How often do you go to Starbucks? Are you one of those people that gets take out for dinner multiple times a week? Do you ever bring your own lunch to work? These types of expenses may seem like little things–$5 here, $10 there–but they can really add up over time. Over the course of a year, those expenses can add up to $100s or, more likely, over a $1,000 of dollars. That’s a lot of money. Particularly money that could also be put to better use elsewhere, such as going into your retirement account or used to pay down debts (i.e. mortgages or student loans). This may not be a big deal if you are at your max earning capacity, but it may make a huge difference for those just starting out in their careers and who aren’t earning that much. This post is also a nice reminder that you should review your spending habits from time to time to make sure that you aren’t unnecessarily spending money on things you don’t need to spend money on. Maybe you don’t need to stop at Starbucks (or the local coffee shop) every morning or maybe you could start eating dinner at home multiple times a week. Taking the time to find these expenditures and correct your spending habits can free up a lot of money for you. Aside from going through your expenditures line by line, there are also numerous apps that can be used to track expenses by tracking your credit card and debit card expenditures. You can use that information to determine what expenses to cut out or where you may need to cut back. You don’t need to cut out all those little things, but you may want to cut back or be more cognizant as to where and how you spend your money.
Over the course of a career, you will probably have multiple retirement accounts. You’ll probably open a 401(k) plan with each employer along with a personal IRA. It can be easy to lose track of those accounts over a career that lasts decades, especially for early-career jobs that may not last that long. While it is suggested that you be diligent with tracking your retirement accounts after you leave a job, it’s not uncommon for accounts to be forgotten about. If you do lose track of your retirement accounts, there are tools available to try to track them down. The Department of Labor’s Employee Benefit Security Administration can provide help over the phone as well as online (they have a searchable database of abandoned plans). Depending on the state you worked in, you may also want to see if that state has an unclaimed property division with a database similar to the federal government’s. Finally–as a last resort–you may want to reach out to your past employer where you set up your forgotten plan and see if they may have information regarding the custodian of your forgotten account. If you can reach the custodian, you should be able to get an idea regarding the location of the account. As stated earlier in this post, the best way to avoid all this is to keep track of your retirement accounts from the start. If you leave a job, be sure to either rollover your employer plan money into an IRA or you find a way to not forget the plan if you decide to keep it (this is a common option if you have worked for an employer for a long period and have a substantial amount saved in your employer plan). So, do you have any forgotten retirement accounts?
Yesterday, I wrote about diversifying your retirement savings by having more than one type of retirement account. While such a concept is a good idea, it also needs to be done reasonably. While it’s okay to have more than one retirement account, it’s not a good idea to have multiple types of the same account or to have so many retirement accounts that you can’t keep track on them. If you find yourself in such a situation, you should consider streamlining your retirement accounts by doing a conversion or rollover so that you only have two, maybe three, accounts. Thus, if you have multiple IRAs, you should strongly consider rolling them over into one account. This will not only allow you to better track your money, but it will also save you on paperwork as one IRA means only one beneficiary document and one statement. Same thing goes with 401(k)s. If you find that you have multiple 401(k)s after working for multiple employers, I would strongly urge you to merge them all into one account. Again, this will save you time and paperwork hassle. This is even more important as you get closer to retirement and have to begin taking required minimum distributions (RMDs) as it will make it easier to calculate your distribution and ensure that you are meeting requirements. While this may seem a bit contrary to what I wrote about yesterday, it is really intended to make things easier for you. Furthermore, yesterday I was encouraging diversification and having multiple accounts of different types and not multiple accounts of the same type. This time of year is a good time to consider streamlining your retirement accounts also because tax season is right around the corner and you probably are going to review your account paperwork very soon, if you haven’t already. If you need help with streamlining your retirement savings, as always, you should speak with a certified financial planner or retirement expert.
This blog post wasn’t written to remind you to do your taxes nor is it intended to ruin your holiday cheer by mentioning taxes. Rather, it’s a reminder that January is a few weeks away, which means that your tax information will become available over the next month and a half. You know, those notices from your employer regarding what they took out for taxes. Other tax information you may receive may be in relation to student debt or retirement accounts. Regardless of the source of the tax information, you should make sure that you save all that information, or–given that most of such information is available online these days–at least know how to access it. Now is a good time to log on to those accounts and make sure that your passwords work and your account information is correct. Over the next few weeks, you may also want to consider accessing your tax return from the previous year and seeing if anything has changed between now and then. You should further consider taking some time in January or early February organizing your tax documents or any related documentation so that it is ready to go when you decide to do your taxes. Finally, the end of the year is a good time to start thinking about how you plan to handle your taxes (i.e. how you will pay them) and what you may need to do regarding accounting. If you have used a tax professional in the past, you may want to consider reaching out to them in January to discuss any tax strategies you may have as well as make sure that they still have your proper information.
For many Americans, retirement is lived on a fixed income. That is, there is no income coming in and they are living off their savings. This means you will need to be realistic about your expenses and live within your means. While planning for retirement, aside from thinking about your expenses, you will also need to consider any debts you will have heading into retirement and what steps you can take to pay down those debts as much as possible. The key is that you enter retirement with as little debt as possible so that you don’t have to use your retirement savings to make payments on the debts. You want to retirement savings to fund your retirement and not go towards debt payments. Some types of debt you will want to consider paying down include mortgages, student loans, and car payments. Regardless of whether you are decades out from retirement or only a few years away, you may want to start by first assembling a list of your debts so that you can have an idea as to how much you owe. You will also want to consider any future debts you may have. Do you see yourself taking out a mortgage? Will you need to buy a new car before retirement? Will your children be paying down their student loans by themselves or will be helping them? You may also want to prioritize your loans. While it’s important that you pay off all your loans, you may want to consider giving priority to your largest loans or focus on paying off loans that are close to being finished by putting a few extra dollars towards the payments. Taking these steps to organize your debts will allow you to be efficient with with your money as you pay off the loans. If you need help with organizing your debts or discussing how your debts may affect your retirement savings, you should speak with a certified financial planner.
As you’ve gone through life and progressed towards retirement age, you’ve probably accumulated a number of financial accounts. These may include investment accounts, retirement accounts, bank accounts, as well as other accounts that hold your assets. You’ve probably also created various usernames and passwords to access those accounts online too. That can be a lot of information to remember, especially if your passwords and usernames are unique to each account. That’s why it’s important that you organize your account information. An easy way to do that is to create a binder of your financial information, which you can easily access and keep information pertaining to each account. I would suggest giving each account it’s own page in the binder with each page containing the URL for each account, any passwords and usernames associated with it, a listing of any and all account beneficiaries, and contact information for the account custodian or your financial planner. You may also want to include information regarding life insurance policies in this binder as well. Not only will this binder help you to keep track of your accounts, but it can also be helpful to friends and family after you have passed away. It will provide them with information regarding who is the custodian of what accounts, how to access them, and how those accounts will be divided. You should ideally keep this binder in a safe place, such as a fireproof box or a place where you keep valuables, and you may want to inform a few people you are close with–such as a spouse or your children–as to its existence, so that they know it’s out there. As you put the binder together, also take some time to review your information and make sure it’s up-to-date and reflects what your wishes and desires. Taking the time to organize this information now can save you a potential headache in the future.
If you’ve been saving for retirement over the course of decades, chances are you haven’t been using just one account. It’s not uncommon for people to have two, maybe even three or four accounts where they are accumulating parts of their nest egg. You may further find, during those years of saving, that you will move money between those accounts or roll/convert some accounts into others. These various types of transactions often have different rules and limitations (such as a waiting period before you can take a distribution of the funds or a limitation on the number of times you can do a particular transaction during a 365-day period). Therefore, it’s important that you keep track of any and all transactions you do in regards to your retirement accounts. While keeping track, make sure to note the type of transaction (i.e conversion, rollover, etc.) as well as the date that you conducted the transaction. I’d suggest creating a Microsoft Excel spreadsheet of such transactions, especially if you find yourself doing a lot of transactions or are in the process of consolidating your retirement accounts. If you have questions about particular transactions, you should speak with your retirement account custodian or a certified financial planner.
As you work and save up for retirement, you may find it best to have multiple retirement accounts. Sometimes the reasoning behind that is to prevent the commingling of various funds (after-tax vs. taxable) or because an account is set up through a former employer and there are certain perks to having that account. While having multiple accounts is not a problem, it can create inefficiency once you get into retirement. As you grow older, keeping track of those accounts can become tricky and confusing. It lead to issues regarding how much of a required minimum distributions (RMDs) you have to take and where you can take it from. There’s also the issue of beneficiaries and what they may have to deal with in sorting through multiple accounts. If you want to avoid any confusion in retirement and beyond, it can be a smart idea to consolidate your retirement accounts once you enter retirement. If you have multiple Traditional IRAs, you may want to either roll them into one or close them out and put the money into a Roth IRA. If you have multiple employee retirement accounts, you may want to consider exploring ways to consolidate them as well. You can still have multiple accounts to fund your retirement, but it’s best to have as few as possible. If you have questions about consolidating or reorganizing your retirement accounts, you may want to speak with a certified financial planner.
How many retirement accounts do you have? It’s not uncommon for people have more than one account where they are stocking away money for retirement. Maybe you have a personal Roth IRA and a 401(k) from your employer. Or maybe you have multiple IRAs, possibly because you inherited one or more. It’s okay to have multiple retirement fund accounts, but you want to make sure that you don’t have too many and that they do not become unruly. If you have multiple accounts, you should review them from time to time (preferably yearly, especially as you get closer to retirement) and should consider whether it makes sense to combine or rollover certain accounts into others so that things are easier to manage.