Alyssa’s Newsletter is Back: New Ways to Save & an Insurance Coverage Equation
I sincerely apologize to all of my newsletter subscribers who have been mourning the absence of the quarterly editions I had promised. I’ve been busy helping so many grateful people in our community, “Let’s Stay in Sync” got pushed to the back burner. I hope this installment is worth the wait.
‘INVEST IN YOU’ IS GOING STRONG
I’ve been honored to support many recent widows over the past couple of years, and in the process I’ve learned a lot about common challenges people face when they lose a family member. That’s why Keith Strohl and I are working on an informative presentation for everyone attending the “When a Loved One Dies” workshops Oct. 30. We look forward to sharing helpful tips with all of you.
If you didn’t register before we reached capacity, please put your name on the waiting list, so you’ll get priority when we offer this session again in the near future.
Also coming up before year’s end, Invest in You will host our third annual Holiday Hope Chests gathering, when we collect donations of goodies to pack into shoeboxes for underprivileged kids in our community. Ladies, stay tuned for event details so you can sign up. Can we top the 81 gifts we donated in 2022?!
In March, we enjoyed a free Zumba class and collected a trunkful of donations for the Turning Point of Lehigh Valley Safe House Emergency Shelter. A few very kind Invest in You regulars who couldn’t make it to the event also pitched in with generous contributions.
In June, we gathered at Blue Ridge Winery to savor delicious local wines along with an inspirational message from the winery’s founder, Randy Detrick. Our attendees helped us raise $15,000 for the Leukemia & Lymphoma Society.
Thanks for getting involved and supporting these important causes.
NEW LAW CREATES NEW WAYS TO SAVE
When SECURE Act 2.0 became law Jan. 1, it presented financial advisors like me with a challenge to learn new rules and options. It’s also presenting some nice opportunities for Americans to improve their financial wellbeing. Within the many provisions are two I think are especially beneficial.
1. One change might encourage more people to fund a 529 plan to save for college. The act allows unused money in a 529 plan to be transferred to a Roth IRA for the beneficiary. If money contributed to a 529 plan isn’t used for schooling but instead is withdrawn for other uses, earnings are taxed and a 10% penalty charged. This has dissuaded some people from using this tool to save for educational expenses, just in case their child or grandchild doesn’t need the money for schooling. Now, if there’s money left, it can be used to help the beneficiary save for retirement, instead.
Of course, there are a lot of rules. Among them is this: Before you can transfer money from the 529 plan to a Roth IRA, the account must be at least 15 years old, and you can’t move money that you added to the account within the last five years. Also, the beneficiary must have earned income, as is required to make direct Roth IRA contributions. The most you can move in one year is the maximum IRA contribution limit for that year (In 2023, that’s $6,500 for someone younger than 50.), and there’s a lifetime cap on the amount of money you can shift: $35,000.
2. SECURE Act 2.0 is also helping people save money another way. It established an Emergency Savings Account attached to company retirement plans that allows workers to defer up to 3% of their compensation for tax-free growth, up to a maximum balance of $2,500. This money is different from a 401k because people won’t pay tax on earnings if they need to withdraw the money, and, unlike retirement money that’s “locked up” until age 59 1/2, they can access it sooner without penalty.
I like that this mechanism makes it easier for people to build up an emergency fund, because the savings comes directly out of their paycheck. Some people struggle with the discipline to save, so this helps them accomplish a goal that’s essential for their financial security.
SPEAKING OF SAVING…
During a recent quarterly meeting, my clients who are in their 70s reminisced about a time when their weekly grocery budget was $11 and they had to put items back if the bill would exceed their spending limit. As we looked over the report summarizing their portfolio, they never could’ve imagined having this much money in their nest egg. The husband said his friend calls him cheap; they prefer the word “practical.”
I like the word practical. I’m also a fan of frugality.
Another client with a college-age daughter earlier this year asked me for budgeting recommendations or tools for young people. If she starts early in adulthood practicing the basic guidelines for living within her means, she’ll be in a comfortable financial position in retirement, too.
I gave her the following outline. Because the concepts are basic–there’s nothing sophisticated or fancy about this approach–I believe they can help people of any age manage their cash flow and accumulate the funds they need for the lifestyle they desire.
- Record your monthly income.
- Keep track of where your money is going. Write down everything you spend on paper, in a computer file or in a note on your phone. After a few months of data collection, find your average monthly spending.
- What is the difference between your income and average expenses?
- Your spending shouldn’t exceed your income. (That’s the definition of living beyond your means—a bad situation.) It’s extremely important to avoid racking up a credit card balance higher than you can afford to pay off when the bill comes. Once you’re buried in credit card debt, it can be incredibly difficult to get out. The high interest rate you’ll pay means you’re paying a lot more for everything you bought with the credit card.
- Ideally, instead, you will allocate savings/investing as a line item in your budget. Treat it like a bill you must pay. Saving 15% of your income is a good place to start. To free up more cash for saving, categorize your spending into necessities vs. the flexible amounts and look for opportunities to cut back or set limits for yourself.
- Your first goal should be to establish an emergency fund (money that’s safe, liquid/easily accessible—in the bank) that totals three to six months’ worth of expenses. Put the bulk of your monthly savings into that fund until you reach that milestone, and then invest a smaller portion of the savings into a retirement account (a 401k if available, and/or Roth IRA if not). Once the emergency fund goal is met, you can get more serious about retirement or another savings goal, such as saving to buy your first house.
There are apps and other resources available to facilitate budgeting, cash flow tracking and savings plans. I’ve heard some good things about Acorns, as one example.
One of my clients has a 13-year-old son who became interested in the stock market thanks to a club at school. I recommended the Fidelity Youth investing account, and he loves it.
I hope you find these tips worthy of sharing with a young person in your life.
DO YOU HAVE ENOUGH LIFE INSURANCE?
I learn so much from MtM’s specialists when I join my clients for consultations about Social Security, Medicare, estate planning, life insurance and reverse mortgages. Now, thanks to one of those educational conversations, I can help you begin to explore the idea of whether you have enough life insurance. Then, we can bring in the expert to get into the specifics.
For example, if you’re a parent with children and your spouse “gets hit by a bus,” how much money does your family need to cover regular expenses?
First consider: How much household income is lost due to the untimely death? Remember that you likely will be eligible for a Social Security survivor benefit that would replace some of that income. If you’re caring for a child younger than 16, you would be eligible to receive your deceased spouse’s full retirement age Social Security benefit (the “primary insurance amount”). Each unmarried dependent child younger than 18, or younger than 20 if still in high school, also is eligible for 50% of that same benefit amount. But there’s a “family maximum” that would limit the total you all could collect combined. Generally, that max is 150-180% of the primary insurance amount. The average survivor benefit for a family with a widowed mother and two children is $2,934 a month. Speak with Social Security (or MtM’s specialist) to determine your actual amount.
If you are younger than retirement age when you lose your spouse, it’s probably prudent to defer reliance on your retirement assets until the later years, so that they can provide adequate retirement income. You shouldn’t plan on spending that money to raise your kids, if you can avoid it.
Now you can compare your existing income to your expected expenses to determine how much more money you’ll need each month or year to live on. An insurance death benefit can provide these funds.
Considering your kids’ ages, think about how many years the money from the insurance payout needs to last. If the youngest is 12, perhaps 10 years is enough. You may want the death benefit to include enough to help pay for college, too.
If this overview is making you question whether your insurance coverage is inadequate, let’s schedule a meeting at MtM with an insurance specialist to review your options.
Remember to tune into the weekly “More than Money” radio show I co-host with Gene Dickison 8-10 a.m. every Saturday for opportunities to learn a lot—and likely laugh a little. Catch it on podcast or on our website if you can’t listen live.
Please get into the habit of checking your spam folder in your email account, because my messages sometimes get snagged there. So if you’re expecting a message from me but don’t see it in your inbox, it’s probably stuck in spam.
In case you’re wondering what the Young family is up to… Our son, Andrew, is settled into a healthy routine at West Chester University. He’s staying on top of his school work and loves that his dorm is next-door to the gym. Our daughter, Juliana, just celebrated her 14th birthday. She is taking honors classes her freshman year of high school and making tremendous progress in her first year running on the cross-country team. Our 20-month-old golden mountain dog, Murphy, has become such a good, sweet boy, weighing in at nearly 100 pounds. I’ve been taking a weekly tap-dancing class again. I haven’t registered for any races since my spring half-marathon, but I’m still logging many miles in an effort to beat my annual mileage again. My husband and I celebrate our 20th wedding anniversary in November!
I hope you and your family are well. If there’s something I can do to help you or your loved ones, please reach out.
Connect With Me
“Invest in You” Connecting & Inspiring Lehigh Valley Women: Join our newest organization focused on bringing women together to support one another and our community. We meet every quarter for a great cause with great people – keep an eye out for info on our next event or send an email to [email protected] to be added to the email group.
Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Annuity guarantees, including guarantees associated with benefit riders are subject to the claims-paying ability of the insurance company. Surrender charges may apply if money is withdrawn before the end of the contract.
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 is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should be relied upon when coordinated with individual professional advice. This information is not intended to be a substitute for personalized financial planning, tax planning, or legal advice.
Securities offered through The Strategic Financial Alliance Inc. (SFA), Member FINRA, SIPC. Advisory and tax services offered through MtM Financial Group, LLC which is otherwise unaffiliated with SFA. 4505 Hanoverville Road, Bethlehem, PA 18020. SFA does not provide tax or legal advice. Supervising office 888-447-2444.