Tag Archives: Retirement

Setting FIRE to your Retirement

3 Jul

Although the term may bring back memories of losing your first job or an unfortunate incident as a child learning what “hot” means, FIRE is not just a good thing – it’s a great thing. FIRE stands for “Financially Independent, Retiring Early”.

Retiring early doesn’t just mean ducking out of the workforce at 62, it’s usually your 30s or early 40s.

A recent survey showed that a stunning 83% of those aged 18-34 (the “millennial” age group) said they will never retire in the traditional sense. By contrast, 83% of today’s retirees don’t plan to work in retirement as opposed to 15% of the millennials surveyed.FIRE retirement.jpg

Young grads today are just hoping that they will be able to retire at all, so the idea of retiring early is almost mythical. While achieving FIRE does require careful planning and plenty of things to go your way, it is by no means impossible for the younger portion of today’s workforce.

The idea behind FIRE is that you will no longer need income from work to afford to live.

The issue that many people run into isn’t that they don’t make enough, rather they spend too much. This gets into the very common issue of needs versus wants when it comes to spending. What if those little luxuries you’ve become accustomed to are the barrier between you and retiring young?

A big key to this is eliminating debt. It’s difficult, or even impossible, to save a large percent of your income when you’re paying down a mortgage, student loans and car payments.

We all need a place to live, but what do those extra bedrooms do other than hold stuff that rarely gets used? And yes eating is a must, but you can avoid eating out almost entirely with just a little bit of planning and preparation.

In turn, you start putting this money you were spending elsewhere into accounts that will get a return. Remember, a traditional savings account won’t earn enough interest to keep up with inflation so once it’s up to a comfortable emergency amount it’s time to start putting your money to work.

graph showing the amount needed to be saved compared to how many years to retirement
While putting 45% or more of your income into savings may sound impossible, the trade-off to working 20 less years is incredibly enticing.

So if the idea of working only because you want to sounds like your cup of tea, there’s a whole community out there of people who have attempted FIRE and succeeded.

 

Save Money & Time: Take 15 Credits!

28 Apr

Casey Doten, Financial Aid Administrator

One of the best things you can do for yourself in college is keeping yourself on track to graduate on time. Only 3 in 10 students in Indiana finishing their Bachelor’s degree within 4 years and that creates financial challenges for students who fall behind on graduation. Not averaging 15 credits per semester puts you off of a 4 year graduation plan which comes with a host of potential issues.

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First and foremost is the cost of attending one extra year of college. An extra year at Purdue costs an extra $10,002 for in-state tuition ($28,804 for nonresident). Not to mention the costs of housing, food, books and other school supplies, and the cost of travelling home a few times per year. All in all, the estimated cost to be a Purdue student is $23,032 each year ($41,994 for nonresidents). That’s a lot of extra money to spend for the same degree that can be obtained in four years.

Remember: tuition at Purdue is at a flat rate for anyone taking 8 or more credits hours, so whether you’re attending part-time with 8 credits or are registered for 18 credits, the cost is the same!

If the extra tuition expenses isn’t enough of a downside for taking more than 4 years, the extra year lost also gives a couple other undesirable effects:

More time for student loan interest to accrue:
If you had borrowed all the $27,000 available to you in Federal Direct Loans for your first four years your balance on those loans would increase from $1,080 with an extra year of interest to accrue (assuming a 4% interest rate). This isn’t even considering any extra borrowing for the additional time or the interest that accrues during the repayment portion of the loan.

Lost wages and retirement: NerdWallet recently did a study into the impact of taking extra years to graduate. One extra year would result in approximately $46,355 in lost income and $82,074 in lost lifetime retirement savings!

Adding up the tuition paid, lost wages and retirement savings equals an incredible $138,431 for the extra year to get the degree ($157,233 for nonresident). Obviously this is not an ideal situation, so here are some tips to help keep you on track for graduating in four years!

So what can you do?

Take 15 credits every semester! Almost all degree require 120 credits which smoothly divides into eight semesters of 15 credits. While it might be tempting to take less credits your first semester or two, you’ll have to make those up another semester which you may regret when you’re taking those extra credits along with upper-level courses. Plus, students who start out at 15 credits per semester are more likely to graduate.

It may be obvious, but it’s important to pass your classes and earn grades that allow them to count for requirements. Many courses in your major or that you need for pre-reqs require you to earn Cs or higher to count. So contrary to what people may say, Ds do not really get degrees.

If you’ve fallen off the 15 credits per semester average, you can make either make it up during the summer or by taking extra credits in a fall/ spring semester. If the idea of taking 18 credits is a turn off, plan on taking summer courses! You can receive scholarships through both the financial aid office and the Think Summer office if you qualify.

America Saves Week: Thinking About Retirement in College

1 Mar

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If you’re in college your retirement might seem like a long way off. And it probably is, assuming you aren’t one of the very few people who become a wildly successful professional athlete and strike it rich early.

Unless you are currently swimming in cash as a college student and free of taking out educational loans, it probably isn’t realistic to be saving for retirement until you get your first post-college job. While now may not be the time to start investing into your retirement, here are three tips to remember as you’re setting up your career, and the rest of your life.

asw-retirement-txtMinimize Debt:Saving for retirement is a lot harder if you’re paying several hundred per month against debt. So think twice (or three times) before accepting the full amount for educational loans that are offered to you and ask yourself if you really need all of it. Once you start working, make a plan to pay down your debt as soon as possible.

An increasingly popular choice for graduates today is to head back to the parents’ nest for a year or two to save money for life on your own. Keep in mind that living with your parents only helps if you use it as a springboard to save, not as an opportunity to free up more spending money.

Career and Employer Choices: When you’re looking into employers and eventually weighing (hopefully) several employment offers, consider more factors than just the dollar signs on the salary. Once you’re off your parents’ healthcare plan on, or before, your 26th birthday you’ll need your own plan, which can be costly if your employer doesn’t offer one.

Additional non-salary factors to consider are moving expenses, cost of living, vacation, and retirement options. Retirement plans where your employer matches your contribution guarantees you a 100% return on investment, not an easy feat investing your money elsewhere. Also keep in mind if you are part of the nearly 50% of Americans who think that Social Security payments will be important in your retirement that they currently average about $14,000 per year.

Start Saving Early: Within your first month of getting paid you might find yourself wondering how anyone can spend this much money, and then within a few weeks wonder where it all went.

A great strategy to start saving early on is to have money automatically deposited into a savings account. It is much easier to adjust to having less right from the start than to save what you have left.

To emphasize the importance of saving consider this scenario of two employees at the same company.

Alice is 25 and starts contributing $100 every month ($1,200 per year) toward retirement. Alice plans to retire at 65 so she has 40 years to save. Sheila also contributes $100 every month, but she waits until she is 30 because life was just too hectic to start saving earlier. What’s the difference in retirement savings at 65? Alice will have saved $310,000 compared to Sheila’s $206,000 – or a difference in over $100,000. Why does this happen? The miracle of compound interest that you once learned about in math class.

Five years is the difference between surviving and thriving in retirement. Your youth is an investing advantage you will never get back.

Remember that it is important to save up for both retirement AND a regular savings. The savings account is there for you when you need money for big purchases, to handle emergencies, etc. without having to use credit cards and lose money on the interest.

It is important to avoid a mindset of “I’ll start saving when…” It will never be a better time to start. So take the America Saves Week Pledge and start today.

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