Category Archives: Retirement

What are Dividends – Definition and Meaning

Dividends are one of the most powerful forces to have on your side when investing in stocks. History has shown that some of the best long term returns are realized from strong companies that pay consistent dividends and raise them regularly. Some studies have shown that stocks without dividends underperform the overall market over time. Understanding this is important but today I want to take a step back and explain what dividends are and why companies pay them.

Dividends are a form of payment to shareholders of a company. They are typically paid because a company has extra earned income that they can either use to reinvest in other growth opportunities or pay back to their shareholders. As companies mature and have less need for investment, they will often pay out dividends to their shareholders with the additional revenue that they have realized from the past quarter. An example of such a company is Coca-Cola. The company is not really inventing new products or expanding to more markets at this point. Because of this, Coke is able to pay back a portion of their revenues to shareholders in the form of a dividend.

Understanding Dividends

You can figure out if a company pays a dividend by looking up the stock ticker through your brokerage account or by using many popular online stock resources that are free. Every platform that I know of will show a field that gives you three bits of information about the dividend that the company pays. If this field is blank or has a N/A, then the company does not currently pay a dividend. The first field to look for is the annual dividend, which is stated in dollars. For example, you might notice a company pays $1.00 per year in dividends. That means that you will receive $0.25 per share that you own every quarter.

Dividend Yield

The second field you’ll notice is the dividend yield. This is calculated by dividing the current stock price by the annual dividend payout. Using our example from before, the annual dividend yield would be 5% if the current stock price was $20 per share. This is simply found by calculating 1/20. Lastly, there is an ex-dividend date listed. The ex-dividend date indicates the date that you must be listed as an owner of shares in the company to receive the dividend payment. You must be an owner of shares on that date to receive the distribution. That means if you sell the stock the next day, you will still receive the dividend payment on the payout date. If you buy the stock a day after the ex-dividend however, you’ll have missed the dividend distribution for that quarter.

Dividends are not Mandatory

Quarterly dividend distributions can fluctuate or stop completely if the company gets in to trouble and starts losing money. For this reason, it’s important to monitor any stocks you own that pay dividends to make sure that your income stream stays in tact.

In addition, some companies are required to pay dividends to their shareholders. These include trusts, master limited partnerships and real estate investment trusts. Although they are required to pay dividends, their quarterly distributions can fluctuate, so if you invest in one of these companies make sure to do your due diligence.

I hope that you now have a basic understanding of how dividends work, why companies pay them and why they’re important.

Why Saving For Retirement is Essential ?

I love my grandparents. They are amazing people who have experienced a lot in life. They have a huge amount of knowledge and they are always willing to share their thoughts and wisdom with me. What it challenging for me to understand though is why they live the way they do. They live on social security alone and have no other source of income other than assistance from the likes of me and my parents. They have no retirement saved, no pension, and no income generating investments. For people so seemingly wise it is hard to understand how they got to this point in their lives.

Social Security Really ?

They do come from a generation that expected social security to cover their retirement needs. When they were young saving for retirement wasn’t the most obvious thing to do. Not only that but their jobs didn’t provide pension benefits or any kind of retirement allocation. They were basically contract employees for the duration of their careers. They were truck drivers who operated as a team under one paycheck so nto only do they have no retirement savings or income but their social security checks are smaller than what you might expect.

Although this set of circumstances is not necessarily typical for working people today it does illustrate the importance of putting some financial responsibility on your own shoulders. You may think that you will be taken care of in your later life but you never really know what’s going to happen.

These days there are new hindrances to retirement savings. Many people in their early working years don’t believe that they ever will retire. They love their work and don’t see any reason why they would ever stop working. To some extent these people are on to something. If you love what you do then why would you ever need a huge portfolio for the day you stop working; why not just keep doing what you love until the day you die.

The problem with this logic however is that you never know when a set of life circumstances will keep you from doing the work you love. Any person is vulnerable to accidents and we are all susceptible to disease and health ailments. You can be doing the one thing in the world that you would never want to stop doing but if something happens to force you out of your profession and you have no retirement savings then you are going to be stuck between a rock and a hard place. You will have highly advanced skills that are no longer usable and you will have no experience in any field that remains available to you.

In the case of health problems you may not be able to o any work at all. What then? With no savings and little to no ability to work how will you survive?

In some ways retirement savings can be a lot like an insurance policy that can be cashed out at any time for any reason. You may not have disability insurance but if you can’t work for some reason other than disability then you still have money to draw from; your income source does not go away.

Imagine a scenario where you are beyond retirement age and your parents suddenly need full time care. Can you really continue working if you need to tend to them? Sure there are assisted living facilities but a retirement nest egg gives you the freedom and flexibility to chart your own path. You may not feel like you’ll ever want to stop working but when you are 70 you will want to have the option to stop working in case you need it. It’s like having a get-out-of-jail-free card in your pocket. It’s unlikely that you’ll need it but having it is more than worth it. It gives you peace of mind.

My grandparents are amazing people and I love them to death but I wish they had saved for retirement throughout their lifetimes. Their retirement years would be so much more enjoyable for them. As it stands now they don’t get out much, they mostly stay at home, and barely experience life. Their waning years are not being spent enjoying the world they live in – they are simply living each day in the most basic way possible and waiting to do the same the next day.

Start Saving Now !

Retirement savings is a bit like insurance and a bit like freedom. It opens doors of opportunity. Whether you take advantage of those open doors is another point all together but when you get old enough to retire you will want to decide for yourself if it’s actually worth it rather than let circumstances dictate what you can and can’t do with the rest of your life.

Top 5 Cities To Retire In 2013

What are the top five cities to retire in the United States? This is a difficult question to answer. For most people, the number one city to retire in is where their children and grandchildren live. Being close to family is one of the most powerful motivators for where people live.

Next, comes where your friends and cultural roots are. Many people stay in their neighborhoods after they retire because it is familiar, where their friends are and where they “fit”.

But, what if you are looking for change, a “better lifestyle”, no more shoveling snow, etc. Each of us has specific criteria that top our list of places to live. One might be cost, another would be availability of healthcare, or warm weather may top the list. Below are some of the “Top 5” places to retire in based on selected criteria.

Best Weather (Sunny)

San Luis Obispo, California – moderate weather, miles of beaches, thriving cultural scene, impressive state parks close by. Cooled in summer by the ocean and moderate in winter, this city has it all.

Las Cruces, New Mexico – average 350 days of sunshine and affordability. New Mexico State University supports a thriving arts scene. Close to Mexico and lots of outdoor spaces to explore.

Santa Fe, New Mexico – arts, culture, sunshine, big foodie scene and skiing in winter. At over 5,000 feet, summers are moderate and winters have a few days of snow.

San Diego, California – temperatures range from 60s in the winters to high 70s in the summer. Parks, beaches and 3+ million people in the county give you everything you need in a big city with a small city feel. With the large military presence here, veterans are welcomed and catered to.

Sarasota, Florida – on Florida’s gulf coast, 350 days of sunshine, white sand beaches, miles of hiking, golf and tennis year round.

Most Relaxing

Honolulu, Hawaii – sunny days, outdoor activities, unique culture are all positive features for Honolulu. The only drawback is the high cost of housing. If you can afford it, this would be a great place for your golden years.

Beaufort, South Carolina – this small costal town has all the southern charm you would like along with the southern laid back lifestyle.

Fort Meyers, Florida – relaxing beaches and parks, lots of other retirees and low cost of living might attract you.

Portland, Oregon – all the big city benefits with the small town feel. Lots of outdoor recreation nearby and a large senior community. The only drawback is the weather – winter tends to be rainy.

Santa Fe, New Mexico – warm weather, good food, plenty of art and culture. Lots of sunshine and outdoor activities to help with your health.

Best Urban Cities

Miami, Florida – has average temperature of 76 degrees, very walkable and a large senior community.

El Paso, Texas – low annual price for hiring in-home services, close to Mexico, lower than average cost of living.

Jacksonville, Florida – lots of beaches and lower than average medical costs.

Tampa, Florida – warm weather, close to Disney World and low cost of living.

Memphis, Tennessee – low cost of living, moderate temperature, southern lifestyle.

Best Places For A Working Retirement (from Forbes Person Finance 2/04/2013)

Amarillo, Texas – low home prices, cost of living 10% below US norm, unemployment rate of 4.1%.

Auburn, Alabama – cost of living 11% below US norm and 5.7% unemployment.

Lafayett, Louisiana – cost of living 12% below US norm and 3.7% unemployment.

Morgantown, West Virginia – cost of living 8% below US norm and 5.3% unemployment.

Oklahoma City, Oklahoma – cost of living 7% below US norm and 4.6% unemployment.

Best US Cities To Retire In (from Market Watch – February 23, 2013)

#5 Prescott, Arizona – active adult retirement community, good weather and home to several colleges.

#4 Austin, Texas – good weather, live-music capital of the world.

#3 Venice, Florida – planned retirement community – 55 and older with many canals.

#2 Sarasota, Florida – considered to be the cultural capital of Florida.

#1 Asheville, North Carolina – has charming environment with mild weather and has been desirable retirement community for the rich and famous and ordinary.

As you can see there are many ways to look at finding the best city to retire in. What is important is for you to set your highest priority and then start looking. From the lists above, most people prefer the sunbelt states.

Florida seems to attract a lot of retirees, but that is due in part to the close proximity to the heavy populated northeast of the country.

Don’t count out New Mexico, Utah, Colorado and Arizona. These states are showered with abundance of sunshine and lower costs of living. If you like the outdoors, those four states have a lot to offer.