How Much Do You Really Need to Retire?

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Article originally appeared on SIU Credit Union Blog by 

How do you know if you need to save more for your retirement, are right on target, or are going overboard?

The rule-of-thumb formula is to plan to live on 70% to 80% of your preretirement income during your retirement years, while increasing your replacement income annually at the inflation rate for 30 years.

This is a reasonable starting point.

But these assumptions can over or underestimate the true cost of your retirement. One size does not fit all. Your actual replacement income requirements will more realistically range from 54% to as much as 90% of your preretirement income

One important factor in determining your replacement rate is your proportion of pretax expenses (contributions to a 401(k), for example) to post-tax expenses (contributions to a Roth, mortgage payments, and so forth).

The more you put aside in pretax retirement accounts before you retire, the lower your replacement requirements.

To help you evaluate other factors that affect your replacement rate, consider:

  • Some of today’s expenses will decline or disappear when you retire, for example, Social Security and Medicare taxes, saving for retirement, and work-related expenses.
  • As you progress through retirement, even if you take into account the inflation rate for retirees (3.15% compared with a general inflation rate of 3%), your expenses will decrease in real terms at first and then increase toward the end. That’s because your consumption most likely will change over time.
  • The relative amount you’ll spend on insurance and retirement plans will decrease significantly as you age.
  • Your life expectancy might be a lot less, or more, than 30 years. You can use Social Security’s online calculator (found on ssa.gov) to estimate your life expectancy.
  • If you have a low preretirement income, for example, $20,000 a year, your replacement rate likely will be higher than that of someone who makes $100,000 a year.
  • The relative amount you will spend on health care could increase significantly as you age.
  • After age 65, you stand a good chance (70%) of requiring long-term care and help with basic daily activities, even if only temporarily.
  • Many households would benefit from claiming Social Security as late as possible. Keep in mind that, by delaying, you’ll get a higher inflation-adjusted benefit for life.

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

Savings Accounts and IRAs and 401(k)s! Oh My!

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This article was originally posted in Money Mix

When you’re just starting out in life, it’s difficult to imagine the day you’ll ever be able to retire. It seems so far off that it’s easy to put it out of your mind. Starting a retirement account just seems like a lot of work; why not sock what extra money you have away in a regular savings account and call it a day?

If you’re not making the effort to plan for your retirement in your 20s and 30s, you’re missing out on some valuable saving potential.

There’s a reason people contribute to 401(k) accounts and IRAs (individual retirement accounts), and that reason is compound interest. When you contribute to a retirement account, you’re not only saving the money you put in. You’re compounding, or earning more money, based on the money you put in and the money you’ve already contributed to the account.

Some investing experts describe compounding as a snowball effect: You start with the money you contribute and, over time, that amount grows exponentially based on the amount you continue to contribute and the savings that’s already there.

Here’s a real example from a financial professional at Fiduciary News:

Let’s say Person A saves in a regular taxable account, while Person B saves in a tax-deferred retirement account. Each saves $1,000 a year for 30 years. Both earn 8% on their savings. Person A will end up with about $89,500 after 30 years. Person B, however, will have about $132,000 after 30 years. The difference? The compounding effect of Person B’s retirement account resulted in about $42,500 more.

The best part about compounding: It’s easy to set it and forget it. Talk to your human resources manager or your financial adviser about making sure you’re saving at the right rate. Continue to contribute that amount, and you can sit back and watch that money grow. While it might be hard to see that money going into your retirement account instead of into your bank account, keep the concept of compounding in mind. Remember that your retirement money is earning even more money just by sitting in your retirement account, and you’re barely lifting a finger to make that happen. Chances are, you’ll start to come around to the idea of putting that 401(k) or IRA to good use.

Are you saving for retirement?

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

National Save for Retirement Week Kick Off!

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The eight annual National Save for Retirement Week (NS4RW), started on Sunday, October 19th and runs through Saturday, October 25th, provides a great opportunity to reflect on your personal retirement goals and determine whether you’re on target to reach them.

National Save for Retirement Week is the first congressionally endorsed, national event formally calling on all employees to take full advantage of employer-sponsored retirement plans. It is also an effort to raise public awareness about the importance of saving for retirement.

It is important to begin saving today for retirement – or increase your contributions if you aren’t meeting your goals. Experts predict that retirees will need from 80 percent to 100 percent of their pre-retirement income to maintain their lifestyle after retirement. Yet, surveys show that most Americans remain unprepared for retirement.

Take advantage of National Save for Retirement Week by researching what your savings options are, using savings calculators and benefit assessment tools to determine what your retirement goals should be, and using tools like the America Saves pledge to stay on track. Not sure where to start? Here are a few tips and tools for you:

 Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

 

Keep Your Credit Card Information Secure

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Credit card security breaches that can be costly, inconvenient and downright scary. Chris Miller is Senior Manager of Asset Protection at UFCU, and he gave Studio 512 advice on how to keep your information secure. Consumers can expect to see more chip-and-pin cards which are credit and debit cards with an embedded microchip on them. Instead of  the usual swiping and signing to make payments, point-of-sale machines read the chips, and cardholders enter PIN codes to verify their identity. It’s recommended that the consumer monitor their accounts for any fraudulent activity.

Tired of having to remain vilgilant when someone else doesnt protect your data like they should?  You can do more:

  • Share this information with friend and family, and encourage them to take action via StoptheDataBreaches.com campaign site.
  • Stay engaged with the campaign by following @CUNAadvocacy, @aSmarterChoice, #StoptheBreaches, as well as the CUNA Advocacy and aSmarterChoice Facebook pages.
  • Continue to stay abreast of new developments by checking the latest news, following the social media platforms above, and keeping in touch with your local credit union.  You can find one at asmarterchoice.org

It’s time to tell Congress we need to stop the data breaches and raise awareness about the impact databreaches have on credit unions and credit union members when financial information is stolen.

International Credit Union Day: Local Service, Global Good

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Today the credit union movement celebrates International Credit Union Day, first observed 67 years ago to remind credit unions, staffs and members around the globe to take a step back and recognize the work credit unions do in their communities all year long.

The credit union movement, reflecting our philosophy of “People not Profits” is growing and as more and more Americans choose credit unions as their financial partner, you can see the impact in your local community. In Kansas, credit unions are carrying on their tradition of surprising people in their local communities with special “Make a Difference” events today.  Earlier this week, credit unions in Louisiana, Illinois, Michigan, North and South Carolina participated in a lunch time cash mob supporting local restaurants.   Events like these are in addition to the countless hours of community service, financial education and other forms of community involvement that credit unions offer. You can follow the events and activities on social media using #ICUDay.

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Internationally, there is a lot to celebrate, as credit unions have played critical roles in supporting the communities and the nations they serve.

In the Philippines, for example, credit unions helped members get back on their feet after a devastating typhoon ravaged the country late last year. In Mexico, impoverished and marginalized citizens have more access to bank services thanks to credit union field officers who bring mobile banking services to poorer populations.

These actions embody the theme of International Credit Union Day:  Local Service, Global Good.  If this philosophy about contributing to a financial institution that supports your community instead of shareholders appeals to you, join a credit union.  Find your best match here or visit asmarterchoice.org 

Easy money: Take advantage of 401(k)

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Long gone are the days of traditional pensions. With many companies offering 401(k) plans, how successful you are in saving for retirement is up to you (USAToday.com Oct. 8).

Here’s advice to help you engage in your 401(k) and how to maximize this opportunity:

  • Take advantage of your company match. Contribute at least as much as you need to get your employer’s match. If you don’t, it’s like leaving free money on the table.
  • Play catch up. If you’re age 50 or older, take advantage of the catch-up provision which lets you contribute an additional $5,500 into your plan each year.
  • Increase your contribution each year. Even by increasing your contribution by 1%, this amount will add up quickly. Also consider bumping up your contribution percentage each time you get a raise or a bonus.
  • Don’t forget about 401(k)s at former employers. If you leave your job you have several paths you can take with your 401(k): Leave savings with your former employer, roll over your plan to a traditional or Roth IRA (individual retirement account), move savings to your new employer’s plan, or cash out and pay taxes. Each scenario will require research to determine what’s best for you. Cash out your plan only as a last resort.
  • Don’t take early withdrawals. Experts advise not borrowing from your 401(k). Think about whether you’ll be able to contribute to your 401(k) while you’re paying back your loan. If you can’t, this is derailing your savings even more. If you leave your job, you’re responsible for paying back the loan usually within 60 days. If you can’t pay it back you’ll be subject to taxes and penalties. A better alternate for borrowing money is getting a low-interest loan from your credit union.
  • If you delay retirement, keep your 401(k). Once you turn 70 1/2 you have to start withdrawing a minimum distribution. If you’re still working you don’t have to take the distribution until you actually retire.
  • Aim to save 10%-13% of your gross pay. This includes your employer match if you get one. If you’re already saving enough in your employer’s retirement plan to get the company match, consider opening a traditional or Roth IRA at your local credit union as well.

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

Let’s CU Lunch Local!

As a kickoff celebration for International Credit Union Day on October 16th, many local credit unions are supporting their community businesses by lunching local today.  Started in 2012, this cash mob of credit union members, employees, directors and volunteers aims to help local restaurants, food trucks, markets and businesses like the Spotted Dog Cafe.

Participate in this fun event with your friends and colleagues.  Take a picture and post to social with #CULunchLocal, #100MM and the location where you’re eating to show your impact!  We’ll be sharing through out the day on social so be sure to follow us all day!

Many credit unions support their communities with programs like these.  Consider joining a credit union for additional benefits like financial education and community contributions. You can find a credit union that’s a match for you at aSmarterChoice.org  At a credit union you’re not just an account number, you’re a member-owner who can impact the lives of those around you!

Time for Congress to Protect your Financial information

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Are you concerned over the now-common merchant data breaches? So are we.

Merchant data breach is a chronic issue that costs credit unions millions of dollars each year.  Large scale breaches like Target, Michaels, Home Depot, Neiman Marcus, Jimmy Johns and now Dairy Queen and Kmart get national attention, but small breaches at local stores also increase costs for credit unions.

Over 500 data security breaches have occurred in 2014 which have exposed over 75 million data records.

Did you know that merchants are not subject to the same federal data protection standards as financial institutions, such as credit unions? This means that some merchants fail to invest sufficiently in data security measures. When a data breach occurs, the merchants are not required to pay the costs to send individuals their new cards and generally pay none of the fraudulent charges an individual may have on their cards or accounts. In fact, when merchants are responsible for the breach, they are rarely required to pay ANY costs incurred by others. Who is stuck paying these costs for data breaches? Credit unions—and ultimately, credit union members.

Credit unions have been there to protect their members from fraudulent charges on their cards due to a breach, and the cost is generally picked up by the credit union, not by the merchant where the breach occurred. In addition, credit unions pursue criminals through available legal channels on behalf of their members, saving them time and legal expenses. Ensuring members’ data safety is a top priority of your credit union.

What can you do to help make sure your data is secure?  Read this helpful blog post; be aware about how and where you share information; monitor your accounts regularly; and more importantly, encourage Congress to make a policy change to protect your information:

  • Share this information with friend and family, and encourage them to take action via StoptheDataBreaches.com campaign site.
  • Stay engaged with the campaign by following @CUNAadvocacy, @aSmarterChoice, #StoptheBreaches, as well as the CUNA Advocacy and aSmarterChoice  Facebook pages.
  • Continue to stay abreast of new developments by checking the latest news, following the social media platforms above, and keeping in touch with your local credit union.  You can find one at asmarterchoice.org

It’s time to tell Congress we need to stop the data breaches and raise awareness about the impact databreaches have on credit unions and credit union members when financial information is stolen.

Mythbuster: Making more money means managing debt better

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Post originally appeared on SACFCU’s blog.

Congratulations! You got that big raise or new job, creating a surge of income for the household. Before you toast to your success, though, take a moment to think about how it’s really affecting your finances: Are you better off or has your spending outpaced your extra income?

Debt management plan myth_SAC Federal Credit UnionMany people facing debt believe that higher income will automatically lead to a better debt management plan, since they have more money to pay off loans, credit cards, and other debt sources.

However, as incomes rise, debt can sometimes begin to grow out of control because there’s a sense of being able to “afford” more, leading to significantly more spending. Consider the fact that lottery winners declare bankruptcy at twice the rate of the general population; sudden wealth can lead to dizzying spending sprees that cause more money to go out than come in. Here are some tips for keeping it under control.

Note: If you haven’t had the good fortune of a salary bump, there’s still a lesson here. Don’t wait for that extra cash to come in before setting up a game plan to get your debt under control. No matter your income, now’s the time to address debt.  

Use your windfall, don’t lose it
If you’ve seen an increase in your income, try these steps to avoid the trap of overspending:

  • Think strategically. Before treating yourself to that dream vacation or big-ticket item, take a look at your overall financial situation and see whether you can apply some of your new income to any debt or put some into savings. That doesn’t necessarily mean you can’t take that trip. It just means you can make the purchase with a better understanding of how it affects your finances.
  • Go easy on the credit cards. Higher income can create the perception that you have more than you really do. Keep credit cards in check by only charging what you can pay off before the next billing cycle.
  • Create new goals. Thinking in the long term is helpful for limiting short-term purchasing and derailing spending sprees. Talk with a financial advisor about options for setting up goal-based accounts, like a college fund or vacation account.
  • Develop a debt pay-down schedule. As part of your goal setting, consider putting more income toward eliminating debt and set up higher automatic payments to credit cards or loans.

With a careful debt management plan and regular reality checks, you can harness the power of higher income levels, instead of turning into a cautionary tale.

Your local credit union personal finance professionals bring you this website and other tools to help you make the most of your money. To find a local credit union you are eligible to join click here or go to asmarterchoice.org

Use Social Security statements to help with financial planning

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Don’t miss the personalized Social Security benefit estimate that will arrive in your mailbox this fall. Take these steps to learn how to understand the statement, understand how to use it as a financial planning document and how to fix mistakes ( NextAvenue Sept. 25 ) .

  • Understand the benefit statement. Your statement estimates retirement benefits at various ages, how much you could collect if you were to become disabled before retirement age, and monthly survivor benefits for your children and spouse if you die this year.
    • The statement is a snapshot in time. The projections are smaller than what you likely will receive when you actually start collecting benefits because they’re calculated on today’s dollars, aren’t adjusted for inflation, don’t take into consideration cost-of-living increases and assume that you’ll keep making the same amount of money until you start receiving benefits.
    • In addition to benefit estimates, the statement provides your complete earnings history and the total payroll taxes you paid on those earnings throughout your career.
  • Use your benefit statement as a financial planning document . By estimating how much you can expect to receive if you start taking Social Security benefits at different ages, your statement can help you decide when to apply and how much you’ll need to save on your own for retirement.
    • If you take Social Security benefits at age 62 (early retirement age), they’ll be smaller than if you wait until you reach what Social Security calls full retirement age. If you were born between 1943 and 1954, full retirement age is 66 and it gradually rises to 67 for people born in 1960 or later. If you wait to retire until age 70, you’ll get the largest benefit possible. You won’t receive additional benefit increases after age 70.
    • Calculate the difference in estimated benefit amounts taken at different ages to help you plan different retirement scenarios. For a wage earner who was born, for example, Jan. 1, 1955, and is earning $60,000 at the time of retirement, the annual benefit can vary by as much as $14,000 depending on your age when you apply for benefits.
  • Look for errors. Check the earnings record in your statement and make sure all the employment figures are correct.
    • Your earnings history is the basis for future Social Security benefits. If it’s wrong, you might not receive all the benefits you’re entitled to. If you see years with zeros in them, check whether or not you paid into Social Security during those years.
    • If you find errors, contact your former employer for copies of W-2 forms or look at tax returns for the years in error. Once you can document the errors, call the Social Security Administration at 800-772-1213, or send correspondence to Office of Earnings Operations, P.O. Box 33026, Baltimore, MD 21290-3026.
  • Review your statement regularly. If you’re older than age 60, you’ll receive a statement in the mail every year. If you’re a taxpayer age 25 and older, you’ll receive a paper mailing every five years unless you register for a “my Social Security” online account. By registering online, you’ll no longer get a paper statement.

Your credit union financial professionals bring you this site to help you make a smarter choice with your money.  Find a credit union you are eligible to join, with access to a network of over 30,000 low or fee free ATMs, at asmarterchoice.org or by clicking here.

Credit Unions are a Smarter Choice!