Taking steps towards improve your financial situation includes understanding how to manage your credit wisely. If you don’t take credit seriously, you may run into issues when applying for a mortgage, car loan, or a credit card. Using credit responsibly can help financial security and stretch income further by reducing your interest rate due to a higher credit score. Here are a few other things to keep in mind to help you be smart using credit:
Review your credit report annually. Review your credit report for a complete view of your debt and lines of credit and check for errors. Reviewing your information will help you gain confidence by allowing you to stay on top of any changes.
Set up a budget and reduce credit usage. Credit should not be used to purchase items you cannot afford; it is a tool to show lenders that you are trustworthy in paying them back. By setting a budget and living within it, you will avoid using credit to overextend yourself.
Pay your bills on time. Late payments impact your credit score negatively and affect your ability to open new lines of credit since your trustworthiness is in question. Paying your bills on time is extremely important.
Use caution when closing accounts. Closing an account can increase your overall credit utilization rate. However, it can be helpful if you want to eliminate cards with high-interest rates or annual fees. Make sure you have ample credit available to you before closing an account.
Why consolidating debt may not be appropriate for you
Debt consolidation is the process of combining two or more debts into a single, more considerable debt. Debt-burdened consumers often choose to consolidate, but there are a few things to keep in mind when considering consolidation:
Consolidation is not a solution for solving financial problems and does not guarantee that you won’t go into debt again. If you have a history of living beyond your means, you may do so again in the future. Here are some reasons consolidating debt may not be appropriate for you:
There may be up-front costs. Some debt consolidation loans come with loan origination fees, balance transfer fees, annual fees, and closing costs. Make sure you are aware of all fees before consolidating.
You may end up paying a higher interest rate. The new loan could come with a higher APR than you had initially thought. Ensure to do your research before signing a debt consolidation loan.
Making smart choices when it comes to credit use is critical to your financial future. Work with your financial professional if you need help managing your credit or have questions regarding if debt consolidation is appropriate for your situation.
If it seems overwhelming to keep your finances on track and implement multiple financial actions at once, a month-by-month approach may help. Tackling financial tasks helps ensure you’re working towards reaching your financial goals and checking tasks off of your to-do list each month. While some financial tasks are time-sensitive, others can be completed throughout the year. Here is a month-by-month checklist list to help keep your finances on track throughout the year:
January- Prepare to file your taxes- Collect W2’s, 1099’s, investment statements, charitable giving receipts, mortgage interest statements (form 1098), and other documentation on deductible items, so you are ready to file your taxes. It’s also a good idea to look at them to assess your earnings and investing habits.
February-Review your monthly budget- Has your spending increased or decreased? How about your income? Reviewing all money in and out each month enables you to save more and reduce your outstanding debt. Now is a great time to cut out what you don’t need and subscriptions and memberships you don’t use.
March- Increase retirement savings contributions- Can you contribute more this year into your retirement savings accounts? Make it a goal to increase your 401(k), IRA, or Roth IRA contributions this month, so you are closer to maximizing your contributions. Setting your contributions to increase each year automatically helps ensure you are closer to your retirement savings goal when you’re ready to retire.
April– Evaluate your emergency fund- An emergency savings of six month’s-worth of costs in a cash account can help keep you on track and prevent premature liquidation of assets. Six to twelve months of cash reserves is recommended for high-income earners or self-employed people.
May- Review your investment portfolio- Was the return on your investments last year what you expected? While risk/reward is part of an investment strategy, taxes and interest rates also impact portfolio performance. Schedule a meeting with a financial professional to examine how your investments performed last year and develop an investment strategy for your unique situation.
June- Review your life insurance- A yearly review of your life insurance policy is essential to ensure the death benefit is enough to pay off your outstanding debt and provide for your beneficiaries for a set period. While employed, maximize your employer’s term life insurance coverage. But you may also want to consider private life insurance so that if you leave your employer, you have coverage at a death benefit amount appropriate for you.
July-Review your beneficiary designations- Beneficiary designations on accounts such as your 401(k), IRA, and other accounts overrides information in your will about who inherits them. Therefore, it is vital to review your retirement savings accounts, investment accounts, and assets to ensure that your beneficiary information is updated and your estate plan is in sync. Consult your legal professional for guidance for questions on how listing beneficiaries impacts probate regardless of having a will or estate plan.
August- Revisit your will and estate plan– Legal documents are essential so that upon your death, your assets pass as you intended. If you have changed your mind on how you want your assets divided or who should receive them since you drafted your will or estate plan, now is the time to update these essential documents.
September- Schedule tax planning- Meet with your tax and financial professional to determine your tax scenario before the year ends. If you need to contribute more to your pre-tax retirement savings accounts, having four months of extra 401(k) contributions can help reduce your taxable income. Also, determine if your payroll deductions are appropriate to you and adjust if necessary, and retroactive if possible, to lower your taxable income.
October- Review or Redo your financial plan- Are you on track to reach your retirement savings goals? Review how much of your salary you invested last year and how much more you can contribute toward your retirement savings if you’re still in your accumulation phase. Now is a great time to review investment performance and adjust your investing strategy.
Suppose you are retired and spending down your retirement nest egg. In that case, a new financial plan can provide insight into how long your retirement savings may last based on today’s inflation rate, current interest rates, and other factors.
November-Evaluate your insurance coverage- Take note of your other types of insurance in addition to your life insurance, such as property/casualty, disability, long-term care insurance, and so on. Once you review coverages with your insurance and financial professionals, you can rest assured you are adequately insured and your assets won’t deplete prematurely due to unplanned circumstances of property loss or health.
December- Give to charity- There are countless benefits of giving; you can make a difference in your community and society and even save on your taxes by giving through these ways:
Donor-Advised Funds: A donor-advised fund allows you to donate cash or securities, which are non-refundable to a non-profit organization.
Charitable Trusts: The two types of charitable trusts you may want to incorporate into your financial plan include charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). Consult your legal and financial professionals if you plan to include securities in your trust.
By doing one financial task each month, you can easily work towards your financial goals and stay focused on your progress throughout the year. Contact our office to schedule your annual review of your portfolio, insurance coverages, and update your financial plan.
Understanding the critical ages for taking Social Security retirement benefits can be the difference in thousands of dollars over time. Therefore, it is important for you to determine the best age to start taking Social Security for your situation. Here are the important ages on the Social Security retirement benefits timeline to consider that may impact your monthly payout:
Age 62- You can start taking your Social Security retirement benefit at any point from age 62 up until age 70. However, your benefit will be higher the longer you delay taking Social Security retirement benefits. You can claim Social Security benefits a few years before your full retirement age, but your monthly benefit amount may reduce. For this reason, determining your benefit amount at your full retirement age (when you’re eligible for 100% of your earned benefit amount) is crucial in making an informed decision. Other benefits available at age 62:
Social Security survivor benefits are available for spouses.
Divorced spouse benefits- Your divorced spouse can get benefits on your Social Security record if the marriage lasted at least ten years. Your divorced spouse must be 62 or older and unmarried. The benefits they get don’t affect the amount you or your current spouse can get. Also, your former spouse can get benefits even if you haven’t started to receive retirement benefits. You both must be at least 62 and divorced at least two years.
Age 65 and born in 1937 or earlier- You’ve reached full retirement age and are eligible for your full Social Security retirement benefit amount.
Age 66- If you were born between 1938 and 1954, you’ve reached your full retirement age and are eligible for your full Social Security retirement benefit amount.
Age 66- If you were born between 1955 and 1959, your full retirement age gradually increases based on the following schedule until age 67:
1955- Full retirement age 66 and 2 months
1956- Full retirement age 66 and 4 months
1957- Full retirement age 66 and 6 months
1958- Full retirement age 66 and 8 months
1959- Full retirement age 66 and 10 months
For those born in 1960 or later –
Age 67- you’ve reached your full retirement age. Delaying your benefits may provide you with a higher benefit amount.
Age 68- Your monthly benefit amount increases based on the Social Security monthly benefit tables and your earnings credits.
Age 69- Your monthly benefit amount increases based on the Social Security monthly benefit tables and your earnings credits.
Age 70- You’ve reached the agewhere your monthly benefit will no longer increase if you continue working.
Other notable Social Security nuances to be aware of:
Not waiting until full retirement age to take benefits may mean up to 30% less each month for some individuals.
Working while receiving Social Security retirement benefits may reduce your monthly benefit amount.
Once you start Social Security benefits, your decision can’t reverse to wait until later age.
Deciding when to start receiving Social Security benefits can be confusing, and your decision can mean a difference in thousands of dollars each year. Incorporating your benefit amount into your financial plan information can help you determine the appropriate age to take benefits for your situation.
Each year, review your Social Security Statement to check for accuracy. You can view your Social Security earnings and anticipated benefits report by registering for an account at www.ssa.gov.
Since holiday spending doesn’t include just gifting, it’s essential to set your holiday budget now. You may spend extra on food, gifts, decorations, travel, and more during the holiday season. Don’t let the holiday season take a toll on your wallet and avoid a New Year’s Day debt hangover by using these twelve tips to help you budget for the holidays:
Determine an amount you feel comfortable spending this holiday season, then stick to it!
Make a list of everyone you’d like to buy gifts for and assign a dollar amount to each. Use your list to keep your spending on track with your budget.
Make gifts to save money and show the recipient what they mean by giving them something unique.
Save ahead of the holiday season and utilize your bank’s automatic transfers to set up a holiday savings account.
If you plan to use credit, consider using a credit card that offers cash back or rewards. You may gain additional benefits or rewards to help lower the cost of spending.
Don’t settle for the first price tag you see when shopping for specific items. Research other local stores or search online to see if you can find a lower price.
Watch for sales or price cuts instead of waiting for Black Friday or Cyber Monday. Many retailers offer discounted items ahead of these one-day sales events.
Buying last year’s edition of a big-ticket item may save you money since retailers discount big-ticket items at the end of the year to make room for newer models.
Watch for travel specials on airlines or trains, or determine the cost of driving to your destination. Purchase tickets early, book hotels early, and set aside money ahead of the holiday travel season.
Shop for groceries that can be frozen or dry stored when they are on sale versus last minute. Consider using off-brand versus name-brand products if they will save you money.
Reuse decorations, extra cards, mismatched paper goods, and gift wraps to create a unique look and save. You can also check thrift stores for holiday items at a reduced cost or consider swapping these items with a friend to save even more.
Don’t wait until the last minute, as rushing may lead to overspending.
The thought of becoming disabled and unable to work may not be top of mind, but would you be financially prepared if it happened to you? According to the Centers for Disease Control and Prevention (CDC), 26 percent (one in 4) of adults in the United States have some disability. Your chances of becoming disabled are far greater than your chances of dying, and as you age, the likelihood of having an injury that results in permanent disability increases.
Often, people think that Social Security Disability Insurance (SSDI) would replace their income if they become disabled. SSDI is a social insurance program under which workers earn benefits coverage by working and paying Social Security taxes on their earnings. The program provides benefits to disabled workers and their dependents. However, SSDI will only pay part of your lost wages if you become permanently disabled.
So how do you offset the risk of lost wages if you become disabled and can’t work? One way is to purchase a disability insurance policy to help protect against lost wages. Here are other things to consider before buying disability insurance:
Disability Insurance provides insurance for lost wages until retirement age.
Policies are designed to payout a percentage of lost wages, usually 60-75%, until retirement age, when social security benefits begin.
When applying for disability insurance, your profession and current wages are considered in the underwriting process.
Today’s disability policies are required to have an adjustment for inflation as the policy stays in force. This adjustment helps determine that your payout if you become disabled, has kept up with inflation and the wage you would have received if you continued to work.
Your yearly disability policy premium may also change because the likelihood of injury in certain professions increases as you age.
During underwriting, you decide when you want benefits to start. The specific start date is 90-180 days after injury, which is also a determination period of if your injury will be permanent or not.
Your medical provider and treatment plan also determine if the injury results in partial or permanent disability and if you will receive the total or partial monthly benefit.
To understand disability insurance and discuss if purchasing a disability insurance policy is appropriate for your situation, visit with your financial professional.
Individuals and their families often seek to make positive societal and world change through philanthropic efforts. Philanthropy is one way families clarify their values and use their wealth to work together across generations to build their family’s legacy for the greater good.
A 2020 study by the Milken Institute Center for Strategic Philanthropy found that the wealthiest 1% of society donates 99% of the world’s charitable gifts. Also, U.S. philanthropists contributed 51% of the global giving, with donations of $90.5 billion that same year. Here are ten statistics about philanthropic giving:
1. Most Philanthropic donors are between ages 50 and 70.
2. The younger generations, Gen X and Millennials, give more than older donors as their wealth increases.
3. Over half (56%) of investors have a giving strategy, and 22% of investors would consider having one.
4. Personal satisfaction and personal connection rank as the top to motivators of charitable giving.
5. Many investors work with their financial professionals (63%) and family members (43%) in developing their giving strategy.
6. 91% agree that a charitable giving strategy is part of their overall wealth strategy.
7. Investors with lower wealth tend to use donor-advised funds, whereas investors with more wealth use a variety of investment vehicles.
8. One-third see their giving strategy changing over the next two years, and many will increase their giving and support more organizations.
9. Nearly all investors claim to be at least somewhat engaged with the organizations and charities they support.
10. 41% engage in sustainable investing, and higher wealth and younger investors are more likely to engage in sustainable investing.
Of those investors that give to philanthropy, many indicate they will increase the amount they give, give to more organizations, and change their method of giving. The top five types of assets that philanthropists give include cash, securities, business interests (company shares of stock), collectibles and art, and cryptocurrencies. Working with a financial professional can help investors develop a giving strategy as part of their financial plan and determine which investment strategies to use. Financial, legal, and tax professionals can help provide insight into if a family foundation, charitable trust, private foundation, or other entity such as an LLC is appropriate for their situation.
The end of the year is a great time to review your trust document, update information, buy or sell assets or even cancel your trust if you choose. It’s important to review your trust document since it is a legal vehicle that protects your assets and contains instructions for your assets when you die or become incapacitated. Here is a checklist to help you complete your trust and year-end planning:
Review and update your trust document- Always keep a copy of your original trust document for your records and the latest trust document. Update any changed information, including if you designate a new trustee. Your legal professional can assist you in updating your trust documents before the end of the year.
Complete annual record-keeping duties- Recordkeeping may involve professionals to help ensure the trust is administered correctly, minimizing taxes, distributing capital gains to beneficiaries, and so on. Prepping for filing taxes is easier when recordkeeping duties are completed at the end of each year. Here are things to review, determine, and do before the end of the year:
Payments made on behalf of beneficiaries and receipts
Net income paid to beneficiaries
Payments made to third-party payees
Review the past year’s tax records
Make tax payments due before December 31st
Make interest payments due before December 31st
Other payments due
Determine capital gains
Estimate taxes due
Financial, legal, and tax professionals can help you with annual-record-keeping duties, so your trust is operating compliantly.
Review ownership of assets- You may have sold or purchased new assets during the year. Ensure your trust document has the correct items and that the trust is the owner, not an individual. You may need to update the titling on some of the assets in the trust, such as a home, cars, and other fixed assets.
Review and update beneficiary information- Your beneficiary information must be kept up-to-date since marriages, divorces, name changes, or other life events can occur. Make sure to review beneficiary information on these specific items:
Life insurance
Employer-sponsored retirement savings accounts
Bank and brokerage accounts
Annuities
Review disability documents- If you become disabled, your trust document directs your care through these essential disability documents:
Power of attorney- lists who will manage your financial affairs if you cannot yourself.
Medical directive- lists how you want to be medically cared for if you cannot make medical decisions yourself.
Guardianship document-lists who will be the guardian of your children or you if you become incapacitated.
Review life insurance contracts- Review your life insurance contracts to ensure the death benefit is an appropriate amount for your situation. Also, review the details of each contract, such as when it ends, if it is a term life policy, or the cash value accumulation if it is a whole life insurance contract. Also, double-check the beneficiary information to ensure it is accurate. As you complete your year-end planning, rely on your financial, legal, and tax professionals to help answer questions you may have or prepare your trust documents for next year.
Charitable giving is an opportunity to use your wealth to benefit others while providing you with tax benefits. If you’re searching for a way to reduce your tax bill and give back to the community, a donor-advised fund (DAF) or a private foundation (PF) may be worth considering. Here is what you should know about DAFs and PFs to help you determine which is suitable for your situation:
Donor-advised funds (DAFs)
DAFs are owned and controlled by a sponsoring organization such as a non-profit organization, charity, educational institution, or religious organization. A DAF is a giving account that enables funds to remain inside the DAF until the charity uses them later. DAFs do not need to make a minimum distribution each year and have no timeline of when they must distribute the funds to the charity unless it has $1 million or more, requiring the DAF to distribute 4% of assets annually.
When a donor contributes to the DAF, they immediately receive a tax write-off. However, the charity does not always receive the benefit (grant) immediately, sometimes not for years. The donor can recommend to the sponsoring organization how the funds are invested and granted but gives up all legal control of the DAF.
The sponsoring organizations may restrict granting activity, such as a minimum or maximum dollar amount or the number of grants per year, before any remaining funds revert to the sponsoring organization. Here are other things to consider before using DAFs for your charitable giving:
DAFs often have a limited choice of investment options
Assets used to fund a DAF may be liquidated upon donation, which can result in additional transaction fees.
Can only grant to 501(c)(3) public charities
Can’t convert to a private foundation
DAFs do not create a permanent legacy
Tax deduction limit on cash of 60% of Adjusted Gross Income (AGI)
Tax deduction limit on stocks and real property of 30% of AGI
Valuation of gifts is Fair Market Value (FMV)
Immediate start up time
No distribution to charity requirement
Donors not disclosed to the public (private)
Private Foundations (PFs)
PFs are legal entities classified as tax-exempt, 501(c)(3) organizations by the IRS that generally have one funding source, such as an individual, a family, or a corporation. PFs give the donors control over granting and investment decisions, the mission of the PF, where the assets are invested, managers, and to whom and when the funds are granted.
PFs can be funded with almost any asset- private equity, tangible assets, real estate, and intangible personal property. A private foundation can perpetuate creating a legacy that encourages family giving across the generations. PFs can grant in various ways, for example:
Granting to individuals
Granting through scholarship programs
Providing program-related investments
Giving through direct charitable activities
Participating in International granting
Can convert to a DAF
Startup time can be weeks or months
Legal and other fees should be considered
Tax deduction limit on cash of 30% AGI
Tax deduction limit on stocks and real property of 20% of AGI
Must distribute 5% annually for charitable purposes, including grants to other charities
Valuation of gifts is FMV for publicly traded stocks and cost basis for all other gifts.
Returns must be filed and are available to the public
Your financial and legal professionals can help you understand the differences between a donor-advised fund and a private foundation and help you determine which is appropriate for your unique situation.
Charitable giving enables you to support causes and organizations you believe in while reducing your income tax, capital gains, and estate taxes when including giving in your financial plan. Here are six tips to help you incorporate charitable giving into your financial plan:
#1 Identify your giving goals– There are so many well-deserving causes out there. Take the time to figure out which ones are most important to you and your family. You might choose to support the environment and refugees or medical research, social justice, and the arts. Think about what motivates you and how donating to specific causes reflects your values.
#2 Consider charitable tax deductions- You can deduct charitable gifts on your tax return whether you make a cash gift or donate goods or services. To do so, however, you’ll need to choose a 501c3 tax-exempt organization. Please consult a tax advisor to determine the limits to how much you can deduct and whether it makes sense for you to itemize and lock in the deduction.
#3 Gift using life insurance- Use life insurance to gift by naming a charity as the beneficiary. Often, the strategies you use to transfer wealth, which organizations you want to donate to, and the length of time you want your assets to last is simplified by using life insurance.
#4 Explore Qualified Charitable Distributions (QDCs)- If you’re 70 1/2 years of age or older, you can use a qualified charitable distribution or QCD to donate directly from your IRA to the charity of your choice. Even though the gift amount won’t qualify for a charitable deduction, it won’t count as taxable income and will allow you to simultaneously reduce your taxable income and give back.
#5 Use Donor-Advised Funds (DAFs)- With DAFs, you can immediately donate cash or other assets to a charitable investment account and claim a tax deduction. Since a DAF will grow tax-free, you may choose the fund distributions over time to organizations and causes that mean the most to you. If you time your contributions to coincide with high-income years, you’ll reap the benefits of a larger deduction.
Unfortunately, you can’t stop inflation as it’s out of our control. But you can be mindful of it and implement specific strategies to help lessen the burden of inflation on your 401(k). Here are some ways to help lessen inflation’s impact:
1. Maintain your contributions. When your paycheck doesn’t go as far as it used to, it can be tempting to reduce your 401(k) contributions. If possible, maintain them to ensure you get the full match if your company offers it. You might even want to increase your contributions so that more money goes into your account. In 2022, you can contribute up to $20,500 or $27,000 if you’re 50 or older.
2. Diversify. Diversification means spreading your money across different types of investments to reduce volatility. During periods of inflation, it’s a good idea to diversify your portfolio with a mix of strategies that can help weather volatility and inflation. However, diversification does not guarantee against market loss or provide greater or more consistent returns.
3. Pay attention to fees. While minimizing investment fees is important, it’s essential when inflation has the potential to erode your 401(k) returns. The less you pay in fees, the more of your returns you’ll get to keep in the long run. Speak to your financial professional about your fees and what you can do to lower them. Also, consider less expensive strategies that are appropriate for your situation.
4. Meet with your financial professional. Your financial professional understands how inflation impacts 401(k) accounts. If you’re unsure what to do with your retirement savings, don’t hesitate to reach out to them for advice.
