The parental playing field has never been level, because it was never meant to be that way. Some parents have more time to spend with their kids than others. Some are more athletic, creative, musical, mechanical, demonstrative, intellectual or active than their neighbors and friends. Some have more money to spend. It’s okay. Your job as a parent is to do the best you can with the resources you have. You don’t have to be something you’re not, or spend more than you have to raise a healthy, happy family. In the wake of financial challenges exacerbated by this global pandemic, you might be tempted to stretch your own financial resources to help your children out. For instance, you may think you should mortgage your own home to help them buy theirs, deplete your emergency fund to take care of theirs, dip into your retirement account to fund their education. We encourage you to avoid these seemingly loving financial gestures. Loaning or gifting your children money is fine if you have those funds to spare. But, risking your own financial health to solve your children’s financial troubles could backfire for you in the long run. Those very children you protected so diligently during years they could have scaled back their lifestyle or stepped up their earning power, may end up resenting you later on. If you run out of both money and the means to acquire it during your retirement years they probably will have to jump in and help you out. Nobody wants to see that happen. Sitting down together and discussing ways to solve the financial difficulties, or better yet, helping your children acquire the financial skills they need to avoid financial stress in the first place, will be much better for all of you in the long run. Remember, you can apply for a loan to fund college or the purchase of a home, but you can’t… | Read More »
In light of a short-term though very real cash shortage you might be feeling due to pandemic-related shutdowns or furloughs, you may be tempted to dip into your retirement accounts. On its face, this may seem like an easy fix. It is likely the largest pool of money you have and it may seem harmless to loan yourself some money from it to tide yourself over until this financial crisis passes. We urge you to consider ramifications of this move carefully. Every dollar you remove from your investment account decreases the potential earning power of that account. So, if you withdraw $50,000 from your 401(k), you not only reduce that account by that amount, you also lose the potential that $50,000 might yield (another $2,500 in a 5% market). That lost interest compounds year-over-year making your single withdrawal even more expensive over the long run. It is true that you can avoid paying an early withdrawal fee temporarily because the Secure Act allows you to take as much as $100,000 from your retirement accounts without penalty, and to avoid paying taxes on the withdrawal if the money is put back in the account within three years. But, this is a temporary window and you can’t be sure you will have the means to replace the money in three years. Also, if you are furloughed, laid off or otherwise unemployed, you are probably not contributing to your 401(k) or other employer sponsored retirement plan anymore and this is already reducing your future earning potential. It is far better to review your personal budget and to cut back on spending temporarily. You can also negotiate with creditors, including your landlord, sell an item or two you are no longer using, or pick up a side gig you can do safely until you are called back to your full time job. If you’ve trimmed all the excess and still find yourself short of… | Read More »
If you think you don’t have enough money to retire, you probably don’t. Increased longevity already was straining previously healthy accounts as people found themselves having to fund retirements that lasted longer than their working years. Add to that a bond market that paid almost nothing and then a global pandemic, and you have a whole generation rethinking their golden years. But, that’s okay, because technology has also developed in ways that make an extended career more palatable for many. Many jobs now offer work-from-home options, and plenty of those that can’t offer that mutually beneficial perk still provide flexible work schedules and accommodations for the physical limitations aging workers might face. If you have an area of expertise, you can take advantage of inexpensive social media marketing and easily accessible video conferencing software to monetize your advice. You can develop a robust second career as a consultant from the comfort of your favorite family room chair. The key is to take an honest inventory of your resources including financial, physical and emotional. Do you have enough money to last your whole life? Have you factored in health care costs? Will you be physically able to continue your job past a traditional retirement age? Armed with this information, you can meet with a financial advisor, preferably one with a fiduciary relationship to you, meaning they must act in your best interest. Together you can look at both hard numbers like how much you’ve already saved in your retirement account and less tangible factors like your current job satisfaction and any potential health concerns, to map out a plan. Some of the happiest retired people are actually not retired at all. They have found a way to linger over their morning cups of coffee, and still participate in the work force in meaningful ways. This hybrid retirement keeps the mind active, the soul engaged and the retirement account healthy.