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News, Retirement, Strategies to Save

7 Money Moves New Empty Nesters Should Make Now

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Raising one child to age 17 costs a middle-income married couple on average $233,610, according to the U.S. Department of Agriculture.

Once your kids leave the nest, all of the money you spent feeding, clothing, and entertaining them is suddenly up for grabs. But if empty nesters don’t earmark their newfound savings for specific goals, it’s easy to fall into the so-called “lifestyle creep” trap — when your lifestyle suddenly becomes more expensive as soon as your discretionary income increases.

A 2016 study by Boston College’s Center for Retirement Research found that a couple collectively earning $100,000 per year should be able to put an additional 12% toward their retirement savings after their children fly the coop. But in reality, researchers found that same couple would only increase their 401(k) contribution by 0.3 to 0.7 percent.

Covington, La.- based certified financial planner, Lauren Lindsay encourages empty nesters to put their extra pocket money to work.

“In general, when people have money ‘available’ they tend to spend it and not even be conscious about how they’re spending it,” Lindsay told MagnifyMoney. “I think it’s really important to refocus our goals now that we are in a different stage and, hopefully, on that home stretch towards retirement.”

Lindsay says the empty-nester stage is a really good time to circle back and revisit your budget to focus and make a plan for your financial goals. “Depending on where you are in the scale of retirement, you could use the extra funds to pay off a car, pay down the mortgage, save towards a trip, fund the emergency fund, or other goals,” she says.

As a new empty nester, there’s likely an endless list of purchases and lifestyle upgrades your newfound savings could go toward. You may even think you deserve a new car or boat, or to go on a luxury vacation every year after 18 or more years of child-rearing.

You can certainly treat yourself if you’d like, but you should make sure to get your financial house back in order before celebrating your freedom.

Here are a few things you can do to make sure your empty-nest savings go to the right places.

Put a number on what you’re saving now that the kids are gone

You may not be aware of exactly how much money you are really saving now that there are fewer mouths to feed at home. Creating or revising your budget gives you an opportunity to see the numbers behind the decrease and adjust your spending to maximize potential savings.

Peachtree City, Ga.-based certified financial planner Carol Berger suggests new empty nesters take the opportunity to complete a cash flow analysis — either on your own or with a financial adviser.

“This will allow you to identify how much discretionary income you have and then develop a plan on how to use it,” says Berger. Tally up the reduction in your spending to get an idea of how much potential cash you could be diverting to your own financial goals.

Shrink your lifestyle

If you’ve spent decades shopping for a family of three or more, it’s hard to break that habit right away. You might still be shopping for more groceries than you really need, for example, and wasting money in the process.

It might be time to take an even bigger step toward minimizing your housing costs — downsizing. Not only could this reduce your overall housing costs, but it’ll give you an opportunity to shop around for a home that better fits your needs as you age or to consider a residence in an active adult community with homes and amenities designed specifically for those ages 55 and older.

Check out what you’re paying for utilities, too. While you may have needed the tricked-out cable package when your kids were living at home full time, you may not care about paying for premium channels any longer. Call your provider and negotiate a less-expensive package. Try using a service like BillFixers or Trim to renegotiate or cancel bills and features you may no longer have use for.

Review your insurance policies

The same goes for your insurance policies like car and health insurance. Under the current health care law, kids can stay on their parents’ health insurance plan until they turn 26. But if your adult child already has employer-provided insurance, you don’t need to pay for their coverage anymore.

Contact your employer’s human resources department to discuss removing members from your family plan, or switching to a lower-cost individual plan when you’re on your own. The same goes for any vision or dental insurance plans you may still be paying the family price for.

If you’re still paying for your child’s life insurance policy, you may want to speak with them about transferring the plan into their name or canceling the plan if they have access to a better one through an employer.

It couldn’t hurt to ask for a discount on your car insurance or switch to lower-cost coverage because the kids aren’t there to drive your car.

Put your newfound money toward any outstanding debts

Saving for retirement is important and paying off your outstanding debts should be your top priority. The interest rates on unsecured debts like credit cards are generally higher than any returns you’d receive on potential savings. So if you pay off your debts first, you’ll actually save yourself more money in the long run.

According to a 2017 Consumer Financial Protection Bureau report, the number of Americans 60 and older with student loan debt rose from 700,000 to 2.8 million individuals between 2005 and 2015. The average amount of student debt owed by older borrowers almost doubled during that time, from $12,000 to $23,500.

One of the worst things you can do for retirement planning is ignore past-due debts. If debts go unpaid for too long, you could see your wages or even your future Social Security benefits garnished. The same CFPB report shows the number of retirees who had their benefits cut to repay a federal loan rose from about 8,700 to 40,000 borrowers over the 10-year period.

Don’t sacrifice your retirement goals to pay for college

College has never been more expensive. But remember: Your kids can take out a loan for school and pay it off as their income grows. You can’t necessarily take out a loan for your retirement.

That’s why financial planners often advise parents not to put themselves at financial risk by sacrificing their nest egg to pay for their child’s college education — unless they can afford to take the hit.

“Many people believe that they must send their kids to college, and they pay a hefty sum for that — sometimes at the expense of their retirement,” says Oak Brook, Ill.-based certified financial planner Elizabeth Buffardi.

If you’ve covered your debts and have room to save more, you still have plenty of time to contribute to your retirement funds.

Let’s say a married couple has $200,000 already saved for retirement with 15 years left to go. They collectively earn $100,000 per year, and they have diligently been saving 15% of their monthly pre-tax income for retirement. If they double their savings to 30% — putting away $2,500 each month — and their investment grows at an average annual rate of 6%, they could have well over $1 million saved by retirement.

Plan for long-term health care needs

A couple retiring today will spend an estimated $260,000 on health care needs in retirement, according to Fidelity.

Think of what other health care needs you could have in retirement. Buffardi says she always asks clients if they are worried about needing long-term care in the future. While most workers will qualify for Medicare once they turn 65, Medicare does not cover all long-term care needs. If you know you have a family history of dementia or other age-related illnesses that may require long-term care, this may be a concern for you. You may consider taking out a long-term care insurance policy or setting aside funds in a regular savings account.

Learn to say NO

Even after your kids move out, they can still treat you like the Bank of Mom and Dad. They may come to you for a wedding loan or to ask you to co-sign something they can’t afford, like a mortgage. Even though their pleas may pull at your heartstrings, consider your own financial needs first.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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News, Retirement

Here’s How to Find Out How Much Social Security Income You’ll Receive

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

At what age will you retire? How much can you expect to receive each month when you do? These are important questions even if you are decades away from retirement, and there’s an easy way to get answers anytime. We’re going to show you how to get your Social Security benefits statement online and what to do with it once you’ve got it.

A little background:

Depending on your age, you may remember getting a printed Social Security benefits statement in the mail. Prior to 2011, the Social Security Administration (SSA) mailed statements to all workers every year. Those annual mailings were discontinued in 2011 as a cost-saving measure. The following year, the SSA made the statements available online, but their decision caused a bit of an uproar. Despite the agency’s outreach campaign, far fewer people registered for an account than there were eligible workers. So in 2014, Congress required the agency to resume sending printed statements every five years to workers age 25 and older who hadn’t registered for an online account.

That schedule remained until earlier this year when the agency announced that due to budget restraints, paper benefit statements will only be mailed to people who are 60 or older, have not established an online account, and are not yet receiving Social Security benefits. Simply put, don’t expect to get a printed statement anytime soon.

How to get your Social Security benefits statement

Accessing your Social Security benefits statement online is pretty simple, as long as you have an email address and can provide some basic identifying information.

First, go to ssa.gov/myaccount and click on “Sign In or Create an Account.”

If you’ve never created an online account with the SSA, you’ll click on “Create an Account.” If you’ve set up an account before, you won’t be able to create a new account using the same Social Security number. If you’ve forgotten your username or password, the SSA website offers tools to help recover them.

When you select “Create an Account,” the site will lead you through a few questions to verify your identity. You’ll need to provide personal information that matches the information on file with the SSA as well as some information matching your credit report.

Ryder Taff, a Certified Financial Adviser with New Perspectives, Inc. of Ridgeland, Miss., helps many of his clients set up Social Security accounts and says the questions often have to do with past residences or vehicles that may have been registered in your name.

If you have trouble setting up your account online, you can call the SSA for help at 1-800-772-1213.

Information in a Social Security benefits statement

Your Social Security benefits statement provides several valuable pieces of information:

  • A record of your earnings, by year, since you began having Social Security and Medicare taxes withheld.
  • Estimated retirement benefits if you begin claiming Social Security at age 62, full retirement age, or age 70.
  • Estimated disability benefits if you became disabled right now.
  • Estimated survivor benefits that your spouse or child would receive if you were to die this year.

Here’s a sample of what your benefits statement will look like:

Keep in mind that the estimated benefits shown are just that — estimates. The amounts shown are calculated based on average earnings over your lifetime and assume you’ll continue earning your most recent annual wages until you start receiving benefits. They are also calculated in today’s dollars without any adjustment for inflation. The amount you receive could also be impacted by any changes enacted by Congress from now until the time you retire.

What to do with your Social Security benefit statement

It’s a good idea to check your earnings record for errors once per year. It’s not uncommon for earnings from certain employers or even all of your earnings from an entire year to be missing, and you’ll want to get that corrected right away because benefits are calculated on your highest 35 years of earnings. “Any missing years will be just as damaging as a zero on a test was to your GPA,” Taff says. “Gather your documents and correct ANY missing years, even if they aren’t the highest salary. Every dollar counts!”

If you do spot any errors, grab your W-2 or tax return for the year in question and call the SSA at 1-800-772-1213. You can also report errors by writing to the SSA at:

Social Security Agency
Office of Earnings Operations
P.O. Box 33026
Baltimore, MD 21290-3026

Reading your statement is also a good reminder of how much you need to save for retirement outside of Social Security. Chances are, you won’t be happy living on just your Social Security income in retirement.

The good news is, the longer you delay taking your benefit, the higher your annual benefit will be. You can begin taking Social Security retirement benefits at age 62, but your payments will be smaller than they would be if you waited until full retirement age (FRA). Currently, your annual benefit increases by 8% for each year you delay taking your benefit from FRA until age 70.

Colin Exelby, president and founder of Celestial Wealth Management in Towson, Md., says that using your Social Security benefits statement can be particularly useful for retirement planning for couples. “Depending on your age, health, family health history, and financial situation there are a number of different ways to claim your benefits,” he says. “Each individual situation is different, and many couples have different views on the decision.”

If you are nearing retirement, you can use your benefits statement to work with a financial adviser to help you maximize total benefits, or run through various scenarios using a free online tool like the one provided by AARP.

Setting up your Social Security account is simple, free, and helpful for retirement planning, but it’s also a good security measure. It’s impossible to set up more than one account per Social Security number, so registering your account is a good way to prevent identity thieves from establishing an account on your behalf.

Take the time to set up your Social Security account and find out how much you might be entitled to receive in benefits. It could help you feel more empowered to take charge of your retirement plan.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

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College Students and Recent Grads, Retirement, Strategies to Save

Why the ‘Save 10% for Retirement’ Rule Doesn’t Always Work

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

To keep saving simple, many retirement experts and financial planners tout a general 10% rule for most savers: If you start saving at least 10% of your income in your 20s, you should have plenty saved up by the time you’re ready to retire.

Why save for retirement?

Social Security might not be around to help you make ends meet in retirement; that’s even more likely for millennials and the cohorts that follow. With the nation’s current birth and death rates, it’s estimated that Social Security funds will be exhausted by 2034.

Whether or not the future retirees of America will have Social Security to rely on, their benefit check alone likely won’t be enough to meet all of their needs in retirement.

According to the U.S. Bureau of Labor Statistics, retired households need to bring an average $42,478 to meet their annual expenses.

And yet, as of March 2017, the average monthly Social Security benefit for retirees was $1,365.35, or about $16,384 annually. That’s only slightly more than the U.S. Census Bureau’s 2016 poverty threshold for two-person households 65 and older ($16,480). Even in households where two spouses are receiving Social Security income, that’s still less than $32,000 per year.

That’s why it’s so important for workers to set additional income aside during their working years. When Social Security falls short, those extra savings will be essential.

Who does the 10% retirement rule work best for?

It’s likely that 10% became the rule of thumb simply because it’s easy to remember and makes the mental math a lot easier. But it’s important to understand who the rule is targeting: younger workers.

Since younger workers have more time to let their money grow, they can afford to save a bit less in their early days. But the advice changes as workers’ savings windows narrow with age. A 40-something worker, for example, who never saved for retirement may be encouraged to save twice as much for retirement since they have a shorter timetable.

“Ten percent may be enough, it may not be enough, and it may even be too much,” depending on your age and financial picture, says Amy Jo Lauber, a certified financial planner in Buffalo, N.Y. Someone paying off student loans or high-interest credit cards simply may not be able to put away 10% of their income.

It gets increasingly complicated when you consider your personal income and ability to save as well as your retirement goals.

“Typically, younger clients do not have complex situations and can get by with simple strategies. Once there are competing priorities, such as saving for a home, kids, and kids’ college, then things get complicated and more sophisticated strategies are required,” says Howard Pressman, a certified financial planner and partner at Egan, Berger & Weiner.

As Pressman suggests, you might need to tweak the rule if you’re starting to stash away retirement funds at an earlier or later age or want to put more money away now for a more lavish retirement.

Timing is everything

This chart from JP Morgan’s 2017 Guide to Retirement demonstrates the power of saving early for retirement.

At a modest 6% annual growth rate, Consistent Chloe, a 25-year-old who puts away $5,000 a year until she reaches age 65 should have a retirement account balance of more than $820,000, according to the bank. And when all’s said and done, only $200,000 would have come out of her own pocket — the rest would have resulted from the power of compounding interest.

In comparison, Nervous Noah, a more timid 25-year-old saver, could put away the same $5,000 a year in a savings account earning far less annual interest on his cash. After the same 40-year period, he would only have a balance of $308,050.

Investing earlier can bring even greater success. If a person starts putting away $5,000 a year at 20, growing at 6%, their balance at 65 would be about $1,132,549, which we calculated using the U.S. Securities and Exchange Commission’s compound interest calculator. That’s more than $300,000 added to Consistent Chloe’s retirement balance for beginning just two years earlier.

The final balance at 65 drops below $1 million for anyone starting after 25. As you can see above, those who begin saving will have less and less to live on in retirement.

7 retirement savings tips

  1. Start early

The emphasis of this rule is starting early. The earlier you save, the more you can take advantage of compound interest.

“Compounding is earning interest on interest earned in prior periods and is the most powerful force in all of finance,” says Pressman. To make the most of this rule, start saving 10% of your income for retirement by the time you turn 25.
Start by maxing out your 401(k) or IRA contribution limits for the year. If you still have additional funds, it might be time to meet with a financial planner to find out how to best invest your surplus.

  1. Know your options

The best place to stash retirement savings is either an IRA or a 401(k). Your money simply won’t grow enough to beat inflation if you leave it in a low-interest-bearing account like a checking or savings account.

  1. Make debt and emergency savings a priority

“Before anyone starts focusing on retirement saving, the first thing they should do is to establish an emergency cash reserve. This is to protect them from a job loss, a health emergency, or even an expensive car repair,” says Pressman. He recommends saving three to six month’s worth of expenses in a savings account.

If placing 10% of your income in a retirement account is too much of an ask because you have more pressing financial obligations like higher-interest debts, or don’t earn enough to cover your expenses, you should address those before increasing your retirement contribution.

Generally speaking, if the interest rate on any debts you owe is higher than what you’d earn on your retirement savings, you’ll make more progress toward your financial goals by addressing the higher-interest debt first.

  1. Plan differently if you have irregular income

Lauber says those who are freelancing and cobbling together a living may need to put several financial policies in place to help them navigate with irregular income.

“The 10% rule works for them but only if other measures are in place for the immediate day-to-day needs,” says Lauber. You can still create a budget with irregular income, but you might need to approach retirement saving more aggressively when income is higher, and strategize your saving to compensate for months when income is nonexistent or low. Find more tips on how to manage irregular income here.

  1. Make the most of your match

Don’t leave free money on the table. If your employer offers to match your contribution, Kristi Sullivan, a certified financial planner with Sullivan Financial Planning in Denver, Colo., advises individuals to save as much as your employer matches immediately or 6% if there is not a match. That way, you won’t miss out on free additions to your retirement nest egg.

  1. Automate your contribution

Out of sight, out of mind. Automate your retirement contribution to ensure you pay yourself first.

“Typically, once it’s done through payroll deduction, the person seldom misses it,” says Lauber.

  1. Check in regularly

Don’t just “set it and forget it.” Mark R. Morley, certified financial planner and president of Warburton Capital Management, stresses “clients must be ‘invested’ in their own plan.”

He says to check periodically on your retirement account and make adjustments where necessary. If you have a financial adviser, you may want to schedule regular progress meetings.

“When a client is engaged in their own plan and can see real results, we can work on the two variables that affect the retirement accounts: time and money,” says Morley.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Retirement, Strategies to Save

Why You Should Open Up a Roth IRA for Your Kids

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

A Roth IRA is probably one of the most powerful retirement vehicles available on the market. Unlike a traditional IRA, the contributions made to a Roth IRA are pre-tax, which allows you to withdraw your money tax-free after age 59½ .

When it comes to a Roth IRA, it’s important to think of how you can use it in other ways too, namely, how your kids can use one to become financially successful one day. There are two ways unique ways you can use a Roth IRA to help your children.

The first way is to open one in their name that they can use to save for their eventual retirement. The second is to use a Roth IRA in your name as a college savings account.

Both of these options come with pros and cons, and it’s important to know them before deciding if either of them is right for you.

Opening an IRA in Your Child’s Name for Their Retirement

The challenge of opening an IRA in your child’s name is that in order to open an IRA in your child’s name, the child has to have a paycheck. You can see exactly what qualifies as earned income here. It might seem like this is impossible, but it’s not. Entrepreneurial parents all over the country who see the value in early retirement savings are taking advantage of this.

For example, if you run a business, you can employ your children to stamp your mail, be models for your brochures, and even manage your social media. As long as you issue them a 1099 or a W2 for their work, they are eligible to open a Roth IRA.

Another negative is that you can’t supplement your child’s income to reach the $5,500 cap on Roth IRA contributions. They can only put in what they earn up to $5,500. So if your child only earns $1,500 from working part-time at an ice cream shop one summer, they can only invest $1,500. However, if they earn $6,000 from that same ice cream shop, they can only invest $5,500.

When children have a Roth IRA in their names, the money is officially theirs. This is different from earmarking a savings account for them in your name. Instead, this is money that they earned going into an account that can benefit them in retirement. The biggest pro is that this is an awesome teaching tool for them. You can really show them how their money can compound and grow over the years.

Even if you start the Roth with a small amount and never touch it again, a one-time $5,500 investment (the current Roth IRA contribution limit) can grow to over $100,000 at a 6% return if your child lets it grow from age 12 to age 62. Fifty years of compounding interest will do that!

What an awesome gift that would be if your child never touched this until they were at their retirement age and got a bonus six-figure payout from work they did when they were a kid. That’s a good memory to leave with them.

Opening a Roth IRA in Your Name as a College Savings Account

Many people don’t realize that another great benefit of a Roth IRA is that you can use it as a college savings account. You could use a Roth IRA in your child’s name for their college savings, but let’s say your child doesn’t work, or if they do, you’d rather they kept the IRA for their own retirement one day.

If that’s the case, you could use your own Roth IRA for their college savings, and here’s why. According to Certified Financial Planner, Matt Becker, “If the money is used for higher education expenses for you, your spouse, your child, or your grandchild, there is no 10% penalty.” (Usually, if you withdraw earnings from a Roth before age 59 ½ there would be a penalty, but not if the money is used for college.)

The downside to all this is that if you use this money for your child’s college education, then you’re not saving it in your Roth for your own retirement someday, and that’s pretty important! The pro is that your money isn’t locked into a 529 plan where you have to use the money for qualified higher education expenses. Another interesting pro is that 529 assets are counted toward your Estimated Family Contributions on the FAFSA, but investment accounts, like Roth IRAs are not.

That said, it’s important to look very closely at the differences between 529 plans and Roth IRA plans if you want to use your Roth as a college savings vehicle. Additionally, if you are a high-income earner, you might not be able to contribute to your own Roth IRA unless you do what’s called a backdoor IRA. The current 2017 income limit for Roth IRA contributions is a $186,000 annual income for those who are married and filing jointly or $118,000 for those who are single.

As you can see, Roth IRAs are great accounts for a variety of different savings purposes, and you should try to think outside the box when it comes to using them to help your children create a bright financial future.

Advertiser Disclosure: The card offers that appear on this site are 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 card companies or all card offers available in the marketplace.

Cat Alford
Cat Alford |

Cat Alford is a writer at MagnifyMoney. You can email Catherine at cat@magnifymoney.com

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