Your Potential is Unlimited

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In generations past, “hobbies for retirees” meant things like knitting, hanging out at the VFW, and flipping through TV Guide to see when Matlock would be on again.

Sure, some people were a little more active, but the expectation was that once retired, the adventures in life were pretty much over.

These days, it’s possible to retire earlier, live longer, and stay healthier than ever before, so there’s no need to relegate your newfound free time to the dusty hobbies of yesteryear.

Toss those knitting needles and set down the remote control – no matter what age you retire at, these are some of the best hobbies for your retirement years.

Hiking

No matter where you live, there’s probably a beautiful mountain, a well-worn trail, or even an urban park just waiting to be explored close by.

Some of the great things about hiking are that you don’t need a lot of fancy equipment, there’s no steep learning curve. and you can dedicate as much or as little time as you like to it, so it’s quite easy to get started.

Search for “best hikes near me”, and Google will give you pages and pages of results with varying degrees of difficulty.All you’ve got to do is pick the right one for you, pack some water and snacks, put on your sturdiest shoes, and head out there!

The fresh air, new sights and the beauty of nature are reward enough for anyone.

Mountain Biking

If you really want to get your heart pumping, there are few activities more thrilling than mountain biking.

Much like hiking, you can find locations almost anywhere, and you need little more than a sturdy bike, a helmet, and a water bottle to get started.

Also, mountain biking is a great way to explore nature in a new way – you’ll constantly be covering new ground, so it’s fantastic exercise for your body and your brain.

Surfing

If you’re looking for a cool factor with your new hobby, look no further – surfing has got to be the coolest activity out there, and it’s a personal favorite of mine!

While it’s restricted to those folks who live in driving distance of the coast (or those willing to travel a bit to fulfill their surfing dreams), it’s a fantastic workout and an intense experience unlike any other.

Once you get started, you’ll see why surfers get up early and paddle out in freezing waters – the thrill of catching a great wave is worth it.

Fishing

This is a traditional hobby for retirees, but it’s a classic for a reason.

The greatest part about going fishing when you’re retired is that you can hit the lake or river any day of the week – no more waiting for Saturday to enjoy yourself!

The best spots won’t be crowded on a Tuesday morning, so it’ll be just you, the water, and all you can catch.

Blogging

If you have a knack for writing, blogging could be a perfect hobby for you.

With drag and drop website builders like Squarespace, it’s never been easier to create your own site and then start blogging. If you’re wondering what you should write about, the answer is, well, anything you’re passionate about!

From cars to cooking, fitness to politics – whatever you’d like to write about, there are readers out there who’d love to read your take, and unique perspective on it.

Photography

Digital or darkroom, photography is a great hobby to pick up in retirement.

If you haven’t shopped cameras in a couple of years, you’ll be stunned at all the options out there. Great cameras can be had at a variety of price points these days, and you can take stellar images with everything from a compact micro 4/3rds camera to a large dSLR with interchangeable lenses.

If you want to get started on the cheap, you could even take a course in smartphone photography – the latest iPhones, Samsungs, and Androids can produce world-class images with a little bit of know how.

Yoga

Maybe you’d like a hobby that’s good for your mind, body, and spirit. Yoga certainly fits the bill.

Not only will it keep you active, it can help to give you greater strength and flexibility. You’ll find beyond the physical benefits it can grant you peace of mind and a better sense of awareness, too.

Best of all, with several different forms to choose from, there’s a yoga for everyone.

Metal Detecting

This is a hobby that can pay for itself – literally.

With just a metal detector and a little bit of time, there’s no end to the treasures you can find!

Whether you like collecting coins, you want to look for jewelry you can sell, or you just like helping out by locating precious mementos that have been lost or left behind, metal detecting can be a great hobby.

Car Restoration

Remember that car you dreamed of having when you were a teen? You know, the one you could never afford at the time, but still think about today?

Well, guess what – it’s never too late. You can find one at an auction or on in an issue of Auto Trader.

It might not be in perfect condition anymore, but that’s actually good news! Since you’re retired, you now have the time to lavish on the car to bring it back to its glory again.

Selling On Amazon

There’s a fortune to be made in eCommerce, and there’s no reason you can’t cash in on it, too.

If you get your start by selling on Amazon, either by creating written content for their Kindle Direct Publishing platform or by selling physical products, you can make good money without a lot of upfront costs.

This isn’t an overnight path to riches, but if you approach it as a hobby, you’ll be pleasantly surprised with what you can make while having fun.

Cooking

You’ve probably made what I call “maintenance meals” for years now, but if you enjoy cooking, why not dig in and learn how to make dishes beyond the typical fried chicken or spaghetti?

Stores like Williams Sonoma and Sur La Table offer in-person cooking classes, or you could get an entire education just by following along with Food Network or YouTube videos.

Push your culinary boundaries. You might find you have a creative knack for creating new delicious recipes.

The best part is you get to eat the end results!

With a variety of hobbies to choose from, there’s absolutely no reason for retirement to be boring. Pick one of these, or go with your own! Either way, try something new and remember to have fun with it!

To a richer life,

Nilus Mattive

Nilus Mattive

The post Your Potential is Unlimited appeared first on Daily Reckoning.

How to Avoid Shipwrecking Your Retirement

This post How to Avoid Shipwrecking Your Retirement appeared first on Daily Reckoning.

Nilus MattiveDear Rich Lifer,

You’ve worked incredibly hard in order to save up to retire. The road to retirement can be a difficult one that requires both social and financial sacrifices in order to save enough for a comfortable retirement. This is why it’s crucial  to avoid as many financial  mistakes that  could compromise the security of your retirement plan as you can.

Not to fear! I’ll highlight some of the common mistakes people make with their retirement funds so that you can avoid these slip ups.

 

  1. Not Having a Plan

 

According to the Retirement Confidence Survey from the Employee Benefits Research Institute, 48% of workers haven’t calculated how much money they need to save for retirement. If you don’t have a plan, you are setting yourself up for failure. In fact, Fortune magazine published a study which showed that people with written plans end up with an average of five times the amount of money at retirement as compared to those with no written plansThere is no “one size fits all” when it comes to a financial plan, but experts suggest you aim to have enough saved up to in your retirement account and income from other sources to equal 80% of your income at the time you retire..

 

  1. Taking Social Security Too Early

 

Although you can start collecting Social Security Payments at age 62, your monthly checks are reduced if you start collecting benefits so soon. This could mean your benefits are reduced by almost 30%! To claim your full benefits you must sign up for Social Security at your full retirement age, which varies based on date of birth. So, for a worker eligible for a $1,000 monthly Social Security benefit at his full retirement age, claiming at age 62 reduces their monthly payment to $750 if his birth year is 1954 and if they were  born in 1957 it brings the amount down to $725.

Of course, there can be reasons to start collecting social security early, such as health concerns or an issue with your work status, but if you have the choice, make sure you think long and hard about when the right time is to start your collection.

 

  1. Cashing Out Before You Retire

 

It’s very tempting to dip into a sizable retirement fund, but as much as you tell yourself you will pay yourself back, once that money is gone it is usually gone for good. It is also important to remember that you have to pay income tax on any money you withdraw from an IRA. You also can face a 10% early withdrawal penalty if you withdraw money before the age 59 ½. If you absolutely must take out funds from your 401(k), there is a loophole you can use to take money out with no penalty. You can take penalty-free 401(k) withdrawals beginning at age 55, if you leave the job associated with that 401(k) account at age 55 or later.

 

  1. Spending Too Much Too Soon

 

When most people retire they are still living active and healthy lives. This will most likely result in wanting to spend money on activities such as trips, vacation homes, or boats. However, always make sure you are keeping track of your spending. If you live into your 90s you will still need resources in order to take care of yourself for your whole life.

 

  1. Playing the Stock Market

 

This one may seem a bit counterintuitive, but hear me out. Most people automate their 401(k) savings and investments while they are actively working so they can focus on other things. However, once retired some retirees think they are smart enough to take on Wall Street and take control of their own financial fate. My advice here may seem harsh, but unless you have experience with the market, or have someone who does know what they are doing, most likely you are not smart enough to beat Wall Street at it’s own game. Ultimately it may be  a much better idea to stick to a low-cost diversified ETF or mutual fund. Either way, if you decide to play the stock market, make sure it is with funds you are comfortable losing. Never invest money you can’t afford to lose.

 

  1. Failing to Account for Inflation

 

Right now the government states that inflation is barely 2%; however, there is no way to tell if, or when, higher inflation will occur. Inflation is often an issue for retirees because pensions may not be adjusted for inflation. Further, many jobs fail to offer a traditional pension plan. In fact, Only 17 percent of private industry employees were offered a traditional pension plan in 2018, according to Bureau of Labor Statistics data.

Social Security payments are adjusted for inflation annually; for example, recipients will get 2.8 percent bigger checks in 2019. However, this often only accounts for the increase in Medicare costs. So make sure you should keep a portion of your savings invested in assets that increase with inflation, such as real estate, stocks or rental properties.

  1. Failing to Prepare for Medical Expenses

 

Many retirees have Medicare which covers most medical bills, alongside supplemental insurance. However, many forget that you must also be prepared to pay for deductibles, uncovered procedures and copays. These costs can add up over time. In addition, some health expenses, such as dental, eyeglasses, or hearing aids, are not covered by Medicare. Putting aside funds for health expenses that are likely to occur later in life will save you a lot of headache down the road for unexpected medical expenses..

Also remember, most people become  eligible for Medicare during the months around their 65th birthday. If you don’t sign up for Medicare during this initial enrollment period, you could be charged a late enrollment penalty for as long as you have Medicare.

 

  1. Not Spending Enough

 

This may seem odd, but it is possible to be too cautious when it comes to spending your retirement savings. Of course it’s great to leave your kids an inheritance, but there is no reason to scrimp and save if you have enough money in the bank. Don’t put yourself through  Unnecessary financial hardships that could be easily avoided by being realistic about your spending plan.

I hope that these tips will be helpful to you as you move forward with your retirement plan! I know it can seem like a daunting task, but with the right research, and planning, you can retire comfortably, and live out your golden years the way you always pictured them.

To a richer life,

Nilus Mattive

Nilus Mattive

The post How to Avoid Shipwrecking Your Retirement appeared first on Daily Reckoning.

Turn Up Your Savings with Your Stove

This post Turn Up Your Savings with Your Stove appeared first on Daily Reckoning.

A loaf of bread in 1913 cost just over 5 cents. Eggs would set you back 37 cents a dozen. And a gallon of milk 35 cents.

Grocery prices today are a bit different…

A dozen eggs will run you $1-2. A loaf of bread costs on average $2.50. And a gallon of milk is around $3.10.

While the average price of food has climbed over the past 100 years, Americans are actually spending far less on groceries than we used to as a portion of our total income.

Where the average American household spends 10.5% of their income on food today, in 1900 most households spent nearly half their annual budget on dinner.

What’s Changed?

Two factors: inflation and prosperity.

During most of the 20th century, inflation tended to impact food less than most other consumer spending categories. At the same time, incomes rose across the board, and Americans could afford better meals.

Today the average U.S. household spends a large chunk of its food budget on groceries ($4,363), but we also spend almost half as much on eating out ($3,365). How much you spend on food also depends on where you live.

City dwellers spend more on everything, but as a percentage of income less on groceries and more on eating out. If you live in the country, groceries are typically cheaper and you eat out less.

But these numbers are skewed by income. City slickers might spend more on food, but less as a proportion of income because they tend to make more money. Whereas rural residents make less but spend approximately 40% less on housing.

You’ve probably been told that if you want to save money, you should eat out less. The question I have is eating out cheaper than cooking at home?

At first glance, cooking doesn’t seem like a budget-friendly move. You have to buy groceries, kitchen supplies, and set aside time and effort. How much do really save?

Three Meals a Day

Let’s imagine you ate out three meals per day. You buy a $10 breakfast, $15 lunch, and $25 dinner, $50 per day.

At home, you could have prepared something similar for maybe $15 in ingredients. But you also have to take into account the time you spent cooking and preparing the meals.

Cooking three meals per day is probably an hour and a half of your time. If you make $20 per hour, that’s $30 in time, not including “hidden costs,” like shopping for ingredients, cleaning up afterwards, hydro, water, gas etc. You’re probably spending $50 on feeding yourself at home in this scenario.

Then why does eating out typically cost more? There are a number of factors but it boils down to a few things: portion size, hidden costs, and frequency.

What isn’t shared in our above scenario is how much food you’re actually getting when you cook at home vs. dining out. Most meals prepared at home yield leftovers, typically 3-4 meals more than the price for one meal out.

Another factor that skyrockets your bill at restaurants is drinks. The hidden cost of cooking at home, like your time, effort, hydro etc. are not there in your drink. It only takes a second to open a bottle of beer or uncork a bottle of wine. Yet you’re paying the price of a six pack for one beer or the price of a bottle for a glass.

Lastly, most people don’t eat out as often as in the scenario above. On average, Americans eat out about four times a week.

The Real Savings of Cooking at Home

The average commercially-prepared meal costs around $13. Even if you split this amount into two meals, $6.50 each, you’d still be spending more per meal than if you were to cook at home.

The average meal prepared at home costs around $4 for groceries — a $9 savings per person per meal. In other words, a $13 restaurant meal is about 325% more expensive than a $4 meal you prepare yourself of the same size.

As I said, most Americans eat out about four times a week. If you make just two of these meals at home, your savings are $936 — almost $1,000 a year.

Imagine what you could do with an extra grand every year. Even if you only skip one meal-out a week, your annual savings are about $500.

How to Make Cooking Easier

  • Find simple, low-cost, healthy recipes — these will be your go-to meals every week.
  • Cook in large batches so you have leftovers for a couple meals. You’ll save time and effort by batching meals this way.
  • Eat breakfast. Breakfast is one of the cheapest meals — take advantage of the savings.
  • Brown bag your lunch. You can save a minimum $500 per year by packing a lunch 2-3 times per week.
  • No time for grocery shopping? Try a meal subscription service. It’s pricier than buying your own ingredients, but still cheaper than most restaurants.
  • Lastly, Take a cooking class. It’ll cost you a bit upfront but you’ll learn invaluable lessons on meal prep that will save you time and money in the future.

Eating out isn’t a bad thing. But doing it too often can definitely hurt your wallet. The next time you think about going out to grab a bite, try some of the tips I’ve recommended above.

To a richer life,

Nilus Mattive

Nilus Mattive

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Are You Ready for Another Recession

This post Are You Ready for Another Recession appeared first on Daily Reckoning.

Dear Rich Lifer,

Although the U.S. economy continues to grow and add jobs, talk of the dreaded “R” word is on the rise due to a number of worrying signs.

Yes, I’m talking about a “Recession”.

Between the ongoing trade war with China, an inverted yield curve, and the Federal Reserve lowering short-term borrowing costs, investors are starting to get spooked.

A question I get asked a lot is what should retirees do with their money when a recession is looming?

When the market crashed in 2008, an estimated $2.4 trillion disappeared almost overnight from Americans’ 401(k)s and IRAs.

The fear of losing everything to another recession is sending a lot of investors running for the hills.

However, there are steps you can take today to minimize losses during a recession, no matter your age or financial situation.

Here’s a checklist you can follow so that your investments and savings can weather any financial storm.

1. Start tracking your cash flow.

Step one in preparing for a recession is knowing where you stand. The best way to figure this out is by calculating your cash flow, or how much money you have coming in versus going out.

Knowing what your fixed and variable costs are each month as well as where your income is coming from will relieve some of the uncertainty should there be an economic downturn.

If you’re employed, there’s a high chance that you might get laid off during a recession, so you’ll want to know exactly how long your savings will last.

An easy way to begin tracking cash flow is with free mobile apps, like Mint or Personal Capital. You simply connect your bank accounts to these apps and the software tracks your transactions and categorizes your spending.

This way you know where your money is going each month and you can start setting budget goals or identifying expenses that can easily be cut in the future.

2. Top up your emergency fund.

Your best defense against economic hardship will be a well-funded emergency fund. Rather than rack up high-interest debt, you can tap your savings to cover basic living expenses.

As a general rule-of-thumb, I recommend building an emergency fund of 3-6 months worth of expenses. With talk of a nearing recession, however, it’s best to err on the conservative side.

The reason why an emergency fund is critical is because you’ll need liquid money to keep paying your bills. If you or your spouse lose your job, an emergency fund will come in handy to keep you afloat.

If you’re retired, you won’t have to worry about getting laid off, but you’ll still need an adequate amount of accessible cash in case your retirement accounts or pension take a hit.

3. Pay off outstanding debt.

With talk of a recession happening in the next year or so, it’s a good time to start aggressively paying down any bad debts you owe.

Should a recession strike, you’ll want your income going toward monthly living expenses and not paying the bank.

Plus, if you miss too many payments you could end up wrecking your credit score, which will make your life even more challenging when the economy recovers.

Also, whatever you do, don’t dip into your 401(k) to pay off debt, especially if you’re not yet retired. Start with high-interest debt first, like credit cards and build debt payments directly into your budget so you don’t forget.

4. Rebalance your investment portfolio.

Once you’ve taken care of your emergency fund and paid down any outstanding debts, it’s time to review your investments.

If you’re already retired or close to retirement, you’ll want to mitigate as much risk as possible but still maintain enough growth in your portfolio to pay for living expenses and outpace inflation.

Traditional wisdom of maintaining a 60/40 mix of stocks and bonds is no longer enough diversification.

The reason being that retirees are now living longer, which means your portfolio needs more room for growth. Look to diversify your portfolio to include a wide range of asset classes, like foreign stocks and bonds, this will put you in a better position to endure a downturn.

5. Manage your 401(k) wisely

If times get really tough, it can be tempting to want to sell or make significant alterations to your 401(k). My advice: don’t touch it.

Most likely, your 401(k) is part of your long-term financial plan, which means economic downturns are part of the deal. You don’t want to jeopardize any long-term gains by panic-selling the moment markets start dropping.

Lastly, if you’re not already maxing out your 401(k) contributions or taking advantage of any employer-match programs, make sure you do. That’s your money to keep.

Finally, understand that recessions are a normal part of the economy. They’re cyclical in nature and notoriously hard to predict. Control what you can by heeding the warning signs and preparing best you can.

To a richer life,

Nilus Mattive

Nilus Mattive

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The Democratic Debate Dilemma

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Right before last week’s Democratic debate, Elizabeth Warren revealed her plan to greatly expand Social Security.

And then, during opening remarks, Andrew Yang said he wanted to pay 10 Americans “freedom dividends” worth $1,000 a month as a way of demonstrating his larger plan to do the same thing for everyone in the country.

Now, both of these proposals are attempts to create larger social safety nets.

Both are also attempts to buy votes.

And both, in my opinion, miss the mark.

Let’s start with Elizabeth Warren.

The Headline Promise

Warren wants to pay all current and future Social Security recipients an extra $200 a month.

Promising seniors, the group of Americans who always vote come rain or shine, an extra $2,400 a year in Social Security benefits is a pretty good way to garner their support.

In addition, her plan:

  • Changes the measure of inflation used for Social Security adjustments to make it more tailored to what seniors experience
  • Provides Social Security credits to non-earning caregivers
  • Allows disabled widows and widowers to claim survivor benefits earlier
  • Creates special minimum benefit rules that would guarantee checks worth 125% of the federal poverty line
  • Finally, it allows public sector employees to avoid negative adjustments for various pension benefits

Warren would pay for all of these changes with two new taxes:

  1. A 14.8% combined payroll tax on all wages above $250,000
  1. A 14.8% net investment income tax for individual filers making $250,000+ and joint filers making $400,000+. (This is in addition to an existing 2.9% net investment income tax.)

For the vast majority of Americans, this tradeoff sounds pretty good – higher Social Security checks, a better safety net for some, and all the costs being paid by the highest 2% of earners.

Personally, the individual line items sound like a mixed bag to me.

But there are really two big objections to be considered here:

A Philosophical Shift

Social Security was never intended to be an overtly progressive program. So this proposal would represent a marked philosophical shift.

When Social Security was first instituted, it covered about half of the population. Many teachers, nurses, librarians, and other workers were excluded from coverage.

Today, Social Security covers virtually everyone and the average American is living to age 76. Other features like disability insurance have also been added to the equation as well.

To accommodate this widening gap of money coming in and money going out, the initial payroll tax rate of 2 percent — which was and still is split between employer and employee — has already risen to a combined 12.4 percent.

But the idea was always providing a basic retirement benefit for all Americans … funded by their own contributions over time … with well-defined parameters on the top end (both maximum benefits and maximum contributions).

Warren’s plan is substantially different in spirit.

It places a lot more financial burden on a lot less people at the top of the income scale.

Whether you agree with her assessment that those people should bear the cost is up to you. That brings us to the second objection.

The Math Is Against Her.

It’s quite likely that Warren’s math wouldn’t pencil out in reality.

According to an analysis by Mark Zandi of Moody’s Analytics, Warren’s proposal would pay for itself and extend Social Security’s solvency out another 19 years.

Of course, one of the big assumptions is that wealthier Americans will take zero action to avoid the new taxes that Warren is proposing.

Newsflash: They will take actions to avoid the new taxes that Warren is proposing.

I have no idea to what extent or how, obviously.

But it’s foolish to think that America’s richest citizens won’t reconfigure their businesses … shift income sources … go through various legal restructurings … or use many other tactics to minimize the impact of these new policies.

Therefore, we can’t take any analysis at face value.

What About Yang’s Plan?

For someone who touts his ability at math, Yang’s proposal looks pretty ridiculous once you dig a little deeper.

I really like Yang. He’s funny. He’s intelligent. He also seems fairly reasonable.

I also thought his “freedom dividend” idea was somewhat palatable – or at least more palatable than Warren’s Social Security plan – until I read the fine print.

Okay, so one of Yang’s biggest ideas is a universal basic income program for all Americans.

Here’s the explanation from his website:

“Andrew would implement the Freedom Dividend, a universal basic income of $1,000 a month, $12,000 a year, for every American adult over the age of 18. This is independent of one’s work status or any other factor. This would enable all Americans to pay their bills, educate themselves, start businesses, be more creative, stay healthy, relocate for work, spend time with their children, take care of loved ones, and have a real stake in the future.

“Other than regular increases to keep up the cost of living, any change to the Freedom Dividend would require a constitutional amendment.

“It will be illegal to lend or borrow against one’s Dividend.”

How would we pay for this?

This is the answer from Yang’s website:

“Andrew proposes funding the Freedom Dividend by consolidating some welfare programs and implementing a Value Added Tax of 10 percent. Current welfare and social program beneficiaries would be given a choice between their current benefits or $1,000 cash unconditionally – most would prefer cash with no restriction.

“A Value Added Tax (VAT) is a tax on the production of goods or services a business produces. It is a fair tax and it makes it much harder for large corporations, who are experts at hiding profits and income, to avoid paying their fair share. A VAT is nothing new. 160 out of 193 countries in the world already have a Value Added Tax or something similar, including all of Europe which has an average VAT of 20 percent.

“The means to pay for the basic income will come from four sources:

“1. Current spending: We currently spend between $500 and $600 billion a year on welfare programs, food stamps, disability and the like. This reduces the cost of the Freedom Dividend because people already receiving benefits would have a choice between keeping their current benefits and the $1,000, and would not receive both.

“Additionally, we currently spend over 1 trillion dollars on health care, incarceration, homelessness services and the like. We would save $100 – 200+ billion as people would be able to take better care of themselves and avoid the emergency room, jail, and the street and would generally be more functional. The Freedom Dividend would pay for itself by helping people avoid our institutions, which is when our costs shoot up. Some studies have shown that $1 to a poor parent will result in as much as $7 in cost-savings and economic growth.

“2. A VAT: Our economy is now incredibly vast at $19 trillion, up $4 trillion in the last 10 years alone. A VAT at half the European level would generate $800 billion in new revenue A VAT will become more and more important as technology improves because you cannot collect income tax from robots or software.

“3. New revenue: Putting money into the hands of American consumers would grow the economy. The Roosevelt Institute projected that the economy will grow by approximately $2.5 trillion and create 4.6 million new jobs. This would generate approximately $800 – 900 billion in new revenue from economic growth.

“4. Taxes on top earners and pollution: By removing the Social Security cap, implementing a financial transactions tax, and ending the favorable tax treatment for capital gains/carried interest, we can decrease financial speculation while also funding the Freedom Dividend. We can add to that a carbon fee that will be partially dedicated to funding the Freedom Dividend, making up the remaining balance required to cover the cost of this program.”

So, a little wordy but, here’s the thing.

I’m the last person who wants to support another tax. But I could have at least argued that a VAT affects people who spend money rather than people who earn money.

Moreover, if the proceeds were going to be redistributed to all Americans on an equal basis and regardless of their income or net worth, then “freedom dividends” are certainly a lot more fair than Warren’s proposal.

The real problem is that, based on Yang’s numbers, a 10% VAT would only produce $3,200 a year for every American adult. Which leaves about $8,800 unaccounted for.

I repeat: We would all pay an extra 10% on most of the purchases we make, and yet that would only cover a bit more than one-quarter of the income Yang wants to give back to us.

That’s why he’s also going to completely remove the cap on payroll taxes – a far worse blow to higher-earning Americans (particularly those earning between $140,000 and $250,000) than what Warren proposes.

There’s also another tax on financial transactions …

He would end a tax break on capital gains and carried interest …

Another tax – okay, a carbon fee – on some undefined people or entities …

Plus, all this nebulous stuff that essentially amounts to back-of-the-envelope guesswork. Streamlining existing welfare programs? Sure…

But the other claims of economic growth and institutional avoidance can’t be proven out until we’re years into the experiment.

So, math… Sure.

Heck, the very way Yang counts the things it will take to produce $12,000 a year for every adult American is a lot more than four sources.

At the end of the day, I don’t really like either of the two proposals we covered today.

But as much as I wanted to support Yang’s more than Warren’s, at least hers somewhat adds up.

To a richer life,

Nilus Mattive

Nilus Mattive

The post The Democratic Debate Dilemma appeared first on Daily Reckoning.

Are Your Retirement Expenses Out of Control?

This post Are Your Retirement Expenses Out of Control? appeared first on Daily Reckoning.

We’ve all seen the commercials with the gray-haired couple sipping champagne on the beach or the grandfather teaching his grandkids how to fish at the lake house.

But financially speaking, how realistic are these depictions of retirement?

According to the latest Consumer Expenditure Survey, produced every year by the U.S. Bureau of Labor Statistics, “older households” – defined as those run by someone 65 and older – spend an average of $45,550 a year, or roughly $3,795 a month.

Obviously, what you spend in retirement will depend on different variables, including the annual property taxes on that lake house, the price of your preferred champagne, and a number of other individual factors, but you get the point.

If I’m being honest, I think spending $45,550 a year after-tax in retirement seems a bit high. Based on a 20% effective tax rate, $45,550 is equivalent to $54,660 a year in gross income.

To generate $54,660 a year in gross income, you would need an investment portfolio of $1,366,500 generating 4% a year.

Is the average 65+ year-old retiree in America a millionaire?

We know that the average 60-69 year-old American has only about $195,500 saved in their 401(k) and only $62,000 if we look at the median 401(k) account balance, so something seems a bit off…

If we take a more optimistic view, however, we can assume that current retirees over the age of 65 likely have some form of pension income as well as a healthy Social Security check, averaging out at around $1,461 a month. Add to that a little financial help from your adult kids and it should all work out in the end.

But the question I’m most concerned with is where is this $45,550 being spent? With less mouths to feed, no daily commute, it seems surprising to me that retirement expenses are this high.

If we dig into the BLS data a little more, we see a monthly breakdown of how households spend their money, on average. Here are the seven major categories you need to plan for:

Housing: $1,399

Surprisingly, housing is the largest expense for the average retiree. With the median American home price at $226,800, spending $1,399 a month on housing is high.

If your house is paid off by the time you retire, you should only be paying property taxes, insurance, maintenance, and utilities. Therefore, it’s obvious that the average retiree still has a mortgage to pay.

With no mortgage, your average housing expenses would tally up to more like $350 a month based on the median home price today. Point being, paying off your mortgage before you retire is going to save you a LOT of money.

Transportation: $615

$615 a month for transportation is another surprisingly high number, especially given the fact that most seniors get discounts on public transportation.

For example, discounts usually start at 50% of the regular adult fare and go up from there. Some cities, like Chicago, even offer free transportation to all senior citizens.

As a senior, spending $7,380 a year on transportation means you either still have an auto loan you’re paying off or it’s a sign you need to find a more trustworthy mechanic. The average transportation expense across all consumers last year totalled $9,761.

Although seniors are paying less on transportation per year than most, it still seems high in my opinion. Most Americans could do with paying less for transportation. Overpaying for a car is one of the biggest financial killers.

Healthcare: $557

It’s nice to see that health care cost averages only $557 a month or $6,684 a year. The average healthcare cost for a working American is closer to $20,000 a year, which is heavily subsidized by the employer.

The horror stories you hear about health care costs skyrocketing in old age are a bit exaggerated, so long as you have Medicare or some type of subsidized health insurance program.

Food: $539

$539 a month for food is not bad compared to the $600 a month for the average individual. With all the early-bird specials and seniors discount shopping days, retirees should be saving money in this category. My advice, stay away from food delivery apps if you want to maintain a reasonable budget here.

Personal Insurance/ Pensions: $283

It’s a bit unclear why this category even exists. 65+ year-olds should mostly be retired, however, the BLS explains this category as households who are still employed, paying Social Security tax, and contributing to Social Security.

In other words, the secret to a prosperous retirement is to keep your spouse working as long as possible! Seriously, having one spouse work late into retirement means you can typically afford more and live better. It just needs to be a situation you’re both happy with.

Cash Contributions: $210

$210 a month or $2,520 a year in cash contributions (aka charitable donations) accounts for around 4.2% of annual gross spend. 4.2% is a respectable amount since the average American contributes roughly 3% of their gross income to charity each year.

Studies have shown that making charitable contributions can improve happiness. Seeing the effect your contribution has made can be powerful so donate while you’re still alive to enjoy it.

Entertainment: $233

$233 a month for entertainment seems a bit on the low end. But when you consider all the discounts and deals that retirees get for being able to attend movies, plays, and museums during non-peak hours, it makes sense.

Not every retiree is taking an around-the-world cruise or flying to the Mediterranean for a weekend. What most retirees are saying is their newfound freedom provides much of their day-to-day happiness versus having to spend money on expensive experiences.

Overall, the average retiree lives a pretty good life. Being able to spend $45,550 a year after-tax is a decent sum given that the median household gross income last year was $63,179. That means the average retiree got to spend close to 87% of the median household income without having to work. Not a bad deal.

To a richer life,

Nilus Mattive

Nilus Mattive

The post Are Your Retirement Expenses Out of Control? appeared first on Daily Reckoning.

5 Financial Rules of Thumb You Need to Break

This post 5 Financial Rules of Thumb You Need to Break appeared first on Daily Reckoning.

One of my favorite Seinfeld episodes is when Kramer storms into Jerry’s apartment and starts complaining about another golfer who picked up his ball in the middle of the fairway to clean it.

Kramer goes on to say that he penalized his friend a stroke for breaking the rule.

Elaine then asks, “What is the big deal?” and Kramer replies, “Hey, a rule is a rule, and without rules there’s chaos.”

The same can be said for personal finance.

Without money rules, chaos can ensue. However, there are some rules of thumb I believe you should be breaking if you want to get ahead.

Some rules are outdated, and some simply don’t apply to everyone’s individual financial circumstances. So why bother follow a rule that makes no sense?

Here’s my list of 5 financial rules of thumb you should consider breaking:

1) Use Your Age to Determine Asset Allocation

During the 1980s and 1990s, it was standard to give the following asset allocation advice:

“Subtract your age from the number 100 and that is the percentage of your portfolio you should have invested in equities, with the remaining percentage in fixed income, adjusted each year as you age.”

Under this rule, at age 30, for instance, you should keep 70% of your portfolio in stocks and the rest in bonds and other relatively safer securities. At age 65, you invest 35% of your assets in stocks.

The idea behind the rule is to gradually reduce investment risk as you age. But that doesn’t always work. Americans are living longer and retiring later.

Your retirement savings strategy should be adjusted to meet a bigger nest egg. At the same time, the yield on a 10-year Treasury Bill is roughly 2.5%, down from a peak of nearly 16% in the 1980s.

And with the stock market soaring over the past decade, it might not have made a lot of sense to dump a large portion of money into fixed income when you could reap greater gains.

My advice, rebalance your portfolio each year, look at your target retirement age, what you plan on using your funds for in retirement and your risk tolerance.

2) Pay Off Your Mortgage as Fast as Possible

For most, a mortgage is the largest debt they’ll ever owe. So from a risk tolerance point of view, it makes sense to want to pay down the debt as fast as possible.

Although this really only makes sense when interest rates are outpacing the stock market. If interest rates are double digits and investment returns average 7%, yes, it makes sense to pay down your mortgage faster.

But, the majority of homeowners today have a mortgage rate of less than 5%, and are seeing average annual returns above 7%.

So it’s better to make your payments on time, take your mortgage interest deduction on your federal income taxes and have more money invested for higher returns.

3) You’re Throwing Away Money If You Rent

Owning a home is part of living the American dream. And there’s been long held debates over whether or not renting is akin to flushing money down the toilet.

The way I see it, you have to live somewhere and renting affords you a life free of many of the  unpredictable expenses homeownership offers. Not having to pay mortgage interest, property taxes, maintenance and repairs can be a big plus if there are good opportunities to put your money to work elsewhere.

Renting also means you have the flexibility to move to where opportunity exists. If you’re tied to a home, you might not be able to pick up and move to a more lucrative job opportunity in a neighboring state.

Obviously, there are benefits to owning a home too, so take this advice with a grain of salt.

4) Spend No More Than 30% of Your Income on Housing

The 30% rule is a common budget benchmark for housing costs. The gurus tell you to cap your rent or mortgage at under 30% of your monthly income.

This rule of thumb stems from housing regulations from the late 1960s. A US Census Bureau study said the Brooke Amendment (1969) to the 1968 Housing and Urban Development Act established the rent threshold of 25% of family income in response to rising renting costs.

The rent standard later rose to 30% in 1981, which has since remained unchanged, according to the study.

But this 40 year old standard may not be realistic for a lot of people today. A Harvard University study found in 2015, nearly 21 million renters — almost half of the country’s renters — spent more than 30% of their income on housing across the country.

Rather than think 30%, think what can I afford? Look at how much you earn, how much debt you owe, and where you live, your rent could be more or less than 30% of your paycheck.

If you find your rent is eating away most of your paycheck, consider ways of making more income or consider moving somewhere with lower costs.

5) Withdraw 4% of Your Savings In Retirement

When you retire, it’s been said you should start withdrawing 4% from your portfolio in your first year of retirement, increasing withdrawal each year enough to cover inflation.

If you have $2 million saved, you would take out $80,000 for the first year. If the annual inflation rate is 2%, then you withdraw $81,600 the following year ($80,000 plus 2%). And you continue this trend for the next 30 years.

This rule was created on historical data by financial advisor William Bengen in 1994. Where this rule falls short is it doesn’t take into account life’s ups and downs.

Your investment performance might lag one year because of a poor market or economic conditions. Bengen also assumes retirees have a portfolio split between stocks and bonds. He later revised the rule to 4.5%, using a more diversified portfolio.

My advice to you is be flexible and revise your spending rate based on your needs and portfolio performance. Early retirees might have a smaller nest egg, and need to withdraw less than 4% to make their savings last.

And someone with major health concerns and a shorter horizon might want to enjoy more of their savings with the time they have left.

As you can see there is no one-size-fits-all book of rules for personal finance. Use money rules as guidance, but use your best judgement on whether or not a rule should be broken or not.

To a richer life,

Nilus Mattive

Nilus Mattive

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Urgent: Your Will May Need Updates

This post Urgent: Your Will May Need Updates appeared first on Daily Reckoning.

When the “Queen of Soul” Aretha Franklin died last year, it was believed that she hadn’t prepared any kind of estate plan, including a last will and testament.

But, a few months ago, three handwritten wills were found in her home near Detroit. Two were in a locked closet and one was stuffed beneath the cushions of a couch!

If you’re wondering whether the handwritten wills are valid, join the crowd.

In Franklin’s case, with her $80 million estate, it’s likely good news that some kind of last will and testament was found to help divide her assets.

But, there’s no guarantee that the informal, handwritten wills are going to hold up in court. So the saga continues…

Aretha’s problematic situation is why it’s so important to have an estate plan with a legally valid last will and testament.

I won’t bore you with estate planning details (today), but I do want to talk about when you should consider updating your will.

This is all personal preference, of course, but I would suggest reviewing your will if you’ve done any of the following recently.

Moved to a Different State

If you’ve moved to a different state since your will was written, it’s a good idea to review it. Whatever state you die in, will be the state’s laws that are applied to your will.

And some rules in your new state could be different from your old one. For example, some states vary in the number of witness signatures needed on a will to transfer property once you die.

If you move from a state that requires only one witness to two, this can be problematic for your executor. Other rules that differ between states are the types of wills deemed valid.

Some states allow self-written wills but have rules around how they can be written. In one state, you might have to write out your entire will by hand. Whereas, in another state you can type your will and just sign at the bottom.

Purchased a New Property

Another mistake a lot of people make is they assume that because their will states that they are gifting their home to their children when they pass that it’s a done deal.

Your will needs to specify exactly what home and at what address you’re gifting. So if you move or decide to buy a second property, make sure your will specifies who receives which property and at what address.

Purged Old Possessions

If you’ve moved or downsized recently, you likely purged some of your old possessions. Sometimes you end up giving away or selling something you had planned on passing down.

If your will lists items you no longer own, those possessions will be skipped over and the recipient of those items with get nothing. So, it’s best to review your will and redistribute whatever possessions you currently still own.

Gifted a Willed Item

Sometimes you will gift some of your possessions early due to downsizing or out of necessity. For instance, you might gift an antique desk to one child, but in your will, it says that same desk goes to another child.

Things can become awkward between families if you don’t catch these little hiccups. Whenever you give something away that’s significant, review your will to make sure you haven’t disrupted the balance.

Had a Significant Change in Your Net Worth

You might have exact amounts of money earmarked for each one of your children. This will likely depend on how much your estate is worth, the value of stock you own, etc.

But the size of your estate and the worth of your stock could have grown or shrunk dramatically since you last wrote your will.

This can create challenges for your executor. Especially if one asset has grown significantly while another has shrunk. If that’s the case, it’s best to update your will to reflect your current net worth.

Begun Working with a New Charity

Maybe you’ve recently started volunteering at a nonprofit or you joined a board for a charity that means a lot to you. You might wish to donate some of your wealth to this group.

Now is a good time to update your will to reflect those changes. And the same can be said for charities or groups you no longer feel the same way about. You might need to remove some groups from your will to better reflect how you currently feel.

Had a Death in the Family

If your spouse dies before you, you won’t need to update your will because wills typically list alternate recipients in case this happens.

But, if your will lists a child who has recently passed as a beneficiary, then you’ll need to include instructions on how you would like that child’s items redistributed.

Your Primary Caregiver Changed

If one of your sons or daughters becomes your primary caregiver since you last wrote your will, it might be time to update your document to reflect your gratitude.

Oftentimes, becoming a primary caregiver involves a huge time and financial commitment. The best way to go about making this change so as not to upset the other beneficiaries listed in your will is to explain your intentions.

To a richer life,

Nilus Mattive

Nilus Mattive

The post Urgent: Your Will May Need Updates appeared first on Daily Reckoning.

8 Unforgettable Fall Travel Destinations for Retirees

This post 8 Unforgettable Fall Travel Destinations for Retirees appeared first on Daily Reckoning.

As varied as people are, they usually have common wishes. I mean, who wouldn’t love to win the lottery or have a beach body no matter what they ate, right?

This holds true when it comes to the lifestyle people envision for their retirement.

When it comes to their post-work years. many people plan to use the extra time to visit loved ones, or get elbows-deep in their beloved hobbies. One woman I met recently wants nothing more than to spend her retirement years watching every single Yankees game, for example.

The most common dream that people have for their retirement, though, is travel.

Foreign or domestic, short hops or long hauls, men and women alike want to spend more time seeing the world around them.

This is largely because it’s almost impossible to travel before you retire. Sure. you might get a vacation to Cabo here or a week in the Wisconsin Dells there, but for the most part, your working and child-rearing years keep you pretty well locked in to a certain geographic region.

This happens because people don’t have the money, yes, but also because they don’t have the time. Your working years are spent at your 9 to 5, socking away as much money as you can, while spending your precious free hours running errands at Costco or sitting in the sun on the Little League bleachers (remember those days).

This all adds up to a deficit of money and time. These precious resources are scarce during the middle of your adulthood, and if you’re like most people, you spent years wishing you had more of each.

Ready for the magical, amazing, wonderful part?

Now that you’re retired, you have both.

That’s right, it’s time to finally realize your dreams of seeing the destinations you’ve only imagined visiting in the past. Now that it’s fall, the crowds have died down and the rates have dropped, so there’s no time like the present to get out there.

If you are ready to travel, but you have no idea where to start, you’re in luck! Here are some wonderful trips to stunning US locations you should take advantage of now that you finally can.

Burlington, VT

With wineries, breweries, a burgeoning food scene, and tons of beautiful inns and bed-and-breakfasts to visit, Vermont is a traveler’s paradise. Add in the turning of the leaves and amazing, crisp, weather, and you’ve got a perfect destination for an impromptu trip. Be sure to get some maple syrup while you’re in town – it really is on another level than what you can get anywhere else.

Flagstaff, AZ

The Grand Canyon is a beautiful sight to see, but Arizona in the summer is stiflingly hot and dry. In the fall light, you’ll see the remarkable oranges and reds in the local rock formations, and the tourist crowds will have died down considerably. Love kitsch and history? Williams, AZ, an iconic stop on Route 66 is right close by. If luxury travel is more your thing, you can spend a little time at the Canyon and then drive up the road a bit to Sedona. The accommodations, spas, and restaurants there are world-class, and the nearby vineyards produce jammy reds and fruity whites you’ll be sure to enjoy.

Savannah, GA

If you’ve ever seen the John Cusack flick Midnight In The Garden of Good and Evil (or read the book), you’ll already have an idea of the spooky aura that surrounds this old, Southern community. There’s no better time than the present to experience it for yourself. In the fall, the oppressive Southern humidity drops and you can enjoy your time experiencing quirky cuisine, viewing stately architecture, and taking in the mysterious history of this locale.

Oahu, HI

Who says Hawaii is just for summertime? In the fall months. Oahu still has temperatures in the mid-eighties, and the crowds will be almost non-existent. Accommodation prices fall and the beaches are all but deserted in the autumn, and in addition to the normal charming Hawaiian culture, you’ll also see food festivals, film festivals, and a variety of stunning natural attractions without the typical long lines.

Santa Barbara, CA

I may be a little biased, but if you love Spanish style architecture and great food, there’s no better fall destination than my home, Santa Barbara. With stunning missions here and in nearby San Luis Obispo, world class restaurants, and the added allure of whale-watching, this coastal California city has all the charm of a Pacific adventure with none of the hustle and bustle of Los Angeles. Plus the surfing is great.

Nashville, TN

Country music fans already know this city well, but even if you don’t love Willie and Waylon, there’s something here for everyone. Sure, you can visit country music hotspots like the Country Music Hall Of Fame, but you can also enjoy festivals like Nashvember and try local cuisine like Nashville Hot Chicken and farm to table cuisine. With early fall temps ranging from the 60s to the 80s, all you’ll need is a light jacket (and maybe a great pair of boots) and Nashville is yours for the taking.

Hill Country, TX

Texas is a huge state with lots of fun adventures, but let’s be honest – for half the year, it’s so hot it can be downright unenjoyable. Now that cooler temperatures are here, you can camp, hike, and eat tacos to your heart’s content. In addition to the outdoor and culinary adventures, you can take in Austin’s music scene or attend an F1 race without fear of melting in the stands.

The Fingerlakes Region, NY

Upstate New York is a harsh place in the winter, but in the fall? It’s a wonderland. Everything from wine tasting at acclaimed vineyards to long bike rides to apple picking is available for the casual traveler, and if you’re feeling intrepid, the Big Apple is just a scenic half-day’s drive away.

The greatest thing of all about retirement is the freedom to do whatever you choose, whenever you want.

With all of these awesome destinations just a short plane ride away, which will you pick first?

To a richer life,

Nilus Mattive

Nilus Mattive

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Could Retiring Later Make You Live Longer?

This post Could Retiring Later Make You Live Longer? appeared first on Daily Reckoning.

If you ask most people when they’d like to retire, they’ll tell you ‘yesterday.’

However, there’s an interesting argument to be made for delaying retirement just one more year.

According to the Employee Benefit Research Institute, the number of workers reporting that they expect to work past age 65 rose from 16 percent in 1991 to 48 percent last year.

It seems like more workers are getting the message that in order to boost their retirement security they need to work longer.

But boosting your retirement nest egg is not the only benefit to delaying retirement. In fact, I’ve got six reasons why putting off retirement just one more year is not such a bad idea.

Reason 1: You’ll Live Longer

It’s counterintuitive to think that working a stressful 9-5 job will increase your chances of living longer but that’s the truth.

The Center for Retirement Research found that delaying retirement reduced the five-year mortality rate for men in their early 60s by 32%.

Another study of half a million retired self-employed workers in France found that dementia was significantly less common among those who retired later than those who retired earlier.

Researchers hypothesize that the reason why early retirement has such negative effects on the brain is due to a decrease in mentally challenging tasks.

Reason 2: You’ll Save More

The longer you work, the more time you have to save for retirement. And, as you get older, the opportunity to set aside even more money increases.

Here’s how: If you’re under 50, your contribution limit to a 401(k) is $19,000 and $6,000 for an IRA this year. But, once you’re older than 50, you can add an extra $6,000 and $1,000 to your 401(k) and IRA contribution limits, respectively.

On top of that, the money you have saved and invested gets a chance to grow one more year without you touching it.

For example, if you have $500,000 in a retirement account today by delaying just one year, that $500,000 could grow to $535,000, assuming a 7% annual rate of return. And that’s not including any additional contributions you make to your retirement accounts during that time.

What can you do with an extra $35,000? That leads us to my next reason…

Reason 3: You’ll Have a Better Quality of Life

The reason why your quality of life will improve if you work just one more year is due to the fact that your retirement will be one year shorter.

If you estimate your yearly expenses in retirement to be $35,000, then delaying just one year lowers your required savings by that same amount. Couple that with an extra $35,000 from compound growth and you now have an extra $70,000 to spend how you please.

Reason 4: You’ll Have Bigger Social Security Checks

If you delay retirement, you boost your Social Security benefits in two ways.

First, it’s likely that you’re at the peak of your earning potential so because your Social Security check is based on the average monthly income during your 35 highest-earning years, delaying retirement could make up for the early years in your career where you earned less.

Second, depending on your age, you might be able to delay your Social Security benefits, which further increases your checks. Everyone can begin claiming as early as age 62, but you give up a significant amount versus if you waited until your full retirement age. How much exactly?

You’ll earn 124% more with a full retirement age of 67 and 132% for a full retirement age of 66. Plus, the longer you wait to claim benefits, the less of a burden you place on your personal savings later on.

Reason 5: You’ll Have Better Health Care

One more reason to delay retirement is company benefits, especially health insurance. Depending on the size of your company, your employer’s health insurance plan could be cheaper than Medicare and provide better coverage.

Here’s what you need to know: At 65, you qualify for Medicare Part A, which covers inpatient hospital services. Because Part A is free, there’s no reason why you shouldn’t enroll. At that point, you can also enroll in Medicare Part B (for doctor visits), Medicare supplemental coverage and Part D (for prescription drugs).

If your company has less than 20 employees, you need to sign up for Medicare as your primary insurance, even if your employer offers its own coverage. Failing to do so could mean you’re not covered at all. Talk to your Human Resources department to find out what’s best for you.

Reason 6: You’ll Make a Difference

A commonly cited reason for staying in the workforce is meaningful work. If there’s a project you’re working on that you enjoy, it might be fulfilling to stick around and see it through to the end. Capping off your career with a big project could be the perfect way to cruise into retirement.

Lastly, working one more year is not always going to be your call. Sometimes your boss has a different timeline for when he sees you retiring. Take what I said today with a grain of salt and decide what’s best for you and your family when the time comes to make the call .

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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