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

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

Nov 2020

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

12 Strategies You Should Know to Build an Emergency Fund

12 Strategies You Should Know to Build an Emergency Fund

Nov 2020

When it comes to preparing for a rainy day, the best time to act is now. Establishing a 3-month or $10,000 emergency fund is a critical pillar to your financial wellness - and it will help you sleep a whole lot better at night.

But how can you find room for this essential line item in an already tight budget? Here are 12 tips to help get you there.

  1. Set a target date to reach your goal. This can help bolster your motivation, especially if you need to cut back a little on your expenses (see #3). Remember it’s only temporary!
  2. Decide where your fund will reside. Consider a conservative option such as an FDIC insured savings account. This is not the place where you want to take on any significant risk - liquidity is the primary goal.
  3. Put your monthly budget on a diet. Trim the fat wherever you can. Cut down (or out) your latte habit until you’ve reached your goal. Dine out less, carpool to work, suspend some streaming services and do whatever else it takes to free up necessary cash.
  4. Eliminate a couple of big expenses. If you don’t want to feel the pinch on a daily basis, plan a staycation instead of pricey travel and bank the difference. Or, hold off on home improvement projects to make sure you can actually keep making the mortgage payments should disaster strike.
  5. Sell some stuff. If you’ve been looking to do a little decluttering anyway, now would be a great time to do some online selling or have a huge garage sale. You might be able to make a sizeable dent in funding your reserve and liberate some extra space in your attic and closets along the way.
  6. Leverage found money. Use an annual bonus, gifts or a tax refund to prepare for disaster. It may be easier and faster than trying to reign in your budget from every direction.
  7. Generate some extra income. If you have more room in your schedule than in your budget, take on a side hustle by doing some freelance work on Fiverr, or try Ubering your way to disaster preparedness.
  8. Renegotiate your debt. If you’re carrying a lot of revolving debt at a higher rate, ask your creditors if they would be willing to lower the interest rate. Or consider using a zero-interest credit card balance transfer promotion and sock away what you used to pay in interest charges.
  9. Pay yourself first. Until the emergency fund is in place, make setting aside whatever you can toward this goal a top priority, along with necessary expenses and timely debt payments. Making the payment an automatic transfer from your paycheck into a savings account is a great way to keep yourself honest.
  10. Confirm insurance coverage. If there’s an emergency, your emergency fund is only one potential resource at your disposal. Review your disability and homeowner’s coverage, medical plans, car insurance, and long-term care plan, and consider obtaining an umbrella policy for an extra layer of protection.
  11. Don’t stop once you’re done. After you’ve reached your emergency funding goal, contribute as much as you can on a regular basis to a well-diversified retirement plan. The government has increased the contribution rate for 401(k) plans to $18,500/year starting in 2018. Workers over 50 can make an additional “catch up” contribution up to $6000 for a total of $24,500 annually(2). And this does not include funds received as a company match. If you’ve already adjusted to a leaner budget, this may be the easiest time to supercharge your retirement savings so you can pursue your goal of enjoying your golden years in style.
  12. Reevaluate your emergency needs annually. Remember, as your expenses increase over time, your emergency fund will need to adjust accordingly. So, each year take a fresh look at what it will take to weather the storm and add to your fund as necessary. And most importantly, resist any temptation to tap your emergency fund in any situation other than a crisis. After all, you can’t put a price tag on peace of mind.

We encourage you to set up an appointment to discuss your emergency fund and all your retirement needs with your 401k advisor today - your financial future just may depend on it.

Tags: budget, emergency fund, save

1. https://www.bankrate.com/banking/savings/financial-security-0118/

2. https://www.irs.gov/retirement-plans/401k-plan-catch-up-contribution-eligibility

NFPR-2019-71 ACR#324824 08/19

How to Save for a House?

How to Save for a House?

Nov 2020

It's the biggest purchase most people ever make, and with good planning and some preparation, it can be a solid financial move.

If you don't already own a home, the idea of affording one can seem daunting. And with the national median house price expected to top $270,000 in 2020, just saving for the down payment can be a challenge(1). But it's one you can meet with a good plan and some discipline.

While there are various ways to buy a home with less than 20% down payment, many experts don't recommend doing so. You may be required by your lender to take out Private Mortgage Insurance (PMI) to ensure that they get paid back if you default on your loan(2). On an average home loan, that 20% down payment equals $54,000. Since the average household has about $8,800 in savings, that's a big gap to bridge(3).

1. https://www.washingtonpost.com/business/2020/01/06/experts-predict-what-housing-market-will-bring/

2. https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/

Begin planning before you buy - several years before, if possible. Start by researching neighborhoods to find ones you like that are in your price range. Check statistics that can indicate greater stability: Crime rates, turnover, school performance and activity of religious and charitable organizations. Educate yourself about the home buying process. Real estate agents are generally anxious to sell you a house immediately, but find one who's willing to share what they know about neighborhoods, values and trends. Don't let them talk you into buying a "bargain" fixer-upper either unless you have some serious DIY expertise. Getting trapped in a broken house with problems you didn't anticipate - after spending your savings on a down payment - can be a nightmare.

This is also the time to start saving. You're probably not going to scrounge up $54,000 in a year, but look at your budget and see how much you can save each month. Some financial experts recommend the 50/30/20 rule:(4) Spend half your take-home pay on essentials such as housing, transportation and food. Allocate 30% on things you "want" but don't need - an occasional night out or vacation. Then save 20%. If your take-home pay is $3,000 a month, that would put $600 a month into savings. Not considering any interest earned, you'd have your down payment in seven and a half years. Reverse the rule - save 30% and spend 20% - and you'd cut that to five years.

Here are some ways to reach that 30%, or more:

  • Earmark yearly income tax refunds for the down payment fund. The average refund is about $3,000.(5) Do that four years in a row in conjunction with your $900 monthly savings, and you'll be close to your goal.
  • Cut expenses. Do you really need that supermax cable TV package? Can you delay buying new cars? Do you have to have a Hazelnut Mocha Coconut Milk Macchiato each and every morning? That alone could save $100 a month.(6)
  • Re-evaluate all of the recurring online purchases in your household. You may be surprised by the number of "vampire" charges - such as $3 for cloud storage or $10 for a streaming service - lurking on your credit cards.

3. https://www.cnbc.com/2019/03/11/how-much-money-americans-have-in-their-savings-accounts-at-every-age.html

4. https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp

5. https://www.cnbc.com/2020/02/14/how-to-use-2020-income-tax-refund-check-from-irs-to-spend-and-save.html+tax+refund+2020&ie=UTF-8&oe=UTF-8

6. https://www.cnbc.com/2020/02/14/how-to-use-2020-income-tax-refund-check-from-irs-to-spend-and-save.html+tax+refund+2020&ie=UTF-8&oe=UTF-8

Make a point to talk about your plans with your financial advisor. They can help you with tips, savings advice and maybe some ideas you haven't already thought of to reach your goal - and you just might be having that housewarming party sooner than you think!

#save #largepurchase #home #house #buying #wellcents


ACR# 342327 02/20
NFPR-2020-50

Family Finances: Saving to Have Children

Family Finances: Saving to Have Children

Nov 2020

What do you do when your heart demands something, but your bank account says no? That's the dilemma that many, especially Millennials, find themselves in when they think about having a family.

Even if your idea of a happy family isn't necessarily 2.5 kids, a dog and a house with a picket fence, financial realities are making it hard for many Americans to envision having any kind of family at all. When a New York Times/Morning Consult survey asked men and women aged 20-to-45 about their plans for having children, 64% said they were not planning to have children soon because childcare is too expensive, 43% said financial instability was holding them back, and 44% said children were just too expensive.(1)

According to the U.S. Department of Agriculture, the average cost of raising a child to age 17 has ballooned to over $230,000.(2) For a generation saddled with student debt,

job insecurity and slow growth of real wages, waiting to start a family is a pragmatic - if unsatisfying - response. But like other financial goals, having a family is achievable if you have a plan and stick to it.

If having a happy - and financially secure - family is in your future, here are some ways you can start planning and saving now:

  • Start a savings account earmarked for family expenses and, if possible, have money from each paycheck diverted into that account automatically. If you receive your income by direct deposit, your bank should be able to do this.
  • When picking a house, a smaller-than-ideal house in a better school district may be a better choice than a sprawling ranch in an area where public schools are weaker. If you're in an underperforming district, you may feel the need to send your kids to private school, which can be an additional major expense.
  • Start accumulating baby gear now. Tell your family and friends what you're doing and start a baby registry at Target or an online source like Amazon or babylist.com. This can significantly cut into the first-year budget hit.
  • Plan for the unexpected. Think through how you'd handle it financially if one of your children is born with a disability. Even a relatively mild disability can impact the parents' earning ability. And does either parent have a family history of twins? While having two doesn't double all of the costs (a two-seat stroller isn't much more than a single-seater), it definitely increases the workload for both parents. And until there's a two-for-one college plan, that cost will be significantly higher.
  • Maybe pick up a side hustle to help boost savings before you have additional parenting responsibilities. As you're thinking that through, look for one that could produce more than supplemental income if one parent needs - or wants - to stay home with a child for an extended period of time.
  • Start a 529 college savings plan early. Under current law, the regulations are far less restrictive than what they used to be. Perhaps ask if the children's future grandparents would consider starting a 529 for their benefit(3).
  • Talk with your financial advisor about your family plans and how they may impact your short- and long-term goals.

It's tough to think dispassionately about such a deep-rooted emotional issue. But if you do - and take steps to prepare - you'll be in a better position to have the financial resources necessary to raise the happy family of your dreams.

Sources:

1. https://www.bizjournals.com/bizwomen/news/latest-news/2018/07/why-the-birth-rate-is-declining.html?page=all

2. https://www.usda.gov/media/blog/2017/01/13/cost-raising-child

3. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-11

ACR# 342328 02/20
NFPR-2020-47

Marrying and Money: How to Save for a Wedding

Marrying and Money: How to Save for a Wedding

Nov 2020

While the cost of nuptials has held steady over the past few years, too many couples are planning to borrow to cover the cost. Here's how to avoid the debt trap.

A wedding ceremony can range from picking out some nice suits and heading over to city hall to reserving a 200-guest blowout, with varying costs. But according to a survey by wedding website The Knot, the average cost of a wedding in the U.S. was $33,900 in 2019.(1)

All too often, young couples are planning to borrow in order to pay for their weddings. A Student Loan Hero survey found that 74% of respondents said they planned to take on debt to cover the costs.(2)

Having that perfect day is important, but carefully consider the ramifications if it creates financial burdens you'll have to carry while you're adjusting to married life. Not to mention how that much debt could impact your retirement savings or any plans to start a family.

The two ways to get to your goal sooner are to reduce costs and save more. Here are a few tips:

  • Think about the balance between spending on the ceremony and spending on your honeymoon - consider splurging on one and not the other.
  • Consider location, location, location: According to Investopedia.com, the average wedding in Mississippi costs around $13,000, while tying the knot in New York can easily top $88,000. A destination wedding - which wraps wedding and honeymoon together - is somewhere in the middle at about $27,000. (3)
  • The biggest drivers of wedding costs are the size of the guest list, the venue (whether it's at your backyard or the Four Seasons) and the style (tiaras or blue jeans). You might be able to plan an elegant wedding for 20 guests or a barbecue for 200 for around the same price. Decide on your wedding style and the size of the guest list, then stick to them.
  • If you must get married in a big city, think about hiring a caterer from a less expensive suburb who'd be willing to drive in. Also, venues tend to charge less on Fridays and Sundays.
  • If parents or others are helping with the expenses, find out how much they intend to contribute?
  • Deduct contributions from your budget to see what you need to save, then divide that by the number of months between now and the big day. That's how much you need to save each month to make this happen without borrowing. If that number is overwhelming, think about pushing back the date to give you more time to save.
  • Automate your savings by setting up a separate savings account and have part of your paychecks deposited there.
  • Get a side hustle. Maybe sell some stuff on LetGo or Craigslist. Consider postponing other big purchases (car, house) until after the wedding.
  • Don't drink so much Starbucks! Seriously, cut down on out-of-home food and beverage and put that money in the savings account. It'll add up faster than you think.

Finally, while talking with your financial advisor isn't on many pre-wedding checklists, it should be. Your advisor can help you evaluate your current situation as well as your vision for the future.

1. https://www.theknot.com/content/average-wedding-cost

2. https://www.cnbc.com/2018/03/13/wedding-debt-can-hurt-a-couples-financial-future.html

3. https://www.investopedia.com/financial-edge/0212/how-to-save-for-a-wedding.aspx

#wedding #save #largepurchase #wellcents


ACR# 342322 02/20
NFPR-2020-44


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