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Inflation Trends 101

When it comes to investing money in the stock market, there are no guarantees.

Even financial experts, who have devoted every waking hour to understanding the market, cannot promise a return on investment. If they could, they would never have to work another day in their lives. Instead, many experts look at many factors to try and anticipate what might happen, and then they invest accordingly.

Inflation is a Major Concern for Many Investors

This can be a tough reality for new investors who are trying to make a decent return on their retirement savings. Add elements like inflation to the mix and you may end up with people who don’t know what to do.

In fact, a recent report by the Society of Actuaries showed that 69 percent of pre-retirees polled cited inflation as a key concern – tied with long-term care.1

Stay Calm, Get the Facts

First thing’s first: don’t panic! People who panic are often vulnerable to bad advice and sometimes shady advisors who put their profit over yours.

➢ Here’s a smart rule to follow: learn as much as you can about your investments and the market, so when you talk to an advisor you understand how your money is being allocated.

It’s Anyone’s Guess!

If you’re keeping up with the financial news, you’re probably seeing a lot of speculation about whether or not inflation will rise. As with the stock market, there’s no guarantee when or if it will – there is just speculation based on many factors.

↳ For long-term investments, a diverse portfolio with stocks can be a good hedge against inflation. In the short-term, you may want to also consider bonds; this is because as inflation rises, you may be able to take advantage of climbing interest rates.

↳ Commodities, like gold, may also be an option for short-term investing. But, for long-term investments, their track record for performance has not been ideal. Gold has returned only 0.7 percentage point per year more than inflation over the past two hundred years2 – you can get a higher return than that with a simple savings account.

Talk to Your Advisor Regularly

The message here is that it’s important to understand the market and be sure your advisor is keeping up with current trends as well as your retirement goals. You should make sure your advisor reviews your portfolio if inflation does rise to be sure you adjust your investments to stay on target for your goals.

Remember, you can’t get a second opinion from the same advisor who gave you the first!

 

Inflation aside, it’s always a good idea to talk with your advisors at least twice yearly as you get closer to retiring. Never leave a meeting with unanswered questions or confusion – a good advisor will make sure you understand how your money is being invested, what fees you’re paying and the strategy he or she is employing in helping you plan your retirement income streams.

 

 

1https://www.soa.org/press-releases/2016/survey-examines-retirement-concerns/
2http://www.kiplinger.com/article/investing/T052-C019-S001-stocks-the-best-inflation-hedge.html

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401(K) Withdrawals: Beware the Penalty Tax

You’ve probably heard that if you withdraw taxable amounts from your 401(k) or 403(b) plan before age 59½, you may be socked with a 10% early distribution penalty tax on top of the federal income taxes you’ll be required to pay. But did you know that the Internal Revenue Code contains quite a few exceptions that allow you to take penalty-free withdrawals before age 59½?

Sometimes age 59½ is really age 55…or age 50

If you’ve reached age 55, you can take penalty-free withdrawals from your 401(k) plan after leaving your job if your employment ends during or after the year you reach age 55. This is one of the most important exceptions to the penalty tax.

And if you’re a qualified public safety employee, this exception applies after you’ve reached age 50. You’re a qualified public safety employee if you provided police protection, firefighting services, or emergency medical services for a state or municipality, and you separated from service in or after the year you attained age 50.

Be careful though. This exception applies only after you leave employment with the employer that sponsored the plan making the distribution. For example, if you worked for Employer A and quit at age 45, then took a job with Employer B and quit at age 55, only distributions from Employer B’s plan would be eligible for this exception. You’ll have to wait until age 59½ to take penalty-free withdrawals from Employer A’s plan, unless another exception applies.

Think periodic, not lump sums

Another important exception to the penalty tax applies to “substantially equal periodic payments,” or SEPPs. This exception also applies only after you’ve stopped working for the employer that sponsored the plan. To take advantage of this exception, you must withdraw funds from your plan at least annually based on one of three rather complicated IRS-approved distribution methods.

Regardless of which method you choose, you generally can’t change or alter the payments for five years or until you reach age 59½, whichever occurs later. If you do modify the payments (for example, by taking amounts smaller or larger than required distributions or none at all), you’ll again wind up having to pay the 10% penalty tax on the taxable portion of all your pre-age 59½ SEPP distributions (unless another exception applies).

And more exceptions…

Distributions described below generally won’t be subject to the penalty tax even if you’re under age 59½ at the time of the payment.

  • Distributions from your plan up to the amount of your unreimbursed medical expenses for the year that exceed 10% of your adjusted gross income for that year (You don’t have to itemize deductions to use this exception, and the distributions don’t have to actually be used to pay those medical expenses.)
  • Distributions made as a result of your qualifying disability (This means you must be unable to engage in any “substantial gainful activity” by reason of a “medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration.”)
  • Certain distributions to qualified military reservists called to active duty
  • Distributions made pursuant to a qualified domestic relations order (QDRO)
  • Distributions made to your beneficiary after your death, regardless of your beneficiary’s age

Keep in mind that the penalty tax applies only to taxable distributions, so tax-free rollovers of retirement assets are not subject to the penalty. Also note that the exceptions applicable to IRAs are similar to, but not identical to, the rules that apply to employer plans.

 

Important Disclosure
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Credit Card Junkies: One Secret The Joneses DON’T Want You To Know

(And Why You DON’T Want to Keep Up With Them)

Who Are The Joneses?

The Joneses might be your neighbors, a cousin or your work buddy. They could live next door or be Facebook friends. Whoever they are, we all know them. They’re the people who seem to have it easy. Every year they have a new car. They remodel their kitchen without batting an eye. Their kids are in fancy private schools. And they jet off to Aspen or Paris without a moment’s hesitation.

Somehow The Joneses can afford a lifestyle that’s just out of reach for the rest of us. How do they do it? They don’t have a better job or trust fund. They work like the rest of us – but they still manage to stay two steps ahead.

Their Secret to “Wealth”

As much as we try not to compare ourselves to our peers, it’s tough.

But what if you knew that everything the Joneses do is paid for with borrowed money?

Would you run out and get all the credit cards you can and drive up your debt so you can roll around in a shiny new sports car? Or would you think differently about The Jones’ fabulous life? Suddenly, it doesn’t seem so great.

The Joneses are not alone. Many Americans subsidize their lifestyle with borrowed money.

America Is Hooked On Credit

A recent report by the Federal Reserve shows that consumer credit is on the rise.

► During the fourth quarter of 2016, it rose at a seasonally adjusted annual rate of 6 percent.

► Revolving credit and non-revolving credit both increased, too – at an annual rate of 6 ¾ percent and 5 ¾ percent, respectively.

► Finally, consumer credit inched up at an annual rate of 4.5 percent as of December.1

Americans owe a staggering $995.5 billion dollars in outstanding, revolving credit as of December 2016. That’s $149.8 billion dollars more than they owed in 2012.2

This upward trend of paying on borrowed money is worrisome when it’s contrasted with how much people have saved for retirement.

In 2013, the median retirement savings of families aged 38-43 was just a little over $4000. A report by the Economic Policy Institute reveals a dismal future for retirement in the U.S.

“Nearly half of families have no retirement account savings at all. That makes median (50th percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013.” –Economic Policy Institute, “Retirement in America”

Living on Borrowed Money Can Feel Like a Constant Stomach Ache

For many people, living off credit is an addiction. Credit abusers often feel shame because they hide their debt from their spouses and struggle to keep up with all of the mounting bills.

Others might be in denial – believing that it’s okay to live off credit cards. Perhaps their friends and family also rely on credit cards to pay for everything, so this behavior seems normal.

But it’s definitely not normal. Living off credit can lead to feelings of anxiety and guilt – not to mention a depleted bank account, relationship problems and bad habits that can last a lifetime.

If you think you might be someone teetering on the edge of abuse, check out this list of “8 Signs That You Abuse Credit Cards.” If you relate to any of these, it’s possible you need to change your behavior.

8 Signs That You Abuse Credit Cards:

  1. You don’t know your balance. You just pay the minimum monthly payment each month.
  2. This is your only source of discretionary income.
  3. You regularly apply for new cards.
  4. You pay your credit card bills using high-interest loans or cash advances from other credit cards.
  5. You don’t save money; instead you believe that credit cards are the solution to all financial problems.
  6. You avoid thinking about how much you owe, because if you did you would feel guilty.
  7. Your credit cards are all maxed out.
  8. You hide your credit card debt from your spouse and family.

If this is you, then the first step is to get out of denial. Admit you have a problem and then face it head on. You will feel so much better once you take control.

Going From a Spender to a Saver Right Now

First, figure out how much you owe on each card. Then make a plan to pay them all off – as soon as you destroy these cards.

Yes, destroy them.

You don’t want to be tempted by just one little brunch date or manicure. From this moment on, you’re a saver! So, you have to act like it.

It’s going to take time to refrain from buying new shoes the moment you want them, but if you keep exercising your self-control – it will grow into a strong muscle that can power through even the best deals and most amazing shoes you’ve ever seen.

Need tips on how to develop self-control and be money confident? Subscribe and listen to Crystal’s podcast!

 

We’re not advocating to live like a monk. But, you can’t enjoy life if you’re worried about how much you owe – and how little you have in the bank.

If you’re an impulse spender, then you might want to figure out what’s triggering you. Do you shop when you’re bored? Online? With friends? Whatever it is, you have to make sure you have an escape plan when the shopping urge strikes.

The Bottom Line

Escaping the credit card trap is tricky, but not impossible. People do it every single day, and so can you.

Remember, the moment you feel bad about your last-season sneakers as Mrs. Jones strolls into your workout class with really cute, new Nikes… imagine your bank account growing. Now, imagine yourself at 56, about to retire, with a wonderful nest egg that will allow you to have the lifestyle you’re used to. Pretty nice, right? Now imagine Mrs. Jones’ nest, there’s no egg in it – just a lot of credit card bills and old sneakers. Don’t be like Mrs. Jones.

It’s not too late to change your habits. Check out the light version of our Money Diary. It’s an amazing and simple tool to help you track your spending and income, so you can take control of your finances today! Ready to begin? It’s so easy – you’ll wonder why you didn’t start sooner!

 

1,2 https://www.federalreserve.gov/releases/g19/current/

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Money Confidence Podcast Episode 3: Easy 401K Tips You Should Hear Today

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/money-confidence/id1208123298?mt=2&i=1000381497867

IN THIS EPISODE, YOU’LL LEARN:

  • Common Questions About 401ks
  • Real-life Stories from Women Who Are Planning Their Retirement Futures
  • Financial Advisor and Money Maven Silvia Park Joins Us to Share Her Wisdom on Income Planning

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

LINKS AND RESOURCES MENTIONED IN THIS EPISODE:

Get a Light Version of the Money Diary Here: http://crystaloculee.com/money-diary-lite/

Six Common 401(k) Plan Misconceptions:  http://www.pljincome.com/6-common-401k-plan-misconceptions/

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!

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Women Beat Men In The Savings Race — But They’re Still Losing. Discover 3 Ways to Save Money Now!

The results are in: women are better savers than men – never mind what her shoe collection might say. A study by Vanguard showed that females are 11% more likely than men to participate in employer-sponsored savings plans, such as 401ks.

The number is even higher for women who earn less than $100,000 per year – this group participates in savings plan 20% more than their male peers.1

Women Save More, But Still Fall Short

The problem is women still might not have enough saved. A report by Aon says that women should have at least 11.5 times their final pay saved up by retirement.2

But because women don’t earn as much as men, they accumulate less in retirement savings – even though they save more. The most at-risk of outliving their savings is never-married, divorced, and widowed women.3

As men and women age, men earn more and more, widening the pay gap to 44 percent by the age of 80.

Knowledge Is Half the Battle

Now that you know the obstacles you face, you can do something to make sure you’re on solid ground during retirement. There are two basic choices here: make more money or save more money. In this article, we’ll focus on the latter.

3 Easy Saving Tips Today

1. First and foremost, keep a Money Diary. I have personally created one which you can download for FREE, right here.

This will help you track expenses, income and debt. It will also help you figure out whether it’s better to put extra money toward paying off debt or squirreling it away in a retirement savings account.

By understanding your money habits, you will feel empowered to steer your money into areas that will work for you.

2. Save automatically. People who auto enroll in savings programs have more saved than people who don’t.

If your employer offers a 401k, make sure you automatically put some of your paycheck into it. Always pay yourself first! Look at your retirement savings like a bill – it needs to be paid regularly.

3. Pay Off Credit Card Debt in Full Each Month. Avoid high interest rates and debt accumulation by paying off your cards every month.

You will feel the sting of paying a $1000 bill at the end of the month – but it’s better than paying just the minimum and owing a lot of money in interest. Another side bonus of paying off debt every month is that you might not want to run up big credit card bills.

It hurts more to pony up a few hundred dollars to pay off your Chase card than to pay the $30 minimum. Adding this sizable bill to your monthly expenses can get old very quickly – so it might deter you from maxing out your cards. Remember, by paying the least required amount, you are digging yourself further into the debt hole.

Those are just three simple tips that you can use today. But be sure to tune into the Money Confidence Podcast to get even more advice, tips and information designed to fatten up your bottom line!

 

1https://institutional.vanguard.com/VGApp/iip/site/institutional/researchcommentary/article/InvResWomenVsMenDCPlans
2http://www.forbes.com/sites/andrewbiggs/2016/07/05/youll-need-how-much-money-for-retirement/#299043b2c020
3http://www.epi.org/publication/retirement-in-america/#charts