The Shoulds Of Retirement


When it comes to retirement, the variety of ways to save money can be so confusing that even the most diligent investors might wonder if they are looking at the right information, doing the right thing or if they’re even on the right track. Would you know if you should be using a fancy savings plan?  Should you put more in? Less?  Should you panic?  While we’ll get to the rest of the questions, the answer to the last one is no, you should not panic.  There is no retirement plan anywhere that does better when you panic.

For anyone confused about retirement, there are lots of sources that explain who, what, how, when and why, but very few places to turn for one of the most important questions – should.  This guide is meant as a quick reference to that really tricky word, with some of the most common “should” questions answered. Like any other guide, though, it can’t be as specific as you’d like, so if you have more questions, get in touch with us at 410-663-2500, or ask questions our Facebook pageAsk us your shoulds or see what shoulds other people are asking.  If you’ve got a question, it’s a safe bet you’re not alone. 
Question:  How much money should I have when I retire?
Answer:  This is the most common “should” question in America right now, probably because of its importance.  The answer that most experts give, “as much as you’ll need” isn’t particularly helpful.  A better, although still maddeningly incomplete answer involves some simple math you can do on the back of a napkin: take your annual income the year before you plan to retire and subtract your annual retirement income (Social Security, pension, trust, etc.) from it. Whatever that difference is, multiply it by the number of years you expect to live after retirement, probably 15-20.  That’s how much you need, give or take a bit.
For example, if your Social Security and pension pays you around $50,000 per year and you’re making around $150,000 before you retire, the difference is $100,000.  Multiply that by 20, and you’ll probably need around $2 million.  If that sounds like a whole lot of money, that’s because it is a whole lot of money.
Question:  How much should I be saving now?
Answer:  Another question that all-too-often results in a frustrating answer. You should save as much as you can, but not more than you can.  A better answer is that retirement should be your savings priority, ahead of college funds or other long-term savings simply because you can’t get a loan to retire, but you can for virtually everything else.  If you feel like your monthly contributions are just drops in the bucket, stop focusing on the bucket.  Instead, take a look at your monthly picture.  Make a pie chart with five big slices:  Bills, debt, spending, short-term savings and long-term savings.  This isn’t yet the time to go through and figure out how to trim your bills or refocus your spending, just look at those five. How much of your long-term savings is being used for retirement?  Could that number be higher?  If so, put more into retirement.  If you want to find ways to reduce your costs so you can save more money for retirement, look at those categories again and start making cuts from right to left.  First, cut some spending from other long-term savings.  Then short-term savings, spending, debt and finally bills.
Question:  When should I start saving?
Answer:  If you read the last two questions and have sharp pattern recognition skills, you might expect a frustrating answer, but this one is actually easy.  If you haven’t started, start today.  Like, right now. Seriously, either click this link for information on our IRA programs. It only takes a few minutes, and you’ll feel so much better.  Remember the motivational cliché: the best day to plant a tree was 20 years ago, the second-best day is today.
 
Question:  What kind of retirement account should I get (or get next)?
Answer:  There are three major considerations when selecting a retirement account.  First, how many years do you have until you retire?  The answer to that question should help determine your risk.  The second question is how much money do you make?  The answer to that question determines whether you’d like to be taxed on the income now or in retirement.  Unfortunately, you’ll have to pay taxes on it at least once.  Finally, have you maximized the benefits of another account?  If you’re past the point of getting your employer to match your 401k, look at all of your options.  If not, put in as much as you can that your employer will match. You’re not going to find a lot of retirement plans that pay more than the 100% rate of return your employer is offering by matching funds, and if you do find one that can consistently outpace your employer’s contributions, it’s probably illegal.

Once you have the answers to those questions, check the link above or drop us a line at info@destinationscu.org and we’ll set you up with the best plan we can.

There are a lot of retirement guides out there, but most of them aren’t very good at those “shoulds” that matter so much in our daily lives. Hopefully, this guide has given you enough information to know what questions to ask.  We’d love the opportunity to talk about these shoulds or any others you might have. For now, check out our Facebook Page and join in the conversation!

Sources:

http://www.savingforcollege.com/articles/coverdell-ESA-versus-529-Plan
http://money.cnn.com/retirement/guide/basics_basics.moneymag/index7.htm

http://money.usnews.com/money/personal-finance/articles/2014/12/19/7-retirement-savings-accounts-you-should-consider


Building A Bridge To Retirement: Leaseback Arrangements

Whether they want to get more sun, get closer to grandchildren or downsize their home to cash out some equity, Baby Boomers are moving more often during their first few years after retirement than did the previous generations of retirees. The final year in the workforce can feel a lot like moving, as individuals run themselves ragged trying to make last-second arrangements, finalize budgets and journey into a yet-unexperienced phase of life. So retirees who are moving often have twice the stress, too.  Leaseback arrangements, a staple of commercial real estate, have become far more popular as Boomers retire, allowing retirees to eliminate some of the stress and uncertainty involved in moving during retirement. 

How it works 

A leaseback is a financial arrangement in which an individual sells their home with the understanding that they will immediately enter a lease agreement with the new homeowners so they can stay in the house for an agreed-upon amount of time.  Leasebacks can work two ways for those nearing retirement. First, a retiree can sell the house in which they’ve been living and lease it from the new homeowner until they retire, or alternatively, retirees can buy the perfect retirement property as soon as it becomes available and lease it back to the previous homeowners until the retiree is ready to move in.  Leaseback arrangements don’t have to be complicated or intimidating, and they can provide security to both sides of a home sale. 

Benefits for home sellers 

  • Selling a home before retirement ensures retirees know exactly how much money they will get for their home.  One of the scariest parts of retirement planning is the fear that something will go wrong. Knowing exactly how much money a soon-to-be-retired individual will get for their home can help provide some peace of mind.
  • Leaseback arrangements let homeowners take a long time selling their home while having the confidence they can begin the process early without ending up without a place to live. The extra time ensures they don’t have to jump at the first offer that comes along, and can wait for a good bid.
  • With a traditional home sale, there is the potential that retirees won’t sell their home in time and then end up with two monthly mortgage payments.  A leaseback arrangement lets retirees sell their home first, guaranteeing they won’t end up with two mortgages.
  • Arranging a leaseback gives retirees cash in hand to improve their financial outlook.  By selling their home and becoming renters for a year, retirees can reinvest their home equity in the high-return parts of their portfolio, pay off high interest credit card debt or finance the business they plan to run in retirement.
  • The cash from a leaseback also helps reduce the uncertainty of the first year, when most retirement calculators ask people to guesstimate their expenses.  The first year of retirement is often the most expensive, as newly retired folks take celebratory vacations, buy hobby supplies or make COBRA payments while they await Medicare or Medigap eligibility.
  • Leaseback arrangements can also help retirees who are too young for full Social Security or pension payments by giving them cash up front to hold them over until they can receive full benefits.

Benefits for homebuyers

  • While leaseback arrangements offer more benefits to sellers than they do to buyers, they still offer buyers some pretty big advantages.  Most importantly, buying a home and leasing it back to the current residents ensures that retirees who can wait a little while to move in can get exactly the home they want.
  • Nothing says that homeowners need to lease their home at the same price as the mortgage.  By entering a leaseback agreement and waiting an agreed-upon amount of time, retirees can make a profit off of their retirement home while they wait!
  • Leasebacks give those near retirement the ultimate bargaining chip when they’re negotiating the sales price: By starting the process earlier and having more time to shop for a retirement home, those nearing retirement have the ability to walk away, helping ensure they get the best possible price.

Arranging a Leaseback

Arranging a leaseback is actually quite simple and only involves two steps, one of which you’ve done before.  First, arrange a home loan like you would for any other residential property.  If you already know what you want to buy, apply for your mortgage at Destinations Credit Union.

Then, talk to your realtor about a leaseback arrangement.  Many realtors offer temporary leaseback agreements as a standard part of a sale, so even if they haven’t arranged a long-term leaseback before, it should be a piece of cake.

Sources

Lessons from the Richest Nation Ever


As of June 2015, America is the richest society ever, after a strong spring in which Americans accumulated $1.4 trillion in total assets. With the Dow and NASDAQ recently hitting record highs and home prices finally reaching pre-bubble levels, there’s no telling what records might be broken in the future.

Not everyone is enjoying this windfall, though, and you may be one of those who are wondering where your gold-plated Ferrari is or why your etched crystal brandy decanter isn’t as jewel-encrusted as your neighbor’s.  If so, it might be a good time to take stock of your surroundings and draw some lessons from the country about accumulating wealth.

Who has all that money?

A very small number of people have a very large share of American wealth in 2015, as many middle class families are still feeling the effects of the 2008 financial crisis and The Great Recession.  A recent Pew study found the gap between the rich and the middle class is at a 30-year high, and most of the typical American’s net worth is tied up in their home.

While America’s total net worth is at a record high, the typical American household’s net worth is $81,200, down two percent in the last five years.  The top 10 percent of households are worth about 40 times more than the typical household, with an average of $3.3 million.  The top one percent of the top one percent of American households is even more staggeringly rich, with about 16,000 families owning 12 percent of American wealth, about $630 million each, on average.  More distressing, about half of  

Americans have a net worth of $0 or less.

Who are the rich people in the country?

The rich tend to be older than the country as a whole, with millionaires being 57 years old on average, while the typical American is in his or her late 20s. Millionaires typically come from more humble backgrounds, with about 80 percent being first-generation millionaires.  They are likely to be married, have two children and live in middle-class neighborhoods.  In other words, millionaires look a lot like the middle class, except a few years older and wiser.

What do I need to do to become a millionaire by my 50s? 
The first steps to accumulating wealth are the things you’d expect: 

  • Spend less than you earn
  • Save the rest
  • Invest patiently and
  • Own your home

It might seem obvious, but those four steps can be difficult and the difference between understanding the concepts and achieving them can be daunting.  If you’re looking for some guidance, Destinations Credit Union can help. Our online accounts and tools such as MoneyDesktop make budgeting a breeze and we offer a variety of savings products for members of any financial background. We have home-buying specialists who can guide first-time homebuyers through the process, from putting together a down-payment to securing one of our competitive mortgage rates. 
What might be more surprising is that the rich tend to own their own businesses, with about 4 out of every 5 American millionaires identifying as self-employed or retired from self-employment.  There are 28 million small businesses in the United States, defined as companies with 500 or fewer employees, and small businesses have created nearly 2 out of every 3 net jobs in the last 20 years, currently employing more than half of all working Americans.
Owning a piece of the American economy is a clear path to wealth, and with the knowledge base that comes with 21st century technology, that path is more well-worn than it has been in the past.  Seven out of 10 new small businesses with more than one employee survive for at least two years, half last for at least five years, and a quarter of those new small businesses are expected to still be going strong in 2030.  Over half of the small businesses created this year will operate out of their owners’ homes, often starting as an extension of their founder’s favorite hobby. 
Are there any other ways to grab the brass ring?
If you’re not interested in starting a business, you can still build a comfortable savings account by putting away part of each paycheck. It may be difficult, but it’s not impossible.  Of course, there are other options too. One woman in Las Vegas won the lottery four times in the last 25 years, so you might want to borrow her lucky rabbit’s foot.

Sources:

   

Bubble Bursting

The economy has always moved in cycles. There are times of vigorous expansion followed by periods of slower growth or retraction. It’s been happening since the dawn of recorded history and will likely continue to go that way for generations to come. There are a million theories to explain this phenomenon, from sun spots to demographics, but the “why” is less important than the demonstrable fact of the business cycles.

When people talk about “bubbles” and “bursting,” they’re putting this widely observable fact into panic-inducing language for the purpose of sensationalism. A headline reading “Economy doomed due to bursting bubble” sells a lot more papers than one that reads “Economic cycles continuing as normal for past and foreseeable future.” Yes, some periods of economic retraction are more intense than others, but the sky is not falling.

Federal Reserve meetings have begun regularly discussing the possibility of raising interest rates. Such a move might make several investments that have been lucrative for several years, such as insurance companies and financial service providers, suddenly less attractive. Such a shift, particularly by investment-generating annuities and other managed funds, will drive down prices in these sectors.

Changes are likely coming in the economy and it makes sense to modify your investment strategy. Sensible investors respond to market conditions to protect their portfolio. There are a number of seasonal adjustments that can help to insulate you from the inevitable retraction. You should discuss these moves with a qualified financial advisor.

1.) Sell off risky investments

Most people who predict a bubble bursting have some idea of what industries are exposed to the greatest levels of risk. Popular choices include real estate, financial services and manufacturing. These industries are generally more exposed to volatility in the market, so it makes sense to shade your portfolio away from these sectors.

This isn’t a permanent move. This is part of the most basic wealth-building strategy: sell high and buy low. Stocks and funds that comprise these sectors are likely near a temporary high. Their prices will fall and investors who sell will have the opportunity to reinvest at much friendlier prices.

2.)  Shift to non-cyclical stocks

“Sell in May and walk away” is common stock market advice. Many sectors, especially cyclical consumer goods, tend to notice dropoffs in their stock prices during the summer months. Families choose to spend their discretionary money on vacations and other experience-related items instead of electronics or fancy clothing. While this advice is generally good, it’s incomplete.

Rather than leaving your investments in cash, move them into less volatile options. With interest rates poised to go up, bonds and other savings instruments can be a good way to shield yourself from risk. This is called “defensive investment.” When you expect stocks to perform slightly worse than average, investment vehicles, which are less influenced by market forces, become smarter picks.

3.) Adjust your retirement plans

One of the only dangers to the coming retraction is to people who are planning to retire in the next year or two. Those folks may experience a dramatic dip in their available retirement funds right at the time they need it. If retirement plans are flexible, it makes sense to wait out a market downturn. Postponing retirement by a year or two can improve your standard of living dramatically.

Otherwise, not only will you not be pulling out money from your retirement account at the time you can least afford it, but you’ll also lose out on years of buying cheaper stocks. Those prices will rebound eventually, which will magnify the return on those dollars. Earnings invested in down economic times are worth more in retirement than those invested in boom times.

4.) Stay calm

If you’re invested in managed funds, you may not need to take any action. Mutual funds, which are widely diversified, will likely continue to experience a similar rate of return. Individual securities will fluctuate wildly in price and sector funds will also be subject to some day-to-day volatility. Market-wide index funds will have slightly higher day-to-day changes in price, but on the whole, will still experience the same gradual rate of return. Odds are good your retirement account is in one of these funds if you selected it in consultation with a retirement planner.

As always, you need a certain amount of money available easily in case of emergency.  This is where Destinations Credit Union can help.  We have lots of savings options that will help you get the best return on your safe (insured) and liquid cash.  Payroll deductions or automatic transfers can help you save painlessly.  
You don’t need to panic about your 401(k) and put all your money in a mattress. You don’t need to quit your job and run for the hills. You may need to adjust your portfolio to take advantage of changing market conditions, but you shouldn’t stop planning for the future. Keep calm and save on!

SOURCES:

Financial Literacy Month – Celebrate Knowledge!


“April showers bring May flowers” goes the old saying. It’s also a great lesson about the importance of saving – where weathering some light showers can pay dividends during the nicer days that are to come.

April is Financial Literacy Month, and a great time to think about some important lessons everyone can learn about finances. Whether you’re a parent looking to make talking money with your kids easier or a professional looking for a few tips, there’s always something to learn. Here are some fun activities you can do to expand your financial knowledge.

1.) Make a financial date night

Most people dread doing anything with their money. Unless there’s a serious issue, they don’t think about their bills or their paychecks. When something serious comes up, they do little more than panic and figure out how much money to throw at it so it’ll go away. Money is scary, and not dealing with it is the easiest thing to do.

If you want to improve your knowledge of finances this month, schedule a financial date night. It doesn’t matter if you’re partnered or on your own, it works the same way. Pick a day when there’s nothing good on TV, no major social events and no serious distractions. Put some light music on. Pour yourself a glass of wine. Sit down with your bills, your paycheck and anyone else who matters to your finances, and figure out where you stand.

This can be a time to make dealing with your finances fun. You can do a little daydreaming and figure out what your future looks like. Jot down some goals and think about how you can achieve them through your monthly budget. Make a financial date night part of your monthly routine!

2.) Build a list of needs and wants

One of the best ways to build an efficient budget is to start from a list of priorities. What do you spend your money on each month? Make a list of all your expenses. Then, break them into one of three categories.

The first category is the essential, non-negotiable bills. These are your big-ticket essentials that have serious consequences for missed payments. Your auto loan, your rent or mortgage, your utilities and your taxes go here. This is the bare minimum you need to bring in each month.

The second category is the essential, negotiable obligations. These are unsecured loans such as credit cards and student debt. You need to pay them, but if you have to miss a payment, these are the ones to miss. Paying these off is a priority after you make your essential payments, and you may have some room to negotiate and reduce these payments if things get dicey.

The third category is the inessential spending. This is everything else you spend money on each month. This is the best place to make cuts when you want to shift your priorities.

Making a list of priorities is the first step to making solid plans and reshaping your own financial destiny. When you know where your money is going, you can start to move from financially existing to intentionally spending. That’s the beginning of improved financial literacy.

3.) Take charge of your retirement planning

Financial security means planning for the day when you can’t work anymore. Financial literacy is all about taking an active role in thinking about that future. There are a few concrete steps you can take in April to put yourself ahead of the game.

If you’re not already doing so, contribute to your employer’s 401(k) program. Most employers will match contributions up to a certain level. If you’re not contributing enough to get the full amount of that match, you’re leaving money on the table. Set up automatic contributions out of every paycheck to automate that savings.

April 15 is the last day to contribute to an IRA for 2014. Even if you’ve already filed your taxes, you can file an amended return to get credit for your contribution. More importantly, you can add to your retirement nest-egg and take advantage of the tax benefits of those accounts. Visit Destinations Credit Union to open your IRA today.

There’s also no shame in asking for help. Retirement laws are complicated, and it takes an expert to really understand their intricacies. Speaking with a qualified financial planner can take some of the guesswork out of it. This conversation can also help you clarify what retirement looks like: what your goals are, how much you need to save to achieve them and what programs are available to help you get there.

If you’re counting on Social Security to provide for your entire retirement, you’re in for a rude awakening. Benefits are shrinking and the fiscal solvency of the program is always in danger. Taking an active role in your retirement planning is the best way to get some peace of mind about your future. It’s never too late. Retirement planning you do at 50 is better than retirement planning that never gets done!

SOURCES:

Social Security Changes: What You Need To Know


About 46 million retired people and their dependents receive Social Security, and the average benefit is around $1,300. If you’re reading this, odds are good you either know someone who gets this benefit or are someone who does. What you may not know is that this benefit may be subject to change this year. 

Most experts agree that the Social Security program is in long-term trouble. By 2033, the program will only be able to fund about 75% of its current obligations. By 2083, that level drops to 72%. With these breakdowns in funding looming, changes had to happen. Imagine a current retiree on a fixed income being asked to give up 23% of her monthly check. That would mean poverty and destitution for millions of elderly people. 

Significant overhauls of the program are coming but involve a lot of complicated political maneuvering. In legislative circles, Social Security is known as the “third rail.” In subway language, the third rail is the one in the middle that carries all the electricity. If you touch it, you die.

In the mean time, a variety of smaller reforms have been implemented, designed to ensure the short-term survival of the program. In 2015, there are three significant changes to Social Security benefits. Note that most of these changes only apply to future beneficiaries and current recipients will continue to receive a benefit similar to the one they’re currently receiving.

If you’re worried about how your chances of collecting change, take a look at these three upcoming changes:

1.) Mail-in benefit statements

If your age ends in “5” or “0” in 2015, expect a letter from the Social Security Administration this year. The statement will explain how much you’ve paid in and what kind of benefit you can expect to receive. The benefit will be estimated based upon several retirement age options, starting with age 65.

The administration suspended mailed statements last year, but restored them for 2015 to allay fears about the short-term survivability of the program. Obviously, the numbers listed in the statement are estimates, but they should provide a helpful guide for those approaching retirement. They expect to send out 48 million statements in 2015.

If you’re already receiving Social Security, you’ll receive an annual statement unless you’ve already opted to receive online-only statements. That recipient statement will include the cost of living adjustment for the year, the monthly benefit and any survivor benefit your spouse will receive.

2.) Higher Social Security taxes

One of the biggest problems facing Social Security as a program is a shortage of revenue. The way income is taxed for the program is riddled with exceptions and exemptions. The Social Security Administration can’t encourage people to die sooner, but it can collect more revenue to make up for longer life spans.

Previously, employees were taxed on the first $117,000 of income. This year, that amount will be $118,500. To make up for the slightly increased ceiling, the maximum benefit will also increase. For people who wait until age 66 to take Social Security, there will be no maximum to their benefits. Also new this year, people who wait until 66 will receive an additional return on benefits they deferred during their 65th year.

3.) Windfall Elimination Provision

The biggest change facing Social Security is the attempt to correct “double pensioners.” People who work government jobs (as well as some kinds of non-government jobs whose salaries are carefully regulated) are enrolled in separate retirement programs outside Social Security. These individuals did not have FICA (the tax that pays for Social Security) deducted from their paycheck. They instead paid into a different retirement system.

Previously, such employees received the same spousal benefits as those who paid into Social Security. They also received additional Social Security benefits if they held a FICA-paying position at another time in their lives. This windfall elimination is the subject of a 1985 regulation that takes effect this year.

This change doesn’t affect members of the Armed Forces, whose checks have included FICA deductions since 1957. It also doesn’t affect state or federal employees who have FICA deductions from their paychecks. If you’re unsure, check your paycheck stub for a line labeled “FICA taxes.”

Those who didn’t pay in will have their direct benefits reduced by a proportion of their government pension. They will also have any spousal or widower benefits they would have received reduced by a similar amount. These so-called “double-dipping” eliminations will save Social Security $3.4 billion, helping to ensure the program’s longevity.

If you’re concerned about the availability of Social Security for your retirement, it’s never too late to take control of it yourself. Many savings vehicles are available, from savings accounts and certificates to IRAs. To find out what options work best for you, call, click, or stop by Destinations Credit Union today. Our representatives can walk you through all the options and help you get to the retirement of your dreams.

SOURCES:

Borrowing Against Your 401(k) – Is It Ever A Good Idea?

One of the many perks available to working folk is a company-matched retirement plan, named after the part of the tax code authorizing it. These tax-deferred retirement packages are the principal retirement vehicle for just over half of all people in the United States. Americans sock away about 6% of their pay in 401(k) plans to receive employee matching and tax breaks.
One feature many people don’t realize about 401(k) funds is that the account holder can borrow against the balance of the account. About 87% of funds offer this feature. The account holder can borrow up to 50% of the balance or $50,000, whichever is lower, but the whole amount must be repaid within 5 years. There’s no approval process and there’s no interest. It’s basically a loan you give yourself, and is a popular enough option that 17% of millennial workers, 13% of Gen Xers and 10% of baby boomers have made loans against their 401(k) accounts.
Despite these benefits, borrowing against a 401(k) is a risky proposition. There are harsh penalties for failure to repay and taking money away from retirement savings is always risky. Borrowing from a 401(k) account should not be a decision that is made lightly.
As with most financial moves, there are benefits and disadvantages to borrowing from a 401(k). It can be difficult to sort through them, particularly if your need for money is acute and immediate. Before you borrow from a 401(k), though, ask yourself these four questions:
1.) Will the money fix the problem?
Many borrowers use money from their 401(k) to pay off credit cards, car loans and other high-interest consumer loans. On paper, this is a good decision. The 401(k) loan has no interest, while the consumer loan has a relatively high one. Paying them off with a lump sum saves interest and financing charges.
But the question of whether repaying that loan will fix the underlying problem remains. Take a look at your last six months of purchases. If you had made a 401(k) loan six months ago and paid off revolving debt, would your debt load still be a problem? Perhaps not – your current situation may reflect an emergency or an unplanned expense. On the other hand, if your credit cards are financing a lifestyle that is above your means, you may find yourself back in the same position a year down the road – and with no money in your 401(k).
Borrowing against a 401(k) to deal with a medical bill, a first-time home purchase or an emergency car repair can be a smart move. Using a 401(k) loan to put off a serious change in spending habits is, as one financial expert put it, “like cutting off your arm to lose weight.” Before you borrow against your future, make sure it will really fix your present.
2.) Will the investment offer a better return?
Your 401(k) is earning money for you. It’s invested in stocks, bonds, and mutual funds that are appreciating, usually at a fairly conservative pace. If you pull money out in the form of a 401(k) loan, that stops.
The statement that a 401(k) loan is interest-free is only technically true. You have to pay back what you pull out, but before you do, it doesn’t earn any interest. Therefore, the “interest” you pay on your 401(k) loan really comes in the form of the gains you never produced on the money you borrowed since you were not investing it during that time.
If you’re borrowing from your 401(k) to invest in a business, ask yourself if your new venture will beat the return you’re currently getting. If you’re planning to pay off your mortgage, compare the interest rate you’re paying to that return. Don’t worry about trying to time or forecast the market. Assuming a 4% return (a safe average) is the most prudent course of action.
3.) Is your job secure?
If you’ve recently been promoted or gotten new training on an important job duty, you can be pretty confident you aren’t going to be let go from your job any time soon. If your recent performance reviews haven’t been stellar, or if your company has some layoffs pending, you might want to beware. If you’re at all hesitant about your future at the company, hold off on borrowing from a 401(k).
If you lose your job or retire with a loan outstanding, you have 60 days to repay the loan in its entirety. Otherwise, it counts as a “disbursement.” You’re responsible for taxes on the entire amount and you’ll have to pay a 10% early withdrawal penalty. Staring down big bills like that after you’ve just lost your job is not a fun predicament.
While job loss can happen at any time, you want to make sure you’ll be happy and welcome at your current employer for the next five years before you pull money out of your 401(k). You may also want to consider accelerating your repayment plan to get your 401(k) refunded as quickly as you can. Unlike some loans, there’s no penalty for early repayment. Plus, the sooner the money is back in your account, the sooner it can start earning for you again.
4.) Do you have other options?
If you’ve identified your need for money as immediate, consider what other options you may have available before you dig into your retirement savings. For home repairs, using your home equity line of credit can be a smarter choice. For an outstanding car loan, refinancing may make more sense. For a medical bill, it may be wiser to negotiate a repayment plan with the hospital.
If you’re purchasing a first home, consider the tax implications of mortgage interest. In many cases, you’ll receive preferential tax treatment for interest paid on a home loan. You won’t receive that same benefit from a 401(k) loan.
Borrowing from a 401(k) can be a good way to solve a short-term, specific problem. It does have risks, however, and the consequences to your future can be severe. If you’ve got another option, that’ll be better option for you more often than not.
SOURCES:

http://www.investopedia.com/articles/retirement/08/borrow-from-401k-loan.asp

Don’t Be Scared Of Retirement: Refire And Get Ready For The Best Years Of Your Life


More than half of our nation’s current workers have done nothing or next to nothing to save for retirement. Some might call them lazy, but it might be more realistic to call them terrified. They’re not scared about not having enough saved for retirement; they’re scared about retirement itself.

For a life-long worker, retirement may be a tough pill to swallow. Work is the anchor for your day. It’s why you get up when you do. It’s why you go to bed when you do. You divide your conscious hours between “work” and “not work.” There’s also a sense of identity in a job. Providing a simple answer to “What do you do?” can help you connect with others and yourself.

What’s retirement anyway? One might say it is just sitting around, doing nothing and waiting for death. In that mindset, continuing to work provides a meaning to your remaining years that can’t be found in a rocker, on a couch or in front of a TV.

It’s no wonder people aren’t saving for retirement. It’s a whole lot of extra work and sacrifice for something you may not even want. If this resounds with you, take a look at Refire! Don’t Retire: Making the rest of your life the best of your life.

Coauthors Ken Blanchard and Morton Shaevitz bring their entrepreneurial experience to life with the story of Larry and Janice Sparks. The Sparks begin their retirement unsure of what to do, but quickly discover ways to grow in their relationships, engage their minds, broaden their spiritual horizons and strengthen their bodies. They re-fire the flames of all their interests and take bold steps toward leadership in their communities.

Refire is an easy and engaging read that’s more motivation than practical guidance. In fact, critics have noted the lack of practical advice. Yet It’s received glowing reviews from other authors, industry leaders and even NCAA legend John Calipari.

If you’re thinking about retirement, Refire is a worthwhile investment. If you’re NOT thinking about retirement, it’s a must-have. Blanchard and Shaevitz will put you on the path to financial independence and security with imaginative ways for encouraging a generation that’s about to retire to make the most out of its retirement.

FOMO: Do You Live For Now Or For The Future?

Do you suffer from FOMO? It’s a generational phenomenon, like absinthe was for the Greatest Generation. For those not in the know, FOMO is an acronym that stands for Fear Of Missing Out. It’s that sensation in the back of your mind that makes you go out even when you’re tired. It’s the reason you go to the concert featuring that band you don’t even like that much because your friends are going. An adventure can happen anywhere, and if you’re not there, you’ll be the one person in the world who missed it.

How much influence does this fear have on today’s millennials? A recent Eventbrite survey found that 78 percent of 18- to 34-year-olds prefer to “invest in experiences instead of things.”  Seventy percent cited FOMO by name as a motivator for their financial decisions. But seeking out adventures, rather than investing in your future, has consequences. Its fine to live a low-maintenance lifestyle, and no one should criticize the decision to not have more stuff than you need. But that’s not always what’s happening in these decisions.

It’s not a coincidence that this same group is suffering financial hardship. Millennials have the highest debt percentage and lowest credit scores, according to Experian. The same study also finds that half of millennials were late on at least one payment last year.

Fighting FOMO is a serious challenge. It may be best to fight fire with fire and think about what you might be missing out on in the future. Let’s look at three ways you can use the Fear Of Missing Out to feed your financial future — rather than your financial fears.

1.) FOMO on retirement

Road tripping with friends across the country could produce some priceless memories. What could be even more priceless, though, is getting to take that trip with your spouse and family once you’ve retired. Cutting your travel budget now and putting the extra into an IRA is the difference between a life of leisure and dying at your desk.

Don’t think of it as not having wonderful experiences. Think of it as investing in future adventures. Consider opening a vacation club account to save for one great excursion a little bit at a time. You’re not missing out on anything; you’re saving for better experiences later in life. Besides, with your savings, you can make arrangements that don’t include 16 hours in the seat of a sedan.

This savings emphasis doesn’t mean giving up on travel or other fantastic events. It does mean you should save and plan for events that really matter. That round-the-world cruise you take with your family later on in life surely outweighs the weekend trip to the mountains right now. Also, consider opening a vacation club account to save for one great excursion a little bit at a time.

2.) FOMO on home ownership

The biggest difference in wealth for older generations is time in home ownership. If you’re renting, your housing money goes out the window each month. You don’t build equity and you have to keep making that payment as long as you live there. With a mortgage, the money you pay each month stays with you as you build equity. Once you pay the mortgage off, your housing costs plummet.

Those opportunities may seem distant if you’re burdened by student loans and credit card debt. Getting out of debt is the best way to ensure you can qualify for and pay a mortgage. That means cutting spending now and committing to paying off loans and credit cards with any extra money.

Don’t think of the nights out that you won’t have. Instead, focus on the wonderful experiences you’ll have in your new home. Think of having a holiday meal at your kitchen table surrounded by family and friends. That’s the experience you’re investing in when you position yourself for homeownership.

3.) FOMO on financial security

Fifty-eight percent of millennials live paycheck-to-paycheck. That’s a stressful life. The constant worry over making rent and paying for basics can contribute to stress and lower quality of life. It’s an experience, frankly, that’s not much fun. Many millennials see this constant scramble as emblematic of their generation’s lifestyle, but it doesn’t have to be that way.

Setting aside money in an emergency fund can help you escape that cycle. A few hundred dollars in a savings account can provide a great deal of peace of mind. It’s a tremendous comfort to know that, even if an unexpected expense crops up, you’ve got rent and other basics covered.

Financial security is an experience just like going to a live show or a craft beer festival. The difference is that it’s an ongoing, long-lasting one. There is no closing time, and there is no last call. Being secure in your finances will never leave you with a hangover or ringing ears the next morning. It will make it easier to have the kind of experiences you want.

Fighting Fear Of Missing Out is a challenge. You only live once, as another generational acronym (YOLO) reminds us. Don’t use that as an excuse to not think about the future. You only get one life to have the kind of experiences you want to have, but that doesn’t mean you have to have them all right now. You can’t go back and study harder or save more for retirement. Live an enthusiastic, out-loud life in a financially responsible way.

If you’re interested in your financial future, get in touch with Destinations Credit UnionThe friendly, knowledgeable staff can help you plan for home ownership or retirement. Any great experience, whether it’s living debt-free or retiring early, can be a little easier when you get help. Call, click, or stop by Destinations Credit Union today, and get help overcoming FOMO.

 

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Fall Into Tax Planning!


The leaves are changing. The nights are getting longer. There’s a cool breeze blowing and apples are falling off the trees. Everyone knows what that means: it’s tax planning time!


Remember, no one can offer you accurate tax advice without a careful review of your finances. If you have questions about filing your taxes, you should speak to a tax planning professional. For most people, though, a little bit of knowledge is enough to get started paying less to Uncle Sam and keeping more in your retirement fund.

While most people don’t start thinking about their taxes until February or even April, the best time to make changes is this year. If you haven’t thought about your taxes since you paid them in the spring, you’re still in good shape. For most tax matters, changes made by December 31st are assumed to be in effect for the whole year. Let’s look at four areas of tax planning you should aim to tackle as quickly as you can.

1.) Make any necessary changes to your retirement accounts

If there’s anything that is further off than tax planning, it’s retirement planning. Still, one of the most compelling reasons for making contributions to your retirement is preferential tax treatment. For starters, you should be contributing the maximum to either a Roth or a Traditional IRA.

From there, it gets a little trickier. If your income dropped this year, say, because you or your spouse lost your job or had a significant reduction in hours, you might not get much benefit out of the tax deduction that is presented by a Traditional IRA. You can take this opportunity to switch a portion of your Traditional IRA to a Roth IRA. Essentially, you’re “paying” the tax on a portion of your IRA in a year when it won’t cost you as much, then switching it into a tax-free growth account.

You also need to make sure you’re contributing to your employer’s 401(k) program. Those contributions are also made pre-tax, so you can deduct your portion of the matching funds from your tax burden. If you haven’t been contributing, see if you can make “catch-up” contributions to take advantage of the preferential tax treatment.

Regardless of how you save, you could be rewarded for it. New this year is the Saver’s Tax Credit, which offers a sliding scale of tax breaks based on your income and how much you save. Investing in an approved retirement vehicle like a 401(k) or IRA can let you deduct as much as 40% of your contribution from your tax bill.

2.) Spend your “use-it-or-lose-it” funds

Many employers offer plans like Flexible Spending Accounts (FSA). These programs also offer preferential tax treatment, but many of them empty out at year-end whether you’ve used the funds or not. These programs are a great way to save for unplanned medical problems, but if you were lucky enough to avoid those costs, you’ll need to spend that money before it goes away.

There are a few common tricks you can use to spend the money without wasting it. Obviously, if you’ve been putting off a minor medical procedure (a mole removal, an eye exam, new contacts) that’s the easiest place to spend. Otherwise, you may need to get creative. A few staple goods are FSA eligible. Over-the-counter painkillers, first aid kits and supplies, and some disaster preparedness supplies are generally eligible for reimbursement. Consider getting first aid kits as Christmas gifts for young children or donating them to community programs.

3.) Plan your charitable contributions

If you’re going to donate to a charity, you can give in a way that maximizes your tax benefit. One of the easiest ways to do that is to give stock. Not-for-profit organizations don’t have to pay the capital gains tax, so they can sell it for the full amount. This means you get to take credit for the full value of the gift. This is also true if you plan to give real property (houses, buildings, land, etc.) or use another complex giving strategy to maximize the value of your contribution.

However you give, make sure you keep detailed records about your gifts. You want both a receipt from the organization and another form of proof, like a copy of a check or a bank record. Not-for-profit organizations are almost always overworked and understaffed, so counting on their bookkeeping can sometimes be an exercise in frustration. Keep your own records just to be sure.

4.) Investigate early tuition payment

You or your child may have a big tuition bill coming due in a few months. If you wait to pay that until February or March when it comes due, you may miss out on a chance to cash in on the American Opportunity credit. The plan replaces the Hope credit and allows for a $2,500 deduction and as much as a $1,000 credit for eligible expenses for four years of undergraduate study.

If you are a student filing for the first time and don’t have much of an income, paying your Spring tuition now could result in a $1,000 check right around the time spring break rolls around. Because the American Opportunity credit is a highly-charged political issue, it’s entirely possible it will be repealed next year, so you may miss out on the possibility to claim it if you wait.
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If you’re thinking about your tax future and need help, Destinations Credit Union is right beside you. Our team of dedicated representatives is standing by to help you start saving for retirement or saving money for education.  Call or stop by Destinations Credit Union today!
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