I don’t mean to state the obvious with the title, but I feel like it’s worth mentioning, especially as we head into a winter that may be like none other that we have seen. The next few months seem to be on course to create a lot of anxiety for many Americans. We are currently in the middle of a pandemic that many healthcare professionals are predicting will see a second wave of infections over the next month or so. There is also a transitional period occurring politically that is fraught with unpredictability. And then there is the added stress of the holiday season. Those first two stress points have the ability to shake up the markets and have impacts on the investments that could further impact your portfolio. The third stress point is always there, but could be further complicated by job losses or worry about what the future may hold for your nest egg. I’m not going to sugarcoat it, it can be a bit scary, especially when you don’t know what might happen to send the stock market on a wild ride. While I don’t have any magic solution to your anxiety, I do want to make sure you realize that you are not alone in your worries. Sometimes there’s not much you can do aside from track your investments, make necessary changes and adjustments, and keep living life. We will get through this and we will eventually return to normal. It may be a “new” normal, but it will be much more normal than what we have been going through for most of 2020. Now, as you head into this holiday season, I suggest you focus your time and energy on family and friends and the people who mean the most to you. Yes, you can check your portfolio daily and adjust as needed, but try not to let it be all you think about. Take some time to think enjoy what’s around you and don’t let fear or stress overpower you. Of course, if you do have concerns about your retirement plans, I suggest you speak with a certified financial planner or wealth manager who should be able to relieve any concerns or answer any questions you may have.
If you did get one this year, what did you do with it? I hope your answer was either put it towards your retirement or used it to pay off any debt you might have. If you already have enough saved for retirement and don’t have any debts (great job, by the way!) then you may want to consider stashing the money away as an emergency fund or putting into an Health Savings Account (HSA). Keep in mind that a refund isn’t free money from the government, but rather money that you were overtaxed on and is the difference between what you were taxed and what you owed. Thus, you should treat it as though you would have had it never left your pockets. That means that if you were planning on putting money towards retirement or debts, then put the refunds towards those. If you had other priorities with your money, the put it towards those. If you are behind in your retirement savings or looking for a chance to put a little extra away, I’d strongly encourage you to put your refunds into an IRA or whatever retirement account you have. If you aren’t sure what to do with your retirement savings, then you may want to speak with a certified financial planner to discuss good uses for your money and ways to make it work efficiently for you.
Many Americans don’t really put much thought into the difference between “financial” planning and “retirement” planning. After all, they both focus on retirement and saving enough to enjoy that period in your life. However, if you talk to a certified financial planner, they’ll probably tell you that there is a difference. Financial planning focuses on investments and saving strategies that will help you meet your retirement goals. Simply put, it’s the work and effort you put in as you save for retirement. Whereas, retirement planning tends to zero in on your spending once you enter into retirement and your paychecks stop. Financial planning tends to take a broad approach as it is focused on where you are currently as it takes into account both your retirement plans as well as future financial goals that you may want to hit before retirement (i.e. costs associated with sending a child off to college or paying off a mortgage). The focus tends to be on the ways to save (i.e. different retirement plans, contribution amounts, etc.) and making sure that you are saving enough. Retirement planning is much more detailed than financial planning as it focuses on your expenses and how you will deal with them once your income stops or becomes greatly reduced. It tends to be more focused on the details, such as how you will make your savings last in retirement as well as how you will cover expenses such as medical and housing. Knowing the difference between retirement planning and financial planning is important because it can allow you to better focus on both aspects and ensure that you are better prepared for when you actually do retire.
The term “retirement” means a lot of different things to different folks. For some it can mean that broader post-work life that’s open to lots of possibilities. For others, the view of retirement is more rigid and specific. Maybe it’s a time to travel or focus on new hobbies and growth? There is no right or wrong definition of retirement, but that doesn’t mean you shouldn’t form your own meaning. Take time before you retire to determine just what retirement means to you and how you can reach that vision. Doing so will allow you to focus on what you need to do between now and retirement to make things a reality. If you are having trouble trying to clarify that vision or set a path to reach your retirement goals, reach out to a financial planner. Such professionals will ask the right questions to help you get a sense of what may or may not work for you. If you are looking for a financial planner in the Dallas, Texas-area, please feel free to give me a call at 972-265-7990.
The beginning of the new year can be a great time to review where you get your retirement saving and planning information. You can use the time to review just how effective or efficient the resources you currently use are as well as explore new sources of information. If you are looking for new online resources, a new Google search might turn up blogs and websites that provide information that can supplement what you are already using. If you have been considering switching financial advisors or planners, now is a good time to do so as well. If you are looking for a new certified financial planner in the Dallas, Texas-area, please give me a call at 972-265-7990.
Do you know the difference between income and wealth? Income is the amount of money you earn on a consistent basis (i.e. yearly). Wealth is equivalent to net worth, which is the value of all income that your assets generate, usually taking into account any debts as well. Thus, you can have wealth without high income and you can have high income without necessarily having wealth. While having a high income does make it easier for one to accumulate wealth, it does not mean that one is automatically wealthy. Understanding the difference between income and wealth is important when planning for retirement because it means understanding your current lifestyle and whether it is sustainable when income is taken out of the equation. Wealth can–and should–be an important part of your retirement planning as it can provide a means to help sustain it. However, income often does not provide a good means to retirement as it is determined by the present and not built for the long-term (i.e you can’t work forever). Therefore, you should focus on wealth when planning for retirement and determining the type of retirement you want to live. You should use your income to determine where and how you can invest in the present to help build up your wealth.
Retirement will not only impact your professional life, but it will also impact your daily routine. Many times people get caught up in preparing for the financial needs of retirement or how they will fill the void left by work hours that they forget about the day-to-day routines and how they will be affected as well. Those daily routines often set the mood for your daily life and can be the basis for good, healthy habits. Losing those routines can thus have a huge impact on your daily mood and feelings and can have a larger role in your well-being than you may realize. As you plan for retirement, think about how it will affect those routines and consider making changes to your routines before you retire so that they can better withstand the changes and understand how you can have a healthy retirement.
The end of 2017 brought significant changes to the tax code as a result of the recent tax reform bill passed by Congress and signed by President Trump. How exactly those changes will affect the economy remains to be seen, but what is known is that it will have an impact on individual taxes. As with any significant tax code changes, you should take the time to understand how those changes may affect your retirement and estate planning strategies and plans. The most recent reforms widened the gap between state and federal taxes, which could have a huge impact on how much retirement money you may need to meet your current plans. Furthermore, there could be changes coming to Social Security, Medicaid, and Medicare in the coming years as a result of the legislation, which may impact how people plan to fund retirement. Now, especially around the beginning of the new year, is a good time to review your retirement plans and educate yourself on how the new tax reform will impact your retirement plans and whether you may need to change your strategies and goals.
It’s not hard to find retirement planning advice. A quick Google search will turn up millions of articles and there are thousands of books out there covering the topic as well. It’s also a topic that many people have opinions and advice on, usually based on tips and suggests that they’ve heard from others. There is so much retirement information out there that it can almost seem overwhelming. Filtering out what is useful to your situation and what isn’t takes work. While you don’t need to implement every piece of advice, you also shouldn’t shut out any and all advice that may seem foreign or different. Sometimes the best advice may come from the least expected source. Maybe a friend not known for financial advice might have a retirement planning suggestion that just makes sense for your situation. Or maybe that morning news show segment with a financial planning expert offers up advice that answers a retirement question you have. The key is striking a balance and knowing the type of information you are looking for, but also not shutting out advice from unlikely sources.
Required Minimum Distributions (RMDs) are a fact of life with a traditional IRA or 401(k). Those distributions usually start at around age 70 1/2 and are usually relatively small at the beginning but increase as a percentage of your account balance each year. These RMDs are usually treated as taxable income, which means that you will owe income tax on them. These costs will need to be figured into your retirement savings plans. Furthermore, these RMDs treated as taxable income may also expose your Social Security benefits to taxation. If you have questions regarding RMDs and how they may affect your retirement plans, you should speak with a certified financial planner.