You’ve always wanted to retire early but you just don’t see how you can do it. Somehow, the years have slipped by and now you are looking at your golden years coming around the corner. But what if you wanted to retire now? Could you do it without having planned for it all those years ago?
Work out how much you need to retire now. Use “Planning Now to Retire Early” to work out how much you need to retire right now. The next step we need to do is figure out what the difference is between where you want to be and where you are right now. What does your current savings look like? If it doesn’t reach the mark, consider the following ideas to try to breach the difference:
- Use your current equity to retire early. Downsize your home, sell a vacation home, or get a reverse equity on your house mortgage. Instead of selling your vacation home, you could rent it out year round for extra income.
- Move in with your grown children. Many more retirees are moving in with their families anyways; now they finally have the time to spend time with their families. Your children might let you live rent free because you raised them like that or maybe you can stay in exchange for watching the kids after they get home from school. Consider becoming a boomerang senior so you can use your property as a rental for an income stream.
- Sell whatever you have in your house that you don’t need, want, or care about. Nothing is too insignificant. One man’s trash is another man’s treasure. Those collections, jewelry, anything that you have at home that you care less about than an early retirement. Have yard sales, sell them at consignment stores, or auction them on eBay. If you would rather retire than be surrounded by stuff, then take that cue to start selling all your stuff.
- Think about moving if the cost of living is too much where you live. Every year magazines come out with the best places to retire. While medical and community services as well as the crime rate all factor into these lists, one of the biggest contributing factors is the cost of living. AACRA publishes cost of living indexes for major cities in the US. Leaving crazy places like New York City and San Francisco out of the equation, you could still easily cut your costs down 20% by moving. For example, using 2005 statistics, living in Charlotte, NC is 10% cheaper than living in Albuquerque, NM and 25% cheaper than living in Philadelphia, PA. Think outside the box. What about becoming an expatriate?
- Consider Semi-Retirement. Work PT. Still consider yourself retired but working enough hours might help you with health insurance coverage.
- Slash your annual budget requirements. If the gym membership and a new car is all that stands between yourself and an early retirement, consider what really matters to you. Do you want that country club membership or the chance to play more golf at a public golf course?
- Take money out of retirement accounts earlier. Look into Substantially Equal Periodic Payments as a way to do this without penalty.
Sure you want to retire. In fact, you would like to retire early. Who wouldn’t want to have time to enjoy all those things in life you never had time to enjoy when working. But the reality is that many people are not adequately preparing for a comfortable retirement, much less an early one.
Reaching an early retirement successfully can be done but it takes planning and working. You need to first come up with a viable plan and then second, use discipline to work that plan, every day, until you reach your retirement.
According to a retirement survey published by the EBRI (the Employee Benefit Research Institute™) in 2007, only 43% of the people surveyed have ever tried to work out how much money they would need to retire. Why such a small percentage? How can anybody guarantee success if he or she isn’t even working off a game plan? Planning is confusing when you don’t know what to do and scary because you’re not sure you’ll like the results.
But here’s the cold fact: You definitely won’t be able to retire like you want to if you don’t do something about it now. An early retirement will definitely not happen on its own. Follow these steps to figure out how much you need to start saving now in order to retire when you want.
- First, determine how much money you need a year to retire. To figure this out, you can use a percentage of your current income.
- How much is your annual income now?
- Take your annual income and multiply it by 70%. Retirement planning experts recommend using 70% of current income. They reason your mortgage should be paid off and you won’t be worried about paying tuition in your retirement.
- While using your annual income to determine your retirement needs, check that you are not currently building up debt. That would suggest that you are not living within your current income.
- Multiply your annual retirement income requirements by how long you plan to be retired. You can determine this by deciding how soon you want to retire and statistics on average life expectancies.
- Write down how old you will be when you plan to retire.
- Research life expectancies for where you live.
- Subtract how old you will be when you retire from how long on average you can hope to live to. The US Social Security Administration reported that for people reaching 65 in 1990, they could expect to live 15.3 (men) and 19.6 (women) years longer.
- Multiply the number of years you will be in retirement by what your annual spending requirements will be in your retirement.
- We’re almost done. You’ve got a good idea of how much you would need to save in order to retire but that number is in today’s money. We need to take inflation into effect.
- Pick an inflation rate you are comfortable with. You could use the current inflation rate or take an average over a period of years. If you are pessimistic or wish to be more conservative with your planning, use a higher rate.
- We’ll need to work in the impact that inflation will have each year that you will be retired. Use a hand or online calculator to make calculating the accrual of inflation over your retirement period.
- Now you have a number to work with. Working backwards, figure out how much you need to save each year.
- How far away is early retirement for you? This will tell you how many years do you have to save.
- Determine how much money you can make each year with your savings by investing it.
- Remember to offset the amount you make in interest by the amount you will lose through inflation. You could go with 5% for example (8% interest in savings minus 3% inflation). Use a calculator to make calculating the accrual easier.
- Now you know how much you need to set aside each month in order to retire like you want to, when you want to.
- Is this number seems impossible, consider if any of the following initiatives could help:
- Reduce your annual cash requirements for when you retire by working out a careful budget.
- Investigate a better return on your savings.
- Cut your current spending so you can save more.
- Earn more now.
- Determine if you are taking advantage of company matching for retirement plans.
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With all the snow this winter, we can be sure of one thing – people who live where it is cold will be getting cabin fever. Traditionally, people go outside to go sledding or participate in various snow sports. More so these days, the video game industry is taking hold of our idle hours and keeping us indoors while still providing for our need to let our hair down and relax –- thus there is no need to go outside and be cold. Video games have come a long way since their humble beginnings to the point of virtual reality in our family living rooms.
An industry leader in video game retailing is called GameStop. This Texas based company went through several transformations from its beginnings in the 1980’s. Today, the company is a $4 billion dollar company with 6,400 stores. That is pretty impressive for a specialty retailer. Sure it has some hefty competition… well known retailers with big names, none of which specialize in video games, but happen to sell games as a smaller part of their overall business. Which begs the question of any investor: which type of company would you rather add to your online stock brokerage account — a large sprawling retailer which sells many things including video games, or a focused video game retailer with small stores full of all types of video games? Interesting question, right?
GameStop, ticker symbol GME, is nearly the only company of its kind and scale which sells video games exclusively. I was in one of these stores over the holidays and I have to say, it was packed to the gills. The service was a bit slow, but that may be due to their policy of keeping the actual game discs behind the counter. Sounds like a recipe for not much shoplifting if you ask me — all the better to send the profits back to investors instead of thieves. This is a bricks and mortar retailer which also has a phenomenal website store.
GameStop is the only player in an industry which is in its relative infancy because video games only came on the market about a quarter of a century ago. Here the potential for growth lies in ever expanding technology, not in taking market share away from its competitors. Although with so many stores, and a strong grip on the video game market, GameStop has the potential for a near monopoly. In 2005, the company merged with a competitor –- EB Games. Two additional smaller competitors are Game Crazy and Play and Trade, a franchised store network. What makes video games a growth industry is the unrealized future potential of video games development. Plus virtual reality has applications outside of video gaming, creating other possibilities for technologies developed in the first industry to cross over into other industries.
As someone who comes from a family of video gamers, I’m intrigued by GameStop and will be keeping an eye on it. It may very well become part of my stock portfolio one day, after I assess its potential even further.
Today, Mr Credit Card will be exploring the similarities and differences in the marketing of financial products like mutual funds and etfs versus credit cards.
Since it is my business to read everything about credit cards, I am pretty familiar with how credit cards market their cards. But because I also read a lot about mutual funds and ETFs, I find it fascinating how marketing strategies in the mutual fund industry differs from the credit card industry. Today, I would just like to highlight some of their similarities and differences.
Mutual Funds Market Their Performance – Credit Cards do not! – One of the unique features of the mutual fund industry is that funds are marketed solely based on performance and long term track record. Due to investor behavior, mutual funds tend to seek gather lots of fund inflows from retail investors after a year or years of outperformance. Track records are also used frequently by mutual fund companies. The better the long term average, the better obviously.
Unlike mutual fund companies, credit card companies do not even engage in such practices. One example where this might actually work is the the subprime or “new to credit” categories. I’m sure marketers of secured credit cards could make a statement to the effect that “x percent of our applicants managed to improve their credit scores by xyz and managed to get an unsecured credit card within x number of months? But I do not see that. Or how about cash back credit cards? Surely, credit card companies could say something like ” on average, our cardholders managed to earn x % cash back every year from using our credit card”? Wonder why they do not do that at all? Perhaps it’s regulations, but surely this would be a great selling point.
Credit Card Issuers give teaser deals, Mutual Funds do not – Have you noticed that credit card issuers give teaser deals all the time? It could be in the form of a 0% balance transfer offer, bonus miles or annual fee being waived for a year. But you never see such things in mutual funds. You never see a mutual fund offering to reduce your front end load when you invest. Neither do they waive fund expenses for one year. They are probably not allowed to due to SEC regulations. But maybe there isn’t any marketing restrictions. They just do not do it that way.
Credit Cards make claims that mutual funds cannot – Lots of credit card issuers, especially those marketing credit cards for people with bad credit, make promises like “instant approval”, “no credit checks”, “no employment checks” and in certain cases, “guaranteed approval”. Mutual funds by law, cannot make any performance guarantees. Hence, you do not see any guarantee like marketing language from mutual fund companies.
Both mutual funds and credit card issuers do not highlight their fees – If there is one thing both mutual funds and credit cards have in common, that is they do not advertise their fees. For mutual funds, you need to look through their prospectus or their marketing sheets to find their fees. For credit cards, you have to look through their terms and conditions. The fee “lingo” isn’t exactly intuitive either. Most folks do not understand exactly what an APR is. How many folks know what is a 12-b1 fee? Know the difference between an A share, B share or C shares? What is daily percentage rate?
Unfortunately, for most products, fees are one of the murkiest areas. It pays to be educated in what you are buying and make sure you choose a product that does not hit you with hidden fees. Many credit cards for bad credit folks like First Premier Bank have lots of hidden fees like one-time application fee, monthly maintenance fees on top of annual fees. Most consumers are never aware of these fees, just like they are never aware of 12-b1 fees.
Final Observations – It is interesting to note that both mutual funds and credit cards are financial products. But they are marketing differently. But one thing they have in common is that it is tough to look through their terms and conditions. And most people don’t really know what fees they are paying!
