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Retirement Planning Decade by Decade

Posted by Frank McKinley on
 June 14, 2021
  · No Comments

Retirement planning is a life-long process. Below are some of the key retirement-planning actions you need to be taking from your 20s through your 60s.

Your 20s

Start saving. The sooner you can start saving for retirement, the less you’ll have to save overall. If you start saving $5,000 per year at age 25, you’ll have just under $775,000 by age 65, assuming annual returns of 6%. Wait until age 35 to start saving and you’ll have about $395,000 — more than $300,000 less. Also, since you’re still decades away from your retirement date, don’t be afraid to take some risk with your investments. You’ll have to stomach some ups and downs, but earning higher returns from equity (or stock) in-vestments now means more money (and less to save) as you get older. Other steps to take when you’re young: start budgeting, avoid debt, and save for other goals, like buying a house. Even if you’re not earning a lot right now, adopting healthy money habits today will pay big dividends later in life.

Your 30s

As you enter your 30s, your in-come is probably heading upward and your life is beginning to stabilize. You may find that you can contribute more to your retirement savings accounts than you could in your 20s. As your income increases, consider increasing your retirement contributions by the amount of your annual raise so you don’t fall behind on saving. Reassess your savings rate and consider meeting with a financial advisor to make sure you’re saving as much as you can — and investing it well.

Your 40s

You’re at the halfway point to retirement. If you’ve been saving for the past 10 or 20 years, you should have a nice nest egg by now. If you

haven’t gotten serious about saving, now is the time to do so. You’ll have to be fairly aggressive, but you still have some time to build a respectable financial cushion. Whether you’re an accomplished saver or just getting started, you may also want to consider meeting with a financial advisor to help you make sure you’re saving enough to meet your goals and investing in the best way possible.

A special note: people in their late 40s and early 50s are often looking at steep college tuition bills for their children. Don’t make the mistake of sacrificing your retirement goals to pay for your children’s college educations. Stay focused and on track so your children don’t have to jeopardize their financial future to support you as you get older.

Your 50s

Once you turn 50, you have the option to make catch-up contributions to retirement savings accounts like 401(k)s and IRAs. You can save an additional $6,500 a year in your 401(k) plan and $1,000 a year in your IRA in 2021. That’s great news if you’re already maxing out your savings in those accounts. Your fifth decade is also the time to start thinking seriously about what’s going to happen when you retire — when exactly you’re going to stop working, where you want to

live, whether you plan to work in retirement, and other lifestyle is-sues. It’s also the time to take stock of your overall financial situation. You’ll still want to keep saving as much as you can, but you may also want to make an extra effort to be debt-free at retirement by paying special attention to paying off your mortgage, car loans, credit card debt, and any remaining student loans.

Your 60s

Retirement is just a few years away. If you haven’t already, you’ll want to dial down the risk in your portfolio so you don’t take a large loss on the eve of your retirement. You’ll also want to start thinking about a firm retirement date and estimating your expected expenses and income in retirement. If your calculations show that you’re falling short, it’s better to know before you stop working. You can make up a shortfall in a number of ways — reducing living expenses, working a bit longer, and even delaying Social Security payments so you get a larger check. Whatever your age, the key to retirement is having a plan and consistently executing that plan. Not sure how to get started? Please call so we can discuss this in more detail.

Categories : Blog, financial planning, Financial Services, Investments, Retirement, Savings

Your Financial Road Map

Posted by Frank McKinley on
 June 1, 2021
  · No Comments

Are you making progress toward your financial goals? Are your finances in order? Are you prepared for a financial emergency? If you’re not sure, take time to thoroughly assess your finances so you have a road map for your financial life:

Assess your financial situation.

Evaluating where you currently stand financially will help you determine how much progress you are making toward your financial goals. There are several items to consider:

Your net worth — Prepare a net worth statement, which lists your assets and liabilities with the difference representing your net worth. Prepared at least annually, it can help you assess how much financial progress you are making. Ideally, your net worth should be growing by several percentage points over inflation.

Your spending — Next, prepare a cash-flow statement, detailing your income and expenditures for the past year. Are you happy with the way you spent your income? You may be surprised by the amount spent on non-essential items like dining out, entertainment, clothing, and vacations. This awareness may be enough to change your spending patterns. But more likely, you will need to prepare a budget to help guide your future spending.

Your debt — Debt can be a serious impediment to achieving your financial goals. To assess how burdensome your debt is, divide your monthly debt payment, excluding your mortgage, by your monthly net income. This debt ratio should not exceed 10% to 15% of your net income, with many lenders viewing 20% as the maximum. If you are in the upper limits or a uncomfortable with your debt level, take active steps to reduce your debt or at least lower the interest rates on it.

Increase your savings.

Calculate how much you are saving as a percentage of your income. Is it enough to fund your future financial goals? If not, go back to your spending analysis and look for ways to reduce expenditures. That may mean reassessing your lifestyle choices. Commit to saving more  immediately and then take steps to make that commitment a reality.

Rebalance your investments.

At least annually, thoroughly analyze your investment portfolio:

Review each investment in your portfolio, ensuring that it is still appropriate for your situation.

Calculate what percentage of your total portfolio each asset type represents; compare this allocation to your target allocation and decide if changes are needed.

Compare the performance of each component of your portfolio to an appropriate benchmark to identify investments that may need to be changed or monitored more closely

Finally, calculate your overall rate of return and compare it to the return you estimated when setting up your investment program.

If your actual return is less than your targeted return, you may need to increase the amount you are saving, invest in alternatives with higher return potential, or settle for less money in the future.

Prepare for financial emergencies.

To make sure you and your family are protected in case of an emergency, set up:

A reserve fund covering several
months’ of living expenses.
The exact amount you’ll need depends on your age, health, job outlook, and borrowing capacity.

Insurance to cover catastrophes.
At a minimum, review your coverage for life, medical, homeowners, auto, disability income, and personal liability insurance. Over time, your insurance needs are likely to change, so you may find yourself with too much or too little insurance.

Review your estate plan.

Take a fresh look at your estate planning documents and review them every couple of years. Even if the increased exemption amounts mean your estate won’t be subject to estate taxes, there are still reasons to plan your estate.

You probably still need a will to provide for the distribution of your estate and name guardians for minor children. You should also consider a durable power of attorney, which designates someone to control your financial affairs if you  become incapacitated, as well as a healthcare proxy, which delegates healthcare decisions to someone else when you are unable to make them.

If you’d like help evaluating your finances, please call.

Categories : financial planning, Financial Services, Investing, Retirement, Savings

Tips to Teach Children to Save

Posted by Frank McKinley on
 April 23, 2021
  · No Comments

Think of all the lessons parents teach their children, but what about learning to save? Short- and long-term savings are important life lessons that should start early and remain an ongoing conversation. Here are some tips you can use:

Wants versus Needs: To a child, most everything is a need. A toy, a new bike, and a video game are all needs to them, so the first important lesson of
saving is helping them understand the difference between wants and needs. You’ll want to explain that needs are the basics, such as food, housing, and clothing, and that anything beyond the
basics are wants. You could use your own budget to help illustrate that wants are secondary to needs.

Their Own Money: To help your child become a saver, they need to have their own money. Giving your child an allowance in exchange for chores will be a step in helping them learn to save as well as understanding the value of work.

Set Goals: Setting savings goals is a way for your child to understand the value of saving and what a savings rate is. For example, let’s say one goal is a
$40 video game, and they get a weekly allowance

of $10. You can help them understand how long it will take to reach that goal based on how much of their weekly allowance they put toward the goal.

A Place to Save: Kids need a place to save their money, so take your child to a bank or credit union to open a savings account. This will allow them to
see how their savings grows over time, as well as the progress they are making toward their savings goals.

Track Spending: Knowing where your money goes is a big part of being a better saver. Have your child write down their purchases and then at the
end of the month add them all up. Just like adults, this can be an eye-opener. Help your child understand that if they change their spending habits, they will be able to more quickly reach their savings goals.

Mistakes Are a Good Lesson:  A parent’s natural reaction is to step in to prevent mistakes, but part of learning to control money is letting your child learn from their mistakes. A bad purchase
decision can be a great lesson to understanding
that a savings goal will now take much longer than they thought based on decisions they made.

Beneficiary Designations Override Wills

W hen was the last time you looked at your
beneficiaries on your retirement accounts, insurance policies, annuities, and bank accounts? Many people forget to update their beneficiaries, especially if they’ve held the accounts for a
long time. If you marry, divorce, or have other changes to your family situation, you need to update your beneficiaries.

Some people think their will or trust is all they need to ensure their assets go to the desired recipients. A beneficiary designation is a legally
binding document that supersedes a will or trust. That means that regardless of your current family
status or what your will or trust says, the assets will go to the beneficiary you named when you
last updated it. And if you don’t have anyone named as your beneficiary on these types of
accounts, state laws will determine who receives the benefit.

It is also a good idea to get into the habit of reviewing them on an annual basis to ensure your assets will be distributed based on your
wishes.

Financial Thoughts

Companies with a lot of passive fund ownership are more likely to repurchase shares in order to boost their short-term stock price, subsequently harming performance over the long term. Higher passive ownership was shown to negatively impact the relationship between buybacks and future capital expenditures, employment, cash flow, and return on assets and equity (Source: Centre for Economic Policy Research, April 2020).

A study found that although retirement plays a role in alleviating some of the stress the body undergoes while working a manual labor job, when those workers retire they can accumulate health deficits faster than individuals whose jobs do not require manual work. The health of men working in manual labor was more positively affected after retirement than women. Individuals with low education, in blue collar jobs, and in physically or psychosocially demanding occupations develop new health deficits faster than white collar workers. People who perform manual labor jobs display
on average almost 30% more health deficits than their counterparts who do not (Source: AAII Journal, September 2020).

If you would like more information or to discuss your financial concerns

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Categories : Blog, Financial Services, Savings, Savings Goals
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It’s Important to Keep Saving After Retirement

Posted by Frank McKinley on
 February 26, 2021
  · No Comments

Just because you’re retired doesn’t mean you should stop saving. Carefully managing your money and looking for ways to save will help ensure you remain financially fit during retirement. Consider these tips: 

Construct a financial plan.
Most retirees fear that they’ll run out of money during retirement. To ease those fears, create a financial plan detailing how much money will be obtained from what sources and how that income will be spent. Make sure your annual withdrawal amount won’t cause you to deplete your savings. Review your plan annually to ensure you stay on course. 

Consider part-time employment.
Especially if you retire at a relatively young age, you might want to work on at least a part-time basis. Even earning a modest amount can help significantly with retirement expenses. However, if you receive Social Security benefits and are between the ages of 62 and full retirement age, you will lose $1 of benefits for every $2 of earnings above $18,960 in 2021. You might want to keep your income below that threshold or delay Social Security benefits until later in retirement.

Contribute to your 401(k) plan or individual retirement account (IRA).
If you work after retirement, put some of that money into a 401(k) plan or IRA. As long as you have earned income and meet the eligibility requirements, you can contribute to these plans. 

Try before you buy.
Want to relocate to another city or purchase a recreational vehicle to travel around the country? Before you buy a home in an unfamiliar city or purchase an expensive recreational vehicle, try renting first.

Keep debt to a minimum.
Most consumer loans and credit cards charge high interest rates that aren’t tax deductible. During retirement, that can put a serious strain on your finances. If you can’t pay cash, avoid the purchase. 

Look for deals.
Take the time to shop wisely, not just at stores, but for all purchases. When was the last time you compared prices for auto or home insurance? Can you find a credit card with lower fees and interest rates? When did you last refinance your mort-gage?

Evaluating P/E Ratios

Price/earnings (P/E) ratios are a common measure of stock value, both for individual stocks and the overall market. Calculating a P/E ratio is straightforward — it is simply the price of a single share of stock divided by the company’s per share earnings. 

When considering public companies, it seems reasonable that well-established businesses growing in a fairly predictable pattern would command a higher P/E ratio than a small private business. Typically, companies with higher growth rates command higher P/E ratios. 

The difficulty is deciding what a reasonable P/E ratio is for a particular company or for the overall stock market. It generally helps to follow the P/E ratios of stocks that interest you, along with companies in similar industries, to develop a feel for how the P/E ratios fluctuate. 

Reviewing a company’s P/E ratio for prior years can also be helpful. If a company’s growth rate in the past is expected to continue in the future and market conditions are similar, you might not expect much change in P/E ratios. But you also must evaluate whether changes to the company, its industry, or the overall stock market would cause an increase or decrease in the company’s P/E ratio. 

Financial Thoughts

Researchers found that investors with larger accounts follow more contrarian strategies, reflect the news in their trades, and experience subsequent gains, while smaller accounts tend to follow momentum-based strategies, fail to account for the news when placing trades, and incur trading losses. They also found that these trends were stronger for younger men. The study’s authors found that all groups of individual investors lose money, though individual investors with larger account sizes lose significantly less on average (Source: AAIIJournal, August 2020). 

Another study found that investors with a high level of financial literacy take too many risks, overborrow, and hold naive financial attitudes. However, this high level of financial literacy also lends itself to better retirement planning, since people with more financial literacy are more likely to have a retirement savings plan. In addition, financially literate households earn higher financial returns than illiterate ones. (Source: AAIIJournal, August 2020). 

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Categories : Financial Services, Retirement, Savings

How to Set Savings Goals – A Few Thoughts

Posted by Frank McKinley on
 January 18, 2021
  · No Comments

Setting clear, specific savings goals is one of the best ways to achieve your financial objectives, but it’s a task that many people struggle with. Unfortunately, establishing savings goals is a bit more complex than simply picking a number out of the sky and hoping you can eventually set aside that much cash. Below is a simple seven-step plan that you can use to set — and reach — your savings goals.

1. Select Goals

Before you start saving, it helps to know what you are saving for, since most of us find it easier to save money if we know it will eventually be used for a specific purpose. Common savings goals are creating an emergency fund with at least six months of living expenses or saving for retirement, a child’s college education, a down payment, or a vacation. Your goals will be as unique as you are; the most important thing is that you select them and make them as specific as possible.

2. Determine How Much You Need to Save

Exactly how much money do you need to accomplish your goal? For example, you may want to have $5,000 saved for your dream vacation, $30,000 for a down payment on your first home, or $1 million for retirement. Don’t pick a random number at this point — research how much you’ll actually need so you can be confident that your savings will be sufficient to achieve your goals.

3. Consider Your Timeline

Savings goals can generally be divided into three broad categories: short-term (those that you hope to reach in a year or less), mid-term (those that are roughly one to five years away) and long-term (goals you hope to achieve in five years or more). It’s important to know your timeline, since it will have a direct impact on how aggressively you need to save to hit that target and where you put your money.

what to consider when saving

4. Determine How Much to Set Aside Each Week or Month

For short-term goals, this step is fairly simple. Say you plan to get married in a year, and you want to have $10,000 saved toward that goal before your big day. To meet that goal, you’ll need to save roughly $833 per month for the next year, or $10,000 divided by 12. Determining how much you need to save to hit your long- and mid-term goals can be a bit more complicated, as you’ll need to take into account the growth of your in-vestments. Whatever the timeframe for your goals, making these calculations is important because it allows you to adjust your savings as your budget allows. For example, if you can’t afford to save the over $800 a month you need for the wedding, you have two options: You can ei-ther adjust your timeline or opt to keep it the same and save less.

5. Automate Your Savings If Possible

Once you know how much you need to save, you’ll likely find it easier to stick to your plan if you can automate your savings. Adopt the pay-yourself-first principle and set up automatic transfers to your savings or investment accounts. The key is to save the money before you ever have a chance to spend it, as well as to avoid forgetting to make the transfers.

6. Choose the Right Way to Save

Depending on your goals and timeline, you have different options for savings. Traditional savings ac-counts are a good option for short-term goals, since your money will be safe. Investment accounts and retirement accounts, like a 401(k) plan or IRA, are good options for longer term goals, since you’ll earn money as you save.

7. Watch Your Money Grow

Once you have your savings plan in place, keep an eye on how it is doing. You will need to periodically review your results and make adjustments as necessary. Please call if you’d like to dis-cuss your savings goals in more detail.

If you would like more information or to discuss
your savings goals or other financial concerns

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Categories : Blog, Financial Services, Savings, Savings Goals

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