Looking Forward To Create A Sound Financial Future
Topics: savings, money, money management, financial planning, saving, investing
In the 6th century BC, Aesop gave us a timeless moral in The Ant and The Grasshopper: “It is thrifty to prepare today for the wants of tomorrow.” In the early twentieth century, Italian writer Luigi Pirandello gave us more food for thought for our preparations: “Whatever is a reality today, whatever you touch and believe in and that seems real for you today, is going to be - like the reality of yesterday - an illusion tomorrow.”
What do these wise words have to do with financial planning? Simply stated, it means that being prepared for tomorrow requires you to look forward to what tomorrow will be like. While it can be useful to look at the past at what your parents did to be successful, it may not lead to the best results.
You therefore need to ask what your world will look like when you get to retirement. More specifically:
* What can you expect from your investments?
* What will your tax burden be?
* Will you retire into the same set of circumstances that your parents or grandparents did?
One thing we know for sure is that the coming two decades will see the largest group of retirees in our history, with over 82 million Americans in or entering retirement. Due to the aging of Baby Boomers and longer life expectancy, the number of people over age 65 will reach almost 20% of the population by 2030, up from 12.4% today.
What does this mean for your nest egg?
For starters, since we’re likely to see higher taxes in the years ahead along with lower social security benefits, you will need more of your own resources for retirement. To prepare for these eventualities, you will need to put your current and future resources and assets to their best and highest uses. For most people, this means their homes and retirement plans (IRAs and 401ks). Let’s look at the retirement plan first.
We have been taught for as long as we can remember to maximize our pretax and deferred taxation plans to prepare for retirement. Notwithstanding this advice, most people still haven’t saved enough to create a comfortable retirement. According to the Bureau of Labor Statistics, the average amount saved by U.S. households is $49,944. If you’ve done better than this, be thankful. But what will happen to your nest egg if the two scenarios outlined above (higher taxes and longer life) come to pass?
What nobody told you when you started putting all of that money away in tax-deferred accounts, was that when you start taking it out you will (a) probably be in a higher tax bracket, and (b) will need to pull more money out to keep the lifestyle you are used to. Regardless of whether you’re in a higher tax bracket or not, you can expect to pay as much as ten times more in taxes over your lifetime than you saved by deferring them.
It may therefore be smarter to stop putting so much money away in these plans, or to pay your taxes early in retirement and put these dollars in accounts that can generate future tax-free income. If you are still working, ask your employer if they will offer the new Roth 401k plan. For those in the 50-plus age bracket, you can create a tax-free retirement plan by putting up to $15,000 per year into these plans using after-tax dollars. If you are currently maximizing your 401k contributions, you may want to lower the amount to what your company will match, and put the rest into a private retirement plan or a Roth 401k.
The second area to examine is your home equity. Here, traditional wisdom teaches you to pay your home off in order to be debt free. In the process, you tie up hundreds of thousands of dollars that are not growing, and in fact are at grave risk should your home lose value due to market conditions or natural disasters. Senator Trent Lott, for example, lost over $400,000 in equity when his house was destroyed by Hurricane Katrina, even though he had flood insurance.
We think there is a better way to manage this very important asset. If you could invest these equity dollars and earn a safe, liquid return on them, you could create additional retirement funds that, if invested properly, could generate tax-free income. This concept is best explained in the book “Missed Fortune 101″ by Douglas R. Andrew. Doug has worked with these concepts for over 25 years, and has helped many hundreds of families create more income with less risk and greater choice and control. There are also many professionals trained by Doug to deliver this information in public seminars throughout the country. I would recommend you find one in your area.
Ultimately, creating and preserving wealth requires knowledge and discipline. Knowledge can be learned or purchased, but the discipline must come from you. It would be best to start both today.
Marc Cram is a CFP in Durham, NC. He works to protect and increase people’s assets using safe, liquid investments. Marc can be contacted through his website at www.cramgroup.com. Get a free 12 page article on how to safely and conservatively build wealth at www.wealthyyou.us
Previous Articles Highlighter:
How Much Is This Real Estate Property Worth? (1)
If you compare these houses to the house you're considering, then you will have a basic starting point for the price. If you find the most similar house possible, you'll be even better off.
A Guide To Finding Inexpensive Car Insurance (2)
However if you are interested in saving yourself a lot of hassle and money overall, then this time and effort will be well worth it. John Hilaire offers expert advice and great tips regarding all aspects concerning Car Insurance Newark New Jersey,Car Insurance In Houston Texas.
Repossessions And Arrears 'To Rise' In 2008 (3)
Last month R3 - the Association of Business Recovery Professionals - suggested that consumer borrowing has increased since the turn of the century and that as a consequence, so has the number of Britons struggling to meet the repayments required.
Designing A New Paradigm For Financial Planning (4)
The dictionary defines a paradigm as a set of assumptions, concepts, values, and practices that constitutes a way of viewing reality for the community that shares them, especially in an intellectual discipline.
Debt Education 'Is Not Reaching Young People' (5)
We must educate young people about things that engage them, such as mobile phone tariffs." The organising body used the forum to unveil its new pamphlets which are designed to educate people about different kinds of debt.
Understanding Seller Financing In The Tampa Real Estate Marketplace (6)
Once again, you need to pay attention to the details of any agreement that you have with a seller in a loan assumption situation. You need to keep in mind the dire consequences that can result if you do not make payments under the agreement in a timely manner.
Cheap Car Insurance Quotes And Low Cost Auto Rates Can Save You Money (7)
Of course, avoiding accidents will keep your insurance costs down, so keep the kids quiet so you can concentrate on your driving. You can keep them busy with quiet car games kept solely for this purpose and give rewards for good behavior.
What Is Overdraft Protection? (8)
Topics: credit cards, balance transfers, cash back, advice, purchases, news, credit cards uk, visa, mastercard In simple terms, overdraft protection helps you should you write a check and not have the funds in your account to cover that check.
Why Is Auto Insurance Important? (9)
Maintaining an adequate level of automobile insurance is one of those responsibilities. Automobile insurance is important for several reasons and this article will examine some of those. One of the main reasons drivers should maintain automobile insurance is that most states simply require that they do so.
Negotiating With Your Lender On A Home Mortgage (10)
However, if you do have good credit, you will be able to take advantage of getting some better interest rates when it comes to a home mortgage loan. And, over time, even a slight decrease in the interest rate can amount to a significant savings to you.
Getting Your Bathroom In Shape - When Selling Your Home (11)
There is nothing more unseemly than loose tiles and bad grouting. Such a situation can and will turn off a potential buyer in no time at all. It sends the message that you've not cared for your home.
Savers 'Raiding Reserves For Indulgent Spending' (12)
When it comes to addressing a problem such as central heating repair or the replacement of white goods, only 56 per cent turn to their savings, while other consumers rely either on income, secured loans or unsecured loans.
Types Of Student Loans (13)
To obtain for a private student loan, you must apply directly with the lender you would like to borrow from. Peter Kenny is a writer for Shop Smart Loans.
First Steps In Investing Explained (14)
Commercial Banks The modern commercial bank, with its various departments and services, may be considered as applying modern merchandising methods to the banking business. The savings or thrift account, as operated by most banks, is an excellent depository for surplus funds.
The Real Estate Syndicate Boom Explained (15)
Topics: guaranteed income property, bad credit mortgage refinance, income property The real estate syndicate is a pooling of resources of many investors to buy a building or long-term lease-hold. When you buy an interest or participation in a real estate syndicate, you buy a part of a building or the lease-hold.
Beginner's Guide To No Annual Fee Credit Cards (16)
Though the information regarding your card's account terms may sound like boring copy or legal talk, it is important to read through it. The legal talk usually includes the crucial elements about your credit agreement, including additional fees you may otherwise not be aware of.
Your Own Holiday Home: Making The Dream A Reality (17)
With Condos and town houses an additional expense might come into play with the HOA fees, but then the maintenance would be taken care of by the HOA as well.
Student Loan Default: What Is It And What Are The Consequences? (18)
This will make it difficult to get approval for credit cards, home loans, car loans, and possibly even employment. - You will not be able to obtain federal financial aid until the loan is totally repaid, or you make arrangements and six consecutive on-time payments.
Your Options With Adjustable Rate Mortgages (19)
This prevents extreme fluctuation in your interest rates without warning. Some also have starting rates, which differ depending on the lender and index, and can also be affected by your credit score and the amount of your up front deposit.
Creating Value With Your Time (20)
If you are self-employed, then you are usually paid by the hour or by the job. So obviously, when you work longer hours and more days, your income will increase!
Newer Articles Highlighter:
Build Or Buy - Custom Homes (1)
Build on Your Own Land If you're building on a budget, one money-saving option is to build on land that you own. You'll still have multiple options for new home styles, including pre-built and custom built homes and other custom home options that are in between the two.
For Those Interested In Building An Establishment (2)
Topics: pad sites available houston, Texas Have you ever been interested in building an establishment in Houston, Texas? Maybe you haven't done so because of funding, or maybe you just haven't been able to find the right site to build on.
What Are Discount Brokers? (3)
In other words, you tell the discount broker what you want and they will execute the order for you. For those who are not as comfortable making these decisions, or for those who simply do not have the time to research various companies on their own, full-service brokers will advice you on what to buy, when to sell, and how to divide your investment money.
The Best Fort Bend County Neighborhoods (4)
What truly makes it home is indefinable. These things can only be taken into consideration and used as a platform for other personal decisions. Despite that fact, the best Ford Bend County neighborhoods have been awarded numerous accolades over the past few years by various sources.
Investment Property Mortgage Loan Comparison Software (5)
If they have any literature on their financing offerings, be certain to get that as well. Most of the time, the terms will depend on your credit, and what you have to offer as collateral.
Looking For The Best Fort Bend County Neighborhoods (6)
We say that a home has the memories of everyone who lived and loved within the walls etched into its foundation. A home is a statement of wealth, or lack thereof, of personal taste and style, or lack thereof.
Stop Trading Individual Shares If You're Not Beating The Market (7)
You may as well just invest in a tracker fund that tracks the market or a top performing mutual fund and spend your time doing more worthwhile things. I know it can be quite exciting doing your own research and investing in the companies of your choice, but professionals are paid to do the same job and will generally have access to more information than you do, and can make better informed decisions.
The Cost Of Working (8)
My sister is very interested in the $11 an hour job, as she would not need to drive to work at all, as opposed to the $13 an hour job which is a 45 minute commute.
Online Auto Loans - The Easy Way To Apply (9)
2)The lender reviews your creditworthiness and assesses your financial net worth. 3)Based upon the review, the application is either approved or denied. 4)Hard copy of loan contract is sent to the borrower.
The Formalities Required To Buy A Cyprus Vacation Home (10)
However, before you can even get the Transfer of ownership certificate or the Title Deed you will need to apply for and get permission from the Council of Ministers for owning property in Cyprus.
Real Estate 101: What To Tell Your Realtor (11)
The more you communicate about your family, your lifestyle, and your hobbies, the better your Realtor will be capable of finding a home that is well suited to you. Although your real estate agent is not a mind reader, many are quite good at understanding the needs of their clients based on this type of information.
Buying A Vacation Home In Cyprus (12)
What to consider before buying a Cyprus Vacation Home Spend some time thinking about exactly what it is you are looking for in your holiday home even before you hire an agent.
Tips For Buying A Cyprus Vacation Home (13)
When you are buying a home in Cyprus, keep in mind that you are only allowed to own one property on the island. The next thing to consider is the length of time it takes to complete the transfer of the title deed into your name.
4 Types Of Technical Indicator You Need When Trading Forex (14)
Common examples include Bollinger Bands, Average True Range and Envelopes. So there you have the four different types of technical indicators available to you. Which ones you use is entirely up to you, but it's generally advised that you have at least one type of each in order to provide additional confirmation for entering a trade.
Real Estate 101: The Difference Between An Agent & Broker (15)
Therefore, when hiring an agent, be sure you are comfortable with both the agent and the broker if they are not the same person. That way, you will be guaranteed the best experience possible.
Do Not Let Them Repossess Your Home (16)
Topics: Sell and rent back, Stop repossession, quick house sale Nowadays, anyone who wants to buy a house needs to get mortgage. With property prices shooting through the roof, it is not surprising that we have no means to by a house other than by taking a loan.
The Five Secrets To Making Money (17)
Making Money Secret #5 "Be persistent." This doesn't mean to use the same newspaper ad over and over again if it isn't producing customers or leads, being persistent means to always be focused on your end goal and do whatever is necessary to achieve it.
Do You Know How To Obtain A Free Copy Of Your Credit Report? (18)
If you know what your credit report says about you and how you spend your money on a regular basis, you will be more likely to control your spending and manage your debt more wisely so that your credit score does not go down, but so that it will improve.
Retirees 'Need Finances In Shape Before Heading Abroad' (19)
Topics: before, retiring, abroad, finances, planned, home, equity, loans, finance, credit, loan, release, secured People considering retiring abroad should ensure they have planned their finances suitably for a move to another country, including thinking about any difficulties they may face in the future, a spokesperson for charity Age Concern has said.
How Much Does A Kid Need To Save In Order To Be Ready For College? (20)
When your child is in the 9th or 10th grade, sit down for a talk about college and the financial picture. Students need to understand what it takes to get them through college.
Permalink to Looking Forward To Create A Sound Financial Future