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Archive for Retirement – Page 3

Retirement Planning Decade by Decade

Posted by Frank McKinley on
 June 14, 2021

Retirement planning is a life-long process. Below are some of the key retirement-planning actions you need to be taking from your 20s through your 60s.

Your 20s

Start saving. The sooner you can start saving for retirement, the less you’ll have to save overall. If you start saving $5,000 per year at age 25, you’ll have just under $775,000 by age 65, assuming annual returns of 6%. Wait until age 35 to start saving and you’ll have about $395,000 — more than $300,000 less. Also, since you’re still decades away from your retirement date, don’t be afraid to take some risk with your investments. You’ll have to stomach some ups and downs, but earning higher returns from equity (or stock) in-vestments now means more money (and less to save) as you get older. Other steps to take when you’re young: start budgeting, avoid debt, and save for other goals, like buying a house. Even if you’re not earning a lot right now, adopting healthy money habits today will pay big dividends later in life.

Your 30s

As you enter your 30s, your in-come is probably heading upward and your life is beginning to stabilize. You may find that you can contribute more to your retirement savings accounts than you could in your 20s. As your income increases, consider increasing your retirement contributions by the amount of your annual raise so you don’t fall behind on saving. Reassess your savings rate and consider meeting with a financial advisor to make sure you’re saving as much as you can — and investing it well.

Your 40s

You’re at the halfway point to retirement. If you’ve been saving for the past 10 or 20 years, you should have a nice nest egg by now. If you

haven’t gotten serious about saving, now is the time to do so. You’ll have to be fairly aggressive, but you still have some time to build a respectable financial cushion. Whether you’re an accomplished saver or just getting started, you may also want to consider meeting with a financial advisor to help you make sure you’re saving enough to meet your goals and investing in the best way possible.

A special note: people in their late 40s and early 50s are often looking at steep college tuition bills for their children. Don’t make the mistake of sacrificing your retirement goals to pay for your children’s college educations. Stay focused and on track so your children don’t have to jeopardize their financial future to support you as you get older.

Your 50s

Once you turn 50, you have the option to make catch-up contributions to retirement savings accounts like 401(k)s and IRAs. You can save an additional $6,500 a year in your 401(k) plan and $1,000 a year in your IRA in 2021. That’s great news if you’re already maxing out your savings in those accounts. Your fifth decade is also the time to start thinking seriously about what’s going to happen when you retire — when exactly you’re going to stop working, where you want to

live, whether you plan to work in retirement, and other lifestyle is-sues. It’s also the time to take stock of your overall financial situation. You’ll still want to keep saving as much as you can, but you may also want to make an extra effort to be debt-free at retirement by paying special attention to paying off your mortgage, car loans, credit card debt, and any remaining student loans.

Your 60s

Retirement is just a few years away. If you haven’t already, you’ll want to dial down the risk in your portfolio so you don’t take a large loss on the eve of your retirement. You’ll also want to start thinking about a firm retirement date and estimating your expected expenses and income in retirement. If your calculations show that you’re falling short, it’s better to know before you stop working. You can make up a shortfall in a number of ways — reducing living expenses, working a bit longer, and even delaying Social Security payments so you get a larger check. Whatever your age, the key to retirement is having a plan and consistently executing that plan. Not sure how to get started? Please call so we can discuss this in more detail.

Categories : Blog, financial planning, Financial Services, Investments, Retirement, Savings

Your Financial Road Map

Posted by Frank McKinley on
 June 1, 2021

Are you making progress toward your financial goals? Are your finances in order? Are you prepared for a financial emergency? If you’re not sure, take time to thoroughly assess your finances so you have a road map for your financial life:

Assess your financial situation.

Evaluating where you currently stand financially will help you determine how much progress you are making toward your financial goals. There are several items to consider:

Your net worth — Prepare a net worth statement, which lists your assets and liabilities with the difference representing your net worth. Prepared at least annually, it can help you assess how much financial progress you are making. Ideally, your net worth should be growing by several percentage points over inflation.

Your spending — Next, prepare a cash-flow statement, detailing your income and expenditures for the past year. Are you happy with the way you spent your income? You may be surprised by the amount spent on non-essential items like dining out, entertainment, clothing, and vacations. This awareness may be enough to change your spending patterns. But more likely, you will need to prepare a budget to help guide your future spending.

Your debt — Debt can be a serious impediment to achieving your financial goals. To assess how burdensome your debt is, divide your monthly debt payment, excluding your mortgage, by your monthly net income. This debt ratio should not exceed 10% to 15% of your net income, with many lenders viewing 20% as the maximum. If you are in the upper limits or a uncomfortable with your debt level, take active steps to reduce your debt or at least lower the interest rates on it.

Increase your savings.

Calculate how much you are saving as a percentage of your income. Is it enough to fund your future financial goals? If not, go back to your spending analysis and look for ways to reduce expenditures. That may mean reassessing your lifestyle choices. Commit to saving more  immediately and then take steps to make that commitment a reality.

Rebalance your investments.

At least annually, thoroughly analyze your investment portfolio:

Review each investment in your portfolio, ensuring that it is still appropriate for your situation.

Calculate what percentage of your total portfolio each asset type represents; compare this allocation to your target allocation and decide if changes are needed.

Compare the performance of each component of your portfolio to an appropriate benchmark to identify investments that may need to be changed or monitored more closely

Finally, calculate your overall rate of return and compare it to the return you estimated when setting up your investment program.

If your actual return is less than your targeted return, you may need to increase the amount you are saving, invest in alternatives with higher return potential, or settle for less money in the future.

Prepare for financial emergencies.

To make sure you and your family are protected in case of an emergency, set up:

A reserve fund covering several
months’ of living expenses.
The exact amount you’ll need depends on your age, health, job outlook, and borrowing capacity.

Insurance to cover catastrophes.
At a minimum, review your coverage for life, medical, homeowners, auto, disability income, and personal liability insurance. Over time, your insurance needs are likely to change, so you may find yourself with too much or too little insurance.

Review your estate plan.

Take a fresh look at your estate planning documents and review them every couple of years. Even if the increased exemption amounts mean your estate won’t be subject to estate taxes, there are still reasons to plan your estate.

You probably still need a will to provide for the distribution of your estate and name guardians for minor children. You should also consider a durable power of attorney, which designates someone to control your financial affairs if you  become incapacitated, as well as a healthcare proxy, which delegates healthcare decisions to someone else when you are unable to make them.

If you’d like help evaluating your finances, please call.

Categories : financial planning, Financial Services, Investing, Retirement, Savings

Review and Reevaluate Your Portfolio

Posted by Frank McKinley on
 April 16, 2021

Periodically, you should thoroughly review your portfolio to ensure it is still helping you work toward your investment goals. Follow these steps:

Review your current portfolio mix. List the current value of all your investments.  Determine what percentage of your portfolio is held in stocks, bonds, cash, and other investments. Take a closer look at where the stock portion of your portfolio is invested.

Break out your stock investments by market capitalization (small-, mid-, and large-cap), by style (growth and value), by area (domestic and  international), and by sector (technology, financial, utilities, energy, etc.).

Analyze each investment. Determine whether it still makes sense to own each investment. Don’t let emotions get in the way. Review why you purchased each investment and whether those reasons are still valid.

Emotionally, it is difficult to sell an investment at a loss, but holding on until you get back to breakeven
may not be the best strategy. It may never get back to that price or may take an excessively long time to do so. You may want to sell the investment and reinvest in another with better prospects. Instead of worrying about what you paid for the investment, decide whether you would buy it today at its current
price.

Determine if changes are needed to your current allocation. If we’ve learned anything over the past few years, it’s that your portfolio should not be highly concentrated in one area or sector. Instead, look to broadly diversify your portfolio.

Some points to consider include:

Decide how much to allocate to stocks and bonds. Your stock and bond mix is a major factor in determining your expected portfolio return and how much your portfolio will fluctuate with market movements. However, be careful not to let recent events cause you to allocate too much to bonds just to avoid stock market fluctuations. Make this decision based on your financial goals, risk tolerance, and time horizon for investing. If you are investing for the long term — say, 10 years or more — you probably still want a major portion of your investments allocated to stocks.

Reassess your stock allocation. Is your stock portfolio too heavily weighted in technology stocks or blue chip stocks? Have you selected only growth stocks, ignoring value stocks? Do you prefer large-cap stocks, ignoring smaller stocks? The stock market moves in cycles, with different sectors outperforming other sectors at different times. Since no one can predict when one sector will outperform, it is typically best to broadly diversify your stocks over all areas.

Move your allocation closer to your desired allocation. When making changes, first consider the tax ramifications of the transactions. If you can make changes without incurring tax liabilities, you may want to make the changes immediately.

If substantial tax liabilities will be incurred, look for other ways to get your portfolio closer to your desired allocation. For instance, any new investments should be made in under-weighted areas of your portfolio. Or you may be able to reallocate in your tax-deferred
accounts, such as individual retirement
accounts and 401(k) plans, where you typically won’t incur tax liabilities.

However, if you can’t get your allocation in line within a year using these approaches, you might want to sell some of the poor performers and reinvest the proceeds.

If you’d like help reevaluating your portfolio, please call.

Analyze your investments and reasses your stock allocations

If you would like more information or to discuss your financial concerns

Click Here
Categories : Blog, financial planning, Financial Services, Investments, Retirement
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6 Signs You Need a Financial Plan

Posted by Frank McKinley on
 April 9, 2021

A clear financial plan helps you prepare for the future, brace yourself for the unexpected, and positions you to pursue your goals. Below are six signs
it may be time for you to get a financial plan.

You’re planning (or just had) a big life change.
New job. New baby. New house. All of those milestones and more are signs you should take a big picture look at your finances. When your life changes in big ways, it often brings with it changes in how you approach money.

You’re worried about your finances — and your future.
If money worries keep you up at night, a financial plan can help ease your mind. Whether you have immediate worries or are just feeling uneasy about what tomorrow may hold, you can regain control over your life by having a clear direction.

You’re making good money, but you’re not sure where it goes.
If you want to turn today’s income into tomorrow’s wealth, you need a financial plan. That way, you’ll be able to take the money you’re bringing in today and use it to create a secure future for yourself and your family.

You have financial goals, but you’re not sure how to make them a reality.
Does retirement seem like a distant dream? Do you wish you could upgrade to a bigger home, send your kids to college without taking on debt, or start a
business? With a financial plan, you’ll know what you need to do financially to make those dreams a reality.

You and your partner are fighting about money.
If you and your partner can’t see eye-to-eye on money issues, a financial plan might be part of the solution. Meeting with an objective third party can help you both recognize where you stand when it comes to your finances, and then negotiate a path forward that works for both of you.

Your investments and finances are getting so complicated, it’s difficult for you to keep track of everything.

Many people start out managing their investments and finances on their own. That often works for a time, but as your money and life get more complex, it can be difficult to manage all the details without help.

A good financial plan will help provide security for you and your family

If you would like more information or to discuss your financial concerns

Click Here
Categories : financial planning, Financial Services, IRA, Retirement

It’s Important to Keep Saving After Retirement

Posted by Frank McKinley on
 February 26, 2021

Just because you’re retired doesn’t mean you should stop saving. Carefully managing your money and looking for ways to save will help ensure you remain financially fit during retirement. Consider these tips: 

Construct a financial plan.
Most retirees fear that they’ll run out of money during retirement. To ease those fears, create a financial plan detailing how much money will be obtained from what sources and how that income will be spent. Make sure your annual withdrawal amount won’t cause you to deplete your savings. Review your plan annually to ensure you stay on course. 

Consider part-time employment.
Especially if you retire at a relatively young age, you might want to work on at least a part-time basis. Even earning a modest amount can help significantly with retirement expenses. However, if you receive Social Security benefits and are between the ages of 62 and full retirement age, you will lose $1 of benefits for every $2 of earnings above $18,960 in 2021. You might want to keep your income below that threshold or delay Social Security benefits until later in retirement.

Contribute to your 401(k) plan or individual retirement account (IRA).
If you work after retirement, put some of that money into a 401(k) plan or IRA. As long as you have earned income and meet the eligibility requirements, you can contribute to these plans. 

Try before you buy.
Want to relocate to another city or purchase a recreational vehicle to travel around the country? Before you buy a home in an unfamiliar city or purchase an expensive recreational vehicle, try renting first.

Keep debt to a minimum.
Most consumer loans and credit cards charge high interest rates that aren’t tax deductible. During retirement, that can put a serious strain on your finances. If you can’t pay cash, avoid the purchase. 

Look for deals.
Take the time to shop wisely, not just at stores, but for all purchases. When was the last time you compared prices for auto or home insurance? Can you find a credit card with lower fees and interest rates? When did you last refinance your mort-gage?

Evaluating P/E Ratios

Price/earnings (P/E) ratios are a common measure of stock value, both for individual stocks and the overall market. Calculating a P/E ratio is straightforward — it is simply the price of a single share of stock divided by the company’s per share earnings. 

When considering public companies, it seems reasonable that well-established businesses growing in a fairly predictable pattern would command a higher P/E ratio than a small private business. Typically, companies with higher growth rates command higher P/E ratios. 

The difficulty is deciding what a reasonable P/E ratio is for a particular company or for the overall stock market. It generally helps to follow the P/E ratios of stocks that interest you, along with companies in similar industries, to develop a feel for how the P/E ratios fluctuate. 

Reviewing a company’s P/E ratio for prior years can also be helpful. If a company’s growth rate in the past is expected to continue in the future and market conditions are similar, you might not expect much change in P/E ratios. But you also must evaluate whether changes to the company, its industry, or the overall stock market would cause an increase or decrease in the company’s P/E ratio. 

Financial Thoughts

Researchers found that investors with larger accounts follow more contrarian strategies, reflect the news in their trades, and experience subsequent gains, while smaller accounts tend to follow momentum-based strategies, fail to account for the news when placing trades, and incur trading losses. They also found that these trends were stronger for younger men. The study’s authors found that all groups of individual investors lose money, though individual investors with larger account sizes lose significantly less on average (Source: AAIIJournal, August 2020). 

Another study found that investors with a high level of financial literacy take too many risks, overborrow, and hold naive financial attitudes. However, this high level of financial literacy also lends itself to better retirement planning, since people with more financial literacy are more likely to have a retirement savings plan. In addition, financially literate households earn higher financial returns than illiterate ones. (Source: AAIIJournal, August 2020). 

If you would like more information or to discuss your financial concerns

Click Here
Categories : Financial Services, Retirement, Savings

Financial Rules of Thumb

Posted by Frank McKinley on
 January 11, 2021

Rules of thumb are designed to provide quick guidelines for your finances. However, you shouldn’t blindly follow them without giving
thought to your personal circumstances. Some of the more common
rules of thumb include:

Save 10% of your gross income. While this will give you a good start, it’s typically the minimum, not the maximum, you should be saving. Analyze how much you’ll need for your financial goals, and then work backwards to calculate how much you should be saving.

Plan on spending 80% of your pre-retirement income during retirement. This may be true if you don’t plan to be very active during retirement, but more and more people expect retirement to include extensive travel and expensive hobbies. On the other hand, if you’ve paid off your mortgage and your children have finished college, you may need less
than this. Review your individual situation to determine how much
you’ll need.

Set the percentage of stocks in your portfolio to 100 minus your age. With increased life expectancies, this can result in a portfolio that is too heavily weighted in income investments. Set your asset allocation based on your risk tolerance and time horizon for investing. Stocks should be considered for long-term financial goals of 10 years or more.

Keep three to six months of income in an emergency fund. While an emergency fund is a good idea, how much you keep in that fund will depend on your circumstances. You may need a larger fund if you are the sole wage earner in the family, work at a seasonal job, own your own business, or rely on commissions or bonuses.

A smaller fund may be required if you have more than one source of
income, can borrow significant sums quickly, or carry insurance to
cover many emergencies.

Pay no more than 20% of your take-home pay toward short-term debt. Once considered a firm rule by lenders, you may now be able to obtain loans even if you exceed this amount. Try to reduce your debt or at least reduce the interest rates on your debt.

Keep your mortgage or rent payment to no more than 30% of your gross income. While you can obtain a mortgage for more than that, staying within this rule will help ensure you have money to devote to other financial goals.

Refinance your mortgage if interest rates decline by 2%. This rule of thumb assumes you’ll pay significant refinancing costs, including points, title insurance, appraisal fees, and other fees. However, many lenders now offer refinancing deals with significantly lower costs.  Thus, you should assess whether it makes sense to refinance when mortgage rates decline by as little as half a percent.

Obtain life insurance equal to six times your annual income. Different individuals require vastly different amounts of insurance, depending on whether one or both spouses work, minor children are part of the family, or insurance is being obtained for other needs, such as to fund a buy-sell agreement or to help pay estate taxes. Thus, you should  determine your precise needs before purchasing insurance.

Most financial rules of thumb should not be followed without first considering your individual circumstances. Please call if you’d like to address your needs in any of these areas.

If you would like more information or to discuss your financial concerns

Click Here
Categories : Blog, estate planning, Financial Services, Life Insurance, Retirement
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