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  • Investing, Retirement

    The Best Asset Allocation When You Are Under 35

    Typically, people don’t start thinking about retirement savings until later in life. However, the best time to start saving is as early as possible. Ideally, this means in your 20s, the moment you leave school and start earning an income. Currently, according to the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84. For a woman, that age is 86. However, these are just averages. One in four persons will actually live past 90.

    Therefore, if you retire at 65, the typical person should expect to live at least another 30 years. Additionally, the general advice given today is to target to replace between 70 to 90 percent of your pre-retirement income. Consequently, a person who earns $75,000 before retirement should expect to need at least $56,250 annually between their own retirement savings and Social Security. In fact, many financial advisors will advise you to plan to replace 100 percent of your income for the first 10 years of your retirement.

    How Much Should You Save for Retirement?

    That said, there is no one-size-fits-all answer for how much to save. How much you will need will depend on your personal circumstances. While these are things you may not even be thinking about yet, factors that you must try to project will include things like your future health, living expenses, and desired lifestyle. Some of these factors are based on personal goals that you can adjust over time. But, health care costs are a non-negotiable retirement expense. Even without major health issues, health and wellness costs do increase as a person gets older.

    Nevertheless, much of your retirement income needs will come down to lifestyle choices. The area where you choose to live in your retirement can have a dramatic impact. Choosing a walkable community, with easy access to public transportation, will save you a bundle. Also, starting your retirement being mortgage-free can considerably decrease your housing costs, as can downsizing to a smaller home that will cost less to maintain. Finally, you have to think about the lifestyle you want in retirement. Do you want to travel or will you be happy hanging out at the local rec center?

    So, how much will you need going into retirement? Let us presume that your goals will require $67,500 annually. It is also a good idea to project with an optimistic outlook beyond national life expectancy averages. So, plan that you will live until 95 years old. What is your “magic number”? Assuming that you will receive $2,000 per month ($24,000 per year) from Social Security, you will need $1.3 million. If at age 27, you start saving just $5,500 per year towards your retirement, you can reasonably expect $1.42 million by age 67 assuming an 8 percent annual return.

    What’s the Best Asset Allocation for Your Age?

    What is the best asset allocation for those under 35 years old? One general but well-established rule is to subtract your age from 100. This will provide you with a good idea of what percentage your retirement savings should be placed in stocks and what percentage should be placed in bonds and other “safe” investments. Therefore, if you are 27 years old, a good general strategy is placing 73 percent of your retirement savings in the stock market and 27 percent in other investments. Of course, there is no perfect allocation strategy that works for everyone, but it does create an easy to understand starting point.

    Be that as it may, many financial experts believe rising life expectancies and medical innovations will mean that younger investors need a more aggressive approach. Some are recommending asset allocations based on 110 or 120. This could mean that an individual at 27 years old should place up to 93 percent of their savings in stocks. Why stocks? With a buy and hold strategy, the stock market is one of the best ways to grow wealth. While the value can drop, a wise strategy will help to protect you.

    When you are thinking about the best asset allocation, your age should always be a prime consideration. Many 27-year-olds can weather the risk of having 93 percent of their retirement savings invested in the stock market. By the time this individual reaches 75 years old, only 45 percent of their investments should be in the stock market. It is a good idea to evaluate your investments annually, and make adjustments in order to keep yourself in line with your allocation goals. This also gives you the best opportunity to sell high and buy low, as you sell off well-performing stocks.

  • Budgeting, Financial Planning, Investing, Retirement, Taxes

    5 Ways to Put Your Tax Refund to Better Use

    Expecting a tax refund?  You need a good plan on how to spend the money. Of course, you may want to treating yourself “as you deserve,” but remember that the refund is not a bonus check.  Give the check a purpose by considering your financial situation and determining your top development needs. Below are five priorities to help you put your tax refund to better use and build towards greater financial security in future.

    1. Finance your emergency fund

    If you do not have an emergency fund, you need just one major expense to send you down to financial disaster. A good emergency fund is one that contains three or more months of savings in a readily available interest bearing account. Saving such an amount requires months or years of sacrifice, but a refund check can boost the fund, giving you a bit of financial security.

    2. Pay off a high-interest debt

    You can use your tax refund to pay off a high-interest debt. For instance, pay down that credit card balance. Depending on the interest rate, you can save up to 20% every year in interest on any balance that you clear. Use your refund check to create a debt elimination program that tackles those payday loans, title loans, high-interest student loans, and credit cards.

    3. Save for retirement

    You can use your refund to strengthen your financial position further by putting your check into an IRA or investment account. If you do not have one established, start on! Many institutions today may it a simple process and can all be done online.  You may be eligible for a Roth IRA if you meet certain income requirements defined by the IRS and do not have an employer-sponsored retirement plan.

    4. Invest in Real Estate

    If one of your goals is to own your home imagine how far a tax refund check would go towards a down payment.  Already purchased your home?  Consider paying down your mortgage early.  Use your tax refund to pay down the principle on your mortgage. You will save on interest payments and pay off your mortgage earlier.  Your tax refund can also go towards purchasing a second property that you can use to generate rental income.

    5. Refinance your mortgage or make home improvements

    If you already own your home you may want to look into refinancing your current mortgage to get a more favorable interest rate.  Consider using the tax refund check to pay the closing cost on the new mortgage and you will save on interest.  If you are comfortable with your mortgage rate, consider upgrades like a new roof, kitchen or bathroom upgrades, or new energy-efficient appliances to lower your electricity bills. Some of these improvement projects will not just make your home more comfortable but can also increase your home’s value.



    Remember, planning for your financial future does not have to be an all or nothing game.  You don’t have to be completely dedicated to debt elimination that you neglect your emergency fund or retirement.  Working with a financial consultant can help you balance your goals.  If you need help planning and managing your finances Schedule a Free Consultation with Abena today.