Did you know that the total amount of student loans held by Americans is larger than that of credit card debt? That may be a bit surprising to some. While I am well aware that most of my clients and readers of this blog are beyond their student years and probably paid off their student loan debts years ago, it’s still worth talking a bit about as the topic has become relevant over the past few years, particularly during the recent election season. There has been a lot of discussion centering around how much student loan debt has impacted the spending habits of younger generations and possibly hindered their interest in buying homes and starting families, as well as spending on big ticket items in general. Heck, there’s a really good chance that you have a child or grandchild currently paying off students debts, so for some of my readers it might just be a personal topic. Ideally, those younger generations would find jobs that pay enough to efficiently pay down those debts and allow them to save up for those big “adult” purchases (i.e. a car, a house, etc.). However, more often than not and for a number of different reasons, that is not the case. So, what does this have to do with you and your financial/retirement planning? Well, probably nothing, but it is worth noting. Furthermore, it may have long-term impacts such as slower economic growth as fewer younger people are spending on the large ticket items that can help fuel booms. Furthermore, if you have kids and grandkids weighed down by student debt, you may want to talk with them about their situation and educate them about what they can do to better their situations. Maybe they need a second job or maybe they need some guidance on smart spending habits. Whatever it is, don’t be afraid to help them get on the right path. Also, if you were planning on relying on your children to help with your retirement, such as moving in with them or having them pay for some of your needs, you may want to know whether their student loan debt early in their adult lives may have long term impacts (i.e. they aren’t able to save enough for the future). Lastly, if you are a retiree considering going back to school–and yes, they do exist–you will want to know whether taking on any student loan debt is doable. Obviously, you really only want to go back if you can do so without taking out any loans, but if you can do so for a small amount, it may be worth considering. Again, while you may not be directly impacted by student loans, it may have a long-term impact on the economy that affects your portfolio and investments, especially if it takes markets and the economy longer to recover from downturns due to enough people not spending. So, what do you know about the student debt situation and does it impact you?
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?
As you are probably well aware, not everyone understands finances. Some people just have a natural ability to understand the intricacies and formulas involved in finance and economics (chances are they’re probably good at math overall). The formulas out there regarding how much you should withdrawal for retirement alone can be downright tricky and confusing, especially for those without a financial planning background. However, just keep in mind that just because you understand how the numbers work doesn’t mean you will automatically be able to make them work for yourself. There are many Americans that don’t have the ability to get ahead with their finances for one reason or another. They may understand what they need to do for a comfortable retirement but don’t have the financial resources needed to get there. That could be because of an personal events beyond their control (i.e. a seriously ill child) or they may not have a job that provides enough income (i.e. they don’t have the proper education needed to advance). Whatever the reason, these people are unable to put their money towards their financial well-being or don’t have the money to put towards it at all. This is important to remember when watching the financial shows on television or reading articles that talk about people who “did it right” while planning their financial future. The financial industry tends to shame those who can’t save enough or who don’t have a large enough nest egg, but that isn’t fair. There may be legitimate reasons why some people can’t get ahead. This is also a good time to mention the importance of setting a good financial example for younger generations, such as our own children. Teaching children how to be responsible with their money at a young age can build a strong foundation that they can carry over into adulthood when they begin to make their own financial decisions. Sound financial decisions early on can set our younger generations up to be in a position to avoid altogether–or at least lessen the possibility–the chance that they do not find financial comfort or success. If you need help with your finances or what advice on how to bolster them for the future, you should speak with a certified financial planner.
In past blog posts, I’ve written about how working past age 65 is a reality that many Americans face because they don’t have enough saved for retirement. However, I haven’t really acknowledged that a number of Americans work past age 65 not because they need the money, but because they can and they want to. Many members of the Baby Boomer generation are working past 65 because they are healthier at that age than generations before them. They remain active well into their 70s. Furthermore, Baby Boomers are very well educated and want to continue to put that education–and the skills acquired as part of that–as long as they can. Yes, many Baby Boomers do work well into their 60s out of necessity and to further build up their nest egg, but the number working because they want to is also a larger proportion compared to the past. If you plan on working past the traditional retirement age, are you doing so because you want to or because you have to? If you are doing so because you want to, are you taking steps to maximize that time, such as delaying requirement minimum distributions (RMDs) or putting more money into your nest egg? If you are working past age 65, you will want to make sure it is a positive for your retirement savings and to avoid a situation where you have to tap into your retirement funds when you reach a particular age.
If you want to take an active role in your retirement and financial planning, you need to be financially literate. You need to understand where your money is going, what is happening with the money you are saving, and what you need your money to do for you in the future. This is where financial literacy comes in. Being financially literate allows you to understand things such as financial statements and tax documents so that you know what is happening with your money and where it is happening. Financial literacy also provides opportunities to learn about the latest trends and best-practices within the financial field so that you can make sound and smart decisions that will maximize your savings and investments. Furthermore, there is no end to becoming financially literate–it’s a never-ending experience, even for us professionals! There is always something new to learn or read about. As you become more and more financially literate and experienced, you can better apply the practices and concepts you learn to your own life and further improve your investments and savings. Finally, financial literacy is a skill that you can take throughout your life, both when you are first starting out saving and also when you are well into retirement. So, how financially literate are you? Do you know what is happening with your money?
Planning and saving for retirement is a journey. During that journey you will most likely make a few mistakes that you will hopefully learn from and move on. Even if you plan everything out and seek professional advice, you can still make mistakes. Maybe you made an investment that didn’t quite pan-out like you hoped or you struggled to make a decision regarding a retirement plan and you didn’t like how that felt. Those mistakes happen and usually they can be easily corrected over time. What is most important is that you learn from those mistakes and use them to help make better decisions in the future. It’s also important that you have safeguards in place to avoid making major mistakes. Having a financial planner that you can lean on can help you to avoid many, if not most, mistakes, especially the crippling ones. However, that financial planner may not prevent you from making every little bad decision. After all, they can’t predict how things such as the markets will turn out either. Avoiding the major mistakes and minimizing the small ones is part of the journey to retirement. It’s okay to make a small mistake or two, so long as you learn from them and avoid making them in the future. If you are looking for a knowledgeable financial planner in the Dallas, Texas-area, please give me a call at 972-265-7990.
Whether it’s a public college or a private high school, tuition fees seem to constantly be on the rise. This has forced many families to think about saving early for those education expenses through the creation of college funds and savings account. The federal government created such a plan–called a 529 plan–in the mid-1990s to help families save for college education. They operate similar to how a Roth IRA works in that each plan is funded with after-tax money, the earnings from which grow tax-free and the withdrawals are tax and penalty free as long as they are qualified. Furthermore, some states offer income tax deductions for contributions. Like a Roth IRA, a designated beneficiary is named by the contributing individual for each plan account. The contributing individual retains ownership and control of the 529 plan, not the beneficiary. The new tax reforms passed late last year did not leave 529 plans untouched and expanded annual distributions to a $10,000 limit per beneficiary. If you are thinking about investing in a 529 plan, you should speak with a certified financial planner to make sure it is the right move for you and your family and to answer any questions you may have.
How are you planning on investing in yourself in retirement? Retirement can be a great time to pursue new interests and hobbies that you may not have had time to pursue while working. For others, the free time provided by retirement can be a great time to expand knowledge and go after educational pursuits that were put on hold while working and raising a family. However you decide to spend your retirement, don’t be afraid to take that time–and some of your retirement savings–and invest it in your own personal growth and enjoyment. Go ahead and take a few community college courses on subjects that strike your fancy or maybe get more involved in a particular hobby that you’ve always been interested in. Whatever you do, make the investment for yourself.
It’s no secret that you can take a penalty-free distribution from your IRA before the age of 59 ½ if the funds are to be used for qualified higher education expenses. Do you know what such qualified higher education expenses can include? Such expenses include, but are not limited to: tuition, room and board, books, supplies, and even computers and related technology. You can also take as large of a distribution as you need or want to. If you have enough saved up in your IRA, this can be a great way to help a child or grandchild pay for college and not come out on the other side saddled with debt. However, it’s best that you make sure that such a distribution will not set your retirement savings back before you decide to take one.