Are you coming up on retirement and your portfolio isn’t what you hoped it would be? Unfortunately this is the scenario many Americans in their fifties are facing. They are looking at their 401(k)’s, IRA’s and realizing they could use another 30 years of compounding interest to bulk up their investment portfolios. A lot of us worry if we’ll have enough to live on in retirement.
For those planning to retire in the next five to 10 years, there isn’t enough time for your investments to turn around and start compounding interest again. Investment returns alone aren’t going to be enough. You need to get serious about trimming your spending and expenses to save more money or resign yourself to working longer than you had hoped. Here’s what you should do in the five to ten years before you retire.
A Shocking Lesson
IMPORTANT: Please snatch a quiet few minutes to yourself, lock yourself in a room and crank up the volume!
I’m about to show you the inside track out of the daily struggle once and for all, and it’s precisely BECAUSE of the real estate crash that this amazing little ‘bubble’ exists!
Please keep an open mind. The man I’m going to introduce you to now is a League of Power member who has helped set others on the path to riches, and I believe he could do the same for you.
WARNING: Some scenes may be upsetting.
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Make Yourself A Priority
Many parents want to help out their children financially so they don’t go into debt overload. In fact, a 2009 article published in the Journal of Marriage and Family found that four out of five parents regularly give money to their adult children. Now that’s great if you can do afford to do it, but don’t do so at the detriment of yourself. Only give money to others after you have taken care of yourself. Have you already contributed to your retirement accounts this month? Are you on track to having a big enough nest egg by the time you plan on retiring?
Some parents have a hard time saying no to their kids. Remember you aren’t doing them any favors if you pay their utility bills a couple times a year. Next time your adult children ask for money tell them you need to put yourself first this year. If they persist ask them if they would rather have the money now or you live with them in retirement. Every child loves their parents but nobody wants to live with them again after they’ve grown up. I’m sure they’ll change their minds very quickly.
Mix Up Your Portfolio
Many of us have watched our portfolios take a colossal hit a couple of years back. Working for another five to 10 years before retiring doesn’t give your investments enough time to recover AND let the magic of compounding interest work. If working till your 70 isn’t something you ever imagined doing then you need to reallocate your funds.
People have lost confidence in stocks, but the numbers tell a different story. Stocks have actually provided higher returns than bonds since the mid 1920’s. Add stocks to your portfolio mix if you have allocated less than 20% to them.
If you’re already heavily invested in stocks, change your mix to include other investments. League of Power’s market expert, Kevin Raymond, has been telling us for months now to look overseas for the most immediate investment gains. The currency market, where you trade currencies outside of the US, and emerging market investments are two such investments Mr. Raymond has mentioned. Reread Freedom By Friday’s December 20th issue for the names of two specific currencies he believes can make you money in trades if you play your cards right.
Don’t Keep Too Much Cash on Hand
We all need to have some cash on hand to cover expenses like the furnace going out unexpectedly or to bridge the gap between employment periods. But how much is too much cash? You should have enough money on hand to cover 12 months’ worth of expenses, any more than that and you area wasting investment opportunities. Put any extra cash into higher yielding, longer term accounts.
Location, Location, Location
There are good places to live when you retire and there are bad places to live when you retire. I’m not just referring to the weather either. Where you live in retirement can significantly affect your tax bill each year. The residents of Alaska, Florida, Washington, Texas, Nevada, South Dakota and Wyoming pay no state income tax. Additionally, New Hampshire and Tennessee limit their state income taxes to dividends and interest income. As of January 2010, both Oregon and Hawaii have the highest rates of state income tax, at a maximum rate of 11%. California is close behind with a maximum rate of 10.55% and Rhode Island comes in fourth with a 9.9% max rate. New Jersey, New York, Vermont and Iowa all levy a maximum state income tax rate just under 9%.
State income tax is not the only tax to consideration in retirement. Your property tax bill can be higher than your income tax bill in some states. Telling you which states levy the highest property taxes won’t help you because this tax varies greatly from city to city. Most states provide exemptions of some kind on property taxes to residents over a certain age. Forty states provide either property tax credits or homestead exemptions that limit the value of the property subject to tax. If you want to find out specific tax information about a particular city or state you can check out Kiplinger.com’s retiree tool at;
Before you can begin to save money for retirement you must eliminate your debts, particularly credit card and other high interest yielding bills. Most financial plans for retirees assume that their mortgage has been paid off. Eliminating this debt is important to do in the years before you retire. It is simply not financially prudent to have a high amount left on your mortgage when you enter retirement. If you have a $500,000 mortgage at age 60 when do you expect to pay it off? When your 90? Won’t happen.
Don’t Overpay for Investments
Everyone invests their money, but the cost of those investments separates the men from the boys so to speak. Different investments cost different amounts. The costs of owning a mutual fund are called the expense ratio. Those costs cover the administrative costs, distribution fees, advisory fees and any other operating costs. You should stick to mutual funds that charge 1.5% or less expense ratios per year. You can compare expense ratios of mutual funds at websites such as Morningstar.net or every Wednesday in the New York Times.
Also look at how much you are paying your broker or money manager per year. Brokers earn commissions on everything they sell you. Compare brokerage fees to determine if you are getting the most bang for your buck. Differences in commission prices between firms can be tremendous. One broker may charge you several hundred dollars per trade, whereas another may only charge $50.
On the other hand money managers don’t make a commission. They charge a fixed percentage of your assets. You should expect to pay a professional money manager around 1% annually. 1% may not sound like a lot, but for an account with $500,000 that fee will cost you $5,000 a year. Over the course of 10 years that account will cost you $50,000 in fees, no matter if they’ve made you that much money or not.
It’s always wise to have a plan. Planning ahead in the decade or so before you retire will ensure you are able to retire when YOU choose, instead of when the market chooses.
Are You Sick of Busting Your Hump For 3 – 5% Raises?
If you’ve been employed for any period of time… you’re familiar with the dreaded annual review.
For most people it’s the one time of year where you have a shot to make a little more money at your current job.
And it doesn’t matter what you did in the past year… Your company usually pencils you in for the standard cost of living increase or token raise.
Click here to discover how to create your own raise.
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Keeping Money In Your Pocket,