A client recently asked what he could say to his son to get him to start securing his financial future. My reply to him was “he is young and has a lot of time to save, this is the biggest assets he has right now”. His son has just started his first real job, so I of course want to know if there is a 401(k) for him to take advantage of. I told him to explain to his son that every dollar he puts into the 401(k) for his retirement is a dollar that does not go to the Federal government for taxes. This kid has about 40 years to save for himself, that is an asset he will not be able to get back, but right now he can take advantage of.

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Cash reserves are important. That being said, I cannot tell you how much of a reserve the proper amount is for you. First let’s address what I mean by cash reserves.

Cash reserves refer to the money an individual keeps on hand to meet emergency funding needs.
Short-term, highly liquid investments, such as money market funds and short-term CD’s, can also be called cash reserves.
Cash reserves are useful when money is needed right away for a large purchase or to cover unexpected payments.

Everyone has a different level of comfort, I know some people that are happy if they have $5000 in cash reserves and others who don’t feel comfortable unless they have at least $200,000 in reserves.

Where ever you fit in this range, please make sure you have your reserves in place. I call it “toe of the sock” money, the place you go to only if it really is an emergency.

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Congrats!! You have made it to retirement, now life will be free and easy – if only the IRS would stay out of your business. Most people worry about the IRS in their working years, not in retirement. Here are a few Red Flags to avoid:

Claiming Large Charitable Write-Offs
We all know that charitable contributions are a great write-off and help you feel all warm and fuzzy inside. However, if you’re charitable deductions are disproportionately large compared with your income, it raises a red flag.
That’s because the IRS knows what the average charitable donation is for people at your income level. Also, if you don’t get a written appraisal for donations of property valued at more than $5,000, or if you fail to file IRS Form 8283 for noncash donations over $500, you become an even bigger audit target.
Running a Business
Many people like to turn their hobbies into a side-hustle in retirement, but you need to be careful. Schedule C is a treasure trove of tax deductions for self-employed people. But it’s also a gold mine for IRS agents.

Not Taking Required Minimum Distributions
Most people know that the age to take their Required Minimum Distribution has been pushed back to age 73, but if your need to take a RMD, make sure you take the proper amount or you will pay a penalty. Those who fail to take the proper amount can be hit with a penalty of as much as 25% of the shortfall (50% for years prior to 2023).

There are many more red flags out there – these you should be able to avoid.

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We host a radio call in program and last week we were asked this question:
“Will my IRA withdrawal reduce my Social Security check”?

Here is the answer straight from the Social Security site:
Social Security does not count pension payments, annuities, or the interest or dividends from your savings and investments as earnings. They do not lower your Social Security retirement benefits. This also includes Required Minimum Withdrawals from IRA accounts.

Now, you can breathe easy.

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When it comes to retirement savings, you do not want to be part of the national average. Here are a few stats I found:

Few Americans have saved more than $200,000: 4% have between $200,000 and $350,000, 4% more have $350,001 to $500,000 and a little more than 5% have more than $500,000.

It does not matter what your company match is, too many people only save to the match percentage. This is what you need to do:

If you start saving at 30, you might want to save 18% annually for retirement; or, if you start saving at 35, you should save 23%, according to Fidelity.

The majority of the population is setting aside less than 10%, 13% are saving between 1% and 3%, 18% are at 3% to 5%, and 21% are putting between 5% and 10% in their retirement accounts.

Additionally, 18% of respondents said they could not afford to put any of their income toward retirement.

With the majority of Americans investing under 10% of their income toward retirement, many are planning to supplement their savings with Social Security.

Please, take your retirement seriously and save like your life depends on it, because it does.

Disclosures

Disclosures:

When it comes to retirement savings, you do not want to be part of the national average. Here are a few stats I found:

Few Americans have saved more than $200,000: 4% have between $200,000 and $350,000, 4% more have $350,001 to $500,000 and a little more than 5% have more than $500,000.

It does not matter what your company match is, too many people only save to the match percentage. This is what you need to do:

If you start saving at 30, you might want to save 18% annually for retirement; or, if you start saving at 35, you should save 23%, according to Fidelity.

The majority of the population is setting aside less than 10%, 13% are saving between 1% and 3%, 18% are at 3% to 5%, and 21% are putting between 5% and 10% in their retirement accounts.

Additionally, 18% of respondents said they could not afford to put any of their income toward retirement.

With the majority of Americans investing under 10% of their income toward retirement, many are planning to supplement their savings with Social Security.

Please, take your retirement seriously and save like your life depends on it, because it does.

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Every year in January I let my clients know what their RMD (required minimum distribution) will be for this year. This year I was able to notify 16 clients that they did not have to take their expected first RMD at age 72, here is why:
You may have seen recently that Secure Act 2.0 was recently signed by President Joe Biden. I wanted to reach out to let you know how this impacts you directly in 2023. Previously, if you reached age 72, this would have been the year your Required Minimum Distribution must begin. However, due to the recent law change, you are not required to start taking distributions from your retirement accounts until you turn age 73. Of course, you can still take distributions if that is part of the plan, but you are not required to do so until next year.

My clients can allow their funds to defer for another year…. Or will it change again?

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Never Live Above Your Means
Live like you make 10% less than you do, stash that extra cash in a bank account that is inconvenient to go to, you will think twice before making a withdrawal.

Never Donate Money over the Phone
Always ask for information from the charity be sent to you via mail, that way you can see if it is legit and do your homework.

Never Shop when you’re Emotional
It is just like eating when you are bored, you over indulge, end up with stuff you don’t really need or may not even like.

Never Buy a New Car — If You Can Help It
I always buy a car that someone else leased and returned. The car will be low mileage, well maintained, still have warranty, and be a good price.

Never Post Money or How Much You Make on Social Media
It is nobody’s business how much you make, and you make yourself a target for a number of unwanted solicitations.

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Cheap people and frugal people are two very different types. Cheap people focus on price first, when it comes to spending their money. Frugal people focus on quality first when it comes to spending their money. Whether you consider yourself cheap of frugal, it does not matter if you do not have a handle on your spending.

We are in a new year and now is the perfect time to start new habits. Take a hard look at how you spend, are you analyzing as a cheap or frugal person, then spending like you have no worries at all?

Here are two tips to help you spend and save. First tip: set a dollar limit that you can spend each month without any thought as to what or why you are spending, maybe $100/month. Second: set up a savings or investment account separate from your regular bank account or credit card. Every paycheck make sure to move a fixed amount to this separate account, this will force you to save in an area that is not readily accessible, thus forcing you to accumulate long term wealth.

Frugal or cheap does not matter if you overspend in the end.

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The New Year is upon us and it is time to think about change. Everyone hates resolutions, so don’t worry, I will not ask you to make of list of things you resolve to change.

I am asking you to think about each item as you purchase throughout the coming year. We all know that everything has gotten very expensive, and many items are not ever available right now. How you spend will have a huge impact on your short and long term financial success.

I would like you to look at each item you plan to buy; I don’t care if it is at the grocery or online, then ask yourself “Do I need this or just want this”? Need of course have to be purchased, wants are another story.

If you are considering purchasing a “want” item, can you pay cash for it? Why do you want it? Will it be detrimental to your financial success?

It is a simple, maybe painful question, but planning for the “want” items vs impulse buying can make you a prudent shopper and help lead to financial success.

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