One of Bill Ware’s various jobs in recent years was as a part-time insurance salesman. In that role, he has helped people prepare for unexpected hardships—burglaries, falling trees, car accidents, medical emergencies, and even death. But Ware recently faced the unexpected himself when his income took a dive.
Early this year a tax consultancy that works to resolve problems with the IRS and state agencies hit a trough and, in April, he says, the consultancy suddenly cut his income by 60%. Soon after, as the credit card bills piled up, he realized he needed to take action.
For all Hunter Harrison’s unquestionable talents, he is really bad at one thing: not working. The celebrated railway executive officially retired from Canadian National Railway Company (CN) in 2009, after a long career running railways. A little more than two years later, at the encouragement of activist investor Bill Ackman, Harrison came out of retirement to become president and CEO of Canadian Pacific Railway (CP).
His plan was to step away, again, this summer, when he was scheduled to hand the CEO reins to longtime lieutenant Keith Creel and start a three-year tenure as a consultant (or, in his own words, a “hired hand”) to the railway. That arrangement suggested the transition of power would be a gradual process. But earlier this year, CP announced Harrison would be departing immediately to pursue other opportunities. For his early departure, Harrison will forfeit some $118 million in benefits that had been awaiting him. Hours later, several reports emerged suggesting that Harrison will be partnering with another activist investor to take control of U.S. railway CSX Corp.
When it comes to saving, we aren’t doing enough of it.
Roughly half of Americans are saving 5% or less of their incomes, including 18% that are not saving anything, according to a survey from Bankrate. Only about a quarter of people are saving more than 10% of their earnings.
So how much should you be saving? Bankrate recommends 15%.
“Between emergency savings and the ever-increasing burden of retirement savings that is on the individual, the goal should be 15% of your income,” said Greg McBride, the personal finance website’s chief financial analyst.
Currently, one in seven people are saving more than 15%, the report showed.
Super savers and rich people will be able to put even more money in their 401ks next year. Starting in 2015, contribution limits for the tax-deferred retirement accounts will increase by $500 to $18,000, the Internal Revenue Service announced Thursday.
Meanwhile, the “catch-up” amount that workers age 50 and over can contribute to their plans will rise to $6,000 from $5,500, for a total of $24,000 next year.Of course, not many workers can afford to save those maximum amounts. In 2013, 12% of Vanguard’s more than 3 million 401k participants contributed the max allowed not including any match from their employer, according to the company’s annual How America Saves report.
Even if you’ve socked plenty of money away in your 401k plan and invested it carefully, some of your toughest decisions lie ahead. And don’t expect much help or clarity from the government or your employer. Strategies for drawing down lump-sum accounts in retirement — more important than ever in the 401k era — have received little attention from policy makers. For retirees, choices about how to spend a life’s worth of savings are fraught with tricky calculations about financial risk, taxes and death.
No doubt many baby boomer business owners are looking forward to exiting their businesses and enjoying retirement. Yet many of them will find that what they can make from selling their business will not be what they need to retire comfortably. This can be true even if the business is profitable and has many customers. The five questions discussed briefly below are not all the things that an owner should look at, but they are the some of the major ones. An owner looking to maximize the sale price of their business needs to have a solid answer for each of these questions.
How much do I want (or need) my business to sell for? – Start with this question first. In answering this question, remember that you’ll have lots of time on your hands and will probably want to travel or engage in activities that will take some cash. Add in all your living expenses and you will have a number that is appropriate for the lifestyle you want to live. Add 100% to the number for inflation, changes and emergencies. Now you have a target. Working with a financial planner can help you determine this number with greater accuracy.
When people realize how incredible the deal is for a Roth IRA, they’re often in disbelief. After all, it lets you earn tax-free income in retirement. No federal income taxes, period, on money taken out of a Roth IRA when you’re at retirement age (and at a few other life opportunities, too).
Before we head too far down this road, let’s touch on what a Roth IRA is. I spelled it out in my earlier Roth IRA basics article, but here are the key things you need to know:
Conventional wisdom tells us it’s impossible to be saving too much for retirement, but is this really true? We’ve been hearing about the need to save more for retirement, and for good reason. Ask many of the Baby Boomers who are getting ready to retire and you’ll find that many of them have come to the realization that they don’t have as much saved up as they had hoped, or that they may need to even put off retirement for a few years.
So, is it possible to save too much for retirement? Of course it is, but it’s far from the norm. The real issue comes from the sacrifices you need to make today in order to plan and save for a retirement that may be decades away. There is a balance in life.
In a perfect world you will have enough money set aside so that come retirement day you have absolutely nothing to worry about. You’re free to carry out your plans without the added stress of wondering whether or not you’ll have enough money to pay the bills. Unfortunately, most people don’t have this luxury. Instead, they come to the realization that they can’t afford to retire and end up spending the later years in their life unhappy because they have to either keep working or simply don’t have enough money to do any of the things they had hoped. Here are five reasons most people will retire broke and unhappy.