Category Archives: Personal Finance

August 21, 2017

Millennials Turning 30 – Here’s The Why and How To Save Now

401k advisor annapolis in maryland at SCM

Millennials turning 30 – here’s the why and how to save now

By Ryan Ansted, Managing Partner, CRPC®,  Scarborough Capital Management   

Worried about your current financial situation? We can help.
Worried about your current financial situation? We can help.

For those that graduated college about eight to 12 years ago, you may have landed a great job and have no student loan debt. Maybe you’re even putting away a lot in your 401(k) and found a place to live in a low cost neighborhood where you’ll rent for a few years until you decide to buy a home.

Or maybe not.

Chances are that for Millennials either entering or in their early 30s, the last decade plus has been a bit shall we say, unsettled? And maybe your financial picture isn’t quite as solid as you’d like.

How then can we use the lessons of the past combined with the current situation you may be faced with to put together a solid financial plan for your peak earning years?

First, let’s take a step back and ask a question. Is it even important to start early? Can’t someone just save more later?

Why saving early is key

Here’s an example. Bob is 20 and wants to retire at 67. He has about $200 per month he could invest, and can currently get a 5 percent return annually on his 401(k). If Bob started today from zero, he’d retire with close to $450,000.

But instead, Bob decides he wants to buy a new car when his current car is just fine. The car costs $24,000, which is what he could invest for the next 10 years. He figures he can make up the difference down the road when he starts earning more.

Fast forward 10 years. Now Bob is 30, and he decides he wants to spend this next decade’s $24k to buy a boat.

Here’s a chart on how Bob’s lack of savings has impacted his 401(k) account, and what it would look like if he only started saving at 40…

Saving 200 v2
What does this mean? Well, every 10 years Bob could be putting in $24,000 in principal to this fund. That means Bob would need to invest $48,000 to make up the principal that he didn’t fund earlier.

But the main consideration here is what happens to that principal if you allow the interest to compound over a longer timeframe.

If someone could talk Bob out of buying that boat and instead starting to invest at 30 as opposed to 40, his $24k is able to generate about $95k in added interest.

And as you can see, the earlier Bob starts the more his funds will grow. Even starting at 30, Bob can still accumulate more than $250k with only $200 per month.

If you’re seeing this and feel like you’ve missed an opportunity in your 20s to fund your retirement account, use that as motivation to start today.

So, now that we know why it’s important to get serious about your finances, how do we do this?

  1. Figure out what you make – after taxes, healthcare and investments.

This is the key number to work with – what’s actually left in your account after you pay Uncle Sam, your healthcare and your future self.

  1. Figure out what you’re spending on – and be brutally honest.

If you’re finding that you’re short each month, or staying on budget but not really making any headway with your student loans, it might be time to take a closer look at what you are actually spending money on. Thinking about it in terms of how much this money could grow to be worth in the future can make an impact here. Look at items such as your phone plan or any streaming service or memberships you have. You’d be surprised what you can cut.

 3. Using promotions, raises or other opportunities to increase your contribution.

Here’s the upside. If you’re working hard and doing a good job, there’s a possibility that you could soon get a promotion, raise or even a better paying opportunity at another organization.

And with the digital tools we have available to connect to others you can pick up some extra income freelancing on the side as well in a wide array of fields. Take this extra money and roll it into your 401(k) or finish paying off loans.

  1. Determine your investing IQ

How much do you need or want to know about investing? At a very basic level, everyone should have a good idea of the points above.

You’ll also have to decide what investment options to choose and how to allocate those funds, as well as how aggressive you want to be, what age you want to retire and how market fluctuation is going to impact your investments. The good news though is if you’re just getting started investing and could use a little guidance, we can help.

Our 401(k) management is easy to use and comes at as little as a dollar a day. The best part is you can keep your funds in your current 401(k) and use the tools your current employer has for you. We’ll monitor and adjust based on your goals.

If this sounds like the right type of financial planning assistance for you, give us a call or send us an email today. We’re here to help you save money for that boat – and still have plenty left for other fun retirement activities.

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

April 5, 2017

How to Better Manage Your Personal Finances in Six Steps

US News & World Report Scarborough Capital Management

Setting up a personal financial system isn’t complicated

By Gregory Ostrowski, CERTIFIED FINANCIAL PLANNER®, CRPC®, Managing Partner,  Scarborough Capital Management

wealth management annapolis md
If your budgeting system isn’t working for you, take these steps to fix your finances.

Are you looking at your checking account and wondering where all of your money went? People often don’t realize how much they spend.  With Starbucks on every corner, the convenience of Amazon shopping and unexpected expenses like emergency veterinary bills, it can be easy for your spending to outpace your income.

If you’re realizing that your current budgeting system isn’t working for you (or if you’ve yet to establish one), not to worry. Here are six steps you can take starting right now to get your financial situation back on track, covering everything from income and expenses, to savings and payments.

  1. Start with your income

Wait, why don’t I start with expenses? Isn’t that what we’re trying to keep track of?

Yes, but if you start with expenses you don’t know how much you have to actually spend. Establishing your income figure acts as a much better starting point.

I like to use a year instead of a month, as people may have fluctuating income when you factor in commissions or bonuses, or may work in seasonal industries.

Also, don’t forget, this is money you get to take home. Taxes don’t count. An exception to this is if you have money taken out of your check for a 401(k) or other retirement plan you can keep this in, since we’ll account for it in savings.

  1. Next go to expenses

How much do you spend in a given year? The reason I like to look at a year here is again the simple fact that while fixed expenses remain constant (think mortgage or car payment), our monthly variable spending can, well, vary…and by a lot. For example, the average person will spend more on gifts in December than in February.

To arrive at this number write down everything you spend on…and I mean everything. Groceries, clothes, a new leash for Fido. All of these things add up, and you should know how much they cost. This may even take you a couple of months to get a good handle on. That’s ok, just be patient and diligent.

Now, do you have enough income to cover expenses with some left over? If so, great! If not, see where you can cut, because if you don’t have any money going into savings, you’ll need to figure out a way to repurpose some of it there.

  1. Set up your savings accounts

The next step here is to allocate your savings. For simplicity, I’ve broken savings into four buckets. You should have:

  • A contingency account – If you happen to lose your job or need to cover unforeseen medical expenses.
  • A retirement account – This one is for your future self. It can be a company managed 401(k) or your own IRA…or both if you can handle it financially.
  • Other people’s weddings/vacation account – This one is big, especially if you’re in your early to mid 20s. Expenses for other people’s weddings can add up fast and it’s better to save for them instead of trying to fit them into your monthly budget. Money you have left over you can send yourself somewhere. Don’t forget though, you may need to strike a balance. While it may be lots of fun to visit the Caribbean for a destination wedding, if your budget isn’t in great shape or you get an invite from someone who’s not a close friend, it may be better just to say no thanks.

Your own wedding/home down payment/rainy day fund account – Even if you don’t want to get married or own your own home, it’s a good idea to have an extra bucket just because. You never know what you may want down the road.

  1. Set up a budget tracking system

All of this planning is for naught though if you don’t manage your finances afterwards, and this is where a budget comes in.

There are several ways you can go about creating a system to track your income and expenses. One is a simple spreadsheet (or better yet, a shareable Google sheet if you and a significant other are now mixing income and expenses). Another way is to use budget tracking tools like Mint or Quicken. There’s even plain old paper and pen.

There are certainly pros and cons to any system you employ, and it’s ultimately up to you to decide what will work best. Just remember though, automated and hands-off isn’t always better. The more you let the software do, the less you may be able to learn about your spending and saving habits. While this may work for some, it may not for others.

When setting up your categories, you can be as general or detailed as you’d like, but again remember that you need to account for every purchase and also to allocate categories for saving.

While it does take a little bit of effort to establish and get comfortable with, the investment is well worth it. Time spent setting up or improving this system will be small as compared to what you may have to waste dealing with credit card companies and banks trying to get them to waive overdraft fees because you didn’t have enough to cover a bill.

In terms of actually tracking these purchases to make sure you’re on budget, there are a couple of ways to go. One way is to save physical receipts and enter them on a regular, frequent basis. If you’re not into paper, you can review your online credit card statements and enter totals from there. Also, getting invoices and statements sent to you digitally can ensure you won’t lose a bill behind the fridge.

This is kind of like going to the gym. You can’t do it once and expect to be done. It takes consistency and patience to see results.

  1. How to handle payments

Now that you have your system’s framework established, you can start making some actual transactions. The first thing you’ll want to do after your paycheck is direct deposited (yes, opt for this) is pay yourself.

How much should you be saving for retirement? I like to recommend to my clients about 15% of your gross income. If you have a company sponsored 401(k), money will be taken out of your account before you are paid. After that, pay your contingency and other accounts. Setting up auto payments is the easiest way to make sure this is done every month.

After paying ourselves, now we have to pay for things like our mortgage, car, phone, and any other purchases we’ve made. Again, setting up online billing and auto pay can save several hours down the road in fighting with companies and being put on hold because we were a day late for a payment.

  1. Reassess annually

Aside from keeping your expenses below your income, another great thing about having this system is that it allows you to make financial decisions based on actual history and not just guess about how much certain things cost.

If you track your spending for five years and see that you’re paying more and more for utilities, you now can take a more objective look to see how you might be able to save. It’s little steps like these that can save you a few hundred dollars in different categories each year, and over time if invested, those funds can grow to be significant.

While setting up a personal financial system isn’t complicated, it does take some work and effort. The question to ask yourself is, would your future self want your current self taking a few hours over a couple of weekends to do this? I think we both know the answer to that.

If you have any questions on your own personal financial situation or need help getting started, talking to a CERTIFIED FINANCIAL PLANNER™ professional can be a great first step.

 

 

Securities through Independent Financial Group, LLC (IFG), a registered broker-dealer. Member FINRA/SIPC. Advisory services offered through Scarborough Capital Management, a registered investment advisor. IFG and Scarborough Capital Management are unaffiliated entities. Neither IFG nor SCM provide tax or legal advice.

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

March 28, 2017

Social Security and the Millennial Generation

401k advisor annapolis in maryland at SCM

Will there be enough for your retirement?

By Joshua Goldsmith, Retirement Advisor, CERTIFIED FINANCIAL PLANNER®,, Scarborough Capital Management

social security help annapolis md
By 2034 the Social Security fund will not have enough to pay out current benefit levels. Are you saving enough now to enjoy a comfortable retirement?

As if Millennials didn’t have enough financial worries, there’s currently one out there that’s not receiving much publicity. But if a recent report is correct, there’s reason anyone who’s planning on retiring should be concerned and starting to adjust.

According to A Summary of the 2016 Annual Reports by the Social Security Administration (SSA), the Social Security fund is shrinking, and by 2034, it will no longer have enough to pay out current benefit levels.1

Does that mean Social Security is going away?

No. This report doesn’t mean that Social Security is going to be bankrupt in less than two decades. What it does mean is that if these estimates are correct, those drawing from the nation’s social insurance program will be getting anywhere from 75 to 80% of what’s currently being paid.

Here’s why: Up until 2010, Social Security was actually taking in more money than it was paying out. This created a surplus, and these funds were put in a “trust” where they were invested. But since then, the SSA has been taking in less in taxes than it’s paying out, according to the Wall St. Journal.2 This is leading to a point where the SSA is soon going to run out of what’s in the trust, and, if the projections are true, come 2034, those trusts will be depleted.

What happens to Social Security at that point?

If nothing is done, benefits will only be paid out according to what the SSA can take in, and these figures would be based on Social Security tax levels at that time. To give a more real-world example, let’s look at the current Social Security income of your average retired couple, and how it could change after 2034.

Right now, if both are drawing Social Security, they receive about $2,200 per month combined, which yields about $26,400 per year.3 With a reduction of anywhere from 20 to 25% in benefits though, this future retired couple could see their payments as low as about $20,000 annually.

A decrease of a little over $500 per month may not seem like a lot to some couples, but according to the SSA, “among elderly Social Security beneficiaries, 48% of married couples and 71% of unmarried persons receive 50% or more of their income from Social Security.”4

A decrease of this level would be as if you suddenly took a pay cut of 10 to 15%, or more. And individuals in these situations may not have many other options in terms of generating alternative income streams.

But, there is a way out. If Congress acts, they could set up a way to reroute some tax revenue or overhaul the system to make sure that full benefits are paid out. While this may be mathematically easy, the politics of it could prove to be more challenging.

What to do

First, the best thing to do is understand that you will have to take more responsibility for your retirement. As we’ve seen pensions decline over the years, Social Security benefits could do the same. Taking responsibility and understanding that you’ll need to save more during your working years can give you the upper hand in your later years.

Next, try to gauge what life is going to cost you in retirement. If you haven’t created a budget for yourself yet, do it now. You’ll have a better handle on what to cut and what to add in later years. Also, don’t forget that some expenses like a mortgage and children’s college funds can be eliminated, however be sure to definitely increase healthcare costs.

Once you have that total, calculate how much you’ve paid in. There are handy online tools that you can use to do this, and you can get started by registering your account with the SSA by visiting ssa.gov/myaccount.

Then, estimate conservatively, but rationally. All the doom and gloom aside, Social Security will still be there in 50 years for those that are just entering the workforce. It just may not be as helpful of a revenue source as it is now for current retirees.

Income stream allocation

So how then do you invest? It’s important to diversify your income streams by investing early and eliminating unnecessary debt and interest now. In terms of what percentage of your retirement income Social Security should play, lower is better (ideally it’s 30% or less).  A lower percentage means you saved more on your own and thus have a higher total retirement income.  Here’s a breakdown of how your income stream allocation could look:

  • Social Security 30%
  • 401(k)/IRA 60%
  • Cash/cash equivalents 10%
  • Part time work could also play a role

Savings plans such as 401(k)s and IRAs can play a vital role, but you shouldn’t stop there.

Make sure you have enough cash on hand in a liquid account for an emergency, typically about three to six months of expenses. Long-term care insurance5 can also be a good way to protect yourself from higher expenses in your later years by establishing policies that provide income in the event you become ill.

As this topic gains more media attention over the years, some people will undoubtedly start sounding the alarms of the end of Social Security. Don’t pay too much attention to them. If you control what you can and save responsibly, you’ll be in a position to have a great retirement, without too much worry about Social Security.

 

Resources

  1. Social Security Administration report – https://www.ssa.gov/oact/TRSUM/index.html
  1. Wall St. Journal – http://www.wsj.com/articles/social-security-medicare-trust-funds-face-insolvency-over-20-years-trustees-report-1466605893
  1. US News – http://money.usnews.com/money/blogs/planning-to-retire/2015/10/15/7-ways-social-security-will-change-in-2016
  1. SSA Social Security fact sheet – https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
  1. Scarborough’s recent blog series on Long-Term Care Insurance: http://exciting-wish.flywheelsites.com/news/long-term-care-insurance-part-1-what-to-know-to-help-protect-your-wealth/

 

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

February 7, 2017

Want to be wealthy in retirement? Get active now!

401k advisor annapolis in maryland at SCM

Want to be wealthy in retirement? Get active now.

By Ian Arrowsmith, Managing Partner, CMFC®, CRPC® Scarborough Capital Management

retirement planning annapolis
About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95 according to the Social Security Administration.

It’s safe to say that 2016 was a pretty unexpected year for many of us. As we turn the calendar and look forward to getting back to a bit of normalcy, some of us may start to make New Year’s resolutions.

So what’s on your 2017 to-do list? Is it to get healthier? Or to put yourself in a better financial position for retirement?

What if I told you that working on your health goal could help you with your retirement goal?

80 is the new 70

According to the World Bank, since 1960, the average life expectancy of people in the United States has increased from 70 years old to 79 years old in 2014.1

And according to the Social Security Administration (SSA), “About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.”2

This is great news, but it comes with a bit of an issue. Living longer means needing to pay for more things, like housing, utilities, food, and clothing. If you decide to retire at 65, that means there’s a 25% chance you’ll need to have at least 25 years of money for retirement stashed away.

Let’s do a quick exercise to figure out exactly how much that could be. The US median household income in 2015 according to the US Census Bureau was $55,775.3 Some financial advisors estimate that you’ll need about 70% of your annual income each year in retirement, which means a couple earning exactly the median income should aim for approximately $39,000 per year.

Now, multiply $39,000 over 25 years, and we get $975,000. And this is if we want to keep our current lifestyle. If you decide to travel more or buy a vacation home, you could be looking at upwards of $1.4 million or more.

Rising costs of healthcare

If you’re struggling to make ends meet and save enough for retirement now, you’re going to have to figure out how to cut out expenses down the road. So how do we do that so we can feel more secure and have more fun?

One of the biggest expenses people have as they age is healthcare. While the uninsured certainly have lots to lose by not staying healthy, the insured aren’t completely off the hook.

According to research from the Henry J. Kaiser Family Foundation, those with employer-sponsored healthcare plans have been shouldering more of the burden over the better part of the last two decades. Since 1999, these families have seen their share of healthcare contributions go from $1,543 all the way up to $5,277 this year.4

While there may be hope that some of these costs will plateau at some point, nothing on the horizon tells us that they’ll be reduced any time soon.

Getting active is a method of saving

One of the best ways to ensure you can enjoy many, many more years is to become healthier. First and most importantly, it’s crucial to consult your physician before you start any fitness regimen or diet.

But after your consultation, try to stay out of your doctor’s office for maladies that can be prevented. You’ll not only feel better, but you’ll stand a better chance of avoiding higher ticket health-related costs down the road.

In a recent study published in the Journal of the American Heart Association, researchers were able to put a dollar figure on what we spend and save relative to our physical activity levels and cardiovascular disease.

(“For cardiovascular health, the American Heart Association recommends at least 30 minutes of moderate-intensity aerobic activity five days a week, or at least 25 minutes of vigorous aerobic activity three days a week, or a combination of the two.”)5

The study first looked at people who had cardiovascular disease already. What researchers found was that those that met exercise guidelines could save $2,500 over those that didn’t.5

What’s more, people without heart disease could also stand to save money. Those with at most only one heart disease risk factor who exercised under the guidelines were found to save $500 a year over those in the same group who didn’t meet the exercise guidelines.5

What does this mean for our average retired couple? Well, if both had heart disease and were staying active, they could save up to $5,000 per year, which is almost 13% of their annual retirement budget. This is not insignificant money we’re talking about here.

But even if both were healthy, they’re still saving at least $1,000 per year, which is enough for a great long weekend away and then some.

The best part? Many of the recommended activities are free. Fast walking, lawn mowing, and even “heavy cleaning” are all considered moderate forms of exercise, while vigorous activity would be actions such as running, race walking, lap swimming, or aerobics.

Next steps

Talk to your doctor and assess your health risks. After this conversation, speak with your financial advisor. With this information, you can establish or refine your retirement plan based on your health assessment. It may also be a good idea to consider some long-term care insurance as well.

Now that the holidays have settled down and we’re getting back to our routines, it’s the perfect time to get proactive about your health and your finances. Who knew you could get two resolutions accomplished at once?

 

 

Resources

  1. World Bank – http://data.worldbank.org/indicator/SP.DYN.LE00.IN?end=2014&locations=US&start=1960&view=chart
  1. Social Security Administration – https://www.ssa.gov/planners/lifeexpectancy.html
  1. Henry J. Kaiser Family Foundation – http://kff.org/interactive/premiums-and-worker-contributions/#/?coverageGroup=family&coverageType=worker_contribution
  1. Journal of the American Heart Association – http://newsroom.heart.org/news/exercise-can-help-keep-medical-costs-down

 

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

January 11, 2017

At this rate you may not be able to retire

401k advisor annapolis in maryland at SCM

At this rate you may not be able to retire

By Greg Ostrowski, Managing Partner, CERTIFIED FINANCIAL PLANNER®Scarborough Capital Management

get to know how you can better manage your finances.
Rising rents and increasing student loan debt have pushed the retirement age to 75 for college graduates, according to a new NerdWallet study.

Let that headline sink in for a second.

All of your retirement goals, hopes, and dreams? They may stay just that…dreams.

“Rising rents and increasing student loan debt have pushed the retirement age to 75 for college graduates, according to a new NerdWallet study.”1

Because this money is being used to pay living expenses and student loans, it can’t be invested and thus can’t start earning compounding interest early in someone’s career. This is really unfortunate, since compounding interest is one of the few advantages the Millennial generation has over older generations.

“When millennials do find the money to save, they’re all too likely to keep their money on the sidelines. According to research from State Street, millennials have an average of 40% of their saved money in cash: checking and savings accounts, and term deposits such as CDs.”1

This money stored in cash also doesn’t allow them to take advantage of compounding interest.

If you’ve started saving just a little bit, good for you. But what about if you haven’t?

According to a recent survey by GoBankingRates.com2, the percentage of Americans with less than $1,000 in savings has jumped to 69 percent, and about one third have nothing at all.

You may say that this is a factor of not making enough money. But the data also show over 40% of Americans making between $100,000 and $149,000 have less than $1,000 in savings.

If you just started panicking, good. You should.

But don’t completely give up just yet. You still have some hope, but you have to act…and act fast.

How do you go about this? We can help.

At Scarborough Capital Management, we can help you get on your way to saving for retirement, no matter where you live, and for as little as a dollar a day.

Here are some key points of our 401k Management Program:

  • We match you with an Individual advisor who helps you develop your personalized strategy for saving.
  • Our clients save 4% more, on average, than typical 401(k) savers so you can do the math – more savings equals more money growing for down the road.
  • We make it easy: You can get advice from us without having to move money out of your existing 401(k), and changes can be made using the tools that your employer has already provided. All too many employers load you up with documents and send you on your way, but what good are the tools if you’re not using them?  We live and breathe this stuff and can help you get more out of your employer benefits.
  • We make it Personal: We don’t just look at your income. We look at your hopes, goals, and risk tolerance, then develop a personalized investment strategy.
  • Get more: We help you get more out of your 401(k), 403(b) or TSP. We consistently review your goals and risk tolerance, contact you to discuss your plan and proactively review your portfolio if/as needed, and provide unlimited access to your advisor.

Wondering where to go next? Visit us as www.scmadvice.com to learn more about our low-cost subscription based financial planning service. Use our simple, secure online form to begin or, better yet, give us a call and we can get started together. Do something today your future self will thank you for.

 

 

Links

  1. Nerdwallet: https://www.nerdwallet.com/blog/investing/millennial-grad-retirement-age-is-75/#sthash.ai2dUiZC.dpuf
  1. GoBankingRate.com survey: https://www.gobankingrates.com/personal-finance/data-americans-savings/

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

December 13, 2016

3 Reasons DIY Investors Should Seek Regular Advice

401k advisor annapolis in maryland at SCM

Three Reasons DIY Investors Should Seek Regular Advice

By Jonathan W. Szostek, Vice President of Investments, CERTIFIED FINANCIAL PLANNER®, CRPC®,  Scarborough Capital Management

investment advisors annapolis at SCM
The advice of a CERTIFIED FINANCIAL PLANNER™ professional to help make sure your finances are in good health.

If you’re a DIY investor, it stands to reason that you have some pretty good technical knowledge about how the markets work and why it’s a good idea to build a diversified portfolio. You also probably understand how to rebalance your assets, and whether you’d be better off with a traditional or Roth 401(k).

If you’ve been making money and protecting your assets this way, does it still pay to talk to a financial planner?

In short, absolutely.

First, let’s be honest. At least part of the reason that many DIY investors go this route is to save on fees that advisors would charge. And while there’s certainly nothing wrong with that, what I can say is that there are times when paying for a little advice or guidance can go a long way towards better financial stability in the long run.

To put it another way, you certainly could try to figure out what malady you may have by researching online and talking to friends and family members. But at the end of the day, getting the input of a trained physician will give you the answers you need to either take next steps or rest easy knowing you’re healthy.

If you are a DIY investor toying with the idea of getting some help, or someone new to the investment world who is trying to decide between paying for advice or going it alone, read on for a few reasons why the benefit of talking to a professional could make a positive impact.

Your goals can change

When you’re 20, you may have a pile of student loan debt and think getting it paid off is the largest financial obstacle you’ll ever have. But by the time you hit 40, you’re trying to figure out how to get your children’s education paid for.

Additionally, your time constraints and priorities may change. What was once easy for you to review and manage becomes more time consuming. Would you rather sit for a couple of hours reviewing financial statements and trends on a Saturday morning or would you rather go to your child’s soccer game? The ability to have a regular meeting with a financial advisor frees up your time so you can spend it elsewhere.

By talking to a CERTIFIED FINANCIAL PLANNER™ professional, you can discuss your needs and wants and he or she can help you map out a plan that can get you there. These discussions can give you the confidence that what you’re thinking is on track but also be a safety net in case one of your ideas may not be the best course of action. Also, with the experience that this person has, they can ask questions that you may not have considered or pose topics that you hadn’t built into your plan, such as long-term care planning or contingencies if something unforeseen happens.

Your income can change

Money management is a lot like calories from food. It’s not so much the math behind it, but the execution of getting to the numbers that we want.

For example, our doctor tells us to aim for a maximum of about, say 2,000 per day. That on the surface is easy. The hard part is making sure that we get the nutrients that we need at or under that calorie number.

This is where a good physician can work with someone to make sure they are eating the proper food and working in some exercise to their health plan.

Investing is no different. To retire with a certain income goal, we know we have to put away a certain amount per year and earn a certain amount of interest. The math is easy to work through. It’s the decisions we make with the income we earn that can sometimes get us in trouble.

By working with a CERTIFIED FINANCIAL PLANNER™ professional, we can better see where our spending is going and if the investment vehicles we’ve chosen are working as they should.

Even if you only have an employer-sponsored 401(k) plan, your financial advisor can help you rebalance your contributions and expense plan based on any raises or bonuses you receive.

Markets can change

One last reason to consider a CERTIFIED FINANCIAL PLANNER™ professional is because just like going for a test to confirm that there’s nothing seriously wrong with you, financial advisors can keep you calm during market volatility. Hearing from someone who has been there and understands market nuances as well as the big picture can ease your worries when turbulence sets in.

Additionally, there may be several alternative routes that you never considered delving into which may be a better fit for your goals at the time. It really depends on your situation and what the overall market is doing.

Relying on a CERTIFIED FINANCIAL PLANNER™ professional can take much of the worry out of this process by allowing you to not second guess yourself since you’re working with someone who does this type of work for a living.

The bottom line

Can people manage their money completely without the help of a CERTIFIED FINANCIAL PLANNER™ professional? Yes, of course. However, seeking out professional advice could be the difference between a comfortable retirement on your own terms and having to keep coming to the office.

Much like consulting a physician for any physical issues you may have, it’s probably a good idea to seek out the advice of a CERTIFIED FINANCIAL PLANNER™ professional to help make sure your finances are in good health as well.

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

December 5, 2016

9 Ways Retirees Can Earn Extra Income

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9 Ways Retirees Can Earn Extra Income

By David Herman CRPC®, CCPS®, Vice President of Investments, Scarborough Capital Management

retirement advisors annapolis
There is expected to be 24 million independent workers in the U.S. by 2018, according to MBO Partners. Will you be one of them?

The idea of retirement used to be sitting in a relaxing chair and reading a book or playing golf four days a week. Retirees today are much more active than those in years past, and not just with leisure activities either. More and more people are taking on work in order to gain additional income, some because they need to, sure, but some because they want to stay active in a different way.

The idea of work is changing too. It’s no longer only resigned to a part time job at a big box store or other retail location. With the tools available today, retirees are tapping into their entrepreneurial spirit and seeking out projects and gigs that bring them not only income but enjoyment as well. And many of these options can be started by simply alerting people in your existing personal networks either via social media or word of mouth. (Just be sure to check on business licensing requirements in your area for some of these options.)

If you’re at the point where you’re nearing retirement and still want to keep bringing in some money, read on for some ideas that just might spark a new chapter in your life.

  1. Consulting

Chances are you’ve developed some great work experience in your field (or fields) over the years. Use this expertise to teach others how to get ahead.

For example, if you were a human resources professional, you could run training seminars on employee retention and wellness programs. If you worked in logistics, you can visit smaller companies and give advice on their supply chain.

By setting up a simple website and establishing an LLC (which is easier than you may think), while creating some PowerPoint presentations and print materials, you could be on your way to consulting in no time.

  1. Freelancing

While a cousin of consulting, freelancing is slightly different. Here, you’re doing a project that’s going to be delivered to the client. For example, if you spent years in marketing or advertising, you may be able to pick up some freelancing work in copywriting or graphic design.

Additionally, your past employer may still want to keep you on as a freelancer to retain some of your expert talents, fueling the company even after you stop coming into the office.

  1. Handiwork

Did you spend off hours during your working years fixing up household items and doing DIY projects? If so, handiwork can be a way to supplement your income stream.

People living in retirement communities may have lots of folks nearby that don’t have the tools or skill to repair a broken fence or stop a leaky faucet, and word of mouth for this type of work can spread quickly. Just be sure to check the licensing requirements of your city or town, as well as any homeowner association rules and regulations if applicable.

  1. Crafts

Websites like Etsy have made it possible for crafters to showcase and sell their creations to virtually anyone. No longer do you have to wait for a local or regional craft fair to make some money. Simply create your craft, take some photos, list it, and sell.

  1. Tour guides

Have you lived in a city for a while and know every street forwards and backwards? Do you love history or architecture? Becoming a tour guide can give you a chance to spend some time talking about the places you enjoy while meeting people and spending time outdoors.

  1. Coaching or refereeing

Did you play a sport in high school or college, or do you closely follow a professional league? Getting into coaching or refereeing is a great way to stay connected to something you enjoy while making some money on the side. While the pay may not be as good as some of these other options, there are however lots of youth sports associations around today, giving you the potential for many more opportunities depending on your location.

  1. Tutoring

If you were a teacher and still love to foster learning, yet don’t want to be held to full time work anymore, tutoring can be a good way to earn a bit extra in the late afternoon or over the weekend. Starting is as easy as talking to neighbors and friends who have children.

  1. Adjunct teaching

As a more formal way to teach than tutoring, adjunct teaching at a local community college can give you a chance to interact with learners that are a little bit older on more specialized topics. The pay can also be decent, and if you choose fall and spring classes, you’ll have your summers off.

  1. eBay or Craigslist

If you’re into antiquing, or simply just have too much stuff around the house and want to downsize, selling items online is a great way to generate some revenue.

It’s easy to set up accounts on both sites to get started. With eBay, shipping labels can be printed right from your computer and you can use mailboxes or the post office to drop off items. Craigslist seems to work better with larger items like bulky pieces of furniture that are more costly to ship.

Try it out, you may be surprised what certain older, refurbished pieces would fetch on the open market.

As you can see, there are lots of ways to earn an additional income stream during your retirement that can also help you feel fulfilled by the work you do. And with the tools we have today to connect and manage our work, it’s easier than ever to get started.

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

November 28, 2016

14 Questions for Joining Finances with Your Significant Other

401k advisor annapolis in maryland at SCM

14 Questions for Joining Finances with Your Significant Other

By David Sizemore, CERTIFIED FINANCIAL PLANNER®, Retirement Advisor, Scarborough Capital Management

financial advisors annapolis learning Scarborough Capital Management
While some people avoid these topic, they should be discussed sooner than later.

Much like figuring out where you’ll eventually settle or if children or pets are in your future, determining if, how, or when you’ll merge your finances is something that newer couples need to address.

While some people avoid this topic, it’s one that should be discussed sooner than later. To help facilitate this, here’s a list of some questions and considerations to get you started.

  1. Have you started discussing this topic yet?

If you have, that’s great! You’re that much closer to having a plan. If not, start talking about it as soon as you can because the process may take a while. This does not mean, however you have to combine right away, but having at least an idea of the topic can get the ball rolling.

  1. How will you have these discussions?

Financial conversations can be an emotional experience. Make sure you both pack your patience and try not to get defensive. Remember, being together can take work, and this is no different. This is also not going to happen overnight. Think of it as more of a series of continual conversations about finances, and not a visit with a tax advisor before April 15th.

  1. When will you set up a joint budget?

Some may have already moved in together and have been sharing rent, food, and other smaller expenses. If this is you, then setting up a joint budget may just be an expansion of what you’ve been doing previously.

But if not, will it be before engagement? Before marriage? After marriage? Never? (Yes, this is an option. It may not be right for you to do so based on your situation.) But let’s say right about now is a good time…

  1. What are your savings goals?

Even couples that have very similar interests may have slightly different ideas when it comes to what each is saving for. This is a great opportunity to get these thoughts out on the table and explain why you each want what you want.

  1. How is your credit?

For some, this may be an easy question to answer. For others, it might induce some very real angst. Now is the time though to get this information out so you can both approach it proactively. Communicate about these issues so you can work on them together.

  1. What accounts do you currently have?

Bank, credit card, savings, retirement, and the like. Make sure all of these are listed and you discuss what’s going on with each.

  1. Does one person already have a written budget?

This can be a time saver if someone is already documenting his or her expenses. If so, you simply have to add the other person’s in. If not, start by writing down expenses and income for each. At this point, don’t worry about setting up elaborate spreadsheets or plugging numbers into financial software. Just make a list.

  1. Do you want to share expenses down the middle?

Here is where we can begin to look at creating the actual budget. One option is to figure out how much your total expenses are, divide by two, and have each person pay that.

This can be a touchy subject though if the income levels of each are significantly different. In that case, approaching this though percentages could work. For example, let’s say that Jen makes $3,000 net per month and John makes $2,500 net per month. That means Jen makes about 55% of the income and John makes about 45% of the income. To split expenses this way, they’d pay the same in expenses as they earn in income percentage.

This may be a very equitable way for some to handle expenses, but it may not work for all. If, for example, one person has large student loan payments and a mortgage but the other is still renting and debt free, this couple may decide to keep these expenses separate. In this case, each person pays for a predetermined expense, and not simply split them percentage-wise.

And if you make more and believe you might be getting the short end of the stick, consider this: your significant other may get a raise, or you may have to take a pay cut or even suffer job loss. With roles reversed you may look at this differently.

  1. Is one person more “financially organized” than the other?

Do you pay your bills on time, every time, and have to remind your partner to do so? Or are you the one that never looks at their checking account? What about managing investment and retirement accounts?

There are two ways to handle this. Share the responsibilities in whatever way makes sense to each person’s strengths and interests, or have one person handle everything. There are certainly pros and cons to each, and now is the time to discuss if you want to be the one that has all of the work, or is possibly out of the loop on day to day finances.

  1. Do you want to combine debt?

Does either person have debt? What I mean by debt here is any type of large student loan amount, mortgage, credit card, or other payment that requires a significant monthly payment. By combining debt, both parties agree to share this burden even though only one may be directly benefitting from the money spent. This is something that should be considered very carefully, because if the relationship ends, the person without the debt will have a very hard time trying to recover the money spent.

  1. How many checking accounts should you have?

Some people like to have one account that all of their income goes into and expenses comes out of. This model makes tracking easier, however it may lump too much together that you actually want to keep separate, like “no questions asked” money. If one person can be more financially organized, one account is fine, however if both of you need this buffer, then opting for two may be a better solution.

  1. How much “no questions asked” money should each person have?

Would you rather a flat rate, or a percentage based on your income levels? If you’re allocating expenses based on income, doing the same here could be a good way to make sure that one person doesn’t get stuck with more of the bills in relation to their “play” money.

  1. What’s a financial limit you can spend without needing to consult the other person?

While “no questions asked” money is there if you want to treat yourself to new clothes or a fancy gadget, this question deals more with stuff that we just have to buy sometimes. Let’s say that your car needs repairs that are going to cost $700. Should you just go ahead and get the repairs? Maybe, or maybe not. Over a certain threshold, it may make sense to discuss these types of purchases, since the other person may have a better feel for long-term spending.

  1. How will attending other people’s weddings be handled?

Wait, what? Yes, you need to be discussing this. If both of you have a lot, or if one person has significantly more friends than the other that will be tying the knot then a plan should be developed on which weddings you should both go to, and which maybe just one or neither attend. Also, how much will you be spending on gifts, hotels, clothing, and hair all come into play. Discuss this so your vacation money doesn’t turn into hotel money for the second cousin’s wedding neither of you wanted to travel to.

As you can see, there are lots of considerations when two people decide to merge their finances. This doesn’t need to be as nerve wracking as many make it out to be though. With enough time, patience, and understanding, joining finances with a significant other can be one of the building blocks that helps your relationship along the way.

 

Resources

Attending other people’s weddings – http://brokemillennial.com/2016/05/11/2516/

http://www.frugaldad.com/setting-up-a-financial-system-as-a-couple/

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

November 14, 2016

The Role of Medicare in Retirement Part 3: Are you prepared?

401k advisor annapolis in maryland at SCM

How do you save or reduce healthcare costs, what to do if you retire before 65, and what’s next?

By Ian Arrowsmith, Managing Partner, CMFC®, CRPC®Scarborough Capital Management

medicare and retirement annapolis in maryland
About 46% of those between the ages of approximately 52 and 70, “lack any retirement savings today.”

A recent study by the Insured Retirement Institute revealed that about 35 million of the 76 million Baby Boomers “lack any retirement savings today.”1 This equates to about 46% of those between the ages of approximately 52 and 70, which is a staggering and sobering realization.

As the population ages and retires in greater numbers, some of those who call it a career will be faced with some challenging financial hurdles to clear. One of the largest that will be encountered is the cost of healthcare, which is rising at a rapid pace.

“What about Medicare?” you ask. It’s true that Medicare may be available for those who have qualified, however it does have its limitations.

Before you panic though, there are ways to prepare for your future healthcare needs using Medicare as a supplement to your plan.

In this three part series, we’ll take a look at some of the basics of Medicare, what health care costs you’ll need to cover yourself, and how you can best manage this often complex wellness system.

Planning for healthcare needs and costs can be confusing and stressful, but it doesn’t have to be. As we’ve seen in parts one and two of this series, there are alternative options to Medicare that can supplement coverage. We do however know that it can be expensive, so in this segment we’ll talk about how to save or reduce your costs.

We’ll also talk about what to do if you have a gap in coverage from the time you retire to the time you are eligible for Medicare, and lastly, what steps you can take next.

How do I save or reduce costs?

There are several ways that saving for healthcare or lowering costs can be accomplished. A Health Savings Account, or HSA is one way to help pay for coverage

This account is funded with pre-tax dollars, and if used on qualified health expenses the money can be used tax-free. This is a good idea for those who are young and healthy, since it allows tax-advantaged growth in conjunction with a way to save for medical expenses.

It’s not the best idea however, for those who are nearing retirement and are planning on enrolling in Medicare, since once you enroll you’re no longer eligible to contribute to your HSA. Another note on HSAs is that they are only available if the individual or family has a high deductible health plan.

Don’t forget that equities (like stocks) are also an option. While this may not seem like a good idea to some, if you’re going to be retired for maybe 30 years, you’ll need to have some type of savings with growth potential. It’s easy to fall into the trap of thinking that all of your money should be in low-risk, conservative investments, especially after recent market volatility. But in reality, any of this “safe” money is going to be outpaced by inflation sooner than you may think.

Another way is to make sure that you are getting the benefits you deserve. It may be very frustrating and time consuming to deal with insurance companies, but taking the extra few minutes to look over your bills can save you hundreds. Mistakes can and do happen.

Lastly, ask lots of questions, especially prior to having a procedure done. Costs can add up, and sometimes what you think should be covered in-network actually isn’t. This can save you time, money, and headaches down the road.

What happens if you retire before 65 and have a gap between employer coverage and Medicare?

This can happen for a number of reasons, and while we may not be considering an early retirement, sometimes what we plan for in life doesn’t always work out the way that we thought. If you retire and are not yet eligible for Medicare, you may have a few options.

The first is through the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA. Through this program, you are allowed to keep your previous employer’s insurance plan (typically for up to 18 months). This however, can be extremely costly and better options may be available.

Another is through the Affordable Care Act. Insurance can be purchased through the federal exchange, or through one established by your state. While this will provide insurance coverage (even with an income-based subsidy for some), it probably won’t cover everything. Deductibles, copays, and possibly even prescriptions could come out of pocket. More information on how to go about this process can be found on healthcare.gov.

Lastly, if you’re married and your spouse is still working, you can research coverage options through his or her employer. This may be more cost effective and provide better coverage than even what’s available through the exchanges, depending on your income level.

What are my next steps?

Personally, I recommend two main areas to focus on in terms of planning for future healthcare costs.

The first has to do with saving. It is never a bad idea to save earlier and more regularly than you think. With the power of compounding, the money you put away first could be worth the most down the road, so start this process right away. (When you’re 65, you will thank your 25 year old self that you did this…trust me.)

The other part is to make sure you stay informed and seek help if needed. Stay up to speed on healthcare news and studies that may be pertinent to your own situation, and take some time to really learn about your care options. But as healthcare continues to become more and more complex, no one is going to have all the answers. Given that, it’s perfectly acceptable and even recommended to ask a professional for help.

While no one knows what the future will hold, by preparing today for the healthcare needs of tomorrow, you can at least have greater peace of mind that you and your family will be better taken care of so you can enjoy the retirement you worked so hard for.

 

Sources

  1. IRI study – http://myirionline.org/docs/default-source/research/boomer-expectations-for-retirement-2016.pdf?sfvrsn=2

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

November 8, 2016

How Socially Responsible Investing Can Fit in Your Portfolio

responsible investing