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Financial Advice

Why is Laddering a Smart Strategy For Your Finances?

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Here’s how laddering works. This strategy is based on the investment principle that the longer you commit your money, the higher your rate of return will be.

For instance, A 5 year CD pays more than a 1 year CD. A ten year surrender annuity pays more than a five year.But you don’t want to tie up all your money for a long period in case you need that money. Or maybe interest rates rise and you could get a better return elsewhere. Laddering is a strategy where you split your money between, for instance, 5 and 10 year surrender period annuities. This allows you to earn the higher rate for longer periods with the 10 year annuity, but still get the benefit of liquidity beginning in year 5. This money could be used as income or reinvested again at a higher rate.

The ladder concept has been used for years with CDs and bonds. And now it also works well with annuities.These are complex issues and terms change regularly.

Give us a call to find out how this laddering strategy could work for you.

(719) 597-2179

 

What Can Indexed Annuities Do For You?

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A fixed index annuity is a contract between you and an insurance company that may help you reach your long-term financial goals. In exchange for your premium payment, the insurance company provides you with income, either starting immediately or at some time in the future.

Most fixed index annuities have two phases. First, there’s an accumulation phase, during which you let your money earn interest. This is followed by a distribution or payout phase, during which you receive money from your annuity. Your annuity can earn a fixed rate of interest that is guaranteed by the insurance company or an interest rate based on the growth of an external index.

With a fixed index annuity, you defer paying taxes on your contract’s interest until you receive money from the contract. This tax deferred growth in your asset can really add up. These annuities provide for additional growth in value by sharing in stock market growth, often without market risk. Fixed index annuities vary in their benefits depending on the company offering them.

To understand which fixed index annuity may be right for you, give us a call today.

(719) 597-2179

 

Financial Vows for Money-Savvy Couples

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February is a good time to celebrate your relationship with your significant other—and renew your commitment to your mutual financial success. Here are some ideas to say “I do” to this month.

  • Vow to protect yourselves from emergencies

During the government shutdown early this year we learned that 40% of Americans don’t have enough money set aside to handle even a $400 emergency. Whether you determine you want an amount equal to six months’ or 12 months’ worth of living expenses, vow to set aside an emergency fund in liquid, readily-accessible accounts so that you have adequate cash on hand should you need it.

  • Vow to protect your family finances by shifting risk

Along the same lines as an emergency fund, work with a financial advisor to determine how much risk you both face from other potentially life-altering events. What would happen if one of you suddenly became unable to work or function due to a disability? What if you required nursing care? What if one of you suddenly passed away?

Insurance companies offer policies designed to shift many of life’s unexpected financial risks away from your family. Be sure to compare policies offered by multiple highly-rated insurance companies to help ensure you get the best coverage for your premium dollar.

  • Vow to put an estate plan in place (or update your current plan)

If one or both of you have children from a previous marriage, make sure all of your documents are in order so that family squabbling is reduced to a minimum if one of you predeceases the other. Most experts say that you should have at least some of your assets transfer immediately lest one of you remarries or other circumstances change and money that you expected would pass to your biological children gets spent by an unintended party.

Similarly, did you know that the beneficiaries you designate on retirement accounts and insurance policies and similar accounts take precedence over your wills and/or trusts? If you haven’t looked at that old 401(k) for decades, chances are that your ex-spouse might inherit that money regardless of your true wishes or life circumstances at the time of your death.

All of your documents need to be reviewed on a regular basis—let’s get together as soon as possible.

  • Vow to make saving and retirement planning a priority for you both

Even though retirement accounts are held separately, it’s important to have a shared vision about your retirement together. Be sure to meet with your retirement planner or financial advisor to discuss your future goals and time horizon. Other financial goals should also be prioritized so that you’re both on the same page, like saving up for the kids’ college expenses or the daughters’ weddings.

  • Vow not to keep secrets about money and keep the communication flowing

Hopefully you’ve been honest from the beginning of your relationship about your level of debt, how you handle sticking to a budget, or whether or not you have a low credit score. Understanding each other’s financial position and money habits is the first part of being able to take control of your finances together in order to achieve mutual goals as a couple.

And remember that it’s important that both of you understands your overall combined financial picture, even if one of you pays the bills or the other takes the lead role in investing. Don’t delegate this, make it a point to stay in the loop with financial decisions. Even if you have separate bank accounts to handle the day-to-day finances, you both need to understand where you’re at and where you’re headed when it comes to your financial future as a couple, especially your plan for retirement.

Even if it doesn’t seem exactly romantic, talking about money can make your relationship a more perfect union for the long-term. Aiming “for richer” rather than “for poorer” together can strengthen your matrimonial bonds.

We’re here to help. Call SF Financial in Colorado Springs at (719) 597-2179.

 

 

Sources:
CNN, “40% of Americans can’t cover a $400 emergency expense.” https://money.cnn.com/2018/05/22/pf/emergency-expenses-household-finances/index.html (accessed February 11, 2019).
Forbes, “6 Financial Vows Couples Should Take To Heart.” https://www.forbes.com/sites/judithward/2019/01/23/6-financial-vows-couples-should-take-to-heart/?ss=personalfinance#1a8149385241 (accessed February 11, 2019).

 

How Can You Plan For Long-Term Care?

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Statistics say there is a seventy percent chance that you or your spouse will experience a need for long-term care! Long-term care includes a range of services and supports you may need to meet your personal care needs.

Most long-term care is not medical care, but rather assistance with the basic personal tasks of everyday life, sometimes called Activities of Daily Living (or ADLs). These include Bathing, Dressing, Using the toilet, Transferring to or from bed or chairs, Caring for incontinence, and Eating. Other common long-term care services and supports are assistance with everyday tasks, sometimes called Instrumental Activities of Daily Living (or IADLs). These include Housework, Managing money, Taking medication, Preparing and cleaning up after meals, Shopping for groceries or clothes, Using the telephone or other communication devices, Caring for pets and Responding to emergency alerts such as fire alarms.

The cost of Long-Term care varies with the amount of coverage, length of care, and deductibles. The initial premium level will increase based upon the age at which you apply. Like all insurance, most people wait too long before applying. 1 in 4 who apply between the ages of 60 and69, don’t qualify.

You owe it to yourself and family to know the options and prepare well today. Call us to find out more.

(719) 597-2179

Managing Your Finances

By | Financial Advice, Retirement | No Comments

We work with dozens of people to help them create retirement plans. But in order to get to a successful retirement, there are thousands of small decisions along the way. Like, should you drive through your local coffee place and grab a latte this morning? Go with the office gang for lunch at that little bistro across the street, which usually costs you around $15? Should you order pizza delivered for dinner tonight because you didn’t go to the grocery store yesterday? Grab that new shirt because it’s 50% off?

Sticking to a budget is the beginning of mastering your money. But why do so many of us find it difficult?

A recent article in Forbes magazine may hold some clues as well as ideas about how to take control of your discretionary expenses. The author, Thomas Dichter, advocates writing every expenditure down, to the penny, as well as calculating how well you met your budget on an annual basis. (He usually comes within 1% of his goal, and many times comes in under, which he attributes to his meticulous record-keeping.)

Mr. Dichter explains how he started the process:

“I forced myself to write down what I had spent under each category. After a week my inner accountant had emerged and I kept at it. By month six I noticed something magical: the act of tracking expenses had a feedback effect on my spending. My expenses in the categories that all of us tend to ignore (take-out food and coffee, a candy bar at a vending machine, impulse buying a shirt, or a magazine at the check out line, etc.) were going down, not because I wanted to deny myself, but because I could see what was happening.

“At the end of that first full year those few minutes a day of what became compulsive recording paid off. It took me about a half hour to add up each category and then total it all (a side benefit became obvious when I had to do my taxes). Then I compared that total to my take-home income for the year and saw I was ahead, for the first time in my life. I decided to do a budget for the next year, using the past year’s expenses as a guide. At the end of that year I saw I had come within 1% of my budget estimate. Passing that self-imposed test soon became an annual goal. Each year on December 31st, I see how close I’ve come to my budget estimate of twelve months earlier. Usually I come within that 1%, sometimes over but more often under.”

The author goes on to say that he believes that easy access to credit, along with an economy based on consumption, contributes to the overspending problem in America. And the main excuse for resisting his simple method—“I don’t have time”—is just a cover story for other, deeper reasons. For example, he believes that some people don’t really want to know what they spend, because it might rock their feeling that “everything is okay.” Some operate on the subconscious wavelength that it’s better to risk their financial future rather than turn into some kind of accounting nerd or tightwad.

As financial advisors who work with people every single day, we are here to tell you that managing your finances is possible, and might even be easier than you think. Let’s talk. Call SF Financial in Colorado Springs at (719) 597-2179.

 

Source:
“A New Year’s Resolution To Manage Your Finances: Why Is Sticking To It So Hard?” by Thomas Dichter, Contributor, Forbes.com. https://www.forbes.com/sites/thomasdichter/2019/01/01/a-new-years-resolution-to-manage-your-finances-why-is-it-so-hard/#38ef8202106f (accessed January 14, 2019).

What’s the Difference Between a Will and a Living Trust?

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A “Living Trust” is a trust you created that is active while you are alive versus a Testamentary Trust which becomes active at your death. When you create a Living Trust, you ensure that your assets will be disbursed efficiently to the people you choose after your death.

The big advantage to a Living Trust is that the trust doesn’t have to go through probate court like a will does. Probate can be expensive in attorney and court costs while also causing long and frustrating delays. A Living trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can even act as your own Trustee if you’d like.

When you create a trust, the titling of assets is changed into the trust’s name, as if it was a living entity. Specific details of your wishes upon death can be provided for in the trust. But not everyone needs a trust. Transfer of assets at death may be handled through a beneficiary designation on some holdings and investments. If you’re using beneficiary designations, make sure all your paperwork is up to date. For instance, if you get divorced, be sure to remove your ex-spouse as a beneficiary.

For more information about how to plan well for your family’s future, give us a call today. (719) 597-2179

 

Retire Early, Tap Your 401k Early… Penalty?

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The way we work and save for retirement has changed and the old rules no longer apply to every individual’s situation. There are many professionals with the resources to retire early, but continue working until retirement age just to avoid paying penalties to the IRS. However, there are ways to retire early that you might want to consider.

You Can Pay the Penalty

The most obvious solution is to bite the bullet and pay the 10% penalty for early withdrawal. Most people are motivated to avoid paying the early withdrawal penalty and will wait until the legal retirement age of 59 ½, before accessing funds in their retirement accounts. This can be an attractive option, simply because the tax-deferred investments in your 401k may have outperformed other taxable investments. If this is the case, your tax benefits may actually pay for the penalty by the time you’re ready to retire. Of course, this all depends on how well your tax-deferred investments have performed.

The Substantially Equal Periodic Payments Option

The IRS allows early retirees to access their retirement funds without paying the penalty through their Substantially Equal Periodic Payments (SEPP) program. An early retiree will have to consent to making substantial annual withdrawals each year until they reach traditional retirement age, as outlined by a calculation chart published by the IRS. However, failing to withdraw the correct amount each year can cause the IRS to charge you with the 10% penalty for each withdrawal you have already made. For this reason, it’s best to work with a tax professional to ensure you meet all of the requirements set out through the SEPP program.

Additionally, the program requires that you fulfill a minimum of five withdrawals, before your obligation is complete. If you retire at 40, you must adhere to the withdrawal requirements until you turn 59 ½ years old. However, if you retire at 57, you must continue the SEPP withdrawals until you reach 62 years of age. As long as you can adhere to the timetable, this may be a good option for accessing your retirement funds early and without paying the penalty.

Convert to a Roth IRA

Another option that will help you avoid the 10% penalty is to convert your 401k to a Roth IRA. Once you open the account, you will have to wait five years, before you can begin withdrawing your contributions. For that reason, it will be important to anticipate your early retirement and plan ahead. However, once you have met that requirement, you can begin withdrawing without facing a penalty.

An additional restriction is that the IRS requires that withdrawals be made in a particular order. You must withdraw direct contributions first, before withdrawing funds that were converted into the account. Lastly, you can withdraw earnings on those contributions. Depending on your situation, this may be a worthwhile alternative.

While these options do exist, waiting for retirement age may still be worthwhile. Where a 401k account is concerned, remaining on the job will keep those employer contributions coming. That “free money” will pad your retirement account, while your savings continue to earn on investments. Additionally, you’ll continue to benefit from tax breaks for a few more years. Ultimately, it will be your decision, which you can only base on your specific circumstances. If you do choose to retire early, you should consult a Financial Advisor and/or tax professional, before you act.

When Should I Seek Financial Advice?

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Here are some life milestones and events that mark when you should make the call to a financial advisor.

  1. When there’s a new baby in the family.

Parents, grandparents, siblings—everyone is affected when the new baby comes along. Now is the time to plan for what this tiny family member will grow to need in the future—especially college funds. And now is also the time to make sure that you have the right insurance and protections in place to see the child through to adulthood should something unexpectedly happen to you.

  1. When you get married.

Two people joined together in holy matrimony are also going to need to bring their finances together, for better or worse. And if there are any children from a previous marriage involved, it’s doubly important to find and hire a financial advisor that you both like and respect.

A comprehensive financial plan—which includes your mutual goals, time horizon to retirement, and desires for wealth transfer to family members—is a very important way to get started on your life journey together.

  1. When you win the lottery, or inherit.

We all dream of receiving a big financial windfall someday, but when you actually land a large amount of money at one time, studies show that many people squander it away. In fact, nearly a third of lottery winners actually end up declaring bankruptcy, becoming worse off than before they won.

If you receive money, call a financial advisor first, because no matter what the amount, it is actually less than it seems. You need qualified financial advice to ensure you don’t lose 30-90% to the IRS by not understanding tax laws. Financial advisors work as a team with your tax professionals to help you navigate inheritance, winnings, and gift taxes, as well as qualified money (like an inherited IRA account) tax rules so that you can actually end up ahead of the game.

  1. When you start working.

Your first job is an exciting time in your life. Even if you’re trying to pay off student loan debt, don’t miss the chance to achieve your life goals by harnessing the power of compound interest. Putting away even a very small amount each month can snowball through the years. A financial advisor can help you lay a plan to get ahead and reach your goals over the long term.

  1. When you start a new business, or want to sell one.

Small businesses offer many different options for retirement plans for their owners depending on the company structure. Call a financial advisor to help you set up a financial and retirement plan for your business in order to have the best chance of achieving your goals. And don’t forget about an exit strategy. Whether you want to leave your business to a family member or sell it, planning for your own departure from the company is essential to your ultimate financial success.

  1. When you’re starting to get close to retirement.

You should start to save for retirement as early as possible, but as you get closer to your actual retirement day, having a written plan in place to guide you becomes critical. How will you transform that nest egg you’ve saved into monthly income after you’re no longer getting a paycheck—without running out of money? How much money will you need? How will you take money out? Which accounts should you withdraw from first? What kind of taxes will you have to pay? How does Social Security work? How will you live, what will you do? Should you pay off your house first?

There are so many issues and retirement risks to address that retirement planning is absolutely essential. Ideally, you should have a plan in place by age 50—55. If you don’t, call your advisor as soon as possible.

  1. When you’re creating estate planning documents or establishing a trust.

Estate attorneys can create the documents you need, but they may not know about all the ins and outs of investments and insurance that can reduce taxation while helping ensure your final wishes are carried out. Call your financial advisor to get that important piece of the estate and tax planning equation.

  1. If you lose your job midlife, or are getting divorced with a lot of assets.

An adverse life event can hit anyone. If you’ve lost a job or are getting divorced, your financial advisor can help determine your best options for putting an immediate action plan in place.

For instance, if you’ve lost your job, your financial advisor may be able help you position assets in order to be able retire early, or help you draw from certain accounts to get you through until you land your next job.

If you are getting divorced, be sure to get advice from a financial advisor as well as your divorce attorney. They can help you analyze the assets that will most benefit you based on your future goals in order to reach the best settlement split. They can help you see things you might not be able to see clearly, and that divorce attorneys may not know. Like what kind of burden versus advantage keeping the family home might be.

  1. In the final quarter of every year.

Once you do have a financial or retirement plan in place, you should absolutely review it every year. (Most likely you’ll just need to answer the call, since most advisors will reach out to conduct annual reviews with you.) The annual review will allow your advisor adjust the plan as well as make changes to account beneficiaries as your family changes through time.

 

There are three different advisory disciplines you should seek out—tax professionals, legal professionals (like estate attorneys), and financial advisors. We can help you with the financial advice part of the equation. We can help you get set up with a tax professional and estate attorney from our network of contacts, or work as a team with yours.

Call SF Financial in Colorado Springs at (719) 597-2179.