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Financial Symmetry: Balancing Today with Retirement

When considering retirement, do you wonder what financial opportunities you may be missing? Busy lives take over and years pass without taking advantage. In this retirement podcast, the Financial Symmetry advisors unveil financial opportunities, to help you balance enjoying today so you are ready to retire later. By day, they are fiduciary fee-only financial advisors who answer questions about tax savings, investment decisions, and how to save more. If you’ve been putting off your financial to-do list or are just not sure what you’ve been missing, subscribe to the show and learn more at www.financialsymmetry.com. Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for over 20 years.
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Now displaying: Page 8
Mar 15, 2016

I’m not sure about you, but we haven’t met many people that wouldn’t love to lower their tax payments.

As we move in to the heart of tax season, do you find yourself wondering every year around this time, what other opportunities you may be missing?

Millions of people who file their tax return themselves overlook tax opportunities each year that could save them extra money in April but they hesitate to pay to have a professional prepare them.  The hidden secret is that tax planning should be done year round.  So we put together a list of a few things we see most often missed on tax returns.

 

Maxing Tax-Deferred Savings

One of the easier ways of avoiding tax now, is to save the maximum amount in all your tax-deferred accounts (401k/403b).  Many have a tough time reaching the maximum savings limit ($18k per person in 2016).  This often brings the focus back to your cash flow as overspending keeps many from hitting the maximum amount.  Those over age 50 have an extra benefit where they can save $6,000 more each year until they stop working.

 

Not Funding HSA accounts

This is an excellent retirement account that offers a triple tax saving opportunity.  Problem is many aren’t taking advantage of it. If you have a high-deductible health insurance plan, you have an opportunity to sock away savings tax-free, that can grow tax-free and then be withdrawn tax-free.

 

Non-deductible IRA contributions & Roth conversions

High income earners still have a way to make Roth contributions. It just takes a few extra steps and involves some monitoring to do it successfully.  If you already have nondeductible IRA contributions, this is a great opportunity to get these contributions in to a Roth IRA, assuming you don’t have a larger deductible portion already built up (consider the pro rata rule in this case).  Don’t forget to fill out form 8606 to keep an accurate record of your nondeductible IRA contributions.

 

Charitable Deduction Opportunities

If you have large capital gains from appreciated stock, it may benefit you to donate these shares instead of making cash charitable contributions. Another opportunity for those who are over age 70 ½, is to make a Qualified IRA Charitable Distribution which also qualifies as Required Minimum Distribution.  This benefits you by not increasing Adjusted Gross Income on your tax return which in turn helps with medical expense deductions, social security taxation and Medicare rates to name a few.

 

Missing Any Deductions?

Some of the more common we see left off of Schedule A are car taxes, investment fees, and charitable donations. Go through your potential itemized deductions.  Look at the prior year return for some guidance.  Also, if you made a 2014 estimated payment to the state in January of this year and/or owed when you filed your 2014 state tax return then you can add those payments as a federal tax deduction on this year’s return.

If in a low bracket, you may want to delay deductions and accelerate income instead.  When your AGI ends up in the 15% tax bracket, capital gains are taxed at 0%.  So realizing gains could be beneficial here.

High tax bracket earners have an opposite focus as they are looking to reduce income. Word of warning: watch the Medicare Surcharge (3.8%) on income over $200k for individuals and $250k for joint filers. If you find yourself in this area, you may want to look for ways to delay income depending on the control you have in your income.

 

AGI thresholds You Don’t Want to Miss

  • Child tax credit (begins phasing out at $110k).  Can you make a deductible traditional IRA contribution? This could actually reduce your tax bracket from a boosted higher rate as you are not only reducing the ordinary income tax but getting an extra benefit due to the credit.
  • Itemized deduction limitations over $309k (single $258,250) – especially if restricted stock or stock options are vesting and you are selling in that tax year.
  • American Opportunity Tax Credit phases out at $160k AGI ($80k single).  If you pay for the first $4k of college expenses, you can use this credit (mentioned below).

 

ACA subsidy tax bubble

Many retirees who no longer have an employer continued health plan and haven’t yet reached 65 now have a new option – buying medical insurance through the health insurance marketplace.  Depending on the tax diversification in your investment accounts, some early retirees are receiving premium tax credits.  But be careful, if receiving the credit and your income rises above 400% of the Federal Poverty Level for the number of people in your household, you could lose all the credit.

In this situation, managing tax brackets become vital.  But to do so, you need to have saved in accounts with tax flexibility.  Tara Signal Benard summarized a breakdown of this strategy in a New York Times article titled, “Devising a Tax Strategy After the Paycheck Is No More.”

 

Don’t Forget About Other Credits

  • Pay for first $4k of tuition first to get AOTC – 3 million people missed this credit in 2014.
  • Residential energy credit for any HVAC replacement or energy efficient upgrade to house
  • Foreign Tax Credit – you lose this credit with foreign stock in IRA accounts. This is why asset location is important. Vanguard found this can add up to 0.75% per year in performance.  $7,500 for a $1 million portfolio.
  • Dependent care credit – If both spouses are working, don’t forget to include summer camp costs as this is very likely a deduction.

 

Feeling Like you Missed Something?

If you feel a bit lost after reading these examples then look to hire a professional.  Tax return for families can range from $300 to $500 depending on your situation.  Could be money well spent if they find tax savings you overlooked.

When digging in to the numbers CNBC found the more you make the more interesting IRS auditors find you.  The IRS begins to get more interested in those earning more than $200k.  According to turbotax – only 1 percent earning less than that are audited.  If you are over the $200k threshold, then 4% of your group will be audited.  It’s not until you begin earning more than a million, to where 12.5% get an audit notification letter.

If you feel like you would like a second look, we’d encourage you to find a fee-only financial planner who has knowledge in the tax planning area.  It’s very likely it could be worth it.

Other Links Mentioned During the Show

Mar 1, 2016

Do you have a mapped-out plan for your future?  Do you know the best steps to take to achieve your goals?  In a world in which 75% of America is winging it when it comes to their financial future, a holistic financial plan will set you ahead of the crowd.  Having a dynamic and workable financial plan helps you look at all aspects of your finances and project what things will look like on your current trajectory and if you make improvements.

With the help of a fee-only, fiduciary Certified Financial Planner™, you can have a 3rd party evaluate where you stand financially and help you set up realistic next steps to get you the direction you want to go to achieve the things you want to in life.

Examples of next steps you might receive include making sure you stay at a healthy spending level, saving the necessary amounts in the right types of accounts to prepare for retirement or future college tuition, getting estate documents updated to make sure you’re in control of your assets and body no matter the circumstance, and making adjustments to save on taxes.

A CFP Board 2012 survey found that over half of people with a holistic financial plan feel “very confident” about their financial picture vs. those who’ve never had financial planning completed.  And a 2016 study showed that simple online financial calculators are often wrong when predicting retirement readiness.

When Should You Have a Financial Plan Made?

If you have no plan in place, the best time for you to have one made is now.  It’s rare to accomplish a goal (and even more rare to accomplish multiple goals) without a plan of attack to get you there.

A financial plan is beneficial at any point in life, although the benefits can at times be more evident when preparing for major life events or going through life transitions.

Major life events that prompt one to seek a financial plan include the following:

Even if major life changes are not around the corner, financial planning will help you see if you are on the right path.  It’s like going to see the doctor.  You realize the need to visit a doctor when changes in your health occur.  But just as you should go see a doctor for regular health checkups because there could be something wrong you’re unaware of, financial checkups are also very important.

No matter where life has you, a financial plan can make sure you are reaching your peak financial fitness.

What Should You Do Once Your Financial Plan Has Been Created?

Once your financial plan has been made, monitor it.  This is the most important step!  We find that many clients who only have a financial plan created but do not move forward with an ongoing relationship with us typically do not implement all of the recommended changes, mostly because life is busy and the plan gets forgotten.

Having the regular accountability of a financial advisor is the best way to make sure you stay on track.

There’s no better time to start than now.

Feb 17, 2016

What if you could save an additional $1,500 each year? After 30 years you would have $119,000, assuming the money was invested and you got a 6% return. That $1,500 each year — just $125 a month — can add up to quite a bit of money.

Of course, to save more money each month you likely need to cut your spending. But if you are like most people, you probably don’t want to drastically change your lifestyle. Fortunately, there are smart and simple steps you can take to trim spending without a major overhaul.

Use the 72-hour rule for purchases

How many purchases have you made on Amazon or at the store that you later regretted? Limit your impulse purchases using what personal financial author Carl Richards has called the 72-hour rule. Instead of buying an item you want immediately, wait 72 hours to see whether you still want it. You’ll be surprised at how much less you end up deciding to buy. I find this works all the time with my kids. They think they can’t live without a certain toy, and then after 72 hours they forget it even existed.

Analyze big purchases

Major purchases may have the biggest impact on your spending and ability to save. I’m often amazed that the same person who will drive across town to save money on gas will buy a new expensive car without analyzing the implications. The same goes for housing costs or big-ticket vacations. Here are some tips on how to analyze and save on each of these purchases:

  • Car: The Internet has been a huge help for consumers in finding car deals. With online sales you often can negotiate through email, and sites like TrueCar provide transparency about what other car buyers have paid. But when buying a new car, it’s important to consider the ongoing costs and not just the upfront purchase price. For instance, many people prefer luxury cars, but premium gas and maintenance typically will cost more for these cars. Finally, a simple rule is that the longer you keep the car, the cheaper the cost.
  • House: Housing tends to be the biggest expense for most people. As a financial planner, I’m a fan of homeownership if you plan to live in your home for more than five years. However, the larger and more expensive the home you purchase, the more it limits your ability to spend within the rest of your budget. One family I work with, a couple with one child, decided to downsize because they just didn’t need the space. This was a good move financially because it gives them greater flexibility to save more, spend in other areas or retire sooner.
  • Vacation: Research locations and potential deals on sites like Kayak.com. If you can, be flexible when selecting travel dates to maximize savings. Also, compare multiple locations to determine the best fit for you and your family — and where you can get the most bang for your buck.

Rethink ongoing phone and cable plans

Most people look only at their monthly payments and often are shocked by how much they spend annually on cell phone and cable bills. When shopping for a phone plan, try MyRatePlan.com to compare plans based on the minutes, texts and data you need. Another option is to consider no-contract cell phones. The monthly cost is much lower, but you do have to buy the cell phone upfront.

With cable, the average monthly bill is $100, or $1,200 a year. “Cutting the cord” has become more popular recently as many people decide they don’t need the 100+ channels on cable. If you can do with a limited number of channels, then a streaming device and a good HDTV antenna for local channels may be all you need — and it can save you a lot of money.

Review your insurance policies

Many people are paying too much for property and casualty insurance. Every few years you should shop around your auto insurance and home insurance policies to confirm you are getting a good price. You also can see how your auto and home insurance providers rank based on consumer satisfaction by checking out the yearly report from market research firm J.D. Power.

Additionally, one way to lower premiums for home or auto policies is to raise your deductible if you have cash in the bank and you rarely make any claims. Larger deductibles typically range from $1,000 to $2,500, depending on the type of insurance you have. However, note that this does create risks if you don’t have money available or in an emergency fund if a large claim does occur.

Pick high-quality products that last

Sometimes it makes sense to spend a little more money for items you will use for a long time. A good example is men’s shoes. A high-quality pair of shoes will last almost forever and, though more expensive in the short term, will be a lot cheaper over the long run than repeatedly buying the cheapest pair. Think about the items in your life that you will use for a very long time and are worth the extra expense upfront.

Stick to a budget

First, automate your savings. It’s hard to spend what you don’t see, so automatically transferring money out of your checking account will help you keep spending down. Determine how much you should be contributing to or withdrawing from your accounts, and set up automatic monthly transfers. I like to call this forced scarcity, in that you can spend only what is in your bank account.

If this is not working and you start running up debt, try using online budgeting tools to help you create and monitor your budget. It may be more time-consuming, but you’ll know where every dollar is being spent. And if you are still having issues, consider working with a fee-only financial planner to help you develop and stick to a budget so you can reach your goals.

Hire a professional

Sometimes spending money can save you money. This can be true for home repairs, taxes, college planning and many other areas. For instance, I see many people miss important deductions or credits they could have claimed when they complete their own tax returns instead of working with a professional. And for me, it makes sense to pay someone to help when it comes to house repairs. I can try to fix the problem, but I only make it worse.

So how do you decide whether to hire a professional or go it alone? If the risk of mistake is greater than the cost to hire someone, it is worth the investment. Of course, if you don’t have the time or knowledge to take care of the task at hand, it makes sense to get help, too. If you’re not sure where to look, ask for referrals from friends or co-workers, or check Angie’s List for service providers and the National Association of Personal Financial Advisors for fee-only financial planners.

Spend wisely

Ultimately, the goal is not to disrupt your lifestyle dramatically, but to make sure you spend your money wisely and efficiently. In short, it’s important to think about what you are spending your money on and what you really get out of it.

Perhaps even more important than drastically cutting your spending is thinking about the non-monetary value of your money. In a longitudinal study following 268 men for over 70 years, researchers for the Grant Study found that good relationships are key to leading a long and happy life — not how much money you have, the newest tech gadget or a certain high-profile job, but the people in your life.

Instead of spending money on more stuff, why not spend it on personal experiences with your friends and family?

Feb 3, 2016

So many of us get charged up and rattle off an impressive list of goals but then struggle to follow through.

The disconnect between creating and accomplishing is where life change gets stuck. Months pass and we realize our lives are no different.

Where did progress stop (or never begin)?

Often, it's when life's curveballs throw us off our game. Even though we know the surprises will come, we're not prepared when they show up.

I thought about this recently on a Saturday morning, when my mind drifted to how enjoyable it would be to extend our screened porch. Wait, did this just become a goal?  What about the 10 year anniversary trip we want to take next year? We also know one of our cars will need replacing in a few years.  If we do all three of those things, will we be able to hit our charitable and retirement savings targets as well?

That’s just it. Financial goal planning is a fluid process.  You have to place a value on how important that thing on your mind right now is to the list of other priorities you've thought about on other Saturday mornings.

Without prioritization of goals, we allow our impulses to rule our decision-making.  This thought process ignores your plan, pushing the things that aren't as much "fun" to the bottom of your list.

Having an effective monitoring process increases your odds that follow through will happen.

Recording Your Goals

Many of us don't keep a running list of things we want to accomplish.  This is why when asked about our goals, we freeze and find it hard to get specific other than "to assure we are maximizing our investment returns."

Knowing why you want to get the best investment return helps keep the focus in the right direction.  It also helps identify quantifiable steps that will help you get there.

Goal setting begins with recording.  So often, I will be talking with someone that triggers an idea I want to pursue. If I don't get it down quickly, the idea is forgotten.

One of the most practical digital tools for this is Evernote.  This helps create a central location of all the ideas that are up next on the to do list.  From small goals to large goals.

Having a list, helps compare the newest goal to all the other goals you have in the queue.  For example, is the next home project more important than maxing your 401k this year? Depends on the person and what your long-term plan is. If retiring early is important to you, then 401k savings matters more now than a kitchen remodel.

We also know our desires can change quickly, which is why prioritizing regularly is vital.

This is why we encourage setting a few different lists.

  • Immediate - now to 3 months
  • Short-Term - within 2 years
  • Longer-Term - 3+ years

Some people like to add a lifetime category which helps shape more vision type of actions.  Are you doing the small (and sometimes mundane) things today that get you closer to the lifetime goals?

Assigning time-frames and dollar amounts helps you measure success.

Once you create the ideas of where you want to go, we discuss the best way to implement goals. Even though we all are incentivized differently, a process keeps us moving forward.

Monitoring

Some things are easy to implement and can be done very quickly (setting up Roth IRA contributions for example). But not every goal can be tackled quickly.

If your main goal is lowering spending, then it’s more of a gradual process that takes tracking and regular review. While a future large purchase requires diligence in hitting saving targets.

Consequently, we set up our systems so the top goals for each client are displayed each time we interact with them.

Some examples include next car purchases, home projects, inheritances, or retiring early.

But setting the goals is not enough. It requires consistent accountability partners. This is why we have automated follow ups along with scheduled phone calls to follow up. Checking in after 2 weeks, 2 months, 6 months and a year keeps the focus front and center.

Adjustments

Goals that are not measurable tend to fizzle out.

So after recording and monitoring, if a goal was too vague, it's time for an adjustment.

Personally, I like to revisit my goals every 90 days, which allows for any adjustments as changes arise.  At a minimum, reviewing your objectives at least annually will allow you to refocus any goals that are growing stale.

How Did You Do?

The end of a year presents a great opportunity to look back and see where you stand. Seeing progress motivates you to continue progress.

Personally, this process starts during the year.  I keep a document in Evernote, that is called “Key Accomplishments.”  During my quarterly review, I take a moment to record all the things I can think of that were steps forward.

This list includes it all (small and big accomplishments).  From wakeboarding for the first time to reading a book I've wanted to read.  You'll be surprised how fulfilling it is to look back after a year and see all you've done.

For next year, I plan to set a few stretch goals (from Steve Sanduski's podcast "Between Now and Success").  Goals that I know I won't meet but will motivate me to try.  I'm betting I will be surprised by the progress.

So what goals will you focus on this year?

Links Mentioned in Podcast:

Jan 19, 2016

As we've done in years past, we compiled our view of the top 10 economic stories from 2015, and what these stories may mean for 2016. 

You can find show notes and more information by clicking here: https://wp.me/p6NrVS-2uI

Jan 5, 2016

Is paying a fee for a financial advisor worth it? According to Vanguard, the leader in do-it-yourself (DIY) investing, they believe a financial advisor can add approximately three percentage points to a client’s investment returns per year.  The study (link here) found five separate ways (below) advisors add value (alpha) in working with their clients.

You can find show notes and more information by clicking here: https://wp.me/p6NrVS-20z

Dec 14, 2015

It's the question we hear most often: "Am I saving enough for retirement?" “How do you think we’re doing for people our age? 

These are good questions. People want to know how they measure up.

They hope to hear, they are doing better than most. In their minds, this means things are moving in the right direction. But “keeping up with the Joneses” has never been a bankable strategy. So we need to dig deeper to determine what the question is really about.

What many people are really asking is whether it would be possible for them to retire early based on their current savings. But for a young couple just having kids, the same question is likely to center on saving for college or moving into a bigger house.

People ultimately want to know if they will have enough money to do the things they still hope to do.

Digging Deeper

To begin answering this question for yourself, you first need to know the type of life you want to live. You must understand how much you are spending versus how much you are earning. But determining your spending needs is a tough nut to crack.

That’s because spending decisions are heavily influenced by quality-of-life considerations. Some people hire house cleaners and lawn services, while others prefer doing it themselves. Eating nice meals out frequently may be the spice of life for you, but others enjoy cooking at home.

Decisions on the bigger-ticket items have the greatest impact. A large house will require a larger down payment, meaning less liquid savings. Some people aspire to drive nicer cars for short periods, while others want to drive cars until the wheels fall off. Then there’s that little decision about having kids, which will have more than a slight impact on your financial trajectory.

Acknowledging the things you consider important to your quality of life can give you a great blueprint for the amount it will take to sustain that life.

Struggling to Save

While some who ask “Am I saving enough?” are seeking validation, others are worried that they haven’t saved enough.

Recent research finds that 68% of people believe they’ve saved too little — but only 3% are actually following through by saving more. This isn’t surprising. It’s the same disconnect you find in all endeavors that require consistent action. We can all get charged up on a jolt of motivation, but when it’s time to implement, we freeze.

Thoughts bubble up about the big trips we want to take this summer, or that luxury car we’ve always wanted (and deserve). We start thinking about putting more money into our 401(k), and we realize we need to limit our current spending to make it work. Then it doesn’t sound like such a good idea.

This is when what seems simple in theory (saving more) becomes hard. Making choices that change our quality of life now is more painful than we originally thought and often results in inaction.

The Answer

The only way to know if you are saving enough is to piece together your financial puzzle.

Take inventory of what you’ve saved and how much you anticipate you can still save. Set up automatic transfers of money from checking to savings — but watch the credit card bills. Automating savings while accumulating credit card debt is counterproductive.

Working with a qualified advisor can make an enormous difference. Studies have shown the effect that good advice can produce. Often, this advice helps prevent you from ratcheting up your lifestyle too quickly in the first place.

Some questions have easy answers. Unfortunately, “Have I saved enough?” is not one of them. With successful financial planning, you can find your answer — and if it’s no, you can devise a way to get to yes.

You can find show notes and more information by clicking here: https://wp.me/p6NrVS-2qu

 

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