Tag Archives: retire early

Annuities for Retirees: What to Consider Before You Invest

Annuities can be purchased directly from an insurance company or from other financial institutions (including banks) that act on behalf of the insurance company. In exchange for your investment, the insurer agrees to make periodic payments for a set time period. It’s important to remember that some annuities may lose value. These products are not insured by the FDIC or the FDIC-insured bank or savings institution that may offer them.

There are different types of annuities. A “fixed annuity” provides a fixed payment, often monthly, until the investor dies. It typically guarantees no loss of principal (the amount invested). A “variable annuity” also guarantees payment for a set period, but the payment amounts will fluctuate based on the market performance of the investment option you choose. With a variable annuity, you also risk losing principal as well as earnings, although some variable annuities guarantee the return of your initial investment for an additional fee.

If the income payments are deferred to some later date, the annuity is typically described as a “deferred annuity.” If the payments begin immediately and continue for life, the annuity may be referred to as an “immediate life annuity.”

On the plus side, annuities provide another investment option if you’ve reached your contribution limit on your other retirement accounts, such as 401(k) plans. And, at retirement, the guaranteed payments can provide extra income. But, as with any investment, be aware of the potential pitfalls and make an informed decision.

Know the key features and costs of the product and make sure they fit your needs. Read the literature to understand the most important facts and risks, including the potential for loss, if any.

“A sales representative who talks to you about purchasing an annuity is required by federal law to ask you questions about your investment goals, current finances and future retirement plans,” said Kara Ritchie, an FDIC Policy Analyst who specializes in consumer issues. “If the representative doesn’t discuss whether the product is suitable for your needs and goals, take your business elsewhere.”

Experts generally say that annuities with guaranteed principal and income are more suitable for older investors than annuities that may, through market performance, lose value. The latter include variable-rate, deferred-payment annuities and equity-indexed annuities (those tied to the stock market), which might not make sense for many investors close to or in retirement.

Also, before you sign a contract, make sure you understand the cost of getting your money back early. Many investors with variable annuities are surprised to learn that they must pay hefty “surrender charges” if they try to withdraw money early, cancel their contract, or replace an existing annuity with a new one.

Deal only with a competent, reputable sales representative. Most annuity sales representatives are trained professionals. However, there have been reports of sales representatives who have been poorly informed or have used false or misleading tactics to sell annuities. How can you improve your chances of getting good advice?

Work with a sales representative licensed by your state government’s insurance regulator. If the sales representative offers variable annuities, he or she also must be licensed to sell securities. For information on whether a sales representative is properly licensed or has a history of disciplinary problems, contact your state securities regulator and the National Association of Securities Dealers, a self-regulatory group for the securities industry.

“Annuities are generally sold on a commission basis, so it’s important to find a sales representative who puts your interests ahead of his or her own,” added Ritchie.

Proceed carefully before replacing an existing annuity with a new one. A sales representative may suggest investing in a new annuity paying a higher return or replacing a deferred annuity with an immediate life annuity to provide monthly income now instead of later. These actions may make sense for some people. However, it can be expensive to change annuities. Make sure you consider the contract terms as well as early withdrawal penalties and other charges prior to making a change.

What if, soon after purchasing an annuity, you have “buyer’s remorse” or find another annuity with better terms? Your annuity may have a “free look” period during which you can cancel without penalty. If yours doesn’t and you still want to cancel, determine all the surrender charges and penalties and proceed with caution.

Financial Independence, Retire Early (FIRE) Movement

Financial Independence, Retire Early (FIRE) Explained

Building true wealth is not just about making money. At some point, you have seen happy poor people and miserable rich people. According to research, the relationship between happiness and money is small.  The following ten principles will help you attain true wealth, personally and financially. Become Deeply Motivated – Money cannot be considered a deep motivator.

Financial wealth has external benefits. With money, you can have big bank accounts, fancy houses, etc. but you cannot buy happiness. Since external goals have inherent limits, they will limit your motivation. Come up with deep internal goals such as: Freedom, Leadership, Growth, and Charity. The value you offer should be more than the value you take. If you aspire to give more value, everyone will be a winner. And that is how true wealth is built. By improving the lives of others, you improve your own. There are many examples of people who exploited the environment or other people to build wealth for themselves.

But that does not bring fulfillment and happiness. 100% Integrity – Before you say or do anything, ask yourself if it would make your father or mother proud. Do not cheat, insult, harm the environment, encroach on someone else’s property, or hurt someone just so you can be rich. Always do the right thing—that which you would be comfortable telling your parents, children, or spouse about. Be Courageous – It is not easy for humans to go out independently because they are social in nature. But following the crowd will not build you wealth. Do what others are afraid of. Being self-responsible takes courage.

So, does acquiring new skills and walking less traveled paths. Be Disciplined – Wealth comes because of many small things compounded over the long term. Those daily habits you consider insignificant can either break or make your success. You need to acquire financial knowledge, invest, and save consistently and persistently. All these things can only happen if you are disciplined.

Stay away from conspicuous consumption – Consumerism will direct whatever wealth you have away from wealth building and toward lifestyle. Think of wealth as delayed gratification. Live a modest life and spend less than you can afford. This applies to energy and time, just as much as money. Invest the difference in your future. Create a Supportive Environment – Anyone can come up with a plan to attain wealth. The difference between those who achieve it and those who do not is focused, persistent and consistent action. Avoid distractions and build a support system that will enable you to stay focused.

Apply Leverage -With these principles of leverage, you will be working smarter and not harder: Knowledge leverage, Network leverage, Marketing leverage, Systems and technology leverage, Time leverage, and Financial leverage. In short, make use of other people’s resources, not just your own. Your Wealth Is a Business – You need a plan to build wealth, just like you need a business plan. Find proven business principles and incorporate them into your plan. Examples of these principles include accountability, accurate record keeping, leverage and competitive advantage.

Steward Your Wealth – With money, comes responsibility on how to use it. Let your wealth do good when you are alive and even after you pass. When someone mentions retirement, you automatically think of people aged 50 0r 60. This is what you are used to. People striving for FIRE, however, retire earlier; in their 40s, 30s, or even 20s. It is easy to dismiss FIRE, especially if you do not make much money. Take the example of someone making about 35k a year. Also, assume that they have huge student loan debt. How can someone like this retire early?

Financial Independence, Retire Early (FIRE)

Well, be patient. You will know shortly. The FIRE movement is mainly about retirement. But there is more. When you look deeper into its principles, you will realize that it is about flexibility. Once you attain financial independence, you can make life choices without considering money. Most people must take finances into account every time they plan something. But with financial independence comes freedom. 

FIRE is also not about quitting your job. It is a movement that supports being free to go after your ambitions and dreams. You can decide to continue working or not. Who Is Eligible for FIRE? Did you become interested in FIRE because your job pays well but makes you miserable? This may not be a good idea. An expert says that you should not retire early just because you hate your job. When you finally retire, you will be aimless and boring. FIRE takes determination and focus. It is not for you if you just hate your job or want a get-rich-quick scheme. 

If your job sucks the life out of you, get into a different path or position. That said, thousands of people believe that any person can achieve FIRE. They argue that, if you cannot it is your fault—you need to cut back more expenses or save more. But wage stagnation is a problem for many people. To be honest, a decent income is necessary for FIRE. The math is simple: earn more than you spend then save the difference. You can invest the savings in index funds and other low-fee investments. Frugality is also important.

With time, you can get into other investments such as rental properties. The rules seem simple but carrying them out can be challenging. You must train yourself. The first step to reaching FIRE is asking yourself why you want to do it. This will be your motivation. Next, track your spending. Make sure you spend mindfully. To help you, here are 10 financial independence pillars: Reduce your housing cost. Buy used cars. Eliminate cable. Reduce your tax liability (max out tax deferred vehicles). Find a cheap cell phone service. Utilize credit card rewards. Lower grocery bills. Raise your income. Invest in low-fee index funds.

Adhere to the 4% rule. It takes time and self-discipline to retire early. Your goal should be to save/invest 25-30% of your annual expenses, depending on what you want your retirement lifestyle will be. Regardless of how you want to spend yearly, you will find yourself in one of the three FIRE categories: FIRE, fatFIRE, and leanFIRE. To achieve your goal, you need to maximize your income, spend less than what you are making and make the most of your retirement accounts. Pay all high-interest debts before you retire including early pay off the mortgage. Planning your retirement is not easy.

You must give your effort and self-discipline to maximize your earnings, savings, and investments the most you can while you are still young. Early retirement can be seen in a lot of ways. How you visualize your retirement will determine how you can get there. We have listed the steps you must take to get there: How do you define early retirement? Early retirement does not mean you will not earn any more.

A lot of early retirees interpret it as having financial independence or not having to work to support a living. Some describe it as leaving their corporate jobs to do what they want or be their own boss. While some explain it as focusing on non-income generating activities or traveling in between works, or even working just whenever you want to.

Knowing what early retirement means for you is the first step you need to do. Once you have visualized what your early retirement looks like, you can easily make plans to achieve your goal. However, be adaptive to changes as your plan may evolve.

The Basics of FIRE (Financial Independence and Early Retirement)

FIRE is becoming popular. And there is a very good reason for that. Everyone wants to attain financial independence and retire early. So, get ready to learn everything about this movement.

What Is FIRE?

When someone mentions retirement, you automatically think of people aged 50 0r 60. This is what you are used to. 

People striving for FIRE, however, retire earlier; in their 40s, 30s, or even 20s. 

It is easy to dismiss FIRE, especially if you don’t make much money. Take the example of someone making about 35k a year. Also, assume that they have a huge student loan debt. How can someone like this retire early? Well, be patient. You will know shortly. 

The FIRE movement is mainly about retirement. But there is more. When you look deeper into its principles, you will realize that it is about flexibility. 

Once you attain financial independence, you can make life choices without considering money. Most people have to take finances into account every time they plan something. But with financial independence comes freedom. 

FIRE is also not about quitting your job. It is a movement that supports being free to go after your ambitions and dreams. You can decide to continue working or not. 

Who Is Eligible for FIRE?

Did you become interested in FIRE because your job pays well but makes you miserable? This may actually not be a good idea.

An expert says that you should not retire early just because you hate your job. When you finally retire, you will be aimless and bored. FIRE takes determination and focus. It is not for you if you just hate your job or want a get-rich-quick scheme. 

If you job sucks the life out of you, get into a different path or position. 

That said, a good number of people believe that any person can achieve FIRE. They argue that, if you can’t it is your fault—you need to cut back more expenses or save more. 

But wage stagnation is a problem for many people. To be honest, a decent income is necessary for FIRE.

FIRE Rules

The math is simple: earn more than you spend then save the difference. You can invest the savings in index funds and other low-fee investments. 

Frugality is also important. With time, you can get into other investments such as rental properties. 

The rules seem simple, but carrying them out can be challenging. You have to train yourself. 

Steps to Attain FIRE

The first step to reaching FIRE is asking yourself why you want to do it. This will be your motivation. Next, track your spending. Make sure you spend mindfully. 

To help you, here are 10 financial independence pillars:

  • Reduce your housing cost.
  • Buy used cars.
  • Eliminate cable.
  • Reduce your tax liability (max out tax deferred vehicles).
  • Find a cheap cell phone service.
  • Utilize credit card rewards.
  • Lower grocery bills.
  • Raise your income.
  • Invest in low-fee index funds.
  • Adhere to the 4% rule. 

How Anyone Can Retire Early in 10 Years

Early retirement for many people is just a fantasy. But it doesn’t have to be. There are strategies that work, and not just for brilliant investors. Some of them are nothing but predictable and repeatable science. 

So, this post highlights the theory, why it works and why only a few people make it. There are also tips to help you attain success with the strategy.

The Early Retirement Math

For quick math, assume you earn $48,000 a year. Also, assume this is your income after tax. Every month you will have a spendable $4,000. 

If you decide to save $2800 every month (70% of your earnings), at a return of 8%, after 10 years you’ll have $515,000. 

You will be forced to live on $14,400 a year. But after 10 years, you will have financial independence. 

You can also decide to retire earlier and save 80% of your income. This will mean extreme frugality. But again, in 7 years or less you will be enjoying financial freedom. 

Silencing the Naysayers

Someone reading this may laugh the idea off. Especially if you can’t even cover basic expenses with 100% of your earnings. But in many cases, this is not the “truth”. It is about your lifestyle choices.

People choose a lifestyle of extreme frugality because they’d rather not slave most of their lives for money. They opt for the cheaper options everyday just so they can realize their dreams. 

The point is that it works and it has worked for many people. 

Why Few People Retire Early

Many people want to, but most of them fail. Why? Because you need to have impeccable self-discipline to save 70% to 80% of your income. It is even harder for people with spouses and kids. 

This is just one path. You can choose to start a business or get into real estate for the same results. 

Understand these key principles:

  • The more you save, the earlier you can retire.
  • Inflation and investment return don’t have a huge effect in the short term.
  • Financial independence is not enough motivation to live frugally. That is why few people achieve it. 

Questioning the Goal

What is your goal: financial independence or financial freedom? They are different. 

A super frugal lifestyle is anything but freedom. To achieve financial freedom, know your values and then create sufficient wealth to actually live them. 

Your Plan and Your Values

For some people, extreme frugality is not something they see themselves doing. So, incorporate your plan into your values. You want to attain both financial independence and financial freedom. Your plan should reflect your reality. There is nothing like a one size fits all when it comes to a wealth plan. 

One of Four Paths

This post is aimed at showing you how saving and frugality can help you achieve early retirement. But there are other paths.

  • Getting lucky (inheritance, the lottery, etc.)
  • Traditional saving strategies
  • Hiring financial advisors 
  • Using tried and tested methods

Wealth planning is a personal choice. 

7 Steps to Financial Freedom and Personal Finance Success

It is possible to achieve financial freedom. But it takes time and consistent efforts. This post highlights a few steps that you can take to attain financial success and freedom. 

What Is Financial Freedom?

What exactly is financial freedom and why should you care about it? 

It simply means being able to use your energy and time however you want without being concerned about money. It is also referred to as financial independence. 

It may mean having enough investments and savings so you don’t have to work. Or owning several businesses that bring in enough cash flow to cover your monthly expenses. 

This is something that everyone wants—whether they admit it or not. The problem is knowing how to achieve that. 

7 Steps to Financial Freedom

If you have heard about the 7 steps to financial freedom, you have probably heard one of two versions (or both). There is one by Tony Robbins and another one by Dave Ramsey. 

7 steps according to Dave Ramsey:

  1. Create an emergency fund worth $1000.
  2. Clear your debt with the debt snowball.
  3. Save about three to six months of living expenses.
  4. Use 15% of your household income to invest into pre-tax retirement and Roth IRAs.
  5. College fund for kids.
  6. Pay off your home early.
  7. Create wealth and give back. 

7 steps according to Tony Robbins:

  1. Become the investor, rather than a consumer.
  2. Don’t invest before you know the rules.
  3. Amass knowledge to win.
  4. Decide on asset allocation.
  5. Come up with a lifetime income strategy.
  6. Model hedge funds portfolio.
  7. Have fun and share.

7 Steps to Financial Freedom for You

Everyone’s financial situation is different. It is not easy to come up with a one-size-fits-all strategy. Hopefully, this will make sense to you.

Create an emergency fund: When it comes to personal finance success, an emergency fund is crucial. Unplanned emergencies don’t announce their arrival. So always be prepared.

Pay off your consumer debt: Debt restricts you. You cannot live the way you want to. Spend less and use the surplus to pay it off. 

Save 10% of your earnings: Having cleared your debt and set up an emergency fund, you can now start saving. Direct 10% of your earnings to a savings account and use the money for investing. 

Educate yourself about investing: Learn as much as you can about investing to know what suits you. 

Invest in yourself: work on developing yourself too. 

Be consistent: keep saving, don’t sink back into debt and continue growing your wealth. 

Give back: always be willing to share your wealth, time and knowledge with others. 

2 Steps for Financial Success

The above steps may seem difficult and a long-term thing. But there are two actions you can start taking today and you will see the results almost immediately. 

Monitor your income and expenses: where are you financially? Know how much you are making and what you are spending it on.

Learn: take the time to learn about personal finance and be consistent in your actions. 

Time Is Money: Financial Independence Retire Early

12 Tips to Build Wealth for Early Retirement

In theory, building retirement wealth is quite easy. 

There are three things involved:

  • How much you invest
  • How fast your money grows
  • The time you give it to grow

The reason why many people fail in wealth building is because it is not about understanding the principles. You need to act effectively. Have that in mind as you read the tips below. 

Have a Plan

Never underestimate the power of a written plan. Without it, how will you execute the financial success formula? 

A written plan is the first step and it acts as a roadmap to where you want to go. 

Lifestyle Lags Income

Many people are more concerned with looking wealthy instead of actually being wealthy. Lifestyle is preferred by the current generation over financial freedom. Rather than accumulate assets, they spend. Spending money will never make you rich. 

Financial Education

Your financial intelligence will determine how much your money grows. Before you invest, learn. Any market condition can offer you an opportunity to make a profit if you are an expert. Research, read and take courses. That will be money well spent. 

Don’t Procrastinate

Another thing that affects your accumulated wealth is the amount of time your capital has to compound and grow. The longer you wait to start investing, the less you will have when you retire. A little procrastination will cost you. 

Wealth Building on Auto-Pilot

Automatic actions are easy and less painful. Automate some actions to increase your assets. You don’t have to put in extra work or make an additional decision. It is a good way to ensure that you stay on track. 

Take Responsibility

Taking full responsibility for everything that concerns your wealth. It helps you take the necessary action. You decide when to start investing and what you spend money on. Make these decisions and own the results. 

Commit What You Have To

Under-commitment is a recipe for failure. If you want to attain your wealth goal you have to get all the resources required for that. 

Make Your Cash Hard to Access

If you can easily access your savings whenever you want, you are setting yourself up for failure. This is what makes government-sponsored plans great. Don’t go to your savings every time you need something. 

Risk Management

In investing, choose a smart strategy that reduces the risk of volatility and loss by use of different tools. Some of these tools include a sell discipline, valuation, careful asset selection and diversification. Note that defensive investing does not mean avoiding risk completely. 

Use Common Sense

Speculative frauds and manias will destroy your retirement plan if you are not keen. Whatever you choose to invest in must make business sense. 

Basic Estate Planning

Death is certain. It is important to leave things in order for your loved ones. This is not something that people love to think about it—but that’s just how it is. Plan who will get what. 

Live

Retirement planning is not just about money. Think about interesting activities, your health and relationships. You will be happier as a retiree if your life is fulfilling.