Blog Post: The Many Benefits of a Roth IRA

Tags

, , , , , ,

Why do so many people choose it rather than a traditional IRA?

download

Provided by Brian Damiani

The Roth IRA changed the whole retirement savings perspective. Since its introduction, it has become a fixture in many retirement planning strategies.

The key argument for going Roth can be summed up in a sentence: Paying taxes on retirement contributions today is better than paying taxes on retirement savings tomorrow.

Here is a closer look at the trade-off you make when you open and contribute to a Roth IRA – a trade-off many savers are happy to make.

You contribute after-tax dollars. You have already paid federal income tax on the dollars going into the account. But, in exchange for paying taxes on your retirement savings contributions today, you could potentially realize great benefits tomorrow.1   

You position the money for tax-deferred growth. Roth IRA earnings aren’t taxed as they grow and compound. If, say, your account grows 6% a year, that growth will be even greater when you factor in compounding. The earlier in life that you open a Roth IRA, the greater compounding potential you have.2

You can arrange tax-free retirement income. Roth IRA earnings can be withdrawn tax-free as long as you are age 59½ or older and have owned the IRA for at least five tax years. The IRS calls such tax-free withdrawals qualified distributions. They may be made to you during your lifetime or to a beneficiary after you die. (If you happen to die before your Roth IRA meets the 5-year rule, your beneficiary will see the Roth IRA earnings taxed until it is met.)2,3

If you withdraw money from a Roth IRA before you reach age 59½ or have owned the IRA for five tax years, that is a nonqualified distribution. In this circumstance, you can still withdraw an amount equivalent to your total IRA contributions to that point, tax-free and penalty-free. If you withdraw more than that amount, though, the rest of the withdrawal may be fully taxable and subject to a 10% IRS early withdrawal penalty as well.2,3

Withdrawals don’t affect taxation of Social Security benefits. If your total taxable income exceeds a certain threshold – $25,000 for single filers, $32,000 for joint filers – then your Social Security benefits may be taxed. An RMD from a traditional IRA represents taxable income, which may push retirees over the threshold – but a qualified distribution from a Roth IRA isn’t taxable income, and doesn’t count toward it.4


How much can you contribute to a Roth IRA annually? The 2016 contribution limit is $5,500, with an additional $1,000 “catch-up” contribution allowed for those 50 and older. (The annual contribution limit is adjusted periodically for inflation.)5 

You can keep making annual Roth IRA contributions all your life. You can’t make annual contributions to a traditional IRA once you reach age 70½.2

Does a Roth IRA have any drawbacks? Actually, yes. One, you will generally be hit with a 10% penalty by the IRS if you withdraw Roth IRA funds before age 59½ or you haven’t owned the IRA for at least five years. (This is in addition to the regular income tax you will pay on funds withdrawn prior to age 59 1/2, of course.) Two, you can’t deduct Roth IRA contributions on your 1040 form as you can do with contributions to a traditional IRA or the typical workplace retirement plan. Three, you might not be able to contribute to a Roth IRA as a consequence of your filing status and income; if you earn a great deal of money, you may be able to make only a partial contribution or none at all.3,5

A chat with the financial professional you know and trust will help you evaluate whether or not a Roth IRA is right for you given your particular tax situation and retirement hori

Brian Damiani may be reached at (925) 462-6007 or  associates@wealth-mgt.net

http://www.wealth-mgt.net

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – forbes.com/sites/gurufocus/2016/07/12/dividend-investing-in-a-roth-ira/#15a5276e320b [7/12/16]

2 – fool.com/retirement/2016/07/03/5-huge-roth-ira-advantages-you-need-to-know.aspx [7/3/16]

3 – hrblock.com/free-tax-tips-calculators/tax-help-articles/Retirement-Plans/Early-Withdrawal-Penalties-Traditional-and-Roth-IRAs.html?action=ga&aid=27104&out=vm [8/8/16]

4 – investopedia.com/ask/answers/013015/how-can-i-avoid-paying-taxes-my-social-security-income.asp [7/6/16]

5 – fool.com/retirement/general/2016/01/02/ira-contribution-limits-in-2015-and-2016-and

Advertisements

Blog Post: Do Our Biases Inhibit Our Retirement Savings Efforts?

Tags

, , , , , , , , ,

They may affect our attempts to build wealth.   

 99277811

Provided by Brian Damiani

Picture an 18-wheeler, its 4,000-cubic-foot cargo trailer filled to capacity with stacks of $100 bills. The driver shuts and locks the trailer, closing the door on roughly $10 billion.

Now imagine that truck driving off to a landfill, where that $10 billion will be dumped, shredded and buried, rendered useless.

As the day goes on, 170 more 18-wheelers start up their engines and carry the exact same payload to the same destination. When the convoy finishes its work, $1.7 trillion is gone.

Unimaginable? Metaphorically speaking, perhaps not. The National Bureau of Economic Research, a respected non-profit think tank, says we are forfeiting $1.7 trillion in potential retirement savings. Why? Simply because of our biases.1

Two major biases can impact our saving & investment decisions. NBER identified them in a study published in its Bulletin on Aging & Health in April.1

Present bias occurs when we value the present over the future. To see how common this bias is, NBER’s research team asked people a simple question: “Would you rather receive $100 today or $120 in 12 months?” As a variation, they also offered a choice between having $100 now or having $144 after waiting 24 months. Fifty-five percent of the respondents turned out to be “present biased” – that is, they wanted to take the $100 right away rather than wait to get a greater sum.1,2

Patience, of course, is fundamental to investing and retirement saving. Present bias is one of its enemies. From another angle, it also rears its head when volatility rocks Wall Street and we see panic selling. That panic is partly fueled by present bias. The sellers feel the pain of the moment, and lose sight of the potential in the future.

Present bias may also influence participation in workplace retirement plans. If an employee has tight personal finances or little understanding of investment principles, dollars in hand today may seem much more tangible and important than dollars that might be earned years from now. That leads us straight to the second bias NBER says plagues us.       

Exponential-growth bias occurs when we misunderstand compounding. Illustrate the power of compounding to a young adult starting to save for retirement, and “it all becomes clear” – there is perhaps no better way to show the long-term savings potential of a tax-deferred retirement account.1

Sadly, this is a lesson some people never grasp – either because it is not shown to them or because they lack mathematical or financial literacy. Someone unfamiliar with compounding may reason that assets in a retirement account simply grow by a fixed amount each year. That kind of misconception may make a workplace retirement plan less attractive to an employee – or alternately, it may make them think of it as if it were a fixed-rate investment vehicle.

As part of its research, NBER asked retirement savers a simple compounding question. Seventy-five percent of the survey respondents answered it incorrectly, and about 70% of respondents underestimated how much the asset in question would grow in value over time.1,2

Even meager compounding can be impressive. The Rule of 72 is widely known, but the 2-20-50 Rule also deserves to be remembered: an asset that increases in value by just 2% annually for 20 years will be worth about 50% more at the end of that 20-year period.2

Present bias & exponential-growth bias can deter people from saving for the future. They are easy to harbor, and easy to fall back on. Even longtime investors and retirement savers may fall prey to them. Challenging these biases is not only wise, but potentially useful. NBER estimates that if Americans could rid themselves of these two biases, our nation’s total retirement savings would increase by 12%.1

     

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

http://www.wealth-mgt.net

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

Citations.

1 – bloomberg.com/news/articles/2016-04-27/how-americans-blow-1-7-trillion-in-retirement-savings [4/27/16]

2 – theatlantic.com/business/archive/2016/07/two-biases/491576/ [7/6/16]

Blog Post: Life Insurance … Is It Time?

Tags

, , , , , , , , , , , , , ,

Have you been putting it off?

 images

Provided by Brian Damiani

 

According to the insurance industry group LIMRA and the nonprofit Life Happens, 43% of Americans have no life insurance.1

Why don’t more young adults buy life insurance? Shopping for life insurance may seem confusing, boring, or unnecessary. Yet when you have kids, get married, buy a house or live a lifestyle funded by significant salaries, the need arises.

Finding the right policy may be simpler than you think. There are two basic types of life insurance: term and cash value. Cash value (or “permanent”) life insurance policies offer death benefits and some of the characteristics of an investment – a percentage of the money you spend to fund the policy goes into a savings program. Cash value policies have correspondingly higher premiums than term policies, which give you death benefits only. At first glance, despite these higher premiums, cash value policies may appear to provide a significant advantage over term policies based on the added investment benefits, alone—but, careful analysis reveals that these benefits only begin to tip in the investor’s favor after 10 to 20 years of monetary contributions. Term may be a good choice for young adults because it is relatively inexpensive. But there is an economic downside to term life coverage: if you outlive the term of the policy, you and/or your loved ones get nothing back. Term life policies can be renewed (though many are not) and some can be converted to permanent coverage.2

The key question is: how long do you plan to keep the policy? If you don’t want to pay premiums on an insurance policy for more than 10 years, then term life stands out as the most attractive option. If you are just looking for a short-term hedge against calamity, that’s the whole reason behind term life insurance. If you’re getting into estate planning, then permanent life insurance may prove a better choice.

Confer, compare and contrast. Talk with a financial or insurance professional you trust before plunking down money for a policy. That professional can perform a term-versus-permanent analysis for you and help you weigh per-policy variables.

 

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

http://www.wealth-mgt.net

 

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

Citations.

1 – nerdwallet.com/blog/insurance/who-needs-life-insurance/ [1/29/16]
2 – fool.com/insurancecenter/life/life05.htm [8/2/16]

 

Blog Post: Think About Your Lifestyle Before You Retire

Tags

, , , , ,

Sometimes planning for retirement isn’t entirely about money.

 download

Provided by Brian Damiani

How many words have been written about retirement? It’s a preoccupation for many, and we devote so much time, thought, and energy toward saving for the last day we go to work. Saving and investing in such a way that we no longer have to work may seem ideal at first, but it raises a question: what do you have planned for all of that free time?

What do you do with your first day? Maybe you finally take that big vacation you’ve been talking about. Or, perhaps, it’s time to catch up with your kids, grandkids, and other extended family. But, eventually, you come home from a vacation or a visit.

While many of us have that first day mapped out, it’s the days that follow that we haven’t really considered. In a survey conducted by Merrill Lynch and AgeWave, people who were about to retire were asked “what they would miss the most” once they left the working world. A “reliable income” was the top answer, coming in at 38%.1

When the same survey was given to people who have been retired for a while, “reliable income” was still a popular answer, but it drops down to 29%. So, what are actual retirees missing? The top answer, at 34%, was “social connections.” Other prominent answers included “having purpose and work goals” (19%) and “mental stimulation” (12%).1

Free time can be a luxury or a curse. The results of the survey indicate that many retirees don’t give much thought to what they will be doing with all of their free time. We are meant to enjoy our retirement, of course, so banishing the restlessness and loneliness that can come from leaving your job should be taken into consideration when you are planning.

In his book You Can Retire Earlier Than You Think, investment strategist and radio host Wes Moss advises seeking out what he calls “core pursuits.” These are rewarding and engaging interests that can bring satisfaction and happiness to your life; charity work, hobbies, community activities, or public service are but a few examples.1

Moss estimates that the most satisfied retirees enjoy three or four such pursuits as they go into retirement – though, there’s no reason that someone can’t find more ways to pass the time.1

“Retirement” doesn’t mean “not working.” Not everyone is geared toward making their life about core pursuits. You may find that you miss working, or that you simply need or desire a little more income. Maybe you find that a part-time job is ideal for supplementing your retirement income? Or, perhaps, you have an idea for a small business that you’ve always wanted to pursue?

Whatever path you take, it’s important to consider the options open to you once your time is finally your own. You’ve worked most of your life for it, so enjoying yourself during retirement should be a priority.

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

http://www.wealth-mgt.net

 

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

Citations.

1 – fool.com/retirement/general/2016/04/01/think-youre-ready-to-retire-not-until-you-read-thi.aspx [4/1/16]

 

 

 

 

Blog Post: The A, B, C, & D of Medicare

Tags

, , , , , , , , , , , , , ,

Breaking down the basics & what each part covers.

 piggybankcrutchesFROMandrewrosenbaum.com

Provided by Brian Damiani

Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover, and where they come from.

Parts A & B: Original Medicare. America created a national health insurance program for seniors in 1965 with two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long, and only under certain parameters.1

Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $161 daily coinsurance payment may be required of you.2

If you stop receiving SNF care for 30 days, you need a new 3-day hospital stay to qualify for further nursing home care under Part A. If you can go 60 days in a row without SNF care, the clock resets: you are once again eligible for up to 100 days of SNF benefits via Part A.2

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (scooters, wheelchairs), and other medical services such as lab tests and varieties of health screenings.1

Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level; in 2016, most Medicare recipients are paying $121.80 a month for their Part B coverage. The current yearly deductible is $166. Some people automatically get Part B, but others have to sign up for it.3 

Part C: Medicare Advantage plans. Insurance companies offer these Medicare-approved plans. Part C plans offer seniors all the benefits of Part A and Part B and more: many feature prescription drug coverage and vision and dental benefits. To enroll in a Part C plan, you need have Part A and Part B coverage in place. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums.4

To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (Oct. 15 – Dec. 7), seniors can choose to switch out of Original Medicare to a Part C plan or vice versa; although any such move is much wiser with a Medigap policy already in place.5

How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. Some Medigap policies can even help you pay for medical care outside the United States. You have to pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage; in fact, they have been sold without drug coverage since 2006.6

Part D: prescription drug plans. While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going.7

Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you.8

Part C & Part D plans are assigned ratings. Medicare annually rates these plans (one star being worst; five stars being best) according to member satisfaction, provider network(s), and quality of coverage. As you search for a plan at medicare.gov, you also have a chance to check out the rankings.9

 

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

http://www.wealth-mgt.net

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Citations.

1 – mymedicarematters.org/coverage/parts-a-b/whats-covered/ [6/13/16]

2 – medicare.gov/coverage/skilled-nursing-facility-care.html [6/13/16]

3 – medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html [6/13/16]

4 – tinyurl.com/hbll34m [6/13/16]

5 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/when-can-i-join-a-health-or-drug-plan.html#collapse-3192 [6/13/16]

6 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [6/13/16]

7 – ehealthinsurance.com/medicare/part-d-cost [6/13/16]

8 – medicare.gov/part-d/coverage/part-d-coverage.html [6/13/16]

9 – medicare.gov/sign-up-change-plans/when-can-i-join-a-health-or-drug-plan/five-star-enrollment/5-star-enrollment-period.html [6/13/16]

 

Blog Post: Bag Lady Syndrome

Tags

, , , , , , , , , ,

You must avoid it. Think about tomorrow, not just today.

 104821758

Provided by Brian Damiani

 

No woman wants to end up a “bag lady” – impoverished, out of options, left to fend for herself on the streets. Only a tiny percentage of women from affluent households will experience this retirement nightmare, but that does not mean the risk should be dismissed.

This is the financial circumstance you may fear more than any other. What can you do to counter that fear and guard against running out of money in retirement?

The first step is to plan. You must plan with the knowledge that you might outlive your spouse; that you might spend some, or even all, of your retirement alone. Because of your potentially longer lifespan and the lack of a spousal safety net, it is not unreasonable to assume that you may need 150% of the retirement money that a man in your situation might need. That may be stunning, but it is worth realizing. Imagine your children having to bear the financial burden of taking care of you when you are elderly. If you have no children, imagine having to rely on welfare and Medicaid at that time. Surely that is not the future you imagine or want.

Value your future comfort as much as you value your comfort today. Think ahead and investigate what it might take to retire comfortably in terms of income and lifetime savings. If you haven’t done much financial preparation for the future, you may be shocked when you see what needs to be done. Regardless, there is no avoiding it. Time is your friend in these matters, and procrastination in saving and investing only makes your retirement more of a question mark.

See wealth as something you build, not something you own. So often, society looks at wealth in terms of material items. You spend money to acquire those items, and, with rare exceptions, their value depreciates as years go by.

Rather than direct your money into depreciating items, you can save and invest it. You can steadily contribute to IRAs, brokerage accounts, workplace retirement plans, and other vehicles that permit you to invest in equities. Investing in equities is crucial, for they offer you the potential to grow your money at a rate faster than inflation. Yes, Wall Street has some bad years as well as good ones – but, over several decades, the good have outnumbered the bad. The broad benchmark of Wall Street – the S&P 500 – posted annual gains in 31 of the 41 years from 1975-2015, sometimes large ones.1

Many women are concerned about not losing money. In retirement, that is indeed a prime concern for both women and men. Prior to retirement, though, accepting some risk in your investments can lead to much greater potential reward (i.e., yield) than you might get from the typical savings or checking account or fixed-income bank investment. 

Plan income streams. Too many seniors rely on a single income stream in retirement – Social Security. In fact, 47% of unmarried elderly Social Security recipients rely on Social Security for at least 90% of their income. In 2015, the average monthly benefit was just $1,335.2

On average, an American woman retires at age 62. In 2014, 40.8% of women who began receiving Social Security retirement benefits filed for them at – not surprisingly – age 62. The upside of this decision was that they gained an income stream. The downside was that by filing for benefits at 62, they received a monthly benefit about 30% smaller than the one they could have received by first claiming benefits at 66.3 

One in four 65-year-old women today will live to be at least 90. Can you imagine relying heavily, or solely, on Social Security for 20, 25, or 30 years? If you find yourself in such straits, you will be consigned to a life of poverty, unless you sell or borrow against assets you own to come up with more retirement money.3 

Social Security cannot be your lone income source in retirement, and, before you retire, you must arrange others. 

What is a chat with a financial professional worth? It may be worth a great deal – it may be eye-opening and illuminating with regard to your retirement prospects. If you want to see where you stand today, what you may want to do to approach retirement with confidence and adequate financial resources, start there.

 

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

associates@wealth-mgt.net

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

Citations.

1 – 1stock1.com/1stock1_141.htm [6/28/16]

2 – ssa.gov/news/press/basicfact.html [10/13/15]

3 – nbcnews.com/business/retirement/biggest-mistake-women-make-social-security-benefits-n407816 [8/11/15]

Blog Post: Good Retirement Savings Habits Before Age 40

Tags

, , , , , , , ,

Some early financial behaviors that may promote a comfortable future.  

 images

Provided by Brian Damiani

 

You know you should start saving for retirement before you turn 40. What can you start doing today to make that effort more productive, to improve your chances of ending up with more retirement money, rather than less?

Structure your budget with the future in mind. Live within your means and assign a portion of what you earn to retirement savings. How much? Well, any percentage is better than nothing – but, ideally, you pour 10% or more of what you earn into your retirement fund. If that seems excessive, consider this: you are at risk of living 25-30% of your lifetime with no paycheck except for Social Security. (That is, assuming Social Security is still around when you retire.)

Saving and investing 10-15% of what you earn for retirement can really make an impact over time. For example, say you set aside $4,000 for retirement in your thirtieth year, in an investment account that earns a consistent (albeit hypothetical) 6% a year. Even if you never made a contribution to that retirement account again, that $4,000 would grow to $30,744 by age 65. If you supplant that initial $4,000 with monthly contributions of $400, that retirement fund mushrooms to $565,631 at 65.1

Avoid cashing out workplace retirement plan accounts. Learn from the terrible retirement saving mistake too many baby boomers and Gen Xers have made. It may be tempting to just take the cash when you leave a job, especially when the account balance is small. Resist the temptation. One recent study (conducted by behavioral finance analytics firm Boston Research Technologies) found that 53% of baby boomers who had drained a workplace retirement plan account regretted their decision. So did 46% of the Gen Xers who had cashed out.2

Instead, arrange a rollover of that money to an IRA, or to your new employer’s retirement plan if that employer allows. That way, the money can stay invested and retain the opportunity for growth. If the money loses that opportunity, you will pay an opportunity cost when it comes to retirement savings. As an example, say you cash out a $5,000 balance in a retirement plan when you are 25. If that $5,000 stays invested and yields 5% interest a year, it becomes $35,200 some 40 years later. So today’s $5,000 retirement account drawdown could amount to robbing yourself of $35,000 (or more) for retirement.3   

Save enough to get a match. Some employers will match your retirement contributions to some degree. You may have to work at least 2-3 years for an employer for this to apply, but the match may be offered to you sooner than that. The match is often 50 cents for every dollar the employee puts into the account, up to 6% of his or her salary. With the exception of an inheritance, an employer match is the closest thing to free money you will ever see as you save for the future. That is why you should strive to save at a level to get it, if at all possible.4

Saving enough to get the match in your workplace retirement plan may make your overall retirement savings effort a bit easier. Say your goal is to save 10% of your income for retirement. If the employer match is 50 cents to the dollar and you direct 6% of your income into that savings plan, your employer contributes the equivalent of 3% of your income. You are almost to that 10% goal right there.4

Think about going Roth. The younger you are, the more attractive Roth retirement accounts (such as Roth IRAs) may look. The downside of a Roth account? Contributions are not tax-deductible. On the other hand, there is plenty of upside. You get tax-deferred growth of the invested assets, you may withdraw account contributions tax-free, and you get to withdraw account earnings tax-free once you are 59½ or older and have owned the account for at least five years. Having a tax-free retirement fund is pretty nice.4

To have a Roth IRA in 2016, your modified adjusted gross income must be less than $132,000 (single taxpayer) or $194,000 (married and filing taxes jointly).4

Set it & forget it. Saving consistently becomes easier when you have an automated direct deposit or salary deferral arrangement set up for you. You can gradually increase the monthly amount that goes into your accounts with time, as you earn more.

Invest for growth. Much wealth has been built through long-term investment in equities. Wall Street has good years and bad years, but the good years have outnumbered the bad. Early investment in equities may assist your retirement savings effort more than any other factor, except time.

Time is of the essence. Start saving and investing for retirement today, and you may find yourself way ahead of your peers financially by the time you reach 40 or 50.

 

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

http://www.wealth-mgt.net

 

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

 

 

Citations.

1 – investor.gov/tools/calculators/compound-interest-calculator [7/7/16]

2 – marketwatch.com/story/millennials-can-save-more-for-retirement-by-learning-from-baby-boomers-mistakes-2016-06-30 [6/30/16]

3 – thefiscaltimes.com/2015/11/20/7-Ways-Millennials-Are-Getting-Retirement-Saving-Wrong [11/20/15]

4 – kiplinger.com/article/retirement/T001-C006-S001-retire-rich-saving-for-retirement-in-your-20s-30s.html [2/4/16]

Blog Post: Money Habits That May Help You Become Wealthier

Tags

, , , , ,

Financially speaking, what do some households do right?

 download

Provided by Brian Damiani

 

Why do some households tread water financially while others make progress? Does it come down to habits?

Sometimes the difference starts there. A household that prioritizes paying itself first may end up in much better financial shape in the long run than other households.

Some families see themselves as savers, others as spenders. The spenders may enjoy affluence now, but they also may be setting themselves up for financial struggles down the road. The savers better position themselves for financial emergencies and the creation of wealth.

How does a family build up its savings? Well, money not spent can be money saved. That should be obvious, but some households take a long time to grasp this truth. In the psychology of spenders, money unspent is money unappreciated. Less spending means less fun. 

Being a saver does not mean being a miser, however. It simply means dedicating a percentage of household income to future goals and needs rather than current wants.

You could argue that it is harder than ever for households to save consistently today; yet, it happens. As of May, U.S. households were saving 5.3% of their disposal personal income, up from 4.8% a year earlier.1

Budgeting is a great habit. What percentage of U.S. households maintain a budget? Pollsters really ought to ask that question more often. In 2013, Gallup posed that question to Americans and found that the answer was 32%. Only 39% of households earning more than $75,000 a year bothered to budget. (Another interesting factoid from that survey: just 30% of Americans had a long-run financial plan.)2 

So often, budgeting begins in response to a financial crisis. Ideally, budgeting is proactive, not reactive. Instead of being about damage control, it can be about monthly progress.   

Budgeting also includes planning for major purchases. A household that creates a plan to buy a big-ticket item may approach that purchase with less ambiguity – and less potential for a financial surprise. 

Keeping consumer debt low is a good habit. A household that uses credit cards “like cash” may find itself living “on margin” – that is, living on the edge of financial instability. When people habitually use other people’s money to buy things, they run into three problems. One, they start carrying a great deal of revolving consumer debt, which may take years to eliminate. Two, they set themselves up to live paycheck to paycheck. Three, they hurt their potential to build equity. No one chooses to be poor, but living this way is as close to a “choice” as a household can make. 

Investing for retirement is a good habit. Speaking of equity, automatically contributing to employer-sponsored retirement accounts, IRAs, and other options that allow you a chance to grow your savings through equity investing are great habits to develop.

Smart households invest with diversification. They recognize that directing most of their invested assets into one or two investment classes heightens their exposure to risk. They invest in such a way that their portfolio includes both conservative and opportunistic investment vehicles.  

Taxes and fees can eat into investment returns over time, so watchful families study what they can do to reduce those negatives and effectively improve portfolio yields.

Long-term planning is a good habit. Many people invest with the goal of making money, but they never define what the money they make will be used to accomplish. Wise households consult with financial professionals to set long-range objectives – they want to accumulate X amount of dollars for retirement, for eldercare, for college educations. The very presence of such long-term goals reinforces their long-term commitment to saving and investing. 

Every household would do well to adopt these money habits. They are vital for families that want more control over their money. When money issues threaten to control a family, a change in financial behavior is due.

 

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

http://www.wealth-mgt.net

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Securities and investment advisory services offered through Signator Investors, Inc. . A Registered Broker/Dealer and Investment Advisor MemberFINRA & SIPC. Non-security products and services or tax services are not offered through Transamerica Financial Advisors, Inc. Neither Signator Investors, Inc. nor its representatives provide tax or accounting services. Person who provide such service do so in a capacity other than as a registered rep of Signator Investors, Inc. Wealth Management Associates is not affiliated with Signator Investors, Inc.

  

 

  

 

Blog Post: Women & Retirement Perceptions

Tags

, , , , ,

Will the reality of retirement live up to expectations?

 Slide7

Provided by Brian Damiani

 

After 55, do women think more about retirement than men? One recent survey found that to be true. Fidelity Investments polled 12,000 retirement savers 55 and older and found that, within the past 24 months, 59% of women had seriously thought about when they would retire, as compared to 45% of their male peers.1                                                           

What do women enjoy doing once retired? TIAA (formerly TIAA-CREF) tried to determine that as part of its Voices of Experience 2016 survey of recent retirees. Eighty percent of women said they valued “spending time alone with personal interests such as reading.” Eighty percent also ranked “connecting with and spending time with family” as one of their activities. Seventy-five percent cited “socializing with friends;” 58%, “volunteering and giving back to the community,” and 43%, “caring for others.” Retired women were also 47% likely to participate in “fitness or more athletic strenuous pursuits,” and 40%, likely to engage in “creative pursuits,” such as writing and visual arts.2

Another poll suggests some women may have a different kind of active retirement. In its 2016 Retirement Survey of Workers, the Transamerica Center for Retirement Studies found that 56% of women planned to retire after age 65 or not at all. In addition, 51% anticipated working in retirement.3

Many women are concerned about outliving their money. A 2015 Fidelity survey of more than 1,500 women found that 60% were worried about that possibility. Even among the affluent, a notable gender gap exists in retirement savings; in its most recent high net worth client survey, Wells Fargo discovered that that the median retirement account balance for women was approximately $500,000, versus approximately $700,000 for men.4,5 

Too many women approach retirement with too little saved or invested. You can cite two major reasons for that.

One, the multi-year absence of some women from the workplace (which can coincide with peak earning years, lessening the rate of retirement plan contributions). Barron’s notes that, on average, women spend 11 years out of the workforce compared to men. AARP calculates that an 11-year absence may potentially cost a woman as much as $324,000 in lifetime earnings and Social Security income.5

Two, a notable earnings gap. On average, women working full-time earn 79 cents for every $1 men earn, which may reflect everything from gender inequality in career paths to wage discrimination.6

Another factor may be a preference for extremely conservative investing (and that is a preference that many men share as well). There can be a cost for assuming too little risk in one’s portfolio. When investments are too risk-averse, an investor may lose the potential to generate returns that keep up with inflation.

How about you? How are you investing & saving to pursue your retirement dream? Do you have a strategy in place with defined goals? A chat with a financial professional may lead to the discovery of creative new ways to pursue your retirement objectives, and new steps toward creating the retirement you want for yourself.

What is that kind of professional input worth? It may make a big difference in retirement confidence and in the process of retiring. In the new TIAA study, 69% of women said their transitions to retirement were “easy,” versus 77% of men. The more confidence you have, the more knowledge you have.2,5

 

Brian Damiani may be reached at (925) 462-6007 or associates@wealth-mgt.net

http://www.wealth-mgt.net

 

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Securities and investment advisory services offered through Signator Investors, Inc. . A Registered Broker/Dealer and Investment Advisor Member FINRA & SIPC. Non-security products and services or tax services are not offered through Transamerica Financial Advisors, Inc. Neither Signator Investors, Inc. nor its representatives provide tax or accounting services. Person who provide such service do so in a capacity other than as a registered rep of Signator Investors, Inc. Wealth Management Associates is not affiliated with Signator Investors, Inc.

  

Citations.

1 – money.usnews.com/money/personal-finance/articles/2016-05-19/how-and-why-men-and-women-retire-differently [5/19/16]

2 – forbes.com/sites/nextavenue/2016/04/20/retirement-life-women-and-men-do-it-very-differently/ [4/20/16]

3 – transamericacenter.org/retirement-research/women-and-retirement [1/11/16]

4 – usatoday.com/story/money/2015/02/12/women-financial-savings-retirement/22982383/ [2/12/15]

5 – tinyurl.com/jexfqwp [2/13/16]

6 – washingtonpost.com/news/wonk/wp/2016/03/08/its-2016-and-women-still-make-less-for-doing-the-same-work-as-men/ [3/8/16]

 

Blog Post: The Costco / American Express Breakup

Tags

, ,

If you have a Costco AMEX card, you should be preparing for the transition to VISA.

 download

Provided by Brian Damiani

The longstanding, exclusive partnership between Costco and American Express is coming to an end. If you have a Costco AMEX card, what does this mean for you?

In May or June, you should get your new Costco VISA card. So if you make auto-payments to Costco, you should re-enter your credit card information (the new number, and any other changes) before June 20.1

June 20 is the deadline. Beginning that day, Costco will only accept VISA cards, cash, checks, debit and ATM cards, EBT cards, and Costco Cash cards as forms of payment.1

Citigroup is issuing the new Costco VISA card. The new card allows the cardholder to get 4% cash back on the first $7,000 in eligible gasoline purchases per year and 1% on eligible gasoline purchases thereafter. Cardholders will also receive 2% cash back on all other Costco and Costco.com purchases. Other perks include 3% cash back on restaurants and eligible travel purchases and 1% cash back on any other form of purchase.1

In comparison, the Costco AmEx card offered 3% cash back at gas stations nationwide (with a $4,000 annual ceiling on such rewards), and 2% cash back on eligible travel and dining purchases.1

This changeover is projected to affect about 10% of AmEx cardholders. Indeed, there are some people who signed up for their first AmEx card just because of the Costco-AmEx relationship.1

Will this changeover have any effect on credit scores? Citibank will not be reviewing credit reports pursuant to the account transfers, so the answer should be “no.” Costco AmEx cardholders can maintain their current line of credit.1

Will Costco AmEx cardholders have to pay down account balances by June 20? No. American Express says that Costco AmEx cardholders may still carry a balance after that date.1

 

Brian Damiani may be reached at (925) 462-6007 or associates (at) wealth-mgt.net

http://www.wealth-mgt.net

 

 

 

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

«RepresentativeDisclosure»

    

Citations.

1 – marketwatch.com/story/5-things-to-know-about-the-costco-and-amex-breakup-2016-02-11 [4/5/16]