Making Your Income Last Through Retirement

Retirement is your reward for the decades of hard work – and you deserve to enjoy a comfortable retirement, but the truth is that many people aren’t able to relish this time because of lack of planning ahead to ensure they have enough savings to fund retirement. Therefore, being aware of your financial investment situation and subsequently, identifying areas that may require improvement is necessary for your post-retirement financial well being.

Here are the five important decisions to help you when planning for retirement.

Guaranteed life or living annuity?

The two primary risks that should be taken under advisement are either: running out of savings, or your money’s buying power is negatively affected by inflation. Guaranteed life and living annuities – or a combination of both – can help to manage the above mentioned risks.

Guaranteed annuity: Protects you from potentially running out of savings by giving you a predefined sum of money for the rest of your life. The amount is determined by age, and the present inflation rate. 

Advantages: Protected from overspending;you won’t outlive your savings

Disadvantages: Inflexible terms and conditions; your money cannot be inherited by a beneficiary or transferred to a living annuity.

Living annuity: Much more flexible terms and conditions than a guaranteed annuity.

Advantages: The death benefit of the investment will be paid to the nominated beneficiaries; lump-sum payments to beneficiaries are allowed; the money can be transferred to another living annuity or can be paid in cash.

Disadvantages: Susceptible to market risks and doesn’t have the same longevity.

How to choose an appropriate draw down rate?

A ‘draw down rate’ is the amount of money on which you need to survive. The rate ranges from 2.5% to 17.5% and so your financial goals should be taken into consideration when deciding on the specific rate. It’s a good idea to enlist the services of an independent financial advisor; he/she will be able to discuss/analyse your financial objectives with you and provide options and insight.

How should you allocate your assets?

The allocation of your assets is a key part of investment when choosing a living annuity because it allows for investment growth even if you’re drawing an income. A financial advisor may suggest that approximately half of your assets be invested in equities – they have the potential to give high returns over the long term but are susceptible to market fluctuations.

How you should account for inflation

In order for your money to not lose value, inflation needs to be understood and taken into consideration – don’t underestimate its potential negative impact.

Here’s an example to help you: If your draw down rate is 4%, and you assume an inflation rate of 5%, this means that you need a minimum of 9% return rate. Anything less than 9% will not be beneficial as you will lose money.

Should your draw down rate be increased annually?

Yes. It is important to review and adjust for the inflation rate on an annual basis. A recommendation of a 50% asset allocation, a 4% draw down rate, in line with inflation adjustment guidelines, has been suggested to be a successful combination for a comfortable financial future post retirement.

How to Start Saving for Retirement in Your 20’s

You’ve just left university and a half just embarked on your [first] career, the last thing you want to do is think about retirement – after all, you’ll spend the next decade or so paying off your student loans.

But if you really want to pursue a sustainable life, then you’ll need to start thinking about important financial milestones including retirement. The reasons are simple, costs keep going up, careers are becoming shorter, and we are expected to live longer, more active lives. As such, here are some tips on how to start saving for retirement in your 20’s.

1. There is no Time Like the Present

You only live once but this also means that you only have one chance to be prepared for your golden years. While it is difficult to comprehend what your life will look like 50 years from now, the reality is that you need to prepare for the worst and hope for the best.

One way to be prepared is to start saving – now. It doesn’t matter if it is only $50 per week, every penny counts and over time that modest contribution will grow into a sum which will help secure your future.

Still not convinced? Think of it this way, if you started with zero today and were able to put away $50 per week for 35 years, you’d end up with close to $170,000 and that’s only at an interest rate of 3 percent. Now, imagine you were able to average 8 percent over the same period? Then, you’d end up with close to $600,000 – that is some serious money.

2.  Sign up for Your 401(k)

While the odds are that you won’t be working for the same company in 40 years that you are working for today, you should start participating in your 401(k) program at work. In fact, you shouldn’t just participate, you should maximize your employer’s matching contribution as this is free money.

If you are self-employed, then you should make the maximum contribution as this money will help to lower your tax bill and the contribution of the two will help your money to start working for you instead of the other way around. Beyond this, try to stay away from direct investments in stock, bonds, and mutual funds through your 401(k).

Instead, focus on putting your cash in an Exchange Traded Fund (ETF). Not only will the fees be lower, but your returns will be higher over the long run. Not convinced? Then check out this retirement advice from Warren Buffett.

One last thought, don’t turn your 401(k) investments into 40-years of torture as it shouldn’t be. Instead, try to find a balance between maximizing your savings and having enough money to live sustainably. Doing so will help you to reach your retirement savings goals while giving you the money you need for life.

3.  Set up an Emergency Fund

Into every life, some rain must fall and while this might be difficult to comprehend, just look at what your parents or grandparents had to do to survive previous economic downturns. Sure, the economy is strong, but it has also been growing for nearly 10 years and as such we are probably due for a recession – even though unemployment is at a 50-year low.

It might not even be a recession which pushes you over the edge, something as simple a major car repair could through a monkey wrench into your financial plans. As such, you also want to start setting up a separate account which will serve as your “Emergency Fund”.

While this account does not need to grow to $50,000, you might want to set a goal of having at least two-to-three month’s salary available as this will help to you to overcome any setbacks which might come your way over the years.

4.  Talk to Your Parent’s About Their Plans

This is something which none of us want to do, but the reality is that there will come a point in time when you will need to have this discussion with your parents. Given how important the topic is and the fact that they are already 20 or 30 years further down the road towards retirement, there is no time like the present.

If your parents aren’t completely prepared, then the key is not to panic. In fact, they still might have options including a reverse mortgage. Granted, your parents will need to be over 62, to begin with but they should also check the eligibility for seniors as required by reverse mortgage lenders.

Keep in mind, this is not the only option for the parents, but the key is to look at what they have done to this date and then find out what their long-term plans are. While you might face some pushback, keep in mind that you might end up having to take care of them down the road and this is all the more reason to make sure they are prepared.

If not, then you might have to adjust your retirement savings plan to for the possibility of caring for your parents in the future.

How To Plan For Your Financial Life And The Stages That Follow


Once you recognise the ever changing reality of your financial circumstances you will begin to see the need for effective planning and strategy. We are directly affected by fluctuations in the economy as well as financial markets. In a similar manner, your own personal financial needs never remain constant. They are also prone to change many times throughout the stages of adulthood. The good news is that it is probably simpler to determine how your financial needs will change than it is to predict the future of financial markets.

”Having a financial game plan makes you focus on the way you use your money and helps lay the groundwork for a bright future. This might seem daunting at first, but if you manage to work your plan, the rewards far out way the effort.

Your financial life as an adult typically comprises three distinct stages. And with these come changes in the levels of personal income you are able to enjoy, and the added responsibilities that life will throw at you. You will no doubt have increased financial concerns as you age from taking care of a family to eventually worrying about retirement. Fortunately, the patterns are fairly consistent and these are stages we all have to go through.

The first stage is when you are a young adult entering the working world for the first time. Depending on your earnings you need to establish good habits with regards to spending and saving. Decide early on to be a wise spender. Start a monthly budget so you can learn to control your money. If you have to borrow money always give preference to purchases which have long term value instead of just short term enjoyment.

Saving should begin as soon as you earn your first pay cheque and then continue for the rest of your life. Usually, the tendency is to celebrate your earnings by spending on entertainment and luxuries. Sadly in South Africa, even employees at advanced stages of their lives struggle to keep aside money on a monthly basis. If you’re just starting out now is the best time to commit to healthy financial habits.

The second phase of your financial life is known as your prime earning years. This is when you find that your career starts to grow and your earnings increase correspondingly. But at the same time, you have increased expenses. You are also probably looking at owning a decent house and car, or settling down to marry. All of these things have direct financial implications. During this stage, your need to save money goes even higher because you have to consider your family in addition to yourself.

You will probably have to save money for your child’s education while your personal retirement planning should be well underway. This is also the stage where you should seriously consider investing portions of your savings so you can build assets for the future. The need for protection for you and your family also increases so be sure to have insurance products that meet your requirements.

The third stage actually begins shortly before you are near retirement. Your needs for healthcare are likely to go up and this is easily taken care of if you had implemented a medical aid or insurance plan in earlier years. The cost of healthcare is always on the rise so make sure you are covered during the time you will need it most. If you’re struggling to afford healthcare in retirement some options you can consider are Medicare, Medicaid, private health insurance, or selling your life insurance for cash through a life settlement.

Though you are free from the working world you will still have investments to look after. This is the time when you get to reap the benefits of passive and residual income especially if you started investing as early as possible. Your retirement should be a time when you can finally kick back, relax, and enjoy well deserve special times with your growing family.

Putting Your Feet Up: How to Create the Ultimate Retirement Plan

It is an understandably typical life goal to be able to enjoy a comfortable retirement where you have the security of enough money behind you to put your feet up and relax, but there are plenty of us who fall short of our ambitions.


Don’t stop, keep going

One of the simplest but effective bits of advice you can take heed of, is to start saving as early as possible and keep going for as long as possible.

Even if you start saving small amounts of money when finances are tight and maybe you are trying to balance the books while raising a family, it can accumulate into a tidy sum of money faster than you might think.

An ideal scenario would be to try and put 10% of your monthly income away and once you are in the savings habit, don’t stop putting as much money away towards your retirement, even when you can see the finishing line in sight.

Keep on saving for as long as you can and as much as you can. It will make a big difference to your retirement plans.

Make the most of tax benefits

Everyone likes the concept of getting a bit of free money, and from your point of view, if you sign up to your employer’s retirement savings plan, it can boost your retirement pot with the tax savings available.

Ask about details of what retirement savings plans are available through your employer, such as a 401 (k) for example, as the compound interest and tax deferrals available through a scheme like this, can definitely make a worthwhile difference to the amount you have to retire with when the time comes.

You can’t rely on the state

A worrying amount of people are under the illusion that Social Security will as good as pick up the check for their retirement plans and give them the money that they need to survive in retirement.

The reality is very different to the perception and it needs to be firmly understood that the government does provide a financial safety net of sorts, but it is a very basic one, and if you don’t make any worthwhile provisions of your own and start saving for retirement, the stark reality for many, is that they are going to lead a pretty meager existence when they stop working.

It is never nice to hear bad news or to discover the truth is more unpalatable that you would like, but it is worth heeding the warning and ensuring that you have your own Plan A to work to, rather than the more unfavorable Plan B of relying on Social Security.

Crunching the numbers

Continuing on the theme of realism, you do need to crunch the numbers and work out exactly how much retirement income you will actually need in order to be able to do all the things that you have got planned.

Although your monthly expenses should be lower in retirement, once you have paid off the mortgage for example, but if you want to maintain the lifestyle you currently have, expect to need somewhere in the region of 80% of your pre-retirement income.

A simple calculation would therefore be to take the amount you earn each year at the moment and work out what 80% of that figure is. That number you get is your target annual income figure, which is a good starting point for working out how much you need to save in the time that you have left, to be able to have enough to draw that amount of annual income.

Life expectancy

We don’t ever know exactly how long we have left on this planet, which can make retirement planning a bit tricky.

You obviously hope to live a long and happy life, so the best guess to work with if you take the national average, is that you will probably have about 20 years of retirement to enjoy, give or take.

While you might not want to contemplate your eventual demise, it does make planning for your retirement much clearer, if you work on the basis that you will need to accumulate about twenty years of annual income.

Once you have a set of goals and plans in your mind, you can then set about creating a financial plan that allows you to meet these targets and enjoy a comfortable retirement.

Christopher Bryant is a personal finance consultant who works with a wide range of people, from millennials and newlyweds to those approaching retirement.

What is More Sustainable than Living Off your Dividends

When I question whether something is sustainable I think of whether “it” can be responsibly maintained.  The goal of creating a dividend income stream should be to eventually use just the dividends letting the principal continue to grow.  It is analogous to living off the fruits of a tree rather than cutting down the tree itself, dividend payments can eventually provide an income stream that is sustainable since you don’t have to erode the principal.

This post was inspired by an interesting post the other day from a great dividend sites Sure Dividend that explored the idea of dividends paying stocks like a tree,

You start with something small – an actual seed, or a bit of hard-earned money.

Before you plant your seed or invest your money, you have to find the right place to put your tree seed or your money. Throwing a seed onto a rock will not do, nor will investing in a business on its last legs.


Over time, your sapling becomes a tree. It now is producing seeds of its own. Your dividend stock’s payments have grown over time. In both cases, the cycle begins anew.

The tree’s seeds beget more trees. The dividend stock’s dividend payments are reinvested into other high quality dividend growth stocks.


Once your first tree produces other trees, eventually you will have a forest of trees – let’s say they are fruit bearing trees.

You can now happily live off the sustenance your fruit trees provide.

Dividend stocks are the same way. Over time, your dividend income will grow. You will be able to live on the dividend payments of your dividend stocks.

Your Goal Should be to Live off the Dividends and Leave the Principal

Every time you eat into principal you are affecting your future income.  If you have a $500,000 portfolio yielding 4% ($20,000), but you sell another $20,000 of principal you are looking at $480,000 if that were to yield that same 4% (ignoring the growth of the underlying assets) you are looking $19,200 the following year.  Again, this is compounded when you still need that same $40,000 (now it is $19,200 of dividends and $20,800 of principal0.  In addition to the natural erosion of principal the problem compounds itself if it is a down year.

I am not sure if I’ll ever be able to a large enough portfolio where I can solely live off the dividends, but it’ll be a nice part of the income investments I’d like to create over the next few decades.

3 Important Actions To Take Before Trading Online

When it comes to trading online, there are many different brokers and websites that specialize in helping people to trade stocks, commodities, or even currencies. This even goes above and beyond the ability of many individuals to manage their own 401(k) or Roth IRA accounts from the comfort of their own computer or home office. Technology has allowed for some amazing advances, however even with all of these opportunities it is important to take 3 major actions before you start even your very first trade online.

3 Trading Online Steps

Action #1: Do Your Homework/Research

One of the first steps you need to take is to slow down and make sure you do some serious research before committing to any specific company for trading online. The terms of an IRA account from one company to another are not the same. The cut certain Forex brokers take off each trade is not the same. While some of these differences can seem extremely small, sometimes being just a dollar or two, or a single percent, over the course of 30 or 40 years of investing that can lead to massive differences in the final amount.

The entire responsibility of using the best providers for your online trading fall squarely on your shoulders and it is always worth taking a next or week or few weeks to do your research to make absolutely sure you are only doing business with the absolute best of the best.

Action #2: Find Broker Software You Like

Online trading can be tricky even in the best of circumstances. Whether you are looking at trading stocks, speculating on commodities, or trading on the ever volatile Forex market, having the best broker software is critical to success. No matter which of these markets you’re dabbling in you want to make sure you are using an online program that is accurate, extremely fast (preferably real time), and very easy for you to read a lot of information in a single glance.

While every single person is going to have their own preference, the most important thing here is that your information is accurate and up to date and that you are absolutely comfortable with being able to use that software. If you can find a broker software that you are comfortable with, and that will definitely give you better results.

Action #3: Understand How Markets Are Different

When you are looking at trading online you also need to make sure you don’t make the mistake of thinking all markets are the same. Stock markets are the most stable by far and are driven much more by information and fundamental reports as opposed to technical chart patterns. Commodity trading requires much more knowledge of how speculation and technical chart analysis works in order to consistently profit.

The Forex market, where currency pairs are traded, is by far and away the most volatile and risky of all of the markets and should only be traded by professionals or after you have spent a great deal of time taking advantage of practice software to make sure you have it down.

In Conclusion

There’s no question that trading online has its own risks, but the opportunities are amazing and by following the 3 basic actions in this article you will be truly ready to go.

The Best Retirement Account For FI

There are a lot of posts claiming to talk about what the best account for you to reach FI is. My good buddy the MadFIentist has a few, where he talks about traditional or roth IRAs and how to use your HSA as a retirement account. Of course, he’s assuming that if you’re getting into those strategies you’re maxing out your 401k and taking advantage of your employee match (if you get one).

Unfortunately, the 401k, while a very good retirement tool for avoiding taxes, is not the best out there.

457B Retirement Plans

See, the 401k (and it’s non-employer sponsored, lower limited cousin the traditional IRA) both have withdrawal age minimums on them. As you probably already know, you need to be 59.5 to take money out of them tax free. Of course, you can use the Roth IRA conversion ladder, but there is another way.

Read on and I’ll show you how.

First caveat. Many people (from my personal experience) that are interested in FI have a certain personality type, and that personality type tends to shuffle them into employment as computer programmers, engineers or other STEM heavy fields. There are plenty of other people seeking FI in other professions (like the millionaire educator)  but in my personal experience, it’s mostly programmers, that work for private companies. What I mean here is that you’re probably unfamiliar with the 457, and for good reason – you don’t have one. 457 plans are only available for government and non-profit workers.

Second caveat. If you do have access to a section 457 plan, aside from the benefits there’s one crucial distinction to this account. This is classified as “deferred compensation“.  The major sticking point here is that the funds in the 457 are not yours until you claim them – ie if the non-profit that you work for goes belly up and you’ve got a bunch of money in your 457, that money’s not yours – it belongs to the company and can be accessed by creditors if the situation comes up. I don’t view this to be an issue with government sponsored 457 plans.

What is a 457b Retirement Plan?

These plans work almost the exact same as a 401(k) plan that most private workers have access to, but with a few difference. First, lets go over how they are the same, and how you can use this to your advantage when pursuing FI.

The contribution (at the time of this writing, Q3 2015) limits are the same as they are for 401k plans at $18,000 per year, and have risen in lock step with 401k limit increases. I suspect this will probably continue, but you can never be 100% certain. The plans are funded through voluntary salary reductions, just like a 401k.

Also like a 401k, contributions are pre-tax, and growth is also pre-tax. You won’t be taxed on contributions or gains from the account until you withdraw the money. However at the time you’re ready to withdraw your money, your spending should be well below the long term capital gains tax rate, making the money totally tax free.

So far, sounds pretty much like the 401k right?

Well, here’s where the difference become crucial. There’s no withdraw age minimum for the 457 deferred compensation plans. Let me repeat that so it sinks in: There’s no age minimum to take out your money!

You do need to leave your job to get access to it, but as soon as you do, you can start accessing all the money in your 457 plan. That means no complicated IRA rollovers and conversion to watch for. No trying to figure out how much money you can convert tax free each year. No games, you can just take your money out when you need it, and that’s that.

Now, I’m sure you’re wondering: what does it mean to me, while pursuing FI?

A Financial Independence/Early Retirement Application for  457 Plans

There are a few different ways you can play this, but the most important to think of this as your “bridge” money (the money that you’ll use while you wait for your roth IRA rollover ladder to come through. Typically, this will only need to be for 5 years worth of money, so you can easily figure out how much you’ll need.

I suggest using this only as your bridge money because goverments and non-profits dont really have competitive wages in most cases, so you wont really be able to build up a lot of cash this way. Here’s the first scenario.

You’re about 3-4 years away from FI, but most of your money is trapped in age limited retirement accounts, with not much in a post tax account. You can take a lower paying job with the government or NGO that offers a 457 plan, and max it out for 4 years, giving you $72,000 in contributions at the end of  year four. You’ll have whatever gains that have happened in the market over the last for years and if you end up in a government position, you’ll have a pension! You can take whatever is in your pension balance and roll it over into your 457 as well, giving you an even larger balance. A few numbers as an example (over a 4 year career in government):

  • 457 Contributions: $72,000
  • Pension assets (I averaged about 5k/yr here in wyoming, so i’ll use that): $15,000
  • Gains: ~10k (over the 4 year working period)

Since your salary has been lower than it was before the job switch, you can convert some of your pre-tax IRA money to post tax, up to the tax free limit for your family situation. This could be a good way to get at some of your FI funds a bit sooner.

An Early Career Move (My Path)

I worked for the government from 2011 to 2014, and I had access to a 457 plan (as well as a pension) the entire time. Unfortunately, I didnt get as much money in here as I would have liked as I was busy paying off debt, but once that had finished I had started to increase my contributions and get more money put in there. It wasnt long (just a few months) that I decided to switch jobs and my option of a 457 went away. Here’s what I did, and how I think it will help me with FI when the time comes:

  • Contributed a bit (like $100/mo) to my 457 until debt was paid off
  • Had about 2 months of 750/mo contributions
  • Rolled pension account (I wasnt vested) into my 457

All of those manuvers left me with about 1 year of living expenses post FI in the account, and I’m not anywhere near retirement. At this point, I suspect I’m around 9-10 years out, depending on market returns. Assuming a 6% rate of return, this money will about double, and will probably provide for about 2 years of living expenses when I’m ready to tap them – giving me more time to run my roth conversion ladder and more time for me to grow my after tax stash.

I know that these accounts are not that popular and most people dont know about them, but the high contribution limits and the fact that there’s no minimum withdraw age make them prime candidates for FI accounts. If you live in the right area and are interested, taking a government job for all of your working years could be a great idea. You could get into the 457 plan, have a pension to kick in a bit of old age money, and enjoy a relatively low-stress lifestyle. Of course, you’d have to deal with all the things that come with government work too.

The choice is yours for those of you interested in FI, but personally, I think the 457 makes a pretty compelling case.