Should I Live for Today or Save for Tomorrow?

March 28, 2016March 28, 2016 sharkeyhowesandjaver Investing, Tips Personal Savings, saving, Savings Goal, Trade-offs

There seems to be conflicting advice in modern media. On one hand, there are plenty of articles stating the importance of saving money. On the other hand, there is an emergence of articles encouraging living for today and letting the money “work itself out later”. This leaves the audience confused and internally conflicted. Should I live for today or save for tomorrow?

The answer can be deeply personal, and while your family or advisor may offer advice, ultimately the decision is yours. It is no secret that life can be short and there is no guarantee of tomorrow. Embracing and living every day to the fullest can be vitally important for your emotional and mental health. Spending your hard-earned money to travel, further your education, pursue a hobby, support a loved one, or explore your creative mind may provide much more personal fulfillment now than building a savings/investment account for your future. Continue reading →

Avoid Being “House Rich, Cash Poor”

February 23, 2016February 22, 2016 sharkeyhowesandjaver Investing, Tips Home Affordability Calculators, Home Loans, Mortgage

Recently, a client was trying to understand how much home he could afford in the current Denver real estate market. Over the course of his home search, his maximum price point grew from $500,000 to $700,000 as he discovered how much it would take to purchase a home that fit within his criteria. The lender had approved him for the higher amount, so he assumed it was something he could comfortably afford. In addition, he had used several online “Home Affordability Calculators” that justified his inflated price point.

Thankfully he came to us before any of his offers were accepted. We calculated his new expected housing costs relative to his gross annual income, taxes, savings goals, and monthly obligations. In the end, he opted for the lower mortgage price point we proposed and was relieved that it would allow him to continue supporting his family and saving for long-term goals, many of which he would have had to forego had he chosen the higher priced home.

After our meeting, we reviewed several of the online “Home Affordability Calculators” by plugging in our own information and the results were breathtaking. The suggested home price points we received were also dramatically inflated.

Therefore, when you are shopping for your next home, we suggest taking a look at the difference between the approved home loan amount and the home loan amount that is appropriate for your own personal financial situation. Oftentimes, the two numbers are vastly different.

Why might this be the case? Although monthly obligations (debt, child support, etc.) and long-term savings are often considered in the mortgage lender’s calculation, the assumed savings (for retirement, education, etc.) are typically insufficient to reach your goals.

The term “house rich, cash poor” is a common term for being in the predicament where you’ve got lots of home, but not a lot of cash to meet your other needs. In order to avoid this destiny, we suggest working with a Certified Financial Planner™ to find the appropriate price point when purchasing a new home. If you are interested in a complimentary consultation or meeting with your current advisor, please do not hesitate to call us at 303-639-5100.

5 Questions to Ask Before Taking on More Debt

February 1, 2016January 25, 2016 sharkeyhowesandjaver Investing, Tips Credit, Debt, Debt to Income Ratio, Retirement

The term ‘debt’ generally has a negative connotation. While being in too much debt or the wrong kind of debt can be risky, sometimes debt makes sense. If you are considering taking on more debt, sit down and answer the questions below first to make sure the new debt won’t get in the way of your long-term goals.

How much debt do I currently have?
When thinking about debt, it’s important to first analyze your current financial landscape. Be sure to review everything: credit cards, lines of credit, mortgages, loans and possibly IOU’s to family or friends. Once you have totaled all monthly recurring debt payments, divide that number by your gross monthly income to find your debt to income ratio (DTI). The lower the number, the better. Talk with your financial planner about your ratio and ask for his/her recommendation on whether you should consider taking on more debt. Continue reading →

Inside the Economy with SH&J: January 4, 2016

January 5, 2016March 15, 2016 sharkeyhowesandjaver Economic Discussion Series, Economy, Investing, Larry Howes Fed Rates, Global Economy, Inside the Economy, U.S. Dollar, U.S. Economy

Larry Howes kicks off the New Year with his outlook on the economy in 2016. How did the interest rate increase in December affect mortgages? Will U.S. inflation reach the Fed’s target rate of 2%? What is expected from the U.S. economy and markets this year? What will happen to the U.S. dollar? What can we expect to see in Europe this year? Listen in as Larry addresses these questions and more!

Retirement Savings 101: 401(k)s, IRAs, Roths, Oh my!

December 16, 2015December 16, 2015 sharkeyhowesandjaver Economy, Investing, SH&J News, Tips Investment management, IRA, Retirement Planning, Retirement Savings, Roth IRA

Retirement golden eggs on dollars, IRA in focus, 401k blurry Over the past two weeks we have compared Traditional IRAs to Roth IRAs and 401(k)s to Roth 401(k)s. Today we wrap up the series with a recap comparison to help guide you through the various ways to save for your retirement.

Traditional IRA

Established by: Individual
Contribution Limits: Up to $5,500 per year age 49 or below / $6,500 per year age 50 and above (limits adjusted annually)
Contributions: Pre-tax (unless non-deductible, then post-tax)
Matching Contributions: None
Distributions: Taxable and a 10% penalty unless 59 ½ or older (exceptions may apply)
Forced Distributions: Must start withdrawing funds at age 70 ½
Conversions/Rollovers: Can be converted to Roth IRA. Taxes paid during year of conversion. Deductible contributions can be rolled into a 401(k) if allowed by 401(k) plan.

Roth IRA

Established by: Individual
Contribution Limits: Up to $5,500 per year age 49 or below / $6,500 per year age 50 and above (limits adjusted annually)
Contributions: Post-tax
Matching Contributions: None
Distributions: Contributions may always be withdrawn tax and penalty free. Earnings prior to age 59 ½ are taxable and assessed a 10% penalty. Earnings after 59 ½ are tax-free unless the Roth IRA has been open less than 5 years in which case they are taxable and assessed a 10% penalty. (exceptions may apply)
Forced Distributions: None
Conversions/Rollovers: None

Traditional 401(k)

Established by: Employer
Contribution Limits: Employee may contribute up to $18,000 per year age 49 or below / $24,000 per year age 50 and above (limits adjusted annually)
Contributions: Pre-tax
Matching Contributions: Employer’s discretion
Distributions: Taxable and a 10% penalty unless
· If separated from service after age 55 or
· age 59 ½ or older (exceptions may apply)
Forced Distributions: Must start withdrawing funds at age 70 ½ unless still employed and not a 5% owner
Conversions/Rollovers: Upon termination of employment may
· Rollover to an IRA – not currently taxable
· Rollover to 401(k) if allowed by new employer – not currently taxable
· Convert to a Roth IRA – taxable event
· Distributed directly to owner – taxable event.

Roth 401(k)

Established by: Employer
Contribution Limits: Employee may contribute up to $18,000 per year age 49 or below / $24,000 per year age 50 and above (limits adjusted annually)
Contributions: Post-tax
Matching Contributions: Employer’s discretion (employer contributions are pre-tax dollars)
Distributions: Tax-free, but a 10% penalty plus taxes on earnings unless
· If separated from service after age 55 or
· age 59 ½ or older and the account has been open for at least 5 years (exceptions may apply)
Forced Distributions: Must start withdrawing funds at age 70 ½ unless still employed and not a 5% owner.
Conversions/Rollovers: Upon termination of employment may
· Rollover to a Roth IRA
· Rollover to a Roth 401(k) if allowed by new employer.

Which retirement savings account is right for you? For some, a 401(k) plus a Roth IRA may be the way to go. For others it might be a traditional IRA with a 401(k). Retirement saving decisions are as unique as you are.

As with any big financial decision, we recommend talking to a professional. Financial planners can help guide you to the best decision for your retirement and create a custom plan tailored to your individual goals.

If you are interested in a complimentary consultation, give us a call today at 303.639.5100 or visit shwj.com.

*Research for this post done on IRS.gov

Making Sense of the Social Security Kill Bill

December 7, 2015December 3, 2015 sharkeyhowesandjaver Economy, Investing, SH&J News, Social Security, Tips Budgeting, Retirement Planning, Social Security

Early this November, Congress surprised many when they introduced the Bipartisan Budget Act of 2015 causing Financial Advisors to revisit ways to maximize cumulative Social Security benefits for their clients. With the passing of this budget deal, we see the end to two Social Security claiming strategies that have benefited many individuals – File and Suspend and the Restricted Application.

The new rules for File and Suspend will take effect with all applications filed after April 30, 2016. We will see the end of filing a Restricted Application for anyone who is turning 62 after December 31, 2015. This leaves a 6 month window for clients to review their situation with their financial advisor to determine how the changes will affect them, and if they can still take advantage of these strategies before they go away.

The File and Suspend strategy was commonly used by married couples to allow one spouse to begin collecting their spousal benefit at full retirement age while allowing the higher earning spouse to delay and then maximize their own benefit at age 70. Under the new rules, any suspension application filed after April 30, 2016 will also suspend all dependent and/or spousal benefits that would have been paid off of the suspended record. In other words, a worker must now collect their own benefit in order to trigger benefits for their spouse or dependents.

Restricted Applications for spousal benefits were often filed by couples who both wanted to delay collecting their own benefits while taking advantage of a spousal benefit in the meantime. The new rules now state that anyone turning 62 in 2016 or later will no longer be eligible to file a restricted application when they reach full retirement age. Individuals who will be 62 by the end of 2015 will remain eligible to file a restricted application when full retirement age is attained. The caveat – if this strategy depends on one spouse filing and suspending after April 30, 2016, the strategy will not work and further planning with your advisor may be beneficial.

For Example: Mark and Mary are both 63 and remain eligible to file a restricted application for spousal benefits at full retirement age. Mark wants to delay collecting his benefits until age 70. However, he will turn 66 after April 30, 2016 at which point the option to file and suspend is no longer available and spousal benefits will no longer be paid off a suspended benefit. Mark will either have to take his own benefit at age 66 to give Mary the option to file a restricted application for spousal benefits, or Mary will have to forego her spousal benefit allowing Mark to delay his own benefit and vice versa.

Individuals fortunate enough to have already implemented these strategies will not see a change to their current benefits. On the other hand, individuals born after 1953 will be unable to take advantage of either claiming strategy and are encouraged along with anyone who will be 62 by the end of 2015 or 66 before April 30, 2016 to meet with their financial advisor to determine the most optimal claiming strategy before the window closes.

Source: Savvy Social Security Planning for Boomers, Social Security ‘Loopholes’ Closing

Retirement Savings 101: What’s the Difference between a Roth 401(k) and a Traditional 401(k)?

November 17, 2015November 17, 2015 sharkeyhowesandjaver Investing IRA, Retirement, Retirement Savings, Savings

Did you know many employers offer a traditional 401(k) and a Roth 401(k)? Learn the difference between the two to see what’s right for you.

Last week we covered the difference between Roth and Traditional IRAs. This week we look at the differences between Roth and Traditional 401(k)s.

Let’s start by defining the 401(k)…

401(k)s are retirement savings plans sponsored by an employer. Employees can defer all or part of their paycheck to the plan, as long as you are within the IRS limits. You can think of it as a deferred salary. Many companies will also match contributions to the plan. Continue reading →

Inside the Economy with SH&J: October 26, 2015

October 30, 2015 sharkeyhowesandjaver Economic Discussion Series, Economy, Investing, Larry Howes, SH&J Team, Videos China, Global Economy, Inside the Economy, Recession, U.S. Dollar, U.S. Economy

The dollar looks like it might weaken, Puerto Rico could have a political solution, and for the first time the Congressional Budget Office named the public federal government accounts holding 13.1 trillion dollars in debt — all topics covered this week. During the commentary, Larry said, “I’m also in the camp, along with several people, who think China is in a recession…” Listen in to hear what else Larry shared about China and the global economy in this week’s Inside the Economy with SH&J.

https://vimeo.com/143934427%20

Note: We apologize for the audio quality this week. We experienced some technical difficulties during recording and will be back up to snuff in time for our next release in 2 weeks.

Retirement Savings 101: What’s The Difference Between a Roth IRA and a Traditional IRA?

October 9, 2015November 9, 2015 sharkeyhowesandjaver Investing, Tips Income Tax, IRA, Retirement Savings, Roth IRA

Saving plan with Gold Piggy bank The world of retirement savings can be confusing. Which option is best to help you move towards your goals? What is the difference between all of the retirement savings options? Over the next few weeks, we try to clear the muddy waters and help you gain an understanding of what retirement savings plan might be best for you.

Today we start with IRAs…

IRAs, Individual Retirement Accounts, are popular tools to save for retirement. The type of IRA you select can affect your long-term savings. It’s important to understand the various types of accounts to select the best one for you.

The main difference in Traditional and Roth IRAs comes down to when you pay income taxes. For Traditional IRAs, you pay taxes when you withdraw money in retirement. With a Roth IRA, you pay taxes on the front end, but no taxes when you withdraw.

Let’s start by looking at a Traditional IRA…

Continue reading →

The 411 on 529 Plans: Taking Saving for College to the Next Level

August 31, 2015September 22, 2015 sharkeyhowesandjaver Harold Kirschner, Investing, Tips college savings, Colorado 529 Plans

Having children creates a host of concerns, the least of which is how to save money for college. On top of paying for sports equipment, piano lessons and karate classes, parents’ thoughts soon turn to paying for tuition, books and housing. But a little early planning can help mitigate a lot of worrying down the road, and a lot of people find that a 529 College Savings Plan is a good solution.

What is a 529 Plan?

Developed in 1996, 529 plans were designed to help families save money for higher education without paying taxes on the investment. As such, 529 plans are exempt from federal taxes if the proceeds are used for qualified higher education purposes. Most states, including Colorado, will also allow you to deduct your contributions to the plan for state tax purposes.

Any adult can open a 529 plan account for themselves or for someone else, usually a child or grandchild. Another benefit of such a plan is that anyone, whether they own the account or not, can contribute to the account. So if you open an account for your child, anyone you know can make a contribution directly to the account.