Retirement

Retiring Abroad

May 23, 2017 by palladinero Leave a Comment

Where do you want to retire? Do you think that far into the future? I have no idea where I will live in 30 years, but it will most likely not be in NYC because of the high cost of living.

It is common in the US for retirees to move to New Hampshire, Colorado and Maine. The low cost of housing, low crime and good health care are the main factors for people to retire in those states. But others want to live outside the US. What factors should they look into?

On of my cousins is moving to Costa Rica when he retires in a few years. His wife is from Costa Rica and they just recently bought a condo there. He has been planning this for awhile and is looking forward to the next chapter in his life.

Factors to Consider

Language

Do you speak the native language? If not you will need to learn the local language if you want to assimilate into the community. Moving to Central America? Learn Spanish. Want to live in Brazil? Learn Portuguese. I feel that it would come across as snobbish if you choose to only speak English in those countries. Asking for help, ordering food at a restaurant, shopping at stores and general conversation would be more pleasant while speaking the native tongue. Also, if you are moving to an English-speaking country it would be a good idea to learn the local slang.

Health Care

Who doesn’t think about health care as we get older? That’s right, no one. You will need to research health care options in the country you are thinking of moving to. Medicare does not cover health services in foreign countries. Many countries have less expensive public or private health systems in comparison to the United States. Costa Rica and Mexico, even allow foreigners with resident visas to buy into their national plans.

Finances

This would not be a Personal Finance blog if I did not state the following: Take care of your money. You will have to investigate how you will access Social Security benefits and your savings while living abroad. Will you need a local bank account, or can you access U.S.-based accounts? If you set up a local account, be aware of U.S. reporting requirements that require you to report overseas bank and investment accounts, with severe penalties for noncompliance.

Keeping a bank account in the U.S. is a good idea, especially if you return frequently to the States. Some banks have closed expat accounts, citing Patriot Act provisions designed to thwart financing of international terrorists. Some people get around this problem by maintaining a U.S. mailing address. For further advice go to www.americansabroad.org.

If you use a foreign bank account to pay bills and for every day spending money, you will probably have to file an annual Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Treasury. This form is mandatory if the total value of your foreign financial accounts exceeds $10,000 on any day during the calendar year. Failure to comply with this reporting requirement could trigger stiff penalties.

Crime

Crime is on everyone’s mind. When you retire all you want is peace and quiet. Many expats say that the reports of crime outside the U.S. are often exaggerated. Daniel Prescher of International Living, who previously lived in Merida, the largest city in the Yucatán peninsula, says drug violence in Mexico is limited to isolated border areas. Still, American retirees may be targets for crime, particularly in countries with a high poverty rate. For additional information on the risks, visit the State Department’s Retirement Abroad advisory.

Steps to take

Rent before you buy
Take care of your finances before moving
Find out about local health care
Check out the State Departments website
Have a plan for the rest of your life

Best of luck to my cousin and to all of you who are considering this move.

What foreign country would you consider retiring to?

Mike

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Financial Goals 2017

April 27, 2017 by palladinero 4 Comments

“What are your financial goals?” is a question every financial advisor asks. The answer depends on where you are in your life. My financial goals have evolved from when I was 22, 30 and now.

When I was 22 what I cared most about financially was starting my 401k and paying off my student loan. Additionally, paying my rent and budgeting properly was part of it too. I developed a budget to ensure that my bills were paid on time and put some money in my savings. Obviously being young I partied a lot and went out for drinks after work often. I could (should) have saved more but being young in NYC is very distracting.

At 30 it was relatively the same except that I also focussed on building up my savings for a down payment or an engagement ring. At this point I was paying more attention to the performance of my 401k and not just what I was contributing. I checked the balance every month and started to track my contributions and company match. I also updated the allocation of my holdings to ensure that my portfolio was diversified. I would advise everyone to do this from day one. But no regrets from me.

I’m now married so I have to think about a family not just about myself. Future mortgage payments, kid activities, college tuition and retirement have to be part of my goals. My wife is financially educated too and does not overspend. We track all of our purchases as a way of having our own type of “checks and balances”.

What really helps us now is that our only outstanding debt is my wife’s $30k student loan. Our plan is to pay it off within 5 years. We pay off our credit cards every month and all other bills as well. So not having to pay interest on those bills is a big benefit.

Our main goal is to save up enough for a house down payment within the next year. I’m confident that we will achieve it because we are on the same page and talk about it all the time.

Financial goals should be attainable but also ambitious. There is nothing wrong with having an ambitious goal.

I will be updating this post in the future to compare how our goals evolve over time.

What are your financial goals? How have they evolved over time? Are you close to achieving them?

Mike

PS: I can be found on Snapchat, Instagram, Pinterest, Twitter, Google+ and Facebook

401(k) Basics for Beginners

May 4, 2016 by palladinero 4 Comments

For those of you in your first job one of the things HR hands you is a 401(k) Retirement Packet. (If you are in a job that gives you a pension when you retire, consider yourself blessed. I’ll explain later.) In this packet there are all kinds of info about contributions, rollovers, withdrawals etc. This post will explain what you need to know and how to maximize this benefit.

The 401(k) gets its name after a section in the Internal Revenue Code established in the Revenue Act of 1978. It’s a way to defer income for retirement plans. A 401(k) is a great way to save for retirement because it uses your “pre-tax” income to invest in a fund of your choosing. The fund grows tax-free until retirement. At retirement withdrawals will be taxed as regular income. Many employers will match an employee’s contribution, 1-5% of your salary, adding to your fund.

How much to contribute?

The maximum employee annual contribution, as of 2016, is 25% of your salary up to $18,000. My first employer, BIG RETAIL, started me off at 1% as a default. Unfortunately I didn’t notice this for a month or two because that is way too low. I recommend that a person in their first job should contribute 25% if they live at home and 15% if they do not. The more you contribute at the beginning, the more time your money will grow. It will also teach you how to live within your means at a young age and budget appropriately.

Types of funds

Generally these are mutual funds that have specific goals (Growth, Income, Target Date). You would need to choose a fund based on your risk aversion. Investing in stock-based funds at a young age this is a typical option at generating growth. Funds that are mostly bonds and cash are more stable (less risky) but offer smaller growth. I am currently in a Target Fund, which means that it’s based on the year I plan to retire and adjusts its holdings as time goes on. I will probably making changes as time goes on.

Tax benefit

The “pre-tax” dollars that you contribute to the fund comes out of your paycheck before taxes are taken. The contribution lowers your income but also lowers the amount of taxes that you pay. If you put $500 into your 401(k) each month, your paycheck might only be smaller by about $300-$400 per month. The amount will vary depending on your salary, tax bracket and location.

Rollovers & Vesting

When I left BIG RETAIL the first thing I did was learn about my new company’s, BIG NEWS, 401(k) rollover policy. A rollover is when you move your money from one plan to another. Some plans do not allow rollovers, but thankfully mine did. I was able to move all of it into my new account without an issue. I was fully vested at BIG RETAIL and did not miss out on any of the company match money. Money that you contribute from your paycheck is always yours. But company-matching funds vest over time; usually over several years. Once you’re fully vested, you can take the entire company match with you when leaving your job. If you’re not fully vested, you’ll get to keep only a portion of the match or maybe none at all. Check with your company’s benefits administrator.

Withdrawing

The earliest you can withdraw from your account without a penalty is at age 59½. If you withdraw any of it before then you will be assessed a 10% early withdrawal penalty, and will still have to pay regular income tax that is due. Yikes! There are some exceptions, however. The IRS waives the 10% penalty for certain “hardship” withdrawals. Each plan’s rules vary, so check yours to be sure. To be honest I think the 59½ age minimum will increase because the government wants us to work and pay higher taxes. I also believe Social Security will be changed this way too.

Loans

Many plans allow you to borrow from your account. You must repay the money back within a few years or the loan is treated as a withdrawal, meaning you’ll owe taxes and a 10% penalty on it. Try not to do this!!! You will reduce your growth, pay interest on the loan and if you get laid off or change jobs you must pay the loan back within a few months.

Pensions

My Dad had a pension when he retired. He never worried about the stock market or the S&P. I’m now envious of him because he knew exactly how much he was going to be making when he retired. To put into context, a person retiring now with a $50,000 a year pension is akin to someone else retiring with a $1,500,000 401K balance. This is based on 30 years of life after retirement. So if you want to live like a pensioner, then contributing and actively managing your 401(k) account is a must.

Tips:

Contribute as much as you can & remain consistent
Learn about all of the funds that are offered and choose the right one for you
Do not borrow or withdraw early
Look at your account monthly and see what trends are going on in your fund
Speak to a fund manager if you have any concerns

This might be a bit overwhelming but hang in there, there is plenty of great things and experiences to look forward to.

Any questions, thoughts or feedback?

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