Bring Clarity to Your Finances™

Clarity Financial Planning Services is an advocate for your financial future who takes a holistic approach to your needs and goals.

Don’t Stop Your Retirement Before It Starts

Kiplinger.com outlined retirement killers that could get in the way of you really enjoying life after working hard for so many years and they include:

Not putting your plan on paper: The article observes that many people are terrified of running out of money in retirement but just as terrified of writing out a plan for their money. They live with the fear as they wing it through retirement. With no idea of how much you have coming in, how much you are spending, and how long you can expect that money to last, you may be putting yourself on a path to make your fears a reality. 

Perhaps some people are afraid that if they put an income plan in print, it will be set it stone. The article says, “A written income plan is like a compass: If you use it correctly, you’ll always know where you are and where you’re going.” You will need to make changes to your plan, but you would do better to have one instead of just seeing what happens.

Being too frugal: There is something finite about retiring and some people worry about spending too much, so they don’t spend anything. To avoid seeing a dip in their retirement savings, some retirees don’t spend much at all. They stay in, don’t travel, and eat small meals. However, the article points out that this strategy could mean that “…20 years into retirement, they turn 85 and realize as time has ticked away, they haven’t done a thing.” Rather than have all of your retirement funds in one pot, you can allocate one part for living in the now and another part that is less liquid for down the road. This really is not very different from what people do when they are working.

Giving it away to the kids: Adult children who depend on older parents (when they do not need to) can drain away retirement savings. On the other end of the spectrum are parents who want to give their heirs some money early and then find themselves without enough to live on in retirement. Kiplinger.com brings out the “put your mask on first” metaphor that we all have heard but may forget to put into practice. Before supporting your children or gifting them sizable sums of money, make sure that you have sufficient money set aside to last you through retirement.

Details About the 2021 Child Tax Credit

By now, you are probably aware that under the American Rescue Plan parents with children are eligible for a tax credit that will arrive in the form of monthly checks or deposits that they will receive for the rest of the year. Kiplinger.com offered some specifics about the July to December child tax credit payments since because it is not as simple as it sounds.

For one thing, it is not just payments that are being given; it is a tax credit. Rather than have people who are in financial distress wait until they file taxes next year to get they relief, the government decided to offer up to half of the credit via monthly payments for the rest of 2021.

As much as we all welcome more money, there may be situations in which the tax credit payments will not improve someone’s financial outlook because of overpayment—

>> If you think you are doing well financially and would prefer to get the entire tax credit on your 2021 taxes.

>> If your income increased in 2021 (since payments are based on 2019 or 2020 taxes).

>> If you are divorced and claim your child on your taxes every other year.

>> If your adjusted gross income exceeds certain amounts, you will be expected to pay the government back if you receive too much money. (Others whose income is under certain thresholds will not have to pay back any overpayments under a “safe harbor” rule.)

If you think that you may be in the group that would receive overpayments, the IRS has an online tool you can use to opt out of these payments. That way you can take the complete tax credit on your 2021 taxes. Also important to know: each individual in a married couple must opt out of receiving the payments. If only one spouse opts out, the household will still get one-half of the payments the couple would have received.

Read Credit Card Agreements Carefully

When we decide to use credit cards, we are almost always required to sign an agreement…and some of us don’t even read what is in these agreements. However, whether you skim or review each part carefully, you still may not fully understand the agreement you are making with the credit card company.

News Center Maine spoke with a credit counselor who said that even she was confused by the fine print in a complicated credit card agreement. After taking advantage of a 0% financing offer, she paid the card off before the promotional year ended and when she went to use the card again, a retailer told her the account was closed for non-use…except it wasn’t. When she contacted the credit card company, they told her the account was still open and that the purchase she had just paid for herself was on the account. She was able to straighten out the issue but someone who didn’t follow up may have paid twice (with interest!) for the same item.

Even if you don’t read every word in a credit card contract, you should still be aware of some of the most important stipulations when you sign up for one.

Know your deadlines and time limits: You need to be clear how long special offers like 0% interest rate will last. And take note of how much time there is to make payments before you start to accrue interest.

Understand your APR (Annual Percentage Rate): If the APR is fixed, it will remain the same. However, if you sign on for a card with a variable APR, the changes to the interest rate on your credit card are beyond your control. 

Know that in general, the lender has the upper hand: You are signing an agreement with a credit card company that they have composed, and they are going to set things up to their advantage. As the women interviewed by News Center Maine learned, a company can close you credit card for any number of reasons (and they won’t necessarily notify you because that topic was probably included in the agreement you signed.) It is up to you to make sure you reap the benefits you want from a credit card. 

Individuals and Industries Need to Work to Increase Retirement Savings

Earlier this year, Yahoo! Money looked at the results of the Retirement in America report from PwC and found that people in the U.S.seriously lack retirement savings. Twenty-five percent of Americans do not have any retirement savings and those that do are not saving enough. Younger people were the least likely to save for retirement, since 42% of 18-to-29-year-olds do not have any savings. Still, the 13% of people over 60 who do not have retirement savings is a cause of concern for financial experts.

An expert told Yahoo! Money that people who are saving some money for retirement might have enough to give them about $1000 per month once they stop working. This estimate was based on the findings that “…the median retirement account balance for 55-to-64-year-olds is $120,000. When divided over 15 years, that would generate a modest distribution of less than $1,000 per month…”

If you are fortunate enough to have steady income and can save for retirement, this is something you need to start doing right away (if you are not doing so already). Do not wait until after you take a vacation or make some large purchase. Start to build your retirement fund now. 

Those who work and conduct financial research know that the industry has room for improvement as well. Workers would benefit if there were ways to apply technology to their financial goals. You get reminders about everything else, why not get notifications and reminders about saving for retirement? There also needs to be more ways for people who work for small businesses to save for their golden years. Employees of large companies have plans that their employers set up. An expert quoted on the article thinks that small businesses should pool resources so their employees can have the same kinds of benefits.

Whether your employer offers a comprehensive retirement plan or not, there is nothing stopping you from getting the information you need. Get in touch with a Fee-Only financial planner who can offer personal guidance about saving for retirement.

Getting an Education in Finance In or Outside of School

Students in U.S. schools already had uneven access to financial education before the pandemic began last year. The fact that many school systems ended in-person learning in favor on virtual school threatened to make it even more difficult for students to get a handle on financial planning in academic setting but some schools found ways to adapt.

 CNBC.com discusses this in “The pandemic has upended personal finance education in schools.”  While one teacher they interviewed was unable to have the financial expert who usually comes in to help teach finance classes be there in person, another found it was easier to get guest speakers to appear in class via Zoom than it had been to arrange for a guest speaker to visit a physical classroom. That same teacher who was able to get experts into her classes via Zoom also found that her children were interested in learning more about finances. She was teaching at home and her children were also attending school at home so they were aware of her lessons and ended up getting their own custodial investment accounts.

The other part of this is that while some schools have found that it was challenging to hold students’ interest with lessons in finance delivered online or through a hybrid system where the teacher is teaching students in-person and online, there are many students learning more about money management from real life. Some are reading and seeing news about the how the pandemic changed the economy and personal finance. Others may be living out these lessons as the pandemic changed their family finances (for better or for worse).

The upending of our customary way of life has lessons for everyone. Many adults have had to go back to the basics of budgeting and building an emergency savings fund. Some families have learned how to barter. Others have benefited from the generosity of neighbors. The pandemic has highlighted the fact that many people do not understand money management basics but there is still time to learn. If you would like help in creating a plan and a roadmap for your financial future, contact a Fee-Only financial planner.

Guidelines for an Emergency Fund

Perhaps you had to tap into your emergency fund during the past year or so. Or maybe the uncertainty surrounding the pandemic has you thinking that it is time to start an emergency fund. Real Simple offers “5 Rules for an Emergency Fund That Will See You Through (Almost) Anything.

You might wonder why you even need “rules” for an emergency find but guidelines can help you as you try to save enough to keep you afloat should you need it.

The conventional advice from financial experts is that your emergency fund should cover 3 to 6 months of expenses. For some people the thought of saving enough to cover what they need to spend in half a year is daunting. You can start with trying to save enough to cover one month of expenses and then keep going.  Expenses include: housing, bills, travel expenses for everyday commuting, and food. The article points out that while it may be tempting to raid your emergency find for something fun like a vacation, you really need to leave that money alone because you don’t want to have nothing for unexpected expenses or little left to cover you if you lose your job.

Some people know that they have a difficult time not spending and consider investing their emergency fund. Investing the money would keep it out of reach but you really need to make sure that you can get to your emergency fund. If it is invested, you will not be able to access the money right away should you need it. As the article observes, “You do want to make sure that money isn’t at any risk (as it would be in the stock market, for example). CDs, low-risk investments, Roth IRAs, and the like are all popular picks for emergency fund storage…” A savings account will  also give you quick access to your money but not just any savings account. You can find a high-interest savings account so that your money is working for you as you leave it unused.

Investing Lessons from a Fun Sport

In “What Pickleball Can Teach You About Investing,” Jacob Schroeder, writing for Kiplinger.com, demonstrates how you can apply everyday lessons to your investing and financial planning…if you pay attention.

Photo by Joan Azeka on Unsplash

Pickleball isn’t tennis but it has some things in common with tennis. In pickle ball, the players use paddles to hit a small plastic ball over a net. And if you didn’t know, pickleball is popular with retirees. There are pickleball tournaments at community centers and most players are in their golden years. The author of this article played the sport outdoors as a way to get some recreation and follow pandemic precautions. The writer warns pickleball players to be mindful of risks, just as investors need to be aware of what is at stake. Any sport can cause injury. The plastic ball used in pickleball is much lighter than a tennis ball, and this is one factor that makes the game good for certain retirees. The same goes for investing: you do have to consider your age. A Fee-Only financial planner can help you create a plan for investing that suits your age and other personal factors.

Schroeder compares the fact that pickleball mixes elements of three sports (badminton, ping pong, and tennis) to having a diverse investment portfolio. Sometimes combinations can lead to better results. Retirees could play any one of the three sports mentioned but they are drawn to pickleball because it combines elements of all three.

The price of entry into pickleball is low; you do not have to spend a lot of money to play. The article also says that investing should not cost a lot. If there are cumbersome fees and trading costs, it is not as fun and there are diminishing returns.

The writer says he is not sure what it took so long for him to try pickleball since it is not a complex sport. He admits that investing isn’t as simple as pickleball but he addresses hesitancy. People who are waiting for just the right time to invest are missing out as he missed out on playing a fun sport.

He also says that “Chasing after an errant whiffle ball that takes an unexpected turn midflight or an unusual bounce is a waste of energy.…it’s better to follow a game plan and ignore the occasional fluke. Likewise, the market can move wildly on any given day.” and that you should not let that get you off track.

Turn to a Fee-Only Financial Planner When You Inherit

When someone uses financial planning services to transfer money or assets to beneficiaries, that is a wealth transfer. Many people believe that in the United States we will see a great wealth transfer as Baby Boomers age and leave money for those who are younger. “The impact of inheritance” on Vox.com ponders whether the anticipated wealth transfer will be enough to help a number of Americans maintain middle-class status.

Author Meredith Haggerty writes, “….a transfer of wealth can be a lot of things: freeing and stifling, a relief and a burden, a windfall and a pitfall. It depends on one’s circumstances, which is really just to say that it depends on a person’s family, and their money.” She interviews a number of people who have inherited money and/or assets and finds that their emotions surrounding this gain are more complicated than one would imagine. In some cases, people feel guilty about their inherited wealth. In other instances, no matter how the person may feel, the additional assets create strain because of the complex tax laws in the United States.

For example, Haggerty spoke with a tax professional who concluded that one of the women interviewed for the story had misinterpreted how tax law applied to her situation. By agreeing to be interviewed for the story, the woman gained access to knowledge she might not have had otherwise. The writer was seeking an expert opinion to add in her reporting. However, she also understands that people like the woman she interviewed who had inherited a house with her siblings might be reluctant to seek expert help if they believed that it would be costly.

Please do not try to figure out how to handle an inheritance on your own. Find a way to get expert advice. Even if the person who left you money or property had expert estate planning assistance, you will also need expert help to manage your inheritance. A Fee-Only financial planner can aid you. If you feel a lot of emotions about being a beneficiary, you could use the neutral counsel of a financial advisor who does not receive commissions for their recommendations.

← Previous Entries