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The Benefits of Estate Planning

The Benefits of Estate Planning

It’s the one personal finance topic people often try to avoid, even though they know they shouldn’t. Estate planning refers to a number of activities dealing with how decisions are made, and assets are handled and disposed of just prior to and following death or incapacity.

While far from the most upbeat of topics, it’s a very important one to contend with, nonetheless. But rather than focus on specific estate planning strategies, let’s consider the potential benefits of addressing this issue at all.

Leave a legacy. Many people want to leave something tangible to those they love, whether to their children, grandchildren and great-grandchildren, nieces, nephews or friends. Knowing that your lifetime of hard work and saving can make affording college, buying a first house, a car, or starting a business easier or possible for someone you love can be gratifying. A final will and testament spells out the specifics of how your assets are disposed of. And you can also leave an explanatory letter to your beneficiaries to let them know what they meant to you, why a gift was made and how you hope your bequest will help enrich their lives.

Unburden your loved ones. Making difficult end-of-life medical decisions can be stressful and anxiety ridden for those who care about you. But this is a burden you can take off their shoulders by putting in place advanced directives — otherwise known as a living will — that express your wishes for continuation of life-support and other medical decisions if you aren’t able to make them for yourself. And it’s a very loving thing to do for your children or other family members

Support a charity. Do you have a charity that means a lot to you? You can leave a lasting gift by remembering that nonprofit organization in your will. Whether you want to support curing childhood diseases, environmental efforts, animal welfare, or a church, synagogue or mosque, you can take comfort in knowing that you’ll help support the causes that matter most to you even after you’re gone.

Take control. Estate planning in some ways, is the ultimate assertion of control over your final destiny. Whether through the establishment of a trust, the creation of a will or the documentation of your advance directives, you’ll be able to maintain greater control over important decisions throughout your life and beyond.

Remember, estate planning isn’t only for the wealthy. Everyone will have to make end-of-life decisions that have tremendous consequences for themselves and their loved ones. Once you have all the essential documents in place, you most likely will not have to revisit these decisions very often. And with an appropriate estate plan in place, you can get on with enjoying your life in the here and now.

Have You Increased Your 401k Contribution Lately?

Have You Increased Your 401k Contribution Lately?

In 2022, inflation rose by a staggering amount. Currently at 8.6% as of this writing, at least one economic forecast projects inflation could reach 9% before years end. To keep up with rising costs, it may be tempting to lower your 401(k) contributions or stop altogether. But in fact, high inflation means youll need to save more aggressively for your future as purchasing power declines. 

While 401(k) savers have the option of raising deferral amounts periodically, many employees fail to increase their contribution rates over time. Heres why you should consider upping your 401(k) contribution, especially when inflation is on the rise.  

A Small Increase Can Make a Big Difference 

Saving for retirement is a long-term proposition, and small changes to your 401(k) allocations can greatly affect your ability to retire comfortably in the future. For example, according to Fidelity, a 35-year-old earning $60,000 a year can make a significant impact in their retirement savings by the time theyre ready to withdraw with only a 1% increase in their savings rate. In the short term, thats only $12 more per week, which isnt enough for most savers to feel an immediate pinch. However, just that small increase can add up to an additional $85,000 more in the fund by age 67, assuming a return rate of 5.5% and a consistently growing salary.  

While your particular situation may vary, increasing your 401(k) contribution rate now means that these funds have more time to potentially increase in value thanks to the powerful effects of compounding. And having a little bit less in each paycheck now will likely hurt a lot less than not having enough for a comfortable retirement later on.  

Consider Auto-escalation 

Even though the math is undeniable, sometimes it can be hard to get yourself to take the plunge, particularly if youre concerned about rising costs in the near term. To make it easier for employees, some plans offer auto-escalation, in which your 401(k) contributions increase automatically. Typically, these rates increase by 1% each year until federal limits are reached. This is a great option to sign up for if you aren’t already enrolled. And you can always opt out of an increase, so theres no long-term obligation. 

Talk to a Financial Professional 

Raising your 401(k) contributions periodically can help put you in a much better position for retirement, without having to take big hits to your available cash flow at any one time. Instead, you can ramp up gradually, upping your contributions whenever you receive a pay increase or at some set interval.  

When youre ready to begin increasing your allocations, talk to a financial professional to find out how you can best augment and manage your retirement savings. As inflation continues to rise, 401(k) savers who periodically increase their contribution amounts are positioning themselves to be better prepared to maintain buying power at retirement, when theyll likely need it the most.  

Source 

 

Ease Into Retirement With a Smart Pre-game Strategy

Ease Into Retirement With a Smart Pre-game Strategy

Retirement is a major milestone — a moment to turn a new page to a chapter you’ve probably dreamed about for decades. People look forward to unencumbered schedules, freedom to travel, spending more time with relatives or moving to a dream home on the beach. Retirees often have big expectations about what a life of leisure may bring only to find out that they miss the routine and camaraderie of going to work each day. Or that moving to their favorite vacation destination means leaving all their friends behind.

It’s not uncommon for retirees to experience a surge of well-being and happiness directly after retirement, followed by a decline in life satisfaction as time passes. But you can avoid some of the stress and anxiety that retirement can bring with a smart pre-retirement strategy to help smooth out the transition.

Dip Your Toe in Retirement Waters

The day after you retire might seem like plunging into the deep end of the pool – your daily work-life routine suddenly stops cold. So, instead of jumping in, consider wading into retirement with a transitional job. Maybe your current employer will let you step down to part-time work for several months — or you can explore a new opportunity with a bridge job that keeps you in the workforce (and keeps your retirement account growing) while lightening your schedule. Your WellCents financial professional can help you figure out how much income you’ll need in order to make a gradual transition into retirement.

Retire to Something Else

Prior to your last day at work, make plans and lay the groundwork for what you’ll retire to — not just the job you’ll retire from. Join a community or volunteer organization now. Get to know them and what the possibilities are so that when you retire you’ve already found a group you like, and are ready to fully engage in — or ramp up — your participation. 

Relocate With Confidence

Moving closer to children and grandchildren or relocating to a favorite vacation destination can sound like the perfect retirement plan. But it can also lead to disappointment — family may be busy with other activities or your vacation spot might be lonely without a group of friends. Invest in your new community before you make the big move. Plan longer trips to the area so that you can take part in local activities, meet people, start new friendships and have something to do outside of your family circle.

Invest in Prep

Just like the time and financial investment you make toward retirement readiness, investing effort and energy into retirement prep can yield big rewards. Talk to your spouse, family and friends about the dream you have in mind for your golden years and discuss how it aligns with theirs. Make a plan and start investing in your dream well before your last day of work. Contact your WellCents financial professional to check your financial readiness and figure out the best time to kick off your retirement pre-game.

Source: https://www.apa.org/monitor/2014/01/retiring-minds

 

What If I Can’t Save Enough to Reach my Retirement Goals?

What If I Can’t Save Enough to Reach my Retirement Goals?

You just ran the numbers on your retirement and realized that you aren’t going to be able to save enough to make it happen. Don’t panic: There are still things you can do to better your situation, especially if you’re willing to be flexible about your plans and your lifestyle.

The first step is to determine exactly where you are. In retirement, you may have income from a number of sources:

  • Social Security
  • Pensions
  • Investment income
  • An inheritance
  • Earned income from a side hustle

Next, estimate the likely cost of your future monthly expenses: rent or mortgage, utilities, automobile payments and insurance, credit card and loan payments, food, health care (insurance plus out of pocket) and emergency repairs. A good way to capture these categories is to look at your credit card statements and checkbook and list everything you’re spending on now. If you haven’t kept track of this on paper, most online bank and credit card services offer easy access to your transaction history.

Leave out or lower your estimate for anything you won’t spend as much on when you’re retired (your commuting cost should go down, for example). Now, what about potential costs for travel, hobbies and other post-retirement fun? Will you set aside money to give to grandchildren or other relatives in the years ahead?

Once you have your monthly income and expense estimates, compare the two. Are you still coming up short?

If you don’t have enough income to cover your projected expenses, there are some things you can do. But first, there are some things you should definitely NOT do:

  • Panic.
  • Shift into higher-risk investments to try to capture higher returns.
  • Decide your head hurts, avoid thinking about it altogether and assume your health and career will allow you to work long enough to make up the difference.

Here are some things you CAN do:

  • Make catchup contributions to an IRA. The tax code allows workers over 50 to make extra, pre-tax contributions to boost their savings.
  • Re-think your lifestyle. Do you really need to live on a golf course? Maybe you could live near a golf course and be just as happy.
  • Take on a side hustle to create a little extra income. This could be something that’s been a hobby – tying fishing flies, restoring old cars, or knitting comforters. Or work a few hours a week at a friend’s business. Be aware, however, that your earnings may have implications for your taxes and Social Security benefits. Because the tax code governing what portion of benefits can be taxed is complex and subject to change, you should talk to an accountant or financial advisor well versed in that part of the code.
  • Do you have two cars? Maybe one would do. Or perhaps you can do just fine with a used model with a reputation for reliability and longevity.
  • Downsize. Move to a smaller house or condo, and if you’re single, maybe take on a roommate.
  • Consider relocating to a lower-cost area. The cost of living in Knoxville, TN is about 17% below the national average, and there are plenty of other places below the norm: Cheyenne, WY (-8%), Green Bay, WI (-10%) and Sherman, TX (-14%) are just a few.
  • Tap your home equity to pay expenses.
  • Consider a reverse mortgage. However, be aware that the reverse mortgage products offered by various lenders are wildly different in their terms and risks. Look at this very, very carefully before committing.
  • Delay taking Social Security benefits. Waiting until at least your full retirement age boosts your monthly check significantly; your monthly benefit will increase by about 0.67% for each month you delay past your full retirement age, and will add about 8% for each full year you wait until you reach age 70. Your full retirement age depends on your year of birth. Use the calculator on The Social Security Administration website to figure all of this out for your particular situation based on your personal earnings record.

But before you do any of these things, the most important step you can take is to talk to your financial advisor. Because they deal with the intricacies of the tax codes and Social Security every day, they can help you steer clear of landmines and set a course to that bright retirement you’ve been dreaming of.

Sources:

1. https://www.forbes.com/sites/investor/2017/06/09/what-to-do-when-you-havent-saved-enough-for-retirement/#368f06f06e20

2. https://www.aginginplace.org/are-there-taxes-on-social-security-for-seniors/

3. https://www.ssa.gov/planners/retire/1955-delay.html

4. https://www.kiplinger.com/slideshow/retirement/T047-S001-cheapest-places-where-you-ll-want-to-retire-2019/index.html

#save #retirement #future #wellcents

ACR# 336900 NFPR-2020-8

Frequently Overlooked Retirement Costs

Frequently Overlooked Retirement Costs

Think you know how much you’ll need to retire comfortably? You might want to think again. According to the Schroders Global Investor Study 2018, which surveyed more than 22,000 investors from 30 countries, 15% of retirees lacked sufficient income to support a comfortable retirement. Moreover, the research found that people anticipate budgeting 34% of their retirement income for basic expenses but actually require nearly 50%. This disparity is understandable given the many unexpected changes that can occur during this phase of life. With that in mind, here are some costs that are often overlooked or underestimated when planning for retirement.

Taxes. No more employer means no one is withholding income taxes from your Social Security check each month (unless you specifically request it from the Social Security Administration)— and that can lead to an unwelcome surprise at tax time. Many retirees don’t realize that their Social Security benefits are taxable as income, so it’s important to plan ahead for any retirement tax bills. And you’ll pay taxes on withdrawals in retirement from your traditional (but not Roth) IRA.

Home Maintenance. Hopefully you’ll remain robust enough to continue to maintain your home yourself during retirement, but it’s often wise to put aside a little extra in case you need to make routine repairs or hire outside help for some home maintenance tasks you’ve been handling such as lawn care, laundry and general housekeeping.

Medical Costs. While many retirees are often pleased when they’re finally Medicare eligible, they’re often surprised when they learn that some costs are not covered under the government plan. For example, many dental, vision and other expenses (e.g., hearing aids) are generally out-of-pocket expenses and can run in the thousands of dollars. Also, Medicare premiums, deductibles, copayments, coinsurance and medication costs can add up once you’re no longer on your employer-sponsored health insurance plan.

Aging-in-Place Renovations. Many retirees want to be able to remain in their homes as opposed to receiving care in an assisted living or nursing home facility. Often, however, modifications to an existing floor plan to accommodate wheelchair access or a live-in caregiver become necessary. For example, you might require a walk-in tub or shower, grab bars or an entrance ramp to your home. While needs in this area can be hard to predict, additional dollars in your emergency fund to cover such renovations constitutes smart retirement planning.

Home Care. While we all hope to maintain our independence throughout our lives, the reality is that most of us will require some additional help with activities of daily living as we age. And the cost of this assistance isn’t cheap. Purchasing long-term care insurance is one way to plan for this expense, but that can be quite costly as well. Another option is relocating to a state with more favorable Medicaid benefits. Speak with your advisor about this essential part of your retirement plan.

Family Assistance. Many retirees want to be able to help out their children, grandchildren and extended family. You may wish to contribute to a college fund, treat your grandkids to a nice vacation, or help your children with a first home purchase. Try to anticipate these wants and budget for them accordingly.

Vehicle Replacement. For many retirees, retirement can last for decades. So it’s likely that you’ll need to replace your car at least once or twice if you continue to drive. This can be a significant expense to cover if not budgeted for ahead of time.

Inflation. Again, with many retirements lasting 20-30 years, it’s important to take inflation and the degradation of your retirement dollars’ purchasing power over time into account. This can be a complex cost to calculate, and it’s another good reason to consult with a professional.

Retirement is an exciting time of transition that brings with it many changes to your budget and lifestyle. Speak with your financial advisor to help you create a realistic budget that will anticipate as many of your retirement expenses as possible. Then, when the time comes, you’ll be in a better position to sit back and enjoy the adventure.

#costreduction #overlookedcosts #wellcents #financialwellness

Sources:

1. https://www.schroders.com/en/media-relations/newsroom/all_news_releases/schroders-global-investor-study-2018-people-significantly-underestimating-cost-of-living-in-retirement/

2. https://www.advisortoday.com/2018/07/17/people-underestimate-cost-of-living-in-retirement/

3. https://www.ssa.gov/planners/taxwithold.html


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