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The Top Financial Mistakes that are Easy to Avoid

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Jill Ciccarelli Rapps | Life in Naples Magazine | May • June • July 2016

Being satisfied and successful in life means a lot of different things to different people, and what it means to you should be the focal point when setting goals for yourself. Money matters often rank at the top on people’s list of things to focus on.  While you likely have some clear financial goals in place, achieving your goals isn’t just about taking the right steps – it’s about avoiding the wrong ones.

 

Knowing The Big Mistakes

Many people end up making major financial mistakes without even realizing it. If you want to reach your financial goals, several things are worth keeping in mind. Here are the top financial mistakes you should avoid:

  • Managing your Credit Score– Your credit score has a huge impact on your financial health! Having too many credit cards or credit open can damage your score, and is difficult to keep track of.  Not only should you avoid having too many cards, but you need to be cautious about the cards you get. For example, in-store, high interest cards will likely do more damage than good for your finances.  Pull your credit report at least once each year (free at myfloridacredit.com) to make sure it is accurate.
  • Failure to Budget – Sure, a budget can seem like a pain in the neck and something that you can do without. But the reality is that setting up even the most basic budget can tremendously impact your finances. Take a moment to list your income and expenses, and then determine how much money you actually have to spend above those expenses. If you ignore a budget, your finances will suffer.
  • Failure to Communicate – This especially applies to couples who plan on getting married. Failure to talk about financial goals before you get married could lead to significant problems in the future. A financial advisor can facilitate this conversation, and help you decide if any planning should be accomplished before your wedding day.
  • Minimal Investment in Insurance – Insurance can seem like an expense that you can avoid, especially when you’re younger. But one major illness or injury, or a death, and you could find yourself facing a huge bill. Protecting yourself from the “what if’s” in life will help you and your family feel more comfortable.
  • Minimal Investment in Retirement – It’s easy to overlook long-term planning when it comes to your finances. But saving a little extra today leads to bigger and better retirement levels in the future. Failure to invest in your retirement plan is a major mistake to avoid.
  • Overspending – It’s easy to spend money, especially when you feel financially secure. Americans tend to be over-spenders. Perhaps this is because we have so many choices for how to spend our money! Smart spending is an important outlook to have; thinking not only about today, but also what your spending could mean in the future.
  • Assume Things Will Never Change – Let’s face facts here: the future is uncertain, no matter how much you wish the opposite to be true. While you might currently have a stable job, good career trajectory, and fairly low bills, the reality is that things can change. Instead of moving through your life assuming that everything will remain how it is, you should plan for rough waters ahead. Failure to do so can place you in a serious bind. Thoroughly enjoy the great moments in your life; however, when things get rough, be prepared for the change. Keep a positive outlook, knowing that the rough times shall also pass.

 

The key financial mistakes people make today are related to either unwise spending or just poor planning overall. If you avoid these mistakes, you can take major steps towards ensuring a better, more stable financial future.

To help you feel more comfortable about your financial future, contact Ciccarelli Advisory Services today. We will provide you with guidance to achieve your goals.

 

United Way Day of Caring

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In the spirit of our commitment to serve the Rochester community, four members of the Ciccarelli Advisory Services family participated in the annual United Way Day of Caring.

For the third consecutive year, our team assisted Heritage Christian Services with landscaping and yard clean-up at a residential home for people with developmental disabilities.

This year’s participants were (from left to right) Carol Girvin, Carrie Reeves-Hillyard, Mia Kellman and Jordan Ramsay. Carol’s grandsons, Corbin and Mitchell, also assisted in our community service initiative.

“It always feels good to help people in a smaller, personal setting – to be in their home and know that you’re doing something they will appreciate for a long time,” Carrie said. “We all walked away from the experience feeling great about what we accomplished.”

“Seeing us working togther as a team and helping the residents on such a beautiful day…it was perfect!” Mia added.

After the clean-up, our volunteers and one of the residents enjoyed a delicious lunch that was graciously provided by Lucy, the home manager.

At the request of the home, we will lend a helping hand again in the fall!

To learn more about Heritage Christian Services and the services they provide for the Rochester community, visit www.HeritageChristianServices.org

Teaching Your Children and Grandchildren about Money

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Ask your five-year old where money comes from, and the answer you’ll probably get is “From a machine!” Even though children don’t always understand where money really comes from, they realize at a young age that they can use it to buy the things they want.

So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely. The simple lessons you teach today will give your child a solid foundation for making a lifetime of financial decisions.

 

Lesson 1: Learning to handle an allowance

An allowance is often a child’s first brush with financial independence. With allowance money in hand, your child can begin saving and budgeting for the things he or she wants. It’s up to you to decide how much to give your child based on your values and family budget, but a rule of thumb used by many parents is to give a child 50 cents or 1 dollar for every year of age.

To come up with the right amount, you might also want to consider what your child will need to pay for out of his or her allowance, and how much of it will go into savings. Some parents ask their child to earn an allowance by doing chores around the house, while others give their child an allowance with no strings attached. If you’re not sure which approach is better, you might want to compromise. Pay your child a small allowance, and then give him or her the chance to earn extra money by doing chores that fall outside of his or her normal household responsibilities.

If you decide to give your child an allowance, here are some things to keep in mind:

  • Set some parameters. Sit down and talk to your child about the types of purchases you expect him or her to make, and how much of the allowance should go towards savings.
  • Stick to a regular schedule. Give your child the same amount of money on the same day each week.
  • Consider giving an allowance “raise” to reward your child for handling his or her allowance well.

 

Lesson 2: Opening a bank account

Taking your child to your local bank or credit union to open an account (or opening an account online) is a simple way to introduce the concept of saving money. Your child will learn how savings accounts work, and will soon enjoy making deposits.

Many banks and credit unions have programs that provide activities and incentives designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:

  • Help your child understand how interest compounds by showing him or her how much “free money” has been earned on deposits.
  • Offer to match whatever your child saves towards a long-term goal.
  • Let your child take a few dollars out of the account occasionally. Young children who see money going into the account but never coming out may quickly lose interest in saving.

 

Lesson 3: Setting and saving for financial goals

When your children get money from relatives, you want them to save it for college, but they’d rather spend it now. Let’s face it: children don’t always see the value of putting money away for the future. So how can you get your child excited about setting and saving for financial goals? Here are a few ideas:

  • Let your child set his or her own goals (within reason). This will give your child some incentive to save.
  • Encourage your child to divide his or her money up. For instance, your child might want to save some of it towards a long-term goal, share some of it with a charity, and spend some of it right away.
  • Write down each goal, and the amount that must be saved each day, week, or month to reach it. This will help your child learn the difference between short-term and long-term goals.
  • Tape a picture of an item your child wants to a goal chart, bank, or jar. This helps a young child make the connection between setting a goal and saving for it.

Finally, don’t expect a young child to set long-term goals. Young children may lose interest in goals that take longer than a week or two to reach. And if your child fails to reach a goal, chalk it up to experience. Over time, your child will learn to become a more disciplined saver.

 

Lesson 4: Becoming a smart consumer

Commercials. Peer pressure. The mall. Children are constantly tempted to spend money but aren’t born with the ability to spend it wisely. Your child needs guidance from you to make good buying decisions. Here are a few things you can do to help your child become a smart consumer:

  • Set aside one day a month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying something on impulse.
  • Just say no. You can teach your child to think carefully about purchases by explaining that you will not buy him or her something every time you go shopping. Instead, suggest that your child try items out in the store, then put them on a birthday or holiday wish list.
  • Show your child how to compare items based on price and quality. For instance, when you go grocery shopping, teach him or her to find the prices on the items or on the shelves, and explain why you’re choosing to buy one brand rather than another.
  • Let your child make mistakes. If the toy your child insists on buying breaks, or turns out to be less fun than it looked on the commercials, eventually your child will learn to make good choices even when you’re not there to give advice.

 

This message may contain confidential information and is intended for use only by the addressee(s) named on this transmission.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

The ABCs of 529 Plan

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If you’re already saving for college, you’ve probably heard about 529 plans. 529 plans are revolutionizing the way parents and grandparents save for college, similar to the way 401(k) plans revolutionized retirement savings. Americans are pouring billions of dollars into 529 plans, and contributions are expected to increase dramatically in the coming decade. Where did these plans come from, and what makes them so attractive?

 

The history of 529 plans

Congress created Section 529 plans in 1996 in a piece of legislation that had little to do with saving for college–the Small Business Job Protection Act. The law on 529 plans was later refined in 1997 by the Taxpayer Relief Act, in 2001 by the Economic Growth and Tax Relief Reconciliation Act, and in 2006 by the Pension Protection Act.

In this short period, 529 plans have emerged as one of the top ways to save for college. Section 529 plans are officially known as qualified tuition programs under federal law. The reason “529 plan” is commonly used is because 529 is the section of the Internal Revenue Code that governs their operation.

 

What exactly is a 529 plan?

A 529 plan is a college savings vehicle that has federal tax advantages. There are two types of 529 plans: college savings plans and prepaid tuition plans. Though college savings plans and prepaid tuition plans share the same federal tax advantages, there are important differences between them.

 

College savings plans

College savings plans let you save money for college in an individual investment account. These plans are run by the states, which typically designate an experienced financial institution to manage their plan. To open an account, you fill out an application, choose a beneficiary, and start contributing money.

However, you can’t hand pick your own investments as you would with a Coverdell ESA, custodial account, or trust. Instead, you typically choose one or more portfolios offered by the plan–the underlying investments of which are exclusively chosen and managed by the plan’s professional money manager. After this, you simply decide when, and how much, to contribute.

With early college savings plans, plan managers commonly invested your money based only on the age of your beneficiary (known as an age-based portfolio). Under this model, when a child is young, most of the portfolio’s assets are allocated to aggressive investments. Then, as a child grows, the portfolio’s assets are gradually and automatically shifted to less volatile investments to preserve principal. The idea is to take advantage of the stock market’s potential for high returns when a child is still many years away from college, while recognizing the need to lessen the risk of these investments in later years.

Though the age-based portfolio model is certainly logical (indeed, many parents were already trying to invest this way on their own), offering only this type of portfolio made college savings plans seem a bit inflexible. After all, with other college savings options like Coverdell ESAs, custodial accounts, mutual funds, and trusts, you can invest in practically anything (thereby taking into account your risk tolerance), and you have complete freedom to sell an investment that’s performing poorly (though in some cases the proceeds must still be used for education purposes, or for the child’s benefit in general).

Now, college savings plans are older and wiser. Today, more plans offer a wide array of portfolio choices. So, in addition to choosing an age-based portfolio, you may also be able to direct your 529 plan contributions to one or more “static portfolios,” where the asset allocation in each portfolio remains the same over time. These static portfolios usually range from aggressive to conservative, so you can match your risk tolerance. But keep in mind that college savings plans don’t guarantee your return. If the portfolio doesn’t perform as well as you expected, you may lose money.

When it’s time for college, the beneficiary of your account can use the funds at any college in this country and abroad (as long as the school is accredited by the U.S. Department of Education).

 

Prepaid tuition plans

Prepaid tuition plans let you save money for college, too. But prepaid tuition plans work differently than college savings plans.

Prepaid tuition plans may be sponsored by states (on behalf of public colleges) or by private colleges. A prepaid tuition plan lets you prepay tuition expenses now for use in the future. The plan’s money manager pools your contributions with those from other investors into one general fund. The fund assets are then invested to meet the plan’s future obligations (some plans may guarantee you a minimum rate of return). At a minimum, the plan hopes to earn an annual return at least equal to the annual rate of college inflation for the most expensive college in the plan.

The most common type of prepaid tuition plan is a contract plan. With a contract plan, in exchange for your up-front cash payment (or series of payments), the plan promises to cover a predetermined amount of future tuition expenses at a particular college in the plan. For example, if your up-front cash payment buys you three years’ worth of tuition expenses at College ABC today, the plan might promise to cover two and a half years of tuition expenses in the future when your beneficiary goes to college. Plans have different criteria for determining how much they’ll pay out in the future. And if your beneficiary attends a school that isn’t in the prepaid plan, you’ll typically receive a lesser amount according to a predetermined formula.

The other type of prepaid tuition plan is a unit plan. Here, you purchase units or credits that represent a percentage (typically 1 percent) of the average yearly tuition costs at the plan’s participating colleges. Instead of having a predetermined value, these units or credits fluctuate in value each year according to the average tuition increases for that year. You then redeem your units or credits in the future to pay tuition costs; many plans also let you use them for room and board, books, and other supplies.

A final note to keep in mind: Make sure you understand what will happen if a plan’s investment returns can’t keep pace with tuition increases at the colleges participating in the plan. Will your tuition guarantee be in jeopardy? Will your future purchases be limited or more expensive?

 

What’s so special about 529 plans?

Section 529 plans–both college savings plans and prepaid tuition plans–offer a combination of features that have made them attractive to college investors:

  • Federal and state tax-deferred growth: The money you contribute to a 529 plan grows tax deferred each year.
  • Federal tax-free earnings if the money is used for college: If you withdraw money to pay for college (known under federal law as a qualified withdrawal), the earnings are not subject to federal income tax, similar to the treatment of Coverdell ESA earnings.
  • Favorable federal gift tax treatment: Contributions to a 529 plan are considered completed, present-interest gifts for gift tax purposes. This means that contributions qualify for the $14,000 annual gift tax exclusion. And with a special election, you can contribute a lump sum of $70,000 to a 529 plan ($140,000 for joint gifts), treat the gift as if it were made over a five-year period, and completely avoid gift tax.
  • Favorable federal estate tax treatment: Your plan contributions aren’t considered part of your estate for federal tax purposes. You still retain control of the account as the account owner but you don’t pay a federal estate tax on the value of the account. But if you spread today’s gift over five years and you die within the five years, a portion of the gift will be included in your estate.
  • State tax advantages: States can also add their own tax advantages to 529 plans. For example, some states exempt qualified withdrawals from income tax or offer an annual tax deduction for your contributions. A few states even provide matching scholarships or matching contributions.
  • Availability: Section 529 plans are open to anyone, regardless of income level. And you don’t need to be a parent to set up an account. By contrast, your income must be below a certain level if you want to contribute to a Coverdell ESA or qualify for tax-exempt interest on U.S. education savings bonds (Series EE bonds and Series I bonds).
  • High contribution limits: The total amount you can contribute to a 529 plan is generally high. Most plans have limits of $300,000 and up. Coupled with the tax-deferred growth of your principal and the income tax-free treatment of qualified withdrawals, it’s easy to see how valuable your money can be in a 529 plan.
  • Professional money management: For college investors who are too busy, too inexperienced, or too reluctant to choose their own investments, 529 plans offer professional money management.
  • College savings plan variety: In many cases, you’re not limited to the college savings plan in your own state. You can shop around for the plan with the best money manager, performance record, investment options, fees, state tax benefits, and customer service. (You can’t generally shop around with prepaid tuition plans, though.)
  • Rollovers: You can take an existing 529 plan account (college savings plan or prepaid tuition plan) and roll it over to a new 529 plan once every 12 months without paying a penalty. This lets you leave a plan that’s performing poorly and join a plan with a better track record or more investment options (assuming the new plan allows nonresidents to join).
  • Simplicity: It’s relatively easy to open a 529 account, and most plans offer automatic payroll deduction or electronic funds transfer from your bank account to make saving for college even easier.
  • Innovation: Section 529 plans are a creature of federal law, but the states are the ones that interpret and execute them. As Congress periodically revises the law on 529 plans, states will continue to refine and enhance their plans (and their tax laws) in order to make them as attractive as possible to college investors from all over the country.

 

What are the drawbacks of 529 plans?

No college savings option is perfect, and 529 plans aren’t, either. Here are some of the drawbacks:

  • Investment options: 529 plans offer little control over your specific investments. With a college savings plan, you may be able to choose among a variety of investment portfolios when you open your account, but you can’t direct the portfolio’s underlying investments. With a prepaid tuition plan, you don’t pick anything–the plan’s money manager is responsible for investing your contributions.
  • Investment guarantees: College savings plans don’t guarantee your investment return. You can lose some or all of the money you have contributed. And even though prepaid tuition plans typically guarantee your investment return, some plans sometimes announce modifications to the benefits they’ll pay out due to projected actuarial deficits.
  • Investment flexibility: If you’re unhappy with your portfolio’s investment performance in your college savings plan, you typically can direct future contributions to a new portfolio (assuming your plan allows it), but it may be more difficult to redirect your existing contributions. Some plans may allow you to make changes to your existing investment portfolio twice per calendar year or upon a change in the beneficiary.

But in either case, it depends on the rules of the plan. However, you do have one option that’s allowed by federal law and not subject to plan rules. You can do a “same beneficiary” rollover (a rollover without a change of beneficiary) to another 529 plan (a college savings plan or a prepaid tuition plan) once every 12 months, without penalty. This gives you the opportunity to shop around for the investment options you prefer.

  • Nonqualified withdrawals: If you want to use the money in your 529 plan for something other than college, it’ll cost you. With a college savings plan, you’ll pay a 10 percent federal penalty on the earnings part of any withdrawal that is not used for college expenses (a state penalty may also apply). You’ll pay income taxes on the earnings, too. With a prepaid tuition plan, you must either cancel your contract to get a refund or take whatever predetermined amount the plan will give you for a nonqualified withdrawal (some plans may make you forfeit your earnings entirely; others may give you a nominal amount of interest).
  • Fees and expenses: There are typically fees and expenses associated with 529 plans. College savings plans may charge an annual maintenance fee, administrative fees, and an investment fee based on a percentage of your account’s total value. Prepaid tuition plans may charge an enrollment fee and various administrative fees.

 

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in the issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

 

This message may contain confidential information and is intended for use only by the addressee(s) named on this transmission.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

 

Security in the Age of Technology

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In our modern age of technology, cybercrime is on the rise – and attackers are getting more creative in how they attempt to break into your financial accounts.

 

In an effort to protect you and your family from financial breaches and identity theft, we’ve put together an explanation of the most recent trend in cybercrime – credential replay – and how you can protect yourself.

 

Credential replay is a two-step process. First, the online attacker intercepts your log-in credentials when you log into your account on a financial institution’s website. With those credentials, the attacker then attempts to log into your accounts at other financial institutions. Because many account holders use the same credentials across different institutions, the cybercriminals are able to access numerous accounts.

 

Any financial institution is vulnerable to this type of attack, and many overseas hackers are targeting major U.S. companies – banks, brokerage firms, credit card companies, etc.

 

The best method for protecting yourself from credential replay attacks is to use different log-in credentials for each of your financial accounts.  By doing so, cybercriminals will not be able to use credential replay to hack into your accounts.

Need a Lifeline? Phone a Friend at CAS about Your Long-Term Care Policy

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Recently, several insurance providers – MetLife, Genworth, Transamerica, John Hancock and others – have been sending premium increase notices of 60% or more to their policy holders.

If you have a long-term care insurance policy, please contact us before you take action. We would like the opportunity to answer any questions you may have, and to evaluate the options with you.

By carefully assessing the financial interests of your family, we will work with you to determine the best course of action.

Annuities and Retirement Planning

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You may have heard that IRAs and employer-sponsored plans (e.g., 401(k)s) are the best ways to invest for retirement. That’s true for many people, but what if you’ve maxed out your contributions to those accounts and want to save more? An annuity may be a good investment to look into.

 

Get the lay of the land

An annuity is a tax-deferred insurance contract. The details on how it works vary, but here’s the general idea. You invest your money (either a lump sum or a series of contributions) with a life insurance company that sells annuities (the annuity issuer). The period when you are funding the annuity is known as the accumulation phase. In exchange for your investment, the annuity issuer promises to make payments to you or a named beneficiary at some point in the future. The period when you are receiving payments from the annuity is known as the distribution phase.

Chances are, you’ll start receiving payments after you retire. Annuities may be subject to certain charges and expenses, including mortality charges, surrender charges, administrative fees, and other charges.

 

Understand your payout options

Understanding your annuity payout options is very important. Keep in mind that payments are based on the claims-paying ability of the issuer. You want to be sure that the payments you receive will meet your income needs during retirement. Here are some of the most common payout options:

  • You surrender the annuity and receive a lump-sum payment of all of the money you have accumulated.
  • You receive payments from the annuity over a specific number of years, typically between 5 and 20. If you die before this “period certain” is up, your beneficiary will receive the remaining payments.
  • You receive payments from the annuity for your entire lifetime. You can’t outlive the payments (no matter how long you live), but there will typically be no survivor payments after you die.
  • You combine a lifetime annuity with a period certain annuity. This means that you receive payments for the longer of your lifetime or the time period chosen. Again, if you die before the period certain is up, your beneficiary will receive the remaining payments.
  • You elect a joint and survivor annuity so that payments last for the combined life of you and another person, usually your spouse. When one of you dies, the survivor receives payments for the rest of his or her life.

When you surrender the annuity for a lump sum, your tax bill on the investment earnings will be due all in one year. The other options on this list provide you with a guaranteed stream of income (subject to the claims-paying ability of the issuer). They’re known as annuitization options because you’ve elected to spread payments over a period of years.

Part of each payment is a return of your principal investment. The other part is taxable investment earnings. You typically receive payments at regular intervals throughout the year (usually monthly, but sometimes quarterly or yearly). The amount of each payment depends on the amount of your principal investment, the particular type of annuity, your selected payout option, the length of the payout period, and your age if payments are to be made over your lifetime.

 

Consider the pros and cons

An annuity can often be a great addition to your retirement portfolio. Here are some reasons to consider investing in an annuity:

  • Your investment earnings are tax deferred as long as they remain in the annuity. You don’t pay income tax on those earnings until they are paid out to you.
  • An annuity may be free from the claims of your creditors in some states.
  • If you die with an annuity, the annuity’s death benefit will pass to your beneficiary without having to go through probate.
  • Your annuity can be a reliable source of retirement income, and you have some freedom to decide how you’ll receive that income.
  • You don’t have to meet income tests or other criteria to invest in an annuity.
  • You’re not subject to an annual contribution limit, unlike IRAs and employer-sponsored plans. You can contribute as much or as little as you like in any given year.
  • You’re not required to start taking distributions from an annuity at age 70½ (the required minimum distribution age for IRAs and employer-sponsored plans). You can typically postpone payments until you need the income.

But annuities aren’t for everyone. Here are some potential drawbacks:

  • Contributions to nonqualified annuities are made with after-tax dollars and are not tax deductible.
  • Once you’ve elected to annuitize payments, you usually can’t change them, but there are some exceptions.
  • You can take your money from an annuity before you start receiving payments, but your annuity issuer may impose a surrender charge if you withdraw your money within a certain number of years (e.g., seven) after your original investment.
  • You may have to pay other costs when you invest in an annuity (e.g., annual fees, investment management fees, insurance expenses).
  • You may be subject to a 10 percent federal penalty tax (in addition to any regular income tax) if you withdraw earnings from an annuity before age 59½, unless you meet one of the exceptions to this rule.
  • Investment gains are taxed at ordinary income tax rates, not at the lower capital gains rate.

 

Choose the right type of annuity

If you think that an annuity is right for you, your next step is to decide which type of annuity. Overwhelmed by all of the annuity products on the market today? Don’t be. In fact, most annuities fit into a small handful of categories. Your choices basically revolve around two key questions.

First, how soon would you like annuity payments to begin? That probably depends on how close you are to retiring. If you’re near retirement or already retired, an immediate annuity may be your best bet. This type of annuity starts making payments to you shortly after you buy the annuity, typically within a year or less. But what if you’re younger, and retirement is still a long-term goal? Then you’re probably better off with a deferred annuity. As the name suggests, this type of annuity lets you postpone payments until a later time, even if that’s many years down the road.

Second, how would you like your money invested? With a fixed annuity, the annuity issuer determines an interest rate to credit to your investment account. An immediate fixed annuity guarantees a particular rate, and your payment amount never varies. A deferred fixed annuity guarantees your rate for a certain number of years; your rate then fluctuates from year to year as market interest rates change. A variable annuity, whether immediate or deferred, gives you more control and the chance to earn a better rate of return (although with a greater potential for gain comes a greater potential for loss of principal). You select your own investments from the subaccounts that the annuity issuer offers. Your payment amount will vary based on how your investments perform.

Note: 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. Variable annuities contain fees and charges including, but not limited to mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees and charges for optional benefits and riders.

 Variable annuities are sold by prospectus. You should consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity or from your financial professional. You should read the prospectus carefully before you invest.

 

Shop around

It pays to shop around for the right annuity. In fact, doing a little homework could save you hundreds of dollars a year or more. Why? Rates of return and costs can vary widely between different annuities. You’ll also want to shop around for a reputable, financially sound annuity issuer. There are firms that make a business of rating insurance companies based on their financial strength, investment performance, and other factors. Consider checking out these ratings.

 

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Additional securities and investment advisory services offered through FSC Securities Corporation, Member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail N., Naples, FL 34108, 239-262-6577
This message may contain confidential information and is intended for use only by the addressee(s) named on this transmission. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Saving for Retirement

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piggy-bank-621068_1280Although most of us recognize the importance of sound retirement planning, few of us embrace the nitty-gritty work involved. With thousands of investment possibilities, complex rules governing retirement plans, and so on, most people don’t even know where to begin. Here are some suggestions to help you get started.

 

Determine your retirement income needs

Some experts suggest that you need anywhere from 60% to 90% of your current income to enable you to maintain your current standard of living in retirement. But this is only a general guideline. To determine your specific needs, you may want to estimate your annual retirement expenses.

Use your current expenses as a starting point, but note that your expenses may change dramatically by the time you retire. If you’re nearing retirement, the gap between your current expenses and your retirement expenses may be small. If retirement is many years away, the gap may be significant, and projecting your future expenses may be more difficult.

Remember to take inflation into account. The average annual rate of inflation over the past 20 years has been approximately 2.3%. (Source: Calculated from consumer price index (CPI-U) data published by the U.S. Department of Labor in January 2015.) And keep in mind that your annual expenses may fluctuate throughout retirement.

For instance, if you own a home and are paying a mortgage, your expenses will drop if the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses will tell you about how much annual income you’ll need to live comfortably.

 

Calculate the gap

Once you have estimated your retirement income needs, take stock of your estimated future assets and income. These may come from Social Security, a retirement plan at work, a part-time job, and other sources. If estimates show that your future assets and income will fall short of what you need, the rest will have to come from additional personal retirement savings.

 

Figure out how much you’ll need to save

By the time you retire, you’ll need a nest egg that will provide you with enough income to fill the gap left by your other income sources. But exactly how much is enough? The following questions may help you find the answer:

  • At what age do you plan to retire? The younger you retire, the longer your retirement will be, and the more money you’ll need to carry you through it.
  • What kind of lifestyle do you hope to maintain during your retirement years?
  • What is your life expectancy? The longer you live, the more years of retirement you’ll have to fund.
  • What rate of growth can you expect from your savings now and during retirement? Be conservative when projecting rates of return.
  • Do you expect to dip into your principal? If so, you may deplete your savings faster than if you just live off investment earnings. Build in a cushion to guard against these risks.

 

Build your retirement fund: Save, save, save

When you know roughly how much money you’ll need, your next goal is to save that amount. First, you’ll have to map out a savings plan that works for you. Assume a conservative rate of return (which will depend on your risk tolerance), and then determine approximately how much you’ll need to save every year between now and your retirement to reach your goal.

The next step is to put your savings plan into action. It’s never too early to get started (ideally, begin saving in your 20s). To the extent possible, you may want to arrange to have certain amounts taken directly from your paycheck and automatically invested in accounts of your choice (e.g., 401(k) plans, payroll deduction savings). This arrangement reduces the risk of impulsive or unwise spending that will threaten your savings plan. If possible, save more than you think you’ll need to provide a cushion.

 

Use the right savings tools

Employer-sponsored retirement plans like 401(k)s and 403(b)s are powerful savings tools. Your contributions come out of your salary as pretax contributions (reducing your current taxable income) and any investment earnings grow tax deferred until withdrawn. Some 401(k), 403(b), and 457(b) plans also allow employees to make after-tax “Roth” contributions. There’s no up-front tax advantage, but qualified distributions are entirely free from federal income taxes. In addition, employer-sponsored plans often offer matching contributions, and may be your best option when it comes to saving for retirement.

IRAs also feature tax-deferred growth of earnings. If you are eligible, traditional IRAs may enable you to lower your current taxable income through deductible contributions. Withdrawals, however, are taxable as ordinary income (except to the extent you’ve made nondeductible contributions).

Roth IRAs don’t permit tax-deductible contributions but allow you to make completely tax-free withdrawals under certain conditions. With both types, you can typically choose from a wide range of investments to fund your IRA.

Annuities are generally funded with after-tax dollars, but their earnings grow tax deferred (you pay tax on the portion of distributions that represents earnings). There is also no annual limit on contributions to an annuity. However, withdrawals may be subject to surrender charges.

Note: Taxable distributions from retirement plans, IRAs, and annuities prior to age 59½ may be subject to an additional 10% penalty tax unless an exception applies.

 

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Additional securities and investment advisory services offered through FSC Securities Corporation, Member FINRA / SIPC and a registered investment adviser. 9601 Tamiami Trail N., Naples, FL 34108, 239-262-6577
This message may contain confidential information and is intended for use only by the addressee(s) named on this transmission. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Women and Retirement

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Women face special challenges when planning for retirement. Because their careers are often interrupted to care for children or elderly parents, women may spend less time in the workforce and earn less money than men in the same age group. As a result, their retirement plan balances, Social Security benefits, and pension benefits are often lower. In addition to earning less, women generally live longer than men, and they may face having to stretch limited retirement savings and benefits over many years.

To meet these financial challenges, you’ll need to make retirement planning a priority.

 

Begin saving now

To help improve your chances of achieving a financially comfortable retirement, start with a realistic assessment of how much you’ll need to save. If the figure is substantial, don’t be discouraged–the most important thing is to begin saving now. Although it’s never too late to save for retirement, the sooner you start, the more time your investments have to potentially grow.

The chart below shows how just $2,000 invested annually at a 6% rate of return might grow over time:

retirement_table

Note: This is a hypothetical example, and does not reflect the performance of any specific investment.

Save as much as you can–you have many options

If your employer offers a retirement savings plan, such as a 401(k) or a 403(b), join it as soon as possible and contribute as much as you can. It’s easy to save because your contributions are deducted directly from your pay, and some employers will even match a portion of what you contribute. If your employer offers a pension plan, find out how many years you’ll need to work for the company before you’re vested in, or own, your pension benefits.

Women struggling to balance work and family sometimes shortchange their retirement savings by leaving their jobs before they become vested in their pension benefits. Keep in mind, too, that because your pension benefits will be based on your earnings and on your years of service, the longer you stay with one employer, the higher your pension is likely to be.

Most employer-sponsored plans allow you to choose from several investment options (typically mutual funds). If you have many years to invest or you’re trying to make up for lost time, you may want to consider growth-oriented investments such as stocks and stock funds. Historically, stocks have outperformed bonds and short-term instruments over the long term, although past performance is no guarantee of future results. However, along with potentially higher returns, stocks carry more risk than less volatile investments.

A good way to get detailed information about a mutual fund you’re considering is to read the fund’s prospectus, which can be obtained from the fund company. It includes information about the fund’s objectives, expenses, risks, and past returns. A financial professional can also help you evaluate your retirement plan options.

 

Save for retirement–no matter what

Even if you’re staying at home to raise your family, you can–and should–continue to save for retirement. If you’re married and file your income taxes jointly, and otherwise qualify, you may open and contribute to a traditional or Roth IRA as long as your spouse has enough earned income to cover the contributions. Both types of IRAs allow you to make contributions of up to $5,500 in 2016 (unchanged from 2015), or, if less, 100% of taxable compensation. If you’re age 50 or older, you’re allowed to contribute even more—up to $6,500 in 2016 (unchanged from 2015).

 

Plan for income in retirement

Do you worry about outliving your retirement income? Unfortunately, that’s a realistic concern for many women. At age 65, women can expect to live, on average, an additional 20.5 years. In addition, many women will live into their 90s. This means that women should generally plan for a long retirement that will last at least 20 to 30 years.

Women should also consider the possibility of spending some of those years alone. According to recent statistics, 35% of older women are widowed, 14% are divorced, and almost half of all women age 75 and older live alone. For married women, the loss of a spouse can mean a significant decrease in retirement income from Social Security or pensions.

So what can you do to help ensure you’ll have enough income to last throughout retirement? Here are some tips:

  • Estimate how much income you’ll need. Use your current expenses as a starting point, but note that your expenses may change by the time you retire.
  • Find out how much you can expect to receive from Social Security, pension plans, and other sources. What benefits will you receive should you become widowed or divorced?
  • Set a retirement savings goal that you can work toward, and keep track of your progress.
  • Save regularly, save as much as you can, and then look for ways to save more–dedicate a portion of every raise, bonus, cash gift, or tax refund to your retirement savings.
  • Consider how you can help protect yourself and your family from potentially substantial long-term care expenses. By planning ahead, you could help preserve your choices for care and may avoid becoming a burden on your family.

 

What’s your excuse for not planning for retirement?

I’m too busy to plan

Perhaps you’re so wrapped up in balancing your responsibilities that you haven’t given retirement planning much thought. That’s understandable, but if you don’t put retirement planning at the top of your to-do list, you risk shortchanging yourself later on. Staying focused on your goal of saving for a comfortable retirement is difficult, but if you put yourself first it could pay off in the end.

My husband takes care of our finances

Married or not, it’s critical for women to take an active role in planning for retirement. Otherwise, you may be forced to make important financial decisions quickly during a period of crisis. Unfortunately, decisions that are not well thought through often prove costly later. Preparing for retirement with your spouse could help ensure that you’re both provided for, and pave the way to a comfortable retirement.

I’ll save more once my children are through college

Many well-intentioned parents put their own retirement savings on hold while they save for their children’s college education. But if you do so, you’re potentially sacrificing your own financial well-being. Your children have many options when it comes to financing college–loans, grants, and scholarships, for example–but there’s no such thing as a retirement loan! Why not set a good example for your children by getting your own finances in order before contributing to their college fund?

I don’t know enough about investing

Commit to spending just a few minutes a day learning the basics of investing, to help you become knowledgeable. And remember, you don’t have to do it by yourself–a financial professional will be happy to work with you to set retirement goals and help you choose appropriate investments.

 

Sources: NCHS Data Brief, Number 178, December 2014; U.S. Department of Health and Human Services Administration on Aging, A Profile of Older Americans: 2014; United States Census, 2012 Survey of Business Owners (most current data available)
This message may contain confidential information and is intended for use only by the addressee(s) named on this transmission. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Taming the Untamed: Ideas for Organizing your Financial Affairs

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Jill Ciccarelli Rapps  |  Life in Naples Magazine  |  April 2016

Thanks to modern technology, it’s more possible now than ever before to get control of your finances and move your current situation towards a better, more stable future. But while there are plenty of tools and resources that can help with this, the fact remains that the wide range of access to financial tools and technologies can often create a situation wherein your overall financial stability is a bit of a jungle.

 

Easy Tips To Remember

Taming the wilds of your finances isn’t impossible and if you’ll remember a few basic tips, you can get the upper hand and master your financial situation no matter how wild and untamed it might seem. Here are a few of the key tips to keep in mind that can help with this.

  • Consolidate Passwords – Start by getting control of your passwords. Experts agree that having the same password for every account isn’t a good idea, and changing your passwords every so often can also help.  Today there are many programs that will keep track and create passwords for you; you only need one password to open it and it will automatically fill in your passwords for your web sites.  Now you only have one password that your family or durable power of attorney needs to know to access your password list.
  • Consider Auto Bill Pay – Even more convenient is the ability to set up your bills so that they’re automatically deducted from your account. This lets you avoid the issue of forgetting a specific bill, can make traveling much easier, and can be a good option if you are not fully capable of managing your money effectively. Just be sure you keep a list for your heirs of what bills are on auto pay (monthly, quarterly or annually) and review your statements regularly to be sure there are no signs of identity theft on your accounts.
  • Check Your Credit Score – Knowing what your credit score is and taking advantage of pulling your free once a year credit report can be a great window into your finances. This will help you see if you need to modify credit to increase your score or if there are any signs of someone stealing your identity.   With the advancement of identity theft, this is a must!
  • Know your Spending Budget – Clearly document what prosperity looks like for you and then align your spending habits to support your most important goals. Know where your money is going and take control of your financial destiny.  This will help you to make future financial decisions quicker and more wisely. 
  • Consolidate Accounts and Simplify – If you have too many bank, investment or credit card accounts, it can not only cost you big but be a challenge to manage as well.  Look at what you really need, see if any accounts can be consolidated, and reduce the number of credit cards you use.  This can save you money while also helping save you time when managing your finances.
  • Use One Place for all your Important Documents – Most people have documents in their files, safe deposit boxes and maybe even “the cloud”. Here’s a test, if someone had to step up on your behalf, could they in one hour understand where everything is located and what your current financial situation is?  If not, it’s time to review your files, take out your important documents and set up a secure place to keep them.  Give the location and password if applicable to your durable power of attorney or your family members.
  • Go Paperless – The clutter of paper bills is tremendous. By simply signing up for paperless billing from most of your accounts you can reduce the hassle of trying to keep up with all those stacks of papers. Not to mention you can save a lot of trees!

 

Controlling Your Finances for a Better Future

The key to better financial health starts with just being more organized and mindful of your finances. The tips above can make it easier to do just that and to move yourself towards a much healthier and more organized life in terms of your financial state. To obtain assistance with the process and to learn more about how we can help, contact Ciccarelli Advisory Services, Inc. today.

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