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Gen Z — Start Investing Now!

Gen Z — Start Investing Now!

Sep 2021

If you’re a member of Gen Z — those born after 1997 — now is a great time to start investing for retirement. The power of compounding returns is one of the best ways to grow wealth over time. And the earlier you start, the less you have to set aside each month to reach your goals.

Consider that a one-time $10,000 investment you make at age 20 would increase in value to more than $70,000 by age 60, assuming a 5% interest rate. Meanwhile, it would only grow to approximately $43,000 if you make it at age 30. And the same investment at age 40? That would grow to a mere $26,000. As you can see, when it comes to investing, time really is money.

Here’s how to make the most of your investment dollars.

Find a Way to Invest

Even coming up with $200 can feel like a daunting task at this point in your life. Not only is your starting salary likely to be lower today than it will be in a few years, but you might also have student loan debt and other bills to contend with.

The good news is that you don’t have to invest a lot to begin building your wealth and preparing for retirement. Start with what you can afford, even if it’s only $50 per paycheck. Look for ways to free up a small amount of money in your budget each month so that you can contribute to your 401(k) and start putting that money to work.

Have a Plan

Create a plan for increasing your contribution down the road. If your employer offers a 401(k) match, try to invest enough to get the maximum. That match represents free money — and it’s the best deal you’ll find in the world of investing. Once that money is in your account, it begins growing, and it can boost your overall portfolio down the road.

Plan to increase your retirement account contribution each time you get a raise. Depending on your company, you could even plan an incremental increase in your contribution each year. For example, you could arrange to increase your contribution by 1% each year up to a certain percentage of your income.

The important thing is to get started and then up those contributions as often as you can. Get in the habit of investing, and you’ll be more likely to reach your long-term wealth goals even if you have to start small.

Give Yourself a Cushion

No matter your situation, there’s a good chance that, at some point, you’ll end up with an emergency where you must come up with a significant sum of money all at once. This can be stressful, and you might consider tapping into your retirement savings to help cover the cost.

However, it’s better to avoid using your retirement investments for emergencies since an early withdrawal can result in hefty penalties. Even if you get a 401(k) loan and avoid the penalties and taxes, anytime your money is out of the market, it’s not working on your behalf. You might replace what you withdrew, but you can’t replace the opportunity cost of time in the market. This is why establishing an emergency fund is so important.

Don’t Go It Alone

Investing for retirement can be daunting if you’re just starting out. Contact your WellCents financial professional to help you set realistic goals to grow your nest egg over time and give you a head start on the road to retirement.

Source: 

https://www.investopedia.com/financial-edge/0212/5-advantages-to-investing-in-your-20s.aspx 

How Do I Save for My Child’s College and Retirement?

How Do I Save for My Child’s College and Retirement?

May 2021

You juggle multiple financial priorities, whether it’s buying a house, having children, starting a business or buying a car. Saving for retirement and a child’s college fund at the same time is no different, but that’s not to say it’s easy.

 

Get It Down on Paper

Start by setting a budget and timeline for both retirement and college. While the college start date is probably somewhat fixed, you may have more latitude concerning your retirement. Once the kids are old enough, include them in the conversation about how much you can afford to help with college and what they can do.

 

It’s important to set realistic goals about the types of colleges within your budget. Don't let higher education costs get out of control. If your child has their heart set on a specific school or major, there may be ways to lower costs (e.g., subject-specific scholarships and grants). The expectation shouldn't be that you're going to write a lot of checks. And always have a backup plan or safety school.

 

Controlling College Costs

Explore ways to reduce college expenses. Help your child identify special interests early on. Athletics? Music? Science? Math? Money may be available for all of those IF your child is exceptional. Identify colleges early too. See if they can attend special interest camps there to (a) see how they like it, and (b) meet faculty who might recommend them for a grant/scholarship.

 

Also, 529 plans can be a good way to divide retirement from college savings and offer a number of benefits, including the option of contributions by relatives. Coverdell Education Savings Accounts (ESA), sometimes called education IRAs, are tax-advantaged savings vehicles that allow tax-free distributions for qualified educational expenses. Read more about the rules and restrictions of the program in the link below.

 

Reevaluating Retirement

Similarly, find ways to boost your retirement savings or scale back your retirement goals. If time is tight, consider whether you can work a little longer or adjust the kind of retirement lifestyle you’re budgeting for. For example, could you downsize your home or move to an area with a lower cost of living?

 

Also, make sure you’re contributing at least enough to your employer-sponsored 401(k) to earn the maximum company match — this is free money, and you don’t want to leave it on the table. What you also don’t want to do, however, is ramp up your level of investment risk beyond what is appropriate for your personal tolerance and your retirement timeline just to try to boost returns.

 

The most important thing you can do during this juggling act is to sit down and have a frank conversation with your financial advisor about your goals. He or she may be able to come up with options you haven’t even considered. 

 

Source:

https://www.irs.gov/taxtopics/tc310

 

How Do I Save for My Child’s College and Retirement?

How Do I Save for My Child’s College and Retirement?

Mar 2021
You juggle multiple financial priorities, whether it’s buying a house, having children, starting a business or buying a car. Saving for retirement and a child’s college fund at the same time is no different, but that’s not to say it’s easy.

Get It Down on Paper
Start by setting a budget and timeline for both retirement and college. While the college start date is probably somewhat fixed, you may have more latitude concerning your retirement. Once the kids are old enough, include them in the conversation about how much you can afford to help with college and what they can do. 

It’s important to set realistic goals about the types of colleges within your budget. Don't let higher education costs get out of control. If your child has their heart set on a specific school or major, there may be ways to lower costs (e.g., subject-specific scholarships and grants). The expectation shouldn't be that you're going to write a lot of checks. And always have a backup plan or safety school.

Controlling College Costs
Explore ways to reduce college expenses. Help your child identify special interests early on. Athletics? Music? Science? Math? Money may be available for all of those IF your child is exceptional. Identify colleges early too. See if they can attend special interest camps there to (a) see how they like it, and (b) meet faculty who might recommend them for a grant/scholarship.

Also, 529 plans can be a good way to divide retirement from college savings and offer a number of benefits, including the option of contributions by relatives. Coverdell Education Savings Accounts (ESA), sometimes called education IRAs, are tax-advantaged savings vehicles that allow tax-free distributions for qualified educational expenses. Read more about the rules and restrictions of the program in the link below. 

Reevaluating Retirement
Similarly, find ways to boost your retirement savings or scale back your retirement goals. If time is tight, consider whether you can work a little longer or adjust the kind of retirement lifestyle you’re budgeting for. For example, could you downsize your home or move to an area with a lower cost of living? 

Also, make sure you’re contributing at least enough to your employer-sponsored 401(k) to earn the maximum company match — this is free money, and you don’t want to leave it on the table. What you also don’t want to do, however, is ramp up your level of investment risk beyond what is appropriate for your personal tolerance and your retirement timeline just to try to boost returns.

The most important thing you can do during this juggling act is to sit down and have a frank conversation with your financial advisor about your goals. He or she may be able to come up with options you haven’t even considered.  

Source:
https://www.irs.gov/taxtopics/tc310

Did You Know These 8 Things Are Taxable?

Did You Know These 8 Things Are Taxable?

Jan 2021

Every April, Americans face the often-dreaded ritual of filing their taxes. The prospect of a larger-than-expected tax bill is one common source of anxiety, but so is the possibility of making a mistake that runs the taxpayer afoul of the IRS. Here are some things that many people don’t realize are taxable.

1. Unemployment income. Yes, the unemployment income you receive after a job loss is taxable. And unfortunately, this is one issue that will affect many 2020 taxpayers. You can elect to withhold taxes from your benefits, but if you didn’t realize your unemployment was taxable, you might be in for an unpleasant surprise when you go to file.


2. Gambling winnings. Even when Lady Luck shines upon you, Uncle Sam still wants a piece of the action. Whether your earnings are from online fantasy football or the racetrack, those earnings are, in fact, taxable.


3. Forgiven debt. You may be fortunate to have a creditor forgive your debt, but that goodwill also triggers a tax liability. From the point of view of the IRS (the only one that matters when it comes to taxes), you received income when that debt was forgiven. Therefore, that amount is taxable except under certain conditions, such as a bankruptcy ruling.


4. Social Security. Social Security benefits can be taxable depending on your level of income from other sources. If you want a smaller tax bill, you can elect to withhold taxes from your Social Security or make estimated payments on a quarterly basis.


5. Severance pay. After losing a job, you might be in for a little more bad news. If you receive a compensation package after separating from a job, your severance pay — just like the income you received from your employer — is taxable.


6. Freelance income. If you work a side hustle on Fiver or Upwork to help make ends meet, you’re responsible for taxes on that income just as you are for the money in your company paycheck. However, since most people have taxes withheld from their employee compensation, but not from freelance earnings, you may end up owing more than you expected on this type of income.


7. Profits on a sale. If you sell your rare Claude the Crab Beanie Baby for a profit, then you may be surprised to learn that you owe taxes on the profit you made — even if the sale was to a friend or family member.


8. Awards, prizes and contest winnings. Did you hit the Powerball jackpot or draw the winning ticket at the church raffle? You guessed it — those winnings are taxable in the eyes of the IRS.


Your individual circumstances may impact your tax liabilities, so always consult a qualified tax professional to see what qualifies as income in your case and what tax deductions you might be entitled to.

 

Sources:

https://www.investopedia.com/articles/personal-finance/031416/10-surprising-taxable-items.asp

https://turbotax.intuit.com/tax-tips/fun-facts/10-things-you-wont-believe-are-taxed/L3tQz7kej

https://www.irs.gov/pub/irs-pdf/p4128.pdf

https://www.irs.gov/newsroom/irs-unemployment-compensation-is-taxable-have-tax-withheld-now-and-avoid-a-tax-time-surprise

https://www.kiplinger.com/article/taxes/t055-c032-s014-selling-your-stuff-the-tax-dimension.html

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

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

Sep 2021

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

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