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Will Social Security be Going Away?

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As financial planners, one of the most common questions we receive is regarding the future of Social Security. A lot of this uncertainty is driven by headlines in the media. Oftentimes, the media calls to question whether Americans can rely on the Social Security program to still be viable when current workers reach retirement. Much of the doubt is derived from changing demographics in the United States.

The baby boomer generation is reaching retirement and healthcare advances are allowing us to live longer lives. Combine this with reduced birth rates resulting in less future workers, and some of the skepticism surrounding the Social Security program becomes valid. With that being said, many Americans are afraid that the Social Security program will become obsolete, which most likely will not be the case. What we do know is that over the next 75 years or so, Social Security will have to evolve in order to support future generations of retiring workers.

The Social Security program was signed into existence by Franklin D. Roosevelt in 1935 and has been through a few major changes over the last 84 years. As it currently stands, Social Security is a “pay-as-you-go” program, which means that the current working generations are paying for the current retirees. The system is subsidized by the Social Security Trust Fund, a reserve of funds to cover any deficit between income from taxes and output of benefits. While the demographics continue to change, the program will take on more costs with less workers to fund it. But there are several solutions to this issue, many of which we have seen before throughout the history of Social Security.

The first option, which you can imagine does not resonate well with the American constituents, is to reduce future benefits. According to Barron’s, if the program remains unchanged and the Social Security Trust Fund is depleted, the Social Security program will be able to continue paying retirees 75% of currently legislated benefits. Although Social Security was created to cover 40% of your income needs during retirement, many American’s rely on it as their only financial resource when they retire. Because of this, it is unlikely that politicians would make an argument to reduce Social Security if they are looking to gain approval from the largest demographic of voting constituents, retirees. A way that politicians have reduced benefits in a roundabout way in the past is by gradually pushing back “full retirement age” from 65 to 67. It would be more likely that we would see another push back beyond the age of 67, than an out-right cut in benefits.

The other option is to increase the revenues from payroll taxes that are funding Social Security. No one is a fan of increased taxes, but if it means providing a more reliable stream of income for you during retirement, it may be worth the extra tax dollars. We have seen changes in payroll taxes in the last 10 years with Congress temporarily cutting payroll taxes by 2% in 2011 and 2012, then raising them back up in 2013 by 2%. Many workers never acknowledged the later increase in payroll taxes. On top of that, payroll taxes are typically split between the employer and employee, so workers most likely won’t take full responsibility of any possible tax increases.

So will Social Security be going away? The brief answer is no. What we do know is that the program will continue to evolve with time and with the American population. That is why it is so important that we save for retirement during our working years, so that no matter what is to come, you are prepared. If you’d like to review your own retirement outlook, whether you are close to retirement or many years away, get in touch with us today for a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™.

Our Financial Checklist for Newly Married Couples

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So you’ve planned night and day, hired incredible vendors, tied the knot, and danced the evening away with friends and family. Or maybe your wedding was a simple, quiet romantic elopement with just a few loved ones present. Either way, as you forge ahead into your new life together, you might be wondering what is next, especially in the realm of finances.

Many couples already live together before they get married, so they probably share finances to some extent. They are already used to setting financial goals together, making budgets, and deciding who pays for what. If you are a newlywed and haven’t done these things, this is a great place to start. But besides these tasks, there are other things to consider to make sure your finances are in order.

Now that you are married, you have to prepare for the unexpected and make sure that everyone is taken care of in the case of the unthinkable, not to mention you’ll need to think about your future together and plan for retirement. Below is our financial checklist for newly married couples, and we hope it helps you out!

Create or Update Documents

    1. Create or update your will. If you don’t have a will already, now is the time to create one. Especially now that you have a spouse, you want to make sure your assets are going where you want them to upon your death.
    2. Create or update your living trust. A living trust is a legal contract with a third party that makes sure your assets go where you want them to go upon your death. Many people choose between a will and a trust. We know thinking about you or your spouse passing away is not enjoyable, but don’t put off creating one of these critical documents just because it isn’t fun. You have the ability to make sure everyone is taken care of while you are well, so make sure you do!
    3. Update your beneficiaries. Any life insurance plan or retirement fund will have beneficiaries listed as to who will receive your assets upon your death. Make sure these are updated to include your spouse because legally, your beneficiaries supersede your will.
    4. Update any titles. If you plan on sharing property, home and vehicles titles should be updated to include your spouse as well.

Combine or Update Insurance Policies

  1. Life insurance: Not everyone thinks about life insurance before they are married, but now that you are, it is time to make sure you both have a life insurance policy to make sure your loved ones will be taken care of if one of you passes.
  2. Auto: Often there is no reason to carry two different policies once you are married when you can save by bundling. If your spouse is going to be driving your car, you also want to make sure both names are attached to the insurance so there are no issues in case of an accident.
  3. Home: You may find that your partner can get a cheaper home insurance rate by bundling with another policy like their auto insurance. Be sure to shop around and ask about discounts for bundling.
  4. Health insurance: If you want to combine health insurance, marriage is one of the few qualifying life events that allows you to change your plan. However, you generally only have 60 days to add a spouse after the wedding, so make sure you get on this right away.

Taxes

  1. Review and adjust your tax filing status. You may need to update your W-4 so you don’t owe money at tax time. This is a great time to run your numbers through the IRS withholding calculator to make sure you’re on track for the year. If both you and your spouse will be working, make sure to check the box for “Married, but withhold at higher Single rate” when you refile your W-4.
  2. Consider your tax-advantaged accounts. Depending on your combined income, you may move in or out of eligibility brackets for various tax-advantaged accounts. Make sure you take advantage of the accounts that will be the most beneficial in the future and consider whether backdoor contributions make sense for you. If one spouse won’t be working, consider opening a spousal IRA which gives you more space for tax-advantaged savings. If you plan to have children, you could also set up a 529 plan to save money for schooling.

If this list seems like a lot, don’t be overwhelmed. At Sharkey, Howes & Javer, we are here to help. Contact us to meet with a CERTIFIED FINANCIAL PLANNER™ for help setting up your finances and getting the most from your money as a newly married couple.

Does it Make Sense to Pay Off Your Mortgage?

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A home mortgage is something that the majority of Americans need to obtain in order to purchase a primary residence. A mortgage is considered “good debt” because it is tied to an asset that has the opportunity to appreciate in value over time. It is usually issued at a lower interest rate compared to consumer loans and the interest can be tax deductible.

A common question people have is whether or not they should pay down their mortgage early. The first thing to look at when trying to answer this question is the interest rate on the loan. Since the Financial Crisis in 2008, we have seen historically low interest rates. According to FreddieMac, the average 30-Year Fixed-rate mortgage has been between 3.5% and 5.5% since 2010. It is important to take into consideration the opportunity cost of paying down your mortgage. If you have a low rate (in the 3.5%-4.5% range), it may make sense to invest that money rather than using it to aggressively pay down the mortgage. Going back to 1926, the average annual return on a 60% stock and 40% bond portfolio is about 8%. If you’re a long-term investor, it would make more financial sense to invest that money in a diversified portfolio instead.

Another aspect of this decision is the emotional side. A housing payment (whether it be rent or mortgage) is often the largest expense item in a person’s budget. For some people, you cannot put a price on the feeling of owning your own home free and clear and never having to worry about a mortgage payment again.

Are you wondering if you should pursue paying off your mortgage early? Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™. We’ll help you answer this question and provide you with the advice you need to help meet your financial goals.

Three Budget-Friendly Vacation Destinations for Spring

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Spring is a glorious time to travel. Tourists are fewer and prices are often cheaper. Flights have fewer delays and cancellations, and the weather is starting to warm up. We have selected three budget-friendly trips from Denver that may appeal to you whether you’re traveling alone, with a partner, or with your family.

Get Your Groove on in Memphis

United Airlines has non-stop flights from Denver to Memphis that can usually be found for under $250. The Memphis Music Hall of Fame and the Rock and Soul Museum are just two of the many Memphis museums that feature music. Live music can be found all over town, and Beale Street is the epicenter with three blocks of nightclubs, restaurants, and stores. It is best known for delta blues, jazz, rock ‘n’ roll, R&B and gospel music. The Beale Street Music Festival, held May 3rd to 5th, draws thousands of music fans from around the world for live performances.

Another claim to fame is the city’s barbecue. Barbecue tours offer tastes of a variety of barbecue styles — up to seven for $65. Or, just pop into a nearby BBQ restaurant and make your own discoveries.

The National Civil Rights Museum incorporates the motel where Martin Luther King was murdered and displays a compelling overview of Black history from slavery through the Civil Rights movement.

Lodging in Memphis ranges from the historic Peabody Hotel downtown (about $230 a night) to chain hotels that offer rooms for $100 or less. And if you’re an Elvis fan, you can stay at the Guest House at Graceland for $161 a night.

Fly to the Windy City

United Airlines offers round trip fares to Chicago for around $170. Getting from the airport to the city is just $5 on the L train that has a station in the airport. Or, you can purchase a $28 Ventra pass that is good for a week of unlimited rides on Chicago’s L trains and busses, including to and from the airport. Check into a small charming hotel, such as the historic Old Chicago Inn ($135 a night) with its Prohibition-era inspired speakeasy. The weather is usually balmy in late spring, so walking through the city parks, along the lakefront, and down the Magnificent Mile (a shopping mecca) can be delightful.

Chicago offers world-class museums such as the Art Institute, the Field Museum, and the Museum of Science and Industry. A $106 VIP CityPASS lets you skip the lines at five major museums and attractions. Chicago theaters offer performances of many varieties with a wide range of ticket prices. The Looking Glass Theater is one of the more affordable and unusual as it is situated in the Water Tower Building. Act(s) of God is playing through the start of April and Mary Shelley’s Frankenstein is playing in May. Expect to pay $35 to $45 a ticket.

You can eat your way around the world without leaving the city. Chicago’s iconic staples are deep dish pizza, Italian beef sandwiches, and the Chicago hot dog on a poppy seed bun. Other popular cuisines includes Italian, German, Irish, Asian, and Mexican. Try little restaurants in ethnic neighborhoods for meals prepared by families from the recipes they brought from home.

With so many things to do and see, a Chicago vacation can be geared towards children, families, or adults.

Fly to Iceland and Beyond

Round trip tickets from Denver to Iceland are around $552 on Icelandair. The airline allows multi-day stopovers before boarding a plane for your onward journey to Europe. A sample price from Denver to Dublin with a stopover in Iceland is about $1,110. This is about what you can expect to pay on a major airline without a stopover. While in Iceland, enjoy some of nature’s most dramatic displays in The Land of Midnight Sun. By May 21st, there is no night in Reykjavík. Glacier hiking, lava caving, and horseback riding are some favorite activities. Many choose to rent a car and drive the ring road that circles the island, or just explore part of it for extravagant views of the wild and rugged land and seascape.

Be sure to set aside four hours to enjoy the warm, mineral-rich waters of the Blue Lagoon ($57) followed by a snack at Blue Cafe, or a meal at Lava Restaurant that serves a remarkable birch and juniper cured Atlantic char. Reykjavik has lodging options for all budgets. The Icelandair Marina Hotel ($232 a night) is by the Old Harbour beside the downtown area and has stunning ocean views. Budget hotels cost less, and some have a great deal of charm.

All three vacation options are fun to visit any season, but travelers headed for Iceland should be ready for the snow and cold if they plan an early spring trip.

If you’ve been bit by the travel bug and want to make sure your next trip fits in your budget, contact us to speak with a CERTIFIED FINANCIAL PLANNER™ and we’ll help you keep your financial plan on track while you take that vacation you’ve been dreaming of.

Women & Finance: Are You in Control of Your Finances?

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It is more important than ever that women play a proactive role when it comes to their finances. When asked if women feel that they know less than the average investor about investing and the financial markets, 55% of women agreed. Alongside this, women are more hesitant to invest than men, keeping 71% of their money in cash. The goal of this article is to highlight the importance of investing for women and provide confidence to help you take control of your finances.

When it comes to securing their financial future, women have some obstacles to overcome. There are a few unique reasons behind this. First, women have historically earned less than men. Although women are almost half the workforce and receive more college and graduate degrees than men, their take-home pay is still considerably less. In 2017, female full-time, year round workers made 80.5 cents for every dollar that their male counterparts earned, according to the Institute for Women’s Policy Research. On top of that, women also lose earnings by spending less time in the workforce raising children and caring for family members.

This is especially harmful because women are living longer than men. On average, men are living until the age of 76, while women are outlasting them, living to an average age of 82. That is 6 additional years of expenses that women need to save for. In addition, 56% of working women do not participate in their employer sponsored retirement plans. This savings pattern does not match the long-term need.

Taking all of this in consideration, although women on average are less confident than men when it comes to investing, they tend to be better investors. Analysis completed by Fidelity and SigFig shows that female investors on average outperform men by up to 0.6% in a years’ time. This may seem minor, but year over year can lead to a significant advantage. This can be attributed to a few different characteristics. One reason for better investment returns is that women tend to take on less risk than men by buying less stock. Women also change investments in their portfolios 45% less than men, they tend to be more “buy and hold” investors. Lastly, 64% of women agreed they are more likely to seek advice and work with a financial advisor, compared to 56% of men.

Because of all of this, it is increasingly important that women take an active role when it comes to their finances. In effort to overcome these obstacles, it’s important to ask questions, conduct research and work with a CERTIFIED FINANCIAL PLANNER™ in order to take control of your own financial future.

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™.

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.

What to Do Now: Financial Advice for Your 60s and Beyond

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Whether you’ve been on top of your finances from the beginning or you’re just now getting around to a full financial checkup, your 60s are an important time to carefully consider your financial health. Are you financially prepared for retirement? Have you created a list of potential expenses now that you’re nearing your retirement years? As you approach your 60s, make sure to add these items to your financial checklist.

Keep Paying Into Your Retirement Accounts

Ideally, you want to keep funding your retirement accounts until you are ready to retire. Qualified retirement accounts may be tax-deferred, which means that you’ll pay taxes on withdrawals. Does your employer offer matching contributions? If you don’t take full advantage of the match, you’re turning away free money. In your 50s, you’re also eligible for catch-up contributions, which can help increase your available funds in retirement.

Evaluate Your Retirement Asset Mix

Take a look at how you’ve positioned your retirement accounts. Do you have a good mix of pre- and post-tax accounts? Roth IRAs have no required annual minimum withdrawals after 70 ½ and can give you more flexibility in retirement. Depending on your current tax bracket and income level, you may want to adjust how you make your contributions, or convert some old IRA’s. As retirement nears, you should revisit your current investment allocation. While bonds generally see less growth than stocks over the long-run, they offer some stability as you start to rely more, or even entirely, on your savings.

Title Your Accounts

If something happens to you, what happens to your money? Adding a beneficiary can clear up any potential confusion. With this strategy, you can make it easier to pass your funds to heirs in the event of your death. Keep in mind, that beneficiary designations will override your will. Review them about once per year or after any major life changes like marriage, divorce, or the birth of a grandchild to make sure your money is going where you want it to.

Solidify Your Retirement Plans

What does life in retirement look like to you? Are you going to be downsizing into a smaller home or will you finally be able to move into the dream home that you’ve been thinking about for years? Will you be staying in your current city or moving to a new one, perhaps to get away from the cold or to be closer to your family?

You should also consider how you’ll be spending your money and your time: are you going to be traveling frequently? Do you have hobbies that you’d like to invest more in once you’re retired? Consider how those hobbies have the potential to impact your spending and make sure that you have adequate funds in your retirement account to handle those plans. A passive source of income through your retirement years, from rental property or royalties, for example, may make it easier to fund your plans.

Prepare for Healthcare Costs

Healthcare remains one of the biggest expenses in retirement and many seniors find themselves struggling to cover the cost of healthcare, especially if a major and ongoing health problem pops up unexpectedly. Even with Medicare, you need to be ready for these potential expenses, but it’s especially true if you’re retiring early before you’re eligible for Medicare. Make sure that your retirement planning includes a strategy for dealing with medical costs, whether that means making sure that you have secondary insurance or monitoring your retirement accounts to be sure that you’ve secured enough of a buffer to deal with unexpected medical expenses.

Do you need help with financial planning as you get closer to your retirement years? Are you struggling to decide how to invest your financial assets? 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.

What to Do With Your Bonus or Tax Refund

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There’s not a single person who doesn’t appreciate receiving a large sum of money, whether it is a bonus from work or a refund of taxes that have been over-paid throughout the year. However, it’s easy to have spent this large sum of money before it’s in your pocket. Most of us have felt the disappointment of not receiving expected funds. In the event you haven’t already spent the money, what do you do with it once it does actually hit your bank account?

We suggest giving yourself permission to spend a small amount, possibly 10%, on something fun or frivolous. Maybe that’s a ski pass, a vacation, new technology, or a wardrobe boost. We suggest putting the rest toward a goal that will help advance your financial picture. The first priority is likely paying down credit card debt. After this is paid off, then consider paying down a car loan, student loan, home equity line of credit, or mortgage.

Another consideration is boosting savings. Once you have 3-6 months of emergency savings in the bank, you could fund retirement with a Roth IRA contribution. If you are on track for your retirement goals, you could fund a brokerage account for mid-term goals such as buying a house or vacation home, or an HSA for future health care expenses. If you are receiving a bonus, check with your HR team to see if you can invest the funds in your company 401(k) plan to defer the taxes.

A couple secondary options to consider include:

  • Funding an account for health insurance premiums if you are planning to retire before Medicare age 65.
  • Investing in a home renovation to boost the value of your home for a future home resale.
  • You could also consider investing in residential or commercial rental real estate.
  • Pursue further education or a designation that will help you advance your career.
  • Your favorite charity or non-profit would be more than happy to receive a donation.
  • Consider an impact investing opportunity.

There are endless ways to use a large sum of money. If you have received a tax refund, talk with your CPA about adjusting your tax withholding on your W-4 to better align your tax payments throughout the year so you are not giving the IRS a tax-free loan of your hard earned income.

Please call Sharkey, Howes & Javer at 303-639-5100 to schedule a complimentary consultation to discuss your financial picture.

Custom Insurance

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Most people understand the concept of insurance. People pay a premium to an insurance company for the protection against a potentially catastrophic financial loss. Insurance companies are able to make money by pooling policyholders’ risks and charging a premium based on actuarial estimates.

The most common types of insurance policies are life insurance, disability insurance, and homeowners and auto insurance. But what happens when you want to insure something outside of the norm, say a personal item such as a laptop or expensive piece of jewelry? More and more, technology is starting to act as a disruptive force in the insurance industry that makes obtaining custom insurance more efficient for consumers.

There is a host of startup insurance firms that now allow you to quickly and easily insure single items, for varying periods of time. According to KPMG, this budding industry, nicknamed “Insurtech”, gathered over $1.7 billion from Venture Capital firms in 2016. One of the most popular companies, called Trov, is entirely app based. It got its start in Australia and the U.K., and recently made its way to the States. It can be very convenient if you want to insure an item for a specific period of time. For example, if you are going on a cross-country road trip with the family and you were worried about losing or damaging an expensive camera, all you’d have to do is send a picture of the camera to the app, tell them how long you want it insured, and you will receive a quote instantly.

Another on-demand insurance company is called Sure. It’s very similar to Trov, but you can also purchase baggage protection when traveling, rental car insurance, and insurance on your pet. As these on-demand and custom insurance companies start to mature, it will be interesting to see what other technological advancements will develop that will aim to make our lives easier as consumers.

If you would like to discuss insurance protection with a CERTIFIED FINANCIAL PLANNER™, please call Sharkey, Howes & Javer at 303-639-5100 to schedule a complimentary consultation.