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Retirement

Jan 07
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Simple Steps to Do a Financial Checkup for the New Year

By Credit, Insurance, Investments, Money Management, Retirement, Saving, Taxes No Comments

You may visit your doctor once a year to make sure all is well, but there’s something else to pencil on the calendar: an annual financial checkup.

If you were on a long road trip, you’d stop occasionally and look at the map to see if you were headed in the right direction. An annual financial checkup serves the same purpose. It’s an opportunity to review how you’ve done financially over the past twelve months and make sure you’re still headed in the right direction when it comes to managing your money.

A good time to check in with your finances is before the end of the year so you can take advantage of any tax-saving strategies, but if you can’t fit it in during the busy holiday season, plan on doing it as soon after the New Year as possible. Here are the key steps to take when planning a money checkup:

1. Identify Your Goals

The first step in your financial checkup is evaluating your financial goals. Have you made progress on them this year? If not, where have you fallen short? Can you figure out why? Have your goals changed during the year? If so, revise them and write them down.

Next, consider what new money goals you’d like to set. For example, you may want to fully max out your 401(k) at work or add another $10,000 to your emergency fund. Establish clear goals and break down the action steps you need to take monthly, quarterly and annually to reach them.

2. Evaluate Changes in Your Personal Situation

Have changes in your personal situation taken place in the last year or do you anticipate any major changes in the near future? A job change, divorce, adding a baby to your family, retiring, buying a house, getting married, or moving can alter your income and your lifestyle significantly.

You may need to adapt your budget, your spending, your savings, and your investments. Your tax filing could also be affected if you’ve added to your family or you’ve seen a major increase or decrease in your income. Having time to plan for these changes in advance will make the transition much smoother.

3. Protect Your Assets

Next on your annual financial checkup to-do list is considering how well you’re protecting your assets. Start by reviewing your homeowner’s or renter’s insurance, health insurance, auto insurance. Don’t forget to protect the greatest asset of all – your income-earning ability – with long-term disability insurance.

TIP: While reviewing your insurance coverage, also review your premiums. Consider whether you can save money by switching to a different carrier or bundling your various insurance coverage together with the same provider.

4. Prepare for the Unexpected

Review your will, and if applicable, your estate plan. Have any changes taken place that requires updating? If so, you may need to update your will.

Also, review your life insurance coverage to make sure you have a large enough policy to protect your loved ones financially if something should happen to you. And if you don’t have life insurance yet, that’s something to consider getting sooner, rather than later. The younger and healthier you are, the lower your premiums are likely to be. Meet with a life insurance agent to discuss whether a term or permanent life insurance policy is best for your situation.

5. Evaluate Your Investment Performance

Calculate the return on each of your stocks, bonds, or mutual funds. Are you satisfied with their performance compared to the rest of the market? If you don’t believe the investment will recover its losses, it may be time to sell the dogs.

The end of the year is a good time harvest tax losses. Harvesting losses allows you to offset capital gains on your investments with losses stemming from under-performing investments. This strategy is effective in a taxable brokerage account, since investments in a 401(k) or IRA are already tax-advantaged.

WARNING: Watch out for the wash-sale rule when harvesting tax losses. This IRS rule dictates that any new investments you purchase within 30 days of selling an investment to harvest losses must be substantially different.

6. Evaluate Your Debts

As part of your annual financial checkup, consider how well you’re doing with managing debt. Specifically, evaluate your debt to income ratio. Has your credit card debt decreased this year? If not, it’s time to figure out where the leaks are taking place and try to plug them. It’s difficult to get ahead and invest when too much of your income is going to interest payments on credit cards.

How’s the interest rate on your mortgage? Should you consider refinancing? Even a small dip in rates can make a big difference in the life of your mortgage, but you have to consider closing costs to see if it’s worthwhile.

Lastly, how’s your credit score? If you haven’t ordered your free copies of your credit report, now’s a good time to do it. You can get one free copy of your credit report per year from AnnualCreditReport.com. Once you have your copies of your credit reports, review them carefully and dispute any errors you come across.

7. Reduce Your Income Taxes

This is a good time to plan for next year’s taxes. What can you do to minimize them? Add up all your allowable deductions and see if you can itemize. Review the list of allowable deductions and make sure you take advantage of any you’re eligible for. Consider bunching deductions into one year or accelerating deductions by paying tax-deductible items early to help you reach the threshold for deducting.

For instance, medical expenses can only be deducted if they exceed 7.5% of your income. If you’re close, pre-paying an orthodontia bill or scheduling that elective surgery before the end of the year could save you some money on taxes.

8. Review Your Retirement Plans

Last but not least, look at how you’re doing with regard to retirement funds. Are you contributing the maximum to your 401(k) plan? This is one of the best tax-reducing strategies available. If your employer doesn’t have a 401(k), does it offer any other kind of plan? If not, consider setting up an IRA on your own.

Also, look into whether your company offers other ways to save, such as a Health Savings Account. An HSA isn’t a retirement plan, per se, but it’s a good way to save for future health care expenses on a tax-advantaged basis.

NOTE: HSAs are associated with high deductible health plans only. But they offer triple tax advantages: tax-deductible contributions, tax-deferred growth and tax-free withdrawals for qualified medical expenses.

How’d you do? If your financial health is in good shape, congratulations! If it can use a little work, at least you know where you need to concentrate your efforts. And remember to update your annual financial checkup at the same time next year to track your progress.

Originally published at TheBalance.com by Deborah Fowles.

Jul 14
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How to Start Saving for Retirement at 40+

By Estate Planning, Insurance, Investments, Retirement No Comments

Perhaps you missed the memo urging you to start saving for retirement in your 20s or 30s. Or, if your situation is anything like mine, you started a family early or didn’t find your passion in life until you were in your 30s.

Fortunately, it’s not too late to start saving for retirement, because you’re likely earning more today than you did a decade ago. You should be able to start saving now and still retire with a hefty nest egg. But first, you must take some essential steps.

Evaluate Your Savings Potential

Be realistic. Sure, we all wish we could save $5,000 per month, but can you actually achieve this based on your earnings and expenses? Remember, no savings amount is so small that it won’t positively impact your goals. Save what you can, even if it’s only a few hundred dollars per month. There are always ways to push your savings goals further by establishing a budget, creating a side business, downsizing your life, or all of the above.

Set a Financial Goal

How much do you need to retire? Start by taking an assessment of where you are financially and where you need to be. How much money do you need to live comfortably in retirement? Do you anticipate a need for $25,000, $50,000 per year, or maybe more? It may be that you have to postpone your retirement by a few years while you make a few adjustments and implement a quick-fix plan to catch up with your goals.

Create a Plan

Any good financial plan should begin with an honest assessment of your goals and the steps you’ll take to get there. Try using a retirement calculator to determine how much you’ll need to save each month in order to retire by your desired date.

You may be surprised by how much money you’ll need to save, but don’t fear the challenge. Consider working longer, finding a second income, or downsizing your lifestyle to enable progress toward your savings goals.

by Qiana Chavaia | WiseBread

Mar 04
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Women Need To Put Away More Money For Retirement Than Men

By Investments, Money Management, Retirement, Saving, Women's Wealth No Comments

The U.S. is facing a massive retirement crisis, with a whopping $13 trillion retirement savings shortfall.

The retirement savings crisis is even more severe for women since they face a gender-pay gap and will likely live longer.

That means women need to be saving more than men. The goal should be 8 to 10-times an annual salary.

“[That’s] what you need if you want to spend 90% of your pre-retirement levels annually. It’s a bit more than you hear at the majority of investment firms, but we want you to retire like a boss — more travel, more fun,” says Sallie Krawcheck, the CEO of women-led digital investing platform Ellevest on a new episode of MAKERS Money. “And, since we women live longer on average it’s better to have a bigger cushion. Yes, in this case, bigger is better.”

On the fourth episode of MAKERS Money, Krawcheck presents steps that women can take to increase their likelihood of having more money in retirement, including investing in a diversified portfolio and asking for a salary increase.

On the show, she’s joined by Tanya Van Court, the CEO of Goalsetter, an online saving and gifting platform to help kids save. According to Van Court, women need to put themselves in a position for a raise.

“[Women] need to have those conversations about how much they want to make, but not only how much they want to make, but what the clear expectations are that will get them to that point to be deemed successful,” says Van Court.

“I completely agree,” says Krawcheck.

Krawcheck spent nearly 30 years on Wall Street, holding high-level positions including CEO of sell-side research firm Sanford Bernstein, CEO of Smith Barney, CFO of Citigroup, and president of global wealth and investment management at Bank of America Merrill Lynch.

Last month, feminist media brand MAKERS and Yahoo Finance launched “MAKERS Money,” a weekly show hosted by Krawcheck that features advice for women from top female financial experts.

 

Originally appeared on Yahoo Finance!

Feb 28
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How to Take Your Financial Future into Your Own Hands

By Money Management, Retirement, Saving 2 Comments

By Katie Bryan, America Saves Communications Director

America Saves Week, February 26 – March 3, 2018, is the perfect time to review your finances, set your savings goals for the year, and set up a system that will allow you to save automatically. That’s why the America Saves Week theme is – Set a Goal. Make a Plan. Save Automatically.

Did you know that only half of Americans report having good savings habits? Even if you are already saving, it’s good to take a look at your greater financial picture and decide whether there’s potential to save more or set a new savings goal. Join thousands of others who are pledging to pay down debt, save money, and take financial action during America Saves Week.

Not sure what to save for or what to save for next? Here are the most popular saving goals of those who have pledged to save through America Saves:

  • Save for Emergencies – Research has shown that low-income families with at least $500 in an emergency fund are better off financially than moderate-income families with less than this amount. Nearly a quarter of savers who have taken the America Saves pledge have chosen “emergency savings” as their first wealth-building goal. Learn more.
  • Save for Retirement – Retirement savings is a top priority for many savers. Saving for retirement now will ensure that you have enough money to maintain a comfortable standard of living when you stop or reduce the amount of hours you work. Learn more.
  • Save for Education – Saving for education is the second most popular goal savers select when they pledge to save with America Saves. There are many different things to factor in when saving and paying for college. Learn more.
  • Pay Down Debt – Getting out of debt is the #3 goal savers select when they pledge to save. The good news is that there is hope. With planning, discipline, patience, and maybe some outside help, almost anyone can reduce their debts and start to accumulate wealth. Learn more.
  • Save for a Home – For decades, home ownership has been the main path to wealth for most Americans. Today, home equity – the market value of a home minus the balance on any home loans – represents more than four-fifths of the typical family’s wealth. Learn more.

Not sure how to save for your goals? Here are some saving strategies to help:

  • Save Automatically – The easiest and most effective way to save is automatically. This is how millions of Americans save at their bank or credit union, and how millions of employees save through 401(k) and other retirement programs at work. Learn more.
  • Save at Tax Time – Do you spend weeks eagerly anticipating your tax refund? When the money finally comes in, is it gone tomorrow? Many people view tax refunds as unplanned bonuses. They see the money as a gift from the government, to use for splurges or treats. But a tax refund provides the opportunity to improve your financial situation.  Learn more.

Take the America Saves Pledge, or re-pledge, today to set your savings goal and make a plan to save. When you take the Pledge, you can also choose to receive text message tips and reminders to help you save for your goal. And don’t forget to follow America Saves on Facebook and Twitter.

 

America Saves Week is coordinated by America Saves and the American Savings Education Council. Started in 2007, the Week is an annual opportunity for organizations to promote good savings behavior and a chance for individuals to assess their own saving status.

Oct 24
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4 Reasons You Should Never, Ever Take A 401(k) Loan

By Money Management, Retirement No Comments

If you’ve got a pressing financial concern and money in your 401(k), you may be tempted to take the cash out by taking a 401(k) loan. After all, the money is just sitting there, you’d be paying interest to yourself if you took out the cash, and you may have plenty of time to put the money back before retirement.

While it can theoretically seem like a smart financial move to use that money to pay off high-interest debt, put down a down payment on a house, or fulfill another immediate need, you should resist the urge and leave your 401(k) cash right where it is. The money already has a job — helping you afford food, housing, and medicine when you’re too old to work — and the only reason you should ever take it out is for a true life-and-death emergency.

Here are four big reasons why you should leave the money in your 401(k) alone so you don’t have major regrets later.

1. If you can’t pay it back, you get hit with a big tax bill

When you take a 401(k) loan, you typically must make payments at least once per quarter and must have the entire loan repaid within five years, although there are exceptions such as a longer repayment period if the money you borrow is used as a down payment for a primary home.

If you are not able to comply with the repayment rules, the entire unpaid amount of the loan becomes taxable. Plus, if you’re under 59 1/2, you will not only have to pay federal and state taxes on the money you withdrew but will also have to pay a 10% penalty for early withdrawal.

Depending upon your federal tax bracket and state taxes where you live, your total tax bill could be around 40% or more of the amount withdrawn; for example, if you were in the 25% federal tax bracket, paid 8% California state tax, and paid a 10% penalty for withdrawing money early, you’d owe 43% in taxes. If you borrowed $10,000, the government would get $4,300 and you’d be left with just $5,700.

That’s a really high effective interest rate — so you’re taking a big gamble that you’ll be able to make all the repayments without a hitch.

2. You’ll be stuck in your job or forced to pay back the loan early

When you leave your job and you have an outstanding 401(k) loan, you typically have to pay the loan back right away or your employer will alert the IRS and taxes and penalties will be triggered. The specific length of time you have to pay can vary from plan-to-plan, but 60 days is typical.

This means that unless you have the cash, you’re left with a choice between sticking it out at your job until you’ve repaid the entire balance — which could take years — or paying a hefty sum to the government. You could be forced to forego career opportunities to avoid the tax hit… assuming you actually have a choice about whether you leave your job and don’t get laid off first.

If you are let go, you’ll still be forced to repay the loan or pay taxes. This could mean coming up with a lot of cash right when you’ve lost the income that your job was providing.

3. You’ll miss out on the earnings your investments would have generated

When you have money invested in a 401(k) and you take a loan against your account, the money for the loan is typically taken out in equal portions from each of your different investments. If you’re invested in six different funds, one-sixth of the value of the loan would be taken from each.

During the time that your money is pulled from your account, you’re not making any investment gains. If you took a $10,000 loan from your 401(k) 20 years before retirement, took five years to repay the loan at 5% interest and were earning 8% on your investments, you’d lose about $2,625 in earnings, assuming you repaid the loan on time.

Of course, you could lose much more (or much less) depending upon the movement of the market. If you took a 401(k) loan during the financial crisis in 2008 and sold all of your investments when they were way down because of the market crash, you’d likely have had to buy back your investments at a much higher price and would have missed out on much of the market recovery.

And, of course, there’s also a risk that you won’t put the cash back at all… which could end up costing you decades of compound interest and which could result in that $10,000 loan having a price of more than $62,000 by the time you reach retirement age, if you took out $10,000 20 years before retiring and never paid it back.

4. Taxes and fees will cost you

When you repay the money from a 401(k) loan, you do so with after-tax dollars (rather than with pre-tax money, like with your individual contributions). When you take the money out of your retirement account as a senior, you’re taxed because no distinction is made between the pre-tax contributions you made to the account and the after-tax loan repayments. You’re forced to pay taxes twice: once when the money went in and once when it come out — which can cost you thousands.

To make matters worse, interest on a 401(k) loan isn’t tax deductible, so if you’re borrowing money toward a house or if you’ve taken cash out of a 401(k) to repay student loans, you’re not even getting a mortgage interest deduction or taking advantage of the tax deduction for student loan interest that you would likely otherwise be entitled to take.

You’ll also have to pay fees, in most cases, to take a 401(k) loan. These fees can be higher than the costs associated with a conventional loan.

 

Originally appeared on Money.cnn.com.