retirement

Changes Coming to Social Security in 2023

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social security planning

Social Security is supposed to be a sure thing for everyone who pays into it. If there’s one thing the last few years have taught Americans, though, it’s there are few sure things. There are some big changes coming to Social Security in 2023. If you aren’t ready, those tweaks can negatively impact your retirement plans. Here is what you need to know about the upcoming Social Security changes and what you can do to deal with them.

What Stays the Same?

There are numerous changes in play this year, but the debate as to whether the age of retirement should be raised or lowered remains at a standstill. The full retirement age remains the same at 67 years old, a change made in 2022.

Of course, this does not mean that you must wait until 67 years old to begin pulling your Social Security. The minimum retirement age is still 62 years old. However, withdrawing your Social Security checks at 62 will result in a lower payout than if you were to wait until full retirement age (but more on that as we go).

A Change in Cost of Living Adjustment

Due to the rise in inflation over the last year, it is expected that the Cost of Living Adjustment, or COLA, will go up. This increase is considered historic. If you wait until full retirement age (FRA) to start pulling your social security check then you can expect your monthly check to increase by $282 to $3,627 a month. If you do not wait to achieve FRA then you will likely only receive an increase of $140 a month.

In theory, more money is a good thing, but the truth is that the increase may not be enough to meet the challenge of inflation. Due to consistent inflation, Social Security benefits have lost roughly 40% of the buying power that they once had. Times are tough all around, but they should not be tough during one’s retirement. Unfortunately, this trend shows little sign of slowing down in the long-run.

Playing the Long Game for Greater Reward

Waiting until the full retirement age of 67 is not required to start drawing social security, but may be the best option for some to consider. Waiting until the full retirement age could net you a delayed retirement credit of 8% of your yearly benefits earnings on top of the maximum benefit earnings amount. That’s a significant chunk of change.

The longer you wait past the minimum retirement age of 62, the more money you stand to collect. It is understandable this isn’t a possibility for all people who reach retirement age, yet waiting to any degree can still net you more money. It is simply a matter of how long you feel you’re capable of putting off retirement.

You also have the option of working while pulling your Social Security. This is a good option for those who need to work yet also require the assistance a monthly check can provide. Be warned, however, you cannot make more at your job than your benefits provide, or they can be pulled from you.

Higher Earnings, Higher Taxes

If you earn more money, then you will have to pay more money into income tax. Prior to this year, the maximum amount of money that was subject to Social Security taxation was less than $150,000 ($147,000 to be exact). This year, employees who make upwards of $160,000 can expect to pay upwards of $13,000. That’s because Social Security funding comes primarily from payroll taxes.

What You Should (Probably) Do

If the new changes to Social Security have you worried, take comfort knowing there are things you can do to put yourself in a better position.

Save Save Save

One of the first things you can do is prioritize bulking up your savings. It is understandable that it putting back money in times of high inflation can be difficult, but if you can bite the proverbial bullet, you just may be able to set yourself up a nice nest egg to go with your Social Security benefits.

Keep Your Eye on the Economy

The best thing that you can do to use your Social Security to its fully potential is to stay vigilant about the state of the economy. Staying in touch with economic trends can help you be able to better allocate the use of your Social Security checks.

Have a Plan

If you want to make your Social Security checks stretch, then you need to have a plan for your money. Some people have enough money from their Social Security checks to cover their needs comfortably, while others may find that they need to get a little more creative. Whichever side of the financial spectrum you fall on, it is imperative that you have a plan.

Creating a monthly breakdown of what you will need during your retirement is imperative. Without any kind of a plan, you may find that it becomes difficult to manage your checks on a month-to-month basis.

Reach Out For Help

If you find that the changes made to Social Security have made things more confusing than necessary, do not be afraid to reach out for help. If you bank with a major banking network then there is a good chance that your bank offers financial advisory services. A financial adviser can help you navigate the murky waters of Social Security changes, both before changes occur and after they have taken effect. They can help you put together both a long-term and a short-term plan for your Social Security payments.

How to Sell Stuff Online Fast

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A person taking a picture of clothes to sell online

Whether you’re trying to get out of debt or boost your investment income for retirement, one of the best ways to achieve these goals is to resell items you no longer need.  Thanks to the Internet, it’s even easier to sell things online.  You’ll need to research which platforms would be the best and that would give you the most decent profits.  Make sure your items are in good or excellent condition, and you should research the average prices of what you’re selling so that you’re not overcharging but still charging enough to earn a profit.  Here are some cool ways to sell items online fast and achieve your financial goals.

eBay

This is one of the best ways to sell things online, and here are a few tips on getting sales quicker on this platform.  Start by including as many details as possible on the items you’re selling.  By doing this, the buyer won’t have as many questions, which speeds up the ability to earn profits faster.  Use the Best Offer feature on your listings since this helps buyers who want to negotiate.  Offer multiple payment options and avoid auction-style listings. Take high-quality pictures of your items.

Consider Which Items Sell the Best

Don’t waste time online selling items that people will not want.  It is better to research which items are the most popular among certain demographics and budget levels.  This helps you sell items faster online.  Brand-name clothing is always popular with online shoppers, and if you have outfits from the most popular designers, you’re likely to sell faster.  Other items that do well for online sellers include video games, electronic gadgets, kids’ clothing, furniture, toys, and sports equipment.

Use the Decluttr App

If you have a lot of gadgets that are in good condition, sell them through the Decluttr app.  All you have to do is look up the devices you want to sell then enter the barcodes in the app.  Then the app lets you know the overall value of your items and how much they’ll offer for your items.  After you accept the offer, they’ll send you a shipping label and you can pack up your items for shipping to them.

Try Facebook Marketplace

This is a neat way to sell items fast online.  Start by taking pictures of a certain type of item and then post the pictures and information to Facebook groups that sell specific types of items such as used books or used kids’ clothing.  It would be quicker to sell if you can do it locally and have the person meet you in a public place to pick up the items.  However, you have the option of shipping your items for a 5% selling fee.  

Customer Service Should Be on Point

Be sure to answer potential customers’ questions promptly as this helps you sell items faster.  Be concise with the information in your listings and the pictures should be clear enough for everyone to see.  Make sure the items are priced fairly and exhibit a professional attitude at all times. Offer products that promote sustainable lifestyle.

These strategies will be helpful in selling your items faster online.

Making Your Income Last Through Retirement

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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

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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

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Coffee

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

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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

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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.

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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.

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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.