Average is not good enough … Our goal at Family Investment Center is excellence. We find excellent investment products and supervise an excellent service package. We maintain a library of excellent research materials and financial planning resources. We also demand top safety and security for our clients.
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.
401(k) Investing is a Valuable Tool, Yet Underutilized
One of the most widely overlooked investment vehicles today is the 401(k). Surprisingly, two-thirds of all Americans don’t contribute at all in a 401(k) or other retirement account available through their workplace, and that number could shift even more if Congress stops auto-enrollment. 401(k) investing is a remarkable tool, yet often overlooked as an important part of planning for retirement.
According to tax records gathered during the most recent U.S. census, only 14 percent of employers offer a company-sponsored 401(k) plan. However, the majority of Americans work for larger companies which do offer these plans. Ben Steverman covers this topic in a Bloomberg article this year, saying bigger companies are the most likely candidates for offering a 401(k) plan and around 79 percent of Americans work for large companies.
“Four out of five workers are employed by companies that offer a 401(k) or similar plan, but many workers aren’t using them - either because they’re not eligible or because they aren’t signing up,” Steverman says.
These workplace plans create an environment where employees can build up their investments on a tax-advantaged basis. Unfortunately, too many Americans feel that it’s not worth the effort to get involved, probably because in order to get the most out of the plan, the money is tied up for a span of time and a penalty is assessed if the employee withdraws from it early.
Another possible reason for why so many workers aren’t getting involved in 401(k) investing is because they’re not willing to send incremental dollars to a long-term retirement plan, especially those who earn low wages.
People who change jobs often or who work part-time are also less likely to be eligible to participate in a workplace retirement plan. Many companies require employees to work for months or a year before they become eligible to participate in a plan, thus complicating the issue further.
Making investment decisions is difficult for many people. They’re intimidated by the choices that have to be made, so they don’t make any choices. Also, the cost of many plans can be high, which has been widely scrutinized in the media, drawing even more negative feelings out of workers, further complicating their savings plans.
Many companies that offer a 401(k) plan will automatically enroll their workers, as it costs the worker nothing. However, Wall Street believes this practice creates an unfair advantage against the products they sell. Unfortunately, Wall Street has the ear of many lawmakers in the Capitol, which is why there is a real threat that auto-enrollment could be wiped out.
At Family Investment Center, we can assist you in overcoming any fear, intimidation, or trepidation about investing your hard-earned money. Contact us today and let’s discuss your financial goals and how to accomplish them.
How Will 401(k) Investing Change in the New Year?
The 401(k) plan is among the strongest investment tools for many working Americans, especially those whose employer does not offer a pension plan, but will match contributions (up to a specific percent) to the company-sponsored 401(k). When you invest in a 401(k), which utilizes the stock market and other products, you are investing for your future. It’s important to stay informed of the rules that govern your 401(k) investing as they change each year.
The IRS limits your 401(k) contribution and those limits are subject to change annually. The company you work for also limits how much they match on the amount you contribute. The current IRS limit on employee elective deferrals is $18,000. This will continue into 2017, but keep your eyes on 2018 as that deferral amount could go up.
For those of you who are 50 or over, you can make what the IRS refers to as “catch-up” contributions, which allow you to put an extra $6,000 a year into your traditional and safe harbor 401(k) investing plans, or $3,000 extra into your SIMPLE 401(k) plan. When the IRS makes changes to these catch-up contribution limits, it’s generally tied to a cost-of-living adjustment.
Another change impacting a number of people relates to 2017 IRA income limits. Employees who have a 401(k) account through their work can make tax-deductible contributions to a traditional IRA. For example, employees earning up to $62,000 a year are allowed to deduct from income tax IRA contributions of up to $5,500. Unfortunately, if you earn between $62,000 and $72,000 (in 2017), that phases out.
Workers making less than $118,000 can make Roth IRA contributions in 2017, which allows for tax-free withdrawals in retirement. Roth contribution limits phase out for those making $118,000 to $133,000 (in 2017).
It can be challenging to keep tabs on all the rules, regulations, perks, and privileges available to you in your retirement plan investing. This is why it is important to include a professional advisor to keep you informed on the decisions that impact your investments. At Family Investment Center, we’re ready to assist you in these important decisions and more. Contact us today and see why our commission-free environment remains the investment “home” of so many families and individuals.
Getting the Most Out of Your 401(k) Investing if Your Company Doesn’t Match
The pension plan, once the go-to retirement strategy for the average American worker, is not a common option anymore. Today, many individuals turn to 401(k) investing to help in saving for retirement. It’s not uncommon for employers to match employee contributions to the 401(k) up to a certain percentage. But what should you do if your company doesn’t offer a match?
Surprisingly, American Investment Planners puts the number of companies that don’t offer a match at around 42 percent. If you’re working for a company that doesn’t offer a matching contribution, there are few key considerations:
· First, know that 401(k) investing is an appealing option in saving for retirement, regardless of the match.
· Second, your company’s plan should charge fees that are entirely reasonable and investment options that are diverse.
· Third, contributions to the plan are made automatically, as you instruct your plan administrator. There is typically no option to skip one month should cash flow become tight.
If you fall into the classification of a higher income household, 401(k) investing is often an attractive option, as contributions may be deductible from your taxes. An added benefit for high income earners is the contribution cap - $18,000 a year in 2015 and 2016 (it should go up in the ensuing years). Individual retirement accounts (IRAs), on the other hand, are limited to $5,500 a year for workers 49 and younger and $6,500 a year for workers 50 and older.
There are times when the IRA is an option that needs to be considered, particularly when it comes to tax planning. Some investment advisors say you should not be so focused on current taxes and instead to think about tax rates at the time of your retirement. If the rates are likely to increase over time, your money might be better off in a Roth 401(k) or Roth IRA because the money is taxed going in rather than when it comes out in retirement.
According to Vanguard Group, around 56 percent of employers offer a Roth option in the 401(k). You should speak to your investment advisor about this option if it is available to you. If it is not, your advisor might suggest that you put the bulk of your retirement savings into a Roth IRA. Of course, there are many other considerations when deciding whether to contribute to a regular 401(k) or IRA or a Roth, so be sure to ask an advisor if you’re unsure.
You have options in your investments for retirement, and at Family Investment Center, our team wants you to know what those options are. We have experience with individuals and families at all life stages, and we know how to communicate in a comfortable, client-first setting. Contact us today and let’s talk about what’s next for you and your family.
Today is the Right Time to Start Investing for Retirement
The Millennial generation includes people who are just starting their careers – and many times, the last thing they’re thinking about is ending that career and stepping into retirement. But investing for retirement at an early age has many advantages. If you are a part of the Millennial generation (or if you’re not, but you’d like to eventually retire) here are a few tips to consider:
There is no such thing as investing too early. Your money works for itself when it grows through strategic investing, and the dollars you invest in your early 20s can multiply many times by the time you retire. When you start young, small but consistent savings can grow into several thousand dollars in potential retirement income as your investments grow over time.
Get involved in your company’s 401(k). Most companies will offer a matching amount, so make sure you’re contributing at least what your employer will match, if you can. Not trying to do this means leaving money on the table … and realizing more freedom to see your dreams become a reality when you take that last step out of your company and that first step into your retirement.
Plan for emergencies, but don’t over plan. There might be a time in your life where you’ll need access to money to get you through a three- to six-month emergency period. Whether it’s a health-related issue, relationship issue, or switching jobs or careers, you’ll need to have an emergency savings account to help cover your expenses. Beyond that, choose to invest your money rather than placing it all into savings. Investments, when made consistently and with expert guidance, have a much stronger potential for growth than a mere savings account.
Need a guideline to aim for? Invest 10 to 20 percent of each paycheck. It might sound like a lot of money, but this is a solid, strong, and likely quite productive goal as you save for retirement. Have this money taken automatically from your paycheck first before you budget your spending. (Think of it as your “freedom fund.” Or whatever it takes to remind yourself that this is going to mean having a lot of fun later in life).
Choose a trusted investment advisor to help you. When you talk to your prospective advisor, ask them for their credentials, the services they offer, how they’re paid, their philosophy, and their approach on investing. Make sure they’re willing to communicate openly and as often as you’d like. Look for someone who is commission-free so you know they’re motivated by your best interests.
You can manage student loan debt while making investments. Student loan debt reached one trillion dollars last year. This kind of debt can lead to delays in major life events for graduates, like buying a house, getting married and starting a family. However, it shouldn’t be a reason for not investing for retirement. Smart budgeting can keep you current on your student loan payments while you simultaneously put money away for retirement.
A little risk is not a bad thing. Media reports suggest that many millennials are known for conservative financial habits, but risk can be a positive element in investing, as risk is typically correlated with an appropriate reward. Bonds and savings accounts have low rates of return, while the stock market can have a higher return in the long term if you are willing to tolerate volatility and maintain consistency over time.
Place your emotions on the back burner. You must be active in managing your assets, but that doesn’t mean reacting with emotion to what’s going on. Rather, you’re regularly monitoring your portfolio as you age. A typical scenario is for the portfolio to have more aggressive investments when you’re young and have many years of employment left, then taper off to a more conservative portfolio as you age. Consulting with your investment advisor on a regular basis is recommended to keep your emotions and attitudes toward money from becoming an obstacle to your success.
When you choose to plan your dreams with the help of Family Investment Centeradvisors, you’ll obtain valuable, unbiased information for your investment plans. Contact us today and find out how our approach to investing is different than others.
Some Mistakes When Planning for Retirement Happen All Too Often
Did you know people are living longer today than ever in history? This means when planning for retirement, careful steps must be taken to ensure the money is there many years after you stop earning a regular paycheck. Planning for retirement today means the average 65-year-old should plan for another 20 years of life (and expenditures).
There are many details to consider when planning for retirement. We’ve compiled a short list of common mistakes to avoid:
1. Got a plan? Have a plan and follow it. One of the biggest mistakes people make when it comes to being prepared financially for retirement is failing to create a strategy. A good plan begins with considering cash flow needs now and in the future. A small percentage of prospective retirees actually configure their cash flow needs accurately.
2. Don’t mistake your retirement account for a checking account. Dipping into your 401(k) or IRA early when other resources are available is something you want to avoid. Any money you take out will impact your money’s potential to earn growth, not to mention paying income tax plus a 10 percent tax penalty when under the age of 59 ½.
3. Don’t let your aversion to risk get in the way of smart investing. The market ebbs and flows regularly. Today’s losses in diverse investments will typically bounce back. For instance, if you didn’t make any sudden moves in your 401(k) or other investment accounts during the recession, you’ve most likely seen your accounts bounce back, over and beyond where they were. Avoid over-reacting to media hype about the markets and work with a trusted advisor; they’re accustomed to market fluctuations and can help you stay on track and move forward with confidence.
4. Reminder: Inflation will impact you in retirement. The dollar you make today won’t be worth the same amount in 20 or 30 years. Are your investments keeping up with the rate of inflation? Your purchasing power may be limited if you’re not considering the inflation factor while planning for retirement. Professional investment advisors can help you estimate inflation – and thus spending – increases using both industry tools and experience, so enlist their help.
5. Emotions and investments don’t mix. People who play the market like a game often find themselves the victim of their own emotions. If you get too emotional about the stock market, you may make mistakes -- like pulling out of stocks when they are low or buying when they are high. Instead, stay focused on consistency and on your goals.
6. Are you taking advantage of your employer’s 401(k)? Take part in your company’s 401(k) plan and contribute at least up to the maximum that your company will match, if you can. Investment experts have estimated that Americans are missing out on approximately $24 billion each year collectively by not taking advantage of their company’s 401(k) plan.
7. You might be healthy now, but things can change when you age. Don’t forget about your health and how much you’ll spend on healthcare needs in your senior years. It’s a mistake that many prospective retirees make, but you don’t have to.
These are just a few tips you should know as you plan for your retirement. Find out more by contacting Family Investment Center today. We have investment advisors on our team who devote their hours to helping you succeed, so that you can enjoy freedom and simplicity. We can help you avoid common retirement planning mistakes, and more importantly, help you carve out the picture of what the “good life” means to you and your family and the steps it takes to get there.
A recent survey by Charles Schwab indicates that some of America’s wealthy are underestimating their expenses as they plan for retirement. According to the study, 80 percent of workers who earn $115,000 annually think they’ll only need $66,000 a year in retirement and that their current investment plans are on track for retirement.
Survey respondents believe they are going to cut back on lavish spending and live a simpler life. However, for Americans currently making $115,000 a year, a retirement goal of $66,000 per year is actually a 43 percent reduction in annual income. This figure may leave out unexpected costs that can occur in later years, such as health care. What are other elements that individuals in upper levels of income (and those who aren’t) tend to underestimate?
Many adults assume they’ll retire at 65 but are underestimating how long they’ll live after that. Arriving at the “right” number when planning for retirement can be difficult. For many Americans, the number is 65 years of age – but if they haven’t invested enough for retirement, this may not be possible. Today, many adults in the U.S. will live ten to 15 years longer than they anticipate, especially women. Taking the time to sit down now with a professional investment advisor can mean that you have a better plan that lines up with your life expectancy and projected – and realistic – income needs.
Many workers assume what they’re contributing to their IRA or 401(k) is enough, or that they can’t start now. About half of Americans are invested in a retirement plan like an IRA or 401(k), according to a study by EBRI. Maxing out the contribution limit on these retirement plans is ideal, but many Americans fail to realize that adding to these accounts at any percentage is important for retirement planning. Did you know there are also tools that allow for a “catch up” contribution if you’re over a certain age? While nothing is guaranteed and there are always risks associated with having investments, there is great potential for reward, especially if you start early.
Many investors assume they can’t (or shouldn’t) be a little unconventional from time to time. Scores of time-worn advice circulate toward investing, and for many Americans, it can be challenging to “go against the grain.” One example is paying off a mortgage early or making double payments. By investing what you would have spent making that extra house payment, you may have the potential to achieve higher returns later – and you may be better prepared as new doors open that you didn’t anticipate.
At Family Investment Center our team is dedicated to serving clients’ best interests first, and we’ve always operated in a commission-free setting. We are able to sit down and work with each individual in a professional, experience-driven atmosphere without cumbersome jargon. Contact our team today to learn more about what makes us unique.
Easy Tips to Remember for 401(k) Investing
While pension plans have fallen by the wayside, 401(k) investing through employer-sponsored programs has grown in popularity as a part of planning for retirement. Many investment advisors would say that one important move you can make in retirement planning is to start investing in your 401(k) as early as possible. Why? The reason is compound interest and portfolio growth. The more time you let the growth build up and work for itself, the more money you are capable of accruing by the time you retire. Here are some easy tips to review and share:
Max out the employer match. If you’re enrolled in an employer-sponsored program where the employer matches a percentage of your investment, make sure you’re taking maximum advantage of that match. Investing less than what your employer will match is basically leaving money on the table.
Earned a little extra? Invest it. If you receive a bonus or windfall, consider adding it as part of your long-term investment strategy. Also consider raises an opportunity to increase your monthly investments to your 401(k). Having the money infused directly from payroll to the 401(k) account is a smart move as you don’t have to physically do anything to transfer from your checking account to an investment account. This ensures that the money is moved into your 401(k) consistently each month.
Consistency, consistency. With 401(k) investing, it is important to think long-term and to diversify. When recessions hit, there is a good chance you may see it negatively impact your balance. However, when investing for the long haul, history has shown that the ebb and flow of the economy usually allows you to recoup those losses. The best results are most often seen in accounts that are both consistent and diversified.
Don’t allow yourself easy access to the 401(k) funds. It is important that you don’t treat your 401(k) like a loan or checking account. Yes, you worked for that money and it is yours, but keep in mind your retirement goals and long-term outlook. Remember, with few exceptions, any funds you take out before age 59.5 will not only be taxed as income, but will also incur an early withdrawal tax penalty.
Finally, don’t be afraid to ask for assistance with your 401(k) investing. Getting to the point where you’re truly enjoying your retirement years, due in part to your 401(k) account, is not something that everyone is equipped to plan out on their own. It may take the professional advice of an experienced advisor who knows how your investments will be taxed and how they can be leveraged as an effective tool.
Family Investment Center has offered individuals and families unbiased, commission-free advice since opening 17 years ago. In fact, we were one of the first regional firms to operate on a fee-only, commission-free environment – long before the concept became popular. Call or email our team today and find out why national publications like Forbes and the Wall Street Journal include our thoughts in articles.
What Successful Investment Advisors Know About Financial Planning
What do successful investment advisors know about investment strategies that can help you with your financial goals? Here are just a few easy tips to apply today for more confidence in your future tomorrow:
The top investment advisors you might rank among have strategies for helping grow your money, but it’s up to you to provide those funds. In other words, to truly see more bang for your buck, save more bucks. This involves budgeting more carefully and putting a higher percentage of your income toward investments. Too many Americans spend too much on things they want now, instead of putting that money to work in an investment account. Chances are, you’re able to invest more than you might think each month.
Avoid commissioned products (these advisors may not have your best interests in mind). By now, you’ve likely heard about recent White House reports warning Americans against commission-based investment advice –including the percentage of revenue that could be lost over time when working with these advisors. If you’re being directed to buy a certain investment by your advisor who receives commissions for selling it to you, it may be time to switch to a fee-only advisor. Fee-only advisors don’t take a commission and won’t be swayed by the possibility of higher profits to offer you a product that may not bring you the success you want. Nationally, fee-only advisors are connected by a willingness to serve clients’ needs first through the National Association of Personal Financial Advisors (www.NAPFA.org).
Don’t overanalyze declines in the stock market. True, the last recession set back the plans of investors who planned to retire at that time, but historically, success comes to investors who place their focus on consistency over time. While there is no guarantee, statistics show that investing in the market in the long-term can bring stronger returns than market-timing.
No one can predict the market. If you’re making decisions based on what you think will happen to a stock in the next few months, you’re “playing” the market. This may not be a rewarding situation to be in, especially if you’re making large investments. Top investment advisors don’t “play” the market. They diversify portfolios over a variety of securities over time that have varying levels of risk.
Address your personal debt first. Pay down your high-interest credit card, for example, before investing heavily for your retirement. One situation that goes against this advice is with your 401(k) – you should consider contributing the maximum amount that your employer will match. Otherwise, put your focus on paying down high-interest debt so that you can invest more for your future. However, while it may be , depending on your mortgage rate, making double payments on your mortgage or trying to pay it off early may not be as wise if those dollars could do more for you in an investment account.
Family Investment Center offers a professional team of investment advisors who know how to communicate clearly, all in a commission-free setting. Contact us today to get started.
Easy Planning Decisions That Can Lead to a Better Future
Investing, in essence, is about planning for the future. While making financial planning or investment decisions, laying the groundwork can start with some basic questions and basic adjustments that you can implement today.
How should I approach the process? Investment planning involves thinking about what you want out of life, what’s most important to you, and what you’re willing to do to get there. Many first-time investors have a tough time figuring out where their money should go: how much should be in checking and savings and how much should go to a retirement account like an IRA or a 401(k). The equation is going to be different for everyone, but a starting point may be to allot around 35 percent of your income on housing and utilities, 10-15 percent on savings, and then plan out the rest of your budget from there.
Where should I place my priorities? When it comes to paying for a roof over your head, it’s a given that you will have that expense. You should have the same thinking when it comes to paying yourself for the years you want to enjoy down the road. This may mean altering your spending. For instance, if you’re buying a $4 Starbucks coffee every morning before work, that equates to $20 a week and $80 a month. If that money were invested, by the time you’re retired, that coffee could have been traded to help purchase a vacation condo.
How do I budget properly? Investment planning is part of the classic principle of living on a budget so you know where the dollars are going (rather than wondering why they’re gone). Once you know where your money is going, you can take the necessary steps to patch the holes and start putting more in investments from which you will reap rewards later.
What options do I have in retirement investments? A few popular retirement options include employer-sponsored 401(k) accounts, many of which have the perk of an employer match. With 401(k)s, you contribute through your working years and you often have the option to borrow against your 401(k), although that’s not advised. There is also the traditional or Roth IRA to consider. As of 2015, you can put up to $5,500 per year ($6,500 if you’re 50 or older) in these accounts and, depending on your income, there is a chance you will be eligible to use traditional IRA contributions as a tax deduction. There is a wide range of other investment choices to choose from depending on your goals for retirement. It can be difficult to know which type of account is best, so working with a professional investment advisor can help these choices seem much less complex.
Family Investment Center is ready to walk you through every step of the investment planning process, whether you’re just getting started on your investment journey or if you’ve got millions in investments and need guidance on next steps. As a fee-only investment advisory firm, our team can focus on what matters most to you – rather than trying to earn commissions. Contact us to today and let’s get started.
It is natural to have some worries about your finances as you near retirement. Even people who have planned for decades can feel some anxiety as they question whether or not they’ve done enough to prepare themselves financially for retirement.
Retirement planning, when approached correctly, can ease these fears and assure you that you’re on the right track. One way to approach this is to think about the worst-case scenario and make provisions for it. For instance, high taxes are something that can present a worst-case scenario. You should have a fairly good grasp on your tax situation where your investments are concerned, but give it a second thought and talk it over with your investment advisor or accountant to make sure you’re not missing out on any important information that could lead to higher tax rates.
What about health issues? You might be healthy at the moment, but as we age, we see the doctor more often as health problems become more regular, and this presents added costs that we often don’t account for.
Another way to ease into the retirement state of mind is to start thinking about your savings as monthly income. Perhaps you’ve only been looking at the totals in your 401(k) and other investment accounts, but try to imagine these accounts as your new source of income and establish your monthly retirement budget based on how you’ll pull down funds from those accounts. This will help you visualize what you’ll actually be limited to on that first month when your paycheck stops coming in and you begin relying on the funds you’ve amassed for retirement.
Are you invested in bonds? Look at your bond investments because they have some level of risk associated with them. Many retirees have a strategy in their retirement planning that relies on bonds. There are things to consider before you try to sell your bonds, including interest rates and the amount of time you held the bond. These are factors that could lead to a loss, if they don’t play in your favor.
Give your health insurance coverage another look as you plan for retirement. Voya Financial conducted a study last year that revealed how challenging healthcare costs are to retirees. In fact, the study showed that these costs were the most unexpected challenge for the newly retired. Deductibles for prescriptions, lab work, and multiple visits to doctors and specialists all add up and can represent a large out-of-pocket expense that catches up to people, even those who thought their insurance was excellent.
Professional advisors know the roadblocks retirees face and they can help you navigate obstacles long before they present themselves. Family Investment Center is proud to offer a wide range of knowledge that our professional team has gained over the years. Contact us today to start finding out how to plan for retirement … so you can worry less and look forward to your retirement years even more.
While the average 401(k) balance, $91,300, may not be enough to get a person through a lengthy retirement, thousands of people are becoming millionaires thanks to their diligent work in socking money away into their 401(k) accounts.
According to Fidelity Investments, which is one of the largest providers of 401(k plans, 72,000 clients had built their accounts up to the $1 million mark by the end of last year. What is promising about this figure is that it is twice the number Fidelity saw in 2012. Of the 401(k) millionaires sampled, nearly 10 percent had more than $2 million saved.
You may have noticed a substantial dip in your 401(k) balance when the economy went south in 2008 and 2009, but thanks to the recovery, many stocks have recovered and investors are seeing growth – which is helping to push more of them over that $1 million mark. Fidelity says that those who are millionaires had an average of 72 percent of their holdings in equity mutual funds or equities and only 12 percent in company stock. This is in line with what financial advisors talk about when diversification is the topic. Having too much of the 401(k) portfolio in company stock is most often considered a risky investment.
If you think a booming stock market is the only key to the success of an investment fund, think again. Here is what the research from Fidelity revealed about the investment habits of smart retirement planners:
· Meeting the Employer Match
Don’t miss out on that “free” money by not putting in the maximum that your employer will match in your 401(k). For the 401(k) millionaires, meeting that match contributed to an average of $35,700 per account in 2014.
· Contributing 10 to 15 Percent of Salary
If you can ramp up your savings to 10 or 15 percent, you’ll have a better chance at a strong retirement fund. For example, the average savings rate in 2014 was $9,670; for the millionaires, it was $21,400. Not everyone is going to have that kind of salary, but the lesson is simple – if you’re putting more away, you’ll have more for retirement.
· Using the Catch-Up
A “catch-up” contribution allows people aged 50 and older to make a higher contribution to their plan.
The best savers are those who don’t sway from their goals and don’t borrow against their retirement.
Let an investment advisor assist you in making sure your 401(k) is properly diversified and that you aren’t taking on more risk than you should. For more information, contact Family Investment Center today.
You’ve been looking forward to this portion of your life throughout the entire length of your career, and you don’t want anything to get in the way of a successful transition from work life to retirement. However, many individuals have experienced the pitfalls that led them to fall short of their retirement goals. What can you do to stave off similar events?
Think about it. The amount of money it takes to meet the desired standard of living will differ from one person to the next. The one constant for everyone is the need for smart financial planning for retirement. Surprisingly, this is one of the top issues that affect a person’s retirement – many people don’t put any thought into what it will take for them to retire comfortably. To avoid this pitfall, you first need to make a budget. Figure out how much you’re spending now and what you might need to live a similar lifestyle in retirement. Then get the advice of a professional advisor who will have the knowledge, tools, and resources to help account for things like lifespan and cost of living increases.
Know the rules, or at least some of them. There are many rules attached to your retirement accounts. Do you know them? This is another mistake people make. For example, you are required to start withdrawing from your traditional IRAsand 401(k)at age 70 ½ (“required minimum distribution”, or RMD). Should you fail to begin the required withdrawals, you run the risk of being penalized 50 percent on the amount you were required to withdraw. If you’re partnered with an investment advisor, you’ll be warned well in advance of these rules.
Watch your rollovers. When it comes to rolling or transferring money from one account to another, you could run the risk of creating unnecessary taxes for yourself if not done properly. For instance, if you withdraw from your 401(k) to roll it into your IRA, you may want the help of an advisor to ensure that it’s done properly. Filling out forms incorrectly could lead to penalties and/or unnecessary taxes.
Remember that healthcare can account for a serious chunk of your retirement funds. It can be difficult to project how much money you’ll need for your healthcare expenses throughout your retirement. You might be perfectly healthy now, but as you age, you may become more reliant on prescription medication and regular visits to specialists to manage your health. Don’t let your guard down when it comes to healthcare projections, because it could make your retirement savings fall short.
Take a careful look at how much of your retirement account is in company stock. If you’re a company executive, it’s possible that around half of your portfolio is tied to a single asset. That can be risky. Financial planning for retirement should include making sure your portfolio is well-diversified.
There are many things to consider when planning for retirement, which is why now is a good time to call Family Investment Center and start the conversation. We have experienced investment advisors ready to assist you in planning for your retirement – and all within a commission-free, fee-only setting.
Fidelity Investments surveyed more than 5,000 physicians about their portfolios and looked at where they allocate their assets in 401(k) plans. The report revealed that physicians often show too much confidence in their investments, affecting how they allocate their funds.
There are other factors at play that could negatively affect physicians’ investments. First, after more than a decade in school, many enter the workforce at a more advanced age, which means their portfolios can be quite small when people choosing professions requiring less school have seen a decade or more of growth in their investments.
After all of those hours studying, some doctors will come into their profession ready for a few nice things…such as a nice car, nice home, and memberships that come with a heavy price tag. Financial planning for physicians should include steps to plan for a variety of situations.
Professional advisors may recommend that physicians max out their 401(k)s, but the Fidelity research shows that many don’t. (Instead, they may opt for nicer purchases). Utilizing the $18,000 maximum contribution (in 2015) for 401(k) could make a tremendous difference in retirement and could help make up for all of those years finishing a professional medical education.
The Fidelity study also looked at stock investments physicians made compared to the target-date funds that were recommended for people in their age group. Some investment advisors may recommend the target-date funds because they start off investing aggressively and then move to less aggressive investments later in life, but physicians make more money than many other professionals, which means their involvement might not be as heavy in target-date funds. Fidelity found that nearly 40 percent of physicians have around 77 percent of their investments in equities while they’re in their 30s.
Financial planning for physicians may require more direction from trusted sources that know the risks, the flexibility, and the course that investments should take over a lifetime. For many doctors, this plan includes investing more aggressively at an older age and working part-time in retirement. However, they can’t be too risky, which is another fact Fidelity discovered in its study – many doctors aged 60 to 64 have nearly 65 percent of their portfolio in equities, which could be too aggressive.
Regardless of your profession, knowing exactly what to do with your money is a difficult task, which is why financial planning for physicians should include bringing a professional investment advisor into the mix. Family Investment Center is experienced in this area. In fact, Dan Danford, Chief Executive Officer, was twice named to the Medical Economics magazine list of "150 Top Financial Advisors.” Medical Economics accepts nominations from doctors, medical organizations, and other professionals, then spends six months screening the candidates on a variety of criteria including education, expertise, experience, compensation, recommendations, and service to the medical community.
Third-party rankings do not guarantee future investment success or that you will experience a higher level of performance. Rankings are based on information supplied by the advisor and should not be construed as an endorsement by any client. Not all advisors apply.
Feeling restless at work? You’re not alone. According to the U.S. Bureau of Labor Statistics, workers are switching jobs every 4.4 years on average. USA Today recently highlighted the situation, stating that for people who take advantage of their company’s 401(k), there may be as many as six different options when a job switch approaches. The situation of 401(k) confusion looks to continue, as the next generation of workers – the Millennials – are predicted to spend three years or less at a job.
You likely already know you have options when it comes to the money you have in your 401(k). Some employers will let you leave it there without making future contributions. Rather than having multiple accounts, you can take that money and transfer it to your plan at your new place of employment. Few investment advisors would suggest that you cash out your 401(k) due to tax implications, but that is also an option (that may also come with penalties). Finally, you can convert to an in-plan Roth or make a total Roth conversion.
If you make 401(k) contributions automatically through your paycheck, the decision on what you will do with your account when you quit or retire will be a very important decision. For instance, for the person who is under the age of 59.5 and decides to pull out of their 401(k), they will incur a 10 percent tax penalty. Worse yet, the loss on potential gains should that money have been left in the market could be thousands of dollars.
One of the big advantages of leaving your money in the company plan is that the Employee Retirement Income Security Act of 1974 protects it. When you move that money to an IRA, it’s only protected at the state level with creditor protection. This can differ per state, so ask your financial advisor what’s going on in your state.
There are also advantages of rolling your money over to an IRA. For instance, you generally have more choices for investments in an IRA, and there may be more protections for them than what you’ll find in a 401(k) during bad economic times, such as the recession in 2008. Also, an IRA allows for simplification through consolidation. If you have multiple plans from past employers, you may roll them all over to one IRA account instead of having accounts with multiple custodians.
When it comes to estate planning, IRAs are easier to manage because you can actually create different accounts, including “stretch” IRAs. You have more flexibility with an IRA in that you can take distributions whenever you want. You can gain some added benefits with Roth IRA than you can with the Roth 401(k), which is another topic you should discuss with your financial advisor.
The best-laid plans are often made constructed with the guidance of a professional advisor. Family Investment Center has advisors with years of experience in advising clients about 401(k)s and IRAs. To end the confusion or speculation about what you need to do when you leave a job, contact the professionals at the Family Investment Center today.
You’ve worked for decades and have established a nice retirement lump of cash in your 401(k). You’re getting close to retirement and you think it might be time to make some changes – but don’t get too jumpy. There are some things to keep in mind before you risk tripping into an investment blooper.
Don’t Make Sweeping Shifts
It’s a common misconception that as you get closer to retirement you need to get out of stocks and bonds. The reality is that if you retire at 65, you’ll likely have at least another 10 years (average life expectancy for males is age 75 and age 81 for women) where you’ll be withdrawing that money for expenses, which means a portion can still be building on itself in stocks and bonds. You aren’t using up your entire retirement savings in one year, so let it keep working for you.
Be Aware of Risk and Risk Aversion
Do you know exactly what the risks are with each one of your investments? People who run into trouble are often the ones that have not clarified the risk associated with their investments. Investment advisors will tell you that while risk aversion can keep you from some significant gains, jumping into investments without proper guidance can put you in a worse situation come retirement day.
Balancing Social Security and 401(k)
Maybe you’ve considered stopping your pre-tax contribution to your 401(k) so that you’ll see higher benefits in Social Security? This is a popular one for investment “experts” to tout, but you want to think carefully about this. While the 401(k) contribution does lower your income tax, it doesn’t affect your Social Security tax and FICA payments. By this logic, you’d be smarter to put more in your 401(k) as you get closer to retirement.
Talk to Investment Managers
It’s commendable that you’re researching your options as you plan for retirement. Financial literacy is in short order today. However, there are so many loopholes, pitfalls, and complex situations involved with investments that many successful investors work with investment advisors (they work with other peoples’ money on a regular basis and have an understanding of the changing investment market). They have the knowledge required to keep your nest egg in the right place working for you, and they have more time to devote to it.
The investment advisors at Family Investment Center are ready to help you look at the changes you need to make as you near your retirement. If you’ve tried the do-it-yourself approach and/or have consulted with commission-based brokers or financial planners and didn’t come away with a winning situation, perhaps it’s time to consider our services. Whether you’re already retired or still working, we offer the solutions that can give you confidence for what tomorrow holds.
According to a recent Reuters article, corporations are “de-risking” their pension plans and looking for ways to get rid of them. They’re doing a great job of doing that, as only 35 percent of Fortune 1000 companies currently have a traditional pension plan in place. The 401(k) has emerged as one of the best investments for the future, especially since pensions are becoming a thing of the past. How can you make sure your 401(k) is doing all it can do?
Anyone not involved in the company 401(k) is likely wasting a chance at an excellent financial planning for retirement tool. Most employers will match what you put in up to a certain percentage, which means you’re essentially getting free money. Let’s take a look at some of the ways you can make the most of your plan.
1. Don't Skimp on Your Contribution
If possible, make sure you’re contributing enough to meet what your employer is matching – and to maximize it if possible. You want to take advantage of every penny worth of free money offered by the company. Even if it’s just a small amount, it adds up over time. Another rule that proves successful for many who are focused on financial planning for retirement is to increase their contribution by one percent with each passing year. This gradual progression makes it easier for you to budget without hurting too much.
2. Keep Tabs on Your Company’s Vesting Calendar
If you’re a Millennial and share the characteristic of changing jobs frequently, you could lose out on your company’s match to your 401(k). Some companies require you to work with them for years before that money they contributed is actually yours.It might be worth it to stick it out for another year at the job to make that money yours so you can carry it into your next job.
3. Make Smart Use of Your Bonus
Some jobs come with really nice bonuses that can easily be enough to live off for a month. Financial experts advise that when you get your bonus, you should max out your withholding in your 401(k) and live off the bonus instead of your full salary.
4. Upon Retirement, Don’t Withdraw Big Amounts
If you’re retiring at a relatively young age, it’s important to try not to take out more than four or five percent a year, especially if your 401(k) is your only investment. If you have other areas of income, you might be able to take out more of your 401(k). If you’re older, say 70 and older, when thinking about your retirement keep in mind that many in your generation are living up to 15 or 20 years longer than they anticipated (naturally, that leaves a longer window to access retirement savings).
5. Consult With an Investment Advisor
If you truly want to unlock the full potential of the dollars you’ve amassed in your 401(k), it’s important to get some professional advice. Talk to an investment advisor like our team at Family Investment Center. We are a fee-only group of experienced investment advisors who will give you objective advice focused on what retirement looks like to you. Call us today for an appointment.
By Olivia Sandham
A special thanks to my Mom for sending me this Pop Quiz made up of a few questions she heard on the Suze Orman show!
1. You are under 50 years old, your car just broke down, and you need $1,500 to fix it. The only money you have is in a 401k retirement account and an IRA, but you also have a $3,000 limit on a credit card at 18%. What should you do?
A) Take a loan of $1,500 from your 401k and pay yourself back over the next few years, with interest.
B) Charge the $1,500 at 18% on your credit card.
C) Take $1,500 from the money you have invested in your traditional IRA.
2. You're applying for a mortgage. Your FICO score is 750. Your spouse is unemployed and has a score of 450. What should you do?
A) Apply in both your names since you need both of your incomes to qualify.
B) Apply in both of your names since both you're your FICO scores are needed to get the best rate on your loan.
C) Apply in just your name, since you have the highest FICO score.
3. You just got a new job with a 401k plan. Your company matches dollar for dollar up to 6 percent. You have no Emergency Fund and you owe $3,000 on a credit card at 24%. What should you do?
A) Pay off your credit card debt first because of the high interest rate.
B) Start saving money for an Emergency Fund so if something happens, you won't go further into debt.
C) Invest money into your 401k up to the point that matches your employer, and then pay off your credit card debt.
4. You need life insurance to protect your family. You have 3 kids ages 5, 8, and 10 and you take home about $50k a year. What should you do?
A) Buy a $1.2 million Whole Life Policy
B) Buy a $1.2 million 10-year level Term Policy
C) Buy a $1.2 million 20-year level Term Policy
5. You're 35 and you have money in a Roth IRA. You put in $10k and it has grown to $15k. How much could you take out without taxes or penalties?
1. Generally, the correct answer is: B) Charge $1,500 at 18% on your credit card. Credit cards can be useful in emergencies, and getting your car fixed is probably a priority. Taking a loan from your 401k could have financial drawbacks because the originally invested funds are pre-tax money, but you would pay the account back with after tax money, and then you could be taxed again for future withdrawals. Also, since you are not yet 59, withdrawing from your Traditional IRA could result in substantial tax penalties.
2. Generally, the correct answer is: C) Apply in just your name, since you have the highest FICO score. Your spouse isn't working, so his or her income probably doesn’t affect your qualification anyway. By choosing to include your spouse's low credit or FICO score, the loan company may assign higher interest rates because they view the lower combined score as more risky for lending money. Instead, consider applying alone because of your higher FICO score, to get the best rate.
3. Generally, the correct answer is: C) Put money into your 401k, up to the point that matches your employer, and use remaining funds pay off your credit card debt. You shouldn’t pass up free money if your employer is going to match your contributions, but you should always make sure you have enough left to continue paying your credit card bill each month.
4. Generally, the correct answer is: C) Buy 1.2 million 20-year level term policy. The recommendation is to obtain insurance to cover your youngest child until they are 25 years old. In this scenario your youngest is 5, so a 10-year policy wouldn’t be long enough, but a 20-year policy would be.
5. Generally, the correct answer is: B) $10k, the amount you invested. In a Roth IRA, you can usually take out the money you originally put in, regardless of age or how long it has been invested. However, you cannot take out the "growth" funds until you are 59 years old, and they money has been in the account for at least 5 years.