Author: production

Most of us suffer from financial anxiety, and it appears to be getting worse. As a 2016 study from Northwestern Mutual points out, some 85% of Americans reported feeling anxious about their personal finances.

Just what are these concerns, and how can we beat them? Well, according to a survey by GOBankingRates, most of us fear never being able to retire, “living paycheck to paycheck,” and being in debt forever. So consider the following:

Retirement concerns

If you don’t feel well prepared for retirement, you’re not alone: according to the Economic Policy Institute, more than 40% of individuals aged 55 to 64 have no retirement savings. But you can catch up. Discuss your situation with an advisor; put the maximum into 401(k) plans, IRAs, and research annuities.

Paycheck to paycheck

You also aren’t alone if your monthly expenses keep you from saving for emergencies. A recent study by GOBankingRates showed 69% of US adults have less than $1,000 saved. Put a little money aside each month until you have enough of a safety net (usually three months’ worth of living expenses) to cover an emergency.

Try to reduce some of your expenses-perhaps by packing lunches instead of eating out, or taking advantage of free events. Small things add up.

You might consider getting a second job, even temporarily. According toBankrate.com, 36% of people who have side jobs earn an extra $500 a month.

Debt worries

If you fear forever being in debt, start by paying off some of those debts you already have. Compile a list, and determine which have the highest interest rates. Start paying those off first, a little at a time, and work your way down, using the money from cutting expenses and working on the side.

With these suggestions, it is possible to get ahead of your financial fears.

You have inherited a sum of money but have some concerns about how to invest it, as there are many options available to you.

Traditional wisdom would be to invest any large sum of money using a method called dollar-cost averaging, which simply means investing it a little at a time. The idea is that you take on less risk by trickling your money into the market rather than dumping it in all at once.

If you like this option, you would put your entire inheritance in a savings account or money-market fund, and then, over the course of a year or so, invest an equal amount each month in a portfolio of stocks and bonds.

But there is another option for those who would like to get their money working faster. This is to determine an appropriate asset allocation-a mix of stocks, bonds, and other investments-that meets your risk tolerance and helps you achieve your financial goals.

With this option, you would invest the entire inheritance at once based on that mix of assets. Proponents of this approach say your money starts working for you quickly, while not leaving you too conservatively invested for a period of time, as dollar-cost averaging might.

Regardless of the approach you choose, your assets, ideally, should be divided between different types of investments based on your financial goals and your risk tolerance.

Your advisor can help you determine the appropriate asset allocation-one that takes into account the fact that, sadly, no one knows how the market is going to perform.

Like the housing-market bubble that burst in 2008, and the dot-com bubble of 1999, the swell-and-burst scenario is actually fairly common. But not pleasant. Burst bubbles have a wide impact on the overall economy. Now, experts are discussing whether the current environment is ripe for a bubble.

Market bubbles occur when an economy or market has become unbalanced due to a flawed outlook – as it was in the 1990s when investors were excessively bullish about technology stock, driving their prices to levels that did not reflect reality.

According to brokerage firm Charles Schwab, the four most likely bubbles to occur today are cryptocurrencies (such as bitcoin); volatility; Internet retailers; and central-bank assets. Pointing to the yield curve, which has historically detected bubbles about to burst, Schwab suggests there is a relatively modest risk of a bear market during the next 12 months.

There are many factors that influence markets, including Federal Reserve policy and inflation. These and other factors can impact investors’ comfort levels, meaning they’re more likely to try to reduce investment risk. Diversification is one popular option among investors who are concerned about an impending bubble. Most believe that diversification may provide protection in the event of a bear market; diversifying into stocks, bonds, cash, and possibly real estate and commodities may smooth out the highs and lows.

If you’re concerned about the potential for an upcoming bubble, discuss it with your advisor. He or she is close to the action and may know better than others what’s happening now and in the future.

It’s a truism: Every investor is concerned about minimizing taxes. But the good news is you can have some control when it comes to this often frustrating exercise.

Mutual-fund investors, in particular, have concerns about tax management strategies; funds may sell individual stocks that have appreciated, creating a capital gain for investors even if the performance of the fund itself is down. But others are impacted by capital-gains taxes and concerned about income-tax treatment, too. We’re all looking for solutions.

Generally, purchasing securities in different accounts based on how those accounts are taxed can help. Investments that lose more of their return to taxes (such as stocks) could be purchased in tax-advantaged accounts, for example. And for investments such as municipal bonds that lose less of their return to taxes, taxable accounts might be a good choice.

Diversify by tax treatment

You may also want to diversify your investments by tax treatment. For example, if you’re considering a traditional IRA or a Roth IRA, one solution may be to split your contributions between the two. So when it’s time to withdraw money in retirement, you can choose which account to take the cash from, depending on whether you’re in a high tax bracket (the Roth IRA) or a lower tax bracket (the traditional IRA).

When it comes to gift taxes, different accounts are treated differently. For example, securities that have appreciated in your taxable accounts can be donated to registered charitable organizations for a fair-market-value deduction and no capital gains tax. And there are also different rules for estate planning.

These both can be complicated: Consult with your advisor, who is familiar with your situation and up to date on the most recent rules.

Finally, however you use different accounts for tax management purposes, remember you have a single portfolio for asset-allocation purposes. Your advisor can also help you keep this straight.

Ideally, we would all retire debt-free, but we’re a nation of borrowers. As of December 2016, the average American household debt totals more than $135,000, according to a NerdWallet credit-card debt study. Credit card debt for the average household carrying a balance totals more than $16,000.

Debt is particularly dangerous for those heading into retirement, because it puts pressure on an already limited budget. Yet the Consumer Financial Protection Bureau reports that 30% of homeowners age 65 plus still have mortgage debt. And according to consumer financial information source ValuePenguin, the average credit card balance of Americans 65 and older is $6,351.

Here are some suggestions for paying down your debt before you retire:

Live below your means. Try creating a budget that represents only a portion of your income. If, for example, you earn $6,000 a month, pretend 10% ($600) of that amount doesn’t exist by transferring it automatically into a savings account.

Get an affordable mortgage. The average American’s highest monthly expense is housing; try to keep it low. Work to improve your credit score; it can make a big difference in your interest rate. Refinance when your score – and the economy – can offer you a better interest rate. Remove private mortgage insurance by having at least 20% equity in your home.

Avoid credit-card debt. Credit-card debt can be tough to pay down due to its typically high interest rate. Pay it down as quickly as possible, and from then on, pay it off completely every month.

You’ll find it well worth it when you retire.

Money in a bank account doesn’t earn a robust return in today’s lower-interest-rate environment, but savings accounts still serve an important purpose.

These savings act as a safety net in case of emergencies, but in that case, you might ask, how much should you keep in that account?

According to the Federal Reserve Bank of New York, which conducts a regular survey on the topic, the average amount an individual will need to resolve a crisis is $2,000.

But that refers to an “average” individual. Those who experience emergencies may actually require more, depending on the emergency and the state of their finances.

As well, crises don’t always come one at a time. For example, a car breakdown might be followed by an illness that prevents you from working. You may want to prepare for several crises happening at once.

Are you concerned about a major crisis, such as losing your job or seriously injuring yourself?

Or are your concerns simpler, such as replacing an older car or needing home repairs? Answers to these questions will help clarify how much you’ll need for your savings account to be well funded.

Also evaluate your support system. If you’re single, have a stable job, and have parents who can help out in a pinch, you may not need as much in savings.

If you are the sole breadwinner in a five-person family and your income is based on commissions, you may need more.

So, while $2,000 is the minimum amount you should consider in funding your “emergency” account, you may want to aim much higher.

Clearly it’s not easy. The Federal Reserve Bank has estimated that only about 67% of Americans would be able to scrape up $2,000 if necessary.

If you don’t fall into this category, it may be time to revisit – or start – an emergency savings fund. Your financial professional can help.

Americans without access to 401(k) plans can still save for retirement, thanks to many other vehicles (which can also be used by individuals with 401(k) plans who want to supplement their savings). Two types of individual retirement accounts (IRAs) are available: traditional IRAs and Roth IRAs. Traditional IRAs are tax-deductible in the year you make the contribution (thus lowering your taxable income), and withdrawals are taxed at income tax rates. With Roth IRAs, contributions are made with after-tax dollars, but future withdrawals are tax-free. Whichever you choose may depend on how much you expect to earn in retirement – if more, consider a Roth; if less, a traditional IRA.

More options:

• A myRA account is a Roth retirement savings account developed by the U.S. Department of the Treasury for people without access to another plan. There’s no charge to open a myRA.
• To contribute to a Health Savings Account (HSA), you’ll need a high-deductible health insurance plan. If you have one, though, the benefits are much like those of traditional IRAs. Contributions are tax-deductible in the year you make them, the money grows tax-deferred, and withdrawals made are tax-free as long as they are used for medical expenses.
• With a fixed annuity, you give an insurance company a lump sum now, or payments over time, and when you retire, the company provides a stream of income that can last a specified period of time or for your lifetime.

Note: This material has been prepared for informational purposes only and is not intended to provide financial advice.

Americans’ debt is growing. Should this be a concern to you, particularly as you near retirement?

Total household debt rose to $12.73 trillion in the first quarter of 2017, according to the Federal Reserve Bank of New York. That is $149 billion higher than it was at the end of 2016. In fact, today’s debt level is so high, it tops what it was in 2008 – the midst of the financial crisis.

Maybe, but…

Conventional wisdom holds that you should seek to lower your debt. That’s true, especially as you near retirement, when you will want to live modestly.

Not necessarily

But from a macroeconomic perspective, higher debt levels can be positive because they indicate that banks are comfortable lending, leading to increased consumer spending, which drives economic growth.

It’s also interesting to note that today’s debt is different from the debt we experienced during the financial crisis. Mortgage balances still make up the bulk of household debt, but these are declining, as are credit card balances. And a larger percentage of today’s debt is held by more creditworthy borrowers than in 2008, according to the New York Fed. So it’s unlikely that we are in the midst of another lending bubble.

That said, if you are in debt, you may want to look into ways to pay it down. High-interest-rate debt, such as on credit cards, usually should be paid off first, while low-interest-rate debt, like mortgages, is generally paid off last (especially if the interest is tax-deductible, as mortgage interest often is).

Many people struggle with whether to pay off debt or save for retirement. There is no one-size-fits-all answer, but conventional wisdom says that one should pay off debt first only if the interest rate on it is higher than the income you can earn by saving and investing.

Confused? Your adviser can help by discussing your options with you.

Recently, the Federal Reserve raised interest rates for the third time since the financial crisis, and many Fed watchers agree that additional hikes are on the horizon.

This represents a change. The Fed lowered its key federal funds rate to zero in December 2008 to help revive the collapsing housing market. Since then, however, consumers have become accustomed to lower interest rates: those who bought homes and cars paid less in interest, as did those who carried credit card balances. But our cash investments didn’t generate much in the way of income.

So, how might increased rates affect you?

Cash equivalents may pay more interest. American savers struggled for years, earning little interest in their savings account and certificates of deposit (CDs). When the Fed raises interest rates, banks generally pay customers more interest on deposits.

Mortgage rates are now rising, but remain low. In fact, a Fed rate hike does not automatically mean mortgage rates will rise. At times, the Fed has raised rates and mortgage rates have fallen, although this is unusual. You can expect higher (but not yet game-changing) interest rates on mortgages and other big-ticket items in the future.

The stock market could tremble. Stock markets used to swoon at the mere hint of a Fed rate hike, as rate hikes increase the cost of borrowing for companies and strengthen the U.S. dollar (which in turn makes U.S. products more expensive and thus less attractive to foreign buyers). The March 2017 increase was widely expected and didn’t impact the markets significantly. However, future increases may.

It’s a long-standing issue and the subject of much debate: If you have extra money, which should you do first – pay off debt or invest?

In fact, you have three options. For example:

You can use extra money to pay off debt. Whether you should pay off a mortgage, a car loan, credit card balances or a family member’s student loan before investing depends on the interest rate of the debt. The “magic number” will vary by individual, but broadly speaking, if the interest rate is higher than 10% you should pay off the debt. Why? Because you are unlikely to get that high a return on a stock market investment over the long term.

Use any extra money to invest. If, however, the interest rate on your debt is low, you may want to consider investing before you pay off your debt.

Generally speaking, if the interest rate is lower than 5% (as it could be on your mortgage, for example) you may be better served by investing your extra money in stocks or stock mutual funds.

What about bonds? In fact, bonds may not be the ideal investment, as their yield is now low.

So with an interest rate on your mortgage of, say, 4%, purchasing a bond or bond fund that yields approximately 2% wouldn’t make sense.

Use some of the extra money to pay off debt, and some to invest. You could also use a portion of your extra money to pay down your debt, and invest the remainder in stocks. Perhaps start at 50/50, then adjust based on stock-market performance. For example, in a rising market, you might put 75% of your extra money toward stocks and use 25% to pay off debt.

For many, this option’s a win-win. But just to be sure, ask your advisor.

Note: This material has been prepared for informational purposes only, and is not intended to provide financial advice.