Tag

financial planning

Happy Spring 2020!

By | 2020, Money Matters | No Comments

The year seems to be moving at a fast pace, and May will be here before we know it. Mark your calendars and plan to attend our annual Just for Women conference.

Just for Women Conference
The Gathering Place at Gardner Village
Friday, May 8th, 2020
9:00 a.m. to 12:30 p.m.

This year’s event will be packed with fun. We will start the morning off with a delicious breakfast, followed by educational and entertaining sessions.

Women love to nurture. We find satisfaction in helping other women improve their lives. We are excited to announce our 2020 Just for Women giving back partner – Days for Girls.

This remarkable non-profit organization helps many women and girls around the world find health, safety, and dignity. During the conference, we will have the opportunity to provide hands-on help.

If you have not heard their story, take a minute and visit their website at https://www.daysforgirls.org or watch this short video:

Days for Girls – Every Girl. Everywhere. Period.

Watch for your invitation to arrive in April. Seating will be limited, and RSVP is required.

We look forward to seeing you there!

Sincerely,

Sharla J. Jessop, CFP®
President

Tags: , , , , , ,

A Newlywed’s Guide to Financial Success

By | 2020, Money Moxie, Newsletter | No Comments

I’m sure most people reading this article have heard that money is one of the leading causes of divorce. That can be disheartening to hear when you’re planning a wedding. Being a newlywed myself, I have thought a lot about myself and my husband’s financial success and how to achieve our personal financial goals. I also know from observing friends and former classmates that young people often don’t even know where to start when it comes to making good money choices, especially when you add another person to the picture. As I’ve thought about all of this, I have come up with a list of things that will help newlyweds be successful in their financial endeavors.

1. Talk about it – This first one is arguably the most important. Money is often a taboo subject, but it is important to have open communication about money, especially in marriage. It is best to talk about money before you get married, but if you haven’t, talk about it as soon as possible. Make sure you both understand each other’s expectations for your money. For example, let your spouse know if you expect them to talk to you before making purchases over a certain amount. It is essential to be honest with your spouse, especially about any debt you may have.

2. Build an emergency fund – Having an emergency fund should be a top priority for newly married couples. The general rule of thumb is to have 3-6 months’ worth of living expenses saved up for emergencies such as a lost job, family illness, natural disaster, or major home repairs. This will bring security in case disaster strikes.

3. Design and track a budget – Start by reviewing your joint budget for the last few months and assigning dollar limits to each spending category. Remember, a budget is a work in progress. It is okay to make adjustments, especially in the first few months. Tracking your spending after creating a budget is just as important as making the budget. There are many ways to track your spending. Some people use apps; some people use spreadsheets; some people use the envelope method. The envelope method is primarily just using cash for your budget, and once the cash is gone, you’re done spending in that category for the month. This is especially helpful in areas in which you tend to overspend. Try out a few different methods and find the one you like best.

4. Save for retirement – This one is not something newlyweds often think about. Retirement can seem like it is so far in the future you don’t need to worry about it. However, starting to save for retirement when you are young really gives you a leg up. Having time on your side helps you take advantage of compounding interest. Even if you start small, saving something toward your retirement early on can have a big impact. Contributing to your employer-sponsored 401k plan is an excellent place to start.

Tags: , , , ,

How Do You Stack Up?

By | 2020, Money Moxie, Newsletter | No Comments

It is no secret that Americans need to save more for retirement. The amount of money an individual or couple will need to carry them through their retirement years varies based on numerous factors, including age, standard of living, location, expected fixed income sources – like a pension and Social Security – and more. Everyone needs to know where they stand based on their specific needs. Have they saved enough, or do they need to save more? Here are some shocking statistics that illustrate that Americans are falling short.

Source: Federal Reserve’s Survey of Consumer Finances

This chart shows the average retirement savings account balance of active savers. Averages can be deceiving as there are many balances far above the number shown. The issue lies in the realization that there are a significant number of accounts with balances far below the average. This creates a future financial crisis for these savers. Living today on the income they receive is doable. However, it will be almost impossible for these savers to maintain their standard of living in their elder years if they continue at the same rate of saving.

We are not proponents of Rule of Thumb planning. We prefer planning using actual key information specific to each client’s situation. But, in this situation, it helps us illustrate a reality. This chart shows how much someone should have in their retirement savings based on age. The amount shown is a multiple based on a $100,000 income.

Rule of thumb would say, based on the desired income amount you want in retirement, you should have saved a multiple of your current income. The amounts illustrated are multiples of a $100,000 income. For example, if you are age 45, you should have already saved 3 to 4 times your income. If you are 65, you should have saved 9 to 11 times your income. How are you doing?

The good news is there is always hope. If you are not on track, regardless of your age or situation, we can help create a roadmap to get you back on track, one step at a time. Contact one of our Wealth Advisors for more information.

Tags: , , , ,

The Congruity of the Annuity

By | 2019, Money Moxie, Newsletter | No Comments

Too often we have people come into our office after having just attended a free dinner that preceded the purchase of an annuity. “A guaranteed return with no downside risk” is what they believe they now own. That sounds great. I would purchase that too. However, it isn’t until after a lengthy conversation that they begin to understand how their annuity truly works.

An annuity can be a great financial product if it is congruent with the overall portfolio. There are times we use annuities to accomplish specific objectives and are pleased with how they perform in these situations. The problem we often see with the annuity is not the product itself, but how it is used. In other words, the ambiguity of the annuity can lead to incongruity, and the solution could require some ingenuity.

Annuities can be complicated. If you are considering an annuity, make sure you understand how it fits into your financial plan…and also its policies, fees, expenses, commissions, terms, benefits, exclusions, riders, investment options, and waiting periods. Due to their complexity, they can be easy to misuse, which can create significant financial problems.

An annuity is a contract between you and an insurance company. There are three main types of annuities: fixed, indexed, and variable. Each type has its own objectives and fits into a financial plan differently. Each type also carries its own expenses, level of risk, and earning potential. Even within their individual types, they can vary greatly depending on the insurance company that issues them.

Annuities can be expensive. The average annuity costs approximately 3% per year. It is important to understand that there are often expenses you don’t see. Unfortunately, too many salesmen do not clearly explain the costs, nor how they are applied. I have seen annuities advertised with “No Fees!” In truth, however, these same annuities carry large expenses.

It is also important to understand that annuities are illiquid. This means you can’t access most, if not all, of the money in your annuity without surrender charges for a significant period (usually 7-10 years). Annuities are long-term investment contracts and you’ll pay hefty fees if you take your money out too soon.

Again, we believe annuities are great at doing what annuities do. It just isn’t often we meet with people who have a need for them. If you are wondering whether an annuity is right for you, come and see us. We will always be upfront and honest about the cost and structure of the products we sell. If an annuity does make sense in your financial plan, we’ll help make sure you purchase the most appropriate and cost-efficient annuity for you.

Tags: , , , ,

Year-End Tax Strategies

By | 2019, Money Moxie, Newsletter | No Comments

We are closing in on the holiday season. Before you slip into the holiday mode, let’s talk about a few ways you can wrap up the year!

1. The market has had an incredible run. This is an excellent time to look at your non-retirement accounts to see if you can take advantage of tax harvesting.

If you have an investment that has gained $10,000 and another that has lost $10,000, you can sell both investments and avoid paying tax on the capital gains. This matching of gains and losses is known as tax harvesting.

The gains and losses do not have to match exactly, but your gain and loss have to both be long term or short term. If you have held an investment for more than a year, it is considered a long-term capital gain and would be taxed at capital gains rates. If you have held the investment for less than one year, it is considered a short-term gain and would be taxed at the higher ordinary income tax rates. Either way, the resulting tax savings can be significant.

2. Here’s a win-win strategy. If you don’t have losses to offset your gains, you can still get tax relief by donating to a cause about which you are passionate or your favorite charity: church, school, food bank, hospital, etc. Consider this – donating an appreciated investment directly to your charity of choice will avoid taxes.

To qualify, you must have held the investment for more than one year, and it must have appreciated in value. You avoid paying taxes, and the charity receives the full value of your donation tax-free. The money you would have donated can be used to purchase another investment to start the process over again.

3. Current tax rates are at historic lows. Consider converting money from a traditional IRA to a Roth IRA. You can choose how much to convert. For example, if you have room for another $10,000 of income before you hit the next marginal tax-bracket, make it count.

Before the year ends, convert $10,000 from your traditional IRA to a Roth IRA. If you are under 59 1/2 years old, you will have to pay tax on the conversion with other money – say from a savings account. If you are over 59 1/2, you can have taxes withheld from the distribution.

The benefits of Roth IRAs are tremendous. Roth IRAs grow tax-free, meaning you never pay taxes on the earnings, there are no required distributions at any age, and if you do not use the money during your lifetime, your beneficiaries receive the money tax-free!*

4. If you are over 70 1/2 years old and you have an IRA, you can donate part or all of your Required Minimum Distribution (RMD) to your favorite charity and pay no taxes. This distribution is called a Qualified Charitable Distribution (QCD). The distribution still satisfies your RMD. This cannot be done from a 401(k). If you have a 401(k) and want to take advantage of this next year, you need to roll out your 401(k) before the end of the year.

*Tax-free withdrawals if certain conditions are met: a five-year account aging requirement and attaining age 59½, becoming disabled, using up to $10,000 to buy a first home, or upon death. SFS and its representatives do not provide tax advice; it is important to coordinate with your tax advisor regarding your specific situation.

Tags: , , , ,

The Biggest Threat To Your Retirement

By | 2019, Money Moxie, Newsletter | No Comments

Admit it. Your adult children still live in your basement. Talking about the effects of caring “too much” for adult children by financially supporting them is an uncomfortable conversation, but it is an important one.

When there are no financial boundaries set between parents and adult children, the ensuing relational volatility could be a far greater threat to retirement than market volatility. Now, I’m not talking about helping fund a child’s education or paying for a wedding. The real problem begins when parents pay for their adult children’s cars, insurance, food, or even vacations. This may sound ridiculous to some, but studies suggest that 79% of parents provide some form of financial support to their adult children. In fact, just over 50% of parents say they have even sacrificed their own retirement savings to help their adult children.

So, what should you do??

(1) Separate your retirement money from your other money. Keep it off-limits. Retirement money should only be used for retirement! Try to think about retirement money as untouchable.

(2) Try changing up the way you are helping your adult child. Try to figure out ways to help that don’t include giving money, like helping with a resumé or reviewing their budget with them. Don’t come to the rescue too quickly. Rushing in to fix or solve your adult child’s challenges will hinder their opportunities to develop and practice independent problem-solving skills.

(3) Set clear expectations. Helping your adult children get on their feet when they’re down and out is not a bad thing. Just make sure they know what is expected of them. You could tell your children you will help them for a certain amount of time and during that time you expect them to do things to improve their life situation. Keep reminding them of the deadline, talk with them often about their progress, and keep them accountable.

(4) Don’t take on the blame for their struggles. Irrationally blaming yourself for your child’s struggles will likely lead you to enable them by impulsively solving their problems. Parents, of course, are not perfect, but most try their hardest to be supportive and provide their children with a loving home. It is not uncommon to see children who were raised with many advantages end up struggling to thrive as adults, just as it’s not uncommon to see children who have had adverse family lives achieve impressive things.

(5) Remember to take care of yourself too. Parents of struggling adult children are often wracked by guilt and worry, which leads to poor sleep, unhealthy eating, and problems focusing. Worrying yourself sick will not help your child. Don’t be afraid to reach out for help from a professional counselor, friends, family, or support groups for family members of people with addictions or mental illness.

References for studies mentioned:
https://www.cnbc.com/2018/10/02/parents-spend-twice-as-much-on-adult-children-than-saving-for-retirement.html
https://www.bankrate.com/personal-finance/financial-independence-survey-april-2019/

Tags: , , , , ,

Sharing Your Financial Stories With The Next Generation

By | 2019, Money Moxie, Newsletter | No Comments

We have the delightful opportunity to work with multi-generation clients. The difference in each generation surrounding what they value, how they view money, and where they place importance on things versus experiences is fascinating. Each generation has a different outlook on life and their opinions surrounding happiness.

In our work with multi-generations, we find it exciting to see how youth gain a different perspective when they hear what their grandparents or parents did to earn money when they were young. It provides them with a sense of understanding and appreciation for the sacrifices of older generations. I believe it also deepens the relations between the generations. I certainly value the stories I have heard about the financial challenges, successes, and failures of my parents and grandparents.

We are preparing for a youth financial summer camp next year. It will provide young people the opportunity to learn about money while they are still forming ideas and habits they can take into adulthood. One of our presentations will focus on ways they can make money through creative summer jobs. For this purpose, we are compiling information to share with the next generation and would love to learn about your experience as a youth. In the next month, we will be sending an email asking a few basic questions such as:

As a teenager, what did you do for summer work?
How much did you earn doing that job?
How many hours did you work each day?
What time did you go to work?
How did you get to and from work (walk, bus, parent, bike)?
What did you love about that job?
What valuable lessons did you learn?

Please help us by answering the questions. Your response will be anonymous unless you wish to be recognized. Thank you in advance for helping us guide future generations to financial success! Thank you for your business and your friendship.

Tags: , , , , ,

Are you feeling anxious about the market?

By | 2019, Money Matters, Newsletter | No Comments

If your answer is yes, you are not alone. We are emotional creatures. When things get rocky, or we perceive they are rocky, we can make decisions that feel good at the time, but in the long run, are not in our best interest. Let me share an example you may relate too.

You have worked hard and saved diligently for years, and finally, you have reached your financial goal, be it: saving for retirement, building a nest egg for a future purchase, or another purpose altogether. You feel a sense of relief – I did it! Once you reach this target number, every emotion you have regarding the market going forward may be tied to that target number.

How do you feel when you see that number going down? For some, the feeling is panic! All we can think is, “It took me forever to get to this point and I cannot afford to lose anything.” This is an emotional response. You have abandoned future perspective and are focusing only on the here and now. We often see this response to market volatility when someone is getting close to retiring or has retired. Suddenly, our long-term perspective is tomorrow afternoon. We have completely discounted the value of market performance over time.

I realize you may not enjoy looking at charts but bear with me for just a minute. Look at the two charts below. How do you feel about the chart on the left? How do you feel about the chart on the right? Believe it or not, the chart on the left is merely a subsection, representing a 90-day period, from the chart on the right, which illustrates a 5-year period. The difference is when viewing volatility over a longer time period it feels more comfortable than it does when viewed in a short period of time.

It is so easy to adopt a myopic view when emotionally, we feel like we should flee to safety. What the two charts teach us is that volatility is subjective and can be controlled by how often we look at our account balance. Now, look at the next two charts showing the exact 5-year period. The chart of the left represents the market value at the end of each quarter. The chart the right represents the market value each day. My guess is you feel better about the smoother chart to the left.

Managing your emotions during times of increased market volatility is challenging but can be done. Here are a few tips to help you through the volatile times.

1) Try to review your account no more than quarterly.

2) When you hear concerning news in the media remember; their job is to sell headlines and stories not to give personalized investment advice to you.

3) If you are feeling concerned, reach out to us. That is why we are here.

We have information regarding your financial situation, your financial plan, your investments, and the markets. We will give you advice and perspective that will help you stay on track.

*The illustrations are for educational purposes and are not indicative of an actual investment return. The Standard and Poor’s 500 (S&P 500) index is often considered to represent the U.S. stock market. Investments cannot be made directly into an index. Historical performance does not guarantee future results.

Tags: , , , ,

Are You Retired and Have a 401(k)? Read This!

By | 2019, Money Moxie, Newsletter | No Comments

As financial advisors, our job is to help clients create wealth. Most people expect us to accomplish this through market investments. Although that does play an important role, advice regarding financial decisions outside of the market can often amount to significant savings and wealth creation. The topic covered here is one that has amounted to significant savings for many of our clients. If you are currently retired or are approaching retirement and have a 401(k), this article is for you.

When talking about financial planning, there are two main phases of life: the accumulation phase (pre-retirement) and the distribution phase (post-retirement). The 401(k) is a fantastic savings vehicle for those in the accumulation phase. If you are currently working, a 401(k) is great! Employers often contribute to this type of account by way of a company match or profit-sharing because the 401(k) annual contribution limit is higher than that of other retirement accounts. Plus, paycheck deductions make saving easy.

If you are already retired, a 401(k) has some weaknesses that you should be aware of. The cost associated with these may be a lot more than you realize.

• When you take a distribution from a 401(k), you do not have the ability to choose which assets you sell. A distribution will require selling from all investments equally. This is a huge disadvantage as you may be forced to sell from the wrong investment at the wrong time. Proper distribution planning requires one to analyze the individual investments and sell those that make sense based on current market conditions and performance expectations. Unfortunately, the 401(k) does not give you this ability.

• If you have Roth 401(k) contributions, you will be forced to take a distribution at age 70.5. This can have large negative consequences to both future tax-free earnings and your ability to pass on wealth tax free. Roth IRA accounts will not force a distribution regardless of age.

• If you are over age 70.5 and donate to 501(c)(3) organizations, you cannot take advantage of a great tax-savings strategy called a Qualified Charitable Distribution (QCD). The tax savings from QCD’s can be thousands of dollars every year. Examples of qualified organizations are churches, universities, humane societies, hospitals, etc.

In many cases, we recommend that clients roll their 401(k)’s into IRA’s at retirement. An IRA is a much better retirement distribution vehicle given its flexibility and its greater selection of investment options. It also does not suffer from the weaknesses mentioned above. 401(k) rollovers are tax-free and easy.

We work hard to ensure our clients make good financial decisions. Often, small changes have a large impact. We have seen investors greatly benefit from a 401(k) rollover. If you have a 401(k) that you can’t contribute to due to separation of service or retirement, we highly recommend you meet with us to discuss if a rollover is in your best interest.

Tags: , , , ,

Early Retirement: A Lifestyle Change

By | 2019, Money Moxie, Newsletter | No Comments

Retiring early has a whole new meaning for Financial Independence, Retire Early (FIRE) adopters. With a goal to retire from the 9 to 5 rat race, those willing to make sacrifices can transition to a new lifestyle as early as
age 35.

The idea behind FIRE is living a frugal lifestyle so that you can create financial independence. This means living on much less and saving 50% to 70% of your income for the future. At the same time, the money you live on is focused on paying off debt as quickly as possible. Frugal habits would include eating in, shopping at thrift stores, buying food and supplies on sale, and enjoying at-home entertainment. It’s not as easy as it sounds.

Truth be told, most FIREs have had high-paying careers or were entrepreneurs. Their high incomes allowed them to save a great deal of money and still live comfortably while preparing for an early retirement. Not easy for the average American worker earning $60,000 or someone who lives in an area with high cost of living.

FIRE adopters are not retiring in the traditional sense. They are merely focusing their time on things that they enjoy and making a difference in the world. The majority have created income by blogging, teaching, or keeping a part-time job that offers lifestyle flexibility and health insurance benefits.

You may think this sounds great. How do you get started? Before you jump on board, there are things to consider. Most of us get insurance through a group plan where some of the cost is paid by an employer. For most, leaving the workforce before age 65 (Medicare age) means finding insurance in the marketplace. This can be costly because you pick up the full tab.

Leaving a lucrative job early also means you are missing out on your peak earning years. As we immerse ourselves in a career, we gain knowledge and experience, making us more valuable to employers and increasing our income over time. FIRE’s take the employer out of the picture. Their value is based on what they can market and deliver.

Saving for the future is also a concern. Without continued contributions to retirement-type accounts, like 401(k), IRA, or Roth IRA, your future income and lifestyle can be at risk. Forfeiting an employer match or profit-sharing contribution means you will need to bump up saving for future needs.
This can all be overcome with good planning and meticulous monitoring.
If you think the FIRE idea is for you, here are ideas to get you started:

(1) Determine why you want to achieve Financial Independence and Retire Early. What does that look like once you reach the goal?

(2) Figure out where you stand now. What is your net worth (total assets minus liabilities)?

(3) Where is your money going? You need to track how you spend every dollar.

(4) What expenses can be cut to reach a 50 percent savings rate?

(5) Pay off high-cost debts first.

(6) Build an emergency fund – six months’ worth of net expenses – in case you get in a financial bind.

(7) Take full advantage of tax advantaged savings accounts: IRAs and Roth IRAs.

(8) Find a side job to bring in extra money that can help pay off debt and build savings.

(9) Get advice from a Smedley Advisor to help develop a plan and track your progress.

Tags: , , , ,