Confidence Wealth & Insurance Solutions, Author at Confidence Wealth & Insurance Solutions

Confidence Wealth & Insurance Solutions April 1, 2017 No Comments

Converting Retirement Savings to Retirement Income

You’ve been saving diligently for years, and now it’s time to think about how to convert the money in your traditional 401(k)s (or similar workplace savings plans) into retirement income. But hold on, not so fast. You may need to take a few steps first.

Evaluate your needs

If you haven’t done so, estimate how much income you’ll need to meet your desired lifestyle in retirement.

Conventional wisdom says to plan on needing 70% to 100% of your annual pre-retirement income to meet your needs in retirement; however, your specific amount will depend on your unique circumstances.

First identify your non-negotiable fixed needs — such as housing, food, and medical care — to get clarity on how much it will cost to make basic ends meet. Then identify your variable wants — including travel, leisure, and entertainment.

Segregating your expenses into needs and wants will help you develop an income strategy to fund both.

Assess all sources of predictable income

Next, determine how much you might expect from sources of predictable income, such as Social Security and traditional pension plans.

➢ SOCIAL SECURITY

At your full retirement age (which varies from 66 to 67, depending on your year of birth), you’ll be entitled to receive your full benefit.

Although you can begin receiving reduced benefits as early as age 62, the longer you wait to begin (up to age 70), the more you’ll receive each month.

You can estimate your retirement benefit by using the calculators on the SSA website, ssa.gov. You can also sign up for a my Social Security account to view your Social Security Statement online.

➢ TRADITIONAL PENSIONS

If you stand to receive a traditional pension from your current or a previous employer, be sure to familiarize yourself with its features.

For example, will your benefit remain steady throughout retirement or increase with inflation?

Your pension will most likely be offered as either a single life or joint-and-survivor annuity. A single-life annuity provides benefits until the worker’s death, while a joint-and-survivor annuity generally provides reduced benefits until the survivor’s death.¹

If it looks as though your Social Security and pension income will be enough to cover your fixed needs, you may be well positioned to use your other assets to fund those extra wants.

On the other hand, if your predictable sources are not sufficient to cover your fixed needs, you’ll need to think carefully about how to tap your retirement savings plan assets, as they will be a necessary component of your income.

Understand your savings plan options

A key in determining how to tap your retirement plan assets is to understand the options available to you.

According to the Government Accountability Office (GAO), only about one-third of 401(k) plans offer withdrawal options, such as installment payments, systematic withdrawals, and managed payout funds.²

And only about a quarter offer annuities, which are insurance contracts that provide guaranteed income for a stated amount of time (typically over a set number of years or for the life expectancy of the participant or the participant and spouse).³

Plans may allow you to leave the money alone or require you to take a lump-sum distribution. You may also choose to roll over the assets to an IRA, which might offer a variety of income and investment opportunities, including the purchase of annuity contracts.

If you choose to work part-time in retirement, you may be allowed to roll your assets into the new employer’s plan. Determining the right way to tap your assets can be challenging and should take into account a number of factors.

These include your tax situation, whether you have other assets you’ll use for income, and your desire to leave assets to heirs.

A financial professional can help you understand your options. Click here to get more information from our affiliate company PLJ Advisors.

If you need an unbiased second opinion on your retirement income plan, we can help. Call (310) 824-1000 or click here to request a call back.

¹ Current law requires married couples to choose a joint-and-survivor annuity unless the spouse waives those rights.
² “401(k) Plans: DOL Could Take Steps to Improve Retirement Income Options for Plan Participants,” GAO Report to Congressional Requesters, August 2016
³Generally, annuity contracts have fees and expenses, limitations, exclusions, holding periods, termination provisions, and terms for keeping the annuity in force. Most annuities have surrender charges that are assessed if the contract owner surrenders the annuity. Qualified annuities are typically purchased with pre-tax money, so withdrawals are fully taxable as ordinary income, and withdrawals prior to age 59½ may be subject to a 10% penalty tax. Any guarantees are contingent on the claims-paying ability and financial strength of the issuing insurance company. It is important to understand that purchasing an annuity in an IRA or an employer-sponsored retirement plan provides no additional tax benefits other than those available through the tax-deferred retirement plan.

Confidence Wealth & Insurance Solutions March 30, 2017 No Comments

Money Confidence Podcast Episode 8: The Blunt Truth About The Female Financial Paradox

Personal Money Trainer, author and speaker, Crystal Oculee, empowers women to get money confident with tips, advice, stories and special guest interviews. From the basics of budgeting to getting to the bottom of retirement vehicles – you’ll get insightful information you can turn into major savings and smart investments!

LISTEN ON ITUNES: https://itunes.apple.com/us/podcast/ep8-the-blunt-truth-about-the-female-financial-paradox/id1208123298?i=1000383322207

IN THIS EPISODE, YOU’LL LEARN:

How to Open The “Money” Dialogue
Why Budgeting Is One of the Pillars To A Healthy Relationship
Why You Should Never Ignore Your Female Intuition
Why Financial Literacy Is Essential… Or This Could Happen To You

Don’t Stop Here – Check Out These FREE Tools!

LINKS AND RESOURCES MENTIONED IN THIS EPISODE:

Top 5 Financial FAQ for Married Women
http://www.pljincome.com/top-5-faq-married-women/

Merging Your Money When You Marry
http://www.pljincome.com/merging-money-marry/

What To Do When a Saver Marries a Spender
http://www.pljincome.com/what-to-do-when-a-saver-marries-a-spender/

What’s Lattes Got to Do With It? Easy Budgeting for Your Future
http://www.pljincome.com/easy-budgeting-stop-spending-more-on-cofee-than-your-retirement/

Joy-Based Budgeting—Is There Such A Thing?
http://www.pljincome.com/joy-based-budgeting

Money Diary Lite
http://www.pljincome.com/money-diary-lite-form/

Female Financial Paradox — What is it?
http://www.pljincome.com/female-financial-paradox-what-is-it/

Get to Know Crystal – and Email Her With Questions! (She might answer it on the podcast.)

AskCrystal@PLJincome.com

http://www.pljincome.com/crystal-oculee/

If you like our Money Confidence Podcast, be sure to leave a review on iTunes!

Confidence Wealth & Insurance Solutions March 28, 2017 2 Comments

Money Issues That Concern Married Couples

Marriage is an important step in anyone’s life and brings many challenges with it. One of those challenges is the management of your finances as a couple.

The money decisions that you make now as a couple can have a lasting impact on your financial future together. Careful planning of your finances can ensure that together, you achieve financial success.

1. Budgeting your money

► In general

When you were single, you managed your finances in a way that was comfortable for you and that you understood–no one had to approve or disapprove of your financial decisions.

Now that you are married, however, both you and your spouse have to agree on a system for budgeting your money and paying your bills.

► Discuss financial situations

You and your spouse must discuss your respective financial situations and expectations, and take stock of your individual assets (what you own) and liabilities (what you owe).

Revealing your financial situation is an important step when budgeting as a couple. If either of you has a financial problem, it is best to identify it now and begin solving it together.

This is the time to address questions such as what do each of you earn, and what additional sources of income do you have? What do you own? Will both of you work now that you are married?

Who will hold title to property acquired before and after the wedding? In addition, be sure to disclose all of your financial commitments. If you pay child support, let your partner know the amounts. If you have to repay student loans, discuss that as well.

► Discuss financial goals

After you discuss your financial situations, you should discuss your financial goals. You can start by each making a list of your short- and long-term financial goals.

Short-term goals are those that can take anywhere from three to five years (e.g., saving for a down payment on a home or a new car). Long-term goals are those that take more than five years to achieve (e.g., saving for a child’s college education or retirement).

When you have each determined your individual financial goals, you should review your goals together to achieve common objectives.

You can then focus your energy on those common objectives and strive to attain those goals (short- and long-term) together.

► Decide on the type of bank account(s) you will keep

Decide whether you and your spouse will have separate bank accounts or a joint account.

Advantages to consolidating your checking funds into one account include easier record-keeping, reduced maintenance fees, less paperwork when you apply for a loan, and simplified money management.

If you do choose to keep separate accounts, consider opening a joint checking account for household expenses.

Caution: When sharing a checking account, be sure to keep track of how much money is in the account at all times since both of you will be writing checks that draw from the same account.

► Prepare an annual budget

The first step in developing a financial future together as a couple is to prepare an annual budget.

The budget will be a detailed listing of all your income and expenses over the period of a year.

You may want to designate one spouse to be in charge of managing the budget, or you can take turns keeping records and paying bills.

Tip: Make sure that you develop a record-keeping system that both you and your spouse understand. Also, keep your records in a joint filing system so that you can easily locate important documents.

Begin with your sources of income–list salaries and wages, alimony and child support, interest, and any other form of income that you and your spouse may have.

List your expenses. It may be helpful to review several months’ worth of entries in each of your checkbooks to be sure that you include everything. Put all the expenses that are paid monthly into one category, and put all other expenses (every other month, quarterly, semiannually, annually) into another. Some common expenses are:

Savings
Rent or mortgage payments
Student loan payments
Groceries
Pet care
Utilities
Car payments
Credit card payments
Alimony/child support
Household items
Personal care/grooming

Major purchases
Insurance
Car repairs
Clothing
Tax payments
Medical expenses
Gifts
Automobile gas
Child day care
Entertainment/dining out

Estimate your expenses for each category. How much money do you spend on these items on a monthly basis and on an annual basis? Try to come up with a realistic amount for what you think you will spend in a year’s time. Add another category to the irregular expenses list, and call it Contingencies. This can be a catchall category for expenses that you might not anticipate or budget for. The amount to budget for contingencies should be about 5 percent of your total budget.

Add your sources of cash and uses of cash on an annual basis. Hopefully, you get a positive number, meaning that you are spending less than you are earning. If not, review your expense list to determine where you can cut your spending. Consider using computer spreadsheets or programs like Quicken for assistance.

► Create a cash flow system

After you have developed a budget, you should create a system for managing your monthly inflow and outflow of cash.

It is a good idea for both you and your spouse to become involved in this process–at least at first–so that both of you have a clear understanding of the costs of running the family and household.

Cash flow systems like the one described below are simple and painless to operate.

Once they are established, you will find that making financial decisions becomes much easier because you have done your homework.

Separate your regular monthly expenses from irregular expenses (every other month, quarterly, semiannually, annually) by using a different bank account for each. Otherwise, you may be tempted to use money that has been earmarked for something else. You should limit the number of checking accounts that you have in order to avoid confusion.

Each time you get paid, deposit some money into an account for irregular expenses. The amount of money you deposit should be equal to the total amount needed for the irregular expenses, divided by the number of paychecks you each receive annually. In so doing, you will have the money for the outlay when it arises. The rest of your pay should go into your checking account, to be used for regular monthly expenses and savings.

One variation to this system of cash flow management is to establish one or two additional bank accounts for one or both of you for personal spending money. Allocate the budgeted amount for personal expenses (e.g., lunches, haircuts, gifts) to this account. This way, you are free to spend the money in this account in any way you like without having to worry about meeting regular monthly expenses. However, all of these bank accounts may have fees.

2. Saving and investing your money

► In general

At some point in your married life, you will almost certainly encounter some large expenditures, such as a new home, your own business, or a college education for your children.

Chances are, you won’t be able to meet these expenditures from your current income. You and your spouse must discipline yourselves to set aside a portion of your current income for saving and investing your money to ensure its steady growth or, at the very least, protect it against loss.

► Save a percentage of your earnings

When figuring out your budget, savings should be considered one of your monthly expenses. Think of savings as a fixed payment (like a car payment) that must be made every month.

If you don’t and you wait until the end of the month to save whatever you have not spent, you’ll find that nothing ever seems to go into your savings account.

A good rule of thumb is for you and your spouse to save 4 to 9 percent of your combined gross earnings while you are in your 20s and then double that savings percentage as you reach your 30s and 40s.

In some cases, a dual-income couple may be able to live off one spouse’s salary and save the other salary.

Example(s): Mary and Richard, a married couple in their 20s, earn a combined annual gross income of $60,000. Together, Mary and Richard save 5 percent of their combined gross income each year, or $3,000.

Example(s): As another example, Christine and Tom, a married couple in their 30s, earn a combined annual gross income of $80,000. Together, Christine and Tom save 10 percent of their combined gross income each year, or $8,000.

► Build an emergency cash reserve

The savings that you accumulate can serve as an emergency cash reserve. Ideally, you should have in savings an amount that is comfortable for you to fall back on in case of an emergency, such as a job loss.

A common formula used for calculating a safe emergency fund amount is to multiply your total monthly expenses by 6. When determining how much cash should be in your emergency fund, a major factor is your comfort level.

If you and your spouse feel secure with your jobs and are confident that if you lost your current jobs you would be able to find a new one fairly quickly, an emergency fund of three times your monthly expenses should be sufficient.

However, if either of you has an unpredictable income, you may want to have an emergency fund that is equal to 12 times your monthly expenses.

Example(s): Christine and Tom, a married couple in their 30s, plan to build up an emergency cash reserve. Both Christine and Tom are attorneys and feel quite secure with their present jobs. Christine and Tom have monthly expenses of $3,000 and plan to build up an emergency cash reserve that is equal to 3 times their monthly expenses, or $9,000 ($3,000 x 3).

Example(s): As another example, Mary and Richard, a married couple in their 20s, plan to build up an emergency cash reserve. Both Mary and Richard are employed as freelance writers and feel that their incomes are at times unpredictable. Mary and Richard have monthly expenses of $1,500 and plan to build up an emergency cash reserve that is equal to 12 times their monthly expenses, or $18,000 ($1,500 x 12).

► Investing your money

When you have established an emergency cash reserve, you can begin to invest your money to target your financial goals.

There are three fundamental types of investments: cash and cash alternatives, bonds, and equities. Cash and cash alternatives are relatively low-risk investments that can be readily converted into currency, such as money market accounts.

Bonds, sometimes called debt instruments, are essentially IOUs; when you invest in a bond, you’re lending money to the bond’s issuer–usually a corporation or governmental body–which pays interest on that loan.

Because bonds make regular payments of interest, they are also known as income investments. Equities, or stocks, give you a share of ownership in a company.

You have the opportunity to share in the company’s profits and potential growth, which is why they’re often viewed as growth investments. However, equities involve greater risk than either cash or income investments.

With equities, there is no guarantee you will receive any income or that your shares will ever increase in value, and you can lose your entire investment.

In addition to these three basic types of investments–also known as asset classes–there are so-called alternative investments, such as real estate, commodities, and precious metals.

No matter what your investment goal, your overall objective is to maximize returns without taking on more risk than you can bear.

You’ll need to choose investments that are consistent with your financial goals and time horizon.

A financial professional can help you construct an investment portfolio that takes these factors into account.

Click here to get more information from our affiliate company PLJ Advisors.

3. Establishing good credit

► In general

Establishing good credit is an important step in the path towards a solid financial future. A good credit history can enable you to make credit purchases for items that you might not otherwise be able to afford.

Most creditors will require a good credit history before extending credit to you. If you do not have a credit history, it is important to establish one as soon as possible. If you have a poor credit history, you should take steps toward improving it right away.

► Individual or joint credit

Married couples can either apply for credit individually or jointly. One of the benefits of applying for joint credit is that both you and your spouse’s income, expenses, and financial stability are considered when a creditor evaluates your overall financial picture.

However, applying for separate credit has its advantages. If you and your spouse ever run into financial problems (e.g., illness or job layoff), separate credit allows one spouse to risk damaging his or her credit history while preserving the other spouse’s good credit.

In addition, separate credit can also protect you and your spouse from each other. If you and your spouse cosign a loan or apply for a credit card, you are both responsible for 100 percent repayment of the debt.

In other words, if your spouse does not pay his or her share, you can get stuck with paying the whole amount. On the other hand, if your spouse takes out a loan or applies for a credit card on his or her own, generally your spouse is solely responsible for the debt.

Tip: While the general rule is that spouses are not responsible for each other’s debts, there are exceptions.

Many states will hold both spouses responsible for a debt incurred by one spouse if the debt constituted a family expense (e.g., child care or groceries).

In addition, in some community property states, both spouses may be responsible for one spouse’s debts, since both spouses have equal rights to each other’s incomes.

You may want to discuss your state’s laws with an attorney if you live in a community property state.

Confidence Wealth & Insurance Solutions March 24, 2017 No Comments

Spring Cleaning Your Finances

The arrival of spring often signifies a time of renewal, a reminder to dust off the cobwebs and get rid of the dirt and grime that have built up throughout the winter season. And while most spring cleaning projects are likely focused on your home, you could take this time to evaluate and clean up your personal finances as well.

Examine your budget..and stick with it

A budget is the centerpiece of any good personal financial plan. Start by identifying your income and expenses. Next, add them up and compare the two totals to make sure you are spending less than you earn. If you find that your expenses outweigh your income, you’ll need to make some adjustments to your budget (e.g., reduce discretionary spending).

Keep in mind that in order for your budget to work, you’ll need to stick with it. And while straying from your budget from time to time is to be expected, there are some ways to help make working within your budget a bit easier:

Make budgeting a part of your daily routine
Build occasional rewards into your budget
Evaluate your budget regularly and make changes if necessary
Use budgeting software/smartphone applications

Evaluate your financial goals

Spring is also a good time to evaluate your financial goals. Take a look at the financial goals you’ve previously set for yourself — both short and long term. Perhaps you wanted to increase your cash reserve or invest more money toward your retirement. Did you accomplish any of your goals? If so, do you have any new goals you now want to pursue? Finally, have your personal or financial circumstances changed recently (e.g., marriage, a child, a job promotion)? If so, would any of these events warrant a reprioritization of some of your existing financial goals?

Review your investments

Now may be a good time to review your investment portfolio to ensure that it is still on target to help you achieve your financial goals. To determine whether your investments are still suitable, you might ask yourself the following questions:

Has my investment time horizon recently changed?
Has my tolerance for risk changed?
Do I have an increased need for liquidity in my investments?
Does any investment now represent too large (or too small) a part of my portfolio?

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Try to pay off any accumulated debt

When it comes to personal finances, reducing debt should always be a priority. Whether you have debt from student loans, a mortgage, or credit cards, have a plan in place to pay down your debt load as quickly as possible. The following tips could help you manage your debt:

Keep track of your credit card balances and be aware of interest rates and hidden fees
Manage your payments so that you avoid late fees
Optimize your repayments by paying off high-interest debt first
Avoid charging more than you can pay off at the end of each billing cycle

Take a look at your credit history

Having good credit is an important part of any sound financial plan, and now is a good time to check your credit history. Review your credit report and check for any inaccuracies. You’ll also want to find out whether you need to take steps to improve your credit history. To establish a good track record with creditors, make sure that you always make your monthly bill payments on time. In addition, you should try to avoid having too many credit inquiries on your report (these are made every time you apply for new credit). You’re entitled to a free copy of your credit report once a year from each of the three major credit reporting agencies. Visit annualcreditreport.com for more information.

Assess tax planning opportunities

The return of the spring season also means that we are approaching the end of tax season. Now is also a good time to assess any tax planning opportunities for the coming year. You can use last year’s tax return as a basis, then make any anticipated adjustments to your income and deductions for the coming year.

Be sure to check your withholding — especially if you owed taxes when you filed your most recent tax return or you were due a large refund. If necessary, adjust the amount of federal or state income tax withheld from your paycheck by filing a new Form W-4 with your employer.