Do you know your Financial Time Horizon?

The horizon can tell us quite a bit about what’s coming. On a warm summer night, you can look out at the horizon to see if a storm is brewing and when you’re behind the wheel, you can keep your eyes on the horizon for signs of trouble.

 

But we can also benefit from a time horizon in which we set a financial goal on the distant horizon and then craft a financial strategy that keeps our eyes firmly fixed on that point.

 

What is a time horizon?

Specific time horizons are generally built around your goals. For example, if you want to save enough money for the down payment on your first home within the next few years, that would be a short-term horizon. If you have a new baby on the way and want to begin saving for their college education, that would be a medium-term time horizon.

 

And, if you’re relatively early in your career but want to begin saving now for retirement, that would be a long-term time horizon.

 

The longer the time horizon, the more aggressive you and your financial services professional may want to be because you have time to ride out peaks and valleys.

 

If you need a shorter time horizon, you and your financial services professional will likely want to play things more conservatively by embracing options that come with less risk.

 

Short-term horizons

A short-term horizon is generally built around investments that you expect to last five years or less. These are investments often geared toward folks who are nearing retirement and who may need a significant chunk of money sooner rather than later.

 

Money market funds, savings accounts, certificates of deposit and short-term bonds are options for short-term investments because you can easily liquidate them into cash.

 

Medium-term horizons

A medium-term horizon includes investments you intend to hold on to for roughly three years to a decade. Think saving for college, a wedding, or a first home. As you’ve probably guessed, medium-term investments seek to find a happy medium between high and low-risk assets.

 

A medium-term horizon may include a combination of investments that seek to help maintain your wealth

without losing value because of inflation.

 

Long-term horizons

A long-term horizon consists of investments that you’ll want to hold for 10 to 20 years, and potentially even longer than that.

 

With the long-term horizon, the goal is usually to help you build for retirement. If you have a number of years before you reach that marker, you and your financial services professional can determine if have enough runway to be strategically more aggressive.

 

Ultimately, a horizon can serve as your guide as you choose what kind of investment products fit your needs and goals.

 

SOURCE

https://www.investopedia.com/terms/t/timehorizon.asp

 

To expand on these Market Commentaries or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2223.

Making Sense of the Fed’s Rate Increase

Though many services professionals had long been expecting it, when the news broke on May 4 that the Fed was raising the interest rate by a half point, it still felt like a thunder clap.

According to a CNBC article, Here’s what the Fed’s half-point rate hike means for your money, the Fed’s half point increase is its largest bump in more than two decades. So, you’re probably asking yourself, “why now?” According to the article, the increase is a response to our current and much publicized bout of significant inflation. The Fed is trying to walk a very fine line of tamping down inflation without damaging the economy.

 

WHAT IT MEANS FOR BORROWERS

For many, the first question after the news of the rate hike broke was, “how is this going to hit borrowers?”

The quick answer is that both credit card borrowers and homebuyers could soon see increases.

Generally, credit cards come with variable rates, and that means those rates are directly tied to the Fed’s rate. That means you may want to be prepared for a percentage rate jump within your next handful of billing cycles.

Credit card rates are currently sitting at a whisker over 16 percent, which is certainly a lot higher than just about any other consumer loan that’s out there. But, after the Fed’s decision, it’s possible that credit card rates could nudge up to about 18.5 percent by the end of 2022.

Let’s next look at what the rate hike may mean for homeowners.

Because many long-term mortgage rates are fixed, many homeowners won’t be affected by the hike. However, the story is different for those looking to buy a home. The same CNBS article notes that shortly after the Fed’s news, the average interest rate on a 30-year fixed mortgage rate jumped to 5.5 percent, the highest since 2009.

 

WHAT IT MEANS FOR SAVERS

While the Fed doesn’t directly influence deposit rates, they do typically correlate to changes in the target federal funds rate. Accordingly, the savings account rate at some large banks has been consistently at an extremely low average of 0.06 percent.

Because deposit account rates are still largely controlled by brick and mortar banks, they’ve been very slow to tick up. One important note here. Thanks mainly to how much they save on overhead expenses, the CNBC article, Here’s what the Fed’s half-point rate hike means for your money, mentions the savings rate from online banks is currently about 0.5 percent, a healthy jump above the rate from brick and mortar banks.

Additionally, the current inflation rate is higher than all the savings rates we just discussed. And that means the money you have in savings is slowly losing its purchasing power. And while on the one hand that’s dispiriting news, on the other hand, the savings vehicles you choose to utilize can make a difference.

 

WHAT IT MEANS FOR STOCKS

High market interest rates have the potential to negatively affect the stock market. When the Fed increases the rate, borrowing often becomes more expensive. And that means the cost of doing business is costlier for public and private companies alike. Accordingly, as time goes on, the supply of money in circulation contracts, which generally lowers inflation while also cooling off the economy as a whole.

If the expense of borrowing money rises too high, the opportunity to increase investment in capital goods may become much more difficult for some companies.

For some public companies, a combination of higher costs and reduced business could lead to less revenue and a stunted growth rate, and all of that could ultimately lead to reduced stock value.

The psychological impact of the rate increase may be the biggest domino to fall after the Fed’s decision. After a rate increase, it’s not uncommon for some traders to hastily sell off stocks and transition to a more defensive strategy.

The problem is, some of them do so before it can be determined what will happen after the increase has had time to work its way through the entire economy.

 

SOURCES

¹ https://www.cnbc.com/2022/05/04/heres-what-the-feds-half-point-rate-hike-means-for-your-money.html

² https://www.forbes.com/advisor/investing/fed-raises-interest-rates/

 

To expand on these Market Commentaries or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2223.

The Four Phases Of Retirement

While there’s nothing wrong with dreaming big about retirement, it’s important to remember that how you think about retirement is likely to change over time. No matter how your circumstances change, you’re likely to have four unique stages of retirement.

Phase one

The first phase is the pre-retirement phase. This phase kicks off roughly a decade before you punch the time clock for the final time. While financial services professionals generally urge you to begin saving for retirement as soon as you get your first paycheck, that money will typically be set aside and left alone to hopefully grow. However, once you roll into your 50s and your pre-retirement clock begins ticking, it’s time to actively start planning out your preferred retirement.

Perhaps the best first step in the pre-retirement phase is to simply define what your goals are and what you want your post-work lifestyle to be. If you have a spouse or partner, make sure you sit down together to see where your goals line up and how you can compromise on some of the areas where your goals differ.

Phase two

Phase two is the early years of your retirement. For a lot of folks, this phase tends to be expensive because your health and energy are both likely to be good. And when you combine that with your general excitement at finally being retired, well, that probably means lots of travel and other adventures.

But travel and adventures cost money. And, if you aren’t careful, that pot of saved money you worked so hard for can begin to dwindle faster than you anticipated. To that end, a part-time job after your retirement may be a solution. The extra money you bring in could help you fund some of those adventures, but it’s more than that. It’s getting out of the house and engaging with the world.

And remember, you don’t have to just take any old job. You could work part-time at the local zoo or an arts organization. Phase two is also a good time to consider your current living arrangements. About 40% of retirees move after they stop working. Is it time to downsize? Do you have family you want to be closer to? This is a good point to consider some of those questions.

Phase three

Phase three is your middle retirement and is often the most expensive phase. This phase begins roughly 10 years into retirement, at which point you’re likely traveling less and spending more time around home. This is also the phase when healthcare expenses begin to tick up as you require more medical appointments and treatment. Many folks in retirement’s third stage also find themselves with medical expenses like equipment and medically necessary upgrades to their homes. Some of those additional medical services and equipment can come with plenty of sticker shock and many of them fall outside the scope of Medicare.

Phase four

The fourth phase of retirement is your later years. During this stage, it’s very possible that healthcare will be your most significant expense. In phase four, long-term care insurance may help you — and your money — withstand the financial tidal wave that comes with things like nursing homes, assisted living, and home healthcare services. And again, you shouldn’t plan to use Medicare for these types of services. In some cases, Medicare may help modestly with some of those services and in other cases Medicare won’t help at all.

SOURCE
https://www.kiplinger.com/retirement/604089/the-4-phases-of-retirement

Taxes in Retirement

When it comes to retirement planning, it’s only natural to be consumed with big picture items like finding the ideal community, whether to stay in your current home or downsize, and how much travel you’ll be able to do. And those are all great and very important things to think about. But a successful retirement often boils down to some of the more nitty-gritty details. And perhaps nothing is more nitty-gritty than having a strong tax strategy to see you through retirement.

Traditional IRAs and 401(k)s

Let’s first look at traditional IRAs and 401(k)s, which are tax-deferred retirement accounts that many Americans rely on during retirement. Money that you dedicate to these accounts typically slashes your current taxable income which thereby trims your tax tab in a given year. Savings, dividends, and investment gains in these accounts grows on a tax-deferred basis.

But those deferments don’t last forever. Once you’re officially retired and begin taking withdrawals, you’ll need to pay taxes on any gains and your pre-tax or deductible contributions. And it’s important to also bear in mind that these accounts have required minimum distributions, or RMDs, which is the point in time when you have to begin taking money out.

When do those RMDs kick in?

At present, RMDs begin at age 72 for a traditional 401(k) or IRA. If you work past your 72nd birthday you may qualify to delay an RMD from your employer’s 401(k) as long as you don’t own more than five percent of the company you work for.

Your withdrawals from your traditional 401(k) or IRA are taxed at your standard income tax rate.

Next, let’s look at Roth IRAs. First things first, they come with one significant long-term tax perk: While contributions to a Roth IRA aren’t tax deductible, your future withdrawals may not be taxed. But to enjoy those potentially tax-free withdrawals, you must have held your Roth IRA account for a minimum of five years. And while you can take out the amount you contributed at any time, tax-free, in most cases you must be at least 59 ½ to take withdrawals without a 10% early withdrawal penalty.

Social Security is yet another area where taxes are lurking after you retire. Until 1983, Social Security benefits were tax-free for every American, regardless of income. And while Social Security benefits still aren’t taxed for a sizeable chunk of the population, others are hit fairly hard. If you have provisional income, you may have to pony up federal income tax on as much as 85% of your benefits. To figure out your provisional income, begin with your adjusted gross income and then add 50% of your Social Security benefit and all of your tax-exempt interest. If your provisional income is less than $25,000 for individual filers or $32,000 for joint filers, you won’t have to pay taxes on your Social Security. However, if your provisional income falls between $25,000 and $34,000 for individual filers or $32,000 and $44,000 for joint filers, then as much as 50% of your benefit is subject to taxation. Finally, if your provisional income is north of $34,000 for individual filers and $44,000 for joint filers, then as much as a whopping 85% of your benefit is considered taxable.

What about pensions? The majority of pensions are funded using pre-tax dollars, which means the full value of your pension income would become taxable once you receive the money. Payments from both private and government pensions are generally taxable at your ordinary income tax rate. This is for informational use only and not to be considered advice. Please see a qualified tax professional.

 

SOURCE
https://www.kiplinger.com/retirement/602231/how-10-types-of-retirement-income-get-taxed

 

 

Over-Looked Tax Breaks For Retirees

Preparing for taxes in retirement is one financial strategy move you can make to help keep more money in your pocket. And, to that end, there are several often-over-looked tax breaks that cater to retirees that you should be aware of.

 

The first potentially over-looked tax break to note is the spousal IRA contribution.

 

In most cases, you have to earn income to kick money into an IRA. But if you’re married and your spouse is still working, they can often contribute as much as $7,000 per year to a traditional or Roth IRA that you own.

 

But don’t forget the year’s total combined contributions to your IRA or your spouse’s IRA can’t be greater than $13,000 if only one of you is 50 or older or $14,000 if both of you are at least 50.

 

MEDICARE PREMIUMS

The next potentially valuable deduction is Medicare premiums. If you become self-employed after you retire – something that’s becoming more common – you may deduct the premiums you pay for Medicare Parts B and D as well as the cost of Medigap policies or Medicare Advantage plans.

 

One note on this one: You aren’t allowed to take this deduction if you’re still eligible for employer-subsidized health plan offered either by your employer or your spouse’s employer.

 

CHARITABLE GIVING

Giving money to charity is another potentially good way for retirees to reduce their tax burden a bit. Once you reach 70 ½, you can contribute to your favorite charities in a tax-friendly manner without having to deal with itemization.

 

The qualified charitable distribution, or QCD, allows you to transfer as much as $100,000 every year from a traditional IRA directly to a charity. If you’re married, your spouse can add an additional $100,000 from their IRA. The transfer isn’t considered taxable income and it counts toward your RMD.

 

Just note that you can’t also claim the transfer as a charitable deduction on your Schedule A.

 

GIFT TAX

While it’s true that not many folks need to worry about the federal estate tax, given that most people will be able to pass on a little more than $12 million to their heirs in 2022. Oh, and in 2022, married couples will be able to pass on $24 million. Not bad, right?

 

However, if there’s a chance the estate tax may become something you have to strategize for, you’ll want to utilize the annual gift tax exclusion. With this rule in 2022, you can give as much as $16,000 every year to any number of people without facing a gift tax. Your spouse can give that same person an additional $16,000, making the tax-free gift $32,000.

 

REAL ESTATE

You should also be aware of the potential for tax-free profit off the sale of a vacation home. Qualifying for this one is actually fairly simple. The home you’re selling must be your principal residence and you must have both owned and lived in it for a minimum of two of the last five years prior to the sale. But there is in fact a way to grab some tax-free profit from selling a vacation home.

 

For example, let’s say you sell your family homestead and utilize the break that makes as much as $250,000, or $500,000 if you’re married and filing jointly, of the profit tax-free. From there you move into the vacation home you’ve owned for many years. As long as that vacation home is your principal residence for a minimum of two years, some of the profit of an eventual sale will be tax-free.

 

These are just some of the potential tax breaks that are available to retirees, so be sure to work with a financial services professional to devise a retirement tax strategy that’s tailored to your needs.

 

SOURCE

https://www.kiplinger.com/retirement/603058/most-overlooked-tax-breaks-for-retirees

Following the Inflation Debate

During the 12 months ending in June 2021, consumer prices shot up 5.4%, the highest inflation rate since 2008.¹

The annual increase in the Consumer Price Index for All Urban Consumers (CPI-U) — often called headline inflation — was due in part to the “base effect.” This statistical term means the 12-month comparison was based on an unusual low point for prices in the second quarter of 2020, when consumer demand and inflation dropped after the onset of the pandemic. However, some obvious inflationary pressures entered the picture in the first half of 2021. As vaccination rates climbed, pent-up consumer demand for goods and services was unleashed, fueled by stimulus payments and healthy savings accounts built by those with little opportunity to spend their earnings. Many businesses that shut down or cut back when the economy was closed could not ramp up quickly enough to meet surging demand. Supply-chain bottlenecks, along with higher costs for raw materials, fuel, and labor, resulted in some troubling price spikes.²

CPI-U measures the price of a fixed market basket of goods and services. As such, it is a good measure of the prices consumers pay if they buy the same items over time, but it does not reflect changes in consumer behavior and can be unduly influenced by extreme increases in one or more categories. In June 2021, for example, used-car prices increased 10.5% from the previous month and 45.2% year-over-year, accounting for more than one-third of the increase in CPI. Core CPI, which strips out volatile food and energy prices, rose 4.5% year-over-year.³

In setting economic policy, the Federal Reserve prefers a different inflation measure called the Personal Consumption Expenditures (PCE) Price Index, which is even broader than the CPI and adjusts for changes in consumer behavior — i.e., when consumers shift to purchase a different item because the preferred item is too expensive. More specifically, the Fed looks at core PCE, which rose 3.5% through the 12 months ending in June 2021.⁴

Competing Viewpoints The perspective held by many economic policymakers, including Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen, was that the spring rise in inflation was due primarily to base effects and temporary supply-and-demand mismatches, so the impact would be mostly “transitory.”⁵

Regardless, some prices won’t fall back to their former levels once they have risen, and even short-lived bursts of inflation can be painful for consumers. Some economists fear that inflation may last longer, with more serious consequences, and could become difficult to control. This camp believes that loose monetary policies by the central bank and trillions of dollars in government stimulus have pumped an excess supply of money into the economy. In this scenario, a booming economy and persistent and/or substantial inflation could result in a self-reinforcing feedback loop in which businesses, faced with less competition and expecting higher costs in the future, raise their prices preemptively, prompting workers to demand higher wages.⁶

Until recently, inflation had consistently lagged the Fed’s 2% target, which it considers a healthy rate for a growing economy, for more than a decade. In August 2020, the Federal Open Market Committee (FOMC) announced that it would allow inflation to rise moderately above 2% for some time in order to create a 2% average rate over the longer term. This signaled that economists anticipated short-term price swings and assured investors that Fed officials would not overreact by raising interest rates before the economy has fully healed.⁷

In mid-June 2021, the FOMC projected core PCE inflation to be 3.0% in 2021 and 2.1% in 2022. The benchmark federal funds range was expect-ed to remain at 0.0% to 0.25% until 2023.⁸

However, Fed officials have also said they are watching the data closely and could raise interest rates sooner, if needed, to cool the economy and curb inflation. Projections are based on current conditions, are subject to change, and may not come to pass

1, 3) https://www.bls.gov/news.release/pdf/cpi.pdf
2) https://www.wsj.com/articles/supply-chain-issues-car-chip-shortage-covid-manufacturing-global-
economy-11633713877
4) https://www.bea.gov/data/personal-consumption-expenditures-price-index-excluding-food-and-energy
5-6) https://www.bloomberg.com/news/articles/2021-05-02/biden-economic-adviser-says-inflation-pressures-
transitory
7-8) https://www.federalreserve.gov/newsevents/speech/clarida20211108a.htm

You Can Be Both Frugal and Happy in Retirement

Frugal. It’s a word that some people wear like a badge of honor, and one that others dread. In fact, when building a retirement strategy, some people are working to avoid a retirement that requires them to be frugal.

 

But here’s a question that means something to a lot of people: Why not both? Retirement is a reward for a lifetime of hard work, diligent planning, and some sacrifice, and you should want to enjoy it. But being frugal doesn’t mean you have to go without, and it certainly doesn’t mean your retirement has to be constrained. In fact, it’s possible that embracing frugality may make your retirement even more fun and full of potential.

 

But being frugal doesn’t mean you have to go without, and it certainly doesn’t mean your retirement has to be constrained. In fact, it’s possible that embracing frugality may make your retirement even more fun and full of potential.

 

Here are some tips from a recent article on how you can do both.1 First, it can help to define your preferred lifestyle. A good place to start is with your home. Are you going to stay put in the home you raised your children in? Or is it time to downsize to a condo or single-floor townhome?

 

Smaller homes require less upkeep and maintenance, which keeps more cash in your wallet. And by necessity, downsizing means you’re going to have to get rid of some of your stuff. While you might have to simply donate most of it, you may be able to sell some of it. Earning a few extra bucks here and there may make you frugal, and it may also make you happy.

 

Here’s another tip: If you and your spouse or partner are both retired but you each still have your own car, consider selling one of them. You’ll not only make some money off the top, but you’ll also enjoy savings with insurance, maintenance, and gas. If you’ll each need the car for solo activities, work out a schedule that keeps everyone on the same page.

 

Another way to take care of your retirement budget is to take care of yourself. Stay up to date on vaccinations and your annual flu shot. Exercise regularly, whether it’s a long evening walk through the neighborhood or something more strenuous like pickleball or a senior softball league. A healthy body may mean you are able to keep more of your budget away from healthcare costs, making you frugal and smart.

 

Finally, having plenty of fun is an essential part of retirement. Like we said earlier, you’ve worked too hard to get to retirement only to find yourself sitting on the couch, day after day, without anything to do because you don’t have the money.

 

But being frugal here can help, too. If your retirement is going to include plenty of golf, day trips, or other out-of-the-house activities, why not ditch cable? It’s expensive enough that if you aren’t using it a lot it’s probably not worth it. Trade cable for Netflix or Hulu, both of which provide endless hours of entertainment for a fraction of the cost of cable.

 

Lots of museums, concert venues, theaters, and other arts establishments offer generous senior discounts. Another option is to volunteer as an usher at your favorite venue. That way you’re getting out of the house, having some fun, and seeing a show for free.

 

Being frugal doesn’t mean you can’t have fun. It just means you’re making some decisions that take you closer to the retirement of your dreams.

 

1 https://www.investopedia.com/articles/retirement/102116/how-make-living-frugally-retirement-comfortable.asp

Tips for Managing an Inheritance

As the beneficiary of an inheritance, you are most likely to be faced with making many important decisions during an emotional time. Short of meeting any required tax or legal deadlines, don’t make any hasty decisions concerning your inheritance.

 

Identify a Team of Trusted Professionals

Tax laws and requirements can be complicated. Consult with professionals who are familiar with assets that transfer at death. These professionals may include an attorney, an accountant, and a financial and/ or insurance professional.

 

Be Aware of the Tax Consequences

Generally, you probably will not owe income tax on assets you inherit. However, your income tax liability may eventu­ally increase. Any income that is generated by inherited assets may be subject to income tax, and if those assets produce a substantial amount of income, your tax bracket may increase. This is particularly true if you receive distributions from a tax-qualified retirement plan such as a 401(k) or an IRA. You may need to re-evaluate your income tax withholding or begin paying estimated tax. You also may need to consider the amount of potential transfer (estate) taxes that your estate may owe, due to the increase in the size of your estate after factoring in your inheritance. You may need to consider ways to help reduce these potential taxes.

 

How You Inherit Assets Makes a Difference

Your inheritance may be received through a trust or you may inherit assets outright. When you inherit through a trust, you’ll receive distributions according to the terms of the trust. You may not have total control over your inheritance as you would if you inherited the assets outright.

 

Familiarize yourself with the trust document and the terms under which you are to receive trust distributions. You will have to communicate with the trustee of the trust, who is responsible for the administration of the trust and the distribu­tion of assets according to the terms of the trust.

 

Even if you’re used to handling your own finances, receiving a significant inheritance may promote spending without planning. Although you may want to quit your job, or buy a car, a house, or luxury items, this may not be in your best interest. Consider your future needs, as well, if you want your wealth to last. It’s a good idea to wait at least a few months after inheriting money to formulate a financial plan. You’ll want to consider your current lifestyle and your future goals, formulate a financial strategy to meet those goals, and determine how taxes may reduce your estate.

 

Develop a Financial Plan

Once you have determined the value and type of assets you will inherit, consider how those assets will fit into your fi­nancial plan. For example, in the short term, you may want to pay off consumer debt such as high-interest loans or credit cards. Your long-term planning needs and goals may be more complex. You may want to fund your child’s college educa­tion, put more money into a retirement account, invest, plan to help reduce taxes, or travel.

 

Evaluate Your Insurance Needs

Depending on the type of assets you inherit, your insurance needs may need to be adjusted. For instance, if you inherit valuable personal property, you may need to adjust your property and casualty insurance coverage. Your additional wealth from your inheritance means you probably have more to lose in the event of a lawsuit. You may want to purchase an umbrella liability policy that can help protect you against actual loss, large judgments, and the cost of legal representation. You may also need to recalculate the amount of life insurance you need because of your inheritance. The cost and avail­ability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

 

Evaluate Your Estate Plan

Depending on the value of your inheritance, it may be appropriate to re-evaluate your estate plan. Estate planning involves conserving your money and putting it to work so that it best fulfills your goals. It also means helping reduce your exposure to potential taxes and creating a comfortable financial future for your family and other intended beneficiaries.

Some things you should consider are to whom your estate will be distributed, whether the beneficiary(ies) of your estate are capable of managing the inheritance on their own, and how you can best shield your estate from estate taxes. If you have minor children, you may want to protect them from asset mismanagement by nominating an appropriate guardian or setting up a trust for them. If you have a will, your inheritance may make it necessary to make significant changes to that document, or you may want to make an entirely new will or trust. There are costs and ongoing expenses associated with the creation and maintenance of trusts and wills. Consult with an estate planning attorney for proper guidance.

 

To expand on these topics or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2222.

Pension or Lump Sum: Which Should You Choose?

Traditional pensions, which promise lifetime income payments in retirement, have become less common in the private sector, with only about 10% of workers currently participating in a traditional pension plan. However, pensions are still widely offered in federal, state and local government employment, and 61% of workers expect a pension to be a major or minor source of retirement income.1

About half of pension plan participants can choose to take their money in a lump sum when they retire.2 In addition, companies may offer pension buyouts to vested former employees who are working elsewhere, and even to retirees who are already receiving pension payments.

Only 29% of women said they would be able to cover their basic necessities if they found themselves out of work for an extended period, compared with 55% of men. And more than half of millenials and Gen Xers and 35% of baby boomers said they would likely use their retirement funds for something other than retirement, with most noting it would be for an unexpected expense or medical bill.1

Although tapping your retirement savings can help you get through a crisis, it can hinder your ability to afford a comfortable retirement. Having a plan to guard your financial wellness throughout your working years can help you avoid putting your retirement at risk.

 

What Is Financial Wellness?

The Consumer Financial Protection Bureau (CFPB) defines financial well-being as:2

  1. Having control over day-to-day and month-to-month finances. In order to achieve this, your expenses need to be lower than your income.
  2. Maintaining the capacity to absorb a financial shock. This typically refers to having adequate emergency savings and insurance.
  3. Being on track to meet financial goals, meaning you have either a formal or informal plan to meet your goals and you are actively pursuing them.
  4. Having the financial freedom to make choices that allow you to enjoy life, such as a splurge vacation.

 

The CFPB has identified several key factors that contribute to an individual’s ability to achieve financial well-being. Among them are (1) having the skills needed to find, process, and use relevant financial information when it’s needed; and (2) exhibiting day-to-day financial behaviors and saving habits.

 

Assistance Is Available

Many employers have begun offering financial wellness benefits over the past decade. These programs have evolved from a focus on basic retirement readiness to those addressing broader financial challenges such as health-case costs, general finance and budgeting, and credit/debt management.3

If you have access to work-based financial wellness benefits, be sure to take time and explore all that is offered. The education and services can provide valuable information and help you build the skills to make sound decisions in challenging circumstances.

In addition, a financial professional can become a trusted coach throughout your life. A qualified financial professional can provide an objective third-party view during tough times, while helping you anticipate and manage challenges and risks and, most important, stay on course toward a comfortable retirement.

 

 

1) PxC, May 2020

2) Consumer Financial Protection Bureau, January 2015

3) Employee Benefit Research Institute, October 2020

Don’t Let a Disaster Keep the Lights Off Forever

In the fall of 2019, wildfires fueled by high winds erupted in parts of Northern and Southern California, threatening structures in multiple communities. Wildfires have long been a concern in this sunny and dry state, but in a recent twist, millions more residents and businesses were impacted when public utilities cut off power to help prevent downed power lines from sparking fires.1

 

Small businesses can be hit especially hard when extreme weather or other unforeseen events result in major damage and/or force temporary closures. In fact, nearly 40% of small businesses never reopen following a disaster.2

 

Check Your Coverage

A business owners policy (BOP) is a package that typically combines property insurance, business interruption insurance, and liability protection (up to policy limits). Property insurance helps protect a company’s buildings, equipment, and contents against a specific list of covered perils.

 

Business interruption insurance helps cover lost income and operating expenses that may continue while a business is closed because of a disaster. It also helps cover relocation and advertising costs so a business can operate from a temporary site. This coverage generally kicks in after a 48- to 72-hour waiting period under three sets of circumstances:

 

  1. There is physical damage to the premises that forces your business to close.
  2. There is physical damage to other properties (caused by a covered peril) that prevents customers and employees from reaching your location.
  3. Your property is inaccessible because the government shut down the area due to widespread damage caused by a covered peril.

 

Be Aware of Exclusions

A business that is forced to shut down due to a power outage may not be covered, unless an optional endorsement (or rider) for “off-premises service interruption” is purchased at an additional cost. Earthquakes are also typically excluded from standard BOPs, as is flood damage. However, a separate flood policy may be purchased from the government’s National Flood Insurance Program or some private insurers.

 

Be Ready to Recover

Insurers will use your financial records to compare the income generated by the business before and after the disaster, so good documentation may speed up the claims process. Make sure to keep an accurate business inventory and take photos of the premises and all your business property. Store these and other financial records online so they can be accessed from a temporary location, if needed.

 

1) The New York Times, October 31, 2019

2) Federal Emergency Management Agency, 2019