Tips to help make your retirement less stressful

This was originally published on Monday, April 16, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

When you retire, you may find it difficult to survive on a fixed or limited income. Many people feel they don’t have enough money saved to live comfortably during their golden years.

How much you will need to retire comfortably differs for everyone. There are several strategies you can practice to increase your future income.

Debt. One of the largest expenditures is debt. Paying down debt, whether it’s a mortgage, credit card bills or other money you have borrowed is important. Debt can weigh you down and it certainly eats into your limited income. Retiring with a large amount of debt will restrict you from enjoying life and making other necessary payments.

If you can pay off as much debt as you can before retiring, you can use that money for things you want to do.

Diversify. Many people think Social Security and their 401(k) will be enough for retirement. It is for some, but a little extra income won’t hurt, especially for those who are closer to retirement and are playing catch up.

Add to your portfolio with dividend-paying stocks. Dividends may not be guaranteed, but if you diversify your investments you may have a better chance of additional income.

Postpone retirement. You may want to continue working into retirement age to help generate extra cash. Even a part-time job will bring in some money. Something as simple as a cashier at the local grocery store or an administrative assistant can bring in additional cash.

Many retirees become bored sitting at home. This may be a way to keep a schedule and structure. It’s also an opportunity to turn a hobby into a small business. Baking, woodworking or tutoring can bring in extra income and you get to set your schedule.

Bonds. You can make bonds work for you by buying a variety of bonds that mature at different times.

Cost of living. When you retire, stretch your money. Consider the cost of living where you live. Will a hundred dollars buy you food for a week or for a day? You may want to consider moving to a location where the cost of living is lower.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

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How to bolster your 401(k) retirement plan

This was originally published on Monday, April 9, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

No matter if you are 20 years away from retirement or five, having something set aside for your golden years is important.

There’s good news for those who are investing their retirement funds in a 401(k) account. In 2018, your contributions limits are rising. By avoiding certain fees and penalties you can ensure to maximize your 401(k).

Here are a few ideas on how to maximize your plan:

  • Tax breaks. Saving for your retirement can qualify you for several different types of tax breaks. Some will let you defer, or postpone, paying income tax on your retirement savings and others help you avoid taxes on the investment gains.

In 2018, the amount in which an employee can contribute from his or her paycheck increased by $500. The maximum yearly contribution for 2018 is $18,500. A worker who falls in the 25 percent tax bracket who maximizes the contribution could reduce his or her tax bill by $4,625.

Let’s say you are 30 years old in 2018 and earn 7 percent on invested funds. By the time you turn 65, that extra $500 a year will have a value of $5,338. The taxes on the contributed money won’t be taxed until the money is withdrawn from the account.

Workers who earn less than $31,000 ($63,000 for couples) in 2018 may qualify for a saver’s credit. That credit could be between 10 percent and 50 percent of their 401(k) contributions up to $2,000 ($4,000 for couples).

  • Take advantage. If you have been previously contributing the maximum amount into your 401(k), reset your contribution by an additional $41 a month to take advantage of the new increase. For those who want to start maximizing their contributions, it will require contributing about $1,542 a month, $2,041 for those 50 years and older.
  • Catch-up contributions. Catch-up contributions are made in addition to the maximum limit of $18,500. Employees age 50 and older are allowed to make catch-up contributions of an additional $6,000, for total contribution of $24,500. An employee in the 25 percent tax bracket who contributes the maximum catch-up limit could reduce his or her tax bill by $6,125.
  • Max your match. Even if you can’t afford to maximize your contributions, be sure to at least match your employer’s maximum contribution. This will at least double your contributions. Be sure to read the conditions of the plan carefully, in order to receive your employer’s maximum contribution, you may have to be with that company for a required amount of time.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 24 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Tips to increase Social Security benefits

This was originally published on Monday, April 2, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

There are ways to increase your monthly Social Security benefits. The most notable is determining how old you will be when you start receiving benefits. There are other factors you can do to increase that amount as well.

Work for 35 years. Your Social Security is based on the 35 years in which you earn the most. If you do not work for 35 years, those missing years will be calculated as zero and will decrease your benefits.

Keep on working. You can work until your full retirement age. For most that is between 66 to 67 years of age. To calculate your full retirement age go to https://www.ssa.gov/planners/retire/ageincrease.html. If you start your payments before full retirement, you decrease your payout significantly.

Increase your income. The more you make, the more you pay into your Social Security account. Increasing your income with a raise or a second job will increase your retirement pay as well. Be sure that your second job is not “under the table.” Only taxed income will be counted.

Your health. What is your health at the time you are start receiving your Social Security benefits? Does your family have a long life span or a short one? Review your family history. There are online surveys that you can take to give you a projected feasible lifespan. If you are married, do the same for your spouse.

Be patient. Unless you are in dire need of your benefits, try to hold out till the age of 70. You can start receiving your Social Security benefits at 62. Most people who are about ready to retire have a full retirement age of 66 and can put off claiming till 70.

If you start claiming your benefits at 62 you will lose about 25 percent of your full benefits for the rest of your life. If you wait until 66, you will receive 100 percent of your benefits. If you wait, you can add 32 percent to your full benefits. That is because for each year after 66, an additional 8 percent is added to your full benefits.

Your spouse. Spouses can claim benefits based on their income. Spouses can earn their benefits or up to 50 percent of the higher paid spouse, depending on which is greater. You can also claim Social Security benefits on your ex-spouse as long as you were married for at least 10 years.

Family dynamics. How old your children are when you start claiming your Social Security benefits may determine if they are eligible for benefits. Dependent children under 19 years of age may be eligible for up to half of your retirement benefits. If they are 19 and still in high school, a waiver can be made until they graduate or two months after turning 19, whichever comes first. A child could be biological, adopted or a dependent stepchild.

How much you make during retirement. For this year, beneficiaries who are younger than their full retirement age and earn more than $17,040 annually will have $1 held for every $2 they earn. In the year you reach full retirement age, the deduction is $1 in benefits for every $3 you earn above a different limit, which in 2018, is $45,360 annually.

Social Security taxes. If the sum of your annual income, nontaxable interest and 50 percent of your Social Security benefits are more than $32,000 for couples ($25,000 for singles) you could be taxed up to 50 percent of your Social Security benefits. If your total annual income surpasses $44,000 for couples ($34,000 for singles) you can be taxed as much as 85 percent on your Social Security benefits.

Survivor benefits. Although it is not pleasant to think about, a surviving spouse can inherit the deceased spouses Social Security benefits if the deceased spouse’s benefit payment is higher. The amount can be more if the deceased spouse delays claiming their Social Security benefits.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

How to calculate your Social Security benefits

 This was originally published on Monday, March 26, 2018, in the Pacific Daily News.  Click here to subscribe to the PDN. 

Question: I am turning 60 this year. I started working directly after graduating from college and I have been contributing to Social Security since I started working. I am curious to know how exactly my Social Security benefits are calculated.

Answer: Social Security came into law in 1935 and has been around for decades to help the working class save for retirement. The program allows workers paying into the system the opportunity to contribute a small percentage of their income into a cumulative account. Once retired, they can withdraw money out of that account to assist them with monthly living costs.

Throughout the years the federal government has made changes to the program. These changes have included the retirement age, percentages of benefits, cost-of-living and inflation adjustments, and spousal and disabilities benefits. According to finance.yahoo.com, “the average monthly Social Security check in 2018 is $1,375.29.”

The Social Security Administration reports that 62 percent of seniors rely on their monthly stipend to account for at least half of their income. At least 34 percent will lean on Social Security for 90 percent to 100 percent of their monthly income. This is why an additional retirement income such as a 401(k) is so important. Many cannot survive off the average monthly check.

Average Index Monthly Earnings

The first step in calculating your Social Security benefit is figuring out your Average Index Monthly Earnings, or AIME, which is calculated by looking at all the years you worked. Social Security takes the top 35 highest earning years and adds them up. That number is then divided by the number of months within those years. That figure is your AIME. If you have not worked for some of the 35 years, those years you were unemployed will be given a zero dollar value, which will bring your average down.

Primary Insurance Amount

After you have calculated your AIME, you then have to find what your Primary Insurance Amount, or PIA, is. It’s the baseline on which your Social Security benefits are calculated. Your full retirement age is the age you receive 100 percent of your PIA.

Not everyone has the same retirement age. It depends on what year you are born. To find your full retirement age, go to https://www.ssa.gov/planners/retire/ageincrease.html. If you were born in 1958 and you are turning 60 this year, your full retirement ages is 66 years and 8 months.

The earliest a person can start receiving Social Security retirement benefits is age 62. If you start receiving retirement benefits at age 62, you will get 71.7 percent of the monthly benefit. At age 65, you will get 88.9 percent of the monthly benefit.

Making adjustments to the AIME

The second step in determining monthly retirement benefits is calculated by making adjustments to the AIME. The portions depend on the year in which a worker attains age 62, becomes disabled before age 62, or dies before attaining age 62.

You can find out what your benefits are by going to www.ssa.gov and creating an account. Your account will contain your Social Security statement plus your estimated Medicare benefits. The website also has Social Security calculators you can use to help calculate your benefits without doing all the hard math.

 

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 25 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Tips for retirees starting a new business

This was originally published on Monday, February 29, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I am 65 years old and just retired. I have always wanted to start a small business but never found the right time. Now that I am retired I want to peruse my dream and become a small business owner. Do you have any tips to get me started in the right direction?

Congratulations on your retirement! You are among the many who have retired and now have the taste for entrepreneurship. The baby boomer generation is showing us that retirement is not bingo and crocheting. According to U.S. Money, “People age 55 to 64 accounted for 25.8 percent of the businesses started in the last year.” Starting a business is not easy, but it gives you the freedom to work on your schedule and on your terms.

Do you have a business? Take a look around and evaluate your competition. Is there anyone you would be in direct competition with? Be honest with yourself and decide if you have a business or a hobby. Is there a customer base for you? Evaluate your skills. Seek the thoughts of others if your product is what you expect it to be.

Time involvement. Depending on the type of business you are starting, you may be working 80-plus hours. Are you up for those long weeks? Some business can be done at home and on your schedule and are not as time consuming.

Financing. Depending on the type of business you are starting, financing may be a huge concern. You do not want to use up all your retirement money funding a business that may never take off. Instead, look to the bank for a loan, an investor or the Small Business Administration (SBA). They offer loans for which you may be eligible.

Connections. One thing most retirees have are connections. After many years working with others, you have built a network of professionals that you can rely on for advice and to be your customer base as well. Don’t be afraid to reach out to them.

Business structure. Does your business require you to manage people? If so, are you up to hiring and managing a team? Retirees make great mentors and this is a great way to pass on your skills and knowledge.

Technology. Today’s business is just not brick and mortar. Many businesses are e-businesses and require a website. Most of the marketing today is done through social media. There are some great software and apps that can help you run your business efficiently. Don’t be afraid to use technology if you are not used to it. Sign up for a computer class or  see if your child or your grandchild can help you out.

Asset protection. As a small business you and your company are joined. If your business goes under, so do your assets. Look at the different business structures and decide which offers the best protection for you. As a retiree on a limited income, the last thing you would want is the possibility of losing your savings.

Exit strategy. Is this a company you plan on passing over to the kids once you decide that you are done? Is it something in which they would be interested? If they don’t want to take responsibility, will you sell it or just dissolve the business? Have your plan written out and share it with your family.

Success. Do not expect your business to be an overnight sensation. Be patient and nurture it. With some changes along the way you may find that your passion and dream has turned into a lucrative business.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

How do I reduce my monthly expenses during retirement?

This was originally published on Monday, February 22, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: I am about to retire in a few years. I have been contributing to my 401(k) and plan on withdrawing Social Security a few years after I retire so I can get the maximum payment from my Social Security. I know retirement is going to be a big change. Do you have any tips on reducing my monthly expenses during retirement?

I commend you. You sound like you are prepared for retirement. Numerous seniors are finding ways to downsize and make more with less income. Many reduce their bills and increase their spending power. These tips may make a big impact on your retirement budget:

Mortgage. If you are within a few years of paying off your mortgage you may want to consider doing so before you retire, especially if your interest rate is higher than the return on your retirement fund. In other words, would it be more beneficial to use that money to pay off your mortgage or to add it to your retirement fund? Which will give you the biggest return?

Downsizing your home. If you own your home you may want to consider downsizing to a smaller home or even to an apartment or condominium. It will be easier to take care of if you have children who are grown and independent. Make sure that the cost of acquiring a new home fits within your budget. If you are going to be purchasing another home, you may have a new mortgage. On the other hand, you can rent your home for extra income or sell it to help purchase the smaller home or add to your nest egg.

Cost of Living. Guam has a high cost of living since almost everything has to be shipped. You may want to consider moving to a state or abroad to where the cost of living is lower. Lower prices on the taxes, food, electricity and other services can help stretch your retirement budget.

Sell a vehicle. If you and your spouse had separate cars for the past years and you are both entering retirement, you may be able to utilize just one car. It would eliminate maintenance and insurance costs and the extra fuel budget.

Retirement penalties. Be sure you understand when you can start withdrawing from your retirement fund. If you withdraw too early or too late, you may be penalized with a hefty fee. As you know, there is a penalty if you withdraw Social Security too soon and you don’t get the full amount. There is also a late enrollment penalty if you postpone signing up for Medicare Parts B and D.

Health care. As we get older, medical care will get more expensive as our bodies start to age. Since we can’t really budget or predict the cost, be sure you have a little wiggle room in your budget. You may want to purchase additional insurance to help cover some of the costs that Medicare doesn’t cover. Ask your physician if there is a generic brand equivalent to medications you are currently taking.

Discounts. There are some perks to maturing. Many stores, restaurants, movie theaters and other service-driven organizations offer a senior discount. Many may not be advertised. It won’t hurt to ask; the worse they can say is “no.”

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Good habits today will assist retirement

This was originally published on Monday, February 9, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

One thing we all have in common is there will be a point in our lives where we will no longer be able to work and will have to start our retirement. Having good habits today will help secure our future.

Life insurance. “Eighty-five percent of the best retirement savers had at least $100,000 in life insurance coverage,” a March 2015 CNBC.com article stated. Talk to your insurance company on which is best for you, whole-life or term-life insurance. Either way, you want to be sure that you are covered in case you become ill, incapacitated or pass away. You do not want to use your retirement money to cover these expenses.

Diversify. Mix up your investments that fit your risk tolerance. Those who are further away from retirement can capitalize in riskier investments than those who are closer to retirement. Having your investment in one type of investment is risky. Don’t put all your nest eggs in one basket. Deciding what to invest in may require some professional help.

Retirement at a dollar amount. When asked the question, “When do you want to retire?” many of us reply with an age. Sometimes we are not ready to retire exactly at 65. Your retirement is about freedom and it would be great to say, “I retired as a millionaire.” Know exactly how much you need to retire comfortably.

Focus on the long term. We put a lot into our retirement investments, and it is hard not to feel some anxiety when we see the market go on a decline. It is important not to panic and do something that you will regret later. Many investors see a dip in the market as an opportunity to acquire more equities at a lower price.

Simple investing. You do not need an expensive and complicated investment portfolio to earn a lot of money. In fact, many of those expensive investment plans come with large investment costs. Those investment costs can reduce the amount of money in your nest egg.

Estate planning. If you own real estate, you should have a living trust that ensures certain people get the assets you want to pass on to them. You should also have documents stating whom you designate as your medical caregiver in case of an emergency. These should be reviewed on a yearly basis.

Review regularly. Take a look at your retirement plan every six months or yearly. Keep track of how your investment is performing. Be adaptive and recognize that the markets change. As your life changes so do your retirement goals. Ask yourself, “Am I contributing enough?” When you re-enroll, take a look at your plan and strategy. Do they still meet your needs? If you see that your portfolio is constantly trending downward, talk to your adviser.

Stay healthy. Your health when you retire is important. As we age, health care becomes more expensive. If you retire in good health, it is likely that your medical costs will stay low and you can enjoy that retirement money.

Never stop learning. Never stop learning about investing and personal finance. The more you know, the more you can prepare for the future.

Professional help. Something as important as retirement should not be left up to guessing. Hire a professional. Taxes, bonds, stocks and other investments are complicated. Policies and laws can change, and you need someone who is knowledgeable. Don’t be afraid to ask your adviser questions. You should be able to trust your adviser and the decisions made.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.