Did you know that having a strong financial plan can also be beneficial to your health? When you’re in control of your finances, you tend to experience less stress, feel more confident and sleep better. Let’s take a closer look at some potential benefits.
Source: How a financial plan can benefit your health. 22 January 2021. Goldman Sachs. https://www.ayco.com/insights/articles/how-a-financial-plan-can-benefit-your-health2.html
What might happen to your taxes in 2021? Despite the Biden administration taking over and power shifting in Congress to slim Democratic majorities, nobody knows. That leaves many Americans concerned about the prospect of future increases to their federal tax rates on income, capital gains, and estates and wondering if they need to act now to take advantage of current laws.
Continue reading here: Fidelity's What To Do About Tax Uncertainty
If you are approaching retirement or already there, here are 5 rules of thumb to help manage your income.
1. Plan for health care costs
With longer life spans and fast rising medical costs it is important to manage your health care costs during retirement. An average retired 65 year old couple may need approximately $295,000 to cover health care expenses in retirement. About 70% of those aged 65 and older will need long term care services either at home or in assisted living. Consider purchasing long-term-care (LTC) insurance and the earlier you purchase a policy the lower the annual premium. It is important to research the company you select and the potential LTC options and costs.
2. Expect to live longer
It is quite likely that today’s healthy 65-year-olds will live into their 80s and 90s. This means you may need 30 or more years of retirement income. It is important to plan ahead so that you do not outlive your savings and depend on social security. On average, social security income is only $1500 a month which may not cover all of your needs.
3. Be prepared for inflation
Inflation affects your retirement income by increasing the costs of goods and services. Choose investments that have the potential to keep up with inflations. An age-appropriate, diversified portfolio that reflects your risk tolerance and financial circumstance is important and can be discussed further with your financial planner.
4. Position investments for growth
Being too conservative or too aggressive in your investments can affect how long your money may last. An investment strategy that is balanced in growth potential and risk may be the answer. Build a mix of stocks, bonds, and short-term investments. Diversification and asset allocation is ideal but does not ensure a profit or guarantee against loss.
5. Don’t withdrawal too much from savings
Consider conservative withdrawal rates so you don’t spend your savings too rapidly. To make sure your savings will last for 20-30 years, consider withdrawing no more than 4%-5% from saving in the first year of retirement, then adjust that percentage for inflation in future years.
After many hardworking years spent saving and planning for retirement, it can be stressful to change from saving to spending that money. It doesn’t have to be that way when you take these steps leading up to and during retirement.
Contact Traditions Wealth Advisors at Brien@traditionswealthadvisors.com or 979-694-9100 for questions or comments about your retirement portfolio.
Source: 29 September 2020. Fidelity Viewpoints. https://www.fidelity.com/viewpoints/retirement/protect-your-retirement-income?ccsource=Twitter_Retirement&sf241687220=1
The year is flying by and you might have forgotten half of your resolutions. If you are thinking it is time to get back on track with your financial goals, use these important dates to help you. Get out your electronic or paper 2021 calendar, and click the button below to mark down these dates.
The coronavirus pandemic has shifted how Americans spent money this year. A recent Bank of America survey of more than 2,500 adults found that 64% changed their spending habits since the start of the pandemic. Instead of splurging on dinners out and vacations, consumers poured more money into their at-home lives, spending more on food and entertainment that could be enjoyed without leaving the house. Here’s a look back at what Americans spent money on in 2020.
The majority of Americans — 85% — said they have been spending more on groceries in 2020, an August survey found. Consumers spent an average of $139 per week on groceries since the start of the pandemic.
Americans loaded up on disinfecting wipes and sprays this year. A TD Ameritrade survey conducted during the initial months of the pandemic found that 53% of Americans reported spending more on cleaning products than pre-pandemic, with the average extra spending at $92.
With restaurants in many places closed during initial lockdowns, Americans spent more on takeout this year. A survey about Americans’ takeout habits from March to July found that 65% had been ordering more takeout, with the average American ordering takeout 2.4 times a week. The average weekly spend on takeout was $67.
Candy and Snacks:
Takeout wasn’t the only food indulgence Americans enjoyed more of this year. The T survey found that 32% of Americans were spending more than usual on candy and snacks, with the average extra spend on these items at $64.
Nearly a third of Americans — 32% — reported spending more on streaming services. Those that spent more spent an average of $71 on streaming services that they were not paying for pre-pandemic. Netflix was one of the big winners of the streaming boom. The company reported that it added 28.1 million subscriptions in the first nine months of the year.
Over a quarter of Americans — 26% — said they spent more on entertainment items, like books and video games, during the first months of the pandemic. Consumers spent an extra $92 on entertainment.
With extra time on their hands, Americans took up new hobbies like painting and gardening. 24% of Americans reported an increase in spending on hobbies, with an average spending increase of $88.
Sixty-four percent of Americans said they saved money during the initial months of the pandemic by not going out for drinks. However, some Americans increased their spending on alcohol to bring the bar experience home. Twenty-three percent of those surveyed said they spent more than usual on alcohol, with the average increase in spending at $124.
As Americans transitioned to working and learning from home, many needed to buy new tech products, like computers and tablets. 19% of Americans said they spent additional money on technology during the initial months of the pandemic, with the average increase in spending at $175.
That spending has stretched into more recent months, too. Best Buy recently reported its highest sales in 25 years for the fiscal quarter ending Oct. 31, CNN reported. Consumers have continued to buy laptops, home theater systems, kitchen appliances and other electronics as they spend more time at home. Best Buy’s sales increased by 23% compared to sales during the same period last year.
Charitable Donations and Gifts:
While many Americans suffered from job loss, those that were able to give gave more than usual during the initial months of the pandemic. The TD Ameritrade survey found that 19% of Americans increased their charitable donations, with the average extra contribution at $245.
The spirit of giving seems to have ramped up again in time for the holidays. A recent survey by the NPD Group found that 40% of consumers plan on buying more gifts this year to bring joy during challenging times.
With people stuck at home for weeks, some resorted to online shopping for clothes as a form of entertainment. 16% of Americans reported spending more shopping for fashion items online than pre-pandemic, with the average extra spend at $134. However, the survey also found that the majority of Americans — 73% — were spending less on clothes than usual as a result of the pandemic.
Furniture and Home Décor:
As people spent more time at home, some decided it was time to upgrade their spaces. 12% of Americans reported increased spending on furniture and home decor, with the average additional spending at $255.
*The above mentioned surveys were conducted by T. D. Amertrade
The coronavirus pandemic has changed nearly every aspect of our financial lives. Many of us have lost jobs or work hours, seen our investments swing from highs to lows and changed the way we spend money, with many of our usual expenses (commuting, vacations, etc.) now off the table. With so much uncertainty still looming about how the pandemic will affect the economy going forward, it’s important to make smart financial moves that can weather whatever is to come.
While some golden rules of money management still stand, other advice has changed due to all the uncertainty we’ve been facing in recent months. I spoke to financial planners to find out what tips they’ve been giving their clients to ride out the current crisis and be prepared for whatever the future may hold. Keep reading to check out this advice for yourself.
Focus on What You Can Control: You can’t predict or control how the pandemic will impact the market. You can control how you manage your investments, your savings rate, having a financial plan and how you react to events.
Create a Budget to Maximize Your Resources: Creating and sticking to a budget is one financial tip that always applies; however, you may need to revisit your budget to account for any changes in your lifestyle due to the pandemic. If you can, rethink your needs and wants, reprioritize your expenses and plan better for the future. Put what you don’t spend on ‘extras’ toward the future — whether that’s your emergency fund, retirement or education.
Keep Your Expenses Low: Managing expenses during this time is very important. Job stability is a very big issue and can dramatically affect people’s lives. Living within one’s means is always a good practice — now is no exception and could potentially allow a family to reduce the negative impact of a job change.
Build an Emergency Fund: We don’t know how things are going to unfold or how long all of this will last, It’s smart to have a little extra cash on hand for these times. With so much volatility in the job market and the stock market, it’s important to be financially prepared for whatever crisis you may face.
An emergency fund helps make sure you can stay secure no matter what happens.
As a buffer, you ideally want to have enough cash handy to cover three to six months’ essential expenses. Figure out how much you can afford to put toward your emergency fund each month and have that amount automatically deposited in a savings account especially earmarked for that purpose. When you reach your goal, you can put these savings toward something else.
Remember that Emergency Funds are for Emergencies: You might be tempted to dip into your emergency savings to cover nonessential purchases but this is a mistake.
Consider your savings as you would your face during the pandemic: Don’t touch it!
Take Advantage of Any Employee Benefits You May Have: If you’re still employed, make sure you are taking advantage of any employee benefits that may be offered to you. There’s probably hidden money in your paycheck. If you’re still lucky enough to work for a company that can afford to give you a 401(k) match in any dollar amount, take full advantage of that benefit. That 401(k) match is free money but you’ll only get it if you contribute.
Also evaluate healthcare-related benefits like HSA accounts. Health Savings Accounts are the only savings vehicles that are triple tax-free. The money you contribute goes into the HSA account pretax, the funds grow tax-free and are tax-free when used to pay for healthcare expenses. You can also invest and grow these funds throughout your lifetime. Think of an HSA as an IRA for healthcare or medical spending. The money in the account gets invested and you can choose, depending on your provider, to invest in your favorite low-cost index funds or ETF.
Make an Investing Plan and Stick To It: Use any period of financial uncertainty to reassess your risk tolerance and confirm your investments are compatible with both your time horizon and risk tolerance. It’s easy to let your emotions get the best of you when it comes to investing, but you should avoid panic buying and selling. The urge to do something can be overwhelming, but this can often make things worse, either by selling too low immediately after a market downturn and missing out on future gains or by chasing performance after markets take off.
Often, the Best Strategy is to do Nothing: A good financial plan is strategic but not written in stone, and it can evolve as your goals change. If you don’t have a financial plan, it’s not too late to create one. You can make one on your own or with an advisor.
Diversify Your Assets the Right Way: Diversification should be a part of your investing plan. Most people might think of diversification as it applies to traditional asset classes. That doesn’t accomplish what many think it does, since traditional asset classes are a broad category of their own, For example, people might think of large- and small-cap domestic equities as being diversified, when the truth is that they’re highly correlated. For better diversification, look at assets like real estate, commodities, hard assets, foreign credit, long- and short-hedging strategies, and mergers and acquisitions arbitrage. It can be hard for individuals to access some of these, but the idea remains the same for the individual investor — seek opportunities outside of traditional asset classes.
Re-evaluate Any Fees You May Be Paying: Consider auditing all of your investments for extra fees that may be going out the window. Recapture that money into more efficient investments. Be sure to look at funds in your 401(k) plan and consider alternative options with better investment fees. This audit should also include your insurance, such as property insurance. Take a good evaluation of the premiums you are spending and be aware of where your money is going.
Abide by the 'Five-Day Rule:' Use the five-day rule to help differentiate between a need and a want, if you can go five days without buying something, it is a want, not a need. This will limit COVID at-home online shopping impulse buys that you may quickly regret.
Retirees Should Prepare for Short-Term Volatility: Retired individuals should have at least five years of their cash needs allocated in fixed income and/or cash equivalents to plan for short-term volatility. This is a suggestion that remains unchanged from before the pandemic but is even more important today.
Ask for Help: Pandemic or not, it’s always useful to get an outside opinion to ensure that your financial decisions are serving you.
Contact Brien and his team at Traditions Wealth Advisors. You don’t have to figure it all out on your own. Having an outside voice and perspective can help you to stay grounded and make clear confident decisions. Brien@TraditionsWealthAdvisors.com or 979-694-9100.
New Year’s Resolutions should include money goals. To make and achieve those financial goals could be more difficult this year with the COVID-19 pandemic still in full force. Just like many people make resolutions to lose weight in the new year, financial goals are just as important. To lose weight, we need to exercise more, eat less, and sleep better; for money health, we need to save more, spend less, and make smarter decisions.
1. Spend Less
Believe it or not, that has been a benefit of COVID-19 quarantines. Less travel, eating out, and money spent at the dry cleaners are just a few ways Americans have spent less money during the pandemic.
2. Save More
Do not just say ‘I want to save more in 2021.’ How will you save more? How much will you save? What will you do with the extra money you save? Saving for children’s college funds, putting away more in retirement savings, or paying off debt are all examples of goals for 2021.
3. Plan ahead
Did you know there are 53 Fridays in 2021? If you get paid bi-weekly, you could get 27 paychecks this year. Even if you aren’t getting that extra paycheck, now is the time to plan ahead. One way is to auto-draft. Set up a system to start the new year that will automate some of your paycheck into retirement, an emergency fund, or a college section 529 savings account. This will eliminate months that you forget to make the money transfer yourself.
As you achieve your 2021 financial goals, celebrate them! You deserve it and motivation to keep at it is key. If you have any questions about your money goals for 2021, don’t hesitate to reach out to Brien Smith at Brien@traditionswealthadvisors.com or 979-694-9100.
Source: Fidelity Viewpoints. 15 December 2020. https://www.fidelity.com/learning-center/personal-finance/2021-money-resolutions?ccsource=email_weekly
1. Excellent Opportunity for the Charitably Inclined
Deadline: December 31, 2020
For taxpayers thinking about making a large charitable contribution, 2020 offers an excellent opportunity. Unlike other years where charitable gifts are limited, charitable donations made in 2020 to qualifying organizations are 100% deductible.
2. Pay Home Business Expenses Now to Lower Taxable Income
Deadline: December 31, 2020
“If you have a home business, now may be the right time to squeeze in any large business expenses you have been considering. By paying for qualified business expenses before the calendar flips to 2021, you will lower your overall 2020 taxable income.” - Brooke Salvini, CPA/PFS member of the AICPA PFP Executive Committee
3. Self-Employed? Establish a Retirement Plan & Get Tax Benefits Today
Deadline: December 31, 2020 setup for certain plans, return due date for others
Self-employed? It is never too late or too soon to set up a retirement plan. Some plans must be established before December 31, but you can postpone funding until 2021 and still claim the tax benefit on your 2020 tax return.
4. Make Up Estimated Tax Shortfall with Increased Withholding
Deadline: Final 2020 company payroll submission by human resources (varies by company)
“If you find that your estimated tax payments throughout the year are coming up short of what you expect to pay for 2020 taxes, you are in danger of incurring penalties. Reach out to your human resources department to request an increase to the withholdings from your remaining 2020 paychecks to make up the difference ASAP. After you catch up, you can complete and submit a new Form W-4 to make your withholding more accurate so it is even throughout the year.” - Paula McMillan, CPA/PFS member of the AICPA PFS Credential Committee
5. Pandemic Loan Opportunity Coming to an End
Deadline: December 31, 2020
Distributions made prior to December 31, 2020 from qualified plans provide a once-in-a-lifetime chance to borrow up to $100,000 penalty, tax, and interest-free from your 401(k)/IRA over three years. This potential liquidity lifeline should be used very cautiously to avoid setting back your retirement savings for years. But for small business owners affected by COVID costs/loss of revenue, it could be a valuable option.
6. Maximize Health Savings Account (HSA) Contributions
Deadline: April 15, 2021
If you have an HSA qualified health insurance plan, one way to lower your taxes is to contribute the maximum allowed in your HSA. HSA contributions can be deducted through payroll, but you can also make contributions directly to ensure the maximum is made. In addition to providing a tax deduction, HSA dollars carry over indefinitely and are yours even if you switch jobs or retire.
7. Leverage Your Losses to Protect Your Income from Taxes
Deadline: December 31, 2020
Now is a great time to review your investment portfolio to realize any additional capital gains and losses for the year. If you find yourself with net realized capital losses for the year, it is important to know that you can only reduce your ordinary income by $3,000. The remaining capital loss would then be carried forward into the next year. Remember to coordinate your capital gain/loss harvesting strategy with your tax planning.
8. Don’t Miss Employer 401(k) Match Opportunities
Deadline: Deferred from last paycheck or December 31, 2020
Everyone with an employer that offers a 401(k) match should at least contribute the amount required to get the maximum match. If you aren't contributing enough to receive the full employer match, you should check on whether there may be a ‘catch up’ opportunity before year-end.
9. Maximize Roth Contribution Opportunities
Deadline: April 15, 2021
It might make sense to increase your contributions in order to take full advantage of this year’s opportunity to put away retirement savings dollars into your Roth IRA. You pay taxes at the time of contribution to a Roth IRA and then the Roth contribution remains in the account growing tax-free.
10. Review Beneficiary Designations
Deadline: Make it routine.
It is a good habit to annual review your beneficiary designations in case there are any changes year after year.
11. Gift Today to Reduce Future Estate Tax
Deadline: December 31, 2020
Don’t forget that you can give up to $15,000 to as many beneficences as you would like each year without paying a gift tax or decreasing your lifetime estate tax exclusion amount.
12. Revisit Risk Tolerance and Portfolio Diversification
Deadline: Make it routine.
As the impact of COVID-19 continues to play out across the country, investors should weigh their risk tolerance and ensure they have ample cash on hand. Further, a tax-efficient financial plan that includes a diversified portfolio can give confidence that long-term financial goals will remain within reach through this period of extreme uncertainty.
Please contact Brien Smith, Brien@traditionswealthadvisors.com or 979-694-9100 for questions on any of the above financial planning tips.
Source: Wealthmanagement.com staff. 20 November 2020. https://www.wealthmanagement.com/retirement-planning/fourteen-financial-planning-tips-act-year-end/gallery?slide=2
Meet our newest Aggie intern, Sarah Mahoney. Sarah is class of 2021 and will graduate with a degree in Applied Mathematical Sciences-Actuarial Science and minors in Economics and Statistics. She grew up in College Station and has Aggie family members. Sarah never considered attending college anywhere else! Sarah would like her future career to focus on quantitative research in the financial sector.
Sarah is looking forward to her annual Christmas cookie exchange this holiday season. It’s always a fun surprise to see what everyone has made. Her favorite Christmas carol is Sleigh Ride and her favorite Christmas movie is How the Grinch Stole Christmas.
We are excited to welcome Sarah Mahoney to the TWA team! She brings a wealth of knowledge, hard work, and experience that will benefit the clients and employees at TWA.
Philanthropy and giving is on most of our minds as we wrap up the pandemic year of 2020. Nonprofits need help now just to keep their doors open. New tax laws and strategies can help you maximize tax breaks for yourself and have benefits for the charity. Here's what you need to know:
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, created several incentives for people to help charities right away, including a charitable deduction of up to $300 in 2020, even if you don't itemize. Otherwise, you generally need to itemize to take the charitable deduction. The CARES Act also helps people who are in a financial position to make very large gifts. In 2020, you can deduct cash gifts of up to 100% of your adjusted gross income, rather than the usual 60% limit. To qualify for this higher limit, the gifts must go directly to the charities, rather than to a donor-advised fund or private foundation. This can help wealthy people reduce their taxable income significantly in 2020, and it may also help retirees who have money to give but bump up against the income limits for the deduction.
Bunch Contributions and Donor-Advised Funds
Rather than making a steady stream of charitable contributions from year to year, it may be better to use a bunching strategy – give more and itemize in one year, and claim the standard deduction in other years. Even though this can help you tax-wise, you might not want to give all of the money to the charities at one time and then neglect them over the next few years. But bunching can work well if you have a donor-advised fund. These funds are offered by brokerage firms, banks and community foundations, and you can take the charitable deduction in the year you give the money to the donor-advised fund, but then you have an unlimited amount of time to decide which charities to support. Another benefit of the donor-advised fund is simplicity – you get one receipt for your tax records when you make the contribution and don't have to wait for a variety of paperwork from each of the charities.
Give Appreciated Stock
Many people just write a check to the charity, but you may get a larger tax benefit if you give appreciated stock. If you owned the stock for more than a year, you can deduct the value of the stock on the date you give it to the charity if you itemize. And even if you don't itemize, you can avoid having to pay long-term capital gains taxes on your profits, which could have cost up to 20% if you sold the stock first. With so much stock market volatility this year, you may want to donate the stock when it reaches a target price, rather than giving at a certain time of year.
Tax-free IRA Transfer
People who are age 70½ and older can give up to $100,000 per year tax-free from their IRA to charity, a procedure called a qualified charitable distribution or QCD. The gift counts as their required minimum distribution but isn't included in their adjusted gross income.
Research Your Charities
Scam artists have been out in full force to take advantage of the coronavirus pandemic. It's even more important now to check out charities before you give money, especially if they contact you first. You can look up charities at sites such as Charity Navigator and the Better Business Bureau's Wise Giving Alliance.
With so many options for giving, be sure to check with your financial advisor, Brien Smith, at Brien@traditionswealthadvisors.com or 979-694-9100, before finalizing your gift.
Source: Lankford, Kimberly. 21 August 2020. US News. https://money.usnews.com/money/personal-finance/taxes/articles/new-rules-for-charitable-giving