Life Insurance Needs: Taking a Closer Look

Without a doubt, it is important to have enough life insurance coverage to handle any financial contingencies that may affect your family if you die prematurely. However, determining the amount of life insurance you need is not that simple. One past rule of thumb was that you should have enough life insurance to equal five times your annual salary. But more frequently, having the appropriate amount of life insurance coverage requires careful “Needs Analysis” rather than using an arbitrary formula.   The Needs Analysis approach incorporates an evaluation of your family’s most important financial obligations and goals. This could include insurance coverage for mortgage debt, college expenses, future family income, and creating liquidity for future estate tax liabilities.   Continuing income for your family. The amount of income you will need to help provide for your surviving spouse and dependents will vary greatly according to your other assets, retirement plan benefits, Social Security benefits, age, health, and your spouse’s earning power. Many surviving spouses may already be employed or will find employment, but their income is based on education, training, and experience. Your spouse’s income alone, may be insufficient to cover the monthly expenses of your family’s current lifestyle. Providing a supplemental income fund will help your family maintain its standard of living.   Mortgage debt. You need to consider whether your life insurance proceeds are sufficient to help pay the remaining mortgage on your home. If you are carrying a large mortgage, you may need a sizable amount. If you own a second home, the mortgage on that home also needs to be factored into the formula.   College expenses. Many people want life insurance proceeds large enough to

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Invest in Your Financial Education During Financial Literacy Month

April brings more than possible rain showers. It also marks Financial Literacy Month in the U.S. Whether you’re interested in a quick refresher or seeking to learn something new, it may be worth the effort to brush up on some financial concepts that give you a broader knowledge base from which to make financial decisions. Here are several ways to invest in your financial education for this Financial Literacy Month. Check Out the Library With financial topics and discussions available in online articles, blogs, podcasts, radio, television shows and just about every other type of media, the library may be an overlooked resource for those seeking to improve their financial literacy. However, it may be cost-effective to check out a book from the library since it is free. Your librarian may be an invaluable resource for identifying areas of knowledge that you would like to boost and helping you select the appropriate books to read. Think About Your Budget and Taxes Whether you are good at budgeting or tend to take whatever comes financially, spring presents an opportune time to take a hard look at your income and spending and decide what changes may be worth making. While gathering the information you need to file your income tax return, you may be able to identify patterns and get an early start on any changes you would like to make this year. For example, if you did not contribute to a 401(k) or traditional individual retirement account (IRA) last year, running a few calculations might help give you a good idea of how much you may save in taxes by starting contributions now. Suppose your overall tax rate is quite low

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The Facts about Social Security Retirement Benefits

Social Security Retirement benefits are one thing that people know of, but often what they know isn’t always accurate. First, the Social Security Trust Fund was created in 1939 as part of Old Age and Survivors Insurance by the Social Security Administration (OASI). The goal of this legislation was to help American workers have financial resources in retirement. But since its inception, there have been myths surrounding Social Security. Here we will answer questions people have about Social Security to help dispel common myths of the program: Q: Can the U.S. Government borrow money from the Social Security reserve fund? The government does not borrow money from the Social Security Reserve fund, and by law, is unable to tap the fund, regardless of the U.S. deficit. There has never been any change in how the Social Security program is financed or how the federal government uses payroll taxes to fund the program. Q: Since a tax funds Social Security, can I deduct it when I file my taxes? There was never any provision of law making the Social Security taxes paid by employees’ deductible for income tax purposes. The 1935 law expressly forbid this idea in Section 803 of Title VIII. – SSA.GOV Q: Are Social Security retirement benefits taxed? President Reagan signed the taxation of Social Security benefits into law in April 1983. In 1993, additional legislation was enacted, increasing the benefits subject to taxation from 50% to 85%. Q: Can immigrants and non-U.S. citizens collect Social Security retirement benefits? Legal immigrants and non-U.S. citizens can qualify for Social Security retirement benefits if they earn enough work credits over their careers. They must also have a social security number

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If Social Security Falls Short Have a Plan

Are you worried about the current state of the Social Security system and how its future may affect your retirement income? It’s important to take a long, hard look at your current savings strategy to ensure you’ll be able to compensate for this, or any other, retirement income shortfall. Here are some important savings strategies that can help you work towards your retirement income goals.   Participate in your employer’s retirement plan. Regular contributions to an employer-sponsored retirement plan, such as a 401(k), can be an essential part of solidifying your retirement savings program. Contributions to such plans offer three key benefits: they are made with pre-tax dollars; they reduce your current taxable income; and they enjoy tax-deferred accumulation.   Start an IRA. An IRA (Individual Retirement Account) is a retirement savings vehicle that gives individual taxpayers the opportunity to accumulate tax-deferred earnings on contributions. You can contribute up to $6,000 (or $7,000 if you are age 50 or older) per year to an IRA, and contributions are tax deductible under certain circumstances. It is the combination of these two key benefits—tax-deferred accumulation and deductibility of contributions—that makes an IRA an important retirement savings vehicle for many individuals. Earnings on all contributions enjoy tax-deferred accumulation and incur federal (and, in some cases, state) income taxes only upon withdrawal. Deductible contributions also incur income taxes upon withdrawal. Bear in mind, any withdrawal from an IRA prior to age 59½ may result in a 10 percent federal penalty tax (in addition to federal and state income taxes). In addition, withdrawals must commence when you reach age 70½, at which time you must also stop making contributions.   Consider a Roth IRA. This

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Questions to Ask A Prospective Financial Professional

What to look for and what’s not important   If you are shopping for a financial professional, you need a good checklist of questions to ask. What you are looking for is someone who handles clients like you – and who is financially wise. As you assess a professional who manages your assets, for instance, do yourself a favor: Don’t rely on his or her investment record. Clients have differing needs. A money manager whose investment performance touched the stars last year may falter this year. More important nowadays may be how skillful a financial professional is at preserving your assets. That may range beyond market forecasts into such realms as insurance. Losing the ability to work and generate income, because of a sudden disability, can be more ruinous to your financial well-being than a slide in the stock market. This list of questions to a prospective professional will help you decide whether the person is a suitable fit for you: What Don’t You Do? Some financial professionals are strictly asset managers. They run your portfolio and do no planning. Others are wealth managers and their mandate is broader: They help plan the risk in your life. Within these categories are specialists in such areas as insurance and estate planning. You may hire a professional to help you draw up an investment plan aimed at pursuing enough assets to see you through retirement. But the financial professional may know zilch about creating a trust to pass along wealth to your grandkids. So, you will need another expert for that. Who Is Your Typical Client? Let’s say you are starting out and have a net worth of $50,000. It may not

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There’s Still Time to Contribute to an IRA for 2021

Even though tax filing season is well under way, there’s still time to make a regular IRA contribution for 2021. You have until your tax return due date (not including extensions) to contribute up to $6,000 for 2021 ($7,000 if you were age 50 or older on or before December 31, 2021). For most taxpayers, the contribution deadline for 2021 is Monday, April 18, 2022. You can contribute to a traditional IRA, a Roth IRA, or both, as long as your total contributions don’t exceed the annual limit (or, if less, 100% of your earned income). You may also be able to contribute to an IRA for your spouse for 2021, even if your spouse didn’t have any 2021 income. Traditional IRA You can contribute to a traditional IRA for 2021 if you had taxable compensation. However, if you or your spouse were covered by an employer-sponsored retirement plan in 2021, then your ability to deduct your contributions may be limited or eliminated, depending on your filing status and modified adjusted gross income (MAGI). (See table below.) Even if you can’t make a deductible contribution to a traditional IRA, you can always make a nondeductible (after-tax) contribution, regardless of your income level. However, if you’re eligible to contribute to a Roth IRA, in most cases you’ll be better off making nondeductible contributions to a Roth, rather than making them to a traditional IRA. Roth IRA You can contribute to a Roth IRA if your MAGI is within certain limits. For 2021, if you file your federal tax return as single or head of household, you can make a full Roth contribution if your income is $125,000 or less. Your maximum

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What to Expect on Your 2021 Tax Return

The federal government’s response to the COVID-19 pandemic continues to impact individual income tax returns, from the suspension of federal student loan interest to expanded child tax credits. For many taxpayers, this may mean your 2021 return may look a bit different from last year’s tax return. For some, this may mean a smaller refund or a higher tax rate. Here is some information about how certain factors may result in a lower federal income tax refund or affect your taxes due. No Tax Waiver on 2021 Unemployment Benefits In March 2021, Congress passed the American Rescue Plan Act, which waived federal income tax on up to $10,200 of unemployment benefits paid per individual in 2020.1. However, no unemployment tax breaks have passed since then. This lack of a tax waiver means that the approximately 25 million Americans who received unemployment benefits in 2021 and did not have federal income tax withheld (or pay estimated taxes) may receive a smaller refund than before. Advanced Child Tax Credits May Lower Refunds If you have a child under the age of 17 and did not opt-out of the $250 or $300 per month per child advance payments beginning in June 2021, there is a lower income tax refund possible to compensate for these advanced child tax credits payments.2 The overall child tax credit was higher than in prior years (at $3,600 per child age five and under and $3,000 per child age six and over). However, advancing half the overall credit over the last half of 2021 means that taxpayers may now get proportionally less when they file their tax returns. No Federal Student Loan Interest In 2021 For more than a

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Spring Cleaning Your Investments

Spring is traditionally the time to clean the garage and to get the yard in shape. It’s also a great time to clean up your investment portfolio. Going into the final days of tax season, this is a perfect opportunity to get rid of clutter, review your asset allocations and make the necessary changes if your portfolio has strayed from your financial plan. Here are seven steps to making your portfolio cleaner and more efficient. Think of Your Investments as a Portfolio This is the first key step. Many investors focus on each individual holding and fail to look at the sum of the parts. Of course, it is important to invest in quality mutual funds, exchange-traded funds, stocks and bonds. But it’s smarter to start by determining whether your overall portfolio allocation is in line with your financial goals and risk tolerance. Ideally, this should all be an extension of your financial plan. Even younger investors starting out should think in terms of their overall portfolio, even if it contains only a few holdings at this point. Find Your Most Recent Statements and Organize Your Records Review all monthly, quarterly and yearly documents from your investment accounts. Keep them all in a paper file or on your computer and find a way to take a consolidated, overall view of your holdings as a portfolio. Categorize your portfolio by account and by asset class on a spreadsheet. This shows you how well-diversified you are across different asset classes. Your spreadsheet might reveal an ungainly number of individual holdings across different accounts. That’s called financial clutter. This is common among folks who have a number of old 401(k)s from former employers.

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investing

Luck of the Investor: Making Your Own Luck on St. Patrick’s Day 

As Samuel Goldwyn once said, “The harder I work…the luckier I get!” 1 But when it comes to investing, luck may play a huge role in outcomes—no matter how hard you work.2 Below, we discuss some ways that luck may impact your investing, as well as some steps you may wish to take to try to make your own good luck this St. Patrick’s Day. The Impact of Luck on Investment Returns One reason so many financial professionals advise against market timing for long-term investors involves the distribution of days with major gains and days with major losses. Historically, and particularly seen during the earliest days of the COVID-19 pandemic, some of the market’s best days were followed by some of its worst, and vice versa.3 Trying to sell at the top and buy at the bottom may require a great deal of luck. You may need to trust that a day with a 2 or 3 percent loss may not be immediately followed by a day with a 2 or 3 percent gain. However, over the course of a long investing horizon, these single-digit gains and dips aren’t likely to have a major impact unless you make a habit of buying and selling during volatile periods. Focus On Process, Not Prior Results How can you take advantage of good luck and avoid the impact of bad luck when choosing your investments? The answer may be complicated and may depend on your personal circumstances. However, by focusing on the investment process—rather than chasing returns by buying into funds that have recently had a good run—you may be more likely to pick a future winner. Having a solid process may increase your probability

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Retirement

Crossing the Bridge to a Satisfying Retirement

One of the more important—and hopefully enjoyable—events you will face in life is retirement. After spending many years building your career, you have likely accumulated a comfortable nest egg. If you have reached a point where retirement is the next big step, you need to develop a strategy that will help you cross the bridge from the world of work to the world of leisure.   While most retirement planning discussions focus on the financial aspects of securing a comfortable retirement, few look at the nonfinancial issues that need to be addressed. Indeed, when retirees report being dissatisfied with retirement, it is more often the nonfinancial aspects they find troubling. Specifically, lifestyle changes and loss of self-esteem due to loss of work often create the most difficulties.   Perspective is Key Maintaining perspective is really the key to enjoying one’s later years. While the word “retirement” suggests that something is coming to an end, cultivating a more positive view can help you learn to see retirement as the beginning of a new phase of life—a phase in which you can do all the things you never seemed to find the time for while you were working. Volunteer work can enhance your sense of making a contribution, while taking courses in areas of special interest can challenge your intellectual curiosity. If thoughtfully chosen, these activities can help bring a great deal of happiness and meaning to your life.   Easing the Transition From a psychological standpoint, some individuals find that separating from a lifetime of work is a more emotional experience than they ever expected. It is possible that it may take from two to five years to disengage from the

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