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Researchers at the Global Financial Literacy Excellence Center at George Washington University and the FINRA Investor Education Foundation found that 60% of study participants feel anxious when thinking about their finances and 50% say they're stressed about them.1 Major financial triggers cited by participants include:
Recent economic challenges, including inflation, rising interest rates and ongoing market volatility, have added to the stress many people are experiencing. However, there are practical ways to help cope with and overcome these obstacles. That begins with understanding the causes and symptoms of financial anxiety.
There’s no question that worrying about having enough money to make ends meet each month, pay for an unanticipated expense, or save for retirement can lead to tension and anxiety. Market and economic conditions can also play a role, especially if you’re concerned about fluctuations in the value of your investment portfolio during periods of increased market volatility, or whether you’ll outlive your income in retirement. Financial stress can manifest in different ways, such as obsessive saving or spending behaviors, addiction to work or emotional decision-making. These unhealthy behaviors compound stress, which can impact your physical and mental well-being, resulting in conditions such as insomnia, fatigue, muscle aches, depression and more. While it’s common to experience some level of financial anxiety during your lifetime, especially when faced with circumstances beyond your control, chronic financial stress is harmful and can adversely impact your health, relationships and even your job performance.
Have you ever thought, “If only I had a little extra money each month, all of my worries would go away”? While more money seems like the simple answer for resolving financial stress, it’s often insufficient because it doesn’t deal with the underlying cause of your anxiety. For example, if you grew up in an environment where money was scarce or your family experienced a significant loss in income or assets that impacted your lifestyle, you may harbor fears about never having enough. As a result, no matter how much you make, you’ll never feel confident about your financial circumstances until you deal with that underlying fear.
No matter the source of your financial anxiety, there are steps you can take now to not only help you cope with, but overcome, any challenges you face. To put yourself on a fast track toward conquering the financial stressors in your life, consider the following steps:
To learn more about preparing for a confident financial future, call the office to schedule time to talk.
1 https://gflec.org/wp-content/uploads/2021/04/Anxiety-and-Stress-Report-GFLEC-FINRA-FINAL.pdf?x85507 2 https://www.hrblock.com/tax-center/income/retirement-income/how-roth-ira-contributions-are-taxed/
This information was written by KRW Creative Concepts, a non-affiliate of the Broker/Dealer.
Please note that neither Cetera nor any of its agents or representatives give legal or tax advice. For complete details, consult with your tax advisor or attorney.
Some IRA's have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney.
Distributions from traditional IRA's and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty
The Consumer Price Index, which tracks changes in the prices of certain goods and services and is often used to measure inflation, showed a slight drop in April. That’s notable because it marked the first decrease in the inflation rate, on an annualized basis, in six months. Nonetheless, the U.S. Bureau of Labor Statistics reports that prices continue to climb for just about everything your family purchases on a regular basis, including food, gas, clothing, utilities, transportation, dining and entertainment.1 Whether you’re seeking ways to stretch your current budget, or save for retirement, a new house, or a vacation, you need a plan—and everyone in your household who’s affected should be involved. That includes kids and grandparents if you live in a multigenerational household. So, how do you get started?
Whether you’re single, married or somewhere in between, think about what matters most to you and your family when it comes to your money. Are you comfortable with your current saving and spending habits? Where can you cut back on spending to help pay for current expenses or save more for longer-term goals? If you’re saving for a new home or car, how soon do you hope to reach that goal? What are your goals when it comes to retirement? Is charitable giving important to you? How do you feel about debt?
If you have a spouse or partner, it’s important that you present a united front before sharing financial goals with other family members. Often, partners have different attitudes about money, based on upbringing, cultural differences or competing financial goals. Maybe you grew up in a household where it was taboo to talk about money, or one where discussions frequently centered around money. Either way, recognizing these differences and finding common ground is the first step toward getting everyone on the same page.
If you don’t already have a financial strategy that clearly outlines your goals and priorities, schedule time to meet with a financial professional to put one in place. A strategy will not only help you remain on track as you pursue competing objectives, but it will hold you accountable to your goals. Keep in mind, the more specific your goals, the better your chances of achieving them. For example, a goal to “save more” is too subjective and won’t hold you accountable. Committing to save $200 each month in an emergency fund is a more attainable objective, due to its clarity.
A budget is an important part of any financial strategy since it provides a clear picture of your cash flow—what’s coming into your household versus what’s going out. It helps to optimize savings and spending to remain on track toward your goals. Choose one of the dozens of free apps available online or through a financial institution you may already work with to help take the complexity out of budgeting. Many allow you to aggregate data from accounts at different financial institutions, providing real-time account values. To stay on track, review your budget at least once a month and keep an eye out for any spending trends that need to be addressed or reined in.
4. Take the conversation to the next levelOnce you have a strategy and a budget you agree on, schedule time to share this information with other members of your household at a time when everyone’s relaxed and not rushing to make a meal, get out the door, finish homework or complete chores. To gain buy-in from family members, ask for ideas on ways to save money or work together to pursue specific financial goals. This reinforces the concept that this is a family effort and their opinions matter.
It’s important to delegate tasks to different family members, based on their age, capabilities and interests. Think about ways everyone can chip in. Considering turning family pizza night into a competition for the best home-made recipe once or twice a month, in place of carry-out or delivery. Do you have space for a vegetable garden? Even small children can help plant and maintain a garden, which can save money on store-bought produce. Think about whether there are tasks or chores that you currently pay for, such as household cleaning, dog walking or landscaping. How much could you save if everyone pitched in to share these responsibilities instead.
6. Reward contributionsThere are many ways to reward family members for their contributions, such as a special night out for you and your partner when you hit an important goal, or a trip to a favorite park for young children who complete all their chores. Grocery shopping can be a great way to help young children learn important lessons about the value of money while choosing their own reward. Begin by assigning each child a snack budget and help them shop for their favorites. If they come in under budget, give them a say in how to use the savings. Will they donate the extra money to a community food bank, roll it over to next week’s
Did you know that 80% of News Year’s resolutions fail by mid-February?1 Interestingly, most people do not fall short of their goals due to a lack of motivation or because their goals are too ambitious. Instead, it’s because they don’t have a plan for how to get back on track if they veer off course.
Whether you’re seeking to rein in spending, pay down debt, increase retirement savings or pursue other important financial objectives this year, consider the five steps below to help ensure you have a plan that’s actionable and attainable. That can go a long way toward staying the course as you pursue the financial and lifestyle goals that are most important to you and your family.
Like most things in life, the more specific your goals, the better your chances of achieving them. For example, a goal to “save more” may be too subjective to hold you accountable and keep you motivated. On the other hand, committing to set aside 5% of your income in an emergency fund may be a more attainable objective, due to its clarity.
For a goal to be meaningful and worth pursuing, it must be relevant to you. That begins with understanding the “why” behind each of your goals. Why do you want to increase savings? Are you saving for the down payment on a home, to boost emergency savings, increase retirement savings, or other reasons? When goals are relevant to your lifestyle wants, they take on greater meaning and urgency. As you think about your goals, envision achieving your desired outcomes. For example, what will it feel like when you purchase your first home or move your family to a larger home? Focusing on the positive outcomes that a particular behavior, such as saving, can have on your life and your financial circumstances can make it easier to stay on track toward your goals.
The more realistic your goals, the more the confident you will feel about accomplishing them. Often, that requires breaking large goals into smaller, more manageable steps so you’re not setting yourself up for failure. For example, if you’ve put off saving for retirement and are eligible to participate in your employer’s retirement plan, take the opportunity to join now, even if you can only contribute a small amount each pay period. As soon as you’re able, increase your contributions to ensure you’re benefiting from any employer matching contributions. Consider increasing your plan contributions annually, until you’re making the maximum allowable contribution. If you’re age 50 or over, you can also make annual catch-up contributions, which are beneficial as you approach retirement. Being able to check off small goals along the path to accomplishing a larger goal can be satisfying and motivating.
Once you’ve established goals that are specific, relevant and realistic, you need to establish a time frame for achieving each of your goals. Again, keeping it real is important here. Doing something “as soon as possible” is too vague and won’t hold you accountable. You also don’t want to set deadlines that are too ambitious that could set you up for failure. Maintaining a budget, which tracks your monthly income and spending, is a great tool for determining reasonable deadlines and time frames associated with each of your goals, from saving more, to paying down debt and making a plan for how you will carry out your legacy.
Your budget can also help you track progress toward your goals, which is critical for staying on course. Tracking progress begins with ensuring each goal is measurable. A goal to “save more for retirement” is hard to quantify and is not time sensitive, making it difficult to measure in any meaningful way. Whereas “increasing plan contributions by 2% annually to capture your plan’s full match within three years” is specific, actionable, timely and measurable.
Finally, take the time to celebrate the small milestones reached along the way. They pave the way to the big wins in life and will inspire you to continually set and pursue new goals with confidence.
To learn more about putting a plan in place for your future, call the office to schedule time to talk.
The Internal Revenue Service (IRS) expects this tax season to be another challenging one for the agency and taxpayers alike. The agency finds itself struggling with a growing workload due to budget cuts, a growing backlog of unprocessed returns and federal stimulus measures that were introduced last year. This comes on the heels of what the National Taxpayer Advocate’s 2021 Annual Report called “the most challenging year ever for taxpayers.” The report acknowledged that “there is no way to sugarcoat the year 2021 in tax administration: From the perspective of tens of millions of taxpayers, it was horrendous.”
During the 2021 tax filing season, the IRS answered only one out of every nine calls, and processing delays left the IRS with more than 10 million unprocessed returns as of January 2022, a number that continues to grow.1 While the IRS plans to hire 10,000 employees to address the backlog and assist with processing new returns, it will take time to onboard and train new employees.2 As a result, many taxpayers can expect longer processing times and delays in receiving refunds in the weeks and months ahead.
Despite having a few extra days to file returns this year—they’re not due until April 18, 2022—taxpayers may not want to wait until the last minute. The information below addresses factors that can delay the processing of your return, steps you can take now to head off tax filing headaches, and where to get help if you need it, including how to track a refund.
The IRS says taxpayers who mail a paper return this year or those who responded to an IRS inquiry about their 2020 return should expect delays. In addition, the IRS says that certain tax returns simply take longer to process than others, including when a return:
In addition, the IRS says it’s taking more than 21 days (and up to 90 to 120 days) to issue refunds for tax returns with the Recovery Rebate Credit, Earned Income Tax Credit and Additional Child Tax Credit.3
In addition to filing your return as early as possible, the IRS recommends the following steps for taxpayers seeking to avoid processing delays or to speed up an anticipated refund:
Check your numbers. Mistakes are a leading cause of delays in processing taxpayer returns.
Looking for assistance or the status of your refund? Tax forms, instructions and other resources to help taxpayers prepare and file their returns are available at IRS.gov. Taxpayers can also download the IRS2Go mobile app on Google Play, the Apple Store or Amazon. Available in English and Spanish, the free mobile app makes it easy to check your refund status, make a payment, find free tax preparation assistance, or sign up for helpful tax tips. If the mobile app’s not your thing, you can also track your refund status using the online search tool Where's My Refund? at IRS.gov/refunds. According to IRS, you should only call them with questions if it's been 21 days or more since you e-filed your return or if Where's My Refund? directs you to contact them.
Keep in mind, if you are expecting a refund this year, it may be time to revisit your withholding. Ideally, you want to make sure that your money is available to you throughout the year, not parked with the IRS. While many people choose to use a tax refund to pay down debt or increase savings, having that money working for you throughout the year may help head off debt in the first place by bolstering emergency or other savings. Be sure to talk to a professional tax advisor if you have questions about your taxes or withholding.
To learn how a tax-efficient investment strategy can help you plan for a confident future, call the office to schedule time to talk.
1 https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2022/01/ARC21_Full-Report.pdf 2 https://thehill.com/policy/finance/596856-irs-to-hire-10000-in-attempt-to-cut-tax-returns-backlog 3 https://www.irs.gov/refunds
Please note that neither Cetera nor any of its agents or representatives give legal or tax advice. For complete details, consult with your tax advisor or attorney
Americans left their jobs at an alarming rate last year. According to the U.S. Bureau of Labor Statistics, a total of 68.9 million workers resigned, were laid off or discharged in 2021,1 including more than 47 million who left voluntarily in what came to be known as the Great Resignation.2 The good news is that the majority of those who left a job remained in the workforce. In fact, 75.3 million workers were hired last year for a net employment gain of 6.4 million in what some economists are calling the “Great Upgrade.” While many workers left the labor market to care for children or elderly relatives during the pandemic, millions left their former jobs for better pay, benefits, working conditions and job quality.3 However, it appears that the “Big Quit” may not be over yet. According to a recent survey of American workers, roughly one quarter of respondents say they intend to change jobs in 2022, possibly setting the stage for yet another year of turmoil in the labor market.4
If you’re among the millions of Americans who recently changed jobs or are thinking about doing so in the months ahead, it’s important to understand how a move could impact your retirement plan benefits. For example, if you leave a job before your 401(k) is fully vested, you may forfeit the unvested portion of your account. Vesting refers to the amount of employer matching contributions that employees are entitled to keep, based on the plan’s vesting schedule. Eventually, you’ll also need to decide what to do with your old 401(k). Generally, you can choose one of four options:
If you’re happy with the plan’s investment options and fees, you can leave your retirement account where it is and continue to benefit from tax-deferred earnings growth as long as the account balance remains at or above that employer’s required minimum balance—usually $5,000. You will be limited to the plan’s investment options and will not be eligible to take a loan against your old 401(k) plan. If you have an outstanding 401(k) loan, your old employer may require the loan to be repaid within a stated time period after you terminate your employment. If you fail to pay back a 401(k) loan, it's considered to be a distribution and may be subject to taxes and penalties. A potential downside to leaving assets at a former employer is that the account may fall off your radar. You may forget to check on it regularly or take steps to ensure your investment allocation continues to align with your needs, risk tolerance or changing priorities. Your allocation refers to how account assets are invested across individual investments and asset classes, such as stocks, bonds and cash.
If your new employer offers a plan and accepts rollovers, you can roll the account assets from your old plan directly into your new employer’s plan. This option enables you to consolidate your 401(k) assets in a single account and continue to enjoy the benefits of tax-deferred growth as you build your retirement savings. However, you will be limited to the investment choices offered by the plan and subject to the new plan’s fee schedule and provisions, including those governing loans and any matching contributions. A financial professional can help you make an informed decision by providing a side-by-side comparison of the investments and fees associated with both plans. Another benefit of keeping assets in a 401(k) at a new or former employer is that retirement accounts set up under the Employee Retirement Income Security Act (ERISA) of 1974 are generally protected from seizure by creditors.5
Another option is to roll account assets into a new or existing traditional IRA through a trustee-to-trustee transfer or “IRA rollover.” Your account assets will continue to benefit from tax-deferred earnings growth, and you can make contributions to your IRA, subject to the annual contribution limits ($6,000 for 2022 and an additional $1,000 in catch-up contributions, if you are age 50 or over). However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participates in another retirement plan at work.6 A traditional IRA may also offer certain investment choices that are not available in your former employer’s plan or in your new 401(k) plan. Keep in mind, IRAs do not have a loan feature and do not provide the same level of creditor protection as 401(k)s.
Due to the significant penalties associated with early withdrawals from qualified retirement plans, it can be costly to take a cash distribution if you are under age 59 ½. That’s because the Internal Revenue Service considers it an early distribution, meaning you could owe the 10% early withdrawal penalty in addition to any federal, state and local taxes owed, which can add up fast. Another significant cost associated with cash distributions at any age is opportunity cost. For example, if you took $10,000 out of your 401(k) instead of rolling it over into an account earning 8% annually on a tax-deferred basis, your retirement fund could end up more than $100,000 short after 30 years.7 That could have an impact on your retirement timeline, resulting in retiring later than originally planned or falling short of your retirement income goals. Keep in mind, if you take a cash distribution and then decide to roll it over into another retirement plan, you only have 60 days from the date you received the distribution to complete the rollover before owing taxes and penalties.
The information above is not a complete list of the rules, restrictions and penalties associated with each of these choices. It’s important to discuss all of your options with your plan provider, as well as your tax and financial professionals to determine the right course of action for you. Remember, the choices you make today can impact your finances for decades to come.
To learn more about planning for a confident retirement, call the office to schedule time to talk.
1 https://www.bls.gov/news.release/jolts.nr0.htm 2 https://www.uschamber.com/workforce/understanding-americas-labor-shortage-the-most-impacted-industries 3https://rooseveltinstitute.org/2022/02/04/%E2%80%8B%E2%80%8Bthe-labor-leverage-ratio-a-new-measure-that-signals-a-worker-driven-recovery/ 4 https://www.resumebuilder.com/1-in-4-workers-plan-on-quitting-in-2022-as-great-resignation-continues/ 5 https://www.equifax.com/personal/education/life-stages/creditors-protected-retirement-accounts/ 6https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits 7 https://www.finra.org/investors/learn-to-invest/types-investments/retirement/401k-investing/401k-rollovers
Over the past two years, individuals and entire communities have faced unprecedented challenges brought on by the COVID-19 pandemic, extreme weather events, natural disasters and other circumstances. Uncertainty about inflation, rising interest rates, supply chain disruptions and the recent surge in coronavirus cases continue to influence the global markets and economy. While there’s no question that change and uncertainty can be unnerving, there are steps you can take to help replace concern with confidence as you pursue your important life goals. That begins with anchoring yourself in a plan.
Below are five ways planning can help you remain on track toward accomplishing the things that are most important to you and your family at every stage of life. A financial plan can help to:
Without clearly defined goals, you’re basically on a journey without a destination—any road will take you there, or nowhere at all. That’s why the first step in the planning process is to identify and prioritize your goals. What do you want to accomplish, and when?
Keep in mind, each of your goals will have its own time frame. Replacing your existing car or saving for a down payment on a home are generally short-term objectives. Goals like saving for retirement or a child’s college education may have a longer time horizon, depending on your age and circumstances. Once your goals are documented, a personalized strategy can be developed to help you move closer to them.
Think of your investment strategy as the engine driving your plan. To stay on track, it’s critical that your strategy is aligned with your goals, time frame and risk tolerance. For example, a strategy that is too aggressive as you approach retirement may not provide enough time to make up for any losses incurred as a result of market volatility. An approach that is too conservative also poses risk, such as the inability to keep pace with inflation over time. The planning process helps to ensure your exposure to market and investment risk is appropriately aligned with your goals, time frame and personal risk tolerance
The planning process maps out a strategy to not only pursue each of your goals but to measure progress against them. Using sophisticated planning software, your strategy is stress tested under a wide variety of financial and economic market conditions, including some of the most extreme circumstances, to help determine the probability of accomplishing each of your goals. This not only helps to identify any areas that may require an adjustment but inspires confidence that your strategy can weather change over time.
It’s important to understand that poor or misinformed decisions can quickly derail even the best-laid plans. We saw that early in the pandemic in 2020, when fear drove many investors to engage in panic selling as the S&P 500 Index fell 34% from the peak on February 19 to the bottom on March 23.1 That not only resulted in investors realizing losses but led many to miss out on the market’s subsequent rebound in the weeks and months that followed.
Without a disciplined plan and investment strategy in place, behavioral biases, such as fear, greed or loss aversion can cause investors to make decisions that are not in their best interests. These decisions can have long-term consequences, such as extending the amount of time it may take to reach certain goals or delaying retirement. A well-constructed plan can help investors overcome these biases and remain on the path toward their long-term goals
Keep in mind, your plan is not simply a snapshot in time. It evolves to accommodate expected and unexpected events, some of which may be outside of your control, such as a market or economic downturn. What if you decide to marry or divorce, change fields mid-career or retire earlier than planned? It’s much easier to accommodate these life changes when you have a flexible framework in place to build upon. Meeting regularly with the financial professionals you rely on for guidance is also a critical part of ensuring that your plan remains up-to-date and reflects today’s needs and tomorrow’s aspirations.
While the winds of change will continue to blow, anchoring yourself in a plan can put you in a better position to withstand any storms that may come your way. To learn more about the benefits of planning, contact the office to schedule time to talk.
According to the National Retail Federation, this year’s holiday spending is expected to shatter previous records despite supply chain bottlenecks1 and the steepest 12-month increase in inflation in more than 30 years.2 That’s because many Americans—who have accumulated more than $4 trillion in savings since the start of the pandemic—are ready to spend this holiday season.3
While consumers have already spent an estimated $8.9 billion on Black Friday, that fell slightly short of the $9 trillion spent in 2020. However, shoppers spent far more between November 1 and 28, than in previous years, in an attempt to get ahead of potential inventory shortages and shipping delays.4
This year also promises to be one of the most expensive holiday shopping seasons. As a result, many people are finding that their budgets aren't stretching as far as they had expected. With less inventory to meet demand, retailers aren’t offering the same steep discounts many shoppers have become accustomed to in recent years. Even with discounts, it’s estimated that shoppers will pay 9% more this year for the same goods.5
While that can make it challenging to keep holiday spending in check, there are steps you can take to help manage spending, beginning with the four tips below.
A budget is a great tool to track spending; however, people often forget to include certain holiday expense categories, beyond the purchasing of gifts. These include travel, hosting gatherings, seasonal decorations, special holiday meals, and tips for service providers like your dog groomer, hair stylist, or the kid who mows your lawn. To ensure your budget captures all of your holiday expenses, begin by listing each area of spending and set a dollar limit for each.
No matter how much you plan to spend this holiday season, shopping for the best deals is always a smart move. A number of online tools, websites, and apps are available to help you find discounts and bargains on a wide range of items. Free services, such as Groupon, offer discounts on travel, activities, goods, and services. Others, like Rakuten, offer cash back on the purchases you make at thousands of stores, including many that you may already patronize. Browser extensions like Honey and Popcart can save you time and money by searching the internet for price comparisons, alerting you to price drops, and automatically applying coupons and promotional codes at checkout. If you’re planning to travel to see family and friends over the holidays, or escape to a resort for some rest and relaxation, travel comparison sites can help you save on airfare, hotel packages, rental cars, and more.
If you’re concerned about getting carried away by the season of giving, and overspending as a result, consider paying holiday expenses with cash instead of credit cards this year. Paying with cash—such as bank debit cards or prepaid gift cards—can help curb impulse spending. If you do use credit cards, do so judiciously and make sure you’re using your holiday spending budget to track each purchase. That way, there are no “surprises” when you receive your post-holiday credit card bill.
As more people take advantage of the ease and convenience of ecommerce for their holiday shopping, package theft—often called “porch piracy”—is also on the rise. In most cases, there is no recourse for packages that are stolen upon delivery, other than filing a police report. Fortunately, there are a number of ways to protect your purchases if you know you won’t be home to receive them. All major shippers now offer the ability to opt in to receive tracking information via text and email notifications, including the United States Postal Service. If you know you won’t be home to receive a package, consider asking a neighbor or friend to retrieve it and hold it for you, or consider shipping to an alternate address, such as your workplace. In many cases, packages shipped by United Parcel Service (UPS) can be delivered to a UPS store near you. Similarly, shipments from Amazon can be delivered to one of their secure lockers where you can retrieve your packages on your schedule.
To learn more about establishing a budget or getting a jump on adopting sound financial habits for the new year, contact the office to schedule time to talk.
1 https://nrf.com/media-center/press-releases/nrf-predicts-highest-holiday-retail-sales-record 2 https://www.bls.gov/news.release/cpi.nr0.htm 3 https://www.cnbc.com/2021/08/03/most-of-americas-extra-pandemic-savings-are-going-to-the-wealthy-.html 4 https://www.nytimes.com/2021/11/29/business/black-friday-sales.html 5 https://www.cnbc.com/2021/11/26/holiday-shopping-2021-sticker-shock-could-change-retailers-approach-to-sales.html
This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer.
One of the greatest myths about tax planning is that it’s only for the wealthy. Yet, nothing could be further from the truth. If you earn income, the goal is to keep as much of your money working for you, no matter your income level. That requires having a plan in place for how you will manage taxes on your various sources of income, such as workplace earnings and investments. That’s among many reasons why tax planning is an integral part of a comprehensive financial plan designed to help you meet multiple goals and priorities, while keeping more of what you earn.
Below are four strategies to consider to help with your tax planning before year end. Be sure to meet with your professional tax advisor before putting these or other strategies in place.
Maximizing contributions to the qualified retirement plans you are eligible to participate in—such as a 401(k), 403(b), individual retirement account (IRA), or SEP IRA—is one of the smartest ways to help reduce taxable income while building wealth. Retirement plan contributions can be made on a pre-tax (traditional) or after-tax (Roth) basis. Pre-tax contributions can reduce the amount of your taxable income by the amount of your contribution, up to the plan’s annual limit. Those age 50 and older are also eligible to make catch-up contributions.
Roth contributions are made on an after-tax basis, which means you can’t deduct contributions. However, earnings compound on a tax-deferred basis. Qualified withdrawals from a Roth are generally income tax-free, whereas withdrawals from a traditional IRA are taxed as ordinary income in retirement.
For most employer plans, December 31 is the last day you can make contributions for the current tax year. For IRAs and certain plans for self-employed business owners, you have until April 15, 2022, to make 2021 contributions
If you expect to be in a lower tax bracket this year than in the future, you may want to think about initiating a Roth conversion. A Roth conversion takes place when you roll over assets from an existing traditional IRA or qualified employer plan into a Roth plan. Partial conversions are also permitted. The amount converted is included in your gross income and taxes are owed on the assets in the year they are converted. While there is no limit on the amount of assets you can convert in 2021, Congress is considering proposals that may seek to impose future income limits on Roth conversions, so be sure to discuss your plans with your tax advisor before taking action.
For taxpayers planning to itemize their deductions, the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 increased the deductible limit for cash gifts to qualified charitable organizations from 60% of adjusted gross income (AGI) to 100% of AGI. This was extended for 2021.
The CARES Act also allowed taxpayers claiming the standard deduction to deduct up to $300 of cash donations to qualified charities in 2020. This was not only extended for 2021, but the maximum deduction was increased to $600 for married couples filing jointly. Before you donate, make sure the charity you’re considering is a qualified charity that is eligible to receive tax-deductible contributions. Cash donations must be made by December 31, 2021, to qualify under these special provisions.1
Last year, many investors took the opportunity to harvest investment losses, following the significant stock market drop in March 2020. However, with markets surging throughout most of 2021, fewer investors may have an opportunity to harvest losses this year. Tax-loss harvesting occurs when you sell portfolio holdings that are trading below your purchase price to lock in the tax loss. Applying losses against gains can help to lower your investment tax burden. However, you also have to apply the right types of losses against gains. Short-term losses are associated with assets held for a period of less than 12 months, while long-term losses pertain to assets sold after being owned for 12 months or more. This is important because short-term capital gains are generally taxed at a higher federal income tax rate than long-term capital gains.2
Investors also need to be cognizant of the wash-sale rule, which states that if you sell a security at a loss and then purchase a “substantially identical” security within 30 days prior to or after the sale, the loss is disallowed for income tax purposes.3 Tax-loss harvesting can be complex for investors to do on their own, which is another good reason to consider professional portfolio management.
To learn more about tax-smart investment strategies, contact the office to schedule time to talk.
1 https://www.irs.gov/newsroom/expanded-tax-benefits-help-individuals-and-businesses-give-to-charity-during-2021-deductions-up-to-600-available-for-cash-donations-by-non-itemizers 2 https://www.investopedia.com/terms/t/taxgainlossharvesting.asp 3 https://www.investor.gov/introduction-investing/investing-basics/glossary/wash-sales
This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer.
This communication is designed to provide accurate and authoritative information on the subjects covered. It is not however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional retirement account to a Roth retirement account is a taxable event. A Roth account offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth account must be in place for at least five tax years, and the distribution must take place after age 59½, or due to death or disability. Depending on state law, Roth accounts distributions may be subject to state taxes
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
Your credit score, the three-digit number lenders use to help measure your credit worthiness, has the power to save—or cost you—thousands of dollars in interest over your lifetime. That’s because your score impacts how much lenders may allow you to borrow and the interest rate you will pay on those loans. For example, a low credit score can result in paying thousands more for the same car that someone with a higher score is able to finance at a lower interest rate. When it comes to mortgages, which are often financed over 30 years, paying a higher interest rate can cost borrowers tens of thousands more over the life of the loan.
That’s money you could be using to pay for other important goals, such as saving for your retirement, a child’s education, or paying down debt, which can impact your overall financial health. That’s why it’s so important to understand the factors that go into determining your score and the steps you can take now to improve or maintain a strong credit score.
More than 30 years ago, the Fair Isaac Corporation (FICO) introduced FICO® Scores to provide an industry-wide standard for scoring creditworthiness that was fair to both lenders and consumers.1 The formula used to calculate your score takes multiple factors into account, such as your payment history, credit utilization ratio, credit history, credit mix, and more. While multiple versions of FICO scores exist, the one most widely used by lenders and the three national credit bureaus (Experian, Equifax and TransUnion) has a base score range between 300 and 850.2 A score above 670 is generally considered good, while anything above 800 is considered excellent.3
Many financial institutions provide customers with free access to their credit scores, which are subject to change monthly. The national credit bureaus provide access to your credit scores and your credit report, which is a record of your credit history. Typically, you're entitled to one free copy of your credit report every 12 months from each of the credit reporting companies. However, during the COVID-19 pandemic, all three credit bureaus agreed to offer free weekly credit reports online.4 To order your free credit reports, visit AnnualCreditReport.com, the only federal government-authorized website for obtaining free credit reports.
It’s important to check your credit reports at least annually to make sure they are error-free and there have been no fraudulent attempts to open credit in your name. Each credit bureau provides instructions on its website for correcting errors or disputing entries on your reports.
Some of the best sources of information to help strengthen your credit are the same organizations that determine and monitor your scores, including the three national credit bureaus and myFICO.com. Each of these organizations provide free online educational content to help consumers protect and improve their credit scores. For example, Experian recommends the following four steps:5
While a strong credit score can be an important indicator of overall financial health, it’s only one consideration when it comes to determining financial fitness. If you’re seeking ways to improve your financial health, contact the office to schedule time to talk.
1 https://www.myfico.com/credit-education/what-is-a-fico-score 2 https://www.myfico.com/credit-education/credit-scores/fico-score-versions 3 https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/ 4 https://www.annualcreditreport.com/requestReport/landingPage.action 5 https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/#s6 6 https://www.experian.com/blogs/ask-experian/are-my-mortgage-inquiries-hurting-my-credit-scores/
September is National Emergency Preparedness month, and government and community leaders from coast to coast are encouraging Americans to take important steps to ensure they are ready for any emergency. These reminders come on the heels of massive wildfires in the Western United States, and deadly floods, property damage, and compromised infrastructure, along a 1,500-mile path from Louisiana to New England, in the wake of Hurricane Ida.
According to the National Oceanic and Atmospheric Administration, climate change is expected to worsen the frequency, intensity, and impact of extreme weather events like these.1 However, it’s important to remember that not all disasters are natural. Many are the result of human activities, such as chemical spills, gas leaks, infrastructure failures, and other events that can threaten lives and impact entire communities. That makes it critical to have a plan in place for how you and your family can prepare for and remain safe in any emergency. Begin with the following steps, which can help you plan for the unexpected and protect the people and property that are important to you.
While it can be hard to plan ahead for every possible scenario, some are more predictable than others. When developing your family emergency plan, start with the types of risks you may be exposed to in the area where you live. For example, if you live in an area that frequently experiences tornadoes, it’s important for all family members to know where the “safe zone” in your home is located, whether that’s a basement or a first-floor closet or bathroom, away from windows. If you live in an area that is susceptible to wildfires or hurricanes, familiarize yourself with evacuation routes, which can be found on your state or local emergency management website.
Discuss your plans with friends and family, including how you will communicate before, during, and after a disaster, and talk to your kids—and everyone in your household—about what to do in case you are separated. Make sure you designate a place to meet that is accessible for all household members. Take the time to tailor your plan to your specific needs and responsibilities, keeping the following considerations in mind:
Quick Tip: Download your free Family Emergency Communication Plan template now.
In an emergency, there may be little or no time to gather important papers and essential supplies. Having an emergency kit ready to go is essential when disaster strikes. Keep in mind, while many important documents may be stored electronically, you may not have immediate access to the information in the event of a power outage. Some of the things you may want to include in your kit are:
Experts recommend gathering enough supplies to last for several days after a disaster for everyone living in your home. Don’t forget to consider the unique needs each person or pet may have in case you have to evacuate quickly.
Quick Tip: Not sure what to include in your emergency kit? Download this handy Emergency Supply Kit Checklist.
Staying informed during an emergency situation can mean the difference between life and death.
In addition to local news outlets, familiarize yourself with your state’s emergency management website, mobile app(s), social media sites and emergency alert systems, which provide breaking news and potential life-saving information in the event of an emergency or natural disaster. Plan to download apps and sign up for alerts on your devices well before a disaster occurs.
Quick Tip: Download the FEMA app now to receive real-time notifications, text messages, and alerts for events impacting your location.
Having adequate emergency savings on hand is another important aspect of planning for unexpected events. If you have questions about whether you will be financially prepared to weather an emergency, contact the office to schedule time to talk.
Looking back on your first fulltime job, do you ever remember thinking, “If I made ’X‘ dollars more, things would be so much easier”? However, once you received your first raise, you may have been surprised at how quickly that extra money was absorbed into your regular monthly spending. You can thank lifestyle creep for that.
Lifestyle creep happens when you increase your spending and expenses with each raise or bump in income. Despite making more money, you continue to live paycheck to paycheck, with little or no money set aside for the future. Interestingly, there’s no magical dollar amount or salary where lifestyle creep automatically kicks out. You are susceptible to it whether you make $30,000 or $300,000 a year.
Although challenging, breaking the endless cycle of living paycheck to paycheck is possible. Below are five practical ways to help stop lifestyle creep and begin building wealth for the future you desire.
Living within your means is the golden rule of financial well-being. That’s because it helps you to move closer to any goal faster. Living within your means requires spending less money than you’re bringing in each month.
Spending less than you make allows you to:
There is one catch: living within your means requires some discipline. That’s where a budget can help. Your budget can help you track each dollar coming into and leaving your household each month. It’s a great tool for creating accountability around your spending and savings goals. Follow this link to learn more about the latest budgeting tools and apps: Here are the best budgeting apps of August 2021.
Recognizing the difference between wants and needs can be challenging. Needs are your essential expenses—the things you absolutely can’t live without, such as food, housing, clothing, healthcare and transportation. Wants are the things that are important to you and help define your lifestyle but would not jeopardize your health and safety if you were forced to live without them. Your wants are discretionary expenses, such as your afternoon latte, concert tickets or a weekend getaway.
When determining your monthly budget or spending plan, make sure your essential expenses are fully covered first. Then prioritize additional spending for the things you want but could live without, if necessary. Finally, set aside money each month for savings, even if it’s just a small amount. When you do get a raise, increase this amount first. That will help you stay on track toward building the wealth you will need to support the future you want.
While credit cards may allow you to buy more things now than your current budget allows, keep in mind that can come with a cost. If you consistently use credit cards to bridge the gap between income and expenses, or purchase more than you pay off each month, you'll eventually run out of available credit and possibly lower your credit score. In addition, high interest rates can make it even more difficult to pay down debt and get back to living within your means.
Resist the pressure to keep up with the spending patterns of neighbors, coworkers or friends. While the shiny new car in your neighbor’s driveway or a coworker’s recent trip to Cancun may appear to be a sign of financial success, they could just as easily be living well beyond their means. Keep in mind, material accumulation is not a dependable gauge of how well someone is doing financially. While there’s nothing wrong with the occasional splurge on something you really want—if you’re prioritizing your finances correctly—problems occur when you jeopardize your financial well-being to compete with others.
The best way to reverse lifestyle creep is to put a plan in place and stick to it. The financial planning process can help you prioritize goals and spending, so you can build future wealth faster. Since planning is an ongoing process, it’s easy to update and adjust your savings and spending goals as your life or circumstances outside of your control, such as the financial markets and economy, change.
There are many benefits to breaking the cycle of living paycheck to paycheck, including reducing stress and increasing overall financial well-being. If you have questions about putting a strategy in place that can help you move closer to your goals, call the office to schedule time to talk.
This information was written by KRW Creative Concepts, a non-affiliate of the broker-dealer
Live shows, concerts and sports venues are selling out within hours; cruise and hotel bookings have surged; airlines can’t keep up with the number of passengers booking flights; and restaurants can’t hire fast enough to accommodate demand. Even some national parks are turning visitors away this summer due to overcrowding.
It’s not difficult to understand what’s behind the increase in demand for travel and entertainment. After coping with coronavirus restrictions for more than a year, many people are eager to resume a broad range of activities, previously curtailed by the pandemic.
As businesses reopen, consumers are opening their wallets wide, seeking travel upgrades, luxury services, and unique experiences. By June, spending on luxury goods and services had risen 11% above pre-pandemic levels,1 and one survey found that 40% of Americans are willing to take on debt to treat themselves lavishly this summer.2
While it’s understandable that consumers are ready and willing to spend on meaningful experiences after such a challenging period, revenge spending—the desire to make up for lost time by overindulging—can wreak havoc on your budget. Fortunately, there are ways to keep spending in check while reconnecting with the people, places, and experiences you’ve missed.
There’s nothing wrong with the occasional splurge. In fact, that’s one of many reasons to follow a budget. A budget provides a clear look at how much money is coming in (income) and going out (expenses) of your household each month. That allows you to assign a purpose to each dollar, including discretionary expenses for travel, entertainment, dining out, and more.
For example, if you plan to take a vacation this summer, use your budget to determine how much you can reasonably spend and set limits for yourself. If you feel the need to splurge on something that’s really important to you or your family, your budget can help you identify ways to pay yourself back by cutting expenses in the months ahead, so you don’t jeopardize longer-term goals, such as saving for retirement, a child’s education, or paying down debt.
Americans paid off a record $108 billion in credit card debt in 2020.3 Yet, many risk racking up new debt as the economy continues to reopen. If you were among those who worked diligently to pay down debt over the past year, take time to reflect on what it feels like to owe less or to be debt free before using credit cards to make new purchases. If you have a hard time avoiding impulse spending, leave credit cards at home when shopping or meeting friends for a night out. Disable your digital payment app on your phone for the night as well. Relying on cash can be a good way to curb impulse spending.
Pressure from others can result in spending more than you otherwise would. Don’t be afraid to say no to friends or family members who encourage you to attend an event or take a trip that may be too expensive for your taste or is not something you look forward to doing. If you feel peer pressure to spend in ways that are beyond your means, suggest more affordable alternatives. Remember, it’s your money. It should be spent on the people, things and experiences that give your life meaning and purpose.
The pandemic is a reminder of the importance of having access to emergency savings and not overextending yourself with credit card or other personal debt. Like many people, you may have identified certain expenses you could live without. Whether you saved more, spent less, or invested more toward your goals, try to keep those positive financial habits intact.
Keep in mind, as opportunities for spending return, it can be tempting to make up for lost time. However, overspending can have serious long-term consequences for your personal and financial well-being.
If you have questions about these suggestions or other ways to stay on track toward your important goals, call the office to schedule time to talk.
1 https://www.washingtonpost.com/business/2021/06/18/luxury-boom-recovery/ 2 https://www.creditcards.com/credit-card-news/future-spending-poll/ 3 https://www.fool.com/the-ascent/credit-cards/articles/americans-paid-off-108-billion-in-credit-card-debt-last-year-the-most-ever/
After decades of skyrocketing costs, some good news regarding college costs has emerged. Institutions of higher learning reported the lowest one-year increase in average tuition and fees in 30 years. Between the 2019-20 and the 2020-21 school years, average published charges for tuition and fees for public four-year in-state colleges increased by only 1.1% while private nonprofit colleges had a minimal increase of 2.1%. This data suggests that the COVID-19 pandemic has halted rising college costs, though experts say that this effect may only be temporary.1
For academic year 2020-2021, public two-year colleges had the lowest average annual costs out of all institution types, at $12,850. For the same period, on average, public four-year in-state colleges cost $22,180 while private nonprofit four-year colleges were the most expensive at $50,770.2 Even if students qualify for financial aid, including scholarships and grants, there’s still a hefty price tag associated with the cost of higher education in the United States. As a result, most college graduates leave school with significant amounts of debt. In fact, one in four American adults—a total of 44.7 million—have a staggering $1.53 trillion in student loan debt.3
If you’re a parent or grandparent of a recent high school graduate or a rising senior, this data may have you wondering if college is still worth it. Below are five things to consider when weighing the cost of a college education.
A Georgetown University study on the value of higher education notes that in the industrial economy prior to the 1980s, two-thirds of jobs required workers with only a high school education or less. Now, two-thirds of jobs require workers with at least some college. In addition, the study’s authors predict that 70% of all jobs will require some college education by 2027.4
Although a college degree can’t guarantee a high-paying job, on average, those with a bachelor’s degree earn significantly more than their peers with only a high school diploma. According to the U.S. Bureau of Labor Statistics, full-time workers without a high school diploma had median weekly earnings of $630, compared with $1,416 for those holding at least a bachelor's degree. That equates to about a $40,000 difference annually.5
Over the course of their careers, college graduates can earn hundreds of thousands more than those who don’t attend college.
Data shows that what individuals choose to study at college affects their return on investment. Currently, the highest-paid majors are STEM (science, technology, engineering, and mathematics), health, and business. Of these, STEM and business are also the most popular majors, accounting for 46% of college graduates' chosen fields.6
College graduates are far more likely than high school graduates to have employer-provided healthcare coverage, which can substantially offset healthcare costs. The College Board found that 64% of workers with healthcare had a bachelor’s degree, and 70% of workers with advanced degrees had employer-provided coverage. Among high school graduates, only 52% had coverage through employer plans.7
While the financial rewards of a college degree can be significant, a college education can impact students’ lives in many positive ways that go well beyond academics. These include developing life skills that lead to independence, from paying bills and balancing a budget, to managing credit, and more. College can also be the root of many lifelong friendships, memories, and a sense of community and belonging.
If you have questions about tax-smart ways to help pay for a child or grandchild’s education costs, call the office to schedule time to talk.
1https://www.guide2research.com/research/college-tuition-increase#2 2 https://research.collegeboard.org/pdf/trends-college-pricing-student-aid-2020.pdf 3https://www.nitrocollege.com/research/average-student-loan-debt#rising-cost 4 https://1gyhoq479ufd3yna29x7ubjn-wpengine.netdna-ssl.com/wp-content/uploads/Fiverules.pdf 5 https://www.bls.gov/opub/ted/2020/median-weekly-earnings-by-education-second-quarter-2020.htm 6 https://cew.georgetown.edu/cew-reports/valueofcollegemajors/ 7https://research.collegeboard.org/pdf/education-pays-2019-full-report.pdf
Despite the financial challenges and disruptions brought on by the COVID-19 pandemic, data shows that Americans across all income levels made smart choices with their money over the past year. Payment delinquencies fell as consumers paid down debt,1 and personal savings increased as incomes rose—thanks in large part to government stimulus measures.2 One recent survey reports that 78% of respondents developed a new personal finance habit during the pandemic that they plan to continue, such as monitoring their finances more closely or setting up a monthly budget.3
Keeping these habits intact even as the economic recovery accelerates is important. While you can’t predict the future, sticking with sound financial practices can put you in a better position to weather any future challenges that come your way. Below are four healthy financial habits worth keeping in 2021 and beyond.
Many people turned to budgeting to regain a sense of control during the pandemic.3 A budget is essential for monitoring what’s coming into and going out of your household each month, so you don’t overextend yourself. Maintaining a budget also makes it easier to generate long-term savings and avoid debt.
As the world reopens, you’ll need to give some thought to how your budget may change in the months ahead. For example, will certain expenses go up if you return to your workplace or kids return to school? These may include commuting costs and expenses associated with lunches, clothing, activities or sports. What about travel and entertainment—will spending return to pre-pandemic levels or do you plan to spend less on certain discretionary expenses going forward? If you need help determining your future cash flow needs, there are dozens of online tools and mobile apps that can help. To find one that meets your needs, consider The 7 Best Budget Apps for 2021. Remember, budgeting isn’t simply about cutting expenses, it’s about making sure you’re spending your money on things you value.
One of the things many people valued in 2020 was debt reduction. Americans paid down a record $82.9 billion in credit card debt last year.4 In the months ahead, the economy is expected to heat up as consumers release their pent-up demand for shopping, dining, travel, and entertainment. While it may be tempting to throw caution to the wind as life returns to something resembling normal, remind yourself how it feels to be debt-free or to have a better handle on your credit before using credit cards to pay for a vacation or shopping spree. Remember, the less money that goes toward servicing debt each month, the more that’s available for you to save and invest, which can help you pursue your long-term goals faster. To learn more about managing credit and debt and how maintaining a strong credit score can help you save money, visit myFICO.
Maintaining adequate cash reserves has always been important for covering unplanned expenses, such as a car repair, new roof, or medical bills, without incurring debt. During the pandemic, emergency savings took on even greater importance as many Americans faced layoffs and furloughs. Having enough money set aside to cover three to six months of living expenses can provide the confidence that you’ll be able to pay for essential expenses when unexpected events occur.
If you had to dip into savings during the pandemic, put a plan in place now to rebuild emergency reserves. Saving all or a portion of a recent economic impact payment, tax refund, or upcoming child tax credit payments that you may receive can be a great way to jumpstart savings.
As the stock market slumped last winter, investors who took the opportunity to buy while prices were low were in a better position to benefit as share prices began to rise in the spring. While this is a smart strategy, it’s seldom possible for investors to pick the best time to enter or exit the markets. However, a technique called dollar-cost averaging allows you to buy into the markets at regular intervals, which can help even out the price you pay for shares over time. You’ll purchase shares at higher prices when the market is rising and at lower prices when market values are down. If you participate in your employer’s retirement plan, you may already use this strategy to make plan contributions each pay period. Best of all, setting up regular automatic investments is one less thing you have to think about each month.
Finally, if you’ve incorporated these or other positive financial habits over the past year, spend a few minutes reflecting on how this makes you feel emotionally. Do you feel more secure about meeting your current financial obligations? Are you more confident about the future? Revisit these feelings whenever your financial health begins to feel a little off-balance to help you get back to center and remain on track toward your goals.
If you have questions or concerns about saving, budgeting, or managing family finances, call the office to schedule time to talk.
Dollar cost averaging will not guarantee a profit or protect you from loss, but may reduce your average cost per share in a fluctuating market.
1https://www.consumerfinance.gov/about-us/blog/credit-card-debt-fell-even-consumers-having-financial-difficulties-before-pandemic/ 2https://www.pewtrusts.org/en/research-and-analysis/articles/2021/04/27/states-2020-personal-income-growth-was-highest-in-20-years 3 https://www.creditkarma.com/insights/i/pandemic-redefining-necessities-survey 4 https://wallethub.com/edu/cc/credit-card-debt-study/24400