Managing Your Money at Any Age
Kansas Financial Resources walks you through appropriate financial steps to take throughout four major life stages.
JUST STARTING OUT
This is a vital stage of the financial timeline and some of the most significant gains come from financial education.
Learn to live within your financial means and be financially responsible.
Understand compound interest and the importance of saving. If you don’t save money today, it won’t be there when you need it.
Avoid credit card debt. If you are unable to avoid using credit cards, be sure to pay more than the minimum balance due or you will never catch up.
Take advantage of employer sponsored retirement plans. Many employers provide an incentive for you to participate by matching your contributions. Do not leave money on the table. If your employer matches 5 percent, look at it as a 5 percent raise rather than an additional 5 percent out of your check.
Learn about Open Roth IRAs. This could be one of the most valuable decisions you make for tax-free growth on investment/retirement income.
Q. I’m fresh out of college and starting a new job. Should I participate in my employee retirement plan and/or a Roth IRA or should I pay down my school loans first?
A. This is a tricky scenario and has a couple of different variables that will determine the best choice. First of all student loans are not necessarily bad debt. Generally they have exceptionally low interest rates (4% or lower). Another benefit is the ability to deduct the interest on your student loans from your taxes; however be sure to visit with an accountant when doing this because there are income limits and a credit limit you must qualify for before a deduction is allowed.
If you are able to take advantage of low interest student loans and qualify for the tax deduction, it would be recommended to pay less on student loans and direct more toward retirement and savings. In general, your money will work harder for you in your retirement plans/investments than it will in your student loans. Plus the beauty of starting to save at an early age lets you see the importance of saving and the effects of compound interest.
Financial Advice from Eric Hunsicker, Kansas Financial Resources
PLAN & PROTECT
During this stage of life, it is important to continue to make smart financial decisions.
Continue taking advantage of employer sponsored retirement plans and your Roth IRA. Increase contributions if you are able.
Develop a financial plan.
Pay off high interest debt.
Risk tolerance with regards to your investing can be more aggressive than in your later years.
Plan for your family’s financial protection with the use of life insurance and disability insurance.
Begin saving for your children’s education with 529 college savings plans—college tuition increases an average of 8 percent a year.
Set up a will.
Q. At 34 years old with a growing family, how should I prioritize my credit card debt, student loans, mortgage payments, college funds and retirement savings?
A. As with all areas of life, we need to have balance. Your finances are no different. Debt reduction and saving and investing can go hand in hand. High interest debt (like credit cards) should be eliminated as soon as possible. Any debt where an individual can deduct the interest paid annually from one’s income for tax purposes (like mortgages and student loans) can be considered favorable debt depending on the interest rate being paid.
Ideally, you can pay reasonable amounts on these “favorable” debts and still make contributions to an employer sponsored retirement plan (especially when it is matched). Other considerations should be establishing an emergency fund and an account that has growth potential yet allows access for pre-retirement needs.
Financial Advice from Todd Zimlich, Kansas Financial Resources
RETURN OF MONEY
As you get closer to retirement, you may need to make some adjustments to your financial plan.
You may need to become more cautious with your investment options. Consider the risk vs. reward. At this point the return of your money is more important than the return on your money.
As you near 7 to 10 years from retirement, start to re-diversify by incorporating safer investments such as bonds and guaranteed annuities.
Plan for your long-term health care needs.
Evaluate Social Security options.
Q. How do I know if I am saving enough for retirement?
A. The younger you are, the more difficult it is to calculate what is necessary to accumulate for retirement. Numerous factors can and will change over time. Meet with an advisor to guide you along in this process. If you determine how much you need to live on now and calculate in any significant changes to that amount prior to retirement, you can get a good idea of where you are heading. Once you know the amount you need/want to live on, you can select a desired retirement age and consider the following variables:
Pre-retirement savings growth rate
Expected Social Security income
Post-retirement savings growth rate
How long you expect funds to last (or how long you expect to live)
Checking these calculations periodically with your advisor as situations and goals change will help you stay on track.
Financial Advice from Scott Hunsicker, Kansas Financial Resources
Remain actively involved with your financial plan to determine the best strategy for retirement income.
Understand your pension options, meet with a financial advisor to evaluate which option(s) will be best for you and why.
Several financial products are specifically designed to create guaranteed income at retirement.
Evaluate the impact on your spouse in the event of a premature death.
Legacy planning—determine the most cost effective and tax favorable way to pass wealth to beneficiaries at death.
Q. How do I make sure I do not outlive my money at retirement?
A. Careful retirement planning should alleviate some of these concerns. Once you retire, you need to continue to save money and remain involved with your financial advisor to be certain you are on the right path and not putting yourself in jeopardy of unnecessary financial risks.
Because this is one of the biggest questions for retirees today, insurance and investment companies have designed specific products and programs to help a person create a guaranteed lifetime income stream. One of the most useful tools in this process is a guaranteed annuity. With so many annuity options on the market however, it is important to visit with a financial professional to determine the best product for your situation.
Financial Advice from Kansas Financial Resources
Kansas Financial Resources is a family-owned and operated business. The agency serves more than 3,000 local individuals, families and businesses. The KFR team has more than 50 years of combined experience in helping individuals and businesses with their financial strategies.