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June 21st, 2018 by

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  1-833-313-7233.

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April 30th, 2018 by

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 1-833-313-7233.

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March 28th, 2018 by

There are a number of good reasons why you may want to work part-time during retirement. Obviously, you would be earning money and relying less on your retirement savings. You may also have access to better health-care benefits. Finally, many retirees work for personal fulfillment. They enjoy staying mentally and physically active. Plus, they enjoy the social benefits of working in retirement. Some retirees just want to try their hand at something new & they aren’t ready to retire.

Others who are thinking about retirement aren’t’ ready to give up their day jobs just yet. In 2013, a phased retirement plan was introduced in some workplaces to help potential retirees ease into retirement more easily. It’s when a company allows an aging employee to “officially retire”, but keeps the employee on the payroll with the ability to scale back their number of work hours or become more selective on which projects they take on.

Earning a paycheck may enable you to postpone claiming Social Security until a later date. For each year you delay taking your Social Security benefits (from full retirement age to age 70), the annual benefit grows automatically by 8%.

Here are two more ways working in retirement could affect your Social Security benefits.

1. The Retirement Earnings Test

If you are working in retirement and receiving Social Security benefits prior to reaching full retirement age (FRA), $1 in benefits will be deducted for every $2 you earn above the annual limit ($17,040 in 2018). During the calendar year in which you reach FRA, $1 will be deducted for every $3 you earn above a higher annual limit ($45,360 in 2018), but only until the month you reach full retirement age. Fortunately, you won’t lose these benefits forever. Once you reach FRA, your lifetime benefit will increase to account for the loss amount.

2. Taxes on Benefits

If you have substantial income (such as wages or other taxable income), a portion of your Social Security benefits may be taxable. You may owe federal income tax on up to 50% of your benefits if your combined income exceeds a “base amount” of $25,000 ($32,000 for joint filers). And if your combined income exceeds a higher base amount of $34,000 ($44,000 for joint filers), you may owe tax on up to 85% of your Social Security benefits.

One size DOES NOT fit all.

Your retirement options should be in under your control. 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 1-833-313-7233.

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March 12th, 2018 by

Contributing to a Roth IRA or a designated Roth account in an employer retirement plan do not reduce current income, but qualified withdrawals are generally free of federal income tax as long as they meet certain conditions. Moreover, withdrawals from a Roth IRA can tax-free and penalty-free at any time, for any reason.

Repositioning Your Retirement Dollars

  • If you have a traditional IRA but prefer the advantages of a Roth, you can open a Roth IRA and make contributions to either or both accounts. However, you are subject to the combined annual contribution limit.
  • You could also convert all or part of your traditional IRA money to a Roth IRA. You can convert contributions to an employer’s retirement plan to a designated Roth account if the plan allows for conversions.
  • Conversions of monies to a Roth account are subject to federal income tax in the year of conversion. Under current tax law and if you meet all conditions, the Roth account will incur no further income tax liability for the rest of your lifetime.
  • The prospect of a substantial tax bill can be daunting, but paying taxes now may be a worthwhile tradeoff for potential tax-free growth and tax-free income in retirement. And because you do not have to take required minimum distributions (RMDs) from a Roth IRA, you have more flexibility when taking withdrawals.
  • To make the tax liability of a Roth conversion more manageable, you could spread out smaller conversions over several years. Recharacterizations should take place by October 15 of the year following the tax year of the conversion.

Contribution and Distribution Rules

  • Eligibility to contribute to a Roth IRA phases out at higher income levels. (Income limits also apply for tax-deductible contributions to a traditional IRA if you’re an active participant in an employer plan.) IRA contributions for 2017 can be made up to the April 2018 tax filing deadline; however, employer-plan contributions and Roth IRA conversions for 2017 must be made by December 31.
  • To qualify for tax-free and penalty-free withdrawals, distributions from a Roth IRA or a Roth employer plan account must meet a five-year holding requirement and take place after age 59½ (with some exceptions).
  • RMDs from traditional IRAs and employer-sponsored retirement plans (including Roth accounts) must start in the year you turn 70½.
  • Beneficiaries of all IRAs and employer plans generally must start taking RMDs in the year after the original account owner’s death.

These things get confusing!

With multiple accounts in different places, it can get a bit confusing to know what to do with your monies. 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 1-833-313-7233.

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March 2, 2018
March 2nd, 2018 by

IRS rules for inheriting retirement accounts are complex, and an uninformed decision could result in unexpected taxes and penalties. Your options depend on your relationship to the original owner and the owner’s age at the time of death.

Beneficiaries of both traditional and Roth IRAs must take required minimum distributions (RMDs), with one exception for spouses (described below). If the original owner died after reaching age 70½ and did not take an RMD for the year of death, you may also have to take the owner’s RMD by the end of the calendar year.

Special Rules for Spouses

A surviving spouse can roll the inherited IRA assets to a new IRA in his or her own name. If the spouse is the sole beneficiary, the inherited IRA can simply be redesignated in the surviving spouse’s name (if allowed by the account trustee). Because the spouse becomes an owner of the account, he or she can make additional contributions, name beneficiaries, and avoid RMDs from a Roth IRA. A surviving spouse must take RMDs from a traditional IRA. However, this only has to start when the surviving spouse reaches age 70½.

Options for Designated Beneficiaries

Nonspouse beneficiaries, as well as a spouse who does not treat an inherited IRA as his or her own, cannot contribute to the IRA and can only name “successor beneficiaries.” In most cases, the funds must be transferred directly to a properly titled beneficiary IRA; for example, “Joe Smith (deceased) for the benefit of Mary Smith (beneficiary).”

All designated beneficiaries typically have four distribution options:

  1. Life expectancy method. A “stretch IRA” typically involves taking RMDs over the life expectancy of the beneficiary. A non-spouse beneficiary must start taking distributions no later than December 31 of the year following the year of the IRA owner’s death. A spouse beneficiary may be able to delay payments until the year the IRA owner would have reached age 70½.
  2. Five-year rule. If the original owner died before reaching age 70½, the beneficiary can satisfy RMD rules by withdrawing all assets — in one or multiple distributions — within the five-year period that ends on December 31 of the fifth year after the IRA owner’s death.
  3. Lump-sum distribution. Regardless of the original owner’s age, the beneficiary can withdraw his or her entire share of the inherited IRA by December 31 of the year following the original owner’s death. This may be appropriate for small accounts, but you should think twice before liquidating a large account.
  4. Disclaim the inherited funds. This may be appropriate if you do not need the funds and prefer that they pass to another beneficiary with greater needs or who would be subject to lower RMDs, allowing more time for the funds to grow. A qualified disclaimer statement must be completed within nine months of the IRA owner’s date of death.

It can cost you a penalty equal to 50% if you fail to withdraw the appropriate RMD amount. Distributions from a traditional IRA are taxable as ordinary income. Distributions of Roth IRA contributions are not taxable, but the account must meet the appropriate five-year Roth holding period for tax-free distributions of earnings.

Avoid Costly Mistakes!

When there are multiple beneficiaries or the IRA goes to an estate or a trust, distribution rules become more complex. 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 1-833-313-7233.

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May 23rd, 2017 by

social security

Sixty-two percent of retirees report that Social Security is a major source of retirement income. By contrast, only 35% of workers expect the program to be a major source of income for them in retirement.1

Social Security was never intended to be a retiree’s sole source of retirement income, so lower expectations are realistic and could inspire you to save more in your retirement accounts. But low expectations also reflect concern about the future of the program. Only 10% of workers are “very confident” that Social Security will continue to provide benefits equal to those provided to current retirees.2

Many ideas have been suggested to address Social Security’s fiscal challenges. Here are some commonly cited solutions, with estimates of their impact from the Chief Actuary of the Social Security Administration.3

Eliminate or increase the earnings cap. Workers pay Social Security taxes on income up to an inflation-adjusted cap ($127,200 in 2017). Eliminating the cap in 2017 and later years would address 89% of the Social Security shortfall if benefits were not increased for high earners (72% if benefits were increased). Increasing rather than eliminating the cap would have a significant but smaller effect.

Increase the payroll tax. Workers currently pay 6.2% of earnings (up to the earnings cap) into the Social Security system, with employers matching that amount. Increasing the payroll tax to 7.6% for both workers and employers in 2017 and later years would completely eliminate the shortfall.

Raise the full retirement age. The current age to claim full Social Security retirement benefits is 66 for individuals born between 1943 and 1954; full retirement age increases gradually to 67 for those born in 1960 and later. Raising the full retirement age to 69 by 2034, with small increases thereafter, would eliminate 40% of the funding shortfall.

Sources
1–2) Employee Benefit Research Institute, 2016
3) Social Security Administration, 2016

Retirement Planning Adds To Social Security Benefits

You can become anxious when you have to deal with your retirement planning alone. So, let me help you figure out how much Social Security you can expect. Moreover, I can advise you on how to create a retirement where you don’t have to only rely on Social Security.
Let’s meet for a FREE retirement strategy consultation at my office.
Call  1-833-313-7233.

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March 28th, 2017 by

Most homeowners make their regular mortgage payments every month for the duration of the loan term, and never think of doing otherwise. But prepaying your mortgage or making biweekly payments can reduce the amount of interest you’ll pay over time.

Biweekly Mortgage

Under a biweekly mortgage, instead of making the payments once a month, you make half your normal monthly payment every two weeks. For example, if your mortgage is $1,000 per month, under a biweekly system it would be $500 every two weeks.

If you maintain the biweekly payment schedule you’ll make an extra month’s payment over the course of each year (26 payments per year, which is the equivalent of 13 full monthly payments rather than 12). You’ll also pay less interest because your payments are applied to your principal balance more frequently.

The effect of biweekly mortgage payments can be dramatic. For example, if you currently have a $150,000 loan at 8 % fixed interest, you will have paid approximately $396,233 at the end of 30 years. However, if you use a biweekly payment system, you would pay $331,859 and have it completely paid off in 21.6 years. You would save $64,374 and pay the loan off 8.4 years earlier!

Freeman Owen, Jr -Retirement Specialist

Be smart about your money EARLY to get the most from it. Retirement planning doesn’t begin in your 50’s. The earlier you plan for retirement, the easier it will be & the more you will have in your golden years.  Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at 1-833-313-7233. 

 

March 22nd, 2017 by

College graduates gain a serious edge in earning potential. Workers with a bachelor’s degree typically earn 77% more over their lifetimes than those with only a high school diploma.

While it may be true that new grads are rich in “human capital,” they are often low on funds when first entering the workforce. Here are two ways to start off on the right foot financially.

First Financial Steps for New Grads

Hold down your living expenses.

Housing, transportation, and food comprise the majority of spending for most people, so committing to high rent or car payments could kick off a constant struggle to make ends meet. Finding a cheaper place to live (possibly with roommates), settling for an older-model vehicle, or cooking more meals at home could free up money for fun activities that are important to you.

Plump up your cash cushion.

It’s important to build an emergency fund that would cover three to six months of living expenses. Begin by determining how much income you can afford to set aside and transfer that amount automatically from your paycheck to a separate account. Having access to a healthy savings account makes it less likely that you will resort to borrowing, and it also gives you the financial freedom to switch jobs or change your living situation if you so decide.

Source: The Wall Street Journal, May 7, 2015

Freeman Owen, Jr -Retirement Specialist

Retirement planning seems so far away when you’re a recent college graduate. But, the earlier you begin, the more you’ll save and the easier it will be! Let’s talk.

Meet me for a FREE retirement strategy consultation at my office at 1-833-313-7233. 

 

March 21st, 2017 by

retirement distributions

When it comes to receiving the fruits of your employer-sponsored retirement plan, you have a few broad options. Should you take the payout as systematic payments, a lifetime annuity, or a lump sum?

1. Systematic withdrawals

Some retirement plans may allow you to take systematic withdrawals: either a fixed dollar amount on a regular schedule, a specific percentage of the retirement money value on a regular schedule, or the total value of the retirement monies in equal distributions over a specified period of time.

2. The lifetime annuity option

Your retirement plan may allow you to take payouts as a lifetime annuity, which converts your balance into guaranteed monthly payments based on your life expectancy. If you live longer than expected, the payments continue anyway.*

There are several advantages with this payout method. It helps you avoid the temptation to spend a significant amount of your assets at one time and the pressure use a large sum of money that might not last for the rest of your life. Also, there is no large initial tax bill on your entire nest egg; each monthly payment is subject to income tax at your current rate.

If you are married, you may have the option to elect a joint and survivor annuity. This would result in a lower monthly retirement payment than the single annuity option. However, your spouse would continue to receive a portion of your retirement income after your death. If you do not elect an annuity with a survivor option, your monthly payments end with your death.

The main disadvantage of the annuity option lies in the potential reduction of spending power over time. Annuity payments are not indexed for inflation. If we experience a 4% annual inflation rate, the purchasing power of the fixed monthly payment would be half in 18 years.

3. Lump-sum distribution

If you elect to take the money from your employer-sponsored retirement plan as a single lump sum, you would receive the entire balance in one payment. You can invest and use it as you see fit. You would retain control of the principal and could use it whenever and however you wish.

Of course, if you choose a lump sum, you will have to pay ordinary income taxes on the total amount of the distribution (except for any after-tax contributions you’ve made) in one year. A large distribution could easily move you into a higher tax bracket. Another consideration is the 20% withholding rule. If an employer issues a check for a lump-sum distribution, they must withhold 20% toward federal income taxes. Thus, you would receive only 80% of your nest egg balance, not 100%. Distributions taken prior to age 59½ (or in some cases age 55 or 50) may also be subject to a 10% federal income tax penalty.

To avoid some of these problems, you might choose to take a partial lump-sum distribution. Then, roll the balance of the funds directly to an IRA or other qualified retirement plan in order to maintain the tax-deferred status of the funds. An IRA rollover might provide you with more options, not only in how you choose to invest the funds but also in how you access the funds over time.

After you reach age 70½, you generally must begin taking required minimum distributions from traditional IRAs and most employer-sponsored retirement plans. The tax on these distributions will be as ordinary income.

Note: Special rules apply to Roth accounts.

Before you take any action on retirement plan distributions, it would be wise to consult with a tax professional. Choose carefully, because your decision and the consequences will remain with you for life.

*Annuity guarantees are subject to the financial strength and claims-paying ability of the insurer.

My business is to help you manage your money BETTER so you can enjoy a golden retirement.

I can help you start the process today!  Let’s talk. Meet me for a FREE retirement strategy consultation at my office by calling  1-833-313-7233.

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March 21st, 2017 by

Required min distributions

A required minimum distribution (RMD) is the annual amount that must be withdrawn from a traditional IRA or a qualified retirement plan (such as a 401(k), 403(b), and self-employed plans) after the owner reaches the age of 70½. The last date allowed for the first withdrawal is April 1 following the year in which the owner reaches age 70½. Some employer plans may allow still-employed owners to delay distributions until they stop working, even if they are older than 70½.

RMDs are designed to ensure that owners of tax-deferred retirement monies do not defer taxes on their retirement dollars indefinitely. You are allowed to begin taking penalty-free distributions from your tax-deferred retirement nest egg after age 59½, but you must begin taking them after reaching age 70½. If you delay your first distribution to April 1 following the year in which you turn 70½, you must take another distribution for that year. Annual RMDs must be taken each subsequent year no later than December 31.

The RMD amount depends on your age, the value of the nest egg dollars, and your life expectancy. You can use the IRS Uniform Lifetime Table (or the Joint and Last Survivor Table, in certain circumstances) to determine your life expectancy. To calculate your RMD, divide the value of your balance at the end of the previous year by the number of years you’re expected to live, based on the numbers in the IRS table. You must calculate RMDs for each set of monies that you own. If you do not take RMDs, then you may be subject to a 50% federal income tax penalty on the amount that should have been withdrawn.

Remember that distributions from tax-deferred retirement plans are subject to ordinary income tax. Waiting until the April 1 deadline in the year after reaching age 70½ is a one-time option and requires that you take two RMDs in the same tax year. If these distributions are large, this method could push you into a higher tax bracket. It may be wise to plan ahead for RMDs to determine the best time to begin taking them.

My business is to help you manage your money BETTER so you can enjoy a golden retirement.

I can help you get the process started today!  Let’s talk. Meet me for a FREE retirement strategy consultation at my office by calling 1-833-313-7233.

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