4 Retirement Planning Tips for Millennials and Gen X

In 2014, almost one-third of baby boomers had nothing saved for retirement. For those who did save, the median was around $200,000. This is a far cry less than the $1 million experts recommend for a 30-year retirement plan. Luckily, for millennials and Gen X, there is still plenty of time to craft an effective retirement planning strategy. Here are four tips to get you started.   Give Up the Love for Cash After witnessing the stock and real estate markets crash in the Great Recession, America’s millennials now mostly hedge their bets on cash investments. According to Forbes, cash investments yield returns of just 1.5% on average. While the stock market and other forms of investments are variable, the returns can be much higher. On average, the stock market yields 8% in annual returns. And, even in a decline, the people who can afford to wait out the market may benefit from its recovery.   Watch Out for Student Loans With the rising cost of obtaining a college education, no matter how well parents plan, most students need grants, scholarships and/or student loans. While paying off student loans is important, beware of spending all your money on paying off debt rather than saving up and investing some disposable income for retirement. You should definitely prioritize student loans, but not to the detriment of other financial goals.   Consider Home Ownership CNBC claims that it is better to rent than buy a home in today’s market. But, what does “better” really mean? For almost all calculations, what makes it better is that it is cheaper in the short run. However, for millennials and Gen Xers who can afford to purchase

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Buying Life Insurance: What Kind and How Much?

Conventional wisdom says that life insurance is sold, not purchased. In other words, some people are reluctant to discuss the importance of owning life insurance, and others are simply unaware of the need to have life insurance. Although many large companies provide life insurance as part of their benefits package, this coverage may be insufficient. Who needs life insurance? If there are individuals who depend on you for financial support, or if you work at home providing your family with such services as child care, cooking, and cleaning, you need life insurance. Older couples also may need life insurance to protect a surviving spouse against the possibility of the couple’s retirement savings being depleted by unexpected medical expenses. And individuals with substantial assets may need life insurance to help reduce the effects of estate taxes or to transfer wealth to future generations. Types of Insurance Term insurance is the most basic, and generally least expensive, form of life insurance for people under age 50. A term policy is written for a specific period of time, typically 1 to 10 years, and may be renewable at the end of each term. Also, the premiums increase at the end of each term and can become prohibitively expensive for older individuals. A level term policy locks in the annual premium for periods of up to 30 years. Declining Balance Term insurance, a variation on this theme, is often used as mortgage insurance since it can be written to match the amortization of your mortgage principal. While the premium stays constant over the term, the face value steadily declines. Once the mortgage is paid off, the insurance is no longer needed and the policy

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How to Save for Retirement and Avoid Overspending During Your Career

You know you want to enjoy your retirement, but getting to that point can feel difficult. Worried that you’re not saving enough? Trying to get your spending under control? These problems are common for many people who are trying to build their nest egg while balancing their budget, but these tips can steer you in the right direction.   Start Early The younger you start, the less you have to save, and if you’re not scrabbling to save at the end of your career, starting early frees up money in your budget during your working years. That said, regardless of your age, it is never too late to start saving for retirement, and there are tax incentives and special retirement plans designed to help people who need to catch up with their retirement goals.   Set Goals Set clear goals about what you want your finances to look like during your retirement. If you have a specific goal in mind, saving becomes easier because it’s more purposeful. You may not be as motivated if you’re just saving blindly.   Put Your Efforts to Work for You Look for the most effective saving methods. For instance, if your employer matches the first 2% of wages contributed to a 401(k), you should take advantage of that plan. With this type of set-up, you receive a 100% return before the investment even has time to grow. In contrast, if you simply put the funds in a savings account, you would merit a negligible interest rate. By choosing the most lucrative investments, you reduce the total amount you need to save and at the same time free up extra money for spending during your

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Changing Jobs. What Should I Do With the Money?

Changing jobs is an important decision — one that many of us are making more often. Once you’ve decided to switch jobs, your next move is to determine what to do with the money in your former employer’s retirement plan. Four Common Options Generally, you have four options or a combination of options for handling the money in your account: Option #1: Keep the Money in Your Former Employer’s Plan If your former employer permits, leaving your money where it is may be an attractive option because it allows you to continue enjoying the potential benefits of tax-deferred compounding. If you are happy with the plan’s investment options, this maybe a good choice. On the downside, there may be special conditions or fees associated with your continued participation, and you may have withdrawal restrictions in the future. Option #2: Roll the Money Into Your New Employer’s Plan This option also has its advantages — continued tax-deferred growth of your investment and the convenience of having all of your retirement assets in one place. But because every employer has its own rules governing rollover money, review your new employer’s plan and possible eligibility restrictions carefully before choosing this option. Option #3: Take the Money in Cash While this option may seem appealing because it gives you immediate access to your money, Uncle Sam is the real winner here. Cash distributions are subject to a mandatory 20% federal withholding in addition to regular income tax. Furthermore, if you are under age 59½, your distribution would also be subject to a 10% additional federal tax. Finally, if state or local taxes apply, they could claim an even bigger portion of your account. Option

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How to Develop a Money Mindset That Aligns with Your Goals

Financial goals are essential. Setting them will help you to obtain the things you want out of life as well as live the lifestyle you desire, both during your working years and in your retirement. But obtaining these goals isn’t always easy unless you develop a money mindset that aligns and drives you to these goals. So how do you create this mindset to give you the ideal chance of obtaining your financial goals? Determine Your Values The easiest way to be confident with your financial goals is to align your spending habits with your values. This will allow you to better stick to your spending habits. So to start, you will need to determine the values that are important to you. Ask yourself, what do you value most, your family, your freedom, your security, or your health? In what order do you place these priorities? Once you have established these values, you need to spend your money in a way that correlates with these values. For example, if your family is most important, you may want to focus on saving for your children’s future education, instead of spending the money on expensive clothing or take out. Determine What You Need to Do to Work Toward Your Goals Once you have established your goals and determined what you value most in your life, you will want to make a plan to pursue those goals. Want to be able to travel during your retirement? Come up with ways to increase your retirement savings. Invest more in your employer-sponsored account. Cut back on spending that is not necessary. Learn how to develop and manage a financial portfolio that may help you to address your goals. Start Small

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Retirement Planning—Options for Women Business Owners

You’re an entrepreneur and you’re not looking back. You’ve opened your own business, whether alone or with other partners, and you’ve found some success. You’ve hired employees, or not, depending on your business and now you’re thinking about retirement, not just for you, but also for any employees you may have.   Many employers find that one way to attract and keep good employees, especially executives with critical skills, is to offer competitive retirement plan packages along with a buffet of other benefits. Yet, employee-sponsored retirement plans are often unavailable to employees working in small private companies and can lead to poor employee retention.   What business owners need to know is that sponsoring a retirement plan, not just for their employees but also for themselves, is really quite easy. Perhaps you think you must fund employee retirement plans and that plan sponsoring requires lots of complicated paperwork. Or maybe you’re perplexed about compensating top executives without pushing them into an even higher income tax bracket. But don’t fear. Help, and advice, from starting and managing retirement plans to planning for the day you retire, is here.   Qualified Plans: Something for Everyone   A multitude of retirement plan options are available as benefits packages or customized products to suit your company’s needs. Currently available qualified retirement plans include defined benefit plans, 401(k)s, Savings Incentive Match Plans for Employees (SIMPLEs), Simplified Employee Pensions (SEPs), profit-sharing plans, and money purchase plans.   The Employee Retirement Income Security Act (ERISA, amended in 1974) governs most private pension and benefit plans. ERISA has a special focus on making sure that qualified retirement plans do not discriminate in favor of highly paid employees.  

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The Nasty “Business Interruption” Insurance Fight

Restaurants, hotels, gyms and other businesses that were forced to close due to COVID-19 are now battling their insurance companies over their business interruption insurance and have asked the federal government to step in. In one corner are businesses who argue that since they paid their premiums for business interruption services, now is the exact time that their claims should be paid. In the other corner are the insurance companies who argue that business interruption policies were never designed – or priced – to pay for such events. And each group has hired powerful lobbyists to convince the federal government to be head referee. Business Insurance in General Business insurance may be considered accident or disability insurance for a business, since it helps to maintain a regular flow of earnings after the business has been completely or partially shut down by disasters, including fires, tornados, and theft. Business interruption insurance is designed to pay for the lost net profits of the business plus any continuing expenses occurring during “down time” caused by a peril covered by the policy. There are many different forms of business interruption insurance, and the price can vary greatly based on the level of risk and the potential cost of getting the business up and running again after a disaster strikes. While business interruption insurance is sometimes included in business owner policies, the type and amount of coverage provided by a standard policy may be insufficient for the needs of many companies. In theory, we all understand the importance of insurance to protect us financially. But many of us pay for insurance every year without knowing exactly what it covers and what it does not. Given

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Is the Roth 401(k) an Option for You?

Since it first became available in 2006, many employers have added the Roth 401(k) to their benefit packages as a retirement savings option. A Roth option is available for Individual Retirement Accounts (IRAs) and 401(k) and 403(b) accounts. To see if a Roth 401(k) would be appropriate for your situation, let’s take a closer look.   To Roth or Not to Roth To start, let’s consider the advantages and disadvantages of both types of 401(k)s. With a traditional 401(k), you make contributions on a pre-tax basis, which lowers your current income subject to taxation, and earnings in the account have the potential to grow tax-deferred. However, your distributions in retirement are subject to ordinary income tax. On the other hand, your contributions to a Roth 401(k) are made with after-tax dollars, but potential earnings and distributions are tax-free, as long as you have held the account for at least five years and are at least 59½ years old. However, non-qualified distributions may be subject to income tax and a 10% early withdraw penalty may also apply. So, is it better to pay taxes on your retirement funds now or later? The most appropriate choice for you may depend on your current tax situation and your long-term financial goals.   It is important to keep in mind that the 401(k) annual deferral limits—$19,000 for taxpayers under age 50 and $25,000 for those age 50 or older in 2019—apply to all 401(k) contributions, regardless of whether they are made on a pre-tax or after-tax basis. If you contribute to a Roth 401(k), you may have to reduce or discontinue contributions to your employer’s traditional 401(k) plan to avoid exceeding these limits. However,

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Balancing Act: Saving for Both Retirement and College

Linda and Peter are worried about their financial future. “We want our one-year-old son, Raymond, to go to college, but we’re concerned that in 17 years, the cost might be more than we can afford,” says Peter. “We also need to save for our retirement,” adds Linda. “Can we reach both of these goals?” Linda and Peter aren’t alone. Millions of Americans are finding it a struggle to balance the high cost of higher education while saving for their own retirement. If you’re one of them or would like to help someone faced with this situation, put your worries aside. Fortunately, there are steps you can take to help overcome this double-sided planning hurdle. For example, because Linda and Peter won’t need their money for 17 years, they decided to begin investing now and often. Starting a regular investment program long before needing the money can potentially work in their favor. That’s because of compounding — which is what happens when previous earnings from an investment remain invested and, in turn, earn more money. They also decided to make the most of their contributions by investing in vehicles that would generate important tax benefits. They chose to funnel $100 each month into a 529 College Savings Plan, which would allow their contributions to benefit from tax-deferred growth and tax-free withdrawals. Meanwhile, they also set aside $200 a month into an IRA. When they receive raises, Linda and Peter will increase their contributions to both accounts. Getting a Late Start Sandy and Paul have a different issue. “We don’t want to be a financial burden on our kids when we’re older, so we’ve always opted to max out our 401(k)s and

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Retiring Business Owners – Plan for Succession

If you’re a small business owner, you’ve invested a great deal of time and effort into building your company. With day-to-day demands, it may be difficult to imagine your eventual transition into retirement. Yet, if you want to build personal financial security and ensure business continuation, it is important to plan ahead. Business succession planning can help create retirement income for a retiring business owner and facilitate the transfer of operations and/or ownership to family or another entity. A succession plan can also provide a strategy to handle unforeseen events, such as death or disability. Laying the Foundation It is never too early to begin planning for succession. An early start can allow you ample time to develop an appropriate exit strategy, choose the right person to be your successor, and train your successor to manage the daily operations of your company. Consider the following points to create a foundation for a successful plan: Valuate Your Business A key aspect of planning for continuation is calculating the worth of your business. There are a variety of techniques for business valuation, and the most appropriate will depend on your business circumstances. A qualified professional can help you choose strategies for valuation. Plan Your Exit Strategy It is important for a retiring business owner to plan his or her departure from the day-to-day operations of the business. A solid plan can help ensure this transition will go smoothly, as well as facilitate the transfer of ownership. Choose a Successor If you plan to keep ownership and control of your business within your family, start by assessing your family members’ interests and qualifications, and how well they match the needs of the business.

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