• Why millennials need to save for retirement

    Why millennials need to save for retirement

    The sooner that you start saving for retirement and the more time you have to save for retirement the greater the likelihood that you will have a larger nest egg. Young professionals—aka Millennials in their 20s and 30s—who decide to start saving for retirement can do so in a variety of ways and accounts.

    This article focuses on why a Roth IRA is ideal for young professionals

    According to a 2018 survey from Provision Living, 43% of millennials have less than $5,000 saved for retirement.

    Since one financial benchmark says that you should aim to save 1x your annual salary by age 30, most are well behind where they should be in saving for retirement. It is clear that the record high cost of attaining a college education is taking its toll on the economic prospects of millennials.

    The blindingly high tuition costs mean that new graduates are focused on paying off student loans instead of saving for retirement. Knowing if you should refinance your student loans may help, but that won’t be enough. The fact that younger Americans are less likely to out-earn their parents, only complicates matters more.

    While under-saving for retirement is an issue, having enough saved in case of an emergency should be a more pressing concern.

    Conventional wisdom says that you should set aside at least three months of living expenses. Therefore, if the average millennial earns $21.80 per hour, or roughly $43,500 per year, they’d need to save $5,438 to cover three months of living expenses, assuming they can live off of 50% of their income. If they live off of 75% of their income, the figure increases to $8,157.

    If you unexpectedly lose your job or incur an emergency medical expense, you’ll want your emergency money, referred to as an emergency fund, to be readily accessible. This generally means parking your money in a savings account. However, there’s a strong argument to be made that part of that money should be saved in a Roth IRA.

    The Roth IRA has been around for years, but young Americans need to give it a second look. It might just be the spark they need to boost their retirement savings. You might be wondering “what is an IRA?”, so let’s get on the same page.

    A Roth IRA is a tax-advantaged retirement account, in which after-tax dollars can be saved for retirement and ultimately withdrawn free of additional taxes.

    One of the most overlooked and unique benefits of the Roth IRA is the fact that your contributions can be withdrawn at any time, for any reason, penalty-free and tax-free. The same does not apply to your investment gains. Or to Traditional IRA contributions. Read more about the best Millennial Investing ideas to secure your future.

    The 2018 contribution limit for a Roth IRA is $5,500 and is increasing to $6,000 for the 2019 tax year. If you are 50 years old or older, you can contribute an additional $1,000 annually in catch-up contributions.

    A Traditional IRA differs from a Roth IRA, in part, due to the timing of the tax benefit. A Traditional IRA gives you tax savings upfront, while a Roth IRA defers the savings until your retirement. A Roth IRA may be ideal for young individuals in lower tax brackets, so they can minimize their lifetime tax bill. This is because you’d be better off paying taxes in years in which you are in lower tax brackets than when you are in your peak earning years.

    For this reason, the 2018 tax cuts may make a Roth IRA more appealing to a broader set of individuals.

    While the annual salary contribution limit means that not everyone can contribute to a Roth IRA, the majority of individuals are eligible. For 2018, the income thresholds for Roth IRA participation phaseouts are $120,000 for individuals and $189,000 for married couples filing jointly.

    While a Roth IRA is not as liquid as cash or a savings account, it might be the perfect place to save a portion of your emergency fund. You want your money to be readily available in case of an emergency, so parking your entire emergency fund there probably isn’t wise. But leaving it entirely in a bank account earning just pennies in interest might not be your best bet either.

    Remember that the Roth IRA contributions can be withdrawn without any fees or taxes at any time. Fidelity, a major custodian of IRA accounts, says that it takes them three to five days from the day you request a withdrawal to get you a check with your money, check more information about taxes with this Roth IRA Calculator

    On top of the liquidity issue, there’s also the fact that you’ll be exposing your money to potential investment losses. The last thing you want during an emergency is to realize that you have less money than you invested. This is always a risk when investing money, and it should be considered carefully when deciding how much to invest.

    You also want to avoid letting a decade go by and realizing that you only made $50 in interest on your $5,000 balance over that period. Instead, you can invest your money in a low-cost index fund, earning a conservative annual return of 3%, which would net you over $1,700 in earnings. A meaningful amount for money that may not be needed anyway.

    Ideally, you won’t touch your Roth IRA contributions until retirement, since the power of compound interest is most effective over a longer period of time. Here’s an overview of what compound interest is.

    But while drawing down on your IRA early is less than ideal, it’s foolish to go into credit card debt to cover an emergency expense, since those interest rates can easily range from 15% to 25%. With rates that high, a seemingly small credit card balance can quickly balloon and cripple your finances.

    A Roth IRA isn’t a substitute for a high yield savings account, but it’s the perfect complement to your savings strategy. The sooner you start, the better.

  • Can you really afford NOT to buy a house?

    Can you afford NOT to buy a house?

    As you may expect, the following is a New Zealand and particularly Auckland-centric perspective…and yes, it is a rhetorical question.

    Look, for many of us home ownership is beyond reach. That ship has well and truly sailed. Things may change in the future, but then again, they may not.

    I’ve managed to scrape into my own place, but I worry about those who haven’t, who won’t.

    Buying a house (as in the actual transaction) boils down to nothing more than money – albeit at levels that are wayyyy beyond reach for the average person, seeing as an Auckland house makes more than anyone working an actual job. But owning a home is not just about the money.

    New Zealand: where you can’t afford to buy a house … and yet you can’t afford NOT to, either.

    What’s your health worth?

    Our housing stock is shite and our rentals are the worst. Cold and damp, they are literally making us sick. Renters in NZ have worse health outcomes than homeowners. What’s good health worth? $50 a week? $100? $250?

    My house isn’t perfect. In the worst of winter it still gets too cold and the windows mist over. Yet it is many times better than the rentals I’ve endured. I can actually breathe. And that is priceless. More importantly, now I can install insulation, a heat pump, whatever I want.

    Fixing renting needs to start here. Longer tenure is pointless if the property still sucks. But that does bring us to…

    Can you afford the instability?

    Renters have to move. (Often at the most inconvenient times.) Pay nonrefundable agent fees. Pay for the cost of moving (trucks, cleaning, double rent etc) over and over again. Sneak away from work to view houses because viewings are only ever during business hours. And you’ll have to do it many, many times because there’s so much competition for rentals.

    That’s before we even try to quantify the stress involved with this lack of tenure. If you want a family, add kids into the picture and imagine how much harder it gets.

    And after that…

    What will you do when you stop working?

    Retirees still need a place to live. Housing is a critical part of the retirement puzzle.

    Rents keep going up. In my childhood suburb, my parents’ house has tripled in value, and the price of a 3 bedroom rental then is now the price of a 1 bedroom. Who knows how much market rents will be when it’s time for us to retire, and how much they may rise between then and when we die?

    A project that I have been peripherally involved in around retirement policy is generating some discussion here in NZ. One particular submission sums the current situation up quite well, and I paraphrase it here: The political approach to housing is totally dysfunctional, favouring the old and wealthy over the young – and will cause huge problems for the currently young when they come to retire. A key theme among financially secure retirees, or those who are on track to be, is that they own their own homes. They are – or will be – free of a housing payment.

    That’s going to change. Even now, there is real concern among renters about what their lives are going to look like in retirement. Moving is expensive, tiring and emotionally draining. Landlords are only going to continue to cash in on their capital gains – I know I would – and who wants to be forced to move at age 70 or 80?

    Personally, I didn’t think I could afford to save enough for retirement to make up for not owning a house. I didn’t think the difference between (ever rising) rent and a mortgage payment would actually put me ahead (particularly if I was to try and rent somewhere decent). And there’s definitely something to the ‘forced savings’ discipline of having a mortgage.

    But again, this is a choice that is available to fewer and fewer people as time goes on.

    Us homeowners have lucked into a huge advantage. And it’s horrendously unfair. Once more with feeling: New Zealand: where you can’t afford to buy a house … and yet you can’t afford NOT to, either.

  • Here’s the SINGLE best thing about owning a house

    The best thing about owning a house

    I can breathe easier. Not just metaphorically knowing that we have security of tenure here, but literally.  It might seem like small stuff, breathing freely, but it’s priceless.

    You might remember I first mentioned that I was having occasional trouble breathing back in 2010. So, I never actually got it checked out. I pretty much knew it was down to living in cold, damp places, and there wasn’t much to be done about that until I could buy a house of my own.

    I’m pleased to report that owning a house has made a huge difference on that front. Breathing has not come this naturally to me in years. Even on brisk walks outside in the thick of winter. Even overnight.

    Sometimes (not always, I grant you, especially through the colder months – but still much more regularly than never) I wake up in the morning and find myself breathing comfortably through my nose, rather than sucking cold air desperately through my mouth.

    It used to be that the only time I didn’t struggle to breathe overnight was in nice hotels, or overseas in warmer climates. But otherwise, I was never able to breathe solely through my nose at night; I just couldn’t get enough air that way.

    I haven’t had the flu this year – and I always get the flu each winter, which usually knocks me out for a few days.

    It’s hard if not impossible to quantify good health. How much damage has 10 years of renting already done? Renting for life might not have actually killed me, but it would’ve taken its toll.

  • When sanity > principles

    Money or sanity?

    I have a strong sense of fairness and justice (which sometimes makes it hard to exist in this world). But I’m also quite pragmatic and getting more ruthlessly so over time.

    Which is why I’ve made the conscious choice to write off certain sums of money over the past few years. To move on and look forward. Let go of the expended stress and energy, and devote that time and headspace into productively making that money back even quicker. And of course, to not get into the same situation again.

    Let it goooo

    Heinous flatmate (approx $1000)

    Blood from a stone. He was a terrible person to live with and is terrible with money/being employed/adulting in general. I’ve written off the money he owes for bills and damage and moved on.

    Tax refund

    Can’t really remember the amount – maybe $500? Anyway, T was due a tax refund a few years back that went into limbo somewhere between the IRD and his bank account. Endless back and forth never resolved it and we’ve moved on. (Subsequent refunds have made it through fine.)

    Work expenses

    Again, the exact amount has faded from memory and I’m certainly not going to check and dredge it up, but a couple hundy? Suffice to say toxic boss #2 in this post was a nightmare from start to finish. T chatted to someone from the labour department but ultimately, not enough proof of the context and it being a work expense. Live and learn.

    Unpaid freelance invoices (approx $1000)

    Loved the work. Hated the chasing of payment. I did a series of features and was paid for about half. Struggling magazine, new editors, tardy accounts … just one big clusterfuck.

    Unrefunded bond (approx $700)

    Our last tenancy was a nightmare. Anything to put that memory behind me.

    I know lots of you mentioned in the comments on this post that you’d written off small amounts in the past – what about bigger ones?

    Disease Called Debt
  • Call me mercenary, but…

    More money, more options

    There’s no nobility in poverty.

    No romance in being broke.

    No joy in struggle.

    I really really really like being able to afford to:

    • Heat my home
    • Visit the dentist
    • Eat dinner out
    • Wear real leather
    • Buy 3-ply TP
    • Donate to charity

    Call me mercenary, but in my life, money has directly correlated to quality of life and happiness without exception.

    Literally every area of my life has improved thanks to money. Not saying I’m on a never-ending chase for more above everything else (especially since I hit the so-called ideal salary for happiness) but earning more is certainly a goal. As long as I can grow my income while maintaining enjoyment in what I do, why wouldn’t I?

    Fewer dollars = fewer options. Life has only gotten easier as my income increased.

    I eat better. I am healthier (because I live in a house that isn’t damp and cold). I have a reliable vehicle. Pets. I’m a hell of a lot less stressed and feel less vulnerable to the bottom falling out of my life.

    When you’re going through a period of life that’s defined by scarcity, it’s incredibly stressful. You’re panicked and constantly worried, living on the edge. You make poorer decisions because you’re just not in the best frame of mind and/or have fewer choices available to you. You simply don’t think about the long term future because you have to focus on getting through today, tomorrow and maybe next week. How can you possibly think about retirement when you lack decent housing today?

    Whatever the reasons for money being tight (and they can be oh-so-complex – acute, chronic, unfortunate, deliberate) the outcome is the same. And in the moment, that’s all that matters.

    Money stress has a way of keeping you up at night, not to mention tainting your waking hours with its sneaky way of spilling into every moment. 

    The first day in 2016 that I felt truly free from financial stress – for the first time in, oh, just about a full year – was amazing. There are no words for the lightness that brings.

    I’ve spent far too much time in misery for lack of money. On the other hand, I’ve never been miserable with money.

    I cannot relate to the ‘broke but happy’ brigade. YMMV.

    I’ve lived through times where I’ve had enough, and times without enough – and I’d take the money every single time.

  • So you want to buy a house in Auckland?

    So you want to buy a house in Auckland?

    It’s funny that buying a house is one of the most stressful times in life, and a time when you’re also forced to deal with all sorts of horrible people – realtors, bankers, lawyers. (I don’t say that in a mean-hearted way; I was once a journalist, one of the most reviled jobs on the most-hated professions list every year.)

    The good ones make things easy and I think I got off fairly lightly on that front! I would definitely use my lawyer and broker again. (Alas, we do not have buyer’s agents in NZ.) You’d think it would be quite rewarding, too, helping people achieve a big dream and being involved in part of that happy (if stressful) process. They’re only in our lives for a brief stretch of time, but it’s such a significant period.

    That said, I encountered NO END of awful agents and nightmarish properties.

    Allow me to rant a little about…

    The houses themselves

    There are so many damn things to watch out for, the most obvious being leaky homes. But then there’s also all sorts of other materials to be wary of. Asbestos in older houses. Weatherside (I’d never heard of it before), a cladding that looks just like hardiplank but not as sturdy, and falls apart.

    Then there’s unconsented work to look out for, or things that don’t match the plans.

    I wasn’t opposed to buying a do-up, but do-ups need to be affordable enough in the first place to make financial sense (because you still need to pay for all the renovations!) and in no case did the prices stack up. Plus there were basically no “light” do-ups. They were universally in dire need of a total overhaul… and when you’re spending half a million dollars, you want it to be somewhat liveable off the bat.

    And other stuff

    I lost count of how many times I turned up to an open home (or emailed about a listed property to organise a viewing) only to be told that it was already under contract. Look, I get why they continue to do showings when an offer is still conditional, but I think it’s lame not to be upfront about it, when it’s rare for contracts to fall through. I can only think of about one instance where I saw the actual house listing had been edited to say “under contract” online, in every other instance it was a case of ‘surprise’!

    Speaking of agents, not to tar ‘em all with one brush, but the majority I had the misfortune of crossing paths with were useless. Can’t tell you anything, or won’t tell you anything – well, I’m not going to get a lawyer to check the plans or a builder to inspect the place for every single house I have a modicum of interest in!

    I suspect it’s damn near impossible to actually use KiwiSaver funds toward the deposit that goes to the seller’s lawyer. They say you need at least 10 days to process the withdrawal, and that’s a long time. I only had five days to go unconditional – my KiwiSaver money went toward the remaining balance for settlement.

    And can I add the weird mind games that come about when bidding on a house? There were eight on this one. You’re in to win and then at the end of it all, second guessing yourself – am I paying too much?

    Also, I (perhaps naively) imagined my broker would be 100% in the know and up to date with all things KiwiSaver and home-buying related. Not quite the case.

    Hey, vendor’s lawyers: how about being prompt with sending through the dang statement with the final sum to settle? Do you want a deal or not? Because I want to pay you. Seriously.

    Finally, dear bank: so my passport expired a week after my mortgage draw down / settlement day, and months after my initial approval, and you need an updated form of ID now? And are you seriously going to ask me for updated ID every few years?

  • I got 99 problems but insurance ain’t one

    Income protection insurance NZ

    The worst thing about New Zealand (aside from our property market, which is FUBAR) is how unemployment works.

    If you’re over 65, you get superannuation. It’s not means tested. Everyone can receive it.

    If you’re employed, you pay ACC levies as part of your taxes. If you get hurt and can’t work, then ACC covers part of your wages, based on your earnings.

    If you’ve been working but lose your job, unless you’re basically destitute, you won’t be able to get unemployment (or Jobseeker Support, as I believe it’s now called) if you live with a partner who is employed. Even though you’ve been working and paying taxes.

    I work with a lot of Brits one of whom once voiced surprise at how common it is to have income protection insurance in New Zealand. The reason is pretty simple: it’s necessary.

    I now have auto insurance in sedona az that will cover 45% of my income for awhile if I’m not working. I have some trauma insurance, which provides a lump sum if I get seriously ill. And I also have a bit of life insurance, which probably isn’t technically needed just yet but hey, it’s a cheap addition.

    For this peace of mind I will be forking out about $800 a year, which is more than car insurance but less than house insurance or contents insurance.

    I got these insurances through an insurance broker, who was in turn referred to me by my mortgage broker. Insurance is definitely a grudge purchase, but I wouldn’t be without it, particularly now with a mortgage.

    Am I a grown up yet?

  • Things I want but just can’t have

    I would pay good money to get some stability in my life. Unfortunately, some things you just can’t buy. And the universe seems to enjoy pissing on me lately.

    There’s some things you CAN buy though – or at least, that you should be able to. But I cannot find these anywhere in Auckland either!

    Banh mi

    Latest letdown: Viet Sandwich. I know there are still a couple more banh mi spots I haven’t hit up yet, but to be honest, I’ve hit all the ‘top’ ones that have been most recommended. With the closure of Mi Vietnamese, District 5 is probably my pick of the bunch right now.

    Napoli pizza

    Quite frankly, Sette Bello is just about as good as Dante’s (which in turn isn’t quite meeting my standards) and is both cheaper and more convenient to boot.


    Big, fat, juicy American burritos. Augh. Mad Mex gets pretty close, I suppose (but you need to pick the right filling). Everyone raves about Flying Burrito Brothers, but I went there on the weekend of my birthday and it was bland and expensive.

    Black cardigan

    I just want a nice, fitted, plain black cardi. Slim, not chunky. Not made of acrylic or polyester or other nasty crap. No frills, no fuss. Apparently this is asking too much. These cardis just aren’t in this season?

    Black flats

    Pretty much the same story here. I mean, there are some options, but I think it’s outrageous to charge close to $100 for a pair of ballet flats that aren’t even leather. The prices in NZ!

    So that’s my Wednesday whinge. Feel free to get stuff off your chest too.

  • It’s not about what you DESERVE

    It's not about what you DESERVE

    The other day, I had to talk myself out of booking flights to Niue for next month. I tell ya, at less than $100 each one way, it was a tough call. After all, travel is my weakness.

    Niue is one of the destinations on my bucket list, but ultimately it just isn’t the right time. Cheap flights are great, but accommodation is pricey (remote island, whoo! Niue tourism is pretty young still from what I can tell). And I’d like to go in whale watching season, which starts in July.

    We already have a Japan trip later this year, T isn’t really in a position to take any time off, June will be busy at my job, and hello, recovering from a financial trainwreck. Niue is fairly close, I often see good package deals and I’m sure there will be more in the future.

    But man, sometimes it’s hard to make the smart choice.

    Don’t I deserve a break after a nightmare year?

    If only life worked that way.

    Doesn’t T deserve an awesome, secure, full time job?

    Don’t I deserve a decent home to live in after enduring years of terrible rentals?

    Hell fucking yes. But this ain’t the movies and people don’t always get what they deserve.  (It’s particularly galling when people around us have houses bought for them when/because they only have four grand banked or an unplanned kid on the way. That’s never going to happen for us.)

    It goes both ways, too.

    Did I really deserve to get paid more per hour to run around and stick up flyers at my first office job, compared to when I typed documents and made up invoices back at the office?

    Did I really deserve double pay on weekend shifts at my first editorial job? (God bless unions.)

    Did I really deserve not 1, not 2, but 3 dream jobs in a row?

    But back to my original point. Much as I’d like to indulge in a tropical getaway right about now, working towards getting into a stable home where we can have a family and pets is way more important. EYES ON THE PRIZE.

    When you get right down to it, we all deserve better – a better car, a better house, a better holiday – whatever does it for you. You deserve better. We all do.

    That said, we also need to make savvy decisions about what and when we’re going to spend. The timing’s got to be right – otherwise we end up dissolving money in the near term and turning our backs on the opportunities we can take up for the long term.

    – Sorted.org.nz

    Wise words, right there. It’s hard to say no, but Future Me will be grateful for it.

    What’s your ‘big prize’ right now?