Financial Resolutions

I believe that just about everyone has some sort of financially related To Do item sitting on their To Do list.  And they have every intention of taking care of it.  However, so many other more time critical things seem to keep the financial items from getting to the top spot of the list.

If you are going to resolve to get some of your financial To Dos To Done, what actually matters – how it got done or that it got done?  I will come back to that thought in a minute.

When people come to see me they have accumulated a list of tasks, and it is so easy to see how  that happens in our busy lives.

You take a new job – a nice jump up the career ladder.  Something needs to be done with that old 401(k).  But what?   You’re busy with the new job right now.   So you put it on The To Do List.

Your income is higher now with the new job, should you have more life insurance?  Or is the life insurance at work enough?  You did buy some whole life from that guy that came to the house when you first got married.  Is that still the right policy for you or not?  So you put that on The To Do List.

Your kids are getting older, and you haven’t saved as much as you had intended for college.  How much can you afford to put away for their college vs. how much should you be saving for our own retirement?  Well, the kids are in middle school, you have a couple more years, so you put it on The To Do List.

At work they keep changing your investment choices and you don’t know what to pick.  You don’t have the tools to see all of your investments together and create a diversified portfolio that incorporates all of your accounts, but you know that you need to do it one day.  But you don’t have the time right now.  So you put that on The To Do List.

Sometimes when potential clients meet with me in the free Get Acquainted meeting they tell me that they feel bad about not taking care of these things themselves.  I stress to them, that I do not want them to feel that way.  I tell them that when I have electrical problems at the house, I call an electrician.  And when I have serious plumbing problems I call a plumber.  I have had a handy man come to the house a few times to work though lists of little things that were annoyances.  Sometimes you call in a professional to help you with your list.  And it feels great to work on that list.

So if you are making a resolution to get your financial To Do items To Done, make a plan to either do them yourself, or to contact a professional to help you do them.  Because when you mark them off the list, what actually matters – how it got done, or that it got done?

Resolve to take action today!

Have a Wonderful New Year!

Michele Clark in the News: US News and World Report “Your Retirement Benefits”

US News and World Report quoted me in their article “Your Retirement Benefits: What to Expect in 2013” on their website this week.

I shared my thoughts on 401(k) fee disclosures.  401(k) providers are required to disclose the fees for the plan.  All things being equal, if two funds are simlar but one has lower fees than the other, choosing the fund with lower fees will allow the investor to keep more of their money invested for their future.

The article is full of information on a variety of topics.  It covers information about changes to contribution limits, the Roth IRA income limit increase, the saver’s credit, the pension insurance limit for 2013, the increase in Social Security taxes (expiration of the tax cut), and Medicare premiums and coverage.

Happy Thanksgiving from Clark Hourly Financial Planning!

Happy Thanksgiving!  I hope that you have a wonderful Thanksgiving surrounded by those that you love the most.

I am so very thankful this year, this is the first time I have ever been able to celebrate Thanksgiving with the wonderful family that I married into and the terrific family that I was born into.  I am so happy.  In the St. Louis area I live near my in-laws, however my family is scattered all over the country.  So after dinner it is time to hop in the car and drive for hours to go to where my family will be gathered for a wedding this weekend, I am really looking forward to it.

And I am grateful for all of the families that have placed their trust in me this year and allowed me to work with them.  Thank you.

Financial Bloggers Give Advice to Increase Your Savings Rate

Think about this: on average you have 45 years of working life to save up for 30 years of retired life.

While you are working, it can be hard to save because you have bills to pay; utilities, groceries, gasoline, insurance, property taxes, day-to-day living expenses.  You will have all those same bills to pay when you are retired, however they will be more expensive due to inflation.  So you need to save now to pay for those bills that you will have later, all while paying your current bills.  It can seem overwhelming!

When faced with a large task, the best way to accomplish it is to just get started one small step at a time.  A friend of mine, Jim Blankenship, CFP®, EA a financial advisor in New Berlin, IL, came up with the idea of asking financial bloggers all over the country to write blog posts encouraging people to increase their savings rate by 1% in their employer sponsored retirement plans, such as 401(k)s, 403(b)s, or Thrift Savings plans.  Earlier in the year I was quoted in a US News and World Report article about 401(k) retirement accounts, and one piece of advice I gave was to increase your contribution rate by 1% each year, so when I heard Jim’s plan, I knew immediately that I wanted to participate.

So far there are thirteen articles with ideas that can help you increase your savings rate by 1% in your retirement account:

From Jim Blankenship: Add Your First 1% to Your 401(k) 

My Contribution: Employer Retirement Accounts: 2013 Contribution Limits

From Roger Wohlner: Need Post-Election Financial Advice? Try the 1% Solution

From Sterling Raskie: A Nifty Little Trick to Increase Savings

From Robert Wasilewski: Increase Savings Rate by 1%

From Mike Piper: Investing Blog Roundup: Saving 1% More

From Theresa Chen Wan: Saving for Retirement: The 1% Challenge for 2013

From Steve Stewart: Seriously. What’s 1 percent gonna do?

From Laura Scharr: In Crisis: Personal Savings-Here Are Six Steps to Improve Your Retirement Security

From Ann Minnium: Gifts That Matter

From Alan Moore: Financial Challenge – Should You Choose To Accept It

From Jonathan White: Ways to increase your retirement contributions 1% in 2013

From Emily Guy Birken: Increase your savings rate by 1%

After reading these posts hopefully you know why it makes sense to increase your savings rate, and have some good tips for where to find the money in order to allow you to increase your savings by 1%.  The next step is to take action, and this is the season to do so.  This is the time of year that HR departments are having their annual meetings about benefits.  Commit to yourself and your family’s future financial security and increase your contribution by 1% this year!

IRA account changes for 2013

The maximum amount that you can put into your IRA is increasing in 2013 from $5,000 to $5,500.  This holds true for Traditional IRAs and Roth IRAs.  The Catch-Up Contribution, for those over 50 years old, will remain the same at $1,000.

Earned income

In order to invest in an IRA you must have earned income.  People ask if they can count income they “earn” from investments, the answer is no.  Earned income is income earned from working.  If your income is less than $5,500 keep in mind you must have earned income to make a contribution , so you can only contribute $5,500 or 100% of earned income whichever is less.  Examples of earned income given on the website are:

Earned Income:

  • Wages
  • Salary
  • Tips
  • Union strike benefits
  • Long-term disability benefits received prior to retirement age
  • Net earnings from self-employment

Income that is not Earned Income:

  • Pay received for work while an inmate in a penal institution
  • Interest and dividends
  • Retirement Income
  • Social Security
  • Unemployment benefits
  • Alimony
  • Child Support

Traditional IRA

Everyone with earned income can invest in a Traditional IRA.  However, not everyone can deduct the contribution that they make to a Traditional IRA.  There are IRA deduction phase-out limits for active participants in employer sponsored retirement plans, or if one person in a married couple is an active participant.  The phase-out limits are based on your tax filing status.

The way the phase-out works is you can deduct the full amount when your modified adjusted gross income falls below the low end of the phase-out.  You cannot deduct anything once your modified adjusted gross income hits the high end.  And you can deduct a pro rata portion when it falls in the middle range of the phase-out.

  • Single $59,000 to $69,000
  • Married Filing Jointly (for spouse covered by employer retirement plan) $95,000 to $115,000
  • Married Filing Jointly (for spouse that is not covered by employer retirement plan, but married to a covered spouse) $178,000 and $188,000

Roth IRA

Not everyone can make a Roth IRA contribution.  In order to make the full contribution your modified adjusted gross income must be below the phase-out threshold.  If your modified adjusted gross income hits the top of the phase-out range you cannot make a contribution at all.  If your modified adjusted gross income falls in the middle of the phase-out range you can make a pro rata contribution.

  • Single $112,000 to $127,000
  • Married Filing Joint $178,000 to $188,000

Many people have automatic investing set up so that they put a little each month into their IRA accounts.  If you do this, be sure to make the adjustment to increase the amount you are putting into your IRA account, you can put another $41.66 a month away in 2013.  Every little bit helps!