Paving Your Road to Retirement

Whatever your age, it’s never too soon to look ahead and begin giving thought to your retirement. With proper planning, you can make the transition to retirement a smooth, comfortable and confident ride. Today, more than ever, planning for retirement is a necessity. Social Security and company retirement plans are often insufficient to provide the necessary income for a comfortable retirement. You must plan ahead by setting goals and deciding how to pursue them. Retirement planning means not only getting ready for a lifestyle change, but also accepting a changing financial picture. In addition, you may want to consider how much (or how little) you want to leave to your children. You may be faced with some difficult choices. A comprehensive financial strategy can mean placing your spouse of some fifty years in a nursing home with a pleasant, home-like atmosphere and superior private care vs. being forced to choose a “no-frills” nursing home. Or, it could mean the difference between dining out more frequently vs. preparing more meals at home. Many retirees find themselves balancing between having a sufficient lifestyle and lacking some of the comforts that make life easier. This “give and take” could be alleviated if the proper planning, savings and investing are done ahead of time. Although pre-retirement and post-retirement investment portfolios should have both income and accumulation aspects, your pre-retirement portfolio should be more heavily weighted toward accumulation for later use. A post-retirement portfolio should show a greater allocation of investment resources toward income-producing vehicles, with a smaller portion allocated for accumulation to generate future income. You can use different investment management techniques as you create your own portfolio and consider the different investment alternatives

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Financial Planning at Every Age 

In 2013, a Gallup poll found that only about one in every three U.S. households maintained a budget.1 A 2021 survey of 1,000 Americans found that 80% now say they have a budget.2 Americans are budgeting more due to the pandemic. Knowing where your money is going and making sure you’re adequately funding your future could be helpful to maintain your lifestyle for the decades that you may live. Whether you’re a Baby Boomer, Gen X-er, Millennial, or a member of Gen Z, there are a few things you may focus on to help you pursue your financial goals. Gen Z Members of Generation Z were born between 1997 and 2015. Some of the older ones are entering the workforce.3 Although there may be many pressures on a Gen Zer’s wallet, making an effort to set aside some funds for retirement while still young is a strategy worth considering. The saying “time in the market beats timing the market” came about for a reason. A study of the S&P 500 returns from 1926 to 2011 found that a 20-year buy-and-hold strategy never produced a negative result, with annualized returns from 3.1% to 17.9%.4 Millennials Some of the oldest Millennials are pushing 40, while those at the tail end of this generation (generally defined as 1981 to 1996) are just in their mid-twenties. But whether you’re an older or younger Millennial, you may benefit from reducing your debt and building up an emergency fund. Even though Millennials may be beleaguered by student loans, auto payments, rent, credit card payments, and other debt, putting a plan in place to tackle this debt while saving for an emergency may help you pursue financial independence. Gen X As members of

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Put Yourself in Front of the Savings Game

Like dieting, budgeting your expenses can benefit from long-term commitment. However, human nature leads many of us to become frustrated when we can’t immediately have the things we need or want. As a result, the best-laid budgeting plans can become ineffective. That’s why adopting a “pay yourself first” attitude can have a positive impact on your long-term budgeting, spending, and saving practices.   Following these simple steps can help you take control now and pave the way for a bright future:   1) Look closely at what you spend. Begin the process by recording all your expenses, such as rent or mortgage and utilities, services such as childcare, and necessities such as food, clothing, and medical expenses.   2) Include a line for “savings” with expenses. If you treat savings as an expense that must be made on a weekly or monthly basis, you might be more likely to set the money aside regularly.   3) Allocate income in terms of percentages. This exercise helps identify how each expense relates to your total income. Determine what percentage of your income goes to each expense, and then categorize them as either fixed (e.g., mortgage, utility bills, insurance premiums) or discretionary (e.g., dining out, travel, entertainment). You have discretion over the latter, but not the former. It is generally the discretionary expenses that erode earnings. Aim to trim these percentages wherever possible. It may be possible to make gains in savings by reducing many expenses by small percentages.   4) Prioritize. Take your list and rank your expenses as “important,” “moderately important,” or “unimportant.” Eliminate those items you can do without. You probably will have the most leeway with discretionary expenses. The

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Protecting Your Financial Information Online

More consumers are conducting financial transactions online and may become vulnerable to tracking, hacking, identity theft, phishing scams, and other cyberspace risks. While nothing can guarantee complete safety on the Internet, understanding how to protect your privacy can help mitigate your exposure to risk. Here are some ways to help you safeguard your information: Read Privacy Policies Before conducting any financial transactions online, carefully read the privacy policies of each institution that you plan to do business with to find out how secure your financial information is. If you do not understand the legal jargon, email or call customer service to request a simplified explanation of the privacy policy. Avoid Using Weak PINS and Passwords When deciding PINS, passwords, and other log-in information, avoid using your mother’s maiden name, your birth date, the last four digits of your Social Security number, or your phone number. Avoid other obvious choices, like a series of consecutive numbers or your home town. Also, do not use the same PINS and passwords on multiple sites. Look for Secured Web Pages Use only secure browsers when shopping online to help safeguard your transactions during transmission. There are two general indicators of a secured web page. First, check that the web page url begins with “https.” Most urls begin with “http;” the “s” at the end indicates that the site password will be encrypted before being sent to a third-party server. Second, look for a “lock” icon in the window of the browser. (It will not be in the web page display area.) You can double-click on this icon to read details of the site’s security policy. Be cautious about providing your financial information to websites

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Four Financial Planning Essentials to Ease Your Retirement Fears

When it comes to planning for retirement, it’s easy to get overwhelmed. Putting together a financial strategy can be complicated at any time of life, what with changing regulations, ups and downs in the market, and disagreements – even among the better-known investment advisers – about the best ways to save and spend money. But the closer you get to actually stopping that regular paycheck, the scarier things can get. More than half of pre-retirees report feeling anxious about their impending retirement and worry they will run out of money, according to a recent Ameriprise Financial study. What did they say made them feel more confident? Having a plan in place. If you’re ready to learn more about how you can begin planning, talk to a financial professional about these four financial planning essentials: 1. Put a tangible and comprehensive retirement plan in place. Consider finding a financial professional who specializes in advance planning — not just investment planning, but also income planning (making sure you’re paying yourself the right way in retirement), tax planning strategies (minimizing your exposure so you’re not paying more than you have to), health care planning (finding the right Medicare plan for you and considering your long-term care needs) and legacy planning strategies (assuring your assets will pass efficiently to the people and/or charities of your choice). Then gather up your paperwork and get ready to get comprehensive. 2. Make sure your plan includes transitioning from growth to income investing. People tend to get stuck in one investing strategy. They spend so many years trying to accumulate money, they may forget to make the shift from the growth phase to the income phase when they

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Life Insurance: Changing Times, Changing Needs

When Judy purchased her life insurance policy 10 years ago, she thought her insurance planning was complete. She assumed that if she paid her premiums on time, she could sit back and not think about life insurance anymore. Judy’s life insurance may help to protect her loved ones from future uncertainties, but her policy should not be left to run on autopilot. Life insurance is just like any other piece of your financial puzzle. As your circumstances and needs change, periodic monitoring is needed to help ensure that your life insurance will achieve your desired objectives. Here are some questions that Judy, like all policyholders, can ask as part of an annual review.   Is My Coverage Up-to-Date? To start, Judy may want to consider whether her original reasons for purchasing her policy are still applicable. She may also evaluate any additional needs. For instance, when Judy initially purchased her policy, she was newly married and owned a modest home. Now Judy and her husband, Jim, have four children and a much larger home. Is Judy’s existing policy appropriate for her new circumstances? She may need additional life insurance to help cover a larger mortgage, pay college expenses for four children, and contribute to her family’s financial future in the event of her death.   If Judy’s existing policy is term insurance, she may want to consider converting it to a permanent contract. Permanent insurance contains a cash value component that offers the potential for tax-deferred accumulation, as well as the same death benefit features of term insurance. In the future, the cash value could be accessed to help supplement retirement income needs. Keep in mind that withdrawals and loans

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Alternatives for College Funding

A Primer Although we all know that “time flies,” it seems to move particularly fast as we watch our children grow. Yet, in considering a college future for a newborn, it is understandable that parents might procrastinate, since seventeen years seems so far in the future. However, when it comes to planning for college, children progress all too quickly from the cradle to the college classroom.   Moreover, college tuition costs keep increasing on a yearly basis, although the pace of the increases has slowed in recent years. While 10% annual increases were common in the 1980s and early 1990s, The College Board projects smaller yearly increases as we progress further into the twenty-first century. Still, with the average cost at private colleges exceeding $31,000 per year (Source: Trends in College Pricing—2000, The College Board), the projected four-year cost at a private college for today’s newborn is staggering.   These numbers can easily overwhelm you, especially if you are already juggling other financial concerns. However, the sooner you start saving, the better. The longer you delay, the more difficult it may be to reach your funding goal. Even if you can only afford to begin putting away a small sum, saving on a regular basis may pay off in the long run.   Personal savings are especially important as a source of college funds, since it’s the one area over which you have the most control. While other sources of education funding are also available, it helps to understand what to expect before counting on them.   Financial Aid. This usually comes in the form of loans, and may not cover the total college costs. Even if your child qualifies

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Five Financial Mistakes You Should Avoid

We all make mistakes, and through them, we learn. But when it comes to finances, trial-and-error may not be the most suitable approach for you. Maybe you’re making some simple mistakes that can be fixed with a little bit of effort. Your financial professional can help. Five Financial Mistakes to Avoid Avoiding some of the following financial mistakes might save you a great deal of money and heartache. 1. Cashing out a retirement account to pay off loans. Substantial income tax penalties can hit you if you tap into retirement accounts before a certain age. Even if there are no penalties, cashing out an entire account at once potentially puts you in a higher tax bracket. The amounts you withdraw before you reach 59½ are called early or premature distributions. They may be subject to an additional 10% tax. (As always, there are some exceptions to this rule, so consult with a qualified financial professional or the Internal Revenue Service.) The COVID-19 pandemic forced many people to tap into retirement accounts to pay mounting bills and loans. This was a measure of last resort, but the moral of this story is: If you have to take a distribution, you should at least understand the tax implications up front and attempt to mitigate the impact. 2. Missing retirement account rollover dates. You can move your wealth around by receiving a check from a qualified retirement account and deposit that money into another retirement account within 60 calendar days. If you miss the deadline, the IRS treats the amount as a taxable distribution. Further, your 401(k) plan provider withholds 20% for federal income taxes. You have to add funds from other sources

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What to Know About IRA Investing

Although it’s not hard to find doom-and-gloom articles that bemoan many Americans’ lack of preparation for retirement, these don’t tell the whole story. One in three adults save for retirement outside their 401(k) in a traditional or Roth IRA, with 60 percent of adults reporting that they’re “confident” or “somewhat confident” about achieving their desired retirement lifestyle.1 What benefits can investors realize by contributing to an IRA? What is an IRA? An IRA, or individual retirement account, is an independent and portable retirement savings vehicle. Unlike a 401(k) or another employer-sponsored retirement account, which usually must be held with an employer-selected custodian and invested in a range of employer-selected funds, an IRA is entirely yours to manage. This means that you can move it to any custodian and invest it in any funds you’d like. In some cases, IRAs can even be used as seed money to invest in a business.2 There are two types of IRAs: traditional and Roth. Traditional IRAs have tax-deductible contributions (with some exceptions noted below), while the money used to fund a Roth IRA is contributed post-tax. As a result, a traditional IRA can be a great way to reduce your effective tax rate (and your total tax paid), while a Roth IRA offers tax-free growth and gains. Why Should You Invest in an IRA? IRAs can provide a valuable addition to your retirement portfolio. While many employer-sponsored plans can leave you stuck with high fees and limited offerings, brokerage firms and other IRA custodians often offer low-fee stocks, mutual funds, index funds, and exchange-traded funds. The lower your fees, the more money reinvested into your account. What IRA Deadlines and Limits Apply in 2021? In 2021, individuals age

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529 Plans vs. Other College Savings Options

529 plans can be a great way to save for college, but they’re not the only way. When you’re investing for a major goal like education, it makes sense to be familiar with all of your options. Mutual funds Mutual funds are an option to save for college costs. They offer unlimited investment control and flexibility as you can choose from a wide variety of funds that meet your risk tolerance, time horizon, and overall investment preferences. And there are no restrictions or penalties if you sell your shares and use the money for something other than college. But 529 plans are generally a more powerful tool than mutual funds when it comes to saving for college because they offer federal tax benefits that mutual funds don’t. First, assets in a 529 plan accumulate tax deferred, which means you don’t pay incomes taxes each year on the income earned by the fund’s underlying assets. With mutual funds, you’ll pay income tax every year on the income earned by the fund (dividends and capital gain distributions paid by the fund), even if that income is reinvested. Second, withdrawals from a 529     plan that are used to pay the beneficiary’s qualified education expenses are completely free of federal income tax (and typically state income tax). With mutual funds, you’ll pay capital gains tax on any gain in the value of your fund when you sell your shares. The main drawback of 529 plans is that they offer less investment control and flexibility. Regarding investment control, you’re limited to the investment portfolios offered by the plan (investment portfolios typically consist of groups of mutual funds) and you can change your investment options on

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