It isn't how much you make
. . .It's how much you keep!
Archive for Financial Services – Page 5
Most people do not plan for their taxes throughout the year. They file their taxes and then shunt the whole process aside until next year. In reality, any-
one who earns money and files taxes can save money by planning throughout their life.
In Your 20s
The good news is you’re probably not taxed very heavily yet, but the bad news is this is because you are not making very much money. Make sure that you have all your key financial documents organized and identity information like your birth certificate and Social Security card in a secure place. If your parents opened any accounts for you when you were younger, make sure you have all relevant paperwork now. Consider meeting with an accountant or advisor to make sure you set off on the right foot. Tips:
Contribute to a tax-deferred retirement account, like a 401(k) plan or IRA. Take full advantage of any employer-matching contributions, even if you want to pay off student loans quickly. That free money will most likely grow in your account at a higher rate of return than your low-interest loans.
Keep track of your student loan payments. You can deduct the interest you pay on your loans when you file taxes and sometimes can qualify for an income based repayment plan if you owe more than you make.
Save receipts and records if you relocate for a job, since these expenses can be deducted.
Make sure you are withholding the correct amount. Getting a big refund at tax time is exciting, but by over-withholding, you have let the government sit on your cash without making it work for you during the year.
In Your 30s
Now your finances get significantly more complicated, as your savings increase along with your expenses. Tips:
Keep saving in tax-deferred accounts, but also consider opening a tax-free account like a Roth IRA or Roth 401(k) plan so you will have more income options in retirement.
If you plan to get married or have children, meet with a tax or financial advisor to ensure you are making the best financial decisions for this point in your life. Consider setting up a 529 plan for your children’s future education.
Review the credits and deductions available to you, especially the ones related to child and dependent care. Make sure you are getting everything you qualify for.
Use a flexible spending plan and reimbursement accounts for any medical bills.
In Your 40s
This is when you will probably hit your earning peak. This may bump you into a higher tax bracket, so maximizing possible deductions
(like contributions to a retirement account) is more important than ever. Tips:
Upgrade your charitable giving and keep track of any eligible gifts you make. Keep the documentation so you can deduct your giving at tax time.
Make sure to meet with an advisor before drawing money from taxable investment accounts for large expenses (such as your child’s college tuition), as there may be complicated tax ramifications. Also stay abreast of any tax credits for education: your child’s or your own.
In Your 50s
Retirement is edging closer and now you should be focused on saving as much as possible. Tips:
Max out your contributions to IRAs and 401(k) plans. Now that you’ve turned 50, you can contribute an extra $6,500 to your 401(k) plan and an additional $1,000 to your IRA.
Start planning for healthcare expenses down the road. Open a tax-free health savings account to reduce your taxable income now and provide a fund for health expenses in retirement.
Know the tax implications of cashing out any stock options or other perks from your employer.
In Your 60s
This tax-planning decade is crucial to your retirement years. Tips:
Plan for all taxes that may apply to you in retirement. For example, your retirement income level will determine whether you have to pay taxes on your Social Security benefits.
Consider converting a tax-deferred IRA to a Roth IRA for tax-free income in retirement (but know you will have to pay any taxes owed when you convert).
Be careful and strategic about how you make withdrawals to avoid paying higher taxes than necessary. Form a plan with your advisor to ensure you are not paying more than you have to.
Frankly Speaking
What’s MOST important to you NOW? Covid? The Economy? Or something else?
The first American death from the COVID-19 pandemic occurred on 2/06/20. As of 9am ET on 8/06/21, i.e., 18 months later, 619,158 Americans had died from the pandemic, an average of 7,938 deaths per week. 3,273 Americans died of COVID-19 in the last week (source: NBC News, Meet the Press: First Read).
“The problem in the last few cycles as I see it is we get promoters and insiders and people who have done very well cashing out as retail is buying,” says Jim Chanos. “The game would appear to be rigged against you if you keep coming in and buying things 10x what they are worth.” Squawk Box, Aug. 10, ’21
Good point Mr. Chanos, yet how to protect people from making foolish investments or refusing to get vaccinated? Isn’t this what happened after the Internet Boom of the 90’s led to the TECH WRECK; or the Mortgage Boom led to the DEBT WRECK of ’08? And looks a lot like something that’s going on now with the ‘Gamification’ of the stock market?
“Experience is the name everyone gives to their mistakes.” -Oscar Wilde
When most people think about life insurance, they
think about replacing the take-home pay earned by the family’s primary breadwinner should he/she
die. Yet it could be just as important to insure a stay-at-home parent.
The issue is one of valuation: how do you set a dollar figure on the contributions that a stay-at-home parent makes to a family?
Start by looking at the functions he or she provides: cooking, cleaning, childcare, shopping,
laundry, paying bills. How much would it cost to pay someone to provide those same services?
For a newly single parent of two children, the price of continuing to work could mean spending as much as $40,000 or more a year on childcare
and household services. If you can’t imagine finding that kind of additional cash flow, covering your spouse or partner with a life insurance policy to pay those expenses for as many years as needed makes sense. You have two choices: you can take out a separate policy on your spouse that names you as the beneficiary or you can add a spouse rider to your own policy. The advantage
of a rider is that it can be cheaper than securing a separate policy for the stay-at-home parent.
On the other hand, if your spouse dies after you do, the rider typically doesn’t pay a death benefit
to your spouse’s beneficiary. In addition, your spouse will have no access to cash value accumulation since the policy and cash values are owned by you. And, with some insurance companies, you can’t secure as much coverage
on your spouse in a rider as you can in a separate policy.
If there are other reasons for your spouse’s life to be insured than simply replacing his/her homemaking services — like designating different
beneficiaries or meeting estate-planning objectives — then a separate policy might be the better choice.
As with all life insurance decisions, the best way to insure a stay-at-home spouse differs for every family. For help assessing which spousal
coverage decision is best for you, please call.
Managing Correlations
The correlation, or relationship, between two different investments can be difficult to determine
without a lot of analysis. However, there are some basic rules of thumb that can help explain how the different forces interact.
Most investments have a high correlation-to-market performance. In other words, when the overall market is rising, they’re rising too. Other investment classes have a low correlation-to-market performance. Investments in this category typically include currencies, commodities, and most hedge funds.
Then there are investments with a negative correlation to the market — they rise when the market falls, and vice versa. While they can
serve to diversify a portfolio and lower risk, by themselves they carry the highest risk of all investments. Investments in this category include
shorted indexes and stocks of companies
dealing with inferior goods.
While each of these investment classes carries its own risk, combined they can lower your portfolio’s
overall risk. When investors combine assets whose returns show low correlation with each other, they can minimize risk while maximizing
return. In other words, it is possible to be a prudent investor even if your portfolio includes riskier assets.
Financial Thoughts
Participants in 401(k) plans became more attentive to expense ratios and portfolio allocations after fee and performance statements were provided. Participants then actively moved away from allocating to expensive funds. Additionally, more investors allocated more to index funds, since these funds tend to be cheaper offerings among plan choices. Trends were stronger among young men (Source: AAII Journal, September 2020).
Even though Social Security’s full retirement age has increased to age 66, most workers still time their retirement and exit from the work force at age 65. However, the change in the full retirement age to age 66 did cause many retirees to claim their Social Security benefits later than age 65. The main reason people continue to retire at age 65 is because most individuals working at companies retire at that age, suggesting that employers play a significant role in shaping the retirement decisions of their employees (Source: National Bureau of Economic Research, May 2020).
Approximately 30% of investors said that ethical trust was the most important component of an advisory relationship (Source: Journal of Financial Planning, March 2020).
Few people enjoy thinking about their insurance needs, shopping for coverage, or
reading through a policy’s fine print. Once they do buy a policy, many people rarely think about it again, other than when they pay the premiums. But that tendency to avoid thinking about insurance can lead to insurance mistakes that can put a person’s assets at risk. Below are some of the most common
insurance mistakes:
Expecting the best — Some people may think they can skip various types of essential insurance (like auto or health insurance) because it won’t happen to them. Or they may buy a bare-bones policy thinking they won’t ever need to make a claim. But the reality is that accidents and injuries can happen to anyone. A comprehensive insurance plan protects you when they do.
Not shopping around — If you’re in the market for a new policy, shop around and compare prices to get the best deal. But make sure you’re comparing equivalent policies and coverage — an ultra-cheap policy may offer skimpy benefits.
Buying too much insurance — While insurance is a valuable part of your overall financial plan, there is such a thing as being over-insured. If you’re paying
high premiums for insurance coverage you don’t really need, you’re wasting money. What types of insurance might you skip? Extended warranties, cell phone insurance, insurance for specific diseases (like cancer), rental car insurance, and mortgage life insurance are usually not worth the premium you pay.
Not negotiating on insurance rates — Here’s a little-known tip: The premium price you’re quoted isn’t set in stone. Depending on the type of coverage you need, you may be able to get discounts based on your profession, the age of your car, installing an alarm system in your home, choosing a higher deductible, and more. Bundling — buying several policies through the same carrier — can also lead to premium price breaks.
Forgetting to pay the premium — It’s a simple but potentially devastating mistake. Missing premium payments could cause your policy to lapse, leaving you without coverage. Reduce the risk of this happening by automating your payments.
Dropping coverage to save money — When your budget is tight, dropping insurance coverage may seem like a good way to save cash. You may save money in the short term, but you could end up worse off in the long term if you need to make a claim. If premium payments are straining your budget, consider raising your deductible or asking your insurer if you’re eligible for any discounts.
Forgetting to update life insurance beneficiaries — As your life changes, so should the people named as beneficiaries on your life insurance policy. Divorce, remarriage, the death of a spouse, or the birth or death of a child are all times when you should update these designations. If you fail to take this simple step, your life insurance may not do its job when you need it most. After all, do you
want your insurance benefits to go to your ex-spouse or have one child receive a generous insurance payment while the other receives nothing? Keeping your beneficiary designations up-to-date can help you avoid those outcomes.
Having coverage gaps — Everyone faces different risks, and thus has different insurance needs. Sometimes, it’s easy to overlook a risk until it’s too late. For example, if you live in an earthquake-prone area, you likely need separate earthquake insurance. If you serve on a nonprofit board of directors, you may need personal liability coverage. If you own ATVs, snowmobiles, or other vehicles, you may need special policies to protect yourself in case of damage to the vehicle or a lawsuit. The list of possible risks goes on and on.
Not researching an insurance company before you buy — Not every insurance company is created equal, and what looks like a great deal today may be less appealing tomorrow when you are struggling to get a claim processed quickly. Before you buy, get multiple quotes, read the policy’s fine print, review the insurer’s complaint record with the state department of insurance, and check the company’s ratings with ratings agencies like Fitch, Moody’s, and A.M. Best.
Not thinking about insurance as part of your overall financial plan — Insurance isn’t something you should think about in isolation. In fact, it’s an essential part of your overall financial plan. A solid risk management strategy protects your hard-earned wealth and your family’s future.
Please call if you’d like to discuss insurance in more detail.
We all know the process. Estimate how much is needed in retirement
(which can range anywhere from 70% to over 100% of pre-retirement
income), determine available income sources, and then calculate how much to save annually to reach those goals. As you go through this largely mathematical exercise, however, don’t forget the most important part. You need to give serious thought to the type of retirement you want — visualize what retirement will be like.
Retirement is no longer viewed as a time to slow down, but considered a new beginning in life. That means your current living expenses may have very little to do with your retirement expenses. To help you visualize your retirement so you can estimate retirement expenses, consider these questions:
When do you want to retire?
Will you realistically have the resources to retire at that age?
Do you plan to stay in your current home, trade down to a smaller one, or move to a different city? If you plan to move, is the cost of living there more or less expensive than your present city?
Will your mortgage be paid off by retirement? What about other debts?
Will you continue to work after retirement? If so, will you work part- or full-time? Where will you work and how much can you expect to earn? Do you have any hobbies or interests That can be turned into paying job s? Are you planning to start a business after retiring?
How will you spend your free time? What hobbies will you pursue? How much and where will you travel? How much will all these activities cost?
How will you pay for medical costs? Will your employer provide health insurance or will you need to purchase insurance to supplement Medicare coverage?
Do you have any medical conditions that are likely to impact your quality of life in retirement? What would you do if you became physically disabled? Would your spouse take care of you, would you move in with your children, or would you go to a nursing home? How will you provide for long-term-care costs?
How much of your income will be provided by personal investments, including 401(k) funds? Are you confident those investments will last your entire retirement?
What would happen financially if your spouse dies? If you die, would your spouse be able to support himself/herself financially?
Answering these questions should give you a clearer picture of what your retirement will be like.
If you’d like to review these questions in more detail, please call or contact me.
Frankly Speaking
The English astronomer Edmund Halley prepared the first detailed mortality table in 1693. Life and death could now be studied statistically,and the life insurance industry was born. – Mathshistory.st-andrews.ac.uk
“You can live to be a hundred if you give up all things that make you want to live to be a hundred.” – Woody Allen
“Don’t go around saying the world owes you a living. The World owes you nothing. It was here first.” – Mark Twain
Summertime an’ the livin’s easy, fish are jumpin’ & the market is high…And where is RISK when the Market is HIGH? Where is the market today? You got it – HIGH! And what can you do about it? Ever hear of Guaranteed Income Accounts*? Or ‘Buffered’ accounts, either Exchange Traded Funds or (God forbid) annuities*? They each offer downside protection in exchange for a ‘cap’ on gains. So, WHEN do you think the next correction will occur? Sooner or later?
If you or anyone you know wants to discuss protection of your gains, PLEASE call or contact me ASAP!
*All guarantees and protections are subject to the claims-paying ability of the issuing company.