Here are 5 financial wellness moves you need to master this year!
(BPT) - If you had to grade your financial literacy, what would it be? Are you an A+ saver, investor and planner, or do you think you could do better? If you grade yourself average at best, you’re not alone.
When asked to grade their own financial literacy, more than half of Americans say they’d earn a “C” or lower, according to new data from Prudential Financial. This isn’t surprising, considering data from Prudential’s Financial Wellness Census shows less than half of Americans are on track to meet their financial goals, including planning for retirement.
“Regardless of where you are on your family’s financial wellness journey, the best way forward is through financial literacy,” says Prudential Advisors President Brad Hearn. “Researching, educating yourself and getting advice from a financial professional can help you make the best decisions based on your life stage, risk tolerance and goals.”
Hearn says each family’s situation and goals are unique, and things like life stage and personal preference will impact how they choose to prepare for their financial future. To get started, here are five financial wellness basics every family should master:
Set up an emergency fund
Life is a series of experiences, and sometimes the unexpected can hit your finances hard. Whether it’s a car breaking down, your AC unit on the fritz or even losing a job, it’s important to be prepared for emergencies. If you don’t already have an emergency fund, start saving a little each month until you reach your goal. A good rule of thumb is to have three months’ worth of expenses saved in an emergency fund. So, if your monthly expenses are $2,500, you should have $7,500 saved.
Create a budget
Saving for college? A new car? How about starting that emergency fund? Whatever your family’s financial goals are, it’s important to have a plan in place that helps you achieve those goals. Budget to manage day-to-day expenses, and include in that budget a commitment to save for bigger milestones. For tips on getting started, do some research. There’s no shortage of advice, whether you decide to go it alone or consider using the help of a professional financial advisor.
Plan for the unimaginable
If you have people who count on you for financial support or caregiving, you should have life insurance. A life insurance policy can help give your family financial peace of mind should the worst happen. There is no rule as to how much life insurance you need, but important things to consider are your annual income, mortgage debt, potential college costs for kids and other future financial obligations.
Save for retirement
According to Prudential data, of Americans who have retirement savings and debt, nearly one-quarter have more in total debt than in retirement savings (23%), while 15% of Americans say that they have no debt, but also have nothing saved for retirement. Planning for retirement is something that should start as soon as possible. If your work offers any type of matching program, make sure to take advantage. If you don’t, you’re essentially leaving free money on the table.
Seek professional advice
Retirement, life insurance and savings can be confusing. Information overload is partly to blame. According to Prudential data, two-thirds of Americans agree that the list of things they need to learn to successfully manage their finances keeps growing, not shrinking. That’s where financial literacy programs and professional financial advice can play a key role. Nearly two-thirds of Americans don’t have a financial advisor. They say they cannot afford one (42%) or don’t believe their financial situation warrants needing an advisor’s help (26%). The reality is that advice is more within reach than ever before — and it’s not just for the wealthy. A financial professional can help at various stages in life and work with you to create a strategy based on your timeline, risk tolerance and goals.
“Financial wellness isn’t always a matter of having more money,” says Hearn. “Instead, it’s a journey that takes a combination of proactive effort, dedication and professional guidance.”
Prudential Advisors is a brand name of The Prudential Insurance Company of America and its subsidiaries. Life insurance is issued by The Prudential Insurance Company of America, Newark, NJ and its affiliates.
With the increasing likelihood that Social Security and Medicare benefits may be reduced in the future, it’s more important than ever to use every technique available to maximize your retirement savings. These three outside-the-box strategies could make an enormous difference in your retirement readiness. The sooner you start, the more you may save.
(BPT) - Individuals who rushed to prepay property taxes after the passage of the Tax Cuts and Jobs Act may have saved some money in 2018 — but that’s pennies compared to the long-term tax savings taxpayers should take advantage of before the TCJA’s individual tax provisions are expected to expire in 2026, according to Robert Fishbein, vice president and corporate counsel at Prudential Financial.
Also expected to expire in 2026? According to trustees for Social Security, that’s when Medicare’s main trust fund will run out of money. With the increasing likelihood that Social Security and Medicare benefits may be reduced in the future, it’s more important than ever to use every technique available to maximize your retirement savings.
Three outside-the-box strategies could make an enormous difference in your retirement readiness. The sooner you start, the more you may save.
Fund an HSA for retirement health care
Estimates suggest even a healthy 65-year-old couple will need at least $275,000 to cover retirement health care costs. A Health Savings Account, or HSA, provides a way to save that money without paying a dime in taxes. An HSA account is available to individuals enrolled in a high deductible health insurance plan.
First, these individuals can fund their HSA through a tax-deductible contribution or pre-tax payroll deduction. Second, any interest and investment gains are tax-free. Finally, the funds can be withdrawn tax-free to pay for qualified medical expenses— a triple tax advantage over a traditional savings account.
The best part? There is no requirement to use HSA funds in the year of contribution, which means funds can grow on a tax-favored basis for future health care expense needs.
For 2018, family contribution limits are $6,900, or $7,900 if you are 55 or older, and those amounts are indexed for inflation in future years. If you start contributing the maximum even as late as age 55, and earn 3 percent per year, you could have more than $90,000 to pay for your retirement health care by age 65. If you start contributing the maximum as early as age 40, you could have saved almost $270,000. These funds will continue to grow tax-free in retirement until you need them.
If you don’t use HSA funds in full before you die, excess funds are subject to income tax, but will be otherwise available for your heirs.
Consider a Roth IRA conversion
The typical dogma says that converting an IRA or traditional 401(k) to a Roth IRA does not make sense if you expect your tax rate in retirement to be lower than at the time of conversion. However, lesser known benefits of a Roth IRA may make it worthwhile to have at least part of your retirement assets in Roth IRA form.
Start with no required minimum distributions. With a Roth you aren’t forced to draw down your funds once you attain age 70½ and can continue to benefit from the tax-free growth, thereby maximizing the after-tax funds eventually available for you or your heirs.
Another significant benefit of a Roth IRA or Roth 401(k) is tax diversification. For example, you may choose to take taxable distributions up to a certain amount and then tax-free distributions to avoid a higher income tax bracket.
If you are a high-income taxpayer, Roth IRA distributions are not considered income when determining thresholds for increased Medicare premium charges or the 3.8 percent income tax surcharge on investment gain. If your income is more modest, Roth IRA distributions are not considered income when determining whether you are subject to income tax on Social Security benefits.
If anything, a conversion is more attractive now since you have an opportunity to convert and pay income tax with marginal rates that are generally lower than under prior law. Since individual tax law changes are temporary and tax rates will revert to the former higher amounts starting in 2026, you have an eight-year window to benefit from lower rates.
Make “backdoor” Roth IRA contributions
The tax law prescribes income limits so high-income individuals may not make a direct contribution to a Roth IRA. However, there are no income limits on converting traditional IRA funds to a Roth IRA.
Any person under age 70.5 who has earned income by year-end can make an IRA contribution. While income limits may prevent you from making a pre-tax contribution, you can make this contribution even if you have fully funded a 401(k) or another employer plan.
Once you have made your contribution to a traditional IRA, simply convert that amount to your Roth IRA. As long as this is your only traditional IRA and you have made an after-tax contribution, then an immediate conversion will have converted a tax-deferred asset into a potentially tax-free asset. If you have multiple IRAs, the IRAs are aggregated to determine how much is taxable upon conversion.
While we spend much time on our investment strategies to help gain an extra percentage or two of investment yield, these tax planning strategies can be a more reliable way of maximizing your after-tax retirement income and wealth for your family — no matter how Social Security and Medicare turn out.
Prudential Financial, its affiliates, and their financial professionals do not render tax or legal advice. Please consult with your tax and legal advisors regarding your personal circumstances.
(BPT) - It's happened to almost everyone: you leave a job and have a retirement account that you are no longer actively contributing to. It sits there for months — maybe years — because you're not sure exactly where to move it or what the process is like to roll it over. You know that money could probably be better invested, but moving accounts is intimidating, so it sits.
"It's common for people to be nervous about transferring retirement accounts like IRAs and 401(k)s," says Nick Holeman, a financial planning expert at Betterment.com. "Moving accounts shouldn't be something you fear or put off because you think it's too complicated."
Holeman says three main causes for concern are potential taxes, excessive fees and process complexity. However, these concerns are often based on misconceptions, and he wants to set the record straight to empower investors to take control of rogue retirement accounts.
Many people worry about potential tax concerns when moving retirement accounts. They've heard about the high penalties for early withdrawal and figure the best way to avoid them is to let the account be.
"A rollover is not equivalent to a withdrawal," says Holeman. "When you transfer retirement accounts through the appropriate processes, you're still keeping it in the same categorization. It just now lives in a different place."
A rollover can also help facilitate better control of your money. For example, if you roll over an old 401(k) into an IRA account, you are no longer limited to the investment options selected by your employer. This freedom of choice can help you make more customized investment decisions based on your personal goals. Of course, it's important to remember that investing in securities always involves risk and there is the potential to lose money.
A rollover means closing an old account and opening a new account. This process can incur fees that will be unique to each provider. Many people worry about the potential cost, which causes them to leave accounts untouched.
"Research account closing fees but be sure to keep in mind the big picture," Holeman says. "It's like ripping off a bandage. For example, a one-time $20 closing fee is better than a $100 annual fee that could be reduced when you move your account."
Holeman's advice: always know what fees you're paying. Before selecting a new financial organization for your retirement savings, research fees and consider selecting a new account with no trading costs, commission fees, or rebalancing fees. For example, Betterment’s Digital plan charges just 0.25 percent per year and that covers goal-based financial advice, tax-efficient investing, automatic rebalancing, and other smart features that help you keep more of your money.
"People tend to treat rolling over a retirement account like going to the dentist," Holeman says. "It's important but usually not urgent, so people tend to put it off."
What's more, people are intimidated by all the paperwork, lengthy forms and seemingly complex steps, so they delay rollovers. Holeman says moving accounts is typically easier than most people think, and in fact, after the process is complete, many people regret not doing it sooner.
"Often, moving retirement accounts can be done completely online thanks to advanced technology," says Holeman. "Betterment offers a '60 second rollover' for certain accounts from supported companies, and there's someone available to help should you have any questions. Moving accounts is typically easier than people imagine."
You should carefully consider whether a rollover is right for your own personal situation, including the specific fees and services associated with your 401(k). Visit betterment.com/rollover to learn more about factors you should consider when deciding whether a rollover might be right for you.
Betterment LLC distributed this article through Brandpoint.
For many young adults, heavy debt and lower-paying jobs lead to a delay in traditional life goals like buying homes and starting families. However, research suggests that Millennials’ financial worries are adding up to more than stress and disappointment, particularly once they become parents.
Millennial Parents Struggle with High Cost of Living
Better money management today can lead to brighter financial future
Two in five young parents rate their financial health as unsatisfactory and 40 percent said financial stress is putting a strain on their relationship, according to a survey from the National Endowment for Financial Education and Parents Magazine. More than half of millennial parents concede they would surrender a year of their life to have more financial security.
"Being a parent takes patience, forgiveness and a lot of silent counts to 10, but it also takes a lot of money," said Paul Golden, director of Smart About Money, a nonprofit foundation inspiring educated financial decision-making for individuals and families through every stage of life. "Many young adults start off with significant student loan debt. When you add housing, groceries, utilities, transportation expenses and health care costs, the strain increases, and oftentimes the math in the household budget doesn't add up."
The price tag of raising a child is more than $304,000 based on the projected inflation-adjusted cost of rearing a child until age 18, not counting college. Managing that financial pressure begins with planning for the future and truly understanding the costs associated with adding a baby to the family or buying a new home, Golden added.
"Regularly paying attention to your money and practicing major life transitions before they happen is an important step toward achieving financial health," he said.
As a parent, you have many financial responsibilities to balance, but planning for the future can help prevent unforeseen expenses from tipping your scales.
Debt reduction. Make a plan to pay off excessive debt, particularly credit cards. Tackle your lowest balance first to gain momentum then take on the next smallest. Additionally, pay attention to higher interest rates that are costing you a lot of money.
Use a budget. Get a budget and spending plan in place to keep track of your expenses. Try an envelope system with monthly allowances for groceries, entertainment, utilities, etc.
Start saving. Build an emergency fund. Aim for a small, achievable goal as low as $500 then set the bar higher. Participate in your employer-sponsored savings program to boost retirement savings, especially if there is a match. Make it an automatic payroll deduction and increase it when your paycheck goes up. As far as your child's college savings, save what you can, when you can. Every little bit will help when education bills come due.
Child care. Consider establishing a flexible spending account if one is offered by your employer. Parents can use pretax dollars to pay up to $5,000 in child care expenses in most states.
Review insurance and important paperwork. Create a will either by using an online program or hiring a professional to name your child's guardian, and designate at what age any payouts, savings or investments will be distributed. With health insurance, notify your employer within 30 days of the birth to ensure that the child is eligible for any dependent benefits. Purchase appropriate health care coverage to protect your family. Review your employer's life insurance plan and determine if it is adequate for your needs. If not, consider purchasing additional life insurance.
Save for the future. Put money for short-term expenses (1-5 years) in safe investments, such as savings accounts and certificates of deposit. These low-interest-rate investments will not grow dramatically, but they will not lose money, either. Money you will need beyond five years should have the opportunity to grow at a risk level you are comfortable with. Use a combination of steady-earning savings accounts and more volatile stock and bond mutual funds to help protect you against long-term losses.
Get started with these tips and learn more through self-directed courses at SmartAboutMoney.org.
How Much Does Having a Baby Cost?Along with preparing for the costs of clothes, furniture and baby items, take time to review your health care and employer benefits and policies relating to time off work.
Spread the costs.
Know what's covered.
Account for time off work.
Photo courtesy of Getty ImagesSOURCE:
National Endowment for Financial Education
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