Safeguarding Your Investments: Navigating the Debt Limit and the Security of Your Treasury Bonds | SmartAsset.com
Close thin
Facebook
Twitter
Google plus
Linked in
Reddit
Email
arrow-right-sm
arrow-right
Tap on the profile icon to edit your financial details.
Get ready for the trillion-dollar question: Are your Treasury bonds at risk in the face of a U.S. default? Brace yourself, because if Congress falters in raising the debt ceiling before the Treasury’s coffers run dry, the repercussions will be felt far and wide. When the government can’t foot its bills, that includes honoring payments on Treasury debt—bonds, bills and notes included. Discover the potential impact on your investments and protect your financial future.
A financial advisor can help you navigate this precarious moment. Find a fiduciary advisor today.
If you own Treasury bonds, there’s a very good chance that this will reduce the value of your investment. While the government will ultimately pay all of the interest and par value that you are owed, a default might delay those payments. It will also very likely reduce the value of your bonds on the secondary market, generating a lower return if you choose to sell them.
Here’s why.
Despite its misleading name, the debt limit does not actually limit government debt. Instead, it limits the Treasury’s ability to restructure that debt as necessary.
The total amount that the United States owes is established each year through Congress’ tax and budget process. In the annual budget, Congress makes millions of individual commitments to soldiers, sailors, teachers, air traffic controllers, corporate vendors, foreign governments and countless others. When tax revenues fall short of these commitments, the result is the total debt of the U.S.
To consolidate this debt, the Treasury issues bonds. These instruments shift the government’s obligations from a network of countless ad hoc creditors to a series of structured lenders on a fixed repayment schedule. Bonds give the Treasury the cash flow it needs to pay the bills that Congress has incurred, including past bills such as bonds issued in previous years.
The debt ceiling puts a cap on how many bonds the Treasury can issue. This eliminates its ability to restructure and consolidate, choking off the Treasury’s cash flow without affecting the government’s underlying debt.
What Will Happen to Bondholders If the Debt Ceiling Isn’t Lifted?
It’s difficult to tell exactly because this never happened before. However there are some likely results.
Investors who hold U.S. Treasury bonds are one of the great network of creditors to whom the government owes money. In their case, the government owes them regular interest payments and lump-sum repayments for matured assets. The Treasury issues these payments on a regular schedule, based on the nature of any individual asset.
Once in default, the Treasury will likely begin prioritizing payments, sending checks to some creditors while defaulting on others as cash rolls in. Among other things, in the same way that an unpaid power bill leads to penalties and fines, an extended default would likely result in penalties and lawsuits as individual creditors seek the money they are owed.
For bondholders, this could result in several significant outcomes.
First, no new assets to purchase.
Investors in U.S. debt will not be able to purchase new assets while the government is in default. The debt ceiling means that the Treasury is barred from issuing new debt instruments, so it will not sell new bonds until that limit is raised.
That does not mean that you can’t buy any Treasury bonds, just that you won’t have access to newly created and issued ones.
Second, payment disruptions are possible but unlikely.
If the Treasury has to structure payments due to cash flow issues caused by the debt ceiling, it’s likely that it will try to prioritize existing debt holders in an effort to preserve as much of the government’s credit and credibility as possible. If it has the cash on hand to do so, the Treasury will then continue issuing interest and repayments for existing bonds on schedule.
The problem is that the Treasury owes more than $1 trillion in maturity and interest payments over the course of June. It is unlikely to have this cash on hand in the absence of new borrowing.
In the event of a brief default, lasting hours or days, bondholders will probably not see any interruption in their payments. If a default lasts longer than that, the risks of a missed payment will increase, becoming a near-certainty if the government remains in default over a period of several weeks.
Third, your returns will likely suffer.
The yield on your bonds will likely be safe, even in the event of a payment disruption. However you can likely expect lower returns if you choose to sell your bonds.
If Congress defaults on the U.S. debt, it will almost certainly reduce the market value of this debt at every level. Much of the value behind these bonds is their perception as the world’s safest asset, guaranteed by both law and tradition. That confidence, once shaken, will not be easily restored. Secondary markets will almost certainly price this risk into Treasury bonds.
Beyond that, once in default credit agencies will downgrade U.S. debt. If that happens Treasury bonds will no longer meet the minimum standards for many low-risk funds and institutions, forcing them to sell their assets and flooding the market with Treasury bonds. Collectively, this will reduce the amount that buyers pay for Treasury assets, reducing the returns you can expect if you choose to sell your bonds. It will also likely push up the value of long-term bonds over short-term bonds, as investors seek the perceived security of assets that mature after the immediate default crisis has passed.
Fourth, interest rates will go up.
This is a double edged sword for investors.
As noted above, much of the value behind Treasury bonds is the idea that they are the world’s safest asset. This is priced into their interest rate. If Congress defaults on the U.S. debt it will introduce risk into Treasury borrowing. As with all debt, lenders charge higher interest rates for riskier assets. The result is that, once the debt ceiling is lifted, the Treasury will almost certainly have to pay higher interest rates for newly issued bonds.
For new investors, this will be a bit of rare good news. They will likely get better yields on new Treasury bonds going forward. For existing investors, however, this will devalue the bonds they currently hold, pushing down their value on the secondary market relative to new, higher-interest assets.
Returning to our original question, are your Treasury bonds safe? The answer is mixed.
If you are a long term investor whose goal is to collect interest payments until an asset’s maturity, then your investment is probably safe. You may see a brief disruption in your bonds’ repayment schedule, but that is unlikely to last very long. Beyond that, it is still extremely unlikely that you will lose money on this asset.
If you want to sell your bonds at any point, you will very likely lose money. The value of existing bonds will almost certainly fall (possibly quite significantly) in the event of a default.
If you are a future investor, you will probably improve your yields as the increased costs of U.S. borrowing push up the interest rates on future Treasury bonds.
But it’s critical to understand that this is entirely speculative. A U.S. default would cause chaos across every financial market, from investments to employment to borrowing and beyond. Borrowing and credit of every kind would get more expensive, likely pushing up prices in most markets and pushing prices down on most investments. There is no clear way to predict what would happen in this environment, even if these are a series of likely outcomes.
The Bottom Line
If Congress defaults on the U.S. debt, the first assets hit will be Treasury bills, bonds and notes. For current investors this will likely mean chaos. You can most likely expect Treasury payments in full, even if not on time, but secondary market returns will almost certainly plummet.
Risk Management Tips
Even if Treasury assets are supposed to be immune from risk, it’s still a part of investing overall. Managing that is a key part of managing your money.
The best way to prepare for risk is with good advice. A financial advisor can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
Northwestern Mutual, Special Spaces Recognize 10-Year Anniversary of Company’s Childhood Cancer Program with 10 Dream Bedroom Makeovers HGTV star Mina Starsiak Hawk collaborates on latest bedroom reveal for a child in her hometown MILWAUKEE, Nov. 17, 2022 /PRNewswire/ — In recognition of its Childhood Cancer Program’s 10-year anniversary, Northwestern Mutual, through its Foundation, collaborated with Special … [Read more…]
Tap on the profile icon to edit your financial details.
Just because you retire doesn’t mean you have to stop working. And when work is an option rather than a requirement, it’s possible to select a low-stress job that multiplies fulfillment without adding anxiety — but still provides a bit of much-appreciated income. There are, in fact, a variety of such low-stress, high-reward jobs well-suited to the needs of retirees.
A financial advisor can help you devise a plan that will give you the flexibility to make choices in retirement.
Working in Retirement
People may continue working after retirement for a variety of reasons, including the benefits of generating additional income, the satisfaction of making a contribution and the stimulation of staying engaged. If nothing else, work can get them out of the house and fill the hours formerly devoted to their careers.
Many jobs are, however, likely to be more trouble than they are worth to a typical retiree. If what you are after is fulfillment without stress, it doesn’t make much sense to apply for a position as, say, a law enforcement officer working undercover for a drug-smuggling ring. Fortunately, there are many jobs that offer lots of benefits without lots of stress.
Low-Stress Jobs for Retirees
The work you do in retirement can be an extension of your former career or head off in a diametrically opposed direction. Either way, here are 12 possibilities:
Tutoring
Decades of life experience can admirably equip retirees to work as part-time tutors to students at various levels of education. English as a Second Language, for example, is a subject area many retirees can assist students with, while maintaining flexible hours and keeping supervision and red tape to a minimum.
Pet Care
For people who like getting outside and spending time with animals, walking dogs is a way to get paid for enjoying themselves. Sitting, grooming and transporting dogs as well as cats and other pets can offer similar appeal.
Massage Therapist
Many massage therapists see clients at their own homes or in annexes on the property, meaning there’s no commute and little hassle or overhead. If you enjoy helping others through the healing properties of touch, this could be a retirement gig for you.
Personal Trainer
A dedicated runner, swimmer, biker or gym rat, can get paid for sharing their knowledge and passion for fitness with others who are chasing their own fitness goals. Tasks include selecting exercises, structuring workouts and developing training plans.
Consultant
If you had a lengthy career in nearly any knowledge-based field, you may be able to monetize that experience in retirement while also being able pick and choose your clients, working flexible hours and even earning a handsome income, all as a self-employed consultant to businesses.
Life Coach
If helping individuals as opposed to businesses is more your style, you can set yourself up as a life coach helping people reach fulfillment by attaining goals in their professional and personal lives.
Travel Agent
Many who love to travel find earning fees and commissions as travel agents to be a good job in retirement. The work involves recommending destinations, organizing itineraries and booking tickets for transportation, lodging, meals and events.
Library Worker
Bibliophiles can surround themselves with books and get paid for the privilege by working at the library. Many positions are part-time and tend, almost by definition, to be low in noise, hustle and bustle.
Tour Guide
Museums, historical sites, nature centers, monuments and other attractions commonly employ guides to provide visitors with information and assistance as they tour the facility. The positions are well-suited to retirees who want to make some extra money and interact with a variety of people in a relaxed environment.
Personal Shopper
Retirees can shop until they drop without having to spend a dime of their own money – and even earn a few bucks – by working as personal shoppers. This job involves serving people who need help choosing clothing and accessories that fit their personal styles.
Landscape Artist
Cultivating b eautiful landscapes is a passion for many retirees. A peaceful day tilling the soil can also be a source of income with a job as a gardener or landscaper.
Event Coordinator
If you possess robust organization skills and are detail-oriented, there is always a demand for people who can plan and coordinate weddings, parties, conferences and other events.
Bottom Line
Although there probably are as many reasons for continuing to work after retiring as there are working retirees, it’s a safe bet that few if any are showing up for work in search of added stress. Fortunately, there are plenty of jobs open to retirees that pair high levels of fulfillment with low levels of stress.
Retirement Planning Tips
Generating sufficient income in retirement can be a challenge without the help of an experienced and qualified financial advisor. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Whether you are retired and working mostly for non-financial means or still in the workforce and focused on earning income, SmartAsset’s paycheck calculator will tell you how much your employer will withhold from your check for federal, state and local taxes.
Mark Henricks
Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
11 Northwestern Mutual Advisors Named Among Nation’s Best in New Barron’s Ranking MILWAUKEE, March 13, 2023 /PRNewswire/ — One of the country’s premier financial news publications has named 11 Northwestern Mutual-affiliated advisors – to its list of the nation’s top wealth professionals. “Northwestern Mutual’s comprehensive approach to financial planning is proven to deliver better financial … [Read more…]
Tap on the profile icon to edit your financial details.
Retirement is a massive financial undertaking. But it’s also more flexible than many people believe. At different stages in life, it’s really possible to retire earlier than you might realize. However, retiring at age 30 with $1 million comes with a lot of leg work and a bit of luck. It’s not impossible, but a lot of things have to go right for you. We’ll discuss what to consider.
A financial advisor can help you put a financial plan together for your retirement needs and goals.
Your Retirement Income With $1 Million
The $1 million is a common benchmark for FIRE advocates, which means “Financial Independence, Retire Early.” The basic philosophy is this: Maximize every penny of earnings early in life. Save hard, spend little and invest wisely. Then, ideally sometime before age 40, have enough cash to retire for good.
The trouble is that $1 million does not actually generate that much secure income in retirement, at least not before you can supplement it with Social Security. The rule of thumb used by most financial professionals is that you should expect a 4% drawdown each year.
This means that for a sustainable retirement, you should budget to live on about 4% of your total retirement portfolio. For a retiree with a $1 million portfolio, this comes to $40,000 per year.
We can also adjust up from 4%, given that it is admittedly very conservative. So you can hit that number holding nothing but bonds and getting no returns beyond simple coupon payments. So take a number like 6%. This gives you an annual income of $60,000.
Now, that’s not nothing. According to the Census Bureau, it’s less than the median income of $70,700. But not by that much. The problem is that you need to live on that money for a long time.
Costs of Retirement In Your 30s
When the New York Times wrote on this subject, they profiled a man who retired at 43 on his $1.2 million savings. The man’s wife still worked, supplementing the household’s budget significantly. Even still, the article wrote, the couple lived a life, “Rich on time but short on luxuries: Groceries are bought at Costco, car and home repairs are done by him.”
This is the problem with retirement in your 30s. The odds are that it leads to a lot of sitting around asking, “Now what?”
3 Tasks to Solve
First, you will have to account for all the basic expenses of life: Housing, food, utilities and more all add up.
If you have collected $1 million at age 30, the odds are good that you live in or around a city, where the higher-paying jobs are located. For example, if you live in Washington D.C., rent alone can consume almost an entire $40,000 income. And if you move, that will mean leaving your friends and connections, as well as an entire lifestyle that you have presumably come to enjoy.
Second, there are the employment-related expenses of life. Mostly this means finding your own health insurance. At age 30, you might be able to get away with a cheaper high-deductible plan, but as you age into your 40s and 50s that will be increasingly less of an option.
Third, there are situational costs. If you have children, they will need their own care and feeding. According to SmartAsset’s 2023 study, raising a child can cost up to $30,000 annually in the U.S. And as your parents’ age, they might need care both personal and financial.
And unexpected expenses crop up on a regular basis. Home and auto repairs aren’t always do-it-yourself (DIY) projects, for example. If your car throws a rod or (to cite this writer’s experience) a four-story elm dies in your backyard, that’s thousands of dollars directly from your own pocket.
What to Look Out for at Age 30
At age 30, you have a lot of time and responsibilities ahead of you. Every retiree needs to plan for the unexpected. But when you’re a young adult, far more people will count on you and you will have far fewer resources.
Medicare and Social Security won’t kick in for several years. And Medicaid won’t help someone who is voluntarily unemployed. Family members will look to you for support, property will need tending and many of life’s biggest expenses may still be on their way.
To put it another way, you’re not a kid anymore and there is no backup plan. For the next 30 or 40 years, you are the backup plan. By retiring this early with this budget, you are planning to face that with virtually no room for error.
The FIRE Lifestyle
There is a very good reason that early retirement has caught fire (or FIRE) in recent years. Work for millennials and, as they age in, Generation Z, is worse than it was for past generations. Employers expect ever-longer hours and make ever-broader demands.
For Baby Boomers and Generation X, it can seem bizarre to plan on leaving the workforce by age 40. In large part, though, that’s because theirs was a generation that still got to clock out at 5 and only worked on the weekdays.
“The rule books our parents have given us is advice that’s perfect for 1970,” wrote the New York Times in one representative quote. “We have to throw out that rule book and write a new one.”
Current generations were brought up in an era where every job has been migrated to salaries to avoid overtime pay. And most days end well after 5:00 p.m. This is a working world of smartphones, seven-hour half-days and “just real quick” Saturday assignments. It’s easy to understand why so many young workers want to opt-out.
Considering the Alternatives
Consider the other side of that lifestyle carefully, because you may not be buying yourself the freedom that you think. You will have freedom from burning out on work culture and the stress that comes from expecting work e-mails at all hours of the day. But you may not have the freedom to for very long.
In other words, you may not have the freedom to live the kind of lifestyle that you want to enjoy. If you have a home, you may not be able to afford anything else. On a $40,000 – $60,000 per year budget, there probably won’t be much left for travel, dining and other luxuries.
Your plan might be Netflix and dinner for a long period of time, for example. If, as many young retirees do, you choose to travel, then those temporary travels may become more permanent than you’d think.
Bottom Line
Is it possible to retire at 30 with $1 million? Yes. But the odds are it’s likely that it will do more harm than good. If you have $1 million at age 30, you’re doing beyond great. If you keep this money in a series of solid, comfortable investments, then you almost certainly can retire early. The truth is, you probably can target retiring at age 40 or 45. Give this account another 10 years or so to ride. And let compound growth increase over time.
Retirement Planning Tips
A financial advisor can help you prepare for an early retirement. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Want to see how much your 401(k) will be worth when you retire? Use SmartAsset’s free calculator.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
You May Be Eligible to Save Over $10K in an HSA in 2024 After Largest-Ever Contribution Limit Increase
Close thin
Facebook
Twitter
Google plus
Linked in
Reddit
Email
arrow-right-sm
arrow-right
Tap on the profile icon to edit your financial details.
People with health savings accounts (HSAs) got some good news this week when the IRS rolled out the largest contribution limit increases in history.
In 2024, an individual with self-only coverage can save up to $4,150 in an HSA, while a family can sock away up to $8,300. Catch-up contributions still allow people 55 and older to save an extra $1,000 per year, meaning some married couples will soon be allowed to save more than $10,000 in an HSA.
A financial advisor can help you plan for retirement, including your future healthcare costs. Find an advisor today.
HSAs are tax-advantaged savings vehicles that help people enrolled in high-deductible health plans (HDHPs) save for annual medical expenses. But unlike flexible spending accounts (FSAs), funds in an HSA can be carried over from year to year, making these accounts an important component of long-term financial plans.
Largest Increases on Record
Next year’s HSA contributions limit increases will be the largest on record since HSAs were first introduced in 2003. The IRS adjusts these limits each year to keep pace with inflation.
For individuals, the savings cap will rise 7.8% from $3,850 in 2023, while families will see their limit increase 7.1% from $7,750. A year ago the limits rose 5.5% and 6.2%, respectively. However, persistent inflation is pushing these caps even higher on Jan. 1, 2024.
HSA contribution limits for an individual with single, self-coverage:
2023: $3,850
2024: $4,150
HSA contribution limits for an individual with family coverage:
2023: $7,750
2024: $8,300
The changes will also affect what constitutes an HDHP. In 2024, health plans will qualify for HSAs if their deductibles are at least $1,600 for self-only coverage and $3,200 for family coverage.
Why HSA Contribution Limits Matter
Higher contribution limits not only mean that people can save more for qualified medical expenses, but they also provide an even larger potential tax break for HSA owners. Since contributions are tax-deductible, higher caps mean a person with an HSA will be able to reduce his taxable income by several hundred dollars more in 2024 than in 2023.
Of course, that’s not the only tax advantage of an HSA. Money that’s kept in this type of account also grows tax-free and can be withdrawn free of tax, provided it’s used to pay for qualified expenses.
And since HSA funds carry over each year, they’re a great way for pre-retirees to save up for the onerous healthcare expenses they may encounter in retirement.
A recent study from the Employee Benefit Research Institute found that despite the coverage offered by Medicare, retirees should prepare to pay significant out-of-pocket costs for their healthcare. These costs include a wide range of expenses, including insurance premiums, program deductibles and prescription drug treatments.
In fact, even with supplemental Medicare gap insurance, men will need an average of $166,000 in savings to pay for their healthcare needs in retirement. Since women have longer expected lifespans, that number is even higher: $197,000. Meanwhile, the average two-person household should anticipate needing $318,000, according to EBRI.
Bottom Line
With inflation remaining elevated, the IRS has increased the amount of money that individuals and families can save in their HSAs in 2024. The contribution limit increases are the largest on record. People with self-only coverage will be able to sock away $4,150 in 2024, while families will be permitted to save $8,300. The $1,000 catch-up contribution remains unchanged, meaning married couples can save $10,300 in an HSA in 2024.
Tips for Contributing to an HSA
Some HSAs allow you to invest your contributions in mutual funds and other financial products. Be sure to read our latest HSA investment guide to help you determine how you should invest your HSA funds. Our asset allocation calculator can also help you find an investment mix that suits your tolerance for risk.
A financial advisor can help you integrate your HSA savings into a comprehensive financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Patrick Villanova, CEPF®
Patrick Villanova is a writer for SmartAsset, covering a variety of personal finance topics, including retirement and investing. Before joining SmartAsset, Patrick worked as an editor at The Jersey Journal. His work has also appeared on NJ.com and in The Star-Ledger. Patrick is a graduate of the University of New Hampshire, where he studied English and developed his love of writing. In his free time, he enjoys hiking, trying out new recipes in the kitchen and watching his beloved New York sports teams. A New Jersey native, he currently lives in Jersey City.
Long-term financial goals are an essential part of financial planning. They help you define your aspirations and create a roadmap for achieving them.
Long-term goals aren’t easy to achieve. But why?
Could it be that motivation wanes over time? Perhaps external circumstances change. Maybe it has to do with the feasibility of the goals.
Many people have trouble sticking to something over the course of a single year let alone several years or decades.
Perhaps that’s why long-term goals – like most financial goals – are so difficult to achieve.
How do we fight against whatever it is that holds us back from achieving these financial goals? Is it possible to win?
Yes. It is.
Today I’d like to share with you some ways you can achieve your long-term financial goals. I won’t claim it will be easy, but it will be worthwhile.
So whether you need to pay off debt, build an emergency fund, save for your kids’ college education, or invest for retirement, here are some ways you can make it hap’n, cap’n.
Why Long-Term Financial Goals Are Important
Long-term financial goals provide direction and motivation for your financial decisions. By defining your long-term goals, you will have a clear picture of what you want to achieve and what steps you need to take to get there. Setting long-term financial goals can help you:
Stay focused on your priorities: Setting long-term financial goals will help you prioritize your financial decisions and avoid getting distracted by short-term financial needs or impulses.
Achieve financial stability: Long-term financial goals can help you create a safety net, build wealth, and prepare for unexpected events such as medical emergencies or job loss.
Enjoy the benefits of compound interest: Investing in long-term goals, such as retirement or education, can help you take advantage of the power of compound interest and grow your wealth over time.
1. Capture your long-term goals in your to-do list.
Long-term goals of the financial sort are usually more like projects than individual tasks.
For example, if you want to pay off your debt, chances are that you don’t just have one credit card to pay off – you might have three credit cards, a vehicle loan, and a student loan to overcome (if not more).
“Pay off debt” would be the project. “Pay off Visa #1” would be the task.
The truth is that without writing down your projects and tasks within a task management system of some type, you’re much less likely to accomplish your long-term goals.
There’s just something about seeing your long-term goals on paper (or on a screen) that makes them real. The very act of writing them down is a type of commitment.
Give it a whirl. Write down your long-term financial goals and review them on a regular basis.
2. Don’t bury your long-term goals.
It’s not enough to write down your long-term financial goals. Additionally, you need to make them readily available to your eye.
One idea that I’ve found works well is to write down your goals on a whiteboard where you can’t help but see them. But that’s not for everybody.
The point is that you need to find a way to see your long-term goals in the context of all your other goals (namely, your short-term goals). If only your short-term, urgent goals are displayed for you to see, you’ll tend to focus on those instead of kicking butt on your long-term goals.
Don’t bury your long-term goals. They’re important too!
3. Dedicate certain days of the week to long-term goals.
One helpful tip I derived from Strategic Coach was to dedicate certain days of the week to certain goals. This has proved to be very helpful in my own life, and I believe it will in yours, too.
For example, you could dedicate a certain day of the week to managing your finances and brainstorming ways to improve your financial future. Perhaps you have a day off of work that would work best for you.
Now, I can hear you saying, “Oh Jeff, if I only had a day for such tasks – I’m way too busy with other stuff!” That’s fair.
But here’s the thing, you don’t just have to make this day about finances – you can make it about your other long-term goals too. Add in health, family, and other areas of responsibility. Consider this day (or these days) of the week to be all about bettering yourself and your life. Can’t you make time for that?
4. Prioritize your long-term goals properly.
When it comes to long-term financial goals, you need to properly prioritize them. There are some preliminary goals that should only take you less than a month, like setting up a budget and cutting expenses, but we’ll leave that for another article.
What are some common long-term financial goals and in which order should you complete them? Generally, I recommend you complete the following long-term financial goals in the order they are displayed below:
Build Your Emergency Fund
Think of your emergency fund as the foundation of your financial future. Without some liquid money, you’re going to be out of luck when financial disaster strikes. Believe me, they happen.
Your car engine might explode. Your kneecap might explode (ouch). Your water heater might explode. There are so many things that can explode . . . and it’s not easy to just walk away from those explosions while keeping your cool. It’s stressful!
But you know what would make those situations a little less stressful? You guessed it: an emergency fund baby!
Wipe Out Your Debt
Once you have your foundation in place, it’s time to knock out that debt. This can take several years or a few months – it depends on how much debt you have and how quickly you can shovel money at it.
Write down all of your debts and attack them one by one. It’s easier that way.
Start Investing for Retirement
Now it’s time to start investing for your latter years. Why? It’s possible that your earning potential can go down when you’re physically unable to work. Who knows, you might have a self-sustaining business upon reaching retirement age, but don’t count on it. Invest for the future!
Helping people retire well is what I do.
Start Saving for Other Long-Term Goals
This might include saving for your kids’ college education, purchasing a new vehicle, saving for a home renovation, or another goal that will take some time.
By prioritizing your long-term goals in the proper way, you can ensure that should you experience a slump in income, you aren’t wiped out due to a lack of financial planning.
5. Discover and focus on your motivations.
I’m convinced that one of the main reasons people don’t accomplish their long-term goals is because they really haven’t discovered their motivations.
For example, everyone knows it’s a good idea to pay off debt. It’s a financial goal that’s been embedded in our minds by countless financial advisors. But unless you discover your motivation for paying off debt, chances are you’ll give up before you achieve your goal.
In fact, if you’re paying off debt for the sake of paying off debt, you might as well give up now. You’re not going to be motivated enough to get the job done.
Instead, focus on some common motivations that can become your motivations. Here are some great reasons why people want to pay off debt:
To not have to pay interest on their purchases
To free up money for vacations
To free up money for investing for retirement
To not have to worry about those bills
To reduce the amount of stress in their lives
To free up the time it takes managing debt to focus on family
These are just a few of the motivations of others. What’s your motivation?
Assign a motivation for every long-term goal you have. Otherwise, you’re just trying to accomplish your long-term goals for the sake of accomplishing them – that’s not a real motivating factor if you ask me!
Long-Term Goal Examples
Long-term financial goals can take many forms, depending on your values, aspirations, and time horizon. Here are some examples of long-term financial goals in the SMART framework:
Example 1: Save for Retirement
Specific: Save $1 million by age 65 for retirement.
Measurable: Save $500 per month in a retirement account.
Achievable: Based on current income and expenses, it is feasible to save $500 per month for retirement.
Relevant: Retirement is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal by age 65.
Example 2: Pay off Debt
Specific: Pay off $30,000 in credit card debt.
Measurable: Pay $500 per month towards credit card debt.
Achievable: Based on current income and expenses, it is feasible to pay $500 per month towards credit card debt.
Relevant: Paying off debt is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal within 5 years.
Example 3: Invest in Education
Specific: Save $50,000 for a child’s college education.
Measurable: Save $200 per month in a 529 college savings plan.
Achievable: Based on current income and expenses, it is feasible to save $200 per month for college education.
Relevant: Investing in education is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal in 18 years.
Example 4: Buy a House
Specific: Save $100,000 for a down payment on a house.
Measurable: Save $1,000 per month in a high-yield savings account.
Achievable: Based on current income and expenses, it is feasible to save $1,000 per month for a down payment.
Relevant: Buying a house is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal in 5 years.
Example 5: Start a Business
Specific: Launch a profitable business in the next 5 years.
Measurable: Develop a business plan and secure funding within the next 12 months.
Achievable: Based on current skills and experience, it is feasible to develop a business plan and secure funding within the next 12 months.
Relevant: Starting a business is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Launch the business within the next 5 years.
Long-Term Goal
Specific
Measurable
Achievable
Relevant
Time-bound
Save for Retirement
Save $1 million by age 65 for retirement.
Save $500 per month in a retirement account.
Based on current income and expenses, it is feasible to save $500 per month for retirement.
Retirement is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal by age 65.
Pay off Debt
Pay off $30,000 in credit card debt.
Pay $500 per month towards credit card debt.
Based on current income and expenses, it is feasible to pay $500 per month towards credit card debt.
Paying off debt is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal within 5 years.
Invest in Education
Save $50,000 for a child’s college education.
Save $200 per month in a 529 college savings plan.
Based on current income and expenses, it is feasible to save $200 per month for college education.
Investing in education is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal in 18 years.
Buy a House
Save $100,000 for a down payment on a house.
Save $1,000 per month in a high-yield savings account.
Based on current income and expenses, it is feasible to save $1,000 per month for a down payment.
Buying a house is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal in 5 years.
Start a Business
Launch a profitable business in the next 5 years.
Develop a business plan and secure funding within the next 12 months.
Based on current skills and experience, it is feasible to develop a business plan and secure funding within the next 12 months.
Starting a business is a long-term financial goal that aligns with personal values and aspirations.
Launch the business within the next 5 years.
Need More Long-Term Goal Examples?
Knowing I’m not the only goal-setting freak that exists in this world, I asked fans from the Good Financial Cents Facebook page what their long-term goals (big shout to the Fincon community for contributing, too!).
Fincon Community Long-Term Goals
Here’s a great list of examples of long-term goals:
Bob Lotich at SeedTime.com says:
[I want] to provide a comfortable life for my family, to have enough cash to maintain a flexible lifestyle, and to use everything else to financially support charities and organizations that are making a huge impact on the world.
Ryan Guina at TheMilitaryWallet.com says:
[I want] to become financially independent. What this means to me: to have no consumer or mortgage debt and have enough resources in savings and investments to cover my everyday living expenses without relying upon income from my job. This will provide more freedom in pursuing activities based on fulfillment vs. the need to generate revenue.
Larry Ludwig at InvestorJunkie.com says:
[I want] to be financially free. I define it specifically as to accumulate $10,000,000 in investment assets that can generate at minimum 4% per year of income.
Teresa Mears at LivingOnTheCheap.com says:
[I want] to support myself, both now and in retirement, and enjoy life. What else is there?
Steve Chou at MyWifeQuitHerJob.com says:
[I want] to generate enough income so that I can spend more time with my family and be there for the kids. Growing up, my parents worked their butts off so I could go to a good school but I didn’t see them very often during the week. With my kids, I’m going to send them to a good college and always be present.
Grayson Bell at DebtRoundup.com says:
[I want to] build a business and a financial stockpile to allow my family and I to travel when and where we want to. I don’t want to be stuck due to a job or financial situation. This will require scaling my business and looking for more opportunities to expand my passive income streams.
Robert Farrington at TheCollegeInvestor.com says:
[I want] to generate enough passive income to replace my current income. This will require a long-term strategy of earning more money (through my salary and side hustles) and investing the excess. The goal, of course, is to retire early while still being able to provide the quality of life I want.
My Lifetime Goals
Long-term goals can be difficult to articulate but deserve to be written down. I previously shared my lifetime goals on this post. Looking them over I recognize I would make a few tweaks, but; for the most part, they are still align with what I want to achieve in life. Here’s a look:
1. Spiritual leader of my household. I want my kids to see me first as a God-loving father who puts his faith first before success. I want to continually love and support my wife, and do so in an Godly manner.
2. Live a long and filling life with my wife and family. Raise my kids with the philosophies of: working hard, but not sacrificing “work” for what you love; love first; and treat people with respect (Golden Rule)
3. Have several multiple-system driven businesses that produce >$100,000 a month of passive income.
4. Live in multiple countries (5+) for an extended period of time (minimum 3 weeks) with entire family
5. Inspire over 1,000,000 people to invest in themselves. This can be through traditional investing (Roth IRA, 401k), obtaining a higher degree or certification, or investing in a small business.
6. Be a successful entrepreneur and best-selling author of numerous works. I want to be recognized as as a hard worker who put his family and faith first.
The Bottom Line – Long-Term Financial Goals
[embedded content]
Setting long-term financial goals is an important step towards achieving financial stability and building wealth. By defining your values, aspirations, and time horizon, you can create a roadmap that aligns with your priorities and guides your financial decisions.
Remember to monitor your progress, stay motivated, and seek professional advice when needed. With discipline and perseverance, you can achieve your long-term financial goals and secure your financial future.
Here’s your homework
I want you to implement at least one of these strategies for reaching your long-term goals over the next year. When the year is over, write me. Tell me how well the strategy worked out for you. I want you to put your heart and soul into one or more of these strategies.
Why? I want you to see success.
Make it hap’n, cap’n!
FAQs – Long-Term Financial Goals
How do I balance saving for long-term goals with short-term needs?
It’s important to strike a balance between saving for your long-term financial goals and meeting your short-term needs. You can achieve this by creating a budget that allocates some of your income towards both short-term and long-term goals.
This way, you can address your immediate financial needs while also making progress towards your long-term goals.
How can I stay motivated to achieve my long-term financial goals?
Staying motivated to achieve your long-term financial goals can be challenging, especially if your goals are several years away.
One way to stay motivated is to break your long-term goals into smaller, manageable milestones. Celebrate each milestone as you reach it, and use the progress you’ve made as motivation to keep going.
How do I know if I’m on track to achieve my long-term financial goals?
Regularly monitoring your progress towards your long-term financial goals is essential to staying on track.
You can use financial planning tools and software to track your progress and adjust your plan as needed. You can also work with a financial advisor or planner to evaluate your progress and make any necessary adjustments to your plan.
Can I adjust my long-term financial goals as my situation changes?
Yes, it’s important to be flexible and adjust your long-term financial goals as your situation changes. Life is unpredictable, and unexpected events can impact your financial situation. Review your financial plan regularly and adjust it as needed to ensure that it aligns with your current situation and goals.
Need some more long-term goals? Check out The Top 10 Good Financial Goals That Everyone Should Have. If you’re a baby boomer, check out 5 Financial Goals for Baby Boomers.
Long-term financial goals are an essential part of financial planning. They help you define your aspirations and create a roadmap for achieving them.
Long-term goals aren’t easy to achieve. But why?
Could it be that motivation wanes over time? Perhaps external circumstances change. Maybe it has to do with the feasibility of the goals.
Many people have trouble sticking to something over the course of a single year let alone several years or decades.
Perhaps that’s why long-term goals – like most financial goals – are so difficult to achieve.
How do we fight against whatever it is that holds us back from achieving these financial goals? Is it possible to win?
Yes. It is.
Today I’d like to share with you some ways you can achieve your long-term financial goals. I won’t claim it will be easy, but it will be worthwhile.
So whether you need to pay off debt, build an emergency fund, save for your kids’ college education, or invest for retirement, here are some ways you can make it hap’n, cap’n.
Why Long-Term Financial Goals Are Important
Long-term financial goals provide direction and motivation for your financial decisions. By defining your long-term goals, you will have a clear picture of what you want to achieve and what steps you need to take to get there. Setting long-term financial goals can help you:
Stay focused on your priorities: Setting long-term financial goals will help you prioritize your financial decisions and avoid getting distracted by short-term financial needs or impulses.
Achieve financial stability: Long-term financial goals can help you create a safety net, build wealth, and prepare for unexpected events such as medical emergencies or job loss.
Enjoy the benefits of compound interest: Investing in long-term goals, such as retirement or education, can help you take advantage of the power of compound interest and grow your wealth over time.
1. Capture your long-term goals in your to-do list.
Long-term goals of the financial sort are usually more like projects than individual tasks.
For example, if you want to pay off your debt, chances are that you don’t just have one credit card to pay off – you might have three credit cards, a vehicle loan, and a student loan to overcome (if not more).
“Pay off debt” would be the project. “Pay off Visa #1” would be the task.
The truth is that without writing down your projects and tasks within a task management system of some type, you’re much less likely to accomplish your long-term goals.
There’s just something about seeing your long-term goals on paper (or on a screen) that makes them real. The very act of writing them down is a type of commitment.
Give it a whirl. Write down your long-term financial goals and review them on a regular basis.
2. Don’t bury your long-term goals.
It’s not enough to write down your long-term financial goals. Additionally, you need to make them readily available to your eye.
One idea that I’ve found works well is to write down your goals on a whiteboard where you can’t help but see them. But that’s not for everybody.
The point is that you need to find a way to see your long-term goals in the context of all your other goals (namely, your short-term goals). If only your short-term, urgent goals are displayed for you to see, you’ll tend to focus on those instead of kicking butt on your long-term goals.
Don’t bury your long-term goals. They’re important too!
3. Dedicate certain days of the week to long-term goals.
One helpful tip I derived from Strategic Coach was to dedicate certain days of the week to certain goals. This has proved to be very helpful in my own life, and I believe it will in yours, too.
For example, you could dedicate a certain day of the week to managing your finances and brainstorming ways to improve your financial future. Perhaps you have a day off of work that would work best for you.
Now, I can hear you saying, “Oh Jeff, if I only had a day for such tasks – I’m way too busy with other stuff!” That’s fair.
But here’s the thing, you don’t just have to make this day about finances – you can make it about your other long-term goals too. Add in health, family, and other areas of responsibility. Consider this day (or these days) of the week to be all about bettering yourself and your life. Can’t you make time for that?
4. Prioritize your long-term goals properly.
When it comes to long-term financial goals, you need to properly prioritize them. There are some preliminary goals that should only take you less than a month, like setting up a budget and cutting expenses, but we’ll leave that for another article.
What are some common long-term financial goals and in which order should you complete them? Generally, I recommend you complete the following long-term financial goals in the order they are displayed below:
Build Your Emergency Fund
Think of your emergency fund as the foundation of your financial future. Without some liquid money, you’re going to be out of luck when financial disaster strikes. Believe me, they happen.
Your car engine might explode. Your kneecap might explode (ouch). Your water heater might explode. There are so many things that can explode . . . and it’s not easy to just walk away from those explosions while keeping your cool. It’s stressful!
But you know what would make those situations a little less stressful? You guessed it: an emergency fund baby!
Wipe Out Your Debt
Once you have your foundation in place, it’s time to knock out that debt. This can take several years or a few months – it depends on how much debt you have and how quickly you can shovel money at it.
Write down all of your debts and attack them one by one. It’s easier that way.
Start Investing for Retirement
Now it’s time to start investing for your latter years. Why? It’s possible that your earning potential can go down when you’re physically unable to work. Who knows, you might have a self-sustaining business upon reaching retirement age, but don’t count on it. Invest for the future!
Helping people retire well is what I do.
Start Saving for Other Long-Term Goals
This might include saving for your kids’ college education, purchasing a new vehicle, saving for a home renovation, or another goal that will take some time.
By prioritizing your long-term goals in the proper way, you can ensure that should you experience a slump in income, you aren’t wiped out due to a lack of financial planning.
5. Discover and focus on your motivations.
I’m convinced that one of the main reasons people don’t accomplish their long-term goals is because they really haven’t discovered their motivations.
For example, everyone knows it’s a good idea to pay off debt. It’s a financial goal that’s been embedded in our minds by countless financial advisors. But unless you discover your motivation for paying off debt, chances are you’ll give up before you achieve your goal.
In fact, if you’re paying off debt for the sake of paying off debt, you might as well give up now. You’re not going to be motivated enough to get the job done.
Instead, focus on some common motivations that can become your motivations. Here are some great reasons why people want to pay off debt:
To not have to pay interest on their purchases
To free up money for vacations
To free up money for investing for retirement
To not have to worry about those bills
To reduce the amount of stress in their lives
To free up the time it takes managing debt to focus on family
These are just a few of the motivations of others. What’s your motivation?
Assign a motivation for every long-term goal you have. Otherwise, you’re just trying to accomplish your long-term goals for the sake of accomplishing them – that’s not a real motivating factor if you ask me!
Long-Term Goal Examples
Long-term financial goals can take many forms, depending on your values, aspirations, and time horizon. Here are some examples of long-term financial goals in the SMART framework:
Example 1: Save for Retirement
Specific: Save $1 million by age 65 for retirement.
Measurable: Save $500 per month in a retirement account.
Achievable: Based on current income and expenses, it is feasible to save $500 per month for retirement.
Relevant: Retirement is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal by age 65.
Example 2: Pay off Debt
Specific: Pay off $30,000 in credit card debt.
Measurable: Pay $500 per month towards credit card debt.
Achievable: Based on current income and expenses, it is feasible to pay $500 per month towards credit card debt.
Relevant: Paying off debt is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal within 5 years.
Example 3: Invest in Education
Specific: Save $50,000 for a child’s college education.
Measurable: Save $200 per month in a 529 college savings plan.
Achievable: Based on current income and expenses, it is feasible to save $200 per month for college education.
Relevant: Investing in education is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal in 18 years.
Example 4: Buy a House
Specific: Save $100,000 for a down payment on a house.
Measurable: Save $1,000 per month in a high-yield savings account.
Achievable: Based on current income and expenses, it is feasible to save $1,000 per month for a down payment.
Relevant: Buying a house is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Achieve this goal in 5 years.
Example 5: Start a Business
Specific: Launch a profitable business in the next 5 years.
Measurable: Develop a business plan and secure funding within the next 12 months.
Achievable: Based on current skills and experience, it is feasible to develop a business plan and secure funding within the next 12 months.
Relevant: Starting a business is a long-term financial goal that aligns with personal values and aspirations.
Time-bound: Launch the business within the next 5 years.
Long-Term Goal
Specific
Measurable
Achievable
Relevant
Time-bound
Save for Retirement
Save $1 million by age 65 for retirement.
Save $500 per month in a retirement account.
Based on current income and expenses, it is feasible to save $500 per month for retirement.
Retirement is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal by age 65.
Pay off Debt
Pay off $30,000 in credit card debt.
Pay $500 per month towards credit card debt.
Based on current income and expenses, it is feasible to pay $500 per month towards credit card debt.
Paying off debt is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal within 5 years.
Invest in Education
Save $50,000 for a child’s college education.
Save $200 per month in a 529 college savings plan.
Based on current income and expenses, it is feasible to save $200 per month for college education.
Investing in education is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal in 18 years.
Buy a House
Save $100,000 for a down payment on a house.
Save $1,000 per month in a high-yield savings account.
Based on current income and expenses, it is feasible to save $1,000 per month for a down payment.
Buying a house is a long-term financial goal that aligns with personal values and aspirations.
Achieve this goal in 5 years.
Start a Business
Launch a profitable business in the next 5 years.
Develop a business plan and secure funding within the next 12 months.
Based on current skills and experience, it is feasible to develop a business plan and secure funding within the next 12 months.
Starting a business is a long-term financial goal that aligns with personal values and aspirations.
Launch the business within the next 5 years.
Need More Long-Term Goal Examples?
Knowing I’m not the only goal-setting freak that exists in this world, I asked fans from the Good Financial Cents Facebook page what their long-term goals (big shout to the Fincon community for contributing, too!).
Fincon Community Long-Term Goals
Here’s a great list of examples of long-term goals:
Bob Lotich at SeedTime.com says:
[I want] to provide a comfortable life for my family, to have enough cash to maintain a flexible lifestyle, and to use everything else to financially support charities and organizations that are making a huge impact on the world.
Ryan Guina at TheMilitaryWallet.com says:
[I want] to become financially independent. What this means to me: to have no consumer or mortgage debt and have enough resources in savings and investments to cover my everyday living expenses without relying upon income from my job. This will provide more freedom in pursuing activities based on fulfillment vs. the need to generate revenue.
Larry Ludwig at InvestorJunkie.com says:
[I want] to be financially free. I define it specifically as to accumulate $10,000,000 in investment assets that can generate at minimum 4% per year of income.
Teresa Mears at LivingOnTheCheap.com says:
[I want] to support myself, both now and in retirement, and enjoy life. What else is there?
Steve Chou at MyWifeQuitHerJob.com says:
[I want] to generate enough income so that I can spend more time with my family and be there for the kids. Growing up, my parents worked their butts off so I could go to a good school but I didn’t see them very often during the week. With my kids, I’m going to send them to a good college and always be present.
Grayson Bell at DebtRoundup.com says:
[I want to] build a business and a financial stockpile to allow my family and I to travel when and where we want to. I don’t want to be stuck due to a job or financial situation. This will require scaling my business and looking for more opportunities to expand my passive income streams.
Robert Farrington at TheCollegeInvestor.com says:
[I want] to generate enough passive income to replace my current income. This will require a long-term strategy of earning more money (through my salary and side hustles) and investing the excess. The goal, of course, is to retire early while still being able to provide the quality of life I want.
My Lifetime Goals
Long-term goals can be difficult to articulate but deserve to be written down. I previously shared my lifetime goals on this post. Looking them over I recognize I would make a few tweaks, but; for the most part, they are still align with what I want to achieve in life. Here’s a look:
1. Spiritual leader of my household. I want my kids to see me first as a God-loving father who puts his faith first before success. I want to continually love and support my wife, and do so in an Godly manner.
2. Live a long and filling life with my wife and family. Raise my kids with the philosophies of: working hard, but not sacrificing “work” for what you love; love first; and treat people with respect (Golden Rule)
3. Have several multiple-system driven businesses that produce >$100,000 a month of passive income.
4. Live in multiple countries (5+) for an extended period of time (minimum 3 weeks) with entire family
5. Inspire over 1,000,000 people to invest in themselves. This can be through traditional investing (Roth IRA, 401k), obtaining a higher degree or certification, or investing in a small business.
6. Be a successful entrepreneur and best-selling author of numerous works. I want to be recognized as as a hard worker who put his family and faith first.
The Bottom Line – Long-Term Financial Goals
[embedded content]
Setting long-term financial goals is an important step towards achieving financial stability and building wealth. By defining your values, aspirations, and time horizon, you can create a roadmap that aligns with your priorities and guides your financial decisions.
Remember to monitor your progress, stay motivated, and seek professional advice when needed. With discipline and perseverance, you can achieve your long-term financial goals and secure your financial future.
Here’s your homework
I want you to implement at least one of these strategies for reaching your long-term goals over the next year. When the year is over, write me. Tell me how well the strategy worked out for you. I want you to put your heart and soul into one or more of these strategies.
Why? I want you to see success.
Make it hap’n, cap’n!
FAQs – Long-Term Financial Goals
How do I balance saving for long-term goals with short-term needs?
It’s important to strike a balance between saving for your long-term financial goals and meeting your short-term needs. You can achieve this by creating a budget that allocates some of your income towards both short-term and long-term goals.
This way, you can address your immediate financial needs while also making progress towards your long-term goals.
How can I stay motivated to achieve my long-term financial goals?
Staying motivated to achieve your long-term financial goals can be challenging, especially if your goals are several years away.
One way to stay motivated is to break your long-term goals into smaller, manageable milestones. Celebrate each milestone as you reach it, and use the progress you’ve made as motivation to keep going.
How do I know if I’m on track to achieve my long-term financial goals?
Regularly monitoring your progress towards your long-term financial goals is essential to staying on track.
You can use financial planning tools and software to track your progress and adjust your plan as needed. You can also work with a financial advisor or planner to evaluate your progress and make any necessary adjustments to your plan.
Can I adjust my long-term financial goals as my situation changes?
Yes, it’s important to be flexible and adjust your long-term financial goals as your situation changes. Life is unpredictable, and unexpected events can impact your financial situation. Review your financial plan regularly and adjust it as needed to ensure that it aligns with your current situation and goals.
Need some more long-term goals? Check out The Top 10 Good Financial Goals That Everyone Should Have. If you’re a baby boomer, check out 5 Financial Goals for Baby Boomers.
Half of Americans Won’t Be Able to Afford Their Standard of Living in Retirement: Here’s What You Can Do | SmartAsset.com
Close thin
Facebook
Twitter
Google plus
Linked in
Reddit
Email
arrow-right-sm
arrow-right
Tap on the profile icon to edit your financial details.
Will you have to downsize in your retirement?
Many families plan to adjust their lifestyles in retirement. They swap the family house, say, for a smaller home. Or they move to a less expensive community. When this is a choice, it can be an excellent way to slow down and stretch the value of your portfolio.
Unfortunately, for many households, downsizing won’t just be an option. It will be a necessity.
That’s the result of a recent study published by Boston College’s Center for Retirement Research. The CRR researches the many different financial and lifestyle issues that surround modern retirement and publishes a statistic called the National Retirement Risk Index. This index measures how many households have less in retirement savings than they will need in the years ahead.
For hands-on help planning your retirement, consider matching for free with a vetted financial advisor.
What the CRR Study Says
The CRR’s findings are stark. Fully half of the nation’s working-age households will not have enough money to maintain their standard of living once in retirement. Making matters worse, this study assumes a strong working and saving life in which people work until age 65 and annuitize their assets, and even accounts for Social Security income.
Instead, according to the CRR’s findings, millions of households will have to cut back on both luxuries and necessities in order to survive. The specifics will range based on the needs of any given individual. In some cases, retirees won’t be able to enjoy some of the same things that made them happy in their working years. They might have to go out for dinner less often, for example, or they may no longer be able to travel.
For other people the situation will get more dire. In order to survive, retirees will have to sell valued assets like a family home or may have to skip necessities like food and medication.
The National Retirement Risk Index is based on the concept of income replacement. Essentially, how effectively can the proceeds of a retirement portfolio replace working income? It isn’t a one-to-one relationship, because, once retired, most households need less money to maintain the same standard of living on a day-to-day basis. You no longer have to save for retirement, for example. You typically pay less in taxes, no longer have dependents to support, have paid off the mortgage on your house and in general have fewer costs. For many households, the rule of thumb is that your retirement portfolio needs to replace 80% of your working income in order to maintain the same standard of living.
Yet half of all households will fall short of even that 80% mark by at least 10 points, the level at which the NRRI considers a household “at risk.”
Underprepared For Retirement – A Wider Trend
This is the latest survey to emphasize what financial experts have been warning of for years: There is a retirement crisis brewing in America.
Around the late 1970s and the early 1980s, the economy shifted from what is called “defined benefit” retirement planning to “defined contribution.” Instead of receiving a guaranteed pension from their employers, most workers were enrolled in the now-common 401(k) plans. This has system has struggled to keep up with workers’ needs, however, and in the decades since there has been a growing concern that households simply have not been able to save up the money they will need to pay for retirement.
The National Retirement Risk Index has found this consistently to be the case. Since 2004, it has found that about half of households surveyed do not have the money they will need to maintain their standard of living in retirement.
Previously, older generations were less at risk, as in 2004 many older households still reflected the more generous retirement plans and pay scales of a previous era. In the most recent publication, however, that difference has been erased. Now the NRRI finds equal risk across all age groups. The center has also found this broadly true across most income groups as well. Even across high-income households (defined as $85,000/$248,000 or more for single/married households), 41% of all households surveyed fall below their own replacement level of savings.
As to what policymakers can do to address this crisis, there are many proposed solutions. Yet arguably two of the biggest issues when it comes to addressing retirement shortfalls are time and money.
From the perspective of time, effective solutions will differ across various households. Policymakers may be able to help younger households through a series of employer- and tax-based options, helping people to get more income and to save up more in their retirement accounts during their working lives. This can be an effective solution for someone who has decades of growth left ahead of them. However this problem is equally stark for households that are just a few years away from retirement, and they likely do not have the time to catch up through savings and investment. Households approaching retirement are likely to founder without a simple plan to get them more money.
Which is the other problem. Ultimately, the retirement crisis is about money. Households need more of it, and it will have to come from somewhere. Whether the government spends this money directly through Social Security overhauls or whether an employer does so by reintroducing pensions or boosting benefits and pay, this comes down to somebody, somewhere cutting a check. Finding those funds remains one of the biggest problems when it comes to solving the retirement crisis.
That solution needs to come soon, however, because the Boston College findings are quite clear. For millions of Americans, retirement will not be something to look forward to. It will be an era of struggle and want.
But this does not have to be your own experience.
Saving for retirement is a massive project that should last for your entire career. Ideally, you can begin setting aside money as early as possible. Even just a small amount of savings in your 20s can add up to a significant nest egg by the time you reach your 60’s. If you have children, you can do the same for them. Making modest contributions to a portfolio that can grow over 60 years will be one of the best ways you can help young children get a head start on life. But no matter what age you’re at, it’s never too soon or too late to start.
Beyond that, the rule of thumb is 10%. Whenever possible, set aside 10% of your salary into retirement savings. If you have an employer with a matching 401(k), maximize that, followed by Roth IRA and Roth 401(k) accounts.
Don’t just rely on rules of thumb though. Use tools like our retirement calculator to reverse engineer your savings plan. Start with a sense of how much money you will need in retirement, then work backwards to figure out how much you should be contributing in order to reach that goal. Even if the numbers are large, it’s better to have a clear plan than a best-guess approach.
Finally, if you do need to change your standard of living in retirement, begin planning for that early. Again, by understanding what you can contribute and how that can grow over time, you will have a sense of what’s possible from your retirement account. Make your plans from there. That will give you a degree of control over how you have to change your lifestyle, so that you’re making cuts that you’re comfortable with instead of scrambling to meet your needs as they arise.
Bottom Line
The Center for Retirement Research at Boston College released its latest National Retirement Risk Index, and its findings are grim. Fully half of all Americans will need to cut their standard of living in order to ever retire.
Retirement Tips
You’ve worked. You’ve saved. You have a portfolio that’s humming along. So, with all of that going for you, how can you know when you’re ready to retire?
But the best way to know how your retirement plan is to get professional help. A financial advisor can help you save and plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
One of the keys when it comes to investing for the long term is to make sure you’re minimizing the fees you’re paying to invest your money.
Whether it’s plan administration fees for the company you’re investing with, mutual fund expense ratios and fees, or fees for added account functionality, the more you can minimize how much you’re paying, the better.
Morningstar reports that the average expense ratio for actively-managed equity mutual funds is 1.2% and investment-grade bond funds have an expense ratio of 0.9%. For me, I prefer to invest in mainly low-cost index funds with expense ratios that are much lower.
Beyond saving money on the expense ratios, I also would love to save money on the administration fees I pay in order to invest. My company 401(k) has fees just under 1%, which is way too much for my tastes. I’ve stopped investing there first since there is no company match.
This past week I was doing some research on the new slate of robo advisors that have popped up. One of them jumped out at me because the company is extremely affordable, but it also has shown some of the best results in the past couple of years. Not only do they invest your money for you in a slate of well-diversified ETF index funds, and rebalance your holdings on a regular basis, but they charge you a pretty minimal fee to do it.
This all sounded too good to be true, so I decided to do a full review of this new automated investing service called Axos Invest Managed Portfolios, to see what they are all about.
Axos Invest History
Axos Invest launched several years ago under the name WiseBanyan. They had the goal of being the world’s first completely free financial advisor.
Here’s their reasoning behind why they launched their site.
Herbert Moore and Vicki Zhou founded WiseBanyan after seeing that the incentives between financial advisors and clients were often misaligned. They saw this firsthand while working in asset management and investment banking respectively, and later as colleagues at a quantitative asset management firm. They realized that the main cause of misalignment was a conflict of financial interests, which often resulted in high fees, unnecessary tax consequences, and unreasonable account minimums for the clients. As a result, they set out to build a company that was not incentivized to earn money at its clients’ expense.
WiseBanyan began with the idea that investing is a right – not a privilege. Our mission is to ensure everyone can achieve their financial goals, which starts with investing as early as possible. This is why there is no minimum to start and we do not charge high fees. We hope you are as excited about WiseBanyan as we are, especially what it means for you, your friends, and society as a whole.
Axos Invest was launched with the hope of making investing easy, accessible, and cheap – even for beginning investors who could only invest a small amount every month.
While the service is no longer free (They started charging a 0.24% annual assets under management fee in 2020), they still practice the values of making investing more accessible and affordable for everyone.
WiseBanyan Holdings was acquired by Axos Financial, and as of October 2019 and moving forward the company formerly known as WiseBanyan is now known as Axos Invest.
Axos Invest has become a part of the Axos Financial online banking platform. Check out our full review of Axos Bank.
Axos Invest Account Types – Managed Portfolios Vs. Self-Directed Trading
After reading up a bit about Axos Invest I was intrigued enough to sign up for one of their accounts. I went to their site to find that there are a couple of different account types you can sign up for.
I was mainly interested in signing up for Managed Portfolios since I intended to use this as a robo-advisor to automatically invest, rebalance and reinvest my dividends for me. I wanted it to be hands-off.
If you prefer to research and invest in your own choices of individual stocks, the commission-free Self Directed Trading account may be a better choice for you.
If you’re an advanced trader the Self Directed Trading account has the “Axos Elite” subscription which gives you real-time market data, TipRanks market research, extended trading hours, margin trading, stock lending, and more for a monthly fee.
Head on over to the Axos site via my exclusive invite link below to get started on your Axos Invest account now:
Open Your FREE Axos Invest Account Now
Open an Axos Self Directed Trading account and deposit at least $2000, and you’ll get a $250 bonus for a limited time!. Open Axos Self Directed Trading
Opening An Account With Axos Invest
After going to the Axos Invest site to open my Managed Portfolios account, it dropped me right into a brief questionnaire to assess my risk tolerance, investment time horizon, and more.
While you’re answering the questions you’ll see a progress bar and a “current risk score” listed to the right, telling you just how conservative or aggressive Axos Invest believes you are.
My risk score went up and down throughout the survey based on my answers, and when I finally completed it gave me a risk score of 7.2. That would give me an estimated asset allocation of 65% stocks to 35% bonds – which seems about what most would suggest as I’m relatively conservative in my investments, and the bond allocation roughly matches my age (put your age in bonds!)
I decided that I wanted to change my risk score and asset allocation to be a bit more aggressive, however, and you can do that simply by moving the slider to the right (or left if you’re more conservative). I ended up with closer to 75/25 stocks to bond allocation.
After completing the survey you click on the “Open My Account” button, which takes you into the account opening process. It will ask for all of your personal information including an email, password, employment information, and Social Security number (like you would have to at any brokerage).
Once you’re done entering your personal information you’ll be asked to choose an account type. Currently, you can choose:
Taxable Investment Account
Roth IRA
SEP IRA
Traditional IRA
After you choose an account type you’ll be asked to link a bank to fund your account. You can then choose to fund the account with as little as $500. If you want, you can also set it up to automatically invest for you every month. I have it set to automatically invest $300 for me on the 15th and 30th of the month.
Once you’re done your account will be sent to Axos Financial for approval. Their site says it takes about 5 business days for an account to be approved.
Axos Invest Investment Philosophy
Axos Invest will invest your funds based on Modern Portfolio Theory (MPT).
We use the tools of Modern Portfolio Theory to design the optimal portfolio for a given level of risk. In addition, we further optimize our investment process to minimize tax consequences and streamline the reinvestment of dividends and contributions.
Their investment philosophy is built upon four main pillars:
The value of diversification
Keeping fees as low as possible
The value of passive investing
Starting sooner rather than later
Axos Invest will attempt to give you a portfolio that is well-diversified, low-cost, and at low minimums so just about anybody can get started now. They’ll use the ideas behind MPT to give you the optimal portfolio for your given risk score.
The Actual Investments
So what are you getting when you invest with Axos Invest? You’re getting a well-diversified portfolio that contains passively managed exchange-traded funds (“ETFs”).
The funds held with Axos Invest have an average fund fee of 0.12% – the only fees you’ll pay to invest. Here is the breakout for the individual funds they use (the funds used by Axos is subject to change, and probably will) and their expense ratios:
Vanguard Total Stock Market ETF (VTI): 0.03%
Schwab U.S. Broad Market (SCHB): 0.03%
Vanguard FTSE Developed Markets ETF (VEA): 0.05%
Schwab International Equity (SCHF): 0.06%
Vanguard FTSE Emerging Markets ETF (VWO): 0.15%
iShares Core MSCI Emerging Markets (IEMG): 0.14%
Vanguard REIT Index Fund (VNQ): 0.12%
iShares U.S. Real Estate (IYR): 0.42%
iShares Investment Grade Corporate Bond ETF (LQD): 0.15%
Vanguard Intermediate-Term Corporate Bond Index (VCIT): 0.05%
Vanguard Intmdte Tm Govt Bd ETF (VGIT): 0.05%
iShares Barclays TIPS Bond Fund (ETF) (TIP): 0.19%
State Street Global Advisors Barclays Short Term High Yield Bond Index ETF (SJNK): 0.40%
PIMCO 0-5 Year High Yield Corporate Bond Index (HYS): 0.56%
Vanguard Short-Term Corporate Bond (VCSH): 0.05%
As you can see they have a broad diversification that also includes real estate via the Vanguard REIT Index fund, which isn’t something that Betterment gives you.
The performance of Axos Invest has been pretty good. As you can see from the screenshot from Barron’s “Ranking the Robos” article below, WiseBanyan/Axos Invest had the second-best two-year annualized return, through 6/30/19. Not too bad!
Axos Invest Mobile App
When the service first came out one of the complaints some users had was that there was no mobile app for the service. A mobile-optimized app for iOS was released shortly thereafter, as well as an app for Android users.
From the app, you can now do things on the go like check your balances, view your allocations, make a quick deposit, and more. The apps really are very pretty to look at and are a pleasure to use.
Axos Invest Fees & Account Charges
One of the biggest draws for Axos Invest when they started was the fact that they were essentially a fee-free service. While that is no longer the case, they are still very low-cost, one of the lowest-cost robo-advisors on the market.
Here are a few of the fees (or lack thereof) that you’ll see with the service:
Managed Portfolios
Management fee: 0.24% of assets under management. Accounts less than $500 pay $1/month.
Trading fees: FREE
Rebalancing fees: FREE
Dividend reinvestment fee: FREE
Self-Directed Trading
Stock Trading fees: FREE
ETF Trading Fees: FREE
Options trading: $1 per contract
Self-Directed Trading – Axos Elite
Axos Elite is the premium self-directed investing service that offers more powerful investment tools, real-time market data, extended trading hours, lower fees, stock lending, and margin trading.
Monthly fee: $10/month
Stock Trading fees: FREE
ETF Trading Fees: FREE
Margin Trading: 5.5%
Options trading: $0.80 per contract with Axos Elite
So essentially the Axos Invest service is very low cost with only the 0.24% AUM fee for Managed Portfolios. There are no trading fees, and no fees to rebalance your account or reinvest dividends. Competing services often charge much higher annual management fees, so with Axos being one of the very lowest when it comes to fees, you’re saving on those fees right off the bat.
There are some fees related to transferring funds via wire transfer, or do a full account transfer out, although regular electronic funds transfers (EFT) are free.
Electronic Fund Transfer (EFT) fee: FREE for deposits or withdrawals.
Wire transfers in: FREE (although your bank may charge).
Wire transfers out: $30 per domestic wire transfer.
Account closing fee: FREE.
Full account transfer out fee: $75 per account.
Partial account transfer out fee: $5 per security ($25 minimum/$75 max).
Disbursement of funds by check by mail: $10 per check.
Returned check fee: $40 per occurrence.
As mentioned above, Axos Invest’s product and service is very low cost and there are only a few small fees for certain types of transfers or check disbursements.
Premium Add-On Products & Services
There are several premium packages in your Axos Invest account that have a fee associated with them. You can turn them off and on whenever you want.
Currently, the premium packages include:
Portfolio Plus: The ability to create your own custom portfolio from an expanded list of investments. You can choose from lists of different investment classes and types and add up to 20 investments to each portfolio you create. It costs $3/month to use this add-on package.
Quick Cash: When activated this gives you quick same-day deposits, auto-deposit scheduler, and overdraft protection. It costs $2/month to use this add-on package.
Tax Protection: This package will give you tax loss harvesting, selective trading (to remove ETFs you hold elsewhere to avoid the potential for wash sales) and IRAutomation, which helps you to maximize the use of your retirement account deposits, setup auto deposit plans and more. Each month the cost will be the lesser of 0.02% of your average Axos Invest account value (0.24% annually) or $20. So if you have $5,000 in your account, the monthly cost would be $1.
Using these add-on packages is purely optional, but even if you were to turn them all on it likely isn’t going to cost you more than a few bucks per month.
Axos Invest: Great For Cost-Conscious Investors
When I first read about Axos Invest I dismissed it out of hand because I thought that there had to be a catch somewhere, there’s no way they were offering this service for such a low cost when others are charging anywhere from .35%-1.0% annual management fees for similar services.
After looking into it further, however, it does truly seem like Axos Invest is committed to offering a low-cost investing service for both self-directed investors and those who want their portfolios managed for them.
Axos Invest does seem like a good option for newer investors. Not only can you start investing with no account minimums, and low management fees – but you can buy fractional shares with as little as $10 and get a highly diversified portfolio that should match the market in the long term.
The account has SIPC protection that covers up to $500,000 per client as well, so if Axos Invest were to go under you’d be covered.
I’ve signed up for my own Axos Invest account and have been with them now for years. They are my go-to recommendations for new (and even experienced) investors.
