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Where You Retire Matters!

Where You Retire Matters!

Many people dream of relocating when they retire. While some spots are more popular for retirees, these areas often come with higher costs of living. And because most retirees live on a fixed income, it’s important to keep a close eye on costs. If you’re dead set on retiring to a pricier area, you may even need to continue working for a few years longer than you planned to make it happen. Here are things to consider when evaluating your options.

Taxes

From state to state, and even from town to town, the baseline taxes that residents must pay can vary quite a bit. Some states, such as Florida, have no state-level income tax at all. Others have either a flat tax rate — where the state taxes all income at the same rate — or a progressive tax — in which those with higher incomes pay a higher rate. But even if your state has no income tax, your town’s property taxes may cut into your savings. It’s also important to assess the sales tax rates in the area where you’re hoping to move, as these could also add up. Some municipalities have local sales taxes as well, so be sure to do your research to determine if an area is truly affordable for your retirement budget.

Housing Costs

Home prices and rental rates have increased steadily for years, but this is especially true in places with competitive real estate markets. It may be helpful to research future development plans in your area. If a large company is planning to build or expand a major facility nearby in a few years, for example, expect housing costs to increase as new employees want to move closer to their jobs.

Insurance

Many of the most popular retirement destinations — particularly along the coast — are also in areas that are at particular risk of certain disasters. For instance, Florida’s hurricane season lasts for several months every year, and residents sometimes face catastrophic storm damage. Because of this, currently the average cost to insure a $250,000 home in Florida is $1,648 per year, compared to $681 per year in Delaware. Your car insurance may be higher in certain states, too, which often depends on the average number of uninsured drivers in the area and other factors.

Transportation

Unless you enjoy (and can afford) frequent travel, it’s important to think about the proximity to the places you’ll want or need to go often. Being far away from loved ones could require you to spend a lot of your retirement income on visits, and if you’re an outdoorsy person, living in a city means you’ll be planning — and paying for — frequent getaways. But it’s not just leisure that could cost you. Living far from grocery stores, doctors, pharmacies and other necessary places can add significantly to your household budget, whether you drive yourself or take public transportation.

State Benefits

Depending on where you live, your Medicaid benefits could range from generous to very low, potentially leaving you on the hook for expensive in-home or facility-based care. Medicare premiums vary from state to state as well. If you’re able to self-fund your medical care, this may not affect you as much. But if you need to rely on state benefits, be sure to research the costs and coverage in the state where you intend to retire.

Overall Cost of Living

The cost of everyday items such as groceries, clothing, home services and more can vary tremendously depending on whether you’re located in a big city or rural area. With so many factors to consider for retirement, using an online calculator to help project cost of living in areas you’re considering can be a useful starting point. However, it may also be helpful to speak to a financial professional to help you figure out what you can afford, and which area suits your budget best, so you can adjust your retirement plan accordingly.

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.

Inflation Adjust Your Emergency Fund

Inflation Adjust Your Emergency Fund

Inflation, whether steady or steep, can have a negative impact on your savings if you don’t keep pace with it. This means that while you may be prepared for a financial emergency now, you might not be down the road. And particularly when a recession complicates the picture, padding your emergency account can be a lifesaver. If you have three months of expenses currently saved, try to increase that amount to six. If you have six months in the bank, see if you can sock away nine months’ worth. At the very least, aim to increase your savings by the same percentage as the current inflation rate to help keep you prepared in a climbing interest rate environment.

Though it’s important for investors to be cautious during recessionary conditions, there can be a potential upside when interest rates rise — investors can see higher returns on their savings. For any money you might need to access on a moment’s notice, minimize risk as much as possible while maintaining high liquidity. Here are some types of accounts that can be appropriate for an emergency fund.

High-interest Savings

You can save money in an FDIC insured high-interest savings account to generate a higher interest rate than most traditional savings accounts. And the extra interest you earn could help bridge the gap between your savings and the current inflation rate. You may find the best deals with online high-interest accounts.

Laddered CDs

A laddered CD is when an investor divides a lump sum into multiple CDs that mature at different times, so the investor can receive periodic payouts. Staggering maturity dates may also allow you to take advantage of changing interest rates. This strategy can help lower overall portfolio risk as well, which may be important for something as critical as an emergency fund. 

Money Market Accounts

In exchange for higher interest rates, many money market accounts (MMAs) have minimum deposits of $5,000 or more. They have relatively high liquidity, but the number of transactions per statement period are typically limited (often to around six per month). MMAs also often have debit features that give them more liquidity than CDs or even other savings accounts.

Don’t Compromise Your Future Financial Wellness

No matter which savings strategy you choose, try to avoid dipping into your 401(k) or other retirement account. These are intended to be long-term, non-liquid investments that are meant to mature when you’re ready to retire. The taxes and fees alone for early withdrawals can reduce what’s available to you in the short term to the point where the money might not cover a significant emergency. Plus, those funds can’t be put to work in the market while they’re divested — and you may miss out on valuable growth opportunities if stocks rise. The kind of account that’s best for you depends on your financial situation, so speak with a financial professional before committing to one strategy.

Sources

https://www.bankrate.com/banking/mma/what-is-a-money-market-account/

https://www.investopedia.com/terms/c/cd-ladder.asp

Putting off 401(k) Enrollment Could Cost You More Than You Think

Putting off 401(k) Enrollment Could Cost You More Than You Think

You just landed a new job, and there are so many things to do. You have to set up your new workspace (even if its at home), become acquainted with your boss and coworkers and get up to speed on your new responsibilities. And theres the company-sponsored 401(k) you should sign up for.  

It could be tempting to put off investment- and retirement-planning decisions until you settle in. But thats an idea that could cost you more than you might expect, especially if you have a longer time horizon to retirement. 

According to The Motley Fool, a 25-year-old employee making about $47,000 who saves 15% of their income and realizes a 7% annual rate of return would have almost $100,000 more at retirement than another worker with all the same parameters except that they waited until age 26 to begin their contributions.  

So, move signing up for your 401(k) to the top of your to-do list. If the options are a little overwhelming, sit down with a financial advisor who can help you determine your personal risk tolerance and recommend investments accordingly. 

Another option to consider if youre unsure about making investment decisions is electing to contribute to a target date fund (TDF), if your plan offers one. These funds create a mix of investments according to an estimated retirement date.  

The fund automatically adjusts the mix and risk of investments to become more conservative as the target date approaches. A TDF handles much of the decision making for you. However, its still important to monitor the funds performance and periodically check in with your financial advisor to ensure you remain on track to meet your retirement goals. 

You generally want to contribute as much as you can to your 401(k) plan. But at minimum, try to contribute at least enough to earn the maximum company match. 

Companies that offer a whats called a 401(k)matchwill match your retirement contributions either dollar for dollar, up to a certain amount or according to a percentage or formula. You always want to aim for contributing at least enough to receive the maximum possible employer match or you’re leaving free money on the table. 

What you may intend to be a small delay in contributing to your 401(k) can lead to months or years as life gets busy. If this should happen, you can easily miss upswings in the market and opportunities for growth to compound over time. 

Choose to make retirement planning a priority and put yourself first. Your employer-provided financial advisor can be a tremendous resource whether it’s the first time you enroll in a 401(k) plan or your third or fourth time around. And if this isnt your first experience with a 401(k), be sure to discuss the options for any funds remaining in 401(k) accounts from your previous employers as well. 

Dont delay this important decision set up an appointment with your financial advisor today.  

 

Understanding Your Social Security Benefits

Understanding Your Social Security Benefits

Have you looked into your Social Security benefits and decided it was just too confusing to deal with right now? You wouldn’t be alone. It involves a lot of numbers and calculations, and not surprisingly there are some pretty detailed rules. But Social Security plays an important part in most people’s retirement plan, so we’ve done a little simplifying to help you understand your options and how it all works.

Accessing your account information online. The amount of the benefit you get each month is determined by a formula based on your work history and how much you’ve contributed to the fund (spousal benefits may be calculated differently). So how do you know what the amount will be? To find your personal benefits, you need to create an account on the Social Security Administration (SSA) website. The SSA has access to your records and can calculate your exact benefit.

What is your full retirement age? While we tend to think of retirement age as 65, what is known as your “full retirement age” according to the U.S. government is different and depends on the year you were born. The SSA website has an informative chart that enables you to easily determine your full retirement age. But as an example, for those born before 1955, full benefits begin when they turn 66 (which would have occurred by 2020). For those born in 1955, that changes to 66 and 2 months, then 66 and 4 months if you were born in 1956 and so on. If you were born in or after 1960, your full retirement age is 67. Keep in mind that, although changes in the full retirement age don’t happen often and are generally phased in gradually, they can occur.

The impact of accelerating vs. delaying benefits. The earliest most people can begin receiving benefits is age 62, but your benefits will be lower if you begin receiving them before your full retirement age (there are different rules for other Social Security benefits, such as those for disability or survivors). Monthly benefits are reduced by a percentage for each month between your actual retirement date and your full retirement date.

If you start receiving benefits at your full retirement age, your monthly benefit will be larger than if you elect to receive benefits earlier. And if you wait beyond full retirement age, the monthly benefits are even higher. Once you reach 70, however, your monthly benefit stays the same, and there are no more increases except for the annual cost of living increases that all recipients get.

To find out how much your payments will be depending on when you elect to start receiving benefits, go to the SSA’s online calculation tool. The calculator will use your date of birth and desired retirement age to show the effect of your retirement choice on the benefit you receive.

A very personal choice. The decision of whether to begin receiving your benefits before or after full retirement age rests on your own individual circumstances. There are some who advocate taking benefits somewhat earlier than full retirement, arguing that — depending on your health history and life expectancy — you could receive more in total benefits by filing for them earlier.

If you expect to live into your late 80s, or 90s, then delaying the payments may make sense. Or, perhaps you have a spouse or other family member who requires special care. What is the value of being able to “throttle back” and devote more time to them as opposed to working to full retirement age or beyond? There is no right answer for everyone when it comes to making this important decision. 

For help with Social Security retirement planning, talk with a financial professional who knows the system and the rules. Then do what’s best for you and your family.

Sources

https://www.ssa.gov/myaccount/

https://www.ssa.gov/benefits/retirement/planner/agereduction.html

https://www.ssa.gov/OACT/quickcalc/early_late.html


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