by Stephen Reed | Accounting News, Financial goals, News, Newsletter
Retirement should be a time to finally relax and enjoy your golden years, but for many people, this is only possible with careful planning, discipline, and smart financial decisions made during your working years. Below we take a look at some essential tips financially savvy people use to be successful in retirement.
Start Early and Save Consistently
Financially savvy savers know that you need to start early and save consistently in order to reap the most benefits of compound interest. As soon as you can make saving for retirement a regular habit, this should be your goal. By doing so, you can take advantage of the growth potential of your investments and build a substantial nest egg.
Starting Late in the Retirement Savings Game?
If you’re getting a late start in saving for retirement, taking advantage of compound interest is still possible, but it will likely require more focused effort and discipline. The most crucial step to take is to start today. Try to contribute as much as you can to retirement accounts like IRAs and 401(k)s while taking advantage of any matching contributions by employers. You can also delay retirement by a few years if possible, allowing more growth through compound interest. The key when starting late is to practice consistent, disciplined saving and make smart investment choices.
Set Clear Financial Goals
Savvy savers are proactive planners, which means they set clear goals for their money. Take the time to assess your current financial situation, estimate your retirement expenses, and determine how much you need to save to meet those expenses. Set specific, achievable goals to help stay on track and make informed financial decisions. Once you get going, you’ll need to keep tabs on where your money is going and how much it’s growing. Meet with an investment professional at least annually but also after any big life changes—like a new baby or a job transition. You want to understand how those changes could affect your retirement savings plan.
Maximize Retirement Account Contributions
Take full advantage of retirement savings accounts like 401(k)s and IRAs. This includes contributing the maximum allowable amount each year, taking advantage of any employer matches or tax benefits. Additionally, you want to avoid borrowing from your 401(k) account. A 401(k) loan can be risky due to taxes and penalties if you can’t repay the loan. Not to mention, it’s usually not worth the loss of long-term compound growth on the money you borrow.
Minimize Debt
Carrying excessive debt into retirement can be a burden during your golden years, so you’ll want to work diligently to minimize debt before retirement. This might involve paying off credit card balances, mortgages, or other outstanding loans. Reducing debt will decrease financial stress and untangle more resources for enjoying retirement.
Create a Budget and Stick to It
Budgeting is a fundamental tool of financial success. Budgets help to maintain financial discipline and avoid overspending. The financially savvy create detailed budgets that outline their expected income and expenses. They track their spending carefully and adjust their budget as needed to ensure they stay within their means.
Create a Diverse Investment Portfolio with a Long-Term Focus
A well-diversified investment portfolio is a hallmark of savvy savers. Be sure you’re diversifying your investments across various asset classes, such as stocks, bonds, and real estate. This helps lead to more stable and consistent returns over the long term.
Speaking of long-term moves, smart investors play the long game when it comes to investing, and they’re not looking for short-term gains, so they don’t jump from investment to investment with every up and down in the stock market. However, you should also be investing in less volatile wealth building channels, such as mutual funds with a history of growth. Just remember that the key to a successful portfolio of growth is patience.
If you have any questions, or if you’re looking for personalized guidance tailored to your unique situation, don’t hesitate to reach out. Contact me directly for more information or to schedule an appointment. Let’s embark on the journey to a successful retirement together.
by Stephen Reed | Accounting News, News
The Covid-19 pandemic gave rise to a surge in Americans starting their own small businesses. Now, two years later, as a possible recession looms amid rising inflation, these business owners are turning their focus to the possibility of a recession. Read on for tips on how new businesses can weather through an economic downturn.
Potential Impact of a Recession
In a recession, consumers cut back on spending, which means demand for goods and services declines, which leads to a decrease in sales for businesses. When there is a steady decline in economic activity and sales, businesses can be forced into the position of needing to lay off employees, or in some cases even shuttering their doors for good.
Additionally, businesses may also face higher costs during a recession as suppliers of raw materials and other goods raise prices in an attempt to counterbalance their own drops in revenue. Higher prices put further financial strain on businesses, leading to more layoffs and closures.
Establish Resilience with Financial Flexibility
If your revenue takes a nosedive, do you have an accessible line of credit or an emergency fund with enough cash on hand to cover your expenses for a period of time? Either of these options will provide your business with some financial flexibility if you experience a temporary decline in sales. Also think about diversifying your sources of revenue. This will lessen your dependence on any one customer or market and help establish more resilience during a recession.
Know Your Risk Factors
Businesses are no strangers to risk factors even in optimal economic times, but during a recession the risks are intensified. You need to be aware of the specific vulnerabilities to your business (i.e., credit risk, supplier risk, operational risk, or financial risk) and establish a suitable plan to address them. This might include diversifying your customer base, suppliers, and range of products; building up your cash reserves; and reinforcing your financial controls.
Evaluate Expenses
As a business owner do you know exactly what you’re spending money on? By doing a self-audit you can identify areas where you can make small but consequential cuts. Pay special attention to things like:
- Subscriptions to apps, periodicals, and software that go unused or don’t bring value to your day-to-day operations
- Recurring expenses such as phone services, utilities, and bank account fees
- Operation costs and advertising
You might consider shopping around to find vendors who can give you the best deal. Remember that small businesses have more negotiating power in a turbulent economy.
Find New Ways to Drive Sales
When you begin to notice a downward trend in revenue, it’s time to look into new ways to drive sales. This could include modifying your marketing efforts, providing discounts, issuing new products or services, adjusting prices, and cross-selling to customers.
Invest for Future Revenue
Even during an economic downturn, small business owners are wise to spend some money upfront to gain longer-term cost savings. It’s especially important to consider if cash you’re currently spending in other areas of your business could be redeployed for the purpose of investing in future business and revenue. For instance, are there portions of your business that could be automized or digitized? Can you switch to an online training course rather than onsite? What about your marketing approach? You’ll need to strategize this one, but communication with customers is key to keeping steady sales. After all, the future of your business relies on maintaining and growing your customer base—in good and bad economic times.
by Pete McAllister | Accounting News, Budget, Financial goals, News, Uncategorized
Setting goals is a necessary start to achieving a financially secure future, but sticking to those goals is another hurdle altogether. Unexpected expenses, the costs of day-to-day life, and failure to track spending all have the potential to derail any roadmap we may initiate. Read on for actionable strategies to help you stay on track to reach your financial goals.
Be Clear About Your Objectives
Most of us have heard that every dollar should have a name, which means that when it comes to saving, you need to be clear on your objectives. What are you saving for? It could be a down payment on a house, a child’s education, retirement, a dream vacation, etc. Many of us save for a combination of objectives, so it’s also important to be crystal clear on the reasons behind your financial goals. Knowing your “why”—for any goal in life—will create intrinsic motivation. The goal becomes a priority despite whatever external forces are at play.
Establish Small, Attainable Goals
Many financial goals are lofty, whether paying off student debt or saving for retirement or anything in between. They take diligence, consistent monitoring, and a solid framework to reach. In other words, financial goals require micromanagement. If your goal is to save $5,000 for an emergency fund, write down the steps you plan to take to achieve this goal, then put them into action and monitor them constantly. Some of these steps could include, for example, reframing your budget to account for the emergency fund, setting up automated weekly deposits into your savings account, and finding a money managing app that works for you.
Compartmentalize
In order to meet a specific goal, think about dedicating a separate account for it. You can even set up automatic direct deposits so you’re not tempted to use the money for something else. Be sure to label this account with a name that reflects your goal, such as “Early Retirement”. This can be applied to any financial goal. In fact, you may have several different accounts allocated to different goals.
Break Down Big Goals into Quarterly Milestones
Once you compartmentalize your goals, think of your bigger goals in terms of quarterly increments. If you want to save $20,000 in two years for a down payment on a house, rather than focusing on the daunting path ahead, make a plan to allocate a certain amount each month, then review the account every quarter. In this case you would need to save roughly $834 per month. When you see that you’re saving $2,502 per quarter, the end goal of $20,000 in two years is undeniably within reach.
Build a Flexible Budget
In order to reach financial goals like the $20,000 down payment example above, you need to keep spending in check. When you know how much money is coming in and leaving your account on a monthly basis, you can better determine how much you can allocate to different goals. When you create your budget, keep in mind that it should be realistic yet flexible so you can make smart adjustments as needed.
Save Your Raise
When saving for financial goals, aim to save at least half of any raise, bonus, or unexpected funds. Better yet, save it all. As tempting as it can be to splurge on a big purchase, you’ll be happier in the long run when you refrain from impulsivity in favor of staying the course to meet your future goals.
by Daniel Kittell | Accounting News, News, Retirement, Retirement Savings
The definition of a retirement gap is when the income you are on track to have when you retire—from sources like Social Security, pensions, part-time work, or a 401(k)—falls short of the income you will actually need to retire the way you want. While you may be working with a well-planned budget in your golden years, rising costs and unexpected expenses could cause a discrepancy between your retirement income and your actual needs. Thus, when drawing up your retirement plan, you need to be prepared for the possibility of income gaps.
Longevity and Lifespan
The good news: overall we’re living longer and healthier lives. The bad news: as lifespans increase and the economy experiences unforeseen shifts, the amount of money needed in retirement may be more than you planned for. This isn’t bad news, exactly, but it does create the need for more foresight and flexibility when it comes to long-game financial planning. A greater duration of longevity likely means a longer retirement, and that creates the potential for a greater money deficit.
Total Income Gap
Your total income gap is the difference between your retirement income target—which encompasses necessary living costs as well as extras, like travel expenses and other bucket list items—and the total guaranteed lifetime earnings you’ve acquired over the course of your employment, such as Social Security, pension benefits, and any deferred compensation. For example, someone who wants $160,000 per year in retirement to maintain their lifestyle but receives $60,000 per year from guaranteed lifetime earnings, would have a $100,000 total income gap.
How to Determine Your Retirement Gap
You could use a retirement income calculator, but online tools cannot take into account your personal lifestyle plans. A better option might be to add up all your potential retirement income sources, like 401(k), Social Security, Individual Retirement Account (IRA), pension, and other savings investments. Next, calculate a plausible estimate of the funds you will need for your retirement. This can be calculated as either a monthly or lump sum. Finally, subtract your essential funds from the amount you are estimated to have. Any discrepancy is your retirement gap. If you find this process overwhelming, meeting with a financial advisor could provide you with a clearer picture of your retirement finances.
How to Bridge the Retirement Gap
Once you have a better picture of your retirement savings, there are steps you can take now to bridge the gap, grow your savings, and secure financial sustainability throughout retirement. Perhaps the most obvious way is to start ramping up your saving effort. Start here:
- Examine and rework your budget.
- Tighten spending on extras like restaurant and take-out meals, vacations, and any superfluous extras.
- Transfer high-interest credit card balances to a card with a more competitive rate to pay down balances faster.
- If it’s feasible (say, with the money you are saving by cutting back on extra spending), think about maxing out catch-up contributions to your 401(k), supplemental retirement plan, or IRA.
If you are counting on Social Security benefits as a significant portion of retirement income, you may want to wait to retire until your full retirement age as benefits increase each year you delay retirement.
Another option for bridging the gap is to adjust your outlook of retirement and adopt a semi-retirement strategy where you continue to work part-time or on a project basis. You might find that your career easily segues into freelance, consulting, or independent contract work, so you can continue to earn income while spending more time with family and pursuing hobbies. Or perhaps a hobby has the potential to grow into a side or part-time gig.
Finally, reevaluate your investment game plan. In lieu of shifting all your funds to more conservative investment options as you age, work with a financial professional to assist in procuring a combination of investments that have the potential to grow your retirement funds in a shorter period.
Implementing several small steps such as the ones above will help you cover a retirement savings shortfall.
by Jean Miller | Accounting News, Estate / Trust Tax - Individual, Estate Planning - Individual, News
Both a will and a living revocable trust are valuable estate tools that transfer wealth to heirs—and both can work together to establish a complete estate plan—but what’s the difference between each, and which do you really need? We’ll go over this in the article below.
What is a Will?
A will is a written document that expresses what should happen to your property and assets after you die. As such, it becomes active upon your death. You can also appoint guardians for your children, name an executor, forgive debts, and specify how to pay your taxes.
What is a Living Revocable Trust?
Unlike a will, which becomes active after your death, a living trust kicks in immediately, and you are fully in charge of your trust while you are living. After your death, the person you appoint as the successor trustee will handle your affairs as you’ve outlined them in the document. There are also irrevocable trusts, which are generally created for tax purposes. Unlike revocable trusts, which can be changed at any time by the grantor, an irrevocable trust cannot be amended after it is established.
The Main Difference Between a Will and a Living Revocable Trust
After your death, the appointed executor of your will must work with the probate court to sort the terms of your will. This is a highly-structured process that can be drawn-out and expensive. A living trust, however, appoints a trustee to manage and distribute trust property after your death. Because the trust owns the assets and the trust hasn’t died, there is no need for probate. A living trust is a private contract between you as the grantor and the trust entity. Generally, the grantor serves as the trustee of his own revocable living trust, thus managing it during his lifetime. A successor trustee can be appointed to step in and oversee handling of the trust when the grantor dies, settling it and allocating its property to the beneficiaries named in the trust documents.
Which is Better, a Will or a Trust?
A trust simplifies the procedure of transferring an estate after your death while preventing a lengthy and possibly costly course of probate. However, if you have minor children, creating a will that names a guardian is crucial in protecting both the minors and any inheritance. The decision between a will and a trust is a personal choice, though some experts advise to have both. While a trust is typically expensive and legally complex, a will is generally less expensive and easier to establish.
Which Do You Need?
Almost everyone should have a will, but not everyone will need a living trust. If you have minor children as well as property and assets for which you would feel more settled knowing they were in a trust, then having both a will and a living revocable trust may make sense. Keep in mind that they are two separate legal documents, so one does not override the other unless issues arise, in which case a living trust will likely trump a will because a trust is its own entity.
No matter which you choose, it’s important to get your affairs in order earlier rather later. If you have minor children, establishing a will that grants guardianship should be a priority. Beyond that, making an estate plan now can save money and time later, especially for the loved ones you would be leaving behind.
