Stop Having Money Paralysis. Not making a move may not be the best move to make. By John Jastremski

 A decision not made may have financial consequences. There is an old belief that women are more cautious about money than men, and whether you believe that or not, both women and men may fall prey to a kind of money paralysis as they age – in which financial indecision is regarded as a form of “safety.”

Retirement seems to heighten this tendency. If you are single, retired, and female, you may be extremely fearful of drawing down your retirement savings too soon; or investing in a way that would mean any kind of risk.

This is understandable: if you are over 80, you likely have memories of the Great Depression, and baby boomers have memories of the severe economic downturn of the late 2000s.

“Paralysis by analysis,” or simple hesitation, may cost you in the long run. Your retirement may last much longer than you presume it will – perhaps 30 or 40 years – and maintaining your standard of living will undeniably take some growth investing. As much as you may want to stay out of stocks and funds, they offer you a chance to out-earn inflation – a chance you forfeit at your financial peril.

Even minor inflation can subtly reduce your purchasing power over time. Of all the risks to quality of life in retirement, this is often the least noticed. Doing nothing about it – or investing in a way that avoids all or nearly all risk – may put you at greater and greater financial disadvantage as your retirement proceeds.

Keeping a foot in the stock market – in whatever major or minor way you choose – allows your invested assets the potential to keep pace with or outpace inflation.

Retirement is the time to withdraw retirement assets. Some women (and men) are extremely reluctant to tap into their retirement nest eggs, even when the money has been set aside for years for a specific dream. Even though they have saved or dedicated, say, $20,000 for world travel, when retirement comes they may be skittish about actually using the money for that purpose. Buying a car to replace one that has been driven for 15 years, or remodeling part of the house to make it more livable after 70 or 80 may be viewed as extravagances.

We cannot control how long we will live, how much money we will need in the future, or how well the economy will perform next year or ten years on. There comes a point where you must live for today. Pinching pennies in retirement with the idea that the great bulk of your savings is for “someday” can weigh on your psyche. What does your retirement dream amount to if you don’t start living it once you retire?

If you fear outliving your money, remember that growth investing offers you the potential to generate a larger retirement fund for yourself. If you seek more retirement income, ask a financial professional about ways to arrange it – there are multiple ways to plan for it, and some that involve little risk to principal.

Don’t forget America’s built-in retirement insurance: Social Security. For every year you wait to claim Social Security benefits after your full retirement age (either 66 and 67 for most people) and age 70, your monthly payments grow by 8%. In contrast, if you start taking Social Security before your full retirement age, it will mean less SSI per month than if you had waited.1

The 4% rule may provide you with a guideline. For many years, some retirement planners have recommended that a retiree withdraw between 4-4.5% annually from savings. (This percentage is gradually adjusted north for inflation over the years.)2

The 4% rule is a worthwhile rule for many retirees, but it is hardly the only yardstick for retirement income withdrawals. At its Squared Away blog, the influential Center for Retirement Research at Boston College notes a study from one of its economists on this topic. It suggests an alternative – termed the RMD strategy – that mimics the Required Minimum Distributions the federal government requires from a traditional IRA after the original IRA owner enters his or her seventies. In this withdrawal strategy, you start withdrawing only 3.1% of your retirement assets at age 65, which climbs to 4.4% at 75 and then 6.8% by 85. (That is just withdrawal off of principal; interest and dividends can be added to that to give you more income.)2

Are you wondering just how much money to live on in retirement? Are you also wondering how your retirement savings and income may grow? Talk with a financial professional about your options – you may have many more than you initially assume. A practical outlook on investing and decisions to work longer or claim Social Security later can also potentially help you amass or receive more money for the years ahead.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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/nextavenue/2013/08/22/5-cures-for-womens-retirement-spending-paralysis/ [8/22/13]

2 – squaredawayblog.bc.edu/squared-away/retiree-paralysis-can-i-spend-my-money/ [7/11/13]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.  Neither the named Representatives nor Broker/Dealer gives tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, Qwest, Hughes, Glaxosmithkline, ExxonMobil, Verizon, Merck, Bank of America, Chevron, AT&T,  Raytheon, Pfizer, ING Retirement, Northrop Grumman, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

 

 

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How Women Are Planning Their Financial Futures. By John Jastremski

From assorted survey data, an interesting snapshot emerges.

Women are taking action to approach retirement with greater confidence. Some recent, intriguing survey data indicates that women are planning their financial futures with some degree of pragmatism, but also with considerable motivation.

One of the key motivations, it seems, is receiving financial advice.

Results from a new TIAA-CREF survey (and other studies) bear this out. The retirement services giant polled a random, national sample of 1,000 men and women age 18 and older for its 2014 Advice Matters Survey, and it found that 81% of women who had obtained financial advice were more likely to feel informed about retirement planning and retirement saving than women who hadn’t. Additionally, 63% of women who had received financial advice felt confident that they were saving sufficiently for retirement.1

What kind of difference does financial advice make? A significant difference, it seems. In the big picture, 87% of the women surveyed by TIAA-CREF this summer said they had taken “positive steps” in their financial lives as a consequence. In particular, 64% altered spending habits and 53% took an organized approach to managing debt.1,2

In addition, 51% of the women had created an emergency fund and 57% had increased monthly saving rates since getting advice – and that leads us toward another interesting statistic.2

One study suggests women are more dedicated to retirement saving than men. Looking back at 2013, Vanguard discovered that 79% of women earning between $50,000-75,000 were participating in its employer-sponsored retirement plans; only 60% of men in that income group were.2

Another notable difference appeared, this one across all income levels. Examining data from all of its retirement plans, Vanguard found that women saved for retirement at rates ranging from 6-12% greater than men. The message that women need more money for (a potentially longer) retirement than men is being heard loud and clear, it seems.2

Where are women getting their financial advice from? TIAA-CREF’s survey asked this question, but it only counted online sources. Back in 2012, 20% of women in TIAA-CREF’s 2012 survey said they went to financial websites for advice; this year, that rose to 41%.2

Most telling is that 49% of the women TIAA-CREF polled felt that it would be helpful to turn to a real person online with their basic personal financial questions. In fact, 61% of women respondents in the survey reported relying on financial services providers (and presumably, the financial professionals who work for them) for advice.1

Still, 66% of the women answering TIAA-CREF’s questions indicated that it was hard for them to determine what sources of financial advice to trust. (That was across all women surveyed, including those who had not sought advice.)2

Women may put more importance on long term care planning than men. Or so suggests Genworth’s 2014 Online Consumer Survey. The insurer collected responses from 1,200+ U.S. adults age 18 and older during October, and 64% of women respondents said they were motivated to plan for long term care needs. Only 40% of men responding said they were concerned about that. Even so, Genworth discovered that less than 30% of respondents had talked with their loved ones about planning for eldercare or aging issues.3

Long term care insurance is getting costlier as the baby boom generation matures, and it may get more expensive for women in the near future than for men: as Morningstar columnist Mark Miller recently noted, gender-based pricing is quickly emerging and may become standard practice.4

Single women need to plan & save aggressively for the years ahead. The Transamerica Center for Retirement Studies recently surveyed American workers 50 and older and found that the median retirement savings for single women was only $35,000. (For single men, the median was $70,000; for married women, it was $153,000.) Women living alone anticipated a financial struggle: 48% of those surveyed believed they would retire to a lower standard of living, and 52% assumed their main income resource would be Social Security. Perhaps most troubling, 56% of these single women expected to work into their seventies or never retire.4

The takeaways here for a single woman: save early, save consistently, exploit Social Security claiming strategies for any potential advantage, and find a social support network that can help you look after yourself as you age.

Advice promotes action. As you amass financial knowledge, you gain perspective. When you run the numbers and estimate the level of retirement savings and income you will need, you are able to set goals and timelines for your financial future. Planning the financial future starts with a commitment – and following through on that commitment is critical.

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 – tiaa-cref.org/public/about/press/about_us/releases/articles/pressrelease534.html [10/29/14]

2 – mainstreet.com/article/more-women-want-financial-advice-but-two-thirds-dont-know-whom-to-trust [11/4/14]

3 – tinyurl.com/m49oo52 [11/13/14]

4 – news.morningstar.com/articlenet/article.aspx?id=670479 [10/31/14]

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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Getting Help from a Financial Professional by John Jastremski

Getting Help from a Financial Professional

 

Are you suddenly on your own or forced to assume greater responsibility for your financial future? Unsure about whether you’re on the right track with your savings and investments? Finding yourself with new responsibilities, such as the care of a child or an aging parent? Facing other life events, such as marriage, divorce, the sale of a family business, or a career change? Too busy to become a financial expert but needing to make sure your assets are being managed appropriately? Or maybe you simply feel your assets could be invested or protected better than they are now.

 

These are only some of the many circumstances that prompt people to contact someone who can help them address their financial questions and issues. This may be especially true for women, who live longer than men on average and therefore may face an even greater challenge in making their assets last over that longer life span. In fact, one study found that women often value advice from a professional in their financial decision-making even more than men do.*

 

Why work with a financial professional?

 

• A financial professional can apply his or her skills to your specific needs. Just as important, you have someone who can answer questions about things that you may find confusing or anxiety-provoking. When the financial markets go through one of their periodic downturns, having someone you can turn to may help you make sense of it all.

 

• If you don’t feel confident about your knowledge of investing or specific financial products and services, having someone who monitors the financial markets every day can be helpful. After all, if you hire people to do things like cut your hair, work on your car, and tend to medical issues, it might just make sense to get some help when dealing with important financial issues.

 

• Even if you have the knowledge and ability to manage your own finances, the financial world grows more intricate every day as new products and services are introduced. Also, legislative changes can have a substantial impact on your investment and tax planning strategy. A professional can monitor such developments on an ongoing basis and assess how they might affect your portfolio.

 

• A financial professional may be able to help you see the big picture and make sure the various aspects of your financial life are integrated in a way that makes sense for you. That can be especially important if you own your own business or have complex tax issues.

 

• If you already have a financial plan, a financial professional can act as a sounding board, giving you a reality check to make sure your assumptions and expectations are realistic. For example, if you’ve been investing far more conservatively than is appropriate for your goals and circumstances, either out of fear of making a mistake or from not being aware of how risks can be managed, a financial professional can help you assess whether and how your portfolio might need adjusting to improve your chances of reaching those goals.

 

When should you consult a professional?

 

You don’t have to wait until an event occurs before consulting a financial professional. Having someone help you develop an overall strategy for approaching your financial goals can be useful at any time. However, in some cases, a specific life event or perceived need can serve as a catalyst for seeking advice. Such events might include:

 

• Marriage, divorce, or the death of a spouse

• Having a baby or adopting a child

• Planning for a child’s or grandchild’s college

education

• Buying or selling a family business

• Changing jobs or careers

• Planning your retirement

• Developing an estate plan

• Receiving an inheritance or financial windfall

 

Making the most of a professional’s expertise

 

• You’ll need to understand how a financial professional is compensated for his or her services. Some receive a fee based on an hourly rate (usually for specific advice or a financial plan), or on a percentage of your portfolio’s assets and/or income. Some receive a commission from a third party for any products you may purchase. Still others may receive some combination of fees and commissions, while still others may simply receive a salary from their financial services employer. Don’t be reluctant to ask about fees; any reputable financial professional shouldn’t hesitate to explain how he or she is compensated.

 

• Even if you’re a relative novice when it comes to finances, don’t be afraid to ask questions if you don’t understand what’s being presented to you. You’re not being rude; you’re simply trying to prevent misunderstandings that could backfire later.

 

• Don’t let yourself be pressured into making a financial decision you’re not comfortable with or don’t understand. This is your money, and you have the right to take whatever time you need. However, give yourself a deadline for your decision so you don’t get caught in “analysis paralysis.”

 

• If you think your financial life simply needs a checkup rather than a complete overhaul, you’ll need to clarify the areas in which you’re looking for assistance. That can help you decide what type of advice you’re looking for from your financial professional, though you should also pay attention to any additional suggestions raised during your discussions. Your plans should take into consideration your financial goals, your time horizon for achieving each one, your current financial and emotional ability to tolerate risk, and any recent changes in your circumstances.

 

• Don’t assume you have to be wealthy to make use of a financial professional. While some do focus on clients with assets above a certain level, others do not.

 

• Think about the scope of the services you’ll need. Do you want comprehensive help in a variety of areas, or would you be better off assembling a team of specialists? Do you need an ongoing relationship, or can your needs be taken care of on a one-time basis? If you’re a relative novice or having to deal with decisions you’ve never had to make before, someone with broad-based expertise might be a good place to start.

 

• Even if you feel you need detailed advice from several different specialists–for example, if you own your own business–consider whether you might benefit from having someone who can coordinate among them. A financial professional can sometimes be a gateway to other professionals who can help with specific aspects of your finances, such as accounting, tax and/or estate planning, insurance, and investments.

 

• If you want comprehensive management, you may be able to give a financial professional the independent authority to make trading decisions for your portfolio without checking with you first. In that case, you’ll likely be asked to help develop and sign an investment policy statement that spells out the specifics of the firm’s decision-making authority and the guidelines to be followed when making those decisions. If you feel that consulting an expert might be helpful, don’t postpone making that call. The sooner you get your questions answered, the sooner you’ll be able to pay more attention to the things–family, friends, career, hobbies–that an organized financial life could help you enjoy.

 

*June 2014 study of affluent individuals conducted by Spectrem Group, a research/consulting firm focused on the affluent and retirement markets.

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Merck, Pfizer, Verizon, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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A Primer for Estate Planning. By John Jastremski

A Primer for Estate Planning

Things to check and double-check before you leave this world.                                                                                                                                          

Estate planning is a task that people tend to put off, as any discussion of “the end” tends to be off-putting. However, those who leave this world without their financial affairs in good order risk leaving their heirs some significant problems along with their legacies.

 

No matter what your age, here are some things you may want to accomplish this year with regard to estate planning.

 

Create a will if you don’t have one. Many people never get around to creating a will, even to the point of buying a will-in-a-box at a stationery store or setting one up online.

 

A solid will drafted with the guidance of an estate planning attorney may cost you more than a will-in-a-box, and it may prove to be some of the best money you ever spend. A valid will may save your heirs from some expensive headaches linked to probate and ambiguity.

 

Complement your will with related documents. Depending on your estate planning needs, this could include some kind of trust (or multiple trusts), durable financial and medical powers of attorney, a living will and other items.

 

You should know that a living will is not the same thing as a durable medical power of attorney. A living will makes your wishes known when it comes to life-prolonging medical treatments, and it takes the form of a directive. A durable medical power of attorney authorizes another party to make medical decisions for you (including end-of-life decisions) if you become incapacitated or otherwise unable to make these decisions.

 

Review your beneficiary designations. Who is the beneficiary of your IRA? How about your 401(k)? How about your annuity or life insurance policy? If your answer is along the lines of “Mm … you know … I’m pretty sure it’s…” or “It’s been a while since …”, then be sure to check the documents and verify who the designated beneficiary is.

 

When it comes to retirement accounts and life insurance, many people don’t know that beneficiary designations take priority over bequests made in wills and living trusts. If you long ago named a child now estranged from you as the beneficiary of your life insurance policy, he or she will receive the death benefit when you die – regardless of what your will states.1

 

Time has a way of altering our beneficiary decisions. This is why some estate planners recommend that you review your beneficiaries every two years.

 

In some states, you can authorize transfer-on-death designations. This is a tactic against probate: TOD designations may permit the ownership transfer of securities (and in a few states, forms of real property, vehicles and other assets) immediately at your death to the person designated. TOD designations are sometimes referred to as “will substitutes” but they usually pertain only to securities.2

 

Create asset and debt lists. Does this sound like a lot of work? It may not be. You should provide your heirs with an asset and debt “map” they can follow should you pass away, so that they will be aware of the little details of your wealth.

 

* One list should detail your real property and personal property assets. It should list any real estate you own, and its worth; it should also list personal property items in your home, garage, backyard, warehouse, storage unit or small business that have notable monetary worth.

* Another list should detail your bank and brokerage accounts, your retirement accounts, and any other forms of investment plus any insurance policies.

* A third list should detail your credit card debts, your mortgage and/or HELOC, and any other outstanding consumer loans.

 

Think about consolidating your “stray” IRAs and bank accounts. This could make one of your lists a little shorter. Consolidation means fewer account statements, less paperwork for your heirs and fewer administrative fees to bear.

 

Let your heirs know the causes and charities that mean the most to you. Have you ever seen the phrase, “In lieu of flowers, donations may be made to …” Well, perhaps you would like to suggest donations to this or that charity when you pass. Write down the associations you belong to and the organizations you support. Some non-profits do offer accidental life insurance benefits to heirs of members.

 

Select a reliable executor. Who have you chosen to administer your estate when the time comes? The choice may seem obvious, but consider a few factors. Is there a stark possibility that your named executor might die before you do? How well does he or she comprehend financial matters or the basic principles of estate law? What if you change your mind about the way you want your assets distributed – can you easily communicate those wishes to that person?

 

Your executor should have copies of your will, forms of power of attorney, any kind of healthcare proxy or living will, and any trusts you create. In fact, any of your loved ones referenced in these documents should also receive copies of them.

 

Talk to the professionals. Do-it-yourself estate planning is not recommended, especially if your estate is complex enough to trigger financial, legal and emotional issues among your heirs upon your passing.

 

Many people have the idea that they don’t need an estate plan because their net worth is less than X dollars. Keep in mind, money isn’t the only reason for an estate plan. You may not be a multimillionaire yet, but if you own a business, have a blended family, have kids with special needs, worry about dementia, or can’t stand the thought of probate delays plus probate fees whittling away at assets you have amassed … well, these are all good reasons to create and maintain an estate planning strategy.

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. 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 – www.knoxnews.com/news/2012/may/07/retirement-accounts-not-governed-by-wills/ [5/7/12]

2 – www.investopedia.com/university/estate-planning/estate-planning5.asp#axzz1vjRm6aPe [3/20/13]

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

 

 

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Should You Pay Off Your Mortgage or Invest? by John Jastremski

Owning a home outright is a dream that many Americans share. Having a mortgage can be a huge burden, and paying it off may be the first item on your financial to-do list. But competing with the desire to own your home free and clear is your need to invest for retirement, your child’s college education, or some other goal. Putting extra cash toward one of these goals may mean sacrificing another. So how do you choose?

Evaluating the opportunity cost

Deciding between prepaying your mortgage and investing your extra cash isn’t easy, because each option has advantages and disadvantages. But you can start by weighing what you’ll gain financially by choosing one option against what you’ll give up. In economic terms, this is known as evaluating the opportunity cost.

Here’s an example. Let’s assume that you have a $300,000 balance and 20 years remaining on your 30-year mortgage, and you’re paying 6.25% interest. If you were to put an extra $400 toward your mortgage each month, you would save approximately $62,000 in interest, and pay off your loan almost 6 years early.

By making extra payments and saving all of that interest, you’ll clearly be gaining a lot of financial ground. But before you opt to prepay your mortgage, you still have to consider what you might be giving up by doing so–the opportunity to potentially profit even more from investing.

To determine if you would come out ahead if you invested your extra cash, start by looking at the after-tax rate of return you can expect from prepaying your mortgage. This is generally less than the interest rate you’re paying on your mortgage, once you take into account any tax deduction you receive for mortgage interest. Once you’ve calculated that figure, compare it to the after-tax return you could receive by investing your extra cash.

For example, the after-tax cost of a 6.25% mortgage would be approximately 4.5% if you were in the 28% tax bracket and were able to deduct mortgage interest on your federal income tax return (the after-tax cost might be even lower if you were also able to deduct mortgage interest on your state income tax return). Could you receive a higher after-tax rate of return if you invested your money instead of prepaying your mortgage?

Keep in mind that the rate of return you’ll receive is directly related to the investments you choose. Investments with the potential for higher returns may expose you to more risk, so take this into account when making your decision.

Other points to consider

While evaluating the opportunity cost is important, you’ll also need to weigh many other factors. The following list of questions may help you decide which option is best for you.

• What’s your mortgage interest rate? The lower the rate on your mortgage, the greater the potential to receive a better return through investing.

• Does your mortgage have a prepayment penalty? Most mortgages don’t, but check before making extra payments.

• How long do you plan to stay in your home? The main benefit of prepaying your mortgage is the amount of interest you save over the long term; if you plan to move soon, there’s less value in putting more money toward your mortgage.

• Will you have the discipline to invest your extra cash rather than spend it? If not, you might be better off making extra mortgage payments.

• Do you have an emergency account to cover unexpected expenses? It doesn’t make sense to make extra mortgage payments now if you’ll be forced to borrow money at a higher interest rate later. And keep in mind that if your financial circumstances change–if you lose your job or suffer a disability, for example–you may have more trouble borrowing against your home equity.

• How comfortable are you with debt? If you worry endlessly about it, give the emotional benefits of paying off your mortgage extra consideration.

• Are you saddled with high balances on credit cards or personal loans? If so, it’s often better to pay off those debts first. The interest rate on consumer debt isn’t tax deductible, and is often far higher than either your mortgage interest rate or the rate of return you’re likely to receive on your investments

• Are you currently paying mortgage insurance? If you are, putting extra toward your mortgage until you’ve gained at least 20% equity in your home may make sense.

• How will prepaying your mortgage affect your overall tax situation? For example, prepaying your mortgage (thus reducing your mortgage interest) could affect your ability to itemize deductions (this is especially true in the early years of your mortgage, when you’re likely to be paying more in interest).

• Have you saved enough for retirement? If you haven’t, consider contributing the maximum allowable each year to tax-advantaged retirement accounts before prepaying your mortgage. This is especially important if you are receiving a generous employer match. For example, if you save 6% of your income, an employer match of 50% of what you contribute (i.e., 3% of your income) could potentially add thousands of extra dollars to your retirement account each year. Prepaying your mortgage may not be the savviest financial move if it means forgoing that match or shortchanging your retirement fund.

• How much time do you have before you reach retirement or until your children go off to college? The longer your timeframe, the more time you have to potentially grow your money by investing. Alternatively, if paying off your mortgage before reaching a financial goal will make you feel much more secure, factor that into your decision.

The middle ground

If you need to invest for an important goal, but you also want the satisfaction of paying down your mortgage, there’s no reason you can’t do both. It’s as simple as allocating part of your available cash toward one goal, and putting the rest toward the other. Even small adjustments can make a difference. For example, you could potentially shave years off your mortgage by consistently making biweekly, instead of monthly, mortgage payments, or by putting any year-end bonuses or tax refunds toward your mortgage principal.

And remember, no matter what you decide now, you can always reprioritize your goals later to keep up with changes to your circumstances, market conditions, and interest rates.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of John Jastremski, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

John Jastremski is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

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Retirement Plans for Small Businesses

If you’re self-employed or own a small business and you haven’t established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future.

Tax advantages

A retirement plan can have significant tax advantages:

  • Your contributions are deductible when made
  • Your contributions aren’t taxed to an employee until distributed from the plan
  • Money in the retirement program grows tax deferred (or, in the case of Roth accounts, potentially tax free)

Types of plans

Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or “qualified” (like 401(k)s, profit-sharing plans, and defined benefit plans). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets must be held either in trust or by an insurance company. With IRA-based plans, your employees own (i.e., “vest” in) your contributions immediately. With qualified plans, you can generally require that your employees work a certain numbers of years before they vest.

Which plan is right for you?

With a dizzying array of retirement plans to choose from, each with unique advantages and disadvantages, you’ll need to clearly define your goals before attempting to choose a plan. For example, do you want:

  • To maximize the amount you can save for your own retirement?
  • A plan funded by employer contributions? By employee contributions? Both?
  • A plan that allows you and your employees to make pretax and/or Roth contributions?
  • The flexibility to skip employer contributions in some years?
  • A plan with lowest costs? Easiest administration?

The answers to these questions can help guide you and your retirement professional to the plan (or combination of plans) most appropriate for you.

SEPs

A SEP allows you to set up an IRA (a “SEP-IRA”) for yourself and each of your eligible employees. You contribute a uniform percentage of pay for each employee, although you don’t have to make contributions every year, offering you some flexibility when business conditions vary. For 2017, your contributions for each employee are limited to the lesser of 25% of pay or $54,000. Most employers, including those who are self-employed, can establish a SEP.
SEPs have low start-up and operating costs and can be established using an easy two-page form. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and who earns $600 or more.

SIMPLE IRA plan

The SIMPLE IRA plan is available if you have 100 or fewer employees. Employees can elect to make pretax contributions in 2017 of up to $12,500 ($15,500 if age 50 or older). You must either match your employees’ contributions dollar for dollar–up to 3% of each employee’s compensation–or make a fixed contribution of 2% of compensation for each eligible employee. (The 3% match can be reduced to 1% in any two of five years.) Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan.

SIMPLE IRA plans are easy to set up. You fill out a short form to establish a plan and ensure that SIMPLE IRAs are set up for each employee. A financial institution can do much of the paperwork. Additionally, administrative costs are low.

Profit-sharing plan

Typically, only you, not your employees, contribute to a qualified profit-sharing plan. Your contributions are discretionary — there’s usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose (although your contributions must be nondiscriminatory, and “substantial and recurring,” for your plan to remain qualified). The plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses. Generally, each employee with a year of service is eligible to participate (although you can require two years of service if your contributions are immediately vested). Contributions for any employee in 2017 can’t exceed the lesser of $54,000 or 100% of the employee’s compensation.

401(k) plan

The 401(k) plan (technically, a qualified profit-sharing plan with a cash or deferred feature) has become a hugely popular retirement savings vehicle for small businesses. According to the Investment Company Institute, 401(k) plans held $4.8 trillion of assets as of March 2016, and covered 52 million active participants. (Source: www.ici.org/401k, accessed November 15, 2016.) With a 401(k) plan, employees can make pretax and/or Roth contributions in 2017 of up to $18,000 of pay ($24,000 if age 50 or older). These deferrals go into a separate account for each employee and aren’t taxed until distributed. Generally, each employee with a year of service must be allowed to contribute to the plan.
You can also make employer contributions to your 401(k) plan — either matching contributions or discretionary profit-sharing contributions. Combined employer and employee contributions for any employee in 2017 can’t exceed the lesser of $54,000 (plus catch-up contributions of up to $6,000 if your employee is age 50 or older) or 100% of the employee’s compensation. In general, each employee with a year of service is eligible to receive employer contributions, but you can require two years of service if your contributions are immediately vested.
401(k) plans are required to perform somewhat complicated testing each year to make sure benefits aren’t disproportionately weighted toward higher paid employees. However, you don’t have to perform discrimination testing if you adopt a “safe harbor” 401(k) plan. With a safe harbor 401(k) plan, you generally have to either match your employees’ contributions (100% of employee deferrals up to 3% of compensation, and 50% of deferrals between 3 and 5% of compensation), or make a fixed contribution of 3% of compensation for all eligible employees, regardless of whether they contribute to the plan. Your contributions must be fully vested.
Another way to avoid discrimination testing is by adopting a SIMPLE 401(k) plan. These plans are similar to SIMPLE IRAs, but can also allow loans and Roth contributions. Because they’re still qualified plans (and therefore more complicated than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven’t become popular.

Defined benefit plan

A defined benefit plan is a qualified retirement plan that guarantees your employees a specified level of benefits at retirement (for example, an annual benefit equal to 30% of final average pay). As the name suggests, it’s the retirement benefit that’s defined, not the level of contributions to the plan. In 2017, a defined benefit plan can provide an annual benefit of up to $215,000 (or 100% of pay if less). The services of an actuary are generally needed to determine the annual contributions that you must make to the plan to fund the promised benefit. Your contributions may vary from year to year, depending on the performance of plan investments and other factors.
In general, defined benefit plans are too costly and too complex for most small businesses. However, because they can provide the largest benefit of any retirement plan, and therefore allow the largest deductible employer contribution, defined benefit plans can be attractive to businesses that have a small group of highly compensated owners who are seeking to contribute as much money as possible on a tax-deferred basis.
As an employer, you have an important role to play in helping America’s workers save. Now is the time to look into retirement plan programs for you and your employees.

 

 

 

The information in these materials may change at any time and without notice. Securities offered through FSC Securities Corporation, member FINRA / SIPC . Investment advisory services offered through The Retirement Group, LLC, a registered investment advisor which is not affiliated with FSC Securities Corp. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. 

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529 College Savings Plans – by John Jastremski

Section 529 college savings plans are tax-advantaged college savings vehicles and one of the most popular ways to save for college today. Much like the way 401(k) plans changed the world of retirement savings a few decades ago, 529 college savings plans have changed the world of college savings.

Tax advantages and more

529 college savings plans offer a unique combination of features that no other college savings vehicle can match:

  • Federal tax advantages: Contributions to your account grow tax deferred and earnings are tax free if the money is used to pay the beneficiary’s qualified education expenses. (The earnings portion of any withdrawal not used for college expenses is taxed at the recipient’s rate and subject to a 10% penalty.)
  • State tax advantages: Many states offer income tax incentives for state residents, such as a tax deduction for contributions or a tax exemption for qualified withdrawals.
  • High contribution limits: Many plans let you contribute over $300,000 over the life of the plan.
  • Unlimited participation: Anyone can open a 529 college savings plan account, regardless of income level.
  • Professional money management: College savings plans are offered by states, but they are managed by designated financial companies who are responsible for managing the plan’s underlying investment portfolios.
  • Flexibility: Under federal rules, you are entitled to change the beneficiary of your account to a qualified family member at any time as well as rollover the money in your 529 plan account to a different 529 plan once per year without income tax or penalty implications.
  • Wide use of funds: Money in a 529 college savings plan can be used at any college in the United States or abroad that’s accredited by the Department of Education and, depending on the individual plan, for graduate school.
  • Accelerated gifting: 529 plans offer an estate planning advantage in the form of accelerated gifting. This can be a favorable way for grandparents to contribute to their grandchildren’s education. Specifically, a lump-sum gift of up to five times the annual gift tax exclusion ($14,000 in 2017) is allowed in a single year, which means that individuals can make a lump-sum gift of up to $70,000 and married couples can gift up to $140,000. No gift tax will be owed, provided the gift is treated as having been made in equal installments over a five-year period and no other gifts are made to that beneficiary during the five years.

Choosing a college savings plan

Although 529 college savings plans are a creature of federal law, their implementation is left to the states. Currently, there are over 50 different college savings plans available because many states offer more than one plan.
You can join any state’s 529 college savings plan, but this variety may create confusion when it comes time to select a plan. Each plan has its own rules and restrictions, which can change at any time. To make the process easier, it helps to consider a few key features:

  • Your state’s tax benefits: A majority of states offer some type of income tax break for 529 college savings plan participants, such as a deduction for contributions or tax-free earnings on qualified withdrawals. However, some states limit their tax deduction to contributions made to the in-state 529 plan only. So make sure to find out the exact scope of the tax breaks, if any, your state offers.
  • Investment options: 529 plans vary in the investment options they offer. Ideally, you’ll want to find a plan with a wide variety of investment options that range from conservative to more growth-oriented to match your risk tolerance. To take the guesswork out of picking investments appropriate for your child’s age, most plans offer aged-based portfolios that automatically adjust to more conservative holdings as your child approaches college age. (Remember, though, that any investment involves risk, and past performance is no guarantee of how an investment will perform in the future. The investments you choose may lose money or not perform well enough to cover college costs as anticipated.)
  • Fees and expenses: Fees and expenses can vary widely among plans, and high fees can take a bigger bite out of your savings. Typical fees include annual maintenance fees, administration and management fees (usually called the “expense ratio”), and underlying fund expenses.
  • Reputation of financial institution: Make sure that the financial institution managing the plan is reputable and that you can reach customer service with any questions.

With so many plans available, it may be helpful to consult an experienced financial professional who can help you select a plan and pick your plan investments. In fact, some 529 college savings plans are advisor-sold only, meaning that you’re required to go through a designated financial advisor to open an account. Always carefully read the 529 plan issuer’s official materials before investing.

Account mechanics

Once you’ve selected a plan, opening an account is easy. You’ll need to fill out an application, where you’ll name a beneficiary and select one or more of the plan’s investment portfolios to which your contributions will be allocated. Also, you’ll typically be required to make an initial minimum contribution, which must be made in cash or a cash alternative.
Thereafter, most plans will allow you to contribute as often as you like. This gives you the flexibility to tailor the frequency of your contributions to your own needs and budget, as well as to systematically invest your contributions. You’ll also be able to change the beneficiary of your account to a qualified family member with no income tax or penalty implications. Most plans will also allow you to change your investment portfolios (either for your future or current contributions) if you’re unhappy with their investment performance.

529 prepaid tuition plans–a distant cousin

There are actually two types of 529 plans–college savings plans and prepaid tuition plans (prepaid plans are the less popular type). The tax advantages of college savings plans and prepaid tuition plans are the same, but the account features are very different. A prepaid tuition plan lets you prepay tuition at participating colleges at today’s prices for use by the beneficiary in the future. The following chart describes the main differences:

College Savings Plans Prepaid Tuition Plans
Offered by states Offered by states and private colleges
You can join any state’s plan State-run plans require you to be a state resident
Contributions are invested in your individual account in the investment portfolios you have selected Contributions are pooled with the contributions of others and invested exclusively by the plan
Returns are not guaranteed; your account may gain or lose value, depending on how the underlying investments perform Generally a certain rate of return is guaranteed
Funds can be used at any accredited college in the U.S. or abroad Funds can only be used at participating colleges, typically state universities

Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

The information in these materials may change at any time and without notice. Securities offered through FSC Securities Corporation, member FINRA / SIPC . Investment advisory services offered through The Retirement Group, LLC, a registered investment advisor which is not affiliated with FSC Securities Corp. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. 

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Paying the Bills: Potential Sources of Retirement Income – by John Jastremski

Planning your retirement income is like putting together a puzzle with many different pieces. One of the first steps in the process is to identify all potential income sources and estimate how much you can expect each one to provide.

Social Security

According to the Social Security Administration (SSA), nearly 9 of 10 people aged 65 or older receive Social Security benefits. However, most retirees also rely on other sources of income.
For a rough estimate of the annual benefit to which you would be entitled at various retirement ages, you can use the calculator on the Social Security website, www.ssa.gov. Your Social Security retirement benefit is calculated using a formula that takes into account your 35 highest earnings years. How much you receive ultimately depends on a number of factors, including when you start taking benefits. You can begin doing so as early as age 62. However, your benefit may be approximately 25% to 30% less than if you waited until full retirement age (66 to 67, depending on the year you were born). Benefits increase each year that you delay taking benefits until you reach age 70.
As you’re planning, remember that the question of how Social Security will meet its long-term obligations to both baby boomers and later generations has become a hot topic of discussion. Concerns about the system’s solvency indicate that there’s likely to be a change in how those benefits are funded, administered, and/or taxed over the next 20 or 30 years. That may introduce additional uncertainty about Social Security’s role as part of your overall long-term retirement income picture, and put additional emphasis on other potential income sources.

Pensions

If you are entitled to receive a traditional pension, you’re lucky; fewer Americans are covered by them every year. Be aware that even if you expect pension payments, many companies are changing their plan provisions. Ask your employer if your pension will increase with inflation, and if so, how that increase is calculated.
Your pension will most likely be offered as either a single or a joint and survivor annuity. A single annuity provides benefits until the worker’s death; a joint and survivor annuity provides reduced benefits that last until the survivor’s death. The law requires married couples to take a joint and survivor annuity unless the spouse signs away those rights. Consider rejecting it only if the surviving spouse will have income that equals at least 75% of the current joint income. Be sure to fully plan your retirement budget before you make this decision.

Major Sources of Retirement Income

Fast Facts and Figures About Social Security, 2016, Social Security Administration

Work or other income-producing activities

Many retirees plan to work for at least a while in their retirement years at part-time work, a fulfilling second career, or consulting or freelance assignments. Obviously, while you’re continuing to earn, you’ll rely less on your savings, leaving more to accumulate for the future. Work also may provide access to affordable health care.
Be aware that if you’re receiving Social Security benefits before you reach your full retirement age, earned income may affect the amount of your benefit payments until you do reach full retirement age.
If you’re covered by a pension plan, you may be able to retire, then seek work elsewhere. This way, you might be able to receive both your new salary and your pension benefit from your previous employer at the same time. Also, some employers have begun to offer phased retirement programs, which allow you to receive all or part of your pension benefit once you’ve reached retirement age, while you continue to work part-time for the same employer.
Other possible resources include rental property income and royalties from existing assets, such as intellectual property.

Retirement savings/investments

Until now, you may have been saving through retirement accounts such as IRAs, 401(k)s, or other tax-advantaged plans, as well as in taxable accounts. Your challenge now is to convert your savings into ongoing income. There are many ways to do that, including periodic withdrawals, choosing an annuity if available, increasing your allocation to income-generating investments, or using some combination. Make sure you understand the tax consequences before you act.
Some of the factors you’ll need to consider when planning how to tap your retirement savings include:

  • How much you can afford to withdraw each year without exhausting your nest egg. You’ll need to take into account not only your projected expenses and other income sources, but also your asset allocation, your life expectancy, and whether you expect to use both principal and income, or income alone.
  • The order in which you will tap various accounts. Tax considerations can affect which account you should use first, and which you should defer using.
  • How you’ll deal with required minimum distributions (RMDs) from certain tax-advantaged accounts. After age 70½, if you withdraw less than your RMD, you’ll pay a penalty tax equal to 50% of the amount you failed to withdraw.

Some investments, such as certain types of annuities, are designed to provide a guaranteed monthly income (subject to the claims-paying ability of the issuer). Others may pay an amount that varies periodically, depending on how your investments perform. You also can choose to balance your investment choices to provide some of both types of income.

Inheritance

An inheritance, whether anticipated or in hand, brings special challenges. If a potential inheritance has an impact on your anticipated retirement income, you might be able to help your parents investigate estate planning tools that can minimize the impact of taxes on their estate. Your retirement income also may be affected by whether you hope to leave an inheritance for your loved ones. If you do, you may benefit from specialized financial planning advice that can integrate your income needs with a future bequest.

Equity in your home or business

If you have built up substantial home equity, you may be able to tap it as a source of retirement income. Selling your home, then downsizing or buying in a lower-cost region, and investing that freed-up cash to produce income or to be used as needed is one possibility. Another is a reverse mortgage, which allows you to continue to live in your home while borrowing against its value. That loan and any accumulated interest is eventually repaid by the last surviving borrower when he or she eventually sells the home, permanently vacates the property, or dies. (However, you need to carefully consider the risks and costs before borrowing. A useful publication titled “Reverse Mortgages: Avoiding a Reversal of Fortune” is available online from the Financial Industry Regulatory Authority.)

If you’re hoping to convert an existing business into retirement income, you may benefit from careful financial planning to minimize the tax impact of a sale. Also, if you have partners, you’ll likely need to make sure you have a buy-sell agreement that specifies what will happen to the business when you retire and how you’ll be compensated for your interest.

With an expert to help you identify and analyze all your potential sources of retirement income, you may discover you have more options than you realize.

The information in these materials may change at any time and without notice. Securities offered through FSC Securities Corporation, member FINRA / SIPC . Investment advisory services offered through The Retirement Group, LLC, a registered investment advisor which is not affiliated with FSC Securities Corp. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. 

 

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Pay Down Debt or Save for Retirement? – by John Jastresmki

You can use a variety of strategies to pay off debt, many of which can cut not only the amount of time it will take to pay off the debt but also the total interest paid. But like many people, you may be torn between paying off debt and the need to save for retirement. Both are important; both can help give you a more secure future. If you’re not sure you can afford to tackle both at the same time, which should you choose?

There’s no one answer that’s right for everyone, but here are some of the factors you should consider when making your decision.

Rate of investment return versus interest rate on debt

Probably the most common way to decide whether to pay off debt or to make investments is to consider whether you could earn a higher after-tax rate of return by investing than the after-tax interest rate you pay on the debt. For example, say you have a credit card with a $10,000 balance on which you pay nondeductible interest of 18%. By getting rid of those interest payments, you’re effectively getting an 18% return on your money. That means your money would generally need to earn an after-tax return greater than 18% to make investing a smarter choice than paying off debt. That’s a pretty tough challenge even for professional investors.
And bear in mind that investment returns are anything but guaranteed. In general, the higher the rate of return, the greater the risk. If you make investments rather than pay off debt and your investments incur losses, you may still have debts to pay, but you won’t have had the benefit of any gains. By contrast, the return that comes from eliminating high-interest-rate debt is a sure thing.

An employer’s match may change the equation

If your employer matches a portion of your workplace retirement account contributions, that can make the debt versus savings decision more difficult. Let’s say your company matches 50% of your contributions up to 6% of your salary. That means that you’re earning a 50% return on that portion of your retirement account contributions.
If surpassing an 18% return from paying off debt is a challenge, getting a 50% return on your money simply through investing is even tougher. The old saying about a bird in the hand being worth two in the bush applies here. Assuming you conform to your plan’s requirements and your company meets its plan obligations, you know in advance what your return from the match will be; very few investments can offer the same degree of certainty. That’s why many financial experts argue that saving at least enough to get any employer match for your contributions may make more sense than focusing on debt.
And don’t forget the tax benefits of contributions to a workplace savings plan. By contributing pretax dollars to your plan account, you’re deferring anywhere from 10% to 39.6% in taxes, depending on your federal tax rate. You’re able to put money that would ordinarily go toward taxes to work immediately.

Your choice doesn’t have to be all or nothing

The decision about whether to save for retirement or pay off debt can sometimes be affected by the type of debt you have. For example, if you itemize deductions, the interest you pay on a mortgage is generally deductible on your federal tax return. Let’s say you’re paying 6% on your mortgage and 18% on your credit card debt, and your employer matches 50% of your retirement account contributions. You might consider directing some of your available resources to paying off the credit card debt and some toward your retirement account in order to get the full company match, and continuing to pay the tax-deductible mortgage interest.
There’s another good reason to explore ways to address both goals. Time is your best ally when saving for retirement. If you say to yourself, “I’ll wait to start saving until my debts are completely paid off,” you run the risk that you’ll never get to that point, because your good intentions about paying off your debt may falter at some point. Putting off saving also reduces the number of years you have left to save for retirement.
It might also be easier to address both goals if you can cut your interest payments by refinancing that debt. For example, you might be able to consolidate multiple credit card payments by rolling them over to a new credit card or a debt consolidation loan that has a lower interest rate.
Bear in mind that even if you decide to focus on retirement savings, you should make sure that you’re able to make at least the monthly minimum payments owed on your debt. Failure to make those minimum payments can result in penalties and increased interest rates; those will only make your debt situation worse.

Other considerations

When deciding whether to pay down debt or to save for retirement, make sure you take into account the following factors:

  • Having retirement plan contributions automatically deducted from your paycheck eliminates the temptation to spend that money on things that might make your debt dilemma even worse. If you decide to prioritize paying down debt, make sure you put in place a mechanism that automatically directs money toward the debt–for example, having money deducted automatically from your checking account–so you won’t be tempted to skip or reduce payments.
  • Do you have an emergency fund or other resources that you can tap in case you lose your job or have a medical emergency? Remember that if your workplace savings plan allows loans, contributing to the plan not only means you’re helping to provide for a more secure retirement but also building savings that could potentially be used as a last resort in an emergency. Some employer-sponsored retirement plans also allow hardship withdrawals in certain situations–for example, payments necessary to prevent an eviction from or foreclosure of your principal residence–if you have no other resources to tap. (However, remember that the amount of any hardship withdrawal becomes taxable income, and if you aren’t at least age 59½, you also may owe a 10% premature distribution tax on that money.)
  • If you do need to borrow from your plan, make sure you compare the cost of using that money with other financing options, such as loans from banks, credit unions, friends, or family. Although interest rates on plan loans may be favorable, the amount you can borrow is limited, and you generally must repay the loan within five years. In addition, some plans require you to repay the loan immediately if you leave your job. Your retirement earnings will also suffer as a result of removing funds from a tax-deferred investment.
  • If you focus on retirement savings rather than paying down debt, make sure you’re invested so that your return has a chance of exceeding the interest you owe on that debt. While your investments should be appropriate for your risk tolerance, if you invest too conservatively, the rate of return may not be high enough to offset the interest rate you’ll continue to pay.

Regardless of your choice, perhaps the most important decision you can make is to take action and get started now. The sooner you decide on a plan for both your debt and your need for retirement savings, the sooner you’ll start to make progress toward achieving both goals.

The information in these materials may change at any time and without notice. Securities offered through FSC Securities Corporation, member FINRA / SIPC . Investment advisory services offered through The Retirement Group, LLC, a registered investment advisor which is not affiliated with FSC Securities Corp. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. 

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Four Things Women Need to Know about Social Security – by John Jastremski

Ever since a legal secretary named Ida May Fuller received the first retirement benefit check in 1940, women have been counting on Social Security to provide much-needed retirement income. Social Security provides other important benefits too, including disability and survivor’s benefits, that can help women of all ages and their family members.

1. How does Social Security protect you and your family?

When you work and pay Social Security taxes, you’re paying for three types of benefits: retirement, disability, and survivor’s benefits.

Retirement benefits

Retirement benefits are the cornerstone of the Social Security program. According to the Social Security Administration (SSA), because women are less often covered by retirement plans and live longer on average than men, they are typically more dependent on Social Security retirement benefits.* Even if other sources of retirement income are exhausted, Social Security retirement benefits can’t be outlived. Many women qualify for benefits based on their own work record, but if you’re married, you may also qualify based on your spouse’s work record.

Disability benefits

During your working years, you may suffer a serious illness or injury that prevents you from earning a living, potentially putting you and your family at financial risk. But if you qualify for Social Security on your earnings record, you may be able to get monthly disability benefits. You must have worked long enough in recent years, have a disability that is expected to last at least a year or result in death, and meet other requirements. If you’re receiving disability benefits, certain family members (such as your dependent children) may also be able to collect benefits based on your work record. Because eligibility requirements are strict, Social Security is not a substitute for other types of disability insurance, but it can provide basic income protection.

Survivor’s benefits

You probably know the value of having life insurance to financially protect your family, but did you know that Social Security offers valuable income protection as well? If you’re qualified for Social Security at your death, your surviving spouse (or ex-spouse), your unmarried dependent children, or your dependent parents may be eligible for benefits based on your earnings record. You also have survivor protection if you’re married and your covered spouse dies and you’re at least age 60 (or at least age 50 if you’re disabled), or at any age if you’re caring for your covered child who is younger than age 16 or disabled.

2. How do you qualify for benefits?

When you work in a job where you pay Social Security taxes or self-employment taxes, you earn credits (up to four per year, depending on your earnings) that enable you to qualify for Social Security benefits. In 2017, you earn one credit for each $1,300 of wages or self-employment income. The number of credits you need to qualify depends on your age and the benefit type.

  • For retirement benefits, you generally need to have earned at least 40 credits (10 years of work). However, you may also qualify for spousal benefits based on your spouse’s work history if you haven’t worked long enough to qualify on your own, or if the spousal benefit is greater than the benefit you’ve earned on your own work record.
  • For disability benefits (if you’re disabled at age 31 or older), you must have earned at least 20 credits in the 10 years just before you became disabled (different rules apply if you’re younger).
  • For survivor’s benefits for your family members, you need up to 40 credits (10 years of work), but under a special rule, if you’ve worked for only one and one-half years in the three years just before your death, benefits can be paid to your children and your spouse who is caring for them.

Whether you work full-time, part-time, or are a stay-at-home spouse, parent, or caregiver, it’s important to be aware of these rules and to understand how time spent in and out of the workforce might affect your entitlement to Social Security.

3. What will your retirement benefit be?

Your Social Security retirement benefit is based on the number of years you’ve worked and the amount you’ve earned. Your benefit is calculated using a formula that takes into account your 35 highest earnings years. If you earned little or nothing in several of those years, it may be to your advantage to work as long as possible, because you may have the opportunity to replace a year of lower earnings with a year of higher earnings, potentially resulting in a higher retirement benefit.
Your benefit will also be affected by your age at the time you begin receiving benefits. If you were born in 1943 or later, full retirement age ranges from 66 to 67, depending on the year you were born. Your full retirement age is the age at which you can apply for an unreduced retirement benefit.
However, you can choose to receive benefits as early as age 62, if you’re willing to receive a reduced benefit. At age 62, your benefit will be 25% to 30% less than at full retirement age (this reduction is permanent). On the other hand, you can get a higher payout by delaying retirement past your full retirement age, up to age 70. If you were born in 1943 or later, your benefit will increase by 8% for each year you delay retirement.
For example, the following chart shows how much an estimated monthly benefit at a full retirement age (FRA) of 66 would be worth if you started benefits 4 years early at age 62 (your monthly benefit is reduced by 25%), and how much it would be worth if you waited until age 70–4 years past full retirement age (your monthly benefit is increased by 32%).

Benefit at FRA Benefit at age 62 Benefit at age 70
$1,000 $750 $1,320
$1,200 $900 $1,584
$1,400 $1,050 $1,888
$1,600 $1,200 $2,112
$1,800 $1,350 $2,376

What if you’re married and qualify for spousal retirement benefits based on your spouse’s earnings record? In this case, your benefit at full retirement age will generally be equal to 50% of his benefit at full retirement age (subject to adjustments for early and late retirement). If you’re eligible for benefits on both your record and your spouse’s, you’ll generally receive the higher benefit amount.
One easy way to estimate your benefit based on your earnings record is to use the Retirement Estimator available on the SSA website. You can also visit the SSA website to sign up for a my Social Security account so that you can view your personalized Social Security Statement. This statement gives you access to detailed information about your earnings history and estimates for disability, survivor’s, and retirement benefits.

4. When should you begin receiving retirement benefits?

Should you begin receiving benefits early and receive smaller payments over a longer period of time, or wait until your full retirement age or later and receive larger benefits over a shorter period of time? There’s no “right” answer. It’s an individual decision that must be based on many factors, including other sources of retirement income, your marital status, whether you plan to continue working, your life expectancy, and your tax picture.

As a woman, you should pay close attention to how much retirement income Social Security will provide, because you may need to make your retirement dollars stretch over a long period of time. If there’s a large gap between your projected expenses and your anticipated income, waiting a few years to retire and start collecting a larger Social Security benefit may improve your financial outlook. What’s more, the longer you stay in the workforce, the greater the amount of money you will earn and have available to put into your overall retirement savings. Another plus is that Social Security’s annual cost-of-living increases are calculated using your initial year’s benefits as a base–the higher the base, the greater your annual increase, something that can help you maintain your standard of living throughout many years of retirement.

This is just an overview of Social Security. There’s a lot to learn about this program, and each person’s situation is unique. Contact a Social Security representative if you have questions.

The information in these materials may change at any time and without notice. Securities offered through FSC Securities Corporation, member FINRA / SIPC . Investment advisory services offered through The Retirement Group, LLC, a registered investment advisor which is not affiliated with FSC Securities Corp. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. 

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