Day: May 11, 2019

Outside the Box: These are the bad things about early retirement that no one talks about

This post was originally published on this site

For all the glamour of living an early retirement lifestyle, there are plenty of negatives I’ve come to discover since I permanently left my job in 2012.

I know why we revert to our baseline state of happiness, no matter how much freedom and money you have.

Let’s go through some of the negatives of retiring early now that I’m a grizzled veteran.

The downside of retiring early

1) You will suffer an identity crisis for an unknown period. When you’ve spent at least a decade working in a profession, you’ll find it incredibly jolting to no longer be identified as the person who is a marketing expert, an investment professional, or the management consultant who can figure out how to optimize a business. It’s only after you leave your job do you truly realize how wound up you were in your profession.

Your identity crisis may last as short as three months or it might last for years. It all depends on how wrapped up you were in your job, how long you spent getting educated after high school, and whether you have a clear plan postretirement. Doctors are some of the people who suffer the most after leaving their occupations. Conversely, high school graduates who somehow struck it rich with a product or an invention seem to adjust much easier in postretirement life.

Job titles can be incredibly addictive. Why else do people get so depressed when passed over for promotion? Why else do people try so hard to get promoted sooner and faster than everybody else? Do not underestimate the importance of being a manager, director, vice president, or even a C-level executive.

After all, the most common question people ask when they first meet each other is: What do you do for a living? And if you tell them you don’t do anything for a living, well then, you might just feel like a sheepish loser. You’ll want to try to explain yourself, but by then, your three-second first impression will no longer hold the other person’s attention.

What happened to me: After working in the Asian equities business for 13 years, it felt hollow to no longer have my Executive Director title or be identified with my investment firm. I felt sad that I could no longer go to Asia for conferences or with clients. For so long, taking a business-class trip to Hong Kong, India, China or Taiwan was part of my quarterly routine. Shallow as it may sound, it felt special to have priority boarding. I felt important when clients would entrust me to show them around in a foreign land.

For the first year after leaving my job, I wondered how the business was doing without me. Could they really survive without my expertise? After all, I was there for 11 years. Surely, they needed my relationships. But after months went by with no email or phone call from my old firm saying they wanted me back, I had to come to terms that I was no longer important to them.

I wanted to believe that my position meant something to the firm and to the people that I serviced. But at the end of the day, the person I trained to replace me as part of my severance agreement, was good enough. And because he was good enough, I concluded that I was no longer any good.

This ego hit took me a full year to get over.

Read: Why early retirement is all it’s cracked up to be

2) You will be stuck in your head. When you suddenly have an extra 10 to 14 hours a day of free time, it’s very difficult to optimize your time wisely.

Your productivity will suffer in retirement. You will no longer feel motivated to achieve great wins. As a result, you may slowly start to get depressed. Only after some really deep soul-searching and some, “what am I doing with my life?” questioning will you begin to organize your time better and become more productive.

Your mind can be very dangerous because it can always second-guess your actions. Did I retire too soon? What if I run out of money? What if people think I’m a loser? What if I can’t ever get back into the workforce if things go wrong? When you have a lot of time to think, your doubts go on and on.

Perhaps one analogy is to compare being stuck in your head with Locked-in syndrome. LIS is a condition in which a patient is aware but cannot move or communicate verbally due to complete paralysis of nearly all voluntary muscles in the body except for vertical eye movements and blinking. This could be one of my worst nightmares. Retiring early may render you inoperable for a while.

What happened to me: Because I left work at age 34, I was worried for about the first two years whether or not I had made the right choice. No rational person leaves a well-paying job to be unemployed in their mid-30s. Your late-30s is when you start to finally make good money. And by the time you reach your 40s, you should be at your maximum earnings power.

During my first year of early retirement, to the outside world I proudly proclaimed I was retired from a career in finance. But on the inside, I was second-guessing my decision to leave. Because of my uncertainty, I decided to do some part-time consulting with a financial technology startup for about 20 hours a week. It was a great way to distract my mind from all my fears, earn some side income, and replug myself into society. I also kept in touch with multiple banks until my Series 7 and 63 licenses expired.

Finally, I dived deep into my writing on Financial Samurai. Writing has always been my most cathartic way to deal with any uncertainty or problems I might have. For example, now that I have a son, I’ve been worried about whether our roughly $200,000 a year in passive income is enough to support a family of three if he doesn’t win the San Francisco public school lottery system. It’s taken almost 20 years for me to generate this passive income level, and it still doesn’t seem like enough.

Given this worry, I did a deep dive budget analysis for a family earning $300,000 a year, and it sure seems like we need to earn $100,000 more to maintain our quality of life in San Francisco. Alternatively, we can always move to a lower cost area of the country or world.

Read: People may be missing the point of early retirement

3) People will treat you like a weird misfit. Whether it’s because retiring early is unconventional or because people are secretly jealous you aren’t grinding away at a day job, people won’t give you the same amount of respect as working-class citizens. After all, if they can’t describe what you do for a living, then they can’t pigeonhole you into an archetype that is comfortable for them.

Having a job means you are a productive member of society. If you retire at a young age, people will assume you are simply slacking off and not paying any taxes. They’ll sometimes look at you as a leech they want to flick off.

Further, if you are an outcast, then you won’t be invited to parties or events that other working people always get to attend. You’re simply not top of mind to them. If you are an extrovert, early retirement will be much more difficult than if you are an introvert.

What happened to me: After the first year of early retirement, I no longer told anybody I retired early. Instead, I told anybody who asked that I was a writer, a tennis teacher, a fintech consultant, or simply in between jobs. Before that, I think a lot of people just assumed I was a trust fund baby who did not have to work. And the last thing this middle-class guy who went to public school wants to be known as is a trust fund baby.

My favorite time of the year was during the winter holidays. I loved going to all the holiday parties and getting tipsy with fellow revelers. Now, I get invited to zero holiday parties because I don’t work for anyone. Nor do I get invited to client holiday parties either, even though I have several partners who are based in the San Francisco Bay Area. It may sound silly, but having a drink with good people with shared interests really means a lot to me.

It takes a lot of effort to build new social networks if you aren’t part of a larger organization. There is no weekend cookout a colleague is hosting on Labor Day Weekend to attend. I’ve had to participate in various meetup events to find new people to hang out with. So far, my social network only revolves around tennis and softball. But even then, it’s not like I’ve found buddies who will come over and just chill in the hot tub over a beer or anything.

4) You’ll be disappointed that you aren’t much happier. So many people think that once they achieve financial freedom or leave a job they dislike, they’ll suddenly be permanently happier. The truth of the matter is, your elevated happiness will only last at most three to six months. Eventually, you’ll revert to your natural state of being.

Think back to your high school or college days when you didn’t have any money compared with now. I’d venture to guess you were just as happy, if not happier when you were a broke college student.

Having the freedom to do what you want is priceless. But you will eventually take your freedom for granted like the air you breathe. On the days you feel angry or sad, you will start questioning what the hell is wrong with you since you’ve got more than the average person. You’ll feel stupid for feeling unhappy when there are literally hundreds of millions of people in the world wondering whether they’ll have enough to eat the next day.

You think, if I can’t be happy when I’m financially independent, surely there must be something seriously wrong with me. And you could be right! Can you imagine being unhappy as a Norwegian? Norway is perpetually ranked as one of the top five happiest countries in the world.

What’s going on with me: I thought I’d be much happier not having to report to a micromanager boss I did not respect. But my increased happiness was fleeting and only lasted for about a week before I was back to my regular self. Instead, my happiness was weighed down by months of uncertainty on whether I had made the right move to leave my job. It was only after about two years did my doubt finally start to dissipate.

Although corporate politics no longer upset me, other things end up filling the void. For example, drivers who decide to double park on a busy street in rush hour traffic really bother me now. So do dog owners who let their dogs poop in front of my house and don’t pick up after them. In the past, I could only allocate a small amount of annoyance to such incidences.

Instead of being permanently at a happier level, I’m simply no longer as annoyed or as angry at things as frequently. Further, the volatility around my steady state of happiness is lower. In other words, I’ve mellowed out. That said, don’t offend me because I still enjoy a really good fight.

5) You constantly wonder whether this is all there is to life. Retiring early is like finishing up your favorite longstanding TV show. You’re glad there’s a conclusion, but you’re also sad that it’s over. You hope to find a show that’s as good or better, but there are no guarantees.

Most of us spend 13 years going to grade school so we can spend four years in college to get a decent job. Then we spend decades trying to earn and save money to provide for our family and then one day retire by 65. With good luck, we’ll live for another 20 years to enjoy all the fruits of our labor.

When you retire at a much earlier age, you are constantly left wondering what’s next. You are mentally twiddling your thumbs waiting for the next big thing while your close friends are all at work. Early retirement can get extremely mundane and boring because you have nobody to spend time with.

As a result, you’re repeatedly forced to will yourself into action. This constant self-starting attitude can become extremely trying to the point where you long to rejoin the workforce and be told what to do.

What’s going on with me: I probably drove my wife nuts during the first two years of early retirement because I constantly told her I was bored. Only boring people get bored right? Wrong. Everybody gets bored at some point. When you’re working, you don’t have time to get bored because you’re working. There’s only so much tennis, golf, and softball I can play before my knees break apart. There are only so many churches to visit in Europe before they all start looking the same.

She used to have vacations from me because I would be away traveling for work every month. Now she was seeing my cherubic face every single day. It’s a good thing we had three bedrooms at the time. Otherwise, I’m pretty sure we’d both have gone crazy from seeing each other so often.

It was only after our son was born in early 2017 that I felt a renewed sense of purpose. Before my boy, I felt my purpose was to help educate as many readers as possible about personal finance to one day be free. After my boy was born, my purpose has expanded to keeping Financial Samurai running long enough to teach him about operating an online business out of fear he may have a tough time getting ahead. In addition, I now need to live long enough until he finds someone who loves him as much as I love my wife.

I don’t think I’d be able to die in peace if there’s nobody to replace his mom or me. As a result, I’m exercising more, eating healthier, and meditating longer.

Early retirement is great, but it doesn’t solve everything

It might sound like I’m depressed. But I’m not. I’m simply highlighting some of the negatives you will probably go through if you decide to leave the workforce early. The more extroverted you are and the higher your position, the more you will have difficulties making the early retirement adjustment.

Having the freedom to do what you want cannot be overstated. However, your mind will play games with your spirit during the first few years after leaving work. Some people won’t be able to handle early retirement life and will go back to work.

Just know that with enough conditioning, you will eventually embrace your freedom. Nobody I know who retired from corporate life early stayed retired. You will find your purpose. Once you do, you will take steps, such as building passive income, to ensure you remain free forever.

This column originally appeared on Financial Samurai. It has been adapted and published with permission.

Sam Dogen started Financial Samurai in 2009 to help people achieve financial freedom sooner. He spent 13 years working in investment banking and retired at age 34 in San Francisco. Everything Dogen writes is based on firsthand experience.

More on early retirement:

These people left their jobs behind to retire early — then life got in the way. Here’s how they coped with FIRE plans gone wrong

This post was originally published on this site

Gwen Merz, 28, is doing something she thought she’d never have to do again: hunt for a job.

Earlier in her 20s, she set a goal to “retire” from full-time work at age 35, but she later decided to move that date up to 27.

She wasn’t going to “retire” completely, but work flexibly after quitting her job. At that time, she planned to move to Minneapolis to be with her boyfriend. She saved more than $130,000 in a 401(k), about $25,000 in a Roth IRA and kept $20,000 in cash. She also had about $5,000 in a taxable investment account and $10,000 in a health savings account. She also hoped to access a pension she had been entitled to.

To supplement her savings, she planned to rent out a property she purchased. She also co-hosts a podcast, freelances doing content management and sells craft items on an Etsy store.

She took the leap into “financial independence” in March 2017, “ecstatic” to experience her new freedom.

But life had other plans.

The rental property was too complicated to manage from far away. She found that she hated freelancing. Because of some technicalities, she wasn’t able to access her pension yet. There were fewer bites than expected on her Etsy projects. And she and her boyfriend broke up.

Now, she’s living with her parents until she finds a new, full-time job, back in the IT world where she started.

But she doesn’t regret her choices, she said.

“At the beginning, I had to evaluate the risks,” she said. “I knew the worst-case scenario is that we would break up, I move out and move in with my parents … I was able to do that because I don’t have anybody depending on me. I can take these risks knowing I’m only affecting myself.”

What’s more, she learned that she doesn’t actually want to “retire” — at least not yet.

“I’ve learned a lot about myself and the world and what I need in a relationship and what makes me happy and fulfilled in a job,” she said. “For all of those things, I’m grateful, even if my plans didn’t go the way I wanted them to.”

Merz isn’t alone. The idea of “FIRE”, which stands for “financial independence, retire early” — has gained traction in the past several years. Many members of the movement live frugally to meet their goals, including biking instead of driving a car, limiting the amount they spend on food and travel and even producing their own food and clothing themselves. They connect online, through forums and Facebook groups, to encourage one another in their progress.

But it’s risky. Before “retirement,” many members of the FIRE movement are working full time jobs — often lucrative ones — but they leave all that behind in order to live off their savings for decades.

Read: Why does the early-retirement movement have so many haters?

And it doesn’t always work out that way.

Mr. Money Mustache is largely credited with popularizing the idea of “early retirement” and encouraging others to spend less in order to work less, too. He was able to retire in his 30s, thanks to a cheap lifestyle, index-fund investing and investing in rental real estate.

He lays out the amount one needs to retire early on his website: There’s no magic amount because it varies by person.

Aspiring retirees must calculate how much money they take home each year and how much they can live on. They should assume 5% investment returns after inflation during their saving years, he says. And they can plan on a 4% “safe withdrawal rate” in retirement, with some flexibility at times. They should also create a “safety margin,” he said, in case anything unexpected happens.

Financial commentator Suze Orman has said she “hates” the early retirement movement because most people don’t save enough.

Early retirees should actually save upward of $5 million to be on the safe side, Orman said. (And of course, members of the “FIRE” community disagreed.)

But unexpected events do happen, and that’s why planning how much you’ll need in retirement is so difficult — at any age, said Rachel Podnos, an attorney and financial adviser based in Washington, D.C.

“Even people who are relatively sophisticated financially underestimate how much they’re going to need,” she said. Between health care, family responsibilities and housing costs, retirement can be expensive — and not always in the ways you’re anticipating, she said.

And going back to work like Merz did may not always be easy, Podnos said.

“Explaining to your employer you have this gap in your resume because you decided to retire … I feel like you would have to come up with a really good spin on that.”

That said, “early retirement” doesn’t always mean leaving the workforce — some “FIRE” movement members plan to still work, but won’t need to rely on their full-time incomes any more, said Alison Norris, a certified financial planner and advice strategist at the personal-finance company SoFi.

Some members of the “FIRE” community opened up about ways their retirement isn’t going as expected. Here are just a few of their stories.

That feeling when your cryptocurrency gets stolen

Alli and Matt Owen, a married couple who are 28 and 29, discovered the “FIRE” movement about four years ago. At the time, they were living in Bakersfield, Calif., working in the oil-and-gas industry and making a combined $250,000 a year. They decided to “retire” in 10 years, from when they found out what “FIRE” was.

“We didn’t like where we were living and thought of the FI movement as a way to have more freedom,” Alli said. Their goal: Save $1.2 million by then, so they could live off $40,000 a year for the rest of their lives.

But they both began to struggle with mental health issues including anxiety and depression, and decided to leave their jobs earlier than planned, never reaching that $1.2 million goal. Instead, they left work in April 2018 with a combined net worth of $600,000, to travel around the U.S. for about six months.

The day before they left, they got some bad news. Their computer had been hacked. And along with it, $17,000 worth of cryptocurrency they bought was gone, too.

“It was really hard,” Matt said. “It was my responsibility to make sure it was safe, and I didn’t do that.”

“There was a lot of self-doubt, like, ‘Did we make the right decision leaving our jobs?’” Alli said. “Is this a sign we’re going the wrong direction?”

Ultimately, they still took their trip. The $17,000 wasn’t enough to completely derail their plans. But it did put stress on their relationship, they said.

The Owens don’t know what their futures will hold and whether $600,000 will be enough to support it. For one thing, they want to have children, and they’re not completely sure how much that will cost.

So to make a little more income, they’ve started two businesses: one to coach others on their finances and another selling a food product for the ketogenic diet.

They’re not too worried, Matt said.

“There are other people in the movement who have families,” he said. “They’re not very materialistic, they’re not buying a lot of toys and gadgets … we think kids need a lot of time with us, and that’s the most important.”

When an unexpected illness takes hold

Liz, a 38-year-old mother of three boys in Connecticut, has always been interested in personal finance, she says. She wasn’t sure exactly when she could retire, but hoped to meet some level of financial independence by the time she was in her mid-50s.

To meet that goal, she has not only been a diligent saver, but she also pursued an M.B.A. while working full time, she said. Her habits came in handy six years ago, when her husband almost died of septic shock: an infection that has made it difficult for him to work since.

Now, the family’s retirement plan is almost entirely dependent on Liz, a scenario she never expected when she was in her 20s, she says. She worries about others pursuing “FIRE” while relying on remaining in perfect health, or needing the income of a partner, she says.

She especially cautions those who may have a plan for health and disability insurance, but don’t factor in additional costs like adapting the home for a disabled family member, or needing to purchase special clothing or foods for them.

“The folks whose plans are based on nothing going wrong, they’ve had nothing serious happen to them or people close to them,” she said. “Unfortunately, life isn’t like that. Some of us learn it the hard way.”

Losing your partner

William McVey, a 45-year-old living in Mason, Ohio, and his wife Amber wanted to retire early even before it was trendy.

The plan: Once their twin boys were grown up, they would be able to travel as empty nesters. William is a software engineer, and Amber worked in biotech until she became pregnant with their sons. They devoted her entire salary to savings and lived off William’s income alone.

But in 2009 years ago, she was diagnosed with breast cancer. Initially, she recovered and lived cancer free. But the cancer returned in 2012, and she died five years ago. Now, William is solely responsible for caring for their twin boys, who are now 16 years old and both struggle with autism.

The couple made some smart choices before Amber’s diagnosis and eventual passing, William says. They both had life insurance. Now that Amber’s policy has been cashed, he has earmarked those savings for his sons, but is still able to work flexibly.

“I reached my ‘FIRE’ numbers in the worst possible way,” he said.

He continued to work after Amber’s death, but felt he was not spending enough time with their boys. That’s why he works more flexibly now, doing freelance work instead of a full-time role.

His advice for those planning to retire along with a partner: Share everything, including passwords to your financial accounts and an overall savings strategy.

Talk about what you’ll do in case of divorce or death, way in advance, he says. During Amber’s illness, they never wanted to talk about death, what William calls “going to the dark place.”

“I don’t necessarily regret that, but we should have had these conversations,” he says.

Welcoming new family members

A blogger who goes by “Mrs. Simply FI”, 27, and her husband, 31, have a single income of just $26,000 for their family of five.

They work at a camp in the southwest United States: the husband maintains the camp’s computer system, and the wife takes care of their children, while occasionally picking up cleaning shifts and doing freelance photography. But with the job comes free housing, free internet, medical care and free food during the summer months.

In the next several years, they plan to buy a school bus and renovate it into a “tiny home,” where they will live with their three children. During that time, the husband may be able to work remotely in IT, but the family will be completely mobile.

They are evangelical Christians, and they hope to pursue various ministries in their “retirement.” Being financially independent will help them with that, they said.

“Our faith really teaches us that we should be able to leave a legacy for our kids, and for other people too,” Mrs. Simply FI says.

But of course, it isn’t so easy.

One of their children is 3 years old and has some special needs, for which he needs occupational and speech therapy. And they’re hoping to add more children to their family through adoption.

In fact, they recently welcomed a foster child into their home, so they are taking care of four children on the same salary that supported three. That will delay “FIRE” for the family. But that’s OK, Mrs. Simply FI says.

“The whole point for us is not to achieve a certain number. It’s to build a life for ourselves and our children that is satisfying and reaches the goals that we have,” she said. “Part of that for us is that we love our children and children in general. If we have an opportunity to adopt a child it’s worth it to us to move our date by a year or two to build a life that we’re wanting.”

Time will tell whether they’re able to “retire,” she says. Right now, they’re taking the steps to make it happen, including putting more than half of their income toward remaining student loan debt.

And having a nest egg will benefit the family, even if complete retirement isn’t possible, she says.

Unexpected expenses “would pop up anyway,” she says. “At least we’d be in a better position when they do happen.”

Advice for those considering ‘FIRE’

No matter what age you’re planning to retire, spend time beforehand imagining what you want your life to look like, Norris of SoFi said. That will help you “assign a price tag to your retirement goal,” she said.

And if you save too little, it doesn’t have to be a disaster.

You may be able to re-enter the workforce. You may have to reduce your spending as much as you can. Homeowners might have to consider a reverse mortgage, which means converting part of your home equity to cash.

Just consider the unknowns that could come up, including market volatility, long-term care needs and any changes in the tax code that could come up, Norris said.

And if you’re like Merz, you can take it in stride.

“I didn’t need anyone to tell me, ‘I told you so,’” Merz said. “This was something I needed to come to myself. All in all, people have been really supportive.”

Encore: The money in your 401(k) and IRA accounts doesn’t belong entirely to you

This post was originally published on this site

I keep worrying that people approaching retirement with 401(k) and IRA balances don’t realize that they owe taxes on their accumulations. I’m sympathetic. It’s hard to accept that the pile that we’ve contributed to and nursed over our working life is not all ours.

Of course, we have all benefited throughout the years by not having to pay taxes on contributions paid into our traditional 401(k) plans and IRA accounts and on the investment returns on those contributions. Deferring taxes for decades has real value. A little algebra reveals that the benefit is equal to exempting investment returns on plan assets from taxation. So we come out ahead, even after we pay taxes on the withdrawals. Therefore, the issue is not whether the tax treatment accorded 401(k)s is a good deal. It is, and higher income people benefit the most. Rather, my concern is that people with moderate and higher incomes haven’t taken taxes into account in assessing how well prepared they are for retirement.

For some, the tax bill will be quite high, as shown in the table below. These estimates are far from perfect, but let me tell you what’s being shown. The group under consideration is working households ages 55-64 with assets in a 401(k) plan in 2016 — the most recent year for the Federal Reserve’s Survey of Consumer Finances. The income levels that define the deciles in the first column are for all working households. The second column reports the median combined 401(k) and IRA balances for those households in each decile that have a 401(k). The third column, which is based on an earlier study, shows the estimated tax rate in retirement that will be faced by households in each decile. The final column shows the after-tax 401(k)/IRA amounts that households in each decile will have to support themselves.

For those in the bottom half of the income distribution, taxes are not an issue. These households, however, hold only 11% of 401(k)/IRA assets (see figure below). The next four deciles, which hold about 45% of the assets, will pay about 22% to the federal government. The top decile holds the remaining 44% and will pay about a third of their assets in taxes.

The point of this discussion is not to suggest that we need to reduce the progressivity in our personal income tax structure, but merely to remind all of us who think about the adequacy of retirement savings that we need to pay the piper when we start drawing on our sources of retirement income.

Encore: Two-income couples are surprisingly unprepared for retirement — here’s one reason why

This post was originally published on this site

Every time we look at households’ preparedness for retirement, we find that two-earner couples are in the worst shape.

We generally attribute their status to the fact that one-earner couples receive a Social Security spouse’s benefit equal to 50% of the breadwinner’s while most two-earner couples do not. A recent study, however, suggests another problem: two-earner couples often do not save enough through their 401(k) plans.

Since two-earner households generally earn more than one-earner households, they need more savings. But only about half of private sector workers have a workplace retirement plan at any given time, and people rarely save outside of such plans. As a result, only one person in many two-earner couples is actually saving. In this situation, the spouse with a plan should save more to make up for the non-saving spouse. But 401(k) plans are individual savings vehicles, and contribution decisions are often driven by plan design features like default contribution rates and employer matches, not household earnings.

This study uses data from the Survey of Income and Program Participation (SIPP) for 2009, 2011, and 2013 and focuses on married couples where at least one member ages 25-54 is contributing to a 401(k) or other defined-contribution plan. If the worker’s spouse has access to a defined-benefit plan, she is assumed to be saving for retirement automatically. The end result is that individuals in the sample are in one of three groups: 1) single-earner couples; 2) dual-earner couples where both members are saving; or 3) dual-earner couples with just one saver. This study focuses on the saving behavior of the third group relative to the other two.

The simple comparison of 401(k) contribution rates for individuals in the three groups shows that no matter what a saver’s spouse is doing the saver’s total contribution rate is typically 8% to 9% of his earnings (including employer contributions). In other words, these individual savers do not seem to realize that they need to pick up the slack if their spouse is working but not saving. Regression analysis essentially confirms this pattern.

The problem is that the failure of those with an earning, non-saving spouse to save more of their individual income means that the household ends up saving much less of its income (see figure below). Dual-earner couples with one saver have an average saving rate of only 4.9% of household earnings. The consequence is that households who should have a leg up saving for retirement — after all, they have two earners and access to a 401(k) — end up saving relatively little.

These findings suggest that 401(k) plan sponsors, at a minimum, could educate individuals with 401(k) plans to remember that, if they have a working spouse who is not saving, they themselves should be saving for two. Of course, this issue would be moot if everyone had access to a savings vehicle in the first place, so that all two-earner households could also be two-saver households.

Encore: Millennials’ late marriage should have only a minor effect on their 401(k) saving

This post was originally published on this site

The Center for Retirement Research just published a second study on how family circumstances affect contributions to 401(k) plans. The first, as reported a few weeks ago, showed that a 401(k) contributor in a two-earner couple with only one saver did not save more to compensate for the fact that his or her spouse did not have a retirement plan at work. The most recent study explores whether the trend toward later marriage will reduce retirement saving by looking at individuals’ contributions to a 401(k) plan before and after marriage.

The most recent study was sparked by the marriage patterns of millennials, who marry later than previous generations. Since marriage is a major life milestone that often marks a line between youth and adulthood, a logical question is how this delay affects retirement saving.

Read: Two-income couples are surprisingly unprepared for retirement — here’s one reason why

The answer is unclear. On the one hand, a robust literature has shown that marriage tends to kick-start saving for a house as individuals combine their possessions and make plans for having kids. On the other hand, retirement for young people is so far off in the future that marriage may not necessarily serve as a trigger for retirement saving.

Where’s the best place for you to retire? Use our tool to find out

The new study uses data from the Survey of Income and Program Participation (SIPP) — a panel survey on economic and demographic characteristics — to observe individuals both before and after they get married. The analysis follows people for five years: two years before the interview year, the interview year itself, and two years after. Only individuals observed getting married over this period are retained for the analysis.

The simple comparison of participation rates before and after marriage — shown in the figure below — suggests that both men and women increase their 401(k) participation after marriage.

Conditional on participating, contribution rates for men and women increase by 0.3 to 0.8 percentage points, respectively (see the figure below). These results hold in regressions that control for demographic and educational characteristics.

The important question is what these results mean for 401(k) wealth by age 65. A five-year delay in marriage — the approximate increase observed between baby boomers and millennials — would reduce accumulated assets by 3.1% for men and 3.4% for women.

So while the delay in marriage may be problematic for some forms of savings — delaying homeownership for example — it seems unlikely to make a large dent in savings through retirement plans.

Upgrade: 4 gorgeous beach towns where you can retire comfortably on $40,000 a year

This post was originally published on this site

On the beach, and on a budget?

That can be a reality for retirees — that is, if they know where to look. The average over-65 household in America drops $49,000 a year on everything from housing to food, according to the Census Bureau. But you don’t have to spend that much and, in fact, can spend far less — and retire to a sunny beach town. (No, really.)

MarketWatch looked at beach towns across America where the overall cost of living was significantly below average, where housing was reasonably priced and where there are plenty of things to see and do. (Though we can’t promise that summers won’t be hot, and your hurricane risk is admittedly elevated.) We found four attractive beach towns where you could spend roughly $40,000 a year and live a decent lifestyle.

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Bay St. Louis, Miss.

All your friends may be flocking to Florida for retirement, but you may get more for your money — and a gorgeous beach — in Mississippi. One town to consider: Bay St. Louis. “Beach lovers with a penchant for old architecture and affordable renovation spaces will love this small town,” writes Coastal Living magazine, calling it “a mix of Southern grace, mystery and heat.”

After a day on the beaches here — which Travel + Leisure magazine lauds for “soft and buttermilk white” sand — you can nosh on gumbo, po-boys and fresh Gulf seafood, while strolling down the shop-lined Main Street and chatting with friendly, creative-minded locals. And if you get bored with that, you can be in vibrant New Orleans, which is just about 60 miles away, in an hour.

Perhaps the best part: the cost. Average homes are priced at under $150,000, and you can find plenty of apartments renting for well under $1,000 a month; the cost of living, overall, is significantly below average (though food does tend to cost a little more than the national average). And personal finance site SmartAsset notes that “property taxes here are also not too significant,” with the average property owner spending about “$1,088 per year for an effective property tax rate of 1.64%.” No wonder Southern Living magazine named Bay St. Louis one of its favorite little towns in Mississippi.

By the numbers:
Population: 12,000
Average home value: $138,000
Cost-of-living index (100 is average): 93.9
Source: Sperling’s Best Places

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Pensacola, Fla.

Residents of Pensacola won’t be surprised that their Florida Panhandle city was ranked 37th in the annual “best places to live” in America by U.S. News & World Report. The city of roughly 50,000 offers a compelling mix of low-cost living; sugar-sand beaches; and a walkable downtown, with plenty to do.

Of course, you probably already know about the Gulf Coast beaches of Florida and those tranquil turquoise waters, so let’s start with all there is to do. The Pensacola Saenger Theatre books everything from orchestras to Broadway shows, the Pensacola Museum of Art has rotating exhibitions and a permanent collection including works by Warhol, Picasso and Toulouse-Lautrec and more, and there are tons of special events throughout the year, from a popular seafood festival to concerts on the beach. Locals also love the Saturday farmers’ market and the city’s myriad restaurants and bars.

As one therapist recently joked about the area: “Pensacola is the most disappointing market in the country for mental-health professionals. The weather is so damn balmy and the lifestyle so unhurried that people are unnaturally healthy. This sets a bad example because it suggests that it’s possible to live a normal life without pills, couches or lobotomies.”

And then there’s the lower-than-average price tag. Florida became a hot retirement haven not only for its warm winters, but also for its lack of a state income tax (retirement income isn’t taxed here either). And Pensacola in particular is affordable with a significantly lower than average cost of living, home prices that hover around $140,000, and reasonable property taxes.

By the numbers:
Population: 53,000
Average home value: $138,000
Cost-of-living index (100 is average): 93.1
Sources: Sperling’s Best Places

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Waterfront park in Fort Pierce, Fla.

Fort Pierce, Fla.

This affordable beach town roughly an hour north of Palm Beach offers a charming downtown — both Reader’s Digest and Travel & Leisure put Fort Pierce’s on their lists of the best main streets in America — lined with historic architecture, rustling palm trees, and restaurants and attractions.

While this isn’t a bustling town, there’s enough to do: attend a Broadway show or a music or comedy act at the beautifully renovated Sunrise Theater; visit the Navy SEAL museum; shop the popular Saturday morning farmers’ market; or hit up Friday Fest, where you’ll enjoy music, food and other festivities on the first Friday of the month (it’s great fun for the grandkids, too).

But perhaps the big draw here is the great fishing in uncrowded waters. You can nab mahi-mahi, tuna, pompano, amberjack, cobia, snapper and grouper; some people have broken records with the fish they’ve pulled in. It’s also a good spot for nature lovers, who can visit the Indian River Lagoon Estuary, home to more than 4,000 plant and animal species, or the Heathcote Botanical Garden.

It’s inexpensive, too, with a cost of living that’s significantly below average, home prices that are around $150,000 and Florida’s retiree-friendly tax laws. Even better: According to Census Bureau data, median housing costs for Fort Pierce residents are under $10,000 a year.

By the numbers:
Population: 44,000
Average home value: $152,000
Cost-of-living index (100 is average): 91.5
Sources: Sperlings Best Places

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Padre Island.

Corpus Christi, Texas

If the idea of a littler town freaks you out a bit — where will you shop, and what if you get sick of the restaurants? — but you still want a beach life, Corpus Christi is worth a look.

The Gulf Coast city offers something for 5- and 50-year-olds alike, “thanks to a lively downtown anchored by a slew of skyscrapers and busy shoreline lined with condos and seafood restaurants,” Travel + Leisure notes. “There’s also a beach for every personality, from sports enthusiasts to nature lovers.”

You won’t be bored in Corpus. The Texas State Aquarium boasts 360 species of underwater life; there are a handful of museums, including the well-regarded Art Museum of South Texas; and pretty much any kind of restaurant you could want, from fresh seafood to Mexican to Thai, French and Italian.

There are also lots of options for beach going, including the 18-mile Mustang Island, as well as the Padre Island National Seashore, which is the longest stretch of undeveloped barrier island in the world, boasting 70 miles of coastline, a nesting ground for sea turtles and more than 380 bird species.

Plus, average home values are around $150,000, the cost of living is the lowest of the cities on this list, and Texas doesn’t charge an income tax.

By the numbers:
Population: 323,000
Average home value: $147,000
Cost-of-living index (100 is average): 90.1
Sources: Sperling’s Best Places