September 6th, 2013
In the Wall Street Journal article “Five Ways You Can Really Mess Up Your Retirement” Brett Arends discusses some of the biggest mistakes that recent retirees make.
I shared my experience of working with recent retirees who have not ever felt the need to track expenses in the past because their income surpassed their expenses. However when they retired, they were stunned by how fast they saw their checking account balance go down once they stopped receiving income from their employer which in the past had replenished their accounts on a regular basis. They then call me for help with retirement cash flow planning.
To read what other advisors and I had to say about errors new retirees make, you can read the article on the Wall Street Journal website. If you do not have a subscription to the Wall Street Journal website, let me know that you would like to read it, and I would be happy to send you a reprint. Send me an email at: email@example.com
September 3rd, 2013
Unexpected financial expenses seem to crop up at the least opportune time. The car needs a new transmission, you lose your job, or a parent or child becomes ill and you need to reduce your hours at work in order to care for them, taking an unexpected reduction in income. All of these expenses, and others, can drain savings quickly.
Why have an emergency fund?
You can resort to using credit cards to pay for emergency expenses however, worrying about paying down your growing credit card balance can lead to further stress during an already difficult period. You will experience “one step forward and two steps back” where it’s hard to see any progress.
How to create an emergency fund.
The better choice is to establish an emergency fund now. Determine how much money you want to set aside in the emergency fund and set up an automatic deposit into that account once a month for a small amount, so that you establish the habit of adding to the emergency fund. If you have finished paying off a monthly loan of some kind, consider immediately setting that money aside for the emergency fund so you don’t use it for daily expenses. Set up an account with your bank that is not easily accessible so there is less temptation to use the money.
Remember a large screen TV or a vacation is not an emergency. If large items such as these, are on your wish list, start saving for them separately and only use your emergency fund for true emergencies.
How much should you have in an emergency fund?
The rule of thumb is to keep six to twelve months of living expenses in savings for emergency funds.
Whereas a dual income family could get away with six months of income in savings, if you are a single income household, you would want twelve months of income saved.
If you and your spouse work for the same company, there is a greater risk of you both losing your jobs at the same time, therefore it would make sense to keep twelve months.
Having an emergency fund will reduce your stress during periods of difficulty because you can tackle the situation and not worry about the financial aspect.
August 19th, 2013
Planning for retirement is not a subject you dwell on every day until you realize it’s closer than you think. However, there are various components for you to consider when planning for your “golden years.” An important piece of this planning requires you to calculate your current spending so you can make wise financial decisions for your retirement years.
How much do you spend?
Some families track their spending using software, online tools, a homemade spreadsheet, or simple paper and pencil. If you have been tracking your spending, congratulations! You have some solid spending history to use when estimating how much you will need to spend each year to pay your bills and do the things you want to do to enjoy your retirement.
What if you do not track your spending?
Many families that are easily able to pay their bills and accumulate healthy balances in their savings and investment accounts have never felt the need to track their spending. However, as they get within a few years of retirement they realize they do not have any spending history to use for projecting whether they can afford to retire soon. They do not know if their investments will provide enough income to support them with the same lifestyle they have always enjoyed. Fortunately there is a solution.
How to calculate your current spending?
Before you decide to turn off your income from employment, you want to be confident that you know how much money you need for retirement. What you don’t want to do is not have enough income at the time of retirement to provide for you and your loved one. Therefore, it is best to use pure facts when calculating your current spending.
- You make A.
- You give B to the government for taxes.
- You save C.
The rest is what you spend.
A – B – C = what you spend
It’s that simple. Don’t let the fact that you have not been tracking your spending delay your retirement planning. You can use this simple calculation to estimate how much you spend currently. And track your spending going forward so that you can more accurately estimate your spending needs in retirement.
Tracking your monthly spending today is important to do in the last few years before retirement. If you haven’t started, it’s okay. Start now. When you have an accurate picture of your expenses today, you’ll be better off in your future.
August 12th, 2013
The Garrett Planning Network 13th Annual Retreat was recently held in Kansas City, Missouri. I am a member of the Garrett Planning Network. It is a group of about 300 financial planners that offer financial planning on an hourly basis, each member owns their own firm. I have written about the Garrett Planning Network before.
I attended the conference and earned continuing education credits by going to various educational programs, which I need so that I can keep my designations and licenses such as:
- CERTIFIED FINANCIAL PLANNER™
- CHARTERED RETIREMENT PLANNING COUNSELOR℠
- NAPFA Registered Financial Advisor
During the four day conference I attended various educational programs such as:
- State of the Industry
- The 7Twelve Portfolio: A Better Balanced Portfolio
- Long Term Care Planning – Past Present Future
- Estate Planning Update
- And others
Ron Rhoades, JD, CFP ® of ScholarFi, Inc., gave one of the Keynote addresses on the state of the Industry: Will Fiduciary Duties be expanded – by the DOL or the SEC? In the fast-paced presentation, professor Rhoades covered various trends about the CFP Board, marketing of financial services and future effective business models.
Craig L. Israelsen, Ph.D. gave a keynote address on the 7Twelve Portfolio: A Better Balanced Portfolio. Laurence B. Siegel, another keynote speaker, spoke on Wake up and Smell the Coffee! Investors are Poorly Prepared for Retirement – A Balance Sheet Solution.
Throughout the year, the Garrett Planning Network, has three or four conference calls each month. One of the most beneficial outcomes of my annual trip to this retreat, is getting together with this group in person. On Thursday I was with a group of Garrett Planning Network members and Sheryl Garrett as Sheryl rang the closing bell at the BATS Global Markets stock exchange, the third largest exchange in the world. We took a tour of the exchange. It was inspiring to learn about the volume of trades that goes through there.
Another a highlight for me, is that I met Gail Marks Jarvis and she signed a copy of her new book for me. She is a very knowledgeable journalist for the Chicago Tribune and really roots for the consumer. One discussion point that really connected with me was something she mentioned at the book signing table. She talked about the fact that investors do not care about percentages they care about dollars. Their dollars. I agree wholeheartedly. It is something that I have kept in mind for years when I talk with someone about what allocation model is best for them.
Garrett Planning Network is a terrific group of professional financial planners who, like me, work with clients on an hourly basis. We share ideas and act as a resource for each other all year, so it is so nice to get together once a year and see each other again.
July 3rd, 2013
FINRA has a Required Minimum Distribution Calculator that you can use to figure out how much your RMD will be. This calculator assumes that if you are married, your spouse is less than 10 years younger that you. If your spouse is more than 10 years younger than you, then you must use a different withdrawal factor which requires you to pull less out of your IRA each year, thereby making your IRA last longer since your spouse is younger than you are and presumably the IRA will need to provide income for both of you.
What you need to do:
* Gather your IRA and 401(k) statements that show the end of year (December 31st) balances.
* Add the balances together (only per person; Do not combine the balances of the spouse’s accounts together. If you are married you should have a “spouse 1 balance” and a “spouse 2 balance”.)
* Using the link below to put in your balance and your age at the end of the year, and the calculator will give your RMD figure.
IRS RMD Worksheet
Are you more of the paper and pencil type? Then this worksheet, from the IRS website, that walks you through the calculation might be your style. http://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf Use this worksheet unless you have a spouse that is more than 10 years younger than you are.
IRS RMD Tables
Or do you need to use one of the alternative tables because you have an inherited IRA or your spouse is more than 10 years younger than you? Use this IRS IRA Required Minimum Distribution Worksheet with a link to the tables: http://www.irs.gov/pub/irs-tege/jlls_rmd_worksheet.pdf
Avoid the Penalty
Remember the penalty for not taking your RMD. So be sure to take your required distributions.
Required Minimum Distribution (RMD) blog post series
Required Minimum Distributions generate many questions so I am creating a series of blog posts to address these questions:
January 7th, 2013
Should you get your investment advice from a couple of plumbers? I did and it turned into a wonderful career for me. Those plumbers were my grandpa and my dad.
Learn how I got introduced to investing at a very young age and how it has influenced my thinking about investing ever since by reading “Blogger Interview: Hourly Planner’s Michele Clark” at the Wealth Gathering website.
Michael Goldman at Wealth Gathering asked me some questions about;
- My professional background and why I didn’t stay in the traditional, commissioned-based brokerage firm environment. I have worked in a bank, bank brokerage firm, a full commission brokerage firm, and a full service discount brokerage firm.
- How does my family balance living in the moment vs. saving for the future. Such a great question, because it is the essence of financial planning.
- Who is your financial role model. I could have gone on and on with this one. I think I will do a future blog post of my own.
- And do I think everyone is capable of learning enough about personal finance to do it on their own. This answer may surprise you!
I know Michael through the Garrett Planning Network. He is like me, in that he owns his own financial planning firm. In addition he has the Wealth Gathering site which is so unique. It is designed to offer online tools, coaching, and peer support. It is structured like a financial fitness program. As you know, I am a fee-only financial advisor, so I do not receive any compensation from them, and am not affiliated with Wealth Gathering. If you have a chance to look at the interview, take a look around at the other information on the website. Especially considering this is the time of year that so many people are tackling financial To Do items.
December 28th, 2012
I believe that just about everyone has some sort of financially related To Do item sitting on their To Do list. And they have every intention of taking care of it. However, so many other more time critical things seem to keep the financial items from getting to the top spot of the list.
If you are going to resolve to get some of your financial To Dos To Done, what actually matters - how it got done or that it got done? I will come back to that thought in a minute.
When people come to see me they have accumulated a list of tasks, and it is so easy to see how that happens in our busy lives.
You take a new job – a nice jump up the career ladder. Something needs to be done with that old 401(k). But what? You’re busy with the new job right now. So you put it on The To Do List.
Your income is higher now with the new job, should you have more life insurance? Or is the life insurance at work enough? You did buy some whole life from that guy that came to the house when you first got married. Is that still the right policy for you or not? So you put that on The To Do List.
Your kids are getting older, and you haven’t saved as much as you had intended for college. How much can you afford to put away for their college vs. how much should you be saving for our own retirement? Well, the kids are in middle school, you have a couple more years, so you put it on The To Do List.
At work they keep changing your investment choices and you don’t know what to pick. You don’t have the tools to see all of your investments together and create a diversified portfolio that incorporates all of your accounts, but you know that you need to do it one day. But you don’t have the time right now. So you put that on The To Do List.
Sometimes when potential clients meet with me in the free Get Acquainted meeting they tell me that they feel bad about not taking care of these things themselves. I stress to them, that I do not want them to feel that way. I tell them that when I have electrical problems at the house, I call an electrician. And when I have serious plumbing problems I call a plumber. I have had a handy man come to the house a few times to work though lists of little things that were annoyances. Sometimes you call in a professional to help you with your list. And it feels great to work on that list.
So if you are making a resolution to get your financial To Do items To Done, make a plan to either do them yourself, or to contact a professional to help you do them. Because when you mark them off the list, what actually matters – how it got done, or that it got done?
Resolve to take action today!
Have a Wonderful New Year!
December 12th, 2012
US News and World Report quoted me in their article “Your Retirement Benefits: What to Expect in 2013” on their website this week.
I shared my thoughts on 401(k) fee disclosures. 401(k) providers are required to disclose the fees for the plan. All things being equal, if two funds are simlar but one has lower fees than the other, choosing the fund with lower fees will allow the investor to keep more of their money invested for their future.
The article is full of information on a variety of topics. It covers information about changes to contribution limits, the Roth IRA income limit increase, the saver’s credit, the pension insurance limit for 2013, the increase in Social Security taxes (expiration of the tax cut), and Medicare premiums and coverage.
November 22nd, 2012
Happy Thanksgiving! I hope that you have a wonderful Thanksgiving surrounded by those that you love the most.
I am so very thankful this year, this is the first time I have ever been able to celebrate Thanksgiving with the wonderful family that I married into and the terrific family that I was born into. I am so happy. In the St. Louis area I live near my in-laws, however my family is scattered all over the country. So after dinner it is time to hop in the car and drive for hours to go to where my family will be gathered for a wedding this weekend, I am really looking forward to it.
And I am grateful for all of the families that have placed their trust in me this year and allowed me to work with them. Thank you.
All written content on this site is for information purposes only. Opinions expressed herein are solely those of Clark Hourly Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties' informational accuracy or completeness. All information or ideas provided should be discussed in detail with an adviser, accountant or legal counsel prior to implementation.
This website may provide links to others for the convenience of our users. Our firm has no control over the accuracy or content of these other websites.