Many financial advisors and wealth managers encourage their clients to have goals when it comes to retirement. Of course, that can mean different strokes to different folks. For example, one person may have a goal of saving a certain amount of money for retirement. Another person may want to save up to buy a retirement home in a warm weather locale. Another may want to have enough saved up to take a big trip every year. Whatever it is, it’s good to set a goal to work towards. However, the road to retirement can be long and along the way things can change. Layoffs happen. Unexpected bills occur. Having children and a family can add some costs along the path to your post-working life. Thus, those retirement goals and benchmarks you set out with can change. And you know what? There’s nothing wrong with that. In fact, it’s a good thing to reassess your retirement goals every so often. Maybe living far away from children and grandchildren doesn’t sound so appetizing. Or maybe you realize that you’re saving more than you anticipated and have a little more freedom with retirement to get a little more fancy with your goals. Or maybe you realize you need to save more. Whatever you find, don’t be afraid to change your retirement goals and use those new goals and benchmarks moving forward. If you need help with your current goals or want to make a change, don’t be afraid to speak with a certified financial planner or wealth manager to get some advice.
It’s well known within the retirement planning industry that about half of all Americans are having a tough time with their retirement finances. That’s a lot of people. Furthermore, uncertain economic times can push the number of those struggling north of 50%. Considering how many retirees are out there–and it’s impressive due to one of the largest demographics reaching retirement age (*cough* Baby Boomers *cough*) as we speak–that’s a lot of Americans struggling to either save for retirement or stretch out their finances in retirement. With all that said, I want to remind you that you are not alone if you are struggling to either save or make your nest egg last. Many people do and there’s nothing wrong with asking for help in doing so. If you can afford it, a good wealth manager or financial planner can be a huge help. Despite the tone some of my blogposts, I fully understand that saving for retirement is no easy task and it’s been particularly tough over the past 15 years or so. That doesn’t mean you should give up on it, though. In fact, I want to encourage you to save as much as you can and to take steps to maximize your saving, regardless of where you are in your life. Something is better than nothing. So, are you struggling with saving for retirement? You’re not alone, but what are you going to do about it?
Retirement can seem like a long ways off as you make your way through your career–and, of course, life–during your 20s, 30s, and 40s. However, when you get into your 50s, suddenly it might not seem so far off in the distance. Your early 50s, in particular, are a really good time to get serious about retirement. What does it mean to “get serious” about retirement? It means sitting down and taking a long, hard look at where your finances stand and when exactly you want to retire. You will also want to reassess your retirement goals and get a good understanding of what life in retirement will be like. What will your retirement budget be? Do you plan on paying down your debt before retiring? Are you going to move for retirement? These are some important questions you will need to ask yourself as you near retirement age. The answers may surprise you and will give you a good sense of what is realistic regarding retirement. Now, I’m not saying you need to wait until your 50s to get serious about retirement (the earlier you start, the better), but I am encouraging you to not wait until your late 50s/early 60s to start thinking about your post-work life. Remember, retirement is serious business that requires a plan and hard work, both before and during. Taking the time to properly prepare for it so that you can enjoy it is very important. So, are you ready for retirement?
You’ve probably heard me say on this blog that the best way to save for retirement is to start early. The same goes for investing. One of the best ways to teach your kids about the stock market and get them thinking about their financial future is by allowing them to invest in the markets. Many of the major investment platforms offer custodial accounts, which allow parents to set up trading accounts for children under 18 and which require adult permission to complete transactions. Once you have the account, you can decide how to best teach your teenager the importance of risk and investing. If you have more than one teenager involved, maybe make a game out of it and see whose investments perform the best over a set amount of time. If your teenager is more goal oriented, maybe encourage them to use the account as a way to grow money for something like a car or product they want. Whatever you choose to do, be sure to guide them and set some limits. You may want to limit what investments they can put money into (no options, etc.). You will also want to encourage them to use properly vetted resources, such as popular investment books or well-sourced blogs. Heck, you yourself may want to use it as an opportunity to read back up on the latest investing trends and advice out there, if you haven’t already. Of course, you will also want to teach your children about risk as they will most likely experience some loss. It may be hard for them at first, but if you encourage them to be patient and learn from why the investment went down, then it will be a good thing in the long run. Just make sure they don’t lose too much, or for that matter, gain too much without learning about trends and why their investment performed the way it did. With the right guidance and some sound advice, your children can learn about the stock market and hopefully set themselves up for a solid financial future. What did you wish your parents taught you about investing growing up?
“Change is the only constant.” You’ve probably heard this expression before. I believe it is sometimes attributed to the Greek philosopher Heraclitus, but it gets used often as a business mantra or by people who are seemingly always in motion. It’s also a reminder that despite our best efforts at times, change happens. I’ll admit, change can be scary, but it can also be a wonderful thing. It can force us to reflect on where we are and where we want to go. It can also provide us with an opportunity to try new things and make decisions that we have been putting off. For example, changes in the markets can force you to re-evaluate your investments and portfolio (did you really think I wasn’t going to tie this back to investing or retirement planning some way? lol.). That can be a really good thing. Markets are prone to change as companies come and go and stocks trend up and down. As such, you will need to buy and sell investments from time to time, especially if you are investing for the long-term. Same goes for your retirement planning. Over time, your benchmarks and goals will change and you will need to act accordingly. Yes, it can be a bit scary to think about having to pivot your retirement saving plan, but it can also be exciting. It can be refreshing to have a new interest or goal that fits with what you want more than what you currently have. It really all depends on how you look at it. Change can be a wonderful thing, are you ready for it when it eventually comes?
If you’re serious about saving for retirement, then you’ve probably done a lot of research and reading about the strategies you can use to do it, the tools the use, and things to look out for. Over time, that knowledge can really build up and it can be tough not to want to share it with family and friends. Guess what? There’s nothing wrong with that. After all, knowledge is power. That means the more you–and in this case, others–know the better you can be when it comes to making financial and retirement decisions. Now, before I go any further, I want to caution to you to be careful when it comes to giving advice regarding taxes or particular investments. Furthermore, if you find that you’re gathering a large following or are taking payment in return for financial advice, you should be very careful and maybe should consider becoming a financial advisor or wealth manager so as to protect yourself and get the credentials needed. In regards to taxes or tax-based strategies, you can potentially open yourself up to some legal liability, particularly if you are not properly credentialed to do so and if things go south (in other words…don’t mess with people’s taxes or tell them what to do with their taxes if you’re not a CPA). Anyways, in regards to sharing your knowledge, maybe you’ve learned some really great tips from an financial advisor or maybe you really like crunching numbers and want to help others who aren’t so skilled. Don’t be afraid to share your knowledge and skills to help others obtain a better grasp of their finances and retirement savings. Even if it’s just a matter of helping a friend set up a spreadsheet to track their expenses or helping a family member research an investment opportunity, you can share what you know and help others. Of course, if you aren’t comfortable with helping others with financial planning or preparing for retirement, you could also always just pass on the name of a reputable wealth manager or financial advisor.
As you are probably well aware, you don’t need to report your Roth IRA contributions as part of your taxes. While your IRA custodian will report the contributions on a Form 5498–and will most likely share that form with you–there is nothing you need to do or fill out regarding that on your tax return. While you don’t need to worry about Roth IRA contributions on your tax return, it is good to know and track how much you contribute each year. Why? Well, as you may or may not be aware, you can always take your contribution monies out of your Roth IRA tax and penalty free. Any other funds in the Roth IRA, such as converted funds or earnings from investments, are subject to penalties if taken too early. Now, I am not encouraging you to start taking money out of your Roth IRA early, but it is good to know and understand how all the money in such a retirement account is viewed. Not all money is looked at the same in your retirement account. Of course, the ideal and most realistic situation is that you don’t even touch your Roth IRA contributions until you are of the proper age and retired, at which point all the money in your Roth IRA is qualified for distribution. Just a reminder as I wrap up, you still have time to make a Roth IRA contribution for the 2020 tax year. You are good so long as you make the contribution before the tax deadline, which is April 15, 2021. That deadline is fast approaching, so if you are on the fence about making a Roth IRA contribution for 2020 or forgot to, do so as soon as possible. If you have questions about Roth IRA contributions or distributions you should speak with a certified financial planner or your account’s custodian.
What do you think of when you think of investing? Is it a bunch of traders high above Wall Street yelling, “buy, buy, buy” or “sell, sell, sell”? Or maybe it’s some day trader at home in front of a wall of computer screens finding a way to outsmart the markets with Jim Cramer yelling in the background on a tv. Sure, those scenes might exist, but for retail investors–which is most likely the category readers of this blog fall under–those scenes are nowhere near reality. Instead, investing is really people deciding, sometimes on a whim or sometimes after lots of research/data analysis, to invest in the hopes that their money grows into something more. Some are doing so for the long-term, while others may have more short-term plans. There are really many ways to go about investing, but sometimes the best way is the easiest way. What is “easy” really may depend on the person. For some, it might be a matter of getting into a pattern in which they invest a little here and a little there over time. Others may want to set a strategy and only invest in certain types of stocks/investments (i.e. mutual funds, blue chip stocks, etc.). Yet others may prefer to follow market trends. Whatever you decide is the best, or “easiest” strategy for you, just try to keep it simple and stick with it. Remember too that no matter what your strategy, not every investment will be a winner. However, if you understand your tolerance for risk and set boundaries regarding when you will unload a non-performing investment you can protect your portfolio and remain set for the future. Of course, I advise you to speak with a certified financial planner, investment professional, or wealth manager when setting an investment strategy as they have the best resources for doing so. So, what is an easy investment strategy for you?
How much thought have you put into taking requirement minimum distributions (RMDs)? Do you understand how they are calculated? If you are nearing that magic age of 72, then you may want to increase your knowledge regarding RMDs, if you haven’t done so already. It’s helpful to know the time period for which the value of your account is calculated as well as the options you have for taking RMDs. For example, do you know the date which they use for the measuring the value of your account? If you said December 31 of the year before you take the RMD, then you are correct. Here’s another: Do you know the date by which you must take your RMD each year? If you were not sure, when you may want to read up on that (for the record, it’s December 31). Remember, if you don’t take your RMDs by the date that they are due, you could be opening yourself up to a world of hurt in the form of IRS penalties. These are helpful tidbits of information to know as they can factor into what you plan on doing with the RMD as well how you want to plan out your RMDs. If you have questions about or need help with planning what to do with them, you should speak with a certified financial planner or wealth manager.
Since you turn 72 in December of this year, 2021 is your very first year for having to take a required minimum distribution (RMD). Your RMD will based on the value of your account as of December 31, 2020. Also, since 2021 is your first RMD, you can delay taking that first RMD until April 1, 2022. However, if you delay, you will be required to take two RMDs in 2022 – the 2021 RMD based on the December 31, 2020 balance, and the 2022 RMD based on the December 31, 2021 balance.
If you have followed the news over the second half of last week, the hoopla surrounding the GameStop (GME) has seemed to dominate the news. It was an exciting story that seemed to take on a David vs. Goliath feel as retail investors managed to do some damage to at least one Wall Street hedge fund. There was also the Robinhood angle to the story where it was hypothesized (rightly or wrongly?) that the trading platform blocked GameStop buys after a while and was in cahoots with hedge funds over the move. And then there were a few Wall Street experts who added their professional takes–and warnings–to it all. The GameStop phenomenon took off pretty quickly with the help of social media, particularly a sub-Reddit known as WallStreetBets. Given the speed at which people rushed to buy GameStop stock, I would not be shocked if little thought or research was done by many except to see the prices going up and hearing how others are taking advantage of it. This can be quite dangerous, especially if you don’t really know how markets work and don’t have the ability to track them closely. Keep in mind too, that SOMEONE on Wall Street will make a lot of money off this–it won’t just be retail investors. So, what is the purpose of this post? Well, first off, I want to remind you–and I’ve stated this before–be careful when getting caught up in investing trends, especially those that may have an emotional aspect. It can be nice feeling like you are sticking it to the fat cats on Wall Street, but that doesn’t mean it’s really the best move for you and your portfolio. This may be tough to do, but take a deep breath before making an investment that may have an emotional aspect and reconsider whether it’s in your best interest. Now that the emotion part is addressed, if you do chase the trends, you should think about what your “walk away” point is. Is there a certain stock value you will sell at? Will you ride it out? These are important questions anytime you find yourself investing in stocks that are on a rapid rise. Of course, taking some time to do some research on the stock can also be very helpful. If you have questions about your portfolio or investments, don’t be afraid to reach out to an investment professional or wealth manager. So, did you ride the GameStop wave?
There seems to be two trains of thought when it comes to saving for retirement. There are those that think that you should focus on paying down all your debts first and foremost before focusing on saving (I tend to fall into this thought process myself). And then there are those that believe that you should not focus just on your debt, but find a happy medium between paying your debts and saving and that not all debt is bad (the “pay yourself first” crowd). While there are merits to both sides, what works best for you really comes down to personal preference as well as where you are financially. To determine what works best for you, you need to first have a good sense of the type of debts you have, if any. Are they high interest? Do you have large remaining balances? Do they require high monthly payments? If you find yourself answering “yes” to these questions, you may want to focus on paying down your debts first. If your answers are “no” then you might be in a position to pay yourself first. While I believe all debt should be paid down, there are many out there that believe in “good” vs “bad” debt. The good debt is low interest and isn’t going to hurt your wallet each month or your credit score if you make timely payments (many federal student loans fall in that category). However, things such as credit card debt or high interest loans can do some serious damage to your credit score and can carry high interest rates that make it hard to climb out of debt. Now that you’ve reviewed your debt, regardless of what camp you fall into, you will want to come up with a debt repayment plan. Even if you only have “good” debt, you will still want to pay it off as that will be beneficial in the long run. Come up with a plan that works with your goals, yet keeps you on a track. Of course, don’t be afraid to adjust your payments and long term plans as needed. If you need help with planning for your future–including how to get your debts under control and how to make your money work for you–don’t be afraid to speak with a certified financial planner or wealth manager.
The year 2020 was special, to say the least. I think most of us can agree that we all hope it was an anomaly and that 2021 will be much smoother. However, I’m not here to talk about history, I’m here to talk about retirement. There were some unique situations regarding retirement that occurred in 2020. The Covid-19 pandemic and it’s economic fallout forced IRA rules to be bent/disregarded for those heavily impacted. Required minimum distributions (RMDs) were waived and people were allowed to take loans from their retirement accounts to get by without getting hit with a penalty. While the overall affects of those steps are not quite known, it is no doubt that they helped many Americans weather difficult financial situations. Unfortunately 2020 is over and–at least for the time being–so too are the unique exceptions that came with it. Yes, the RMD waiver does not extend into 2021 and neither does the Covid-19 related penalty-free distribution. So that means that you will have to take an RMD in 2021 and you cannot take an early distribution from your IRA without getting hit with a penalty. A few other things to keep in mind for 2021. If you are going to take advantage of a once-per-year rollover that is not once per calendar year, but rather once per 365 days starting on the day you made the rollover. Also, if you took a Covid-19 related distribution in 2020, make sure to report that on your taxes in 2021 (which will be reported as a distribution on a 2020 Form 1099-R and a rollover on a 2021 Form 5498, both by the custodian and you will need to include them in your taxes). If you have questions about your IRA or retirement accounts and how they might have been affected by 2020, you will want to speak with a certified financial planner or wealth manager. And of course, for tax questions, you will want to talk with a tax professional.
There was a lot of fuss around the most recent COVID-19 stimulus bill, which President Trump signed into law shortly after Christmas. While most of what is in the bill is clear at this point–it has been about three weeks since it was signed–one area that seemed to produce at least a little confusion was whether the bill extends tax breaks from Coronavirus-related distributions (CRDs) from retirement accounts. I have written about CRDs in past blogposts over the past year. As you may recall, CRDs allowed you to take a aggregate distribution of up to $100,000 from your retirement accounts in you were directly impacted by COVID-19 (i.e. you were diagnosed and had to quarantine or you were laid off due to Coronavirus restrictions) and that the distribution was not subject to the 10% early withdrawal penalty and you have three years to pay back the distribution. CRDs were designed to help those in financial distress as a result of the Coronavirus pandemic and was most likely a lifeline for many struggling Americans in 2020. Back to the latest Stimulus package. It was reported by at least one news source that the new stimulus package extended CRDs into 2021. I want to be clear here that such information is incorrect and that the new legislation did not carry CRDs into 2021. This is important because if you planned on taking a CRD in 2021, you can’t and also as a reminder to do some research and read up on any Coronavirus-related relief legislation to see how it might impact you. Now, I don’t know what the future holds and depending on how this pandemic continues to play out, the next administration might put CRDs back on the table, but I have heard no definite inklings about that, I’m just saying anything is a possibility at this point. If you took a CRD in 2020 and want to figure out how to pay it back or find yourself in further Coronavirus-related financial hardships in 2021, you will want to speak with a certified financial planner or wealth manager to figure out what the best moves might be best for you.
Now that we are over a week into 2021, now is as good a time as ever to make sure your retirement plan paperwork is current and reflects your personal choices. Mostly, I would worry about your beneficiary designations. Has anything changed with your beneficiaries over the past 12 months? Have you had any major life changes that may require updates to your beneficiary listings? If so, don’t delay in making updates. The sooner you do so, the better. Plus, it’ll be one less thing you need to worry about. Also, this is a good time of year to check on your investments and make any tweaks you feel are necessary. Of course you can also just leave things as is if you find that changes are not needed. If you have a financial advisor or wealth manager, the beginning of the year is also a really good time to check in with them and talk about both your long-term and short-term goals. You might want to set a few goals for the year and make sure you are on the right path with the goals you have that may take years to reach. If you find that nothing needs to change, then you at least have the comfort of knowing you checked.
Welcome back, everyone! I hope you all had a wonderful, safe, and relaxing holiday season. Now that we are a few days into 2021, it’s a good time to start putting your financial plans for 2021 into action. What are your goals for the next 361 days? It doesn’t have to be anything crazy. It could be something as big as purchasing a home or making a push to finish paying off a mortgage or car loan. Or maybe it’s something smaller like saving up a certain amount of money or cutting back on certain expenditures. Or maybe you just want to get better with your budgeting over the next 12 months. Whatever your goals/plans are, you’ll find it easier to reach them if you get started early. If you are looking to pay something off or save up a certain amount, then you may want get started by looking at what you will need to pay or save monthly to meet your goals and then determine what spending habits need to change to meet those goals. If you want to do something like budgeting, starting on Google and seeing what advice regarding budgeting it out there is a great place to begin. Of course, if you want further help or already have an existing relationship with one, you can also always speak with a certified financial planner or wealth manager to get the advice you need/want. So, what are your financial goals for the next year?
I know it’s a couple of day early, but I just wanted to wish all my loyal readers a Merry Christmas and Happy Holidays! In a year that has seemed like a decade and where we’ve had to redefine the way we live, work, and interact with others, I hope you and your family are able to at least enjoy some time together this holiday season. I also wish you, and those most important to you, health and happiness this Christmas and into the New Year. I’ll be back next week with a end of the year post, but for now…Merry Christmas and Happy Holidays!