What Can you do with $1,400 a Month?

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I don’t know about you, but for me, not much. But according to the Social Security Administration, that is approximately the average monthly benefits that retired seniors were receiving as of December of 2016. This highlights the importance of having limited reliance on Social Security income later in life. It is no longer enough to have something to supplement Social Security, but it is looking more and more like Social Security itself is the supplement rather than the main source of income. Currently, we spend a third of that amount in my household for food per month. It is imperative that we plan appropriately if we want to maintain a decent standard of living. We do not have to live lavish lifestyles, while that would be nice, but it would also be rather unfortunate if we worked for 40+ years and ended up living in squalor in our old age.

Although I am relatively young, I place great value in planning for retirement. After all, due to the effects of compounding, time is not only of the essence, time is our friend, so we must start early. The more time we have, the more opportunities there are both for growth and for recovery in the event of a downturn. The time is now to build that solid nest egg. Barring an accident or illness, I have at least another 30 years of work left in me, 31 to be exact. I have been actively saving for retirement since June 2007. That is 41 years of full time work where wise lifestyle choices and prudent investments will come together to ensure that I live the life that I earned throughout my working career. Note that I didn’t say the life that I wanted. Because when it comes to being retired, you don’t get the life you want, you get the life you deserve. As harsh as it sounds, it is our reality.

Different practices both as a result of changes in our political landscape and employers’ decreased willingness to contribute to their employees lifestyle, has drastically modified retirement outcomes. There are fewer and fewer pension options for people who dedicate their lives to serving the public or helping advance companies. Most of our futures now depend on market volatility. Even those with pensions are now beginning to supplement their defined benefits with additional investments in 401ks or 403bs.

I know there is an older segment of our population that reasonably had expectations for a pension since that was the practice at the time. Unfortunately, things started changing later in their careers and they did not have the time to save enough to bridge the unanticipated gap. There are also changing factors like longer life expectancy that plays a significant role in the “nasty surprise” our seniors face when they began to outlive their funds. For example my former roommate actually told me that her grandmother outlived her retirement funds by 14 years. While she may have planned, she didn’t necessary plan to live to be 90 because back when she was in the working world, that was unheard of.

So we’ve identified the problem, but what steps are we taking to make sure we don’t fall victim to a lack of planning? Here’s what I’m doing:

Traditional IRA: I rolled over my 401k into a traditional IRA from a previous job approximately 3 years ago and today I contribute to it monthly.

401k: Unfortunately, this new job no longer offers a match but I can still save pre-tax so I started out by contributing $25 a pay period and increased it gradually until it reached 10% of my income.

Pension: I am eligible for a pension at age 55 if I work at least 10 years and the amount I am eligible to receive increases every year I work past the 10 years. I will most likely work at least the 10 years to ensure that I become eligible.

Real Estate Sales (Today): Selling real estate is a way of boosting my Social Security Income because the Self-Employment Tax that I pay out of my real estate income contributes to my social security payments.

Real Estate Sales (Later): I also plan to continue doing part time real estate sales a few years after I retire from my regular job. This will supplement my retirement income for the first 5-7 years delaying any distributions I will have to take to allow my investments to grow further.

Rental Properties: They are the gift that keep on giving. They don’t require much effort. As I get older, I will probably spend more money to outsource some of the services so I will no longer have to deal with tenants, but by then, my mortgage will be gone and my rents will likely increase so I don’t anticipate a significant drop in my margins.

Reduce Expenses: I will be doing my best to avoid debt, I will consider downsizing to one car, and my living expenses should decrease significantly as the mortgage on our primary residence will be gone.

What are you doing?

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The Case Against Automatic Payments

Saying that you’re against automatic payment in the world of personal finance definitely makes one an outsider. Most personal finance bloggers or advisers will tell their audiences to set up automatic payments. The common argument is that you’re less likely to forget about a bill than your online banking software. If you tell your bank to pay your mortgage every 1st of the month, the bank is not going to forget. However, you can go on vacation or have a bad day and your mortgage is the last thing on your mind when the first rolls around. That is however just one perspective. I’d like to present my own case against why I oppose automatic payments and you should too.

Reviewing your bill. If your arrange your payments like an infomercial oven using the “set it and forget it” technique, you are likely not going to prioritize reviewing your bill. Which means, sneaky little charges that your providers use to nickel and dime you will get past you and that’s exactly what they want. For example, when Comcast decided to start charging me twice as much for some premium channels, I only noticed because I actively pay my bill every month and immediately saw that the total balance was different from what I was paying before. I went over my bill line by line and saw where the extra charges came from. A call to customer service revealed that my previous rate was a promotional rate and my promotion expired the month before. I got a credit for the charges and changed my bill to a new promotion so I wouldn’t have to pay the higher fee. Otherwise, this would have gone unnoticed. Not having automatic payments forces me to look at my bill and makes me remember what a normal payment looks like.

Ghost charges. Subscriptions for small items that we don’t even think about are what I call ghost charges. You don’t even know they are there. The fee is very low and it’s been so long since you’ve used it that you don’t even remember anymore. But like clockwork, $5, 10, or even $20 comes out of your bank account. In my case, I had a Planet Fitness membership for $20/month. I had it for several years but I eventually moved to a town where there was no PF. It took me 2 months to realize that I was still paying that bill. If it was something that I had to actively pay every month, I would have realized that I no longer had any use for the membership that I was still paying for. The same is likely to happen with magazines (does anyone besides doctor’s offices order those still?), subscription boxes, infomercials that will send you refills “for life” etc.

Overdrafts. When you go to pay your bills, you are aware of exactly how much money is in your account. You also know when you are about to be paid. You can set up your bill payments around your anticipated bank balances. I don’t think anyone should be living like that because it means you’re living paycheck to paycheck, but I also live in the real world and understand it’s the reality of many. If there is ever the possibility that you may not have enough money in your account, the $35 overdraft fee is not something you can afford. And even if you do have enough money, there are other risks, like the time one of my payments did not go through because my credit card had been compromised and my bank closed my card without notifying me.