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Tuesday, March 29, 2022

🥂 Retiring, but only kinda though

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March 29, 2022

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TOGETHER WITH

Good day! Today's trivia: What is the typical rule of thumb on how much you should save for retirement, assuming you retire at age 65? a. 25x your projected annual expenses, b. 15x your highest annual income, c. at least $1,000,000. Follow the wave 🌊 below for the answer.

Here are the financial topics for today:

Retiring, only kinda though
How to BNPL and not mess up your credit
Your bankfolio: How many bank accounts to have, and for what?

FINANCIAL PLANNING

Retiring, only kinda though

There are many ways of looking at retirement. Some workers love what they do and could never imagine giving it up one day, while others subscribe to the FIRE (financial independence, retire early) movement that encourages saving and investing early enough to retire young and live off of your passive income.

In truth, though, whatever philosophy people hold dear to their hearts, their goal is to have the freedom to do what they love every day. And in recent months the watchword has become “flexibility.”

To attract and retain the talent they need amidst a tight job market, employers have been adapting their benefits to the need of the hour. The latest offspring of this phenomenon, it appears, has been to allow prospective retirees to step into their golden years early and part-time.

Phased out retirement

Simply put, a phased-out retirement plan is one that allows workers nearing retirement age to cut back on their hours while keeping some pay and benefits.

🤝 More phased-out retirement plans: In 2016, just 16% of US employers were offering phased out retirement plans while 23% were doing so in 2021. Businesses are also starting to make accommodations for this desire in a more structured way with the percentage offering formal phase-out programs rising from 6% in 2019 to 8% most recently.

👵 More retirees than expected: Companies are being nudged towards more flexibility. In the 22 months spanning February 2020 to November 2021, roughly 2.6 million more employees retire than expected. And that’s just retirees, so mostly baby boomers.

🏃 Younger ones also leaving: This acceleration toward retirement doesn’t even account for “the great resignation,” which saw nearly 68.9 million Americans leave their jobs in 2021, with 69% of them leaving voluntarily.

📈 Empowered workforce amidst an inflationary environment: All of this plays together to give way to the job market we’re seeing now. With more retirees, more resignations, more job openings, and higher wages, an intersection of admirable personal empowerment and a less desirable counterpart, inflation, has arisen.

Planning for a flexible retirement

For some people, phased-out retirement is an ideal way to either stay involved in something they enjoy while also winding down, or just remain active and engaged with the working world as they age.

That’s not the case for many though, and there are undoubtedly millions in the US being financially coerced into partial retirement simply because they can’t afford to let off the gas just yet, whether due to lack of preparation, or just hard times.

With information and optionality you can make the best choices. In an ideal scenario, you’ve set yourself up financially to have a true choice in your retirement, and aren’t forced into any working arrangement you don’t enjoy.

✍️ Here's a related lesson on this topic:

Is the FIRE Movement For You?

Retirement Planning

6 mins

CREDIT SCORE

How to BNPL and not mess up your credit

It’s way less stressful to think of your credit score as part of a game instead of a burdensome financial record, right? It is a lot like a game in some ways, but in order to play well, you have to first understand all the rules, and how to use them to your advantage.

Well, the largest credit reporting bureaus (TransUnion, Experian, Equifax) have been making some adjustments to those rules lately, and one of the biggest changes has been the addition of buy now pay later (BNPL) installment history to your credit report.

No big deal, just make the payments, right?

💳 Just another form of lending: Simply put, BNPL is a feature that allows you to buy something now and pay it back over some number of equal payments spread across the next few weeks or months. BNPL is another form of lending, an innovation within the credit industry, and it makes sense that it’s going to be treated as such going forward.

🤑 More and more use BNPL: BNPL transactions were projected to top $55 billion in 2021, and that number is expected to grow to over $80 billion this year. Unfortunately, though, some of those charges haven’t been getting paid back.

🕥 Payments not-so-timely: A study done by software firm Qualtrics found that a third of Americans who’d participated in BNPL purchasing claimed to have fallen behind on payments, while 72% of them also said their credit score was negatively impacted.

👮‍♀️ Defaults sent to collections: Purportedly large amounts of this debt has been sent to collections, with a UK survey finding that roughly 1 in 10 BNPL customers have been contacted by a debt collections agency, and 1 in 8 out of younger buyers, who are even more susceptible to financial difficulty.

Avoiding BNPL mishaps

Many of these BNPL platforms have been openly informing users that this will not impact their credit score, which would incite a more laissez-faire attitude toward their debt obligations.

Now, though, this is no longer the case. With credit bureaus adding this to their scoring models, consumers should start treating BNPL payments just like credit card debt, because the effect on your credit report is similar. With this measure, credit bureaus want lenders to have a fuller picture of borrowers’ financial obligations.

Avoiding mishaps with these platforms is simple. Set up auto pay so you’re never late on a payment, use a credit card instead, or even use one of the new alternative “credit builder” cards for those who have yet to qualify for a formal credit card.

✍️ Here's a related lesson on this topic:

Credit Score Basics

Credit Scores

8 mins

MONEY TIPS

Your Bankfolio: How Many Bank Accounts To Have, And For What?

20 years ago, it was simple. You’d just open a couple of accounts with your local bank of choice, maybe set up direct deposit, and move on with your life. Now though, what banks offer to their clients isn’t as generic as it once was, and limiting ourselves to just one bank would keep us from reaping the rewards of innovations in banking.

A few banks to consider in your portfolio:

🏦 A local branch: Although local, regional branches might not typically offer the highest rates or the best mobile app, knowing that you can easily access a physical location and speak with a local representative who might even know you by name, can come in handy. The world of online banking is, more often than not, amazing, but in the case of some weird tech outage or misunderstandings, having a branch nearby can be helpful.

💻 An online APY bank: Online-only banks are usually able to offer higher interest rates on your money due to the lower overhead costs that come with not having any branches to maintain. Many of them simply use other physical banks' infrastructure while providing great technology-based user-experience (UX). This can be an important bank to have in your bankfolio, and a nice option to keep excess savings.

🎨 An all-in-one bank: It’s definitely not convenient when you’ve got a credit card here, mortgage there, and checking/savings at yet another location. Having all of your financial services in one place may be a necessary indulgence for some. And even if you don’t take advantage of all products, it’s nice to know they’re available without having to look elsewhere.

🔥 TODAY'S MOVERS & SHAKERS

Nielsen Holdings (+21%), the TV rating firm, agreed to be acquired by a private equity (PE) consortium that includes Elliot Management and Brookfield Asset Management; the deal is worth $16 billion
Uber (+6%) is close to signing an agreement with a taxi firm in San Francisco to include taxis in its ride-hailing platform in the city (similar to the one it offers in NYC)
LHC Group (+6%), the home health-care specialist, will be acquired by United Health for $5.4 billion in cash or $170 per share
Bitcoin (BTC): +1.8% to $47,854
Ethereum (ETH): +2% to $3,454

This commentary is as of 7:55 am PDT.

🌊 BY THE WAY

Answer: The 25x rule states that to save enough for retirement, you will need to save 25 times the amount of your annual expenses for maintaining your current lifestyle for a 30-year retirement and not run out of money (Thayer Financial)
⚕️ Some credit scores could gain 100 points after medical debt is dropped from credit reports (Yahoo)
📜 ICYMI. It's the 3.3% rule now (Finny Bites)
⛽ California gas rebate plan: If approved, when could taxpayers expect to see payments? (Abc7)
Finny lesson of the day: What is financial independence? Review the basics:

What is Financial Independence?

Retirement Planning

6 mins

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