Retirement

New Year Finance Checklist

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annual personal finance checklist

It’s a new year. Contrary to popular opinion, for the most part, when it comes to money, finances, banking and investing, it doesn’t really matter if the year is new or not. That being said, plenty of people take the opportunity of a fresh calendar to take a fresh look at things like personal finance and their financial plans. So, here is a checklist of things to start thinking about to make sure you personal finances are lined up for 2016. 2016 Personal Finance Checklist Don’t get overwhelmed. Not all of this stuff needs to be done at once. Put a section on your calendar each week or two, and by the end of the first quarter, your finances will be reviewed, tuned-up, and ready for the year ahead. Banking Checklist Review your checking account statements and make sure your bank isn’t charging you fees just for having a checking or savings account. If you are paying monthly fees, or minimum balance fees, find a new account. Check with your current bank first, you might just be signed up for the wrong account. Remember, at today’s interest rates, there is no way having a higher rate compensates for having to …

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Who Needs a Financial Planner?

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financial planner helpful

Ask any financial advisor, and they’ll tell you that everyone (with money, at least) needs a financial planner or advisor. Ask any do it yourself financial planning type and they’ll tell you that no one need a financial advisor or planner. The answer, of course, is much more complicated than that. However, there are some people who are very likely to actually need a financial advisor. Big Money Quickly People who suddenly come into large amounts of money almost always benefit from a professional financial advisor. Unlike those who slowly grow into their fortunes, people who suddenly acquire wealth don’t have time to slowly build up experience with bigger finances. Consider someone who takes 5 years to grow into a $1 million net worth. That first year, they realize there are some tax things they need to consider. During the second year they find out other things, that maybe only really impact people with more than $500,000, and so on. But, when the money comes all at once, there is no time to build up that experience, and, unfortunately, many financial mistakes are irreversible. People who sell their company, or whose stock options finally come in, or otherwise come into a …

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World’s Easiest Retirement Plan

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easy retirement plan

So, you want to do some retirement planning, but it all looks very complicated. There are numerous ways to save for retirement, and there are a lot of different investment accounts, and so on. You may be wondering if you need a financial advisor or financial planner just to make heads or tails of everything. Don’t worry. Most of that stuff isn’t necessary. There are a few facts that will help you develop a rock solid retirement plan for free, in no time at all. Easy Retirement Planning Keep in mind that most of the complications that come from talking about things like financial planning or retirement planning come from the fact that there are actually a lot of different people and a lot of different financial situations. But, when it comes to building a retirement plan yourself, or with a professional, the reality is that 90 to 95 percent of people just need a basic retirement plan with no bells, whistles, or complex calculations. Fact #1: It is almost impossible to save too much money for retirement. The reality is that most people are very much under-saving for retirement. Fully funding a retirement at a lifestyle nearly equal to the …

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Medicare While Still Employed

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Everyone knows that Medicare provides heath care coverage for retired Americans over 65 years old. But, with more American’s working beyond age 65, there is plenty of confusion about how Medicare works if you are still employed and working at a job, especially if it provides health insurance. Medicare is a health care program for American workers age 65 and older. Although it is often paired with Social Security, the programs are different. In fact, with modifications to the Social Security retirement age moving back full retirement benefits, there is now an age disconnect between the two programs. This can cause a financial issue if you aren’t thinking about Medicare when you turn 65 because you are still working a job and don’t need Medicare insurance because you have coverage at work. Medicare Late Enrollment Penalty Does it make sense to enroll in Medicare if you are still working when you turn 65? When you turn 65, you must enroll in Medicare during your initial enrollment period to avoid paying a penalty when you enroll later. The penalty for late enrollment in Part A is an increase in your monthly premium of up to 10% for twice as many years …

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Basic Retirement Plan Simple

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Retirement planning is actually incredibly simple and straightforward for most people. However, it can quickly sound complex because of all the edge cases, exceptions, and possibilities that really only affect a small number of people. If you eliminate all of that noise, however, there really isn’t much to the average American’s financial plan. Follow the following information and there really is no reason you can’t make your own simple retirement plan. Obviously, every situation is different. If you have unusual circumstances such as a coming inheritance, money in trusts, or other legal situations, this plan won’t work for you. If you have regular income, a family, and just need a plan, this is perfect for you. Do It Yourself Financial Plan One of the things that quickly complicates financial planning is the idea that you have to predict how much income you will need in retirement. This step is a waste of time for 90 percent of people. Why? Because, for most people retirement saving and investing is about how much they can save, not how much they will need. To put it another way, consider this. If I tell you that if you can save $10,000 per month, you …

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401k Fees at Supreme Court

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Somehow I missed this until today. The Supreme Court is hearing arguments regarding a new(ish) law about 401k plans. Under something called the Employee Retirement Income Security Act (one of the few legislative acts of recent years that doesn’t have a snappy acronym), a company that has a 401k plan has a fiduciary responsibility to employees in the plan. This means that the company must act in the best interest of the employees. As you can imagine, in U.S. courts this gets pretty nebulous, but it does set a standard. Supreme Court 401k Case In this particular case, the company, Edison International, has a 401k plan with six mutual funds that charge higher fees than identical options. In other words, the plan administrator, through incompetence, or for other reasons chose the more expensive options for the plan. Unfortunately, this is very common. Usually, this isn’t the company, or the HR person, deliberately trying to screw over the employees. Instead, what happens is a 401k company comes in and offers up some proposals. It will say something like, you can have a plan with these investments and it will cost this much, or you can have these other mutual fund investments and …

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Social Security If Still Working

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Social Security is a supplemental retirement income program run by the federal government. The idea is simple. While you are working, you pay money into the Social Security system in the form of FICA tax. When you retire, you get a monthly income check from the Social Security system. Social Security is full of political controversy, and we aren’t interested in that here. This is about personal finance and your actual retirement plan, not about what should or should not be according to someone. Social Security While Working Once upon a time, 65 years old was the mandatory retirement age in many fields. In addition, most people didn’t live much past 65. These days, plenty of people live long past 65 years old, and plenty of people also work long past the age of 65. This introduces some new wrinkles to the Social Security program. First, with people living longer, Social Security was paying out more benefits than it used to. So, Congress passed a law that changes the retirement age for Social Security. If you were born between 1943 and 1954, your full retirement age is 66 years old, not 65. You can start collecting Social Security retirement benefits …

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Your First Basic Financial Plan

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As a former Certified Financial Planner, or CFP, I tend, like many other financial experts, to think (and write) in terms of the tricky, the convoluted, and the complex. The truth is that money and personal finance can be very intricate and complex. However, it is also true that the biggest bang for the buck financial planning wise comes from doing the most basic things. Too often, we get caught up in things that actually end up being tiny details of your overall financial life. For example, many people shop endlessly for higher savings account interest rates. Whether you have a high-yield savings account, a regular savings account, or even a kids savings account, the interest rate matters far less than how much money  you put in it. If you have $10,000 and you put it in a regular savings account earning 0.5 percent, your interest for the year will be approximately, $50. If you got double that rate, 1.0%, then you’d have $100 in interest. In either case, you would still basically just have $10,000 at the end of the year, $10,050 or $10,100, respectively. Neither has a meaningful impact on your overall financial status. On the other hand, if …

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RMD Rules Required Minimum Distributions Guide

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Why Are There RMDs or Required Minimum Distributions? Required minimum distributions, or RMD, is the minimum amount you must withdraw from certain retirement accounts each year. To understand why there are RMDs, it helps to look at things from the government’s perspective. The government runs by collecting tax dollars. However the government also encourages certain behaviors in its citizens and companies by permitting certain tax breaks. (One behavior this encourages is big donations to politicians by companies to get and preserve tax breaks, but that is a topic for another day.) One behavior the government tries to encourage is getting people to save for retirement. It does this by providing several tax-advantaged accounts taxpayers can use to save for retirement, including 401k plans, IRA accounts, and Roth IRA accounts. In all three of these accounts, the interest, earnings, and capital gains are exempt from taxes each year so long as the money stays in the account. Not paying taxes is the incentive to save for retirement. If you do take the money out of the account before you turn 59 1/2 years old, then you have to pay a 10 percent tax penalty. That is the incentive to not take …

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How Much You REALLY Need to Retire

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In all my years as a financial planner, I never met someone who had “enough” money to retire when they were in their 40s or even 50s. Yet, every year, I saw clients who either were already retired, or were retiring. The interesting part was that they didn’t have “enough” money to retire either, no matter how much money they were stuffing into a 401k plan or IRA account. The glitch in this system is the assumption about how much money you’ll need and where it will come from. How Much to Retire Determining how much money you need to retire, which in some circles is getting called, your magic number for retirement, is just two calculations, but the data is filled in with several guesses. The only math comes in the form of a time value of money calculation in order to reach a single number that is calculated form a present value calculation. Simple right, well it would be, if we knew: How much money you’ll spend each year in retirement How long you will live Unfortunately, we don’t know either of those two things, so we guess. Guessing doesn’t sound very like something an advisor or planner …

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