Cuenca, Ecuador

(Rinaldo W.)

Named the best place in the world to retire by International Living, Cuenca, Ecuador has it all for the modern retiree. For starters, the cost of living is quite low. MSN Money offers a useful chart that sketches out an average monthly living expense of $1,415.00. This figure includes rent on a luxury, two-bedroom apartment, maid service, food, auto maintenance and fuel, clothing, entertainment and health care for two. The aesthetics of Cuenca include Renaissance style architecture, terracotta roof tiles, and cathedral-like archways everywhere you look. With its high elevation, (about 8,000 feet) Cuenca retirees rave about its near perfect 60 degree year round temperature, according to EcuadorExplorer.com. The scenery consists of lush greens, luminous flowers and babbling rivers. Cuenca embodies countryside living at its best. Residents even even enjoy half-priced airfare.

Coronado, Panama

(Dreamcious)

Panama offers a quaint retirement haven for your golden years. Most Panama retirees choose the town of Coronado for its gorgeous climate, peaceful neighborhoods and elder-friendly culture. What Coronado lacks in urbanization it makes up for in small-town clubs and organizations such as mahjong clubs, karaoke bars, art classes, yoga classes, golf tournaments and country clubs, miles of pristine beach, and more. The cost of living is very low according to MSN Money, which describes Panama as a paradise for retirees due to affordable real estate. For example, the average cost of a house in a quiet neighborhood is around $185,000, while consultation with English-speaking doctors is priced at around $35.00. MSN also notes that “…residents pay no taxes on foreign-earned income.” With the retiree population on the rise, demand for entertainment, services and restaurants here is at an all-time high. This means anyone with dreams of opening their own business will find opportunity in Panama.

San José, Costa Rica

(Armando Mayez)

RetireInCostaRica.net ranks Costa Rica as one of the top five emerging real estate markets in the world, meaning that housing can be had at a big discount, and the government offers substantial tax breaks to all new home owners. And the place to be, is San José. Costa Rica utilizes a rare type of retirement structure that does not tax retirement income. As mentioned earlier, many retirees choose to go into business for themselves; if this sounds like you, Costa Rica makes an ideal spot to set up shop due to its famous “Free Zones.” Free Zone is quite literally a zoned area in Costa Rica that allows certain kinds of businesses (especially import/export focused companies) to operate with 100% tax exemption, according to WestNet. Aside from the financial benefits, Costa Rica offers a sunny, tropical climate with gorgeous scenery. In addition, quality of life is superb, and many people can afford to live on $1,500 a month (excluding rent payments).

Koh Samui, Thailand

(Chi King)

Looking to retire like a king and live lavishly on your average means? Look no further than Koh Samui, a wonderful island in Southwest Thailand. Here, the exchange rate allows anyone with a decent retirement fund to enjoy high-class luxuries. One Thai Baht is equal to roughly three cents USD, according to BKKPages. Rental properties in Thailand can readily be found for between 3,000 to 10,000 Baht per month, which equals about $90.00 to $300.00 USD. Temperatures generally range from around 80-90 degrees in the winter and from 90-100 during the summer months. Thailand is home to beaches with crystal water, which in Koh Samui, would likely be within walking distance of your property. Golf is also big in Thailand, and numerous rolling courses complete with palm tree decor can be found in the countryside.

Vienna, Austria

(VRoig)

Vienna, Austria, home to 1.7 million, is ideal for those who enjoy the changing of the seasons and looks forward to snow-covered winter months. Known ’round the world for its winter charm, Austria is a popular place to retire, attracting those who wish to get out of the urbanized west and live amongst pristine wilderness. Residents enjoy walking the endless trails of Alps, fishing the countless lakes and river, and skiing the various mountainsides. Most retirees fall in love with the slower and more traditional Austrian culture. Hardly anyone is in much of a hurry to get rich or climb any corporate ladders. Instead, they spend their enjoying the pleasures of nature, raising animals and relaxing with friends among the scenery. Austria remains the cheapest European country to live in according to Best Places to Retire, making it an obvious choice for many retirees looking to get the most bang for their buck. The country also remains a tax haven, as the Austria Times noted in March of 2009 that the EU’s demands to stop offering secret accounts to foreigners fell flat on the nation’s finance ministry.

Capetown, South Africa

(Moron Noodle)

Over the past decade, South Africa has grown in popularity as an exotic place to retire. Specifically, the historic city of Cape Town has received a five star rating on eOpinions.com. More than most countries in the area, the climate in South Africa is varied. In the summer months, temperatures can reach 90 to 100 degrees during the day, and can fall close to freezing by night. South Africa is another place where the exchange rate allows those with average savings to live large. One South African Rand (ZAD) is worth about $0.13 USD according to Exchange-Rates.org. Real estate is entirely open to foreign buyers, and the market is currently expanding at blistering rates, opening up opportunities and discounts for most buyers. Generally speaking, rent in South Africa should ran between $300 – $700 USD, allowing for a very low cost of living. If you have more than a few thousand a month to spare, this country is a viable option.

Merida, Mexico

(Gerriet)

Merida, Mexico offers some of the best of what International Living calls, the 4 C’s: comfort, convenience, cost and culture. Though the summers may get hot, almost all residential areas are within walking or very brief driving distance of sun soaked beaches. During the rest of the year, the climate is said to be “paradise.” Concerning convenience, Merida is almost entirely flat. This lay of the land makes long walks or bike rides very enjoyable, allowing you to stay in-shape all throughout retirement. In addition, flying to and from Merida to the US is quite reasonable, and a number of direct flights are available via major cities. Nicely accommodated apartments can be had for around $500.00 USD per month. Health care is also very inexpensive thanks to generous government subsidies. As far as culture goes, Merida is a hot bed of activity, and much of it is free of cost. Free dances, free concerts, free plays and stage shows, for example. And, for the explorer, some breath-taking Mayan ruins lie only 90 minutes outside of the city.

Montevideo, Uruguay

(Vince Alongi)

Billed by EscapeArtist as having, “…one of the lowest costs of living in the world”, Uruguay has something to accommodate any retiree. Many are taken by the friendly locals and the seductive scenery. Uruguay is one of the few countries where you can have your quiet retirement retreat without giving up the conveniences of the modern world. Look no further than Montevideo, said to be an, “…old-world European style city with fine restaurants, colorful markets, sycamore-lined streets and a cultural scene second to none.” Communication services are excellent and shopping centers are plentiful. In addition, the highways are fresh and safe, so if you must travel far you can do so with ease. Uruguay is less urbanized than much of the western world and features some of the best natural beauty your eyes can take in. Prospective entrepreneurs will be pleased to know that Uruguay offers some of the, “…highest rental returns in Latin America.”

Calitri, Italy

(gnuckx cc0)

For many, Calitri is the place to retire. Calitri is unspoiled Italy at its finest – overflowing with classic building designs, fine wines and delicious food. The cost of living in Calitri is amazingly affordable. For only $15,000 USD, you can purchase a small, unrestored apartment complete with kitchen and bathroom accommodations according to International Living. Unrestored, classic homes in Calitri can be purchased for as little as $42,000 USD. Those looking to live modern in classic Italy can opt for the restored “luxury” models for around $64,000. The town of Calitri is surrounded by lush green fields and forests along rolling hillsides, offering great opportunities to wander off and take in the untouched scenery. What’s more, you can also receive free health care if you become a European citizen as part of your move to Calitri – although this may take some strategic marrying.

If you’ve been carefully tucking money away in a 401k plan and dreaming of the day you can retire, you may be shocked to learn that money is being withdrawn from your accounts without your knowledge.

Beware of Hidden Fees

Before you call the police, you’ll need to understand how 401k plans work. A number of administrative fees are built into and deliberately buried within the plans. Twenty years ago, the cost of administrating a 401k was the responsibility of the employer. Today that burden has shifted to the employee. It’s up to you to do the detective work to ferret out the hidden fees so you’ll know exactly what you are paying for.

The Disclosed Fees

It’s relatively easy to find the first set of fees you are paying. If your plan invests in mutual funds, look at the expense ratio, which is found in the prospectus. These fees are commonly referred to as management fees. Participants are usually familiar with them, as they are routinely disclosed by plan administrators and employers.

Mint Tip: You can evaluate expense ratios for mutual funds using the FINRA Mutual Fund Expense Analyzer and tools from the SEC.

The Hidden Fees and How to Find Them

Administration fees are the fees that most participants don’t know about. They are in addition to the management fees, but much harder to find. Here’s where to look:

1.    Transaction History. Look at your transaction history for removal of partial shares. If you see a transaction that doesn’t look familiar, you can bet that the shares are being removed as part of an administration fee. Don’t be surprised to find that the plan is routinely removing enough shares to cover a standard fee on a regular basis.

2.    ERISA filing. If you can’t find any fees in the transaction history on your account statement, ask your human resources department. Most companies, depending on size, need to report the expenses of employee benefit plans to The Department of Labor in an annual Form 5500 filing. The filings are available to the public.

3.    Employer. Don’t expect your employer to give you the answers you are really looking for. Because employers and 401k providers negotiate packages, chances are they won’t tell you all the options they had to choose from and whether or not they picked the least expensive option. The reality is that you may never know how much of your retirement money is being eaten up by fees.

The $660,000 Example

The Street recently detailed an example that shows the long term impact from fees:
“A 25-year-old employee who currently has around $25,000 in his or her retirement account, and whose annual contributions (and employer matches) total only $2,500, in a plan that is allocated 80% to stocks and 20% to bonds, could forfeit more than $660,000 by age 65 — if the plan charges excess fees totaling just 1% a year.”

Saving More Can Penalize You

Personal finance experts will tell you that the most surefire way to make sure you’ll have money for retirement is to put as much as possible into an interest earning savings account within your 401k. Makes sense, but believe it or not, your employer could be penalizing you for being a good saver! Fees are often charged as a percentage of balance. Diligent savers pay much more than people with lower balances. Shouldn’t administrative fees be the same for everyone? After all, mailing costs and administration procedures wouldn’t change based on the size of your account. However, if you have a large balance because you’ve done a good job at saving, you’ll be taking a bigger hit.

What Other Options Do You Have?

Of course if the bill doesn’t pass, or until it actually does, you should be evaluating your options. Unfortunately, you’re pretty much tied to your 401k plan since your employer provides it as an employee benefit. However, here are some things you can do:

• Utilize an IRA to save some money. See the comparison between a traditional IRA versus a 401k to determine which retirement saving option is right for you (taking into consideration the 401K’s employer match).
• Use the 401k shaft detector. This money management spreadsheet helps you determine if your 401k is the best option for retirement savings. The spreadsheet was created almost 9 years ago, but the calculations still work as long as you enter the correct tax brackets.
• Determine if your employer adopted an amendment to permit in-service, non-hardship withdrawals. This amendment will allow you to roll over your 401k money to an IRA.
• If you switch jobs, compare the costs of moving your money to an IRA instead of leaving it with your old plan or rolling it into your next one.

Be sure to provide feedback to your benefits department about your 401k plan. Ask them questions and voice your concerns. After all, your 401k plan is part of your compensation package and you should take responsibility for it, just as you would for your salary and other negotiable benefits.

If you’ve been contributing to a 401k and socking away money for retirement, you probably think you have enough. But you’d better brace yourself for the shocking truth. Unless you’ve taken into account how old you were when you started on your retirement plan, you most likely don’t.

The bottom line is that most people don’t really know how much they’ll need for retirement and without knowing that how can you be sure you’re on the right track to get there? Consider that the average American works hard and plays hard, but reaches age 65 with a median 401k balance of $110,000. Is this enough?

That depends. You’re going to need a bigger nest egg than you probably think – 10/10/4 is a handy principle you should learn.

What is 10/10/4 and how can it help?

In short you need to save at least 10% of your income for retirement. You need to have a nest egg lump sum which is 10 times your annual earnings upon retirement. Finally, you should withdraw up to 4% of your next egg in retirement to avoid outliving your money.

Put simply, 10/10/4 is a strategy that takes into account which leg of the journey toward retirement you are on and provides appropriate recommendations along the way. It’s easy to remember and can be put into practice at any time.

Rule #1

If you are in your 20’s now is the best time to start contributing to your eventual retirement. The first “10″ in 10/10/4 refers to the idea of contributing 10% per year to your 401k or IRA.

At age 25, only saving 10% of your income per year into a 401k or IRA, is required to replace 70% of your pre-retirement income, and at age 20 it’s only 8%. Note this includes any company matching, so if your employer matches 2% for example, you would only need to save 8% per year. At age 20 or 25, time is on your side.

If you did start saving at age 20 or 25, go out and celebrate, you are on the right path already. You can enjoy 90% of your income today and save 10% for tomorrow – this will take some sacrifice, but it’s doable.

However, most of us did not do that early enough.

Missing this “window” is all too common. After many years go by, you will eventually wake up and look around, and see time is the real problem. The closer you get to retirement, the harder it gets to save for it.

For example, if you start saving for retirement at age 35, you would have to save 17% of your income to achieve the same goal, a daunting task. At age 45, the percentage of your income you would have to save is 31%, which, for most of us is essentially impossible.

All of these questions assume you start at a set age and continue to save at a set rate. But in reality, life is much more complicated.

For example, what if you start saving at age 25, then move to another job; stop saving for a few years and then start again? In other words, what if your savings are not linear?

There is no calculator we have ever found that will model this real world possibility of skipping years, or playing catch-up very fast without making the estimation process extremely cumbersome.

This is where the second “10″ comes in. This means that if you missed rule #1, and your life got complicated, then you must save enough to reach rule #2, which is often much harder than starting early.

Rule #2

Rule #2 says that, by the time you are 65, you will need 10x your income immediately prior to retirement to retire at the level you want. Therefore, say you plan a lifestyle of living in the south, on a beach, but with health care coverage, some travel and a few hobbies. You’ve calculated that will require $100,000 in yearly income.

Therefore, you will need 10x that income, or $1,000,000 at age 65. The second “10″ gives you the proper perspective.

Even if you get your target income down to $80,000 before taxes, you will still need $800,000 at age 65, significantly more than $110,000.

Rule #3

Okay, now you are ready for the third and final level of 10/10/4, so what is the “4″? The “4″ means 4% is all you can take out – especially in the early years of retirement and still have confidence that your money will last throughout retirement. If you plan to take out more in the early years, you could have a big problem in volatile market times such as those we are experiencing now.

The issue is the fluctuations in the stock and bond markets are a natural occurrence. Therefore if you retire at age 65, and have 60% in equity and 40% in bonds (a moderate investment allocation), you might still have 30 more years to live and no job because there are not a lot of jobs of jobs available for a 65 year old. Yes, the problem is that we live too long after age 65 – health care advances have been too successful.

The related problem is the wide range of normal volatility in these stock and bond markets and the fact that you may end up retiring in some very difficult times for returns, such as 2000, 2001, 2007, or 2008. If the markets are in decline right at the time you retire, it is going to be much more difficult than anticipated to make ends meet.

The experts look at all the probable outcomes and the models show that a 4% withdrawal rate in the early years is the maximum rate that will preserve capital with normal volatility, until you have been retired for 5-10 years. That means that if times are really rough in the first few years that you retire, and your target was $1,000,000, you might really have to live on 4%, or $40,000 per year until you get through the bad years. That is the realty for many people who have retired recently.

Think of 10/10/4 as 3 windows into your life plan. If you are fortunate enough to have succeeded in hitting the first “10″ (saving 10% of our income and you started in your 20’s) and the second “10″ (on track to hit 10 times your income goal at age 65), then to be sure of a secure retirement work on this third and final goal, “4″.

There are practical ways to live for a few years on 4% of your retirement balance if times are tough in the early years of your retirement. You may want to work part time if needed by obtaining a skill that does have a market at age 65. Perhaps you can turn a hobby such as photography or playing a musical instrument to your financial advantage? Or build an extra cushion in your balance for these contingent years if you retire and then experience some bad stock and bond market performance in your first few years.

10/10/4 is a tool you can use at any age and it will serve you well. If you are in your 20’s sign up for 10% in your 401k or IRA and think of the 90% you get to enjoy today. Live 90% today and 10% tomorrow. You will have to make a few sacrifices but you can do it.

If you are in your 30’s or 40’s you are starting to see the problem. If you do not see progress toward the 10x goal, usually because you started too late, or skipped some years, then you will have to save much more now to catch up.

That’s why it’s so important to make sure you aren’t leaving money on the table. If you’re in your first job, make sure you are enrolled in your employer’s 401k plan. If you’ve just changed jobs, don’t leave money sitting in your previous employer’s 401k account. Instead, move it into an IRA rollover account where you have more control over fees and more investment choices.

Start today because your future depends on it.

financial planning is something that we care about here at Mint. Learn more with great financial planning tips in our blog article index.

You know that good financial planning requires a smart strategy for retirement savings. But with the alphabet soup of retirement accounts available, it may be hard to decide which way to go. How can you tell if you should invest in an IRA or 401k? Or both? Which one is better? Let’s explore the features of each to get you moving in the right direction.

401k

A 401k provided by your employer can be one of your best financial planning tools. 401k’s allow you to save money in a tax deferred account via payroll deductions. Here are situations where you might want to take advantage of your 401k:

• Employer Match. If your employer matches your contribution, this is free money, and you should take advantage of it. Note that there are typically vesting rules which state how many years of service you will need to claim the entire employer match.

• Higher limits. During 2008 you can contribute $15,500 to your 401k. If you are 50 or older, you can contribute an additional $5,000. The 2008 IRA limits are $5,000 and an extra $1,000 for catch-up contributions if you are 50 or older. The higher limits on the 401k may come into play depending on how much you plan to contribute.

• Tax-deductible contributions. You can deduct your contributions from your taxable income in the year your contribution is made. This means that you will pay less taxes for that year.

• Defer your capital gains taxes. The gains on your investments will not be taxed while held in your 401K..

Note that the Traditional IRA also allows for deductible contributions and defers taxes, on capital gains but there are income levels that will disallow the deductibility of IRAs if you have a plan available with your employer.

IRA

While Individual Retirement Accounts don’t offer the matching funds that some 401k’s do, there are many situations where an IRA investment makes good sense instead of, or in addition to, a 401k. Here are some IRA benefits to consider:

• More investment options. With an IRA, you’re able to select the financial institution that holds your investments and you also have a greater variety of investment choices. You may be able to meet your ideal asset allocation much easier than in your 401k, where you are limited to the investments offered by your employers’ plan.

• Lower expenses. Often, with greater choices come lower fees. You will be able to utilize low cost index funds that may not be available in your 401k. Lower expense ratios will likely result in a larger portfolio balance for you by the time you retire.

• Later due date. While all your 401k contributions must be made during the calendar year, IRA contributions are not due until April 15. This later deadline gives you the time to estimate the taxes you’ll owe, calculate and make your IRA contribution, and then enjoy the opportunity to write a somewhat smaller check to Uncle Sam.

• Immediate enrollment. There is no waiting period to set up an IRA. Employers typically require a waiting period before a new employee can enroll in a 401k plan.

• Save for your spouse. With the use of a spousal IRA, you can contribute to both of your retirement savings. A 401k is only available for the employee.

Mint Financial Planning Tip: Find out what kind of IRA is best for you.

In this article, “IRA” refers to Traditional IRAs. If you are considering a Roth IRA, but unsure about which is right for you, check out Mint’s IRA Advisor. It’s a financial planning tool which can help you make this decision. Participation in either Traditional or Roth IRA’s could qualify you for the Retirement Savings Contributions Credit. See IRS Publication 590 for more information.

Availability of conversions. Consider as part of your long term financial planning that you may be able to convert your IRA to a Roth IRA in the future. And while rolling over a 401K to an IRA is not typically allowed until you leave your employer, there can be exceptions. Please check with your company’s plan about your specific circumstances.

Mint Financial Planning Tip: Consider leveraging the benefits of both a 401K and an IRA.

You may want to contribute to a 401k and an IRA to take advantage of their different benefits. For example, you could invest enough in your employer’s 401k plan to soak up all the matching funds that are offered. Then put the balance of your annual retirement savings in an IRA to increase your investment options and often lower investment expenses.

By understanding your tax-advantaged retirement savings options, you’re following Mint’s second Principle of Personal Finance: Making your Money work Hard for You. Any dollar you don’t pay in taxes is another dollar you can invest toward achieving the retirement lifestyle you want, sooner.

Further Reading:

financial planning and money management are two things that we care about here at Mint. Learn more with great money management tips in our blog article index.

Investing via an IRA (Individual Retirement Account) is smart money management — what’s not to like about putting your money in an account where it can grow tax deferred or even tax free? It’s one of the best examples of the second of Mint’s Three Principles of Personal Finance — make your money work hard for you.

If you haven’t opened an IRA yet, do it now. The deadline is April 15^th! By opening an IRA, you could save up to $1,200 on your 2007 taxes. A $4,000 contribution this year could grow to as much as $65,000 in 35 years.

While there are several flavors of IRAs, the most common choices are the Traditional and the Roth IRA. How do you know which one is right for you? First, understand the differences:

Traditional IRA

• Your contributions may be tax-deductible.
• Your earnings are tax deferred. Your IRA savings will grow tax free until you withdraw this money after 59 ¹/₂.
• Distributions begin at 70 ¹/₂ and are taxed at withdrawal.
• Early withdrawals will be taxed and subject to a 10% penalty, except under qualified circumstances.
• You can no longer contribute after 70 ¹/₂.

Roth IRA

• Your contributions are not tax deductible and are made with “after tax” dollars.
• Your earnings grow tax free. Money you withdraw is not taxed if your Roth IRA is open for at least five tax years and you are past 59 ¹/₂.
• Your contributions can be withdrawn at any time without penalty.
• Qualified distributions are tax and penalty-free.
• No age limits on contributions.

Roth and Traditional IRA have similar caps on the maximum dollar amount you can contribute each year. The following table shows the normal annual contribution limits and the catch up limits for those 50 or older.

Traditional and Roth IRA Annual Contribution Limits

Source: Fool.com

Note: These contribution limits are for individuals. Eligible households can effectively double the amount contributed.

These basic IRA comparisons give you an understanding of what’s available, but you’ll need to also factor in your age, income, tax filing status and tax bracket to determine which IRA is right for you. Mint.com has created IRA Advisor, a tool that steps you through this decision making process and helps you pick out a brokerage institution that can manage your IRA based on the following criteria:

• No IRA account fees
• The number of investment options available
• The number of no-load funds available.

Note: A no-load fund is a mutual fund that does not charge front end or deferred sales fees or commissions when you invest in that fund.

Once you’ve determined which type of IRA to open, you’ll want to evaluate your money management and investment options in consultation with your brokerage institution via the money tools available on their web site. Take these steps and you’ll be on your way to maximizing your savings!

Mint asks: Have you opened and funded your IRA this year? What steps did you take to get that done early?

Further Reading on the Topic:

Money Management

Personal Finance

Free Money Manager

1. There are so many important things I need that money for NOW. An extra dinner out this week with the family. That new driver to revolutionize my golf game. The fancy pair of sneakers that make the whiz bang noise with each step.
   

   Mint’s Note: Ah. The consumer lifestyle, where delay gratification is an unknown concept and future needs should never be a consideration. The IRS may be joking, but unfortunately this may be one of the top reasons why people put off saving for their retirement.

2. There’ll always be time to save later. Who needs a Personal Budget now? Let’s just focus on the here and now. Never do today what you can put off until tomorrow.
   

   Money Saving Tips: The power of compound interest works best when time is on your side. Just by starting eight years earlier, you can put away 23% less money than someone who starts later, and still end up with more money than them when it comes time to retire.

3. Maybe I won’t live long enough to retire. Life is so uncertain. Why should I miss out on the high life now when I might not even need to have money put aside for my old age? (If married, change pronouns in this reason to the plural.)
   

   Life expectancy has been steadily increasing across the globe. Sorry buddy, but it’s not over until the fat lady sings.

4. I love a challenge. Working into my 70’s or 80’s or 90’s can’t be that hard.
   

   Perhaps not, especially since health and life expectancy is on the rise. On the other hand, according to Career Journal, more than one in four U.S. businesses has failed to plan to hire or retain older workers.

5. Social Security payments alone will take care of my needs. I know the average Social Security payment is $838 a month. And I’ll only need money for things like food and housing.. and medical care.. and clothing and..
   

   And maybe everything else. That’s only if you want to have a life beyond the basic minimal needs, of course.

6. I don’t know how to begin. There are so many ways to go about saving for retirement that I need more time to think about it. After all there’s the retirement savings plan at work and IRA’s and even investing in things like real estate. I just don’t know where to start.
   

   Money Saving Tips from the IRS. Start by checking out your employer’s retirement savings plan such as 401k or individual retirement account options at various financial institutions.

7. I don’t know how much I need for retirement. But I bet it’s a huge number and I don’t think I can do it. So I won’t do anything.
   

   Please refer to Mint’s comment in number two and six. Want a ballpark number to the amount necessary? Check out the retirement calculator at CNN Money.

8. Planning for retirement is such a big, complicated undertaking. There’s no one I can talk to about it. They’d know that I haven’t really started a personal budget yet. That would be embarrassing. And how should I invest the money I save? Who can you really trust in this day and age?
   

   Living in poverty due to financial inaction might just be a little bit more embarrassing than the actual inaction itself. Who to talk to and who to trust? Consider a Certified Financial Planner or a Chartered Financial Analyst.

   Would you be embarrassed to contact a health professional if you accidentally contracted a serious disease? If the answer is no, then you should also not be embarrassed in consulting a trustworthy, certified financial professional with your financial troubles.

9. I might get lucky. You never know, I may win the lottery. Or I may be remembered in the will of a long lost relative. Or I might find that my house is right in the middle of a diamond field.
   

   With odds such as ranging between 1 in 146, 107,962 and 1 in 175,711,536; the lottery is a sure bet.

10. Taking care of me financially will provide wonderful character-building opportunities for my children. And so many chances for me to feel warm gratitude toward them.
    

    The IRS has outdone themselves with this one. It’s so far fetch that we couldn’t come up with a witty response or follow-up.

Want to do something about your retirement?

Check out this nifty 32 page PDF, Saving Fitness: A Guide to Your Money and Your Financial Future from the U.S. Department of Labor (with help from Certified Financial Planners).

Sure, the booklet may not be as funny as the article from the IRS, but once you’re living a comfortable and secure retirement life, you can always splurge for the occasional tickets to The Improv.

Further Reading on the Topic:

Money Saving Tips

Personal Budget

Budget Planning

Financial planning and debt planning are two of the issues that we care about here at Mint. Learn more with great financial planning tips in our blog article index.

For most young professionals in the lower tax bracket, choosing a Roth IRA (Individual Retirement Account) is generally a no-brainer. As a thrill-filled retirement account, the Roth IRA allows you to grow, accumulate your retirement savings tax-free and avoid hiring a financial planner. If you cash it out during retirement, you won’t owe Uncle Sam a cent!

For those that haven’t considered a Roth IRA (or a traditional one), it’s highly recommended that you take the time out to research more on the topic. Although the deadline for the 2007 contribution has already passed (April 17 tax day), learning more about your choices now will enable you to better allocate your future budget to maximize your 2008 IRA contribution.

To better help you see the process in choosing and opening a Roth IRA account, let’s take a look at the thought process of Trent from The Simple Dollar, who has chosen Vanguard to start his Roth IRA.

When am I going to retire?

I plan on “retiring” (which may involve working a part time job of some sort) as early as possible, which for most of my assets (save Social Security) means at age 59 1/2. I’m currently roughly 28 1/2 years old, which means I’m 31 years away from retirement, and my financial planner says my year for retirement is 2038.

How much risk am I willing to take on?

I’m fine with carrying quite a bit of risk until I get pretty close to retirement, after which I want to shift back to bond holdings rather strongly. This means that I might put my retirement date even a bit later in terms of picking out a “target retirement” fund, to 2045 or so.

How much do I want to micromanage?

Admittedly, not much. I plan on keeping an eye on the funds and expense tracking, but in terms of investigating individual stock picks, I’ll save that effort for my own individual stock investments outside of the Roth IRA, thank you.

Given that I have an approximate target retirement date (2038 to 2045) and that I want to do minimal research for the Roth IRA, I’ve elected to try out the Vanguard Target Retirement Funds — more specifically, the Vanguard Target Retirement 2045 Fund. All of their funds start out aggressively and then gradually shift your assets from stocks into bonds and eventually even into a bit of liquid cash holdings as you enter retirement age.

What’s in the Vanguard Target Retirement 2045?

It’s a combination of five separate funds: four stock funds (Total Stock Market, about 72% of total holdings), European Stock (10.5%), Pacific Stock (5.0%), and Emerging Markets (2.7%)) and a single bond fund (Total Bond Market, about 9.9%). Through 2020, the portion of stocks to bonds (9:1) will remain the same, and then will move about 1.5% a year from the stocks into the bonds until 2045, where the split will be about 50/50. After that, the portfolio becomes more and more conservative as you use it to live out your golden years.

It’s reasonably diversified and has returned 13.84% annually since inception (yes, past is no indication of future), which is a rate of growth that has strong appeal to me. I think I’ll buy this one and just let it sit, reinvesting any dividends and capital gains, and keep an eye on it over time.

There are a few key points you should note from this specific example.

• Be like Trent and start expense tracking. When you have a more specific goal, choosing the necessary investment strategy to reach that goal will become much easier.
• Assess your risk tolerance. Once you figure out how much risk you can handle from your investment, the better you can narrow down your investment fund choices.
• Figure out how much involvement you want with your IRA. Do you want to pick your own stock or do you want to let someone else do the work? Knowing the answer to this question will allow you to better pick the correct institution for you to open your IRA.
• Understand how the fund is allocated and how the assets will shift based on the retirement time frame and risk tolerance (e.g., a fund shifts from stocks to bonds as it reaches the target retirement date to decrease risk to the fund).

Other key notes:

• When you choose an institution to open your IRA, you should consider the account fees and minimums. If you do decide to go with a fund like the Vanguard Target Retirement Fund, you need to consider its expense ratio.

Utilize the Cost comparison calculator from Vanguard to compare and contrast the cost associated with various funds.

The above post contains content written by Trent of The Simple Dollar.

Further Reading on the Topic:

Financial Planner

Expense Tracking