SHOW NOTES: 2018-01-11 Money in Motion

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Last Week’s Question of the Week: When social security computes your benefit, how many years of earnings do they use in their calculation? ANSWER: Social Security takes into account your 35 highest-earning years and adjusts that for inflation.

HOST: So, we are starting off the year talking about making personal financial resolutions for the new year? Where should I make changes?

KLAAS FINANCIAL: Yes, we are all about goals… and making changes and it is always nice to look at what adjustments you may wish to make in the area of Finances in the New Year. We really want to drive home the importance of how making positive changes in your budget for the new year can have far-reaching effects for your future retirement.

STEP 1 – Assess where you are at currently in terms of the following:

  1. Debt – how much do you have? How quickly can you downsize your debt?
    1. How expensive is the debt? What is the interest rate you are currently paying?
    2. What types of debt do you have? Mortgage? Student Loans? Credit Card? Is refinancing an option?
  2. Budget – Do you have one? This is a good word and a very important process. It is always good to know where you are spending your hard-earned money.
    1. If you have a budget, are you keeping to it? Where should you make adjustments? If you don’t have one, create your own spreadsheet today.
  3. Retirement Accounts – What percentage are you putting in your retirement accounts? 10% or more? Are you maxing out your retirement accounts at work with the current limits? In 2018, the contribution limits to your 401k, 403b accounts has increased to $18,500. The catch-up contribution (over age 50) remains the same at $6000. For IRA’s the contribution limits have remained the same, $5500, and $6500 with the catch-up provision.

HOST: What about savings? Should we be adjusting this too?

KLAAS FINANCIAL: Well, the question with savings is always is how much is too much or too little? So, we would like to offer some practical guidelines to this:

  • Your cash reserve should include 3-6 months worth of living expenses, and ideally 1-3 years worth depending on your age and income. For the “average person” (whoever that is?), perhaps having $15k-25k available may be a good amount. If you have nothing in savings, let’s shoot for $5k as your target, then 10k. These need to be achievable goals. Obviously, debt that you may be paying on may be impeding these goals. So clearing debt first, helps with saving goals.
  • Remember, it only takes one unexpected event , a broken furnace, an unexpected medical bill, or a job loss that wasn’t planned to derail your retirement funding.

If you have very little in savings… then what?

  • It is probably a good idea to back- off of your retirement savings, and accumulate some income and put this into a traditional savings account.
  • Create a process, a systematic savings plan where you are paying yourself first and make building your cash reserve a priority. Most banks or credit unions let you set up automatic transfers between your checking account and higher yielding savings or money market account.
  • Effectively, the amount you are saving becomes a budgeted item like your mortgage, and you will watch this built up over a few months; once it is built to be a healthy amount, you can switch automatic transfer of funds to a smaller amount, and then go back to increasing your retirement funds.

HOST: What about planning for a retirement date?

KLAAS FINANCIAL: Yes, another good planning item in the New Year would be to consider two questions:

  1. What is my Targeted Retirement Date?
    Remember that time is your friend, the sooner you begin a plan, the better the future rewards. Will you have to work longer than you expect?
  2. How much do I want to retire with?
    What is the dollar amount you feel you will need to be comfortable in retirement? Remember a 4% pull from your investments should be anticipated.

What should you be doing today:

  1. Look at your retirement accounts, and make sure that you are attempting to maximize your retirement contributions every year. Divide by the amount of pay periods and make sure that you have enough put into your plan on a monthly basis.
  2. Find out if you have a ROTH 401k option.
  3. Make sure you are currently taking advantage of a full match by your employer.

HOST: How do I know what investments to choose in my retirement accounts? Does it really matter?

KLAAS FINANCIAL: Yes, review your retirement plan investment choices can make a big difference. Look for advice from a qualified financial planner who can steer you towards a mix of investments proper for your age and your current financial situation. Review this quarterly, or semi-annually.

HOST: On this show you like to share 3 words on a regular basis? What are those?

KLAAS FINANCIAL: Yes, Simplify, Consolidate and Diversify…that is one of our regular talking points that we like to remind everyone of.

  1. This is the year to do just this… explain the misconception about multiple advisors and multiple accounts being safer… look at asset allocation and appropriate risk.
  2. Talking about getting a handle on old 401k’s & other retirement plans and possible IRA rollovers.
  3. Assemble your financial team, with a good quarterback to put you in the driver’s seat for investing, taxes, estate planning, etc.

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.