SHOW NOTES: 2019-01-10 MiM

Listen to Show Audio

Last Week’s Question of the Week: What percentage of Americans have not made a will?

ANSWER: According to a recent Harris Poll, 64% of Americans have not made a will.

HOST: We are starting the year talking about making Personal Financial Resolutions for 2019? Is this a good time to be making changes?

KLAAS FINANCIAL: Yes, we are all about goals, and making changes. It is always nice to look at what adjustments you may wish to make in the area of finances in a New Year. It’s important to know that making positive changes in your budget for the new year can have far-reaching effects for your future retirement.

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

  • Debt: How much do you have? How quickly can you downsize your debt? How expensive is the debt? What is the interest rate you are currently paying? What types of debt do you have? Mortgage? Student Loans? Credit Card? Is refinancing an option?
  • 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. 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.
  • 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?

    The 401k/403b/457 contribution limit has gone up by $500 from $18,500 in 2018 to $19,000 in 2019. If you are age 50 or over, the catch-up contribution limit will stay the same at $6,000.

    Annual contributions to an IRA has increased to $6,000 for 2019, from $5,500, with $1000 staying the same for the OVER 50 catch-up provision. So, generally speaking, anyone over 50 with earned income can contribute up to $7000 into an IRA in 2019.

  • 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 how much is 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 $5,000 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 your debt first will help you reach saving goals. Remember, it only takes one unexpected event — a broken furnace, an unexpected medical bill, a job loss — to derail your retirement funding.

    If you have very little in savings…then what? It is probably a good idea to back off from 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:
    What is my Targeted Retirement Date? And, how much do I want to retire with?

    Remember that time is your friend, the sooner you begin a plan, the better your future rewards will be. Will you have to work longer than you expect to achieve your retirement goals? 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.

    Here’s what should you be doing TODAY:
    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 are putting enough into your plan on a monthly basis. Also, find out if you have a ROTH 401k option and make sure you are taking full advantage of any matching by your employer.

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

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

    HOST: On this show you like to share three words on a regular basis — what are those three words again?

    KLAAS FINANCIAL:  Ahhh yes, thank you for bringing this up. Simplify. Consolidate. Diversify. It’s also important, with simplicity in mind, to address the misconception that multiple advisors and multiple accounts being safer. We are proponents of simplifying and consolidating and having your advisor assess allocation and appropriate risk for your investments. Assemble your financial team, and with a good quarterback on your team, you’ll be in the driver’s seat for investing, taxes, estate planning, and retirement planning.

    Listen to Show Audio

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