Jacob Sensiba, Author at The Free Financial Advisor

How much do I need in retirement?

August 22, 2018 by Jacob Sensiba 5 Comments

Conventional advice tells you that, for retirement, you need $1 million to $1.5 million saved, or that you need 10 to 12 times your current annual salary.

For example, if you make $100,000 per year, you’ll need $1 million to $1.2 million saved for retirement.

Are these numbers and calculations good enough? Is there a better, more accurate way to figure out what you’ll need to save for retirement?

In this post, we’ll look into that and more.

Check out retirement calculators

There’s a huge number of them out there. I recommend trying a few different ones, that way you can compare and average out the numbers. They’ll ask you things like age, current savings, current income, future contributions, etc.

Here are a few of the better ones.

Using some or all of these calculators, you can probably get a good idea of where you’re at currently, how to improve, and where you’ll need to be at the end.

What are the factors?

There are a variety of different factors at play. You’ll have different expenses and different income levels, and some of those numbers won’t stay steady throughout retirement.

For example, a couple’s health care costs in retirement are said to be $275,000 (Source). However, not all of that will hit you in the first few years of retirement.

More than likely, you’ll have minimal costs in the beginning, and they’ll slowly increase as you age.

Where will you live?

This can be a huge variable in retirement. Its widely known that different areas of the country have a higher cost of living. San Francisco is more expensive than Lincoln, Nebraska.

Another important factor regarding your living situation is if you have a mortgage or not. No mortgage means fewer expenses, which is less going out of your pocket, and more that can be saved for the future.

Not having a mortgage can also give you some leverage. If you decide that your current home is too big and would like to downsize, you can use the proceeds from the sale of your previous home to, hopefully, buy your new one outright.

Living Expenses

We’ve talked briefly about health care expenses during retirement and we talked about housing. Without a doubt, these are the two largest expenses during retirement. There are a few more to consider, however.

Transportation – did you relocate? Or do you have family in other parts of the country? Transportation and lodging need to be taken into account when figuring out your expenses for retirement, especially if you’ll be traveling regularly.
Entertainment – you might be looking for something to fill your time. It could be filled with expensive hobbies or other activities. If you are looking for something to do, or are looking to start a hobby, be sure your budget will allow for it.
Remaining expenses – the leftover expenses are ones you deal with right now (food, clothes, utilities, bills, insurance, etc.)

A budget is just as important in retirement as it is now, if not more so. Keeping track of your expenses and your income is very essential to your finances during retirement.

You often hear people in retirement say they are on a fixed income. What that means is they have lost their ability to earn more money. What they have is it. If you are spending more than your savings and your income allows, you are setting yourself up for failure.

Income

Your income from retirement could come from a variety of places.

Social security – provided by the government. The normal advice regarding social security is that it shouldn’t replace more than 40% of your income. Meaning 60% should come from another place. Your monthly payout from Social Security does increase the longer you delay taking it, and the reverse is true if you take it early.
Pension – these are becoming less and less popular as time goes on. They were huge back in the day when workers would stay with one company until they retired, but because people switch jobs so often nowadays, employers don’t want to take the chance. If you have one, consider yourself lucky.
Retirement savings – more than likely, this is where the other significant portion of your income will come from. This is where having a financial advisor is beneficial because you have to use enough of your savings to afford your retirement, but not too much so you don’t run out of money. Tricky.
Other areas – there can be other sources of income during retirement. You could have some dividend or interest income from your investments, you could work part-time to stay active and earn a little extra, or you could possibly have a rental property or several.

If you want to learn more about where your income could come from in retirement, click here.

Wherever your income comes from, it’s important to coordinate effectively so you maximize your current income without jeopardizing your savings.

What will you do in retirement?

How you spend your time will also have a huge effect on your expenses.

If you plan on spending most of your time with your grandkids, retirement could be more affordable than if you planning on golfing a few times per week. Although it could quite possibly be much more expensive than golf, we all know how grandparents are with their grandchildren.

If money is tight and you are looking for things to fill your day, there are many free or low-cost activities available to you.

Volunteer – not only is this a free activity. You’ll feel useful, you’ll get to use your brain, and you’ll have a sense of community, all are shown to increase longevity.
Go to the park – take a walk, bring a book, or just interact with nature and the community.
Community center – not all municipalities have one, but go to your local community center or go to your municipality’s website. There you will find local events, most of which are free.
Discounts – most places offer senior discounts. If you aren’t offered one, make sure you ask for it. This really could save you a lot of money on activities, food, etc.

How long will you live

The most depressing point in this post, but one of the most important. Unfortunately (or fortunately, depending on how you look at it), no one knows how long we are going to live for.

One way to get a little indication, but not really, is your family history. If your grandparents or parents lived into their 80s, 90s, or 100s, the chances of you living a long life are a little higher.

On the flip side, if most of your relatives passed away in their 60s or 70s, your odds of living into your 80s and 90s are lower.

However, this really is no indication on how long you’ll live for. One of the most important things you can do for yourself is to live a healthy lifestyle. Take a walk once or twice per day, do something daily that will engage your mind, interact with friends and people in your community, and eat better.

The 4% Rule

You’ve probably heard this before too. Here’s what it is. Once you retire, you withdraw 4% of your retirement savings every year. This is considered a safe withdrawal rate, as the withdrawals would consist mostly of interest, dividends, and unrealized gains from your investments.

Let’s say you have $1 million saved for retirement. The 4% rule would allow you to withdraw $40,000 per year. All else staying the same, you have 25 years worth of withdrawals using this method. Be advised that no growth was factored into this calculation.

Conclusion

I suppose you’d like an answer to the question we proposed in the beginning. Here it is. It depends. It depends on your current and future expenses, it depends on where you’re income will come from, it depends on how much income you expect (outside of retirement savings), and it depends on how you live your life during retirement.

Most importantly, you need to work with a financial professional, ideally someone that specializes in retirement planning.

To learn more about retirement planning and for our disclosures, visit www.crgfinancialservices.com.

Are you taking on to much investment risk?

August 15, 2018 by Jacob Sensiba 4 Comments

Investment risk doesn’t apply to only a select few investments, it applies to everything because every investment has its own sets of risk.

Do you know what they are? Are there ways to avoid them, or at least limit how they affect you?

Let’s dive deep into this topic and learn more.

What is investment risk?

I suppose in its simplest form, investment risk is the chance that your investment will lose value.

If you have a stock or a bond, your investment could lose value. If you have cash, inflation could eat away at your purchasing power.

There are many other types of investment risk.

Types of investment risk

Interest rate risk – The chance that an increase or decrease in interest rates could affect your investment. This specifically pertains to fixed income investments, like bonds. Interest rates and price are inversely correlated, so if rates go up prices go down, and vice versa.
Business risk – This involves a particular security. If you are investing in a company’s stock, the chance of them going out of business and you losing some or all of your investment is the risk.
Industry risk – As you can imagine, this relates to an investment within a particular industry. There are industries that are affected as a whole by certain events. If oil prices drop, the energy industry will suffer. If the economy is booming, the consumer staples sector will underperform. If tariffs are levied on steel and aluminum, the automotive and industrials sectors will be negatively affected.
Credit risk – This relates to a debt issuers ability to make good on their obligations. If you invest in a bond that matures in 10 years, you are supposed to receive two payments per year, plus your principal in the tenth year. The chance that, that debt issuer can’t make those interest payments or pay you back the principal is credit risk. I should mention that there is also a risk to stock investors. When a company goes bankrupt, it has to pay back lenders, investors, and others, but there is an order to which people are paid back, and stockholders are last on that list.
Taxability risk – This refers to a municipal bond. If a muni bond is issued with tax-exempt status, the risk is that it could lose that status before maturity.
Call risk – The chance that an investment is called back. A callable bond is the most common example. More often than not, a company will issue and call back a bond if interest rates have lowered. The issuer is refinancing in a sense. They buy the bonds back in order to reissue them at a lower interest rate, and this will cost them less money in the long run. Fear not, however, because you have the added risk of your investment being called away, you are usually compensated with a higher interest rate.
Inflation risk – Essentially, how severely inflation could eat away at the purchasing power of your investment. Cash is most at risk because you are getting zero return and inflation at any level is costing you money. Stocks, historically, are the best investment to outpace inflation.
Liquidity risk – Your ability to sell your investment when you want to. Some investments trade more frequently, thus have higher liquidity. Stocks are a great example of an investment with high liquidity. An investment with low liquidity, depending on the market environment, is real estate, or physical items, such as precious metals, guns, or art.
Market risk – The risk that at any point in time your particular investment, whether it’s stocks, bonds, real estate, gold, etc. will lose value. Prices in all of those investments can and will fall at one point or another, and no amount of diversification can save you from it.
Geopolitical risk – Think war, terrorist acts, tariffs being levied on certain countries or products, etc. Geopolitical risk happens in your country or in other countries that yours is involved with. When 9/11 occurred, the NYSE and NASDAQ closed in anticipation of panic selling. On the first day of trading, the Dow fell 7.1% and closed the week down 14% (source). Heck, just this year the threat of tariffs has put investors on edge and increased volatility.
Currency risk – This usually affects people who have investments or business operations in other countries. If the value of a currency compared to the USD (U.S. Dollar) goes up, that could negatively affect the bottom line for businesses.
Mortality risk – The chance that you will die before fees, premiums, and payments will have been worth it. This usually revolves around insurance products, but could also relate to social security or money you’ve stashed away for retirement through the years. If you worked and saved for 30 years, but passed away in your sixties, and were unable to enjoy the fruits of your labor, that’s mortality risk.

Three asset classes and associated risks

There are many other asset classes and investments available, but these are the three that most people are associated with.

Stocks – Market risk, business risk, industry risk, credit risk, geopolitical risk.
Bonds – Market risk, business risk, industry risk, credit risk, geopolitical risk, inflation risk, interest rate risk.
Cash – Inflation risk

Diversification

Though not all risk can be diversified away, and you will take on some risk in every investment, no matter how careful you are, it’s important to diversify.

Each asset class and each investment have its own unique risks. In any portfolio, it’s important to diversify between stocks, bonds, real estate, cash, physical assets, and geographic location.

The allocation to each set of assets will vary depending on your risk tolerance. Traditionally, stocks are the riskiest of these but offer the most reward, then bonds, and then cash. Holding real estate and physical assets, like gold is just another way to diversify your assets. Gold, however, is usually a good investment to have when the market tanks, as it’s often referred to as a safe haven asset.

With regard to geographic location, the U.S. is only one-quarter of global GDP (source) and the U.S. stock market is only 43% of global market value (source) so you’d be silly not to invest money in other countries. Besides, if the U.S. market/economy tanks, not every country will follow.

Ways to Increase your Wealth

August 8, 2018 by Jacob Sensiba Leave a Comment

Wealth, what is it? In a sense, it’s your net worth. Net worth is your assets minus your liabilities.

For a comfortable retirement, you’ll want to see that number tick upwards over the course of your working career.

But how to do you increase your wealth? Are there certain strategies that work better than others?

Let’s take a deep dive into some strategies for growing your wealth.

Decrease Expenses

You want to increase your wealth, decrease your expenses. I can probably list several things you’re wasting money on.

Restaurant food
Drinks at the bar
Cable
Movies at the theater
Interest rate charges
Transportation
Clothing
Frivolous purchases

It’s easy to reduce costs here. Restaurant food and bars – stop going out so much. Cable – cut the cord and sign up for Netflix, Hulu, or go to the library.

Movies at the theater – buy the movie or rent it from the library. Interest rate charges – negotiate your rate, use a balance transfer, or eliminate your debt.

Transportation – use public transport, walk, or ride your bike. Frivolous purchases – wait at least a day before you decide to buy.

Earn More

Ask for a raise, bust your butt to earn a promotion, which usually translates to higher pay, start a side hustle, become a freelancer, etc. There are several ways available to increase your earning power:

Drive for Uber or Lyft
Become a Tasker on TaskRabbit
Get paid for your skills – UpWork or Fiverr
Here’s a list of the most popular side hustles – Budgets are Sexy.

Real Estate

Real estate is a great way to increase your wealth. One of the more popular ways to do this is through rental properties.

Do your homework when looking for properties, you’ll want to look at:

Location
School district
Real estate valuation
Property taxes
Community amenities
Current listings and vacancies
Natural disasters

If you find a good property, plan for a 20% down payment to avoid PMI. Once the rent starts flowing, you’ll find your wealth will climb. As you pay down the mortgage, the equity will increase, giving you more assets than liabilities.

Pay down debt

Debt is the number 1 detractor from building wealth. Not only does it prevent you from saving, investing, and/or acquiring assets, but you’re probably wasting money on interest payments.

You need to do what you can to get rid of your debt so you can start building wealth. As you pay off your debt, your wealth will increase because you will reduce your liabilities, which makes your net worth (aka wealth) go up.

In a general sense, there are five ways to help reduce your debt

Debt snowball – Payoff your lowest balance first. Pay the minimum to all of your other balances and pay the most you can towards your smallest balance. Once that balance is paid off, redirect that money to the next lowest balance, and so on.
Debt avalanche – Pay down your highest interest debt first. Pay the minimum to all of your other balances and pay the most you can towards your highest interest debt. Once that is paid off, redirect that money to your next highest balance.
Balance transfer – There are many credit card companies that will offer an interest-free balance transfer. Take advantage of this if you have a credit card balance with a very high interest rate. This will save a lot of money on interest payments.
Personal loan – Usually for credit card consolidation. Most credit card interest rates are crazy high. You get a personal loan to effectively lower your average interest rate. This will only work for you if you have decent credit, however, so do your homework.
Refinance – This applies to students loan and mortgages (well really any loan, but these are the most common). You refinance to lower your interest rate, and sometimes (as is the case with student loans) to consolidate.

Increase your savings rate

A very common problem in this country is that people aren’t saving enough. The average savings rate in the U.S. is around 3% (source). That is a far cry from what people really need to save.

So what we have to do is increase our savings incrementally. Start with the highest percentage of your income you can possibly save. If that 1% that’s fine. If it’s 10%, that’s fine too. Just do what you can.

From there, we will take a few months to get used to that extra 1% or 10% not being there. Once you are familiar with less money, bump that percentage up 1. And once you get used to that, bump it up again.

The key is to make small positive changes for a lifetime. A small change each day or week for the rest of your life? You’ll see HUGE results from this.

Utilize retirement accounts

Retirement accounts are awesome. It’s a very effective way to save for retirement.

Plans for individuals – Traditional IRA and Roth IRA (Here to learn more about these)

Plans for businesses – 401(k) and SIMPLE IRA are the two most common. (Learn more here and here).

All four of these vehicles give your retirement savings the ability to grow tax-deferred. Meaning you don’t pay taxes while the money is inside the account. Additionally, three of these four could help lower your taxable income.

The two business plans are contributed to with pre-tax money. More money in the retirement account means less being taxes. The traditional IRA is contributed to with post-tax money, but you could receive a tax-deduction IF you qualify.

Roth IRA you use post-tax money, don’t receive a deduction or a reduction in taxable income, BUT your withdrawals will be tax-free.

Please look at those links for all the information and rules for each plan.

Develop a “delayed gratification” mindset

Having a delayed gratification mindset is so important when planning for your future. Our default behavior is to do the things that make us feel good right now, but it’s almost always in our best interest to delay that good feeling for a better one down the road.

You want that ice cream cone, but it will be more beneficial to your future self if you forego it and eat something healthy instead. You’d like to buy a new video game, but it would behoove you to buy a book, a course, or invest it.

Improve Financial Literacy

If you want to grow your wealth, you have to know what you are doing. Learn about budgets, retirement plans, and investing. Learn about assets and liabilities, and the various ways you can make money work for you.

If you know how things work, it’ll make it easier for you to follow through.

Automate

Automation can play a vital role in your quest for growing your wealth. Set your bills to auto-pay. This allows you to focus on more important things.

Also, automate your savings. Have it done right away so you don’t have the opportunity to spend it. Go next level with this and set your savings to automatically increase every so often. You’ll save more without even having to think about it.

Invest in yourself

Ben Franklin once said, “An investment in knowledge pays the best interest.” If you want to get promoted at work, get paid more for your skills, or just want to improve your life, invest in yourself.

Read books, take courses, listen to podcasts, watch YouTube videos, or find a mentor.

There is so much knowledge out there and there are so many opportunities to improve your life. Take the initiative and go get it!

Conclusion

Growing your wealth can be a challenging endeavor, but by using many of these tips, you can be on your way to making some very positive changes.

To learn more about growing your wealth and for our disclosures, visit www.crgfinancailservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How to Invest for the Long Term

August 1, 2018 by Jacob Sensiba Leave a Comment

Investing is an important part of your financial life. What’s more important is investing for the long-term.

With a long time horizon, you have the ability to ignore short-term market volatility and you have the ability to let your investments compound over time.

Investing this way can be difficult, however, so here are some tips on how to do that.

Pick a strategy and stick with it

You need to pick and stick with what works for you. There are several strategies that you could choose.

Value – A strategy that involves a deep dive into company/industry fundamentals. Companies/industries in this area may or may not be out of favor. All you care about is how the underlying fundamentals look.

Growth – High flyers. Companies with high P/E ratios. Companies that have a strong case for continued growth. Sectors like technology and consumer discretionary are considered growth.

Contrarian – If you buy when others sell or sell when others buy, you may be a contrarian investor. You go against the herd. Someone who does this has a unique ability to be extremely objective.

Momentum – You invest in companies or sectors that are performing well and are fairly likely to continue that trend going forward.

Start early

This is no secret, the earlier you start the better. Albert Einstein once said, “Compounding is the eighth wonder of the world.” It really is amazing what compounding can do. If you have 20, 30, or 40 years to invest, you should be sitting pretty at that finish line.

For example, say you have two investors. One investor starts contributing $1,000 per month to an account and invests in a stock market index ETF, starting out at 25 and stops contributing after 10 years.

Another investor starts contributing $1,000 and that same index ETF, starting at 35 and they contribute until they turn 65. At age 65 person A ends up with 1.49 million, and person B ends up with 1.26 million.

Compounding truly works wonders. Start early and give compounding a chance to work its magic.

Make every move with the future in mind

Every decision that you make needs to be a slow and thoughtful one. It’s particularly important to make decisions with your future self in mind. Delayed gratification is HUGE when investing for the long term.

For example, you have your debts paid off and now have a little extra money each month. You decide that you want to buy a boat. You save up and pay $20,000 for a nice, new boat.

Here’s the flip side. Say it took you three years to save up for that boat. Instead of saving, you deposited $5,500 per year into a Roth IRA (max contribution amount). This is invested in a stock market index ETF we mentioned earlier.

Now, let’s go out 10 years. You still have that boat and have taken good care of it. However, it’s lost over 50% of value over that time period. Conversely, that $16,500 that you invested has grown to $33,600.

Buying the boat may have felt good before, but investing that for the long-term is by far the better financial decision.

Invest in what you know

Peter Lynch famously said, “Invest in what you know and know why you own it.” This is such an important principle within investing. If you are competent in the consumer staples sector, stay in the consumer staples sector.

At times you may see technology stocks return far more than your sector, but you could have easily invested in a technology company that went bust. You don’t know the industry so how would you know what’s good and what isn’t.

By sticking with an industry that you are knowledgeable about, you increase your chances of success.

Contribute regularly

Contributing at regular intervals does two things.

One, you’re saving and investing more, which increases the size of your nest egg.

Two, when the market ebbs and flows, you will continue to invest the same amount each month/year. You’ll buy more when it’s low and buy less when it’s high.

This is called dollar cost averaging. It effectively reduces your cost basis for your entire position, which effectively increases your gain, if your investment is up when you sell it.

Diversify

One of the most effective ways to reduce how much your portfolio reacts to dramatic shifts in the market is to diversify. Hold some stocks, some bonds, some cash, some gold, and some real estate. There are other investment products you could own, but these are usually the big ones.

Be objective

Try to take your emotions completely out of it.

When the market starts to sell off, you need to objectively look at your positions. Look at the characteristics of the business. Has anything changed? Or is it just declining due to a broader market selloff?

If it’s the latter, take some of that cash you have and buy that baby at a discount.

Use stocks

Over the long-term, stocks are the best investment to a) outpace inflation and b) effectively appreciate the money that you’ve saved.

Utilize various products

There are a variety of vehicles out there for your investments. Take advantage of as many as you can.

401(k) is an employer-sponsored retirement plan. Money saved in it can lower your taxable income and investments grow tax-deferred.

Traditional IRA – Individual retirement account. You open it up and save in it. Tax-deductible contributions. Investments grow tax-deferred.

Roth IRA – Similar to a Traditional IRA, except money contributed is not tax deductible, but money withdrawn is tax-free (money withdrawn from 401k and IRA is taxed).

These are just a few of the vehicles that can be used to save for retirement.

Next week I will dive deeper into the various products available.

Say no to penny stocks

These are stocks that cost less than $5 per share. More often than not, these are very risky and the companies themselves have a much higher probability of going out of business than other companies with higher stock prices.

Don’t invest via “hot tips”

Your friend says, “A stock I invested in last week is already up 100%, you need to get in on this before it goes any higher.”

When you hear this, just let it filter out of your brain. Odds are, the dramatic increase in price is pure behavior related, and no stock can sustain that kind of growth. That stock will come crumbling down at some point.

Think of the tech bubble from the 2000s. There were companies with literally no information about them, and they were going from $10/share to $200/share within a matter of weeks.

Just 48% of companies from the dot-com bubble survived past 2004. (Source)

Conclusion

Investing for the long-term is your greatest chance for financial success. Starting early, contributing regularly, and ignoring the noise are only a few great tips discussed here, but they are probably the most important.

If you would like to hear more about long-term investing and/or for our disclosures visit www.crgfinancialservices.com.

Rates of return are hypothetical, are provided for illustrative purposes only, and do not reflect the performance of an actual investment. All investments involve the risk of potential investment losses and no strategy can assure a profit. Past performance does not guarantee future results. Diversification seeks to reduce the volatility of a portfolio by investing in a variety of asset classes. Neither asset allocation nor diversification guarantee against market loss or greater or more consistent returns.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Ultimate Estate Planning Guide

July 25, 2018 by Jacob Sensiba Leave a Comment

Estate planning is a very important step in the financial planning process.

What does it mean, what are the steps, and what’s the most effective way to plan?

Let’s dive into these questions in this estate planning guide.

What is it?

Estate planning is the process of figuring out what you would like to happen to your assets when you pass away. Assets include retirement accounts, non-retirement accounts, and physical assets (house, cars, etc.).

What should I do?

Get an inventory – physical and non-physical items. Physical items can include property (primary residence, rental property, land, etc.), vehicles (cars, boats, recreational vehicles, etc.), and precious metals (gold bullion, silver bullion, etc.).
Make a list of all debts – Mortgage, personal loans, car loans, credit card debt, etc.
Make a charity list – Organizations and/or charities you would like to leave a specific amount of assets for.
Make a few copies and send these lists to your estate administrator (more on this below)
Review retirement accounts – Retirement accounts include traditional IRA, Roth IRA, Rollover IRA, and employer-sponsored plans like 401(k), SIMPLE IRA, SEP IRA, 403(b), and 457. (Click here to learn more about these plans). Whichever account(s) you have, make sure the beneficiary information is up to date.
Review life insurance policies and annuities – Same go for any insurance policies/annuities you may have. Make sure the beneficiaries are accurate and up to date.
Assign Transfer on Death (TOD) designations to non-retirement accounts. A non-retirement account includes individual brokerage accounts, savings accounts, money markets, CDs, etc.
Create a will or a trust (more on these below)
Get a list of accounts and passwords – any online account you may have, create a list of accounts, usernames, and passwords. This makes it easy for the person in charge of your estate (executor) to cancel all these accounts.
Visit some professionals – Meet with a financial professional and an estate attorney so they can review your plan and help you with any corrections or things that you’ve missed.
Consolidate your accounts – If you have several bank accounts or retirement plans from past employers, consolidate them into one account. This makes it much easier on the executor.
Select who you want to get what – Specify who you’d like to give your house too, cars, other physical assets, and money. You like to think that your family won’t fight over who gets what, but it happens very often, so take your time here.
Write a living will – A living will is a document that you put together that states what medical treatment you would like to have done and what medical treatment you would not like to have done if you are incapacitated and/or unable to make any decisions.
Establish power of attorney – A power of attorney is someone that you trust to make decisions for you. There is a medical power of attorney and a financial power of attorney.

Estate administrator

The person in charge of your estate. If you have a will, this person is called the executor. If you have trust, this person is called a trustee. If there is no person named in the will as executor and/or there is no trust/trustee named, the courts will appoint a personal representative.

This person collects assets, pays debts, and pays out any remaining assets. If a will or trust has been drafted, then the executor or trustee has to act in accordance with the will or trust.

Wills

A will is a legal document created by you and your estate attorney that specifies who will be your executor, the beneficiaries that will receive the assets that haven’t been specified yet (retirement accounts and TOD designations), and when those assets will be transferred.

Trusts

A trust is similar to a will in regards to it being the “playbook” on who is in charge and where your assets will go. It is different, however, because you can transfer ownership of assets to a trust and any asset owned by the trust will avoid the probate process.

Probate

A court-based process where the will (if one was written) is verified of its validity. If it is, the court then goes ahead and appoints the executor named in the will as the estate administrator. This gives that person the ability to act in accordance with the will to distribute assets.

If there is no will, then the deceased died intestate. The court then appoints an estate administrator and they distribute the deceased assets in accordance with state law. They are also tasked with tracking down heirs of the deceased.

This can be an expensive process, however, so planning ahead to avoid probate as much as you can is always beneficial.

Conclusion

As I said in the beginning, estate planning is an important step in your financial planning process. Hopefully, you’ve learned a lot about what’s involved and what you need to do to sure up your estate plan.

For more information about estate planning and for our disclosures, visit www.crgfinancialservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

What’s a Tariff and How Will it Affect Me?

July 18, 2018 by Jacob Sensiba Leave a Comment

Tariff. It’s a word that you’ve probably hear a lot lately, but do you know what it means, how it’s applied, and how it’ll affect you?

What is a tariff?

In its most basic form, a tariff is a tax on goods imported from other countries

Why are they used?

There could be several reasons why a country would impose tariffs on certain goods and/or certain countries. Here are several of them:

Protecting employment – This is the one you are hearing about right now. President Trump wants to place tariffs on Chinese made goods. This will increase the cost of goods, which could make employers manufacture the goods themselves, which could warrant more hiring and more working Americans.
Protecting consumers – Countries levy tariffs for this reason if they feel a product coming from another country could danger domestic consumers. For example, if we import chicken and find out this chicken could be tainted or harmful, a tariff could be assessed to this, and force U.S. citizens to buy domestically.
Infant industries – If a country has an industry or sector that’s just getting started, a country could impose tariffs on similar products in order to limit competition and help that new industry grow.
National Security – More often than not, this has to do with defense. Most countries will manufacture and supply it’s defenses with their own products for obvious reasons.
Retaliation – Like what we’re seeing right now. Countries will impose tariffs in response to tariffs being imposed on them.

How do they affect U.S. consumers?

Tariffs affect consumers in a few ways. The first and biggest impact is that goods and services could cost more.

For example, President Trump put a tariff on steel and aluminum. You know what uses a lot of steel and aluminum? Vehicles. The makers of those vehicles will then pass the increased cost down to the consumer.

Personal cars, farming equipment, etc. will now cost more as a result of those tariffs.

The other effect it could have is employment. As mentioned before, if imported goods cost as much or more as domestic products (post-tariffs) it makes U.S. employers manufacture those goods in The States.

With the rapid increase in product creation, these employers will need to hire workers to create these products.

On the flip side, it could also negatively affect employment. With the increased cost of goods, companies could lay off workers in order to reduce the impact of that increase in expenses.

How do they affect the stock market?

We are already seeing an impact on the market. People hear that their costs will go up, or they hear the phrase “trade war,” and they start to worry. We’ve seen an increase in volatility this year, and a lot of that is due to these talks.

Here’s the thing, a healthy majority of investing is psychological. So any news that frightens investors will have an impact on the stock market. Scared people sell, and level-headed and/or institutional investors buy at lower prices, hence the dramatic up and down movements.

Companies that import a lot of goods will see an increase in cost, which could hurt their bottom line. Also, companies that export a lot of goods could see decreased demand due to the retaliatory tariffs put on by China and other countries. Again, bottom line.

A lot of investors look at that bottom line to make investment decisions. If they see a decrease in revenues, they could sell.

Additionally, the tariffs placed by other countries on U.S. products could have a negative impact on entire industries/sectors, which could hurt the companies in those industries and their stocks as a result.

Conclusion

No matter your opinion of President Trump, these tariffs are a net negative for the consumer. The increase in costs to consumers could be much greater than the increase in domestic employment, which is one of the goals with these tariffs.

Whatever happens with this mess, it’s important to know what the tariffs will impact and how consumers, industries, and the economy will be affected.

For more information on how to plan for these tariffs, and for our disclosure visit www.crgfinancialservices.com.

Must Know Tips When Buying and Selling a House

July 11, 2018 by Jacob Sensiba Leave a Comment

Seeing as the housing market is incredibly hot right now, I found it appropriate to talk about buying and selling a house.

This is a very big decision and can be an extremely stressful endeavor. You can alleviate some of that stress if you know what to do and what to expect.

Buying

Do your homework

Whether you are building new or buying an existing property, you need to do your homework. Hire reputable contractors, realtors, inspectors, etc. You can cheap out with these services, but over the long-term, it’ll cost you.

Always do the inspection

This is a must, must! The inspection can save you so much money! Say you visit a house and love it, but want to get in ASAP, so you skip the inspection. After a few months, you notice some significant shifting and cracking.

Guess what, you need your foundation fixed. That could run you, depending on the severity of the issue, $20,000 or more.

Another example and costly example would be a roof replacement.

Not only can it save you money, but some issues found in the inspection can be added to your contract. If the inspector comes back with some issues, you can include that in your amended contract, and have the seller fix whatever the issue is before closing.

Finances

There are many financial conditions that come into play when buying a house.

Hidden costs – Inspection, appraisal, down payment, earnest money, etc.
- Once you own it – property taxes, insurance, utilities, maintenance, etc.
Pre-approval – Get this done by a lender before you buy. If you have a pre-approval when you make an offer, your offer is more competitive
Improve your credit – Having your credit in the best possible condition is a must. A higher credit rating can lower your rate and could increase the amount you’re approved for.
Stay on budget – Don’t buy more house than you can afford. Live within your means and look for a price that’s below your pre-approval amount.
Avoid big purchases and new credit – This goes along with the rate you get and the approval process.
Debt/income ratio – This is one of the big parts in the approval process for your mortgage. The lender compares your income to all of your outstanding debt, along with what your possible mortgage payment will be. Income/debt ratio should be 43% or below.
What you need – W2s, tax returns, paycheck stubs, verification of employment

Selling

Clean and declutter

Make your home spotless. Vacuum and put lines in the carpet if you can. Sweep and scrub floors. Clean windows. Make sure the kitchen and bathrooms are especially clean.

Take pictures and art off of the walls, and leave minimal amounts of furniture. People want to walk into a home and imagine their art and their furniture. They want to “make themselves at home,” and imagine what it would be like if they lived there.

Fix the big issues

This could come out during the inspection too, but fix blatant, big issues. Roof repairs/replacement, furnaces, air conditioning units, etc. The goal is for someone to buy your house, so if you have the big issues taken care of, people have fewer excuses to say yes.

Curb appeal

Trim the hedging, cut the grasses, and make that garden look perfect. You need people to say wow before they walk in. If they love the house before they step inside, they’ll be in a better state of mind going in.

If your yard is ugly and they know it, they’ve already been disappointed, and everything they see inside won’t be as impressive.

Get the word out

Put that house on every and any social media, website, etc. as you can. Hopefully, your realtor does a lot of this for you, but the more people know about it the better.

Make sure you tell your neighbors also because the people who buy your house will, obviously, be living next to your neighbors. They want good people next door. Preferably, someone they know and trust.

Conclusion

Buying and/or selling a home is a very important decision, and probably the biggest purchase you’ll ever make.

Use these tips to help you through the process.

To learn more about the financial aspect of buying or selling a home, and for our disclosures, visit www.crgfinancialservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How does Investment Strategy Change with Age?

July 4, 2018 by Jacob Sensiba Leave a Comment

As we all know, as we age and our lives change. Our financial responsibilities and investment strategies change along with it.

In most cases, there are two truths to abide by. You have saved as much as you can and invest according to your risk tolerance, time horizon, and goals.

But what else is there? How do my financial life and my investment strategy change with time?

Starting career

Either you are just out of school or have been in the workforce for a few years. Regardless of which path you came from, there are two things on your list. Get rid of debt, or at least get it under control, and save for retirement.

There are several ways to plan for debt repayment.

Debt Snowball
Debt Avalanche
Balance transfers (credit cards)
Personal Loan (loan consolidation)
Refinance (student loans)

Check out this post on paying off your debt, here.

Step two is saving for retirement. If the company you work for offers a retirement plan, sign up for it. Max out your contributions if you can, but at the very least, contribute enough to get the employer match (if it’s offered).

Also, open a Roth IRA. If you have a little extra, contribute some to a Roth IRA in addition to your workplace plan.

Your investments. Time is your best friend at this point. Most of your investment allocation should be focused towards growth. Don’t put all of your eggs in one basket, diversify among stocks and bonds.

Again, the majority (at least 70%) of your portfolio should be in stocks, in some form or another.

Starting family

If you’re like the average American, your family starts to form around your 30th birthday. Hopefully, you’ve got a good head start on paying down your debt and saving for your retirement. Continue on that path.

With a family, comes saving for your kid’s college education, as well as other expenses (house, car, etc.). Contribute a little every month to a 529 College Savings Plan. The funds within this account can be invested aggressively, similar to your allocation in your twenties.

Your retirement savings is still in a good spot. Similar to your twenties, regarding the stock and bond allocation.

One last thing, get some disability and life insurance. If you have people that count on you, you need to protect them.

High earning years

More than likely, this will be your forties and fifties. At this point in your life, the average American is in their peak earning years, so take advantage of that and increase your retirement savings.

This will also be the time that your kids either go off to college or enter the workforce. Congratulations (kind of) you are empty nesters. You no longer have a college education to save for. More can go towards your retirement.

More than likely, though, you will have miscellaneous expenses from your kids that you will continue to pay for.

Your investment strategy will change slightly. You are getting closer to retirement so it’s time to start protecting what you’ve saved. A little less in stocks and a little more in bonds. Think 60/40 or 50/50.

Near retirement

You are in the home stretch! At this point, your debts (including your house, hopefully) should be paid off. All assets and your retirement savings should be looking healthy.

Your investment allocation will be similar to the last section. Definitely 50/50 if not 40/60, stocks to bonds.

Retirement

Congratulations, you’ve made it to your retirement. This can be liberating for some, but for others, this is an emotional challenge.

You’ve spent the last 40 or so years saving for retirement and now you are expected to start spending it. This is very tough for a lot of people.

From my experience and in my opinion, you should retain some sort of activity. Something that gets you out of the house, something that forces you to socialize, and something that makes you use your brain.

Staying social and sharp mentally could add some extra time to your life.

Your investments should be conservative. At least 40/60, but the more conservative the better. And it’s usually not a bad idea to keep some of your savings in cash, for emergencies such as health expenses (which will certainly go up at this point).

You don’t have many or any, more chances to earn more money, so it’s very important that you protect what you’ve saved.

Conclusion

The above information can be very useful to the average person. Paying off your debt and making your retirement savings a priority is very important.

Unfortunately, there is a retirement savings crisis in America. People aren’t saving nearly enough for retirement. They are counting on other sources, like Social Security or pensions to fund their retirement.

This isn’t enough. You won’t receive enough from Social Security to support yourself and pensions are few and far between, nowadays. We all need to do a better job of saving.

This article was created for informational purposes only. The above items are not to be taken for personal financial advice. Please consult with a professional about your personal situation.

To learn more about retirement savings and investing, and for our disclosures, visit our website: www.crgfinancialservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

The Difference between an HSA and an FSA?

June 27, 2018 by Jacob Sensiba Leave a Comment

Introduction

Nowadays, health insurance and the medical care you receive is expensive. There are some products available to help you with those expenses, however.

Enter in the HSA and the FSA. These two products are making it easier for consumers to save for and pay for medical care.

But how does each of them work? Which one is better?

What’s an HSA?

An HSA is a Health Savings Account. These types of accounts are available to people who have High-Deductible Health Plans (HDHP).

An HDHP is defined as a health insurance plan with a deductible of $1,350 for individuals and $2,700 for families, and an out-of-pocket maximum of $6,650 and $13,300, respectively.

An HSA is sometimes offered by the insurance company that provides the health insurance, but can often be applied for at many financial institutions.

An HSA has several key characteristics.

Contributions are made pre-tax or tax-deductible
Assets grow tax-free
Funds used on qualified medical expenses aren’t taxed upon withdrawal/use
The maximum contribution is $3,450 for individuals and $6,900 for families
- Contribution max increases by $1,000 at age 55 or older
Can no longer contribute once 65 and on Medicare
Can invest contributions in mutual funds, stocks, and other investment products
Unused funds can be carried over year-after-year

Qualified medical expenses include the following.

Medical services
Emergency medical services
Medical equipment

You can find a complete list of eligible expenses here.

What’s an FSA?

An FSA is a Flexible Spending Account. Only employees of eligible employers qualify for an FSA.

There are several characteristics of an FSA.

Use it you lose it – Unused funds do not carry over from one year to the next
Contributions are made pre-tax via payroll deduction
Contribution maximum is $2,650. Your spouse can contribute an additional $2,650 too
Can be used on qualified expenses
- Deductibles
- Copayments
- Medical services
- Medical equipment
- Prescription medication
- Can’t be used on premiums
- See the full list of qualified expenses here.
You may have two extra options available to you depending on your employer
- You have an extra 2 ½ months to use up funds from the previous year
- You can carry over $500 from the previous year

Which is right for you?

It very much depends on what is available to you. If you don’t have a High deductible health plan, then you are ineligible for an HSA. If your employer doesn’t offer an FSA, I’m sorry, that’s not available to you either.

If you have the option to pick between the two, most often I would lean towards the HSA and there are a few reasons why.

You are able to contribute more, which gives you more money to use on qualified expenses and could effectively lower your tax liability.
You can carry over unused contributions year-after-year.
This can be used as a retirement savings vehicle. Decades of contributions and compounding returns could give you a sizeable amount to use on medical expenses in retirement

You should not use an FSA if you are in good health. An FSA is more appropriate for someone with recurring and somewhat predictable medical expenses. If you are healthy, the odds of you contributing to an FSA and not using the funds, are pretty high.

Conclusion

Health insurance and medical care are expensive. Having an FSA or an HSA available to lessen the blow of those expenses is HUGE.

It is very important to know which one you can use, and which one would be the most beneficial to you.

Use this information to carefully select and effectively use what’s available to you.

To learn more about saving for medical expenses and for our disclosures go to www.crgfinancialservices.com.

Types of Life Insurance

June 20, 2018 by Jacob Sensiba Leave a Comment

Insurance can take many forms, but one of the most important and often most overlooked is life insurance.

If you have a family or anyone that relies on you to support them, you need life insurance. Even if you don’t have a family, getting coverage now when it’s less expensive is a better alternative than waiting until you have a family, needing coverage, and paying more for it.

There are several different types of life insurance, however, and you need to know what they are before you can select the one that meets your needs.

What are the different kinds?

Term Life
- Renewable
- Level term
- Decreasing Term
Whole Life
Universal Life
- Guaranteed Universal
- Indexed Universal
- Variable Universal
Variable
Simple Issue
Guaranteed Issue

What are the characteristics?

Term – This is the cheapest form of life insurance you can buy. There are no bells and whistles to this type of policy. You are paying for the death benefit, and that’s it. It can expire with term lengths ranging from 5 to 30 years.
- Renewable term – Smaller term lengths, but the policy automatically renews at the end of each term. There is a step up in premium at each renewal, though.
- Level term – Most common form of term insurance. Death benefit and premium payments stay the same over the life of the policy.
- Decreasing term – Death benefit and premium payment decrease over the life of the policy. People buy this because as they accrue more assets, the less they think they’ll need for a death benefit to support their family.
Whole life – Is one of the more expensive forms of life insurance. You are insured for your entire life, and there are no expiration dates. Additionally, the policy will build up cash value through an investment component. The average rate of return is around 2%-3%.
Guaranteed Universal – Cheaper than most other types of life insurance, except for term. Generates little cash value, less than whole life. Late payments can forfeit the policy, wasting every past premium payment. The death benefit will not change.
Indexed universal life – Cash value component is marked to an index, like the S&P 500. Upon inception, you decide on the participation rate. If you select 80%, you will participate in 80% of the index. For example, if the market goes up 10%, you only go up 8%. However, if the market goes down 10%, you don’t go backward. Your return for that period is 0%. Additionally, there can be a cap placed on the amount of gains that you make. Premium payments and death benefit can be flexible.
Variable Universal – Cash value is tied to an investment account. Requires hands-on management. Can take partial distributions or loans from the cash value. Unlike the indexed universal, the cash value in a variable policy can go backward if the investment account declines.
Simple issue – All of the above policies require a medical examination. This is part of the underwriting process and helps the insurance company calculate your insurability. A simple issue policy does not require an examination. You take a questionnaire and that is it. However, you can be turned down depending on your answers. If you lie, you can be charged with fraud if caught. Don’t lie.
Guaranteed issue – This is the most expensive form of insurance you can get. Reason being is there is no underwriting of any kind. You get the policy you apply for. The coverage amounts/death benefits available are low compared to other coverages, however.
There are a number of smaller or niche types of insurance, a good example of these are marriage insurance, burial insurance, or final expenses insurance.

Which one should you buy?

Good question. I guess it all depends on what you are willing to pay and the features you want in an insurance policy.

In my opinion, life insurance should be viewed as any other type of insurance policy. You are paying for protection and that should be it.

If you want money to accrue in a cash value account, determine what it would cost for a whole life policy, compare that to the cost of a term life, and invest the difference between the two.

However, there are certain life insurance companies, usually the bigger, better-known ones, that have made dividend payments to whole life insurance customers.

Over the life of the policy, that dividend can grow large enough to where it actually pays your premium for you. But this isn’t the case with all customers and dividends are not guaranteed.

There are generally two things to consider when picking out a policy.

One, what are you looking for? Do you just want straight life insurance? Or are you looking for a few more features, like cash value or a chance for growth?

Two, what can you afford? Regardless, you should have some form of insurance coverage, especially if you have a family.

Conclusion

Life insurance is incredibly important. I stress this point even more if you have a family with people who count on you for support.

Consider each of the points illustrated above and choose the best form of insurance for your personal situation.

Life insurance product features and availability vary by state. Restrictions and limitations may apply. For federal income tax purposes, life insurance death benefits generally pay income tax-free to beneficiaries pursuant to IRC Sec. 101(a)(1). In certain situations, however, life insurance death benefits may be partially or wholly taxable. Please consult a financial professional for additional information. All guarantees are based on the claims-paying ability of the insuring company.

To learn more about life insurance and to view our disclosures, visit our site > www.crgfinancialservices.com.

If reading this blog post makes you want to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.