Inside the Economy: Wage Gains & Historical Tax Rates

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On this week’s Inside the Economy with SH&J, we take a look at wage increases. Wages have recently increased at the fastest rate since 2009. How much does the growth of the manufacturing sector play a part in this increase? There has been quite a bit of media coverage about raising the highest marginal tax rate. Have higher tax rates generated greater tax revenues historically? Tune in to find out!

Savings Rates in Colorado vs. the Nation

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As younger workers enter the workforce and the baby boomers make their exit, the importance of savings has reached a new generation. A common rule of thumb for those just entering the workforce is to contribute approximately 15 percent of their income to their retirement. Unfortunately, this percentage is often not met by many, especially for fresh college graduates paying down student loans.

Compounding returns can be a powerful force, but you have to start saving early and often to truly take advantage of it. For every 10 years you delay funding your retirement, it’s possible you will have to roughly double the amount you save. It’s important to make sure you’re saving enough to reach your goals.

Colorado Saving Rates

The Bureau of Economic Analysis rated Colorado at 106.41 on the Nest Egg Index, indicating that Coloradans are more capable of saving money for retirement than Americans are as a whole. However, it does not necessarily mean that they’re saving enough.

As of November 2018, the national average savings rate is 6 percent of household income. This is significantly lower than the recommended 15 percent recommended by financial planners, but the rate is still trending up since its low point of just over 2 percent in 2005.

Colorado vs. Other States

How does Colorado stand in the rankings? Nationwide, Colorado is ranked 10th on the Nest Egg Index, indicating that Coloradans have a better opportunity to save for retirement and financial success than the residents of 40 other states. New Jersey tops the list with a rating of 114.35, Oregon represents the average with a score of 100.04, and Mississippi comes in last at 85.48.

If you’d like to review your own personal saving rate, whether you’re saving for retirement or more immediate goals, get in touch with us today for a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™.

Inside the Economy: Government Shutdown & Unemployment Numbers

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On this week’s Inside the Economy with SH&J, we discuss the effects of the government shutdown on the U.S. economy. What percentage of U.S. GDP is comprised of Federal consumption and investment? The national unemployment rate remains below 4%. Tune in to find out which states have better unemployment numbers than others and where the chances of a global recession stand.

What to Expect if You Choose Early Retirement

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The age old question: when can I retire? As financial planners, we are often faced with the question: can I retire early? Retirement in your 50’s or early 60’s is a possibility, but there are some additional items to plan for if you are thinking about leaving the work force early. Here are a few considerations to be aware of if early retirement is in your future.

Health Insurance Costs:

Don’t take your employer-provided health care plans for granted. Typically, the biggest expense that individuals in early retirement face is health insurance premiums. While waiting to qualify for Medicare at age 65, you have a few different options. Once you leave the workforce, you have the option to sign up for COBRA benefits which provides continuing coverage of group health benefits for up to 18 months following separation of service. COBRA usually requires the former employee to pay the full premium for health coverage up to 102% of the employer plan cost. While COBRA coverage is more expensive than coverage for active employees, it can still be cheaper than insurance available through the private insurance marketplace. Getting quotes from the private insurance marketplace and under the Affordable Care Act can help you plan for healthcare expenses.

Sufficient After-Tax Savings:

The IRS makes it difficult to access money from retirement plans prior to the age of 59 ½, without facing a penalty. That is why it is important to have an adequate amount of savings held in a taxable account if you decide to retire prior to 59 ½ to avoid a hefty bill from the IRS. There is one exception that allows you to access retirement plan money early, it’s called the “Age 55 Rule”. This rule allows individuals who leave their company at age 55 or older to take penalty-free withdrawals from their 401(k). But, be careful! Once you roll the money from the 401(k) into an IRA, the rule no longer applies.

Time is Money:

For many retirees, the most difficult part of transitioning out of the work force is adapting to having an abundance of free time. It is important to financially plan for how you will fill the hours that you previously spent at work. Whether that be with expanding on hobbies, travel, or more time spent with family, it’s important to prepare for some increased spending in the first few years of retirement as you adapt to your new life. A common habit of new retirees is spending too much too soon, so it is important to monitor your spending so you can sustain your lifestyle throughout all of retirement.

A Plan for Social Security:

Before you enter into early retirement, prepare a game plan for the appropriate time to start Social Security and stick to it! It’s common for retirees to want to take Social Security as early as possible to help with cash flow, but taking the payments before full retirement age can greatly reduce your benefit over the long term.

Are you considering early retirement and need help planning for the future? Are you unsure of how much is enough for retirement? Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™. We’ll help you get your financial planning on track and provide you with the advice you need to meet your financial goals.