Financial Independence and Retirement

The vast majority of Americans who reach retirement age today can realistically expect to live at least another 15 to 20 years. This is why planning for your financial independence and retirement should start when you are younger. The goal is to achieve financial Independence and have solid money management skills in place, so that you and your loved ones can make the most from your retirement income.

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Financial Independence and Retirement Articles & Information From Next Phase of Life

Planning Your Retirement Finances

Planning Your Retirement Finances

It’s time to get your retirement finances in order but you don’t know where to start. Your biggest asset is your 401k so do you start with retirement planning? But then you think about the other money you have in real estate, a college savings account and at the bank. You begin to wonder if you need a financial plan instead? Then you start to think about what you want to do in retirement. Do you want to travel, have a mobile lifestyle or simply sit back at home and perfect your hobbies? Which plan does that fit into? read more…

Everything You Need To Know About Retirement Home Equity

Everything You Need To Know About Retirement Home Equity

Home financing options and mortgage terminology can be confusing. Plus, people’s home financing needs change with age and vary in different stages of life. Understanding retirement home equity is an important key to finding financial success in retirement.

Equity is the portion of your home’s value minus the mortgage balance that you accrue over time. When you get a home loan, the bank owns the majority of the home and they charge interest to borrow that money. read more…

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Understanding Your Personal Balance Sheet

Understanding Your Personal Balance Sheet

A personal financial balance sheet shows you a snapshot of your financial health: how much money and assets you have, how much debt and liabilities you have, and what your net worth is when you subtract your liabilities from your assets.

Unlike a budget where you track how much money is coming in as income and how much money is going out as expenses, a balance sheet tracks how much you have at a fixed point in time. Even businesses, the government, and non-profits use a balance sheet to measure their financial strength. read more…

No Money Saved for Retirement?  Here’s How to Fix That.

No Money Saved for Retirement? Here’s How to Fix That.

According to the U.S. Government Accountability Office, 48% of people over age 55 have no money saved for retirement. That’s a scary high number which makes you wonder how that many people got to 55 without putting any money aside. I’m willing to bet that some of that number is based on some sort of financial catastrophe like a divorce or a major medical situation. Another portion of that stat is going to be folks working hard, raising a family and just not having enough to set any extra aside. read more…

Protecting Retirement Finances in the COVID Era

Protecting Retirement Finances in the COVID Era

As I write this, the stock market is off about a third from its high, with no sign of a rejuvenation. According to an April 2, 2020 article in Forbes, a MagnifyMoney survey found that 38% of investors are worried they’ll lose all their retirement savings due to the COVID-19 outbreak. Almost 10 million Americans have filed for unemployment in the first two weeks since serious social isolation happened. This double sledgehammer of job loss and dwindling assets is a hard burden to bear. The need for protecting retirement finances is even greater in the COVID era. read more…

Financial Independence and Retirement

Financial Independence and Retirement

The vast majority of Americans who reach retirement age today can realistically expect to live at least another 15 to 20 years. This is why planning for your financial independence and retirement should start when you are younger. The goal is to achieve financial Independence and have solid money management skills in place, so that you and your loved ones can make the most from your retirement income. The following topics are covered below:

    • What is Financial Independence?

    • Achieving Peace of Mind About Your Finances

    • Importance of Effective Financial Planning

    • Myths About Retirement Finances

    • Protecting Your Finances in Retirement

    • How Much Money Do You Need to Retire?

    • Why You Need a Retirement Savings Calculator?

    • Best Money Management Tips

What is Financial Independence?

Financial independence is met when you have enough money to support yourself for the remainder of your life without the need to work again. Of course, there are many people who are financially independent and nevertheless choose to work.

Another useful definition comes from “Financial independence is positive cash flow from a collection of passive assets, which gives you the freedom to pursue other things in life than work. The higher the cash flow compared to your financial needs, the more financially independent you are.”

Here are five stages to financial independence:

#1 – Solvency. You can support yourself, but may also have significant debt that can be a struggle.

#2 – Stability. You are still struggling but you are able to pay your bills on time. Your heavy debt burden has been reduced or eliminated.  

#3 – Security. You have saved enough and your investment returns cover your basic needs. You have little or no fear about the future.

#4 – Independence. Your assets and the return from your investments allows you to maintain a nice standard of living.

#5 Abundance. Your investment returns can easily fund your ideal retirement lifestyle and allow you to be generous to others.

While this may not be possible in many instances, the ideal scenario for retirees is to achieve abundance or as close to this status as possible. 

Financial Independence and Retirement. Achieving Peace of Mind About Your FinancesAchieving Peace of Mind About Your Finances

Planning for your financial independence and retirement can be stressful, but with enough forethought and some sound financial advice, this stress can be brought under control. Here are four steps that financial advisers say will offer you peace of mind and the ability to begin financial planning with a great deal more confidence.

Identify the Issue.

List the sources of your financial planning worries. This will help you determine the root of the problem. For instance, let’s say that at the start of every month you have ten bills to pay but you seldom have enough cash on hand to cover them. This is a very specific financial problem. Solving short-term financial problems will allow you broader leeway to focus on investments in the future and relieve uncertainty about the future.

Organize Your Retirement Finances

Develop a comprehensive statement of all your assets and liabilities because understanding your financial obligations is essential to achieving financial independence. Your property, investments and savings are examples of assets. Loans, credit card debt and mortgages are examples of liabilities. Before you can alter anything, you need a coherent picture of where you stand financially A great deal of stress regarding financial independence and retirement stems from the unknown and prevents you from knowing when you can retire

Create a Budget

We know that you have heard this advice before but the reason for this is simple – budgets work. Developing a household budget will give you a more coherent vision of where your money goes on a regular basis and, just as important, where adjustments can be made. As your life evolves so will your budget. Keep it up to date with any changes in income, debts, etc.

Ask for Help

There is a reason why 40% of Americans today do not have $500 in case of an emergency. Financial awareness is not something we are taught in high school and probably not even in college. If you were lucky, you had parents who knew the importance of money and taught you accordingly. The rest of us had to accomplish this on our own.

Thankfully, there are many qualified financial advisers with whom you can discuss your financial indepedence and retirement issues. Working with one of these people will assist you in putting the various pieces of the puzzle together and help relieve much of the stress that may be keeping you up at night.

Read more about achieving financial peace of mind. 

Importance of Effective Financial Planning

Working with a qualified financial adviser will help you set financial goals and keep you on track to meet them. When it comes to your financial independence and retirement, a financial adviser can help you to understand the following.

  • How much do I need to save for my retirement?
  • Is there a specific amount of life insurance I need?
  • What are the best types of investments to own?
  • Can I manage the house I am living in?
  • What are the most efficient ways to save on taxes?
  • Is my retirement balance sheet in order?

The vast majority of Americans simply do not take the time to find the answers to these questions and to keep on top of their financial issues without the aid of financial advisers. Research has shown that Americans who work on their financial independence and retirement plans with financial advisers hold 60% more assets than those who do not.

Myths About Retirement Finances

Financial Independence and Retirement. Myths About Retirement FinancesWhat you do know (if it is wrong) can often hurt you more than what you do not know. Following are some common misconceptions about senior finances.

#1 Myth: You need to have $XX amount saved before you can even consider retiring.

Whatever amount you think is appropriate, can often be incorrect. Your ability to retire will have little to do with meeting some arbitrary savings goal. Financial independence for retirement is determined by having enough money saved to maintain the lifestyle that you have become accustomed to without having to work. Put differently, the amount you require for retirement is determined by how much you intend to spend – or may be forced to spend on unexpected items – and this can be very different from the needs of other retirees.

#2 Myth: You will have only 70% of your pre-retirement expenses.

This is one of the most dangerous financial myths that retirees need to be aware of. When you retire you will suddenly be capable of cutting 30% from your budget for creature comforts? It’s true that you will have a few reductions in expenses such as 401(k) payments, commuting expenses, and payroll taxes. However, most retirees want to enjoy their free time and leisure activities, tend to travel more often – and, in general, maintain or exceed their current standard of living. They have little interest in doing without or practicing a subsistence lifestyle.

#3 Myth: All I have to do for retirement is to max out my 401(k) contributions.

As myth one and two pointed out, most investors are concerned about being able to maintain their current standard of living in retirement. Maxing out your 401(k) is a good way to reduce your tax liability and build wealth in any given year. However, most retirees find that they struggle to maintain their desired lifestyles on these savings alone. In the vast majority of cases, 401(k) savings are not sufficient to replace six figure incomes and, unlike Roth IRAs, are taxable when distributions are taken.

#4 Myth: I can always keep working into retirement.

Naturally it is possible to keep working long into your retirement, up to the age of 70 and even beyond. Unfortunately, many people find that a number of external factors make doing this difficult. Health changes are the most common reasons that retirees are not capable of working long into retirement. This risk is elevated for those people who work in occupations that involve a physical component or one that doesn’t lend itself to working remotely.

Too many find that they are no longer capable of performing the core functions of their chosen profession. Others plan to take on part-time employment to supplement their incomes. However, while low- or moderate-pay jobs are often available, well-paying part time jobs prove to be few and far between and often place much higher demands on workers than they had envisioned.

#5 Myth: Never retire until your mortgage is paid off.

Many pre-retirees are reluctant to assume mortgage debt, but this should not be a big concern if you have decent income and can secure an attractive interest rate. Many retirees intend to downsize and/or purchase investment properties to help save money and to secure some rental income to supplement their other investments or savings. Many financial advisers will tell you that the benefits of being debt free are often not as important as having cash available to apply to other investment opportunities, such as securing an investment property.

#6 Myth: Once you retire you need to become more conservative with your investments.

This is one of the biggest mistakes that retirees make. Once they retire, some individuals stop trying to make their money work for them. It is understandable that accepting risks with your hard-earned financial reserves, often having been built up over many decades, can be unnerving. We are not advocating putting all your reserves into the stock market, but some smart investments can prove to be enormously beneficial to maintaining a quality lifestyle.

Financial Independence and Retirement. Protecting Your Finances in Retirement

Protecting Your Finances in Retirement

Here are some steps can you take to ensure financial independence in your well-deserved retirement.

Make a Complete Financial Plan

Start by estimating how much cash you want for every year of your retirement. This will help you determine the size of your needed retirement nest egg. Conventional wisdom suggests that you should plan for at least 20-25 years but this can vary by a decade or more depending upon your health, genetics and lifestyle factors like diet, smoking, etc. I hope you are one of the fortunate ones but not all of us are going to live into our 90’s .

Evaluate Your Risk Tolerance

Deciding your level of risk tolerance will allow you to decide how you want to allocate your finances. What percentage do you want to place in stocks, savings, funds, bonds, etc.? Your financial adviser will explain the different levels of risk attached to each form of investment.

Decide When You Want to Retire

Depending on when you start planning for your retirement, you might choose investments with much higher levels of risk. If you have a long time to your proposed retirement age, any downturn in the stock market will have ample time to start moving upwards again. If you are closer to retirement, your adviser may advise taking a more conservative approach to risk.

Always Keep Some Cash on Hand

An emergency fund should be part of any effective financial retirement plan. In the event that you meet an unexpected expense before you reach retirement age, the last thing you need is to have to tap into your retirement fund. Setting up an emergency fund that is kept separate from all other accounts, but still easily accessible, is an excellent idea. This could potentially free you from paying the huge penalties attached to making early withdrawals from a retirement account.

By the way, many advisers recommend keeping three months of cash on hand. However, as this Kiplinger article states, for many retirees, two or three years may be more appropriate. This is highly dependent on your particular circumstances.  

Set Up a Tax Contingency Plan

Planning your retirement nest egg in a manner to avoid over-paying taxes is an incredibly important step for your financial retirement plan. How you invest today will impact your taxes both now and in the future. For example, current contributions to an IRA are not taxed, but withdrawals from an IRA in retirement are taxed. If you save the money from the tax that you didn’t pay on your contributions today and invest that money now, it will help to cover any taxes that you have to pay in the future. Discuss options with your adviser.

Broaden Your Investment Horizons

If the thoughts of recessions and market dips prevent you from investing for your retirement, you can decide to place your funds in accounts that are not subject to market fluctuations. Talk with your adviser about CDs, checking accounts and/or savings accounts for safety and assets like real estate, gold, etc. for diversification.

How Much Do I Need to Retire?

As we discussed previously, your ideal retirement income should be the same as the amount you need to finance your chosen lifestyle. After working long and hard to get to retirement, why would you want to make sacrifices? Often, the bare minimum that you should aim for is at least 80% of your pre-retirement income. This amount is obviously subject to change depending on any number of factors such as pensions, social security and continuing employment.

Many financial advisers advocate having enough financial assets to allow you to draw down a specific amount of your investments yearly (4% is often recommended). This draw-down is one of the retirement income “buckets” and the others are social security, income from part-time work, and your pension (if you have one). 

Here is how you can complete your financial plan to make sure you don’t run out of money in retirement

Why You Need a Retirement Savings Calculator

If all of the above seems pretty complicated, you are not alone. Luckily some financial experts have developed a retirement calculator. This is designed to allow you a plan for many different aspects of your retirement. These calculations can be completed simply and quickly, and it’s very easy to calculate various scenarios. While there are many retirement calculators available, you might want to start with this retirement calculator from This calculator does a great job of projecting your future assets and incomes. However, like many, it does not take your social security into account so will project a more negative scenario than is actually the case.

Financial Independence and Retirement. Best Money Management TipsBest Money Management Tips

Here are some ways that you can manage your money in retirement to help stretch your funds a little further and to make them continue to work for you.

Refrain From Tapping into Your Savings too Quickly

Research has indicated that one of the key factors of how long investment portfolios last is how much retirees take out for spending. The less they take out, particularly in the early retirement years, the longer your funds will last. This is why it is important to work out your ideal withdrawal rate (hopefully with a qualified adviser). Some of us can sustain a 6% yearly withdrawal, while for others it could be as low as 3%. 

Reinvest Your Portfolio

As we mentioned above, savvy retirees arrange it so that they don’t have to be overly conservative with their retirement funds. They want to thrive, not just survive, in their retirement years. Making shrewd (but not overly speculative) investments will help ensure that you get a good return and will allow your portfolio keep up with any increases in inflation.

Consider a Career After Retirement

Even though we discussed the difficulty of working past retirement age, with some savvy planning, there are many careers that are sustainable well into retirement. Depending on your current career, consulting work is something you might want to pursue. Other options include, teaching, tutoring, nursing, child care, senior care and yes, even writing. All these can generate additional income, while often proving less taxing than your pre-retirement career. You can find more work and volunteer ideas here.  

Be Realistic About Your Cost of Living

One of the most important things that retirees need to understand is how to manage their basic living expenses as opposed to optional lifestyle expenses. One of the best ways to manage these expenses is to have two separate accounts. For example, you can keep a checking account to cover your monthly living expenses, and deposit your social security and pension checks into that account. Other funds can be deposited to your lifestyle account. If necessary, you can move funds and reduce lifestyle spending to help pay for living expenses.

Don’t Sacrifice Your Financial Well-being by Over Indulging Your Family

This does not mean that you should neglect your loved ones, but risking your own financial security by spending too much on your adult children, grandchildren, and aging parents, can harm you (and sometimes those you are giving to) a great deal. Remember that your adult children have more time to change their financial status, while you may be digging a financial hole that it is extremely difficult to climb out of.

I hope you have enjoyed our thoughts on financial independence and retirement finances. Our goal is to help you enjoy the gift of a long, robust and financially secure lifestyle. The right type of financial planning today will help you achieve and maintain the terrific retirement you deserve.

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