retirement Archives - Page 2 of 3 - Rocky Mountain Financial Solutions

Preparing for retirement emotionally

jim family wealth management, Financial advisor, Investing, retirement, Retirement Planning, wealth management June 15, 2021June 15, 2021financial advisor, investment management, retirement, retirement planning, wealth management

Retirement paves the way to a new and exciting chapter of our lives, emotionally too. This is the moment of relief when, for the first time ever, we now have ample time to travel the world, take up new hobbies, and scratch whatever itch we’ve been ignoring.

Yes, retirement should be exciting. But for many of us, the thought of leaving our jobs forever can be daunting. After all, our careers play an important role in shaping our identity. And to suddenly cut the cord means we have to find something else to fill the void.

This isn’t helped by the fact that the word ‘retirement’ can be quite limiting – when it’s anything but. All too often, people associate it with old age and the ‘pipe and slippers’ part of life. This is why the financial conversation is often limited to how much you might have to retire on. And that’s that.

But it’s not as simple as that anymore. Today’s typical 60 somethings are nothing like those of a generation ago.

A lot of this comes down to the fact that life expectancy in North America has been on the rise for some time now. A generation ago, men could expect to live up to their late sixties, and for women their mid-seventies. Since then, life expectancy has improved incrementally. The current life expectancy for North American men is 76 and women 85.

This means that for many retirees these days, retirement isn’t a wind-down phase, but a whole new beginning. This means that financially speaking, you might need to consider how to manage your retirement fund more strategically.

But how do you prepare for such a massive transition emotionally?

According to gerontologist Ken Dychtwald, it’s all about mindset. He advises people approaching retirement to do so as they would a career: His advice is to set goals, to visualize a ladder to climb, and to use these targets as motivation to move closer towards your next destination.

Unfortunately, the statistics show how detrimental it can be to find yourself without purpose and meaning at retirement: depression is prevalent in 22% of men and 28% of women at the age of 65 and over.

If you’re unsure of how to even begin to plan for retirement, then following some of the principles from Professor Dychtwald’s five phases of retirement could help you map out your journey.

Imagination (15 before retirement)

Being at least fifteen years away from finishing work for good, retirement might not seem like a priority. At this point, you’re more likely to be making sure that career aspirations are met, bills are paid, and your children are able to get through university.

But it’s important to think about your pension at this stage as it can help to ensure you have the financial stability to live life on our terms, post-retirement. This is where you can start to dream big and imagine the retirement you really want to have.

Anticipation (3 years from retirement)

Now you’re planning to turn retirement it into reality… this is where preparing emotionally is just as vital as preparing financially.

A great way to do this is by trying to develop a network of retirees whom you can trust for advice so they can share their experience of how they coped with the process.

Make a note of the goals you want to accomplish and what measures need to be put in place in order to achieve them.

Preparing (1 year before retirement)

The new beginning is near! Now’s the time to start developing concrete steps. Ask yourself what you’re going to do during the first week of retirement and what you plan on doing on a day-to-day basis.

Make a plan of what you want to achieve in the first six months and talk it through with your partner or loved ones. Visualizing the practicalities of this new phase will make it seem less daunting when it eventually arrives.

The liberation phase (first year of retirement)

Your working life is finally over! This is the stage when you’re likely to feel the most excited, relieved, and liberated. You can finally begin to explore new opportunities, travels, and hobbies.

Unfortunately, this honeymoon period will eventually fade, but remember, this is natural.

Dychtwald states the importance of staying physically active and maintaining strong social ties with people at this stage.

Reorientation (3 years into retirement)

This is the part where creating a legacy for the next generation can be top of mind. Whether that’s by sharing your knowledge and wisdom with others, or by thinking more carefully about the financial gifts you’re leaving children and grandchildren, this is an opportunity for you to decide what impact you want to leave on the world.

Hopefully, this is helpful in terms of thinking about retirement and a brand new beginning. Retirement isn’t the end of the road; dream big and don’t be afraid to chase after your deepest desires.

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This website is for informational purposes only and is not intended to be specific advice or recommendations. For specific advice or recommendations you would need to meet directly with one of our advisers.

How to Tame Market Volatility through Diversification

jim diversification, family wealth management, Financial advisor, invest, Investing, Investing Strategy, investment manager, investment strategy, Mutual Funds, retirement, Retirement Planning, Stock Market, wealth management, wealth planning strategies December 7, 2020December 7, 2020financial advisor, invest, Investing, Investing Strategy, investment management, investment planning, investment strategy, Investments, retirement planning, strategic wealth management

It’s that time of the year again. Whether it’s in person or virtually, the holidays are an opportunity for more conversations with loved ones. This year, let’s strive to put some positivity into our conversations. There is a lot to gripe about, but there’s more to look forward to. And the more we talk, the better we plan, prepare, and progress. Discussing your financial strategies with loved ones can help reinforce them or pivot according to new circumstances. And I’m ready to hear you! Knowing what may have changed this year will help us become more successful in pursuing your financial goals.

One topic that is front of mind is how to diversify your portfolio. One way to help investors reach long-term financial goals is through an investment technique known as diversification. Diversification basically means spreading out your invested money across different investments types, industries, countries, etc. Diversification can smooth out volatility of your portfolio and potentially lead to stronger returns over the long term. Helping you take advantage of the benefits of diversification is a central part of my job as your advisor.

One guiding factor behind diversification is that not all investment categories perform well at the same time. As some are increasing in value, others may be decreasing. Market volatility is the movement of investment categories going up and down.

Maintaining a well-balanced portfolio

As your advisor, I help maximize returns and reduce the risks associated with market volatility. Essentially, your portfolio represents a collection of different investments that work in harmony to help you reach your goals. One way you can achieve portfolio diversification is to divide your investments among the major asset classes. Such classes include equities, fixed income and cash.

Asset classes – A range of risks and rewards

Each asset class comes with varying degrees of risk and return characteristics. Typically, each class performs differently in certain market environments. Here’s a quick summary of each.

Equities (e.g., stocks)
Equities refer to buying stocks or shares of a business, making you a part owner. This means the investor is subject to stock appreciation when the company outperforms. But also subject to the risks of declining stock value if companies underperform.
Fixed income (e.g., bonds, Treasury bills)
Fixed income investors lend capital in exchange for interest. Considered as creditors, bondholders often have a priority claim in case of company bankruptcy. This makes the investments less risky. Fixed income typically provides income at regular intervals.
Cash (e.g., money market funds, bank accounts)
Cash investments provide low returns versus other asset classes, in the form of interest payments. These investments typically come with very low levels of risk.

Investment funds – One-stop diversification

I can also help achieve diversification through the use of investment funds; namely, mutual funds and exchange-traded funds (ETFs). These investment vehicles represent convenient and affordable ways to access a wide range of investments.

Mutual funds – These are made up of a pool of assets from many investors. Mutual funds are managed by a portfolio manager. The portfolio manager actively seeks to produce greater returns than a specific market benchmark, such as the S&P 500 Index. With the large scale of a mutual fund, you benefit from professional management and can get strong diversification by gaining access to investments that would normally be inaccessible or too expensive for most individuals.
ETFs – These are funds that track and seek to replicate the performance of select market indexes. ETFs represent a basket of securities based on the underlying index. This allows investors to gain broad diversification across entire markets, industries, regions or asset classes. ETFs are known to incur fewer administrative costs, therefore charging lower fees to investors.

Please feel free to contact me if you have questions on the terms discussed in this article, or on how your investment portfolio is diversified.

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How to Start Investing

jim invest, Investing, Investing Strategy, retirement, Retirement Planning, Stock Market, tax savings, wealth management November 23, 2020November 23, 2020invest, Investing, Investing Strategy, investment management, investment planning, investment strategy, Investments, retirement, retirement planning, tax savings, wealth management

So, you’ve landed your first “real” job! Now’s the perfect time to create your first investment plan and start investing.

First, let me congratulate you on getting through school and starting your first “real” job. You’ve worked hard to get here, and I’m sure there are many things you’ll want to spend your new paycheck on. An apartment of your own, some decent takeout (not from a student cafeteria), maybe a little traveling.

You should do those things, as long as they fit into your budget. You’ve earned a little breathing room. But now that you have some stability, you should also thinking about how to start investing for your future. Here are three ways to get the ball rolling.

1. Pay down debt

As a student, you may have accumulated a mix of debt, from student loans to credit cards. Create a debt-repayment plan that focuses on paying off your high-interest debt, like credit cards, first.

Student loans often carry lower interest rates, so these loans might not be your top priority. At the same time, many student loans require you to make a minimum monthly payment shortly after you graduate, and you only have so much time to repay the entire loan. You still need a loan-repayment plan to make sure you don’t default on these loans.

2. Build your emergency fund

Post-graduate life isn’t all sunshine and rainbows. Sometimes your air conditioner breaks down in the middle of a heat wave or your car dies on the way to a meeting. I suggest putting 10% of your paycheck into an emergency fund to cover unexpected expenses. The goal is to eventually have enough money in your emergency fund to cover three to six months’ worth of expenses, but it can take a while to get there.

Your emergency fund should be low risk and easy to access, like a regular savings account.

3. Think about retirement

This is the best time to take advantage of the power of compounding. If you start putting just $200 a month into a retirement savings account at age 25, and let it grow over the next 40 years at a 4% rate of return, you’ll have about $237,000 in that account when you turn 65.

Wait another 10 years to start investing the same amount at the same rate of return, and you’ll reach age 65 with about $140,000. That’s a big difference.

If your employer offers a 401(k), use it. With this tax-advantaged retirement account, you contribute pre-tax dollars directly from your paycheck. You employer will also match your contributions up to a certain percentage of your salary.

If you don’t have a 401(k), look into a traditional IRA (individual retirement account) or Roth IRA. With a traditional IRA, you’ll get a tax break on your contributions, while with a Roth IRA, you won’t pay federal taxes when you withdraw money in retirement. With both types of IRAs, you won’t pay taxes on any investment income you earn within the plan until you start making withdrawals.

Ready to start investing? Contact me today and we’ll work on creating your first investment plan.

Know Your Account Types – There is a Big Difference

jim 401k, 529 Plan, College Savings, family wealth management, Financial advisor, Investing, qualified account, qualified plan, retirement, Retirement Planning, Roth IRA, Saving for College, Traditional IRA, wealth management October 13, 2020October 13, 2020401K, College Savings, financial advisor, Investing, non-qualified account, retirement planning, Roth IRA, Saving for College, traditional IRA

There are two broad categories of plan types: qualified and non-qualified. Within these groups are a number of important accounts that can help you achieve your financial goals. If you know your account types, you can better understand the advantages and disadvantages. Let’s take a quick look at each one.

Qualified Accounts

Traditional Individual Retirement Account (“IRA”)

IRA accounts are often the core account for retirement savings. Contributions are typically tax-deductible, which means made with pre-tax assets. This provides a tax benefit in the current year by lowering taxable income. IRA’s are not taxed on investment growth annually. Taxation on this account occurs at the time of withdrawal. At which time in retirement, the individual will be at a lower marginal tax rate.

401k

401ks are offered through an employer. While there are important differences and similarities between IRAs and 401k accounts, the big benefit of a 401k is that your employer can also make contributions, helping you build up your retirement savings quicker.

Roth IRA

Contributions into a Roth IRA are made with after-tax dollars. Therefore, they are not tax-deductible like a Traditional IRA. Withdrawals, however, are tax-free after five years (and other important age conditions are met), which can potentially have a dramatically positive impact on the plan. As of 2020, individuals can contribute up to an annual maximum of $6,000 if you are age 49 and under, and $7,000 if you are age 50 and above.

529 Savings Plan

If saving for post-secondary education, a 529 Savings Plan is a popular option. 529 plans are sponsored by states, not the federal government. You do not have to live in the state that sponsors the plan you choose, nor does your child have to go to school in that state. What set 529 plans apart from others is that contributions grow tax-free if they are used for college.

Non-qualified accounts

Cash Account (for investments)

The most important non-qualified account type to know about is the cash account. Unlike qualified plans, a cash account does not have tax advantages, but there are also fewer restrictions. The big benefit to cash accounts is the liquidity. You can pull money out of your account at anytime without a tax penalty. However, there may be short-term and long-term capital gains taxes to consider.

A general rule of thumb is to maximize, if appropriate to your situation, qualified plans in order to take advantage of the tax benefits, before making significant investments into a cash account.

Do you think you can benefit from one of these account types? Contact me for a consultation!

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Retirement Planning Options – 401k or IRA – Which is Best?

jim 401k, Financial advisor, financial plan, Financial Planning, Investing Strategy, investment strategy, qualified account, qualified plan, retirement, Retirement Planning, Roth IRA, tax savings, Traditional IRA April 9, 2020April 9, 2020401K, retirement, retirement accounts, retirement planning, retirement plans, traditional IRA

Amid the recent market turmoil, lots of questions have risen around the best ways to save money for retirement. There are multiple retirement planning options for the individual saver. Now is a great time to re-evaluate your plan and strategy moving forward. Below I have highlighted a few of the basic accounts for retirement savings.

Similarities and Differences

The following discusses two popular retirement accounts, the 401k and the Traditional IRA. 401k’s and Traditional IRA’s are great accounts to save money for retirement. Both are similar in that the accounts grow on a tax deferred basis. Meaning once contributions are made into the account, growth and capital gains are not taxed. Another similarity is the taxation on withdrawals. When it is time to withdraw the money from the accounts, all the money taken out is taxed at ordinary income rates.

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Differences between the accounts include contribution levels. With a 401k, in 2020, an individual under the age of 50 can contribute up to $19,500. With a Traditional IRA, the max contribution amount for savers under the age of 50 is $6,000. Another difference is that with a 401k, all the contributions are eligible for a tax deduction.

With a Traditional IRA, depending on your income, you may not qualify for the deduction. The “catch-up” provision allows for savers over the age of 50 to contribute more to their accounts. In 2020, the catch-up for 401k accounts is $6,500 and $1,000 for Traditional IRA’s. The deduction amount for a Traditional IRA depends on whether you already have an employer sponsored plan, your income level, and tax filing status. So be sure to discuss available options in detail with your tax and financial professional.

Another IRA option is a Roth IRA. The Roth IRA provides tax free growth in the account, as well as, tax free withdrawals after the account owner is 59 1/2. The contribution levels are the same as the Traditional IRA, however, income levels for making contributions are much lower. For example, a “single” tax filing status in 2020, the modified adjusted gross income must be below $124,000.

Pro’s and Con’s

The pro’s of owning a 401k are the big annual contribution limits, along with the tax deduction on your contributions and tax deferred growth. The downside of a 401k account is the limited investment choices within the employer plan. Also, the entire amount of withdrawals will be taxable. The pro’s of a Traditional IRA is that you may qualify for a deduction of contributions, tax deferred growth, and the investment options are fairly wide open to most investment choices in the marketplaces within the IRS guidelines.

The downsides of Traditional IRA’s include the small contribution amount and that all withdrawals are taxable. Another downside for both 401k plans and Traditional IRA’s is that they fall under the Required Minimum Distribution guidelines of the IRS. The RMD rules require money in these accounts to be withdrawn once the account owner turns 72 years old. Without a hardship, both accounts incur a penalty tax when withdrawals are made before age 59 1/2.

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The Roth Option

The Roth IRA option provides the biggest advantage at the withdrawal phase. Money withdrawn is tax free after age 59 1/2. The downside to the Roth IRA is that there is no tax advantage with contributions. All the contributions made with after tax dollars. Another advantage to the Roth IRA is that Required Minimum Distributions do not apply. Therefore, the IRS does not force the account owner to withdraw funds at anytime.

When it comes to Retirement Planning, there are good options for individuals. I hope you learned something from this post. If you still have a question, connect with us here. Call today if you need help, want to discuss options further, or want to review your current plan alongside your goals.

Click here if you would like to learn more about your options and if we can assist you with your wealth management, investment, and retirement planning.