Spending Habits

Get A Handle On Retirement

December 20, 2017 By Twila Van Leer

The future is a murky place. No crystal ball has yet been invented that will tell you exactly what financial realities you will face in retirement. Today’s Millennials, GenX-ers and Baby Boomers are all approaching the zero hour with lots of questions. So many variables! Marriage, babies, divorce, bills, bonuses, job changes and the country’s shifting economy all play into the equation.

Without offering a rigid, one-size-fits-all solution, here are some ideas that you might consider as you contemplate the end of your working years:

Those in their 20s and 30s are at the entry end of careers, often straddled with student debt, credit card debt and high living expenses. Nevertheless, now is the time to start thinking about retirement savings. It comes faster than you’d suppose.

Consider saving 15 percent of your pre-tax income. Sounds like a lot. But that is the figure experts in the field say is necessary to have a health retirement.
Take advantage of ”free money” such as employer-sponsored 401k programs, which often offer a matching contribution to expand the benefit. If that seems too high a goal now, put whatever you can into a work-sponsored savings option or into personal savings. Look into profit sharing options if your employer takes this approach to helping employees to a healthy retirement. If you have to start small, plan to add a percentage to your savings each year until you reach the 15 percent goal.

Plan and budget conscientiously, not haphazardly. Keep your must-have expenses at a level not more than 50 percent of your take-home pay. Some items, such as housing, food, health care, transportation, child care and debt, can’t be avoided, but they may be flexible. Study your own circumstances and determine if there are places to cut, even if it means a little temporary sacrifice to make it work. Turn down the thermostat in winter, up in the summer, to save on heating and cooling. Buy groceries and clothing when they are on sale and brown -bag it to work. Minimize eating out.

Try to have three to six months of essential expenses in a savings account in case of an extended emergency. Think of a contribution to this fund as a monthly expense, not separate from other “musts.” After you have this three-to-six-month cushion, save for short-term expenses that pop up unexpectedly. Consider having these savings taken from your paycheck and deposited in separate accounts automatically.

Especially if retirement is some decades in the future, it gives you time to ride out the inevitable rises and falls in the stock market. Stocks have traditionally produced higher long-term returns than bonds and cash, despite the volatility.

Keeping a balance between accounts where retirement withdrawals are taxable and those where withdrawals in retirement are taxable and those where withdrawals are tax free can help manages taxes when you are living on that retirement income.

An annuity is one way to create a simple and dependable income stream that is guaranteed for as long as you or your spouse lives.

Since Social Security may be a significant factor in your retirement, make the most of the government’s program. The longer you wait to take out Social Security, the higher your monthly benefit will be. For instance, in a very simple example, a person retiring at 62 may receive $1,200 per month, while one who waits until age 66 to retire will receive $1,600. If you wait until age 70 in this scenario, the monthly benefit will be $2,112 per month. The average life expectancy for a woman now is 89 years.

Married couples should look at a number of options that would maximize their retirement income through Social Security. Divorced persons also may be able to claim a former partner’s benefit, if it is larger than their own.

Although there are many variables in trying to determine how much you need to have to live on after retirement, there is a general sense that between 55 percent and 80 percent of the amount that you earned is necessary. While some expenses you have routinely paid while working, such as savings, taxes and insurance, you may find that out-balanced by new expenses such as health care, travel and new insurances.

If you are coming close to retirement, make a detailed budget to see how your money will need to be re-directed. Check your expected expenses against all potential sources of income. Personal finance experts advise that you plan to withdraw not more than 4 percent to 5 percent of your retirement assets per year, adjusted for inflation.

It is essential to have an estate plan with clear directions about who is to inherit your estate when you die. Planning goes beyond a will. You may need expert advice to help you plan distribution in a way that will help your heirs to pay less in taxes, fees and potential legal expenses.

When retirement is a considerable way down the road, it is easy to minimize the importance of budgeting and saving and chafing to have to part with money you could spend making life better in the here and now. But thousands of elderly Americans who are now scratching their way through retirement will tell you that it is worth it.

Save Or Spend? Why Not Both?

December 18, 2017 By Twila Van Leer

Spend or Save — A successful balance between spending now and saving for the future depends on having a thorough understanding of your earning and spending habits.

No one who is committed to financial well-being would deny that savings is part of the plan. But do you deny yourself adequate spending on the here and now to meet those future goals? People who advise young couples, in particular, spend time in discussing the issue.

Striking a successful balance between spending now and saving for the future depends to a large degree on having a thorough understanding of your earning and spending habits.

If you want more money either to spend now or to put toward the years ahead, it has to come from the resources you have. You must understand your current spending habits and practices if you want to make an adjustment in either category. Check your weekly spending. That’s easier than making a monthly check and makes it easier to implement changes if need be. See if there are areas you can trim spending in favor of savings, but without sacrificing essentials.

Analyze your wants and needs and decide where your priorities lie. The more clear you are about what you want to accomplish with your money, in both long and short terms, the easier it will be to say “no” to temptations to overspend. For instance, if what you really hope to do in the long haul is travel as a couple, it will be less difficult to bypass eating out. Rewarding yourselves with an actual trip after a period of economizing will make it worth the sacrifice.

To whatever extent possible, limit monthly bills. Things such as rent, utilities, student loan or other loan payments fall into the “must pay” category. Adding to this list by such things as buying a new car you want but don’t really need is limiting your ability to put money elsewhere, including savings. Committing money to new “wants” diminishes your ability to choose.

Automate your savings to meet current and future goals. Having savings automatically withdrawn from your paychecks reduces the temptation to spend the money. Direct deposit also gives you the option of setting up separate savings accounts for different purposes. You can more easily see the progress you are making toward certain goals. Over time, as your pay increases, you can put a portion of each additional amount into savings. That should satisfy your appetite both to spend and to save. Ditto cash gifts. Bequests and other unexpected windfalls you might receive.

Allow for a little spontaneity. Build it into the budget if necessary, so that if you decide on a little splurge, it won’t make a difference to your long-term goals. A soul-satisfying spree now and again makes careful budgeting more satisfying.

Do A Year-end Financial Checkup

December 16, 2017 By Twila Van Leer

As 2017 fades into history, it’s time to take stock of your financial health. Visit your financial advisor if you have one. If not, ask these questions to gauge how well you are doing and prepare to make adjustments if necessary.

Income: Is your income likely to increase or decrease in 2018? Will you be making a job change or starting a new business in the upcoming year? Be certain you are aware how this might affect the status quo.

Retirement savings: Are your personal, 401(k) or IRA savings enough to reach your retirement goals? Be sure you are taking full advantage of your employer’s retirement options.

Housing: Are you house-broke? Considering a new home or a refinance? Look carefully before you leap. Maybe it’s time to think of a reverse mortgage.

Savings: If your income is likely to see an uptick, consider putting more into savings and an emergency fund.

Estate planning: Have you looked at all the tax provisions that will help your heirs retain more of your estate?

Insurance: Reassess your life insurance. Does it provide sufficient coverage at an affordable rate? There are dozens of options. Look for the one that fits your needs.

Health care: Are you covered for all possible health needs? Is it possible to start or beef up a health savings account? The field is very volatile at present, so adequate coverage is essential.

Medicare: You are a year closer to being able to enroll in the national health program if not already there. Have you looked at a supplemental plan to cover what the plan does not?

If you opt to meet with your financial advisor to do the year-end analysis, be sure to take mortgage statements, details about investments, your latest retirement prognosis and any other relevant documents. Discuss long-term and short-term goals, lifestyle changes, savings strategies and any other relevant issues.

Head into 2018 confidant that you have a finger on your financial pulse and are moving in a positive direction.

Three Ways To Stop Worrying About Money

December 10, 2017 By Twila Van Leer

Things look pretty rosy on the American economic front, with slow but steady improvement in the measures experts use to gauge such things and a stock market that is definitely on the upswing. So how come about half of Americans, even those with six-digit incomes, still say they worry about their personal financial security? Money is, in fact, the number one source of arguments between partners.

What’s in the wallet is not the only measure of monetary comfort. And in today’s world, despite the positive signs, real incomes are not rising much, college costs are off the charts and retirement lasts longer on average. Those are all areas for concern, Marguerita Cheng, a financial planner in Rockville, Md., offers these three ways to keep money concerns reasonable:

Pay less attention to the markets. Worry about the markets seems to be a common stressor, regardless of the amount of the individual’s assets. If you believe more wealth would free you from that concern, forget it. A survey among people with $5 million to $25 million in assets showed they worried too. Psychologists call this “loss aversion.” People tend to fret more over a dip in the portfolio than they celebrate an uptick. A diversified strategy can help you to avoid these lopsided perceptions. Don’t dwell on the market. Do check your portfolio once a quarter. You can be assured that your asset/allocation balance is okay and hopefully fend off obsession with unimportant ups and downs.

Tell someone “Thank you.” People who develop an “attitude of gratitude” for the things they have report themselves to be happier. Try writing a note of appreciation to someone who has given your life a lift at some point. Make it beyond a simple “thank you” card. Be specific about the “gift” you received. People who study such matters report that those who take the time for such niceties are happier. Putting gratitude into writing makes it more real, they say, and takes the writer’s mind off what they do not have in favor of what they do have.

Spend socially. Psychologists report that few people ever arrive at a point that they have enough. And accumulating more and more doesn’t lead to happiness. Strong relationships are more important, whether it is with a spouse, family members, friends or a religious group. Direct some of your spending to others. Plan a family vacation, donate to a charity or simply buy a gift for a friend. In one study, participants were given a $10 Starbucks gift card with instructions to use it, give it to a friend to use or to take the friend to Starbucks and share the gift card. The final choice produced more happiness, the survey said. Giving is a way to boost a sense of well-being.

(These suggestions are adapted from “Never Worry About Money Again,” by Carla Fried, Ian Salisbury and Taylor Tepper. Their article appeared in the July 2015 issue of MONEY Magazine.)

The Holidays: Time To Overspend?

November 28, 2017 By Twila Van Leer

It happens every year. Despite good intentions, more than half of Americans admit they are planning to spend more during the holidays than they have on hand. Fifty-six percent fall into that category and 16 percent of them expect to spend at least six months paying off the overage.

The American Research Group predicts that the average person they surveyed will spend $929 on gifts this season. Among parents, the numbers can go higher. Newly released T. Rowe Price data indicate that on average, parents expect to pay some $422 per child. And 34 percent say they will spend $500 or more.

How do they manage the beyond-budget spending? About 25 percent take drastic measures, withdrawing money from 401(k)s or their emergency savings. Or they take out payday loans to finance their holiday spending. Even among families who start the year with good intentions, 58 percent fail to stick with the holiday budget they have set.

A large number will whip out the credit cards to finance gift-buying, with the inevitable result of laying on credit interest. For instance, using the $929 average figure as a base, if your credit card charges 18 percent interest, you’ll spend $1,022, and each month it takes you to pay off the total amount, the interest cost will rise. While cards are irresistible when you want to give gifts, they can be dangerous if you can’t resist temptation to keep buying until you are maxed out and are not prepared to pay them off right away.

Avoid dipping into the emergency fund. That money is there to take care of such things as car emergencies, leaky roofs and other bona fide emergencies. And the risk doesn’t decline simply because Santa Claus is coming to town.

Retirement savings also should be inviolate. Now matter how much your child or grandchild covets a very expensive toy for Christmas, it isn’t worth the 10 percent penalty you’ll pay, if you’re under 59.5 years old, for the early withdrawal. You’ll also lose the accrued interest on that money. If you are earning an average annual 7 percent return, that $900-plus withdrawal represents loss of about $9,600 by the time you’re 65. And there are all the Christmases to come, remember? If you use the same tactic to finance more Yuletide wishes in the years to come, the loss could be considerable.

That’s not to mention the taxes you’ll pay – about $225 on a $900 withdrawal.

It’s probably useless to advise better planning for this year, but for future reference: Set aside some cash each month in anticipation of the gift-giving season. Stick to your good intentions. Santa will thank you. When you shop, let a list be your guide and don’t get swept away in visions of your own largesse. Impressing friends and family during the holiday season won’t take away the sting when the holidays are over and your finances are in shambles. Don’t take more cash to the stores than you intend to spend.