Last updated on February 22nd, 2022 at 06:03 am
Planning for your future is not a difficult process, getting started is the hardest part. There are simple steps to ensure your future is secure for you and your spouse/loved ones. It’s never too early to start planning, if you are 18 years old, there are steps for you. If you are 60, there are steps for you. This article will focus on readers who are further along in life when the door is closed on some steps that require that rare element “time”
“Start now to plan your lifestyle change”, an article in this blog is a good read and perhaps the first place to start. This article will get into more details about the planning process for your lifestyle change. This article is for people who expect to make a lifestyle change beyond age 60. In other words for the majority of us. Planning to retire at 50, great for you, the article I just referred to will be a good read for you. FYI, I use lifestyle change in place of retirement in most cases because the term is more appropriate than “retirement”.
Most people today do not have a defined benefit retirement plan or pension. Sources of income for retirement will usually be Social Security, 401k dividends/interest, insurance annuities, disability payments, rental property income, and inheritance. You may be able to check more than one of the items above on your list. This article is not just about money, it will discuss other topics that in some respects are as or more important.
It’s not too late
I answer questions on QUORA.com frequently about retirement, investment, and real estate. These subjects have at least one thing in common, they all concern finances. As mentioned above, finances and money are important but they are just one of several steps or areas where you need to focus to build a bulletproof future in your later years. My term bulletproof used here means that the plan is strong and you know you will stick to it. Of course, any plan is subject to outside influences but you need to build in some contingencies.
Back to finances and why I mentioned QUORA. Many people make statements in the form of a question that they are X years along and want to know how to prepare for retirement or as I say in this blog, your lifestyle change. We are all truly looking at a lifestyle change rather than the term retirement which just means stopping work. Many of the questions are from people who have not started the planning process and they are well inside the envelope.
It’s never too late to create a plan by taking the initiative. Years ago I was hit with a revelation that most people did not have the life experience that I have gathered by starting my businesses when I was quite young. Those businesses helped me learn to cope with a variety of things including not only my situation but those of my employees as well. I was shocked to know how little most people know about things beyond their job and daily routines.
Education is a big step
The saying, “you do not know what you do not know” is very true. It still astounds me to meet people who do not understand how interest on a mortgage works even when they have one. Or, the mechanics of saving through various methods e.g. 401k, IRA, etc. Take this big step now, learn what to do with the money that you already have accumulated. Part of that plan is to learn about how to earn the greatest return on that money and future contributions with the least risk.
If you do not have a type of savings account, start at once. “Cash is king”, keep saying that to yourself. This does not mean you put cash under the mattress. What this means by “cash is king”, is that you can get to the money if you need to e.g. cash stocks or bonds. I also do not mean for you to invest in just cash equivalents. You need to place your hard-earned money in a variety of assets to protect yourself if there is a downturn in any one area.
Keep in mind while reading this, the information provided is just that, information. You are entirely responsible for your actions. This means that regardless of where you put your money, it will ALWAYS be your responsibility to watch it. You may hire a financial manager, consultant, CPA, attorney, or a fiduciary to help but it’s your job to watch the watchers. Any of these people work for you and should fully explain what they are doing with your money.
Watch the watchers
You may invest in a 401k at work by selecting some investments. This is not the end of your job. You need to research, learn and educate yourself about where to place your funds. A good place to start with a 401k is to get free help from the plan provider. Call them and discuss the mechanics of the program. Do not settle for less than a full explanation of how it works. Research the selections you make and revisit them periodically. Remember, you are responsible for yourself.
There are no rules on how much you should save. Lots of people suggest a percentage or dollar amount. Not all employers offer a 401k plan so hold on for a discussion about what to do if you do not have one available. For the remainder of you who have a 401k program, max it out every year. When you hit the maximum contribution, max out a Roth IRA that you open with a broker.
If you do nothing more than max out both plans every year, you will be well on your way to achieving your goals toward lifestyle change in the future. Of course, if you have additional funds there are places to put that money, and investing in residential rental real estate is one. This article will not go deep into this area as there is too much to consider. Try reading articles on this blog and KEYLADDER along with Gulf Coastal Realtors who specialize in investment real estate.
No 401k, no problem
You can open your own Roth IRA and invest there. There are two basic types, a regular Roth IRA with a selection of investment vehicles made for you. You select from what is offered by the plan provider. The other type is a “self-directed Roth IRA” which is an investment program that allows you to select virtually anything you want to invest in. With a self-directed Roth IRA, you can buy an investment property.
A regular self-directed IRA works similarly but you will not pay income taxes on the amount you put into the plan until you take it out. A self-directed Roth IRA permits you to put funds that you have already paid taxes on into the plan and NEVER pay income taxes on the growth of the asset. If you do not have access to 401k, you can open both types of IRAs.
The idea is to save as much as possible so using the regular IRA and investing funds that have not been taxed will increase your balance faster. At the same time, there are limits on that plan and you may want to invest more. This is where the ROTH IRA is. The self-directed concept can apply to both as mentioned this simply means you have flexibility in investments.
Other options for saving
There are other ways to save, some are better than others. Some buy insurance policies as a savings mechanism. I have never done that because the ones that I have looked at will not produce income as good as other options. You can use a standard savings account at a bank but the interest is very low. It’s ok to put some funds there for emergencies as they can be removed without any penalty.
Sign Up For Our Investor’s Kit And Build Wealth The Right Way For Years To Come!The link above takes you to the IRA Club where you can obtain a free investors kit. If you sign up we are compensated.
Gold and other physical items can be purchased inside an IRA or outside of one. Be careful if you are going to buy investments like these, ensure that you are diversifying and some funds are in other types of investments e.g. stocks, bonds, and property. You can gamble with cryptocurrency but it’s not a good thing to put your life savings into it as the only vehicle.
Credit can be your friend
When you learn credit card discipline, you can use your new skills to improve your credit score. Did you know that your credit score is used to determine the insurance rate on your home and cars? A client recently had a 30% increase on his homeowner’s insurance because his credit score dropped. That is a very big hit, several hundred dollars per year.
You must absolutely get your use of credit under control and be the master of credit usage. I tell people to buy everything on credit and pay off the cards at the end of each month. Never ever buy it if you can not pay it off at the end of the month. Never use a credit card that does not provide benefits e.g. points, dollars, etc. The money you earn from credit card use is free.
https://retirecoast.com/about-credit-cards/Read my article about credit cards and how to use them, it’s important for taking the right steps in this direction. Check out your credit score look at it periodically. You need excellent credit to buy things particularly after you no longer have a constant paycheck coming in. As I mentioned it’s not just to obtain credit, it’s for everyday life.
Wrap on money
This is not an investment article so it is not intended to give you direction regarding your money. One of the steps you need to take is to create a plan for your money. So, let’s consider the above discussion covering this big step. Remember to read a lot about money and investing for your lifestyle change. Start with other articles on this blog.
Where to go next, there are so many paths and steps to take. I know, how about discussing the budgeting process, not exactly a money talk per see but in that direction. You are in luck, go to this planning spreadsheet where you can start by entering all of the expenses and income you expect at the time you leave your full-time employment or career. You know that day when you have the good by lunch and get all that going away stuff.
Budgeting a big step
If you learn nothing from reading this blog, you should open the budget planning sheet. Here is another link here: Budget Planning. We talked about how to save and where to park your money. Now let’s talk about your cost to live. Most people use big numbers e.g. mortgage, car payments, golf membership, travel expenses but forget many, many little things. Over the years, I have been enlarging this planning spreadsheet to capture even the cost of air. 🙂
Don’t leave anything off. Consider Christmas gifts, new births, birthdays. Ok, a few hundred here and there will not hurt, right? Wrong. When your income becomes fixed as eventually will, every dollar will be harder to just spend without some thought. Remember inflation. Right now it’s over 6%. Social Security just paid 5.8% more and it’s gone with the inflation tax.
I know of a person who told me what he was going to do with the Social Security bump. I told him he was wrong that the money was going into higher gas prices. He was wrong and I was right. Do not count on any increases in fixed income over the years to do any more than barely keep up with inflation.
Murphy’s Law
Hopefully, reality will strike early in your planning process. Do you know Murphys Law? If it can go wrong it will go wrong. Use this as a basic planning philosophy. Remember that bullet-proof plan. Take steps to be all-inclusive with your planning including planning for inflation and the unexpected. In other words, do not plan for every dollar to be spent. Leave a percent for Murphys Law.
Medical expenses are absolutely at the whim of the universe. You may be healthy at age 40 and even when you tell your golf partners you will be moving out of the area after you inform the boss you are done. Lightning can strike anyone and this means that you need to prepare for medical expenses. Medicare is a great benefit and helps greatly but you may need to pay co-payments and supplemental costs for specialty issues.
It’s difficult to save for unknown medical issues but great planning or taking the right steps to regulate your spending and ensure sufficient funds are available for unknown will help you sleep at night.
What am I going to do?
Well, that was a wrap on expenses. You should get the idea and the planning spreadsheet will help you discover a few things which I will cover a bit later. You can wonder what they are for a while while we get the big elephant out of the way.
What am I going to do? This question was posed not to deal with your budget or where you put your money but something even more interesting. The day after your going away party the door opens for the rest of your life. Remember that lifestyle change? Don’t wait for that moment to take some concrete steps to plan your lifestyle change and future.
Forget about the idea of sitting on the beach with an umbrella drink. That rarely happens. Even if you do not what to do anything, honey doo projects will get you out of the lazy boy. Plan for what you will do with all of that time on your hands. No one does anything unless you count on going to the doctor in later years just to meet others because you never leave the house.
So many choices
People wait until they are actually in their new life before they decide what they want to do. That’s ok but waiting is not the same as taking one of those simple steps to ensure your future is secure. Have you ever thought about working at the aquarium? You love fish and the sea, why not volunteer as a docent to take people through and explain the difference between a sand shark and a great white?
Are you handy with wood, metal, or other materials? Can you build fences? How about creating ashtrays or other art that you can sell at events. Start reading now about what you may want to do. Make arrangements in advance. Acquire the equipment when you are still employed.
Start a business selling something on the internet or create a blog that can make money for you. There are so many things that it’s not possible to mention here if I wanted to. Planning is important for some jobs. As an example, I decided well in advance of selling my company and leaving for greener pastures in Ocean Springs Mississippi. My son is an IT manager and an expert with websites.
Discover your passion
My passion has always been real estate. As a decades-long investor, I made it my business to become an expert in residential rental property investment and management. My son and I talked about the knowledge that I possessed and we both decided to create a business to pass this knowledge along.
I created KEYLADDER and built a website before I left the company that I sold. I was getting prepared for the future by taking the next steps necessary to make it happen. During the process, I created this blog to pass along information outside of just real estate investment.
I love to plan, the reason why my company did so well before I sold it (it’s doing very well now too!). Thinking bigger, I concluded that I wanted to become a real estate agent to offer a much broader service. KEYLADDER is the concept and analytical business, my real estate brokerage is on the auction end. I met a great person a few years before I left my company.
He was at the time a real estate agent on the Mississippi Gulf Coast and his mother was the principal broker with more than 40 years of experience.
A few years later
It was just the two of them which is exactly what I was interested in. There is nothing wrong with large franchise brokers but I wanted to help build another business. It’s been a few years now, we moved to Ocean Springs from California and our brokerage is called Logan-Anderson, Gulf Coastal Realtors.
You should be able to get the idea that if you plan and work on the plan, your desires will be achieved. You need to start bifurcating your brain well before you intend to close out your career. This means that you can devote yourself during the day to the business and at night and during weekends start being creative. Take steps to build your future while you are still employed.
Another reason for building your future before you leave your career is that while you are a w2 employee you can do things that are more difficult when you are living on a fixed income. The world does not recognize the fact that you may have a million dollars in the bank. If you do not have a steady income sufficient to cover the cost of what you may want to finance or buy, it will be more difficult.
Relocating?
Consider taking the ultimate step to relocate where you want to live. Yes, you can stay in your high-cost state and afford to live there but is your lifestyle going the same? If you move to for example the Mississippi Gulf Coast where costs are as much as 2/3 less for housing, you can do more with less. The idea in planning is to enjoy life. Walk on the beach. Take a trip. All of this takes money and if you are paying it in taxes and high costs in for example California, why not move?
Read the most popular article on this site Why I decided to retire to Ocean Springs, Mississippi. I am not trying to get everyone to move here. The article speaks for itself. Regardless of where you may want to move, you can use the planning spreadsheet to compare various locations. Do yourself a favor and at least consider relocating if it means improving the qualify of life with more money to spend.
We covered some ground so far. Now back to those things you will discover during the budgeting process. Many people who have used it tell me that their first effort at loading it up indicates they can’t afford to quit their current jobs. It’s a shock to some who thought they could slip away with their Social Security and a few dollars set aside.
Your future lifestyle need not suffer
Some people advising about planning for the future tell everyone to give up that Starbucks cappuccino and put the money away. That’s flat wrong. Why? You can not cut out everything that gives you pleasure. It’s a bit like being on a diet. If the diet is too strict you will go off it. Plan for those cappuccinos, do not make them an exception. Find a way to fit them into the budget.
Give up cigarettes. Easy for me to say I have never smoked. You know what I mean, it’s time to give up things you don’t need. If you have a third vehicle that you don’t use much, sell it and stop paying insurance on it. If you are within five years of retirement and need a new car, buy it now if you are going to finance it. Has it paid off when you make your move?
Do you have a boat that is stored and giving you no pleasure? Sell it. Same with that motor home you are not using. Sell that timeshare you have never used. Time to clean out the garage. Do these things well ahead, years not months. Some of these activities will help you get your head in the right place for change.
I will save money not driving to the office
People think that they will save money not commuting to ht office every day. Yes and no. If you are buying suits, you can stop paying for them to be cleaned. Yes, there are some savings but many people find that they need nearly as much money to live as they did when they worked every day. The costs are just different. They can be eating out more, traveling, driving to a volunteer job.
Plan for things, do not let life sneak up on you. Consider not only what you want to do with yourself but how you can afford it. If you need more money after leaving that career, save more now. Why wait until you are at the magical 65 or 66 or 70 to start cutting out things that waste time and money? Do it when you are 20 years out or 10 years out.
Buy that new home on the Mississippi Gulf Coast a few years before you leave employment. It’s easier to qualify for a vacation home (what we call it to get a good interest rate) when you are a w2 employee. Go in with the minimum down payment of 10% which comes from savings. When you are ready for the move, sell your existing home and put the money back into your IRA.
Starting a business
Put all of the pieces together for your future business. Get financing set up now. If you need a line of credit, apply for it while you are working full time. Acquire the materials etc. that you need now. Remember with inflation things will cost more later. If you are starting an internet business why wait. You will be working two jobs for a while.
Obtain permits, licenses and gain that education now. If you want to be a building inspector on a part-time basis study now and pass the exam before you leave. Set things in motion well in advance. I can not stress enough the education part of what you may want to do in the future. You may want to take some college courses at night or get that dental certificate. You can wait until you are no longer employed but set the groundwork.
Social Security
Social Security is part of your planning but should never be the key element. Remember that Social Security was intended to be a supplement. The average person earns about $1,800 per month. Rents in Southern California for a two-bedroom apartment are above that amount. You need to make a key decision about Social Security as part of your planning for income.
You can take SS at 62 or 66/67 or 70. If you take it at 62 you will leave about 1/2 of what you can earn a 70 on the table. It may take some serious discipline not to take it at 62 when you believe you need the money. What if you live to 90? Give this decision some serious thought and begin thinking about it now not later.
If you have a defined benefit plan you need to start the process to find out what you will earn. If you have a spouse you may be offered an opportunity to take less to insure the spouse gets the same if you are gone. This is a big decision for some. Noth something to leave to fate. Plan years in advance for this. Determine how your pension will fit in with Social Security.
401k and IRA withdrawls
Remember all that money in your 401k and regular IRA is NOT yours. Some of it belongs to me and others. When you take distributions you must pay income tax based upon your income tax bracket at that time. This requires some planning so you make money when you need it and it creates the lowest tax event.
You will be required to take draws from your retirement plans after a specific age e.g. 70 even if you don’t need the money now. If you must take the money you will pay taxes on it. As I said, not all of that money is yours so plan on the taxes you will pay. You are also required to pay income taxes on the first 85% of Social Security income. This comes as a shock to many.
Your tax bill later in life will have to consider all of the income you have earned including retirement withdrawals and social security plus taxable pensions. If this were not depressing enough, consider that many states charge income tax on retirement withdrawals. Mississippi for example does NOT charge state income tax on any retirement income including IRA withdrawals.
Your home
Taking the right steps to secure your future involves deciding where you want to live. If you have a low-cost mortgage on your home and there is no need to move because you can afford the payment, consider staying. On the other hand, if your mortgage will be a burden on a fixed income and investment income, consider selling and buying a less expensive home.
Notice that I did not say downsize. There is no requirement to downsize, no rules out there. If you have a four-bedroom house and only need one so what. You own it and like living there. My suggestion is this. You can make a $3,000 monthly payment but you would prefer to make a $1,500 monthly payment. Buy a house that has a lower payment. This does not mean downsizing at all. Homes on the Mississippi Gulf Coast are selling for under $300,000. There are many under $200,000.
The monthly payment on one of these homes can be 1/2 or better than what you are paying in your high-cost area. Consider moving so you can afford the type of house you want. Regardless, you need to create a plan for where you want to live. This takes planning and creating a good plan may be years in the making.
One last thing about mortgages. Don’t pay off your home if you can afford to make the mortgage payment. This assumes your interest rate is below about 4.5%. Why? Because you can earn more on lots of investments than you will pay on the mortgage. Remember, cash is king, don’t tie it all up in your house. You will sleep better knowing you can get to your money if you need it. Trying to refinance a mortgage without a steady income is not impossible but it can be difficult.
Family and Friends
Consider family and friends after you leave your employment. If you are going to relocate the time to discuss this with family is well in advance of any move you are considering. Even if you are going to stay at the same location, it’s good planning to discuss your future with your children and other family members.
Don’t sign on college loans without knowing all of the risks. Many people in their later years have ruined their plans because of student debt that their children or other relatives could not or would not pay. Remember the age difference. If you have college-age children when you plan to “retire”, let them know that they have much longer to pay off the loans than you have to help. Your income will be finite in retirement if they fail to honor your commitments.
Taking steps to create a will and perhaps trust while you are near your family is a good idea as part of your long-range planning. Get these things worked out well in advance and communicate with your family about your wishes.
Simple steps to ensure your future is secure
Here we are back at the beginning. This article is by no means a real road map to a secure future for you but it hopefully offers some things to consider. Planning early in life is the best thing you can do. Most people in their 20’s are still concerned about their career and how they look at the pub. This is not an insult, it’s hard to think about your long-term future when you are bulletproof.
People in their 30’s start having families and are working hard at moving their careers along. They understand the 401k a bit and perhaps are involved in putting a little aside. As we move into our 50’s we start thinking more about our futures. The kids are growing up fast and will be out of school soon. You typically earn more and have less debt if you have been planning.
When people reach their 60’s, if they have not started planning a sort of panic may start to appear. It’s still not too late but you are on some decision-making tracks at that time e.g. when to take Social Security and signing up for Medicare. Will you continue to work until you are X. Don’t wait this long to start the process? If you are reading this in your 20’s don’t follow the herd. Start now.
Thank you for reading this blog, it is one of my longer ones. I am passionate about the right steps and planning for the future. It’s terrible to see people with nothing to live on. They squandered their entire lives because they had no mentors or read articles about this when they were younger. Please share this article with others and read some of our others on similar topics. A list of articles on this website on similar topics is below, just click. Thank you again.
