Jan

27

How To Make Your Money Work Harder for Retirement

Little things you could do that could help you leave work a little sooner.

Little things matter. When planning for retirement, people naturally think about the big things – arranging sufficient income, amassing enough savings, investing so that you don’t outlive your money, managing forms of risk. All of this is essential. Still, there are also little financial adjustments you can make at mid-life that may pay off significantly for you down the road.

Drop some recurring expenses & do something else with the money. How much do you spend for cable or satellite TV? Could you drop that expense or find a cheaper provider? How about the money you spend each month on a storage unit? A service contract? A subscription to this or that? Two or three such monthly expenses might be setting you back $100, $200 or more. What if you used that money to pay yourself? What if you saved it? What if you invested it and let it compound?

Assign your investments to appropriate accounts. This could be a route toward tax savings. When you retire, you will probably want to structure your retirement withdrawals so that money comes out of your taxable accounts first, then tax-deferred accounts, and then tax-free accounts. This gives assets in tax-deferred and tax-free accounts a little more time to grow.

Before that time arrives, you will likely find it ideal for your taxable accounts to hold investments taxed at lower rates, and your tax-advantaged accounts to hold investments taxed at higher rates. Various investment classes (stocks, commodities, bonds and so forth) are taxed differently, and some investors ignore that reality.

How much of a difference could such placement make? Here’s a long-range hypothetical example. Imagine putting $4,000 each year in a mutual fund returning 8% annually, with 3% of that 8% coming from income. If that fund is held in a tax-deferred account under those circumstances for 40 years, it grows to $1,036,226, and $880,792 when adjusted for taxes. Put that fund in a taxable account (annual contributions adjusted to $2,880, the return taxed annually at 15%) and you wind up with $841,913, actually $771,789 adjusting for taxes.1

Investigate fees. High fund and account fees can eat into your retirement savings effort, and most people never check on them. Tiny fees could shave tens of thousands of dollars off the account balance by your retirement date.

Ditch a zero-interest savings account for a better one. Interest rates are rising, but they are still far from historical norms. If you have money in a savings account that is yielding 0.15%, then talk to an investor coach of alternatives.

Strategize with your credit cards. If you always pay the full balance off each month, look for a card with rewards points – you could use them instead of cash someday. If you can’t pay off monthly balances fully, your strategy is simple – you want a credit card with the lowest interest rate you can find.

See what you’re spending. Few pre-retirees do this, and that’s because when they think “track monthly expenses,” they think of pen and paper and a couple of dull hours poring over receipts and bills. Good news: software exists to do some of the work for you, software that can keep you apprised of household budgetary limits, trends and progress. Some of the budgeting software out there now can help you retain more money to save for the future.

Spend less on food & clothes. Online discounts (and coupons) abound, and it is astonishing how many people don’t take advantage of them. Your smartphone and your PC aren’t the only sources; the Sunday paper can pay for itself this way. In the rear-view mirror, many food and clothes purchases are less than necessary, sometimes frivolous.

Reduce your debt. Some of the above moves may help you do just that. According to the most recent study from credit card comparison website CardHub, American households averaged $6,690 in credit card debt in the third quarter of 2013. Whether you owe more or less than that, such debt is certainly worth whittling down.3

 

Citations.
1 – personal.vanguard.com/us/insights/taxcenter/how-taxes-cut?cbdForceDomain=false [1/2/14]
2 – dailyfinance.com/2011/01/19/are-you-losing-retirement-savings-to-401-k-fees/ [1/19/11]
3 – cardhub.com/edu/2013-credit-card-debt-study/ [10/23/13]

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by MarketingLibrary.Net Inc., for Mark Lund, The 401k Advisor, Investor Coach and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. an independent, fee-only, Registered Investment Advisor firm providing 401k consulting for small businesses and private investment management services for select individuals. Stonecreek is located in Salt Lake City and Provo Utah.

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About the Author ()

Mark K. Lund is the firm's founder, CEO and author of The Effective Investor, a #1 Best Seller. He has written articles for or been quoted in: The Wall Street Journal, The Salt Lake Tribune, The Enterprise Newspaper, The Utah Business Connect Magazine, US News & World Report, and Newsmax.com, just to name a few.  Mark publishes two newsletters called, “The Mark Lund Growth Report” and “Mark Lund on Money.”  Mark provides CPE (continuing professional education) courses for CPAs.  You may also have seen him on KUTV Channel 2, or as a guest speaker at a local association or business. Mark provides investment and retirement planning services for individuals and 401(k) consulting for small businesses. In his book, The Effective Investor, Mark exposes the false narrative magazines, media, big Wall Street firms, and most advisors want you to believe. The good news is that Mark will show you that you don’t need their speculative ways of investing in order to be successful. Get a free copy when you schedule your initial consultation.

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