When children leave home, you may have extra resources to invest in yourself.
Well, you just got a raise, so to speak. The money once reserved for your child’s needs and wants is once again available to fulfill your own. While you may be tempted to splurge on a pricey vacation, consider these other uses first.
You’ll never stop caring for your kids, both emotionally and financially. Many parents want to continue offering their children extra support, whether it’s a down payment on a house or college funds for future grandchildren. If you’d still like to help out financially, talk with your financial advisor about the most efficient way to accomplish this without losing track of your financial goals.
This is also a good time to update your will. Chances are the previous iteration named guardians for your minor children, which may not be necessary now that they’re young adults. If you’re inclined to charitable giving, the extra money that once went to college tuition could be reallocated to a cause that’s near and dear to your heart.
You may also want to make one of your children the executor of your estate. And if you haven’t already, you should designate your spouse or one of your grown children to have powers of attorney for your healthcare and finances in case of incapacitation. Of course, whenever there’s a change in circumstances, you should review the beneficiaries on your retirement, savings and brokerage accounts, as well as your insurance policies.
Speaking of insurance, you may be over-covered as an empty nester. Take the time to review your policies now that your children are no longer financially dependent on you. If you’re overpaying for life insurance premiums, you may want to cut back on coverage and pocket the savings. You’ll need some professional guidance here to make sure you maintain adequate coverage going forward.
Your child can stay on your healthcare policy until the age of 26. But if your child is eligible for his or her own employer-sponsored coverage and leaves your plan as a result, you could save money. The same holds true for auto insurance. Removing your child from your policy could lower the cost as much as 50%, according to the Insurance Information Institute.
Regulations may prohibit medical providers from sharing information with you about the health of your now-adult child. Ask your child to carry a signed document that authorizes healthcare practitioners to discuss relevant information with you.
This is also the time to think about long-term care insurance, if you haven’t already discussed this with your planner or purchased a policy. Studies show that long-term care, which generally is not covered by Medicare, could deplete your retirement savings. Buying a policy in your 50s and 60s when you’re in good health will be easier than trying to purchase one as you get older.
When there’s newfound wiggle room in your finances, it’s tempting to want to splurge a little. Boston College’s Center for Retirement Research found that spending on non-durable goods, the fun things, jumped more than 50% per person for empty nesters. That’s understandable after years of paying for dance lessons and soccer dues. So if your budget allows, make plans to travel, return to school, start a business or do whatever you’ve dreamed of. Ask your advisor to help you set aside a certain percentage for the fun stuff.
Next, consider where you’d like to live. Would you prefer a smaller house or a beachfront condo? Would you rather move to a less expensive home and invest the difference? If downsizing frees up some equity in your home, you could reallocate that money to other goals like starting a new career or funding retirement.
Moving to a smaller home might provide additional resources for your later years, which could make up for a less-than-stellar savings track record. In addition to using that home equity to bolster your retirement savings, you could also benefit from lower cost of living, maintenance costs, property taxes and insurance premiums.
Now that you have more time and resources, you can prioritize your future. Talk about this life change with your professional advisors and make sure your financial plan reflects your new circumstances. For example, you may want to adjust your asset allocation to reflect your new goals or use the extra money to step up investments in your overall portfolio, potentially increasing your net worth.
Strategies mentioned may not be suitable for all investors. Please consult your financial advisor about your individual situation. Investing involves risk and investors may incur a profit or a loss. Asset allocation and diversification do not ensure a profit or protect against a loss.
Take some time this summer to review your financial progress, set new goals and tie up loose ends.
Wednesday, July 4: Independence Day
Monday, September 3: Labor Day
Register with SSA.gov: Check your earnings history for accuracy and review your expected benefits through this site. If you’re close to retirement age, discuss with your advisor when and how you should file to maximize your benefits.
Enhance your estate plan: Check the beneficiaries of your IRAs, insurance policies, trusts and any other accounts, and update information that is no longer relevant. Ensure your plan protects you and your family in the case of an unexpected event.
Review insurance needs: Periodically review and update coverage to ensure proper protection.
Address life changes: Speak with your advisor about major life changes you’ve experienced and how your financial plan could be affected. These changes include marriages, births, deaths, divorces, a sudden windfall and more.
Download the complete checklist below and talk to your advisor to make sure you don't miss any important financial planning dates this summer.
Raymond James financial advisors do not render legal or tax advice. Please consult a qualified professional regarding legal or tax advice.
Emotion. Personality. Knowledge. Time. Each is one of many factors that determine what kind of investor you are.
So why is it important to know which type of investor you are? First, you can learn to identify the challenges of your investment style, as well as its advantages. And you can also discover other investment behaviors to determine if you can enhance your own style.
Most people’s lives are hectic enough without prioritizing time to develop investment skills. The laid-back investor discusses their ideas and goals with and completely delegates decision-making to their advisor. If you fall into this category, you prefer to rely on a professional to help develop and execute your financial plan and are more likely to rely on fundamental investment strategies, such as owning your own home, funding tax-deferred retirement plans, focusing on asset allocation and saving at least 10% of earnings.
The potential downside of being more detached is that it may take a lot of discipline to achieve financial independence. You may need to make trade-offs along the way, prioritizing different goals at different stages of life.
A bonus to being more removed is that the laid-back investor typically rides the market wave and takes a long-term approach. Plus, being able to trust your financial planner is key to building a strong and long-lasting relationship as you work toward achieving your goals. As you gain more knowledge and comfort with investing, you may move on to a more collaborative style.
Generally more experienced than laid-back investors, collaborative investors discuss ideas and goals with their advisors but act on decisions independently or in conjunction with their financial planner. The collaborative investor relies on objective advice and guidance based on their needs, goals and today’s investing environment. Relying on a professional’s knowledge can help collaborators steer clear of major missteps while maintaining discipline with their investments.
A collaborative investor should be careful, though, not to fall into certain decision traps that can affect perception or cloud judgment. A tendency to interpret information that confirms your preconceptions can sneak in before you even realize it. Shrugging off negative news or data about a beloved company is a red flag, a signal reminding the collaborative investor that it’s time to seek out their expert voice of reason.
Busy investors think just as much about making their money work for them as they did earning it in the first place. They discuss ideas and goals with their advisors but act on decisions independently. They’re interested in investing, but trust their advisor to do the heavy lifting, such as putting selected strategies in place or carrying out independently decided transactions. It’s a close relationship built on trust and knowing that your advisor is in your corner. While busy investors prefer to keep an eye on market returns, they also understand that investing is a long game.
Busy investors trust themselves, and for good reason. But in the investing world, that can result in overconfidence, which can lead to misjudging the likelihood of good and bad outcomes. The price this type of investor pays is the time and energy required to treat their wealth as a business. Working with a financial advisor provides a trusted alternative to being so hands-on and offers an objective sounding board who can validate their ideas.
An event-driven investor makes the most of their own decisions, but uses their financial advisor when it comes to specialized needs or specific life changes. They know their portfolio balance and have a solid grasp on the financial plan that’s been set based on conversations with their advisor. But when the unexpected arises – a wedding, birth, divorce, inheritance, health event – they turn to their advisors for custom solutions designed to help them address their immediate needs.
However, for many event-driven investors, this can mean that long-term planning is more cumbersome or less of a focus until a major life event happens. Working with a financial planner along the way opens the door to objective feedback and can lighten the event-driven investor’s financial workload.
Each type of investing has trade-offs. No single method will be right for everyone, and each represents a different level of immersion in your financial plan – and a different level of commitment and effort. But all four types have at least one thing in common: they can benefit from a guide as they forge their path to financial independence. Working with your financial advisor to develop a clearly defined plan for your journey can lessen the weight on any investor’s shoulders.
Investing involves risk including the possible loss of capital. Asset allocation does not guarantee a profit nor protect against loss.
For the first time since 1982, Social Security is dipping into its trust fund to pay benefits. What does this mean for future recipients?
First of all, it’s important to understand what all this dire talk really means. Over the years, as Social Security has collected more in taxes than it has paid out in benefits, the surplus has been put into a separate trust fund. The trust fund buys special U.S. Treasury bonds that earn interest for the fund. Up until this year, the payroll taxes plus the interest on the trust fund bonds have exceeded the amount needed to be paid out in benefits. This year’s report showed that Social Security has now reached the point where benefits paid out to Social Security recipients exceeded total revenues collected from employee Social Security taxes plus the interest earned on its bonds. Now that the crossover point has been reached, the trust fund will begin to deplete, ultimately projected to run out in 2034.
While it’s true that the Social Security trust fund could essentially go “bankrupt” in 2034 if no changes are made to the current system, the majority of Social Security benefits would still be funded through the ongoing Social Security tax system. Approximately three-fourths of the benefits paid out for Social Security are funded from tax revenues collected from current workers. The only purpose of the trust fund is to pay the difference when committed benefits exceed collected revenue.
So, if no changes are made to the system and the trust fund is totally depleted by 2034, what happens? The good news is that the system can continue to pay benefits from ongoing tax revenue and that revenue will cover most of the benefits. Social Security trustees continue to reiterate that the system should be able to pay approximately 75% of its benefits in 2034 even if the trust fund is completely exhausted. Therefore, while the headlines about Social Security continue to be scary, it’s important to realize that the system going “bankrupt” does not mean all payments will stop; it actually means that 75% of benefits are still fully funded.
The big question on people’s minds is whether their benefits will be cut. Current projections assume no changes to the system will be made; however, in reality, there are several potential adjustments that could extend the viability of the trust fund for many more years. It’s important to note that these proposals do not suggest cutting benefits for recipients ages 55 years or older. For everyone else, potential adjustments include:
1. Raising the percentage taken out of paychecks for Social Security payroll taxes (currently 6.2% for Social Security and 1.45% for Medicare paid by both employee and employer). Research has indicated that gradually raising the payroll tax by just two percentage points would be enough for Social Security to be solvent for the next 75 years.
2. Raising the limit on the amount of pay that is taxed for Social Security (currently $128,400).
3. Raising the age of retirement at which people start to receive full benefits (currently age 67 for those born in 1962 and after).
4. Lowering the annual adjustment for cost of living.
5. Cutting benefits. Many believe that actual cuts to benefits would be means tested so that those with limited income and assets would not be impacted. Politically, this would be the most difficult change for Congress to make.
While the long-term viability of Social Security is definitely a concern, bankruptcy of the Social Security trust fund does not mean everyone’s benefits will go to zero. Even when the trust fund is depleted, the system can still pay approximately 75% of benefits from then-current tax revenues. Most believe that benefits paid to older Americans – those age 55 and above – will not be affected. And even for younger workers, relatively minor changes to the system could extend the system’s viability for their lifetimes.
With more and more people retiring without pensions, Social Security plays a crucial role in most people’s retirement plans. We encourage you to have a conversation with your financial advisor about where you stand for retirement, how much Social Security you plan on receiving, and factors you can control to help you reach a financially successful retirement.
There is no assurance any of the trends mentioned will continue or forecasts will occur. Legislative and regulatory agendas are subject to change at the discretion of leadership or as dictated by events. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.
Familiarize yourself with these common swindles, often targeting retirees.
You get an unsolicited phone call or email saying you’ve won a large prize. All you need to do is send money to pay for shipping, taxes or some ancillary fee. You send the money, but the fictional prize never arrives.
Your grandchild calls to confess her troubles. Or so you think. It’s not uncommon for someone posing as your grandchild to call and, preying on your compassion, claim to be in a crisis situation and need money urgently. She may also beg you not to call her parents (which would give the scam away).
You donate to one charity and end up being on every charity list. That’s because they sell your name, phone number and email to other nonprofit and commercial organizations. These could include companies with similar names to charities you support – but they exist solely to scam donations.
Someone calls pretending to be from a major company, such as Microsoft, and says he can see that your computer has a virus. He offers to help you get rid of it by asking you to log into a website that lets him control your computer – then steals your ID information.
If you own a timeshare, you may get a call from someone claiming they’re authorized to sell it for you, for a fee. After paying, however, you never hear from them again.
A man comes to your door and offers to clean your gutters or trim your trees, which sounds like a good idea. Until he asks for prepayment and never completes the job.
You get an unsolicited call about a discounted price for some kind of medical equipment (i.e., heart monitor, wheelchair or bathtub bench). He asks for a deposit and your personal information or Medicaid number to send the equipment, which never arrives.
You’re approached by a “professional” who claims your home is under threat of foreclosure and offers to pay off your mortgage or taxes if you sign over the deed to the property. With your deed, the fraudster can then refinance the mortgage for the full value of your home and take the money. Keep in mind, even if you sign over a deed to someone, you are still liable for your mortgage obligations.
These predators claim to care deeply for you or your well-being, but after winning your trust, they gain access to your accounts to steal money or identity information.
Before purchasing or closing on a new property, a scammer intercepts an email from your realtor or title company. You’re then sent fraudulent payment instructions to complete the transaction. Red flags include last minute changes to instructions, a change in tone or word choice from prior emails, a new sender address and multiple payment requests.
These scams are common and widespread. But speaking with trusted loved ones or your financial professional before making decisions can help you avoid these traps. Additionally, keep in mind these tips for staying safe:
* Don’t pay for things you don’t remember ordering.
* Don’t give your personal information to unknown third parties.
* Work with financial institutions that use fraud protection to safeguard your credit card and banking information.
* Don’t click links in the body of suspicious emails, especially if they claim to come from your bank, credit card company, realtor or title company. Instead, log in to the company’s official website or call them directly to verify.
* Don’t let strangers into your house. Instead, ask for a business card and say your spouse, kids or lawyer will be in touch.
* Be wary of caregivers and suitors, especially if you notice signs of substance abuse or other red flags.
* Limit the purchases and donations you make by check, which may list your home address or other key data.
Material prepared by Raymond James for use by its advisors.