When Retiring Together Doesn’t Make Sense

 

Back when people from the Baby Boomer generation were first planning their lives together, most married couples looked forward to working hard for a few decades, buying a house, raising a family and then retiring together while they still had enough money and energy to travel and pursue favorite hobbies.

Some couples do manage to pull this off and thrive; but for many others, any of a host of obstacles can block their ability to retire at the same time. For example:

  • Thanks to periods of unemployment, home-value decline or 401(k) account loss suffered during the Great Recession, many couples simply don’t have enough money to retire together comfortably.
  • If there’s a significant age difference, one spouse may not have accumulated enough Social Security credits to qualify for a benefit by the time the other is ready to retire.
  • Women often worry that the couple hasn’t saved enough since they’re statistically likely to survive their spouses – often for a decade or more.
  • One spouse must continue working to supply employer-provided medical coverage until both reach Medicare eligibility age (65 in most cases).
  • One spouse is just hitting his or her stride, career-wise, and isn’t ready to slow down.

Among couples who have managed to save enough to retire together, when it comes time to pull the trigger many realize they haven’t fully agreed on where or how to retire; or they discover that their wishes have diverged over the years. This can put tremendous strain on a marriage if you’re not willing to compromise and talk things through.

Long before you actually retire, ask yourselves:

  • Should we downsize to a smaller dwelling or even move to a retirement community?
  • Sell the house, buy a trailer and live like nomads for a few years?
  • Move to a warmer climate or to be nearer our grandchildren?
  • Move to a state with lower taxes or cost of living?
  • Start a small side business to keep money rolling in?
  • Are we finished supporting our children financially?

Even before asking those tough questions, you already should have begun estimating your retirement income needs. Social Security has a helpful online Retirement Estimator that can help ( www.ssa.gov/estimator). After you’ve explored various retirement scenarios, consider hiring a financial planner to help work out an investment and savings game plan, or to at least review the one you’ve devised.

Along with the financial impact retirement will have on your marriage, keep in mind that this may be the first time that you’ve been together, day in and day out. Many people are so consumed by their jobs that they haven’t taken time to develop outside interests and hobbies. Well before retirement, you and your spouse should start exploring activities and networks of friends you can enjoy, both together and independently. Consider things like volunteer work, hobbies, athletic activities or even part-time employment if you miss the workplace interaction and need the money.

And finally, if your plan is to have one spouse continue working for a while, try living on only that one salary for a few months before retiring as an experiment. This will give you an inkling of how well you’ll do financially and whether you might both need to keep working to amass more savings.

 

By Jason Alderman

Some Couples Invest in Their Future in Ways Other Than a Diamond Ring

What does an engagement ring look like? For many people, my wife included, the answer is a diamond ring. While that’s a concept that didn’t became widely accepted until the diamond industry’s marketing campaigns in the mid-1900s, it’s one that holds strong today. However, some couples are going in an alternative direction. The intention isn’t to be cheap, but rather to use the savings to make a different kind of meaningful investment in their future together.

When and how a proposal happens can be a surprise, but hopefully, the answer won’t be. That is likely doubly true if the question is popped without a diamond engagement ring, or perhaps without a ring at all. As always in a relationship, communication is key. While some people may be excited by the idea, it could be a deal breaker for others.

What will a meaningful investment look like to the both of you? A friend of mine recently shared with me the story of how he proposed to his now wife, and the decision to forgo an engagement ring altogether.

When they first started discussing marriage and engagement rings, she said she’d rather put the money towards a down payment because starting a home together was more meaningful to her than a ring. He didn’t ask right away, but when he did take a knee, ringless, and ask her to marry him – clearly she said yes. Today they live in the home the savings helped buy, wear only wedding bands and he says neither of them regrets the decision.

A down payment might not make sense for you, but there are other ways to invest in your future together. For some couples, paying down debts or saving for their wedding so that they don’t go into debt might be a better fit. Or, you might want to start a travel or honeymoon fund.

Consider your options if you want to buy a ring. Understandably, the idea of proposing without an engagement ring isn’t for everyone, and there is a middle ground. A less expensive engagement ring with the savings going towards your shared goal.

Here are few options you could discuss with your significant other:

Alternative stones. There are a variety of alternative precious and semi-precious stones you could pick for the ring. Matching a stone’s color to the person’s eyes or choosing their birthstone could imbue the ring with a personal touch. However, be careful about picking a “soft” gem that could be easily scratched if it’s worn daily.
Diamond look-alikes. You could choose a synthetic diamond or a stone that looks similar to a diamond but costs much less, such as a cubic zirconia. Some of the man-made and alternative options can look more brilliant than genuine diamonds, and you don’t need to worry about whether or not the stone is conflict-free.
A solid band. While it won’t have the same flash as a ring with a large gemstone, choosing a smaller diamond or solid metal band with a symbolic meaning could be just as meaningful to your partner.
Family heirlooms can also make for memorable engagement rings and often there isn’t a price tag attached (although a lengthy discussion might be in order). A vintage ring could appeal to some people’s style, or the center stone could be reset in a modern band. In either case, there’s something special about wearing a gemstone that’s been in one of your families for generations.

Decide on your priorities as a couple and act accordingly. According to The Knot’s 2015 Real Weddings Study, an average of $5,871 was spent on engagement rings. For some, there’s no better way to spend money. After all, it’s a ring that’s going to be worn for decades.

However, you can discuss engagement ring expectations before you ask someone to marry you. If a diamond isn’t particularly important, an alternative ring or gemstone, or no ring at all, can be an equally timeless and beautiful gesture of love when you both know the money is going to an important step in your future together.

By Nathaniel Sillin

Holiday Inn and Holiday Inn Express May Have Been Breached; Check Your Charges

InterContinental Hotels Group (IHG) reported recently that they are investigating a possible data breach at some of their brands. Specifically affected are Holiday Inn and Holiday Inn Express locations, but Crowne Plaza, Staybridge Suites, and Candlewood Suites may also be included. It isn’t known what specific details were accessed, but payment card information of some kind is part of this.

It is advised that anyone using a payment card at the hotels or at retail locations including restaurants in any IHG property be especially diligent at checking payment card statements. If anything looks suspicious, report it right away to the card issuer. While consumers have limited responsibility with regard to fraudulent charges on their cards, it is still up to them to report suspicious charges within a reasonable amount of time. That typically means within 30 days. The sooner these are resolved, the less expensive for the consumer as well as the financial institutions.

Usually breaches like this happen when malware is installed on the point-of-sale (POS) machines in the retail locations. That can happen several ways:

Someone clicks a phishing link or opens an attachment with malware included in it.

A system is not updated with the latest patches and a cyber criminal takes advantage of a vulnerability to get inside the network.

A third party gets access to administrator login credentials.
POS malware has been responsible for many breaches lately included the infamous Target breach, as well as Home Depot. More recently this group included CiCis Pizza, Eddie Bauer, Wendy’s, and Noodles & Company. Other hotel chains that have been hit with it recently include, HEI Hotels, which runs many Omni, Marriott, and Hyatt locations as well as other chains, Hilton, Starwood, and Trump Hotels.

IHG has issued a statement that they are committed to quickly resolving this matter and are continuing to work with the payment card networks. They also have hired a top outside security firm to help investigate.

 

© Copyright 2017 Stickley on Security

How to Cope With a Changing Payday Cycle

A change in a payday cycle can throw a real monkey wrench into your financial planning. Learning to make money last for an entire month or to meet all your expenses on time with staggered paychecks can be a challenge. Here are some ways to alter your money management style if you are struggling with adjusting to a more or a less frequent paycheck.

First things first: Examine your spending plan
No matter whether you get paid once a month, twice a month, or every two weeks, it all comes down to having a plan for your money. Once you know where your money should be going over the course of a month, it becomes a lot easier to figure out the timing aspect. So begin by tracking your income and expenses and creating a spending plan. A spending plan worksheet, online money tracker or mobile app can help you get started out. A good spending plan not only allows you to meet your expenses, but also helps you save for your goals and know how many “treat yourself” expenses you can afford.

Examine how you think about your paycheck
When you get a paycheck, do you already think about all the ways you can spend it? Or do you find yourself just hoping the money will last until the next check comes? If so, you may want to re-examine how you think about your paychecks. Once you have a spending plan, the next step is figuring out what you want to achieve with your money. Write down your short-term, mid-term and long-term financial goals and how much money they require. Next, figure out what you have in your savings, the pay periods or months until the target date, and the savings you’ll need per pay period or per month to achieve your goal. You can make your own worksheet or use a financial goals worksheet. Instead of just trying to make the money last or cover your expenses, think of your paycheck as a way to get you closer to achieving those goals. Goal-setting resources online, such as the Dream It and Achieve It mini-site, can help guide you in getting your own plan in place.

Here are some techniques for putting that paycheck to work for you:

The calendar approach
One potentially difficult aspect of multiple paychecks in a month is having bills due on different dates and not having a lump sum at the beginning of the month to divide among the bills. To combat this problem, open a calendar and record all your bills’ due dates for next month. Then you can use the timing of the bills to determine which bills will be paid with which paycheck. It is best to try to even out the total amount due for the bills for each paycheck. If it seems like too many bills might be falling in the period for one of your paychecks, try to pay some early in order to spread them out to make them more manageable.

The envelope system
Before computers, many families used paper envelopes with cash in them to separate out the money that would be going to particular bills. The goal is to control spending by setting aside budgeted amounts for each category of bills into separate envelopes. With this method you would have an envelope labeled for each bill like your rent, insurance, utilities, etc. When a need arises to spend money, you use the money out of the appropriate envelope. While you could still do that if you feel most comfortable with it, for many people it is best to not have large sums of cash lying around the house.

A more secure option would be to use different accounts with your financial institution or prepaid debit cards to assign money to certain bills. You can even have direct deposit into the separate accounts. However you decide to set up the accounts, the key is to have one account set up specifically for bill payment money. And if you have already done a spending plan, you should have a pretty good idea how much money you will have to pay those bills as well as your other expenses.

If you have multiple monthly paychecks and don’t have enough money in the first one to cover all your bills, you can use a “half-and-half” approach. First figure out the total amount you pay on bills each month. You can automatically have half of that total put into your “bills” account with the first check and then the second half put in when your second paycheck comes. If you get paid weekly, you could put in approximately a quarter of the amount each pay period. If you want to make it even easier, set up automatic payments of the bills from your dedicated account.

The credit card method
The Credit CARD Act of 2009 dictated that credit cards now must have a 21-day grace period. In other words, you have 21 days to pay off any charges you made on the card before interest can be added to the bill. If you are having trouble coming up with the money to pay a certain bill by the due date, putting the charge on a credit card will buy you some time. However, this approach takes discipline. You must pay off the credit card balance within the grace period or, in the final analysis, you will end up paying more for the bill because of the interest charges. It is also vital to avoid using the credit card to pay for non-necessities. When deciding which credit card to use to pay a bill make sure to consider the fees. Compare cards to find the right fit for you. Make sure to compare the Annual Percentage Rate, grace period, credit limit, annual fee, and late fee. Or use a Credit Card Search Checklist worksheet to help you make the comparison.

The cushion
This is the easiest technique to manage once you get it going, but it can also be the toughest to start. The concept is to get enough money in the account you pay bills with to not have to worry about potentially overdrawing. Ideally, you would want to have at least half your total monthly living expenses as a floating balance in the account you use to pay bills. That way, if you get multiple paychecks each month, you should have enough to cover your bills for the month when you get your first paycheck. Then you don’t have to stress about making it to the next paycheck. However, this can be easier said than done if you are living paycheck-to-paycheck. But when you do your spending plan, make a list of items you could eliminate or cut back on for 1-2 months. By making some small sacrifices for a few weeks, you could set yourself up for years of less worry.

Avoid salary advance or “payday” loans
While the idea of getting money based only on a promise to pay in a few days or weeks can sound attractive, be aware of the consequences of having to pay extra money to get caught up on bills. Needing salary advance loans more than once a year is generally considered a sign that your personal financial plan needs some adjustments to create more savings for unexpected expenses.

Try the above methods before turning to salary advance loans. If you find that none of these techniques work for you, contact your financial institution to see if they provide loans with relatively low interest and other terms that make them a better option than salary advance companies.

Switching to smaller paychecks more often or larger paychecks less often can take some adjustment. But developing a plan for your income will help you take the change in stride and may even lead to a better personal system for maximizing your money.

Revised January 2016.

Nine Ways to Master Your Money

1. Set S.M.A.R.T. Goals
Saving tends to be easier when you have a certain purpose in mind: Saving for your first house, your retirement at a certain age, a child’s college education, or even a trip around the world. The important thing is for your goals to be specific, measurable, actionable, realistic and time-bound, or SMART.

To develop a sound plan, these goals must have both a time frame and a dollar amount that is MEASURABLE. Once you have listed and quantified your goals, you need to prioritize them. You may find, for example, that saving for a new home is more important than buying a new car.

Whatever your objective, be SPECIFIC. Figure out how many weeks or months there are between now and when you want to reach your target. Divide the estimated cost by the number of weeks or months to make it ACTIONABLE. That’s how much you’ll need to save each week or month to have enough money set aside. Ask yourself, is this REALISTIC? Remember, a goal is a dream with a deadline.

2. Pay Yourself First
Save and invest 5-10% of your gross annual income. Of course, this can be much harder than it sounds. If you’re currently living from paycheck to paycheck without any real opportunity to get ahead, begin by creating a solid spending plan after tracking all monthly expenses.

Once you figure out how you can control your discretionary spending, you can then redirect the money into a savings account. For many people, a good way to start saving regularly is to have a small amount transferred automatically from their paycheck to a savings account or mutual fund. The idea: If you don’t see it, you don’t miss it.

3. Maintain an Emergency Fund
Before you commit your newfound savings to volatile and hard-to-reach investments, make sure you have at least three to six months’ worth of expenses saved in an emergency fund to see yourself through difficult times. Keeping it liquid will ensure that you don’t have to sell investments when their prices are down, and guarantee that you can always get to your money quickly.

If you have trouble deciding how much you need to keep on hand, begin by considering the standard expenses you have in a month, and then estimate all the expenses you might have in the future (possible insurance deductibles and other emergencies). Generally, if you spend a larger portion of your income on discretionary expenses that you could cut easily in a financial crisis, the less money you need to keep on hand in your emergency account. If you have dependents, you’d want to keep more money in your emergency fund to offset the greater risk.

4. Pay off Your Credit Card Debt
If you’re trying to save while carrying a large credit card balance at, say, 19.8%, realize that paying off the debt is a guaranteed return of nearly 20% per year. Once you pay off your credit cards, use them only for convenience, and pay off the balance each month. If you tend to run up credit card charges, get rid of the credit card and go back to using cash, checks and a debit card.

5. Insure Your Family Adequately
A major lawsuit, unexpected illness or accident can be financially devastating if you lack proper insurance. The key to insurance is to cover only financial losses so large that you could not cope with them and remain financially fit (known as the law of large numbers). If someone is dependent on your income, you need adequate life insurance. Long-term disability coverage is important as long as you need employment income. Also, be sure to carry adequate liability coverage on your home and auto policies.

To save on annual premiums, it might be feasible for you to raise your insurance deductible, or eliminate dual coverages. And whenever purchasing insurance – life, home, disability, or auto – be sure to shop around, and buy only from a reputable firm.

6. Buy a Home
According to the US census, since 1968, the median price of new single-family homes has gone up almost tenfold; many houses still appreciate at a rate of 6% to 8% annually. Further, homeownership entitles you to major tax breaks. Interest on first and second home mortgages is fully deductible, meaning Uncle Sam helps subsidize your property investment. Additionally, the equity in your home can be a great source of retirement income.

Through a reverse mortgage, homeowners can access the equity in their home without having to sell, and have the option of receiving monthly income for life (or chosen term) or opening up a credit line against the home’s value.

7. Take Advantage of Tax-deferred Investments
If your employer has a tax-deferred investment plan like a 401(k) or 403(b), use it. Often, employers will match your investment. Even if they don’t, no taxes are due on your contributions or earnings until you retire and begin withdrawing the funds. Tax-deferred savings means that your investments can grow much faster than they would otherwise. The same is true of IRAs, although the maximum amount you can invest annually in an IRA is substantially less than what you can put in a 401(k) or 403(b).

8. Diversify Your Investments
When it comes to managing risk to maximize your return, it pays to diversify. First you need to diversify among the three major asset classes: cash, stocks and bonds. Once you have decided on an allocation strategy among these three investment classes, it is important to diversify within each asset. This means buying multiple stocks within a variety of industries and holding bonds of varying maturities. Simply put, don’t put all your eggs in one basket. Also, don’t make the mistake of putting most or all of your money in “safe” investments like savings accounts, CDs and money market funds. Over the long haul, inflation and taxes will devour the purchasing power of your money in these “safe havens”.

All investments involve some trade-off between risk and return. Diversification reduces unnecessary risk by spreading your money among a variety of investments. Aside from diversification, the single most effective strategy is to invest continuously over time, with a long-term perspective.

9. Write a Will
The simplest way to ensure that your funds, property and personal effects will be distributed according to your wishes is to prepare a will. A will is a legal document that ensures that your assets will be given to family members or other beneficiaries you designate. Having a will is especially important if you have young children because it gives you the opportunity to designate a guardian for them in the event of your death. Although wills are simple to create, about half of all Americans die intestate, or without a will. With no will to indicate your wishes, the court steps in and distributes your property according to the laws of your state. If you have no apparent heirs and die without a will, it’s even possible that the state may claim your estate.

To begin, take an inventory of your assets, outline your objectives and determine to which friends and family you wish to pass your belongings to. Then, when drafting a will, be sure to include the following: name a guardian for your children, name an executor, specify an alternate beneficiary and use a residuary clause which typically reads “I give the remainder of my estate to …” Once your will is drafted, you won’t have to think about it again unless your wishes or your financial situation changes substantially.

Revised January 2016

Resist the Urge to Tap Retirement Plans Early

Most people admit they’re probably setting aside too little. Retirement accounts must compete with daily expenses, saving up for a home, college and unexpected emergencies for every precious dollar.

If taking money out of your IRA, 401(k) or other tax-sheltered plan is your best or only option, you should be aware of the possible impacts on your taxes and long-term savings objectives before raiding your nest egg:

401(k) loans. Many 401(k) plans allow participants to borrow from their account to buy a home, pay for education, medical expenses or other special circumstances. Generally, you may be allowed to borrow up to half your vested balance up to a maximum of $50,000 – or a reduced amount if you have other outstanding plan loans.

Loans usually must be repaid within five years, although you may have longer if you’re using the loan to purchase your primary residence.

Potential drawbacks to 401(k) loans include:

If you leave your job, even involuntarily, you must pay off the loan immediately (usually within 30 to 90 days) or you’ll owe income tax on the remainder – as well as a 10 percent early distribution penalty if you’re under age 59 ½.

Loans cannot be rolled over into a new account.

Some plans don’t allow new contributions until outstanding loans are repaid.

Many people, faced with a monthly loan payment, reduce their 401(k) contributions, thereby significantly reducing their potential long-term account balance and earnings.

Your account value will be lower while repaying your loan, which means you’ll miss out on market upswings.

401(k) and IRA withdrawals. Many 401(k) plans allow hardship withdrawals to pay for certain medical or higher education expenses, funerals, buying or repairing your home or to prevent eviction or foreclosure. You’ll owe income tax on the withdrawal – plus an additional 10 percent penalty if you’re younger than 59 ½, in most cases.

Traditional IRAs allow withdrawals at any time for any reason. However, you’ll pay income tax on the withdrawal – plus the 10 percent penalty as well, with certain exceptions. With Roth IRAs, you can withdraw contributions at any time, since they’ve already been taxed. However, to withdraw earnings without penalty you must be at least 59 ½ and the funds must have been in the account for at least five years.

To learn more about how the IRS treats 401(k) and IRA loans and withdrawals, visit www.irs.gov.

Further financial implications. With 401(k) and traditional IRA withdrawals, the money is added to your taxable income, which could bump you into a higher tax bracket or even jeopardize certain tax credits, deductions and exemptions that are tied to your adjusted gross income. All told, you could end up paying half or more of your withdrawal in taxes, penalties and lost or reduced tax benefits.

Losing compound earnings. Finally, if you borrow or withdraw your retirement savings, you’ll sacrifice the power of compounding, where interest earned on your savings is reinvested and in turn generates more earnings. You’ll forfeit any gains those funds would have earned for you, which over a couple of decades could add up to tens or hundreds of thousands of dollars in lost income.

Bottom line: Carefully consider the potential downsides before tapping your retirement savings for anything other than retirement itself. If that’s your only recourse, consult a financial professional about the tax implications.

By Jason Alderman