Archive for Financial Education

Kristi’s Quotes: How much rent can you afford?

Kristi's Quotes

When Credit.com asked Kristi her advice on how to determine how much rent someone can afford, she offered this advice:

Consider your expenses.

If you’re like many Americans, you have debt. This is especially prevalent among young college grads. That has to be a factor in deciding what you can afford in housing costs.

“The conventional statistic is that no more than 28% of gross salary be spent on housing and no more than 36% on consumer debt. However, that does not at all take into account other obligations in people’s budgets,” said Kristi C. Sullivan, a CFP in Denver….

 

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Roth IRA vs. Traditional – Which Is Right For You?

Roth IRA

Have you saved for 2016?

 

April 15th looms and for those of you who haven’t saved for 2016, time is running out.  As if that pressure isn’t enough, you have to decide what kind of retirement account to use.

 

Roth IRA

Roth IRAs allow you to put up to $5,500/year in ($6,500 if you are 50 or over).  The money you put in has no tax write off today, but the growth is tax free when you withdraw at retirement.   You need to have the money in the account for a minimum of 5 years or until age 59 ½, whichever is longer in order to access the growth tax and penalty free.

 

Money you contribute to a Roth can be accessed at any time with no taxes or penalties. So, if you put $10,000 in a Roth IRA and the account is worth $20,000, you can withdraw the first $10,000 without taxes or penalties regardless of your age.

 

Not everyone can contribute to a Roth IRA.  Like any benefit the IRS gives, there are income limits on who gets to enjoy them.  The income limits start at $117,000/year for single folks and go up to $187,000/year for married couples in 2016.  (Click here for more details.)

 

Traditional IRA

Traditional IRAs are the original players in the retirement account game.  The money you contribute (same limits as above) can be deducted from your income taxes as long as you don’t have access to a workplace retirement plan and fall under IRS income limits.  (Visit the the IRS website for the income limitations.)

 

Growth in the Traditional IRA does not generate a current tax bill, but you will pay taxes at your regular income tax rate when you withdraw the money at retirement.

 

Which is best?

It’s hard to say because we don’t know what your tax rate in retirement will be compared to now.  If you know you tax rate is higher now than in retirement, go for the tax-deferred option.  If you suspect you will have same or tax rates in general will be higher in your retirement, you might like the Roth better.

 

Since we don’t know future tax rates any more than future investment returns, it’s a good idea to have a mix of both Traditional and Roth retirement accounts.  That way, you are ready for anything!

 

Retirement Plans for the Small Business Owner

small business owner

Want to sell your business for $1billion?

 

At the heart of the small business owner is the hope that someone will come along and buy his business for exactly the right amount of money to retire to the Caribbean.  Just in case that doesn’t pan out, how you will support yourself when your business no longer does?

 

You need to save for retirement.  Every year.  Unglamorous, but your 65-year-old self will thank you.  And, your lower-income-tax-paying self today will be happy, too.

How to do it?

Individual Retirement Account (IRA): 

These can be used by anybody with earned income. The money you put into a Traditional IRA can be deducted from your income taxes if you don’t have access to a workplace retirement plan and fall under certain income thresholds.

 

The growth is tax-deferred, meaning you don’t pay taxes on the earnings of the account until you withdraw at retirement when taxes are owed at the rate of your taxes in retirement.  The maximum amount you can put in each year is $5,500 and you have until April 15th following the tax filing year to contribute.  Anywhere that handles money (your bank, credit union, brokerage company) will open an IRA for you.

 

A variation is the Roth IRA where you contribute up to $5,500/year, but do NOT take a tax deduction for the contribution.  Why bother?  Tax-FREE growth!  When you take the money out at retirement, you don’t owe any taxes withdrawal.

 

SEP IRA: 

This IRA is meant for small businesses. You can deposit 25% of compensation to a max of $54,000 in 2017.  The contribution is deductible from your taxes and the growth is tax-deferred like a Traditional IRA.

 

The catch is that you must put the same percentage of compensation for any eligible employees as you do yourself.   Accounts must be set up and funded by April 15th of the year following the tax year for which you are contributing.

 

Self-Employed 401(k): 

This is account is available only to small business owners who have no employees other than their spouse.  The SE 401(k) allows you to put 100% of compensation up to $18,000 ($24,000 if you are age 50 +) plus 25% of eligible compensation as a profit-sharing match.  The contributions are pre-tax and the growth is tax-deferred.  The maximum dollar amount allowed is $54,000 for 2017.

 

This plan allows those with less net income to put more away than a SEP IRA.  The plan must be established by December 31st of the tax year the contribution is for, but can be funded up until April 15th of the following year.

 

Simple IRA: 

These accounts let businesses with less than 100 employees open a low-cost retirement plan where employees can contribute their own money.  You are required to offer a small match for contributing employees, but it’s not as much as the SEP IRA.  The maximum employee contribution is $12,500 for 2017.

 

Please, do not take this as personal tax advice.  Consult your CPA before deciding which plan is right for you.

 

Kristi’s Quotes: When do you need a financial planner?

Kristi's Quotes

Kristi helps the Financial Planning Association figure out when it’s the right time to hire a professional financial planner.

15 Signs You Need a Financial Planner

 

You wouldn’t depart for an important trip without a clear idea of how to get to your destination — or at least without a GPS or map to show you how to get there. The same logic applies to your journey through life. You’re likely to get lost without a clear financial plan to get where you want to go, now and well into the future.

Financial planning is the process by which a person or family works with a financial professional to set goals, financial and otherwise, and to develop a plan for meeting them. A Certified Financial Planner™ (CFP®) is trained to develop a plan to serve as that map or GPS. And the CFP designation means they must adhere to a code of ethics and a fiduciary standard that require them to put their clients’ best interests first. To find a CFP® in your area, visit the Financial Planning Association’s national database at www.PlannerSearch.org.

Whatever you’re financial circumstances, it’s probably a good idea for you to consider working with a financial planner if…

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Reverse Mortgage – Not a Dirty Phrase Anymore

reverse mortgage

The Reverse Mortgage

 

Chances are high that when I mention the idea of a reverse mortgage to clients, I’ll be met with a very sour expression.  I think this is because of the impression that these instruments are expensive and that you give up ownership of your home to use them.

 

Now, I am NO expert in these products, but for clients who have most of their net worth tied up in their homes, finding a way to use that equity to pay bills is a must.

 

Brainiacs who are way smarter than me have been modelling the use of a reverse mortgage in the overall retirement plan.  The numbers show that using home equity for income, especially when retirement investments are down, can lengthen the time your nest egg will last.

 

What are the benefits?

 

Wade Pfau has been doing research on the use of reverse mortgages in retirement income plans says there are two big benefits:

 

  1. Using reverse mortgage early in retirement can reduce the stress of market volatility on the invested portfolio by allowing people to live off of their home equity rather than selling investments when values are down to pay bills.
  2. The second benefit is that opening a reverse mortgage now (especially with current low interest rates) can allow for the principal that you can borrow against to grow for a longer time.

Who qualifies?

 

Not everyone can get a reverse mortgage.  You must be at least 62 years old, live in an “eligible” home, and there is a limit to how much debt can be against the home.

 

I’m not saying this is for everyone. Reverse mortgages are more expensive than conventional loans and they may tempt you to spend your home equity on dumb stuff instead of using it prudently.  However, if you are feeling your retirement income is too tight and you meet the eligibility requirements, it could be worth investigating.

 

Check out more from Wade Pfau in this Forbes article.  There is also a link to his website at the bottom of the piece.

Kristi’s Quotes: Financial Decoding with U.S. News & World Report

Kristi's Quotes

Do you find it hard to understand financial experts? I don’t blame you! That’s why I helped U.S. News and World Report decode the terms you might hear.

Say what?

 

“Meeting with a financial professional can be key to getting your finances on track. But one thing that doesn’t make it easier: When your financial advisor seems to be speaking an entirely different language.

“Deleverage” … “Fixed income” … “Tax-loss harvesting.” What the heck is your advisor even talking about when he uses these terms? U.S. News tapped certified financial planners to round up their least favorite financial jargon – and to translate what your financial professional is actually saying. Their top 10 peeves are below.”

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Kristi’s Quotes: Investing Tips from the Experts

Financial Planner
The editorial team at ETF Reference surveyed 57 ETF investing experts in search of the best tips for exchange-traded fund investors. The response we received was incredible. Our panel sent us hundreds of amazing tips! We winnowed that list down to101, which are presented below.

 

We asked our panel, “What is the one piece of advice you’d give to an investor just starting to build a long-term portfolio?”

 

 

Click here to find out what Kristi and dozens of others advise!

Do You Know When You’re Going to Die?

retirement

How long will your savings last?

 

What an uplifting question!

 

But in retirement planning, it is probably the MOST IMPORTANT question and the most impossible to answer.  If we all knew how long our savings would need to last, it would be so easy to determine how much we could afford to spend during retirement, what age to retire, how much risk to take for growth, and on and on.

 

Just for fun (I know, an odd idea of fun), I went onto a website I’d heard about for years.  It’s called The Death Clock (www.deathclock.com) and by filling out just a few fields, I got my exact date of death.  I’m reluctant to tell you in a public forum because then thieves will know when my funeral will be and take the opportunity to rob my house.

 

Oh, what the heck! I’m not using that stuff anymore so let them have it.  My estimated date of death is September 30, 2073.  Wow.  Those would have to be some old thieves, too, so I guess my house is safe.

Here are a few areas of perspective this gave me:

 

  • That is age 101. I hope I don’t look a day over 80.
  • At today’s standard retirement age of 65, I’ll need my savings to support me for 36 years. Sounds like a reason to work until at least 70.
  • If my sons have kids by age 30 and their kids have kids by age 30, I’ll live to see my first great-grandchild enter his pre-teen years.
  • If my husband lives as long as I do (and he has 3 living grandparents, so why wouldn’t he) we will be married for 77 years.

 

And the last item of perspective I will share is this:  If I make on average 2 major decisions per week (where to send my kid to middle school, how to invest my savings) and 50 small ones (what to wear to a meeting, what to cook for dinner, People Magazine or Us Weekly), I will make over 154,000 decisions between now and my appointment with Mr. Reaper.  Some will be good, some not so great, but since I have until 2073 to see the ultimate results, I think I’ll try to chill out a little.

How’s That New Gym Membership Working Out?

gym membership

According to a survey of 5,000 people by GoBankingRates in 2016 the top five New Year’s Resolutions were:

 

  1. Enjoy Life to the Fullest
  2. Live a Healthier Lifestyle
  3. Lose Weight
  4. Spend more time with family and friends
  5. Spend less, save more

 

In order to achieve Resolutions 2 and 3, many people joined a new gym in January.  Unfortunately, that may not be the way to realize Resolution #5.  Some interesting statistics from statisticbrain.com:

 

  • Average cost of a gym membership: $58/month
  • Amount of gym membership money that goes to waste from underutilization: $39/month
  • Percent of people with gym memberships that never use them: 67%

 

Okay, so 43% of us are hitting the gym regularly/sporadically.  Great!  Enjoy your group sweat.

 

For those of you who are flushing $58/month down the drain, consider an investment in some modest home gym equipment would save you money and actually get used.  After all, you don’t have to bundle up and drive on snowy roads to go to your basement and work out.  Bonus, you can pick whatever music or TV you like to enjoy while pushing around the weights.

 

I never thought I’d be using a website called askmen.com as a source for my blogs, but here is a nice list of small, inexpensive home exercise equipment.  Thanks, Men!

 

  • Adjustable Dumbbells – starting at around $130 on Amazon
  • Stretching Mat with Exercise Guide – $30
  • Jump Rope – $7 – $20
  • Resistance Bands – $15 – $30
  • Core Training Wheels – $40
  • Exercise Ball with Guide – $25

 

Happy sweating!

Kristi’s Quotes: 15 Signs You Need a Financial Planner

Financial Planner

Financial planning is the process by which a person or family works with a financial professional to set goals, financial and otherwise, and to develop a plan for meeting them. A Certified Financial Planner™ (CFP®) is trained to develop a plan to serve as that map or GPS. And the CFP designation means they must adhere to a code of ethics and a fiduciary standard that require them to put their clients’ best interests first. To find a CFP® in your area, visit the Financial Planning Association’s national database at www.PlannerSearch.org.

Whatever you’re financial circumstances, it’s probably a good idea for you to consider working with a financial planner if…

The stock market’s volatility sends you into an extreme state of agitation. This “may mean that you don’t have a real plan for your investments and just pick stuff at random to buy,” says Kristi C. Sullivan….

 

Click here for more….

 

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