Author: production

With life expectancies increasing and income growth languishing, many retirees are seeking to make some extra cash from home-based businesses. A home-based business may provide extra funds needed to make a retirement more comfortable, but it can also present pitfalls.

If, for example, you have a hobby, such as photography or making crafts, and family and friends have suggested you sell the items you make, you could consider selling them online.

Especially early on, you probably won’t make much money. However, you will incur business expenses, such as computer equipment and office supplies. If you decide to deduct these expenses at tax time, you may realize a business loss. But can you then use this loss to offset most, or even all, of your other income?

It’s recommended you consult a professional on tax regulations before you set up your business. Generally, if what you’re doing is considered a hobby, you can deduct legitimate expenses only up to the amount of the income the hobby generates – not from other income.

Hobby vs. business

The Internal Revenue Service (IRS) differentiates between a hobby and a business. The IRS says there are nine factors to consider, including the time and effort you put into the activity and whether you depend on the income for your livelihood. Typically, the IRS presumes an activity is carried on for profit if it made money in at least three of the past five tax years, including the current year (although that can differ for certain activities, such as animal training and breeding).

Your best bet is to keep clear and detailed records of what you make and spend, and talk to a professional first if you’re considering deducting expenses from a home-based business.

Because, as pleasant as making money from a hobby may be, you don’t want to end up on the wrong side of tax laws.

Every life stage brings new financial mistakes that could jeopardize retirement. Here’s what to guard against as you move through the decades:

Twenties: Not investing. Unfortunately, many individuals who are just starting their careers fail to invest or avoid taking considered risks when they’re in a position to absorb them. One idea: target-date fund options start out with riskier allocations that gradually become more conservative.

Thirties: Overwhelmed. The 30s is the decade of big commitments, such as getting married, having children, and settling down. However wonderful, these commitments can lead to unaffordable mortgages and credit-card debt. Focus on living within your means.

Forties: Misjudging expenses. In their 40s, many are halfway through their working lives, but still face major expenses, such as significant home repairs and kids’ college costs. Avoid withdrawing from retirement accounts early, and work to pay off the mortgage.

Fifties: Failing to catch up. When they reach their 50s, many people realize they haven’t saved enough for retirement. According to current life expectancy statistics, the retirement phase can last forty or more years. Many also may have lifestyles that aren’t sustainable in retirement. This decade is the time to plan ahead – decide how you want to live, how much money you’ll need, and how to obtain it.

Sixties and beyond: Not getting help. As assets grow, so often do the complexities. Some individuals may need additional help planning and executing those plans. Your advisor, who is up to date and who also knows your situation, can give you that support.

No matter how sophisticated an investor you are, it’s important to have an expert to deal with your portfolio and advise you on changes.

If you have an advisor to manage your financial investments, congratulations; you’ve made the right move. But the relationship between you and your advisor is an ongoing partnership; you need to pull your weight. And it’s a good idea to understand your own portfolio. Here are some things to discuss with your advisor:

What am I invested in? Am I invested in stocks, bonds, or cash equivalents, and in what mix? Am I invested directly in these assets, or via mutual funds? What about real estate and commodities? How might that mix of assets change over time?

Is now a good time to buy? When to buy depends on several things: What’s happening in the overall market? What’s happening in a certain asset class or sector? Will this purchase fit with my investment goals? How attractive is the price? How much should I buy?

What do I do with winners? When my investments fare well, should I keep or sell them? Typically, successful investors will know the answer to this question (and the reasoning behind it) before they invest.

What do I do with losers? Not all investments work out, however well-conceived. It’s important to know at which point to sell a loser.

Your advisor is an expert. But you need to participate. The more you know about your own portfolio, the easier it will be for your advisor to help you.

It’s easy to make financial mistakes when you’re young, because you can generally recover from them over time. Unfortunately, the same can’t be said as you approach retirement, when you’ll have less room for error. With that in mind, here are five mistakes that are easy to make heading into, or during, retirement.

Waiting too long to start saving. If you save aggressively in your twenties, those gains will compound over forty or more years. But the later you start saving, the harder it gets to accumulate a nest egg with which you’re comfortable.

Not saving enough. Some of us are disciplined savers who live below our means and put away a good amount for retirement. Most of us are not. Indeed, the savings rate today is around 6%, about half what it was in the 1960s. So as you approach retirement, it’s a good idea to make do with less and save more.

Ignore tax consequences. Every dollar you pay in taxes is a dollar you could have potentially saved and invested. So consider tax-advantaged accounts, such as 401(k) plans and individual retirement accounts (IRAs).

Being too aggressive. Being too aggressive late in your retirement planning can be disastrous, and it’s easy to do when we’ve saved too little. Many investors try and compensate for a lack of savings and low returns on safer investments such as cash and bonds by taking on more risk.

Being too conservative. On the other hand, having too little in riskier investments can also be disastrous. Stocks are usually the best long-term growth vehicle, but other investments can fall into this category as well – real estate, for example, and commodities. Regardless of how you take on risk, you’ll likely need at least a little, depending on your time horizon – more when it’s longer, less when it’s shorter.

The takeaway: don’t make mistakes now that will affect your lifestyle later.

“Love of money” may not be all it’s cracked up to be. In fact, if you love money, chances are it doesn’t love you back.

A new study from State Street’s Center for Applied Research surveyed three thousand retail investors around the world. The study found that nearly 60% of investors who scored high on a “love of money” scale have had bad financial outcomes. And the opposite is also true: those investors who love money the least made better investment decisions.

According to State Street, the probable reason is that money lovers are susceptible to instant gratification. They want to have the money now, and they make short-term decisions. They’re also less likely to save for their retirement and more likely to buy high and sell low.

So who loves money the most? US respondents ranked fourth highest, exceeded by those in India (which scored first), China, and Brazil. And age matters: some two-thirds of millennials scored high on the survey, compared to 48% of baby boomers.

According to the study, there’s no correlation between money love and existing wealth. Suggests Suzanne Duncan, head of global research at State Street, some people just have a higher emotional connection to money.

The study underscores the importance of getting advice from an unbiased third party when making money decisions. If you think you might be a money lover – or simply guilty of short-term thinking when it comes to investing – remember that your advisor has been trained to help guide you. Don’t let money get the best of you.

When it comes to investing a windfall – such as an inheritance or retirement-account rollover – you’ll likely find a number of different options being discussed in the financial media. But which one of these many approaches is best for you?

Dollar-cost averaging, or investing the new money a little at a time, is a common approach. The reason: By dribbling your money into the market, you’ll invest some at lower prices and some at higher prices, averaging out the risk over time. So, for example, if you have $250,000 to invest, you’d move $20,833 each month ($250,000 divided by twelve) from a savings account to a portfolio of stocks and bonds.

However, this ignores the fact that the longer it takes to obtain the mix of stocks and bonds that is consistent with your goals and risk tolerance, the longer it will be before your money is invested the way it should be.

Another strategy is to decide on an allocation of stocks and bonds that will help you meet your financial goals, and then invest the total amount based on that allocation. So, for example, you might invest 70% of your $250,000 in stocks ($175,000) and 30% in bonds ($75,000). This will allow you to reach your target allocation quicker (because the money isn’t sitting in your savings account for a year).

Which approach is better? It depends on your individual goals, time horizon, and tolerance for unknown risk. The reality is, no one knows what stock or bond prices will do in the future, especially in the short term.

So, if you’re unsure how to invest your windfall, or you just can’t bring yourself to invest all of your money at once, why not talk to your advisor about combining approaches? For example, you might limit the period over which you gradually invest, doing it over three or six months instead of twelve.

The Employee Benefit Research Institute’s (EBRI’s) 26th annual retirement confidence survey – the longest-running survey of its kind in the U.S. – has found that American workers are still confident in their ability to achieve a comfortable retirement.

According to the 2016 survey, titled “Worker Confidence Stable, Retiree Confidence Continues to Increase,” more than 20% of workers are “very confident” that they have enough money for a comfortable retirement. That’s up from record lows during the period between 2009 and 2013. (It was 13% in 2013.)

The details of the study indicate an even more positive situation: 43% of workers are “very confident” that they can pay for basic expenses in retirement (up from 37% in 2015); 22% of workers are “very confident” in their ability to pay for medical expenses; and 16% are “very confident” in their ability to pay for long-term care.

But may this expressed confidence be misplaced? Are workers creating this renewed confidence by actually putting money aside for their retirement?

In fact, while confidence numbers are inching up, the EBRI study indicates that many workers are not taking significant enough steps to prepare for retirement. While 69% of workers say they or their spouses have saved for retirement, many have very little to show for it; 26% have less than $1,000 saved.

Are you concerned about your ability to maintain a comfortable retirement? If so, you may want to discuss your options with your adviser, who is familiar with your individual circumstances and can help you get back on track with an appropriate investing plan.

Financial advisers often recommend that their clients maintain some of their savings in stocks, even after retirement. But is the risk worth it?

Retirees living comfortably on income from Social Security, pensions, and bonds may think it’s crazy to take on the anxiety that comes with fluctuating stock prices for a little more growth. That’s understandable: after the recent financial crisis, it’s easy to believe the market may nosedive and destroy the value of your nest egg.

If you’re certain you can live comfortably the rest of your life on your Social Security, pensions, and bonds without dipping too deeply into your retirement savings, you have a good case for avoiding stocks.

If, for example, you have $500,000 in savings, and plan to withdraw 3% ($15,000) in the first year of retirement, increasing subsequent annual draws for inflation, there’s a 90% probability that your nest egg will last at least thirty years, even if invested in 50% cash and 50% bonds, says global asset management firm T. Rowe Price.

But what about unforeseen circumstances? Your daily living expenses could go up by more than anticipated. You could decide to travel or indulge in expensive hobbies. Or you could experience a costly medical crisis or a lawsuit.

Say, with $500,000 in savings, invested in 50% cash and 50% bonds, you now want to withdraw 4% ($20,000) in the first year of retirement, and withdrawals will increase annually to compensate for inflation. As T. Rowe Price’s research indicates, this change from 3% to 4% means there’s less than a 50% probability that your nest egg will last for more than thirty years.

If this possibility concerns you, you may want a cushion to absorb unexpected expenses, and the growth potential of stocks may appeal. However, they may not be right for you. Your adviser, who understands your individual circumstances, can help you decide.

The beginning of a new school year isn’t just for kids; September feels like a fresh slate for adults, too. Let summer’s end serve as a reminder to revisit your finances and ensure they’re on track for the rest of the year.

These tips can make your analysis more useful:

Goals vs. reality. Hopefully, you set financial goals at the beginning of the year. If you did, check your progress. How much have you saved? How are your investments performing? Do you need to make any changes?

Budget. Why not consider setting one up for next year based on this year’s review. Look at what you’ve spent to-date, and where you may have over- or under-spent. This is especially important if you’ve had a change in life circumstances, such as a marriage, divorce, baby or job change.

Review your credit report. You’re entitled to one free credit report annually from each of the three credit reporting agencies (through AnnualCreditReport.com) Many people choose to stagger reports from each agency so they receive a report every four months. Also note: If you’ve become a victim of identity theft, checking your credit regularly will tip you off before more damage is done.

Look for opportunities to lower interest rates. You can refinance all kinds of loans to get a lower rate: mortgages, auto loans, even student loans. And you’ll likely pay less in total interest over the years. Also look at credit-card debt. You can explore 0% balance transfer offers, but do the math to ensure that savings won’t be offset by fees.

Reconsider your insurance needs. As life circumstances change, so do insurance needs. Do your homeowners, auto, life, and medical coverage still suit your needs? Are you under- or over-insured? Should your coverage change? Discuss the options with your insurance agent, who can help you find the coverage that’s right for you.

Even if you receive a decent pension and/or have adequate savings in retirement accounts, you still may worry that you’re spending too much in retirement. It’s not uncommon for people who transition from diligent saving to spending to have these feelings of uncertainty. Luckily, there are ways to mitigate them.

First, shift the focus from what you’re spending to the activities that could make your retirement more satisfying. Spending isn’t the end goal; it’s a means of helping you better enjoy this new phase of your life. Do you want to travel? Learn a new skill? Relocate?

Ease into the mindset that retirement can be a time to savor new experiences and have fun. It won’t happen immediately, but gradually you’ll feel more comfortable spending on things that improve your life.

Second, figure out how long your retirement savings might last at different spending rates. This will give you a sense of just how much wiggle room you actually have, and eliminate any fears that you could run out of money prematurely.

There are retirement income calculators available online in which you enter the amount of your savings, then experiment with different rates of withdrawals to find the spending level where you may be endangering your nest egg.

Even better, discuss your situation with your advisor; he or she knows your situation and can recommend changes that can help ease your mind.

By going through this process annually, you should be able to settle on a level of retirement spending you’re comfortable with.