Goldstone Financial Group: 4 Reasons Why Considering the Impact of Spending Is Just as Important as Saving

Goldstone Financial Group: 4 Reasons Why Considering the Impact of Spending Is Just as Important as Saving

Many economists agree that the personal savings rate in America is too low. Even though it climbed to 5.7% in late 2016, it’s still behind most other developed countries.

For instance, Switzerland households save 13.4% of their income. In Japan, workers have averaged a savings rate of 11.74% from 1970 to 2016.

For those looking to save more, what’s the solution? Obviously, making more money helps, but that may not be entirely possible for everybody.

What anyone can do right now is manage their budget better. Smarter spending equals higher savings—a good step towards ensuring a secure financial future. Here are 4 reasons why considering the impact of spending is just as important as saving.

1. A penny saved is still a penny earned

Benjamin Franklin’s famous quote is simple but profound. Anybody that’s worried about their financial well-being should remember it. Say it out loud, “A penny saved is a penny earned.”

Though most are familiar with this quote, it’s not being put into practice the way it should be. According to research from GOBankingRates, one in three Americans don’t have any retirement savings.

Cameron Huddleston, an expert columnist at GOBankingRates, believes this can be fixed. “There are plenty of obstacles Americans claim are in their way when it comes to saving for retirement,” she says. But things likes student loan debt, low wages, and a child’s education “don’t necessarily make it impossible to save for retirement.”

For those on a strained budget, the best way to save more money is to look at how you’re spending. There are many easy ways to save a few or even hundreds of dollars a month, from cutting the cord on cable to bargaining at flea markets.

2. Overspending carries future financial consequences

According to a study published in the Journal of Consumer Research, consumers overspend due to impatience and not thinking about long-term consequences. Examples of this play out every day.

For instance, 30-year olds probably don’t think about how buying a super-expensive TV today could negatively impact their quality of life at 65. That’s just so far away, and that TV can offer immediate pleasure.

This is what motivated the study’s researchers, Daniel M. Bartels and Oleg Urminsky, to look for ways to change this behavior. The two University of Chicago professors found that the solution is more complex than just thinking about one’s future self. While spending money, people must also care about their financial future. If someone doesn’t care, then spending less and saving more becomes less likely.

As Bartels and Urminsky say, “The best way to help consumers avoid overspending is to get them to both care about the future and recognize how their current behaviors affect the future.” Thinking and caring about the future is key to spending wisely today.

3. There is waste everywhere

Think of something like lean management in business. The core idea is to eliminate waste and improve efficiency. People should be applying this philosophy to the way they spend money.

Many may argue that saving is tough because all their income is spent on essentials, but research doesn’t necessarily support that claim. A survey by 24/7 Wall Street found that Americans spend roughly 15% on non-essentials (which means $15 out of every $100 doesn’t necessarily need to be spent).

Some common non-essentials include the following:

Pets
Travel
Eating out at restaurants

It’s worth noting that things that can be classified as “non-essentials” offer necessary relief from the stresses of life. Yet the fact remains that this is the primary area where wasteful spending occurs. Cut down any wasteful spending here and savings rates rise immediately.

4. Overspending leads to debt

It shouldn’t be a surprise that student loan debt can delay saving for retirement. It’s hard to stash away cash when lenders need those monthly payments.

For those that overspend and get caught in debt, the same idea applies. Habitual overspending makes getting out of debt—and saving—quite difficult.

It’s rather alarming that the average credit card per U.S. household is around $16,000. This indicates consumers are buying things without having the ability to pay in full. Carrying a credit card balance is necessary sometimes when the unexpected arises. But for many, high balances are simply a result of bad money management (overspending).

Also, since credit cards have higher interest rates, this means people are getting burnt by interest payments. That interest money could have been savings instead.

Saving more by spending wisely

In the end, it’s not necessarily about being stingy. It’s about spending more wisely. This means buying things at the lowest possible prices, staying away from unnecessary purchases, keeping credit card balances as low as possible, and more. If more folks start to pay attention to the impact of their spending, they’ll see their savings rise.

Goldstone Financial Group: Having Your Kid on Your Cellphone Plan is Affecting Your Retirement Plans

Goldstone Financial Group: Having Your Kid on Your Cellphone Plan is Affecting Your Retirement Plans

Providing for children when they are young is a common expectation. However, the situation gets more complex as children grow into adults but continue to need financial support. Known as “boomerang kids,” these children, aged 21 years or older, either live with their parents or continue to receive financial support even when living on their own. Parents want to help their children through the weak post-Great Recession entry level job market, but such assistance comes with the added cost of decreased savings and later retirements.

According to new data from the Pew Research Center, for the first time in 130 years, more young adults aged 18 to 34 live in their parents’ homes—32.1 percent of them—than on their own or with romantic partners. In such situations, parents often need to divert funds from retirement investing and saving to bear the added cost of providing for their adult child. A 2015 study conducted by Time Magazine revealed that, regardless of whether adult children live with their parents or not, 70 percent of parents polled spent up to $5,000 per year supporting an adult child, with 38 percent reporting having spent at least $1,000. Two-thirds of respondents aged 50 and older also indicated that they had provided financial support for a boomerang child within five years prior to taking the survey.

Such amounts may seem small, but they add up quickly, especially at a time when parents should be actively working on accumulating wealth and diversifying their income streams as part of their retirement strategy. Although parents and adult children both feel that assistance should not go on for long, the reality is that it stretches over longer periods of time than anyone is comfortable with. Even if parents spend just $1,000 on their adult child per year, the sum they lose from their retirement savings is even greater when they account for the loss in market-tracking index growth should that sum have been invested instead.

In addition to decreasing the amount of investments and savings, spending money to help adult children also results in people putting off their retirement. A study by Hearts and Wallets revealed that parents aged 65 and older who have financially independent adult children are twice more likely to be retired than their counterparts who are supporting adult children.

To help offset the financial burden of supporting a boomerang child, parents can set expectations and boundaries. Parents can ask boomerang children who live with them to pay rent or contribute to household spending in other ways. Regardless of whether their children live with them or not, parents can also help themselves and their children by assisting their kids with networking so that they can find a well-paying job and become financially independent. Setting boundaries and creating a plan for when a child will move out or assume increased financial responsibility can also be helpful in keeping parents’ spending in check. Finally, assigning household maintenance responsibilities or other chores may free up parents’ time to turn to turn their attention to financial matters.

Of course, each situation is unique, so there is no one size fits all strategy. Some boomerang children may be unable to secure a well-paying job while others are crushed by crippling student loan debt. Nevertheless, parents should strive to keep their retirement strategy in focus so they don’t run the risk of outliving their assets or having to ask their adult children to care for them later in life because parents spent their retirement savings providing for their adult children today.

photo credit: Wikidpedia

Goldstone Financial Group: The Discussion Every Couple Should Have for Retirement

Goldstone Financial Group: The Discussion Every Couple Should Have for Retirement

Even as they enter their 50s and 60s, couples tend to avoid discussing their retirement. Although the subject can be uncomfortable because it touches on the end of life, not talking about retirement often leads to problems, both financial and domestic. To ensure that you and your partner are both well taken care of when you choose transition from the workforce, we recommend that you discuss the topics outlined below as early as you can.

  1. When do you plan to retire?

Because this question impacts both finances and lifestyle, it can often be the most difficult one for couples to resolve. Your partner may wish to retire early after a prosperous career, but you still feel satisfied in your work and are not yet ready to leave it behind.

The best way to get past a potential roadblock is to examine the impact one partner’s earlier retirement will have on your mutual financial situation. Having one partner remain in the workforce can increase retirement savings, grow your employer-sponsored pension, and delay taking out social security benefits, which can be helpful in making sure that neither of you run out of money once you’re both fully retired. Having one partner keep working may be especially beneficial in light of the fact that women are expected to live as much as 10 years longer than men, which could result in their living past their retirement savings.

  1. Where do you plan to retire?

This question impacts the kind of lifestyle you and your partner might want. Talk about your interests and the activities you wish to pursue in your free time. Depending on whether you’d like to live in a pricier urban setting or somewhere less expensive and more rural, the answer will also impact your finances. State income and property taxes, which vary widely, can also affect your decision. Whether to live in a house—which can require financial investments for upkeep as it ages—or to downsize to a condominium to free up more cash and have less maintenance activities to worry about is another key point to consider.

  1. What does retirement mean to you / how will we spend our time?

If you’re both retiring around the same time, do you or your partner plan to work part-time, whether to make extra money or simply to remain active, as many retired professionals increasingly do today? If one of you chooses to retire early, will that partner help the other in his or her professional career? Would you or your partner be happy spending your days pursuing exclusively non-professional interests? What do those interests include? Consider the costs of travel, theatre, family time, etc.

Developing a financial plan for retirement can help answer these questions. It is recommended that each partner prepare to answer these questions separately, as that will make your discussion more productive when you come together to merge your ideas into a unified plan. Do not let yourselves get frustrated if you cannot find common ground right away. Plans of this nature often take months of negotiation before they are set.

  1. Whose investment style will we follow to meet our mutual goals?

You or your partner may manage your own 401(k)s or IRAs as you move through your careers. This individualized approach does not need to change. However, the two of you should choose a financial advisor that can guide both of your individualized efforts to work together in an overall portfolio that serves your mutual goals. You should also discuss ways to keep your investment funds growing even after you begin drawing on them.

  1. Will we leave any money to our children and/or to charity?

If you’ve come to this point in your retirement discussion, it is likely that you have agreed upon the points outlined above to your mutual satisfaction. Still, this topic can also produce passionate discussion, depending on your family situation. After you agree upon the best ways to serve your family and legacy, we recommend working with a financial advisor to learn about the many different tools for passing on wealth to heirs or the charitable organization(s) of your choice.

Goldstone Financial Group: Tips for Planning Your Post-Retirement Career

Goldstone Financial Group: Tips for Planning Your Post-Retirement Career

While having plenty of money at your disposal during retirement is a goal for many, it’s not the only secret to happiness and fulfillment during your retirement years. Findings from the 2010 Health and Retirement Study Survey found that life satisfaction for retirees goes beyond income and wealth to include health, retirement decisions, and the quality of their social life.

Making retirement decisions early and working towards these goals could just be the path to happiness for many retirees. Here are some important things to consider when planning your post-retirement career:

Prioritize Your Career

If you managed to set aside a few million dollars through savings and investments during your retirement years, you may not want to explore jobs or a new career. However, if work fulfills you in some way, you will want to secure a position you are interested in and get paid well for given your years of expertise and experience. Results from a Merrill Lynch study found 72 percent of people over the age of 50 want to work in retirement and 37 percent of pre-retirees who want to work in retirement have already taken steps to prepare for their post-retirement career.

Consider Your Earning Potential

If you plan on working full-time during retirement to cover your bills and expenses, you’ll need to evaluate how much you need and what your income potential is based on the current job market. This can be stressful for some — especially if you have been out of the job market for a while — so doing some research, interviewing for different positions and setting some income goals can help you make a decision that’s right for you.

Factor in Socialization Opportunities

Opportunities to socialize may be limited if you end up working from home or stay out of the job market altogether. If you are a surviving spouse and live alone, you may need to be even more proactive about maintaining a healthy social life. Experts say retirees need to participate in social activities to maintain a healthy and meaningful life through retirement and reduce their risk of death. If you aren’t meeting up with friends regularly or staying active in your community in some way, you may be compromising your health and missing out on some valuable opportunities to connect with people. Make sure an active social calendar is part your post-retirement plans.

Review Your Financial Portfolio

Whether you were a diligent saver or an ambitious stock investor during your working years, now is the time to enjoy the fruits of your labor. Meeting with a financial advisor or retirement planner can help you determine whether you are managing your wealth effectively and how to distribute funds. You may be able to buy annuities, make additional profitable investments, and save money with some smart financial moves before and during retirement.

Take Care of Your Health

You may already be taking care of health and medical issues and seeing a physician regularly for checkups. Make sure you’re also taking steps to take care of your health in natural ways, by eating a well-balanced diet and getting regular exercise. Take care of vision exams on schedule, keep up with dental visits, and explore natural health or alternative health remedies to manage stress. Your retirement years will be more fulfilling when you have the physical and mental abilities to enjoy it all. Be proactive about your health, talk to your doctor about wellness plans and take medication on schedule to set yourself up for a healthy lifestyle throughout retirement.

Mapping out your post-retirement plans can be overwhelming but there are several things you can do to set yourself up for years of happiness and satisfaction. From reviewing your financial portfolio to re-entering the workforce, use these tips to set some goals for yourself during your retirement years.

 

Goldstone Financial Group: Top 4 Tax-free Options for Retirement Planning

Goldstone Financial Group: Top 4 Tax-free Options for Retirement Planning

When planning for retirement, it’s essential to consider multiple sources of income. Social Security may not be as beneficial as expected, particularly after taxes. Outside of pouring money into savings, pre-retirees should look into options for non-taxable income well before the time comes to call it quits.

Here are four ways to start building towards a tax-free future in retirement.

Roth IRA:

One of the best options for retirees looking for tax-free income is the Roth IRA. Unlike most other retirement plans, a Roth IRA grants a tax break on withdrawals rather than contributions. Direct contributions can be withdrawn at any time, without worry of tax or penalty. Earnings can be withdrawn tax-free as well, after a five-year period, and for individuals 59 and a half years of age or older.

The Roth IRA has advantages over alternative tax-free options such as municipal bonds. Though munis have no income limit, the interest they pay is generally less than taxable bonds, and they may be subject to state income taxes. Also, municipal bonds may be counted as a source of income for early recipients of Social Security, potentially hurting their pay if they make $15,000 or more.

Unfortunately, the Roth IRA has income limits that disqualify some people from making contributions. Many people hold off until after retirement when they enter a lower income bracket, though financial experts advise making contributions as early as possible for greater benefits down the line.

Roth 401(k), 403 (b):

Plans such as the 401(k) can accumulate huge savings as the employer will match whatever the employee contributes. The IRS also allows for Roth contributions to 401(k) and 403(b) accounts. While the Roth IRA has an annual contribution limit of $5,000 or $6,000 (depending on age), the limits on Roth 401(k) contributions are much higher and are not restricted by income eligibility.

Regardless, pre-retirees should look to max out their contributions to company-sponsored plans each year. It will pay off in the future.

Health savings account:

Some employers offer an HSA-qualified health plan, allowing employees to contribute tax-deductible funds that roll over and accumulate each year. These funds can be withdrawn at a later date to pay for various medical procedures, some of which may not be covered by health insurance.

A health savings account can eventually become a useful source of tax-free retirement income as the funds can be used as reimbursements for past medical expenses, or to pay for current Medicare premiums and health costs. Withdrawals are not subject to income taxation if made for qualified medical expenses.

Life insurance:

Though most people look at life insurance as something that will only be of benefit after they pass on, it can also become a potential source of retirement income.

A life insurance retirement plan (LIRP) allows owners to contribute funds beyond that required by the plan’s premiums and later withdraw the excess cash tax-free.

According to expert Kevin Kimbrough of Saybrus Partners, these funds accumulate similar to an annuity but come with an added benefit.

“Unlike the annuity, you’re able to take your basis out first and that comes out tax free,” said Kimbrough to ThinkAdvisor. “When you get into the gains, you’re able to switch over and start taking policy loans against the income-tax-free death benefit.”

This method is usually better suited for higher earners, due to the fees associated with such an investment. It’s highly advisable that pre-retirees examine their portfolio, research and adopt a plan best suited for their particular circumstances.

“There are only two options in retirement: You can be working for your money or your money can be working for you. You have to be realistic and ask yourself if you really can retire when you’d like,” said finance advisor Christopher Kimball to Turbotax. “During retirement, it is critical to monitor your investments and current tax law. You should be positioned to take money from whatever ‘bucket’ is most beneficial at the time.”

 

Goldstone Financial Group: 3 Retirement Strategies for Retirement Planning

Goldstone Financial Group: 3 Retirement Strategies for Retirement Planning

Did you know that you will probably live longer than you think? Average life expectancy has grown by three months every year from 1840 to 2007 and shows no signs of slowing down. Family history is also not necessarily indicative of how long someone may live. Lifestyle choices such as diet and exercise can have a dramatic impact on the length of life.

Longer lifespans mean we have more time to enjoy the things and people we love most. But they also pose a unique challenge. What is the best method to save enough money to retire and live comfortably and worry-free?

In order to help you choose the best options for you, we have put together information on the pros and cons of some of the most popular, “tried and true” retirement investment strategies and highlighted their effectiveness in today’s life changing times.

Fixed and Hybrid Annuities

Annuities are a great way to save for retirement because they can potentially generate interest over a fixed time on a principal amount that is guaranteed. Because you are not required to annuitize—to receive payments at a regular interval from the annuity—certain kinds of annuities also offer the flexibility to leave money for your heirs.

  1. Straight Life

This is the simplest, least expensive annuity. It pays benefits until the death of the annuitant—the person receiving the funds—without an option to appoint a beneficiary.

  1. Life with a Guaranteed Term

This somewhat more expensive option allows the annuitant to designate a beneficiary. If the annuitant dies within the guaranteed term, the beneficiary will receive the remainder of the annuity in one lump sum.

  1. Substandard Health

This type of annuity is advantageous for someone with a serious health condition. Although the annuity will cost more the less the annuitant is expected to live, the payouts are larger than in an annuity in which the annuitant is expected to live a long time.

  1. Joint Life with Last Survivor

This annuity allows the annuitant to select a beneficiary who will receive payments regardless of whether the annuitant dies within a certain term. However, because of the added insurance component of this product, this is the most expensive fixed annuity.

  1. Hybrid (a.k.a. Fixed Indexed)

Fixed indexed annuities are known as hybrids because they invest your principal in the market, allowing for higher rates of return, but still guarantee the principal amount. Therefore, even if the annuity does not generate any additional interest because the market tumbles, your initial investment remains safe.

Traditional and/or Roth IRAs

Investment retirement accounts are an excellent, tax-efficient tool for setting funds aside.

People who contribute to a traditional IRA are able to deduct the contribution from their annual federal and state income taxes. However, once they withdraw funds in retirement, the withdrawal will be taxed as income. Conversely, contributions to Roth IRAs are not tax deductible but future withdrawals won’t be taxed.

Choosing the right IRA depends on several factors. Roth IRAs have strict and specific income requirements. Additionally, depending on the difference between the current and potential future tax rate, one type of IRA may be more advantageous than the other. Finally, traditional IRAs require you to take mandatory taxable distributions beginning at age 70½ whereas Roth IRAs do not require you to take any money.

401(k)

A 401(k) is an employer-sponsored retirement fund that invests your money in order to generate more. This savings strategy may yield excellent benefits but may also be the riskiest option.

The benefits:

The amount of your annual contribution to your 401(k) is tax deductible. Additionally, many employers will match your contribution up to a certain amount—usually 3% of your annual income—essentially giving you “free” money.

The cons/risks:

First, the IRS sets caps on the annual amount you can put into your 401(k).

After you retire, withdrawals are taxed as income and may be taxed at a higher rate than your present tax rate. You may also not be able to withdraw your employer’s contributions until after the vesting period concludes.

Additionally, should you find yourself in need of money before the age of 59½, you will be subject to a 10% withdrawal fee.

Finally, 401(k)s grow your money by investing it in mutual funds. Whenever money is invested in such fashion, there is a risk that stocks can crash and that your 401(k) will lose significant value. Fortunately, you have full control over how your money is invested, so this risk can be minimized with some education about the market and less risky investment strategies.