Category: Generation Now

Saving and Retirement

The Center for Retirement Research (CRR) at Boston College, found that 52 percent of working-age U.S. households are at risk of being unable to maintain their standard of living in retirement. Many recognize the possibility of a shortfall but 19 percent do not. Contributing factors include increased life expectancy, declining Social Security income replacement, and the shift from pensions to defined contribution savings plans. Older Americans are entering retirement carrying more debt. According to a paper by the Retirement Research Center at the University of Michigan, more Americans between ages 56 to 61 are carrying more debt than any time in recent history. Another retirement problem receiving increasing attention is the social isolation of retirees, which has been deemed a risk equal to or greater than major health problems such as obesity.

Studies about retirement savings plan contributions indicate a lack of participation by many American workers. A study by the PEW Charitable Trusts found that 25 percent of millennial adults participate in employer-sponsored defined contribution retirement plans versus 40 percent of Generation X and 43 percent of baby boomers. Stated another way, a large majority of millennials have no retirement savings plan.

If you are concerned about having the money to retire, call us.

Should I roll over my 401(k) from my previous employer?

Question from young investor to Investopedia:

I am currently 21 years old and a senior in college. I started working at a job back in December of 2016 and opened up a 401(k) with the company. I did this so I could begin saving for future expenses. This job was only meant to be temporary. Within the next month, I will be starting my new career at a different company. Should I roll over my 401(k)? Are there any other options other than this?

My answer:

There are three things you can do with an orphan 401(k).

  1. Leave it where it is.
  2. Transfer it to you new employer’s 401(k)
  3. Roll it into a Rollover IRA.

I prefer option #3 because it gives you several orders of magnitude more investment options.

The problem with #1 is that you may simply forget about it.  In addition, you may find that the account is small enough that your old employer may terminate your account and send you a check, triggering several kinds of taxes and penalties.

Option #2 is better than #1 but it still locks you into the investment options offered by your employer, many of which are poor.

You mentioned that you started your 401(k) to “save for future expenses.”  That’s not the purpose of a 401(k).  Its role, like an IRA, is to save for retirement.  I realize that a 21-year-old starting his first real job is not focused on retirement, but that’s a mistake.  The biggest advantage that you have is time.  If you give time the ability to work for you, you can overcome lots of investment mistakes and end up much richer than someone who starts later in life, even if they save more money.

Planning to Retire Someday? Start Planning Today!

A recent survey showed that most Americans don’t want to do their own financial planning, but they don’t know where to go for help.  60% of adults say that managing their finances is a chore and many of them lack the skills or time to do a proper job.

The need for financial planning has never been greater.  For most of history, retirement was a dream that few lived long enough to achieve.  In a pre-industrial society where most families lived on farms, people relied on their family for support.  Financial planning meant having enough children so that if you were fortunate enough to reach old age and could no longer work, you could live with them.

The industrial revolution took people away from the farm and into cities.  Life expectancy increased.  In the beginning of the 20th century, life expectancy at birth was about 48 years.  Government and industry began offering pensions to their employees.  Social Security, which was signed into law in 1935, was not designed to provide a full post-retirement income but to increase income for those over 65.  (Interestingly enough, the average life expectancy for someone born in 1935 was 61 years.)

For decades afterwards, retirement planning for many Americans meant getting a lifetime job with one company so that you could retire with a pension.  The responsibility to adequately fund the pension fell on the employer.  Over time, as more benefits were added, many companies incurred pension and retirement benefit obligations that became unsustainable.  General Motors went bankrupt partially because of the amount of money it owed to retired workers via pension benefits and healthcare obligations.

As a result, companies are abandoning traditional pension plans (known as “defined benefit plans”) in favor of 401(k) plans (known as “defined contribution plans.”)  This shifts the burden of post-retirement income from the employer to the worker.  Instead of knowing what your pension income will be at a certain age and after so many years with a company, now employees are responsible for saving and investing their money wisely so that they will have enough saved to adequately supplement Social Security and allow them to retire.

In years past, people who invested some of their money in stocks, bonds and mutual funds viewed this as extra savings for their retirement years.  With the end of defined benefit pension plans, investing for retirement has become much more serious.  The kind of lifestyle people will have in retirement depends entirely on how well they manage their 401(k) plans, their IRAs and their other investments.

Fortunately, the people who are beginning their careers now are recognizing that there will probably not be pensions for them when they retire.  Even public employees like teachers, municipal and state employees are going to get squeezed.  Stockton, California declared bankruptcy over it’s pension obligations.  The State of Illinois’ pension obligations are only 24% funded.  Other states are facing a similar problem.

In fact, many younger adults that we talk with question whether Social Security will even be there for them.  They also realize that they need help planning.  Traditional brokerage firms provide some guidance, but the average stock broker may not have the training, skills or tools to create an unbiased financial plan; many are only after your investment accounts or using the plan to persuade you to buy an insurance product.  Mutual fund organizations can offer some guidance, but getting personal financial guidance via an 800 number is not the kind of personal relationship that most people want.

Fortunately there is another option.  The rapidly growing independent RIA (Registered Investment Advisor) industry offers personal guidance to help people create and execute a successful financial plan that will take them from work through retirement.  Many RIAs are run by Certified Financial Planner (CFP™) professionals.  Many are fiduciaries who put their clients’ interests ahead of their own.  And many, including us, offer financial plans for a fixed fee as a stand-alone line of business, meaning that we don’t push or require you to do anything else with us except create a plan that you’re happy with.  Contact us to find out more.

What are your retirement goals?

A recent issue of Financial Advisor magazine reports that “millennials” (people between age 18 and 34) view retirement goals differently from their parents.

Instead of viewing retirement starting at a certain age, like 65, millennials expect to retire when they reach a certain financial goal.

Fifty-three percent of millennials view retirement as the start of something exciting. In comparison to their elders, 21 percent of millennials are more likely to make pursuing a passion, furthering their education or starting or growing their own business their priorities in retirement.

We at Korving & Company are in the business of helping people achieve their financial goals. How do you view your financial goal? Please use the response button below to let us know.

Rent or Buy?

Should you rent or buy a house?  That’s a question often asked by young couples, those in the military, and people who are undergoing life changes.  The main reason that people want to buy rather than rent is because they view renting as throwing money away and not building equity.  Additionally, buying a home provides a feeling of stability.

However, there are downsides to buying.  Buying a house locks you into a situation.  If your life changes, you lose your job, or wish to move, selling a home can be difficult and expensive.  Owning a home means that you have upkeep and maintenance costs.  If you rent those costs are borne by the landlord.  The cost of rent is often less than the costs associated with home ownership; mortgage payments, real estate taxes, insurance, maintenance and all the other costs that a home owner faces.

Over the long term, owning a home has been a good investment for many families.  But more recent history has clearly shown that the assumption that a home will always go up in value is not true.  Just ask the people whose homes went on the market as “short sales.”

If you are an individual who is contemplating whether to rent or buy, keep these issues in mind.  If you’re not sure, get the advice of a financial planner who can run the numbers for you and help you make the right decision.

How well do couples communicate on money? – Part 7

Most happy couples think they communicate well. However, on the subject of finances, studies and experience has shown that they don’t communicate nearly as well as they think.

Many couples don’t know what their partner earns, how much they have invested, what it takes to retire and where their retirement income will come from.

Couples often disagree on the way their money should be invested and in too many cases one partner is in charge of investing and the other is kept in the dark.

Retirement is another issue in which there is a great deal of confusion. Many do not know what it takes to retire, have nebulous goals about retirement and even disagree about when to retire.

The lack of good communication leads to worries about financial disasters. Issues include health care costs, the effect of inflation on buying power, outliving their savings and the possibility that Social Security may not be there for them prey on their minds.

In the face of so much uncertainty, only one-in-five couples have a plan. One of the benefits of having a plan is that it makes it much more certain that they will achieve their goals. And that bring peace of mind.

Of course the earlier that people start to plan, the higher the probability that they will achieve their goals and have a healthy and frank discussion about financial issues. The best time to start is when you are young and it’s an excellent way for newlyweds to begin life together.

Thanks for your interest and we hope you will share this with your friends.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

SBOY-banner ad2

How well do couples communicate on money? – Part 6

Most couples think they communicate well, but research indicates otherwise when it comes to finances. Communication on financial issues between couples is especially poor, as we have discovered in previous essays.

Couples were asked what advice they would give to newlyweds and young couples about finances. Newlyweds usually do not put frank talk about finances at the top of their “to-do” list. That may be a big mistake.

The most common suggestions for young couples starting out in life together were:

  • Save as early as possible for retirement (57{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}).
  • Make all financial decisions together (41{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}).
  • Make a budget and stick to it (39{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}).
  • Make sure you have an emergency fund (38{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}).
  • Don’t hide expenditures (28{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}).
  • Disclose income, debts and assets early (24{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}).

One of the easiest ways of accomplishing all of these objectives is for young couples to consult a financial advisor as soon as possible. By doing so they will reveal their finances to each other, develop a budget that matches their income, agree on an investment strategy, and be given a roadmap to long-term financial peace.

Our final essay on this subject will summarize what we have learned.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

SBOY-banner ad2

How well do couples communicate on money? – Part 5

Most couples think they communicate well, but research indicates otherwise when it comes to finances. Communication on financial issues between couples is especially poor, as we have discovered in previous essays. Despite concerns about medical costs, running out of money, inflation and Social Security, most couples have not created a plan to deal with these worries.

The 20{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of couples who have created a plan get the benefit of peace of mind, less stress, and a more cohesive relationship. Uncertainty and doubt around important financial issues creates stress within relationships.
Couples who have a retirement plan in place:

  • Are twice as likely to live a very comfortable retirement.
  • Are 50{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} more likely to be “completely confident” in assuming responsibility for retirement.
  • Are much more confident that their partner will be OK in retirement.
  • Are twice as likely to know how much they will need in retirement.
  • Are less concerned about unexpected health care costs.
  • Are much less likely to be concerned about outliving their savings.

Having a plan to reach your goals is much like going to the grocery store with a shopping list. You know what you need and are less likely to forget important items, nor are you as likely to buy things you don’t need.

Creating a plan forces couples to be open with each other about their goals, their finances, and the issues that may keep them from achieving those goals. Working with a Certified Financial Planner™ (CFP) to create a plan also brings an important measure of reality to the process. Professional guidance creates realistic assumptions about how much should be saved and the rate at which it should grow. A CFP can also help mediate differences between couples when issues arise.

Our next essay will focus on advice to young couples.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

SBOY-banner ad2

How well do couples communicate on money? – Part 4

Most couples think they communicate well, but research indicates that communication about finances is often not good. In our previous essays we have discussed common financial disagreements.

In this essay we will discuss some of the financial worries couples have.

Nearly three-quarters (74{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}) of couples worry about unexpected health care costs. For more than half, it’s their top concern. With people living longer than ever before, advances in medical technology and the skyrocketing cost of health care, this concern comes as not real surprise.

After health care, the next biggest concern for couples (51{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}) was outliving their retirement savings.

The negative effects of inflation and concerns that Social Security may run out were the next biggest concerns.

Despite these worries, only 20{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93} of couples actually have a plan in place to address these issues! And over one-third (36{030251e622a83165372097b752b1e1477acc3e16319689a4bdeb1497eb0fac93}) haven’t even thought about planning!

Our next essay will take a look at those couples who have taken the time to create a financial plan.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

SBOY-banner ad2

How well do couples communicate on money? – Part 2

Most couples think they communicate well, but research indicates otherwise when it comes to finances. Of course, talking about finances can be a minefield. If one partner is frugal and the other spends freely, tensions can be high. Disagreements about money are one of the leading causes of divorce.

More than four out of ten couples did not know how much their partner makes. Many were off by over $25,000! This can have serious effects. If you don’t know how much income you make as a couple, how do you know how much you can reasonably spend?

Unless couples lead totally separate financial lives, not knowing how much they are earning together can lead to a lack of savings or even debt. This issue could be behind the alarmingly high amount of debt that people carry, often at exorbitant rates.

More than one-third of couples disagree on the amount of investable money they have. This usually happens when there is a division of labor between couples, where one partner is in charge of the investments.

However, our experience indicates that couples also disagree on the kinds of investments that are appropriate. In general, men tend to prefer riskier investments that women. This can lead to a good deal of stress and disagreement.

Our next essay will take a look at couples in retirement.

Korving & Company, the 2015 Suffolk Small Business of the Year is a family owned investment management and financial planning firm. We deliver a very personal level of service to guide, empower and assure our clients that their money is carefully managed to meet their long-term life goals.

SBOY-banner ad2

  • 1
  • 2
© 2021 Korving & Company, LLC