Monday, March 23, 2015

Study: Boomerang Children Hurt Boomers Retirement Prospects

This important study shows that the Baby Boomer generation is setting yet another milestone. No other generation in history has spent so much money on its kids – grown kids, that is! At Wealth Management Group, we understand that talking with your children about money may be one of the most difficult conversations you will have with your kids. The other is to say “no” to your child when you simply can’t afford to hand over money. The question many of our clients ask: Where do I draw the line between supporting my adult children and derailing my own financial future? If you are like many Baby Boomers today and feeling like the family bank, talk to us. We understand the family dynamics among today's pre-retirees and retirees. We'll give you insight and financial guidance to help your children be financially independent and give you peace of mind to live the life you’ve always imagined.

Study: Boomerang Children Hurt Boomers Retirement Prospects

By Mike Bushnell

Baby Boomers who have yet to cut the financial cord with their adult children are increasingly finding that tether to be more like an anchor keeping them from reaching retirement.

According to a new study of Baby Boomers by Hearts & Wallets, only 21% of Baby Boomers who still support adult children are retired, compared with 52% of Boomer households whose adult children are financially independent.

All told, 65% of Boomers have children, and nearly one-third of them still financially support their children, be they adults or minors. About one-third of the 47.4 million Boomer households in America still supports children, a total that is divided nearly evenly between those over age 18 and those under 18. Not surprisingly, just 17% of Boomers with dependent minor children are retired.

While both retired Boomers and those with minor children worry more about the future, listing “outliving my money” as one of their top life concerns, Boomers with adult dependents have more immediate concerns. More than half of adult-supporting Boomers said “saving enough for retirement” is their top concern, while 38% report moderate-to-high financial anxiety. They also happen to report the lowest levels of financial advice-seeking, with just 24% reporting having ever talked to a financial professional about their future.

“Providing financial support to anyone, but especially to an adult child, can have tremendous consequences for retirement and estate planning,” said Chris Brown, a principal at Hearts & Wallets. “Financial services firms would be wise to examine their client bases for this trait and adjust product and service offerings to meet the needs of the nearly [48] million Boomer households.”

The survey, “Dissecting the Baby Boomers: How a Parental and Financial Support Status Segmentation Reveals Key Differences in Finances, Attitudes and Behaviors,” was conducted using data from the Hearts & Wallets Investor Quant Database, which is comprised of more than 30,000 household interviews conducted over the past five years.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

Tuesday, January 13, 2015

When Must Taxes Be Paid on IRA and Employer-Sponsored Retirement Funds?

“The start of a new year is a good time to review the tax impact of the varied retirement savings vehicles you may choose to invest in this year. How and when taxes are paid is an important part of this choice. (And remember to check with your tax professional regarding the specific impact on your tax return).”

When Must Taxes Be Paid on IRA and Employer-Sponsored Retirement Funds?

Traditional IRAs and most employer-sponsored retirement plans are tax-deferred accounts, which means they are typically funded with pre-tax or tax-deductible dollars. As a result, taxes are not payable until funds are withdrawn, generally in retirement.

Withdrawals from tax-deferred accounts are subject to income tax at your current tax rate. In addition, withdrawals taken prior to age 59½ may be subject to a 10% federal income tax penalty.

If you made nondeductible contributions to a traditional IRA, you have what is called a “cost basis” in the IRA. Your cost basis is the total of the nondeductible contributions to the IRA minus any previous withdrawals or distributions of nondeductible contributions. The recovery of this basis is not seen as taxable income.

Exceptions are the Roth IRA and the Roth 401(k) and Roth 403(b). Roth accounts are funded with after-tax dollars; thus, qualified distributions (after age 59½ and the five-year holding requirement has been met) are free of federal income tax.

Traditional IRAs, most employer-sponsored retirement plans, and Roth 401(k) and 403(b) plans are subject to annual required minimum distributions (RMDs) that must begin after the account owner reaches age 70½. (The first RMD must be taken no later than April 1 of the year after the year in which the owner reaches age 70½.) Failure to take an RMD triggers a 50% federal income tax penalty on the amount that should have been withdrawn. Roth IRA owners never have to take RMDs; however, the designated beneficiaries of IRAs and employer-sponsored retirement plans do have to take RMDs.

When you begin taking distributions from your retirement accounts, make sure to pay attention to any required beginning dates and the appropriate distribution amount in order to avoid unnecessary penalties.

Friday, October 3, 2014

How Can I Keep My Money from Slipping Away?

As with virtually all financial matters, the easiest way to be successful with a cash management program is to develop a systematic and disciplined approach.

By spending a few minutes each week to maintain your cash management program, you not only have the opportunity to enhance your current financial position, but you can save yourself some money in tax preparation, time, and fees.

Any good cash management system revolves around the four As — Accounting, Analysis, Allocation, and Adjustment.

Accounting quite simply involves gathering all your relevant financial information together and keeping it close at hand for future reference. Gathering all your financial information — such as mortgage payments, credit card statements, and auto loans — and listing it systematically will give you a clear picture of your overall situation.

Analysis boils down to reviewing the situation once you have accounted for all your income and expenses. You will almost invariably find yourself with either a shortfall or a surplus. One of the key elements in analyzing your financial situation is to look for ways to reduce your expenses. This can help to free up cash that can either be invested for the long term or used to pay off fixed debt.

For example, if you were to reduce restaurant expenses or spending on non-essential personal items by $100 per month, you could use this extra money to prepay the principal on your mortgage. On a $130,000 30-year mortgage, this extra $100 per month could enable you to pay it off 10 years early and save you thousands of dollars in interest payments.

Allocation involves determining your financial commitments and priorities and distributing your income accordingly. One of the most important factors in allocation is to distinguish between your real needs and your wants. For example, you may want a new home entertainment center, but your real need may be to reduce outstanding credit card debt.

Adjustment involves reviewing your income and expenses periodically and making the changes that your situation demands. For example, as a new parent, you might be wise to shift some assets in order to start a college education fund for your child.

Using the four As is an excellent way to help you monitor your financial situation to ensure that you are on the right track to meet your long-term goals.