To view the original article click here:

One of the most daunting decisions faced by workers is how to invest their 401(k) plan dollars.

The simplest choice might be a target-date fund, which automatically shifts from aggressive to more conservative investments the closer you get to retirement. But some financial advisors say if you have the wherewithal, it’s worth building a 401(k) portfolio that provides a more individualized investment approach tailored to your particular goals and life situation.

“If you have the opportunity to take a more precise approach, it’s a good thing to do,” said Jared Snider, a wealth advisor with Exencial Wealth Advisors. “Sometimes one-size-fits-all ends up not fitting any one individual the best.”

As of June 30, 401(k) plans held an estimated $4.4 trillion in assets, according to the Investment Company Institute. Data from research firm Morningstar shows that $690 billion of that was parked in target-date funds.

So clearly, the majority of 401(k) investors are building their portfolios using investments outside of target-date funds. The problem, though, is that many people just randomly choose those investments.

“I come across people who have picked multiple [funds], and there really wasn’t a well-thought-out purpose for why they picked the funds they did,” Snider said.

The first thing to do is look at your 401(k) in the context of all your assets, advisors say. If you also own, say, an individual retirement account or taxable accounts—savings or stock accounts—make sure the asset allocation in your 401(k) reflects your overall holdings so you are not too heavily invested in any one market sector or lack exposure to stocks.

Also consider your risk tolerance. That is, determine to what degree you can tolerate large swings in the value of your investments due to market volatility. People who misjudge their risk tolerance might panic during a market drop and unload investments, which advisors say is unwise.

Regardless of whether you have 100 percent of your 401(k) in stocks or you have, say, 70 percent in stocks and 30 percent in fixed income such as cash or bonds, Snider said his firm generally approaches the stock—or equity—portion the same.

The tricky thing for advisors is that when it comes to a 401(k), the ideal allocation for clients is only possible to the extent that the plan allows it.

“What’s unique to 401(k) plans is that you have to use the choices the plan gives you—good, bad or indifferent,” said Charles Bennett Sachs, a certified financial planner with Private Wealth Counsel. “I try to find the least offensive funds that give me the allocation I want for my client.”

Meanwhile, Snider at Exencial said his firm’s ideal equity allocation, based on current market valuations, includes 20 percent in U.S. large-value funds and 13 percent in an S&P Index fund. That is, a fund that mimics that performance of the S&P 500 Index, which offers broad U.S. market exposure.

Additionally, Exencial dedicates about 11 percent of assets to large-cap growth funds, about 10 percent to mid-cap funds and roughly 16 percent to small-cap value funds.

Missing from that U.S. market mix is small-cap growth funds.

We tend to not like the valuations we’re seeing on small-cap growth funds,” Snider said. “They are a little rich right now. If the plan only offers a small-cap growth fund [vs. value], we’ll put that money in a mid-cap fund.”

The international stock exposure is a bit trickier due to limited offerings in many 401(k) plans. But Snider said, if possible, his firm generally allocates about 30 percent of equity exposure to international funds. That can include value funds, large-cap funds, small-cap funds and emerging-markets funds.

“We try to give broad exposure,” Snider said. “Emerging markets tend to be more volatile, so if we can, we spread it across many world economies.”

He added that when U.S. stocks are trading at a premium, international stocks tend to outperform by a small margin over the ensuing five years.

Meanwhile, Jorge Padilla, a certified financial planner with The Lubitz Financial Group, said his firm tries to represent the world market capitalization.

“If you look at the size of the U.S. stock market [in the context] of the whole world, it is about 46 percent of the world’s stock valuation,” Padilla said.

He added that his firm has been taking profits from the U.S. market and investing in overseas markets, where valuations are more promising for the next five or 10 years.

But Padilla’s advice comes with a caveat. “No one knows with confidence what will happen in the next six months or a year,” he said.

As for those whose portfolio includes fixed-income, Exencial’s Snider said his firm tends to lean toward short-duration, quality bonds.

“In the current interest-rate environment, you can’t really get a lot of return in fixed income,” Snider said.

Advisors also generally agree that once you determine your suitable allocation, it’s important to rebalance your portfolio once a year so you stick to your desired allocation.

Padilla at The Lubitz Financial Group points out that some 401(k) plans have an auto-rebalance option. If you sign up for it, the plan will automatically rebalance your portfolio at set times.

“Not a lot of the plans do it, but if it’s there, it’s a good thing,” he said. “It takes the emotion out of the process, which is important.”

If you do choose to build your portfolio without the guidance of an advisor, it’s important to research your plan’s options and attend any workplace educational seminars.

Take advantage of that opportunity and get help creating an allocation,” Snider at Exencial said. “Or if your employer has a model portfolio created, you can [mimic] that so you can stay on track and have a successful retirement.”

—By Sarah O’Brien, special to CNBC.com

By Ryan Derousseau | Contributor Jan. 21, 2016,

Pessimism seems to pervade the American psyche these days. It’s something that President Barack Obama addressed in the State of the Union, arguing that the surge of some Republican presidential candidates comes from their willingness to pour fire on this pessimistic fear of the future.

While Obama’s opinion may have some truth to it, it’s clear that Americans are more pessimistic, in general, than we used to be.

According to a NBC poll in October, only 34 percent of respondents said they believe the American dream still holds true. And 59 percent said they believe children today will be worse off than their parents. This sense that the American dream is diminishing is a distinct characteristic of young people as well. In a November Fusion poll, only 16 percent of 18-to-35 year olds felt the American dream is “very much alive,” compared to 34 percent of 18-to-35-year-olds in 1986.

Like a tree falling in a forest, if so few of us believe in the dream, then does it exist? Well that depends on what your dream is. If we’re talking about becoming a billionaire, owning a yacht and buying whatever your heart desires, then there’s always the Powerball. But if your dream consists of finding a good job, owning a home and having a great retirement, then that’s very much possible. You just might need to work a little bit harder to achieve those things than in the past.

Owning a home isn’t an unachievable hurdle. The homeownership rate for young people remains low. In the third quarter of 2015, the Census Bureau measured the number of people younger than 35 who owned a home at 35.8 percent. While that’s 3 percent higher than first-quarter rates, it’s nearly level with the rate of ownership a year ago.

Part of the reason – completely out of your control – is that home prices continue to rise. They’re up nearly 30 percent since 2012, which makes the hurdle of saving enough for the down payment that much more difficult. And lending is much tighter than it used to be. Considering poor mortgage lending practices led to the 2008 downturn, that’s actually a positive factor.

That doesn’t help you if you want to buy a home now, though. Christopher Jones, a financial planner in Nevada, says it’s rare that people come to him wanting to buy a place in 10 years – it’s more like a year or so. That limits the amount of investing options you have. “Typically when saving for a home, you have to save in low-risk, liquid places,” says Jones, who runs Sparrow Wealth Management. “You’re not going to earn much on that money.”

Instead, look at the amount of house that you need to buy. Earmark a certain amount of funds each month from your paycheck, which automatically get funneled into a savings account used for the eventual down payment, says David Shotwell, a financial planner at Rutter Baer in Michigan.

If you’re married and concerned about the financials of owning a home – after all, you’ll then have to pay property taxes, insurance, more bills and there’s no landlord to fix your problems – then you can also secure a loan based on only one person’s income. Sure, you might not get as large of a house, but it can provide you with the backstop in case something happens, like a job loss, that limits the family’s income.

Jobs are bouncing back for now. Part of the American dream was always based on the access to reliable and plentiful jobs. What’s maybe most surprising about the pessimism today is that the one thing that has truly bounced back for people since the downturn are jobs. In the most recent report, the economy added 292,000 jobs, keeping the unemployment rate steady at 5 percent. Over the past two years, the economy added more than 5.8 million positions.

But what has likely kept that pessimism is the lack of wage growth. Wage growth continues to lag jobs, only increasing 2.5 percent in 2015. “If we keep getting strong hiring, wage gains should accelerate,” says Mark Hamrick, senior economic analyst at Bankrate.com.

It’s fair to wonder when, though, considering the amount of job growth we’ve seen over the past five years.

Savings is still a long-term game. You can understand the positive response about the American dream in 1986. If worse came to worst, many workers had pensions in their back pocket. But from 1980 to 2008, the number of employees with a pension fell from 38 percent to 20 percent. While the onus may be more on you than what your parents dealt with, saving is still the best possible way to reach your American dream.

However, there’s a balance that you have to find, especially if you also have to still pay back thousands of dollars in student debt. Because of this extra wrinkle, it’s important to have clear money goals, such as paying off student loans in 10 years, buying a house in three years and retiring at age 65. “You lay all those things out, and take that paycheck and commit to each one,” Shotwell says. “If you’re paying loans off as quickly as possible, but eating dog food and living in a box, it’s not worth it.”

On the retirement side, find the amount that you can save – ideally 15 percent or above. Take advantage of your company’s 401(k) match if it offers one, as that counts toward that number. Then put it in a stock-heavy, low-cost index fund or target-date fund and relax. Even with short-term blips, like the stock market struggles at the beginning of this year, your retirement funds should be fine. “This kind of volatility is a blessing,” Shotwell says. “If you’re buying more shares on a down month, it’s allowing you to buy more shares. In the future those shares will be worth more.”

If that dream is to retire young, then make sure you save more each month to ensure that can happen. If say you want to retire under 60, Jones says that goal “exponentially increases the amount you need to save for retirement,” pushing your ideal savings rate into the 20-to-30 percent range, depending on your income.

Once you have your target date set, and your contributions automatically filing into your accounts, then you can just sit back and wait. And what’s more American than that?

To view the original article click here:

By Rachel L Sheedy

For many Americans, Social Security benefits are the bedrock of retirement income. Maximizing that stream of income is critical to funding your retirement dreams. The rules for claiming benefits can be complex, but this guide will help you wade through the details. By educating yourself about Social Security, you can ensure that you claim the maximum amount to which you are entitled. Here are ten essentials you need to know.

By Rachel L. Sheedy,
Follow @KiplingerRetire 10 Things You Must Know About Social Security

It’s an Age Thing

Thinkstock

Your age when you collect Social Security has a big impact on the amount of money you ultimately get from the program. The key age to know is your full retirement age. For people born between 1943 and 1954, full retirement age is 66. It gradually climbs toward 67 if your birthday falls between 1955 and 1959. For those born in 1960 or later, full retirement age is 67. You can collect Social Security as soon as you turn 62, but taking benefits before full retirement age results in a permanent reduction — as much as 25% of your benefit if your full retirement age is 66.

Besides avoiding a haircut, waiting until full retirement age to take benefits can open up a variety of claiming strategies for married couples. (More on those strategies later.) Age also comes into play with kids: Minor children of Social Security beneficiaries can be eligible for a benefit. Children up to age 18, or up to age 19 if they are full-time students who haven’t graduated from high school, and disabled children older than 18 may be able to receive up to half of a parent’s Social Security benefit.

It’s an Age Thing

How Benefits Are Factored

Thinkstock

To be eligible for Social Security benefits, you must earn at least 40 “credits.” You can earn up to four credits a year, so it takes ten years of work to qualify for Social Security. In 2016, you must earn $1,260 to get one Social Security work credit and $5,040 to get the maximum four credits for the year.

Your benefit is based on the 35 years in which you earned the most money. If you have fewer than 35 years of earnings, each year with no earnings will be factored in at zero. You can increase your benefit by replacing those zero years, say, by working longer, even if it’s just part-time. But don’t worry — no low-earning year will replace a higher-earning year. The benefit isn’t based on 35 consecutive years of work, but the highest-earning 35 years. So if you decide to phase into retirement by going part-time, you won’t affect your benefit at all if you have 35 years of higher earnings. But if you make more money, your benefit will be adjusted upward, even if you are still working while taking your benefit.

There is a maximum benefit amount you can receive, though it depends on the age you retire. For someone at full retirement age in 2016, the maximum monthly benefit is $2,639. You can estimate your own benefit by using Social Security’s online Retirement Estimator.

How Benefits Are Factored

COLA Isn’t Just a Soft Drink

Thinkstock

One of the most attractive features of Social Security benefits is that every year the government adjusts the benefit for inflation. Known as a cost-of-living adjustment, or COLA, this inflation protection can help you keep up with rising living expenses during retirement. The COLA, which is automatic, is quite valuable; buying inflation protection on a private annuity can cost a pretty penny.

Because the COLA is calculated based on changes in a federal consumer price index, the size of the COLA depends largely on broad inflation levels determined by the government. For example, in 2009, beneficiaries received a generous COLA of 5.8%. But retirees learned a hard lesson in 2010 and 2011, when prices stagnated as a result of the recession. There was no COLA in either of those years. For 2012, the COLA came back at 3.6%, but dropped to less than 2% in the next few years. But bad news came again this year: Prices were flat, and thus there was no COLA for 2016. The COLA for the following year is announced in October.

COLA Isn’t Just a Soft Drink

The Extra Benefit of Being a Spouse

Thinkstock

Marriage brings couples an advantage when it comes to Social Security. Namely, one spouse can take what’s called a spousal benefit, worth up to 50% of the other spouse’s benefit. Put simply, if your benefit is worth $2,000 but your spouse’s is only worth $500, your spouse can switch to a spousal benefit worth $1,000 — bringing in $500 more in income per month.

The calculation changes, however, if benefits are claimed before full retirement age. If you claim your spousal benefit before your full retirement age, you won’t get the full 50%. If you take your own benefit early and then later switch to a spousal benefit, your spousal benefit will still be reduced.

Note that you cannot apply for a spousal benefit until your spouse has applied for his or her own benefit.

The Extra Benefit of Being a Spouse

Income for Survivors

Thinkstock

If your spouse dies before you, you can take a so-called survivor benefit. If you are at full retirement age, that benefit is worth 100% of what your spouse was receiving at the time of his or her death (or 100% of what your spouse would have been eligible to receive if he or she hadn’t yet taken benefits). A widow or widower can start taking a survivor benefit at age 60, but the benefit will be reduced because it’s taken before full retirement age.

If you remarry before age 60, you cannot get a survivor benefit. But if you remarry after age 60, you may be eligible to receive a survivor benefit based on your former spouse’s earnings record. Eligible children can also receive a survivor benefit, worth up to 75% of the deceased’s benefit.

Income for Survivors

Divorce a Spouse, Not the Benefit

Thinkstock

What if you were married, but your spouse is now an ex-spouse? Just because you’re divorced doesn’t mean you’ve lost the ability to get a benefit based on your former spouse’s earnings record. You can still qualify to receive a benefit based on his or her record if you were married at least ten years, you are 62 or older, and single.

Like a regular spousal benefit, you can get up to 50% of an ex-spouse’s benefit — less if you claim before full retirement age. And the beauty of it is that your ex never needs to know because you apply for the benefit directly through the Social Security Administration. Taking a benefit on your ex’s record has no effect on his or her benefit or the benefit of your ex’s new spouse. And unlike a regular spousal benefit, if your ex qualifies for benefits but has yet to apply, you can still take a benefit on the ex’s record if you have been divorced for at least two years.

Note: Ex-spouses can also take a survivor benefit if their ex has died first, and like any survivor benefit, it will be worth 100% of what the ex-spouse received. If you remarry after age 60, you will still be eligible for the survivor benefit.

Divorce a Spouse, Not the Benefit

It Can Pay to Delay

Thinkstock

Once you hit full retirement age, you can choose to wait to take your benefit. There’s a big bonus to delaying your claim — your benefit will grow by 8% a year up until age 70. Any cost-of-living adjustments will be included, too, so you don’t forgo those by waiting.

While a spousal benefit doesn’t include delayed retirement credits, the survivor benefit does. By waiting to take his benefit, a high-earning husband, for example, can ensure that his low-earning wife will receive a much higher benefit in the event he dies before her. That extra 32% of income could make a big difference for a widow whose household is down to one Social Security benefit.

In some cases, a spouse who is delaying his benefit but still wants to bring some Social Security income into the household can restrict his application to a spousal benefit only. To use this strategy, the spouse restricting his or her application must be at full retirement age and he or she must have been born on January 1, 1954, or earlier. So the lower-earning spouse, say the wife, applies for benefits on her own record. The husband then applies for a spousal benefit only, and he receives half of his wife’s benefit while his own benefit continues to grow. When he’s 70, he can switch to his own, higher benefit. Exes at full retirement age who were born on January 1, 1954, or earlier can use the same strategy — they can apply to restrict their application to a spousal benefit and let their own benefit grow.

It Can Pay to Delay

File and Then Suspend

Thinkstock

Here’s a Social Security claiming strategy that’s perfectly legal and potentially lucrative for those who will reach age 66 by April 30. Let’s say a husband decides he wants to delay taking his benefit until age 70 to maximize the amount of his monthly check. But he wants his wife to be able to take a spousal benefit, because it would be higher than her own benefit.

To make that happen, the husband, who must be at full retirement age, can file for his benefits and then immediately suspend them. Because he has applied for benefits, his wife can now take a spousal benefit based on his record. And because he suspended his own benefit, his benefit will earn delayed retirement credits for each year he waits until age 70. But if you qualify for this strategy, act fast: You must put in your request by April 29 to file and suspend your benefit under the old rules. The budget law passed in November 2015 eliminates this strategy at the end of April.

File and Then Suspend

Uncle Sam Wants His Take

Thinkstock

Most people know that you pay tax into the Social Security Trust Fund, but did you know that you may also have to pay tax on your Social Security benefits once you start receiving them? Benefits lost their tax-free status in 1984, and the income thresholds for triggering tax on benefits haven’t been increased since then.

As a result, it doesn’t take a lot of income for your benefits to be pinched by Uncle Sam. For example, a married couple with a combined income of more than $32,000 may have to pay income tax on up to 50% of their benefits. Higher earners may have to pay income tax on up to 85% of their benefits.

Uncle Sam Wants His Take

Passing the Earnings Test

Thinkstock

Bringing in too much money can cost you if you take Social Security benefits early while you are still working. With what is commonly known as the earnings test, you will forfeit $1 in benefits for every $2 you make over the earnings limit, which in 2016 is $15,720. Once you are past full retirement age, the earnings test disappears and you can make as much money as you want with no impact on benefits.

But the good news is that any benefits forfeited because earnings exceed the limits are not lost forever. At full retirement age, the Social Security Administration will refigure your benefits going forward to take into account benefits lost to the test. For example, if you claim benefits at 62 and over the next four years lose one full year of benefits to the earnings test, at age 66 your benefits will be recomputed — and increased — as if you had taken benefits three years early, instead of four. That basically means the lifetime reduction in benefits would be 20% rather than 25%.

To view the original article click here:

By Mark Gollom, CBC News

With a will yet to surface, Prince’s family faces a potentially long, costly and complex legal process to divvy up his assets, illustrating the importance of writing a will, even for those not leaving behind a multi-million dollar estate.

His siblings have already begun the court proceedings. A Minnesota judge appointed a corporate trust company to temporarily oversee his estate last week, saying the emergency appointment was necessary because the superstar musician doesn’t appear to have a will and immediate decisions must be made about his business interests.

But problems may already be emerging among his heirs, which would further complicate the process. CNN reported that the initial meeting between the siblings was contentious and ended in shouting.

“Especially for a man surrounded by so many lawyers and managers, etc., it’s astonishing that he didn’t have a will,” said Judith T Younger, a professor of family law at the University of Minnesota who teaches a course in property, wills and trusts.

With no spouse or children, Minnesota law states that his estate will be distributed equally among his siblings and half-siblings. But that could become complicated if they fail to agree on how certain assets should be treated and/or sold. For example, the siblings will have to come up with a valuation of Prince’s vault of unpublished music and agree on what should be done with it.

“There is still the problem — are any of these siblings experts in managing assets of this sort that he has.” said Younger.

Another issue, says Younger, is that Minnesota doesn’t have statutes that would deal directly with the inheritability of Prince’s persona — the right to commercially exploit his image through items like T-shirts and mugs.

‘Always been very careful about his properties’

“The question becomes do they get included in his estate? Had he had a will, he could have set up an arrangement with people who knew what they were doing to manage it or license it. Or perhaps he would not have wanted any postmortem publicity.”

“He has always been very careful about his properties, his music his unpublished intellectual property,” she said. “The best way to ensure that people you trust are managing and controlling it after your death is to have a will designation.”

It’s possible that Prince cared little how his estate was to be settled after his death. But as Charles Wagner, Toronto estate lawyer, pointed out, was “there no one who he’s loved in his life? Is there no one who had a special place? Is there anything he wanted to perpetuate his legacy?”

Even for those without an estate like Prince’s, getting a will is a prudent move, said Wagner.

Risk litigation

“If you want to ensure that your assets go to the people you want them to, your best bet is to go to a lawyer who knows what they’re doing …and get a good will,” Wagner said. “Otherwise you risk litigation, otherwise you risk the money going to people you don’t want.”

Joseph Gyverson, a Toronto estate lawyer, said it’s a fairly common misconception that if someone dies without leaving a will, their estate goes to the government. That can happen if the deceased has no living heirs — otherwise legislation sets out a hierarchy as to who is entitled to inherit the estate. The general rule in North America, he said, is that the spouse will inherit everything followed by children, parents, siblings, aunts and uncles and then other next of kin.

Without a will, family members of the deceased will most certainly end up in court, Gyverson said. And if there is any disagreement between potential beneficiaries about who should get what, the estate could be tied up in court for a long time, costing a large amount in legal fees that could eat up much of what they were entitled to receive in the first place.

Choosing the executor

There’s also the issue of choosing the state trustee, or executor of the estate, when there is no will to say who will fill that powerful role. The trustee or executor can deal with the assets according to their discretion. Without a will, a number of people could go to court to apply for that position.

“And that’s where you could get an issue with something like the Prince estate where you’ve got multiple beneficiaries, all of whom have the right to a say as to who is going to be chosen to be the executor.

“And if there are conflicting interests, they may not agree who will be the executor. Then there can be a battle over who is going to be the executor, who is going to be in control of the state. And the more complex the estate is, the more valuable the assets are in the estate, the more there is that potential to be that conflict.”

People don’t need to get a will for themselves, Gyverson said, but so the people they care about are taken care of and they’re making things easier for their friends and family when they die.

“Because when someone is in the process of grieving over lost loved ones, they don’t want to have the additional hassle of not even having a will to help them deal with the property,” he said.

To view the original article click here:

Changing or leaving a job can be an emotional time. You’re probably excited about a new opportunity — and nervous too. And if you’re retiring, the same can be said. As you say goodbye to your workplace, don’t forget about your 401(k) or 403(b) with that employer. You have several options and it’s an important decision.

“Be careful not to make hasty decisions with your workplace savings plan,” says John Sweeney, executive vice president of retirement and investing strategies. In particular, beware of cashing out, which often comes with taxes and penalties and can undermine your ability to reach your long-term goals.”

Weigh your options.

Because your 401(k) assets are often a significant portion of your retirement savings, it’s important to weigh the pros and cons of your options and find the one that makes sense for you. You generally have four choices:

Leave assets in a previous employer’s plan.
Move the assets into a rollover IRA or a Roth IRA.
Roll over the assets to a new employer’s workplace savings plan, if allowed.
Cash out or withdraw the funds.

Here are some things to consider about each.

Option 1: Keep your 401(k) with your former employer.

Check your previous employer’s rules for retirement plan assets for former employees. Most companies, but not all, allow you to keep your retirement savings in their plans after you leave. If you have recently been through a drastic change such as a layoff, this may make sense for you. It leaves your money positioned for potential tax-deferred investment growth so you can take time to explore your options.

The benefits of leaving your assets in the old plan may include:

Penalty-free withdrawals if you leave your job in or after the year you reached age 55 and expect to start taking withdrawals before turning 59¹⁄₂.
Institutionally priced (i.e., lower-cost) or unique investment options in your old plan that you may not be able to roll into or hold in an IRA.
Money-management services that you’d like to maintain. (Note that these services are often limited to the investment options available in the plan.)
Broader creditor protection under federal law than with an IRA.

Some things to consider:

Typically, employers allow you to keep assets in the plan if the balance is more than $5,000. If you have $5,000 or less, you may need to proactively make a choice to remain. If you don’t, some plans may automatically distribute the proceeds to you (or to an IRA established by you).
You’ll no longer be able to make plan contributions or, in most cases, take a plan loan.
You may have fewer investment options than in an IRA.
Withdrawal options may be limited. For instance, you may not be able to take a partial withdrawal but instead may have to take the entire amount.

Option 2: Roll the assets into an IRA.

Rolling your 401(k) assets into an IRA still gives your money the potential to grow tax deferred, as it did in your 401(k). In addition, an IRA often gives you access to a wider variety of investment options, such as annuities,¹ than are typically available in an employer’s plan. You can also continue growing your retirement savings in a rollover IRA through IRA contributions to the account. Note, however, that in certain scenarios there can be benefits in keeping rollover amounts in a separate IRA.

If you have other accounts at a financial institution that offers IRAs, you often get consolidated statements. This gives you a more complete view of your financial picture, which may make it easier to plan and effectively manage your retirement savings. It’s also easier to evaluate and manage your target asset mix if your investments are in one place. Make sure to research IRA fees and expenses when selecting an IRA provider, though. These fees vary greatly from firm to firm.

Of course, you need to weigh the costs and benefits of each approach. Managing a portfolio of mutual funds or ETFs yourself may entail far fewer investment expenses than buying a professionally managed lifecycle fund or managed account. However, if you do not have the time, investing skill, or interest in managing your own portfolio, you may be better off with a professionally managed account.

Other benefits of rolling over to an IRA may include:

The option of converting assets to a Roth IRA, which is a taxable event but provides federal tax-free withdrawals of future earnings, providing certain conditions are met.² (Note that your previous or new employer plan may offer a Roth workplace savings plan and allow participants to convert non-Roth assets into an in-plan Roth account.)
Penalty-free withdrawals for qualifying first-time home purchase or qualified education expenses if you’re under age 59¹⁄₂.³
Investment guidance and money management services through a professionally managed account.

But take into consideration that:

After you reach age 70¹⁄₂, you’re required to take minimum required distributions from a 401(k), 403(b), or IRA (except for a Roth IRA) every year, even if you are still working. If you plan to work after age 70½, rolling over into a new employer’s workplace plan, or staying in the old one, may allow you to defer taking distributions.⁴
If you need protection from creditors outside bankruptcy, federal law offers more protection for assets in workplace retirement plans than in IRAs. However, some states do offer certain creditor protection for IRAs too. If this is an important consideration for you, you’ll want to consult your attorney before making a decision.

A special case: company stock

If you hold appreciated company stock in your workplace savings account, consider the potential impact of net unrealized appreciation (NUA) before choosing between a rollover or an alternative. Special tax treatment may apply to appreciated company stock if you move the stock from your workplace savings account into a regular (taxable) brokerage account rather than rolling the stock (or proceeds) into an IRA. You may want to consider asking your financial adviser or tax accountant for help on how NUA may apply in your situation.

Option 3: Consolidate your old 401(k) assets into a new employer’s plan.

Not all employers will accept a rollover from a previous employer’s plan, so you need to check with your new plan administrator. If your new employer accepts your rollover, the benefits may include:

Continuing to position your assets for tax-deferred growth potential.
Continuing to grow your retirement savings through contributions to your new employer’s plan.
Combining plan accounts into one, for easier tracking and management.
Deferring minimum required distributions if you are still working after you turn age 70¹⁄₂.⁴
Availability of plan loans (be sure to confirm that the plan allows loans).
Investing in lower-cost or plan-specific investment options, if available.
Broader creditor protection under federal law than with an IRA.

But consider this:

Your 401(k) may have a limited number of investment options compared with an IRA.
You will be subject to the new employer’s plan rules, which may have certain transaction limits.

Option 4: Cash out.

Taking the assets out should be a last resort. The consequences vary depending on your age and tax situation, because if you tap your 401(k) account before age 59¹⁄₂, it will generally be subject to both ordinary income taxes and a 10% early withdrawal penalty. An early withdrawal penalty doesn’t apply if you stopped working for your former employer in or after the year you reached age 55 but are not yet age 59¹⁄₂. This exception doesn’t apply to assets rolled over to an IRA.

A $50,000 cash out could cost $21,000 in penalties and taxes.

If you are under age 55 and absolutely must access the money, you may want to consider withdrawing only what you need until you can find other sources of cash.

A pitfall to avoid

If you choose to roll over your workplace retirement plan assets into an IRA, it is important to pay close attention to the details. To be on the safe side, consider requesting a direct rollover, right to your financial institution. This is also referred to as a trustee-to-trustee rollover, and it can help ensure that you don’t miss any deadlines.

Why is this important? If a check is made payable to you, your employer must withhold 20% of the rolled-over amount for the IRS, even if you indicate that you intend to roll it over into an IRA within 60 days. If that happens, in order to invest your entire account balance into your new IRA within the 60 days, you’ll have to come up with the 20% that was withheld. If you don’t make up the 20%, it is considered a distribution, and you will also owe a 10% penalty on that money if you are under age 59¹⁄₂. (Later, when you file your income tax return, you will receive credit for the 20% withheld by your employer.)

If you receive the proceeds check in the financial institution’s name, you must deposit it into a rollover IRA.

What you should consider when making a decision.

It’s important to make an informed decision about what may be a significant portion of your savings. As discussed above, your choice will depend on factors such as your former and current employer’s plan rules and available investment options, as well as your age and financial situation. In addition, you may want to think about your investing preferences, applicable fees and expenses, desire to consolidate your assets, and interest in receiving investment guidance. Traditional or Rollover IRA.

Find out your workplace savings plan rules, especially whether you can keep the assets in the plan or roll them into a new employer’s plan. Every plan has different rules.
Compare the underlying fees and expenses of the investment options in your plan with those in an IRA. Also, consider any fees that may be charged by your old plan, such as quarterly administrative fees.
Evaluate the potential tax impact of any move.
Assess your preferences for managing your various accounts. For example, you may like having your assets with one provider or with multiple providers.
Decide which type of investor you are: a “do it yourself” type, or a “you do it for me” investor who wants personalized management.
Speak with a financial professional who can help evaluate your decision based on your complete financial picture.

To view the original article

Posted on Monday, April 25th, 2016 by Edwin C in Savings Accounts

Scared of retirement? Not confident about your retirement planning? Haven’t saved enough? Worried about the how much help your life insurance would be?

All of us plan to live a certain kind of life after we retire from our hectic jobs but to live that desired lifestyle we need to have a strong financial portfolio. While we all know that we need to save a substantial amount of money for a worry-free retirement we never know how much we will need after we give up working.

So here are 7 ways you can cover the gap while there is still time:

Wait till you Turn 65

The U.S. Census Bureau of Labor Statistics indicates that the average retirement age is 62 but still a lot of people retire at 65 or even later and are still unable to save enough. Waiting till 65 gives you extra work years which means extra savings. The later you start collecting your social security benefits, the larger is the amount of benefit you will receive. Your social security benefits increase by about 5.5% to 8% per year if you are willing to wait a little longer.

Don’t Wait to Downsize

Do not wait to let go of pompous assets like your big home or luxurious cars or collection of antique pots. Consider selling them and investing the profits. Due to lack of time, you might want to invest in the stock market and pull off the risk, but you might not notice that you also might not have the time to cover up the loss. Instead, invest conservatively so that you have the money stocked when you are in need.

Move to a No Tax state

You can move to states like Florida, Nevada, New Hampshire, Pennsylvania, Washington and Wyoming, where there is no income tax levied on pension, social security, or dividend income. The benefits can definitely include a beachside lifestyle.

Accept Government sponsored Medical insurance

The Government sponsored medical life insurance provides adequate coverage for doctor’s visits, emergency care, assisted living, respite or in-home care. What these insurances do not cover is prescription medication, drugs, dental and vision care because these are primary defaults during old age. To cover these you would need an add-on coverage offered by Medicare Advantage and Supplemental Insurance (Medigap). Consult your insurance provider to find better ways to live a healthy life after retirement. You can also consult the AARP about governmental provisions and senior plans.

Max Out Retirement Accounts

You should start funding your retirement accounts well in advance or catch up in good time. Keep adding to your 401ks, 403b, 457s, social security benefits, pensions, and annuities. 97% of all 401k plans have a catch-up provision. According to the Plan Sponsor Council of America, only 36% of plans allowing catch-up will give you a match for your catch up. They are the most tax advantageous, which means that you should keep funding these generously in the remaining years of your retirement.

Diversify using Bonds and ETFs

If you have ten years or more to your retirement, you should make more volatile investments like stocks. They are risky investments but very fruitful. As you’re inching closer to your retirement, you wouldn’t want your portfolio to be full of risky, aggressive investments. Be more diversified by investing safely in bonds or exchange traded funds i.e. ETFs.

Join AARP

AARP is a go-to institution for the senior population. It is a popular senior citizen advocacy group and gives out financial services, insurance plans, social welfare schemes, and legal counsel for the elderly. The annual membership fee is $16, which is further discounted if you buy the years in bulk. They give out discounts to members on dining, travel, roadside assistance, auto insurance, health benefits, and more. This is a golden institution to sign up for.

There are several solutions in the market for problems like these but when it comes to retirement, you should never give up on the old school method of safety. And remember, it better late than never.

Author Bio: Joel Ray provides expert guidance on an array of topics, centered on retirement and financial planning for you and your family. Joel shares his passion to help others, in meeting their financial goals, through his informative blogs and whitepapers. Follow Joel @life_centra or check out his blogs and videos at LifeCentra today!

To view the original article click here:

David Hirsch, managing partner of Metamorphic Ventures

With the selloff in some big tech names such as LinkedIn and Twitter, some investors are beginning to wonder if the golden age of the Internet and mobile is over. Given the uncertainty in the global markets, it make sense then that public market investors aren’t nearly as bullish on the future growth potential of some big tech companies as they were a year or two ago.

“Even as tech stocks and unicorns falter, it has never been a better time to be an early stage technology investor.”

At the same time, there are a number of VC-backed “unicorn” start-ups in the private markets. Due to a period of low interest rates, growing companies quickly realized that they could raise large sums of money, as investors lacked yield on their capital. This allowed companies to continue scaling operations without having to worry about short-term profitability and the microscope of the public markets.

But as technology becomes ubiquitous, affecting all aspects of our lives and jobs, category-killer winners will emerge in every market and business function, as well as those catering to new platforms that arise in the process. Think Google in search, Facebook in social, Amazon in e-commerce, and Uber in transportation.

Artificial intelligence, big data, drones, and robotics are all technologies that will disrupt traditional industries and create new markets beyond what we can imagine today.

These companies might not be playing in markets as big as Google or Facebook, returns can be outsized for disciplined investors. So, even as some tech stocks and unicorns falter, it has never been a better time to be an early-stage technology investor, provided that you have access to good companies and strong founders early on.

According to Cambridge Research Associates, “Seed and early-stage investments have accounted for the majority of investment gains in every year since 1995, suggesting that, despite the deep pockets of late-stage investors, early-stage investments hold their own on an apples-to-apples basis (total gains).” The same report said that, for the last 10 years, new and emerging managers have accounted for between 40 and 70 percent of VC gains.

Smaller venture-capital funds allow for investors to achieve returns, even if the rate of failure within a portfolio is high, because fund size allows for smaller exits to produce great overall fund results.

As funds get smaller and the asset class unbundles, the question then becomes: Why should investors invest in a fund instead of direct investing in companies themselves? Good fund managers understand the risk and therefore build a portfolio of companies, weighing the risks and potential outcomes of the portfolio as a whole so that the fund’s losses are recouped by an order of magnitude by the fund’s winners (which is why MOC — multiple of capital — is more important than internal rate of return in the early stages).

Round sizes also allow early-stage investors to build nice-sized positions with strong visibility to provide additional capital when the time is right. Limited partners in these funds can also access later rounds through “Special Purpose Vehicles” (SPVs) provided that the valuations are reasonable at that point in time.

Because the funds these limited partners have invested in have been close to these companies for a period of time, they have more data and visibility into the viability of the potential investment than investors who are approaching these companies for the first time.

Furthermore, the declining cost of technology makes everyone an entrepreneur. The effect this has on the ecosystem is an abundance of companies being started, with ideas that may have failed in the past or that have a number of competitors.

VC’s spend their time understanding industry dynamics and context in which these companies are being started. Over time, strong managers develop mental models to best evaluate these companies, which is what has commonly been described as “pattern recognition” given the amount of time they spend integrated in the ecosystem.

Because this wave of technology start-ups is disrupting traditional industries and attempting to build massive companies where nothing existed before, the companies can’t be evaluated in the same way that traditional companies are, let alone across the board of their counterparts in the technology ecosystem. So while many of these great companies may never reach $100 billion in market cap, they will still provide outsized returns for disciplined investors.

When shown an early-stage investment opportunity, individual investors should ask themselves, “Why am I seeing this deal?” In my experience, that has more often than not meant that the VC community collectively passed on the investment opportunity.

Remember that these funds are smaller in size and therefore don’t have the capital to fully heavy up on their winners. General partners will often show their limited partners opportunities to co-invest in later stage investments once they feel the opportunity is de-risked in a vacuum outside of the fund structure.

So, while technology investing can be quite risky, investing in the right manager in a right-sized VC fund is incredibly less risky even when adjusted for the necessary time horizon due to the risk spread across a large base of companies, the active and ever-increasing presence of technology in our lives and economy, and the reduction of necessary exit value to return large multiples on the fund.

Commentary by David Hirsch, managing partner of Metamorphic Ventures, an early-stage venture capital firm in New York City. Prior to MV, he spent 8 years at Google, where he was on the founding team that launched Google’s advertising-monetization strategy. Follow him on Twitter @startupman.

David Hirsch, through Metamorphic Ventures, is an investor in Talkspace and Thrive Market.

To view the original article click here:

BY Dr. Penny Pincher | Wise Bread | MARCH 2016

During the past few years as a personal finance blogger and author, I have noticed that the most successful frugal people tend to follow a common set of habits. These same habits remind me of the traits that Stephen Covey detailed in his popular 1989 book, The 7 Habits of Highly Effective People. For this article, I kept the original seven habits, but updated them for achieving financial independence today.

What are the seven habits that allow some people to excel at being frugal?

1. Be Proactive

Frugal people are proactive about their money, taking action to monitor and control spending and maximize income. They find ways to spend less and reduce expenses — even if it requires effort and creative thinking. They direct most of the money they save from reduced expenses into savings and investments for long term goals.

Although the first thing that comes to mind with frugality is saving money, many frugal people maximize income through side hustles or by generating passive income in addition to controlling their spending. An extra dollar saved or an extra dollar earned both contribute favorably to the bottom line.

Frugal people know how much money they have coming in and how much is going out, often with great precision. This is accomplished by creating and following a budget and proactively monitoring spending. They focus on what they can control within their budget to achieve financial success.

2. Begin With the End in Mind

Why do frugal people work so hard to control spending and keep track of their money? Are they simply not interested in buying things? On the contrary, most frugal people are striving to reach financial independence so that they can travel or launch a second career or to have plenty of money to buy the things that matter to them. Frugal people are willing to worry about money now so they don’t need to worry about it later.

Surprisingly, many frugal people care more about their time than their money. Saving money buys financial independence, which buys time to do whatever you want. Frugal people want freedom to use their time as they wish and not be locked into working at a job until they reach old age.

Frugal people begin with the end in mind. The end they want to achieve is financial independence. With that end in mind, they make a plan to reach the goal and follow it every day. The sacrifices along the way are worth reaching the goal.

3. Put First Things First

What is the first thing you pay every month? Do you pay your mortgage first? Perhaps you pay your utility bill or car payment first. Frugal people pay something else first — themselves.

Paying yourself first means that you invest in your retirement fund or other savings accounts first, then you pay other bills using the money that is left. Most people pay their bills first, and then save or invest if there is any money left.

Frugal people realize that having money to invest is the most important priority, and they take care of that priority first. If there is not enough money left to pay the bills, then frugal people find ways to make their bills smaller so they can fully fund their investment goals.

4. Think Win-Win

Stephen Covey talked about win-win situations in terms of structuring deals where both parties involved get something beneficial. His point was that someone doesn’t have to lose in order to make a great deal — in fact, the best deals happen in win-win situations.

Looking at this habit in the context of frugal success, just because you spend less money doesn’t mean you have to benefit less or receive less value. In fact, frugal people find ways to spend less money and achieve greater benefit at the same time.

Frugal people find plenty of win-win situations for their money. For example, why do many of them prepare most of their meals at home instead of dining out? Of course, making food at home is cheaper than paying the bill at a restaurant, but eating at home is healthier as well. The benefit of making your own food goes beyond just saving money.

Buying a smaller house is less expensive than a larger house and it costs less for maintenance, insurance, heating/cooling, and lighting. In addition to the lower initial price and reduced ongoing costs, a smaller house also takes less time to clean and maintain, freeing up time for other activities.

Most win-win scenarios involve not just price, but value. Frugal people consider the overall value that a purchase would provide throughout its life, including hidden expenses and potential benefits. Frugal people are willing to spend money to get a good value, and they shop around and use coupons to get the best deal they can on the right item.

5. Seek First to Understand, Then to Be Understood

Most frugal people don’t start out being frugal. They start out as “normal” spenders and rack up credit card bills and student loans like most people. Over time, they come to understand that spending and debt are not the path to contentment. They realize that sometimes less really is more, at least when it comes to debt and spending.

Frugal people reach an understanding of how much stuff they need to be happy, which is often far less stuff than most people think they need to be happy. Frugal people make spending decisions in terms of needs and wants, while most people think primarily in terms of having more and better stuff than their friends and neighbors.

As far as being understood, most frugal people don’t seem to care much what “normal” people think of them. Frugal people understand that spending money to keep up with the Joneses, or anyone else, doesn’t make much sense and is certainly not the path to long term contentment.

6. Synergize

Synergy is the concept that sometimes, one plus one adds up to more than just two. How is this possible?

If you decide that you can live without cable TV, you can save about $100 per month. Not only do you save $100 this month and every month thereafter, but you have significantly reduced the amount of money you need to retire by forgoing a recurring expense during your retirement years. You could retire years earlier due to the synergy of eliminating a recurring expense.

Another example of synergy is reducing clutter. If you minimize the amount of clutter you collect over time, you will require less space to store your stuff. You will be able to live in a smaller, less expensive house. With less clutter, you will be better able to find and use the items that you do have. Savings of time and money will accumulate over the years greatly exceeding the small amount of effort it takes to nip clutter in the bud. This is another example where a seemingly insignificant action can allow you to achieve your goals years earlier due to synergy.

7. Sharpen Your Saw

As you are reading this, you are sharpening your saw! If you have ever tried to cut something with a dull saw, you know that it takes a lot of work and a long time to get the job done. Keeping your saw sharp is time well spent.

Sharpening your saw means to continue learning and finding new inspiration to get the most from your money. Frugal people tend to seek out ideas on saving money from blogs, podcasts, books, and by talking with other frugal friends. Reading about the financial success and failures of others can provide inspiration to keep your goals firmly in mind and on track.

This article is from Dr. Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website.

To view the original article click here:

By Bill Bischoff

A 401(k) can be a glorious thing, but let’s not forget that these plans are regulated by government bureaucrats. That means they are rife with rules and regulations. Here are answers to some of the more common questions we get about 401(k)s.

How much can I contribute?

For 2016, the cap for salary-reduction contributions is generally $18,000. But that’s not the only limit. The total amount contributed by both you and your employer can’t exceed $53,000. If, however, you’ll be age 50 or older by the end of the year, the contribution limits are higher: $24,000 and $59,000 respectively. That said, if you’re a “highly compensated employee,” your contributions could be limited to lower numbers, regardless of your age. (See next question.)

I’ve been labeled a “highly compensated employee.” What does that mean?

According to the 2016 rule book, that means you make more than $120,000 a year. The IRS doesn’t want 401(k) plans to favor a company’s top brass. Consequently, employers must make annual assessments to ensure that their highly compensated employees (HCEs), like you, aren’t contributing a far greater percentage of their salaries to the 401(k) plan than the rank-and-file workers. So if the employees who earn less than $120,000 a year at your company are contributing to the 401(k) plan at a lower rate than HCEs like you, expect your contribution limits to be lowered.

Should I roll over my 401(k) from my old employer to my new employer’s program or into an IRA instead?

There aren’t a whole lot of reasons to roll your 401(k) into another 401(k) instead of rolling the funds into your own IRA. The main exception is if you want to be able to borrow from the account. Most 401(k) plans allow you to borrow from the account (potentially up to $50,000), while this is strictly forbidden for IRAs. More on this issue later.

Rolling your 401(k) into an IRA instead should give you significantly more control over the money. That’s because you can pretty much invest it how you see fit. After all, there are thousands of mutual funds out there, while the average 401(k) plan only offers a few investment options. Unless you feel strongly about having all your retirement account money in one place, a good strategy is to roll your old 401(k) into a self-directed IRA and then contribute as much as you can to the 401(k) at your new job. Even if the new plan is worse than your old one, you don’t want to forsake the benefit of pretax contributions and the company match.

No matter what, though, make sure you do a direct trustee-to-trustee transfer when rolling over your 401(k) account into another company plan. That way, you avoid automatic 20% withholding for federal income tax.

How long can a company legally hold onto contributions until they are deposited in my account?

Legally your employer must deposit your money no later than 15 business days after the end of the month. This means that it could take as long as six weeks from the time the money is withdrawn from your paycheck before it turns up in your 401(k). Think your employer is doing something fishy? You can file a complaint with the Department of Labor.

Can I borrow from my 401(k)?

Most plans do allow you to borrow from your 401(k). And it can be tempting. (After all, you’re borrowing from yourself.) You can generally borrow half your vested balance or $50,000, whichever is less. But think long and hard before tapping this nest egg. Employers often halt your match while a loan is outstanding. And if you get laid off, fired or leave the job for any other reason, chances are that that loan is going to be called in, and fast. What happens if you can’t repay the loan? You’ll owe income taxes plus a 10% early withdrawal penalty if you are under age 55.

At what age can I tap my 401(k)?

Generally speaking, you have to wait until age 59 1/2 to tap your account without getting hit with the 10% early-withdrawal penalty. But if you’re age 55 or older and you permanently leave your job, then you can begin tapping it immediately without owing the 10% penalty. This is called the “separated from service” exception. It doesn’t matter if you quit, retire or are fired. In fact, you could even begin working someplace else. But remember: Even when the 10% penalty doesn’t apply, you’ll still owe income taxes on your withdrawals.

What are hardship withdrawals?

Under certain circumstances, some companies will allow you to permanently withdraw money from your 401(k), even without leaving your company. But unless you really, really have to, it’s a bad idea. That’s because you’ll generally owe income taxes plus a 10% early withdrawal penalty if you are under age 59 1/2. A company can determine its own definition of “hardship,” but many use what are called the “safe harbor rules” which allow withdrawals for the following reasons:

To pay medical expenses
To cover the down payment or to avoid eviction or foreclosure on your primary residence
To pay college tuition
To cover funeral expenses for a family member

To view the original article click here:

By Michael DeSenne, April 18, 2016

Moving into a tiny home can be uniquely appealing to certain retirees who are seeking to downsize their lives in a big way. After all, compared with a traditional full-size house, a tiny home is more affordable to purchase, less expensive to live in and easier to maintain. Plus, the limited space compels you to declutter. Incidentally, there’s no rule that dictates just how tiny a tiny home needs to be. If you’re accustomed to more space and want to hang on to more stuff, spring for a tiny home with extra square footage.

For those thinking about — or willing to think about — living in a tiny home in retirement, here are some of the most important design features to consider:

Main-floor bedroom. Leave the lofts to those who are younger and nimbler. Not only does going up and down a ladder increase the risk of falls, but it also increases the strain on already achy joints. Tiny Home Builders, based in DeLand, Fla., lists a Tiny Retirement single-level floor plan that accommodates a full bed (or pull-out sofa), a kitchen, a bathroom and storage, all in less than 200 square feet.

A full bath. Ideally, it should come equipped with a raised toilet — typically a couple of inches taller than a standard toilet — for comfort and a walk-in shower for safety. The “Tiny Retirement” model has a 36-by-36-inch standing shower, the same width you’d find in a full-size home. Grab bars in the bathroom can cut the odds of slipping on wet floors. So, too, can slip-resistant flooring.

Easy-to-reach storage. Loft storage is fine for things you rarely need to retrieve, such as holiday decorations. If you require an occasional hand pulling down those items, ask a friend or family member to stop by. But closets and other storage areas that you access daily shouldn’t involve the use of a ladder (or awkward stooping or stretching, for that matter). A friend or family member won’t be around every time you need to reach clean socks or a spare roll of paper towels. Built-in drawers beneath beds and sofas are among the clever storage solutions found in tiny homes.

Accessibility. You might be active and healthy when you move into a tiny home, but age catches up with everyone. Build low to avoid steps, if possible. If not, consider a ramp for the entryway. Henry Moseley, president of Home Care Suites, in Tampa, Fla., says his company takes into account aging in place when it builds its small cottages. (Moseley prefers the term “cottage” because his small structures are built on permanent foundations in backyards, unlike portable tiny homes that can be hauled around by trailer.) Moseley says his small cottages, which start at 256 square feet, include wide doorways and low-threshold showers to accommodate wheelchairs.