My Blog

Checklist of Financial Goals for Baby Boomers

Baby boomer's couple looking at misty water and green field

Do you have a list of your financial goals? Or do you have a financial plan?

Over the years, I have developed a habit of setting up financial goals, but I never had a financial plan. It seems that I never needed one. But it was a big mistake not creating a financial plan, so I would have a clear picture of my financial goals. It is so easy to get distracted and forget what we try to achieve right now and start spending money on something else.

I remember the days when we were saving money for a down payment on a house. It was challenging because we were trying to pay off our student loans at the same time. We would spend a good chunk of saved money on summer vacation because we felt tired and needed to have some fun. A big mistake!

If we had set up a financial plan, it would help to create a timeline to follow our goal, like saving money for a house. We didn’t set up a budget to follow through and see the progress. Eventually, we saved enough money for a down payment and bought a house. But looking back I see that we would save more money and faster if we came up with our financial plan.

When you are young and just starting in life, it’s very hard to come up with a financial plan. You don’t have a big picture of what financial goals you want to accomplish.

When you’re older and already have a house, a couple of cars, sent your kids through college and saved some money for retirement, you would think that you don’t really need a financial plan. You’re wrong. The financial plan is an important part of everyone’s life never matter how old we are.

Unfortunately, without a good financial plan, it will be difficult to reach your financial goals because you don’t know which goal to work on next. The idea of setting up your financial plan is to be ready for each financial step in your life and have a clear vision of what comes next.

How to set up a financial plan?

checklist Yes or No on a piece of paper-financial goals

When you first come up with an idea of a financial plan you need to have a list of clear goals in mind. Your goals could be short-term or long-term goals. The more specific your goals are the better. I believe that financial goals should be different based on your age.

In this post, I want to share the list of short and long-term financial goals for baby boomers.

Financial goals for baby boomers:

1. Get out of debt

Getting out of debt should be the most important financial goal for people in their 50’s and 60’s. Living debt-free is important for all generations. However, for baby boomers, it should be number #1 short-term financial goal.

When you’re working you have years of earned income to pay a mortgage, credit cards, student or any other kind of loans. But once you retire, you will be living on a fixed income. Being debt-free gives you more freedom and money left in your pocket to enjoy your golden years than struggling to pay the mortgage or other debts.

What I am doing: Over the years we have accumulated a lot of debts. We never had a credit card debt, because we pay our balance in full each month. But we have done a few big renovation projects on our house and accumulated a significant amount of construction loans. In addition to that, we never had enough money saved for our daughter’s college, so we had to pay off her student loans.

Over time, we had gathered $170,000 in debts. It took us many years to pay them off. By the end of 2019, we should be done paying off our daughter’s student loan. The only debt we will have left is the mortgage. We try to increase our payments towards the principal, but I don’t think we will finish paying it off in full before we retire.

2. Maximize your retirement savings

Most of us try to save and invest money in our retirement plans like 401(k), IRA and Roth IRA. However, I read a lot of articles about baby boomers who fell behind on this task. I know how easy is to be discouraged and give up on your efforts. But, if you are in your 50’s and planning to retire at your full retirement age, you still have 15 years to work, save and invest.

Do you know how much should you be saving for retirement?

Did you figure out if you have enough retirement savings to support your lifestyle in retirement?

The most popular rule of thumb is 10% to 15% of gross pay (before taxes) goes to retirement savings. But you need to save more than 20% if you are starting late in your years.

What I am doing: Currently Roman and I are saving around 20% of our gross pay. In the beginning, we put around 10% for our retirement accounts. We needed extra money to pay off our daughter’s student loans and construction loans for home renovation projects. Our strategy was to use the extra cash to pay off debts and slowly bump up the percentage of our retirement savings. We persistently added 1% to our savings each year until we reached our goal – 20%.

3. Create a retirement budget and plan for big expenses

word "dream" on grass - baby boomers financial goals

Do you have a budget?

Do you know how much money you spend each month or each year? How much is your income? How much are your expenses?

When in your 50’s you already know how you want to live your life in retirement. It’s very close and your dreams and ideas are clearer than in your 30’s or even 40’s.

One of your financial goals should be creating a retirement budget. Transitioning from working to retiring will take some time and you need to know how you will be spending your money. You spend your life saving and accumulating money, start thinking about how you’ll draw from your nest egg.

You need to plan for big expenses like buying a vacation house, a boat, a new car or maybe paying for your kid’s wedding. Regardless of the expense, it’s important to pinpoint them and be ready by saving more money for that expense.

What I am doing: Our retirement budget is work in progress. I have created a spreadsheet of future expenses and the cost of it in retirement. The biggest chunk of our savings will go to travels. We love to travel and planning to spend 5 years exploring the world after we retire.

4. Stay healthy

Staying healthy should be a long-term goal for all baby boomers. Everyone knows and hears it often that the healthcare cost is going up every year. The reports are full of data warning us that we need to have more than $250,000 saved to cover our medical bills because we live longer.

So, there isn’t any other way for us, but to invest in our bodies by staying fit and healthy. Now it’s time to join the local gym, yoga studio or hiking or walking club. Look at your diet and cut back on anything that harms your health. Quit smoking or excessive drinking. Start a diet or fitness plan and lose weight if you need to get healthy and fit.

5. Dream about what you want to do when retire

table with flower arrangements - activities for baby boomers

Do you know where are you going to live in retirement? Or what are you going to do every day when you stop working? Are you going to retire in place or relocate to a more affordable state or even overseas? How it will affect your finances?

You’ve probably already taken baby steps with these questions to have a vision of your next phase of life. Now it’s time to get more detailed and fill in the missing pieces. Your financial plan should help to stay focused on setting dreams and goals for your retirement.

What I am doing: What we like to do? Roman and I share a passion for reading. I love history and I like to read historical novels. Roman’s favorite books are on alternative history. We share another passion – a passion for traveling. Before coming to the US, we used to live in several different countries which gave us a great experience. When we retire, we are planning to travel around the world for the first 5 years of our retirement. Then we would slow down and probably will make a few big trips. This is our dream, but we need to have enough money saved to support our traveling expenses.

I believe that now is the time to do these things and dream about your retirement, because if not now, then when?

Financial plan in small steps

With any planning, it’s always a good idea to break it down into small steps. Taking baby steps to reach your goals will help you to get there faster and with less stress.

For example, if you are planning to buy a vacation home, you cannot just wake up in the morning and put an offer on that dream house (probably some people do!). Most of us we’ll need to save up some money for a down payment (5%, 10% or 20% depends on the status of your budget). Before that, some of us we’ll need to reduce debt.

The financial plan will help you to set up short-term and long-term goals and assign a timeline to this process.

Budget is a key to a financial plan

Budget plays a key role in any financial plan because you have to control your finances. You need to set up your budget and stick to it. Budget is a tool that gives you complete control over your money, so you can decide how much to save and how much to spend and if you are ready to spend and where.

Looking at your budget spreadsheet you might realize that you would rather sacrifice your desire to go on a family cruise vacation so that you have more money saved to buy a boat or a vacation home. So, a budget lets you see where and when you spend your money and how you want to do it.

Financial plan benefits

A detailed financial plan will help to stay focused on your financial goals. It keeps you moving forward and creates a sense of the timeline for achieving your short and long-term goals. Without the plan, it’s very easy to get lost and forget what should come next.

If one of your goals is to get rid of debt, you need to set up the timeline for this goal and create a strategy which debt should be paid off first. Then you move onto your next goal. So, the financial plan gives the direction of your next step and let’s you stay focused on the big picture.

Do you have a financial plan? Have you thought about setting up a financial plan with detailed financial goals?

3 Best Ways to Generate Retirement Income

by Maggie 2 Comments

When we start investing in our retirement accounts – 401(k), IRA, Roth IRA – we keep in mind that the money eventually will be taken out and serve as an income when we stop working.

Those savings are our own and don’t come from the government or an employer. It’s not a guaranteed income as a Social Security or pension. It will only last as long as we plan for. So, when we start withdrawing money from our retirement funds, we should be careful and remember not to outlive our savings.

Most of us don’t have any idea how long we will live. We work hard and save as much as we can, so later we can enjoy our life in retirement. We feel proud and secure when we see how money starts accumulating in our savings account.

But surveys show that many retirees withdraw funds from their savings too quickly, with the potential result of running out of money before they die.

Recently I read that many baby boomers use their 401(k) money for buying vacation houses, new cars, or going on luxury vacations. The problem is that many retirees don’t have a strategy of how to draw down their retirement savings and just “wing it”. If you spend your retirement savings without a good plan or just “wing it”, your nest egg might not last for a few decades.

The decision of how to generate a retirement income and don’t run out of money before you die is the most difficult one. There are plenty of books and articles describing how to save and invest money, but not so many when it comes to how to withdraw them, in what order and how to make it last for the rest of your life.

That’s why I wanted to focus this post on retirement income-generating strategies. I wanted to share what I have learned about how to use your retirement savings for creating an income that hopefully lasts as long as you live.

How many sources of retirement income?

piggy bank and a pile of coins in front of it-retirement income

For most of us the retirement income will come from several sources:

Social Security
Pension (if you are lucky one)
Work (full-time or part-time)
Retirement accounts – 401(k), IRA, Roth IRA
Other savings

Social Security and pension are considered a guaranteed income because they got paid as long as you live. The full-time or part-time income is paid by your employer if you are still working and stop coming in when you retire.

The money from retirement accounts and savings will become an important part of your retirement income and the one YOU have the most control over.

How to manage your retirement savings?

When you accumulated a good sum of money in your retirement accounts it’s so easy to start spending it without careful planning. If you run through your savings fast and have so many years to live left, you’ll be facing some hard choices. You will be facing the options of going back to work, cutting back your living expenses or maybe moving in with your kids or relatives.

There are a few ways to withdraw money from retirement accounts and make it last for long. While we’re working, most of us live paycheck to paycheck. So, if we stick to the same financial discipline in retirement it will help us to control and manage our savings.

Based on that experience, a good strategy will be to create a monthly paycheck coming from your retirement savings.

But how to determine the size of your monthly paycheck?

First, take a realistic look at your retirement assets and how much money you have saved.

Then, think about what kind of lifestyle you want to have in retirement, how much it will cost to maintain it and for how long.

Establishing your priorities and understanding the trade-offs of each option will help to balance your emotional and financial decisions.

How much money to withdraw from your retirement savings?

laptop, smart phone and a notepad on the table-retirement income strategies

To determine how much to withdraw from your retirement savings is a critical decision. A simple withdrawal plan will help you to live comfortably and not to spend sleepless nights worrying about outliving your savings. But first, you need to figure out how much you will spend in retirement.

Do you know how much you will spend when you stop working?

Did you calculate how much you will spend on housing, transportation, utilities, groceries, medical and traveling?

Calculating your future expenses is an important part of retirement planning. The retirement expenses or I call it “your future spending plan” will help to determine how much to withdraw from retirement savings in addition to Social Security or pension.

A piece of good advice to remember that the more guaranteed income you have coming in, the less money you need to withdraw from your retirement savings.

Once you set up your future spending plan, you need to figure out how to withdraw money from 401(k), IRA, Roth IRA, and other savings. There are several ways to take money out of retirement savings.

3 best ways to generate retirement income:

1. The 4% withdrawal rule

The 4% rule of thumb is the most popular method to withdraw money from a retirement account each year.

How does it work?

The idea behind this method is to calculate 4% of your retirement savings that are remaining on your retirement accounts at the beginning of each year and then divide it by 12. That calculated number will determine your monthly paycheck for the year. The next year you should do the same calculation.

For example, if you have saved $300,000, this means you could safely withdraw 4% or $12,000 per year or $1,000 monthly. When you start your calculations, don’t forget to adjust those numbers for inflation, because the inflation erodes our savings. Whatever our cost of living today it will double in 20 years.

Simple withdrawal calculations for nest egg of $300,000:

Year 1 = $300,000 x 4% = $12,000 (or $1,000 per month)

Year 2 = $300,000 – $12,000 = $288,000; $288,000 x 4% = $11,520 (or $960 per month); $11,520 x 3% (inflation rate) = $11,865 (or $988 per month with increase for inflation rate)

Year 3 = $288,000 – $11,865 = $276,135; $276,135 x 4% = $11,045 (or $920 per month); $11,045 x 3% (inflation rate) = $11,376 (or $948 per month with increase for inflation rate)

And so on…

Why so much calculations?

When you use the 4% withdrawal rule, you will tap into your portfolio income and principal. Your retirement portfolio might go up and down during the year. Yearly calculations will help to protect your assets from being drawn down fast.

This method will give you the flexibility to occasionally tap into your principal and access to your savings for emergencies, but the money may not last through your lifetime.

While a yearly 4% withdrawal rule might not be ideal and may require more active management of your savings, but it should give you a general ballpark of where to start.

2. Withdrawals from investment income – interests and dividends

If your retirement income from Social Security and/or pension is big enough to cover your living expenses, then you can just withdraw interest and dividends from your retirement portfolio.

This strategy will allow you to withdraw only investment income (interests and dividends) and don’t touch the principal. With this method, you will keep most of your principal invested and it should last for your lifetime.

You’ll still have access to your savings and generate a retirement income, but it will be much lower, than with a 4% withdrawal rule. However, if you want to use this method to generate a retirement income, you’ll need to accumulate a big enough portfolio.

How much capital do you need to have to generate $50,000 in annual income? The answer will be it all depends on your dividend’s yield, but generally speaking close to $1.3 million. And if you need to have only $40,000 in your annual income, the number of your capital will be smaller close to $1 million.

So, if you want to live off your interests and dividends generated by your investment portfolio without touching a principal you will need to save much more than 20%, and then invest aggressively. Unfortunately, most people don’t get into this group.

3. Annuity as a guaranteed retirement income

table with a pot of coffee, cup, creamer and a flower pot

You can create a guaranteed retirement income by using a portion of your savings to buy an annuity. You can call it a DIY pension with a regular “retirement paycheck”.

How does it work?

You give a lump sum of your retirement savings to an insurance company and they promise to pay you a monthly income for life. Once you have your basic expenses covered by an annuity, you will gain peace of mind. Knowing that you have some financial security, you may want to invest your remaining money for growth, rather than worrying about how to stretch your savings for the rest of your life.

Annuities come in different size and shape:

Fixed income rate and variable income rate annuities
Lifetime annuity or Term annuity
Deferred Annuity or Immediate Annuity

Gary from Super Saving Tips blog gave a very good and detailed overview of annuities and their features:

Are Annuities Good or Bad for Your Retirement?

I must admit that I am not a big fan of annuities because it comes with high fees and commissions. However, I like the idea of buying an immediate annuity with the portion of retirement savings.

The immediate annuity will pay you a fixed income for the rest of your life. Unfortunately, there is no inflation protection for an immediate annuity with a fixed monthly income.

If you want to find out how much lifetime retirement income your savings could buy, use The New Retirement Annuity Calculator:

Retirement Annuity Calculator

What I am planning to do:

My plan is to buy an immediate annuity to cover our basic living expenses using one-third of our savings. I will keep one-third of our portfolio invested in stocks, so we will see our assets growing and get some inflation protection. The remaining part of our savings I will keep in cash, CD’s and bonds. When we retire, I can start using a 4% withdrawal rule to generate an additional income for our travels and hobbies.

Final thoughts

There is no right and wrong way to generate income from your retirement savings. It’s all depended on many factors like the size of your retirement portfolio, your living expenses, and the lifestyle you are dreaming about.

The problem is that we don’t want to deprive ourselves of certain luxuries when we stop working for a paycheck. We worked hard and waited for many years to live a nice life in our golden years.

So, if you are still 10 or more years away from retirement, I encourage you to stick to your budget, control your spending habits, and increase your savings. Those savings will help you to generate more income and provide you with safety and comfort in retirement.

Readers – What do you think? Have you thought about how to use retirement savings for creating a retirement income? Any thoughts on the annuities as a guaranteed retirement income?

The intent of this post is to be only educational and provide a simple guideline for a very complicated matter. I would recommend discussing your retirement income strategies with an accountant, financial planner or tax professional.

Smart Ways to Take Money Out of Retirement Accounts

by Maggie Leave a Comment

Old man with a cane watching sunset next to the bench and tree

We spent our lives working hard, saving for retirement, and building our nest eggs. One day the time comes when we stop working and start spending our saved assets. But we need to be smart about taking money out of our retirement funds, otherwise, the big chunk of it might be eaten by taxes.

A general rule to remember – keep the money in your 401(k) or IRA until you reach age 59 ½. If you withdraw any money before that age, you’ll be hit with a 10% penalty fee on top of the regular income tax.

In this post, I want to show you smart ways to take money out of your retirement accounts and help to avoid costly mistakes.

What is RMD?

There are certain rules to follow when you start taking money out of your retirement funds. The rules are about when you can withdraw money and how much you MUST withdraw every year. It is called Required Minimum Distribution (RMD).

The IRS requires to start taking a minimum distribution from tax-deferred accounts when we turn 70 ½ years old, unless you’re still working. If you don’t make it on time and failed to withdraw the required amount each year, you’ll owe to IRS a large penalty fee. In addition to the penalty fee, you’ll still need to withdraw the required amount and pay an ordinary income tax on it.

RMD rules are set up by the IRS and it will be a bad idea to follow those rules. The withdrawal amount is determined by your age, life expectancy (the longer your life expectancy is, the less money you must take out) and your account balance.

It’s good to remember that many financial firms can help you with calculating RMD.

For example, Roman and I have our IRA accounts set up with Fidelity and Vanguard. When we retire, we are planning to consolidate all our retirement funds and roll-over 401(k) money to IRA accounts. When the time comes, and we need to start taking RMD from our IRAs both Fidelity and Vanguard offer a service of calculating our RMD and send it to us automatically.

In what order to withdraw money from multiple retirement accounts?

The saying “it’s not what you earn, but what you keep” is true when it comes to withdrawing money from your various accounts.

The minute you start taking money out of 401(k) or IRA, you will have to pay taxes on your withdrawals. If you’re in a high tax bracket, you’ll owe a good chunk of money to IRS. Although, if you are wealthy enough and don’t need money from your retirement accounts, you still must withdraw them to follow the rules of RMD.

The best part of the Roth IRA money is that it would be tax-free when withdrawn from the Roth account and doesn’t fall under RMD rule.

Even, you must take money out and pay taxes on tax-deferred accounts, your Roth IRA money will stay intact, grow and accumulates with years. It could be used as an emergency fund or pass on to your heirs.

What is the smart way to take money out of the multiple retirement accounts?

First – take money out of tax-deferred accounts – 401(k) and IRA
Second – take money out of Roth IRA

How to consolidate multiple retirement accounts?

a pile of metal coins next to pens on a piece of graph paper

A simple way to control multiple retirement accounts and how much money to withdraw from each will be to consolidate them into a single account. It will help you to have better control over your future withdrawals and to simplify paperwork.

Over the lifetime you have accumulated multiple retirement accounts – traditional IRAs, 401(k) and maybe Roth IRAs. Before you turn 70 1/2 years old, you need to figure out how much and in what order to withdraw money from all these retirement accounts.

The good advice is to consolidate all your accounts into one. Why?

It will be much easier to manage your portfolio of assets in one account than in multiple with different financial firms. But keep in mind that you cannot combine IRA and 401(k) accounts into one. You can only put similar accounts together. For example, you can consolidate all traditional IRA accounts into one single IRA account.

As I mentioned before, you cannot combine 401(k) and IRA accounts into one, but you can roll-over 401(k) into IRA.

If you have several 401(k) accounts from your previous jobs, you should be able to merge old 401(k) into your current employer 401(k) plan as long as it is permitted by an employer plan. However, if you cannot combine old and new 401(k) accounts, you can roll-over old 401(k) accounts into IRA account.

I am many years away from applying RMD rules, but I already start thinking about merging our IRA accounts into one. Roman and I have multiple retirement accounts with different financial institutions:

(2) 401(k) accounts, (1) Roth 401(k), (3) Traditional IRAs, and (2) Roth IRAs

The idea of pulling all IRA accounts into one sound practical because it’s much easier to keep track of all our investments. I just need to do more research and calculations on how it will affect our taxes.

Consider a Roth IRA conversion

What is a Roth IRA conversation and how it works?

Roth IRA conversation is a process of switching between retirement accounts. You take money from 401(k) tax-deferred account and roll it into Roth IRA.

The Roth account is funded with after-tax money, so when you go with the conversion it will trigger the tax bill. You will pay taxes only on the converted money. Once you make the move, all the funds in Roth will grow tax-free.

The best part that you are not required to take a minimum distribution on the Roth IRA money, so it will grow and accumulate longer.

Several years ago, Roman and I converted a portion of our traditional IRA funds to the newly opened Roth IRA accounts. The conversion didn’t trigger a high tax bill, because we used a small portion of our IRA money. Yet, the transaction allowed us to open an after-tax retirement account with our savings. We let it grow and accumulate over the years into a nice and tidy sum.

When we turn 59 ½ we can withdraw money tax-free. However, we are not planning to use Roth funds, unless there is an emergency. It will be a smart way to leave them where they are. If we live long enough, the Roth money might grow into a substantial sum tax-free.

Also, the Roth IRA conversion is a great tool to preserve the retirement asset for heirs or survival spouse. It’s a great move because it removes the uncertainty of how much you need to pay taxes in the future.

Is Roth IRA conversion good for everyone? What about someone who’s close to retirement or even retired?

The Roth IRA conversion is a personal decision. If you are very close to retirement, or already retired and you need the retirement funds for yourself right now, I wouldn’t recommend going with Roth conversion. The same applies if you don’t plan to pass the retirement funds on to heirs.

Taxable vs. Tax-deferred accounts

graphic image of a man in front of 3 arrows

As a general rule, it’s better to sell investments held in taxable accounts first instead of taking money out of tax-deferred accounts.

The reason is that the withdrawals from traditional IRAs and 401(k)s are taxed as an ordinary income. Typically, ordinary income is taxed at a higher rate than the long-term capital gains in a taxable investment account.

On another hand, if you withdraw retirement savings from your taxable accounts before tax-deferred it can increase the required minimum distributions rate and that reduce your tax efficiency.

Before writing this post, I made a lot of research and tried to find the answer to this question. The best strategy I found was on the Vanguard.com website:

“Take your withdrawals in a tax-efficient order.

Unfortunately, you never get to retire from taxes. If you’ve saved pre-tax dollars in a retirement plan or IRA, the bill comes due after you retire. When you withdraw pre-tax contributions and earnings, you owe ordinary income taxes on that money.

If you have different types of accounts, you may be able to prolong your tax savings by withdrawing your money in a tax-efficient order:

Withdraw from any taxable accounts before touching your tax-advantaged accounts.
Consider withdrawing money from tax-deferred accounts, such as an employer’s plan or a traditional IRA.
Withdraw money from tax-free accounts, such as qualifying Roth contributions to an IRA or employer’s plan.

Consider setting aside a portion of each withdrawal to meet your income tax obligation. If you’re withdrawing from an employer’s plan, most plan providers are required to withhold 20% of each withdrawal for federal taxes, though your actual tax bill may be higher or lower.” (Vanguard.com website)

The general order of withdrawing money for tax efficiency is:

First – pull money from your taxable accounts
Second – withdraw money from your tax-deferred accounts – IRA and 401(k)
Lastly – take money out of tax-free accounts – Roth IRA or Roth 401(k)

Putting it all together

There is so much information out there on how to save and invest for retirement. But when it comes to the withdrawal strategy things start looking complicated. There are many strategies, ideas, and rules to remember when you start planning for retirement. Having a retirement income plan that incorporates taxes is important. You need to see a real picture of how long your retirement funds will last.

Do you have multiple retirement accounts? Did you consider the ways to withdraw money from them? Share your thoughts with us.

The intent of this post is to be only educational and provide a simple guideline for a very complicated matter. I would recommend discussing your retirement plan with an accountant, financial planner or tax professional.

5 Basic Rules of Investing for Women

by Maggie 2 Comments

a woman is looking at the glass marker board with stock market chart

I know that many women don’t feel comfortable with the idea of investing. The word “investing” seems complicated and out of reach for them. Like one of those things you supposed to understand, but too embarrassed to ask anyone about it. Women prefer to delegate this task to men, without understanding how money is invested, and at the end never learn the basics of investing.

But we women need to learn how to invest because the world is changing. We live longer than men and at some point, we will need to learn how to manage finances. In addition to that many women don’t have enough money saved because they take time off to raise kids or take care of their relatives.

With less money in their saving accounts, but more years to live women need to learn how to make money work harder for them. I know that many of us “invest” when the opportunity presents itself – opening a 401(k) when the company offers us one.

But it will be a mistake to think that if you have money saved in 401(k), IRA or Roth IRA each year it will be enough for your retirement income. You should boost the resources you will need in retirement by creating a personal investment portfolio.

I am sure that most women have 401(k) and save money there regularly.

The question is what should you do with the rest of your savings?

Keeping it in a bank is not going to work, because you’re going to lose money due to the inflation. The best solution would be to open a brokerage account (taxable investment account) and put and invest your savings there.

You can open a brokerage account with any of the major brokerage firms like Vanguard, Fidelity or Charles Schwab.

But before you start on that journey, learn the 5 basic rules of how to invest and build a simple and easy-to-maintain portfolio:

1. Allocate your assets

The phrase “asset allocation” sounds more complicated than it is.

Asset allocation works as a well-balanced diet. To stay healthy, you need to eat the right proportion of meat, vegetables, fruits and bread every day.

The rules are no different when it comes to investing. How you divide your money between different types of investments is one of the most important decision you have to make.

Simply put any retirement portfolio is called an investment portfolio or a collection of investments. Although, any investment portfolio is a combination of main asset classes:

Stocks (equities)
Bonds (fixed income)
Cash

Moreover, any investment portfolio is usually divided into sub-asset classes:

Large-cap stocks
Mid-cap stocks
Small-cap stocks
Domestic stocks
International stocks

Additionally, each asset class and sub-asset class is divided into categories:

Individual stocks
Individual bonds
Mutual funds
ETFs (exchange-traded funds)
Others

Different type of investment can be broken into different categories. This is called diversification. The idea behind the diversification is to spread the risk and do not put all your eggs in one basket.

A well-designed investment portfolio will include several categories.

Also, it will be organized by age, your risk tolerance and how soon you need the money – short or long-term investing goals.

2. Invest in stocks for long-term

a clock w/a toy-frog sleeping on the pile of money

How you allocate your savings between stocks, bonds, and cash will affect the rate of return you earn on your money. The more your investments earn, the less money you will need to save for the future.

Most of the times stocks outperform any other kind of investments. However, stocks are considered a volatile investment and have their ups and downs. To stay invested in stocks we need to ride out the down times.

Unfortunately, we have less time on our side when we are in our 50s or 60s. It was much easier for us when we were in our 30s or 40s and retirement was far away. We were working and accumulating assets and had time to wait for stock market recovery.

When we are only 10 to 15 years from retirement it is harder to make up for our investment losses. And yet the magic power of compounding forces us to stay invested in stocks. The more money you put in and the longer you keep it invested, the faster you’ll reach your target due to the magic of compound interest.

The more money you start with, the more interest it will generate. Keep adding more money to your original investments and you will see how interest grows more interest. The power of compounding will help your invested money grow faster.

However, it’s scary when the market goes down and you see how your portfolio is losing money (only on the paper if you don’t sell out). Frequently, there is short-term volatility on the market and prices fluctuate. Eventually, things calm down and the general trend became positive again. That’s why we make money when we invest for the long-term.

All investments hold some risk. You need to understand the risk and feel comfortable with the amount of money you invest in each category.

There is no one-size-fits-all investing approach for everyone. A lot depends on how much you have already saved for retirement and how soon you are planning to retire.

How I set up my portfolio

a graphic image of a dollar sign and several cubes showing growth

Roman and I have several brokerage accounts with Fidelity Investments and Vanguard. Before starting this blog, I was happy with high exposure to stocks. Usually, I don’t have a sleepless night or start selling out stocks when the market goes down.

The portfolio was set up for 15-years horizon and before we retire at full retirement age. I had a mix of 85% stocks, 10% bonds and 5% real estates.

The stock portion of our portfolio was divided between a 25% allocation to large-cap stocks, 15% in mid-cap stocks and 15 % in small-cap stocks. Another 30% was invested in international and emerging market stocks which gave our investments an additional boost in growth.

However, as we are getting closer to retirement, I want to reduce the exposure to stocks and change the portfolio allocation to 70% in stocks and 30% in bonds. The new allocation will help to protect the capital and yet give us enough exposure to future market growth.

3. Invest in Index funds

There are two types of investments – active investments and passive investments.

Most of us don’t need a complicated investment plan that requires more choices and frequent changes. And most of us would prefer something simple and easy to maintain. Investing in mutual funds are often better and easier than in individual stocks or bonds because funds offer diversification which means greater safety for your money.

Mutual funds

Let’s start with mutual funds. Mutual funds represent the pooled money of thousands of investors. Most mutual funds have professional managers who are actively involved in selecting the investments for their funds.

Those funds are called actively managed. Actively managed mutual funds come with high management fees because the portfolio manager attempts to beat the market.

Index funds

Many people following legendary investor Warren Buffet and his advice to invest in index funds. Index funds are mutual funds which are fixed to match a benchmark or index.

The result is the index fund manager doesn’t’ seek to do better than the index but just to replicate it. That’s why it’s called passive management.

Index funds do better for the investors because the actual cost of investing is less than in an actively managed fund.

You can read more about mutual fund types and categories:

Mutual Fund Types and Categories to Build a Better Portfolio

4. Re-balance your portfolio

women at the computer analyzing a company growth

After you have created your portfolio, it will need your attention from time to time. A buy-and-hold portfolio, which I strongly advocate, cannot just maintain itself. With time the asset allocation in your portfolio becomes uneven and you’ll need to re-balance it and get back to your original target allocation.

What does it mean re-balancing a portfolio?

Here is a simple example. You set up your target allocation with a mix of 60% stocks and 40% bonds. With time your portfolio might change to 70% stocks and 30% bonds. In this example, your stock allocation has risen beyond its original set point. You could re-balance it by selling stocks and buying bonds to bring it back again to 60/40 ratio. It means putting all your investments back in place.

The main reason for re-balancing your portfolio is to reduce the risk. For example, if your portfolio becomes overweight in stocks it has come to be more aggressive. And as you grow older you might prefer to keep it conservative to preserve your investments. Otherwise, if you are planning to retire next year and suddenly the stock market falls 40%, as it happened in 2008, you can say good-bye to your retirement.

Many financial experts recommend looking at your portfolio every year or two. I prefer to look at our portfolio and re-balance it every year in December. It makes easier to keep track of all our investments.

It’s good to remember that buying and selling stocks or bonds involve transaction costs. Moreover, selling your shares means that you have to pay capital gain tax.

5. Investment fees

When you invest your hard-earned money in a mutual fund it comes with a certain percentage of fees. You have to pay people running mutual funds for research, trading costs, and advertising. Understand what you’re investing in and remember to keep your investment fees low, otherwise, it will reduce your profits.

As the saying goes, “It isn’t what you make, it’s what you keep”.

Paying a higher management fee does not guarantee a better return on your money. Yes, you have to pay a management fee, but you’re better off paying the lowest fee possible.

Most of the experts recommend Vanguard as a low-fee index funds provider. Fidelity Investments and Charles Schwab also match Vanguard’s pricing for index-based approach. Yet in comparison, the Vanguard has the lowest cost funds across the board.

Take-away thoughts

My final advice for women who learn how to invest is “don’t make yourself crazy and keep investing simple”. Don’t invest in some sophisticated investments you don’t understand. Create a simple and easy-to-maintain portfolio of stocks and bonds.

The good news that you don’t have to become an expert. However, understanding the basic rules of investing will help you to become comfortable with your future investment decisions.

My personal goal for investing is simplicity and I try to follow a great quote from someone very smart:

“Keep it simple: as simple as possible, but no simpler” – Albert Einstein

The intent of this post is to be only educational and provide a simple guideline for a very complicated matter. I would recommend discussing your investment strategies with an accountant, financial planner or tax professional.

What to Do and See in Vilnius, Lithuania?

by Maggie Leave a Comment

View over Vilnius' Old Town from the Gediminas Tower — Beautiful panoramic view over the Old Town with its orange rooftops and church towers.

Want to know what to see and things to do in Vilnius? On my recent trip to Lithuania, I got to explore the best this city has to offer and want to share it with you.

Lithuania is a country with a long history. The first Baltic tribes settled here in the 7th-2nd centuries BC. The country is one of the three Baltic States – Lithuania, Latvia, and Estonia – and is located just north-east of Poland.

Vilnius is the capital and largest city of Lithuania with a population of only half a million people. The city has a unique Old Town which considered as one of the largest remaining and best-preserved medieval towns in Northern Europe.

Vilnius’ Old Town was listed on the UNESCO World Heritage list as one of the most beautiful and having the biggest Baroque style buildings in East and Middle Europe. No wonder it has been called a masterpiece of Baroque style.

When you plan a trip to Vilnius it’s best to stay in the Old Town, so you will be in the heart of everything and within a walking distance to all attractions.

Wander around Old Town

I feel that the Old Town has a perfect size to explore on foot. It’s a center of the tourist hub and there is no need for a touristy hop-on, hop-off bus. The Old Town is a labyrinth of narrow cobblestone streets, parks, squares and beautiful pastel tone houses, some of them in a process of renovation.

This part of a city is a mixture of different architectural styles – Baroque, Gothic, Neo-Classical and Renaissance. Some buildings are dated back to the 13th century. It’s so easy to walk around, admire the architecture and pop in and out of trendy boutiques, cafes and restaurants.

Places to see in Old Town

Cathedral Square

Cathedral Square is Vilnius’ most important gathering place. The Square witnessed mass anti-Soviet Union demonstration in the fight for independence in 1991.

This grand place is home to the country’s main Roman Catholic Cathedral (Sts Stanislav and Vladislav Cathedral). The Cathedral is connected to the Palace of Grand Dukes of Lithuania which was originally built in the 15th century for the rules of Lithuania and future kings of Poland.

Sts Stanislav and Vladislav Cathedral (mostly called as Vilnius Cathedral) was built in 1251 by Grand Duke on an ancient site of a pagan temple. Rebuilt eleven times, it received its neo-classical facade in late 18th century. If you want to explore inside the cathedral you would find the impressive tombs of the members of Polish-Lithuanian royal dynasty.

Bell Tower of Vilnius Cathedral is one of the oldest and highest towers in Old Town. It was built as a defensive tower in the 13th century. Later in the 16th century, it was converted into the Cathedral bell tower. You can climb the narrow and steep stairs inside the tower and enjoy the panoramic view of the city from the top. Also, you can join the crowds at 5 p.m. and listen to the sound of big bells.

There are plenty of city walking tours offered at Cathedral Square in front of the Bell Tower.

Walking tour with Old Town, Uzupis and Brewery

Town Hall Square (Ratusha Square)

Town Hall Square in Vilnius Old Town — Town Hall Square is surrounded by modern and historic buildings

The Town Hall Square is a traditional center of big events and fairs in Vilnius. The history of this square dates to the 14th century when in 1387 Lithuania became a Christian State.

The neo-classical building of Vilnius’ Old Town Hall is in the center of this square. Walk around to see a mix of old and new buildings surrounded the square, get a taste of local beer or just enjoy the relaxing afternoon at the outdoor cafe.

Pilis Street

People are walking along cobblestone Pilis St. in Vilnius'Old Town — Pilis Street in Vilnius’ Old Town is always busy with locals and tourists.

Pilis Street is one of the oldest streets in Vilnius’ Old Town. Since ancient times, Pilis Street has been the link between the Town Hall Square and Cathedral Square.

Walking along the street you can see the great examples of authentic architecture, and enjoy a great variety of cafes, restaurants, and coffee houses. At the end of the street, it’s easy to see the red brick walls of Gediminas Tower mounted on the top of the hill. It’s the only remaining part of Vilnius Upper castle.

As the legend goes, the Grand Duke of Lithuania, Gediminas, first built the wooden castle after he had a dream about an iron wolf howling on the top of the hill.

Gediminas Tower

People are walking around Cathedral Square in Vilnius — Vilnius’ Cathedral Square with the Palace of Grand Dukes facade and the Gediminas Tower on the hilltop

The Gediminas Tower is all that remains of the royal castle, named after Grand Duke of Lithuania, and it’s located on the top of a hill behind the Cathedral.

The castle dates back to around 13th century and houses a small museum. The best way to get to the castle is by foot or you can take a funicular. This place is very popular with locals and tourists.

It offers the best panoramic view of the city. You can see the Old Town with its orange rooftops on one side and modern part of the city across Neris River on another side. Don’t miss it. It looks spectacular in any kind of weather.

Churches

Vilnius is often called “the city of 100 churches”

Lithuania was the last country in Europe to convert to Christianity around the 14th century. It managed to stick to their Catholic traditions and beliefs for a long time even though the harsh rules of Soviet Union times.

Most of Vilnius’ churches are a great example of the Baroque style: domes, rich interiors, and richness of decorative details. I always feel overwhelmed by the beauty of them and craftsmanship of people who build these great monuments.

St. Peter and Paul’ Church

St. Peter and Paul’ Church is considered the finest Baroque church interior in Vilnius with more than 2,000 stucco figures and it’s worth visiting.

St. Anne’ Church

St. Anne’ Church is my favorite and deserves its own point. The first church at this site was built out of wood and was destroyed by fire in 1419. Then the church was re-built out of brick. The main facade designed in the Flamboyant Gothic style remains its most striking feature.

According to a well-known legend, Emperor Napoleon Bonaparte fell in love with the church. He was so much under the charm of the building that he wanted to take it home to Paris “on the palm of his hand” There is a special atmosphere when you walk inside this little church and spend some time breathing the air of the old history and legend.

St. Anne' Church in Vilnius'Old Town built in Gothic style and favored by Napoleon Bonaparte — St. Anne’ Church is called a masterpiece of Gothic architecture

Gates of Dawn

Gates of Dawn is the only surviving relic of the city’s original defensive wall, dated to 16th century. At that ancient time, the city was surrounded by a tall defensive wall and the only access to the city was through nine guarded gates. Today only one of the entrances remains – Gates of Dawn.

It attracts pilgrims from all over the worlds who come to visit and seek miracles from an icon of Virgin Mary which lives inside the Gate’s chapel.

The chapel with a sacred Virgin Mary icon once guarded an entrance to the original city. Even you’re not a religious person the Gates of Dawn will impress you. It’s much easier to come closer to the holy icon If you are there in the evening when all the tourist groups are gone.

Gates of Dawn in the Old Town of Vilnius — Gates of Dawn is the only surviving part of the city’s original defensive wall.

St. Casimir’ Church

St. Casimir’ Church is one of the finest Baroque churches in Vilnius. It’s located just a few steps from the Town Hall Square.

The construction of this monumental building started in 1604 and was completed in 1635. Then it was burnt to the ground 20 years later and then restored several times. The latest renovation project shows the beauty of the oldest Baroque-style church in Vilnius.

St. Casimir Church in Vilnius' Old Town — St. Casimir Church is the first and oldest Baroque-style church in Vilnius’ Old Town and next to Town Hall Square

Uzupis district

No trip to Vilnius would be complete without spending a few hours wandering the streets of its most unusual neighborhood – Uzupis and it translates “Beyond the River”.

You can get there by taking a short stroll across a bridge. It will bring to you to the self-declared republic of artists who declared themselves independent on April 1, 1997. Uzupis has its own president, prime minister, ambassadors, flag.

The biggest attraction is the constitution of Uzupis. You can find the whole text, translated into 15 languages, on the wall along Paupio street. One of my favorites: “everyone has the right to be happy and a dog has the right to be a dog”

If you want to explore the area properly, check all the quirky pubs and tiny art galleries, step into courtyards and spot some original street art. I always enjoy the bohemian feel and slow pace of life in this neighborhood.

Trakai Castle

Trakai Island Castle in Lithuania - view from the lake — Trakai Castle is on a picturesque lake Galve

Trakai is the old medieval town located just a half an hour from Vilnius. The main attraction is an impressive red-brick Gothic castle on a picturesque lake Galve. The construction of the castle started in the 14th century by the Grand Duke of Lithuania and completed by his son Vytautas the Great at the beginning of the 15th century.

The trip to Trakai and old castle could be a perfect day trip. You can get there by train, bus or a car.

red-brick walls of medieval Trakai Castle in Lithuania — We spent a few hours walking inside the medieval walls of the Trakai Castle.

Food

Traditional Lithuanian food is heavy and hearty, and it’s all about potato dishes. The most popular one is cepelinai (“Zeppelins”) – large boiled potato dumplings filled with minced meat or cottage cheese.

The most exotic Lithuanian dish is vedarai (potato sausage) – pork intestines stuffed with grated raw potatoes and baked in an oven or better in a wood stove.

Kibinais are traditional Lithuanian pastries filled with minced meat and onion. They are mostly associated with the city of Trakai.

On a hot summer day, locals love to eat saltibarsciai (cold beetroot soup) served with warm boiled potatoes.

photo of traditional Lithuanian cold beetroot soup — Traditional Lithuanian cold beetroot soup – saltibarsciai

There are so many great restaurants in Vilnius, but if you want to try traditional Lithuanian cuisine, I would recommend a few of my favorite choices: Lokys, Mykolo 4, Senoji Trobele or Etno Dvaras.

Beer

Lithuania is known as a beer-loving country. There are more than 80 breweries, large and small, producing all kind of beer, light or dark, weak or strong. There are plenty of pubs or bars off Ausros Vartu or Pillis Streets. I am not big on beer, but my husband does. He loves locally brewed dark ale with the bittersweet taste of it. Try any of these pubs: “Leiciai” or “Beer House & Craft Kitchen”.

Amber belt

window display with amber necklaces in the Old Town of Vilnius — Window shop display of amber necklaces in the Old Town of Vilnius.

The Baltic countries are famous for their amber and Lithuania is very often called “The Land of Amber”. Lithuania’s seashore is full of pieces of amber. Many amber artifacts dating to the 5th-6th century had been found during the excavation in many parts of the country.

In ancient times amber necklaces were used not only as a decoration but also as a currency. You can pick up a stylish take on the stone in the form of a necklace in many shops on Ausros Vartu or Pilis Street.

Places to stay

There is no shortage of all kind of accommodations in Vilnius.

We stayed at Radisson Blu Royal Astorija hotel next to the Town Hall Square. The location was perfect for walking around the Old Town. The hotel stands out with its Baroque-style facade. The beautiful architecture blends well with modern amenities. It has been recently renovated and accommodates guests in 119 comfortable rooms many of them facing the Town Hall Square.

George W. Bush was one of the hotel’s distinguished guest together with the long list of other dignitaries, royal families, and celebrities.

Getting to and around Vilnius

Getting to Vilnius should be relatively easy with the city’ recently modernized airport receiving flights from all over Europe. For this trip, we flew to Vilnius from Boston airport with one connecting stop in Frankfurt, Germany.

A taxi ride from the airport to the city center is short and relatively cheap between 10 to 20 euro. Getting around the city is simple and you can do most of it on foot.

But if you want to explore the city outside of the Old Town you can use an excellent city bus system starting at 5 a.m. and finishes at midnight. The city card like everything else in Vilnius is very affordable and you can buy one, three or ten passes.

Have fun visiting Vilnius!

Related Post: Our Trip to St. Martin

Have you been to Vilnius or any places in Lithuania?