Inflation and Your Retirement Plan

Inflation and Your Retirement Plan

Lately, it seems we’ve all had to learn more about global economics than we’d like. Thanks to the COVID-19 pandemic, extreme weather in essential manufacturing regions and a container ship mishap in the Suez Canal that wreaked havoc on deliveries for months, there’s no shortage of reasons for soaring prices and low-stocked shelves. With so much uncertainty in the world and all around, you may feel like holding onto cash is a safer bet. But if inflation is on the rise, a dollar today could have less buying power than a dollar tomorrow.  

You may have had to adjust your budget to compensate for rising prices, but have you considered shoring up your retirement savings against the risk of inflation 

Inflation and Your Buying Power in Retirement 

Inflation impacts the “real value” of investments in your retirement plan because the same amount of money may give you less spending power later. If your expenses are $2,000 per month now, you might need $3,500 during retirement, just to maintain the same quality of life — all thanks to inflation. 

Countering Inflation in Your Retirement Portfolio 

If you’re worried about how inflation may impact your 401(k) performance and retirement plan, there are some things you can do to compensate, increasing the chances that you will have more spending power in your golden years. 

  • Look for investment products that yield the same returns as the rate of inflation, or greater. When inflation is historically 2% to 3% annually, keeping most of your money in a bank account or CDs may not cut it. Look for investments likely to have higher annualized returns than inflation. 
  • Diversify your 401(k) portfolio between stocks, bonds and mutual funds. Not all asset classes and individual investments are equally impacted by inflation. Diversifying can help you manage your risk tolerance while still staying ahead of inflation. 
  • Look at treasury inflation-protected securities (TIPS). If you’re concerned about risk, TIPS can help. These are treasuries that offer returns designed to keep pace with inflation, allowing you to at least see returns that preserve your buying power. 
  • Consider investing in gold. Even though gold is sometimes thought of as a hedge against inflation because it traditionally moves opposite to the U.S. dollar, this isn’t always the case. When diversifying your assets, consider gold, but be wary of relying too heavily on it. 
  • Identify sectors with superior performance. Some sectors, like energy and commodities, often beat inflation. Including funds or stocks in these sectors in your portfolio can sometimes help mitigate inflation risk. 

Impact on Retirees  

Inflation can be more of an issue when you’re on a fixed income or close to retirement. Speak to your financial professional about strategies to deal with inflation, especially if youre planning on leaving the workforce soon. 

Big-Ticket Budgeting

Big-Ticket Budgeting

Saving for a big purchase can be a big challenge, whether it’s a brand-new car, a hot tub or even a 1959 Gibson Les Paul. But you can tackle your elephant-sized purchase with a similar strategy: Just take it one step at a time. Here are a few big-ticket budgeting tips that you won’t need a memory like an elephant to remember to use. 

1. Set a reasonable budget then pad it. It’s always wise to allow extra room in your budget for contingencies. There can be unexpected surprises, especially with larger purchases. And unfortunately, things often have a way of costing more than you expected. Consider allowing a minimum 10% overrun on your big-ticket budget. 

2. Find discounts and take advantage of them. If you’re traveling, for example, consider AAA or AARP discounts. Off-season travel can score you some savings, too. Many items and experiences cost more depending on when you buy or book them. Always look for coupons and other saving options when paying for routine purchases such as oil changes for your car, grocery shopping, dining out and ordering pizza. 

3. Comparison shop. Scour the web and Google Shopping for other retailers who offer the product or service you’re interested in. If you’re looking for a car, for example, don’t assume that the price at your local dealer is “the” price., and other online resources can provide options in your area that you can filter based on your needs and preferences. And be sure to check national franchises that can ship inventory from across the country to find the best deal.  

4. Ask a “friend.” Crowdsourcing consumer opinions has never been easier. Most products and services are reviewed, rated and compared and the results can be easily searched for online. Search the comments for keywords like discount, savings or cost less to see how others saved on their purchases. 

4. Set up a dedicated account. A great way to help organize your savings for a large purchase is to earmark the money intended for it by keeping the funds in a separate account. That way, you can more easily track your progress and you won’t be tempted to spend the money on anything else 

5. Boost your savings with offsets. Take a look in your garage, the back of your closets and the attic. See if there are things of value that you no longer use or want. Sell them on eBay, Craigslist, OfferUp or at a yard sale. On the flip side, a penny saved is a penny earned. Can you decrease nonessential spending until you reach your savings goal? 

6. Put time on your side. Start saving as early as possible. If you wait until the last minute, you may be faced with having to do some pretty extreme saving. The sooner you start, the less you’ll feel the impact on your day-to-day budget. 

Seek out Advice — and Save 

Family members, friends and co-workers might have their own experiences with the purchase you’re about to make and can share how they saved money on it. Ask for their advice but also consider bringing in an expert by speaking with a financial professional who can help you make a realistic, feasible plan for your purchase. 



Make Tax Efficiency a Part of Your Investment Strategy

Make Tax Efficiency a Part of Your Investment Strategy

When reviewing investment options, many people focus strictly on returns. But it’s critical to also consider tax efficiency as you build a portfolio. 

There are two types of investment accounts: tax-advantaged and taxable. Tax-advantaged accounts are any investment or savings option thats either tax-exempt, tax-deferred or offers some other kind of tax benefit. When you take advantage of tax-advantaged investing, you can reduce the impact when Uncle Sam comes calling on April 15th.  

401(k) Plans  

One of the most common and well-known tax-advantaged accounts is the 401(k). Many employers offer a 401(k) as part of their workplace benefits. There are two main types: 

  • A traditional 401(k) grows tax-deferred. You contribute money from your paycheck before taxes are taken out, lowering your taxable income today. You save money on taxes now, but you pay taxes on your withdrawals later. If you think you’ll be in a lower bracket during retirement, this can be one way to realize tax savings over time. 

  • A Roth 401(k) grows tax-free. You make your contributions with after-tax dollars. So, even though you pay taxes today, you don’t have to pay taxes when you withdraw during retirement. If you think your taxes will be higher in the future, this can be a good move, reducing your tax liability during retirement. 

HSA (Health Savings Account) The “Triple Tax Advantage 

If you have a high-deductible health plan and meet other requirements, you might be able to contribute to an HSA. With this type of account, you get what’s often called a triple tax advantage: 

  1. Contributions are made with pre-tax dollars, resulting in tax savings today. 

  1. Money in the HSA grows tax-deferred, allowing it to accumulate without the drawback of paying taxes as you accrue earnings from investments. 

  1. Withdrawals aren’t taxed if they’re used for qualified medical expenses. 

Some retirees use an HSA in conjunction with other tax-advantaged investing accounts. For example, an HSA can pay for health costs during retirement, while money from the 401(k) is used toward everyday expenses. 

529 Savings Plans  

After you’ve shored up your own finances, you might want to use a tax-advantaged account to save for your kids’ education. Many states offer 529 savings plans that can help you do just that, whether you’re putting money away for college or even K-12 tuition. Both prepaid tuition and savings plans are available but investment options and fees may differ by state. Contributions are made with after-tax dollars, but money in the account grows tax-free if withdrawals are used for eligible education expenses.  

Understand Your Options 

Taxes can have a big impact on your financial picture and can sometimes be complicated to fully understand. Nonetheless, it’s important to consider tax-advantaged investing when establishing your personal financial plan. If you have questions, speak with your qualified financial professional about which tax-advantaged investment options might be best for you. 




Enrolling in Your First 401(k)

Enrolling in Your First 401(k)

Youre probably aware of 401(k) plans and may have even heard how they can give you a leg up on your retirement goals. If you have a 401(k) available to you through your job, however, you might still want to know more. Lets look at some answers to frequently asked questions about your employer-sponsored retirement plan. 

Q: Why is a 401(k) better than a savings account? 

A: For the most part, a traditional savings account doesnt offer tax advantages. A 401(k), though, allows you to put money aside for the future before you pay taxes on it. You also dont have to pay taxes on investment earnings from the account as they come. Instead, you only pay taxes when you withdraw from your 401(k) during retirement. By then, youll hopefully be in a lower tax bracket. 

Q: How can a 401(k) improve your retirement readiness? 

A: Since your 401(k) is an investment account, you can take advantage of the considerable benefits of compounding returns, which can allow your money to grow at a faster pace than it would in a traditional savings account. This can help put you in an accelerated position to achieve your retirement dreams. Plus, having the money deducted from your paycheck automatically makes it easier to stay consistent with your investment goals over time you can build wealth without having to think about it as much. 

Q: What are the risks of participating? 

A: Market volatility is always a possibility, so its important to understand your personal risk tolerance and create an investment plan that works for you. Its also why its critical to review your retirement plan regularly and rebalance your asset allocation as needed. 

Q: Are there other advantages? 

A: Your employer might offer a match, providing you with a way to put even more money into your retirement account. Additionally, your employer might give you the option of a Roth 401(k), which can result in lower taxes during retirement. Carefully consider your tax situation and individual needs when deciding if a Roth 401(k) makes sense for you. 

Q: What if I quit my job? 

A: Money you put in, plus your investment earnings, stay with you no matter what. Money your company puts in becomes yours based on a vesting schedule. You can roll your 401(k) over to a new employer-sponsored retirement account or an IRA if you leave your job. 

Q: How much do I need to contribute? 

A: Work with your qualified financial professional to figure out how much you need to meet your specific retirement goals. You decide how much you put in from 1% of your salary up to the annual contribution limit. Some retirement plans also allow you to automatically increase your contributions each year, or you can bump up your deferral rate when you receive a promotion or bonus. Consider what you should set aside each paycheck to help you achieve your long-term goals. 

Q: When is a good time to join? 

A: Sign up for your 401(k) as soon as you can. Put time on your side when it comes to reaping the benefits of compounding returns. There can be significant opportunity costs by sitting on the sidelines too long, which can hamper your retirement readiness over the long term. 

Q: How do I sign up? 

A: Contact your companys HR department for help opening your account and setting up payroll deductions. Enrolling isnt hard at all and it can be one of the most important items to check off on your to-do list in order to help ensure a more secure financial future. The specifics of 401(k) plans can vary from company to company, and theres more to know than what weve covered here.  

Contact your qualified financial professional if you have additional questions or to learn more. 

Understanding Life Insurance Basics

Understanding Life Insurance Basics

It’s not a topic anyone particularly enjoys thinking about, but life insurance can be a crucial pillar of financial protection for those who mean the most to you. It helps ensure your loved ones are better able to meet their future expenses — no matter what should happen to you.  

In return for your policy premium payments, the insurer promises to pay a predetermined benefit upon your passing. Your beneficiary can use the money toward whatever financial needs they may have at that time or in the future. Depending on the provisions of your policy, your beneficiary may receive their benefit as a single lump-sum payment, a series of installment payments or by some other means. Here are some things the payout from a life insurance policy could be applied toward:  

  • Paying off the mortgage on a family home. 
  • Sending your children or grandchildren to college.  
  • Supporting a favorite charitable cause. 
  • Paying estate taxes. 
  • Covering funeral expenses. 
  • Helping your spouse pay everyday bills. 
  • Providing for long term care. 
  • Paying off student, credit card or other debt. 
  • Protecting a business. 
  • Supplementing retirement income. 

But you have a number of decisions to make before you purchase a policy. First, youll have to choose between the two basic types of life insurance: term life and permanent life.  

Term life insurance provides protection for a predetermined period of time: That could be 10, 20 or 30 years, for example. If the loss occurs within the period you’re covered for, your designated beneficiaries receive the benefit. If not, no benefit is paid out. You might be interested in this type of policy for income replacement prior to retirement or to provide care for your children until they become financially self-sufficient 

And you also have two options when it comes to permanent insurance: whole life or universal life insurancewith either able to provide lifetime coverage. Permanent life generally costs significantly more than term life policies, but it also accumulates cash value that you may even be able to borrow against should the need arise. 

Whole life insurance coverage is more predictable as the premiums, rates of return and amount of benefit are guaranteed and fixed. These policies can be useful to help provide for longer term needs such as ongoing care for an adult child. Universal life insurance, on the other hand, can offer an adjustable death benefit as well as premiums, within certain parameters. Cash value growth is dependent on the interest rate climate, so it’s important to consider that potential impact when looking at this type of coverage. Finally, look into fees, no matter what type of policy you select. 

Life insurance can be an important foundation of financial protection for your family. And while it may seem complicated, it doesn’t have to be. Your financial professional can explain the options available and help you determine which type of insurance best meets your needs and budget. 


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