Personal Finance

When is the Right Time to Retire?

Deciding when to retire is a complex question. Many people base this decision around their birthday. The traditional age of retirement is 65 – the U.S. average is actually 63. However, there are many moving parts in this very important decision, a whole host of factors to consider – financial, physical, as well as psychological.

We’ve all had those days when we’d like to hand our boss our resignation letter and sail off into the sunset, leading the carefree life of a retiree. But, this can be a huge mistake if you’re not prepared.

Financial Considerations

  1. Your bank account: According to investment experts, not taking Social Security into account, you’ll need 25 times your annual expenses (the earlier you retire, the more you’ll need).
  2. The Market: The returns on your investments are critical during the first decade of retirement. No one has a crystal ball when it comes to the market, but if the economy is poised for a downturn, it may be wise to delay retirement. This is also the case if your portfolio has taken significant losses in the years leading up to your set retirement date. If this occurs, it may make sense to delay your retirement until your investments have had a chance to recover.
  3. Social Security Benefits: When people plan to retire in their early 60s, typically, a part of their strategy is taking their Social Security retirement benefit at 62 – the earliest claiming age. However, you must keep in mind that this strategy causes a permanent reduction (almost 30 percent) in your benefits compared to what they would be if you waited. People born after 1943 can expect an eight percent increase for each year they wait to claim benefits after full retirement age, with age 70 resulting in the maximum benefit.

    Suze Orman, American author, financial advisor, motivational speaker and television host, strongly advocates waiting until 70 to retire. “Seventy is the new retirement age – not a month or year before,” she exclaims. However, she also adds that if you have a medical condition that prevents you from working or raises the probability that you won’t live into your 80s or 90s, retiring and claiming Social Security earlier may make sense.

  1. Health Care: Recent studies by Fidelity Investments estimate that a 65-year-old couple retiring today will need between $200,000 and $400,000 to cover their health care costs during retirement – above and beyond what Medicare covers. Having additional savings, private insurance or a Medicare supplement policy is an important consideration when deciding when to retire.

Health Considerations

Working longer may better fit into your plans, especially financially, if you are in excellent health and have longevity in your family. However, this is not so if you or your spouse are in poor health. In this case, postponing retirement could mean your opportunities for doing certain things, like traveling, are gone for good. Take an honest look at your health and life expectancy and factor this into your decision about when to retire.

Psychological Considerations 

Another important factor to consider in deciding when or in some cases if you should retire is the psychological impact. You should ask yourself two important questions: 1. Will I be happier and healthier retired or working? 2. Am I psychologically prepared to retire?

Some people enjoy what they do – their jobs give them a sense of meaning and purpose in their lives – and would be lost without this or an activity or passion to replace it. Yet, other people, especially those who find their jobs stressful or unrewarding, are counting the days until retirement.

The key is preparation. Do you have hobbies or interests to fill your time? Have you realistically considered what your life will look like as a retired person?

Many people have unrealistic expectations or ideas of what their retirement lives will look like. They imagine they will take up hobbies, like golf, tennis or playing an instrument. However, being realistic means evaluating your life now…pre-retirement. What are you passionate about or actively involved in now? The probability of developing a passion for something the day after you retire is small.

Studies show that people who have meaningful, purposeful and productive lives live longer. So, the lesson for anyone contemplating retirement is to have a plan for your post-working lives.

As you can see, deciding when to retire isn’t an easy decision. But, by giving it the time and attention it deserves…having a well-thought-out plan…addressing the financial, physical and psychological considerations…you can help ensure your retirement gets off on the right foot.

What to Expect from the Tax-Overhaul Plan

Happy New “Tax” Year!

We’ve welcomed in 2018 and President Trump’s new tax-overhaul plan, which was signed into law on December 22. Even though most of us have already received our first payroll check of the new year, we haven’t seen any changes. The IRS is still working to develop the withholding guidance, which is expected to be issued sometime this month. Once this happens, employers and payroll service providers will be encouraged to implement the new rules by February.

The new tax reform bill makes major changes to the U.S. tax code for both individuals and corporations, to include repealing the Affordable Care Act’s individual mandate. Although the Republicans were unsuccessful in repealing the Affordable Care Act, otherwise known as Obama Care, as a whole, under the new bill, non-insured people will no longer have to pay a tax penalty. This change, however, doesn’t go into effect until 2019. So, for 2018, the Obama Care penalty can still be assessed.

This bill represents the most significant tax changes in the U.S. in more than 30 years. Some of the key changes include: 

The number of brackets – seven – remained the same, but rates overall have come down. The top rate falls from 39.6% to 37% and the bottom rate remains at 10%, but covers twice the income compared to the previous brackets. For individuals, these lower rates are scheduled to expire in 2025, unless Congress extends them.

Standard Deduction and Exemptions 

Standard deduction and exemptions will change dramatically under the new tax rules. The standard deduction as the law currently exists is $13,000 for a couple filing jointly and $6,500 for single filers. This number will jump to $24,000 and $12,000 respectively.

The personal exemption, currently at $4,150 for 2018, will be repealed. However, the child tax credit gets a big boost. This currently sits at $1,000 and starts to phase out at $110,000 in income for couples and $75,000 in income for everyone else. Under the new law, however, the credit doubles to $2,000, $1,400 of which is a refundable tax credit. In addition, it doesn’t begin to phase out until $400,000 in income for couples and $200,000 for singles.

Itemized Deductions 

Some major changes are on the horizon for itemized deductions.  State and local taxes can still be itemized, but they are now capped at $10,000. This change is an attempt to address the uproar from states that levy big taxes on their citizens.

Interest on mortgages for primary and secondary homes is still deductible. However, the limit has come down from loans up to $1 million to loans up to $750,000.

Medical expenses in 2017 and 2018 are deductible to the extent that they exceed 7.5% of income…down from 10%.

Capital Gains Tax 

The current structure of the capital gains tax structure, which applies to things like stock sales and sales of other appreciated assets, won’t see much change. However, there are still a few key points to keep in mind.

For example, short-term capital gains are still taxed as ordinary income. Since the tax brackets applied to ordinary income have changed dramatically, as seen from chart above, short-term gains will likely be taxed at a different rate than they were.

In summary, Americans won’t see a significant difference in this spring’s tax return. The proposed cuts in the bill will be more pronounced when most people file in 2019.

 

Being Smart with Student Loans

Today, student loans have become an inevitable part of attaining higher education.  However, not being financially savvy when taking this money can come back to haunt you long after you’ve received that coveted college diploma.

According to Forbes, in 2017, student loan debt has swelled into a $1.3 trillion crisis. Forty-four million borrowers are shouldering this financial burden, with the average 2016 graduate owing approximately $37,172.

As many families are preparing for college, excitedly completing applications, they should also be accessing the total cost…especially if they plan to borrow.

One of the most important factors of one’s higher education is becoming debt-smart. Knowing how much the money you borrow today will cost you in the future, not just in terms of the monthly payments, but also in total interest, and how this could affect your standard of living, is crucial to living the life you want.

A recent report by the Global Financial Literacy Excellence Center cited that student loans have the highest delinquency rates of all consumer debt products today. Most of these delinquencies are due to the fact that the graduate hasn’t been able to secure a job that pays enough to cover their basic living expenses and student loan payment.

Borrowing to pay for college isn’t a bad thing. The cost of going to college is an investment in yourself and your future, which can yield big rewards after graduation. However, the key to obtaining that pot of gold at the end of the rainbow, so to speak, is making financially smart decisions today.

Look at the ROI of Your Education

Being debt-smart is about early intervention, examining all the facts prior to filling out the first college application.

One of the first and most important pieces of information to gather is the return on your investment in your education.  You should assess the cost of attending a certain school having a clear picture of what your post-graduation salary could be.

Use common sense. If you’re going to spend $100,000 on a four-year degree that will only earn you $30,000 a year after graduation, it doesn’t make good financial sense.

Target Schools that Offer Grants Over Loans

Many colleges offer all-grant programs, adhering to a loan-free policy. If you meet certain income and asset requirements, you can qualify for these programs and, consequently, won’t be saddled with student loan debt later. There are many websites that offer a list of these colleges and their requirements.

Look at Every Option to Lower the Cost 

Apply for FAFSA, student financial aid, look for scholarships, and, most importantly, talk with a financial aid counselor. Many families underestimate the value of the financial aid office.  They are a wealth of information and have many resources to help make college more affordable. All you have to do is ask.

Get a Part-time Job 

Don’t be afraid to work while going to school. For most students today, having a job isn’t a “nice-to-have,” it’s a must. In addition to generating income to offset the cost of college, a job also provides students with many of the skills employers are looking for when they interview recent graduates. 

If You Need to Borrow, Look at All the Options 

Favor federal loans over private loans. Thoroughly review loan packages, selecting the one that offers the lowest overall (term and interest rate) cost. Make sure you understand the different types of student loans (i.e. fixed and variable rate) and how they are to be repaid.

In addition, know all of the income-based repayment options. With many federal loan programs, you have the ability to lower your repayments if your post-graduate income isn’t adequate.

You should also know how to take advantage of the flexibility of the loan program. With some loan programs, for example, if you enter a public service profession, you can have your remaining loan balance forgiven after a certain amount of time. You should also know if you could consolidate loans to lower your overall interest payments.

Do the Math

There are countless free, college loan repayment calculators out there. So, before you sign on the dotted line, do the math. Determine your monthly repayments and your living expenses where you plan to live. This will give you the big financial picture, keeping you from getting in over your head as well as warding off the possibility of damaging your credit down the road.

In summary, preparation and knowledge is key to financial success. Students who are debt-smart now will be enjoying their wise decisions later.

Paying Off Credit Card Debt Fast

Americans owe a lot of credit card.

Shockingly, recent numbers show that Americans owe more than $1 trillion in credit card debt. That’s greater than the GDP of all but 15 countries.

According to WalletHub, which analyzed 2016 credit card debt in this country, the average American family owes $8,377. Additionally, this report also showed an upward trend per household, jumping 6 percent in the past year. Household debt is now as high as it was during the Great Recession.

Household income has grown by 28 percent over the past 13 years. This increase, however, has lagged behind the cost of living, which increased more than 30 percent during the same period. Consequently, Americans are taking on increasing amounts of credit card debt, one of the most expensive ways to borrow, to bridge this gap. With the average credit card interest rate of 18.76 percent, the average household pays approximately $1,292 in credit card interest each year.

Although this exorbitant, and continually growing, amount of card debt is a serious threat to our economy and the overall financial health of the heavily indebted, it doesn’t mean Americans are doomed to be indebted for life. But, remedying this situation requires major change and time.

Unfortunately, short of filing bankruptcy, which damages your credit for many years to come, there isn’t any magical, a quick wave of the wand, fix. Eliminating your credit card debt will require long-term behavioral changes as well as discipline. Careful spending habits and steady debt eradication is the key to gaining financial freedom.

Strategies to help pay off credit card debt fast:

  1. The most obvious one…stop using your credit cards. This doesn’t mean you should close your credit card accounts – this can actually hurt your credit score. However, if you are prone to impulse buying on credit, put the cards away!
  1. Use a card with no balance for normal purchases. You pay interest immediately on new purchases when you use a card with a balance.
  1. Budget more towards debt repayment. Budget as much as you can towards debt repayment. If you have balances on multiple cards, with about the same interest rate, attack the one with the smallest balance first. Dedicate the largest portion of your credit card repayment budget to this card. Once this card is paid off, attack the card with the next smallest balance…and so on and so on, until all of your credit card balances have been paid in full. This is more of a psychological strategy than a financial one…you’ll feel a huge sense of accomplishment when you’ve paid off that first card.
  1. Reduce expenses. One of the quickest ways to eradicate credit card debt is to cut your spending and apply that savings toward your credit card debt. This requires a plan…a budget…and sticking to it. By closely examining your family’s spending habits, you are sure to find several ways to cut your monthly expenses.
  1. Make extra payments using new money. Cutting expenses can only take you so far. Find ways to generate some extra income – work an extra day on overtime a week or have a garage sale – and put this extra money, including any tax refunds or unexpected income, towards your credit card debt.
  1. Ask for lower interest rates. This may or may not work. But, it’s worth the try. Knocking four interest rate points off a $10,000 credit card balance can save you hundreds of dollars in interest annually.
  1. Pay off the highest interest debts first. If you have credit cards with much higher interest rates, pay those off first. Pay the minimum required on every card except the one with the highest interest rate. Put most of your debt repayment budget toward the balance with the highest interest rate. Once this card is paid off, do the same with whichever remaining card balance has the highest rate. This strategy helps you devote less money to interest and more to paying off debt.
  1. Make two payments per month. Most credit card companies use average daily balance to compute interest charges. So, instead of paying one larger payment per month, break it up into two monthly payments. You’ll lower the average daily balance…so, you’ll pay less interest! To magnify this effect, try making a payment every week.
  1. Transfer debt to zero-interest credit cards. Transferring some or all of your debt to a card with a lower interest rate can make repayment much easier.
  1. Get a debt consolidation loan. This is only a good idea if you can get an interest rate lower than the average of the rates you’re paying on your credit cards and you make a definite plan to pay off the loan quickly.

Any of one of these strategies can be helpful on its own. However, implementing several of these strategies simultaneously will help you pay off your credit card debt more quickly.

The Value of Part-time Jobs for Teens

IntraLogoTMMany parents today would agree that their teens have a sense of entitlement. With many TV shows glorifying teens that have extravagant lives, parents are inundated with the idea that their teens should be pampered and deserving of the most expensive clothes, cars and the latest and greatest technological gadgets.

The societal pressure on parents today to ensure their teen is keeping up with everyone else’s teen greatly hinders their child’s ability to learn many valuable life lessons, most importantly, working hard for what they want. A part-time job not only imparts this valuable lesson but also helps teens reap the following long-term benefits as well.

Time Management – Balancing school and work teaches teens the importance of prioritizing and managing their time wisely. Learning this early on will greatly help them in a few years when they leave the day-to-day security of home and head off to college. A part-time job also sets them up with the necessary skills to eventually leave the nest completely, branching out into the real world of full-time employment and all the responsibilities of being an independent adult.

Resume Building – Knowing how to fill out a job application and building a resume helps teens get ahead of the crowd. Being able to have a list of work experience goes a long way on a teen’s college application as well as when he or she eventually seeks full-time employment. It shows both prospective colleges and employers that a teen is a motivated, hardworking and well-rounded individual, and sets them apart from other applicants with no work experience/history.

Financial Independence – Many of us remember our first summer job and the sense of pride in earning our first paycheck. There was a feeling of satisfaction when we were able to buy something we wanted with our own hard-earned money. It’s no different for teens today.  Bringing in a paycheck allows teens to learn how to manage money, their money, and rely on themselves and not their parents for certain purchases (parents should discuss the particulars of these purchases with their teens ahead of time…e.g. clothes, gas, car insurance, entertainment, etc.). Learning to manage money is a life skill everyone needs to have, and the earlier, the better.

Learning to Save – Most employers today direct deposit their employees’ pay. So, if your teen hasn’t already done so, it’s time to set up a checking account. This is also a great time to set up savings account for your teen, mandating that a portion of their pay automatically go into savings. This instills the imperative, long-term life skill/behavior of saving.

An Introduction to the Tax Man – A teen’s first experience with the “tax man” comes with their first job. They quickly learn that no matter how old they are or how much they earn, they have money withheld in the form of income taxes. In addition, they will also learn the importance of April 15th, filing their tax return, and mostly likely, the excitement of receiving a tax refund.

Developing Long-term Life Skills – By having a part-time job, a teen quickly learns the importance of teamwork and effective communication skills. These skills are transferrable to almost any career or life experience. In addition, teens learn other critical skills like showing up on time and taking responsibility.

A Hard Work Ethic – Unfortunately, hard work is becoming more undervalued, especially with teens. However, if we want our teens to mature into productive, independent adults, we must teach them that hard work is an admired and respected trait, as well as one that they must possess to survive in the big world.

The Power of Compounding

power of compoundingOne of the most valuable financial concepts…lessons parents can teach their children is the power of compounding.

Albert Einstein is quoted as saying, “The most powerful force in the universe is compound interest.”

So, what exactly is the power of compounding? The power of compounding refers to the fact that money that stays invested grows exponentially over time, as the returns on that money stay invested. Put simply, through the power of compounding, a small amount of money over time can grow into a substantial sum. But, it requires two things: the continual reinvestment of earnings and time.

The power of compounding is truly an investor’s best friend. Over time, as you reinvest your returns, you are continually earning a return on your return – and the longer the time frame, the greater the value. This is why it’s so important to start saving early. The earlier you start saving for retirement, the longer you have the power of compounding working for you.

To demonstrate this, let’s look at an example:

Consider two investors, Sally and Sue, who are the same age. Sally was 25 when she invested $15,000 at an interest rate of 5.5%. For simplification, let’s assume that the interest rate was compounded annually. At 50 years old, Sally will have $57,200.89 saved.

Now, let’s say that Sue invested the same amount of money at the same annually compounded interest rate. However, Sue was 35 years old when she started investing. At 50 years old, Sue will have $33,487.15 saved.

What happened? The power of compounding! By allowing Sally’s investment 10 more years to grow, she earned $23,713.74 more on her money than Sue.

Both investments start to grow slowly and then accelerate over time. However, Sally’s acceleration begins to quickly outpace Sue’s as she nears 50. Sally’s greater acceleration is not just due to the fact that she’s accumulated more interest but also because her accumulated interest is itself accruing more interest.

This amplification increases with time. In 10 more years, Sally will have nearly $100,000 saved, while Sue will only have around $60,000.

One other important fact to know about the power of compounding is that a small increase in the rate of return can produce a huge impact over time.

Example: Let’s say that Sally’s grandparents gave her a gift of $10,000 when she was born and her parents invested it in an account that returned 10% annually. By the time Sally reaches 65 years old, she would have $4.5 million. Now let’s say that the same gift/investment only returned 8% annually. Sally’s portfolio would then only grow to $1.4 million. What if the investment only returned 5%? Sally would only have a mere $227,000 at age 65.  In a nutshell, half the rate of return produces an account that’s less than one-twentieth the size.

At the end of the day…this lesson in numbers, all you need to know is that you must start early. However, if you’ve lost a lot of investing time because you’ve procrastinated, didn’t have the willpower to save, weren’t able to save or just didn’t know what you didn’t know, stop fretting and start saving today. With this said, keep one of my favorite quotes about taking action in mind: The best time to plant a tree is twenty years ago. The second best time is now.

 

 

There’s An App for That

cardvaletToday, there’s pretty much an app for anything. There’s an app for turning the lights on in your home before you arrive and turning them off after you leave. There’s an app for measuring your daily physical activity, the calories you’ve burned as well as monitoring your vitals. There’s even an app to make purchases without ever opening your wallet. Apps are developed to entertain, provide added convenience, and even, like the one below, diminish our ever-increasing vulnerability to fraud.

CardValet®.

CardValet, an app recently developed by Fiserv, a technology solutions provider to the financial world, is a debit card management and fraud mitigation tool that enables cardholders to control when, where and how their debit cards are used. A turnkey mobile app, CardValet gives the debit cardholder significant awareness of and control over how and when their card is utilized.

This innovative financial app, increasingly promoted by more and more financial institutions, lets cardholders turn their cards on and off, set spending limits as well as monitor and receive alters on transactions.

CardValet gives debit cardholders the ability to turn their cards off immediately if their card has been lost or stolen or if they detect unauthorized transactions on their card. When the card is turned off, no withdrawals or purchases will be approved. Then, after the fraud threat is eliminated, the cardholder can turn the card back on immediately.

With CardValet, the cardholder also has the option to receive text alerts every time the card is used. These real-time alerts keep the cardholder informed when his or her card is being used or has been declined.

In addition, the app can work with the GPS system in your smartphone and geographic restrictions can be established on your debit card. These transaction controls allow your debit card to work only in specific locations or geographical areas, adding another layer of protection against fraud.

The CardValet can also help you stick to your budget. Let’s face it, the increasing use of plastic over paper has made overspending easy. With this app, you can take control of your finances by setting spending thresholds on your card. You can set spending limits for general use or specify thresholds by merchant types, such as gas, groceries or retail stores. The flexible app lets you change these parameters at anytime…you simply update your transaction controls to fit your spending needs.

The CardValet also allows you to set parental controls on your child’s card. Whether your kids are shopping at the local mall or they’re away at college, you can manage their spending. With the same convenient features that help you stick to your budget, this app lets you decide where, when and how your children can use their debit cards.

For more information concerning this app – how it can help you manage your money with greater ease and confidence than ever before, please stop by and talk with a member of our team. We’ll be happy to answer all of your questions and help you get “the app for that.”

 

Making Your Paycheck Go Further

moneyIn these turbulent economic times, it can seem impossible to make any serious headway towards financial security or to save some extra cash for something special, like a vacation or a new car, or for that inevitable, yet unpredictable rainy day. According to a recent poll released by the American Payroll Association, more than 70% of American workers live from paycheck to paycheck.

No one actively chooses to live from paycheck to paycheck or create increasing debt by filling in the monetary voids with high-interest credit cards. But, when there always seems to be more month than money, unfortunately, for many people, this seems to be the only viable solution.

But, as we all know, especially if you’re one of the many Americans that have accumulated a significant amount of high-interest, credit card debt to offset this financial imbalance, this is not the answer. Whether you have a modest income or a large salary, there are numerous ways to make your hard-earned dollars go further every month.

Here are few ways:

  1. Adjust your federal income tax withholdings – While getting a huge tax refund every year may seem like a nice bonus, you’re actually letting the federal government use your money interest-free. You could have saved/invested this money or paid down other expenses or possibly credit card balances.

    If you’re getting a huge tax refund, you’re having too much money withheld from your check. Fixing this is easy. Just fill out a new W-4 form with your employer and adjust your tax withholdings. Use caution though. You don’t want to claim too many exemptions and end up owing the IRS instead.

  1. Ask for a raise – When was the last time you got a raise in pay? If you think you deserve a raise, it’s worth asking. But, make sure to prepare your case before you meet with your boss. Do your homework – research what others are getting paid in your field, list your accomplishments and your long-term goals at the company. If you’re prepared, you’re more apt to get a raise.
  1. Develop a budget – Although starting a budget can seem like a daunting task, it’s worth it. This is the only way you can see where your money is going each paycheck/month. This, in turn, will help you prioritize expenses and make adjustments to your spending. You’ll be amazed to see on paper just how much those coffee shop lattes are costing you each month/year.
  1. Increase your insurance deductibles – Review your current auto, home and medical insurance deductibles. By raising your insurance deductibles, you can reduce your premiums. But, use caution here as well. You need to make sure you have those deductible amounts on-hand (put away some of your federal tax savings or your raise) to cover accidents or health issues.
  1. Refinance your mortgage – Mortgage rates are still very low. If you haven’t taken advantage of these low rates, now may be the time to talk to your local banker or mortgage lender. He/she can help determine how much you’d save by refinancing and determine your breakeven point (how long you’d have to live in the house to recover your refinancing costs.)
  1. Use cash, not credit – It’s easy to send money you don’t have when you don’t use credit cards wisely. Use cash or a debit card so you can see the impact of how much your spending immediately. Paying off high-interest credit card balances will take a major toll on your paycheck. Note: If you carry credit card balances and you have a good credit history, call your credit card companies and ask for a lower rate or find a credit card issuer that offers low fixed rates to cardholders with good credit. Then, transfer some, if not all, of your high-interest card balances to that card.
  1. Trim your grocery and/or eating out budget – Overspending at the grocery store or eating out often can quickly destroy your monthly budget. Come up with a realistic monthly food budget, which should include eating out, and stick to it. Helpful hints: Plan weekly meals to prepare at home, cut coupons, buy generic brands, quit buying bottled water, purchase staple items in bulk, always shop with a list and never shop hungry.
  1. Reduce or eliminate the cable/satellite bill – Do you really need 500 channels? Get rid of the premium movie channels and rent the movies you want to see or, better yet, get them free at your local library. Save money by using online services like Netflix.
  1. Visit your local library – Purchasing the latest bestsellers can become costly, even if you’re downloading them. Take advantage of your local library and checkout books and DVDs for free.
  1. Pay your bills online – Very few companies today don’t have an online service to pay your bills. By taking the time to set up your bill paying online, you’ll save postage as well as avoid the possibility of being late and/or incurring late fees. This plays a significant factor in maintaining a good credit history.
  1. Get a part-time job – If you can’t make it on your current income, even after you’ve implemented some of the tips above, look for a second part-time job. You could find a position with a local business, such as a hardware or grocery store, for a few hours each week or find ways to make extra money at home. Just a few extra paid hours each week will go a long way to help with your finances.

    Needless to say, with a little creative thought, you could come up with many more ways/practices to save money and make your paycheck go further. But, the tips above will provide you with a very good start.