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The 3 Biggest Financial Surprises for New Retirees

Posted by on Mar 31, 2016 in Articles, Uncategorized

Now that 2015 bonus checks have been issued and stock grants have vested, thousands of executives will retire from their companies on March 31. After working for decades, they are ready to enjoy life with few worries, thanks to solid financial planning. But for some, the financial plan they’ve taken years to craft may be disrupted by unexpected events. If that happens, your financial plan, expectations of travel abroad and lifestyle choices may need a major overhaul. Having helped hundreds of corporate executives plan for retirement over the past 16 years, I can share a list of the three biggest surprises that can upend a retirement plan — and some recommendations on how to cope with them. Surprise No. 1: Ailing parents. One or both parents of the retiree need nursing or assisted living care and don’t have the money to pay for it. In most cases, new retirees need to determine how much they can afford to pitch in and how it will impact their own financial future. Unfortunately, elder care is not cheap. While costs vary by state, long-term care insurer Genworth estimates that the median annual cost of a private room in a nursing home is more than $90,000. Another option is to determine if it makes more sense for the new retiree to become the caregiver. Providing daily care will lessen the financial impact on the new retiree’s nest egg, but it will also cause a major lifestyle change. This situation can often lead to difficult conversations with siblings who may not have as much personal time or the financial resources as the new retiree. To make certain this scenario doesn’t disrupt a person’s retirement plans, I ask my clients this question: “Is there anyone else in your life that you may need to support financially one day?” If the answer is yes, funds need to be set aside to cover these costs. “Parents always want to help their children out of trouble. But … it helps to know how much money you can afford to give before it wreaks havoc on your retirement plans.” Surprise No. 2: The unused vacation dream home. Planning to spend weekends and summers near the beach or the mountains, the retiree also envisions the vacation home as the ideal location to host adult children and grandchildren for holidays and other big events. Unfortunately, this plan doesn’t always pan out. Several years ago, one of my clients purchased a vacation home in the mountains of Tennessee for this very reason. But after his adult child moved north as part of a job promotion, the retirees ended up traveling there to see their grandchildren and rarely used the vacation home. In addition, the Tennessee property didn’t appreciate much over time, so the main reasons for buying the home were nullified. The retiree and his spouse sold the home, but the proceeds were barely enough to cover the mortgage, meaning they had little to reinvest. While this particular scenario was difficult to predict, anyone caught in a similar situation needs to determine if they want to keep their property and, if not, the best way to get rid of it. For example, if the home was purchased before the Great Recession of 2008 and has declined in value, the new retiree will need to explore whether it makes sense to sell the property at a loss. Surprise No. 3: An adult child falls on hard times. The cause of the child’s need for a cash infusion will likely be a job loss, an unexpected long-term illness, poor investment or other bad financial...

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3 Times It’s Smart to Take Social Security Benefits at 62

Posted by on Mar 29, 2016 in Articles, Uncategorized

One of the toughest choices for Americans approaching retirement is when to start taking Social Security benefits. You can claim as early as age 62, but waiting longer to file can boost your eventual monthly payments substantially. Although most of the advice you’ll see suggests that waiting past age 62 is the smartest decision, there are some situations in which filing as early as possible is in fact the best move. Situation 1: If the Windfall Elimination Provision will affect your retirement benefits For most workers, the Social Security Administration won’t cut your benefits even if you have outside sources of retirement income from an employee pension. However, for public employees who didn’t pay Social Security payroll taxes throughout their careers and instead paid into a public pension plan, the Windfall Elimination Provision can reduce what you’ll get from Social Security. If you paid Social Security taxes for fewer than 30 years during your career, then your Social Security benefits are subject to reductions of up to half your government pension payment. The reduction is subject to a maximum of $428 per month for 2016 for those who worked 20 or fewer years in the Social Security system, and that maximum slides downward for those with 21 to 29 years of Social Security payroll tax-paying employment. This reduction only takes effect when you start receiving your government pension. For some public employees, pension payments don’t start until age 65 or later, so claiming Social Security at 62 can give you three or more years of unreduced payments. Depending on the size of your Social Security benefit and your pension, the fact that you can avoid the Windfall Elimination Provision for a while can offset the fact that you’ll get smaller payments throughout your retirement. Situation 2: If the Government Pension Offset will affect your spousal benefits A situation similar to the one above occurs for those seeking to claim spousal benefits based on their spouse’s work history. If you receive a government pension based on wages on which you didn’t pay Social Security payroll tax, then the Social Security Administration will use the Government Pension Offset to reduce any spousal benefits you’re entitled to receive. In general, spouses of eligible workers are entitled to spousal Social Security benefits. The Government Pension Offset can be more draconian than the Windfall Elimination Provision. Your Social Security benefits will be reduced by two-thirds of your pension amount, with no maximum limit. That means some spouses end up getting no spousal benefit at all because of the Government Pension Offset. Like the Windfall Elimination Provision, the Government Pension Offset only applies once you start receiving your government pension. Therefore filing for Social Security early can sometimes get you at least a few years of spousal benefits before the Government Pension Offset reduces or eliminates them. Situation 3: You have a terminal illness, and your decision won’t harm surviving family members Part of the reason why Social Security payments are lower if you file earlier is that the Social Security program factors life-expectancy assumptions into its payment formula. If you know you won’t live long enough to take benefits at full retirement age or later, then claiming early Social Security is your best way to get at least some money from the program. It’s important to remember that your filing decisions can affect a surviving spouse and children, so you should check to see how filing early will affect any survivor benefits your family would be eligible to receive. For many retirees, though, their decision won’t have an adverse impact on family members, so...

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5 Hard Truths About Money Even Smart People Forget

Posted by on Mar 24, 2016 in Articles, Uncategorized

We’ve all been there: You’re thinking so hard about how to solve a problem that you don’t notice the solution is right in front of you. Smart people do this all the time, sometimes overcomplicating their personal finances. By overlooking simple financial truths, otherwise intelligent people can make a mess of their finances. Take a look at some of these simple financial truths. Which ones deserve more of your attention? Behavior significantly affects the results of financial plans. Even the most intricate financial plans are not immune to human behavior. Unfortunately, it’s really easy to be rational and reasonable on paper, but it’s another story to be rational and reasonable in practice. Financial planners understand this, as they have experienced firsthand how clients will often drift from the path laid before them — many times capsizing their lives. Our desire for instant gratification and quick solutions can overshadow long-term plans. For example: A new truck purchased using retirement funds can lead to a lifetime of undesired employment. Withdrawing funds from a turbulent market can result in a permanent loss. Purchasing a variable annuity could subject you to paying steep fees. Desperate actions are often followed by sharp consequences. Never avoid the simple financial truth that, even though you have a financial plan, you must use significant self control to see positive results. Even the wealthy need a budget. Smart people are often good at making a living — a great living. But that doesn’t mean they don’t need a budget. Sometimes they think they don’t, but they’re wrong. Well, that is, unless they want to be severely ineffective with their funds. Wealth brings with it a great deal of responsibility. Making big mistakes with few assets results in few losses. Making big mistakes with many assets results in huge losses. Many wealthy people don’t feel the need to create a budget because they are able to “out pay” their financial negligence. But that comes at a high cost. Instead, if you’re wealthy, you should truly consider the long-term benefits of creating a budget. By doing so, you should be able to identify several areas where you can save some money, which you could turn around and invest. You’ll also have the opportunity to prioritize your spending so you can make the most of your awesome income. The smart thing to do is get on a budget — regardless of your financial status. Money isn’t what matters most in life. Smart people are great at calculations. But sometimes they get wrapped up in finance so much they forget the simple financial truth that money isn’t what matters most. Money is simply a means to achieve certain financial goals. It can’t buy everything, and it certainly can’t buy the most important things in life. Think about your family. Think about the meaning behind your work. Think about your friendships and the way you help others. These are all more important than money. However, money certainly can help your family. It can also enable you to embark on a new career path. And, it can help you go out to have a good time with friends or give to others in need. Money can certainly help you in many ways. But it isn’t the full story. Money never buys the best relationships or the most meaningful work. That’s because money is a tool. But there’s something deeper that allows the most important things in life to be realized. Flexibility is as important as structure. This might sound somewhat counterintuitive, but when it comes to finance, flexibility is as important as structure. Imagine, for a moment, that you receive a medical bill in the mail. You...

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The 3 Best Money Exercises to Build Your Bank Account

Posted by on Mar 22, 2016 in Articles, Uncategorized

Americans are so financially out of shape these days, they pull a muscle just thinking about saving money. Two in three Americans don’t have enough money in savings to afford a $500 financial emergency. Nearly one-third of households making $75,000 or more a year occasionally live paycheck-to-paycheck. Some workers believe they’ll work until they drop dead or become too sick. It’s an epidemic. Much like working out, a variety of excuses keep millions of people from saving money. Perhaps you think you’re too busy to budget, too young to worry about the future, or too broke to save anything. But, in the end, nobody cares about your finances as much as you. Let’s take a look at the three best money exercises to help build your bank account. Automatically pay yourself first Paying yourself first is a golden rule in personal finance. The concept is simple: Everyone is collecting money from your paycheck, why shouldn’t you be the first person in line? Instead of trying to save what money is left over at the end of the month, which always seems to be less than predicted, place money aside before spending money on anything else. This doesn’t mean you should stop paying monthly bills in order to save, but rather adjust your spending habits so you find a healthy balance between savings, necessities, and wants. After paying everyone else first for so many years, it can be difficult to break the bad habit. Make your savings automatic so you don’t face temptations. Having your contributions pulled directly from your paycheck or bank account significantly improves your chances of building up your bank account. A report from HSBC finds regular savers accumulated an average of $168,099 in retirement savings and investments, compared to only $86,529 by those who only saved from time to time. Track your spending Your bank account is never too strong to carry your lunch to work. Using the proverbial brown bag can be cost effective and healthier than eating out. The problem is we tend to ignore our financial health in favor of convenience. Before you know it, you’re spending thousands of extra dollars a year on thoughtless spending. A recent survey from Visa finds Americans spend about $20 per week for lunch meals out. That may not sound significant, but eating out for lunch totals $1,043 per year. Americans also spend almost double on lunch meals out compared to self-prepared lunches. Make a point to track your spending for at least one month. You’ll likely find you’re spending more money than you realized on at least one area in your life. Ask yourself if the price is worth the value you’re receiving and if it’s worth not saving that money for your future self — the person who may face a financial emergency or want to retire. After tracking your expenses for one month, try tracking them for an entire year to capture more financial transactions. Even semi-annual expenses can be reduced if you pay close enough attention. For example, increasing your auto insurance deductible from $500 to $1,000 cuts premiums by an average of 8.5%. Make your own rules Life is full of rules. We’re taught rules during childhood and never really grow out of them. When we’re adults, we’re told rules like how much we should spend on cars and homes, why using credit cards is never a good idea, and when to retire. Truth be told, not only does nobody care about your finances like you do, nobody knows them as well as you either. Your life has variables that general advice doesn’t...

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6 Money Hacks to Make Life Easier

Posted by on Mar 18, 2016 in Articles, Uncategorized

Every now and then we might discover a great tip that makes life so much easier. Whether you’re perusing Pinterest, Reddit, Instagram or magazines, there are shortcuts you can take when it comes to spending and saving. Here are 6 shortcuts to make dealing with money a little easier. Buy in bulk. Sasha Mitchell-Fuller, a current producer at “The Dr. Oz Show,” formerly of “The Tyra Banks Show,” loves to stay current on fashion while putting together segments for TV, and believes you can have an up-to-date wardrobe with designer brands without depleting your bank account. She thinks getting a much-needed wardrobe reboot can happen all in one shot during the times of year where stores are known to have big sales. This approach encourages shopping efficiency for those who have busy schedules and might find it hard to shop every season. Instead of having to stay up on every random sale throughout the year, Mitchell-Fuller uses this bulk shopping method for clothing and can insure that she can look polished for every season. She snags deals at stores like Zara and Nine West only during their 70 percent off sales. She adds, “These are also items that you can wear forever.” Be a super saver. If you want to save money on a regular basis, think about how much you want to put away per month. Set savings goals to keep track of how much actually hits your bank account. You can automate this process on bank accounts like Capital One 360. There is a goal-setting feature that is easy to set up and keeps you aware of how close you are to reaching your goal whenever you login to your account, displayed as a bar graph next to the dollar amount inside the account. You can check in on multiple goals this way without ever having to touch a spreadsheet or calculator. Create an out of sight, out of mind savings account. If you’re a spender and you tend to dip into your emergency fund any time you come up a little short, setting up a different savings account might be how you approach putting away money and keeping it there. If you make it a little less convenient to get the money, you may be less likely to touch it. Consider this to put money away for long-term goals or even an emergency fund for saving 3 to 6 months’ worth of living expenses. This way, you won’t see it on a regular basis and won’t be tempted to think of it. Take stock of the food you buy. You might already get some savings at the grocery store by picking up sale items listed in the circular or by clipping a coupon or two, but another way to save money is to actually eat the food that you buy. Write a list of needed items. When you purchase the items at the store from that list, keep the list after shopping. You can keep it on the fridge or close by to remind you of what’s inside the fridge. It’s easy for something like broccoli or carrots to get thrown in a drawer and forgotten about, only to have them spoil. With a reminder of what you have, you can cook meat before it goes bad. You can also make sure you consume produce and other items that may perish quickly. Make multiple accounts to put yourself first. You may have heard of the phrase “pay yourself first” when it comes to investing. Think about applying this concept to other categories in your budget. You can make...

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5 Life Events Everyone Should Financially Plan For

Posted by on Mar 15, 2016 in Articles, Uncategorized

You can make your own plans, but life might change them. Whether you are getting ready for college, just starting out with your first real job, or you have worked for years, there are certain life events that you should plan for. It’s important to plan your finances and make specific goals about where you want to go in life, both career-wise and financially. However, even if you do make these goals, sometimes life will get in the way. There are many regular monthly expenses that you need to budget for, but you should also take into consideration potentially expensive life events that arise for most people. If you haven’t yet set up a budget, or you are bored with your finances, there are ways to make the process more fun. Once you are on track with the basics, it’s time to start planning for the life events that can cost big. College If you’re getting ready to head to college, you likely already know that it will cost you big. Hopefully you can earn a scholarship or a grant, but there’s a good chance that you will end up taking out at least some loans. It’s important that you know some of the basics about student loans, such as the difference between subsidized and unsubsidized loans. It’s also important to truly think about how much debt you are taking on; the average graduate for the class of 2013 had more than $35,200 in student loan debt. If you haven’t accrued any debt yet, make it a point to plan for just how much you can afford, and if there’s any way you can take out fewer loans (such as working part-time). If you are a parent of a soon-to-be college student, one of the best things you can do to help your child is to make sure they truly understand what they are taking on by using student loans. If you have time, start saving for your kids’ college fund now, and encourage them to earn good grades so that they have a better chance of earning a scholarship. Marriage and family life You may want to get married soon, or you may believe that you never want to get married. Whatever you are feeling now, things can change if you meet the right person (or you decide that the person you thought was perfect actually isn’t so right). Marriage can be expensive: The average wedding in the United States costs $26,444, and depending on the circumstances, divorce can be costly too. The earlier you start saving for your wedding, the better. Include wedding savings in your monthly budget. According to Gallup, as of 2013, more than nine in 10 adults said they already have children, plan to have children, or wish they had children. Yet, according to the USDA, parents were projected to spend $241,080 to raise a child born in 2012. Planning financially for a child ahead of time is usually the easiest way to save, but many of us just can’t do that. If you are about to have a child, and you haven’t saved anything, it’s time to start. Down payment Owning a home is part of the American dream, at least for most people. If you want to own your own home, you will need to apply for a loan (unless you can pay entirely in cash). You also should save for a down payment; good tips include selling assets, monetizing your hobbies, growing your savings, and doing home projects and making things yourself in your current apartment or rental. According to the census, the average sale price...

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