Do You Need to Have a Family Finance Meeting?

Financial planning isn’t just about numbers. Because your financial plan likely affects your family, there are personal relationships to consider.

Discord over finances is common for many families, and some pay dearly for it. It’s such a serious consideration that one organization, the National Family Business Council, specializes in helping families resolve the family issues affecting their ability to develop successful wealth planning strategies.

You don’t have to be wealthy to be affected. Helping aging parents manage their financial lives, for example, affects almost everyone at some point. And when it does, family dynamics and legal issues can make even the simplest tasks challenging. For example, you may rely on your siblings for assistance, only to find out that they aren’t equipped with the necessary skills or the willingness to help care for your parents.

It’s a good idea to determine now if you think you might be in such a situation. Keep an eye out for signs of financial stress in your parents. Ask how they’re doing.

Then, if you think your parents may reach the point at which they will struggle with their financial affairs, increase your family communication. Doing so now will help you avoid problems later.

Family meetings are an effective way to facilitate family communication. It’s usually best if your parents call the first meeting, but they may be reluctant to seek help. As you plan the family meeting, think about what you’ll want to cover. A good start is a summary of your parents’ current income, expenses, savings accounts, beneficiaries, and health.

3 Signs You Aren’t Ready for Retirement

Are you ready to retire? Many Americans aren’t, and it usually has something to do with money. Here are three signs that you may need to get your finances in shape to get through your golden years:

1. You’re still repaying debt.

Some debt is better than other debt, but if you’re paying it off as you approach retirement, you may need to stop and think.

The more debt you take into retirement with you, the more of your retirement income you will have to use to pay it off. So, when you’re trying to decide when to retire, incorporate how long it will take to pay off your debt.

2. You’re totally dependent on Social Security.

Some Americans think Social Security will cover all their retirement income needs. That’s not usually the case.

According to the Social Security Administration, if you have average earnings, Social Security will replace only about 40% of your preretirement income. That percentage is less if you’re in lower income brackets and more if you’re in higher income brackets.

3. You’ve borrowed from your retirement plans.

It can be tempting to dip into retirement accounts when you need a loan. Certainly, paying interest to yourself is better than paying interest to a bank. But borrowing money from your retirement plan can hurt your long-term financial outlook, because you’ll need to earn an even higher return to catch up. The situation is even worse if you took withdrawals before you reached age 59 ½ and thus incurred penalties and taxes.

Want an easy way to find out if you’re ready to retire? Divide your desired retirement income by 4%. For example, if you think you’ll need $50,000 a year in retirement, divide $50,000 by 4%, or 0.04. You’ll get $1.25 million. That’s how much you’ll need to have to be ready to retire.

A Bit of Inspiration for Your Financial Planning …

Financial planning is a continuous job, requiring careful decisions in an often complex market. Most of us could use a little inspiration from time to time.

That inspiration can take many forms. Some may enjoy reviewing charts or graphs, while others may be deeply affected by the successes and tragedies of friends and colleagues. At times, wakeup calls can come from the words of others. With that in mind, we’ve compiled three quotes about finances that may help you stay on track.

“The Stock Market is designed to transfer money from the Active to the Patient.”

From noted investor Warren Buffett, this quote illustrates the fact that investors tend to underperform when they trade frequently. Not only do they pay high commissions and face short-term capital gains tax rates, they are also often influenced by knee-jerk reactions to market events, which can hurt performance. A long-term investing strategy is the best. Look for stocks you can hold onto for many years, through market ups and downs.

“Every time you borrow money, you’re robbing your future self.”

From Nathan W. Morris, a personal finance expert and noted author, this quote suggests that when you take on debt (via a home equity loan or credit card balance, for example), you’re risking your future financial security. When you carry debt, you’re paying interest with money that could have gone toward retirement savings or other important financial goals.

“When buying shares, ask yourself, would you buy the whole company?”

From Australian entrepreneur, investor, investment advisor, and stockbroker Rene Rivkin, this quote conveys the idea that when you buy a stock, you’re buying a portion of a company. You thus become a part owner of the company, so it’s worth considering how comfortable you would be owning the entire company. Do you have confidence in its future? Concentrate your dollars on your best ideas, or the best ideas of your financial advisors.

Market Volatility: Is It a Cause for Concern?

Following U.S. Federal Reserve Chairman Jerome Powell’s press conference in early December 2018, it would have been easy to think the stock markets were ready to ease into a tranquil holiday season and a slow start to 2019.

But that didn’t happen. Volatility roiled the markets, sending many investors into a panic.

This leads to the following questions: what is market volatility, and is it a reason to be concerned?

Market volatility is arguably one of the most misunderstood investing concepts. Formally defined, it’s the range of price changes a stock or market experiences over a period of time.

If the price is relatively stable, the stock or market is said to have low volatility; if the price moves significantly or erratically, the stock or market is said to have high volatility.

Volatility is often measured by the CBOE Volatility Index, known by its ticker symbol VIX, which gauges the market’s anxiety level. At a level near 20 as of this writing, the VIX is relatively low (less volatile market). It was in the 30s this past December; during the financial crisis in 2008-2009, it was in the 70s.

But volatility isn’t necessarily a bad thing.

Most investors focus on downside volatility because they feel a loss more acutely than they do a win. But volatility also provides opportunities for the patient investor. Each purchase or sale of a stock has the risk both of failure and of success.

Without volatility, there is less chance of either.

Are Women Aware of Their Financial Risks?

Roughly 55% of Americans regret how they handled their retirement planning, women in particular. That’s because being female can bring distinct financial risks.

According to a recent survey from provider Global Atlantic Financial Group, 62% of women had regrets about their retirement planning compared with 47% of men. As a result, more women than men had to adjust their retirement lifestyle. For example, women cut more entertainment expenses (51% vs. 42%) and travel expenses (42% vs. 34%).

One likely reason that women regret their choices more is their tendency to put the needs of others first, sometimes to their own detriment. That is, women don’t save as much as they should because they prioritize paying for a child’s education or caring for an elderly parent.

This causes challenges when it comes to providing for one’s own late-in-life care. Women who find themselves widowed (because they live longer than men, on average) don’t want to be a burden on their children. But they wonder how they will pay for their care into their 90s.

The problem can be solved with careful financial planning. Purchasing a long-term-care policy using equity from a home, or renting out a home that’s larger than your needs, are creative solutions. But it’s important to plan early. The “sweet spot” for obtaining affordable long-term care insurance is age 50 to 70.

If you’re a woman worried about being in this situation, a financial professional can help you develop a long-term plan that accounts for all circumstances.

Five Financial Planning Trends You Should Know

When it comes to investing, it’s rarely a good idea to jump on a trend. But we do see certain trends in financial planning surface from time to time, and it can benefit you to understand them. Here are five trends to be aware of in today’s market.

1. Older people are working longer.

According to the American Association of Retired Persons, by 2022, the number of American workers age 50 or older is due to increase by 62%. They will consist of 35% of our workforce. Don’t automatically assume that won’t be you.

2. Increased longevity demands more financial planning. 

According to the Social Security Administration, the average life expectancy of a man who is currently 65 years old is 84.3. For a woman who has reached age 65, her life expectancy is 86.7. That means ensuring you don’t outlive your portfolio is more challenging than ever.

3. Second marriages require more estate planning. 

The American Psychological Association reports that 40% to 50% of married couples in the United States divorce, and many remarry. As a result, more of us must balance the legacy we leave our children with the needs of our new spouse.

4. Financial technology doesn’t replace the financial planner. 

Technology plays an increasing role in managing financial tasks, from tracking spending to helping with investments. Certainly, take advantage of these innovations. But remember, a computer can’t replace the knowledge of your individual financial circumstances that a personal financial planner possesses. Don’t miss out on everything your financial professional has to offer by relying solely on tech to manage your portfolio.

5. Tax cuts create opportunities. 

The Tax Cuts and Jobs Act brought sweeping changes to our tax laws in 2018. Tax brackets declined, alternative minimum tax exemptions increased, and a new 20% deduction for pass-through business income was revealed. Learn to make the most of these opportunities.

Should You Take Social Security ASAP

Americans have the option of taking Social Security benefits early, on time, or late. Is your plan to hold off as long as possible? Even if you don’t need Social Security benefits to live on, there are some compelling reasons to take them as soon as possible rather than wait.

Sometimes, older Americans are advised to refrain from collecting Social Security benefits until age 70 in order to get the highest benefit possible. In some cases, that’s solid advice. For example, if your health allows you to work past the earliest age that you can collect Social Security, and you believe you will rely heavily on it to support your later retirement, it seems wise to delay taking benefits.

But let’s say you’re 62, would like to retire, and already have significant retirement income (such as a pension) outside of Social Security. In this case, you may want to start collecting benefits as soon as possible.

Why? Because, as an investor, you have to think about risk. You (and your financial advisor) evaluate all associated past, present, and future risks when you invest in stocks and bonds. Why wouldn’t you do the same when you “invest” in Social Security?

This careful evaluation may prove valuable. In the past, Social Security benefits have been reduced twice through taxation, and these changes have primarily affected wealthier investors with bigger income streams. If Congress changes Social Security laws again (and it’s reasonable to think they might, given projected shortfalls), you could be disadvantaged.

The moral of the story: Social Security is designed to be a safety net for all Americans, and it is. But it doesn’t protect everyone in exactly the same way. Knowing how to make it work for you, based on your individual financial circumstances, is important.

Consult with your financial advisor to determine the best way to approach Social Security based on your individual investment needs and future plans.

Are We Nearing the End of the Market Cycle?

Markets have a history of repeated cycles: a growing euphoria followed by crashes and then recoveries. Currently, we’re in the midst of a bull market of nearly a decade. Is the end near?

Looking back at the past four decades, we can see these cycles playing out clearly.

In the mid-1980s, we had a period of prosperity created by loose monetary policy. Stock markets rallied, with the S&P 500 Index increasing by roughly 85% between February 1985 and August 1987. But in October 1987, the markets crashed on the day known as “Black Monday,” and the Federal Reserve (Fed) stepped in to stop it.

We saw a similar situation play out in the 1990s. After Black Monday, the Fed kept interest rates low, and the economy and stock market (particularly in the technology sector) overheated. When the Fed finally started raising rates, the tech-heavy Nasdaq Composite Index fell by almost 30%.

It happened again in the 2000s. In a seemingly safe environment, the risk premia on risky assets declined, and investors piled money into the housing sector in search of yield. We all know how that ended. The equity market began declining in 2007, and the Fed stepped in again, lowering the target federal funds from 5.25% in September 2007 to below 1.0% in October 2008.

Since then, we’ve been in a prolonged period of prosperity, but, if history is any indication, it will end at some point. We don’t know when; it’s never a good idea to time the market. But it is a good idea to be prepared with a diversified portfolio.

Know Your Limits: 2019 Retirement Contributions

It may seem early in the year to think about beefing up your nest egg, but as they say, the early bird gets the worm. And in order to develop a retirement savings plan for 2019, you need know the 2019 limits for retirement account contributions.

The Internal Revenue Service (IRS) sets different contribution limits for different types of retirement accounts. Since they tend to change each year, keeping up with them can be difficult. Plus, if you are 50 or older, you can make additional catch-up contributions.

To simplify retirement account contribution limits, we have listed the 2019 limits to the right. You can make contributions for 2019 until the tax-filing deadline of April 15, 2020.

Traditional IRAs and Roth IRAs 
Contribution limit: $6,000
Age 50 catch-up contribution limit: $1,000 extra

Deferred-contribution plans, such as 401(k), 403(b), and 457 plans
Contribution limit: $19,000
Age 50 catch-up contribution limit: $6,000 extra

Contribution limit: $13,000
Age 50 catch-up contribution limit: $3,000 extra

Note that there are also income limits when it comes to retirement account contributions (assuming you are covered by a workplace retirement plan).

You can contribute to a traditional IRA in 2019 only if your adjusted gross income (AGI) is less than $74,000 if you are single or $123,000 if you are married filing jointly. And, the amount that you can contribute starts to phase out if your AGI is more than $64,000 for singles and $103,000 for couples.

You can only contribute to a Roth IRA in 2019 if your AGI is less than $137,000 if you are single or $203,000 if you are married filing jointly. And, the amount that you can contribute starts to phase out if your AGI is more than $122,000 for singles and $193,000 for couples.

This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice.

“This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for tax, legal, or accounting advice.”

Rates Are Rising – Is It Time to Consider US Treasuries?

The US Federal Reserve Board (Fed) is currently in the midst of a rate-hiking cycle that began in December 2008. As a result, the federal funds rate (the rate at which banks lend money to other banks overnight) rose from 0.05 percent in December 2009 to 2.19 percent in October 2018.

When the Fed federal funds rate rises, it typically has a ripple effect on interest rates across the entire economy. US Treasury yields, for example, have followed suit, soaring to multiyear highs in October. The yield on the 10-year US Treasury note, for example, exceeded 3 percent to reach its highest level since July 2011.

With interest rates poised to continue rising, US Treasuries may be appealing. To some, 3 percent may seem far too low for a sensible long-term interest rate. For others, it is a reasonable return for the safety of bonds backed by the full faith and credit of the US government.

Additionally, there are other high-yielding alternatives. For example, you may be able to obtain higher yields with only slightly more volatility via non-Treasury government-backed bonds, such as mortgage-backed securities supported by other agencies.

One example is mortgage-backed securities supported by the Government National Mortgage Association (GNMA), which guarantees investments backed by federally insured loans. These securities carry the full faith and credit of the US government and may offer a higher yield than comparable US Treasuries do.

Of course, no investment is suitable for all investors. A financial professional can help you determine whether the mentioned securities are appropriate for your portfolio.