7 tried-and-true retirement-savings strategies Consumer Reports

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Some key investment tools cost nothing: time, patience, vigilance, and perseverance. Use them with even small investments for big payoffs at retirement. Check out these retirement-savings strategies.

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Start early
Stock-price increases and compound dividends can turn a molehill into a mountain over time. Between 1928 and year-end 2014, the Standard & Poor’s 500 Index returned an average 9.6 percent annually, not adjusted for inflation. Even at a more conservative rate of 6.5 percent for a 100 percent stock portfolio, a 22-year-old investing $200 per month—roughly the cost of a sandwich and soda each day—would end up with $248,600 at age 67, even if he never invested anything after age 30. If he invested $200 per month for all 45 years, he’d have more than $591,000.
Invest regularly
Save 10 to 15 percent of your income. Automatic contributions from your paycheck let you benefit from “dollar-cost-averaging.” The principle: That $200 per month buys fewer shares when prices are high, and more when share prices are low. The average share price is potentially lower than if you had invested sporadically and depended on market timing.
Avoid future taxes
They’ll erode earnings. While your income is relatively low, use tax-advantaged Roth 401(k) and IRA plans. You won’t get a tax break up front, but your investments grow tax-free—a huge lift to returns—and you’ll pay no tax on withdrawal years later, when your presumably higher income could be subject to higher tax rates.
Get retirement-savings strategies and unbiased advice on investment products such as mutual funds, ETFs, and annuities in our investing center.
Diversify and allocate
Varying your holdings reduces your risk of losing money; usually when some holdings go down, others go up. Mutual funds—collections of stocks or bonds—provide that diversification. Investing in several mutual funds that focus on different types and sizes of companies—large-cap, small-cap, and international, for example—reduces your risk more. While you’re young, put all or nearly all of your holdings in growth-oriented, equity (stock) mutual funds. As you age, shift gradually to less risky bond holdings.
Focus on low cost
By one estimate, a typical couple loses more than $150,000 to mutual-fund fees over a lifetime of 401(k) savings. Pick index mutual funds keyed to broad-based market indices such as the S&P 500; they have low fees because they require little active management. Investment researcher Morningstar has shown a high correlation between low cost and superior performance over time.
Rebalance
Periodically sell holdings that have grown to reset to the proper proportion of stocks to bonds. Target-date retirement funds are baskets of low-cost, index mutual funds that rebalance automatically as you age. They’re the default investment option in many 401(k) plans for good reason. They encompass many of the key principles of investing mentioned here: diversification, low cost, and automatic rebalancing.
Be patient

Studies by the investment research company Dalbar have shown that folks who stay put during market volatility do far better than those who panic and sell, expecting to return to the markets later. So buy, hold, and reap the rewards.

Culled from consumer reports

4 Life Rules That Will Make You Happier (And Healthier!)-Lewis Howes

These tips will benefit your mind AND body. (Photo: Flickr/uneduex)

Do you ever wonder who the top health experts take advice from? Or who their personal trainers are?

Meet Donovan Green. A top fitness expert, he’s also an entrepreneur who seeks to help people of all ages and backgrounds truly change their relationship with health and fitness.

Donovan and I discussed some of his solutions for the biggest struggles we all face in our attempt to live healthfully. He told me that exercising isn’t just about big muscles and toned abs — it’s about giving your body the chance to be the healthiest it can be.

Here are four of his biggest tips to be your healthiest, happiest self: 

1. Stop succumbing to your excuses. The most common excuse Donovan hears for not working out is “I don’t have time.” Do you have time to be sick? Do you want to live a less energetic, shorter life? Probably not.

2. Have fun. Donovan just wants everyone to move. It might be walking, jogging, lifting, dancing, hiking, or bicycling. But whatever makes you feel good, do that.

3. Don’t compare. Everyone is his or her own person. What works for person A in terms of working out and diet won’t work the same way for person B or C. Do some exploring. When you find the right balance, you’ll know.

4. Fake it ‘til you make it. This doesn’t mean become a phony. We all have a tendency to get down about whatever we feel insecure about. Change your attitude. Being more positive will make it that much easier to achieve success.

Culled from yahoo

Savers face 'outrageous' fees to pay more into old pensions-By Dan Hyde

New revelations as the regulator prepares to explain how it will end the poor treatment of long-standing investment, pensions and insurance customers

Regulator preparesis to end the poor treatment of long-standing investment, pensions and insurance customers Photo: Alamy

Savers who try to pay more money into old pension plans are being hit with new, "Seventies-style" rip-off charges, The Telegraph can disclose as the regulator prepares to intervene.

As early as next week the Financial Conduct Authority is expected to make a "highly sensitive" announcement detailing how, following a year-long inquiry, it will end the poor treatment of loyal savers.

It is understood that firms may be forced to write to customers sold pensions, insurance and investments before the turn of Millennium, offering them better deals.

Savers pay an estimated £18 billion a year into 30 million old policies and often face penalties if they reduce their contributions, cash in the funds or want to switch to modern plans.

Now documents seen by this newspaper indicate that pension companies have also begun imposing fees on long-standing investors who want to build up larger retirement funds.

In the first case of its kind Prudential, one of Britain's biggest pension providers, has confirmed that some customers face fees of 3 per cent on the "extra" payment for five years. The charge was introduced in 2013.
Pension experts said the "outrageous" fee for additional contributions was reminiscent of the now-discredited practices of the Seventies and Eighties.
A source close to the regulator said: "Companies charging extra for the privilege of allowing someone to give them more money is scandalous – can anyone be surprised that pensions have a bad name?"
Billy Burrows, an independent pensions expert, said: "All companies need to make it easier for people to get the best deal from pensions – whether that's putting in money or withdrawing under the new freedoms – and they must also work with the regulator to pull down barriers to building larger pots."
Savers with outdated policies were given hope of a better deal in March last year when The Telegraph disclosed news of the FCA inquiry.
Many savers are locked into old plans by so-called "exit" penalties, which can cut the value of a pension fund in half if the customer tries to switch to a newer deal.

_{Martin Wheatley, the head of the City watchdog, promised close scrutiny}
The restrictions were imposed so insurers could recoup the cost of commissions paid to vast teams of doorstep salesmen.
But last year the regulator said it was "unfair" that some insurers used the proceeds from so-called "zombie" funds – which are shut to new customers – to subsidise their attempts to attract new customers.
It said it would "collect information to establish whether we need to intervene on exit charges", but hoped to be able to stop the "exploitation" of customers by less intrusive means.
Although a spokesman for the FCA declined to comment on its progress, a number of executives at FTSE 100 pension firms said the regulator had concluded its investigations.
They expect a report, scheduled to be published before the end of June, to make a series of recommendations to help long-standing savers who the FCA believes are "not given the same priority as new customers".
One executive who spoke with the FCA during its inquiries believed the watchdog was unlikely to order a mass movement of customers to better deals. By law, firms are required to ask permission before moving someone from one contract to another, he said.
The executive, who wished to remain anonymous, said he was prepared to write to customers offering solutions if their pension contracts were no longer appropriate for their circumstances.
A spokesman for Prudential said it was reviewing the charges uncovered by The Telegraph.
It said the fees applied only to certain types of "with-profit" plans that were shut to new customers.
"We introduced a small charge on this with-profits personal pension product to cover the additional costs associated with setting up and servicing customers’ top-up payments," the spokesman said.
"In with-profits funds we believe it is important that costs are attributed fairly to the different members of the fund, and that the cost of setting up or servicing one customer’s new top-ups, should not be borne by other existing customers."

Culled from The Telegraph

Tax relief on pensions is a scandal: this is how George Osborne could fix it-By Chris Noon

Comment: Public servants with final salary pensions are unfairly advantaged, while many workers are prevented from saving for the pension they need

George Osborne should scrap the lifetime limit on pension savings, says Chris Noon Photo: Julian Simmonds/The Telegraph

This story is part of our "Money Lab" series, in which respected figures from the world of finance put forward controversial ideas for improving our personal finances or the economy. We will publish this story in print in "Your Money" this weekend along with the best comments from readers, so have your say below

The dust had barely settled on the great pension simplification of 2006 before successive governments started meddling with pension savings. The pace of meddling has accelerated, with the past five years seeing year-on-year changes to the amount of tax relief offered to pension savers.

The argument for the changes has moved on over this period. From “high earners are benefiting from a disproportionate amount of tax relief” to “we’re spending too much money on tax relief”. The latter argument was used by George Osborne in the pre-election Budget as he announced a further reduction in the maximum amount you can have in a pension to £1m from April 2016 (down from £1.8m just four years ago).

The increased cost of tax relief should have been no surprise to Mr Osborne – it’s predominantly a result of employers being required to automatically enrol their employees into pension plans since 2012. I hope that someone at the Treasury lets the Chancellor know that the cost of pensions tax relief from auto enrolment will rise again from 2017‑18 and even further in 2018‑19 as minimum contributions increase from the current 2pc of pay to 8pc.

Whatever arguments are made to justify the meddling, it’s clear that the Treasury sees the £30bn or more that’s spent on tax relief as a soft target for increasing short-term tax revenues without a care for the long-term implications for retirement incomes.

In many ways the Government is guilty of treating pension savers in exactly the same way as it has accused (and legislated against) the pensions industry abusing customers (over charges, mis-selling, etc). It is taking advantage of the generally poor understanding of pensions to put through substantial tax increases.

Where are we now?

The annual allowance (the maximum you can save tax-efficiently in a pension in any tax year) is £40,000.
For most of us, this means we can save a maximum of £40,000 a year in our “money purchase” or “defined contribution” pension plans. For those lucky enough to have a final salary pension, the deal is slightly better.
When the notional amount that you can save in a final salary pension each year is calculated each year from the pension entitlement you are building up, it is worth substantially more than £40,000.
The lifetime allowance (the maximum amount your pension can be worth and still qualify for tax breaks) will be £1m from April 2016.
For a money purchase pension plan, this equates to an index-linked pension of around £30,000 a year at today’s annuity prices. This is a significant sum but by no means in “fat cat” territory – the Department for Work & Pensions’ own targets suggest that anyone earning more than £70,000 a year should be aiming for this amount. But for a final salary pension plan the maximum is £50,000 a year, not £30,000.
Then there’s the question of curtailing tax relief if you earn more than £15,000.
In its desperate pre-election panic, the Conservatives decided to neutralise any new Labour policy by, essentially, adopting it. So we now have the threat of a sliding scale of annual allowance that tapers from £40,000 at £150,000 of earnings to just £10,000 for those who earn more than £210,000. This policy is remarkably similar to one that the last Labour government introduced before the 2010 election, which was ridiculed (and thrown out) by the Coalition government. We can only hope that with its newfound confidence, the Government does exactly the same with this rehashed policy.

So where should we be?

We need a framework for pension tax relief that’s sustainable and fair, encourages pension saving and, importantly, is wholly owned by a single government department – not split, as now, between the DWP and the Treasury. Difficult as it may be to imagine, what might the new regime look like?
1. Flat-rate tax relief: I’m a convert to flat-rate tax relief on pension saving – perhaps at the 33pc level suggested by Steve Webb, the former pensions minister). It’s a much more effective mechanism for the redistribution of tax relief than the current policy, and gives everyone an incentive to save.
2. The removal of the lifetime allowance: The move to flat-rate relief would impose a natural tax-efficient pension limit of the basic/higher-rate income tax threshold. Pension savings above this limit would result in high levels of income tax being paid by individuals (when both pre- and post-retirement income tax is taken into account). Removal of the lifetime allowance also fixes the scandalous inequity between money purchase and final salary pensions plans (which are mainly the preserve of the public sector, including MPs).
3. Overhaul of the annual allowance: We need earnings-linked increases to the annual allowance written into law, taking short-termism and politics out of the future treatment of the threshold. In addition, the treatment of final salary benefits needs to be brought into line with money purchase benefits.
These feel like pretty simple changes. Let’s hope Mr Osborne’s team read this article in advance of the July Budget.
Culled from Telegraph

Iain Duncan Smith: I’ll make sure the pension freedoms work-By Iain Duncan Smith

Providers must stop dragging their feet: the money belongs to savers, not to them

My mission in government has been to ensure that, first, it always pays to work and then, that it always pay to save.

After all, it is worth reminding ourselves that back in 2010 not only did we inherit a situation where one in five households had no one in work – something that we have now turned around with a record employment rate in this country – but also where only one in three workers in the private sector was building up any pension of their own.

I’m proud to say that Britain now has the highest proportion of workplace pension saving since records began, with pension membership rising across all age groups. Today, more than five million people have been automatically enrolled into a workplace pension, and we will keep that process going until we have reached every employer in the country.

People are free to opt out, but around 90 per cent of those enrolled are choosing not to, and we are working with the very smallest employers to ensure that this scheme works for them as well.

We have also taken important steps to cap charges to ensure that the schemes offer value for money.

Next year, we will start rolling out the new State Pension, which will be set at a level above the basic “means test” so that it makes sense for people to save.
Perhaps the most ground-breaking of all our pensions reforms were those announced by the Chancellor last year, when the Government decided to lift a set of age-old rules and returned to people the freedom to decide how to use their pension savings.

We are trusting people with their own money, and rewarding the right choices, so that people can retire with dignity.
Under Labour, too many people were forced into annuities that were just not suitable. We as Conservatives believe that if you’ve worked hard and saved during your life, how you use your money should not be dictated by government or by the industry.
The decision to break these chains has been almost universally praised – as has the guidance from Pension Wise that we put in place to set out clearly people’s options.
Now, two months into the reforms, we are watching the market closely. I know the pensions industry is working on the design of new and innovative drawdown products and many providers have stepped up to the plate and are already offering their customers flexibility.
But I am concerned when I hear that some firms still appear to be dragging their feet.
I have a message for those firms: it is your responsibility to sort this out, and look after your customers. After all, you are holding their money – not your own. I know that some companies have seen practical difficulties, with old IT systems meaning that staff have to process requests clerically. That is why allowing firms some flexibility over how they bring in the changes was necessary.
But I now expect them to be playing a full role in enabling people to enjoy the new freedoms.
If they cannot enjoy them, or if they feel they are facing excessive charges, we have ensured that they can transfer their savings to another provider and there is guidance available from Pension Wise to help people understand their options.
None the less, I am very carefully monitoring the situation, as is our brilliant Pensions Minister, Ros Altmann, who has an implacable track record of standing up for consumers’ rights in the pensions market – something she is determined to continue in government.
^{Ros Altmann: pensions minister at the Department for Work and Pensions (Reuters)}
Over the coming weeks she and the Economic Secretary, Harriett Baldwin, will be talking to the relevant regulators and the industry to see how we can best ensure that people have the flexibility they deserve.
We will not hesitate to take action to ensure that consumers get a good deal, and if we have to we are prepared to name and shame those companies who are putting barriers in the way of people getting access to their money. All of our reforms have been designed to help people make the right choices that work for them as they move towards retirement.
This One Nation Government is unashamedly on the side of working people – on the side of those who do the right thing, and save for their future. We want them to be able to make the most of both their working lives and the years they spend in retirement.
I’ve always believed that these things are the key components of a society governed by social justice. That is why it should not matter which pension provider you have saved with.
It is your pension, and it should be in your hands. I am determined that those who have saved should not remain handcuffed.

Culled from The Telegraph
 

How could the crisis in Greece affect UK mortgage rates?-By Andrew Oxlade

Ask an expert: One reader on Twitter wonders how events in Greece might affect their monthly repayments here

Greece, which has been rocked by protests over austerity measures, is now in its fifth year of recession as its struggles to cut its debts Photo: Reuters

Yes, possibly. It all depends on how much turmoil is created by Greece and its potential exit from the euro.

Arguably, some ripples are already being felt in the mortgage market.

But first, it's important to explain, briefly, how mortgage pricing works. The core model for banks is to take money from savers and it lend to borrowers. But things have grown well beyond that.

Banks can make bigger profits if they also borrow money from each other, and lend that out too. They do this on money markets, where they can buy money with variable rates, linked to Libor, or with fixed rates, linked to swap rates.
These rates are decided by a variety of factors, including the institutions' own confidence in each another and in the financial system as a whole.
• Interest rates predictions: markets suggest May 2016 for first rise
• The chart that says mortgage rates must rise
• Best rate on a 1 yr bond lifts above 2pc for first time in a year
Beyond this, swap rates are affected mostly by the outlook for interest rates in the future, be it the official UK Bank Rate or the future cost of government borrowing, known as gilt yields (this cost influences borrowing costs in the whole economy).
Now, back to the question of Greece. If a mass default causes contagion and panic spreads, it could lead to a repeat of the credit crunch and financial crisis of 2007 to 2009. In this scenario, gilt yields and money market rates would spike higher, and this would mean higher rates on new mortgages, and even increase pressure on banks to increase standard variable rates.

However, if the Greek fallout is enough to rattle markets but without causing contagion, it could, perversely, makes gilt yields - and therefore mortgage costs - fall.
This is because the UK has come to be seen as a relatively safe place to park money in uncertain times: a safe-haven.
There could also be a fresh splurge of cheap loans from the Funding for Lending Scheme (FLS), if the British mortgage market needs it.
David Hollingworth of broker London & Country said: "The Funding for Lending Scheme was introduced in 2012 to counter the tightening of lending conditions in the UK brought about by the eurozone crisis.
"Its introduction provided UK lenders with access to funds that provided a buffer against the uncertainty of the crisis and the rising cost of funds that was pushing rates up."
The chart above shows the pattern for two-year swap rates. Despite the Bank Rate being frozen throughout the timespan, the rate has been falling. This is because over that period, the chances of a rate rise has continued to diminish while the FLS and other stimulus measures have helped push it down further.
The prospect of a recovering British economy has seen the rate increase in recent months but the Greece crisis, along with other concerns, has helped cap that rise.
These rates also affect the pricing of savings rates, which have been improving in recent weeks.

Culled from The Telegraph

What Divorced Retirees Should Know About Social Security-By Jason Notte

0

NEW YORK (TheStreet) – Your marriage may be over, but there's still a chance Social Security will pay you for the years you put in.
What workers and retirees don't know about their Social Security benefits is staggering. According to a survey from financial firm Franklin Templeton, roughly 39% of Americans have no idea how much of their income Social Security will replace, with 37% unsure Social Security will provide the income they're expecting. A full 22% don't know when they should take their Social Security benefit, which is why 59% do so before full retirement age. Of that group, only 21% took the benefit because they needed it. A whopping 42% did so simply because they were eligible, which cut into the benefits they received.
“Conventional thinking and attitudes about what it means to retire are changing,” says Michael Doshier, vice president of retirement marketing for Franklin Templeton Investments. “By taking action now — via saving and planning for retirement — individuals can help ensure that they're able to embrace this next phase of life. They can also reduce the stress increasingly associated with not having enough money to retire.”

Divorcees are particularly adept at leaving money on the table when they don't have to. Mike Greenwald, partner at Friedman LLP, notes that Social Security Administration rules entitle a divorced spouse to a formers spouse's earnings if the two were married for at least 10 years and the spouse claiming benefits is unmarried. Even if the one former spouse is remarried and is still ineligible for Social Security, the other spouse can claim benefits just as long as he or she is 62 and has been divorced from the other spouse for at least two years.
“Its actually not negotiable,” Greenwald says. “Its something that divorced people can get just by right and the ex-spouse doesn't ever find out about it.”
So how does that work? Easily. Either go into a Social Security office or online, submit your divorce decree and your spouse's name and Social Security number and the Social Security Administration will determine the amount of benefits you're entitled to. If your ex spouse is eligible to get $2,000 a month in earnings, you'll get $1,000 a month — the half of their earnings you would have been entitled to as a spouse. Not only will everyone involved get their full benefit, but if the ex-spouse in question went through yet another divorce of a marriage that lasted more than 10 years — or even multiple divorces of marriages that lasted that long — each of their former spouses would be entitled to spousal benefits.
“What if you say 'I was married to one guy for 10 years and I was married to another guy for 10 years and I'm divorced from both of them?'” Greenwald says. “You can't collect on both, but you can collect on whoever has the higher benefit.”
Even if a divorced spouse can get benefits from his or her ex's Social Security by age 62, Greenwald suggests that they may want to wait until they reach full retirement age at 66 before collecting. For example, if you're 66 and can collect $1,000 a month based on your earnings, but are also entitled to half of your ex-spouse's full retirement benefits of $2,000 a month, there's a way to maximize your take without biting into either benefit all that much.
“You can collect on your spouse's benefits at full retirement age, but file and defer your own amount and get a delayed retirement credit,” Greenwald says. “Each year from age 66 to 70, your retirement benefit goes up 8% a year, so at the end of four years, your retirement benefit would be $1,320. You've collected on your ex spouse's $1,000 a month, but then you can collect on your own at a higher rate.”
Basically, you can “retire” and get $1,000 a month for four years without officially retiring and drawing from your own benefits. Meanwhile, your spouse's benefits have floated you to the maximum Social Security payout you can get. While you'll still have to negotiate over assets including 401(k) and IRA accounts, the Social Security benefits for qualified recipients can be collected without an ex-spouse's input or even knowledge. But Greenwald notes that it's still up to spouses to determine when it's best to collect benefits — health or financial concerns may require taking partial benefits before full retirement age — and need to consult with the Social Security Administration. He recommends that divorcees curious about the state of their spousal benefits log on to the Social Security website, create an account and determine benefits for themselves.
“Social Security is a lot more complicated than people think it is,” Greenwald says. “We don't live in a country like New Zealand where you hit retirement age, they send you a check and that's the only thing that happens.”

Culled from The Street