3 New Retirement Rules You Need to Know

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Dear Rich Lifer,

Spend less than you earn. Never take a loan to invest. Don’t borrow more than you can repay.

If you stick to these simple money rules, you won’t ever be a slave to debt.

In retirement planning, there are rules of thumb that can help guide you away from financial ruin as well.

For instance, the 4% rule is great to avoid running out of money. But, a lot of basic retirement rules like these need a refresh.

If I’m being candid, there are too many Americans planning their financial futures with outdated advice and rules that no longer hold true today.

That’s why I thought it’d be a good idea today to share with you three new rules of retirement. These are new ways of looking at old problems that I think everyone should know.

Rule #1 – Forget About Your “Retirement Number.”

Only 39% of Americans have tried to figure out how much money they need to retire, according to FINRA.

I’m willing to bet the other 61% of Americans will do just as fine as the first group. Here’s why…

Too often we fixate on a single number — usually the amount of money we think we need saved to retire comfortably.

If you’re hoping to finance at least part of your retirement with savings, this is the wrong approach to take.

For most people, if you ask them what money means to them, they say things like “freedom,” “security,” and “having options.” Notice they didn’t say luxury cars and boats, beach villas, or expensive jewelry?

That’s because the number that matters most to you probably isn’t the number in your bank account. It’s the number of years of freedom those digits in your bank account buy.

If you frame retirement through this lens then your perception of wealth changes too.

For example, if someone is worth $1 million and lives a lifestyle that’s costing them $200,000 a year, this person likely only has five years of freedom and security to their name.

On the other hand, someone with a net worth of $200,000 who lives on $10,000 a year, plus Social Security, has 20 years of freedom banked. (Assuming their nest egg is invested and keeps pace with inflation and taxes.)

By our new definition, the second person is wealthier. You can think of wealth like a ratio: the money you have versus the money you need to live life on your terms for as long as you please.

Looking at wealth in time versus dollars is a powerful way of thinking about retirement.

Rule # 2 – Saving Beats Earning More.

If wealth is about time, and money buys freedom, then there are two ways you can become wealthier: make more money or spend the money you have more wisely.

Which one do you think is easier?

Going back to our example of someone with a net worth of $200,000. If that person were to spend $20,000 annually above Social Security payments, they’d have 10 years of financial wealth.

But if they could find simple ways to cut their annual expenses in half (a little over $800 per month), they’d double their financial wealth to 20 years.

Compare that scenario to someone who decides they want to keep their $20K-a-year lifestyle. Instead of cutting spending by $10,000 a year, they find ways to make an extra $10K each year.

The problem is you won’t get all that money after taxes. Even if you were willing to work an extra 10 years to maintain your current spending levels, you might bring home a total of $80,000 after taxes.

So, your net worth after 10 years would be $280,000. With a $20K-a-year spending rate, you have about 14 years of wealth.

What’s the better deal: Spend $10,000 less per year, and you immediately gain 10 years of wealth, or spend a decade making an extra $10,000 to gain about four years?

Surprisingly, living frugally actually has a better payback than taking on a side hustle.

But what about happiness?

If you think spending less will make you unhappy, it’s very unlikely. Research shows that we quickly get used to living on less, just as we quickly get used to living on more.

Plus, people tend to get more happiness out of experiences rather than buying stuff.

Most of the best memories you have probably cost very little. Taking your children and grandchildren out for ice cream, going on hikes, cooking dinner together.

Cutting costs is not rocket science either. I’ve shared several tips on how to save money by cutting cable, downsizing, selling your old junk…you name it.

I recommend starting by cutting one thing out of your budget for one or two months and see what that does to your happiness.

Rule # 3 – Delay Taking Social Security.

I touched on this on Monday, but it’s important enough that it bears repeating. There are a number of reasons why people choose to take Social Security as soon as they can rather than wait.

Sometimes it’s outside of their control, other times it’s because they don’t want to dip into their retirement savings.

If you’re taking benefits ASAP to protect your nest egg, you’re making a huge mistake. A better choice is to spend your savings today so you can delay taking Social Security.

When you follow this rule, you’re basically buying one of the best annuities around: one that’s guaranteed by the government, keeps pace with inflation and has a survivor benefit.

Plus, each month you wait to take Social Security, it gets better. Delaying payments from age 66 to 70 can raise your monthly benefit 32 percent, even before cost-of-living increases kick in.

While there are a lot of factors you need to consider, as a general rule of thumb, delaying Social Security is a solid strategy for most.

If you’re single, and in good health, wait.

If you’re the higher earner in a married couple, wait until 70 unless you and your spouse are in poor health.

If you’re the lower earner in a married couple, filing early is okay too, especially if one of you is in poor health.

Always run the numbers first to see what’s best given your circumstances.

These rules are meant to be guidelines not the gospel. Adopt the ones that fit your situation and discard the ones that don’t.

To a richer life,

Nilus Mattive

Nilus Mattive

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What I Told My Dad About Social Security

This post What I Told My Dad About Social Security appeared first on Daily Reckoning.

Dear Rich Lifer,

It’s been a few weeks since the Paradigm Shift Summit went down in New York, and I’ve already covered a few of the many ideas and concepts I shared at that awesome event.

But there’s one I haven’t yet touched on… and it started with a question from one of the audience members.

The Set Up

I had just finished outlining how several of my favorite Social Security strategies were no longer available because lawmakers had shut them down.

Indeed, I have strong reason to believe that these various “loopholes” were closed precisely because I (and a handful of other people) popularized them in articles and letters that went out to hundreds of thousands of retirees.

My own parents got in before it was too late and I estimate they’ll grab an extra $100,000 or two out of the system because they were able to act.

Based on the feedback I’ve received over the years, plenty of other readers benefited from that information as well.

Of course, that’s no consolation to anyone considering their options these days.

Which brings me to the audience member’s question…

The Shot

“Are there still any good Social Security tricks available now?”

The answer is yes.

And one of them is completely obvious though roughly 96% of Americans do not take advantage of it.

That trick is delaying benefits until age 70.

Why would I possibly recommend this? Especially since I spend a lot of time criticizing the Social Security program?

It’s simple: While I continue to believe that our national retirement system is riddled with problems, I am also a pragmatist.

This is why, in addition to recommending other tactics that are no longer available, I advised my own father to delay taking his Social Security benefits until age 70 if possible. (Which he did.)

See, I consider Social Security to be the best fixed immediate annuity currently available.

The Smoking Gun

Remember, annuities are basically life insurance policies in reverse.

In their simplest form, you pay money upfront and then start collecting monthly fixed payments for as long as you live.

Die early, and you “lose.” Live for a long time, and you may make more than you paid up front.

The same basic principle is at work when it comes to delaying your Social Security benefits.

If anything, Social Security differs from the typical private fixed annuity because it is based on a MUCH LESS AGGRESSIVE actuarial table.

And while I always get a lot of feedback on the issue of future inflation and the overall “time value” of the money you receive from Social Security, don’t forget that Social Security does contain an inflation adjustment — as flawed as that adjustment may be.

This is something that many private annuities DON’T have.

The Fallout

So here’s an example of how delaying your Social Security benefits might work in the real world:

Scenario #1. You are able to collect $12,000 a year from Social Security at age 65.

Scenario #2. You wait an extra year and start collecting $12,680.

Just for delaying 12 months, you will now earn an extra $680 annually for the rest of your life. And your “cost” for doing so was $12,000.

To arrive at your annual interest rate, or “return on investment,” you simply divide the $680 annual payment by the initial $12,000 you “spent.”

What you’ll come up with is an annual rate of 7.1%!

To be clear, I am merely saying that by forgoing $12,000 for that one year of benefits, you are now going to receive an extra $680 a year for every additional year you live.

Now I know there are a lot of “ifs” involved. So, yes, it’s a gamble. Just about every investment decision or insurance contract is.

And obviously, if you need the money to live on then just start taking your benefits as soon as you can.

But from a mathematical standpoint, it might make sense to delay collecting — especially given the fact that interest rates remain far lower than historical norms.

If you have “longevity genes” in your family, the idea only becomes more compelling.

And that’s just based on the simple analysis.

The Resolution

There are additional reasons to favor Social Security over a regular annuity.

First, if you worked during that extra year of delaying, it’s quite possible you would have FURTHER increased your future payments because your earnings record would have also gone up.

Second, these “annuity” payments currently get favorable tax treatment in many cases, and it’s entirely possible you would get further tax benefits by delaying that extra year.

Third, Social Security’s built-in survivor benefit might also make delaying for the additional income all the more attractive to couples.

That last point is especially critical because I also told my mother to begin collecting her benefits at an earlier point than my father.

In doing so, she started getting immediate income … but also retained the ability to step up to my father’s higher benefit if she ends up widowed at any point.

So if you’ve been thinking about purchasing an annuity and you haven’t yet filed for Social Security, take a little time to work out all the pros and cons of various strategies before you make a final decision.

To a richer life,

Nilus Mattive

Nilus Mattive

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Could Retiring Later Make You Live Longer?

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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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7 Ways to Survive a Travel Delay

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Delays when flying are nothing new. An hour or so isn’t too bad. But some delays can be absolutely horrible …

For instance, this year a United Airlines flight traveling from Newark to Hong Kong made an emergency landing at Goose Bay Airport, Canada. Passengers sat onboard for more than 14 hours with a dwindling supply of food while temperatures outside plummeted to -20F.

Fortunately, there are some things you can do to make such an experience a bit more tolerable.

Always prepare for the worst

That means carrying the essentials with you in case you’re on the plane or in the airport for a few extra hours.

1. Prescription meds

What would you do if you couldn’t get to your insulin, blood pressure pills, or other meds you might immediately need?

The TSA has rules on what you can keep with you. For example, you must tell the officer that you have medically necessary liquids at the start of the screening checkpoint process.

You can learn more about the TSA’s rules on carrying your meds here.

2. Snacks 

If you’ve ever had to buy food in an airport, you know it’s expensive and often not the healthiest. Plus there could be a mile-long line with hundreds of hungry, impatient travelers willing to pay $15 for a greasy burger and another $7 for fries.

Worse yet … the shops could be closed.

A while back I was stuck overnight in Atlanta’s Hartsfield-Jackson airport. About 11:00 pm everything shut down. I mean everything. It was just me and the guy riding the vacuum cleaner for as far as eye could see. And nothing opened until 6:00 the next morning.

Sure glad I had a stash of raisins, walnuts, dark chocolate chips, cut-up apples, and granola bars with me. I suggest you do the same.

3. Drinks can be pricey, too

A bottle of water — $4 or more. So bring an empty container with you and fill up at the water fountain. You’ll save money and avoid the lines.

4. Dress in layers

Planes and airports are notorious for being warm one minute and freezing the next. So dress in layers including a sweater or jacket. If it turns out you don’t need the extra layer, turning it into a pillow could be blessing when trying to snooze in one of those uncomfortable airport chairs. 

5. Toothbrush and toothpaste

Brushing your teeth can make you feel human again. Don’t forget to buy travel size toothpaste, smaller than 3.4 oz.

Otherwise it won’t get through security. 

6. Phone charger

You may have to contact friends or family if you experience an unexpected lengthy delay. And a smartphone with a dead battery isn’t worth squat.

7. A real book

Yes, I’m talking about the old-fashioned paperback kind you don’t need an electronic doodad to read. It’ll relax your brain while giving your eyes a break from that handheld screen. 

What Airports Offer

There might be a gym in or near the airport for you to work up a sweat while making the most of a long delay.

Sites such as Airportgyms.com, list airport fitness centers across North America. For instance, at O’Hare’s Hilton Hotel you can buy a day pass at its fitness center for $20 and use their sauna, steam room, indoor pool, weight room, and more. 

The airport’s website could have listings, too.      

An airport lounge could seem like an oasis in the desert when facing a long delay. And you don’t have to be a member of a special club to use one. Many sell day passes for around $50.

At first glance, that may seem expensive …

But it’s hard to put a price on free Wi-Fi, drinks, snacks, a secure place to nap, and a hostess who can help re-book flights and wake you with any updates.

LoungePass.com offers day passes to over 400 VIP lounges worldwide. Another source: SleepinginAirports.com lists lounges that sell day passes and the features each offers.   

Your Rights

In the U.S., airlines are not required to compensate you for delays or cancellations. You can receive compensation if you are bumped because the flight was oversold. 

Each airline has policies on what to do for delayed passengers. Still, it doesn’t hurt to ask a ticket agent if they’ll pay for meals or a hotel room. Doing so nicely may boost your chances.

However, the U.S. Department of Transportation does have rules for when you’re stranded and not allowed to get off the plane — a tarmac delay.

They include that after a two-hour tarmac delay, airlines must provide:

  • A snack, such as a granola bar, and drinking water
  • Working toilets
  • Comfortable cabin temperature
  • Adequate medical attention

They also must move the plane to a location where you can get off safely before three hours for domestic flights and four hours for international flights.

Important note: If you do disembark, the airline is not required to let you back on. Nor do they have to offload your luggage. So once the delay passes, the plane might take off with your bags but without you.

The “tarmac delay” rules only apply to delays at U.S. airports. You can read more about them here. Rules in other countries may differ.

Airlines that violate these laws can be fined by the Department of Transportation.

For example, the DOT fined Allegiant Air $225,000 in Oct. 2018 for tarmac delays and fined American Airlines $1.6 million in 2016 for more than 20 flights between 2013 and 2015 that violated tarmac rules.

A possible recourse is to contact your credit card company to have the charge reversed. Your case could be based on the point that you didn’t get the service you paid for.

However, if you’ve already paid the credit card statement that included the ticket, you don’t stand much of a chance.

Then you’ll have to accept whatever the airline offers … if anything. And realize that flying simply isn’t always fair.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long…

This post Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long… appeared first on Daily Reckoning.

Have you received your tax refund yet?

Chances are good that if you were owed a refund, your return has been delayed. The government shutdown caused the IRS to furlough workers during some of the most important weeks for processing tax returns. And it’s taking the agency time to catch up.

So even if you were responsible and filed your tax return well ahead of the crowd, you may still be waiting on your refund check.

That’s the bad news.

But today, I want to show you why this delay could actually lead to a much bigger check for you.

In fact, whether you’re expecting a tax refund or you’ve got to write that dreaded check to Uncle Sam, this tax refund delay can help you capture some unexpected wealth.

Let’s take a look!

The New Tax Rates Delay Refunds

There’s been a lot of talk about tax refunds recently thanks to the new tax bill that went into law last year.

The new tax bill lowered the tax rate for most Americans, but also made major changes to what deductions families and individuals can make.

We’ve talked about many of these changes here at The Daily Edge, including the lower withholding rates that have allowed Americans to keep a larger portion of every paycheck throughout the year.

Now that it is time to turn in your tax return for 2018, many of those changes are under scrutiny.

I’ve become keenly aware of these issues in part because my brother is an accountant and is currently up to his neck in personal and small business tax returns. I got a chance to see him over the weekend and he was exhausted. It’s been a stressful year as he has had to work extra hard to make sure that all of the changes are being taken into account for the tax returns he prepares.

“Zach, it’s not just that the IRS was essentially closed for a couple of months. It has also taken extra time for many of the software platforms that we use to update all of the new changes.”

So these are two big issues that are causing a delay in the tax refunds Americans would typically be receiving this time of year.

First, the IRS was closed, causing a pileup in the number of returns waiting to be processed.

And second, individuals and business are taking more time to actually file their return because it is taking some time to handle the changes from the new tax bill.

This has had a pronounced effect on retail spending in the United States, which in turn is setting up an interesting opportunity for investors.

Delayed Spending Boosts Spring Profits

Wall Street has been a bit frustrated with how the delay in tax refunds has affected spending in the United States.

You may have heard that recent reports on total retail sales have come in a bit weak. And those “weak” readings have naturally sent some retail stocks lower. After all, Wall Street is worried that lower tax returns could lead to disappointing profits for retailers.

But here’s the thing…

Those tax refunds aren’t “gone.” They’re just taking a little longer to work their way through the system.

Which means American consumers will still be spending the cash that they get back from Uncle Sam.

The spending may have just been deferred from February and March to heavier spending in April and May.

So what does that mean for us here at The Daily Edge?

Well I’m expecting those refund checks to drive surprisingly strong retail sales in this new second quarter of 2019. And I expect those strong sales to catch Wall Street investors off-guard.

Over the past couple of months, a few key retail stocks have been stuck in a holding pattern waiting for good news to hit.

Shares of Wal-Mart Stores (WMT) for example are trading at the same level from late January. And shares of popular retailers like Target Corp. (TGT) and TJX Companies (TJX) have just barely made back losses from late in 2018.

The stock prices for these retailers are being held back in part because many taxpayers haven’t yet received their refunds. And so they’re not in a rush to head out and spend that cash.

But this month, as accountants wrap up their customers’ tax returns and the IRS catches up on its inflated workload, we should see tax refunds making their way to retailers around the country.

And as these retailers start reporting strong spring sales, stock prices will be poised to jump higher.

If you’re one of the forward thinking investors who owns shares of these retailers, you’ll be in prime position to profit from a jump in sales.

So as we head toward the April 15th tax filing deadline, make sure you are positioned to profit from all of those shoppers who will be taking their checks to spruce up their spring wardrobes!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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