Don’t Get Caught with a Financial Holiday Hangover
By
Mark Nicolet, CFP®, MBA, ABFP™
December 17, 2018
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The holidays are meant to be a joyous time, one of socializing, gift-giving and charity. Multiple holiday influencers, such as our faith, family and even the media, can impress upon us what celebrating the holidays mean and possibly lead us to overextend ourselves. The result can leave us recovering physically, emotionally, and often, financially. With a little forethought and discipline, though, we can bring in the New Year without suffering from a financial holiday hangover.
The first step is to establish a holiday budget. If married, be sure that this is a joint project with your spouse. Start with a gift list – who do you want to gift and how much do you want to spend on that gift. Be realistic with what you can afford and who warrants a gift. Don’t feel compelled to give one just because you receive one. Most importantly, stay focused on the meaning behind your gift, rather than the price tag. Your recipient will value the thought and care you gave.
The budget doesn’t stop with gifts. Consider all the non-typical expenses that arise during the holiday season; décor, food for entertaining, tips for preferred vendors, dry-cleaning for the holiday parties, hostess and host gifts or dinner tabs, and travel. Also, don’t forget about charitable giving. Including this in your budget will deter you from being influenced by emotion and possibly overextending yourself.
Clearly, when all is considered, this can be quite an extensive budget. Ideally, you want to start saving in January as the last thing you want to do is use a credit card to cover these expenses. For those who find it difficult to stick to their budget, utilizing cash or prepaid cards can help you stay on track. There are many tools available if you’re willing to use them.
This may sound like a lot, but a little forethought and discipline can go very far for you. I wish a happy and healthy holiday season to all. More than that, though, I wish you a happy and healthy new year, free from the financial holiday hangover.
Navigating the intricacies of life insurance can be a daunting task, but at Trilogy Financial, we believe that understanding the basics is crucial in making informed financial decisions. Life insurance, in essence, provides a straightforward solution to a complex question: How can your family be financially safeguarded if the unexpected were to happen to you? Whether it's covering immediate expenses, sustaining a business, or planning for future needs like education and retirement, life insurance offers a safety net. At Trilogy, we're committed to simplifying the complexities of life insurance, empowering you to make choices that secure your loved one's financial well-being.
What is life insurance?
Life insurance is actually a simple answer to a difficult question: How will my loved ones manage financially if I were to die? If anyone depends on your income or the unpaid work you do, they would most likely struggle if you were to pass away. Life insurance pays cash—also known as a death benefit—to your loved ones when you die. It replaces your income and the many non-paid ways you support your household. Your family can use this cash to help pay for immediate and ongoing expenses like funeral costs, daily expenses, a mortgage or rent, and keep a business afloat. It can also be used for future expenses like college tuition, retirement and more.
How much does life insurance cost?
The good news is, life insurance may be less expensive than you think. The cost depends on four main factors: your age, your health, the type of policy and how much coverage you buy. In general, you’ll pay less the younger and healthier you are. To put the price in perspective, a healthy 30-year-old may be able to buy a $250,000 20-year level term policy for about $13 a month.1 That means if you purchase that policy and pay the $13 a month without fail, your loved ones would get $250,000 if you were to die at any point during those 20 years.
What are the different types of insurance?
Life insurance generally falls into two categories:
Term life insurance provides protection for a specific period of time (the “term” is often 10, 20 or 30 years). This makes sense when you need protection for a specific amount of time—for instance, until your kids graduate from college or your mortgage is paid off. Term life insurance typically offers the most amount of coverage for the lowest initial premium, and is a good choice for those on a tighter budget.
Permanent life insurance provides lifelong protection for as long as you pay the premiums. It also provides “living benefits” like the ability to accumulate cash value on a tax-deferred basis, which you can tap into to help buy a home, cover an emergency expense and more. Because of these additional benefits, initial premiums are higher than what you’d pay for a term life insurance policy with the same amount of coverage.
Sometimes getting a combination of term and permanent insurance is the best answer.
How much life insurance do I need?
The amount of life insurance to buy depends on who you want to protect financially and for how long. As a very general rule of thumb, experts recommend having life insurance that equals between 10 to 15 times your gross income. But you may need more or less than that. An easy way to get a working idea of how much you need is to use an online Life Insurance Needs Calculator.
Planning for retirement amid changing market dynamics can be stressful, especially as retirement age approaches. Fortunately, there are a myriad of ways to prepare for it, even if you plan to retire early.
OPTIMIZE YOUR RETIREMENT INCOME
One of our top tips is to optimize your retirement income by setting yourself up with a diversified portfolio that offers a solid return. If you are in your twenties, there is a big opportunity to let compound interest work its magic. If you are in your thirties or forties, compound interest may not be as lucrative for you, but there are still plenty of ways to maximize your returns.
Here are some of the different options available to help plan for retirement:
SEP IRA – a self-employed retirement plan known as the Simplified Employee Pension (SEP) IRA requires employers to contribute 100% of the accounts' funds and provide equal benefits to all eligible employees.
401(k) – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.
Roth IRA – An individual retirement plan for which contributions are not tax-deductible, but withdrawals in retirement are tax-free.
Each option has its differences, so it is important to work with an advisor to identify which is best suited to your situation and your goals. There’s a lot that can go into your Life Plan and we are here to help.
Senior couple enjoying happy retirement lifestyle
DEVELOP A BUDGET AND SAVINGS PLAN
Budgeting can make a world of difference. If you haven’t already, establish an emergency fund. This will give you peace of mind and will help pay for any unexpected expenses that may arise. Once you’ve set that money aside, you can plan your monthly expenses, retirement contributions and more with the rest of the income you have.
As you develop this budget and savings plan to get you to your retirement goals, ask yourself the following questions:
What quality of life do I want to experience in retirement?
What medical expenses do I anticipate?
Do I plan on working during retirement?
Will I have a flow of income during retirement?
These are all important considerations and will help you develop an actionable plan to achieve the retirement lifestyle you dream of.
DETERMINE YOUR TAX BRACKET AND MINIMIZE YOUR TAXES
In retirement, taxes can eat into your available income, leaving you with less to live on. It's important to remember that taxes don't stop once you're retired. Our financial advisors are here to help guide you take steps throughout your working life to minimize your IRS obligations now and later.
The same basic tax brackets that apply to working taxpayers also apply to retirees. Determining your tax bracket in retirement is just like determining your tax bracket while you’re working – which is determined by your filing status and taxable income (income minus deductions).
Common sources of retirement income that are taxable include:
Distributions from traditional 401(k)s and IRAs
Investment income
A portion of your Social Security benefits (in some situations)
Some pension income
Income from work (full or part time)
INVEST TO ADD ADDITIONAL CASH FLOW IN RETIREMENT
If building wealth is your goal, the stock market or other investment strategies are common options. Investments such as annuities, real estate investment trusts (REITs) and income-producing equities can offer additional retirement income beyond Social Security, a pension, savings and other investments.
DETERMINE THE AMOUNT OF RISK THAT IS APPROPRIATE FOR YOU
It is important to keep in mind that all investments come with risk. If you are young, you can probably tolerate more risk. If you are in your thirties or forties, however, you might benefit from taking a lower risk approach. This is because people in their twenties have more time to correct and mitigate losses. A financial advisor can help you decide if you would like to take a low-risk, slow-and-steady approach, or guide you through a high-risk approach with the potential of yielding higher returns.
PAY OFF YOUR DEBTS
It’s important to pay off credit card debt and student loans as soon as possible. Systematically chipping away at debt now, can have a significant impact on your future debts and purchasing power.
A mortgage can be looked at as both a good debt and a bad debt, depending on your goals. Many people choose to rent a home to avoid being tied to a mortgage, and others use that property as a cash-positive asset. Depending on your goals, it’s important to discuss each of these approaches with a financial advisor so they can help guide you through something that will ultimately benefit you and your family.
MAXIMIZE YOUR SOCIAL SECURITY BENEFITS
Navigating Social Security income can be complicated, but there are several ways to maximize your social security benefits, including:
Work for 35 years or more
Earn as much as you can right up until full retirement age (or past it)
If you can, wait until you are 70 years old to claim – this can increase your benefit by 8% a year beyond your full retirement age
The goal is to maximize the income you will receive from Social Security, but the answer for you will depend on your age, current income, marital status, spouse’s income, and the age disparity between you and your spouse. With all the complexities to Social Security planning, there is no substitute for meeting with a trusted financial advisor so you can best navigate your life in retirement.
CONSIDER ESTABLISHING STREAMS OF PASSIVE INCOME
It's important to remember that there are multiple ways to set yourself up for prosperity during your golden years.
These include:
Investing in real estate
Investing in the stock market
Starting an ecommerce business
Writing books
Earning royalties of any kind
Investing in collectibles
Investing in gold and silver
In short, it's best to invest in as many financial assets as you possibly can in order to establish streams of passive income so that you are not solely reliant on one source for your earnings and returns.
ESTABLISH MULTIPLE STREAMS OF INCOME
You may want to consider continuing to work during retirement. This provides many people with a sense of satisfaction and purpose, AND you will be able to keep your benefits.
The earlier you establish multiple sources of income the better. Ideally, at least a few of these would be passive.
You deserve to be comfortable during retirement, and planning for this phase of life right now will likely help you achieve your goals, perhaps even surpass them. You have worked hard for most of your years around the sun, and you deserve to relax and enjoy every moment on your own terms during your golden years.
Why Choose Trilogy Financial
Planning your retirement strategy is important but not something to stress over. If you’ve already started saving, one of our certified financial planners can help you optimize your savings, investing and risk approach so you can live the retirement life you dream. However, if you haven’t started planning for retirement yet, there’s no better day than today!
Our Advisors will work with you to develop a deeper understanding of your alternatives, pinpoint practical needs and make plans for the care you and your family deserve. Please contact us to start your retirement planning today.
