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.

It’s Almost Open Enrollment, Should You Open an HSA?

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This year, Federal open enrollment runs from Monday, November 12, 2018 – Monday, December 10, 2018 and it may be a good time for individuals and families to review and make changes to their health insurance coverage. Even if you have been covered under an employer-sponsored plan for many years and are not planning to make any changes, this year it might be time to consider opening a health savings account, also known as an HSA. To be eligible for an HSA you cannot be enrolled in Medicare and must have a high deductible health plan. For 2018 that means you have a deductible of at least $1,350 for individuals and $2,700 for families where the maximum out of pocket cannot exceed $6,650 for single coverage and $13,300 for family coverage.

HSAs are triple tax advantaged accounts offered through employers and some banks and financial institutions as a way for individuals and families to save for health care expenses as they would save for their retirement. Contributions made to the account are tax deductible regardless of income level. If you invest the funds, any growth is tax deferred and distributions are tax-free when withdrawn for qualified health expenses. Unlike a Flexible Spending Account, you do not have to use the funds you contribute by the end of each year. The balance rolls over year by year and if you are able to cover your current medical expenses through cash flow, the funds can be maintained in the account for future needs.

The IRS adjusts contribution limits to an HSA each year and for 2018 they are set to $3,450 for individuals and $6,900 for families, with a $1,000 catch up contribution if you are 55 or older during the year. While you cannot use HSA funds to pay your health insurance premiums, you can use the funds to pay Medicare premiums once enrolled. If funds are withdrawn for non-medical expenses, there is a 20% penalty until age 65. After age 65, funds can be used for any expense but are subject to taxes if not medically related.

If you miss the November 12th to December 10th window, there is good news. HSAs are not restricted to the open enrollment period and an account can be opened at any time as long as you maintain eligible coverage. Call Sharkey, Howes & Javer at 303-639-5100 to speak with a CERTIFIED FINANCIAL PLANNER™ and determine if it makes sense for you to open your own health savings account.

Protecting the Recently Deceased from Identity Theft

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When a loved one passes away, there are so many things to do in the midst of grief. The last thing on a grieving mind is the risk of identity theft of the person who has recently passed away. Sadly, hackers have reached a new low by taking advantage of such a sorrowful time.

Identity theft hackers have been using information from hospitals and obituaries to steal a deceased person’s identity and file a fraudulent tax return. According to an AARP article, “With a name, address and birth date in hand, they can illicitly purchase the person’s Social Security number on the Internet for as little as $10.”

The term for this ugly practice is commonly referred to as “ghosting” because it can take six months for financial institutions, credit-reporting bureaus, and the Social Security Administration to register death records. This gives the “ghosting” hackers plenty of time to cause a lot of damage. Thankfully, the surviving family members are not necessarily responsible for the financial destruction.

To make it even worse, an article from ABC News warns of a “disturbing pattern of identity theft of financial information belonging to people who were dying. It’s easy to see how that could happen, since people who are gravely ill can easily lose track of the details of their finances.” Therefore, it is always important to help protect the identity of a loved one, especially one who is ill as well as the recently deceased.

The AARP article lists suggested steps to take after a loved one’s death, such as not including a date of birth or any personal identifiers in an obituary and mailing a death certificate copy to the three credit reporting bureaus (Equifax, Experian, and TransUnion). Consumer Action provides a more extensive list of steps to take to protect the identity of a deceased person.

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

What to Do Now: Financial Advice for Your 40s and 50s

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For many people, their 40s and 50s are still a period of financial transition. Some people are opening their own businesses while others are considering retirement. No matter where you are at this point in your life, it is likely that you still have some financial goals to work toward. These tips may help you work towards a brighter and more financially secure future.

Pay into Retirement

If you have an employer sponsored 401(k) plan, we suggest creating a goal to contribute the maximum amount allowed based on the IRS limits ($18,500 in 2018). Alternatively, if you own a business and don’t have a 401(k) through an employer, you can may be able to set up your own retirement plan to contribute with tax-deferred funds.

While you are adding money to your savings regularly, also make sure to project your savings, ensuring you are on the right track. If you feel like you’re off track and you’re over the age of 50, you can contribute an additional $1,000 to your IRA and $6,000 to your 401(k) to help catch up.

Monitor Stocks and Bonds

It is important to keep your stock/bond allocation near it target design and may require periodic rebalancing of the account. This is something you should discuss with your Financial Advisor.

Consider Life & Long Term Care Insurance

Life insurance policies can be important if you have children or any other dependents. If you were to pass away suddenly, your dependents may rely on life insurance proceeds to maintain their standard of living.

You might also consider long-term care coverage, especially if you are in your mid-50s. If you are ever in a position later in life, with illness or injury where you need assistance with daily tasks, this type of insurance plan may pay for these expenses.

Pay Down High-Interest Debts

Credit cards, student loans, and some car loans are all high-interest debts. You can use one of several techniques to fight debt. You should always start with a budget so you can determine what exactly you can afford.

Then, you need a battle plan. Will you use the snowball method to start with the lowest balance and work your way up? Will you use the avalanche method and start with the debt that has the highest interest rate? You can discuss strategies with your financial advisor to establish the right plan.

Consider Social Security Benefits

When was the last time you estimated your Social Security benefits? This is a good time to assess whether you have the ability to delay until age 70 to collect the highest monthly payment in the future. Knowing which benefits will be available to you in the future can help you with this decision.

Create a Retirement Plan

A retirement fund is great, but you also need a retirement plan. Will you be moving into a smaller home? Are you considering buying a home in an area with a lower cost of living? Will you be refinancing your home to lower your debt?

Your retirement plan should take into account your current budget, current savings, and future savings but also consider what it is you want to do in retirement with your time. Are you setting aside enough right now to meet your goals in 10 years? 20 years?

Update Your Estate Planning

Review your estate planning documents and make necessary updates. If you have been divorced, remarried, or added new children to your family, you may want to change your beneficiaries. Also If you have accumulated new assets, your estate plan should be reviewed. Furthermore, changes in tax law might also impact your estate plan.

Connect with a Financial Advisor

Building a relationship with a financial advisor you trust can be beneficial for planning your financial future. An advisor can create a customized plan tailored to suit your needs. Sharkey, Howes & Javer can help you plan for retirement. Get in touch today to learn more about your options.

What to Do Now: Financial Advice for Your 20s and 30s

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Becoming financially savvy can take decades. Each stage of life poses different challenges, some of which can make smart financial choices seemingly impossible. While it’s inevitable that there will be financial slip-ups throughout your life, following these tips in your 20s and 30s can help build a solid foundation for healthy finances.

Create a Monthly Budget

It is very difficult to save responsibly if you don’t first learn how to spend responsibly. Establish a budget, even a simple one, so you can track where your money is going. Remember: no budget is set in stone. You can always revisit your budget in a few weeks, months, or years to reassess your income and needs.

One popular and simple technique for budgeting is the 50/30/20 method. First, use 50 percent of your after-tax income on necessities like rent, groceries, insurances, and auto payments. Next, 30 percent of your income goes to your wants like shopping, travel, and entertainment. The remaining 20 percent of income goes right into savings.

Avoid Credit Card Debt

Credit cards can be a powerful tool, but to avoid losing money on interest payments, you need to pay off your balance in full each month. Spending only as much as you can pay off by the end of the month limits your credit card spending and can prevent you from falling into a pit of debt.

If you are already in debt, set up a repayment plan now and no matter what, avoid paying your credit card bills late. Playing catch-up puts a heavy strain your budget.

Create a Retirement Fund

Many employers offer a matching program for 401(k) retirement accounts. If available, your employer will match your annual contribution to your retirement account, typically up to a certain percentage of your salary or up to a dollar for dollar limit. Now is the perfect time to take advantage of this program. With a traditional 401(k), your contributions will not yet be taxed, allowing additional savings to accumulate.

If your company does not offer such a program, consider setting up a Roth IRA. The benefit of a Roth IRA is the funds can grow tax free.

Diversify Investments

Investing in stocks while you’re in your 20s and 30s gives you plenty of time to let your money grow, but you should be careful not to put all of your eggs in one basket. The stock market is unpredictable and an undiversified portfolio carries a greater amount of risk. Consider multiple assets classes and products like mutual funds and ETF’s which spread your investment across a wider range of different companies.

Monitor Your Credit Reports

Even if you do not plan on making major purchases in the next few months, routinely check out your credit reports. Each reporting bureau must offer one free report per year, but you can stagger your reports from each agency to receive one every few months.

A higher credit score helps you receive better rates on loans and may help you avoid hefty deposits on rentals, utilities, and more as you work to establish yourself financially. When you check your reports, be sure to verify you have not been a victim of identity theft and no one else has taken out credit in your name. Consider placing a credit freeze at each of the three credit bureaus if you do not have a need to access credit soon.

Maintain Health Insurance Annually

Even if you are healthy, you don’t want to skimp on health insurance. Whether you get a plan through your parents, at work, or from the marketplace, you are potentially saving thousands of dollars on a trip to the emergency room.

Medical care is expensive, so any coverage allowing you to pay less for in-network health care is beneficial. Preventative care, like vaccines and check-ups, are often covered and not subject to your deductible. After you meet your deductible, your healthcare costs are reduced while individuals without healthcare coverage risk paying for serious medical care.

Build an Emergency Fund

An emergency fund should cover at least three to six months worth of expenses in case you were to lose your job or become unable to work. This fund also prevents you from going into debt because of unforeseen circumstances, such as your car or air conditioning unit breaking down. Statistics show that most millennials could not pay for a surprise $1,000 expense.

Consider Financial Planning

Having questions about your financial future is natural. Financial planners understand the challenges young people face when they begin setting themselves up for success. If you are ready to set up a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™, contact Sharkey, Howes & Javer today.

What is Filial Law

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Filial Laws impose responsibility on a third party to cover support for poverty-stricken parents and relatives. The concept is derived from a term called filial piety, which is a key virtue in Chinese culture. This virtue essentially stands for respecting and taking care of elders. In more modern context, these laws allow the states to go after the assets of adult children if their parents were on government assistance. This issue often comes up if there has not been proper planning for long-term care needs.

With baby boomers growing older and living longer, almost 70% of people will need some sort of long-term care in their lifetime. Many people do not have the ability to purchase long-term care insurance, so they rely on their own assets to pay for care until they can qualify for Medicaid.

One of the most recent examples of these laws being enforced happened in Pennsylvania in 2012. In the case of Health Care & Retirement Corporation of America v. Pittas, the court ruled that a son was financially responsible for his mother’s nursing home costs during the 6 months that she spent in the facility. The total debt that the defendant had to pay was $93,000.

Filial Laws in Colorado?

There are currently 30 states in the Union that have Filial Responsibility Laws, but Colorado is not one of them. Just because you live in a state that doesn’t have these laws, doesn’t mean they may not affect you. If your parents live in a state that recognizes Filial Laws (say, California for example), you could still be held responsible for paying for their care.

These laws rarely come into play because there are certain requirements that need to be met for them to apply. One of these requirements is that the plaintiff has to have reasonable belief that the relative they are suing has the means to pay the outstanding bill.

If you or anyone you know is concerned about how to plan for long-term care expenses as part of your overall financial plan, contact Sharkey, Howes & Javer to meet with a CERTIFIED FINANCIAL PLANNER™.

What Costs More? Inflation Comparison Then and Now

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We all know that inflation raises prices, but how many of us really understand the compounding effect that it has on the cost of everyday items? What other factors influence prices besides official inflation numbers? And how many of us know how we may protect ourselves from inflation and, at the same time, make the most of inflationary pressures as we plan for the future?

Inflation Through the Years

Let’s take a brief look at individual inflation rates from 1990 to 2018, at the cumulative rate, and at some specific numbers over just the past 28 years.

Comparing prior years, inflation stood at 6.1% in 1990, 3.4% in 2000, 1.5% in 2010, and is expected to be around 2% for 2018. On their own, those numbers may not look too daunting, but when you look at the cumulative effect that it has over the years, small increases over time can have a huge impact.

By adding together each year’s inflation rate, we can see how much the cost of an ordinary $20 item increases over the years. Since 2010, the cumulative inflation rate is 15.4%, so the same item that cost $20 just eight years ago would now cost $23.08. Going back to 2000, the cumulative rate has been 46.1%, raising the cost to $29.22. Looking back another 10 years, we see a cumulative inflation rate of 92.5%. This means the cost to buy that $20 item from 1990 would today cost $38.50.

To put that into perspective, it means that to live in 2018 the way people did in 1990, just taking inflation into account, pay increases would have had to average 3.3% every single year. Which means that a salary of $100,000 in 1990 would need to be $248,204 in 2018. If a person’s annual raises did not average at least that much, then their savings and investments would have had to make up the difference, just to stay even. Since 2000, incomes would have had to increase every year by 2.56% to stay even.

What About Specific Items?

Inflation is not the only factor that affects prices. A company’s research and development has to be paid for, marketing costs, product launches, building new plants, funding benefit schemes, and the value of innovations to existing and new products or services all impact prices. Let’s take a look at some specific product prices today compared to their prices in the year 2000. All figures are based on the US Bureau of Labor Statistics.

You can see how the price of other items from the Consumer Price Index have changed over the years here.

Planning Ahead

No one knows what the future holds, but by planning ahead and analyzing your present versus future financial situation may be a good way to feel confident about what lies ahead.

If you’re ready to take a look at your situation and work out a plan for the future, contact Sharkey, Howes & Javer today to meet with a CERTIFIED FINANCIAL PLANNER™.