Category Archives: Saving

Are You In Financial Trouble?

According to the National Financial Capability Study which has occurred every 3 years since 2009:

  • Out of Pocket Medical Expenses are a significant source of financial strain.
  • Since low education and low income often go hand-in-hand with poor health and lack of insurance, households with low socioeconomic status are both more likely to face economic shocks and less prepared to deal with them.
  • Those who are most likely to face a health shock — are 15 to 30 percentage points less likely to have money to cover an emergency than respondents on the opposite end of the scale.
  • The NFCS-ALP reveals a widespread lack of planning. Only 40% of respondents have ever thought about their retirement savings.
  • Only 47% of workers aged 40 to 59 have planned at all.
  • Among younger (workers aged 18 to 39) the figure is much lower: it is only 31%.
  • Even when it comes to individuals aged 60 and older, less than 50% have thought about planning for their post-work years.
  • More than half of older workers on the verge of retirement have not done any retirement planning.
  • As further evidence of the financial fragility of American families, only 44% are certain they could come up with $2,000 if an unexpected need arose within the next month.
  • Among workers over the age of 60, the median financial wealth is only $1,500 for those who have not planned.

The moral of this story is obvious: Americans are not preparing themselves for their financial futures. The long-term implications are serious and not to be ignored. For fear of sounding like a broken record, the earlier you start saving for your retirement the better off you will be. But regardless of your age it’s never too late to start saving. Lastly, the NFCS study found that “…Higher financial literacy correlates strongly with whether individuals plan for retirement and have rainy day funds.” Educate yourselves and enjoy your golden years.

It’s Never Too Late

I was 40 years old when I first started thinking about retirement. I was married with two children but within a few short years my life changed dramatically. I was divorced and a single parent. My oldest son had graduated from the university and my younger son was in his last year of high school when he received a partial scholarship to college. I felt like I had hit the lottery.

With all that happening I had not lost sight of my desire to retire at 55. My employer offered a non-contributory retirement plan allowing you to retire at 55 years of age, with 30 years of service. If you met that criteria you would receive 50% of your salary for the rest of your life, but I knew I’d only have 25 years and therefore receive only 35% of my yearly salary.

I knew I needed a plan to reach my goal. The obvious answer was to save as much money as possible in the next 10 years. So I changed my lifestyle and put myself on a budget. Looking at where my money was going I realized the majority of it was being spent eating out. So I starting charging everything I bought. I didn’t care how small the purchase. I charged it on my American Express card. This way I could itemize how much I was spending and where it was being spent. With this knowledge, I then started to rein in the unnecessary spending.

Being a fan of Suze Orman, a financial adviser I saw on the Oprah show, I began following her advice regarding delayed gratification, and I joined my company’s 401(k) savings plan that had a 2% company match. In 1994 I increased my savings from 4% to 18% of my yearly wages. No matter how sensible with money you think you are there are times when your budget is at risk of getting hijacked. Putting my money in a less accessible place made it less likely I would use it in an emotional situations.

Saving for the future is difficult but it can be done. You should replace shopping and eating out with other joyful (FREE) activities like walking, doing yoga or listening to music. These activities will help you find your way toward your road to early retirement. I retired in 2004 at the age of 55 and I’ve enjoyed every minute of it!

-Jamie  S., Los Angeles, CA.

Starting LATE!

First off, it’s okay.

No it’s not good. But there is hope.  This post is for all you late bloomers out there who are just now getting started saving for your retirement. And yes, we know it’s scary when you realize late in life that you haven’t prioritized your golden years but the key to dealing with the situation is to ACT! and act NOW!

  • If your employer offers any type of funds matching then you MUST at the bare minimum, contribute the amount required to receive the company match otherwise you’re leaving money on the table.
  • Next, you have to analyze your budget. You don’t have to hire a financial planner, but you do have to sit down and look at all the money that goes in and out of your bank account in a typical one month period.
  • Then you have to trim the fat. Anything that can be cut should be cut in order to free up money for your retirement savings.
  • Depending on your age you may be eligible to contribute ‘catch-up’ funds to your retirement account specifically to address the issue you’re facing.

PART 2

 

 

Best Practices (If you don’t get a Pension)

This post is all about the saving behaviors that one should integrate into one’s lifestyle with the intention of living well after working. If you have a guaranteed Pension coming after so many years of service then your savings approach will likely differ. If not, read on.

  • Pay Yourself First
  • Start Early
  • Employer Match
  • Stay Employed
  • Max Out Your Contribution
  • Index Funds
  • Dollar Cost Averaging

It is important to note that I am writing from the perspective of a 46 year old black male who works for a major airline that offers a 401k as it’s only retirement savings option.  I have been with the company I work for for 16 years. And plan to retire in anywhere from 10 to 14 years. Please chime in with alternate experiences i.e. self-employed, military, state workers, non-profits etc. All of us have a unique perspective on what the best practices are for achieving our goal of living well after working. Please don’t discount the importance of your experience. Remember that there are young people reading this who will benefit by not having to make the mistakes that many of us have made on this journey.

Disclaimer:

This is not legal advice. This is not investment advice. These are the sharings of individuals who have either achieved the goal of retirement or who are well on their way to that goal.

I read a book about a hundred years ago (I’m ashamed I don’t recall the title) that repeated the catchy phrase “Pay Yourself First” as its mantra. It might have been the Millionaire Next Door. (which I highly recommend).  It pushed the idea that part of the recipe for financial freedom after working is to move the concept of saving to the forefront of your financial agenda. The general idea is that by prioritizing your debts you include YOURSELF at the top of the list as the primary debtor. In other words, you pay YOU before you pay anybody else.

Of course this can be a daunting prospect if you’re just getting started but one of the magic keys to the entire game is recognizing when you first enter the workforce that your first priority is to establish a savings plan for the money you are now earning. Not a SPENDING plan, but a SAVINGS plan.  Why this isn’t a senior year high school mandated message I have no idea.  Notice I did NOT say college. I said high school. And I said it because saving is a concept that ANYONE entering the workforce needs to engage in. It is NOT earnings-dependent!

So no matter how much money you make you should be setting aside a part of it (preferably) in a tax deferred, interest-earning account to be used when you decide you’re tired of working. Many companies offer what is knows as an employer match where if the employee contributes up to a certain percentage the company will match that amount (typically as a lump sum cash deposit into your retirement savings account) up to a specified limit. If your company offers such a program and you don’t take full advantage of it then you are effectively walking away from free money.  It’s as simple as that. And if you’re not sure if such a program exists at your company call your HR rep and ask. TODAY.

The next point is significant from the standpoint of the article on this site that discusses the dilemma which is black retirement. The numbers are scary and have to be addressed. NOW. Blacks and Latinos earn less over our lifetimes than whites.  Consequently, we have less ‘left over’ to save. But I’m here to tell you that that excuse is unacceptable.  And it’s unacceptable because it does not matter how much money you make if you PAY YOURSELF FIRST.  5 dollars an hour? Put 50 cents aside for yourself for every hour you work. That’s 10% of your salary. 2 years from now you’re a supervisor and you’re making 13 dollars an hour and you’re putting away a dollar and 30 cents an hour. 3 years later you’re a manager and you’re making $20 bucks an hour, putting away $16 dollars a day. It adds up.  (If you only put the money in a Bond Fund earning 0% a year, after 5 years you’d have 10 grand. Working at Bob’s Mega Burger.)

BUT THIS IS THE SECRET…

If you start from the beginning of your fledgling career you will never MISS the money you save. You will have ALWAYS put away 15% of your pre-tax earnings. And therefore never know what it’s like to have that additional 15% available to spend (WASTE).

The studies show that one of the reasons Blacks and Latinos fall so far behind whites in the earnings category is due to the unproportional rate at which Blacks and Latinos are incarcerated in this country. SO, stay employed.  Stay working. As simple as this rule is it is very very significant. 5 years of unemployment can mean the difference between retiring at 62 and not being able to retire until you’re 75 years old.

Why? All due to the laws of compounding. I will add a link here that details how it works but the bottom line is that over time and as your money grows a snowball effect occurs. Growth is slow in the beginning and possibly even dauntingly so. But over time speed picks up exponentially and once your nest egg has grown over time it begins to grow significantly faster than it did in the early phase of your career. And that is when thing begin to get very, very exciting.

The key is to never stop putting money in the pot. And as my mother taught me… every time you get a raise increase your contribution to your retirement savings account. Until eventually they tell you sorry ma’am you’re maxed out. You cannot contribute any more. Once you hit this point you will have joined an elite club of people who typically retire comfortably (if the market is kind).

I know this post is long. But I will close with a brief bit on dollar cost averaging. The concept is very simple. If you invest a set percentage of your salary every month then when the market is down you will buy more and when the market is up you will buy less. Consequently, the shares you buy more of when the market is down will increase the value of your portfolio when the market gains. This method allows you to always buy more when stocks are cheaper. No timing the market. No trying to figure out the winners. Always buying more when it’s cheap and less when it’s expensive.

My early studies revealed that index funds are the way to go (we will discuss this topic in much more detail as we go). Especially, for the lazy under-educated, disinterested investor like myself. I just want the money taken out of my check and handed off to the investment gods who will deliver me returns that will send me to Puerto Vallarta as soon as earthly possible! SO, I invest in index funds which match the S&P 500 or the NASDAQ. I own one fund. And all it does is chase the S&P 500. Whatever the market does, it does. And if you’ve done your research you know that 9 times out of 10 that’s better than what all the actively manged funds do. But here’s the FINAL secret of this post: Index funds are the CHEAPEST of them all because they’re NOT actively managed. So the fees you pay to own them are significantly less than other managed funds. They’re the BEST DEAL OUT THERE!!

Please let me know what you think about my formula. I started late (at almost 30). But I can see the light at the end of the tunnel. Thanks for reading!

 

 

 

Why a Black Retirement Site?

Excellent question.  It’s best summarized by this February 2015 article in the New Republic.

In July 2014, the Federal Reserve released a report that outlined the growing retirement crisis in America. Nearly a third of Americans over the age of 18 have no retirement savings. Twenty-three percent of those between the ages of 45 and 59 have no savings or pension. But the Fed report overlooked an key part of this problem: Minorities are in far worse financial shape than white Americans.

That’s the finding of a new analysis from the Urban Institute, a nonpartisan think tank in Washington, D.C. A team of five researchers put the data narrative together, which consists of nine graphs that outline why the retirement crisis is so much worse for African-Americans and Hispanics. The largest reason for this gap is that Hispanics and African-Americans build up less wealth than white families over their lifetime. The gap is only getting worse. In 1983, the median white family had more than $100,000 in wealth, compared to less than $13,000 for African-American families—an eight-fold difference. By 2013, the median white family had 12 times the wealth of the median African-American family. The same is true of Hispanic families.

By age 61, the median white person has earned $2 million over their lifetime. The median African-American and Hispanic have earned $1.5 million and $1 million, respectively. The higher lifetime earnings allows whites to save more, and those savings earn more interest—wealth begets more wealth.

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So, based on what we view as a crisis of epic proportions being utterly ignored in the media and in Washington the only option we have is to educate ourselves and work to educate our friends and family. Yes, we could focus on the racism that fostered this income inequality but we don’t have time for that. We have to change our habits Today! We have to start saving our money. EARLY!… So it has time to grow.  The numbers don’t lie.  We have to act now.