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!
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Tags: advice, College Planning, Employer Retirement Accounts, Financial Doing, Insurance, Investing
Posted in College Planning, Financial Doing, Insurance, Investment Planning, Retirement Planning | Comments Off
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.
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Tags: Employer Retirement Accounts, Investing, Retirement Planning, Savings, Taxes
Posted in Michele Clark in the news, Retirement Planning | Comments Off
November 18th, 2012
Think about this: on average you have 45 years of working life to save up for 30 years of retired life.
While you are working, it can be hard to save because you have bills to pay; utilities, groceries, gasoline, insurance, property taxes, day-to-day living expenses. You will have all those same bills to pay when you are retired, however they will be more expensive due to inflation. So you need to save now to pay for those bills that you will have later, all while paying your current bills. It can seem overwhelming!
When faced with a large task, the best way to accomplish it is to just get started one small step at a time. A friend of mine, Jim Blankenship, CFP®, EA a financial advisor in New Berlin, IL, came up with the idea of asking financial bloggers all over the country to write blog posts encouraging people to increase their savings rate by 1% in their employer sponsored retirement plans, such as 401(k)s, 403(b)s, or Thrift Savings plans. Earlier in the year I was quoted in a US News and World Report article about 401(k) retirement accounts, and one piece of advice I gave was to increase your contribution rate by 1% each year, so when I heard Jim’s plan, I knew immediately that I wanted to participate.
So far there are thirteen articles with ideas that can help you increase your savings rate by 1% in your retirement account:
From Jim Blankenship: Add Your First 1% to Your 401(k)
My Contribution: Employer Retirement Accounts: 2013 Contribution Limits
From Roger Wohlner: Need Post-Election Financial Advice? Try the 1% Solution
From Sterling Raskie: A Nifty Little Trick to Increase Savings
From Robert Wasilewski: Increase Savings Rate by 1%
From Mike Piper: Investing Blog Roundup: Saving 1% More
From Theresa Chen Wan: Saving for Retirement: The 1% Challenge for 2013
From Steve Stewart: Seriously. What’s 1 percent gonna do?
From Laura Scharr: In Crisis: Personal Savings-Here Are Six Steps to Improve Your Retirement Security
From Ann Minnium: Gifts That Matter
From Alan Moore: Financial Challenge – Should You Choose To Accept It
From Jonathan White: Ways to increase your retirement contributions 1% in 2013
From Emily Guy Birken: Increase your savings rate by 1%
After reading these posts hopefully you know why it makes sense to increase your savings rate, and have some good tips for where to find the money in order to allow you to increase your savings by 1%. The next step is to take action, and this is the season to do so. This is the time of year that HR departments are having their annual meetings about benefits. Commit to yourself and your family’s future financial security and increase your contribution by 1% this year!
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Tags: Bill Paying, Employer Retirement Accounts, Retirement Planning
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November 9th, 2012
The maximum amount that you can put into your IRA is increasing in 2013 from $5,000 to $5,500. This holds true for Traditional IRAs and Roth IRAs. The Catch-Up Contribution, for those over 50 years old, will remain the same at $1,000.
Earned income
In order to invest in an IRA you must have earned income. People ask if they can count income they “earn” from investments, the answer is no. Earned income is income earned from working. If your income is less than $5,500 keep in mind you must have earned income to make a contribution , so you can only contribute $5,500 or 100% of earned income whichever is less. Examples of earned income given on the irs.gov website are:
Earned Income:
- Wages
- Salary
- Tips
- Union strike benefits
- Long-term disability benefits received prior to retirement age
- Net earnings from self-employment
Income that is not Earned Income:
- Pay received for work while an inmate in a penal institution
- Interest and dividends
- Retirement Income
- Social Security
- Unemployment benefits
- Alimony
- Child Support
Traditional IRA
Everyone with earned income can invest in a Traditional IRA. However, not everyone can deduct the contribution that they make to a Traditional IRA. There are IRA deduction phase-out limits for active participants in employer sponsored retirement plans, or if one person in a married couple is an active participant. The phase-out limits are based on your tax filing status.
The way the phase-out works is you can deduct the full amount when your modified adjusted gross income falls below the low end of the phase-out. You cannot deduct anything once your modified adjusted gross income hits the high end. And you can deduct a pro rata portion when it falls in the middle range of the phase-out.
- Single $59,000 to $69,000
- Married Filing Jointly (for spouse covered by employer retirement plan) $95,000 to $115,000
- Married Filing Jointly (for spouse that is not covered by employer retirement plan, but married to a covered spouse) $178,000 and $188,000
Roth IRA
Not everyone can make a Roth IRA contribution. In order to make the full contribution your modified adjusted gross income must be below the phase-out threshold. If your modified adjusted gross income hits the top of the phase-out range you cannot make a contribution at all. If your modified adjusted gross income falls in the middle of the phase-out range you can make a pro rata contribution.
- Single $112,000 to $127,000
- Married Filing Joint $178,000 to $188,000
Many people have automatic investing set up so that they put a little each month into their IRA accounts. If you do this, be sure to make the adjustment to increase the amount you are putting into your IRA account, you can put another $41.66 a month away in 2013. Every little bit helps!
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Tags: Contribution Limits, IRAs, Retirement Planning
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November 5th, 2012
What is so great about investing in an IRA or employer retirement plan? Tax deferral. You put money into the account and it grows, tax deferred, for many years. What does “tax deferred” mean? It means that the money is growing but you are not paying taxes on those earnings… yet. You have heard the saying “It takes money to make money.” The idea is that you can keep your money and use it to grow your portfolio, and later, when you take the money out of the account to use it, that is when you will pay the taxes. You “defer” the taxes until later.
Can I defer the taxes forever?
No. Uncle Sam thought he was being nice enough to let you defer the taxes, but he does want to get his hands on those taxes at some point. That is why there is a Required Minimum Distribution (RMD) starting at 70.5 years of age. Most people start taking money out before that, because they were saving their money for retirement after all. Even if you are taking money out of your IRAs, and other qualified accounts, make sure that you are taking at least the RMD, because there is a stiff penalty if you are not taking your Required Minimum Distribution or if you are not taking as much as you are supposed to take.
Required Minimum Distribution Penalty
The penalty for not taking your Required Minimum Distribution is 50% of the amount not taken or of the shortfall. Yes, you read that right, 50%. It is very important to take your RMD each year.
What if I made an honest mistake?
If, after the fact, you find that you have not taken your RMD and you correct the situation. Or you didn’t take enough, and you correct the situation, the IRS has a process for asking for the penalty to be waived, as long as it was “due to a reasonable error”, according to the IRS website. Keep in mind that does not mean that it will be waived. You can find information on www.irs.gov you will be filling out Form 5329 to try to qualify for the waiver, this is an instance where you might consider consulting a tax advisor.
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:
- What is a Required Minimum Distribution (RMD)?
- What is the penalty if I do not take my Required Minimum Distribution (RMD)?
- How do I calculate the Required Minimum Distribution (RMD)?
- What if my spouse is significantly older/younger than me?
- When do I have to take a Required Minimum Distribution (RMD)?
- Do I have to take the Required Minimum Distribution (RMD) from each account individually or can I take it all from one?
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Tags: Employer Retirement Accounts, Retirement Planning, Savings, Taxes
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October 26th, 2012
An excellent way to save
What is my favorite feature of investing in your retirement plan at work? No, it’s not the employer match, well alright it is the match, but a very close second is the fact that it is automatic!
The Elephant
Because companies are doing away with pension plans, saving for retirement can seem like an impossibly huge task. But as the old saying goes “How do you eat an elephant? One bite at a time.” Having a little money taken out of each paycheck and deposited automatically into an employer sponsored retirement account is taking that one bite at a time. Eventually you will get that Retirement Elephant eaten.
Change in contribution limits
Each year the IRS announces if there are changes in the maximum contribution limits to employer plans due to cost-of-living increases. Why is that important to you? Because you can take bigger bites; and get that Retirement Elephant eaten sooner. The catch is, depending on the instructions you set up for 2012, you may need to take action and contact your Human Resources department to let them know that you want to increase the amount you are investing in your retirement plan. This is the month that HR usually wants to hear from you about these decisions, so the timing is right.
401(k), 403(b), 457, and SARSEPs
The 2013 maximum contribution limit is $17,500, an increase of $500 over 2012. Be sure to contact your company to take advantage of the opportunity to put more money into your plan next year! If you are 50 or turning 50 in 2013 you have the opportunity to add additional money to your employer sponsored retirement plan each year in the form of a Catch-up Contribution, the amount for 2013 is $5,500 the same amount as last year. However, please check to make sure you are taking advantage of this opportunity; it is common for me to find that new clients are not doing this, and have often never even heard of a Catch-up Contribution. But now you have, and you can take full advantage of it!
SIMPLE plan
The maximum contribution limit also went up for the SIMPLE, it will be $12,000 in 2013 whereas it was $11,500 in 2012. If you are 50 or turning 50 in 2013 the Catch-up Contribution for SIMPLEs in 2013 will be unchanged at $2,500.
What to do
Check to see what you are contributing to your employer sponsored retirement plan, if you want to “put the max in” as I so often hear, make sure that you do that by adjusting the numbers for the new 2013 increases.
If you are over 50 or will turn 50 in 2013, make sure that you take advantage of the Catch-up Contribution which allows you to put additional money in the account.
If you are not “putting in the max” make sure that you are getting at least the full amount of the match from your company. This needs to be balanced with having an emergency fund/savings account.
Once you have gotten to the point of getting all of the match, and establishing the appropriate emergency fund for your family, you need to evaluate all your goals and make sure that you deploy any extra cash among those goals in a way that fits with your priorities and values.
A hint for increasing your retirement savings – each time you get a raise, increase your retirement account contribution by one percent. You will not even feel the loss, because it is money you didn’t even have yet.
Take action today, and you will be that much closer to retirement!
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Tags: Contribution Limits, Emergency Savings, Employer Retirement Accounts, Retirement Planning
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September 28th, 2012
Sometimes Uncle Sam can be a really nice guy. He lets you save money in tax deferred accounts such as IRAs, 401(k)s and the like. You get to watch that money grow over the years, accumulating in value, while not paying any taxes on the gain. Uncle Sam just waits patiently on the sidelines not collecting taxes on the earnings. However, Uncle Sam isn’t going to wait forever, and that is where the Required Minimum Distribution comes in.
What is a Required Minimum Distribution (RMD)?
What if you never had to tap into your IRA? What if you had enough money from pensions and in taxable accounts so that you could just let your IRA sit, unused forever? Well then, Uncle Sam would never get his tax money would he? He has been a nice guy up to this point, but he has his limits, he wants to see some tax revenue, and he has decided that when you turn 70.5 is as late as he is willing to wait to start to see it.
When- Once you turn 70.5 you will be required to take money out of your IRA. The fact is many people will have already been taking money out of their IRA, and probably paying taxes and the earnings, but if you have not, you must at 70.5. For more details I will be writing a blog post entitled “When do I have to take my RMD?”
How much – It is the minimum amount that Uncle Sam says you must take out of your tax deferred accounts (IRAs, 401(k)s and the like) each year. The figure is based on the value of your tax deferred accounts on the last day of the year and calculated based on your life expectancy. For more details on I will be writing a blog post entitled “How much will the Required Minimum Distribution (RMD) be?”
Why – So Uncle Sam can finally get his hands on the tax revenue which has been deferred all these years.
IRA money is for your retirement income
You are investing money in your IRAs and 401(k)s for a reason, to use during your retirement years. For many families, they will be taking enough money out of their account each year to cover their living expenses anyway, more than the amount that they need to take out for the Required Minimum Distribution. Especially as we see fewer and fewer pensions. However, it is good to know the details because the penalty for not taking your Required Minimum Distribution (RMD) is quite steep. It is 50% of the RMD amount that should have been taken but was not.
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:
- What is a Required Minimum Distribution (RMD)?
- What is the penalty if I do not take my Required Minimum Distribution (RMD)?
- How do I calculate the Required Minimum Distribution (RMD)?
- What if my spouse is significantly older/younger than me?
- When do I have to take a Required Minimum Distribution (RMD)?
- Do I have to take the Required Minimum Distribution (RMD) from each account individually or can I take it all from one?
Related Posts:
Tags: Employer Retirement Accounts, Retirement Planning, Taxes
Posted in Retirement Planning, Tax Planning | Comments Off
September 12th, 2012
I was interviewed by US News and World Report recently about 401(k)s. My thoughts appeared in an article on their website this week entitled “10 Strategies to Maximize Your 401(k) Balance.”
When Emily Brandon from US News and World Report called me I shared with her an idea for making it easier to save more in your 401(k), and we talked a bit about the new fee disclosure rules in 401(k)s and what that means for employees. We also talked about the importance of adjusting your investment portfolio as you get closer to retirement.
If you would like to read the results of our conversation, and how she interwove it with the conversation she had with two other advisors, you can read the article here: 10 Strategies to Maximize Your 401(k) Balance.
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Tags: advice, Employer Retirement Accounts, Investing, Retirement Planning
Posted in Investment Planning, Michele Clark in the news, Retirement Planning | Comments Off
August 31st, 2012
The Garrett Planning Network 12th Annual Retreat was recently held in Denver Colorado. 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:
- Factors That Have the Biggest Impact On Your Client’s Long Term Financial Plan
- Understanding Longevity
- Paying for College
- Curing Social “In-Security” Part 1 and 2
Kent Smetters, PhD, the Boettner Chair Professor, at the Wharton School, at the University of Pennsylvania, and former Deputy Assistant Secretary for Economic Policy of the United States Treasury, gave the Keynote address. Dr Smetters provided comments on the impact of using one model portfolio for all of a client’s investment goals vs. individual goal-based asset-liability matching.
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. They are 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.
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Tags: College Planning, compensation, NAPFA
Posted in College Planning, Garrett Planing Network, NAPFA, Retirement Planning, Social Security | Comments Off
July 23rd, 2012
You spend your entire working career putting aside money in order to have a sufficient nest egg in retirement so that you can do the activities that you enjoy with the people you care about most.
There are risks to that goal that you need to be aware of and you need to take steps to mitigate that risk.
One of those risks is that you or your spouse will become ill and need some type of expensive assisted living care for an extended period of time.
Cost of care in Missouri
In the state of Missouri the average cost of assisted living care is $54,000 a year. Consider what impact a three year, $162,000 stay would have on your portfolio while a spouse is still living at home with the usual bills. Or, if you are single, you will often still have your usual day-to-day living expenses because family members are often hesitant to sell your home, in the hopes that you will return, or they are not yet ready for the task of selling. Now consider the fact that healthcare costs are increasing faster than the standard rate of inflation and you can see how an extended stay could be a risk to your retirement goals.
Purchasing a policy
A Long Term Care policy can cover different types of nursing care ranging from in home care to a private room with fully-assisted living care.
You can purchase a policy to cover the majority of the cost, or even just a portion in order to help offset the cost, if something were to happen to you.
Purchasing a LTC policy can help preserve your assets so that they can last your lifetime, and help financially protect a spouse should one of you require expensive care.
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Tags: Insurance, Long Term Care, Retirement Planning
Posted in Insurance, Long Term Care, Retirement Planning | Comments Off
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