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four financial numbers

Daily life is full of numbers, and some matter more than others. Here are four financial numbers that could help you understand and potentially improve your financial situation.

1. Retirement Plan Contribution Rate

What percentage of your salary are you contributing to a retirement plan? Making automatic contributions through an employer-sponsored plan is a convenient way to save for retirement, but this out-of-sight, out-of-mind approach may result in a disparity between what you need to save and what you are actually saving. There is no magic number, but one common guideline is to save 10% to 15% of your salary. If you start late, you may need to save even more.

If that seems like too much, you should at least contribute enough to receive the full company match (if any) that your employer offers. Some plans let you sign up for automatic increases each year, which is a simple way to bump up the percentage you’re saving over time.

2. Credit Score

This is the second of the four financial numbers you should know. When you apply for credit, such as a mortgage, a car loan, or a credit card, your credit score will likely factor into the approval decision and affect the terms and the interest rate you’ll pay.

The most common credit score is a FICO® Score, a three-digit number that ranges from 300 to 850. At one time, you had to pay to check your score, but many credit-card companies now offer this as a free service to customers. You should also regularly check your credit report, which contains the information used to calculate your score. You’re entitled to one free copy every 12 months from each of the three major credit-reporting agencies. To request a free report, visit annualcreditreport.com.

3. Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is another number that lenders may use when deciding whether to offer you credit. A DTI that is too high might mean that you are overextended. Your DTI is calculated by adding up your major monthly expenses and dividing that figure by your gross monthly income. The result is expressed as a percentage. If your monthly expenses total $2,000 and your gross monthly income is $6,000, your DTI is 33.3%.h

Lenders decide what DTIs are acceptable, based on the type of credit. For example, a ratio of 43% or less is standard for many types of mortgages, but the percentage might be more or less depending on the specific situation.1

Once you know your DTI, you can take steps to reduce it if necessary. You may be able to pay off a low-balance loan to remove it from the calculation and/or avoid taking on new debt that might negatively affect your DTI. Check with your lender if you have questions about acceptable DTIs.

4. Net Worth

Your net worth provides a snapshot of where you stand financially. To calculate your net worth, add up your assets (what you own) and subtract your liabilities (what you owe). Ideally, your net worth will grow over time as you save more and pay down debt, at least until retirement.

If your net worth is stagnant or even declining, then it might be time to make some adjustments to target your financial goals, such as trimming expenses or rethinking your investment strategy.
Sources:
1) Consumer Financial Protection Bureau, 2017

Knowing your four financial numbers is crucial to your retirement plan.

Have you got multiple 403(b) accounts from different employers? We can consolidate them & look at your overall retirement plan. So, contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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business owner retirement planning

Investing in your own business makes sense. Many businesses achieve significant growth each year. However, when you consider that many small businesses fold every year, it becomes clear that banking your retirement solely on the success of your business might not be the best idea. There is no guarantee that your business will continue to grow or even maintain its current value. If your business is worth less than you were counting on at the time you planned to retire, you could be forced to continue working or sell it for less than what you were expecting.

A business owner often assumes that their businesses will be their main source of retirement funds, but that strategy could be riskier than you think. For business owner retirement planning, it’s generally not wise to put all your eggs in one basket. Broadly diversifying your assets may help protect against risk.

Business Owner Retirement Planning Starts Early

Diversification involves dividing your assets among many types of investments. Putting all your money into a single investment is risky. You could lose everything if the investment performs poorly, even if that investment is your own business. Of course, diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against the risk of investment loss.

Consider what would happen if you were to rely solely on the sale of your business to fund your retirement. What if the U.S. economy falls into a recession about the time you plan to retire? If a recession occurred when you planned to retire, it could affect the sale of your business or the income it generates for you.

Likewise, there is no assurance that a larger competitor won’t overtake your market, or that demand for your business’s goods and services won’t weaken because of new technology, rising energy prices, consumer trends, or other variables over which you have no control.

As a business owner, your business is almost certain to provide some of the money you need to retire. By building a portfolio outside of your business & considering the need for life insurance, you are helping to insulate your retirement from the risks and market conditions that can affect your business.

You may be good at business, but I’m a retirement expert.

As a business owner, don’t neglect your retirement planning. Let me show you how to get the most from what you have & create a dream retirement. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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June 5, 2018

403(b) plan

A 403(b) plan is a special tax-deferred retirement savings plan that is often referred to as a tax-sheltered annuity, a tax-deferred annuity, or a 403(b) annuity. It is similar to a 401(k), but only the employees of public school systems and 501(c)(3) organizations are eligible to participate in 403(b) plans.

Employees can fund their accounts with pre-tax contributions, and employers can also make contributions to employee accounts. Employer contributions can be the same amount each month or discretionary. Eligible employees may elect to defer up to 100% of their salaries, as long as the amount does not exceed $18,500 (in 2018, up from $18,000 in 2017). A special “catch-up” contribution provision enables those who are 50 and older to save an additional $6,000. Total combined employer and employee contributions cannot exceed $55,000 in 2018 (up from $54,000 in 2017).

Staying in control of your 403(b) plan

Employees have the option of choosing the types of products utilized in their funds. A 403(b) can be an annuity contract, a custodial account, or a retirement income account. It is a good idea to do a little research before selecting how you would like to use your funds. Your employer can provide you with a list of the financial instruments that are available.

Distributions from 403(b) plans are taxed as ordinary income. Withdrawals made before age 59½ may be subject to a 10% federal income tax penalty unless a qualifying event occurs, such as death or disability.

Generally, once you reach age 70½, you must begin taking annual required minimum distributions. You can receive regular periodic distributions on a schedule, or you can collect your entire nest egg as a lump sum.

Participating in a 403(b) plan may be a good way to save for retirement. Contact your employer to find out what type of plan is available and how you can take advantage of this retirement funding vehicle. And, if you’re planning to retire soon, here are some tips you should be thinking about.

Are you taking full advantage of your 403(b) plan?

Have you got multiple 403(b) accounts from different employers? We can consolidate them & look at your overall retirement plan. So, contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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social security benefits

When did you last review your social security benefits?

Your Social Security Statement provides important information about your Social Security record and future benefits, including a projection of your retirement benefits at age 62, full retirement age, and age 70; projections of disability and survivor benefits; a detailed record of your earnings; and other information about the Social Security program.

To save money, the Social Security Administration (SSA) has stopped mailing Social Security Statements to individuals under age 60. Workers age 60 and older who aren’t receiving Social Security benefits will still receive paper statements. However, you can opt to sign up for online statements instead. If you’re age 60 or older, you should receive your statement every year, about three months before your birthday.

Finding Out What You Have

social security

If you’re under age 60, you can request a paper statement in the mail. However, the quickest way to get a copy of your Social Security Statement is to sign up for a “My Social Security” account on the SSA website, ssa.gov. After signing up, you’ll have immediate access to your statement, which you can view, download, or print.

The SSA has recently started to use a two-step identification method to help protect “My Social Security” accounts from unauthorized use and potential identity fraud. You will be prompted to add either your cell phone number or email address as a second identification method. Every time you enter your account username and password, you will then be prompted to request a unique security code via the identification method you’ve chosen, and you will need to enter that code to complete the log-in process.

Get The Most From Your Social Security Benefits!

Social Security is a big part of your retirement planning. Let me show you how to get the most from it. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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birthdays

Birthdays may seem less important as you grow older. They may not offer the impact of watershed moments such as getting a driver’s license at 16 and voting at 18. But beginning at age 50, there are several key birthdays that can affect your tax situation, health-care eligibility, and retirement benefits.

50 — Taxable distributions from IRAs and qualified employer retirement plans before age 59½ are generally subject to a 10% early distribution penalty (20% for certain SIMPLE plan distributions) on top of any federal income taxes due. But if you are a qualified public safety employee you can take penalty-free withdrawals from your qualified retirement plan after leaving your job if your employment ends during or after the year you reach age 50.

55 — If you’re not a qualified public safety employee, you can take penalty-free withdrawals from your qualified retirement plan after leaving your job if your employment ends during or after the year you reach age 55.

59½ — And all withdrawals from qualified retirement plans and IRAs are penalty-free after you reach age 59½, whether or not you’re still employed. Ordinary income taxes generally apply to these distributions. (Withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty.) This is one of those key birthdays!

62 — You are eligible to start collecting Social Security benefits. However, your benefit will be decrease by up to 30%. To receive full benefits, you must wait until “full retirement age,” which ranges from 66 to 67 depending on the year you were born.

65 — You are eligible to enroll in Medicare. Medicare Part A hospital insurance benefits are automatic for those eligible for Social Security. Part B medical insurance ­ben­efits are voluntary and have a monthly premium. To obtain coverage at the ­earliest possible date, you should generally enroll about two to three months before turning 65.1

70½ — You must start taking minimum distributions from most tax-deferred retirement plans. Otherwise, there’s a 50% penalty on the amount that should have been withdrawn. Annual required minimum distributions are calculated according to life expectancies determined by the federal government. This birthday is forcing you to start taking minimum distributions, whether you need them or not. You don’t necessarily need to spend it if you don’t need it. I have solutions for you!

Source: 1) Medicare & You 2017, U.S. Department of Health and Human Services

Planning for retirement is like planning a birthday party.

You need a little foresight and knowledge to make the most of your retirement plan. So, contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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spousal IRA

A spousal IRA — funded for a spouse who earns little or no income — offers an opportunity to help keep the retirement savings of both spouses on track. It also offers a larger potential tax deduction for a married couple.

Being a stay-at-home mom or dad, or working part-time to help take care of the children, can make a big contribution to the balance and well-being of a family. Unfortunately, time out of the workforce could put the caregiving spouse at a disadvantage when it comes to retirement savings.

Making Contributions to Spousal IRA

For 2018 tax years, an individual with earned income can contribute up to $5,500 to his or her own IRA. Also, you can contribute up to $5,500 more to a spouse’s IRA — regardless of whether the spouse works or not. There are a few rules. The couple’s combined earned income must exceed both contributions and the couple must file a joint tax return. You can make an additional $1,000 catch-up contribution a spouse who is age 50 or older.

If neither spouse actively participates in an employer-sponsored retirement plan, contributions to a traditional IRA are fully tax deductible. However, if one or both are active participants, tax deductibility for joint filers phases out at a modified adjusted gross income (MAGI) of $101,000 to $121,000 for a participating spouse and $189,000 to $199,000 for a nonparticipating spouse. Thus, some participants in workplace plans who earn too much to deduct an IRA contribution for themselves may still be able to deduct an IRA contribution for a nonparticipating spouse.

Contributions to a Roth IRA are not tax deductible regardless of participation in a workplace plan. However, eligibility to contribute to a Roth IRA phases out for joint filers with a MAGI of $189,000 to $199,000 in 2018.

Distributions from traditional IRAs are taxed as ordinary income. They may be subject to a 10% federal income tax penalty if withdrawn prior to age 59½. Roth IRA contributions can be withdrawn penalty-free and tax-free at any time. However, a Roth IRA distribution must meet the five-year holding requirement and take place after age 59½.

Smart Planning Starts Early!

Your family should be setting goals early for retirement. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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student debt

Normally, it’s recent college graduates or young professionals that complain about the burden of student debt. However, the number of consumers age 60 and older with student loan debt quadrupled from 2005 to 2015 (see chart). During this period, the average amount owed by those 60 and older rose from $12,100 to $23,500.1

late life student debt

Repaying student debt can make it more difficult to save for retirement. Student loan borrowers who are 50 to 59 have lower retirement account balances than those without such loans. In 2015, 29% of loans by borrowers age 50 to 64 were in default, compared with just 17% for those under 50. For borrowers who are 65 or older, the default rate was even higher at 37%.2

If you have student debt or are considering a higher-education loan, here are some factors to keep in mind:

1. Federal Offsets

The federal government can withhold all or part of a tax refund and up to 15% of monthly Social Security benefits to pay back defaulted federal student loans.3(These federal “offsets” do not apply to private student loans, but private debt collectors may threaten to take such action.) Unlike some forms of loans, student debt is not dischargeable through standard bankruptcy proceedings.

2. Student Debt Payment Considerations

Federal student loans offer a variety of income-based repayment plans, but it’s important to make sure you are enrolled in the appropriate plan if your income changes, such as when you shift into retirement. Borrowers of Parent PLUS loans, designed specifically for parents, are eligible for a limited income-based repayment plan, but the student debt must be converted to a federal consolidation loan.

When making payments for a student who has multiple loans that have not been consolidated — for example, if you co-signed a loan for a student who has other loans under his or her name — make sure that your payments are being applied to the appropriate loan in order to preserve your own credit.

3. Think About Your Own Future

Although some older Americans still carry debt from their own education or a spouse’s education, almost three out of four student loan borrowers age 60 and older carry loans for children or grandchildren.4 Many parents feel a deep sense of responsibility to help put their children through college. But it’s also important to focus on your own financial future and maintain a consistent and realistic retirement strategy.

Sources:
1–2, 4) Consumer Financial Protection Bureau, 2017
3) U.S. Government Accountability Office, 2016

There are no scholarships to help pay for retirement.

I know you may have strong feelings about putting your children or grandchildren through college. But, there may be other solutions available to you. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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Should you pay off debt or save for your employer-sponsored retirement fund?

That’s a very good question and one that does not have easy answers. For one person, they may need to pay off debt. Another may benefit from money in the employer sponsered retirement fund. So, the answer boils down to how your money can best be put to work for you.

pay off debt

1. Debt interest rate vs possible financial instrument growth

If you make extra payments on a specific debt, you are essentially earning a return on the interest rate of that debt. For example, if you’re paying a credit card with a 14% interest rate, you are basically getting the same benefit as if you put away that money & earned a 14% growth on it. That rate of return would be difficult to match in your retirement portfolio on a long-term steady basis. So, if you’re carrying a balance on a high-interest rate credit card, your money may be best put to work paying down that balance.

However, paying down a house debt could be important to you. But, if you pay off debt of your house in lieu of setting aside money for your retirement, you may be making a mistake. That’s because the house interest rate debt is low (maybe like 5%). But, the compounded interest increases your earning potential over a long period of time. Therefore, the time-value-of-money will bring more benefit to you than trying to shave off a couple years on your mortgage. But, yes, there may be a good reason to want to pay off your mortgage debt. Entering retirement age debt-free is strategic & wise move.  Therefore, the key is to think strategically & carefully about growth versus debt interest rates in relation to your overall goals & circumstances.

2. Do you get matching contributions?

If you get matching contributions from your employer for your 401K account, it’s free money. That free money can increase the growth potential of your retirement plan account. If your employer offers it, try to take full advantage of the matching program. However, if your company does not offer a match plan, there are still huge tax advantages & long-term growth potential of even small contributions.

Planning & money discipline.

With a little budgeting & financial discipline, you may be able to pay off debt and save for retirement through your employer-sponsored plan. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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Stashing money away for retirement is complicated, so it’s not surprising that fundamental retirement guidelines have become popular over the years. Here are four that you might have come across in reading, researching, or just talking with friends. Like most guidelines, they offer helpful starting points but need to be examined critically and adjusted for your specific situation.

1. Save 10% of your pay for retirement.

This is a good beginning, but new retirement guidelines suggest putting away 15% of your salary. If you started late, you may need to save more. At the very least, save enough to receive any matching funds offered by your employer. Consider this: If you save just 6% of your salary and your employer offers a full 6% match, you are already putting away 12%!

new retirement

2. The percentage of stock in your portfolio should equal 100 minus your age.

This reflects fundamental retirement guidelines that younger people can take on more risk, while older people approaching retirement should protect their principal by converting some volatile growth-oriented stocks into more stable fixed-income securities.

Although the strategy is sound, the math may no longer be appropriate considering long life spans and low yields on fixed-income financial instruments. For example, if you followed this rule at age 40, 60% (100 less 40) of your portfolio would consist of stock, and at age 60, the percentage of stock would be 40%. Depending on your situation and risk tolerance, you may require a higher percentage of stock at either of these ages to meet your retirement goals.

3. You need 80% of your pre-retirement income during retirement.

New retirement guidelines suggest that you need 80% of your pre-retirement income during retirement. But, in fact, there is no magic number, and you may be better off focusing on your actual expenses today. Then, think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire.

While some expenses might disappear, like a mortgage or costs for transportation to and from work, new expenses may arise, such as travel, help with home maintenance, and medical costs. A typical 65-year-old couple who retires in 2017 might spend $275,000 on medical care in retirement, even with Medicare.1 Calculate how much you may need to pay for your expenses in retirement and add a cushion for “the unexpected”.

4. A “safe” withdrawal rate is 4%.

The “4% rule” suggests that you make annual withdrawals from your retirement nest egg equal to 4% of the total when you retire, with annual adjustments for inflation. This model was developed in the 1990s for a 30-year retirement with a portfolio that included 50% large-cap stocks.2Although this may be part of many retirement guidelines, some experts suggest a lower rate. Factors to consider include the amount of income you anticipate needing, your life expectancy, the rate of return you expect from your financial products, inflation, taxes, and whether you’re single or married.

Sources:
1) CNBC, October 5, 2017
2) The Balance, August 18, 2017

It’s your retirement. Plan it perfectly for you!

Retirement guidelines are helpful, but they are not exactly the same for everyone. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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future stability

In a recent survey of 3,000 Americans ranging in age from 20 to 70, almost two-thirds of the respondents said they feared running out of money during a long retirement more than they feared death.1 Fear may not be a helpful response, but this concern is not surprising considering changes in the American retirement landscape.

People are living longer during a time when traditional pensions are disappearing and medical expenses continue to climb. Social Security may provide a dependable, supplemental income throughout retirement, but benefit levels are not high enough to fund a long retirement for most people. In January 2018, the average monthly benefit was just $1,404, and the maximum benefit at full retirement age was $2,788.2

Even people with a substantial nest egg face a challenge in making their dollars last throughout a long retirement. Withdrawing too much too quickly can put you at risk of running out of money while being overly cautious and withdrawing too little might lead to a less satisfying retirement lifestyle than you might otherwise enjoy.

Planning for a long retirement

One way to help solidify your long retirement income is by purchasing a longevity annuity. It is a deferred fixed annuity that delays lifelong income payments until a future date. Often it is when the contract owner reaches age 80 or 85. Because the annuity income is deferred, the payouts are typically higher in relation to the premiums than they would be if the annuity income had been paid immediately. Purchasing the annuity at a younger age with a longer deferral period would generally give you a better premium-to-income ratio.

A longevity annuity may give you more confidence that you will have income for a long life. It also makes it easier to manage the near-term income from your dollars and financial instruments. For example, if you retire at age 65 and feel comfortable that the combined income from your annuity and Social Security will meet your income needs after you reach age 85, you could focus on funding your earlier retirement years from other monies and vehicles for a 20-year period, rather than guessing how long your nest egg dollars might have to last.

Source:
1) Money, October 19, 2017
2) Social Security Administration, 2017

Find out how to never outlive your resources.

Let me show you how to get the most from your planning! I want you to enjoy a long retirement without fear of running out of money. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me  (866) 471-7233.

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