforce, and time is relatively limited to save for retirement.

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Originally published at USA Today

When it comes to preparing for retirement, 50 can be a pivotal age. At that age, most people are just 10 to 15 years away from leaving the workforce, and time is relatively limited to save for retirement.

But with a decade or more of work still remaining, you have enough time to make changes to your retirement savings strategy to ensure you reach your savings goals.

“Add up all of your life savings — your 401(k), your investments, the money under the mattress — and then divide that by 25. Could you live on that amount comfortably for one year?” asks David Rae, a certified financial planner and founder of DRM Wealth Management. “If the answer is yes, then you may be on track for retirement. If it’s no, it’s time to sit down with a fiduciary financial planner to figure out what else you can do to secure your financial future.”

Rae’s formula of dividing by 25 is based on the assumption that people will withdraw about 4% per year from their retirement funds to live on after leaving the workforce.

With that in mind, here’s a look at what retirement and personal finance experts say you should do at age 50 to maximize the likelihood of achieving your retirement savings goals.

1. Maximize current retirement contributions

Maximizing your current retirement contributions is a common tip offered by advisers. It’s one of the easiest steps to take to help increase the amount of money you’re saving.

You can max out contributions to both personal IRAs and company-sponsored 401(k) plans.

“Starting at age 50 you’re eligible to increase your 401(k) contributions by an additional $6,000 per year, and can increase contributions to IRAs or Roth IRAs by an additional $1,000 per year,” says Matt Hylland, a registered investment adviser at Hylland Capital Management. “At age 55 you’re eligible to save an additional $1,000 per year in a health savings account, which is a great retirement savings vehicle.”

2. Consider limiting your tax exposure

There are fewer tax breaks on the horizon as you get closer to retirement, says Wayne Fisher of Fisher Financial Tax & Insurance Solutions.

If you’re saving money in a government-recommended retirement plan such as a traditional IRA, 401(k), or 403(b), you’ll eventually have to pay taxes on that money—and the tax rate may be much higher than you expect.

“Per David Walker, the former US Comptroller General, we’re heading to a future where we’ll have to double federal taxes or cut federal spending by 60%, which makes tax-free look pretty good, right?” says Fisher.

3. Carefully evaluate asset allocation

As you reach age 50 and beyond, many advisers say it’s time to start reducing the risk in your investment portfolio to protect it from market declines.

“Depending on your risk tolerance, you may want to look at adding bonds, annuities, CDs, or other safer options,” says Hylland. “As you go through your fifties, the chance of your portfolio having time to recover following a major decline will decrease. By having safe investments, you can ensure that your equity investments have time to grow and recover if needed.”

4. Drop unnecessary insurance

Many people purchase insurance coverage when their children are young or if their spouse depends upon their income.

But if your children are financially independent and no one else relies on your income, consider dropping unnecessary coverage, says Ryan McPherson, a managing member of Intelligent Worth.

“There’s little need to pay for policies that have outlived their purpose,” says McPherson. “Saved premium dollars can be directed toward retirement savings or paying down debt.”

More: How to avoid some of the more common IRA mistakes

More: Should you use a reverse mortgage to delay taking Social Security?

More: Get the biggest bang for your investment adviser bucks

5. Evaluate your health care coverage

Part of keeping your retirement plan on track involves preparing for big expenditures such as health care. In fact, health care can be one of the most expensive parts of retirement, says Mark Painter, founder of EverGuide Financial Group.

“Make sure you have your health care covered, both in terms of health insurance and also potentially long-term care,” says Painter. “You want to spend your money enjoying retirement and not simply paying medical expenses. It will be a lot cheaper to look at coverage at age 50 than when you are 65 or 70.”

6. Create a get-out-of-debt plan

Debt and retirement don’t mix. Start developing an action plan now to eliminate credit card bills and other expenses weighing you down.

“Come up with a plan now, while you have plenty of time to execute it to get out of debt,” says Hylland. “Maybe you’re an empty nester and can downsize your home and mortgage, or consolidate credit card debt and pay it off, or get rid of a car with a long and expensive loan. Create a plan today to get your debt eliminated as soon as possible.”

No matter your age, you still have time to create an effective retirement savings plan. Find out if you’re financially prepared for retirement and put these tips into action.

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How to Choose the Perfect Country to Retire In

Many of us harbor dreams of retiring overseas in some far-flung, exotic country.

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Many of us harbor dreams of retiring overseas in some far-flung, exotic country. Whether it’s for pure adventure, to make retirement dollars stretch further, or both, retiring abroad is becoming more common. But choosing exactly where to go can be difficult. Without proper planning and consideration, a country that appears perfect on the surface could end up being a nightmare. (See also: 9 Things to Know Before Retiring Abroad)

I know just how daunting the task of choosing a country can be. I’ve been living a semiretired life in multiple countries over the past eight years and I’ve written many articles on early retirement. I’ve found it helps to start with a list of all the countries where you can envision yourself living. Maybe it will be made up of places you’ve fallen in love with while visiting in the past. Perhaps you’ll include countries you’ve never visited, but have heard are great retirement havens for Americans. From there, follow these guidelines to shorten your list and eventually pin down the perfect retirement destination for you. (See also: Retire for Half the Cost in These 5 Countries)

Figure out your finances

Finding a country that fits your finances is probably the most important part of the puzzle. It’s crucial that you opt for someplace where you can enjoy the lifestyle that you dream of without draining your bank account in the process. (See also: 5 American Cities Where You Can Retire On Just Social Security)

As a first step, you need to calculate exactly how much you have in your retirement savings and how much you can withdraw every month. Then, project how much income you’ll have from other sources, such as Social Security or any private pension or annuity plans you have. Account for any taxes you might have to pay, and come up with a ballpark figure for how much you’ll be able to spend every month during retirement. (See also: 5 Incredible Places to Retire Abroad That Anyone Can Afford)

Rule out unaffordable destinations

Once you have your estimated income, start researching the cost of living in each place on your dream list and determine whether it fits your finances. Tools like Numbeo and Expatistan are great for estimating the cost of living in different countries. Cross out the places you can’t afford. This will naturally narrow down which countries are realistic to put on a short list. (See also: 5 Countries Where You Can Retire on $1,000 a Month)

Check out the quality and affordability of health care

Health care is one of the most significant factors to take into account when choosing a retirement destination. Medicare generally won’t cover you outside of the U.S., so you need to put a plan in place for how you’ll afford any medical requirements. Fortunately, some of the most affordable countries to live in also have top class medical services, but it’s something you’ll need to research for each country on your list. (See also: Don’t Let These Expenses Spoil Your Retirement Abroad)

If the health care is cheap, it may be possible to just pay as you go, but you should also look into suitable insurance plans. In particular, think about how you’d pay for treating a major illness or catastrophic injuries.

Take your hobbies and interests into account

No doubt you have a good idea of how you’d like to fill your free time once you’re not working anymore. But make sure you double check that you’re able to do the things you love most in the country of your choice.

If you’re a keen golfer, there’s no point in selecting a country that has no golf courses, as it’s probably something you’ll want to do more of in retirement. Don’t just assume that every country will have the facilities or resources you need for your hobbies and pastimes.

Consider your security

Unrest and crime are two factors that can quickly endanger your life, affect your finances, and hamper your dreams. Though it’s impossible to predict what will happen in the future, it is possible to make educated assumptions based on the historical and current security situation in the city, region, and country you’re considering. Is it somewhere prone to civil unrest, gang activity, or petty crime? Are there upcoming elections that may significantly alter the political landscape?

Check out the U.S. State Department’s travel website, which provides advice on every country in the world. Also read articles and check with local residents to see whether any problems reported in the media ring true in real life.

Research visa options and other relevant laws

Residency laws differ from country to country and can come with significant costs attached. Check these requirements thoroughly. In most cases, you can find information put out by the country’s immigration office online. You can also contact the closest consulate or embassy of the country you’re considering. Often, you will need to apply for residency while you’re outside that country, but check first. (See Also: 5 Countries That Welcome American Retirees)

Consider other relevant laws and regulations, too. Perhaps you won’t be allowed to work if you’re on a retiree visa, or you won’t be allowed to buy property in certain areas. You may or may not be subject to local taxes, as well. Remember also that moving overseas does not preclude the requirement to pay taxes in the U.S., even if it’s necessary to pay them in your new home.

Consider cultural fit

Moving to a new country, not understanding the language, and trying to adjust to the culture all at the same time can be a singularly isolating experience. Ask yourself if you’re ready to learn a new language if necessary, and whether you’re able to change to fit in with the culture of the places you’re considering. Are there things that you don’t like about a particular culture that you think you’d grow accustomed to? On the other hand, could annoying local biases or customs that you’ve put up with on a vacation grow unbearably wearisome once you’re living in that place full-time?

Get to know the weather

It’s a good idea to check year-round weather forecasts, too. Even if you think you’re familiar with the outlook somewhere, it could drastically change throughout the year. If you’ve always visited during high season, make a conscious effort to check what the weather is like during low season. There’s often a reason why tourists don’t visit then. Temperatures may rise or drop to uncomfortable levels, storms may make living dangerous or at least inconvenient, and drawn-out rains may just make everyone miserable. Many weather websites or destination-specific websites have data on historical temperatures and precipitation for every month of the year. (See also: 33 Places to Retire If You Love the Rain)

Do a test run

Possibly the biggest mistake that retirees can make before heading abroad is to take the plunge without having tested the waters first. Do yourself a big favor and complete a test run in the country that you settle on. It may cost you a little extra, but the expense is usually worth it.

Consider where you’ll go if you don’t like your new retirement country. Maybe you’ll want to move back to the home you own in the U.S. If so, it makes sense not to sell right away. Perhaps you can rent it out temporarily while you do your test run.

Then make a semi-permanent move. Rent a temporary home, preferably furnished, and get by with whatever you can take in suitcases. Give yourself enough time to experience different seasons, get to know a few people, and see if your monthly budget will really work. If it doesn’t work out, you may be disappointed, but at least you’ll have minimized your moving expenses and you’ll have a place to go when you move back. (See also: 4 Questions You Need To Answer Before Relocating in Retirement)

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Personal Finance

9 Signs Your Identity Was Stolen

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Originally Published at Wisebread.com

If you get mugged, you know immediately that you’re the victim of a crime. But with identity theft, you can be victimized for years before you realize what’s happening. And the longer the criminal uses your name, Social Security number, and credit, the more damage is done. (See also: 18 Surprising Ways Your Identity Can Be Stolen)

With the recent Equifax breach exposing the personal information of as many as half of Americans, we could be in for an identity theft epidemic. Keep alert for these signs that your identity has been stolen, so you can stop the damage before it goes too far. (See also: How to Protect Your Credit After the Equifax Breach)

1. Strange bills or statements arrive

It’s very important to always open your mail, even if it doesn’t look important. A bill or statement from an unfamiliar service provider or credit account can often be the first sign of identity theft.

“You may think it’s just junk mail, but you might discover it’s an invoice for a surgery in a state where you don’t live,” warns Ann Patterson, program director of the Medical Identity Fraud Alliance. “That is a very good indication that you’ve been a victim.”

2. Bills stop arriving

On the flip side, make sure you are receiving all bills and statements you normally receive. If one falls off, it could be that a criminal has changed the address on that account, which could help them establish other accounts going to a different address.

If your mail dries up altogether, that’s a sign that a thief may have filed a change of address request at the post office — they could be getting all your mail with all the sensitive information found there.

3. Odd charges on credit accounts and checking accounts

Credit card companies have gotten good at alerting customers to fraudulent attempts to make charges, but they can’t catch ’em all. Keep a keen eye on your credit card and bank statements. The first charge an identity thief makes may be small, because they’re testing to see whether the card is active. There are also scammers out there who make their money by processing many small charges on many credit accounts.

4. Your find yourself getting rejected for things

Your health insurance company rejects your claim because you’re over your annual limit — but this was your first claim. You’re turned down for a new credit card or your charges are denied at the store. You apply for life insurance and are charged a higher rate due to a pre-existing condition that you don’t have. The ATM won’t give you any money.

Don’t brush off any of these events. It could be a fluke, or it could be a sign that something sinister is going on.

5. You receive suspicious phone calls

A neighbor of mine recently received a phone call that purported to be from her bank. The caller read back a list of recent transactions, which set her mind at ease that the call was legit, even though she knew that caller ID numbers can be spoofed. She was then tricked into sharing a PIN with the caller.

What might be happening if you get a call like that? You may already be a victim of identity theft, with the criminal already accessing your bank account. They may use the information they already know to trick you into giving them more information, or the access they need to start stealing money.

6. You receive strange texts or emails

If you are smart, you’ve set up two-factor authentication on important accounts. This means that you have asked your bank or other service providers to email or text you before allowing you to sign onto your account or take other actions, such as transferring out money. The text may provide you with a one-time code that you need to type into the website to log in, for example.

If you receive a text or email with a PIN when you didn’t request one, this is a big red flag that someone has your login credentials and is trying to take control of your account. Contact the company immediately through the phone number on your statement. And change your password.

7. Creditors and collections agencies start calling you

You got a call from a car dealership warning that your payment is late. The only problem is you didn’t recently buy a car, and you have no current car payments. This is a huge red flag. Do not simply write off such calls as errors or wrong numbers.

8. You don’t receive your tax refund, or the IRS notifies you that you filed two tax returns

The Department of Justice reports that people have stolen billions of dollars from the U.S. Treasury by filing tax returns using stolen identities, and pocketing the refunds. Just make sure it’s really the IRS contacting you, instead of a scammer posing as the IRS. (See also: Beware These 6 Phony IRS Calls and Emails)

9. There are accounts you don’t recognize on your credit report

If any of the above warning signs occur, you should definitely request a free copy of your credit report and study it carefully. If there are any credit accounts listed there that you didn’t open, your suspicions will be confirmed.

Even if you didn’t experience any warning signs, you should check your report regularly, especially in light of the Equifax breach. You can request a free report from each of the three agencies once a year at AnnualCreditReport.com, so if you request one every four months, you’ll be able to stay pretty on top of things. (See also: Don’t Panic: Do This If Your Identity Gets Stolen)

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Personal Finance

4 Simple Financial Lessons I Will Teach My Daughter

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Along with the other fears and concerns that fill the heads of most new parents, I have also been thinking about what lessons I want my daughter to learn about money, based on my experience as an educator and an investment adviser.

Here are four that I think are most important.

1. Distinguish between wants and needs. I have met many prospective clients who derailed their retirement plans by confusing luxuries and necessities. People develop the bad habit of saying “I need” instead of the appropriate phrase, “I want,” at a very young age.

The first financial lesson that I plan to teach my daughter is to remind her that she wants a new toy when she tells me that she needs it — and why she needs it.

2. Don’t confuse material possessions with wealth. People often assume that someone with an expensive car or a large house is rich, while the person with a 10-year-old car and a modest home is not. The truth is there are a myriad of wealth-destroying methods, such as not saving for retirement and accumulating high-interest debt, which can be used to acquire expensive cars and appear rich. Acquiring material possessions will not make someone wealthy, but accumulating a large retirement account and paying down debt will.

I will remind my daughter that building wealth comes from spending less than you make and saving the difference, not from purchasing rapidly depreciating assets.

3. Learn and appreciate compound interest. This lesson changed my life when I learned about it in high school. I first fell in love with the idea of compound interest at the age of 15 when my dad taught me the rule of 72, which posits that taking 72 divided by an investment’s rate of return will provide an estimate of how long it will take that investment to double in value. Shortly after, a family friend showed me the exact formula to compute the future value of a lump-sum investment, which further fueled my fascination.

I will likely save this lesson for when my daughter is in high school and has the math skills to appreciate the enormity of this lesson.

I am a firm believer that many financial mistakes that people make, such as under-saving and over-borrowing, stem from a lack of appreciation of compound of interest. I believe that if people knew the massive gains they could earn by making compound interest their friend (by saving) and the destruction compound interest can wreak when it becomes your enemy (by borrowing), very few people would be underprepared for retirement.

I hope that learning the power of compound interest will inspire my daughter to save more and spend less.

4. If it sounds too good to be true, it probably is. I have found only one exception to this rule: compound interest.

Originally Published at Marketwatch.com

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