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Things to Consider Before You Claim Social Security

31 Jul

Whether you want to leave work at 62, 67, or 72, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.

How long do you think you will live? While no one knows the answer to this question, some common sense considerations of overall health and family history can help guide you as you plan. If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after Full Retirement Age (which varies from age 66 to 67 for those born in 1943 or later), your monthly benefit will be larger than if you had claimed at 62. If you file for benefits at FRA or later, chances are you probably a) worked into your mid-sixties, b) are in fairly good health, and c) have sizable retirement savings.1

If you really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them. Essentially, the choice comes down to more lifetime payments that are smaller versus fewer lifetime payments that are larger. For the record, Social Security’s actuaries project that the average 65-year-old man to live 84.0 years, and the average 65-year-old woman, 86.5 years.2

Will you keep working? You might not want to work too much after claiming, since earning too much income may result in your Social Security being withheld or taxed.

Prior to Full Retirement Age, your benefits may be lessened if your income tops certain limits. In 2018, if you are aged 62 to 65, receive Social Security, and have an income over $17,040, $1 of your benefits will be withheld for every $2. If you receive Social Security and turn 66 later this year, then $1 of your benefits will be withheld for every $3 that you earn above $45,360.3

Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + nontaxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000 to $34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000 to $44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income taxes on up to 85% of their Social Security benefits.3

When does your spouse want to file? Timing does matter, especially for two-income couples. If the lower-earning spouse collects Social Security benefits first, and then the higher-earning spouse collects them later, that may result in greater lifetime benefits for the household.4

Finally, how much in benefits might be coming your way? Visit SSA.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the “blank years” with zeros. If you have, say, just 33 years of work experience, working another couple years might translate to a slightly higher Social Security income.1

A claiming decision may be one of the most significant financial decisions of your life. Your choices should be evaluated years in advance – with insight from the financial professional who has helped you plan for retirement.

At BrioWealth, we believe that financial planning should be done for the purpose of giving your life greater confidence, security and joy. That’s why we work closely with our clients to understand their personal goals and passions and build a plan around that. As retirement income specialists, BrioWealth helps our clients build wealth and create smart strategies for secure, sustainable retirement income. Call us at 877-606-1484 or visit http://www.briowealth.com to start creating your life enhancing financial plan!

Sources:

1 – MarketWatch.com, November 2, 2019

2 – SSA.gov, May 28, 2020

3 – BlackRock.com, May 28, 2020

4 – MarketWatch.com, November 11, 2019

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

6 Characteristics of the Millionaire Next Door

26 Sep

shutterstock_355260554Just how many millionaires does America have? By the latest estimation of Spectrem Group, a research firm studying affluent and high net worth investors, it has more than ever before. In 2015, the U.S. had 10.4 million households with assets of $1 million or greater, aside from their homes. That represents a 3% increase from 2014. Impressively, 1.2 million of those households were worth between $5 million and $25 million.1

How did these people become rich? Did they come from money? In most cases, the answer is no. The 2016 edition of U.S. Trust’s Insights on Wealth and Worth survey shares characteristics of nearly 700 Americans with $3 million or more in investable assets. Seventy-seven percent of the survey respondents reported growing up in middle class or working class households. A slight majority (52%) said that the bulk of their wealth came from earned income; 32% credited investing.2

It appears most of these individuals benefited not from silver spoons in their mouths, but from taking a particular outlook on life and following sound financial principles. U.S. Trust asked these multi-millionaires to state the three values that were most emphasized to them by their parents. The top answers?

  • Educational achievement
  • Financial discipline
  • The importance of working.2

Are these people mostly entrepreneurs? No. The aforementioned Spectrem Group survey found that millionaires and multi-millionaires come from all kinds of career fields. The most commonly cited occupations? Manager (16%), professional (15%), and educator (13%).4 

Here are 6 Characteristics That a Majority of the Millionaires Share

  1. Education is a solid first step toward wealth. There may be a strong correlation. Ninety percent of those polled in a recent BMO Private Bank millionaire survey said that they had earned college degrees. (The National Center for Education Statistics notes that in 2015, only 36% of Americans aged 25-29 were college graduates.)3
  2. Interestingly, a lasting marriage may also help. Studies from Ohio State University and the National Bureau of Economic Research (NBER) both conclude that married people end up economically better off by the time they retire than singles who have never married. In fact, NBER finds that, on average, married people will have ten times the assets of single people by the start of retirement. Divorce, on the other hand, often wrecks finances. The OSU study found that the average divorced person loses 77% of the wealth he or she had while married.3
  3. Most of the multi-millionaires in the U.S. Trust study got off to an early start. On average, they began saving money at 14; held their first job at 15; and invested in equities by the time they were 25.
  4. Most of them have invested conventionally. Eighty-three percent of those polled by U.S. Trust credited buy-and-hold investment strategies for part of their wealth. Eighty-nine percent reported that equities and debt instruments had generated most of their portfolio gains.2
  5. Many of these millionaires keep a close eye on taxes & risk. Fifty-five percent agreed with the statement that it is “more important to minimize the impact of taxes when making investment decisions than it is to pursue the highest possible returns regardless of the tax consequences.” In a similar vein, 60% said that lessening their risk exposure is important, even if they end up with less yield as a consequence.2   
  6. Here is one last detail that is certainly worth noting. According to Spectrem Group, 78% of millionaires turn to financial professionals for help managing their investments.4

Julie Newcomb, a Certified Financial Planner™ in Orange County, CA, specializes in financial planning for women.  As a wife, mom and business owner, Julie understands the pressures and challenges most women feel on a daily basis as they juggle many important priorities. Julie’s favorite thing about her job is the ability to give women peace of mind when they entrust her with their finances. To learn more about Julie Newcomb Financial, go to julienewcomb.com.

Sources:

1 – cnbc.com/2016/03/07/record-number-of-millionaires-living-in-the-us.html [3/7/16]

2 – forbes.com/sites/maggiemcgrath/2016/05/23/the-6-most-important-wealth-building-lessons-from-multi-millionaires/ [5/23/16]

3 – businessinsider.com/ap-liz-weston-secrets-of-next-door-millionaires-2016-8 [8/22/16]

4 – cnbc.com/2016/05/05/are-you-a-millionaire-in-the-making.html [5/5/16]

 

How Millennials Can Get Off to a Good Financial Start

17 Jun

shutterstock_260209835You might be a millennial reading a practical article about your finances, but most likely, you are a concerned mom or dad thinking about your millennial son or daughter and their financial future. As you think about your own path, maybe you look back with confidence as you see the fruits of your discipline and saving, but maybe you look back with regret and don’t want your kids to make the same mistakes you did when it comes to saving for retirement.

Young or old, we all know the value of saving for retirement as early as possible, but how many of us do/did that?

Prudential Financial is currently running an ad campaign where they ask a group of young people to paint a line next to the age they think they should start saving for retirement. Next, they asked a group of older people to paint a line next to the age when they ACTUALLY started saving for retirement. They call this the “action gap.” Here are some practical steps to take and important habits to form to help close the action gap for the next generation.

Reduce your debt. You probably have some student loan debt to pay off. According to the Institute for College Access and Success, which tracks college costs, the average education debt owed by a college graduate is now $28,950. Hopefully, yours is not that high and you are paying off whatever education debt remains via an automatic monthly deduction from your checking account. If you are struggling to pay your student loan off, take a look at some of the income-driven repayment plans offered to federal student loan borrowers, and options for refinancing your loan into a lower-rate one (which could potentially save you thousands).1

You cannot build wealth simply by wiping out debt, but freeing yourself of major consumer debts frees you to build wealth like nothing else. The good news is that saving, investing, and reducing your debt are not mutually exclusive. As financially arduous as it may sound, you should strive to do all three at once. If you do, you may be surprised five or ten years from now at the transformation of your personal finances.

Save for retirement. If you are working full-time for a decently-sized employer, chances are a retirement plan is available to you. If you are not automatically enrolled in the plan, go ahead and sign up for it. You can contribute a little of each paycheck. Even if you start by contributing only $50 or $100 per pay period, you will start far ahead of many of your peers.1

Away from the workplace, traditional IRAs offer you the same perks. Roth IRAs and Roth workplace retirement plans are the exceptions – when you “go Roth,” your contributions are not tax-deductible, but you can eventually withdraw the earnings tax-free after age 59½ as long as you abide by IRS rules.1,2

Workplace retirement plans are not panaceas – they can charge administrative fees exceeding 1% and their investment choices can sometimes seem limited. Consumer pressure is driving these administrative fees down, however; in 2015, they were lower than they had been in a decade and they are expected to lessen further.3

Keep an eye on your credit score. Paying off your student loans and getting started saving for retirement are a great start, but what about your immediate future? You’re entitled to three free credit reports per year from TransUnion, Experian, and Equifax. Take advantage of them and watch for unfamiliar charges and other suspicious entries. Be sure to get in touch with the company that issued your credit report if you find anything that shouldn’t be there. Maintaining good credit can mean a great deal to your long-term financial goals, so monitoring your credit reports is a good habit to get into.1

Do not fear Wall Street. We all remember the Great Recession and the wild ride investments took. The stock market plunged, but then it recovered – in fact, the S&P 500 index, the benchmark that is synonymous in investing shorthand for “the market,” gained back all the loss from that plunge in a little over four years. Two years later, it reached new record peaks, and it is only a short distance from those peaks today.

Equity investments – the kind Wall Street is built on – offer you the potential for double-digit returns in a good year. As interest rates are still near historic lows, many fixed-income investments are yielding very little right now, and cash just sits there. If you want to make your money grow faster than inflation – and you certainly do – then equity investing is the way to go. To avoid it is to risk falling behind and coming up short of retirement money, unless you accumulate it through other means. Some workplace retirement plans even feature investments that will direct a sizable portion of your periodic contribution into equities, then adjust it so that you are investing more conservatively as you age.

Invest regularly; stay invested. When you keep putting money toward your retirement effort and that money is invested, there can often be a snowball effect. In fact, if you invest $5,000 at age 25 and just watch it sit there for 35 years as it grows 6% a year, the math says you will have $38,430 with annual compounding at age 60. In contrast, if you invest $5,000 each year under the same conditions, with annual compounding you are looking at $596,050 at age 60. That is a great argument for saving and investing consistently through the years.5

It is never too early to start working with a financial advisor (and you don’t have to be wealthy) so you can set some realistic goals and a strategy for increasing your retirement savings as time goes on.

Julie Newcomb, a Certified Financial Planner™ in Orange County, CA, specializes in financial planning for women.  As a wife, mom and business owner, Julie understands the pressures and challenges most women feel on a daily basis as they juggle many important priorities. Julie’s favorite thing about her job is the ability to give women peace of mind when they entrust her with their finances. To learn more about Julie Newcomb Financial, go to julienewcomb.com.

Sources:

1 – gobankingrates.com/personal-finance/money-steps-need-after-graduating/ [5/20/16]

2 – usatoday.com/story/money/personalfinance/2015/07/03/money-tips-gen-y-adviceiq/29624039/ [7/3/15]

3 – tinyurl.com/hgzgsw4 [12/2/15]

4 – marketwatch.com/story/bear-markets-can-be-shorter-than-you-think-2016-03-21 [3/21/16]

5 – investor.gov/tools/calculators/compound-interest-calculator [5/26/16]

5 Things to Consider When One Spouse Retires Before the Other

26 May

shutterstock_202991146While all couples talk about the big picture of saving for retirement, not all consider the ramifications of what happens when one spouse retires before the other. Sometimes that reality reflects an age difference, other times one person wants to keep working for income or health coverage reasons. If you retire years before your spouse or partner does, you may want to consider how your lifestyle might change as well as your household finances.

#1: How will retiring affect your identity?

If you are one of those people who derives a great deal of pride and sense of self from your profession, leaving that career for life around the house may feel odd. Who are you now? Who will you become next? Can you retire and still be who you were? Hopefully, your spouse recognizes that you may have to entertain these questions. They may prompt some soul-searching, even enough to affect a relationship.

#2: How much down time do you want?

That is worth discussing with your spouse or partner. If you absolutely hate your job, you may want weeks, months, or years of relaxation after leaving it. You can figure out what to do next in good time. Alternately, you may see every day of retirement as a day for achievement; a day to get something done or connect with someone new. Your significant other should know whether you prefer an active, ambitious retirement or a more relaxed one.

#3: How will household chores or caregiving be handled?

Picture your loved one arising at 6:30am on a January morning, bundling up, heading for work and navigating inclement weather, all as you sleep in. Your spouse or partner may grow a bit envious of your retirement freedom. One way to offset that envy is to assume more of the everyday chores around the house.

For many baby boomers, caregiving is also a daily event. When one spouse or partner retires, that can rebalance the caregiving “equation.” One or more individuals have to provide 100% of the eldercare needed, and retirement can make shared percentages more equitable or allow a greater role for a son or daughter in that caregiving. Some people even retire to become a caregiver to Mom or Dad.

#4: Do you have kids living at home?

Adult children? Right now, in this country, every fifth young adult is living with his or her parents. With so many new college graduates having to accept part-time or low-paying service industry jobs, and with education loan debt averaging roughly $30,000 per indebted graduate, this situation will persist for years and, perhaps, even become a new normal.1

#5: You and your loved ones may find yourself on different timetables.

Maybe your spouse or partner works from 8:00 a.m. to 5:00 p.m. in a high-stress job. Maybe your children attend school on roughly the same schedule. How do they get to and from those places? Probably through a rush-hour commute, either in a car or amid the crowds lined up for mass transit. If you have abandoned the daily grind, you may have an enthusiasm and a chattiness in the evening that they lack. Maybe they just want to unwind at 6:30pm, but you might be anxious to reconnect with them after a day alone at home.

Talk about retirement before you retire. What should your daily life look like? What are the most important things you want out of the retirement experience? How do your answers to those questions align or contrast with the answers of your best friend? As you retire, make sure that your spouse or partner knows your point of view, and be sure to respect his or hers in the bargain.

Julie Newcomb, a Certified Financial Planner™ in Orange County, CA, specializes in financial planning for women.  As a wife, mom and business owner, Julie understands the pressures and challenges most women feel on a daily basis as they juggle many important priorities. Julie’s favorite thing about her job is the ability to give women peace of mind when they entrust her with their finances. To learn more about Julie Newcomb Financial, go to julienewcomb.com.

  

Souces:

1 – chicagotribune.com/business/success/savingsgame/tca-boomerang-children-affecting-parents-retirement-plans-20160413-story.html [4/13/16]