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4 Smart Ways To Use Your Tax Refund


The average federal tax refund is $2,895 based on 2016 data.  I could write an entire post about why you should change your tax withholding to ensure you don’t end up getting such a large refund, but we’ll save that for another day. A refund provides a great opportunity to make smart a financial decision.  In this post, I’d like to highlight some different uses that would improve your financial life.  Here they are in no particular order: 1. Shore up your emergency savings You might have experienced unexpected car issues, home repairs or other financial emergencies in 2017.  If you did, you probably leaned on your emergency fund to help pay for those unexpected expenses.  You should generally aim to have 3-6 month’s worth of living expenses in a savings account as an emergency fund at all times.  Using your refund to shore up your emergency fund may be a smart...

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Investing Is Harder When You’re Older


Imagine I told you that you lost $5,000.  You’d be upset, but probably not devastated.  Now imagine that I told you that you lost $50,000.  You’d feel unsurprisingly worse. But what if this is what happened? You are 30 years old and your $50,000 401k account declined by 10%. There’s your $5,000 loss.  You’d think to yourself, “I’ve got time, I’m young and still saving aggressively for retirement.” OR You are 55 years old and your $500,000 portfolio declined 10% and you lost $50,000. Not only do you feel worse because $50,000 is a lot more than $5,000, but add to that the fact that it took you 20-plus years of saving to accumulate that half a million dollars and you were thinking of retiring in the next 5-10 years.  This situation is much more concerning emotionally. Admittedly, the 55 year old probably has a more conservative portfolio than the 30 year old, so it...

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The Pullback Has Arrived, Loud and Clear


The stock market started a downturn late last week and has continued that decline today.  The S&P 500 was down 113 points today, or 4.1%, and down 224 points from its closing high of 2,873 on January 26.  This represents a 7.8% decline in a matter of days. While nobody could have predicted this type of decline, or its speed, it isn’t terribly unexpected.  The stock market has been on a phenomenal run since March of 2016 and investment portfolios have benefited from that.  This pullback takes the market back to slightly below the end of 2017. This really means that a diversified portfolio of stocks and bonds is probably back to even for 2018.  The context of “just giving up the last month’s gains” can help you feel a little better than thinking the stock market just went down 8% in a couple of days.  Investors should remember that this is...

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The Market Has To Go Down, Right?


The S&P 500 has been on a hot streak for the last 22 months going back to March of 2017.  Since then, there has been exactly one negative month, October 2017.*   Last year was technically perfect, with zero losing months for the S&P 500.  Because of this hot streak, I keep hearing the same statements: This can’t continue much longer There has to be a correction coming soon The market has to go down The market doesn’t have to do anything! I repeat, the market doesn’t have to do anything at all. It doesn’t have to go up and it doesn’t have to go down. The market will simply be a market.  It’s made up of people who sometimes get over excited and sometimes get overly depressed. Right now, people are very clearly excited. [caption id="attachment_7267" align="alignnone" width="970"] *JP Morgan Guide to the Markets Q4 2017[/caption] Not excited without reason, however!  Corporate earnings are great and expected to...

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4 New Year’s Resolutions If You Plan To Retire In 2018


2018 is already upon us and with every new year comes the resolutions. If you’re on the verge of retirement it is even more important to have your financial house in order.  With that thought, I’ve created a list of new year’s resolutions specifically geared to those who plan to retire in 2018.  Those of you who are still a few years away from retirement can also use these tips to get a jump start on planning (reminder: the earlier you start planning the easier it will be). 1) Track your expenses to determine what you need to live on How much money do you need per month to be comfortable? I prefer people calculate this on a monthly basis since many of us can do this with relative ease.  Of course, don’t forget any quarterly or yearly expenses.  This is the most important number when it comes to your retirement.  It...

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Tax Reform: An Example Comparison


On Thursday, the GOP announced details of their tax reform proposal.  The proposal provides additional details on the tax package they intend to implement.  And for the first time they released the actual brackets for each tax rate, which is incredibly important when trying to figure out if you will be better off under the new plan or not.  Let’s dive in to a comparison for one family. John and Mary Smith are both working, age 58 and have no children.  John is earning $75,000/year and contributing $10,000/year to his 401k.  Mary is earning $105,000/year and maxing out her 401k ($24,000/year).  For simple rounding purposes, let’s say they pay $9,400/year in New York state income taxes, $4,000/year in property taxes and $6,000/year in mortgage interest. Here is how it shakes out under the current tax structure and under the proposed tax structure: As you can see, the width of each tax bracket is...

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What’s the “skinny” on tax reform?

tax reform

On Wednesday, the GOP announced details of their tax reform proposal.  The proposal provides insight into changes that are being discussed but still leaves many questions unanswered.  Let’s go over some of the big points.   1. Reduction in tax brackets and tax rates This is a big change as it reduces the number of brackets from seven down to three and lowers the top bracket to 35%.  Congressional committees working on the reforms left room to add a fourth bracket at a higher rate, but that remains to be seen. The skinny: It depends on how wide each bracket extends, but this will likely lower taxes for many people.   2. Doubling the standard deduction to $12,000 for single filers and $24,000 for married couples There will absolutely be winners and losers created from this change.  The itemized deductions calculation would simply be mortgage interest and charitable contributions, which for many people will not result in...

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How Much Do I Need In My 401k To Retire?


Retirement is a relatively new concept and before 1960, it didn’t really exist for most people.  We’re still getting used to the idea of living off our savings during the golden years.  This also begs the question “How much can I safely spend from my savings without running out of money in retirement?’ Unfortunately, we cannot answer this question perfectly because we don’t know three very important things about the future: How long are you going to live? What annualized return will your money earn in retirement? In what sequence will you get these returns? Many people have said they will simply “live off the interest” in retirement.  Well, if you ladder a bunch of five year CDs you’re talking about 2.25% interest or $22,500 on $1 million in savings.  Oh, and don’t forget that the latest inflation rate according to the Bureau of Labor Statistics is 1.7% for the 12 months ending in July...

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The Most Important Number You Need To Know When Thinking About Retirement


When meeting with clients who are about to retire I inevitably come to the question of how much money do you need each year to live on? Very few people have an answer to that question. If you don’t know how much you need how can you ever expect to know if you are ready to retire? Let me give you an example: if someone asked you to help budget how much gas they might need for an upcoming road trip what would you ask them? Obviously you’d ask where they are going.  Now imagine they said they didn’t know.  There would be no way for you to help them because you don’t know if they are driving across the country or across town. Knowing how much you need to live on is vital to preparing for retirement.  Unfortunately this means you need to budget, which is one of those things we...

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Spring Cleaning For Your Retirement


It’s the time of the year where we all go through our stuff to clean out the things we no longer need.  We organize our closets and garages but often neglect to organize our financial lives.  Your personal finances are incredibly important because the amount of stress money troubles can put on a person is enormous.  As you approach retirement it becomes even more important to get things cleaned up.  Here are four tips to help with your retirement spring cleaning: Get Organized Knowledge is power so if you don’t know what your big picture financial situation looks like then it’s time to get organized.  Use a spreadsheet or one of several popular software services like to pull together all of your information.  Once you know where everything is, what the totals are and where your money is flowing, you will have the information you need to take the next step. Consolidate...

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