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Want to Retire Early? Here’s How

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Many of us dream of retiring early, which may mean different things to different people. If you get an early start, you’ll have a better chance of achieving that goal.

For example, someone who begins working right out of college at the age of 22 and retires at the age of 65 has 43 years to save for retirement. According to the Social Security Administration, a male’s life expectancy is just over 84 years on average, while woman can expect to live until almost 87. That means a retirement of 20 years or longer from a normal retirement age is possible.

However, if you’re in your 30s or 40s and just starting to save for retirement — or if you’re just behind in general — it will take some extra planning and additional risks to get there.

What does retirement mean?

In our parents’ and grandparents’ generations, retirement typically meant they worked until retirement age (generally 65). When they retired, they stopped working and lived off their savings, employer pensions and Social Security.

However, retirement has evolved, and pensions are rare today. Many people are working two or three jobs to make ends meet and are pinched for spare money to build a nest egg for retirement.

So, where do you start if you’re in your mid-30s with an early retirement date? First, you should get a financial checkup.

Crunching the numbers

You’ll need to crunch the numbers to determine when you can comfortably retire. Set a retirement budget based on your desired lifestyle.

You also will need to take into account all your retirement savings and potential financial resources. That goes beyond savings and retirement accounts and encompasses any other assets that could be converted into retirement income. Also consider other sources of income you might receive, ranging from a pension to Social Security, including any of the below investments:

  • Workplace retirement accounts such as 401(k)s, 403(b)s, governmental 457(b)s, pensions, SIMPLE IRAs, etc.
  • Roth and traditional IRAs
  • Self-employed retirement accounts like SEP IRAs and solo 401(k)s
  • Annuities
  • Taxable investment and brokerage accounts
  • Cash, savings accounts, CDs and similar vehicles

Social Security and pensions

Although Social Security might not seem relevant to people who are retiring early, it can be a good source of income that kicks in during retirement and could help extend other retirement assets at a key time in your life. While Social Security is an income stream you may want to include in your retirement financial forecast, it also makes sense not to heavily rely on it as a large contributor.

Pensions are becoming increasingly rare, especially in the private sector, but they are more prevalent in the governmental and nonprofit sectors. With most pensions, if you work a certain number of years, you become vested in a benefit, but it might not be available until you hit a certain age. Even if you retire early, you may be entitled to a pension benefit, so you should be sure to understand the details.

Once you have taken stock of your financial resources, you will need to figure out how much retirement income those resources translate to. This can be a complicated task, as you will need to make some assumptions about how your investments will be allocated, the long-term returns from your investments and a withdrawal strategy. Evaluating and rebalancing your portfolio should be an annual occurrence.

There are a number of retirement calculators that can help, or you can work with a fee-only financial advisor to help with your retirement plans. You may want to consider Vanguard, Schwab and Financial Mentor, among others. If you come up with a gap between your desired cost of living and your projected income, you will need to make some changes in your savings strategies.

How to retire early by saving

To start, you should take full advantage of employer matching if it’s available. This is free money given to you just for saving for your future. A good strategy is to defer enough each pay period to earn the full amount of the match. For example, if your employer matches 3% of your salary on the first 6% contributed, that is approximately a 50% return on your money.

You should strive to max out your retirement plans by contributing the maximum allowed to your 401(k) and IRA. Contribution maximums vary by plan; for example, a 401(k) has an employee contribution limit of $19,000 for 2019. IRAs have varying contribution limits as well, such as $13,000 for a SIMPLE IRA and $6,000 for traditional and Roth IRAs.

If you’re in your 50s, you have additional options for retiring a few years early. Catch-up contributions are available to those age 50 and older. For IRA accounts, an additional $1,000 can be contributed each year over the $6,000 cap for 2019. For 401(k)s, 403(b)s and some other employer-sponsored retirement plans, an extra $6,000 can be contributed on top of the $19,000 cap for 2019. SIMPLE IRA plans allow an extra $3,000 in catch-up contributions.

Retire early by being frugal

Another way you can rev up your savings strategy is by cutting back on things that burn a hole in your wallet. Cut back on current living expenses to carve out more of your income to devote to retirement savings.

People who are behind on their retirement savings should “increase their savings rate by reducing the Big Three of housing, transportation and food,” said money coach Steven Donovan of Even Steven Money. “Assuming your income stays the same, reducing your major expenses will create the largest gap and fastest way to ramp up your retirement savings.”

Donavan learned by personal experience.

“My personal example of housing is purchasing a multi-unit building in the city of Chicago. We lived on the top floor while renting out the other units in the building for income,” he said. “This eliminated most of our housing costs and allowed us to have a higher savings rate because of it. The money was then added to our investment of choice: paying down real estate or investing in taxable and nontaxable investments.”

Another way to increase the gap between your income and expenses is to start a side hustle or get a second job. Side hustles can serve a dual purpose; as they grow, they might be a vehicle for income when you do retire early that allows you to generate income while working on your own terms in retirement.

Risks of early retirement

Although early retirement sounds glamorous (because who wants to work forever?), there are some trade-offs you should consider. For example, paying for health care that previously was covered by your employer can be a huge expense.

“The biggest factors that make early retirement different from ‘normal retirement’ are health care and where your income or withdrawals will come from,” said Katie Brewer, certified financial planner, virtual financial planner and owner of Your Richest Life. “Medicare doesn’t kick in until age 65, so someone retiring in their 40s or 50s will need to cover their health insurance until age 65 through an individual policy, a spouse’s policy or a health sharing plan.”

There are a number of fees and rules that apply to early withdrawals as well.

“As far as income goes, regular retirement plans have stipulations on when you can take the money out. There is usually a 10% IRS penalty when taking money out of retirement plans before age 59 and a half,” said Brewer. “Someone wanting to retire early will want to save into a nonretirement account, such as a regular brokerage account, to give flexibility on when to take money out without penalty.”

For 401(k) and public sector plans, there are exceptions if you leave your company at age 55 or later. In other cases, you can take advantage of the 72(t) rule. This rule allows penalty-free withdrawals from IRAs, 401(k)s and 403(b) accounts and requires the account owner to take equal withdrawals for at least five years or until they reach the age of 59 and a half, whichever is longer.

The bottom line

Retirement is tough at any age. Early retirees face the challenges of funding a longer retirement period and saving over a shorter period of time. Even if you get a late start, early retirement is achievable, but it will take some serious planning and discipline.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Roger Wohlner |

Roger Wohlner is a writer at MagnifyMoney. You can email Roger here

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Investing

Ally Invest Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

If you’re looking for an online discount broker with no minimum investment requirement, Ally Invest may be perfect for you. Ally Invest is an ideal choice not just because you don’t need a fortune to open an account, but also because commission fees for trades are well below many competitors — especially for active traders who can earn discounts.

While Ally Invest is missing some common tools for investment research and their mobile app isn’t as feature-rich as some competitors, their full-featured online platform makes up for what the mobile app lacks. And, there’s a wide range of account options with Ally Invest, so you’re covered whether you want a taxable account, a retirement account, or an account for your kids.

Ally Invest
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The Bottom Line: Ally Invest is an affordable discount broker with a wide range of investments to choose from.

  • Commissions are just $4.95 or $3.95 if you’re an active trader.
  • There’s no minimum deposit required for a self-directed trading account, and no minimum account balance requirement.
  • Ally Invest offers tons of investment options, including stocks, bonds, mutual funds, options, futures and forex.

Who should consider Ally Invest

If you’re looking for an affordable investment account, Ally Invest should be at the top of your list. You’ll have many choices for different types of accounts with Ally Invest, including traditional and Roth IRA, IRAs for the self-employed, taxable investment accounts, 529 Plan, and more. And, you won’t have to make a minimum deposit to open your account — it’s free.

Once you’ve got your account open, Ally Invest makes trading affordable for most investments. Commissions for stock trades are among the lowest of any online discount broker, and Ally Invest offers more than 100 commission-free ETFs. If you’re looking to buy Mutual funds though, you’ll pay a transaction fee, whereas some competitors offer ample fee-free options.

Ally Invest’s online trading platform is easy to use, and their research tools are good. While you won’t find earnings transcripts, SEC filings, earnings press releases or audio calls, you can still dig into technical data using free screeners and other tools powered by Recognia.

If you don’t want to manage all the investments on your own, you can opt for a managed account. This is Ally’s robo-advisor option — but you’ll need a minimum of $2,500 if you’d prefer this hands-off approach rather than a self-directed trading account.

Ally Invest fees and features

Current promotions

New Ally Invest accounts accounts receive 90 days of commission-free trades, up to $500 in value, regardless of deposit amount. Cash bonuses are available for new accounts starting at $50 for if you deposit or transfer at least $10,000.

Stock trading fees
  • $4.95 per trade
  • $3.95 per trade (30+ trades per quarter or daily balance of $100,000 or more)
Amount minimum to open account
  • $0
Tradable securities
  • Stocks
  • ETFs
  • Mutual funds
  • Bonds
  • Options
  • Futures / commodities
  • Forex
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $50 full account transfer fee
  • $50 partial account transfer fee
  • $0 inactivity fee
Commission-free ETFs offered
Mutual funds (no transaction fee) offered
Offers automated portfolio/robo-advisor
Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account(ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
Ease of use
Mobile appiOS, Android , Windows phone
Customer supportPhone, 24/7 live support, Chat, Email

Strengths of Ally Invest

Ally Invest has plenty of strengths to help it stand out from the competition, including the following:

  • Low commissions: You pay just a $4.95 commission with Ally Invest, which is one of the lowest commissions charged by discount brokers and well below the $6.95 charged by competitors including E-Trade and TD Ameritrade. Plus, if you make more than 30 trades per quarter or have a daily balance of $100,000 or more, your commission is even lower — it drops to just $3.95.
  • No minimum deposit required: While competitors such as E-Trade require a $500 minimum deposit to open an account, Ally doesn’t have any minimum initial deposit requirement. You can also earn a cash bonus for opening an Ally Invest account if you deposit or transfer just $10,000, compared with a $25,000 minimum to earn a cash bonus with E-Trade or $20,000 with Merrill Edge.
  • Powerful tools and intuitive trading platform: Ally Invest’s online site offers you powerful tools to screen investments. Its trading platform is intuitive and provides the features necessary to be an informed investor. This includes a dashboard you can customize to your preferred view, as well as real-time streaming quotes and up-to-date data.
  • Responsive online and phone customer service: You can contact Ally Invest via phone 24/7. There’s also an online chat feature, where you can get answers within seconds from helpful customer service agents. Email support is available as well.

Drawbacks of Ally Invest

Ally Invest also has some downsides to consider:

  • Mutual fund transaction fees: Ally Invest charges a $9.95 transaction fee per trade for no-load Mutual funds. But many competitors offer options without any transaction fees, including E-Trade, which offers more than 4,400 fee-free funds.
  • A mobile app with minimal features: While you can do the basics with Ally Invest’s mobile app, it offers far fewer features and investment tools than competitor apps such as TD Ameritrade Mobile.
  • No physical branches: Ally Invest is an online-only company. There are no physical branches, unlike for competitors such as Merrill Edge, or E-Trade which has more than 30 branches spread across the country.

Is Ally Invest safe?

Ally Invest is a trusted online brokerage with more than $4.7 billion in assets under management. It’s a member of the FDIC and SIPC, so you can rest assured that the cash in your accounts is safe. And since the company has passed its FINRA broker check, you can count on the fact it’s in full compliance with regulations.

Since Ally Invest is online-only, it’s important to review Ally’s data protection policies. The good news is Ally promises that they use “multiple levels of security” to keep your info safe. This includes 128-bit SSL encryption for any exchange of data from your browser and Ally’s servers if your personal information is being transmitted. The downside, however, is that Ally’s privacy policy does permit Ally to share your information with third-parties. While this is a common policy, it’s still disappointing.

Of course, once you invest your money, there’s always a risk of losses. Research what you’re investing in carefully and diversify your portfolio to minimize risks you’re taking.

Bottom line

Thanks to the fact it has no minimum deposit requirement, Ally Invest is a great choice if you’re looking to get started investing and you don’t have a ton of money. Affordable commissions and commission-free ETFs also give you a diverse offering of low-cost or no-cost investment options. But if you’d prefer to buy Mutual funds without paying transaction fees or want a physical branch to visit, alternatives such as E-Trade or Merrill Edge may be a better choice to meet your needs.

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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here

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Investing

Ally Invest Managed Portfolios Review 2019

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Ally Invest Managed Portfolios is a robo-advisor option from a trusted online-only financial institution.

It can make managing your money simple: Just answer a few basic questions about your goals and risk tolerance and your funds are invested for you. However, while fees are competitive, they aren’t the lowest among other robo-advisors’ offerings.

If you don’t mind the lack of bonus for opening the account, and you want to take a hands-off approach to building wealth, Ally Invest may be a good option.

Ally Invest Managed Portfolios
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The Bottom Line: Ally Invest Managed Portfolios is a decent robo-advisor that’s competitive with other managed portfolios online. But its lack of tax-loss harvesting, and fees that slightly exceed competitors may prompt you to look elsewhere if you’re not already an Ally customer.

  • The minimum deposit to invest in Ally Invest Managed Portfolios is $100
  • 0.00% management fee, no matter how high your account balance
  • Customer service is available 24/7, but there are no local branches to visit

Who should consider Ally Invest Managed Portfolios?

If you’re looking for a robo-advisor that allows you to build a diversified portfolio without a lot of advanced knowledge about investing, Ally Invest Managed Portfolios has you covered.

You’ll answer a few questions about your age; timeline for investing and risk tolerance; and whether you’re investing for retirement, wealth-building or a big purchase. Then, Ally Invest comes back with a recommended portfolio you can accept or tweak.

You can open a joint, custodial or Individual taxable account with Ally Invest Managed Portfolios, or can opt for a Traditional IRA, Roth IRA or Rollover IRA. Unfortunately, unlike with Ally Invest’s self-directed accounts, there’s no promotion or bonus for transferring funds into a managed portfolio. And, you’ll need quite a bit of money to get started — more than many competitors in the robo-advisor industry require.

Still, if you don’t mind the lack of brick-and-mortar locations and marginally higher fees, Ally Invest is a worthy competitor to consider when looking for help managing your money.

Ally Invest Managed Portfolios fees and features

Amount minimum to open account
  • $100
Management fees
  • 0.00%
Account fees (annual, transfer, inactivity)
  • $0 annual fee
  • $50 full account transfer fee
  • $50 partial account transfer fee
  • $0 inactivity fee
Current promotions

None currently

Account types
  • Individual taxable
  • Traditional IRA
  • Roth IRA
  • 529 Plan
  • Joint taxable
  • Rollover IRA
  • Rollover Roth IRA
  • Coverdell Education Savings Account (ESA)
  • Custodial Uniform Gifts to Minors Act (UGMA)/Uniform Transfers to Minors Act (UTMA)
  • SEP IRA
  • SIMPLE IRA (Savings Incentive Match Plan for Employees)
  • Trust
Portfolio
  • Ally managed portfolios cover 3 asset classes and 9 major market segments
Automatic rebalancing
Tax loss harvesting
Offers fractional shares
Ease of use
Mobile appiOS, Android, Windows Phone
Customer supportPhone, 24/7 live support, Chat, Email

Strengths of Ally Invest Managed Portfolios

Ally Invest Managed Portfolios has some significant advantages worth considering:

  • Investing in a diversified portfolio is easy. You’ll answer basic questions about your investment goals and Ally Invest will suggest a portfolio with an appropriate mix of U.S. and foreign bonds, international and U.S. stocks, and cash. You can also tweak the suggestions Ally Invest Managed Portfolios makes, so you take on more or less risk based on your comfort level.
  • Ally requires a low minimum deposit of just $100 to open a managed portfolio account. While some of Ally’s competitors (such as Betterment) don’t have a minimum deposit requirement at all, $100 still falls on the very low side of the scale and makes this account extremely accessible to new investors.
  • Ally Invest Managed Portfolios offers automatic portfolio rebalancing. This helps to ensure you remain invested in the right mix of assets if certain investments under- or over-perform.
  • Customer service. Ally Invest offers phone, Email, and chat support. Customer service agents are available 24/7 with little or no wait. Agents will do their best to provide answers, although it may take a little time if your questions are technical since you may need to be transferred to an investment advisor.

Drawbacks of Ally Invest Managed Portfolios

You’ll also want to consider the potential downsides of choosing Ally Invest Managed Portfolios.

  • Ally Invest Managed Portfolios charges fees that are slightly higher than several competitors. You’ll pay .30% for Ally’s robo-advisor service, compared with .25% for Betterment’s digital account or for Wealthfront.
  • Ally Invest Managed Portfolios currently does not offer tax loss harvesting, which involves selling investments at a loss to offset taxable gains (although they do offer tax advantaged portfolios which add municipal bonds to Ally’s core portfolios). Competitors such as Betterment do offer this feature. However, Ally representatives indicate tax loss harvesting is expected to be rolled out in 2019 and investors with managed portfolios will be able to transition their accounts into a portfolio with tax loss harvesting.
  • No physical branches. If you’d prefer to go into a branch for local customer support, you’ll need to look elsewhere, such as E-Trade, which has more than 30 branches across the country.
  • Mobile apps aren’t very advanced. While Ally Invest allows you to use mobile apps on iPhone and Android phones to access basic account information, the offered apps aren’t as feature-rich as competitors such as Betterment.

Is Ally Invest Managed Portfolios safe?

Whenever you invest your money, there’s a risk you may lose some or all of it. This is no different with Ally Invest Managed Portfolios. The assets your robo-advisor invests you in could decline in value and your portfolio could lose money.

But Ally Invest is as safe as any trusted online brokerage, and there’s little risk of losing assets if the investment firm goes bankrupt. Ally Invest is in compliance with regulatory requirements according to FINRA’s Broker Check tool. Ally Invest is also a member of the FDIC and SIPC, both of which ensure cash in bank and brokerage accounts respectively.

Final thoughts

Ally Invest Managed Portfolios is a viable choice for investors looking for an easy, hands-off way to invest — especially with its low $100 minimum deposit requirement. Ally also promises to offer a broad range of socially-responsible portfolios, which should interest investors who want to consider more than just financial returns. But the lack of a promotional offer, higher management fees, and the fact tax loss harvesting isn’t currently offered makes Ally a less-than-ideal option for investors looking for the most affordable way to build a diversified portfolio. If you want a lower-cost option that does offer tax-loss harvesting, consider robo-advisors such as Betterment or Wealthfront.

Open an Ally Invest Managed Portfolios accountSecured
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Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Christy Rakoczy
Christy Rakoczy |

Christy Rakoczy is a writer at MagnifyMoney. You can email Christy here