Tag Archives: Personal Financial Planning Orange County

Protecting Your Parents From Elder Financial Abuse  

30 Aug

 

shutterstock_204442552We are becoming more familiar with the notion of financial abuse targeting elders – scams and other exploitation targeting the savings of people aged 60 and older – but many may think, “it won’t happen to my family” or “my relative is too smart to be taken in by this.”

These assumptions are only wishful thinking; this sort of fraud is on the rise, so it’s important to talk to your loved ones about what to look for, and how they can protect their finances.

More common than you think. The U.S. Department of Justice’s Elder Justice Initiative offers a sobering statistic: in the United States alone, multiple studies have found that, every year, 3-5% of seniors endures financial abuse by family members. This form of exploitation is, typically, one of the top two most frequently reported means of elder abuse.1

Talk about money. It can be uncomfortable to talk with family about financial issues, but this is often the best first step toward guarding against financial abuse. Find out the information you would already need to know in the event of a sudden calamity.

Questions to ask include:

  • Where is the important paperwork kept – i.e. bills, deeds, and wills?
  • Who are the professionals they work with – accountants, lawyers, and those who assist with financial matters?2

It’s also important for you to have a clear idea in what sorts of accounts and investments your parents or loved ones keep their money. You will also want to have a conversation about when and under what circumstances they would like for you to step in and handle their finances for them.2

 Trouble takes many forms. Not all financial trouble that elders experience is necessarily a sign of abuse, but having open and clear communication can be a great help. Look for unpaid bills piling up, creditor notices, and suspicious activity on their bank accounts.2

There are a number of scams out there that target the elderly, in particular, and many of them come via telephone calls. There are scammers who pose as officials from a sweepstakes, lottery, or some other contest claiming that your parent or loved one is in line to receive a prize. Others will pretend to be from the Internal Revenue Service and threaten legal action over some long-forgotten overdue balance. The real IRS only sends notices via regular mail, of course, but that can be easily forgotten when dealing with a wily and confrontational con artist.2

Talk about these scams with your parents or loved ones. Make sure that they understand that they shouldn’t give out Medicare or Social Security numbers, and always be absolutely certain before signing anything, particularly legal documents, contracts, and anything to do with making an investment. For the latter, if you don’t already know the people who handle your financial matters for your parents or loved ones, suggest that a meeting be arranged and, if necessary, that they be instructed to work with you under certain circumstances.2

 Stay informed. There are a number of resources to keep you and your parents or loved ones aware of fraud, both in terms of new scams and even instances of elder financial abuse in your area. StopFraud.gov offers a number of resources and tips for identifying and reporting the financial exploitation of elders. The AARP website features a Fraud Watch program and offers and interactive national fraud map that can look at specific reports and alerts from law enforcement.2,3,4

With careful planning and communication, you can make a real effort to protect your parents and other elders in your family from an embarrassing and costly set of circumstances.

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 – justice.gov/elderjustice/research/prevalence-and-diversity.html [7/14/16]

2 – nbcnews.com/business/retirement/worried-about-elder-financial-abuse-how-protect-your-parents-n559151 [4/20/16]

3 – stopfraud.gov/protect.html [7/14/16]
4 – action.aarp.org/site/SPageNavigator/FraudMap.html [7/14/16]

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]

 

Could Social Security Really Go Away?

1 Apr

shutterstock_226983016 copy 2As we continue to hear warnings that Americans are not adequately saving for retirement, we hear similarly dire news about the future of Social Security funds. But will Social Security actually run out of money in the 2030s? The reality is that the extreme versions of the warnings assume that no action will be taken to address Social Security’s financial challenges.

So what’s causing the problem?

Social Security is being strained by a giant demographic shift. In 2030, more than 20% of the U.S. population will be 65 or older. In 2010, only 13% of the nation was that old. In 1970, less than 10% of Americans were in that age group.1

Demand for Social Security benefits has increased, and the ratio of retirees to working-age adults has changed. In 2010, the Census Bureau determined that there were about 21 seniors (people aged 65 or older) for every 100 workers. By 2030, the Bureau projects that there will be 35 seniors for every 100 workers.1

As payroll taxes fund Social Security, the program faces a major dilemma. Actually, it faces two.

Social Security maintains two trust funds. When you read a sentence stating that “Social Security could run out of money by 2035,” that statement refers to the projected shortfall of the Old Age, Survivors, and Disability Insurance (OASDI) Trust. The OASDI is the main reservoir of Social Security benefits, from which monthly payments are made to seniors. The latest Social Security Trustees report indeed concludes that the OASDI Trust could be exhausted by 2035 from years of cash outflows exceeding cash inflows.2,3

Congress just put a patch on Social Security’s other, arguably more pressing problem. Social Security’s Disability Insurance (SSDI) Trust Fund risked being unable to pay out 100% of scheduled benefits to SSDI recipients this year, but the Bipartisan Budget Act of 2015 directed a slightly greater proportion of payroll taxes funding Social Security into the DI trust for the short term. This should give the DI Trust enough revenue to pay out 100% of benefits through 2022. Funding it adequately after 2022 remains an issue.4

If the OASDI Trust is exhausted in 2035, what would happen to retirement benefits? They would decrease. Imagine Social Security payments shrinking 21%. If Congress does not act to remedy Social Security’s cash flow situation before then, Social Security Trustees forecast that a 21% cut may be necessary in 2035 to ensure payment of benefits through 2087.3

No one wants to see that happen, so what might Congress do to address the crisis? Three ideas in particular have gathered support.

*Raise the cap on Social Security taxes. Currently, employers and employees each pay a 6.2% payroll tax to fund Social Security (the self-employed pay 12.4% of their earnings into the program). The earnings cap on the tax in 2016 is $118,500, so any earned income above that level is not subject to payroll tax. Lifting (or even abolishing) that cap would bring Social Security more payroll tax revenue, specifically from higher-income Americans.3

*Adjust the full retirement age. Should it be raised to 68? How about 70? Some people see merit in this, as many baby boomers may work and live longer than their parents did. In theory, it could promote longer careers and shorter retirements, and thereby lessen demand for Social Security benefits. Healthier and wealthier baby boomers might find the idea acceptable, but poorer and less healthy boomers might not.3

*Calculate COLAs differently. Social Security uses the Consumer Price Index for Urban Wage Workers and Clerical Workers (CPI-W) in figuring cost-of-living adjustments. Many senior advocates argue that the Consumer Price Index for the Elderly (CPI-E) should be used instead. The CPI-E often gives more weight to health care expenses and housing costs than the CPI-W. Not only that, the CPI-E only considers the cost of living for people 62 and older. That last feature may also be its biggest drawback. Since it only includes some of the American population in its calculations, its detractors argue that it may not measure inflation as well as the broader CPI-W.3

Social Security could still face a shortfall even if all of these ideas were adopted. The Center for Retirement Research at Boston College estimates that if all of these “fixes” were put into play today, the OASDI Trust would still face a revenue shortage in 2035.3

In future decades, Social Security may not be able to offer retirees what it does now, unless dramatic moves are made on Capitol Hill. In the worst-case scenario, monthly benefits would be cut to keep the program solvent. A depressing thought, but one worth remembering as you plan for the future.

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 – money.usnews.com/money/retirement/articles/2014/06/16/the-youngest-baby-boomers-turn-50 [6/16/14]

2 – fool.com/retirement/general/2016/03/20/the-most-important-social-security-chart-youll-eve.aspx [3/20/16]

3 – fool.com/retirement/general/2016/03/19/1-big-problem-with-the-3-most-popular-social-secur.aspx [3/19/16]

4 – marketwatch.com/story/crisis-in-social-security-disability-insurance-averted-but-not-gone-2015-11-30 [11/30/15]

4 Smart Financial Moves to Finish 2015

4 Dec

Decembe 2015There are just a few weeks left in December! And, while your mind might be filled with holiday parties and gift shopping, this is also the time of year to tie a neat little bow on your financial picture so that you’re not kicking yourself in 2016.

 You can start here: Consider the tax impact of 2015 transactions.

  • Did you sell real property this year?
  • Did you start a business?
  • Have you exercised a stock option?
  • Could any large commissions or bonuses come your way before January?
  • Did you sell an investment held outside of a tax-deferred account?

Any of this might significantly affect your 2015 taxes. So, here are some strategic ways to offset your earnings.

#1 Make a charitable gift before New Year’s Day. You can claim the deduction on your tax return, provided you itemize your 2015 tax year deductions with Schedule A. The paper trail is important here.1

If you give cash, you need to document it. Even small contributions need to be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation. If you pledge $2,000 to a charity in December but only end up gifting $500 before 2015 ends, you can only deduct $500.1

Are you gifting appreciated securities? If you have owned them for more than a year, you will be in line to take a deduction for 100% of their fair market value and avoid capital gains tax that would have resulted from simply selling the investment and then donating the proceeds. (Of course, if your investment is a loser, it might be better to sell it and donate the money so you can claim a loss on the sale and deduct a charitable contribution equal to the proceeds.)2

Does the value of your gift exceed $250? If you gift that amount or larger to a qualified charitable organization, you will need a receipt or a detailed verification form from the charity. You also have to file Form 8283 when your total deduction for non-cash contributions or property in a year exceeds $500.1

If you aren’t sure if an organization is eligible to receive charitable gifts, check it out at irs.gov/Charities-&-Non-Profits/Exempt-Organizations-Select-Check.

#2 Contribute more to your retirement plan. If you haven’t turned 70½ this year and you participate in a traditional (i.e., non-Roth) qualified retirement plan or have a traditional IRA, you can cut your 2015 taxable income through a contribution. Should you be in the 35% federal tax bracket, you can save $1,925 in taxes as a byproduct of a $5,500 regular IRA contribution.3,4

If you are self-employed and don’t have a solo 401(k) or something similar, look into whether you can still establish and fund such a plan before the end of the year. For the tax year 2015, you can contribute up to $18,000 to any kind of 401(k), 403(b), or 457 plan, with a $6,000 catch-up contribution allowed if you are age 50 or older. Your 2015 contribution to a Roth or traditional IRA may be made as late as April 15, 2016. There is no merit in waiting, however, since delaying your contribution only delays tax-advantaged compounding of those dollars.4,5

#3 See if you can take a home office deduction. If your income is high and you find yourself in one of the upper tax brackets, look into this. You may be able to legitimately write off expenses linked to the portion of your home used to exclusively conduct your business. (The percentage of costs you may deduct depends on the percentage of the square footage of your residence you devote to your business activities.) If you qualify for this tax break, part of your rent, insurance, utilities and repairs may be deductible.6

#4 Practice tax loss harvesting. You could sell underperforming stocks in your portfolio – enough to rack up at least $3,000 in capital losses. In fact, you can use this tactic to offset all of your total capital gains for a given tax year. Losses that exceed the $3,000 yearly limit may be rolled over into 2016 (and future tax years) to offset ordinary income or capital gains again.8

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 – irs.gov/uac/Newsroom/Six-Tips-for-Charitable-Taxpayers [5/19/15]

2 – philanthropy.com/article/Donors-Often-Overlook-Benefits/148561/ [8/29/14]

3 – irs.gov/Retirement-Plans/Traditional-and-Roth-IRAs [3/18/15]

4 – turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/4-Last-Minute-Ways-to-Reduce-Your-Taxes/INF22115.html [10/20/15]

5 – forbes.com/sites/ashleaebeling/2015/10/21/irs-announces-2016-retirement-plans-contribution-limits-for-401ks-and-more/ [10/21/15]

6 – irs.gov/Businesses/Small-Businesses-&-Self-Employed/Home-Office-Deduction [10/16/15]

7 – bankrate.com/finance/insurance/health-savings-account-rules-and-regulations.aspx [10/7/15]

8 – fidelity.com/viewpoints/personal-finance/tax-loss-harvesting [9/9/15]

Are You Prepared for Long Term Care Costs?

30 Oct

Long-term CareAs the average life span increases, so do your odds that you’ll need to utilize long term care in the future. But, how can you plan for it? How do you pay for it?  

 Strategic insurance choices should always play a role when you’re planning for retirement. Having the right insurance to cover unforeseen, and often large, expenses can really take the stress off. However, as medical costs skyrocket the price of long term care insurance is really going up as well. If you are a baby boomer and you have kept your eye on it for a few years, chances are you have noticed much costlier premiums for LTC coverage today compared to several years ago. For example, in 2015 the American Association for Long-Term Care Insurance found that married 60-year-olds would pay $2,170 annually to get a total of $328,000 of coverage.1

As CNBC notes, about three-quarters of the insurers that sold LTC policies ten years ago have stopped doing so. Demand for LTC coverage will only grow as more baby boomers retire – and in light of that, insurance providers have introduced new options for those who want to LTC coverage.1

Hybrid LTC products have emerged. Some insurers are structuring “cash rich” whole life insurance policies so you can tap part of the death benefit while living to pay for long term care. You can use up to $330 a day of the death benefit under such policies, with no reduction to the cash value. Other insurance products are being marketed featuring similar potential benefits.2

This option often costs a few hundred dollars more per year – not bad given that level annual premiums on a whole life policy with a half-million or million-dollar payout often come to several thousand dollars. The policyholder becomes eligible for the LTC coverage when he or she is judged to require assistance with two or more of six daily living activities (dressing, bathing, eating, etc.) or is diagnosed with Alzheimer’s disease or some other kind of cognitive deficiency.2

This way, you can get what you want from one insurance policy rather than having to pay for two. Contrast that with a situation in which you buy a discrete LTC policy but die without requiring any long term care, with the premiums on that policy paid for nothing.

The basics of securing LTC coverage applies to these policies. As with a standard LTC policy, the earlier you start paying premiums for one of these hybrid insurance products, the lower the premiums will likely be. You must pass medical underwriting to qualify for coverage. The encouraging news here is that some people who are not healthy enough to qualify for a standalone LTC insurance policy may qualify for a hybrid policy.3

These hybrid LTC products usually require lump sum funding. An initial premium payment of $50,000 is common. Sometimes installment payments can be arranged in smaller lump sums over the course of a few years or a decade. For a high net worth individual or couple, this is no major hurdle, especially since appreciated assets from other life insurance products can be transferred into a hybrid product through a 1035 exchange.1,3

Are these hybrid policies just mediocre compromises? They have detractors as well as fans, and the detractors cite the fact that a stand alone LTC policy generally offers greater LTC coverage per premium dollar paid than a hybrid policy. They also cite their two sets of fees, per their two forms of insurance coverage. While it is possible to deduct the cost of premiums paid on a conventional LTC policy, hybrid policies allow no such opportunity.3

Paying a lump sum premium at the inauguration of the policy has both an upside and a downside. You will not contend with potential premium increases over time, as owners of stock LTC policies often do; on the other hand, the return on the insurance product may be locked into today’s (minimal) interest rates.

Another reality is that many middle-class seniors have little or no need to go out and buy a life insurance policy. Their heirs will not face inheritance taxes, because their estates aren’t large enough to exceed the federal estate tax exemption. Moreover, their children may be adults and financially stable themselves; a large death benefit for these heirs is nice, but the opportunity cost of paying the life insurance premiums may be significant.4

Cash value life insurance can be a crucial element in estate planning for those with large or complex estates, however – and if some of its death benefit can be directed toward long term care for the policyholder, it may prove even more useful than commonly assumed.

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/2015/08/07/fer-more-products-that-cover-long-term-care-costs.html [8/7/15]

2 – consumerreports.org/cro/news/2015/04/get-long-term-care-from-whole-life-insurance/index.htm [4/16/15]

3 – tinyurl.com/o3ty2j3 [5/4/14]

4 – marketwatch.com/story/hedging-your-bets-on-long-term-care-2013-11-06 [11/6/13]

 

6 Keys Lessons for Long-Term Investing

30 Sep

Stock MarketInvesting your hard-earned dollars can be complicated and feel scary at times. The safest and most liquid options, say, putting it in the bank, offer such little return that it feels like you’re actually losing money. The truth is, it’s important to keep the long-term in perspective when investing for financial growth and take to heart tried and true lessons.

Lesson #1: Shut out most of the “noise.” News outlets take the temperature of global markets five days a week (and even on the weekends), and fundamental indicators serve as barometers of the economy each month. The longer you invest, the more you learn to ride through the turbulence caused by all the breaking news alerts and short-term statistical variations. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor waits for selloffs, corrections and bear markets to pass.

Lesson #2: Decide how much volatility you can stomach. Volatility (also known as market risk) is measured in shorthand as the standard deviation for the S&P 500. Across 1926-2014, the yearly total return for the S&P averaged 10.2%. If you want to be very casual about it, you could simply say that stocks go up about 10% a year – but that discounts some pronounced volatility. The S&P had a standard deviation of 20.2 from its mean total return in this time frame, which means that if you add or subtract 20.2 from 10.2, you get the range of the index’s yearly total return that could be expected 67% of the time. So in any given year from 1926-2014, there was a 67% chance that the yearly total return of the S&P might vary from +30.4% to -10.0%. Some investors dislike putting up with that kind of volatility, others more or less embrace it.1

Lesson #3: Take liquidity into consideration. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. If you have a fair amount of your savings in illiquid investments, you have a problem – those dollars are “locked up” and you cannot access those assets without paying penalties. In a similar vein, there are some investments that are harder to sell than others.

Lesson #4: Rebalance your portfolio. To the novice investor, rebalancing when the market is hot may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.

Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks as well.

The closer you get to retirement, the less risk you will likely want to assume. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position. Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked while saying hello to others that you may be buying at the right time.

Lesson #5: Learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 13% of the portfolio invested in just two Dow components? The investor just likes what those firms stand for, or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on the overall portfolio performance.

Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so he or she gets heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride.

Lesson #6: Practice patience. Even if you prefer a tactical asset allocation strategy over the standard buy-and-hold approach, time teaches you how quickly the markets rebound from downturns and why you should stay invested even through systemic shocks. The pursuit of your long-term financial objectives should not falter – your future and your quality of life may depend on realizing them.

Sources:
1 -fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [6/4/15]

When is the Ideal Time to Retire?

26 Jun

Older Couple on BenchWhen it comes to planning your retirement, no one has the luxury of “knowing what tomorrow holds,” so we’re left to dream and work toward our ideal retirement scenario. But, do we (YOU) really want to retire at 65? Is there a new “normal”?

According to the latest annual retirement survey from the Transamerica Center for Retirement Studies, which gauges the outlook of American workers, 51% of us plan to work part-time once retired. Moreover, 64% of workers 60 and older wanted to work at least a little after 65 and 18% had no intention of retiring.1

Are financial needs shaping these responses? Not entirely. While 61% of all those polled in the Transamerica survey cited income and employer-sponsored health benefits as major reasons to stay employed in the “third act” of life, 34% of respondents said they wanted to keep working because they enjoy their occupation or like the social and mental engagement of the workplace.1

It seems “retirement” and “work” are no longer mutually exclusive. Not all of us have sufficiently large retirement nest eggs, so we strive to stay employed – to let our savings compound a little more, and to leave us with fewer years of retirement to fund.

We want to keep working into our mid-sixties because of two other realities as well. If you are a baby boomer and you retire before age 66 (or 67, in the case of those born 1960 and later), your monthly Social Security benefits will be smaller than if you had worked until full retirement age. Additionally, we can qualify for Medicare at age 65.2,3

We are sometimes cautioned that working too much in retirement may result in our Social Security benefits being taxed – but is there really such a thing as “too much” retirement income?

Income aside, there is another question we all face as retirement approaches.

How much control will we have over our retirement transition? In the Transamerica survey, 41% of respondents saw themselves making a gradual entry into retirement, shifting from full-time employment to part-time employment or another kind of work in their sixties.1

Is that thinking realistic? It may or may not be. A recent Gallup survey of retirees found that 67% had left the workforce before age 65; just 18% had managed to work longer. Recent research from the Employee Benefit Retirement Institute fielded roughly the same results: 14% of retirees kept working after 65 and about half had been forced to stop working earlier than they planned due to layoffs, health issues or eldercare responsibilities.3

If you do want to make a gradual retirement transition, what might help you do it?

  1. Work on maintaining your health.
  2. Maintain and enhance your skill set, so that your prospects for employment in your sixties are not reduced by separation from the latest technologies.
  3. Keep networking.
  4. Think about Plan B: if you are unable to continue working in your chosen career even part-time, what prospects might you have for creating income through financial decisions, self-employment or in other lines of work? How can you reduce your monthly expenses?

Easing out of work & into retirement may be the new normal. Pessimistic analysts contend that many baby boomers will not be able to keep working past 65, no matter their aspirations. They may be wrong – just as this active, ambitious generation has changed America, it may also change the definition of retirement.

Sources:

1 – forbes.com/sites/laurashin/2015/05/05/why-the-new-retirement-involves-working-past-65/ [5/5/15]

2 – ssa.gov/retire2/agereduction.htm [6/11/15]

3 – money.usnews.com/money/blogs/planning-to-retire/2015/05/22/how-to-pick-the-optimal-retirement-age [5/22/15]

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.

 

Putting Your Tax Refund to Work

14 May

shutterstock_112957657Each year, millions of Americans receive a tax refund. In 2014, the average refund was actually $2,7921. Maybe you planned it that way or perhaps it was a welcome surprise. Either way, the next step is usually to decide what to do with the extra cash flow.

To spend or not to spend? According to H&R Block’s Tax Institute, little of it is saved or invested: last year, more people used their refunds to settle debts or pay for cars or vacations than anything else.2

As nearly 80% of Americans end up getting a refund from the IRS each year (including about a third of Americans with incomes above $200,000), it is worthwhile to consider other uses for the lump sum.2

Where else could your refund be directed? Putting it into a savings or checking account is sensible enough – but with the pathetic interest rates most bank accounts earn today, you may be wondering about alternatives. Here are some other options.

You could effectively put your refund into your workplace retirement plan. Does your employer offer to match your retirement plan contributions? If so, you might want to think about contacting your plan administrator or human resources officer and increasing your elective salary deferrals into the plan this year by the same amount as the refund. If you deposit the actual refund dollars in a checking or savings account, you can offset the increase in the amount of salary you defer by distributing the refund dollars from the bank account to yourself. Hopefully, that checking or savings account generates at least some interest on those deposited funds as well.

You could fully fund your IRA(s) with it. If you have not made the maximum allowable IRA contribution for 2015 – $5,500 across all your Roth and traditional IRAs, $6,500 for those 50 or older – you could boost that contribution as an effect of your refund. Another option: use the refund you fully fund your IRA for 2016.3

You could tell the IRS to put the money in bonds. In addition to a direct deposit or a check in the mail, the IRS gives taxpayers who receive refunds a third option: the money can be used to purchase U.S. Series I Savings Bonds. Up to $5,000 of refund dollars can be invested this way (in multiples of $50).4

You could use those dollars for home improvement. Do you think you will live in your current home for years to come? If so, you could apply your refund to energy-saving home improvements (including HVAC, roof and windows upgrades) that could result in some nice long-term savings for you. If you make such improvements, you might even be eligible for a federal tax credit of up to $500. Congress retroactively preserved this credit for the 2014 tax year, and may act to preserve it again for 2015. Even if that credit sunsets, the Residential Energy Efficient Property Credit is in place through the end of 2016 – a tax credit for up to 30% of the cost of qualifying alternative energy improvements to a primary residence.5

You could make an additional mortgage payment or pay property tax. Assuming your home isn’t underwater, you may want to use the refund dollars to reduce mortgage principal. Also, mortgage companies often keep a few thousand bucks in escrow to pay various tax and insurance expenses linked to your home, and some will actually let a borrower’s savings account stand in for their escrow account. If they permit, you could make such payments out of an account of your own while it earns a (tiny) bit of interest.6

Lastly, think about avoiding a refund altogether. In figurative terms, your federal tax refund amounts to an interest-free loan to Uncle Sam. If you don’t particularly want to make that “loan” again, see if your W-4 can be tweaked to decrease that possibility.

Sources:

1 – irs.gov/uac/Dec-26-2014 [1/12/15]

2 – money.cnn.com/2015/01/13/pf/taxes/taxpayer-refunds/ [1/13/15]

3 – irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits [1/22/15]

4 – irs.gov/uac/Ten-Things-to-Know-About-Tax-Refunds [3/13/14]

5 – money.usnews.com/money/personal-finance/articles/2015/01/09/7-recently-extended-tax-breaks-that-will-save-taxpayers-money [1/9/15]

6 – bankrate.com/finance/taxes/cut-taxes-with-early-mortgage-payment-1.aspx [12/10/14]

 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.

 

 

A Loving Way to Say Goodbye

30 Oct

When a loved one passes unexpectedly, the grieving family member or friend is often thrown into a complicated process of sorting through their loved ones affairs. This can make an already difficult time feel very overwhelming! So, one of the most thoughtful gifts you can give to your loved ones is to prepare your affairs in advance and make it a point to update them annually.

Some of these documents are legal ones that protect your finances and last wishes when or if you are unable to express them yourself. Others are the roadmap to understanding the current state of your assets, liabilities and insurance policies. Lastly, providing contact information and a list of important passwords greatly simplifies the process for reviewing and closing affairs appropriately.

END OF LIFE PLANNING DOCUMENTS:

  • Durable Power of Attorney for Finances
  • Durable Power of Attorney for Health Care
  • Living Trust
  • Living Will
  • Last Will and Testament
  • Insurance Documents

ASSETS AND LIABILITIES:

  • Real Estate/Mortgages
  • Savings Accounts/Plans
  • Checking Accounts
  • Investment Accounts
  • Life Insurance
  • Pension/Retirement Benefits
  • Outstanding Loans
  • Other

LIST OF PEOPLE TO CONTACT AND WHERE THEY CAN BE REACHED:

  •  Anyone named in your will
  • Beneficiaries of your:
  • IRA
  • Annuity
  • Life Insurance
  • Other
  • Your Attorney
  • Your Financial Advisor
  • Your Executor/Trustee

PASSWORDS

  • Email Accounts
  • Bank Accounts
  • Credit Cards
  • Social Media Accounts
  • Facebook
  • Twitter
  • Instagram
  • LinkedIn

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.