Too many focus on immediate needs versus saving for retirement

American workers find it difficult to save for retirement because their distant financial needs tend to take a backseat to more immediate economic concerns, even if they have their day-to-day finances under control or are financially literate, according to a study by the Center for Retirement Research at Boston College.

In the issue titled: “Are Americans of All Ages and Income Levels Shortsighted About Their Finances?” researchers Steven A. Sass and Jorge D. Ramos-Mercado analyzed the results of a FINRA Investor Education Foundation survey to determine how Americans balance the need for long-term saving with their current financial concerns. The survey sample included 9,473 households in which the main respondent was between the ages of 25 and 60.

The Study

To examine the question of whether the financial assessments of workers at all income levels are shortsighted, the study created three age groups (25-34, 35-50, and 50-60) and divided each age group into terciles (three groups) based on household income, adjusted for household size.

The study looked at the respondents’ answers to questions about how satisfied they are with their personal financial condition, and about the extent to which they are able to meet specific day-to-day and distant financial needs.

The indicators used for day-to-day problems were “difficulty covering expenses,” “heavy debt burdens,” “unemployment,” and “inability to access $2,000;” while the indicators used for distant problems were “no retirement plan,” “no life insurance,” “no medical insurance,” “mortgage underwater,” “not saving for college,” and “concern about repaying student loans.”

Financial Problems Varied More by Income

Not surprisingly, the analysis showed that the incidence of financial problems varied much more by income than it did by age, as deficiencies were much more prevalent in lower- than in higher-income households.

For example, the findings indicated that 80% of households in the bottom income tercile, but only 33% of households in the top income tercile, reported that they were have difficulties covering expenses.

However, the results also showed that among respondents of all income levels and age groups, having problems with day-to-day expenses was associated with large statistically significant reductions in financial satisfaction, whereas the relationship between financial satisfaction and distant problems was much more muted. Among the distant problems, only not saving for college and not having medical insurance were associated with statistically significant reductions in satisfaction in all three age groups.

The findings further indicated that the relationships between financial assessments and specific deficiencies varied much less by income than they did by age, with people of different ages having different concerns.

For example, the inability to access $2,000 and the inability to repay college loans were associated with much larger reductions in satisfaction at younger ages, whereas having heavy debt burdens and an underwater mortgage were associated with greater reductions in satisfaction at middle and older ages.

Financial Planning Matters

The major exception to this pattern was in the area of retirement planning: the results indicated that there was no relationship between having no retirement plan and financial satisfaction among workers in any age group, and that having no retirement plan was associated with a statistically significant reduction in financial satisfaction among respondents in the top income tercile only.

Sass and Ramos-Mercado concluded that Americans of all ages and income levels appear to be shortsighted about their finances. The authors therefore recommended that steps be taken to make it easy and automatic for households to save enough to secure a basic level of financial well-being in retirement.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by RSW Publishing.

LPL Tracking # 1-05056219

Matching your tolerance for risk with your investment objectives

 

Everyone wants a comfortable retirement, but the road you take there will depend on your specific situation. When you invest, you assume a certain level of risk (but like everyone you’re hoping that your holdings will increase in value).

One of the most challenging aspects of investing involves matching your tolerance for risk with your investment objectives.

Beyond Your 401(k)

Have you taken the time to really project the amount of money you may need in retirement? While setting aside a percentage of your income in a 401(k) is an important step, chances are you will need more than current limitations may allow you to save. Most people supplement their employer-sponsored retirement benefits and Social Security income with personal investments. In order to develop a fitting plan, you need to have your goals in sight.

In 2022, your elective deferral (contribution) limit for your 401(k) is $20,500. If you’re age 50 or older, you may save an additional $6,500. While the contribution often rises in upcoming years and your employer may match contributions above this limit, will your employer-sponsored plan allow you to save enough? Cast your net as far as possible—can you contribute to your 401(k) and afford to invest in other opportunities? Increasing your savings rate now may help you later.

Asset Allocation and Diversification

Are you an aggressive, moderate, or conservative investor? Your answer probably depends in large part on your stage in life and your financial resources, and will most likely change over time.

Aggressive investors tend to have a longer time frame—as many as 35 years or more to save and invest until they reach retirement—and a greater capacity to withstand loss. For example (the following percentages will vary greatly by investor and their definition of the terms aggressive and conservative investments), stocks may account for 85% of a relatively aggressive portfolio compared to 40% for a more conservative portfolio. As investors near retirement, their asset allocation strategies generally change to account for lower risk tolerance and an emphasis on income over growth.

With a 401(k), you become responsible for managing your portfolio, not your employer. While one aspect of a retirement savings plan is investing for the long term, it is still important to stay involved and make adjustments as needed. Choosing to be an active money manager rather than a passive investor can help you maintain the appropriate allocation strategies and pursue your long-term goals.

Remember that it may be important to diversify within asset categories. For example, spread your equity investments among large-cap, mid-cap, and small-cap stocks, as well as vary your fixed-income investments with different types of bonds and cash holdings. The diversification strategy you choose for your 401(k) should complement your strategies for investments outside of your retirement plan.

Tax Considerations

Because retirement plans offer tax benefits, they carry certain restrictions, such as when withdrawals can be made without penalty. While funds in a 401(k) are made with pre-tax dollars and have the potential for tax-deferred growth, withdrawals made before the age of 59½ may be subject to a 10% Federal income tax penalty, in addition to the ordinary income tax that will be due.

Some 401(k) plans are featuring the Roth 401(k) too. If your employer offers this option, you may be able to designate all or part of your elective salary deferrals to a Roth account. Although contributions are made with after-tax dollars, earnings and distributions are tax free, provided you have held the account for five years and are at least 59½ years old when you access funds.

If you’re looking to save specifically for retirement, in addition to your 401(k), consider a Roth IRA, which allows earnings to grow tax free. While contributions are made with after-tax dollars, your withdrawals will be tax free provided you are older than age 59½ and have owned the account for five years. Early withdrawals may be subject to a 10% Federal income tax penalty, unless you qualify for an exemption. Certain income limits apply.

Taking advantage of the tax benefits retirement arrangements offer is a valuable strategy, but also consider building more liquidity and flexibility into your overall savings and investment plan. In the event you need access to funds before retirement, have a contingency plan such as an emergency cash reserve and relatively liquid investments. However, keep in mind how accessing savings in the short term will affect your long-term goals.

As you look toward retirement, consider increasing your overall savings rate, maintaining appropriate asset allocation and diversification strategies, and planning for taxes. Over time, your investments will inevitably be affected by legislative reform and market swings, but with a long-term outlook and continued involvement you are better positioned to manage the fluctuations and changes to work towards your objectives.

Investment returns and principal values will change due to market conditions and, as a result, when shares are redeemed, they may be worth more or less than their original cost. Past performance is no guarantee of future results.

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Asset allocation does not ensure a profit or protect against a loss.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

This article was prepared by AdviceIQ.

LPL Tracking #1-05306507

September is self-improvement month and a great time to work on your financial health. When you think of self-improvement, you likely think of your health or career but may pay little attention to your finances. Getting your financial health in order may help alleviate stress and give you some breathing room to improve your life in other ways. Below are a few simple tips that may help improve your personal finances so that you may move on to other important areas of self-improvement.

Trim Down Your Monthly Bills

One of the biggest complications with finances is having more monthly bills than your income can cover. Consider reducing unnecessary expenditures. Start by creating a detailed budget with all of your monthly bills in the order of most to least important. Make sure you include allotments for clothing, food, and savings. Then, determine how much money you will receive each month. If you don’t have enough to cover all of your bills, draw a line through where your income runs out and see if you can cut down the bills for less important things. If you have enough income to cover all your bills, look at your least important expenses to see if some are worth eliminating to add more to your savings.

Tackle Your Debt

Another potential financial headache is having a significant amount of debt, especially when it seems to grow larger instead of smaller. Come up with a plan to pay down your debt as quickly as possible so that you may use the savings on interest for more important matters. There are two methods to try. The first involves tackling the debt with the highest interest rates and moving down the list paying off each debt as you go. The second option is to pay the smallest debt off first and use that payment amount as an added payment to tackle the next largest one, snowballing it until all of your debt is gone.

Make Savings a Priority

Saving is part of planning for your future and also may be needed for unexpected emergencies. Make sure that you set aside money each month towards savings, whether you need it to grow an emergency fund, save for education, or plan for your retirement. Once you set an amount to put aside each month, work it into your budget so you make it a part of your regular monthly allocations.

If you are looking for other ways to improve your finances, LPL Financial is here to help. Contact one of our experienced financial professionals today to find out ways that may help get your finances back in shape.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

LPL Tracking #1-05164155

Sources

https://www.thebalance.com/get-control-of-finances-2386026

Why do so many people never obtain the financial independence that they desire? Often it’s because they just don’t take that first step— getting started. Besides procrastination, other excuses people make are that investing is too risky, too complicated, too time consuming, and only for the rich.

The fact is, there’s nothing complicated about common investing techniques, and it usually doesn’t take much time to understand the basics. One of the biggest risks you face is not educating yourself about which investments may be able to help you pursue your financial goals and how to approach the investing process.

Saving versus investing

Both saving and investing have a place in your finances. However, don’t confuse the two. Saving is the process of setting aside money to be used for a financial goal, whether that is done as part of a workplace retirement savings plan, an individual retirement account, a bank savings account, or some other savings vehicle. Investing is the process of deciding what you do with those savings. Some investments are designed to help protect your principal — the initial amount you’ve set aside — but may provide relatively little or no return. Other investments can go up or down in value and may or may not pay interest or dividends. Stocks, bonds, cash alternatives, precious metals, and real estate all represent investments; mutual funds are a way to purchase such investments and also are themselves an investment.

Note : Before investing in a mutual fund, carefully consider its investment objectives, risks, charges, and fees, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing.

Why invest?

You invest for the future, and the future is expensive. For example, because people are living longer, retirement costs are often higher than many people expect. Though all investing involves the possibility of loss, including the loss of principal, and there can be no guarantee that any investment strategy will be successful, investing is one way to try to prepare for that future.

You have to take responsibility for your own finances, even if you need expert help to do so. Government programs such as Social Security will probably play a less significant role for you than they did for previous generations. Corporations are switching from guaranteed pensions to plans that require you to make contributions and choose investments. The better you manage your dollars, the more likely it is that you’ll have the money to make the future what you want it to be.

Because everyone has different goals and expectations, everyone has different reasons for investing. Understanding how to match those reasons with your investments is simply one aspect of managing your money to provide a comfortable life and financial security for you and your family.

What is the best way to invest?

• Get in the habit of saving. Set aside a portion of your income regularly. Automate that process if possible by having money automatically put into your investment account before you have a chance to spend it.

• Invest so that your money at least keeps pace with inflation over time.

• Don’t put all your eggs in one basket. Though asset allocation and diversification don’t guarantee a profit or ensure against the possibility of loss, having multiple types of investments may help reduce the impact of a loss on any single investment.

• Focus on long-term potential rather than short-term price fluctuations.

• Ask questions and become educated before making any investment.

• Invest with your head, not with your stomach or heart. Avoid the urge to invest based on how you feel about an investment.

Before you start

Organize your finances to help manage your money more efficiently. Remember, investing is just one component of your overall financial plan. Get a clear picture of where you are today.

What’s your net worth? Compare your assets with your liabilities. Look at your cash flow. Be clear on where your income is going each month. List your expenses. You can typically identify enough expenses to account for at least 95 percent of your income. If not, go back and look again. You could use those lost dollars for investing. Are you drowning in credit card debt? If so, pay it off as quickly as possible before you start investing. Every dollar that you save in interest charges is one more dollar that you can invest for your future.

Establish a solid financial base: Make sure you have an adequate emergency fund, sufficient insurance coverage, and a realistic budget. Also, take full advantage of benefits and retirement plans that your employer offers.

Understand the impact of time

Take advantage of the power of compounding. Compounding is the earning of interest on interest, or the reinvestment of income. For instance, if you invest $1,000 and get a return of 8 percent, you will earn $80. By reinvesting the earnings and assuming the same rate of return, the following year you will earn $86.40 on your $1,080 investment. The following year, $1,166.40 will earn $93.31. (This hypothetical example is intended as an illustration and does not reflect the performance of a specific investment).

Use the Rule of 72 to judge an investment’s potential. Divide the projected return into 72. The answer is the number of years that it will take for the investment to double in value. For example, an investment that earns 8 percent per year will double in 9 years.

Consider whether you need expert help

If you have the time and energy to educate yourself about investing, you may not feel you need assistance. However, for many people — especially those with substantial assets and multiple investment accounts—it may be worth getting expert help in creating a financial plan that integrates long-term financial goals such as retirement with other, more short-term needs. However, be aware that all investment involves risk, including the potential loss of principal, and there can be no guarantee that any investment strategy will be successful.

Review your progress

Financial management is an ongoing process. Keep good records and recalculate your net worth annually. This will help you for tax purposes, and show you how your investments are doing over time. Once you take that first step of getting started,you will be better able to manage your money to pay for today’s needs and pursue tomorrow’s goals.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

This article was prepared by Broadridge.

LPL Tracking #1-181495

Baby Boomers — those born between 1946 and 1964 — hold about $20 trillion in wealth¹. Over the next few decades, many Boomers may transfer this wealth to their Gen X, millennial, and Gen Z children, perhaps incurring a hefty tax bill. Here are some ways to handle multigenerational estate planning so that the generations after you may keep these assets in the family.

What is Generational Wealth?

As the name implies, “generational wealth” is the wealth that transfers from generation to generation. Think of “old money” families whose generational wealth allowed members of the younger generations to run for office, start businesses, invest in startups, and create family charities.

 How May You Build Generational Wealth?

Building generational wealth may come from various sources such as a job, a career, a business, or passive income like royalties or dividends.

After generating enough income to cover your monthly expenses, you might consider ways to use your extra income to build assets for a potential future source of wealth. Some income sources include:

• Investing in blue chip or dividend-paying stocks

• Purchasing rental real estate

• Creating something that pays royalties, like self-published books or a social media channel

• Starting a side business

The more sources and forms of income you have available, the more funds you may have to begin building generational wealth, even at a young age.

Multigenerational Estate Planning: Dos and Don’ts

There are a few “dos and don’ts” when planning an estate to create and hopefully preserve generational wealth.

✅ DO: Talk to a financial professional

Navigating the complexities of investing and tax implications might be tricky, and a single misstep may cost you dearly. Having a financial professional review your portfolio and recommend some options may help you save more now to provide more income later.

When it comes to building wealth, it is often not how much you earn but how much you keep. Your financial professional may help you manage tax efficiency for your assets, working toward the goal of preserving and reinvesting more of what you earn. These considerations may mean putting assets in a trust, or investing income in an individual retirement account (IRA).

✅ DO: Diversify your portfolio and assets

Investing in only a particular asset or sector may leave you vulnerable to market volatility. Suppose you depend on some of these funds to provide you with income in the future. In a downturn, you might sell assets at a loss to stay even. Diversifying your portfolio and managing over-exposure to any particular asset or sector may help avoid major market losses and hopefully help your portfolio maintain its value during periods of high inflation.

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Footnotes:

¹Millennials’ wealth more than doubled to over $9 trillion since the pandemic began, but Baby Boomers are still worth almost 8 times as much, Fortune, https://fortune.com/2022/03/22/millennial-wealth-doubles-during-pandemic-9-trillion-boomers

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by WriterAccess.

Although it’s not hard to find doom-and-gloom articles that bemoan many Americans’ lack of preparation for retirement, these don’t tell the whole story. One in three adults save for retirement outside their 401(k) in a traditional or Roth IRA, with 60 percent of adults reporting that they’re “confident” or “somewhat confident” about achieving their desired retirement lifestyle.1 What benefits can investors realize by contributing to an IRA?

What is an IRA?

An IRA, or individual retirement account, is an independent and portable retirement savings vehicle. Unlike a 401(k) or another employer-sponsored retirement account, which usually must be held with an employer-selected custodian and invested in a range of employer-selected funds, an IRA is entirely yours to manage. This means that you can move it to any custodian and invest it in any funds you’d like. In some cases, IRAs can even be used as seed money to invest in a business.2

There are two types of IRAs: traditional and Roth. Traditional IRAs have tax-deductible contributions (with some exceptions noted below), while the money used to fund a Roth IRA is contributed post-tax. As a result, a traditional IRA can be a great way to reduce your effective tax rate (and your total tax paid), while a Roth IRA offers tax-free growth and gains.

Why Should You Invest in an IRA?

IRAs can provide a valuable addition to your retirement portfolio. While many employer-sponsored plans can leave you stuck with high fees and limited offerings, brokerage firms and other IRA custodians often offer low-fee stocks, mutual funds, index funds, and exchange-traded funds. The lower your fees, the more money reinvested into your account.

What IRA Deadlines and Limits Apply in 2022?

In 2022, individuals age 49 and younger can contribute up to $6,000 to a traditional or Roth IRA, while those 50 and older can contribute up to $7,000. (Investors can also contribute to both a traditional and Roth IRA so long as the total contributions don’t exceed this limit).3

There are some exceptions to this contribution limit. For example, if you’re eligible to participate in a retirement plan at work, or if your income exceeds a certain threshold, you may not be able to deduct your total IRA contribution (which eliminates many of the incentives to contribute to such a plan). Roth IRAs are also subject to individual and household income limits—for instance, a single filer earning less than $129,000 could contribute up to the maximum to a Roth IRA, while that same single filer earning more than $144,000 could not contribute at all.4

As with any retirement savings vehicle, the most important ingredient to success is time. The sooner you open an IRA and begin contributing, the longer these funds will have to grow.

 

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Investing involves risks including possible loss of principal.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

LPL Tracking #1-05225848

Content Provider: WriterAccess

1 https://www.investopedia.com/articles/retirement/110116/6-surprising-facts-about-retirement.asp

2 https://guides.wsj.com/small-business/funding/how-to-tap-an-ira-or-401k-to-help-fund-a-start-up/

3 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

4 https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020