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We won’t settle for average. We continually seek top managers or securities and meld them into superior custom portfolios. Each palette of investments is carefully tailored to personal or family goals. We enlist excellent managers, research, resources, and effort for our clients. Don’t settle for average. You deserve excellence.
Please search our blog posts for answers to common investment questions, and we look forward to sharing our knowledge and experience with you first-hand.
Planning for Retirement Later in Life
It’s no secret – many Americans aren’t financially ready for life after a career. If you are 40 or older and unprepared for retirement, what steps can you take to start planning for retirement now?
Take Advantage of “Catch Up” Opportunities
If you are 50 or older, you are allowed to make “catch up” contributions to your retirement accounts. For example, if you have a 401(k), you can contribute an extra $6,000 per year to it. Younger investors are held to the $18,000 annual contribution limit.
If you have an IRA, you’re held to $5,500 annual contribution limit, then when you’re 50 or older, you can put in an extra $1,000 per year. That might not seem like a lot of extra money, but if you make those extra contributions over the 15-year period before you retire (assuming you retire at 65), you will be able to increase your retirement nest egg substantially.
Make Approximations for the Future
Good retirement strategies are based on goals. In order to establish goals, you’ll need to crunch some numbers, which means you have to approximate how much money you’ll need in retirement to cover all your expenses. Keep in mind many people will live ten to 15 years longer than they anticipate.
Once you know how much you will need to live comfortably, you can start adjusting your investment strategy accordingly. This might require some adjustments to the way you are currently living, i.e. making cuts in expenditures so you’ll have more money to put toward investments.
Put the Hammer Down
To use an automotive term for rapidly accelerating, this is exactly what you need to do with your investment accounts if you are 40-plus and haven’t started saving for retirement. You need to do everything you can to max-out your retirement accounts, such as your employer-sponsored plan and IRA.
You may have a lot of ground to cover in a short amount of time. Make cuts where necessary, such as vacations or new cars or buying a new house, and save vigorously.
Adjust Plans as Needed
If planning for retirement has been put on the back burner for you, for whatever reason, it doesn’t mean all is lost. If your original idea of retirement was one of fun and relaxation, you might have to consider working part-time in “retirement.” This income will help cover the shortfalls that your investments won’t cover while still allowing you to live a lifestyle that fits your comfort level.
Also, if your idea of retirement was to begin at age 65, you might consider keeping that full-time job for a few more years. This extends the life of your investments, meaning you won’t dip into them as soon as you had planned, giving you more assurances for covering costs when you do finally hang up your career for good.
At Family Investment Center, we can help you navigate these complex waters. Don’t be intimidated by the process of planning for retirement. Let us help you make crucial decisions now that will help you later.
Here’s a little more food for thought: November 2017 is Millionaire’s Month at Family Investment Center. Why are millionaires wealthy? How do they think? What do they do (or not do) that you can apply to your own life? Is there a secret? Read more on our website or listen to Money is Freedom on SoundCloud or iTunes for a special four-part series.
Planning For Retirement Requires Focus on Diversification
Are you a small business owner who has avoided planning for retirement? If so, you’re one of a third of respondents to a survey from Manta that said they do not have a plan in place for their retirement. Among those, 37 percent said they don’t have enough money to save for retirement. But, what’s really happening?
A number of small business owners say they’re not planning for retirement because they simply don’t make enough to open a retirement account. However, there really isn’t such a thing as “too little” to begin saving. The truth is, many small business owners are actually reinvesting in their own company instead of focusing on a retirement account. While this seems at first glance as a responsible action, it really puts the owner at risk.
Almost 20 percent of those surveyed by Manta said they’ve taken what retirement accounts they had and sunk them into their business. Doing this means the business owner is losing money due to taxes, penalties, and tax-deferred potential growth. It’s a risk that shows the owner has really invested in the growth of the business, but it comes at a high cost.
Of the survey’s respondents, 20 percent also said they don’t have retirement accounts because they plan to sell their business before retiring. However, what if the timing isn’t right? What about those business owners who had a long-term plan to retire in 2009? They are likely still working today, trying to recoup what they lost. The fact is, nobody really knows what the market will bring, so your best-laid plans can fall victim to unforeseen circumstances.
As a small business owner, here are a few important steps for you to take toward a solid retirement strategy:
· Invest in a self-employed retirement plan, such as an individual 401(k), a SEP-IRA, or a SIMPLE IRA.
· Create a plan for leaving the company. A succession plan can keep your business afloat in your absence, offering you a stable income.
· Planning for retirement should include setting a tentative retirement date. Evaluate your lifestyle and talk to your investment advisor about how you can make a smooth exit that allows you to live comfortably in retirement.
Planning for retirement isn’t easy, especially when you’re passionate about your business and you want to see it succeed after you leave, or if you want to get what you feel it is worth when it’s time to sell. At Family Investment Center, we can help you navigate all the various decisions that have to be made. Contact us today and let’s begin planning for your retirement.
Steps You Can Take Now to Get Started With Your Retirement Planning
Many people who are still years away from retirement look forward to that day when they leave the workforce to enjoy the golden years. However, when the retirement date comes close, those thoughts of rest and relaxation are often replaced with trepidation. Why? Because retirement planning has been put on the back burner. What can you do to improve your outlook and develop a plan now?
What will weekly and monthly expenses look like in retirement? This is something you must consider as you begin your retirement planning. Perhaps you have debts today that you know you don’t want to carry forward into retirement. Your plan may include managing a way to enter retirement with reduced debt so you’re not tied down.
There are various calculators, such as DebtBlaster, that allow you to come up with a more solid strategy for retirement expenses. You also need to consider how inflation and the cost of living will differ in terms of where you choose to live in retirement and for healthcare costs.
2. From Where is the Income Derived?
You should develop a complete list of pension, 401(k), IRA, Social Security and other income resources. This will help you gain a better picture of how much you can spend at any given moment. Also, be sure to write out all the contact information, passwords, account numbers, etc., so should you become disabled or pass away, there will be no confusion regarding these accounts.
3. Retirement Goals
Part of planning for retirement is looking at things aside from money. Will you follow a passion or pursue a hobby? Will you be focused on recreation, or will you take this time to continue your education? Obviously, if travel is on the itinerary, you’ll need to budget for that, as frequent travel can get pricey. However, it’s important that your retirement goals will work with the plans of your spouse, family and friends.
4. Finding an Advisor
Planning for retirement can be a process full of complexities. When you partner with an investment advisor, your eyes will be opened to a number of issues that you likely would never have known existed. Look for an advisor with transparent fees and for one that will act as a fiduciary. When you have a fiduciary working for you, they are acting in your best interest – not their own. Unfortunately, there are many investment professionals out there who are driven by the commissions they earn, which means their investment advice isn’t always in clients’ best interest.
At Family Investment Center, we’ve always acted as a fiduciary, which means you can trust that when it comes to your retirement planning, we’ve got your best interests as our primary focus.
Preparing for Retirement With 401(k) Investing
Once you hit the big 5-0, there are some financial advantages that can be beneficial for everyone who hits this milestone, including some tax breaks and perks where your retirement investments, like 401(k) investing, are concerned.
As of 2017, you can contribute $18,000 a year to your 401(k). However, once you hit the age of 50, you can put an extra $6,000 into your 401(k) each year. These are referred to as “catch-up” contributions, which can offer people with less time until retirement to contribute more to their plan.
If you’re turning 50 or have already hit that milestone, it can be beneficial for you to take advantage of that extra $6,000 investment. There are also advantages for business owners who have yet to establish their retirement investments. For example, say a couple in their mid-50s wants to finally get the ball rolling on their retirement accounts. They can open a self-employed 401(k), which is also referred to as an individual or solo 401(k), and sink the full regular contribution plus the “catch-up” $6,000 into this account.
For those who would rather go with an IRA investment, there are some options here as well. While traditional 401(k) contributions are tax-deductible, any withdrawals from the 401(k) are taxed as income. A traditional IRA works similarly, but the maximum annual contribution is $5,500, with an extra $1,000 “catch-up” contribution. With a Roth IRA, however, no deduction may be taken for contributions, but then withdrawals in retirement are not taxable. IRAs can be extremely advantageous for extra savings, especially when used in conjunction with employer-sponsored plans.
According to a recent Forbes article, 50 percent of investors age 50 to 69 took full advantage of catch-up contributions in 2015. For those putting their investments into a Roth IRA, 45 percent did the same.
The rules are different depending on the type of plan to which you’re contributing, so be sure to ask an advisor for the applicable rules. Aging into 50 and beyond can be an exciting and rewarding time. At Family Investment Center, we know a lot about the various ways that age has advantages when it comes to investing. Come in and talk to us today about your investment goals. If you’ve yet to establish a strategy, we’ll discuss the options available to you and get you started on the right path.
Taking a Fresh Mental Approach to Investing for Retirement
Mental buckets of money. It sounds like an odd idea at first, but when you consider all the investments contained in savings and retirement portfolios, thinking in terms of “buckets of money” can actually help deconstruct a complex situation into something more manageable when strategically investing for retirement.
During our working years, we look forward to that paycheck that comes every two weeks or once a month. We plan around that check; taking into account our rent or mortgage, food, clothes, entertainment and savings. Even if our investment accounts are plentiful, when it comes to retirement, we need to mentally adjust to the fact that the regular check is no longer coming in. Call it “mental accounting.”
Morningstar recently published an article on the subject of mental accounting, where Michael Kitces, director of wealth management for Pinnacle Advisory Group, touched on the fact that there are different ways to sort and separate the different “buckets” of money. It’s essentially the way people categorize their money and how they think about their assets and income sources. Some researchers have narrowed these categories down into three main buckets: current income (paychecks), current assets (money used for current needs), and the future bucket for everything else, including retirement accounts.
What’s interesting, as the article explains, is that as humans we have feelings that often don’t line up with logic, or what is actually happening. Take, for instance, the fact that British researchers found when they looked at people’s happiness, the happiest were the ones with a comfortable amount of money in the first bucket, regardless of what was in the third bucket.
The goal for those people is to have cash on hand rather than savings for the future. Investing for retirement requires a different mindset when it comes to that third bucket. Interestingly, people with plenty of money in their retirement accounts will often stress in retirement because they don’t have that regular paycheck coming in to fill the first bucket. This is why it’s important to do the mental accounting.
Financial advisors will often focus heavily on investing in the retirement bucket, taking much of the importance off the money their clients have in a checking account. However, to appease that need to have a constant influx of cash to the checking account, advisors might recommend an annuity. Interestingly, the source quoted in Morningstar said less than one percent of people actually follow through with this advice.
One of the reasons people don’t adopt the annuity method is because if they do, they don’t really have the opportunity to improve their lifestyle from where it is right now, as it removes a lot of the flexibility of other investment accounts.
At Family Investment Center, we’re experts at helping people understand what they need to reach their goals. Investing for retirement, in all its complexities, is an important topic that deserves the attention of people who make it their life’s work. Contact us today and let’s start some mental accounting that will make you comfortable with your position today and in the future.