Gain Insight into the New World of Retirement

This is not your father's retirement; it won't be your children's either. Retirement – what it means and how we get there – is constantly changing. Understanding today's world gets your retirement journey off to a good start, and keeps you ready for changes on the way.

Whether you're fresh out of college or ten years into the workforce, your first thought about retirement is probably...that it's very far off. That's understandable. Right now you're thinking about your career, perhaps starting a family or buying a house. It's not easy to imagine what your life may be like in your 70s.

But here's the thing: the retirement savings habits you establish now will serve you throughout your career, and putting time on your side by starting early will give you much greater freedom and flexibility later.

The Cost of Waiting

Retirement is a great place to be, but it's a long road to get there. Take the first step today! Take Action!

  • Start saving today - don't count on tomorrow.
  • Use as much time as possible to save and invest for retirement.

Every day is an opportunity to build your savings so you can live your retirement dreams.

If you haven't started saving – or if you aren't saving enough - here are some important things to consider:

  • People are living longer – Your earning years may not be much longer than your retirement years.
  • The level of income you'll need to afford the lifestyle you desire during retirement may well exceed your current living expenses.
  • Time is money – The sooner you start saving, the more time your investments will have to grow.

Investing just $300 per month will grow to $787,444 in forty years, assuming an average annual growth rate of 7%. If you put off saving for retirement for even just five years, that number shrinks to $540,316. So that $300 a month that you didn't save for retirement may have afforded you $18,000 worth of small luxuries over those five years, but it leaves you with $247,128 less when you retire. There is no doubt that the cost of waiting is very high.

These investment returns are not the only missed opportunity if you don't start saving now. If you work for a company that matches a portion of your retirement account contributions, waiting also costs you that company contribution and the investment returns on that amount.

And don't forget about the tax advantage of saving for retirement. When you make retirement account contributions on a pre-tax basis, a smaller percentage of each paycheck goes to the IRS. More importantly, your retirement funds won't be subject to taxes until you begin making withdrawals after your retirement party. 

Have More Questions?

Good Financial Steps to Take When You Get Married

If you’re going to say “I do”, here are some things you might want to do. 

Are you marrying soon? Have you recently married? As you begin your life together, it's important for you to start planning your financial future together and putting your finances on the same page. Here are some priorities you might want to write down on your financial to-do list …

Plan for retirement. 

There is a chance that decades from now, many of us who are currently saving and investing for the future might end up millionaires. Actually, we may all need to become millionaires.

Consider this: according to current Social Security Administration projections, the average 63-year-old is projected to live until age 84.1 So today’s typical retiree is looking at a retirement of approximately 20 years. Some of these people will live past 100 – many more than in previous generations.

Given ongoing advances in health care, how long might you live? Living to be 90 or 100 might become commonplace for the members of Gen X and Gen Y. Factor in inflation’s effect on the cost of goods and services, and you can see a possible scenario ahead where you might need, say, $100,000 or more a year for 30 years to have a nice retirement in which you don’t outlive your money.

This (strong) possibility means you may want to make saving for retirement NOW a higher priority.

In a typical couple, one spouse is more risk-averse than the other (sometimes dramatically so). So you need to agree on the investment approach you take, preferably with the help of a financial consultant who can help you determine how much money you might need for certain life goals or financial objectives.

Manage debt. 

Many of us go through life shouldering five-figure or even six-figure debts. When couples marry, the danger is that one spouse’s debt will be seen as “his debt” or “her debt”. Arguments may start because “your debt” is hurting “us”.

Debt management should be a priority for any newly married couple. There are good debts which we assume on the way to a positive result (such as a mortgage), but there are also bad ones we assume through our credit cards and other channels.

Live within your means. 

An established, mutually-agreed-upon budget can be very helpful in this regard. Different people have different levels of thrift, and different perceptions of what a “bargain” looks like. This perception gap can result in some interesting financial moments in your life – your spouse may pick up a “bargain” that you would call an extravagance.

Save for college. 

If you plan to raise children, it’s never too soon to start saving for college. You can do it a little at a time, a little per month. You can open a college savings account using different investment vehicles – stocks, funds, or investments with lower risks. 529 plans in particular offer you some fine tax breaks.

Insure yourself. 

You need disability and life insurance. You may feel you don’t need it yet. However, getting a policy early can be cost-efficient: if you buy a term life policy (or even a permanent life policy) when you are young and healthy, chances are you will pay less expensive premiums than people in their 40s and 50s who may be obese, diabetic, heavy smokers or drinkers.

Communicate to avoid surprises. 

No matter how much of a “we” a couple becomes, there is always the need for some private space, some individual pursuits and “me time”. That’s great, but that’s probably not the best approach when it comes to your shared financial life. When a spouse starts to hide a money-related matter or omit it from conversations, it may open the door to troubles. Open, frank conversations about money may be the best way to avoid problems in your finances (as well as your relationship.)

Build an emergency fund. 

You’ve probably watched or read a number of stories about couples who were hit hard by the downturn – nice, once-affluent people who suddenly had to live in their car or a motel. When things got rough, many had no emergency fund to sustain them and ended up homeless.

Consider building up a cash reserve (gradually, if necessary) that you could tap into should something go wrong. You won’t regret having it around.

Citations

1 – chicagotribune.com/business/sc-cons-0819-journey-20100819,0,1141623.story [8/19/10]

Estate Planning vs. Advanced Estate Planning

Who needs what? What’s the difference?

Everyone has an estate. 

Rich or poor, it doesn’t matter. When you die, you leave behind an estate. For some, this can mean property, cash money, assets and more. For others it could be as simple as the $10 bill in their wallet and the clothes on their back. Either way, what you leave behind when you die is considered to be your “estate”.

Why plan? 

Well, even if you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse? Children? Is it theirs? Should it go to just one of them, or be split between them? This (quite simply) is what estate planning is all about. Estate planning determines how your money and assets (property – both real and personal) will be distributed after your lifetime.

Who needs estate planning? 

While it is absolutely possible to die without planning your estate, I wouldn’t say it is advisable. If you die without an estate plan, your family could face major legal issues and (possibly) bitter disputes. So in my opinion, everyone should do some form of estate planning. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre- or post-nuptial agreement, long-term care insurance, power of attorney and more.

Why not just a will? 

Did you know that your heirs may need to file a petition to probate your estate … even if you have a will? Basically, a will tells the world what you’d like to have happen, but other items (like properly prepared and funded trusts) can provide the tools to make things happen, and help your heirs to avoid probate.

So, what is “advanced” estate planning? 

Advanced estate planning is generally something those with a very high net worth should consider. For example, if you are single and your net worth exceeds $5.25 million dollars, or if you are married and (as a couple) your net worth exceeds $10.5 million dollars, you should consider advanced estate planning. The main purpose of advanced estate planning is to reduce taxes. The use of unified credit, gifting strategies, trusts and more can help your heirs receive the highest benefits possible under federal and state laws.

Where do you begin? 

Whether you need basic or advanced estate planning, I would advise you to speak with qualified professionals. A Financial Advisor can refer you to a good estate planning attorney and a qualified tax professional, and lead a team effort to assist you in drafting your legal documents. Many financial professionals have relationships with attorneys and accountants, so the advisor you consult may be able to refer you to the right specialists.

Rollover 101

Is it Time For a Rollover?

In this time of job-changing and downsizing, you may need guidance on what to do with the assets you have accumulated in your company sponsored retirement plan. You may choose to preserve income tax benefits by rolling over into a Rollover IRA, or take the lump sum and pay the tax and penalties. Some companies even allow former employees to keep a retirement account intact until they reach retirement age.

What is a Rollover?

Rollover means to move money from a 401(k) or other qualified retirement plan into an IRA. If you receive a payout from your company-sponsored retirement plan, choosing a rollover IRA could be to your advantage. You will continue to receive the tax-deferred status on your retirement savings and you will avoid penalties and taxes.

Making Contributions to a Rollover IRA

The Rollover IRA is usually funded by the eligible distributions from a qualified company-sponsored retirement plan. These distributions can be combined with an existing IRA or placed into a separate IRA. If you create a separate IRA for your rollover, you can easily move these funds to another employer sponsored plan in the future if the company allows this. It's a good idea to keep your rollover IRA separate from any other IRA's you might have because once you make contributions to a rollover that are not from a company sponsored plan, you lose the right to move this rollover to a company sponsored plan in the future.

Distributions from a rollover IRA

The distribution rules for a Rollover IRA are the same as the rules for a traditional IRA. Contributions and earnings are taxed when withdrawn after age 59 1/2. Withdrawals before the age 59 1/2 are taxable and subject to an early withdrawal penalty with certain exceptions. Withdrawals must begin by the year after you reach 70 1/2 to avoid penalties.

Direct Rollover

Your employer can directly rollover your retirement plan payout into a Rollover IRA and you will avoid the IRS withholding tax.

Before making any decisions about your pension distributions, be sure to contact us so that we can discuss the options that best fit your needs.

Using Debit vs. Using Credit

How preferable is one type of plastic to another?

You’re about to purchase a pricy good or service and you don’t have your checkbook or enough cash on hand to do it. Should you pull out a debit card, or a credit card?

Given the choice, you’d probably pick a debit card – right? After all, aren’t they preferable to credit cards? Usually, yes – but not always.

How debit cards actually work. 

Debit cards pull money straight from your bank account. What if you have insufficient funds in your account? If that happens, the bank can decide to do one of two things, per the terms of the particular debit card – it can elect to decline the charge, or shoulder the cost of the transaction and ding you for insufficient funds. Some banks give you overdraft protection for recurring debit card charges, but not for one-time transactions.1,2

Your debit card may bear a VISA or MasterCard logo. If that is the case, you have the option to use it as a credit card. If you choose that option, your transaction is then handled by the credit card firm rather than the bank, and the money may not be taken out of your account immediately as some retailers wait until the end of their business day to notify credit card companies of transactions.3

How credit cards actually work. 

A credit card purchase is processed in four phases. First, you authorize a purchase with your signature. Next, the purchase is compiled with other credit card charges into a “batch”, which the merchant may wait until the end of the day to send.  The batch is sooner or later sent to the card issuers, thereby requesting payments. Finally, the merchant gets the payments minus discount and interchange fees along the way.3

The small businesses you frequent likely prefer debit to credit. 

Debit card transactions come with lower transaction fees than those of their plastic cousins. A debit card purchase is not a cash sale, but it is remarkably close to one. Due to the larger transaction fees associated with credit transactions, some stores bar the use of a credit card for very small purchases – in those cases, it isn’t worth the trouble for the retailer.

Debit cards may offer less fraud protection, however. 

Here is an area where credit cards look good in comparison. While a straight-up debit card payment is instantly deducted from your bank account, you ultimately pay credit charge charges only if you agree to the legitimacy of the charge and the delivery of the product or service. Translation: a credit card offers you a kind of signatory “firewall” against fraud (at least at the point of purchase). Your liability for fraudulent credit charges is capped at a certain level; fraudulently debited charges can be another story. Disputed charges on credit cards are often handled faster as well.5,6   

Also, there are some situations where it is pretty hard to get by with just a debit card. If you want to rent a car or reserve a nice hotel room, a credit card is all but essential. You also build credit history through credit card use, not debit card use.5

Both kinds of cards are susceptible to “gray” charges. 

Tiny little monthly membership charges, small levies for “phantom” (additional) products or services sold to you at the point of sale, “zombie” charges for an ongoing subscription you don’t formally cancel – they are some of the “gray” charges that may come your way with both kinds of cards, and they are entirely legal. Retailers bury them in the fine print, and made an extra $14.3 billion off cardholders this way in 2012.7

Debit is usually preferable to credit, but cash is still king. 

Sensible use of debit and credit cards can help you build your credit history and perhaps make things a little easier for you as a consumer. Runaway use of them may bring problems. Credit and debit cards are ultimately conveniences, and not replacements for cash.

Citations.

1 - consumerreports.org/cro/news/2013/06/debit-card-overdrafts-can-cost-you-big-bucks/index.htm / [6/14/13]
2 - mainstreet.com/article/money/investing/how-i-got-hit-overdraft-fee-after-opting-out-overdraft-protection [3/21/12]
3 - creditcards.com/credit-card-news/how-a-credit-card-is-processed-1275.php [1/14/09]
4 - online.wsj.com/article/SB10001424127887324635904578639833002818450.html [7/31/13]
5 - cbsnews.com/8301-505146_162-57365965/4-reasons-to-use-credit-cards-versus-debit-cards/ [1/26/12]
6 - kiplinger.com/article/credit/T016-C000-S002-battle-royal-credit-vs-debit.html [4/10]
7 - dallasnews.com/business/columnists/pamela-yip/20130818-pamela-yip-gray-charges-on-credit-and-debit-cards-can-put-you-in-the-red.ece [8/18/13]

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