Tag Archives: Women Orange County

Are You a Victim of the Retirement Savings Gender Gap?

5 Jan

shutterstock_108591956You may or may not be surprised to hear that there is a gender gap when it comes to retirement savings between men and women.

 In fact

  • The median IRA/workplace retirement savings balance for a 45-year-old woman is $43,446.
  • The median IRA/workplace retirement savings balance for a 45-year-old man is $63,875.

Obviously, you cannot retire on that. The 2015 edition of Financial Finesse’s annual survey, The Gender Gap in Financial Literacy, gauged the additional amount of savings that the median 45-year-old male employee and the median 45-year-old female employee would need to replace 70% of pre-retirement income and pay for estimated medical expenses (long term care not included.) It found a 26% disparity:

  • The median male employee saver needed $212,256 to reach that goal
  • The median female employee needed $268,404.1

A gap in some aspects of financial literacy was also notable.

  • Just 67% of pre-retiree women responded that they had a general knowledge of investment classes compared to 84% of their male peers.
  • While 78% of men surveyed said that they had an emergency fund, merely 67% of women did.
  • Just 34% of women were confident about the way their portfolios were allocated, versus 48% of men.2

Is the solution to simply work longer?

Some women hope to keep working into their seventies, but that may not happen. Earlier in this decade, MetLife studied “leading edge” baby boomers born in 1946 as they turned 66 in 2012. It found that 52% were already retired, and 43% had claimed Social Security earlier than they anticipated.3

How can women plan to address this?

  1. Find out where you stand in terms of savings now. A simple retirement planning calculator (there are many available online) can help you see how much more you need to save, per year and over the course of your career.
  2. Save enough to get the match. If your employer will match a percentage of your retirement plan contributions per paycheck, strive to contribute enough to your plan each paycheck so that the match occurs.
  3. Ask about automatic escalation. Some workplace retirement plans have this option, through which you can boost your retirement contributions by 1% a year. This is a nice “autopilot” way to promote larger retirement nest eggs.
  4. Make tax efficiency one of your goals. Consult a financial professional about this, for there are potential advantages to having your money in taxable, tax-deferred, and tax-exempt accounts. For example, when you contribute to a traditional IRA or a typical employer-sponsored retirement plan, you make tax-deferred contributions. This lowers your taxable income today, although the distributions from those accounts will be taxable in retirement. You defer after-tax dollars into Roth IRAs; those dollars are taxable today, but you will eventually get tax-free growth and tax-free withdrawals if you follow IRS rules. Taxable investment accounts may seem less preferable, but they too can potentially help you pursue financial goals.4
  5. Determine an appropriate “glide path.” Many financial professionals caution retirement savers to gradually reduce the risk in their portfolio as they age – to “glide” from a portfolio mainly invested in equities to one less invested in them. (Some retirement plan accounts will actually adjust your investment mix for you as you age.) Glide paths are different for everyone, however. If you really need to accelerate your retirement savings effort, then you may need to accept more risk in your portfolio in exchange for the possibility of greater returns. (Again, this is a good topic for a conversation with a financial professional.)   

In some ways, women are narrowing the retirement saving gender gap. Financial Finesse found that 4.2% more women had adopted an investment strategy in the 2015 survey compared to the 2012 edition, and 2% more had done a basic retirement savings projection.  In passing, it also noted that the percentage of women who said they were on track to meet their retirement savings goal rose 4.2% from 2012 to 2014.2

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 – 2015_Gender_Gap_report_final_brief_v2.pdf [12/3/15]

2 – forbes.com/sites/nextavenue/2015/09/17/the-unexpected-news-about-women-men-and-retirement/ [9/17/15]

3 – metlife.com/mmi/research/oldest-boomers.html#graphic [12/3/15]

4 – nerdwallet.com/blog/advisorvoices/prioritize-key-retirement-savings-steps/ [12/1/15]

 

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.

 

 

6 Classic Investing Mistakes And How to Avoid Them

30 Jul

Financial MistakesYear after year, in bull and bear markets, investors make some all-too-common blunders. They have been written about, talked about, and critiqued at some length – and yet they are still made. You can chalk them up to psychology, human nature, perhaps even a degree of peer pressure. You just don’t want to find yourself making them more than once.

#1: Caving into emotion. The deVere Group, which consults high net worth investors around the world, recently surveyed 880 of its clients and found that even with their experience, some had made the equivalent of a rookie mistake – 20% had let fear or greed prompt them into emotional investment decisions.1

Investors use past performance to justify their greed – it did well recently, I better buy more of it – but past performance is merely history and represents a micro factor versus macroeconomic factors influencing sectors and markets. Fear prompts panic selling. How many investors draw on technical analysis or even stop-loss limits when shares suddenly decline? A stop-loss limit is handy for those who don’t want to watch the market every day – it instructs a brokerage to sell a stock if it drops below a specific value, often in the range of 8-10% of the purchase price.2

#2: Investing without a strategy. Some people invest with one idea in mind – making money. An outstanding goal to be sure, but it shouldn’t blind them to other priorities such as tax efficiency, managing risk and reviewing asset allocation. Even 22% of the investors in the deVere poll confessed to this.1

#3: Not diversifying enough. Have you ever heard the phrase “familiarity bias”? This is when investors develop a “home team” attachment to an investment. Just as sports fans stick by the Cubs through thick and thin, some investors stick with a few core investments for years. Maybe they work for XYZ Company or their mom did, or maybe they like what XYZ Company represents. If XYZ Company goes under, they won’t feel so good. You can hold too much of one investment, especially if a company rewards you with its stock.2

Conversely, some portfolios are over diversified and hold too many investments. This is seldom the fault of investors; over time, they may end up with some shares of all the major companies in an industry group with a little help from Wall Street money managers. The core problem here is that not all of these companies can be winners.

#4: Slipshod tax management of investments. Sometimes certain investments within a taxable account will lose money, yet because of past gains they have made, the investor is stuck with capital gains tax. Some investments are better held in taxable accounts and others in tax-deferred accounts, as various types of investments are taxed at varying rates. When you retire and tap into your savings, you can potentially improve tax efficiency by drawing down your taxable accounts first, so that you’ll face the capital gains tax rate (which may be 15% or even 0%) instead of the ordinary income tax rate.3

Also, when you pull money from your taxable accounts first, your tax-advantaged accounts get a little more time to grow and compound. If they are large, another year or two of growth and compounding could prove beneficial.

#5: Seldom reviewing portfolio allocations. A long-term asset allocation strategy starts with defined percentages. Over time – and it may not take much time – the percentage allocations go out of whack. A bull market may result in a greater percentage of your portfolio assets being held in stock, and while this overweighting may seem reasonable in the near term, it may not be what you want in the long term.

#6: Investing (or reinvesting) near a market peak. Many investors play the market in one direction, which is up – they buy with expectations that a sector or the broad market will keep climbing. Short selling stocks (i.e., seek to exploit falling stock prices) takes more skill than many investors have. A buy-and-hold philosophy may prove very rewarding, as long as you don’t hold too rigidly or too long in the event of a sustained, systemic shock to the markets.

An even keel promotes a steady course. Fear, greed, bias, randomness, inattention – these are the root causes of the classic investing blunders. We have all made them; patience and experience may help us avoid them in the future.

Sources:

1 – thestreet.com/story/12733263/1/5-investing-mistakes-millionaires-make–but-theyre-still-rich.html [6/4/14]

2 – abcnews.go.com/Business/avoiding-sins-investing/story?id=18969850#.UXBFuco7bAJ [4/16/13]

3 – tinyurl.com/l6lkrfu [2/12/14]

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 Quick Guide to Understanding the Markets

21 Sep

                                                                                                                                                                                                                               ImageIf you’ve ever been serious about saving for something big like college tuition or retirement, chances are you understand the multiplying effect the market can have on your money. However, knowing where to put your money and understanding how the market works…that’s a different story.

 

                                                                                 Here are a few key terms you may have heard before: Dow. NASDAQ. S&P 500. Fear index. NYSE. Commodity prices. Earnings. Economic indicators.

 

These are critical terms for investing, but if you stopped most people on the street, you’ll find they have only a hazy understanding of what these terms mean. So here’s a quick guide to some of the basics.

 

THE MAJOR U.S. INDICES.

Dow Jones Industrial Average – Tracks how 30 publicly owned companies trade on a market day– the “blue chips”, 30 titans of U.S. and global business chosen by the Wall Street Journal, most not actually industrial.

NASDAQ Composite – Records the performance of 3,000+ companies on the NASDAQ Stock Market (see below), including many technology firms.

S&P 500 – Logs the performance of 500 leading publicly traded companies across ten different sectors (business/industry categories), as determined by financial research giant Standard & Poor’s (there was actually a Mr. Poor, hence the name). 

 

At the end of the trading day, these indices settle or “close” at a price level.

 

The Dow is a price-weighted index – that is, its value each trading day rides up or down on the price movements of its 30 components.

 

By contrast, the S&P 500 and NASDAQ (and most other stock indices) are cap-weighted, meaning the index value reflects the total market value of the companies in the index and not simply the prices of individual components. The S&P 500 has both a price return and a total return (the total return includes dividends).

   

WHAT TO PAY ATTENTION TO

While the nightly news tells everyone what the Dow did today, many seasoned investors pay more attention to the S&P 500, which represents about 70% of the value of the U.S. stock market. There are other indices that also grab Wall Street’s attention.

Russell 2000 – Lists the “small caps”, which are usually newer and younger firms than found in the predominantly “large-cap” S&P 500.

Wilshire 5000 – Tracks stocks of almost every publicly owned company in America (6,000+ components).

CBOE VIX (Chicago Board Options Exchange Volatility Index) – Also known as the “fear index,” it measures investors’ expectations of volatility (read: market risk) in the S&P 500 for the next 30 days.

 

THE STOCK EXCHANGES

Stocks trade on exchanges, with the most prominent in America being the New York Stock Exchange (NYSE), the “big board” at which celebrities are seen ringing the opening or closing bell. Other notable U.S. stock and securities markets include the American Stock Exchange (AMEX), the CBOE and the NASDAQ Stock Market.

    

THE BOND MARKET

Further decentralized trading occurs here, conducted by institutional and individual investors, governments and traders buying, selling and issuing government, corporate and mortgage-linked securities (and other varieties). Bond prices fall when bond yields rise, and vice versa. Interest rate changes affect the bond market more than any other factor; credit rating adjustments and changes in the appetite for risk (i.e., a race to or retreat from stocks by investors) can also play roles.

 

What moves the markets up and down? Information – or more precisely, the way large institutional investors respond to it. Things really move when the equilibrium of the market is upset by either positive or negative breaking news – it could be a geopolitical development, a natural disaster, a central bank decision, a comment from a Federal Reserve official or the Treasury Secretary, it could be many things. It could be earnings reports – corporate earnings are sometimes called the “mother’s milk” of stocks, and when two or three big companies beat estimates, Wall Street may see big gains that day.

 

The markets also respond to an ongoing stream of economic news releases from the federal government and other organizations, such as:

  • Federal Reserve policy announcements (interest rate adjustments, the implementation or cessation of stimulus efforts)
  • Labor Department’s monthly employment report finishes
  • Commerce Department’s consumer spending report
  • Bureau of Labor Statistics Consumer Price Index measuring consumer inflation
  • Monthly reports on existing home sales (from the National Association of Realtors)
  • New home sales (from the Census Bureau)
  • Home values (via the S&P/Case-Shiller Home Price Index)

      

Although it can be very helpful to have a basic understanding of the markets, you don’t have to navigate them alone. Partnering with a Certified Financial Planner that you trust who has a constant eye on the markets can help you make significant progress toward achieving your financial goals in the long-term.  

 

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.