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Wednesday November 20th 2019

Three Best Place to Retire on the Cheap

Finding the perfect spot to retire is on the mind of many people these days. With the volatility of the stock market and other investments, retirees evaluating practical retirement options are looking for affordable options that suit their lifestyle. Three cities have been named in the media lately as the best places to retire an they are not as far away as you might think.

St. Augustine, Florida

There is a reason we all think about Florida as a retirement capital. In Smart Money’s March, 2011 issue, the city of St. Augustine, Florida was selected as the second most attractive retirement spot for retirees. With an average home price of $115,400, it is hard to beat this quaint old beach town for affordability. To sweeten the picture even more, Floridians do not have to pay state tax.

The St. Augustine beaches are second to none, stretching out over miles of pristine Atlantic white beaches. Located about forty five minues south of Jacksonville Beach, and a major airport, and tugged into the northeast section of Florida, St. Augustine offers moderate temperatures and a summer ocean breeze to cool hot summer days. With a small population of about 13,000, St. Augustine graces retirees with a small town vibe, free from the stress of larger cities.

As the oldest US city, discovered in 1513, St. Augustine’s historic downtown is quaint and memorable with brick streets and Spanish architecture. There is no shortage of shopping and restaurant venues. With Flagler college in the heart of the city, this small college town has a diverse population, filled with tourists, college kids and retirees.

Lexington, Kentucky

While some retirees want the beach, others favor rolling hills and the four distinct seasons offered by a city like Lexington, Kentucky. Boasting an intellectual population, with almost 40% of the residents having a college degree, Lexington promotes the idea of lifetime learning. Citizenas over 65 can audit classes for free, filling any empty seats they find at the University of Kentucky.

Median home prices are an affordable $144,200, as printed in CNN’s article “25 Best Places to Retire”. With 29% of the population over 50, there is plenty of company for outings to great restaurants and equestrian events, or to take in a basketball game.

Bellingham, Washington

For retirees looking west, Bellingham, Washington is a city that should not be overlooked. The average price of a home is $$258,450, which is a real bargain for the west coast. The fact that there is not state income tax makes this city even more attractive. Located geographically close to both Seattle and Vancouver, this community is home to an international airport and a picturesque downtown harbor.

A state college and nationally acclaimed hospital also call Bellingham home. A farmers market located in the downtown area hosts local vendors offering a quaint shopping experience. The beneficiary of moderate temperatures, Bellingham offers residents a break from the heat, and the extreme cold weather that many other parts of the country claim.

What is a Thrift Savings Plan?

A thrift savings plan is part of the retirement package offered to federal government employees. The plan is offered by the Federal Retirement Thrift Investment Board, and is basically a federal version of the 401(k) plans that private businesses offer their employees. The contributions that employees make toward a thrift savings plan can be applied before taxes, and taxes are deferred on the payouts from the plan if they are paid out after retirement age. Anyone who is eligible for the Federal Employees Retirement System or the Civil Service Retirement System can take advantage of a thrift savings plan.

Additional Savings Option

The thrift savings plan is a retirement plan option that is separate from the package already offered through the Federal Employees Retirement System or the Civil Service Retirement System. The contributions that employees put toward a thrift savings plan are not considered as a normal part of their annuity contributions toward the Federal Employees Retirement System or the Civil Service Retirement System. Federal employees are allowed to contribute up to 11% of their salary toward the thrift savings plan, and they are eligible to begin saving as soon as they begin employment.

Required for Some, Supplemental for Others

Employees who are using the Civil Service Retirement System are not required to participate in the thrift savings plan program. They can use a thrift savings plan as a supplement to their regular retirement plan. Those who use the Federal Employees Retirement System are required to utilize the thrift savings plan option as part of their standard retirement package, along with the basic annuity and social security plans. Both types of plan participants can enjoy the privilege of immediate contributions toward retirement, without any waiting periods or deferment of payments.

Contributions Drive the Savings

The way the thrift savings plan works is that the amount of money saved toward retirement is based entirely on the amount of money that the employee contributes to the plan. Employers may also contribute to the plans with matching funds or other savings program options. Earnings accumulate as employees continue to contribute during their standard working years. Federal Employees Retirement System members also enjoy agency matching contributions and immediate vesting in the contribution as soon as they begin employment. Civil Service Retirement System members are allowed to contribute up to 6% of their salary toward a thrift savings plan, but they are not eligible for any matching contributions or immediate vestment plans.

Range of Investment Opportunities

The federal government offers five different investment funds for federal employees to choose from for the thrift savings plans. The Government Securities Investment Fund, Common Stock Index Investment Fund, Fixed Income Index Investment Fund, International Stock Index Investment Fund, and Small Capitalization Stock Index Investment Fund are all solidly performing funds that provide reasonable returns on investments. Thrift savings plan members are offered high quality investment opportunities with low administrative and investment costs. Before tax savings and tax-deferred earnings also provide a better return on a federal employee’s retirement earnings.

Don’t Retire Early If It Means Going Without Health Insurance

Early retirement used to be a sign of prosperity, but nowadays, it seems almost foolish to try. There are no guarantees that the retirement income you have established today will be available tomorrow. Rates of return on investments are low. Add to that the difficulty of managing health care, and the outlook for early retirement looks bleak indeed.

Generally, we do not qualify for Medicare until age 65. That leaves a big gap for anyone wanting to retire at age 55. It’s important to look at all of your options and plan accordingly. If you have your heart set on retiring early, here’s what you need to know about making the most of health benefits available to you.

Piggy Back on Your Spouse

If your spouse has health insurance benefits through work and continues working, you may secure benefits that way. Generally, this works best if your spouse is a few years younger than you are. Otherwise, you may be in line for a spot of jealousy as your spouse comes home from the grueling grind every day only to find you relaxing in the sunshine. If your spouse just hasn’t reached retirement age, there is less chance of conflict.


If your employer offers a good pension plan, you may be able to secure private health insurance cheaply until Medicare takes over. Such plans are becoming rare, as companies have begun scaling back benefits to meet ever-increasing demands for profits. Don’t assume the option isn’t there for you. Check into your pension plan and read it carefully. Some employers have been hoping to get away with denying promised benefits.


Even if your pension does not include health insurance benefits, you can stretch those employer benefits out when you retire. Under the Consolidated Omnibus Budget Reconciliation Act (COBRA), the typical employer must allow you to pay them to continue your health insurance coverage for at least 18 months. You benefit from the employer’s group insurance rate. Be sure to sign up within 60 days of separation or you may lose this option.

Individual Health Insurance

Once your COBRA eligibility period is over, you’re on your own until age 65. Under the Health Insurance Portability and Accountability Act (HIPAA), those who receive COBRA benefits can secure a certificate that allows them to bypass coverage problems that arise because of a preexisting condition. If your health is good, you might be able to get special coverage that is designed only for catastrophic illnesses. You pay for your annual checkups, prescriptions and routine care. The insurance kicks in for large expenses only after they exceed the deductible.

Going Without

You really shouldn’t consider this an option at all, even if that means paying for our own health insurance. Going uninsured, hoping you make it to age 65 when you can afford that life-saving surgery, is no one’s idea of a relaxing retirement. You’d be better of working and knowing you’re protected if you get sick.

The Bucket Strategy for Retirement

Do you have enough money to live on without sacrificing a comfortable lifestyle once your working days are done? Have you started thinking about it yet? As retirement looms, it brings along a suitcase loaded with questions, such as: how long are you going to live, how much of the money you have managed to save up to this point will be gobbled up by inflation, and just what is the money you’ve already got in your various investments doing?

The 4% Rule Doesn’t Work Anymore

Since you can’t just go out and work for a long enough period of time to make up the deficit if you miscalculate, it’s important to estimate right the first time. For a long time, people who gave advice on financial matters suggested something called the “4 percent rule.” This strategy advises you to take out an amount equal to 4 percent of the total invested during the first year that you are no longer working; then the next year, withdraw the same amount as the previous year, and add enough to account for inflation. This method, experts previously suggested, provided most people with better than average odds of making it through at least 30 years at their current lifestyle.

Get a Bucket

In light of the recent stock market roller coaster, however, those in the fiscal know have decided that this method is a bit too oversimplified. Currently, more than half of those who provide investment advice are now recommending that their customers divide their rainy day cache into sections, or buckets, to carry them through with funds they can count on to remain stable.

Filling Your Bucket

Here’s how it works: first, you need to decide on a safe amount of money to remove during your first retired year, then, multiply your designated figure by however long you want a definite amount of income- the average is usually between five and seven years, including a secured amount that takes inflation into account. Once that is done, the funds are placed into a money market account, in order to make sure that you always have a pull-from rate that will sustain you during those years.

When your vat gets close to being empty, or every year, depending on what happens with the stock market, refill it with other prudent investments that will provide enough money to live on throughout the next cycle. This process is then repeated for the remainder of your retirement.

Try Two Buckets, or Even Three

There are two suggested types of bucket strategy: 2-bucket and 3-bucket. The 2-bucket model encourages golden-agers to squirrel away roughly five years of savings in bonds issued by the Treasury Department. Every year, take a set amount from the bonds to live on and then use the remaining funds to invest in stocks. When the year ends, any income earned from the stock growth gets shifted into the bonds for a little boost to next year’s income. If the stocks don’t earn money, the money should be left in the investment, giving it a chance to bounce back. The withdrawals can be adjusted as needed, in case of unforeseen shortfalls or poor stock performance.

Those seeking a bit more cushion might prefer to split their funds among 3 kettles. Into the first vat would go sufficient resources for the first seven years of retired life, including enough extra to account for any economic intensification, which is then placed in a secure investment such as a Treasury bond. The second container would account for the next eight years, from 8 to 15, and would consist of either annuities that would provide secure assets, or a mixture of stocks and bonds. The final bucket, which would cover the remaining years, would hold the most high-risk items, such as real estate. A full year’s worth of income is moved among the buckets annually, depending on what the stock market does. Obviously, this is an intricate set of plans, but it will certainly make your retirement funds safer.

How to Double Your Retirement Nest Egg

If you’re over 50 now and the retirement nest egg you had planned while you were younger was sidetracked by life, fear not. Although parental responsibilities, less than expected raises and higher than anticipated living expenses can cut into your retirement savings, you can still retire comfortably. If you begin now, there are a number of tools that can help boost your retirement account before the boss hands you that gold watch for all your years of service.

Increase Your 401k Contributions

If your 401k contribution does not equal the maximum amount of your employer matching contribution (up to 6% of your salary, depending on the plan specifications), you might consider increasing your contribution. There are few investments that will double your investment immediately and none that will do it on a tax deferred basis like the 401k does.

If you’re making $50,000 per year and your employer will match up to 6% of your salary, you are putting an extra $6,000 in your account annually, $3,000 of which comes from your employer. Making a contribution like this can add up quickly.

Even if you are already maxed on your employer matching contributions, you might consider contributing more into your account, since it is a tax deferred investment. The IRS permits you to contribute up to $16,500 into your account, depending on the plan limits. After 2010, the contribution limits will fluctuate depending on inflation. And if you are over 50, you can contribute an additional $5,500.00 annually as a “catch up provision.” This too will fluctuate in future years, depending on inflation.

Increase Your IRA Contributions

If you have a Roth IRA or traditional IRA, both are good retirement tools to use. With a traditional IRA, you receive a tax deduction up to the maximum allowable amount of your contribution. The interest earned on the account is also tax deferred, meaning you do not pay tax on interest earned until you withdraw the money. Plus there’s no reason you can’t have both on top of your 401k.

On a Roth IRA, you receive no tax deduction for your contribution. However, when you withdraw the money at retirement, you are not taxed on the interest earned. This can become important at retirement, when you will have less income to live on.

Both IRA and Roth IRA contribution limits have been increased in recent years. Contribution limits are now $5,000. If you are over 50, the limit is $6,000. Over 15-20 years, this investment will certainly add up, especially considering the interest accruing on the account.

For instance, if you are 50, and plan on retiring at 70, and invest $5,000 per year, and earn 5% on your investment, you balance at age 70 will be $185,542.21. If you have a traditional IRA, you have not paid tax on any of this money for the past 20 years. If you have a Roth IRA, you won’t pay tax as you withdraw it.

Use the Equity in Your Home

A house is still usually the biggest investment a typical person makes in their lifetime. In years past, most people had their mortgages paid down or paid off as they approached retirement years. This is not as true anymore, as many people will carry their mortgages into retirement.

If you are becoming an empty nester, you might consider downsizing. If you no longer need the room of a 4 or 5 bedroom home, consider moving down to a 2 or 3 bedroom home. You will not only most likely reduce your mortgage payment, but will also reduce your utility costs and real estate taxes. Consider these monthly savings as income, and use it to fund an IRA or increase the contribution to your 401k.

Consider a Second Job to Fund Your Retirement

This might be in the form of a second job or a small, home based business. Even a few hundred extra dollars per month will go a long way to increasing your retirement account. The internet has created reach to people on a world wide basis like never before. Use the web as your tool to increase your income, and use that income to increase your retirement portfolio. Better to work it now than be forced to keep working at retirement age.

Start your ROTH… Now!

If you are in your twenties, you should be thinking now about your retirement nest-egg. Why? Simply, the earlier you start the more you get to benefit from the power of compound interest? If you invest $1 when you are 25, that dollar may be worth as much as $21. If, however, you wait until you are 35, to save that dollar, it will be worth around $10, or less than half of the total amount (calculations assume 8% annual return). Every dollar you save when you are 25 is worth two dollars when you are 35.


Reverse Mortgages Explained

A “regular” mortgage is usually thought of as a long-term debt that is used to pay for a piece of real property such as a house. The debtor will receive virtual ownership of the property while the loan on the property is paid off over a long period of time such as thirty years. The debt during that time is secured by the house. If the mortgage cannot be paid off, a foreclosure can take place. The hose will then be repossessed. If the house is paid off, the debtor will receive complete ownership of the property.

If the owner chooses to sell the house, he or she could make a profit since the house is likely to have accumulated in value since the point the debtor took out a mortgage on the property. This accumulated value is known as equity. For example, a home could be worth one hundred thousand dollars when it was bought. If it accumulated in value to one hundred and fifty thousand dollars, the home’s equity for the owner would be fifty thousand dollars.

How Reverse Mortgages Work

The idea behind a reverse mortgage is accessing this equity well before the debtor completely owns his or her house. By accessing this equity, the debtor can receive an extra source of income. In essence, the debtor is borrowing the equity from a financial institution. These equity payments could be used to pay for standard living expenses, to pay off other debts such as college tuition for children, or whatever else a debtor wishes.

The amount of credit a person can use by accessing their equity is usually calculated by taking the newly appraised value of the person’s home, subtracting the amount that has been paid on the mortgage, and than multiplying that amount by a certain percentage. Indeed, someone does not want to borrow the entire amount of equity in a home. At that point, the financial institution would own the home, and the debtor may be forced to move out.

The Dangers of a Reverse Mortgage

Due to dangers like this, many strict laws have been enacted in many countries to protect debtors who take out reverse mortgages. One example is that a debtor will probably not be allowed to access the entire equity of their home. Often, the law will place a limit on how much equity a debtor can access at a time. Often, a debtor will not be allowed to take out a reverse mortgage on a home for more than forty percent of its equity.

Secondly, there are usually age limits placed on how old someone must be to take out a reverse mortgage. This is to protect younger home buyers who are more likely to outlive their mortgages. In the United States, this age limit is set at sixty one. In Canada, it is sixty years old. In many European counties, the age limit is set at fifty.

In addition, there may be certain parts in the contract for the reverse mortgage that certain individuals may over look. One thing that is often included in these contracts is an agreement that a debtor will have access to their home as long as it is their primary residence. For senior citizens, this can present a significant risk. If a senior citizen moves to a facility such as a retirement due to needing supervised assistance, that senior citizen could lose their home. Similarly, if a person spends too much time at a vacation home, the bank could repossess the house as well.

Another problem can result for people who have adjustable rate reverse mortgages. If the interest rate increases, the amount of payment the debtor receives from the reverse mortgage will lower. This could be a serious problem if a person is depending on equity income from the reverse mortgage to get by.


These are only a few of the dangers, but the benefit of having access to the equity of your home may out weigh any downsides to reverse mortgages. The advantage of taking out a reverse mortgage is the ability to have that extra income. This is especially beneficial for older individuals who want to retire.

5 Retirement Plans for the Self-Employed

Self employment means that one is responsible for setting up and maintaining one’s own retirement plan. If this is neglected, the financial future of the self employed person may be in trouble. Besides the obvious problem of not having enough money to be comfortable at retirement time, setting up a retirement plan can provide significant tax savings, either now or in the future.

Here are some of the available retirement plans and their benefits and drawbacks for the self employed person.

401(k) Retirement Plans

A solo 401(k) can be established for the self employed, although 401(k) plans were designed for an employer to implement. Choosing a 401(k) can mean more expense than other plans in setting up and maintaining the plan.

Individual Retirement Accounts (IRA’s)

Another plan that was not meant for the self employed but can still work is an Individual Retirement Account (IRA). The most common types of IRA’s are Roth and the traditional type. The biggest advantage to either a Roth or traditional IRA is in taxes.

Using a Roth IRA, an individual pays taxes on earnings, then makes the retirement payment and there are no further taxes due when it’s time to receive distributions at retirement. Although there are other rules and regulations, usually if a self employed person thinks he will be in a higher tax bracket when retirement comes, then a Roth IRA is the right decision.

Traditional IRA’s are paid into before taxes are made on earnings and will not be taxed until retirement distribution. This works out very well if the tax payer thinks he will be in a lower tax bracket at retirement, thus paying less tax on the same amount of money.

SIMPLE Retirement Plans

SIMPLE stands for Savings Incentive Match Plan for Employess or Small Employers. In reality, a SIMPLE plan is an IRA, but it was created specifically for small businesses. Again, it can be used by self employeed individuals if they’re sole proprietors.

A SIMPLE plan is easy to establish and inexpensive to maintain. It’s a commonly offered plan by many financial institutions and it has lower contribution limits than other available IRA plans.

SEP Retirement Plans

A retirement plan written for self employed persons and small business owners, an SEP is also a type of IRA plan, much on the order of the SIMPLE plan. LLC’s, sole proprietorships and S and C corporations all qualify for this retirement plan.

As a rule, contributions to a SEP IRA are completely tax deductible, with even investment earnings only taxed at withdrawal. Contributions are made before taxes are paid. If a withdrawal is made from an SEP plan before 59 1/2 a 10% penalty may be charged by the IRS, in addition to income tax on the amount. Withdrawals after 59 1/2 years of age will be taxed at the rate of ordinary income.

SEP IRA’s have great benefits in that there is minimal administration involved and annual contribution limits are high, but with no requirement to contribute amy certain amount. If the income fluctuates somewhat from year to year, a self employed person has the freedom to adjust contributions accordingly, allowing the fund to grow quickly at times and more slowly when income is lower.

Keogh Retirement Plans

This plan was written especially for self employed persons. It can be structured two ways: As a defined benefit plan and as a defined contribution plan. A defined benefit plan is similar to a pension plan, while a defined contribution plan is similar to a 401(k).

Since Keogh plans are not as common as other plans the self employed can use because they’re harder to set up and expensive to maintain.

Retirement Can be More Affordable Than You Think

According to investment experts, you need a lot of money to retire. Based on the numbers they give, planning a retirement within the means we are accustomed to, can be more than a full time job in itself. How can we meet the high goals that have been set for us?

In this declining economy, many of us are barely managing to stay financially afloat on a day-to-day basis. Now we read reports in financial magazines and on Internet sites claiming that we need to set aside three million dollars for retirement. Is this a viable plan for the average American? Or are we doomed to financial adversity in our ‘golden’ years?

Who Can Afford The Luxury of Retirement?

You probably have not thought about the “withdrawal rate” on your retirement funds. The withdrawal rate is just what it sounds like…the rate at which you withdraw funds from your retirement account. Let’s assume you felt you could live comfortably on $30,000 a year. If your retirement fund has $300,000, then you have a 10% withdrawal rate.

The experts say that you cannot afford to exceed a withdrawal rate over four percent. The thinking behind that statement is simply this: if you go above that figure, you’ll run out of money before retirement! That would mean you’d be on a fixed income of a mere $1,000 per month. How could you possibly meet your monthly living expenses with such meager means?

Time for a Reality Check

Magazine headlines aside, let’s look at this from a logical standpoint. You simply can’t compare your personal living situation to that of a consensus poll. The figures might look eye-catching and provoke you into buying a particular written publication, but isn’t that the point? It’s all about selling an article. This is not to say there isn’t a grain of truth to what the so-called consensus is bringing to our attention. However, it is to remind you to read those statements with a grain of salt.

Just as everyone’s living situation and personal expenses varies greatly, so do the financial requirements for retirement. Planning for the future takes careful thought and a little finesse. So many factors can determine the resources you will need for your retirement. For instance, will you have financial responsibilities that could put you in debt somewhere down the road? How many years off is retirement? Will you have a sufficient source of income once you are no longer employed? What plans do you envision for yourself upon retirement that might alter your way of planning from a financial standpoint?

If you feel you should have no outstanding expenses by retirement age, then perhaps you won’t require such a high rate of investment. Conversely, if you plan to see the world through extensive traveling and living your life on high quality standards, you’d be wise to spend less now and save for later.

What’s Really Important in Retirement?

Upon reaching those ‘golden years’ of retirement, is life really about living lavishly? Does retirement dictate the remainder of your days spent lounging on a sun-drenched island, sipping one umbrella-topped drink after another….buying a yacht and sailing halfway around the world?

Decide what retirement means to you. If you enjoy having a daily routine in your life, you probably only need to pay for one or two vacations a year during retirement. When you figure in your social security earnings, you may be able to get by on much less than 4% of your retirement fund.

What’s really important to most of the older people I know is spending time with grandkids. Being a globetrotting granny is not a realistic picture for most senior citizens. And with low living expenses and some smart choices, you may not need to save $1,000,000 for retirement. Just because you make $40,000 a year now, doesn’t mean you need to make $40,000 a year when you retire. After all, you won’t be paying a mortgage then, will you?

The investment in the quality of life you can live – not the quantity of material possessions you can own will be what really makes your elder years golden. Spending time with family and friends, and taking the time to appreciate the beauty and the love that surrounds you will be the best way to spend your retirement years. And you don’t need a big budget to do that.