The Tax Season Cometh: Putting your refund to work for you.

With tax season just around the corner and the IRS having just released information that it plans to issue refunds about as quickly as it did last year (9 out of 10 refunds released in under 21 days (, now is the time to start considering what you’re going to do with your refund. While the promise of a big check from the government always comes with some temptations (a new grill for the summer, a gift you missed out on over the holiday season) you should always make sure you’re investing that money wisely. While it may seem like a gift, and an easily spent one at that, remember that it’s mostly money from your other sources of income that you were never able to collect on. Your tax return should be treated like any other money put away, safe from withdrawals for a long period of time; take your excitement at getting such a big break in the mail as incentive to be smart and save. Here are a few tips to get you thinking about putting some of your tax refund to work.

Save it! Invest it!: The importance of either putting some of your return into a savings account or investing it cannot be stressed enough. A good rule of thumb, at the bare minimum, is take ~10% of every check you get and put it into a savings account or towards your investments. Before you know it, you’ll have a tax return a few times over waiting for you whenever you need it that can be used anytime throughout the year.

It’s too much and you don’t know what to do with it!: If it seems like you’re getting too much back on your tax return, get in touch with either a tax preparation specialist or financial advisor.  In this case, you can see if there are any changes you can make to your tax documentation in order to get more of that money throughout the year instead of the one big chunk annually. Chances are if you haven’t already done so, you could be seeing a slight rise everywhere else and a reduction in your tax return check.

IRA?: Alongside the 10% rule for saving/investing, it’s also a good idea to look at doing something long-term with some of the money, namely, putting some of it towards an IRA or other form of guaranteed retirement income (annuities, etc). Nothing is more valuable to someone right now than an investment in future stability. Consider asking your advisor, while you’re trying to shrink your tax refund, about recommended retirement investment opportunities.

While it may seem like something of a killjoy at first, making sure that the first thing you do with your tax return is putting some of it in a place that will give you access to it in the future is of utmost importance in tax season. Whether you’re saving, investing, putting it into a retirement fund or contributing to a child or grandchild’s education, just remember that it’s better if your short-term desires wait until your long-term stability is taken care of.  Before you know it, they will have caught up to each-other, and you’ll have made some hefty gains in the meantime.


Seven Questions to Ask Before Investing:

We have all heard of the seven deadly sins, things that you should never do or you risk the harshest of punishments.  But many people don’t know about the seven deadly questions, involving your investments.  There are seven questions that one must answer before dropping a dime on investments, otherwise their money could be lost in the fiery pits of… well you know where.  Making investment decisions isn’t easy, especially if you are just entering the game.  There are a lot of details that many people don’t think about until it’s too late.  So, if you want to avoid the eternal pain of poor investment plans, ask yourself these seven questions.


1.       “Why?”  It’s a simple question, but it’s often the hardest one to answer.  Why are you investing, and what do you hope to gain from it?  In other words, you must set specific goals.  Maybe you want to save for retirement, maybe you want to send your kids to college, or maybe you just want some breathing room from everyday expenses.  Whatever the reason, it’s important that you define why you are investing your money and what goals you wish to accomplish in doing so.


2.       “What is my time frame?” When can you expect to earn your money back?  This all depends on what kind of investments you make.  Most of the forms of investments which you can cash out of at any time, such as stocks, bonds, and mutual funds, often leave you with the risk of not getting back all that you paid in.  Many other investment options will limit or restrict the opportunities that you have to sell your holdings.  Make sure you are aware of these before you enter the game.


3.       “What am I going to get out of it?”  What can you realistically expect to earn on your investments?  Having an unrealistic idea of playing the stock market and striking it rich could leave you simply striking out.  Most earnings, as millions of people encountered in the past few years, are dependent upon the market, and can rise or drop based on market changes.  Other investments, such as bonds, have fixed returns that aren’t as susceptible to market changes.


4.       “What kind of earnings will you make?”  Very few times when investing does a wad of cash appear in your mailbox if you’re successful.  Many times your success is paid to you in things like potential for earnings growth, as in real estate purchases. Other times it can come through interest or dividends.  Knowing the details of your payback can help you make better decisions when you are paying in.


5.       “What’s my risk?”  And here comes the basic balance in investing, risk versus reward.  The higher the risk, the higher the potential reward.  Overall there is no guarantee that you will get your money back or receive the earnings promised to you.  Unless you have your money in a savings account or a U.S. Treasury security, both of which are backed by the federal government, your money is essentially unprotected.  Make sure that the risk you take is worth the reward that you expect to achieve.


6.       “Is my money diversified?”  We can all remember our mothers as some point or another saying, “Now, don’t put all your eggs in one basket.”  Well your mother’s wise words ring true in terms of investments as well.  Certain types of investments do better in certain situations, so by diversifying your investments, you are spreading your eggs across many baskets.  That way if a certain industry tanks or sector is struggling, you will have plenty of other baskets holding your money safe and sound.


7.       “What is the effect of taxes on my investments?” It may seem like the nightmare of early April trying to sort out your taxes each year, but taxes are just as critical in making investment decisions.  What you pay into certain investments, such as a Roth IRA, are tax deductible, but there is no tax on the earnings.  Other options, such as Traditional IRAs, work in the opposite way, in that your contributions are not taxed, but your earnings are.  Certain bonds are exempt from state and local taxes, such as U.S. Savings Bonds, while others, such as municipal bonds are exempt from federal income taxes and most state income taxes as well.  Make sure that you are using your investment’s ability to avoid taxes in the most efficient ways possible.


Now that you know the questions, it’s up to you to determine the answers.  The important thing to remember is that the best answer to each one is whatever works best for you and your goals.  Take the time to think through your decisions and all the alternatives.  There is no standard pathway to success on the road of investments, but if you take the time to ask yourself these seven questions, it will be a much smoother ride.


How To Take Advantage of Your 401(k)

So, you’ve been saving for retirement for years, spending your entire career penny pinching and saving every morsel you can, hoping to live out your years in a stress-free, fully-funded lifestyle.  You started young and have been saving ever since.  Most importantly, you have invested in the magical program people call a 401(k) at your company and have gritted your teeth as you watched a bit of every paycheck funnel into it.  Good for you!  You have taken an initiative that many people avoid.  As a reward for your planning and diligence, you will be granted, no, not three wishes, but three tips to using your 401(k) in the most productive way.
Many people go through the effort of investing in their 401(k) plans, but make critical errors in how they invest into it.  There are few ways to make sure that the money you pay in now, will give you the best payout in the future.
Tip 1:  Make significant contributions.  Many people think that their 401(k)’s future is mainly dependent upon the performance of the investments, but these people are mistaken.  If you invest a small percentage of your income in well performing funds, you won’t find the success that investing a higher percentage in lower performing funds will afford you.  Of course, this means a bigger chunk of your valuable paycheck, but if you can cut back and live frugally now, you will have more wiggle room later.  Also, it’s critical that you invest enough to take full advantage of any match programs from your employer.  That match offers you tax-free money on a shiny silver platter.  Investing only a small percentage of your income into your 401(k) leaves this platter sitting on the table, out of your reach.
Tip 2:  Invest for growth.  You are cutting back, buying the generic cereals and stepping away from the gator skin shoes so that you can put all you can into your 401(k).  If you are making those sacrifices, you owe it to yourself to get the most from that money.  This can be done by making smart decisions inside of your funds.  Like with any investment, this means taking on a bit of risk.  This doesn’t mean playing Russian roulette with your funds, but being too conservative can almost negate the extra effort you are making.  One way to do this is to invest more of your 401(k) money in stocks.  If your investments face average market performance, putting a higher percentage of your investment in stocks, over bonds or cash, you will find yourself in a better position in the long run.  Of course, this involves balancing your risk with the reward you are looking for, but if you consider getting a little riskier with your investments, you could find yourself with a lot more money later.
Tip 3: Avoid undoing all your hard work.  Borrowing from your 401(k) can be one of the most costly loans you can find.  By taking your money out of the fund, you will be costing yourself the growth that money would have given you.  Life brings about surprises and emergencies that may force you to borrow from your 401(k), if this happens, make sure you plan for the company to take the loan payments from your check.  If you find yourself wanting money for expenses, such as a new car, look into a personal loan or home equity line of credit for financing.  Competitive rates on these options will leave you in a better long term position.  The second part of this tip is to avoid cashing out your 401(k) when you leave a company.  Much of your hard earned money will be whisked away by penalties, fees, and growth loss.  There are a few different ways to avoid simply cashing out when you switch jobs.  Many companies allow you to roll over your balance into their plans, which means your investments and growth will hardly skip a beat with the changeover.   You can also roll your plan into an IRA, which offers a broad range of investments not offered with many other retirement plans.  The easiest option may be for you to simply leave your money in the current employer’s plan if you have a significant amount already saved.  The bottom line is that borrowing from your 401(k) or cashing out early can wipe away a lot of the money that you have been so painstakingly saving.


If you have been planning for your retirement and investing with your 401(k) you have put yourself on a path to success.   By doing these few simple things you can make your path smoother and that success brighter.  You are already going through the effort to save for your future, keep these tips in mind and your effort will be much more worthwhile.



Top Three Priorities in Pre-Retirement Planning

Setting priorities for retirement planning is the first step to a secure retirement. Many retirees saved well enough but did not consider how differently their financial needs would be once they the workforce.

The whole emotional concept of financial security is in itself a major shift in thinking and feeling. During the decades of employment, the real sense of financial security is in having a secure job and a paycheck. After the final paycheck, financial security comes from the peace of mind in knowing there is a sound plan in place that considered the changes that a retirement lifestyle would bring.

Priority # 1 — Liquidity is the often most overlooked need in setting up a retirement plan. Having all of your retirement savings in 401ks and IRAs may have saved a lot of taxes on those accounts while accumulating them. However, the consequence of having to pay tax on every dollar needed later in life and at unknown tax rates can be harsh.

Setting aside investments in non-qualified (IRA / 401k) accounts is a wise idea as you approach retirement. There is a strong advantage of having a source of funds that do not trigger significant taxation when needed.

Priority # 2 Lifetime Income

Pension/ SS

Priority # 3 Unexpected LTC Expenses

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Running Out of Money

The #1 Fear of Retirees


Running out of money remains a big fear of the currently retired as well as the millions of Baby Boomers close to retirement. Uncertainty about the future has never been more real and significant in the minds of these two groups of people. It is interesting that this fear seems to have little bearing on how much money someone has. The wealthier seem to fear running out as much as those who truly do have a reason to be concerned.


The biggest cause of this fear is uncertainty about how to invest and the unknown about future returns on investments. The past decade of market volatility has robbed the 401ks, IRAs and personal savings of the much needed funding for a secure retirement. Many have come to face the harsh reality that what they believed to be true about investing has turned out not to be true. That is, the old “buy and hold” approach has turned out to disappoint many who found little or no growth on their money over the past decade.


The issue at hand is more than just adequate account balances. Financial security must be considered from an emotional viewpoint before and after retirement. While working, the sense of financial security comes from having a job and a paycheck. Once retired, that sense of security changes dramatically. It now becomes the reality that your financial security comes from how much money you have saved.


Resolving this fear of running out of money starts with selecting an advisor who understands both the practical and emotional risks of retirement. This advisor must be experienced in working with retirees. Most financial advisors have a focus in helping their clients accumulate their money. The expertise in managing a client’s savings once retired is a distinctly different. All too often, a trusted advisor who helped a client accumulate their retirement funds does not have the training or expertise to make the appropriate changes in strategy to protect those funds against the risk of longevity.


Just as in the area of medicine and your health, getting a second opinion before making an important decision is always beneficial. That opinion may confirm that you are on the right track and thus your peace of mind is secured. Or, you may need to face the reality that what worked to get you to this point, will not be the same plan for your future. Either way, a second opinion is usually well worth the time and effort.