budget


We are now halfway through 2009. If you do not max-out your 401(k), 403(b) or other employer-sponsored retirement plans with the maximum contribution this halfway point in the year is good time to increase your contribution percentage to get you further towards that goal. Slowly increasing this by 1 or-3% of your pay one or two times a year will ease the decrease in take home pay so that you can easily adjust. This prevents abandoning increased contributions in the future.

Remember those that reach their retirement savings goals have a plan or a process to get there. If you are hesitant, then I suggest looking at the facts. Here is a great 401(k) online contribution calculator.  This should be utilized so you understand what the actual amount that will be taken out of your take home pay. Since 401(k) contributions are taken out of your pay before income tax is calculated, then you lower the amount of income on which you will be taxed. Fewer taxes will be taken out. The end result is that the extra 1% contribution, will decrease your take home pay by less than 1%. Look at it as your contribution is “on sale” just like your favorite brand of jeans.

Other times to increase your contribution until you are reaching the maximum include:

  • January 1
  • Your birthday
  • Date your raise becomes effective

Be sure to check with your employer-sponsored plan to see if you can enroll in an automatic increase program that will increase your contribution percentage for you. Life is busy and many of us will not remember to increase that percentage. These options automate the process of increasing your retirement savings for you! Send me a quick email at barbarakingnh@gmail.com if you have any questions.

If only our financial lives had glaring guiding stars in our daily journey. My grocery store is advertising that they are helping us eat better with the guiding stars. Between one and three stars appear below items to tell shoppers the nutritional value of a product (www.hannaford.com). Why shouldn’t my financial life have guiding stars? For the record, Hostess cupcakes and Ben and Jerry’s receive no stars. I thought dairy was good for me!

So here are my guiding stars on scale of 1-3 for your financial evolution, with 3 stars being things that will be the best for your financial evolution. It’s just a taste of stars, I’m sure I’ll add more at some point.

Aim for the stars.

3 stars

  • Understand your sustainable lifestyle expense. What do you need to live each month?
  • Laid off – rollover your 401k into an IRA with more investment options.
  • Determine how much you will need to retire and how the market turmoil impacts your retirement date.
  • Hold a state of your finances meeting with your spouse and write down your goals for the remainder of 2009.

2 stars

  • Determine if you need long-term care insurance.
  • Max out your 401k or retirement plan.
  • Go to work for a college so your kids tuition is free.

1 star

  • Refinance your mortgage to a lower rate.
  • Make an extra mortgage payment.
  • Consolidate credit card debt and work towards paying it off (read Dave Ramsey’s Total Money Makeover for another star.)
  • Work together as a family to reduce two ongoing monthly expenses .
  • Make one better financial choice each week. (Keep morning coffee and bring lunch!)

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated.

Yes, I said windfall. First it was daycare expenses, then traveling sports teams, tutors, computers and clothes. Finally it was time for the big expense. College. Wondering if you will ever retire? You are not alone.

The Baby Boomers are in a different place than previous generations. Families are attempting to save for retirement while dealing with exorbitant college costs, as well as the challenges (sometimes financial) of aging parents. This is coupled with trying to save for their own retirement, which unlike previous generations does not include a pension.

While this is a big dilemma for most couples, I focus on the absolutes.

Where you cannot impact change:

  • Cost of college and that you did or didn’t save enough for the expenses.
  • Developing issues with aging parents.
  • The downturn in the financial markets.
  • How much you have saved previously for retirement.

What you can impact:

  • How much debt you will personally take on to pay for college.
  • Children’s college choice.
  • What you can afford to do for take care of parents.
  • How you can load up your retirement savings once college is over.

These items, taken one by one are manageable. I am going to focus on the last one. How you can capture the true windfall available when the kids are out of college.

In order to put junior through college you’ve paired down on your own expenses, creating a lower sustainable living expense or developing a reduced budget. Once college is over if you continue to live at this lower sustainable living expense you can put all the savings you were putting towards college into your retirement savings.

  •  Junior’s college cost – $40,000
  • Junior’s financial aide – $20,000
  • Your contribution – $20,000

 Post college add this extra $20,000 to your existing retirement savings and suddenly you have a windfall. In five years you will have put away an extra $100,000. If you were contributing $30,000 a year that number jumps to $150,000. 

This opportunity for extra savings works because you are taking the discipline utilized to pay for college expenses to pay yourself for retirement. If you are not maximizing your 401(k), 403(b) or other employer-sponsored tax-deferred retirement accounts you have another bonus awaiting you. Now you can afford to maximize your 401(k) at a$16,500 maximum this year for those under age 50 and $22,000 for those over 50. This will reduce your overall taxable income and lower your taxes. 

If your 401(k) contribution is now $10,000 larger for your family in the 28% tax bracket, this represents a $2,800 reduction in taxes.  

Saving more and reducing your taxes. It’s a win-win windfall. 

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

Last night at an event I was asked my opinion on the whether individuals should enter retirement with no mortgage.

I am in the camp that successful retirement plans have no mortgage. It is a function of cash flow. If you have no mortgage then you do not need to have your portfolio producing that extra income. Having no mortgage in retirement has a substantial impact on managing your monthly living expenses and projecting what you will need in nest egg.

A widely used reason to keep a mortgage is to keep the interest deduction. While I believe paying taxes is not our patriotic duty and like to minimize taxes, it has to be based on financially sound calculations. Keeping a mortgage to have a deduction just doesn’t work. If you keep a mortgage for a deduction you are going to keep paying thousands of dollars in interest to pay fewer taxes. I challenge you to execute the math.  

 Here is an example with some round numbers. You pay $10,000 in mortgage interest and you are in the 25% tax bracket, which gives you a tax savings of $2,500.

 The end result is you pay $10,000 in interest to have $2,500 refund. It is trading $1 for $0.25. The only one happy about this equation is the bank!

I want to stress that paying off a mortgage is only one part of a sound financial game plan for retirement. While I like no mortgage in a retirement plan, I also do not encourage you to put all your extra income into paying off your mortgage instead of investing. Each financial plan is specific to your goals, timeframe until retirement and investment tolerance. Don’t make this decision without looking at the entire picture and developing your game plan.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated. 

Check your withholding on your paycheck. On April 1 President Obama’s “Making Work Pay” tax credit went into effect with the goal of providing $400 tax cut to individuals and $800 to married couples. It was widely touted by the Obama Administration that the average American family will start taking home $65 more per month.

One little catch. This tax cut was delivered immediately by the IRS issuing new tax withholding tables reducing the amount of withholding from paychecks. The glitch is individuals making more $95,000 and couples making more than $190,000 are ineligible for the tax credit, but are still having their withholding reduced.

Also millions of Americans will have more withheld than they are entitled to under the credit, because the withholding tables do not take into account if you work more than one job or are a married couple where both spouses work. This extra tax credit will need to be repaid next year come tax time. So without making the choice you could be withholding less throughout the year and owe more come April 15, 2010. Surprise!

If you have nothing else to do and spend time on the IRS website like me you would find the IRS encourages using the new withholding calculator for those potentially caught in the glitch. The IRS even clearly defines who is at risk.

The following is from IRS.gov  – You should use this calculator to ensure that the reduced withholding will not result in having too little income tax withheld (possibly causing you to owe taxes next year) if:

  • You are an employee with two concurrent jobs,
  • You and your spouse both work, or
  • You can be claimed as a dependent on someone else’s tax return (since you are not eligible for this credit).

The other big impact group is those with non-government pension income, as your withholding was adjusted as well, but you are not eligible. This means you could owe more come April 15, 2010.

Here is the IRS statement for this group. From IRS.gov  – Pension income: Non-government pension income is not eligible for the Making Work Pay Credit, so we are in the process of updating the calculator to account for this. The update should be operational by late May. If you expect to receive a significant amount of pension income in 2009, you should use this calculator by early June so that you can adjust your withholding appropriately for the second half of the year.

One way to prevent this situation is to use the new IRS withholding calculator and adjust your withholding accordingly. Or call your accountant to see if you should add more withholding due to your tax bracket, job status or combined spousal income.

I guess it’s that saying is true. There is no such thing as free lunch.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated.

The spending trend of the country is changing to a saving trend. It is a core reaction to tough economic times. Cutting back is now all the rage.

 A large group of families and individuals do not understand where they spend money. With juggling family responsibilities who has the time? The people that make progress on savings goals and establish wealth, they make the time. 

It is all about choices

When helping clients understand expenses the discussion often starts with “We don’t know where the money goes or where we can find more to save?”  When they really assess how money is spent, opportunities for savings appear.  This enables progress on financial goals or a bridge through a tough financial time.  

 Making better choices  – It is not about giving up everything. Choices are daily decisions and compromises on where to spend money. Changing your language to “making choices” will help change your attitude towards reducing expenses.

Reducing expenses is choosing to keep your morning Dunkin Donuts coffee, but bringing your lunch. It is the choice between keeping snacks in the car or emergency stops at McDonald’s.

  •  Eating out – Make better choices of when and where you eat. Bistros to chain restaurants are offering deals, especially during the week.
  • Google  – Search for coupons codes before online shopping. www.retailmenot.com or www.momsview.com.
  • Mortgage– If you haven’t taken advantage of low mortgage rates, check out refinancing to save each month and thousands over the life of the mortgage.
  • Cars – Keep your car 1, 2 or 3 more years than planned.
  • Insurance – Shop around for auto, home and umbrella insurance with a broker. Brokers work with multiple companies and are paid to shop around for you.
  • Entertainment, Memberships, Subscriptions & Lessons – These small items add up. Select what your family really enjoys.

Advisory Services offered through Axiom Advisors, LLC. A registered Investment Advisor Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer member FINRA/SIPC Axiom Advisors, LLC and Cambridge Investment Research, Inc. are not affiliated.