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Should You Pay Off Your Mortgage Before Retirement?

Written by Jason on . Posted in Uncategorized.

As retirement approaches, many individuals grapple with the decision of whether to pay off their mortgage early. This is a significant financial decision that can impact your financial security and peace of mind during retirement. In this blog, we’ll explore the pros and cons of paying off your mortgage before retirement, considering both financial and personal factors.

Pros of Paying Off Your Mortgage Before Retirement:

  1. Reduces Monthly Expenses: Eliminating your mortgage payment can significantly reduce your monthly financial obligations, allowing more of your retirement income to be used for other expenses or leisure activities.
  2. Saves Interest: Paying off your mortgage early can save you a substantial amount in interest payments over time, effectively providing a guaranteed return on investment equal to your mortgage interest rate.
  3. Simplifies Finances: Without a mortgage, your financial situation becomes simpler, which can be a significant relief as you manage your finances during retirement.

Cons of Paying Off Your Mortgage Before Retirement:

  1. Liquidity Concerns: Tying up a large portion of your savings in your home means less cash on hand for emergencies, investments, or other needs. This could impact your flexibility to handle unexpected expenses.
  2. Opportunity Cost: The funds used to pay off the mortgage could potentially yield a higher return if invested elsewhere, especially if your mortgage has a low interest rate. This is particularly true with investments in higher-yielding stocks or other securities.
  3. Tax Considerations: Paying off your mortgage could lead to a loss of tax benefits associated with mortgage interest deductions, depending on your tax situation.

Financial Considerations:

  • Interest Rates vs. Investment Returns: Consider the interest rate of your mortgage in relation to potential returns from other investments. For example, if your mortgage interest rate is 3%, and you can earn 5% from a relatively safe investment, financially, it might make sense to not pay off your mortgage early.
  • Impact on Retirement Funds: Analyze whether using your retirement savings to pay off the mortgage will affect your future income needs. Ensure you have enough liquidity to cover regular expenses and emergencies.
  • Costs of Accessing Home Equity: If you might need to tap into your home equity later, consider the potential costs of home equity loans or lines of credit, which often come with higher interest rates.

Personal Considerations:

  • Peace of Mind: For many, owning their home outright provides immense psychological comfort and stability, which can be crucial during retirement.
  • Personal Financial Philosophy: Some individuals prefer being debt-free as they enter retirement, while others are comfortable managing debt if it means their money is working harder for them elsewhere.

Conclusion:

The decision to pay off your mortgage before retiring is highly personal and depends on a variety of financial and emotional factors. It’s important to weigh the guaranteed savings in interest against the potential returns from other investments, and consider how much value you place on the peace of mind that comes from being mortgage-free.

If you’re unsure about the best path forward, consider consulting with a financial advisor who can provide personalized advice based on your specific financial situation and retirement goals.

Next Steps with Crest Wealth Advisors:

At Crest Wealth Advisors, we understand that retirement planning is comprehensive and unique to each individual. We’re here to help you review your financial plan and make decisions that align with both your financial objectives and personal values. Reach out today to discuss your mortgage and retirement planning needs.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, legal advice, a recommendation for purchase or sale of any security, or investment advisory services. Please consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.

5 Questions to Ask Yourself When Planning for Retirement

Written by Jason on . Posted in Uncategorized.

Retirement is a significant transition that many individuals work hard for and look forward to. It’s a time to relax, pursue hobbies, travel, and spend quality time with loved ones. However, achieving a fulfilling retirement requires careful planning and consideration. To ensure a smooth transition into this new phase of life, it’s important to plan ahead to ask yourself five critical questions.

In this guide, we’ll explore these questions and provide insights to help you plan for a secure and enjoyable retirement.

What Do I Want to Do in Retirement?

Retirement offers an opportunity to explore new interests, pursue passions, and enjoy leisure activities. Take some time to reflect on what brings you joy and fulfillment. Whether it’s traveling, volunteering, starting a new hobby, or spending time with family, identifying your retirement goals will help you create a meaningful plan for this next chapter of your life. While you may think you just want to relax and not have a single obligation, you are likely to find that gets dull after a while. Not only that, but staying active and engaged in retirement will keep you healthier, both physically and mentally. And better health will lead to lower health care costs! A win-win.

Do I Have a Retirement Income Plan?

One of the most critical aspects of retirement planning is ensuring that you have a reliable retirement income plan to support your lifestyle while not risking running out of money. This plan should include an assessment of your current savings, investments, pensions, Social Security benefits, rental income, annuities, and more. Not only that, but you need to map out what your future income will look like at different stages, since it may vary over time. Questions you should have answers to include:

  • When do I plan to claim social security?
  • Can I afford to delay social security until age 70 to get the highest monthly benefit?
  • When will my pension begin (if you are lucky to have one these days)?
  • Do I have enough assets to supplement my other income if needed?
  • What order do I take money out of different accounts?

Speaking of what accounts you plan to take money from, when was the last time you reviewed how your money is invested? As you approach retirement, it is common to start taking less risk with your investments to protect more of what you have accumulated. However, the most appropriate investment strategy will depend on your financial situation. You will likely want to have different “buckets” of investments to align with the different time periods that you will need money.

A well planned retirement income strategy will leave you more informed about the future and whether you are likely to outlive your money or need to rely on others at some point.

Do I Know What My Taxes Will Look Like in Retirement?

Unfortunately generating retirement income means generating taxes. Many individuals think they won’t have taxes in retirement, but that is far from true. In fact your taxes could be even higher in retirement depending on your income sources! Taxes can have a significant impact on your retirement finances, so it’s essential to understand how they will affect you once you stop working.

Income that will be taxable in retirement includes, but is not limited to:

  • Social Security benefits (up to 85% of your benefit may be taxed as ordinary income)
  • Pre-tax retirement account withdrawals
  • Capital gains upon selling investments or real estate
  • Pensions & annuities
  • Dividends and interest

Depending on your net worth your income can add up quickly putting you in a high tax bracket. Are you prepared for taxes and do you know how you will pay those taxes when it is not automatically withheld from a paycheck? Your tax strategy needs to go hand-in-hand with your income strategy.

Is My Estate Plan in Order?

Estate planning is another crucial aspect of your retirement plan to ensure someone is able to make decisions on your behalf if needed, your loved ones are protected and your money gets passed along to the intended individuals or charities in the most effective and tax efficient manner. This includes creating or updating essential documents such as wills, trusts, powers of attorney, and healthcare directives. Your estate plan does not need to be fancy, but it does need to account for your assets and loved ones.

If your assets currently fall over the estate tax exempt limit of $13.61 million, then your estate plan will also need to tax tax planning into consideration to pass along the highest after-tax amount to your beneficiaries.

Am I Financially Prepared for the Unexpected?

Let’s face it, life rarely goes exactly according to plan. Planning for the unexpected does not make you a pessimist…it makes you prepared. An often overlooked, but common situation in retirement is experiencing higher health care costs than anticipated. Preparing for the unexpected, health care or otherwise, can include maintaining a sufficient emergency reserve, making sure your insurable risks are adequately covered, and for health care purposes, staying active and healthy!

Being prepared for the unexpected also means you are routinely monitoring and adjusting your retirement plan. This is not a set it and forget it type task. You will need to give your planning the proper time and attention it deserves, otherwise something unexpected is bound to catch you off guard.

Final Thoughts

Planning for retirement requires careful consideration of various factors, from financial preparedness to lifestyle goals and estate planning. By asking yourself these five crucial questions and taking proactive steps to address them, you can set yourself up for a secure and fulfilling retirement.

At Crest Wealth Advisors, we help our clients map out their retirement strategy so they know not only when they can afford to retire, but where their income will come from, how to minimize taxes in retirement, make sure there loved ones are covered in the case of an early loss and more. We update and monitor this plan twice a year – or more if needed – to stay ahead of any potential issues and provide peace of mind that the plan remains on track. If this is something you could benefit from then contact us today!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, legal advice, a recommendation for purchase or sale of any security, or investment advisory services. Please consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.

Aligning Your Investment Portfolio with Your Retirement Timeline

Written by Jason on . Posted in Uncategorized.

The transition into retirement commonly brings about questions about how one should invest, especially when taking withdrawals for income purposes. This blog explores a strategy commonly known as the “bucket” approach. This strategy aligns different buckets on investments with your retirement timeline, providing liquidity, income and growth potential.

Understanding the Bucket Strategy for Retirement

The bucket strategy involves dividing your investment portfolio into several segments or “buckets,” each with a distinct time horizon and risk level. This approach helps manage risk and liquidity needs by matching investments with the time frame you plan to use them. Understanding your time frame is one of the most important drivers in determining what type of investment is appropriate.

Bucket One: Short-Term Investments

  • Prioritizes Liquidity: Bucket one is designed for immediate liquidity. Reasonable investments for this bucket include money market funds, short-term bonds, or other highly liquid assets that provide stability and easy access to funds for the first few years of retirement. This helps avoid the need to sell volatile investments at a loss in a down market.
  • Minimal Risk: This bucket holds assets that are low in risk and volatility. It should contain enough funds to cover living expenses for two to three years, complementing other stable income sources like pensions or Social Security.

Bucket Two: Intermediate-Term Investments

  • Provides Income and Some Growth Potential: The second bucket focuses on mid-term needs, usually covering the next 4-7 years of retirement. It typically includes income producing assets such as bonds, as well as dividend paying stocks, which also offer some growth potential. Income can be used to refill bucket one as that money is spent.
  • Moderate Risk: This bucket will have more risk than your short-term investments but will have less risk than your growth investments in bucket three. Naturally, to target a higher rate of interest and dividend income, you will need to take slightly more risk. You will experience slightly more volatility with these investments, but it should not be excessive.

Bucket Three: Long-Term Investments

  • Growth Opportunity: The longest-term bucket in your portfolio is for years 8 and beyond where you can afford to take more risk since you have time to recover any short-term losses. This bucket is intended to provide the highest returns over the long-run, which means it can also have the greatest potential for loss. Investments may include domestic and international stocks as well as real estate. As these investments increase in value over time, they can be trimmed to replenish buckets one and two.
  • Highest Risk: In order to aim for higher long-term return, you will have to take more risk with these investments. However, buckets one and two are there to help avoid selling investments at a loss and allow them time to recover.

Balancing Your Portfolio Using the Bucket Strategy:

  • Regular Adjustments and Reviews: It’s important to regularly review and rebalance your buckets to adapt to changing market conditions and personal spending needs. This may involve shifting funds between buckets as time passes or as one bucket’s funds deplete. Ideally, growth from bucket three will be used to replenish bucket two and income from bucket two will replenish bucket one.
  • Professional Guidance for Tailored Strategies: Working with a financial advisor can help refine the bucket strategy to fit your specific retirement goals and financial situation. They can provide insights into how best to allocate assets in each bucket to maintain an optimal balance of risk and return. While this strategy provides a good framework to follow, there are still a lot of choices to be made about what investments to use and how to manage the strategy on an annual basis.

Beyond Time Horizons: Integrating Tax Efficiency and Legacy Planning:

  • Tax Considerations: Each bucket should be optimized for tax efficiency, potentially using tax-deferred accounts for longer-term investments and taxable accounts for funds needed sooner. Depending on your income level, tax-free municipal bonds may make sense as well.
  • Incorporating Legacy Goals: Consider how your investment choices in each bucket affect your overall estate plan and legacy goals, ensuring that your longer-term investments align with the financial future you intend to leave to your heirs.

Using the bucket strategy to align your investment strategy with your retirement timeline is a powerful way to manage your assets across different phases of retirement. By clearly defining how to use each portion of your investments based on when you will need them, you can minimize risk and ensure you have a stable financial foundation throughout retirement.

 

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, legal advice, a recommendation for purchase or sale of any security, or investment advisory services. Please consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.

5 Key Differences Between a Roth IRA & Roth 401(k)

Written by Jason on . Posted in Uncategorized.

When saving for retirement, you have many different account types from which to choose from. Growing in popularity is the Roth account. Roth accounts can come in two forms – an IRA and a 401(k). In this comprehensive guide, we’ll review some stark differences between Roth IRA and Roth 401(k) accounts, helping you navigate your retirement savings journey effectively.

What is a Roth Account?

Before we dive into the specifics, let’s briefly recap what Roth accounts are all about. Roth accounts, whether IRA or 401(k), are retirement savings vehicles that offer tax-free growth and withdrawals in retirement, assuming certain requirements are met. Unlike traditional retirement accounts, contributions to Roth accounts are made with after-tax dollars, meaning you don’t get an immediate tax deduction. However, the trade-off is that qualified withdrawals in retirement are tax-free, providing a significant advantage for those in higher tax brackets during retirement.

Roth IRA vs. Roth 401(k): Understanding the Differences

1. Eligibility and Accessibility:

    • Roth IRA: Available to anyone with earned income, subject to income limits. Contribution limits for 2024 are $7,000 ($8,000 if you’re 50 or older).
      • TIP: If your income is above the allowable limit, there may still be other ways to fund a Roth IRA.
    • Roth 401(k): Offered through employers who choose to provide this option in their retirement plans. There are NO income limits for participation, and contribution limits are much higher compared to Roth IRAs, capped at $23,000 for 2024 ($30,500 if you’re 50 or older).

Download this helpful guide featuring income limits, contribution limits, personal tax rates and more: Important Numbers 2024

2. Employer Match:

    • Roth IRA: There are no matching contributions since this is considered a personal retirement account. You are responsible for 100% of your contributions.
    • Roth 401(k): Employers may choose to match contributions, which can significantly boost your retirement savings. Starting in 2024, employers can now make matching contributions to the employees Roth account (which has not been allowed up until now). There are tax consequences of receiving your match as a Roth contribution, but the benefits may outweigh the tax cost.

3. Investment Options:

    • Roth IRA: Offers a wider range of investment options, including stocks, bonds, mutual funds, ETFs, and more.While the expanded list of investment options may be overwhelming, it does allow for a more customized investment strategy. Investors also have the flexibility to choose their preferred brokerage firm. Common online brokerage firms include Charles Schwab, Fidelity and E-trade.
      • TIP: Making a contribution is only the first step. You will then need to manually invest each contribution. Otherwise, your money will just be sitting in cash, providing little-to-no growth.
    • Roth 401(k): Investment options are limited to those offered within the employer’s plan. While some plans provide a diverse selection, others may have more restricted choices. Once you make investment selections within your plan, your contributions will be automatically invested with each deposit

4. Rollover and Portability:

    • Roth IRA: Can be rolled over into another Roth IRA or a Roth 401(k) if your employer’s plan allows it. Additionally, Roth IRAs offer greater portability, allowing you to choose your custodian and potentially access a broader range of investment options.
    • Roth 401(k): Can be rolled over into a Roth IRA or another Roth 401(k) if you leave your job or retire. However, the availability of rollovers and portability options may vary depending on your employer’s plan rules. If your account balance falls below a certain dollar amount when you terminate employment then you may be forced to move your account elsewhere.

5. Required Minimum Distributions (RMDs):

    • Roth IRA: There are required minimum distributions during the original account holder’s lifetime. This provides greater flexibility in coordinating withdrawals in retirement from different account types. Inherited Roth IRAs will have RMDs for the beneficiary, but those withdrawals will still be tax free.
    • Roth 401(k): Starting in 2024, Roth 401(k)s no longer have RMDs. This provides accounts owners with more options when retiring as to whether they want to keep the 401(k) where it is or roll it into a Roth IRA.

BONUS!!

Are you wondering if you have to choose one or the other? If you are below the Roth IRA income level then you can actually max out BOTH a Roth IRA and a Roth 401(k) each year that you remain below the income level. Coupling these two savings strategies together can create some serious tax-free money in retirement.

Final Thoughts

Both Roth IRA and Roth 401(k) accounts offer unique advantages and cater to different retirement planning needs. Understanding the differences between them is essential for maximizing your retirement savings potential. Whether you opt for a Roth IRA or a Roth 401(k), the key is to start saving early, take advantage of employer matches (if available), and make informed investment decisions to secure a comfortable retirement future.

Contact Crest Wealth Advisors today to create a retirement saving strategy that maximizes all options available to you.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, legal advice, a recommendation for purchase or sale of any security, or investment advisory services. Please consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.

Protect Your Legacy: The Importance of Regular Estate Plan Reviews

Written by Jason on . Posted in Uncategorized.

Estate planning is not typically top of mind when seeking out a financial advisor. However your financial plan is not complete without having at least a basic estate plan in place. At Crest Wealth Advisors, we emphasize the importance of this practice when creating your financial plan since it is essential to protecting your assets, and more importantly, your loved ones. The last thing you want to do is leave your loved ones with a financial mess to work through during an already challenging period if something were to happen to you.

Basics to Creating an Estate Plan

There are some core documents that every adult should have in place as part of their estate plan. These include:

  • Last Will & Testament: Dictates how you want your assets to be distributed if they are not accounted for elsewhere (such as through a trust or beneficiary designations).
  • Living Will: Also known as an advanced healthcare directive, informs your family and doctor of your healthcare wishes if you can’t speak for yourself.
  • Durable Power of Attorney: Enables a person you assign to act on your behalf if you are no able to do so yourself.
  • Guardianship Designations: Dictates who you want to care for your children if you and your spouse both pass.

The use of beneficiary designations on accounts is also wise as this will help to pass your assets to the intended individuals in the most efficient way possible.

Lastly, depending on the complexity of your estate and estate planning needs, you may need to incorporate a trust into your estate plan. A trust allows for more customization of what happens to your assets and can also help to manage those assets even after you pass.

Each one of these components needs to be coordinated with each other so that there are no conflicting plans in place.

Estate Plans Need to Evolve Over Time

As time passes, your personal circumstances and the legal landscape surrounding estate planning are likely to change. How frequently you need to review your estate plan may depend on your net worth and the complexity of your wishes. However, it is generally a good idea to review your plan during major life changes such as:

  • When you get married or divorced
  • The birth/adoption of a new child
  • When a family member passes that may have been incorporated into your initial plan
  • A significant increase in new worth
  • If you update beneficiary designations and need to align your other estate planning documents accordingly

Even if no major personal event have occurred, it is still advisable to review your plan every 3-5 years to make sure it accurately reflects your wishes and that nothing has changed with your goals. Additionally, there may be law changes that can impact your estate plans, such as the reversion of the federal estate tax exemption set to take effect in 2026.

Effective Strategies for Updating Your Estate Plan

To maintain an estate plan that aligns with your current needs and goals, consider the following approaches:

  • Scheduled Reviews: Commit to reviewing your estate plan every two years or following significant personal events. This practice helps keep your plan relevant to your current situation.
  • Professional Consultation*: Engage with estate planning experts,  to stay informed about legal changes and personal life shifts that might affect your plan.
  • Open Family Dialogue: Discussing your estate plan with your family members can prevent misunderstandings and ensure that your intentions are clear and respected. You should also keep your agent or trustee informed of any changes so they know how to do their job effectively if needed.

*Crest Wealth Advisors works closely with numerous estate planning attorneys in the Annapolis area to ensure a coordinated approach*

Benefits of a Current Estate Plan

An up-to-date estate plan offers numerous benefits:

  • Peace of Mind: Assurance comes from knowing your estate plan is in alignment with your current wishes and that your loved ones are protected.
  • Family Harmony: Clear and current estate directives can help prevent familial disputes and misunderstandings.
  • Financial Advantages: A properly structured estate plan can have significant tax benefits or protect your money from spendthrift individuals.

Personalizing Your Estate Strategy

Recognizing that every individual’s situation is distinct, we at Crest Wealth Advisors encourage you to tailor your estate planning strategies to your personal circumstances and dedicate the time to this important issue. Updating your estate plan is not solely about asset distribution; it’s about respecting your life’s achievements and ensuring your loved ones are cared for in the manner you wish. While it may not be the most pressing topic for you, it is just as important as any other aspect of your financial plan.

Resources for Your Estate Planning Needs

To assist you in this critical process, Crest Wealth Advisors offers has a few resources that you can download:

  • Beneficiary Checklist: Ensure that no detail is missed in reviewing your plan’s beneficiaries with our detailed checklist.
  • Estate Planning Checklist: A step-by-step checklist to assist you in covering all aspects of your estate plan during reviews.

Taking the Next Steps with Crest Wealth Advisors

If it’s been awhile since your last estate plan review, now is the time to act. Consider the changes in your life since your last assessment and how they may affect your current estate planning needs.

At Crest Wealth Advisors, we’re committed to integrating comprehensive estate planning into our clients’ broader financial strategies. Should you wish to discuss updating your estate plan or how it fits within your overall financial picture, we’re here to help. Reach out today to ensure your legacy is preserved exactly as you envision.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, legal advice, a recommendation for purchase or sale of any security, or investment advisory services. Please consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jason Dall’Acqua, and all rights are reserved.

The Complete Guide to Building an Effective Emergency Fund

Written by Jason on . Posted in Uncategorized.

Why Everyone Needs an Emergency Fund

No matter your income level, life throws unexpected challenges at everyone. An emergency fund isn’t just recommended; it’s essential for handling life’s unforeseen events without derailing your financial health. Whether it’s sudden medical expenses, urgent car repairs, or unexpected job loss, having an emergency fund means you can face these issues head-on without tapping into long-term savings or falling into debt.

Understanding the Role of an Emergency Fund

An emergency fund acts as a financial buffer that can keep you afloat in times of need without having to rely on credit cards or high-interest loans. It’s about more than just managing unexpected expenses; it’s a tool for maintaining stability during turbulent times. This fund supports your financial wellbeing, allowing you to recover from setbacks without compromising your financial goals.

How Much Should You Save?

The size of your emergency fund will vary based on personal circumstances, including monthly expenses, income stability, and lifestyle. Traditionally, financial advisors recommend saving three to six months’ worth of living expenses. However, if you’re self-employed or in an industry with high volatility, you might need a larger cushion. Start by calculating your essential monthly expenses, then aim to save a base amount that would comfortably cover these for several months.

Building Your Emergency Fund: Practical Steps

  1. Start Small: If you’re starting from zero, begin by saving small, manageable amounts. Even a modest emergency fund can provide some security.
  2. Set a Monthly Goal: Determine a fixed amount or percentage of your income to save each month and treat it like a non-negotiable expense.
  3. Automate Your Savings: Set up automatic transfers to your emergency fund to ensure consistent contributions without having to think about it.
  4. Keep It Accessible: Your emergency fund should be readily available. High-yield savings accounts are ideal as they offer better returns than standard accounts while keeping your money liquid.
  5. Monitor and Adjust: Review your emergency fund periodically to ensure it aligns with current living costs and personal circumstances. If your expenses increase, your emergency fund should too.

Maximizing Your Emergency Fund’s Efficiency

While it’s important to keep your emergency fund accessible, you also want it to work for you. Explore options like high-yield savings accounts or money market funds, which offer higher interest rates than traditional savings accounts while keeping your funds liquid.

When to Use Your Emergency Fund

It’s crucial to define what constitutes an emergency: necessary expenses that you didn’t see coming. This could be anything from an unexpected medical bill to urgent car repairs, not foreseeable expenses like holidays or routine maintenance.

Rebuilding After an Emergency

If you need to use your emergency fund, prioritize replenishing it. Adjust your budget to funnel more into savings again until it’s back to a comfortable level.

Download Our Detailed Emergency Fund Checklist

To help you start or reassess your emergency fund, we have a comprehensive checklist. 

Final Thoughts and Taking Action

An emergency fund is more than a financial buffer—it’s peace of mind. Regardless of where you are in your financial journey, it’s never too late to start or optimize your emergency fund.

At Crest Wealth Advisors, we’re dedicated to helping individuals achieve financial stability and independence. If you’re ready to build or reassess your emergency fund but aren’t sure where to begin, reach out to us. We can provide personalized guidance and strategies to ensure your emergency fund serves your financial goals effectively.

Remember, a robust emergency fund is the bedrock of a healthy financial plan, ensuring you’re prepared for whatever life throws your way.

 

Navigating Emotions in Financial Decisions: Achieving Balanced Money Management

Written by Jason on . Posted in Uncategorized.

In the complex landscape of personal finance, the intertwining of emotions and financial decisions plays a critical role in shaping our financial future. Understanding the influence of emotions on our financial choices is pivotal. This exploration into the emotional dynamics of financial decisions highlights key strategies for maintaining a balance between emotional impulses and rational financial actions, ensuring decisions align with long-term goals.

The Emotional Dynamics of Financial Choices

Financial decisions are significantly impacted by emotions, from the excitement of potential gains to the fear of loss. Recognizing the emotional drivers behind financial choices is crucial for steering those decisions in a direction that supports long-term financial well-being.

Strategies for Emotional Balance in Financial Planning

● Cultivating Emotional Awareness: Recognizing the emotional influences on financial decisions allows for a more deliberate approach to managing finances, enabling a shift towards more thoughtful and informed choices.
● Implementing Delayed Decision-Making: Introducing a pause before making significant financial decisions can diminish the influence of immediate emotional reactions, fostering decisions that better serve long-term financial objectives.
● Adhering to a Structured Financial Plan: A comprehensive financial plan provides a roadmap through emotional fluctuations, guiding towards long-term goals. This plan should encompass clear financial objectives, tailored investment strategies, and provisions for emergencies, offering a buffer against the sway of emotional decisions.

Advantages of Emotionally Informed Financial Planning

● Enhanced Financial Discipline: Understanding emotional triggers helps develop strategies to circumvent impulsive decisions that could undermine financial goals.
● Strategic Long-Term Planning: Emotional awareness underpins strategic thinking essential for robust financial planning, ensuring decisions are aligned with future aspirations rather than present emotions.

● Balanced Financial Well-Being: Achieving equilibrium between emotional instincts and rational planning leads to financial decisions that satisfy both economic needs and emotional well-being.

Personalizing Financial Strategies

Recognizing the unique interplay between individual emotions and financial decisions is key. Tailoring financial strategies to account for personal emotional responses, alongside factual analysis, ensures a financial plan that is not only realistic but deeply resonant on a personal level.

Initiating a Balanced Financial Journey

Reflecting on past decisions influenced by emotions can provide valuable insights into how to better navigate future financial choices. Incorporating structured financial planning and emotional awareness into the decision-making process can significantly alter the financial path, leading to more secure and fulfilling financial outcomes.

Embracing a balanced approach to financial decision-making, grounded in emotional intelligence and strategic planning, lays the foundation for achieving financial security and fulfillment.

At Crest Wealth Advisors, our mission is to empower you with personalized financial strategies, including navigating the complex interplay between emotions and financial decisions, to journey toward financial freedom. Whether you’re reflecting on past financial choices to gain insights or looking to incorporate a balanced approach into your financial planning, we’re here to provide the guidance and support you need to achieve your financial goals.

Mastering Financial Security: Embrace the “Pay Yourself First” Philosophy

Written by Jason on . Posted in Uncategorized.

In the ever-evolving world of personal finance, a principle that stands out for its effectiveness in building long-term wealth is the “Pay Yourself First, Spend Second” strategy. This approach isn’t just a financial tactic; it’s a transformative mindset that prioritizes your financial future over immediate wants. As we navigate through 2024, understanding and implementing this strategy could be the key to achieving financial independence. Let’s explore the depths of this principle, offering practical steps and insights to seamlessly incorporate it into your financial planning.

What Does It Mean to “Pay Yourself First”?

At its heart, paying yourself first entails directing a portion of your income to savings or investment accounts before any other expenditures. This proactive approach ensures your future financial well-being takes precedence over current spending habits. Unlike the method of saving whatever remains at the end of the month, this strategy guarantees that a portion of every dollar you earn is invested in your future.

Implementing the “Pay Yourself First” Strategy

  • Automate Your Savings Journey: Automation is the cornerstone of a successful “Pay Yourself First” strategy. Setting up automatic transfers from your checking account to savings or investment accounts ensures consistent savings without the need for manual intervention. This method effectively builds your wealth, ensuring you’re always investing in your future.
  • Budget With Savings in Mind: Treating your savings as a non-negotiable monthly expense, similar to rent or mortgage payments, is crucial. This mindset shift places saving on equal footing with your most critical financial obligations, reinforcing its importance in your financial ecosystem.
  • A Balanced Approach to Managing Debt: While saving is paramount, addressing high-interest debt is also critical to your financial health. Adopting a balanced strategy that focuses on reducing debt while building savings can amplify your financial growth, reducing costly interest payments and increasing your net worth over time.

The Benefits of Adopting a “Pay Yourself First” Approach

  • Rapid Growth of Savings: Consistent savings contributions, especially when automated, can harness the power of compound interest, significantly increasing your wealth over time.
  • Enhanced Financial Discipline: This strategy naturally fosters a disciplined approach to spending, encouraging smarter financial decisions that align with your long-term goals.
  • Creation of a Robust Emergency Fund: Building an emergency fund is a direct benefit of this savings strategy, offering a safety net for unexpected expenses and peace of mind.

Tailoring the Strategy to Your Financial Landscape

Personalizing the “Pay Yourself First” strategy to fit your unique financial situation is essential. Evaluate your income, fixed expenses, and financial objectives to determine how much you can realistically save each month. Remember, the goal is to create a sustainable habit of saving, where even modest amounts can lead to substantial growth over time.

Starting Your “Pay Yourself First” Journey

Initiating this strategy might feel daunting, but beginning with a manageable amount and gradually increasing your savings rate can make the transition smoother. The key is to start—your future self will thank you for the foresight and commitment to financial wellness.

At Crest Wealth Advisors, our mission is to empower you with personalized financial strategies, including the “Pay Yourself First” approach, to navigate your journey toward financial freedom. Whether you’re setting up your first automatic savings plan or optimizing your financial portfolio, we’re here to provide the guidance and support you need to achieve your financial goals. Embrace the “Pay Yourself First” philosophy today, and take a significant step towards securing a prosperous financial future.

 

Taxes in Retirement – Planning and Coordination

Written by crestwealth_admin on . Posted in Uncategorized.

Planning your income during retirement requires focusing on the different tax characteristics of your assets and income sources. If you aren’t careful, your tax liabilities could be higher than you anticipated, leaving you with much less money than you expected during a time you need it the most.Rather than letting your tax liabilities reduce your retirement income, consider these strategies for taxes in retirement.

Taxable Income During Retirement

Everyone has different sources of income, but some of the most common taxable income sources during retirement include:

  • Social Security
  • Pre-tax IRA funds
  • 401K withdrawals
  • Pensions
  • Inherited IRA withdrawals
  • Annuities
  • Interest
  • Dividends
  • Capital gains
  • Passive income from sources like real estate

The only income that likely won’t incur a tax liability is income from a Roth IRA or 401K. As long as you’ve owned the account for at least five years and withdraw funds after age 59 ½, your withdrawals are tax-free.All other sources of income discussed above, though, will incur tax liabilities. So how do you strategically receive income during retirement to reduce your tax liabilities?

Minimizing Taxes During Retirement

To minimize your taxes in retirement, here are a few strategies.

Social Security Claiming Strategy

Avoiding taxes on your Social Security income is legal, but it requires careful planning. The only way to avoid paying taxes on Social Security is to ensure your combined annual income doesn’t exceed $25,000 if you’re filing single and $32,000 if you’re married filing jointly.To determine your combined annual income, you must consider the following:

  • Adjusted gross income from any earnings except Social Security
  • Tax-exempt interest income
  • 50% of your Social Security income

If you can keep your income lower than $25,000 or $32,000, whichever applies to you, then your social security benefit is not taxed.You will pay income tax on the following portion of your benefits once your income exceeds those amounts:

  • 50% of your benefit if income is between $25,000 – $34,000 if you’re filing single or $32,000 – $44,000 for married filing jointly.
  • 85% of your benefit if your income is above $34,000 if filing single and $44,000 if married filing jointly.

To manage this, try to limit how much you withdraw from taxable retirement accounts or wait to take your Social Security income until you’ve hit the years when your other income is lower.

Diversify your Investments into Different Tax Buckets

When you invest for retirement, you have different avenues you can take. Not everything must go into an IRA or 401k. If you want to lower your tax burden during retirement, consider Roth accounts if your income isn’t too high to qualify for it. The limits are $138,000 for single filers and $218,000 for married filing jointly couples to contribute the full amount allowed. As you go above those amounts, the amount you can contribute to a Roth IRA decreases, phasing out completely at $153,000 and $228,000 respectively.When you have Roth accounts, you can withdraw when you want because you’ve already paid the taxes due on the income. Don’t forget about taxable brokerage accounts. These accounts offer liquidity, flexibility and different tax characteristics than Roth and Traditional retirement accounts.

It’s important to have your retirement funds in different tax buckets so you aren’t stuck with Required Minimum Distributions and paying large amounts of tax when you can least afford it.

Focus on Long-Term Capital Gains

Try keeping your investment gains to only be taxed at long-term capital gain rates. All this required is holding an investment for more than 1-year before selling it at a gain. Short-term capital gains are taxed at ordinary income rates based on your current taxable income, but long-term capital gains are taxed at preferential lower rates, saving you money.

Consider Roth Conversions

If your income exceeds the limits to contribute to a Roth account, or you didn’t consider it when you opened your retirement account, consider a Roth conversion.With a Roth conversion, you convert your existing traditional retirement account to a Roth account to get tax benefits and avoid RMDs. When you convert, you pay taxes on the income today but can withdraw contributions and earnings tax-free during retirement.While you’ll pay a lump sum for the taxes owed today, you won’t pay taxes in retirement, which diversifies your income and allows you to avoid excessive taxation during retirement. Roth conversions should be strategically timed to ideally be done in years that you are in a lower tax bracket than when you made the tax deductible retirement contribution.

Tax Efficient Investing

Tax-efficient investing is just as it sounds – owning specific types of investments in the most appropriate account in order to reduce tax implications. Rather than losing a large portion of your earnings to taxes, learn how to minimize your taxes and maximize your earnings.While there’s no guarantee how investments will perform, the following strategies can help minimize your tax liabilities during retirement.

For example, in taxable accounts, consider holding:

  • Stocks you own for more than a year to take advantage of long-term capital gains, which are usually taxed at a lower rate than short-term capital gains
  • High growth potential investments
  • ETFs and index funds that limit capital gain distributions
  • Investments that pay qualified dividends
  • Municipal bonds

In tax-advantaged accounts, consider the following:

  • Income oriented investments
  • High growth potential investments (in Roth accounts)
  • Actively managed funds
  • Taxable bond funds
  • REITs

Strategize your Retirement Account Withdrawals

To minimize your tax liabilities in retirement, you need to strategically choose what accounts you take withdrawals from and when.Traditional retirement accounts require you to withdraw a minimum amount of money annually starting at age 73. This is to ensure you pay taxes on the funds you deferred. However, before then, you can withdraw funds how you please.Following your RMD – Required Minimum Distribution – you can supplement any additional income needs from taxable accounts followed by tax-free accounts. If you have not yet reached the age for RMD’s then you may consider drawing first from taxable accounts, followed by tax-deferred accounts then tax free. You want to try timing your tax-deferred withdrawals for the years that you are in the lowest tax bracket.

Final Thoughts

Planning your taxes in retirement is just as important as saving money for retirement. If you’re not careful, your taxes could overtake your earnings, leaving you with much less than anticipated in retirement.Instead, strategize your tax plans during retirement so you don’t have any unpleasant surprises or are left without the funds you need. Diversifying your accounts, withdrawing from funds that tax the least, and carefully withdrawing funds from taxable accounts during years when you’re in a lower tax bracket are the best ways to ensure you have maximum earnings and the lowest tax burdens during retirement.

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