Dec 14

Early Retirement: How to Give Yourself the Ultimate Holiday Gift

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Early Retirement: How to Give Yourself the Ultimate Holiday Gift

A road map for planning an early retirement

 

By Paul Jarvis, CFP®

Area voices Financial Planning Blog

Early retirement, one in which you’re healthy enough to enjoy savings accumulated over a lifetime, often seems possible only for the ultra-wealthy. But with early and careful strategizing, many more hardworking Americans can make this dream a reality.

Often times, individuals don’t give enough forethought about retirement, longevity and what it takes to make it financially healthy.

Here are some considerations to help ensure you have an early retirement plan that can withstand and adapt to life’s unexpected challenges.

  • Build uncertainty into retirement projections and test your assumptions. For example, if longevity runs in your family, add years to your life span projections, and be sure to consider how inflation in medical, energy and other costs will impact projected expenses. Using retirement planning software that runs Monte Carlo simulations of investment returns, or consulting a CFP® professional who does these analyses, will help test how long your resources will last.

  • Prepare for your expenses to vary over time. Studies show that expenses are greatest at the beginning and end of retirement, as new retirees are typically more active and enjoy travelling, and long-term care costs increase towards the end of life.

  • Purchase insurance for worst-case scenarios.  Long-term care insurance (LTC) and longevity insurance can mitigate serious retirement risks. LTC covers personal care assistance, and some hybrid policies convert unused benefits into life insurance coverage if you do not need long-term care. Longevity insurance financially protects you from living a longer life than expected by beginning to pay out when you are 80 or 85.

  • Assess your ability to pare down your expenses. In the event of a financial emergency, how many of your expenses could be cut? The more fixed, regular obligations you have, such as car or mortgage payments, the less ability you will have to respond to emergencies, making early retirement less advisable.

  • Ensure that your family is doing their own financial planning. An early retirement can be derailed if family members end up needing your financial assistance. One step is to make certain that your children have proper life insurance to meet their own families’ needs.

  • Plan to re-enter the workforce, just in case. Life is unpredictable, and if your resources run out before the end of your lifetime, you may need to return to work. Make sure your résumé is up-to-date, hone skills throughout retirement, and stay in touch with your contacts to make your re-entry easier.

Planning early and carefully is the key to an enjoyable early retirement, as is the flexibility to adjust course for life’s unexpected events. Consult a CFP® professional who can help you properly strategize your retirement and make this dream come true.

 

Learn more by visiting LetsMakeaPlan.org.

 

ABOUT Paul Jarvis

Paul Jarvis is a CFP Board Ambassador and leads United Capital’s office in Fargo. See more at http://financialplanning.areavoices.com.

Nov 30

Social Security Strategies: Getting the Most Bang for Your Buck

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Social Security Strategies: Getting the Most Bang for Your Buck

 

Guidance on avoiding Social Security mistakes — maximizing retirement benefits

 

By Paul Jarvis, CFP®

Area voices Financial Planning Blog

 

For many Americans, retirement is something to look forward to – a time to celebrate years of hard work, enjoy family and friends, and embark on new adventures. But filing for government retirement benefits can be daunting, and new Social Security rules recently signed into law as part of a larger federal budget bill promise to add to this complexity by eliminating two claim filing strategies: file-and-suspend and restricted applications for spousal benefits. 

Social Security planning can be overwhelming and many individuals would be better served by considering all of the available options to maximize this important source of retirement income.

 Here are some of the most common mistakes that can keep people from maximizing their Social Security retirement benefits and how to avoid them, while accounting for changes introduced by the new law.

 

  • Not filing for a spousal benefit because you earned more than your spouse: If you reach your full retirement age during or before 2019 and your spouse has already filed for benefits, you can build wealth by waiting until age 70 to collect your own retirement benefits and filing a claim at your full retirement age restricted to spousal benefits only. This allows you to collect two benefits sequentially.

  • Filing at 62 because you need the income, but no longer working because your benefit will be reduced by the “Earnings Test”: Your benefits may be reduced based on the wages you earn after filing, but they will be repaid at full retirement age pro-ratably over your remaining life expectancy. Additionally, continuing to work can have the effect of increasing your annual benefit going forward.

  • Filing at 62 because you think you may die young: The “breakeven” age – when the gain from deferring benefits becomes higher than the gain from taking benefits early – is in the mid-80s for a single person. For married couples, however, there is a high probability that at least one person in the couple will make it into his or her 90s. Thus it generally makes sense for the high earner of the couple to delay benefits until age 70, since this increased benefit will determine what is paid to the longest-living spouse, either as a retirement benefit or a survivor benefit.

  • Pushing your spouse to take benefits at full retirement age so you can get spousal benefits: If your spouse is at or will reach full retirement age within six months of the new law’s enactment (Nov. 2), he or she can file and suspend at full retirement age up until the end of the six-month period and delay his or her own claim until 70. This strategy enables you to get a spousal benefit while also increasing your spouse’s benefit.

  • Taking benefits too early: You may be able to repay your benefits if you have been receiving them for less than a year and start them over later, at a date when they will no longer be subject to an early payment reduction. If you are now 66 or older, or will be 66 within six months of Nov. 2, you can suspend those reduced benefits upon reaching age 66, and let them accumulate delayed credits until age 70.

  • Assuming “file-and-suspend” is only for married couples: Single people who are or will turn 66 within six months of Nov. 2 can file and suspend at any point within that timeframe, once you reach full retirement age. This allows you to essentially bank those benefits and earn 8 percent annually until age 70, and gives you the option to request suspended benefits in a lump sum.

 

Don’t let Social Security filing become an overwhelming task that sours the start of a hard-earned retirement. Locate a CFP® professional near you who can guide you through the Social Security claims process and develop solutions that make the most financial sense for you.

Learn more by visiting LetsMakeaPlan.org.

ABOUT Paul Jarvis

Paul Jarvis is a CFP Board Ambassador and leads United Capital’s office in Fargo. See more at http://financialplanning.areavoices.com.

Oct 27

Fifty Shades of Funds: An Investment Strategy for Every Taste

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Fifty Shades of Funds: An Investment Strategy for Every Taste

 Considerations when choosing between index and actively-managed funds

 

By Paul Jarvis, CFP®

Area voices Financial Planning Blog

 

Once upon a time, investors chose between two starkly different investment fund options: traditionally “plain vanilla” index funds and broad spectrum actively-managed funds. But over the last decade, funds incorporating aspects of both – such as Smart Beta funds and ETFs – have emerged, leaving investors with more options than ever.

The proliferation of ETFs, automated trading platforms, and the plethora of investment options can often overwhelm investors making it difficult to choose the right investment for your personal investment profile.

As a starting point, the following typical investor profiles might consider these types of funds:

  • Young Investors: Mutual funds offer children and teens ample diversification at minimal levels of investment. Managed funds often have a “story” behind their holdings that can be much more exciting and entertaining for younger investors than an S&P 500 index.

  • First-Time 401(k) Participants: A broad index fund provides relatively low volatility and instant diversification without much active thought or monitoring – just the right amount of work for a new participant managing all of the financial decisions that come with a new job.

  • High Tax Bracket Investors: This investor is likely to have a number of different investment accounts. To minimize annual taxable income, he or she might utilize index funds for taxable accounts and put favorite high-performing managed accounts into tax-deferred or tax-free accounts, to help minimize annual taxable income from investments.

  • Socially Responsible Investors: Investors that are passionate about a cause, such as women’s rights or environmental preservation, can take advantage of managed funds aligned with their interests.

  • Plug and Play Investors: Managed funds can make more sense for investors who want a fund that adjusts as he or she gets closer to a life milestone such as retirement. Other managed funds take care of asset allocation, rebalancing and risk management, as opposed to the investor choosing a variety of funds and adjusting his or her holdings in each.

  • Hedgers: To mitigate particular types of risk, such as rising medical care costs in retirement, an index may be a prudent investment. However, be cautious, as narrowly targeted indexes can be inherently high-risk and volatile.

 

There’s a fund that fits every type of investor, and an investor may be successful utilizing either type of fund as long as it aligns with their needs and goals. Rather than simply examining fund prospectuses, consider seeking the counsel of a CFP® professional, who puts your interests first and can help you find the fund that’s exactly right for you.

Learn more about active vs. passive investing by visiting LetsMakeaPlan.org.

ABOUT Paul Jarvis

Paul Jarvis is a CFP Board Ambassador and leads United Capital’s office in Fargo. See more at http://financialplanning.areavoices.com.

Sep 24

Giving Back: More Than One Way to Support Your Alma Mater

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Giving Back: More Than One Way to Support Your Alma Mater

 

By Paul Jarvis, CFP®

Areavoices Financial Planning Blog

 

Every college graduate receives the phone calls, mailings, and emails from their alma mater, urging them to give back, to contribute to scholarship funds, student programming, and campus capital projects. And many do, sending in generous checks to their college or university

So many lives have been shaped through higher education prompting many to give back.  Before cutting the check, consider all of your options to ensure your giving plan matches your financial plan.

Opportunities for giving back to colleges and universities, based on the donor’s desires and circumstances, include:

  • Small and Simple: While predominantly cash gifts are typically small, requiring little involvement, they can still be strategic donations, with benefits for both the donor and the alma mater. Another relatively simple form of giving might include establishing a donor advised fund through a community foundation, or custodial broker or mutual fund.

  • Planned Giving: Other giving options involve taking an asset and splitting its value between two beneficiaries, one of which is a college or university, or designating assets to be gifted at a later date via a charitable trust. Because of the complexity and expenses involved in making these arrangements, such approaches are generally reserved for gifts of $100,000 or more, and require careful planning and coordination with the donor’s CFP® professional and attorney.

  • Visionary Gifts: These donations, often considerably large, reflect the donor’s personal intent and vision for the gift, and are meant to have a positive impact on the educational institution’s future stability and prosperity, while also serving as a personal memorial for the donor. Given the amount of money involved, donors play an active role in how the money will be utilized, including through improvements to capital infrastructure or endowed scholarships or professorships.

Before giving another donation to your alma mater, make a plan so that it’s done in a thoughtful and strategic way. A CFP® professional can guide you toward the appropriate charitable path that aligns with your financial goals, while providing benefits for your college or university.

The CFP Board describes influential ways to give back to one’s alma mater in addition to cash gifts to the annual fund, affording benefits for both the donor and the institution.  Learn more by visiting LetsMakeaPlan.org.

ABOUT Paul Jarvis

Paul Jarvis is a CFP Board Ambassador and leads United Capital’s office in Fargo. See more at http://financialplanning.areavoices.com.

Aug 24

Financing a Private School Education Without Sacrificing Financial Goals

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Financing a Private School Education Without

Sacrificing Financial Goals

 

By Paul Jarvis, CFP®

Areavoices Financial Planning Blog

 

Families that choose to send their grade- or high school age children to private schools, including parochial schools, face special challenges in financing this education. Compared to a college education, there are fewer savings tools available for private schools, and less time to build up those savings.

The balance between helping your children obtain your ideal education for them while still ensuring your own plan is on track takes proper thought and planning.

For parents looking to make private school more affordable, here are some cost-saving tips:

  • Incorporate specialized savings accounts into your financial plan: Two types of savings accounts parents should consider are Coverdell Education Savings Accounts (CESA) and Custodial Accounts (UGMAs and UTMAs). CESAs are similar to 529 plans for college, while UGMAs and UTMAs – typically considered for colleges – can be used for private schooling as well.

  • Negotiate tuition payments: It can never hurt to try and negotiate down a school’s sticker price. A school may offer discounts for families with multiple children attending the school, and most are willing to work with you in establishing payment plans.

  • Apply for financial aid: No matter your family’s wealth, be sure to fill out a school’s Parent’s Financial Statement to determine eligibility for financial aid. Many schools offer scholarships based on need, and in some cases, community organizations or churches that support the school may have funds for deserving students.

  • For religious schools, look for discounts: Members of a church or other place of worship may be eligible for tuition discounts at the schools sponsored and run by these religious entities.

  • Investigate loans/aid from outside sources: Sallie Mae offers a K-12 Family Education Loan at unpublished, but “competitive” interest rates. Another resource is Your Tuition Solution which offers pre-college education loans at fixed rates.

  • Consider “private” curriculums offered at a public school: Parents with academically gifted children might also look for public schools that offer International Baccalaureate (IB) Programs, housed in qualifying public schools. IB students are taught an advanced curriculum apart from the rest of the student body, but enjoy the same benefits of extracurricular activities, sports programs, and even public transportation.

For parents who think that private school is right for their family, it takes careful goal setting and financial planning to make this financially feasible. When making this decision, consult a CFP® professional that can provide objective and competent advice in the context of your personal situation, your family, and the future you are striving to build for you and your children.

 

ABOUT Paul Jarvis

Paul Jarvis is a CFP Board Ambassador and leads United Capital’s office in Fargo. Read more of Paul’s blog by visiting  financialplanning.areavoices.com or by calling 701-293-2076.

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