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Should I pay down my debt or invest?

Should I pay down my debt or invest?

See 1-minute video: Should I pay down my debt or invest?

Debt itself is not bad. We often use debt to buy a car, buy a home, or pay for college. Debt is a problem when you have too much debt especially high interest rate debt found with credit cards. So, when looking at your debt, do you have a lot of debt relative to your income? Is the interest rate on the debt relatively high? If you answer yes to either of these, then reducing your debt may be the better path.

If your debt is under control, and you have no credit card or high interest rate debt, then the answer may be to invest the money. But before you invest for the long-term, make sure you have an emergency fund to cover likely unexpected costs. It can be expensive to pay down debt or invest and then have to change course because you lacked enough in an emergency fund.

There may tax benefits depending upon your situation. You might be giving up a tax deduction if you pay down a debt. Similarly, you might not get a deduction if you pay the debt and do not invest in a retirement plan that provides a tax deduction.

Paying down debt and investing both have risks and rewards and it is best to look at the big picture before acting.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FAClient articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.

 

Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

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What you might lose in a lawsuit.

What you might lose in a lawsuit.

See also 1-minute video: What you might lose in a lawsuit.

For good or bad, our society has become more litigious. One day you may be on the receiving end of a lawsuit. What is at stake? Nearly every financial asset if the damages sought are high enough.

You can not prevent a lawsuit, but you can take legal measures to reduce the potential loss. The time to set these measures is before the incident causing the lawsuit ever occurs.

One measure is insurance. Insurance transfers the risk to another up to the limit or the coverage and the extent of the coverage. Often a liability  policy can further insulate you than just the ordinary home owner’s or automobile coverage might provide.

Another measure available to married couples is to title asset as tenancy by the entireties. This is ordinarily limited to one’s home, but in some states it may be recognized for other assets.

Another measure is to place the assets in a trust for which you are not the beneficiary. You might have an extra amount of assets you would like passed to an offspring or sibling, but do not want it exposed to lawsuit award. Transferring the asset to a properly written trust may serve that purpose. It is a technical area and you should seek legal counsel to use this tool.

These are but a few strategies available. Which is best for you takes a review of you risks and assets and deciding whether it is cost effective to use any of these.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FAClient articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.

 

 

Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

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Social Security Retirement Benefit Strategies

Social Security Retirement Benefit Strategies

(Watch 1-minute video: How To Strategize for Your Social Security Benefits?)

Planning on when to start drawing social security retirement benefits is a complicated issue. There are too many possibilities to cover them all in a short article, but we can touch some major issues.

One issue is when to start taking benefits. You can take them as early as age 62 based upon your earnings during your work career. But taking them can have several drawbacks. First, your benefits will be permanently reduced by as much as 25% relative to waiting to your normal retirement age. If you live a long time, this could mean a loss of thousands of dollars. Also, if you draw the benefit and still keep your job, your benefits are often reduced until you stop working.

One benefit of waiting until your full retirement age, which is now about age 66 for those about to retire, is that benefits are not reduced if still working. Also, if you delay further, the benefit amount rises each month you wait until age 70. This means if you are long-lived, you will get thousands more that if you start to draw money at your normal retirement age.

Underlying the above discussion is your anticipated life expectancy. You can go on line and gather information for Americans, but your case is individual. You may have a family history of those living into their nineties or only into their mid 70s. Whatever your estimate can color your decision on whether to delay or take the retirement benefit early.

Another issue is whether you can afford to quit working. Social Security retirement benefits were never intended to, and rarely do, provide for the retirement you seek.

The issues are compound when you are married as each spouse, depending on their work history, may be entitled to benefits. Without doing considerable analysis, which to take first and when is impossible to determine. No rule fits everyone. But commonly, if you can afford it, waiting is better. But again individual cases can be different.  

Another factor is taxation of the benefits. Depending upon your family income level, a portion of the benefits can be taxed. Obviously if the benefit is taxed, you will have less spendable money for your family.

For a married couple, the decision as to when to draw retirement benefits may affect the spouses benefit in event of death of the recipient of the benefits. While we can not control the timing of a spouse’s death, we do need to consider the possibility and ramifications.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FAClient articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.

 

Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

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Which Retirement Plan to Choose

Which retirement plan to choose? See also 1-minute video: Which retirement plan should I choose?

There are two basic types: those offered through your employer and those you can open on an individual basis. Both types are designed to help you accumulate the wealth you will need to fund your retirement.

First, those offered by your employer. These plans typically have various investment choices that are like mutual funds selected by the employer or plan sponsor. Contributions a usually tax-deductible and the money grows tax deferred, but withdrawals are subject to standard income taxes rules at the time of withdrawal. Often times the employer offers a match for a portion of the amount contributed up to a limit. These plans may allow contributions up to $24,000 depending upon your income and age. There are special rules as to when you can withdraw the money and rules for when you must withdraw assets. The rules are stricter than those that apply to IRAs.

Second, are those you can establish yourself. There are two basic types: Traditional IRA and a ROTH IRA. They both accept post-tax dollars as contributions, however, in some cases the contributions to the Traditional IRA can be tax deductible. The current maximum contribution is $6,500 per year per person. They both allow the assets inside to grow without tax liability. Depending upon with whom  you open the account, there may be access to thousands of different types of assets ranging from stocks, bonds, certificates of deposits, mutual funds, exchange traded funds, and others. The Traditional IRA requires distributions near age 70 ½ and these distributions are subject to standard income taxes at the time of withdrawal. The ROTH IRA assets can be held until death and no taxes are applied to the withdrawals.

Many times it is worth using as many types as legally possible within your current budget needs. Look to them to build your retirement nest-egg.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FAClient articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.

 

Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

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ROTH IRA - Better than sliced bread.

Roth IRA – Better than Sliced Bread (See 1-minute video: Roth IRA, Contribute or Convert.)

The tax code as few taxpayer friendly provisions, but the creation of the ROTH IRA is the exception. A ROTH IRA is a type of account into which a taxpayer can contribute after-tax dollars and then never pay taxes on the growth or withdraws. Yep, no more taxes.

Not having to pay taxes can be a huge advantage especially when the growth is extended over many years. It also permits you to better control your income program in retirement.

There are only two ways to get money into these accounts.  The most common way is a direct contribution from savings/checking account. But do note that the amount you can contribute varies whether under or over 50 years of age. And there is a maximum regardless of age which changes from time-to-time. Further, you can not contribute more than you earn such as from a job. Earnings from investment do not count.

The second method is to convert assets already in an IRA or qualified retirement plan from work to a ROTH IRA. There are no limits on how much can be converted. That’s the good news. The sad news is that to make the conversion, every dollar converted is considered income and subject to income taxes. So, it might be smart to convert a portion each year rather than all at once to avoid bumping you into a higher tax bracket.

Investigate the ROTH IRA, and it may be better than sliced better for you.

 

This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FA Client articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.

 

Contact Steven Erickson JD, MBA, CFP(R), Accredited Wealth Management Advisor, Chartered Retirement Planning Consultant at 573-874-3888 This email address is being protected from spambots. You need JavaScript enabled to view it. , if you have questions or to set an appointment. Serving Clients in Columbia, Jefferson City, and the surrounding counties.

 

 

 

 

 

 

                                                                       

 

 

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